Saturday, March 31, 2007

First Week Thoughts

Man, this has been a whirlwind week. I managed to plow through four 10-hour days, while having a cold on three of those days. At the same time, I attempted continue daily posts, although looking back, they appear sparse, if not downright incoherent. Note to self, stop blogging under the influence of cold meds.

A few life updates:

1) My car still only exists on paper
2) I want to do a networth update, and explain how I calculate my assets vs. debt for the car, but I still don't have it, nor have I paid the full payment of it yet. Until I do, I won't be doing a networth update

3) I got my first paycheck this week as well from work.

My paycheck got me thinking about my budget, and how off it was.


From the day I accepted my position, I had already been planning out my cash flows, to figure out how much I had left to use. I put in figures for federal and state taxes, FICA (Social Security), Medicare, 401(k) and IRA contributions, health care costs, food costs, utility costs, student loans, car loans, car insurance, fuel costs, and spending money.

I used rough estimates for federal and state taxes, while the rest are standard rates (see bottom for these rates) for FICA to IRA contributions. The other costs are variable, but since I have been keeping track of my costs for the last year, I had a good monthly average rate for those.

Turns out though, I had been over-estimating my federal tax rate. I had assumed my tax bracket to be my annual salary, instead of considering what my "Adjusted Gross Income (AGI)" is. This ended up being a difference of about $650 extra money a month (which is all going into savings)!

I should have researched it more online. I just looked up my income on the 1040 IRS tax chart, and assumed that rate. Turns out, there are some good calculators out there to estimate the rate. Here's one:

Knowing what your tax rates are going to be, is one big step to making your budget, and staying financially healthy.

*Standard rates: FICA is 6.2% pre-tax, Medicare is 1.45% pre-tax, 401(k) should be the maximum percentage your employer is willing to match, IRA contribution is your choice

Thursday, March 29, 2007

More Market Thoughts

Slight bounce-back today. Oil is still high due to tensions in Iran. Although there are deal rumblings going down, its Friday, and I still think a drop isn't unlikely.

Wednesday, March 28, 2007

Market Thoughts

Oil is in the mid-$60s, Bernake is speaking about the economy in less than happy terms, and subprime housing may still affect the rest of the market. So what will happen tomorrow? Probably a very similar 90-100 point drop.

Tuesday, March 27, 2007

First Day of Work

First day of work is always interesting. Spent most of the day filling out paperwork and complaining that my email wasn't setup yet. Still, it was a 9-hour work day. If this trend continues, it will become very hard to post my mostly daily musings about finance.

Today's musing?

Turns out, sometimes staying later at work can save you money. The traffic is so bad around here during rush hour, if I stay and work an extra hour, I'll get home at the same time as if I had left an hour before.

Monday, March 26, 2007

Free Tax Software... for a price

Recently I mentioned H&R's TaxCut software was something I used to do my taxes. At that point, I also said I wasn't shilling for them. I still don't particularly want to, but since I did actually have a better experience doing my taxes with them than without, and since they're offering a copy of their software for free, here goes:

To the reader that posts an interesting tax story, you will receive one download of the TaxCut software free!

Note: Interesting story may include use of goat's blood as ink, last-minute taxi cab tax form drop-off, or simply a fun run in with the audit folks,

Comment away!


Man, turns out, I get really bored when I'm doing nothing, so I called up my boss today to see if I can start working earlier. He wasn't in, but later in the day, HR called to confirm my start date. I told them I could start earlier and they said "Wanna come in tomorrow?"

I said yes, and the rest is well... hasn't been written yet. We'll see how my first day goes.

On a personal finance note, this can be really good for the bank account! :-)

RANT - Anna Nicole Smith, Why Do I Care?

Warning: This is a rant. This does not relate to your personal finances. However, it does relate to the sad state of news reporting and the general news reading public in the United States.

Why do we care about Anna Nicole Smith, any more than any other random woman who died from a drug overdose? Why is that we celebrate a woman who goes by a pseudonym, spent her life whoring herself out, was on drugs her whole life, and died that way as well?

