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Really? On Christmas Day?

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Yeah.  I’m blogging on Christmas day.

This year is unique.  For the first time that I can remember, I am alone, my dad is alone, and my uncle is alone.  We all live within miles of each other.  My Uncle isn’t married, but he has a few friends that he spends time with during the Holidays.  My dad is married, but for some strange reason Kate decided to go to Tahoe to ski instead of celebrate christmas, and I’m sitting here in my dark house writing.

Not what I pictured.

When I was a boy, Christmas was an amazing time.  I was an only child, and I certainly was spoiled by my parents.  Inevitably, every year they would tell me that I’m not getting anything big, and then something massive would come my way.  I don’t know if you can call that under-promising and over-delivering, but it was great, nonetheless.

Hungry Hungry Hippos, Capsela, Snap-together models, Testor chemicals, Hot Wheels Factory, Atari 2600, money, socks, batteries, books, cards, a computer!  Basically, every Christmas was indulgent and satisfying.  I had no competition, and I loved the entire day.  I didn’t have a staircase in my house, so there was no sneaking to the top of the staircase, most of the fireplaces that we had in Phoenix didn’t have a mantle, and were just stucco be-hive style, so the stockings, although hung, didn’t look “hollywoodized,” and it certainly didn’t snow.  Santa was believable for years, even though he’s typically over-dressed for this climate.  But I knew who the real Santas were the first time I saw a gift with “From: Santa” written on it before Santa had made his rounds!  Sneaky!

After the initial morning madness with me and my parents…ehem…Santas, my grandparents on my father’s side (Baca Baca and Grandaddy) along with uncle Steevo would show up.  By this time, in my mind, as a young boy, hours had already passed and I had already traveled the universe in my lego space-ship and invariably disassembled something and learned the schematics, then reassembled it and continued on.  In reality, it was only an hour or so.  Breakfast, this strange “adult” cake that they called “coffee cake” (I never understood that,) and additional gift opening would commence.

When the adults were done marveling at my ability to out-play everyone on Perfection, and had consumed enough of whatever they were consuming (must have been orange juice and 7Up, just like me, right?) they would giddy up and head out until next year.

That left me with the entire afternoon (again, time was relative) to play play play with my new stuff.  Most of what I received growing up required my creativity.  I didn’t have a lot of useless toys.  In fact, I had a lot of scientific stuff.  Things that I would have to build, or figure out.  It was perfect for me.

For dinner, we would cart everything over to my mom’s side of the family and do it all over again.  Opening gifts, playing the piano, eating, eating, eating.  Eventually the night would lead to me faking my own sleep so they’d have to carry me out.  I don’t know if I did that because I was lazy and didn’t want to walk, or if I just liked being carried by mom or dad.  Probably the latter ;).

The holidays used to be filled with family.  Now it’s just me.  Mom and Dad divorced something like 20 years ago and both re-married.  Suzanne (Gu Gu), Evelyn (Baca Baca) and Grandaddy are all gone now, and so is Su Su, my mom’s sister Susan.  Uncle Tom has been living in Santa Barbara for quite some time now, and the Merritt family has been in Oklahoma for eons.

I know that there are plenty of people with open homes on a day like today, and I love that.  But, even as warm and inviting as it may be, it’s just not the same.  In fact, sometimes it’s even harder when you’re invited somewhere that’s outside of the realm of what you envision as your own family tradition.  I’m getting older, and I feel behind almost everyone I know.  My entire circle of friends, save for a few, have either been married and have kids, or are married with kids, or are newly married.

Today, I was supposed to be spending time with someone I had been interested in.  That came to an abrupt end on the 22nd, and even though it’s probably the right direction, it still stinks.

So for now, and as long as I can see, Christmas is going to be tough.  This past year I’ve spent most of my energy getting out of debt, which meant sacrificing in so many areas that I had become accustomed to maintaining.  I still have a housing issue to deal with, but other than that, I owe no-one, which is a major accomplishment.

