Jason Hartman Foundation

Cooking won't kill you

Entering the work force after college is a great time to develop good budgetary habits. In the beginning, you may not be able to control how much you earn but you sure as heck can get a grip on how much you spend. The following items are a sequel to the recent list of ways to stop the money hemorrhage. Yes, you will probably shriek and curl up in a ball on the floor when first contemplating these changes but give it a change to bounce around in your cranium.

1. Kill the Friday afternoon/evening Happy Hour. In case you haven’t noticed, even the cheap drinks are expensive, especially if you end up with a DUI on the way home. Why not limit yourself to one drink, gather at a friend’s house, or give it up completely and spend the extra money on a gym membership instead?

2. Speaking of gym memberships, if you haven’t noticed, March attendance is but a shadow of January. Don’t fall for the high-pressure, multi-year sales pitch. If there’s even a smidgin of a chance you’re going to bail on workouts, opt for the month-to-month plan instead.

3. Tony Stewart driving habits. Jack rabbit starts, slamming stops, and speeding can decrease your gas mileage by 30%. Try the speed limit in town and 60 mph on the highway. Sure, everyone will hate you for the slowpoke that you are but drop that extra moolah in a savings account instead. Take that, speed bunnies!

4. Shoes. How much footwear does one human being need? Probably less than you might think.

Put one or all of these suggestions into practice and you’re going to be light years ahead, financially speaking, of your boozing, speeding, shoe abusing, lazy compadres.

The Young Wealth Team

Is Bill Gates financially successful? Uh, yeah Captain Obvious, most people would give an unqualified “Yes!” answer to that statement. But do you have to have access to billions of dollars to qualify as financially successful? Maybe. The truth is every person is going to have to answer that question for themselves.

To some, only a Bill Gates type fortune is acceptable. For others, we can lower the bar a bit and phrase it something like:

“A comfortable feeling that your financial resources will be adequate to fulfill any needs you have as well as most of your wants.”

Are you looking to have a nest egg saved and invested and absence of debt? More? Less? Whatever the ultimate answer is, only YOU can define it. The Jason Hartman Foundation believes you need to have some idea of where you’re going before you start off. If you’re just finishing school or find yourself in the early stages of real-worldism, take a moment and think about what financial success means to you. Seriously. Get a cool beverage, an adult beverage if you must and are of legal age in your state, then sit down and think about it.

One thing we can say with almost complete certainty. If you haven’t taken the time to define financial success, how the bloody heck are you ever going to know when you get there?

Just our opinion.

The Young Wealth Team

We recently discussed the large bite that dining out can take from your budget but it doesn’t stop there. Oh no, not even close. Take a look at the following budget busters and think about changing them too.

1. Smoking: Coffin nails cost the serious smoker about $1,600 yearly. Not to mention turning your lungs the consistency of the track at Daytona after a long day of racing. If you want to ever be taken seriously as a thinking human being, give up this habit.

2. Drop the pop: We talked about this one already. Daily liquid sugar overdoses are about as good for your immune system as smoking is for your lungs. Have you noticed how expensive pop drinks are at your favorite fast food franchise?

3. Lattes: This fancy caffeine injections costs about $4. Is this a good business decision for the young wealth builder? We say no.

4. Turn off electronics: Ignore the computer geeks. It saves noticeable money to switch off the gadgets before going to bed or when you’re gone. Opt for energy star models when you can.

5. Television: Do you really watch all those extra channels in the nose bleed subscription and, if so, should you? Go with the basic package or, better yet, none at all. Crack a book and find some real entertainment. Seriously, you won’t die if the television is off.

That’s probably about all the budget busting a person can be expected to handle in one sitting but we’re not done yet. Come back tomorrow, if you dare, for five more habits that are killing your budget.

The Young Wealth Team

Maybe you think the idea of leverage, when it comes to investing, is sort of boring and the kind of thing only old guys in suits worry about. We’re here to tell you, if you ever want to be rich beyond your wildest dreams of avarice, you better understand leverage.

In case you have Attention Deficit Disorder, are busy cramming for finals, or simply partied too much last night, here’s the short version. Stick it in your brain somewhere where you can get at it in the coming years.