The only other time we saw this outpouring of random support was for Princess Di, and how in the world can you compare a tragic death of a charitable, popular, and ill-fated member of a love triangle to a drug-infused, Southern "belle" (very loose term for Smith), whose only interest was in making a name for herself, at any cost?

I just don't get it.

How can the death of this woman beat out news about genocide in Darfur, civilian deaths in Iraq, and a slumping housing market as the lead story?

News outlets always claim they lead with what readers want to see. Question: do any of you actually care? I don't.

Sunday, March 25, 2007

NYC Weekend on $97!

Actually, not entirely sure if that's something to be proud of, or even if it qualifies as a weekend, but I did get to NYC at about noon on Saturday and got home on Sunday around the same time. I guess its more of a 24-hours on $97.

I managed to go to the Museum of Modern Art, eat 3 meals, ride around in a taxi, and go to three bars.

So how did I do it?

First, student ID helps a lot with MoMA. It's only $12! I split lunch for $4, and found a great sushi place (Sushi Park) that had a brilliant marketing concept. Sushi entrees over $14 are 50% off. I split a $40 sushi combo for $10, and was still impressed that the sushi was relatively fresh and pretty tasty.

The taxi ride was interesting. I was going from Penn Station back to the hookah bar I was at, and traffic was bad. About 5 blocks out, the traffic was totally stuck, and I pulled something I kept seeing from movies. I told the cabbie, "I'll get out here." It worked, and probably saved me a good $5.

Bars in the city are expensive. But one of the things I've learned to exploit is general laziness. If you open a tab, drink a few drinks, and then order one last drink and request your tab closed, more often than not, you'll get that last one for free. I haven't really figured out why this happens, but I think when the bar is busy, they rather not deal with it and just close your tab out whenever the credit card machine is free.

Thanks to a good friend, I was able to sleep the night at his apartment, so that was free!

Breakfast was probably the least cost-effective, running me $10, but I figured after a frugal night, what the hell.

Got any frugal NYC stories? Post some in the comments.

Friday, March 23, 2007


Yep, went clothing shopping today. Now normally, I wouldn't be this excited about new clothes (being male and very stereotypical). However, I managed to get some interesting personal finance thoughts done and saved a ton of money shopping, and that was exciting to me!

So there I was looking at a suits for a few hundred, and I found a few I really liked. So when I went to check out, the lady at the counter offered me one of those department store credit cards, with the get 10% off purchases today deal. Turns out, the suits I had chosen were on sale for an additional 50%, add on to that a coupon given to me by my mom for 10% off, and I was sitting with quite a good deal.

Working that out, about $800 worth of clothing, ended up being about $330. What a great day! :-)

One caveat, the best way to take advantage of these deals is wait for the bill to show up, cancel the card, cut it up, and the next time you need to make a big purchase, sign-up again.

Thursday, March 22, 2007

Tax Day

Eleven days until work starts, and what am I doing between now and then? Filling out my taxes.

Yes, very exciting stuff.

Anyway, thanks to TaxCut Pro (I'm not shilling for them), it was actually a mild dull head pain, rather than the usual full headache that requires an open bottle of advil and Jack Daniels.

I went through the usual deductions and income calculations, and the program spit out two things to check that I hadn't thought about:

1) IRA Contributions: theses are pre-tax deductions that can lower your taxable income. Read more about it here.

2) Job-related expenses: specifically job-search expenses. I thought I found gold here, except, as it turns out, if its your first job, it doesn't count. For all you "youn'uns" out there, that's bad news. For anyone who has been around the block, stuff some pre-tax expenses here!

Wednesday, March 21, 2007

Two Related Interests

I spent the day today figuring out the right auto loan for my new purchase. Thanks to, I obtained a quick list of bank rates for car loans in my state. Of the top three, there was a 6.25% no fee, 6.35% $100 application fee, and a 6.55% no fee.

The typical way lenders confuse their customers is to add fees and hidden costs. But with this list, the most obvious choice is the 6.25% no fee. Unfortunately, they were a purely internet firm, and declined based upon the fact that I was not currently working, without giving thought to my employment contract.

This prompted me to question, is the $100 application fee worth it? Turns out, the 0.25% extra equates to an extra $95.48 for a loan of $17,000 over 5 years (yes, I am getting the other $20k from a parental loan). So, interestingly enough, the $100 fee made the lower fee a worse deal.

