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Fri Jan 18, 2013, 04:40 AM

Wake Up, America! We're Paying Billions for Personal Financial Advice, and It's Making Us Poorer

http://www.alternet.org/economy/wake-america-were-paying-billions-personal-financial-advice-and-its-making-us-poorer



***SNIP

The following excerpt is adapted from Pound Foolish: Exposing the Dark Side of the Personal Finance Industryby Helaine Olen by arrangement with Portfolio, a member of Penguin Group (USA), Inc., Copyright (c) Helaine Olen, 2013.

The Latté is a Lie: Selling the Myth of the Fiscally Promiscuous American

A quick cup of coffee, a few moments of pleasure. What could be wrong with that? If you ask David Bach, a lot.

According to him, the Starbucks latté is one of the leading sources of our money woes. A former Morgan Stanley money manager, Bach parlayed his experience into multiple book contracts, a nationwide seminar, and ultimately, a regular gig on the Today Show.

Bach believes we can all become millionaires by the time we retire if we arrange to make our savings automatic by having money deducted from every paycheck we receive and funneled into an invest­ment account. It’s not a bad insight as far as savings strategies go. But first people need to find money to invest, and that’s a challenge for Americans. Just under half of us are living paycheck-to­ paycheck existences at least some of the time, with nary a penny left over for savings.

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Reply Wake Up, America! We're Paying Billions for Personal Financial Advice, and It's Making Us Poorer (Original post)
xchrom Jan 2013 OP
stultusporcos Jan 2013 #1
Skittles Jan 2013 #2
stultusporcos Jan 2013 #4
ieoeja Jan 2013 #20
stultusporcos Jan 2013 #25
Honeycombe8 Jan 2013 #32
stultusporcos Jan 2013 #42
Honeycombe8 Jan 2013 #45
SoCalDem Jan 2013 #3
sendero Jan 2013 #5
HughBeaumont Jan 2013 #7
sendero Jan 2013 #29
Honeycombe8 Jan 2013 #33
sendero Jan 2013 #40
Honeycombe8 Jan 2013 #46
sendero Jan 2013 #47
Skittles Jan 2013 #24
sendero Jan 2013 #30
Skittles Jan 2013 #41
HughBeaumont Jan 2013 #6
bemildred Jan 2013 #8
xchrom Jan 2013 #9
Odin2005 Jan 2013 #14
bemildred Jan 2013 #16
1StrongBlackMan Jan 2013 #26
joeglow3 Jan 2013 #17
bemildred Jan 2013 #19
JHB Jan 2013 #10
xchrom Jan 2013 #11
jmondine Jan 2013 #12
Odin2005 Jan 2013 #13
JHB Jan 2013 #21
Honeycombe8 Jan 2013 #34
OldDem2012 Jan 2013 #15
Honeycombe8 Jan 2013 #35
KurtNYC Jan 2013 #18
Initech Jan 2013 #22
Honeycombe8 Jan 2013 #37
taught_me_patience Jan 2013 #23
Honeycombe8 Jan 2013 #38
taught_me_patience Jan 2013 #43
Honeycombe8 Jan 2013 #44
1StrongBlackMan Jan 2013 #27
cbdo2007 Jan 2013 #28
jmowreader Jan 2013 #31
high density Jan 2013 #36
Honeycombe8 Jan 2013 #39

Response to xchrom (Original post)

Fri Jan 18, 2013, 04:59 AM

1. Yep auto savings is key even if it is $5 a payday

 

I am no finance and investment genius, I have a 401k in no load mutual funds through work with matching funds, some savings bonds and a small savings account. That is it and in 12 years as long as I average 5% each year in my 401k, the wife and I will have $1.1 million in the 401k, we did not think it was doable either but if you pay yourself first and don’t touch it you can save more than you can realize over time and it is easier than you think. Neither of us came from wealthy families either and for a large part of our working careers we made less than $50k a year combined. Yes we live life and buy stuff and take vacations , rack up CC Debt, etc about the only thing we don’t do is buy new cars all the time our newest car is 9 years old with over 150K miles on it.