I have no idea what the future holds, but it’s got to be better than this.  I know, I know…I could come over to your house and spend time with you, and I appreciate the offer.  Today, I’ll be joining my Dad, as he is also alone this Christmas, and we’ll eat that damn California Pizza Kitchen frozen pizza, have our own effin’ bloody mary’s, and watch some foosball or something like that, even though I hate football.

I hope that your Christmas is what you envision it to be this year…one day mine will be again.

Eighteen Thousand Dollars to See a Movie?

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Yes, believe it or not, in order for you and your spouse to see a movie and have a soda every week, it will cost you $18,200.00.  Keep reading, and you’ll see how.

How you look at life does not determine whether or not something is wrong or right.  Although, when I consider financial matters, since money and math are synonymous with each other, and math doesn’t lie, the application of a “philosophy” to the way you manage your money doesn’t make sense to me.  I think that any philosophy that gets creative in the spirit of proving math wrong is a flawed philosophy.

One plus one is two.  That’s it.  Just two.  Math doesn’t lie.

Sometimes I like to look at things on a micro scale in order to grab hold of the big picture.  In fact, since I’m surrounded by my world and not outside of it, looking at the big picture sometimes requires an extrapolation of the micro details.

Take the concept of financial security.  In line with everything that I have ever thought, but never applied until recently, financial security means you can cover all of your living expenses using the investment income from the money you have saved.  Financial security does not mean you make enough money every year, because “enough” is relative to how much you are able to live on.  So, enough doesn’t mean anything.  It doesn’t mean that you have $100,000 or $200,000 or $1,000,000 in the bank, although that would be helpful, of course.

Financial security means you can successfully live, all expenses paid (remember, expenses being relative) on 8% of your nest egg (thanks Dave Ramsey.)  By the way, I dont consider Dave Ramsey to be another one of those financial gurus that has a “philosophy.”  I consider him down to earth, mathematically conscious, and full of uncommon sense.  Some of you might say, “old school.”  As far as I can tell, math hasn’t changed over time even though we try to make it change.

So what does living on 8% of your nest egg mean?  It means after you invest your savings in various investment vehicles, predominantly growth stock mutual funds, some of which have a proven long term performance record of around 12% annually, and you adjust for the average 4% annual inflation rate, you end up with somewhere around 8% on the average.  This is a long term plan.  There is no get rich quick without massive risk.

If you live your financial life applying basic formulas to how you manage money, it doesn’t matter whether you have a million dollars or a thousand dollars.  8% is 8% and if you can live off of 8% then you’re doing what you need to do to be financially secure.  Can someone live off of 8% of $1000.00?  Not likely.  That’s only $80.00/year.  So there is a level of realism that you need to incorporate.  But who knows, a majority of the world lives on less than a dollar a day.

On a micro scale, if you apply this nest egg rule to your money before you spend it, you can figure out how much you need to put away so you can continue your habits without needing to work.  What do you mean?  Let’s go uber micro.  Let’s say you and your wife enjoyed going to a movie once per week.  Your ticket price is $9.50 each, and you both slurp down a large, overpriced concession each time, at a cost of $4.50 each.  Your total cost to see that movie is $28.00, plus the ignored costs of time and gas to get to the movie.

So now you can ask yourself, “eight percent of what equals $28.00?”  The answer?  $350.00.  Eight percent of $350.00 is $28.00.  Since you go to the movies once per week, in order to be financially secure in this transaction, in other words, in order to see that movie “free of charge,” as your money works for you, you’d need to have a total of $18,200.00 invested in growth stock mutual funds averaging 12% over time.

It’s interesting to look at what you’re spending, then determine how much you’d need to have to cover that expense without working.  We will so often look at how much we have and then wonder what happened to it after it’s gone.  Start looking forward with your finances.  Considering that you’d need $18,200 in the bank to cover this one single activity may help you make some changes in how you spend.

The Compounding Problem of Credit Card Debt

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Dave or Susie

I won’t go into a dissertation on debt and the economy, but I will respond to an article that I read recently that posed the question, “Is Dave Ramsey’s way better, or Susie Ormond’s way better.”  The question of the best way to pay down credit card debt seems like a pointless argument as there really is only one way to pay down debt.  Just pay it down.