So why did I say two related interests? Well, today, at 2:15PM, the Federal Reserve reported they would keep the federal funds target rate at 5.25%.

This ended up being very good for me, since there was a chance the rates could go up. Had the rates changed, I would probably be looking at an even higher rate on my auto loans.

And worse for the market, if the target rate had risen, the market would have slumped, as people pulled money out of the market and until high interest rate savings.

Tuesday, March 20, 2007

2007 350Z is MINE... almost

So normally, I would have posted much earlier today, but today ended up being a whirlwind sort of day. The first part is a story, that may be boring to some. Feel free to skip to the last 3 paragraphs for the personal finance lesson.

It started off normally enough. I was going out with my mom to find a good deal on new suits and other such clothing. But first, we had to get an emissions test on one of our other cars. This took 2 hours, during which we noticed there was a Nissan dealer nearby. My mom suggested we go by there and look at the 350Z (Read original car post).

We walked in and a helpful sales agent zeroed in on us, and smooth-talked us into driving the Z around. During the drive, he asked me about my intentions for the day, and more importantly, my ability to pay for the car. I informed him I was well within the salary ranges for purchasing the car, and so we started the intricate dance that is car negotiations.

He first offered me a MSRP number, at which I openly laughed at him and told him to get real. At this point, he had to "talk with my manager". He reappeared later with another number, that was slightly better, but was still clearly unrealistic. At this point, I turned to my mom and asked her if she wanted lunch. This scared the agent, and he went back for a third price.

I had done my research (Read Post) and so I had a target price in mind. The problem had always been that the dealerships I was looking at didn't have the right 2007 350Z Touring in San Marino Blue with the GPS Navigation option. If you read my previous post on car buying, you'll know I was going for a pre-tax price of $31,864, but I had only priced in the GPS Navigation.

Unfortunately, on the only car in the region that was close to my specifications, the car also came with chrome wheels, XM Satellite Radio, floor mats, and side curtain air bags. Those options added about $5,000 more to the price. During the back and forth the agent was doing, he quizzed be on the options I wanted. When I balked at the extra options, the sales agent offered to remove the chrome wheels and give me the difference.

His final out the door price? $37,023.68. That was real close to what I had figured would be price I was willing to pay. I decided I liked a flat figure better, and with that, I signed the line for the car at $37,005. Yes, he got me for an extra $5 due to some new green house emissions tax.

I paid my $500 honest money, and I expect the car to be driven up sometime in the next few days. By next week, I'll be the proud owner of a brand new 2007 350Z!

Now how am I paying for all of this? Borrowing against my future earnings of course (financing)!

One tricky aspect that few car buyers know is that you don't have to take the dealer's financing options. You can go out and get your. After all, all the dealer cares about is that you hand them a bag of cash before you take the keys.

I am waiting to hear back from the dealer on an interest rate. However, with my excellent credit, I am also shopping around at local banks and online to see what the most competitive rates are.

Sunday, March 18, 2007

Will be back soon...

Realizing I've been spending a lot of time packing, and very little time blogging. That is because, as some of you may know, I am starting work soon (April 2), so I have to move out of graduate housing to my new place.

I will be back to blogging force by Tuesday.

Stay Tuned!

Thursday, March 15, 2007

Anonymous, where are you? OR How I Pick Stocks, Redux

The last two days have been big days for the blog. Plenty of people have come by to see the controversy. I'm kind of sad really. No one else has left any inflammatory remarks today.

This is a good opportunity however to add on to my previous post about picking stocks. In that post, I know that some people felt that I was incorrect in my assumptions, or in some way, was misleading poor sheep to the metaphorical slaughter that is trading.

However, this is not what I am doing. I just wanted to clarify a few myths about stocks, about how I approach stocks, and hopefully clear up any issues from my previous post.

  1. In general, the stock market is rational, over the long run. Day to day, people tend to over react to bad news, and under react to good news. Plenty of studies have been done about that. I say this, because a lot of people believe the stock market is irrational, and have a belief that as the only rational investor/trader, they can make money off of that.

