Monday, June 23, 2014
Summer Finance 101: Three Purchases Worthy of Debt
What advice would I give to college graduates starting off their careers with enormous student debt? Perhaps the most important part of the repayment plan is to realize that “debt” is a four letter word, which the recent grad is undoubtedly grasping quickly. So it’s important to chip away at the current debt without piling more on.
The most critical factor to achieving long-term financial success is to never ever finance current consumption with debt. Never go to a restaurant or purchase a pair of shoes and pay with a credit card for which you will roll the debt forward. Note that it is fine to use a credit card as a convenience, as long as you intend to pay it off at the end of the month.
While the use of debt must be minimized, I believe there are two significant purchases in addition to education that can appropriately be financed by debt. The first is housing and the second is transportation. Like education, these are long-term investments, as opposed to short-term consumption, such as a shopping spree. The reality is that most people will have to manage a combination of these three types of debt for the first 20-30 years of their working career.
At this point, you may be more depressed than before you started reading this post, but a prudent, disciplined budget can create a successful financial life. The first two items in the budget are debt service and retirement savings. It’s easy to accept that the debt service payment is non-negotiable, but I would argue that so is retirement savings. If you don’t start saving from day one, when will you? Unfortunately, for most of us the day never comes when we can save for retirement without making sacrifices.
Once you’ve committed to these two expenditures the rest of the budget requires tradeoffs. Look for ways to minimize or eliminate certain costs. When you’re young, consider having roommates to defray the costs of housing. Avoid buying things just because you want them or because they’re on sale. Buy the things you need. Do you really need that expensive coffee drink every day? Do you really need that new car? I drive a 1997 Mercury Grand Marquis (Big Red or aka Dragnet Car). I will probably need a new car in 3 years.
Tradeoffs aren’t easy, but remember that when you make a frivolous purchase today, you are trading your future. At the age of 59, I find that the future comes sooner than you think.
I have a friend who never made more than $40,000 in any year, and now, in his 80s, he is a multi-millionaire. He didn’t inherit the money. Like most people, he had a mortgage and a car loan. But he accumulated his wealth through a disciplined spending and investing approach.
I view Wall Street as a largely parasitic enterprise that flourishes at the expense of ordinary investors. Every dollar is fees and expenses you pay brokers comes directly out of your pocket. I recommend using basic, low-cost index funds whenever possible. My plan is simple but not easy; save at least 15% of income beginning no later than the age of 25, and continuing every year until retirement. This does not include rainy day funds, a home’s down payment, a car, college, vacation or wedding. These funds you cannot touch. It is not easy but suck it up and you will reap the rewards.
HOME IS WHERE THE TAX ISN’T - Merger-and-acquisition activity continues to intensify. Medtronic's agreement on last week to buy rival medical-device maker Covidien for $42.9 billion is the latest in a wave of recent moves designed, at least in part, to bypass U.S. corporate taxes. Covidien's U.S. headquarters are in Mansfield, Mass., where many of its executives are based, but its official home is in Ireland, which is known for having a relatively low tax rate. Meanwhile, Germany's Siemens and Japan's Mitsubishi Heavy Industries were close on Sunday to finalizing an offer for much of Alstom's energy business, potentially entering a bidding war with General Electric for the French industrial jewel. Google's $500 million acquisition of Skybox Imaging, which puts satellites into orbit, could have a bigger impact on its bottom line and on the world than any other recent acquisition by the search giant or its rivals.
SCOTUS MAKES IT MESSY FOR ARGENTINA : Argentina's elation after a win in its opening World Cup match last week was short-lived as the U.S. Supreme Court on Monday upheld a lower court ruling requiring the country to pay holders of defaulted debt before the next scheduled payment on restructured bonds that come due June 30. Officials say the country can't afford to pay both sets of investors. Bloomberg has an in-depth look at the next steps: "According to a memo leaked to an Argentine website last month, the country's attorneys recommended a default and immediate restructuring in the event the Supreme Court rejected the appeal. Argentina's economy minister last week raised the prospect of negotiating with the holdouts, a step the country has previously rejected.
BLINDED BY SCIENCE - New blood test could detect heart transplant rejection up to five months earlier than heart biopsy: http://ow.ly/ybVFw
COLLEGE CHRONICLES – For-profit colleges in the U.S., already suffering sharp declines in student enrollment, now are facing mounting pressure from Washington. Industry stocks tumbled at the end of the week after the Obama administration on Thursday suspended access to federal funds for Corinthian Colleges Inc., COCO +19.32% one of the nation's largest operators of for-profit colleges. The move was part of a federal probe into the Santa Ana, Calif.-based company's marketing techniques, including questions over whether it lied about graduates' job-placement success.
The cutoff immediately sparked a crisis for the company, which warned it may have to close. It was also the latest signal that federal regulators are getting tough with the industry amid growing concerns about student debt and college dropout rates.
BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to: Dan Dierdorf (65), Beth Elmore …ULV you should of kept her as Alumni Director, Juli Inkster (54), Derek Jeter (40), U.S. Senator, D- Mich. Carl Levin (80), Ross Perot (84), Supreme Court Justice Sonia Sotomayor (60), Vera Wang (65).
SUMMER BARBECUE – Rink Rats Barbecued Ribs
Total Time: 2 hr 20 min
Prep: 10 min
Cook: 2 hr 10 min
Yield: 4 to 6 servings
2 slabs baby back ribs (about 3 pounds)
Kosher salt and freshly ground black pepper
Extra-virgin olive oil
2 bacon slices
4 sprigs fresh thyme
3 smashed garlic cloves
2 cups ketchup
1 cup peach preserves
2 tablespoons Dijon mustard or 1 tablespoon dry mustard
2 tablespoons brown sugar
1/4 cup molasses
2 tablespoons red or white wine vinegar
1 teaspoon ground cumin
1 teaspoon ground paprika
Special equipment: Kitchen twine
Preheat the oven to 250 degrees F. Put the ribs on a baking sheet, season with salt and pepper and drizzle with olive oil. Stick them in the oven, and let the ribs bake, low and slow for 1 1/2 hours.
