Dave Reads: What’s it like to be a Billionaire? by Len Penzo

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Jan 092013
 

Plutus Award winner and regular guest on the 2 Guys and Your Money podcast, Len Penzo, got some airtime from Dave Ramsey. MSN Money featured Len’s “What’s it like to be a billionaire” article (click here for the original post), which Dave was inclined to read during the 3rd hour on January 7th, 2013.

Photo by Neatorama

Photo by Neatorama

Len’s literary piece

It is an unusual look of how much your income can purchase when compared to lower-income earners. By the way, if you are reading this post you are probably a lower-income earner when compared to Amancio Ortega, who earned more than $18 Billion last year.

Dave Ramsey contemplates how this really works in the average American’s mind. It’s about ratios. “When you start thinking about judging what other people spend”, Dave said, “have you ever noticed that the level of car that you drive is the level of car that is holy?”

He further commented about this mindset that “If anyone has a nicer car than you then [you think] they spent too much on their car and they should have spent less and given it to the poor – that they’re not as Christian as you?”

“By the way, your car is nicer than 96% of the rest of the world. The same applies to your house: Your house is the holy level of house. Anyone that has a house that is ten times as nice as yours then you can’t be holy. That’s unspiritual”, Dave said.

Beware the green monster

Jealousy drives people’s feelings about other people’s big purchases when it doesn’t fit into their income/spending class. What I mean by that is we, as humans, constantly want what we can’t have. That causes us to do one of three things:

  • Whine about how our situation prohibits us from ever having something so nice
  • Complain and moan until someone feels so bad for us that they buy us something (kids are great at this)
  • Promote socialistic ideals (the redistribution of wealth principle)

None of these are good for us or for the person we are envious of. The green monster bursts out of our spirit as if it were the Incredible Hulk.

I covet like everyone else

I find myself doing this often, wanting things other people have and thinking I should have one because “I work hard”. I change my mindset quickly by thinking about the little girl we sponsor in India. They truly are lower-income earners, making only a few dollars a month, yet they seem to get by without the latest smart-phone or luxury transportation vehicle.

Thinking about that makes me realize how truly blessed I really am to have clean water, a furnace powerful enough to warm the entire house, and the freedom to buy anything on Len’s What It Feels Like list – so long as I have the cash for it!

How about you? Do you have ways to beat the green monster of jealousy?

Dave Reads: Are you poor if you own a flat screen TV

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Aug 032012
 

Dave Ramsey “commented” on an article on CNN Money called “Income Inequality: Are you poor if you have a flat-screen TV?” Some of the statistics from a survey conducted by the U.S. Department of Energy that were used in this article are eye-opening:

  • 62% of households earning less than $20,000 annually owned between 2-4 televisions
  • 68% of those earning $120,000 or more have 2-4 televisions.
  • One-third of the lowest income households had either LCD or plasma TVs
  • 69% of the poorest households don’t use a dishwasher (please see the first bullet point)

The consumption gap is narrowing

The article went on to say that “poverty today is different than what it was a century ago and that cell phones are essential”. I do see a need for a communication device but to state that an instant communication device (cell phone) is a need, not a nicety, is wrong. You can have a home phone and still communicate when the NEED arises (emergency at home, notifying loved ones of a tragedy, etc.) but to call a cell phone a need is drama. Of course, it is more common these days for someone to never get a home phone and their cell phone becomes their only phone but that was a decision based on choice, not need.

Dave’s take on the story

If you make $20,000 a year and you’ve got 3 kids you don’t have the money to buy a dishwasher, or a computer, or a flat-screen TV, or two, or three, or four. When you finance the purchase of those things, which was one of the reasons this article stated the poor could obtain these items, they become trapped in poverty. This is primarily people trapping themselves by the choices they made.

Don’t trap yourself in a series of bad choices

Dave said “One year in my married life I made $6,000 and another year I made $20,000 so I know what it looks like. I’m just not going to stay there and the way I’m not going to stay there is I’m not going to spend my money on things that don’t move me up in income. So why not take a class at the local college instead of buying a dishwasher and take another class instead of buying a flat-screen TV and took another class instead of buying a second TV and took another class instead of buying another TV? Could you get your income up that way?”

Make better choices. Poverty doesn’t have to be a way of life, it’s a series of choices.

10 Things We Should Say That Keep Us From Being Broke

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Jul 222012
 

Dave Ramsey read my post “10 things we way that keep us broke” on his radio show at 1:53pm on July 23, 2010. Being that this is the anniversary of that day I thought I’d give you a behind-the-scenes look at that popular post.

