Perry Glasser

PERSONAL FINANCE FOR THE CLUELESS– SAVINGS #2: INCOME

In Business, Economics, Economy, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance on March 10, 2014 at 7:04 pm

My two Gen Y friends, call them John and Mary were out with me celebrating Mary’s return to the workforce after five months of unemployment.

John and Mary are chronically broke. Ordinary car repairs are a disaster. Every month, they juggle creditors. Who to pay, who to delay?

Mary, a college grad, now has a job she enjoys, though it does not pay much. John works at two hourly wage jobs, about 60 to 70 hours each week. While we eat sushi, his eyes drift half closed through most of dinner. John and Mary live in a less desirable part of town in a decent enough place owned by a relative willing to subsidize their lives by accepting about 75 percent of market rates in rent.

I asked John why he did not attend college. Maybe two years at the local community college? He looked startled. I felt I had offended him.

“Can’t afford it. Got to pay the bills.”

“Why not borrow for school?”

“Loans are too expensive.”

Think Out of the Box

John thinks he is trapped. From time to time, he  gripes about the system, whatever that means.

GEN Y LIFE

GEN Y LIFE

Is there any way out? He is already working more hours than anyone should.

But he is in his 20s.

How will he manage when he is in his 30s? His 40s?

John and Mary’s lives cannot go on like this forever. A tire blowout should not constitute a financial challenge. The only alternative to getting older is death, not a great alternative. John and Mary are going to get older, Dollar$ hopes. Everyone should live forever, but to make that a good thing requires financial management.

What Should John Do?

No  amount of thrift will help John and Mary. They need income. Since being an entrepreneur requires capital they do not have, John needs to go school. It’s his only way out.

John needs to pursue a career, not a job.

Dollar$ recommends, QUIT A JOB BEFORE IT IS TOO LATE!

This is a no-brainer. John needs to quit  the job that pays no benefits.  He is squandering two wasting assets:

  • Youth
  • Energy

They are wasting because as time passes, they diminish in value. He needs to quit before those assets are exhausted.

What can he do with the free hours he will create by reducing himself to working only 40 hours/week?

BORROW. GO TO SCHOOL. STOP KIDDING AROUND. THIS IS YOUR LIFE. AND YOUR LIFE IS YOURS TO CONTROL. NEVER ACCEPT VICTIMIZATION!

 The Cruel Science

Economics and Finance are unforgiving. In the U.S., a non-college grad can expect to earn $25,000 less EACH YEAR. In a working lifetime, that’s well over a half million dollars lost.

Wouldn’t you borrow $30K now for a half million dollars later? Why accept a life of used cars, inferior healthcare, crappy neighborhoods, lots and lots of old clothes, and fights about money, the cause of most divorces in the US.

John might say,“We are not into the system,” but, sorry John and others who would Occupy Wall Street, the last ‘60s communes are long gone. Hippies discovered that farming was back-breaking work.

Suck it up and face reality.

Good or Bad Credit?

John is not a lazy guy. He is as good as they get. But he may be confusing the two kinds of credit

CEO of MasterCard and Visa, c. 1400.

CEO of MasterCard and Visa, c. 1400.

Consumer credit is poison. Borrowing money to pay for something you consume or own is the American financial disease. You bought some bit of crap and now what? The road to Hell is paved with credit cards. Visa and MasterCard charge rates that a thousand year ago would have had them burned for usury.  Banks lust for chuckleheads who never pay off on time.

Do you want to be the bank’s best friend?

Use a credit card only for food and gasoline. Better yet, use cash. You remember cash? Green coupons with the presidents’ pictures on them? Dump your debit card. It exposes you to losses a credit card does not and offers you no float. The second you spend it, the second you lose it. At least a credit card delays payment by 3 – 4 weeks: the float.

Leveraged credit is the stuff of investment.  Borrow money when its purpose is to increase revenue at a superior rate to what you pay for the loan.

Let’s see: A student loan these days—which can be partly used to pay for John and Mary’s living expenses—may run 8 percent per year.

Hmmmm… Eight percent of $30,000 borrowed to pay tuition is about $2,400 per year. Throw in some principle—say the loan costs $3,000 each and every year until it is paid off, maybe 15 years or so, with no payments until the education is finished.

That $3K per year to buy entry to a world where salaries are $25K per year more! That might net John as much as $22,000 each and every year.

Leverage those assets! Get out of the Box!

Youth and energy have market value, but not if you allow them to lie waste away!

 

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