The Magic of the Margin: Why Your Income Isn’t Your Greatest Wealth-Building Tool

There is a common misconception in the world of personal finance. For years, there has existed a notion that ‘a person’s income is their greatest wealth-building tool’. To this notion, I must humbly disagree.

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FFF University: Renter’s Insurance

First & foremost, if you live in a apartment or rental property of any type, you need renter’s insurance. Why? Well, you know that 400 pound man that lives above you? The one that stomps around in the size 15, steel-toed work boots at 3am. The one that plays fetch with his 3 german shepherds […]

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Why Social Security Sucks

Ok, the average American makes about 45k a year. Uncle Sam forces you to pay 6.2% of your income to Fica, aka Social Security. Uncle Sam also forces your employer to match that 6.2%, also contributing it to Fica on your behalf. Thus, 12.4% of your income is contributed to social security. Assuming you are […]

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Doing Business With Family: A Life Lesson

Dave Ramsey always talks about the dangers of doing business with family. He always cautions people to treat financial matters with family just like financial matters with a stranger. He says that if you don’t something bad will happen. He talks about how it will make Thanksgiving dinner taste different. It always seemed a bit extreme.

It doesn’t seem so extreme anymore.

A few months ago, my wife and I needed to purchase a car. I did incredible amounts of research and made up my mind. I wanted a 2002-2005 BMW 3 Series. This body style had excellent reviews. I often saw them on the road (a good sign for an older car). BMW’s last for forever, I would enjoy driving it, and they are moderately priced. I had made up my mind and the hunt was on.

While hunting, I mentioned my target to a few members of my immediate family. As luck would have it, they had a ’02 3 Series that fit the bill. After a day of deliberation, they offered to sell it to me. They had intended on upgrading cars next year, but since they had a potential buyer (me), they offered to sell me the car. In the grand scheme of things, it was a Win-Win deal. They would be able to sell their car for more than ‘trade-in value’ and I would be able to purchase it at less than ‘retail value’. We decided on a value – the Kelley Blue Book private party value. They thought the car was in ‘excellent’ condition. I didn’t agree, but the price difference wasn’t significant, so along we went. They deal was done.

As my wife drove me to pick up the car, she asked, “Are you SO excited about finally having a car?” My pessimistic realistic response, “If this was anyone other than my Mom, I would have a mechanic look over the car. But I’m sure if there are any problems, it will be okay.”

[insert foreshadowing]

I drove the car for 6 weeks before it died. Unfortunately, it wasn’t a quick death. It was a slow, expensive death. I took the car in for an oil change, the first maintenance performed since the car had changed hands. A little oil leak led to replacing a gasket. The gasket replacement uncovered an engine full of sludge. The service adviser called with the news, “We think we can save your car.” – not the news you expect from a routine oil change. The sludge led to hours of removal. The removal process loosened chunks of sludge that would later destroy the engine. After 2 months of chasing the carrot on a string (a fixed car), we sold the car for salvage value. It needed a new engine and a new engine would cost more than the car’s value. The death blow. I have always given my cars nicknames and I didn’t even have this car long enough to give it a nickname. So sad.

They say hindsight is 20/20. After the first signs of trouble with my new car (still no nickname), I requested and researched the maintenance records for the car. The oil had not been changed from mile 30,000 to mile 60,000. That’s 30k miles without an oil change. Unanimously selected by every mechanic I spoke with as the cause of the engine sludge. My folks took the ‘buyer beware’ stance. They offered to half the loses with me, but the other half of this financial land mine fell upon me. After 6 weeks and 2,300 miles, we lost $5,000 on a car that we purchased for $7,500. That sucks.

I should have known better. I really should have. Dave Ramsey warned me. I should have listened. Heck, I am the author of a moderately successful personal finance blog. I should have practiced what I preach.

Now the car has a nickname. I call it ‘The Bottle Rocket’. It’s glory was short-lived and underwhelming. It then went up in flames.

Financial Reform Ends Erroneous Fees…For 2 Seconds

In response to looming ‘financial reform’, banks are continuing to find new and creative ways to jack their customers.

Bank of America is leading the way by charging $9 per month for paper statements!

For now, the $8.95 monthly fee applies to just one type of account, and only in Georgia. But B of A plans to roll out the product in other markets soon as a replacement for its popular student checking account, which has no monthly fees when opened online.

This is disheartening. We all know B of A can screw their customers much more rapidly than the Federal Government can sluggishly stumble over attempts to block them.


Broke, Plastic, Easy Housewives of New York

Have you ever wondered why they call the show, “Real Housewives of New York”? It’s because ‘Broke, Plastic, Easy Housewives of New York’ doesn’t have the same ring.

The reality of ‘Reality Television’ is that it is fake. ‘Real Housewives’ are not real. The girls on ‘The Hills’ work 4 hours a year. And ‘the Bachelor’ is a test study for an STD clinic. Please take note all of the ‘quotation marks’.

In short: most of these characters aren’t rich, they just play them on reality TV, usually in hopes of getting rich. If the audience is on the joke, no harm done. It all makes for good entertainment.

The problem is that these shows give us all a false impression of wealth. Economic and psychological research has shown time and again that wealth is a relative concept, based on a reference group of our peers. If our peers were only our friends and neighbors, there would be relatively small differences in wealth or spending disparities.

But in our media-saturated age, our ‘peers’ are increasingly the rich people we see on TV. In her book “The Overspent American,” Juliet Schor cites research that shows that the more people watch television, the more they think American households have tennis courts, private planes, convertibles, car telephones, maids and swimming pools. Heavy watchers also overestimate the portion of the population who are millionaires, have had cosmetic surgery and belong to a private gym.

Rich reality-TV, in other words, distorts our own reality of wealth.

Clearly this video vomit isn’t going anywhere. The ratings are too high. But as frugal-ers, we must protect ourselves from the faux status quo.