My original design

As I was writing the “10 things” list I had considered making it a 2-part post. The first was to highlight how the general consensus is that debt is normal and considered necessary in order to live in America. The second post was a juxtaposed version of that list – the opposite of those “broke” sayings from the first. At least that was the original design I started with.

Just get it out and do the other post later

At that time I had been falling behind in releasing posts (I know, what a shock). At the insistance of a client I decided to release the first post as soon as it was done and write the “rebuttal” list the next week. It was released on 7/22/10 from my basement office.

How could I have missed it?

I was working from home 7/23/10. My cell phone would chime whenever I received a new email, which would only happen two or three times a day. I remember that it was acting rather cheerful that afternoon, but I ignored each alert in order to get my work done.

At 2:15pm I received a text, also a rarity at the time. It was from a good friend so I decided to stop working and take a look. (Now that I think of it, I’ll have to ask him why he decided to text instead of calling me). He wrote “Dave is talking about your post on the radio show”. WHAT!? My phone had been trying to get my attention because it kept getting messages that there was a new comment on the post. UGH!

I had to wait until later that afternoon to download the podcast and find out what the heck Dave said about it. Did he rip it to shreds? Did he give me credit? How in the world did he find my little blog and decide to read it on the air? So many questions!

Caught up in the rapture

Dave Ramsey posts 10 things we say that keep us broke on Facebook

The post was highlighted on Dave Ramsey’s Facebook page. The website received over 7,500 unique visitors in the first day and over 10,000 by the weekend. There were tons of comments and I made a few new friends on Twitter. Wow. This was fun. But I forgot about writing the second post. There was a draft sitting in a folder on my computer’s desktop but I didn’t want to jinx it. Yeah, I should have run with it!

What you’ve all been waiting for

Before you go any further you need to read the original post: MoneyPlanSOS.com/10Things

OK. Here we go. I opened up the old draft copy, polished it off, and am releasing Part 2 here today! (Geez, I hope you like it!)

10 things we should say that keep us from being broke:

  1. I’m tired of being broke. I’m going to make saving a priority.
  2. I only deserve what I can pay for.
  3. Sure, closing my credit card account will hurt my credit score. But I want to build wealth, not credit.
  4. My student loan/mortgage is debt – period! I can’t wait until it’s paid off!
  5. He told me I would ______, but I made my own decision.
  6. I used to be the “Little Man”, now I am The Man!
  7. Deducting interest on my taxes doesn’t make as much sense as avoiding paying the interest.
  8. How much? That’s not good enough.
  9. I have retirement covered and am not planning on Social Security to be there. If it is there then I’ll consider it a BONUS!
  10. When I pay off my debt, I’ll be able to spend, save, and give generously (i.e. Have fun!)
What are some things you say that keep you motivated or encouraged to become, or stay, debt free? Please leave it in the comments below!

 

Dave reads Facebook’s IPO is (almost) the worst in 10 years

 Dave Ramsey Rants..., Dave Ramsey Reads...  1 Response »
May 292012
 

“You don’t put your Grandmother’s pension in an IPO tech stock”. We immediately blame Facebook for the price going down when we all know single stocks are risky. That was the underlying message in Dave’s gentle rant today about an article released by VentureBeat.com titled Facebook’s first week is (almost) the worst of any IPO in 10 years.

Here are my thoughts about the article:

Not since Bush/Kerry

All the signs were there, tons of information was available and it should not have been any surprise that the outcome was not the way many people were told it would be. Days before the event, and even through the early hours, the media was propping up huge gains. But as the day progressed a different story unfolded, one that statistics and numbers supported: It was not as the news was reporting. This was true in the 2004 Presidential race between George W. Bush and John Kerry  - the media was pointing to a huge Kerry gain until the real numbers started coming in and he actually lost. Ditto with the FB IPO.

Who is to blame when small investors lost money?

We can’t blame Morgan Stanley for the performance of the Facebook IPO in the first 6 days of trading. Yes, there were allegations stated in this article that claims “it was privately telling select investors that its revenue forecasts for the coming year were on the low-end of its previous guidance” as the IPO price was being set.

Even when the verbiage is vague, as reported in an earlier article “The Inside Story: How Facebook Panicked and Botched its IPO“, the fact that small investors lost money means that small investors bought FB in the first day or two of trading when speculation was running rampant.

It’s the investor’s own fault for buying single stocks, especially when it’s the most covered and talked-about IPO stock being offered to the public. Where’s the “I overheard a guy talking about a hot stock” tip? (Well, that never works out either, so scratch that example).

What’s riskier: FB IPO or starting a business?