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Response to stultusporcos (Reply #1)

Fri Jan 18, 2013, 05:34 AM

2. may I ask you a non-related question?

why do you say THE wife instead of MY wife? I have always wanted to ask that; thanks.

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Response to Skittles (Reply #2)

Fri Jan 18, 2013, 05:45 AM

4. I do both, no rhyme or reason would calling her the old lady be better?

 

I know people who refer to their wife as Mother, which I find kind of creepy.

I, well we, have also told people we are married brother and sister too just for the shock value.

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Response to stultusporcos (Reply #1)

Fri Jan 18, 2013, 10:10 AM

20. I've put a hell of a lot MORE than that for a lot longer and am nowhere near $1.1M.


I switched my money to the "short-term gov't guaranteed" 401(k) fund just before the 2001 collapse. I still lost almost 50%. And that fund had the lowest loss of any 401(k) fund our provider offered at the time.

How did you manage to avoid that loss?

I switched to the new truly-almost-no-risk fund just before the 2008 collapse. So I missed that collapse. But after two decades I still have less than $400K.


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Response to ieoeja (Reply #20)

Fri Jan 18, 2013, 04:34 PM

25. Let it ride, that it is, I do nothing at all

 

every time I got a COLA I upped my 401k by a point or so too.

It got ugly a for a few years but is has all bounced back.

I think key is don't f-with it but like I said I am no expert maybe just lucky.

I always recommed save as much as you can each payday and don't jack with it, keep it in a no load mutual.

Life is simple people make it complex.

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Response to stultusporcos (Reply #25)

Sat Jan 19, 2013, 07:43 AM

32. Tis true. Saving is key. Most people don't have the knowledge or time to invest...

though. I read some books and handled my own investing, but I suffered for it. No time. Still, I figured I could handle my own money as well as a financial advisor. At least I cared a lot about it.

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Response to Honeycombe8 (Reply #32)

Sat Jan 19, 2013, 01:21 PM

42. at least you tried and it could have also worked out better then you expected too

 

you would not have known is you did not try.

Even with failure you did learn somethings too that may help out in the futue.

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Response to stultusporcos (Reply #42)

Sun Jan 20, 2013, 09:06 AM

45. That's the way I look at it. "I can lose my money as well as a financial advisor. And I'll do it for

free!"

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Response to xchrom (Original post)

Fri Jan 18, 2013, 05:42 AM

3. Spend less than you make..save the difference

That's the only way to solvency for most people.

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Response to xchrom (Original post)

Fri Jan 18, 2013, 05:59 AM

5. This is solid advice..

... and advice that worked well for me. If you are making little money, spend even less. Doing without is easier when you are younger and will pay off when you get older and have some cash to fall back on.

If you have trouble motivating yourself to forego some of these little pleasures try to imagine yourself being 55 and broke.

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Response to sendero (Reply #5)

Fri Jan 18, 2013, 08:06 AM

7. Of course, but what do you tell people who are already doing this and STILL can't make ends meet?

The point of the article is that "Financial Gurus" are the economic equivalent of "Brightsiders". They're pumping rainbows up your ass and go so far to victim-blame to mask the real problem; that making even above minimum wage can't afford that person even the smallest roof over their head anywhere in this country.

They never address income inequality, wage stagnation, inflation, economic landmines, personal landmines, etc., and assume wildly lucky rates of return on assumed investments. There's a reason Americans have a negative savings rate - there's too much month at the end of the money because we're getting killed by necessities, not Starbucks.

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Response to HughBeaumont (Reply #7)

Sat Jan 19, 2013, 05:50 AM

29. Nobody is more concerned about economic justice..

.. than me, it is the main reason I am a democrat.

However, if you get thrown overboard I suggest swimming rather than ruminating or railing on the unfairness of it.

On edit let me add, the poor are routinely fucked over more than anyone else. While it would be nice to put an end to that, little progress, if any, has been made lately even with a nominally Democratic president.

So the best way to get out of the cycle of payday loans and late fees and the numerous other ways the poor are penalized is to find a way to not be late and not need a payday loan. Please don't mistake my stark assessment with a lack of sympathy, I grew up a poor kid going to a rich kid school so believe me I've been there. I'm just telling you the best way to get out, I did it and so can most other people. You do it by spending less than you make, period.