  2. People do make money, but we have to separate "excess returns" from "normal returns". An excess return is getting back more than what everyone else is getting on average (normal returns). Say for instance, the Nasdaq went up 5% today. If your portfolio went up 6%, you've produced only 1% in excess returns. A lot of people like to point to their portfolio on big days, and say, "Look, 5%", but really what they are saying is "I'm average!"

  3. There is no such thing as a "good" or "bad" stock. There is only stock that fit your risk profile and portfolio allocations, and those that don't.

  4. Without knowing something extra, that the public doesn't know, about the market or stock, you can't obtain excess returns. Essentially, this is called semi-strong form market efficiency. Consider that 50% of the market is filled with people who are professional investors/traders. If there was such wild (irrational or irresponsible) pricing of stocks, why are any of these people still in there jobs?

  5. That something "extra" is any comparative advantage you have versus other people in the market. Are you very versed in a certain industry? Are you great at reading financial statements and teasing out hidden issues? Maybe you know of a deal going down. All these are examples of an advantage that can lead to excess returns.
Finally, what I do provide is that "extra" edge in technology stocks. My undergraduate degree was in Computer Science and Economics, and I have always been interested in technology. Therefore, I have a comparative advantage in understanding technology trends, products, and research in development. It is with this knowledge, that I will recommend certain technology stocks.

For a more fundamental breakdown of the company, you have to consult readily available analyst reports. This is because (a) analyst reports rarely get fundamental breakdowns wrong, (b) there are plenty of analyst paid to do this, and (c) creating an analyst report is very time-consuming, and is counter to the purpose of my blog.

Wednesday, March 14, 2007

Another Reply to Anonymous

The number of fun comments keep piling up, but I have yet to receive much of any constructive criticism, or even an idea of what anonymous #2 is concerned about.

I think the main problem a lot of people are having is my advocacy for debt among young people. Most PF Bloggers would consider this an unusual method of savings.

Consider that you will be working all your life, and that your future income will increase to a certain point, after which you retire. Debt is piled on early in life, and meant to be paid off later in life. The reason most don't advocate debt is that its difficult to tell (a) how much you will make in your life, and (b) at what point in your life you should switch from primarily taking on debt to primarily paying down debt. This is not to say that you should not ever pay down your debt, but that on average, your debt remains constant if not growing during the first period of your life. (There is a fancy economic word for this: Intertemporal Consumption)

To quote for Wikipedia:

The main discrepancies between predicted and actual behaviour is that people drastically 'underconsume' early and late in their lifetime by failing to borrow against future earnings and not saving enough to adequately finance retirement incomes respectively.
I have an economics background, so I know this tends to be problem in everyone's financial life. When you have little money, you spend very little, and when you have a lot, you spend a lot. Instead, the model suggests the inverse. When you have little, spend a lot, and when you have a lot, spend a little. This essentially smooths out your consumptions over your lifespan.

The two things I am capable of doing (as just about any financial analyst should be able to do), is with some certainty, predict (a) and (b). This is why, early on, I am taking on so much debt. Items such as a car and condo aren't purchases that need to made every year, and so if I'm going to get them eventually, I may as have them now.

Also, I will keep anonymous post option on for now, as it has provided me much fodder for posts. However, in the future, I do ask that anonymous posters be more descriptive about their issues. The level acrimony can stay the same. I'm thick-skinned.

Reply to Anonymous

In my previous post, Anonymous posted a legitimate critique of my spending habits. Specifically, Anonymous suggested my lack of job experience, place to live, and/or negative networth should be preventing me from making any large purchases, and that these three are torpedoes to my "credibility".

On the contrary, these are very typical situations for any 20-something, and rather than being the usual personal finance prude, I blog about how to deal with these situations, rather than avoiding them.

First off, the three items listed are really non-starters. Although I have never blogged about this, I want to tell the blogosphere that I have a very detailed Excel sheet listing my expenses that have suggested that I can make the purchase for the car, buy a condo, and live comfortably.

In terms of job experience, although I have none, I will be starting with a mid-level job, that comes with two separate bonus pools.. With this salary (and potential bonus) figure in mind, all of my financial choices (including the car) have been based off this future income (and I'm not figuring in any bonus when I make my Excel sheets).