The only way you could answer this question would be to know more about FB than your small business or know more about your small business than FB. But your business might be right up your alley so investing in a single stock ON THE DAY OF RELEASE WITH NO PRIOR DATA BY WHICH TO MEASURE PERFORMANCE might be riskier. Maybe you have a long-term mindset and will buy-and-hold FB for many, many years which could very easily outperform a small business idea. It depends. So the answer to the question of which on is riskier is: Both.

How to own FB and reduce the risk

I own a piece of FB, but it’s in one of my mutual funds. Because a mutual fund can contain anywhere from 90 – 200 different stocks the recent 31% drop in FB (as of the time of this writing) the chance of me losing all my money is very slim. That’s how to reduce risk: Don’t keep all your eggs in one basket and don’t bet all your money on one horse.

Dave Reads: Best Buy pressures employees to cram credit cards down customer’s throats

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Apr 202012
 

Dave Ramsey read an article from The Consumerist.com: Best Buy Employee: Pressure To Cram Credit Cards Down Customers’ Throats Now Intensifying

Best Buy main product is credit cards, not electronics

The article features an employee explaining how the salespeople are being evaluated more on how many credit card applications they get from customers than sales of the very products they sell: electronics.

Goal of one application per shift

“If we go three shifts without a credit card application, we will be written up by management. If we go twelve straight shifts with no applications, we are automatically terminated, no questions asked!” 

Employees are being asked to sell a different form of plastic; one that fits in the size of your pocket and is not electronic.

What branded cards do for companies

“Each one brings in roughly $50-$100 of pure profit for the store. We have been told ad nauseum for the past few months that financing is incredible because when the company wins, we win.”

How is that possible? How can a piece of plastic that Best Buy has to pay to have produced, and pays a transaction fee for every time an authorization is run, turn into profit? Three major reasons come to mind:

  1. Brand loyalty and optional rewards brings people back into their store to buy the things they want rather than going to a competitor – sometimes when the same item is cheaper at a competitors store. You become a repeat customer, sometimes even a loyal one.
  2. Studies show that using plastic has less emotion and pain associated with it than when using cash. We tend to spend more because it is less painful to swipe a credit card than hand over paper money that we worked so hard for. Out of sight, out of mind – and we tend to spend less when the pain of parting with a handful of $20s reaches a certain level.
  3. Interest, late fees, and additional products. Probably the most profitable part of the entire transaction doesn’t happen when applying for a credit card or even when we are using them; it happens much, much later -at least 30 days later. Don’t pay off the balance each month and interest accrues. Forget to make the payment once and pay a late fee. Spend too much and get charged an over-the-limit fee.

Best Buy’s new business model

If you were a shareholder and saw the profit margin on the sale of a big-screen TV was much less than the profit of interest collected on credit card purchases, which would you want to sell more of?

The business model for many large brick-and-mortar stores is changing from selling products and services to selling debt. When we go to Victoria Secret (well, I don’t but my wife does – YAY) and walk out with a credit card then what we are buying is money. Does that sound right? Credit is selling people money for a premium. That makes each dollar more expensive, and hurts your net worth.

What wasn’t mentioned on the Dave Ramsey Show

Just a side-note: The article being discussed was posted on May 25, 2011. I would love to see if there has been any changes to Best Buy’s policy of rewarding salespeople who sell more credit cards than cell phones.

Dave Reads CNN Money article: House bans Welfare cards from strip clubs

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Feb 092012
 

February 6th, 2012 (in the 1st segment of the 2nd hour) Dave read an article by CNNMoney.com about a bill by Congress that being reviewed that will ban welfare recipients from being able to use their welfare cards at strip clubs, liqueur stores, and on cruise ships.

The bill would force states to “develop policies” to keep this from happening

I’m a very skeptical person. How will this be enforced? We can develop and require all the policies we want but enforcing them is where money meets the madness.

What Dave ranted about

Elizabeth Lower-Basch, senior policy analyst at CLASP stated “…many low-income Americans live in areas where banks are scarce, making it hard for them to find an ATM, she said..” She is under the impression that the only ATMs are in one of those three locations.

As a bonus, he talked about a study that talks about cheating on taxes

An article from MSN Money shows almost twice as many people today compared to 2010 believe it is alright to cheat a little bit on their tax returns. Here is a link http://money.msn.com/tax-tips/post.aspx?post=4fd8cd80-7efa-424e-b80b-dac073e609c9

Dave Reads Asset Acceptance pays for deceptive collection practices

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Feb 022012
 

After taking a call from  Jillian in Nashville on January 31st (in the final segment of the 1st hour) about settling a debt with a collector.