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Response to sendero (Reply #29)

Sat Jan 19, 2013, 07:49 AM

33. Swim, don't rail & ruminate, or you'll drown.

The poor are screwed over, for sure. BUT I will say that if the poor showed up to vote regularly, we wouldn't have a Republican House of REpresentatives, Bush wouldn't have been elected, etc., etc.

My older sister is on Medicaid in Louisiana. Medicaid has been cut in that state. It's horrible. But I will add that I think she's voted only once in her life, if at all. She's in her 50's. Would Jindal be Governor if people like my sister, and the Katrina victims, had showed up en masse and voted for Governor? I don't think so.

But if we don't have expendable income, then there's not much we can do to save. Except to get a second job, or a skill for a better job, so we can save that way.

I was poor once, so I understand not having money to save. But I was also very young. Could I have saved something, if I really wanted to? I don't know. Maybe.

But VOTING is the first step.

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Response to Honeycombe8 (Reply #33)

Sat Jan 19, 2013, 08:09 AM

40. Well for sure..

... the poor need to stand up for themselves and vote. Nobody else is going to do it for them.

Where I live there seems to be a payday loan or other cash advance place every half mile. Using these places is like going to a loan shark and in fact the business practices of these places was illegal not that long ago.

But make no mistake at all, once you fall into that trap (borrowing at exorbitant interest rates) it is very hard to get out. And nobody has a gun to their head although I do realize there are times when there is no other choice. But I have to think a lot of people make the choice because it is the easy way out and the easy way out always comes with a price.

These places seem to do a booming business and it makes me kind of sick. It's really sad.

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Response to sendero (Reply #40)

Sun Jan 20, 2013, 09:17 AM

46. And charging. One thing I did not do when I was poor....

was charge on credit or borrow against future income. It never occurred to me, frankly, so it wasn't that I was shrewd financially. I had been taught growing up that if you couldn't pay for something, then you can't afford it. Period.

It has helped over the years that I have not had debt. I try to buy things on sale, so it would defeat the purpose to buy towels on sale, then pay an interest rate on them. And borrow against future income? I can't see ever doing that. What happens if I lose my job and can't pay it back? Trouble.

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Response to Honeycombe8 (Reply #46)

Mon Jan 21, 2013, 07:29 AM

47. At the root of my posts is this...

... way too many poor and soon to be poor people make it easy for the rich to rip them off. If you don't manage your money and exercise the discipline required to not be at the mercy of credit card companies and payday loan companies etc you are setting yourself up to be their slave, forever.

And even when you have "made it", debt is for a house and MAYBE a car (generally I don't believe in debt for a car either but in some cases it is required) and absolutely nothing else that is discretionary. Business debt, i.e. debt used to make money, would be an exception but even that requires care.

The happy fact is that consumers in America are continuing to "deleverage" i.e. pay down more debt than they are taking on. At least a lot of Americans learned something from the great recession. I will know we have really turned the corner when I see payday loan/cash advance businesses shutting down.

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Response to sendero (Reply #5)

Fri Jan 18, 2013, 02:40 PM

24. I guess little pleasures includes donating a few bucks to DU?

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Response to Skittles (Reply #24)

Sat Jan 19, 2013, 05:51 AM

30. I realized my comment ..

.. would not go down well with some DUers. Reality never does.

And let me answer your question. If you can donate to DU and still have something to save each month, then by all means donate. That rule goes for any other expense, be it Starbucks, cable TV, Jack in the Box, whatever.

If not, then no, you cannot afford it and if you keep managing your money like that you never will be able to.

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Response to sendero (Reply #30)

Sat Jan 19, 2013, 12:32 PM

41. WTF?

reality does not go down well with me? I HAVE WORKED FULL TIME FOR 38 YEARS. I was also raised by a depression era survivor and a WWII survivor so I WELL KNOW the meaning of living within my means. I also know that if I regularly participate in something that runs via user cash, I PONY UP.,

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Response to xchrom (Original post)

Fri Jan 18, 2013, 06:10 AM

6. They'd be better off watching this from now-Senator Elizabeth Warren:



We're getting killed on NECESSITIES, not "LUXURIES" (as if coffee is somehow a luxury now).