I have been listening to Dave Ramsey’s advice on managing money, and while I agree with everything he preaches, there’s a lack of practical application, and no possible way to address each and every problem out there in a few seconds on the radio.  It is a “broad” transmission, after all.  I have never listened to Susie Ormond, so I can’t say anything about her.

The $1000.00 Example

Credit card debt in this country is massive, and it starts with each individual’s spending habits.  Before I continue, I’ll lay out a little analysis of what credit card debt actually  means to you, if you have it.  If you don’t, stay that way.

Let’s take $1000.00 for instance.  When you purchase an item for $1000.00 using a credit card (firstly, understand you’re much more likely to purchase something if you have a credit card…retailers bank on it, literally) you’re not actually spending $1000.00.  You’re spending a) $1000.00 that you don’t have yet, b) more than $1000.00 after interest adds up and c) the depreciation in value of the item you purchase.  So how much are you actually spending?  That depends on your interest rate.  Let’s say it’s only 15% annualy.  Take 15% and divide it by 365 days and you get .0004109 % per day.  Now multiply that number by 30 days and you get .01232 % per month.  Multiply that times your balance and you have the following.

The $1000.00 you borrowed grows in one month to $1012.32.  Your minimum payment for the month is probably $15.00 on a $1000.00 balance (check your card agreement) which means that if you pay the minimum payment every month, you will pay the credit card company $1112.15 for a $1000.00 purchase for a total of $2112.15 and it will take you 11 1/2 years to pay it off.  That does not take into account the decline in value of whatever it is that you purchased if it holds any value at all.

But I Rationalized My Purchase

Sure you did.  Just like they planned.  They know that you’ll say something like, “I’ll pay it off before the end of the month.”  Thank bank on that, because it’s likely you won’t pay it off, and your payment due dates do not correspond with the end of the month.  Don’t rationalize your purchases.  If you have the cash to pay off the purchase, then just use the cash.  Those incentive programs that they offer you, like the “no payments for 12 months” programs are designed to push you to rationalize your way into deeper debt.

“No Payments for 12 Months”

So what’s so bad about that?  Well, firstly, in order to take advantage of these programs, you have to go into debt, which is not a very smart decision.  It may seem great at the time, but if you’re someone with no discipline to pay the credit card off prior to the expiration date (the exact day) then you’ll be surprised at the end of the promotion period to see all of the interest for the entire 12 months slapped onto your bill.  These programs are expected to attract the purchases of people who would normally not spend anything at that time.  Think about all of the trips to the hardware store you’ve made that resulted in you thinking you needed more than you came to get.  If you find yourself short of self control in this area, get rid of the credit cards.  You’ll be surprised at how less often you browse the malls and retail stores just looking for an excuse to spend money you don’t have.

So I’m in Debt, What Do I Do?

Dave Ramsey lays it out quite simply.  Look at all of your credit card statements.  Put them in order of importance from the lowest balance, to the highest balance.  Determine how much of your budget you can afford to pay towards your credit cards, pay the minimum payments on all of your cards, and focus the balance of your remaining budgeted payment to the card with the lowest balance.  Other methods involve knocking out more than one card at a time, and this may work for you, but I have found in my life that working with one card at a time helps me reach shorter term goals more often, which gives me a sense of accomplishment, and therefore adds to the positivity that I need in my life to not feel so enslaved by the lenders.

If you aren’t familiar with Dave Ramsey, I highly recommend listening to his radio show or subscribing to his podcast.  You can hear his show on his website as well.  They post the show every day he’s on the air.  Listening to the success stories will help you know that you can move forward in your life and get out of debt.

Arizona Real Estate Statistic Update

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From time to time I throw up a statistic in the form of a graph so all of you number geeks can get a grip on what’s happening in the market today. An interesting fact to ponder is the pattern that, regardless of the market conditions and consumer spending levels, the behavior pattern of those who are actively buying and selling real estate remains fairly static. You’ll notice that the trend this year changed between March and April. The following graph should explain itself. Roll your mouse over the graph to interact with it.