I am not making random purchases. If you'll notice, I have been planning for this car purchase for 1 month, and I know how it will hit my income.

In terms of housing, I will be living with my parents for about 1-2 months while I search for a condo. This is less for financial considerations, and more for the convenience, as I am not close enough to look for one now.

I have never suggested anyone should live outside of their means, nor will I ever. However, on my blog, I blog about my financial choices, so that others can try out my suggestions in theirs.

Certainly, if your salary or financial conditions suggest you are not able to afford anything (even with loans), then you shouldn't try for it.

Alternatively, believing you should live without debt (especially when you're young) is also something you shouldn't try.

Tuesday, March 13, 2007

Life Updates

Its getting ever closer to April 2 (19 days!), that day of all dreadful days when I turn my soul in for a biweekly paycheck.

This week, I'm finishing off finals, and by next week, I'll be adding debt.

If you recall (Car Post), I am still looking to buy a 350Z. I am still in negotiations with two dealers, where oddly enough, both contacts there have been fired recently for incompetence. The car will set me back probably $37K.

Following that, I have to start buy nice suits, shirts, and other business gear. That's probably another $3K down the drain.

By far the only person rubbing their hands in glee right now are my credit card companies, or if you happen to own any of the stores I'll be shopping at soon.

I always thought it'll be a good feeling to graduate and go to a new job. I just never thought I'd be paying so much out before I even get my first job.

Oh, and did I mention I'll need a place to live soon? *shudder*

Monday, March 12, 2007

Poker and Picking Stocks OR What every Finance guy needs to know, Part III

In Part II, I talked about different types of poker players / stock market players.

But what do you do to become better at poker (stock picking)?

1) Experience
Play as much as possible, for as little cost as possible. Get to know how the system works, and what happens from one hand to another.

2) Fundamentals
Understand the math behind all the numbers. Both in poker and in stock picking, you need to understand statistics. But with stocks, you also have to understand why people value a stock. You have to consider the profits of a company. Also, you have to understand underlying economic concepts. Understand how the Federal Target Rate, Foreign Markets, Foreign Exchange rates, and commodity prices (such as oil and gold) affect the markets.

3) Knowing the players
You have to know the people, and have to establish a rapport. Sure, if its a one time deal, you can take everyone's money and leave, and maybe knock over some furniture in the process. But if you play a lot, you'll need to be likable and have a reputation.

That's it.

Getting 1 is tough. Many people spend their whole lives trying to get it. Getting 2 takes time as well, and takes a sharp mind to grasp the numbers. Getting 3 takes social grace and some ethics and morals.

The three combined, to borrow from theater, makes you a triple threat, at the poker table, and on the stock market.

Sunday, March 11, 2007

Poker and Picking Stocks OR What every Finance guy needs to know, Part II

Today, I want to break down the type of investors, using poker players as comparisons. The first four personality types tend to lose all their money to the last four, with the middle guy going even. I have enumerated, so that being #5 is normal, and going to 1 to 9 is rare.

1) The Talker A - Loud mouth, probabilistically due for a win
This man will talk like A, but he also will play. Unfortunately, he's just terrible at the game. He just enjoys throwing money at it, 'cause he figures, hey, he'll win some time.

2) The Talker B - Lots of of steam, can't afford a coffee
This man will talk on and on about his "winning" strategy, his big wins, the fun he has, etc, but if you ask about coming for a game or a good stock tip, he'll be the first to change the subject.

3) The Inexperienced Guy
This man trembles when he approaches the game. He's unsure of to say, how to play, or if he's even holding cards correctly. In poker, we call him a whale. In stocks, we still call him a whale. However, in stocks, in a few weeks, we'll call him broke.

4) Unlucky
This man knows how to play, comes for the money, but never seems to know when to stop. Over the course of play, he'll win some, and then give it all back. This man tends to be addicted.

5) Even Steven
This man goes for sure plays. Unfortunately, sure plays always pay out very little. Any hint of risk is enough to get this guy to tuck-in his coat tails and run. This risk-aversion causes him to lose the little gains he gets from his sure picks.