There's no room for error in Modern America. You can't qualify for health care if you're defected in any way. You can't "do what you love, and the money will follow"; you know, unless "what you love" is investment banking or being a doctor or something like that. Your career choice has to be the right one. Every decision you make has to be the right one. And your luck definitely has to be better than average.

There are families (I think a majority of families in America) that literally have not one penny to save for themselves, let alone have anything to lose.

No one can assume "be perfect", but guess what: Rebounding from those unforseen landmines is getting more and more difficult because

* Wages have not been keeping up with the cost of living for 30 years.
* The private sector job market has been worse-than-useless for a decade and is only somewhat recovering under President Obama.
* There's still no universal health care and American health care does whatever it can do to shift as much cost on to the individual as possible.
* Thanks to no real wage increase, Americans now have a flat or negative savings rate.
* America would rather spend it's money killing foreign people than helping our citizens.
* American students are taking on loads of insurmountable debt just to get the tools needed to enter a workforce that refuses to train them, would rather hire a cheaper substitute from another country and has experienced people competing for entry-level positions.

How anyone can think this system is logical, sustainable and not self-consuming is beyond me completely.

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Response to xchrom (Original post)

Fri Jan 18, 2013, 08:25 AM

8. Yep, it' a racket, it's a worse racket than insurance, and that's bad racket.

The markets are manipulated, the advisers don't have any idea what is going to happen next, the advice is trite drivel, and the fees are exorbitant.

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Response to bemildred (Reply #8)

Fri Jan 18, 2013, 08:39 AM

9. +1

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Response to bemildred (Reply #8)

Fri Jan 18, 2013, 09:43 AM

14. I remember reading that most stock market "analysis" is no better than chance.

These idiots do not "understand" the markets, they only think they do.

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Response to Odin2005 (Reply #14)

Fri Jan 18, 2013, 09:48 AM

16. Generally it's worse, because they believe their own bullshit, the dumb ones.

So they don't know when to be afraid, because they think they know what they are doing. And "Buy and Hold" is a terrible strategy in the sort of volatile fairyland markets we have these days.

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Response to Odin2005 (Reply #14)

Fri Jan 18, 2013, 04:41 PM

26. More importantly ...

they only convince OTHERS that they do.

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Response to bemildred (Reply #8)

Fri Jan 18, 2013, 09:49 AM

17. Which is why you invest in no load index funds

Buffet said something along the lines of "I would rather have a near guarantee of a good return then a shot at a great return." The vast majority of managed portfolios fail to beat their index. Stick with monthly contributions to an index fund. I saved for a few years until I got $1,000 to open a Vanguard STAR fund and put in $100 a month. I have been able to increase that and can now see the benefits of paying yourself first early in life.

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Response to joeglow3 (Reply #17)

Fri Jan 18, 2013, 10:02 AM

19. I do like funds, don't like stocks.

Spread the risk.

And consequently, I look at broader movements, and so think its a mistake to get too picky about precise returns, this is herd behavior, there is a lot of noise.

And its gambling, never doubt it. Anything can spook the herd any time.

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Response to xchrom (Original post)

Fri Jan 18, 2013, 08:52 AM

10. The quoted portion is misleading or incomplete: it's part of what the book debunks

The article at the link is about how the numbers in Bach's "latte" line don't add up.

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Response to JHB (Reply #10)

Fri Jan 18, 2013, 08:58 AM

11. yes. i could see that by how the thread started out. nt

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Response to xchrom (Original post)

Fri Jan 18, 2013, 09:27 AM

12. I am taking Dave Ramsey's course right now

He is a powerful motivational speaker. He has some good advice. But I take any numbers he throws out with a grain of salt.

I take from it what is useful to me and discard the rest. I certainly don''t think that drinking Folger's instead of Starbuck's is going to net me any kind of fortune.

And none of this is going to make me ignore the injustice in our economy or the plight of those hit with hard times.