The company that got served!

Asset Acceptance, LLC settle charges that it used deceptive collection practices when it tried to collect DEBTS THAT WERE NOT OWED, even some that were known to be past the statute of limitations. Here is the article Dave read: http://www.reuters.com/article/2012/01/30/us-debt-assetacceptance-idUSTRE80T1DK20120130

The Federal Fair Debt Collection Practices Act

The FDCPA was put into place by the Federal Trade Commission in 1978. Essentially it was designed to protect consumers from what I would call “very bad manners” by collectors and their tactics to get debtors to make a payment. I’m all for that! The problem is it is very difficult to enforce, like trying to stomp on all the ants before they get away. The collectors break the rules, change their names, and open up down the block under a different name (sometimes in the same place under a new name). In this case, it worked.

How can you prove unfair treatment by a collector?

Here is a short list of things you can do to protect yourself and possibly prove you have been treated unfairly:

  • Keep track of all calls with date, time, person you speak with, and the topics of conversation
  • Let the calls go to voicemail
  • Record the conversation with an audio recording device

There are a number of items on the market to record calls without having to wait for the answering machine to pick up. As long as you let the caller know you are recording the call (for training purposes, of course) then record the conversation. Have the caller note the date, time, and their name on the call before getting into the topic. This information can come in very handy in a court of law.

Dave Reads BOA gives loan modifications to those who don’t complain on Facebook

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Jan 312012
 

If you were listening to the radio show on January 30th (1st segment in the 1st hour) you heard Dave come to the defense of Bank of America, a company who Dave regularly states is a company who mistreats their customers. He read an article from The Consumerist website, where Shoppers bite back.

The article talks about a law suit from the State of Arizona stating BOA is hindering an investigation by negotiating settlements with underwater homeowners who have agreed to take down negative comments from their Twitter and Facebook accounts.

If you’d like to read the article about a borrower who agreed to remove and delete Facebook and Twitter statements he had made about a dispute he had with BOA, go to: http://consumerist.com/2012/01/bank-of-america-accused-of-giving-loan-modifications-to-people-who-wont-complain-about-them-on-faceb.html

Dave Reads Seething Pit of Class Resentment

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Jan 172012
 

Here is a link to the article Dave read on Monday January 16th (at the bottom half of the 2nd hour). Here is a quote from Dave’s segment that may get some people riled up, and reading one sentence in a blogpost may cause you to take it out of context, but it’s a pretty potent statement:

“Envy is a sin, and the politics of envy being pushed by both parties right now and by the news media relentlessly are teaching you to be envious are spreading sin.”

Click on the picture to read “It’s Official: Wealth Gap Has Turned America Into A Seething Class Of Resentment”

Dave Disputes Debt Management Psychology Hurts Consumers

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Jan 162012
 

An article written by Cynthia Cryder, an assistant professor in my hometown of St. Louis, stated that it is undisputed that the best way to tackle debt is to pay down the loan or credit card with the highest interest rate first.

Dave disagreed

On 1/10/12 (half way through the 1st hour) Dave verbally disputes this claim so it isn’t undisputed. But you didn’t need a post from me to tell you that.

I have to disagree with Dave (What!?)

The study is correct and a majority of the statements made in the article are also correct. It can be proven mathematically that paying off a higher-interest balance loan will pay down a balance faster than tackling a low-interest rate account. Example: If you have a $1,000 credit card at 3%, a $4,000 student loan at 4%, and a $15,000 car loan at 10% then paying down the car would reduce the debt faster than making only minimum payments in order to tackle the credit card first.

But this isn’t about math

The problem with this article, and what the statements made by the researchers imply, is that paying down debt has little to do with interest rate. A dozen accounts with a 0% interest rate is still debt. The problem with debt reduction plans that tell you to pay off the higher interest rate first is that you don’t get the instant gratification that you got when you put the debt on the stupid credit card in the first place. Without the “quick win” you lose motivation and quit. Then you still have the debt and a hopeless attitude.

The way humans pay off debt

Math doesn’t pay off debt, humans do. The way to pay OFF debt is to get mad, work extra, spend less, and send everything you can to debt reduction. Reduce it so much that it goes away fast! Experiencing the results of paying off a debt quickly will keep you energized and psyched to keep going, regardless of interest rate!

Make all your accounts 0%

“I wish I had 0% interest rates” you say? You can. Pay off all your debts, smallest balance to largest for the quick wins and you won’t be paying interest. Put money into savings and investments that earn you interest instead!

Those who understand (compound) interest are destined to collect it. Those who don’t are doomed to pay it.

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