6) Lucky
This man started with a quarter 5 years ago, and its turn into a quarter billion today. No one knows why, but he can just pick 'em. He's the guy who would find a winning lottery ticket in his pocket without remembering buying one. He'll miss a bus, and win a car. This man was just born lucky.

7) Experienced Guy
This man had his ups and downs, and has begun to see some patterns. He'll play with some risk, but isn't willing to take bigs ones. The experience steadies his hand, and ensures he doesn't play on emotion alone, if at all.

8) The Rich Talker B - Rags to Riches Story
This man can charm the spots off a leopard, and he could sell you sand in a desert. He talks smoothly, is very intelligent, and it gets him far in life.

9) The Rick Talker A - So much money... and it keeps coming
This man was born rich, so he's always got interesting stories. He has up and down days too, but since he's got so much money, one of his zany ideas is bound to make it big, and add another $1 billion to his stash.

So where do you fit in? Tomorrow, in Part III, I teach you how to go from 5 to 7. If you're 4, well, tough luck.

Saturday, March 10, 2007

Poker and Picking Stocks OR What every Finance guy needs to know, Part I

I have been thinking recently about how to keep adding new things into my blog, without it turning into a "Today, it was cold" and "Wow, I'm drunk, look at me!" type of personal blogging. So like any good (or at least holding a job) columnist, I've decided to start my first multi-day post.

My first topic? Comparing Poker to Picking Stocks.

Some may go, "You're crazy. This is a HUGE stretch. Convince me." Otherwise will say, "Bah, poker is for fat old man with cigars sitting in back alleys. And I'm a 25-year old hotshot! How dare you compare me to them."

To both of you, I say, bear with me.

In Part I, I will discuss "Skills/Information you need to succeed"

1) Knowing where the game is being played
Probably the most important part of playing poker or the stock market is knowing where the game is being played. If you enter with $1,000, will you exit with a broken nose? Will beer be provided? How much cigar smoking do you have to do?

All very important things to know, BEFORE you even start playing.

2) Understanding the fundamentals
Its important to know the basics of both "games". Do you know when you're going to win and lose? In poker, you have a set of hand ranks that you should memorize. In picking stocks, you just have to remember one mantra "Buy low, sell high".

3) Calculating odds of success
Having good math skills is always a plus in both games. People get lucky all the time, but only those who understand statistics will win most of the time. In poker, the odds are easy to calculate. You know how many cards are out there, and the likelihood of you catching the hand you want. In picking stocks, the odds are difficult to calculate, as stock prices are difficult to model. But as most investment firms will tell you, being able to guess right a little better than 50% of the time is enough to make big money.

In Part II, I will be discussing "Different Types of Players". Stay tuned!

Under 30 Honor Roll

I'm closing in on a month in the blogosphere, and I'm starting to gain some real understanding of my audience, and the rest of the personal finance blogosphere.

For one, Kira at the Under 30 Honor Roll has accepted this blog for her blogroll. Also, Stephanie at Poorer Than You has been great for reading my blog, and adding a link to my site on her popular blog.

I look forward to many more months of blogging, and hopefully and increasing audience.

Thursday, March 8, 2007

Stock Recommendation - CSCO

I was in CSCO (Cisco Systems) last month, and sold a few days after quarterly earnings. They reported quarterly earnings not only a few pennies over estimates, but also upped their year-end forecast. Now, usually a company tends to always be conservative in their earnings forecasts, so that they can get a good rise out of the market whenever they beat their own estimates. However, when a company upps its estimates, you have to consider that internal numbers may even by higher.

With that in mind, consider the negative effects of the Asian Bump of last week, as well as general economic fears such as inflation and the threat of the R-word (recession), which have really hurt this stock. However, I think when more economic data comes out (including yesterday's retail numbers), we will see an uptick of this stock back to $28-$29.

In today's over-connected world, there are two big benefactors: network fiber holders and network value-added services. Cisco is of the latter variety. Their biggest gains are going to be in Asia, but I think in the US, they will stay just as strong.

Disclaimer: Please understand the risk and rewards of stocks before trading. Also, read the disclaimer at the bottom of this page.