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Response to xchrom (Original post)

Fri Jan 18, 2013, 09:38 AM

13. Those "Feed The Pig" commercials make me cringe.

They simply assume that everyone has enough money and that the only reason we cannot make ends meet is because we don't have enough "financial discipline". It is also based on an assumption that the working class should not have any luxuries, even the little ones. It's offensive and deeply classist.

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Response to Odin2005 (Reply #13)

Fri Jan 18, 2013, 10:55 AM

21. I believe the phrase you're looking for is...

"...a thrifty working class" - Henry F. Potter, president, Bank of Bedford Falls


http://en.wikipedia.org/wiki/Mister_Potter

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Response to Odin2005 (Reply #13)

Sat Jan 19, 2013, 07:55 AM

34. But it's a mistake not to save because there are poor people who can't.

There are poor people who don't have money to save. But most middle class people, even lower middle class, can save something. That splurge to feed the family out, instead of paying half the cost to eat at home? That's money that could be saved. Stopping to buy a coke at 7-11. Buying a Christmas gift for your elderly mother at Christmas, when you have trouble paying your utility bills....money that shouldn't be spent on a gift. A lot of people can find a little something here and there to save.

Because no matter how hard it is now, there will be a day when they're old and there's no money to buy their prescription for that month. The bits of money saved over 30 years will come in handy then.

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Response to xchrom (Original post)

Fri Jan 18, 2013, 09:47 AM

15. So....how much is SHE earning by selling this book about personal finance?....

....I'm sure all of those unemployed Americans are able to divert a little something from their weekly checks to savings.

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Response to OldDem2012 (Reply #15)

Sat Jan 19, 2013, 07:56 AM

35. Most adults in the country are employed, though. nt

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Response to xchrom (Original post)

Fri Jan 18, 2013, 09:56 AM

18. If Goldman sachs can sell THEIR clients risky investments and then bet against THEM, what chance do

the little people have to not get screwed over in their games?

"The dark side of the personal finance industry" has been on display for at least a decade.

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Response to xchrom (Original post)

Fri Jan 18, 2013, 11:44 AM

22. Suze Orman is a good one:

She talks about "saving! saving! saving!" then goes and hawks expensive Acura SUVs and a credit card with an 18% interest rate. Talk about mixed messages.

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Response to Initech (Reply #22)

Sat Jan 19, 2013, 08:00 AM

37. But she does offer good advice.

Thing is, a lot of people who would benefit from her advice don't read or watch financial advisors.

One bit of advice she offers is not to buy something you really, really want, if you don't have a savings account for emergencies. I've known people all my life who do that (guilty myself in years past). They charge a laptop or a new cell phone, when they don't have a savings account for emergencies. Or they have a small savings account, and they spend part of it on something for funsies, which is not what their savings account is for.

Some people sometimes don't know how not to buy something just because they want it. That's not a reason to buy something, unless you're set financially. It helps to deprive yourself today so that tomorrow you'll be better off financially.

I have a couple of her books. She's not great, but she does offer some simple, sound advice for the novice.

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Response to xchrom (Original post)

Fri Jan 18, 2013, 12:32 PM

23. I highly encourage people to spend more money on Cappuccinos

and not Lattes. Tastes better and cheaper too. I'm biased because I'm opening a coffee shop in one week.

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Response to taught_me_patience (Reply #23)

Sat Jan 19, 2013, 08:02 AM

38. If you are depending on ME, you're going out of business. I don't buy coffee. Too pricey.

I make my coffee at home (old fashioned percolator...it uses less coffee, so less expensive, and no filters to buy).

I've only ever bought coffee outside of my home when I was out of town for my company, and the company was paying, and I of course was not at home to be making coffee.

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Response to Honeycombe8 (Reply #38)

Sat Jan 19, 2013, 06:13 PM

43. Honestly man

Usually when someone opens a business (especially a small business they pour their life into), people congratulate them and wish them luck. Instead, you almost revel in a notion that your stingyness would cause me to fail. And people wonder why Democrats get a bad rap when it comes to supporting small business.

Secondly, are you implying that your "home brew percolator" is better than shops who dedicate their lives to finding and providing the best and freshest coffee and baristas that dedicate their lives to perfecting the brew? Baristas are trained professionals... you... just classless.