In this example, we’re going to pretend like two surfer dude friends, Bill and Ted, have $10,000 to invest. Bill’s been drinking the Wall Street Kool-Aid and puts his money into an S&P Index fund. Ten years later, his nest egg has grown to $17,000. Nice but not too impressive. That’s less than 10% a year. Where we come from, that’s small potatoes and certainly not going to make you wealthy.

Ted, advanced leverage expert that he is, uses his $10,000 to put 10% down on a house and property worth $100,000. Even in the terrible California market, ten years later his property is worth $159,000. He’s only been making interest payments, which were covered by rent collected from tenants. Ted sells the house, pays off the $90,000 loan, which leaves him with $69,000. Subtract the original $10,000 he used to get started and he’s got a cool $59,000 for his efforts.

Compare Ted’s $59k profit to Bill’s anemic $7k. That, boys and girls, is what leverage is all about.

The Young Wealth Team

Are you dining out as much as you used to? New workers still in the process of trudging up the pay scale may find there’s simply not enough money in the paycheck to grab a sit down meal at their favorite restaurant as often as they used to.

It’s no crime. Just reality. Cheap comfort foods are in (Spam, Kraft Macaroni & Cheese) and expensive restaurants are out. The driving forces behind this new deal in American society are higher food prices and the recession. According to the Chicago Tribune, white flour and dried beans are hot sellers as more people cook at home.

Recession or not, scaling back your “eating out” fund is a great way to save money for investing. Do you seriously need to eat out twice a day every single day? Have you ever sat down and done the math about how much it costs? Try trimming yourself back to a single daily convenience store Mega Gulp. Even better, buy drinks from the grocery store and pack them with you to work.

Here’s a simple example. Two drinks per day at $1.50 each add up to nearly $100 a month or $1,200 a year. By cutting your consumption in half, you can add $600 every year to your investment fund and improve your health at the same time.

What a deal!

Now stop thinking about it and do it.

The Young Wealth Team

Now we get to the good part. Here’s what you can control about your financial success. Believe us, when used correctly, the information here is way stronger than the stuff you can’t control. Here’s a quick rundown.

1. Interest – Surprise! We included this in both sections. While you can’t control the interest rate, you can control whether you pay it or not. You can also take extra care to develop a great credit score from the very beginning so you don’t get stuck paying outrageous rates just to get a real estate loan. In fact, with a good enough credit score, banks will be begging you to borrow from them.

2. Time – We can’t repeat this enough. Start early and invest often. Even if you don’t have the knowledge to implement a sophisticated investment strategy right out of school (chances are you won’t), you will be light years ahead of others who wait until they are 30, 40, or older before getting serious about it. The leverage you gain by an early start could put you well on your way to millionaire status even if nothing extraordinary happens.

3. Education – We all can recite stories of high school or college dropouts who amassed incredible fortunes. Yes, it can happen. Odds are, it won’t. All the studies show that higher education means higher income. If you have completed or are working toward a degree right now, good job! It should pay off big time.

4. Career – Self explanatory. Don’t wait until you’re a senior to start thinking about this. Get busy as a sophomore or junior networking and attending informational interviews. Figure out what you want to do and go get it!

5. Benefits – This can be as important as salary, especially in this day and age of the incredible dwindling benefit package. Things like medical insurance, personal leave, sick leave, vacation leave, marital counseling, legal services. If you don’t have it as a benefit, you’ll be paying it out of your income and your salary will go down accordingly.

All this stuff is under your control. Choose wisely.

The Young Wealth Team

You are a statistic to the auto insurance companies. They don’t care that you can salsa better than anyone on your block, or how many old ladies you helped across the street. The entirety of your life experience will be reduced to statistics that will determine how much you pay for car insurance.

You are going to get car insurance, right? Don’t be the uninsured motorist goober who messes up the system for everyone else. To the insurer you are a “set of risks” that will determine the premium you’ll pay if they decide to insure you at all. Yep, sometimes they turn people down as being too high of a risk.

Shop around. There can be a great deal of price difference between insurers, even for basically the same coverage. It’s easy to comparison shop online to narrow down choices, then call around to nail down details. Remember it’s not ALL about price. Pay attention to the insurer’s reputation for claim service and financial stability.