Wednesday, March 7, 2007

Jobs, Paying Dues, and Living the Life

If you don't know, I'm about to become a corporate financial analyst for a major bank. One of the most poignant job descriptions I have read can be found at the Princeton Review.

And its very true.

There is going to be a lot of work and sleepless nights. It will be all about purpose and good "soft" skills. Talking, juggling work, and knowing when to drink more coffee will come in handy.

Sure, it's compensated by a nice salary, but boy, to play in this world, you also have to pay a lot.

Most people find themselves in a small group, really "clic"-ing with their co-workers. When you spend so much time together, its inevitable. But when you go out together, the tab can get big!

I just had one such night, and I didn't get a large hit on my wallet, but it certainly could have been. But you need these nights to take a break, and relax with your group of friends.

Sometimes, you just have to spend money to realize that working isn't an end, its a means to get to a fun and happy life.

Tuesday, March 6, 2007

How to Spend $355 Million Wisely

Today, the Mega Millions will hold a drawing for one of its largest jackpots ever, estimated at $355 million! Now it is a lot of money, but how much money is it really?

Typical lotteries allow two payout types: regular payments or lump sums. Most people prefer lump sums, but tend to not realize what they can actually get. So let's break it down.

As regular payments, $355 million will be paid out over 26 years. Assuming monthly payments, you'll get $1.14 million each month. At $12 million a year pre-tax, you'll be living pretty, but no one likes this choice. Why take it over 26 years when you can get it now?

Unfortunately, if you take it right now, it'll only be $48.0 million, pre-tax. Assuming a 35% tax rate, you'll still get $31.2 million.

Now what?

Smart money says take the first $20 million and run to a big Wall Street bank that has a reputable wealth management firm. A typical firm can get you about 10% interest rate on a deposit that size. That alone will guarantee you about $2 million a year.

Second, its time to pay off some of your loans. We'll wipe off that $0.2 million in change.

Next, its time to find a nice house in the Hamptons. $5 million sounds like a good buy (Like this one, see picture).

Finally, you've got about $6 million left over for FUN! Send $1 million to your favorite charity. Buy five Lamborgini's (@ $200K each). Keep one, give four to your new best friends.

With $4 million left, what is there left to do? Go on a crazy month(or year)-long vacation somewhere! You're going to have a lot left over, so maybe try to spend a week in Vegas!

With cash like that, you'll be in a high-roller suite for sure.

Once its all done with, you'll probably still have about $2 million left. Its time to think about a yacht. This one fits the bill.

Monday, March 5, 2007

Networth Update

After a bad week of market performance, and changes in cash on hand from a great poker night, here is my networth: -$29,509.52 or a change of $380.55.

This makes me -2.95% of the way to my goal.

An interesting thing I calculated is my leverage ratio (debt over assets proportion). Including student loan debt, I am levered 468%, which is relatively low compared to most people coming out of college.

Also, I calculated my credit card credit usage. This number is determined by finding the weighted average percentage of debt on credit cards divided by that credit card's limit. (ie. You carry $1,000 in debt on a $3,000 credit limit card, your usage is 33%). My current usage is a low 11.68%.

This is good news, since one aspect of your credit score is this credit usage number, and the less it is (without being zero), the better your score.

Sunday, March 4, 2007

Market Forecast

It's weird, I miss one day of posting, and I start feeling guilty.

Anyway, here's are my market thoughts:

1) You've got short-term bond yields increasing, with long-term bond yields decreasing, indicating less confidence in the stock market, and a willingness to pay for essentially riskless investments like bonds.

2) Gold price is inching up slowly, while oil prices are falling slightly. Both seem to contradict the idea that the market believes we are entering a recession. But I think the most likely affect is small investors are still unsure about the market, and want wait and see, rather than liquidate and buy up commodities like gold.

3) With the increased crackdown from US regulators on subprime mortgages and last week's market results, we'll probably see another decline in major bank stocks.

Conclusion: Going to be an up and down day, but at the bell, the market will fall a little bit.

Friday, March 2, 2007

Moving Debt Around

I have been thinking about this, and I finally did it. I currently have about $1,200 in debt on one of my CitiCards. Normally, I wouldn't hold credit card debt, but they had a great offer. For 10 months, all purchases were 0% APR if I paid the minimum $20 a month.