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Response to taught_me_patience (Reply #43)

Sun Jan 20, 2013, 08:59 AM

44. I'm just sayin'.....if capitalism relied on me to survive, it'd fail. I live frugally....

buying what I NEED, then buying what I WANT a lot but will be of some practical use to me, then buying what I want but don't really need. I don't buy much in the latter category.

This is best for ME. It comes from the days when I was very poor. I couldn't afford to buy things. So I splurge now, but not like someone who has never been poor. As anyone who lived through the depression would tell you, they remember what it was like, and they recognize the difference between a NEED and a WANT. We simply can't spend money extravagantly. It's been flushed from our souls.

The good news for you is that most are not frugal and buy consumer items a lot. That's why Starbucks is a success.

What I DO buy a lot of : groceries and household items from discount and grocery stores; pet items.

It's a good thing to be frugal. But I wish you success in your business. Most people are not like I am.

Please note that I did not personally insult you, as you personally insulted me. You won't last long in the business world with an attitude like that. As for coffee...yes, I know a little about coffee. I'm of French ancestry (almost 100%) and have been making and drinking coffee for 49 years. I didn't say your coffee wouldn't be good or better. I said I don't spend money outside of the house on coffee. My coffee is wonderful. I don't spend money on something that I can make at home very well without much time or inconvenience. So if Starbucks is a little better, but mine is very good, that's good enough for me. No reason to pay several dollars for a cup of coffee! That's too extravagant for a person who once lived paycheck to paycheck and couldn't afford to buy meat.

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Response to xchrom (Original post)

Fri Jan 18, 2013, 04:50 PM

27. I wish one of these financial gurus ...

would recognize/acknowledge that those born into, have experienced, poverty; aren't oriented towards/don't have the luzury of taking a long-term view of life.

And don't feed us the "delayed gratification" line ... It doesn't apply when we have to survive today.

BTW, saving and investing $10 every 2 weeks might realize you $1,000,000, if you start at birth and live to 200.

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Response to xchrom (Original post)

Fri Jan 18, 2013, 05:10 PM

28. I blame smart phones and the constant need to spend money on shit we don't need

Incomes haven't risen in 10 years yet 10 years ago I paid $20 per month for my cell phone with 500 minutes per month. Just bought my wife a smart phone which has unlimited minutes and text and a certain amount of data and we pay like $70 for it, so she can check facebook all day and listen to Pandora at work and look cool in front of her friends.

I won't get into the whole stock market argument cause that's a different issue, but it is absolutely true that we are pushed into more and more expensive things constantly that we don't need, like a Starbucks cappuccino. It may not seem like much but I have a collegue who buys 2 per week at $3 each. Trust me, I know her personal finances and she really can't afford to spend $300 per year on cappuccino but it's the cool thing right now and she doesn't understand how it all adds up. She'll never retire and has no idea it's because she doesn't live more frugally day to day.

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Response to xchrom (Original post)

Sat Jan 19, 2013, 07:36 AM

31. The only financial advice you will ever need

Moonlight.

This is not something Dave Ramsey will tell you to do. The financial gurus are all into austerity. Folks, you don't scrimp yourself rich.

How this works:

1. Get another job. Set your tax deductions REAL high so April 15 doesn't bite you in the ass.

2. Split your paychecks three ways. Ten percent goes to you for lattes or whatever.45 percent pays bills - one at a time until it's gone. The rest gets invested.

3. When you invest, follow Big Dave DeMassey's advice: learn everything there is to know about what you invest in. Big Dave's daddy thought food companies were the shit, so he taught Dave about the food industry. Dave knew farming as well as a farmer, meatpacking as well as a butcher, retailing as well as a grocer. Only in this way can you beat the market.

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Response to xchrom (Original post)

Sat Jan 19, 2013, 07:58 AM

36. One thing that sucks are employer retirement plans which force you to into a specific custodian

My work retirement plan is at Pacific Life. The funds there cost literally TEN TIMES what I pay at Vanguard.

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Response to high density (Reply #36)

Sat Jan 19, 2013, 08:03 AM

39. This is so true! The fees are outrageous for 401ks. It's a racket. Still...

it's the only game in town for most of us, IF we even have that.

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