I dislike paying taxes as much as the next guy. But instead of complaining I’ve put my money in investments that give me tax breaks like real estate and oil drilling programs.
However, some people hate paying so much that they’re willing to live below the poverty level just to avoid “qualifying” for taxes. Here’s a war protester that refuses to pay for the Iraq war and has decided to live on less than $12,000 a year.
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Posted in Finance, Saving on Aug 27th, 2007 No Comments »
Here’s a parody from Saturday Night Live which explains why so many of us have trouble staying out of debt.
Seriously, most people get into debt because they buy stuff they can’t afford and most likely don’t need. According to The Millionaire Next Door, most millionaires live within their means without getting sucked into the consumer-lifestyle trap. And they pay for most of their purchases with cash too (or they pay off their credit cards in full every month).
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The past week has seen a dramatic drop in the global stock markets. It first happened in the US and then spread to global markets. It seems to have been started when Bear Stearns announced that 2 of its Asset-backed Hedge Funds where completely worthless.
The two bankrupt funds, the Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd. and the Bear Stearns High-Grad Structured Credit Strategies Enhanced Leverage Master Fund Ltd. had bet heavily on subprime loans. (Funnily enough, these sub-prime Collateralized Debt Obligations or CDOs had received AAA ratings from credit-rating companies like Moodys). Most of the investors had no clue what the Hedge Funds were investing in. In fact, the names are rather complicated and misleading too. (Note that investors broke Warren Buffett’s rule of investing: If you can’t explain what a company does to a six year old, you shouldn’t invest in it).
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For most people, their home mortgage is the largest financial commitment they will ever make. However, people will spend more time selecting the kitchen appliances than understanding how mortgages work. Considering that your mortgage will likely be over a hundred thousand dollars, getting a sub-optimal mortgage can cost you tens of thousands of dollars over the life of the loan.
Lets go through some of the common terminology used in the mortgage business.
Fully Amortizing Mortgage : You pay interest and principle payments every month.
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Yesterday, one of my friends asked me if I thought the US would face a depression. He was pretty certain that a depression would occur, and it would be just like the previous depression where there were no jobs, no money and thus no food.
Some of the commonly stated reasons for the Great Depression are unequal distribution of wealth, lack of savings, high tariffs and war debts, over production in industry and agriculture, and the stock market crash and ensuing panic.
Given these reasons and the fact that we’re currently experiencing all of them, I can understand why one would think that a depression is imminent.
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Posted in Finance, Saving on Apr 11th, 2007 No Comments »
Many of us carry debt on our credit cards, car loans, student loans, mortgages, etc. But once you have your emergency funds saved up, the inevitable question arises. Do you invest your savings or pay off your debt?
You’d definitely want to invest for your future, but also don’t want all your hard earned money to go to lenders in the form of interest payments and finance charges. So you need to calculate whether you’re better off using your money to pay down your debt vs keeping the debt and using the money to invest instead.
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Posted in Credit, Finance on Apr 6th, 2007 6 Comments »
Your credit score is the single biggest factor in dictating the financial aspects of your life. Your credit score, or FICO score as mortgage lenders like to call it, can be the difference between getting a good home loan (or getting the loan in the first place) and having low payments or being stuck with high mortgage payments. A higher monthly payment means you qualify for a smaller loan and results in you buying a cheaper (and probably smaller) house. With the recent implosion of the sub-prime market, lenders are tightening their standards and its becoming more difficult for people with bad credit to get loans. This makes it even more critical to improve the magic number. From a wealth building perspective, its also important as it provides you with a wider range of options when making financial decisions.
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In a previous post, I mentioned how the sub-prime lending collapse might throw the US into a recession.
The entire sector of mortgage lending stocks have been slammed across the board. Some of them have gone under as their credit lines have dried up and they have been asked to repurchase loan portfolios with high deliquencies.
Some of the companies may have been unfairly punished. TheStreet.com just published an article, Subprimal Fears Signal a Time to Buy where they mention that one such company is American Home Mortgage (ticker symblol: AHM). At current stock prices, it yields a 16%+ yield! (As of writing the article it was 18%+).
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As mentioned in earlier posts on compound interest and paying yourself first, saving small amounts regularly over an extended period of time is a sure shot way of becoming a millionaire. But you can do more to achieve that goal quicker. The best way to create wealth and become a millionaire is by learning what millionaires do and copying them. So once you know how millionaires acquired their wealth, how they live, and how their families function, all you have to do is replicate that system and now you’re living like a millionaire!
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Jim Rogers, successful hedge fund manager, investor and author of incredibly interesting books is so certain that real estate prices are going to drop in certain “bubble” markets that he’s putting his $15 million Manhattan home for sale. Its not that he needs the money, but he’s probably a value investor. And like many value investors, he can’t bear not taking advantage of selling obviously over-inflated assets. Warren Buffett, probably the most famous value investor on earth, also believed that his Laguna Hills house was over-priced and sold it a while ago.
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