For most purchases, this doesn't make sense. A general accounting principle is to match the payment of something to how you use it. Most of the time, you use a credit card to buy something you use immediately, and that item has no real future value. My purchase however was for registration and books for CFA Level I (Chartered Financial Analyst). This was something I figure I could pay for when work started, for which I had no real purpose paying it off now.

When the 10 month free money deal (that's essentially what a 0% APR deal is) came along, I jumped on it. However, as I get closer to the end of the free money period (10 months is over in August), I've been thinking about moving the debt around, and seeing just how long I could keep $1,200 in debt constantly floating out there.

Yesterday, Bank of America sent me an offer that was 0% APR for 12 months on balance transfers and purchases! Normally, if you transfer a balance from elsewhere, they will charge a 3% fee (hidden in some small print on the back side) to do it. BoA explicitly said it wasn't charging any fee for it. So today, I signed up for their card online, obtained $3,000 in credit, and transfered my $1,200 over.

Total Debt Time Left Before I have to Pay: 12 months
Max time debt can be unpaid: 17 months

If I do this enough times, maybe I'll never have to pay!

Update: My initial link for the CFA Institute went to another organization with the initials CFA, the Cat Fanciers' Association. Whoops! :-)

Thursday, March 1, 2007

Why Do I Blog?

Stephanie over at Poorer Than You tagged me with the question "why do I blog?"

I read her reasons, and I discovered, we are pretty similar.

From a young age, I was always entrepreneurial. In 3rd and 4th grade, I bought all the desirable pencils from the school store and sold them to kids for a hefty profit. In middle school, I sold extra ketchup packages to kids, because our school rationed ketchup packages to discourage kids from bursting contents of each package in school hallways. But by high school, I was getting tired of my zany ideas. As I started looking for a new way to challenge myself, I found that writing and producing a newspaper was what I wanted to do.

I had started working in newspaper production (ie. newspaper design, not manufacturing paper) in 8th grade. I enjoyed it because of the creativity that was involved in placing stories on the page, very much like solving a new jigsaw puzzle every week. In 9th grade, I wanted to stick with the newspaper, and writing articles became a regular thing.

I continued my interest in newspapers in college, working up from a frequent news and opinion contributor, to managing editor. When I entered graduate school, I could no longer maintain grades and work the hectic schedule of a managing editor, so I quit newspaper altogether.

In the ensuing two years, I missed daily the opportunity newspaper gave me to be creative and express my thoughts to the world. I knew I wanted to do it again, but I did not know what to write about.

But as my graduation date and my entrance into the real world loomed closer, I realized I had new insights into a field that touches everyones lives: finance, and I wanted to be able to share my personal thoughts, triumphs, and failures with the world.

And along the way, if I could pick up that first million, all the better.

Scrounging Pennies

I've been thinking about this idea for a while. Is it actually prudent to follow Ben Franklin's adage, "A penny saved is a penny earned"?

Personally, I think penny-pinching is less worthwhile than most people choose to believe.

Consider that there are 100 pennies in a dolllar, and 10,000 pennies in a hundred dollars. Say you can save 10 cents by turning off that light bulb. If you do it a 1,000 times, you'll have saved $100. But in that same time, you may have caused your self eye strain or bumped into a wall.

Another one of the most common penny-pinching items is driving around looking for the lowest gas prices. This has never made any sense to me. Consider that gas is about $2.50 a gallon, and the typical car can get about 25 MPG. So its about 10 cents a mile.

The typical difference between a cheap gas station and a regular gas station is about 3 cents. So if the difference in your drive is only a third of a mile, then the savings you earn by going to the cheap gas station exactly offsets the extra gasoline you consumed. If you've traveled even further, then you've actually wasted money trying to save money.

A lot of the time, focusing on such small savings in the hopes of having it add up to a large pot of gold results is a myopic goal. You forget the greater goal is to save money, not to add pennies to a jar.

Instead of these small items, start thinking of big picture items. An extra light on could save your eyes from needing expensive glasses or surgery down the road. The extra time you have by going to the nearest gas station could mean more time spent at home with loved ones.

What are pennies to any of that?