Meanwhile, make the sauce. Wrap the bacon around the middle of the thyme sprigs and tie with kitchen twine so you have a nice bundle. Heat a 2-count of oil in a large saucepan over medium heat. Add the thyme bundle and cook slowly for 3 to 4 minutes to render the bacon fat and give the sauce a nice smoky taste. Add the onion and garlic and cook slowly, without coloring, for 5 minutes. Add all of the rest of the sauce ingredients, give the sauce a stir, and turn the heat down to low. Cook slowly for 20 minutes to meld the flavors. Put some sauce in a separate bowl for basting, reserving the remaining sauce for serving.
Baste the ribs with the sauce and let them continue cooking, basting twice more, for 30 more minutes. When the ribs are cooked, take them out of the oven. You can let them hang out like this until you're ready to eat.
When ready to eat, preheat the broiler for 5 minutes and broil the ribs, basting with the sauce. They should become crisp and charred, about 5 minutes on each side. Pick the onion and garlic out of the sauce and serve with ribs.
SUMMER MOVIE STATS - The Las Vegas ensemble comedy "Think Like a Man Too" topped a slow weekend at the summer box office with $30 million, besting blockbuster holdovers from last week and Clint Eastwood's new Four Seasons musical "Jersey Boys."
The Kevin Hart sequel "Think Like a Man Too" narrowly edged out "22 Jump Street," which took in $29 million in its second week of release, according to studio estimates Sunday. DreamWorks Animation DWA -1.88% SKG's "How to Train Your Dragon 2" slipped to third, with $25.3 million.
The top three films are sequels that moved into the big box-office summer season following originals that were surprise hits as springtime releases.
WORDS OF THE MONTH –
crapulous \ KRAP-yuh-luhs \ , adjective;
1. given to or characterized by gross excess in drinking or eating.
2. suffering from or due to such excess.
“Hastily running across the court to his own rooms, he groped his way—giddy and crapulous —up the dark and narrow staircase, and, after some fumbling with his key, opened the door.”
-- Frederic W. Farrar, Julian Home: A Tale of College Life , 1866
2. Spanish often respells words it’s borrowed from English to represent how Spanish-speakers say them, and el cóctel is an example.
“Es mi cóctel preferido.”
- It’s my favorite cocktail.
WORLD CUP WATCH - After a brutally disappointing tie Sunday night, the United States faces a dizzying array of possibilities heading into its final match in the World Cup's group stage. ... The United States advances so long as one of three things happen: 1) It beats Germany; 2) It ties Germany; 3) Ghana and Portugal tie in their match. No, avoiding a loss to Germany will not be easy. But the United States has shown it belongs in this tough World Cup group, and Germany looked mortal in its 2-2 tie against Ghana (which the United States beat, 2-1).
THE SWAMI’S WEEK TOP PICKS –
WORLD CUP – Brazil to beat Spain in the World Cup Final.
Gold Cup Stakes – Saturday, June 28, Santa Anita Park - $500,000 Grade 1, 3 Year Olds and up.
We like Bob Baffert’s Game on Dude to win.
2014 WIMBLEDON – Serena Williams to win the Women’s Title, Rafael Nadal to win the Men’s (going out on that limb J )
2014 Season to date (38-31)
MARKET WEEK - The Dow is just 53 points away from 17,000 after another record close. The S&P 500 is coming off an all-time high. And the Nasdaq is now at its highest level in more than 14 years. Investors will get a fresh update of the housing market’s health, with the National Association of Realtors issuing its existing home sales report for May at 10 a.m. ET. Economists are expecting an annual sales rate of 4.75 million units, up slightly from April’s 4.65 million unit rate.
DRIVING THE WEEK - President Obama today hosts a summit on working families ... Secretary of State John Kerry arrives in the Middle East to try and build support to block the Sunni uprising in Iraq ... House OGR has hearings on the IRS and the missing Lois Lerner emails scheduled for tonight at 7:00 p.m. and Tuesday at 9:30 a.m. ... President Obama meets with Israeli President Shimon Peres for lunch at the White House on Wednesday ... Obama goes to Minneapolis on Thursday ... Treasury Secretary Jack Lew testifies Tuesday morning at 10:00 a.m. before House Financial Services on the Annual Report of the Financial Stability Oversight Council. Lew testifies on the report on Wednesday at 10:00 a.m. before Senate Banking ... House Financial Services has an Ex-Im reauthorization hearing on Wednesday at 10:00 a.m. ... Existing home sales today at 10:00 a.m. expected to rise to 4.74M from 4.65M ...
Case-Shiller home prices at 9:00 a.m. Tuesday expected to rise 0.8 percent ... Consumer confidence at 10:00 a.m. Tuesday expected to rise to 83.5 from 83.0 ... Third estimate of Q1 GDP at 8:30 a.m. Wednesday expected to be revised down to -1.8 percent from -1.0 percent on lower health care spending. The number could even go below -2.0 percent which would probably create some significant headlines ... Personal income and spending at 8:30 a.m. Thursday both expected to rise 0.4 percent with the core deflator at 0.2 percent.
Next week: Summer concerts, Jack Ass of the Month and Oh Canada.
Until Next Monday, Adios.
June 23, 2014