Most states have a minimum level of insurance that drivers are required to carry. You might consider bumping up your coverage. Often the price increase is not too drastic. Increased coverage could actually pay to have your car repaired if you cause an accident. This could be very handy if it is your only means of transportation. Lastly, don’t forget to ask for discounts. Insurers might offer a variety of discounts for safe driving, good grades, and more. You’ll never know if you don’t ask.

The Young Wealth Team

Federal Reserve Building - spooky!

Sorry, but, in case no one ever told you, there are some things related to your eventual financial success you cannot control. At least until you get yourself elected Galactic President for life. Even then, you might have trouble controlling the following factors. Some things are simply too amorphous to yield to dictatorial whims.

But don’t get too bent out of shape. Later we’ll talk about the things you can control. Here’s what you can’t:

1. Business Cycle – The eternal cycle of expansion, recession, and recovery are not anything you can do very much about. It’s important and affects lots of other things but, as Mr. Obama is finding out, does not lend itself well to ham-handed intervention.

2. Gross Domestic Product – Reflects the economic activity and financial health of the nation. Less than 2% growth is anemic. More than 4% is vigorous.

3. Index of Leading Economic Indicators – This average of 21 key economic components is intended to predict the near term future direction of the economy. When the index falls for three straight months, we associate it with slow growth.

4. Consumer Price Index – The CPI index measures the prices of an array of consumer goods and services. The eight major groups are: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services.

5. Inflation – As inflation goes up, purchasing power goes down. Most investments get killed by inflation. A critical part of your financial literacy is about the unique method of investing that actually thrives in inflationary times.

6. Interest – This is the percentage you will pay to borrow money. Unless your last name is Bernanke or you happen to be one of the puppet masters pulling his strings, you can’t do much about this either.

But never fear! There are plenty of things you can control that will set you on the road to incredible financial success. We’ll talk about them next time.

The Young Wealth Team

We recently looked at the process of foreclosure from the perspective of the homeowner and the lender. Neither are thrilled to be going through this process. The homeowner is losing a place to live and probably will take a huge hit on his credit. The lender will likely take a loss on the property after it sells at auction, if it sells at all.

But is a foreclosure a good idea as an investment opportunity? Not in every case. The house might be trashed but, if it’s not, you might want to take a closer look.

The first step is pre-foreclosure. During this period you can offer to buy the property outright from the homeowner. You have time to research the title and condition of the property and could acquire it at a price 20% to 40% below market value. If there is no interest during the pre-foreclosure period, the property goes to public auction.

At the auction, the opening bid is set by the lender holding the mortgage and is usually equal to the outstanding balance on the loan plus any additional fees associated with the sale. If there are no higher bids, the attorney for the lender buys the property and it is considered bank owned. While public auctions can offer incredible bargains, you will be expected to pay cash at the time of sale (or within 24 hours) and will have little opportunity to research the title of condition of your prospective purchase.

Obviously, this is not an investment technique for beginners but, at some time in your career, you may be interested in taking a closer look at investing in real estate through foreclosures.

The Young Wealth Team

Hopefully, none of our readers have found themselves on the homeowner side of a foreclosure. While foreclosures can be an incredible investment opportunity (which we’ll talk about soon), let’s take a moment to review exactly how the process of foreclosure works for the bank and homeowner.

Step 1:
After three to six months of missed mortgage payments, the lender orders a trustee to order a Notice of Default. This officially notifies the homeowner that they are in default and starts the clock ticking on a reinstatement period, known as pre-foreclosure, that runs until five days before the home will be auctioned off.

Step 2:
During pre-foreclosure the homeowner can sell the house to a third party. The benefit to this is it allows them to pay off the loan and avoid having their credit tainted with a foreclosure. A foreclosure will follow you around for about ten years. If the default isn’t corrected within three months, a foreclosure sale date is announced. The Notice of Sale is recorded at the County Recorder’s office, posted on the property, sent to the homeowner, and published in local newspapers.

Step 3:
Just like in the movies, the property is auctioned off to the highest bidder on the county courthouse steps. The transaction must be made in cash within 24 hours of the sale.

And that, ladies and gentlemen, is how foreclosure works.

The Young Wealth Team