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Take a sampling of the month of may over a 3-year period. You’ll notice that in may of 2005 there were 9,890 home sales. In the same month one year later, there were only 7,573 sales. One year after that, 5,795 sales in May. Each year, the number of sales in May dipped by a rather significant amount. This year, we have a new trend brewing with 5,667 home sales, only 128 less homes sold this year than did last year in May.

Think this has a bearing on the condition of the market? Leave a comment if you have a thought!

How do Real Estate Agents Get Paid

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…and who pays them?

Before I was a REALTOR, I was a consumer, and I bought a house. Fortunately for me, or maybe it wasn’t so fortunate, my REALTOR was my father. He also owned the house that I purchased. This worked both for and against me, but we won’t go into that now. The point is, I had no idea how REALTORS made a living prior to diving into the business myself, and you may also have questions about how we get money on our european wallets.

Real estate agents are 100% commission based jobs. That means, we don’t get a paycheck unless we do business. Makes sense. Open up shop, provide a service, get paid, or sit on the couch all day wondering what to do.

Real estate agents also work as sales agents under a real estate Broker. That broker typically collects a percentage of what we make to cover the costs of running the company. At Realty Executives, we pay a premium to use the name while we conduct business according to their standards and the standards of the Arizona Department of Real Estate and the National Association of Realtors.

If we don’t sell a home, we still pay our broker, mortgage, utilities, etc. So we’re always in a position where cash is flowing out, but not always in a position where cash is flowing in. We’re also in a business where we need to be available when most of the rest of the world is not. This means that we sometimes have to work on the holidays that you get to spend having fun. On the other hand, we have the freedom to “take a lunch” whenever we want.

What does having a Realtor cost the Buyer? Answer: Nothing. Zero. Zip. Nada.

When you meet me for the first time and express an interest in purchasing a home, I assess how serious you are about purchasing, and then I begin to spend money on you to help you find that home. Searching for a home with a REALTOR costs you only time. You will spend nothing out of pocket, but we will commit a large portion of our business day(s) and marketing budget to provide you with the most pleasant showings as we possibly can. We fill our tanks, fill your stomachs, and become your city tour guide for the duration of your search. If you purchase a home without using us after spending all that time, we don’t get paid, but we also don’t hold it against you, because you may not have known, which is why I’m writing about it. 🙂

When the seller hires a broker to sell their home, the broker charges them a commission to do so. When that broker lists the property on the MLS, they indicate how much of that commission will be paid to the agent who brings YOU (the buyer) to the table to purchase the home.

The buyer won’t have to open their wallets until an offer is accepted, at which point a series of events begin that justify why the selling broker is willing to pay us in most cases half of the agreed upon commission.

What does having a Realtor cost the Seller?

The seller is the one who has the highest expense. From fixing up their property to staging it, the seller will bear the majority burden of cost in selling a home.

When the seller strikes an employment agreement with the broker, they typically agree to a set commission of the final sales price of the home and they offer a portion of that to anyone who brings a buyer. When the property closes escrow, the funds owed the listing brokerage are distributed according to the agreement between the two brokerages and each real estate agent is paid accordingly.

Gas…like…ass

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Gas rhymes with ass and that is how I felt as I poured $3.19 down that little tube in my truck as every gallon seeped from the tank beneath my feet.

$50.00 and change. A 16 gallon tank. Too much. I spent about $225 on gas in August. This is ridiculous. So much so, that I may have to forfeit driving as much as I do. I may have to sacrifice fellowship with people that live 10 or more miles away. I may have to never see a movie further than the Pavillions. I may have to quit seeing movies altogether for a while.

My truck gets 17 miles/gal at a cost of 18.7 cents per mile. It costs me $1.00 to drive 5.8 miles. My friends are further away than this. With a factor of 2 (there and back) just to drive to church, I spend $7.50. If I want to visit the Koziczkowski’s, 35 miles from me, it’s $14.00 round trip. Go to dinner with them too? Now I’ve spent $30.00. If that happens 4 times/month i’m spending $120.00/month on just that. On average, I drive about 100 miles/month based on the number of tanks I’ve paid for in the past months.

So, I’ve been thinking about moving from my truck, to a scooter. A scooter gets 70 – 100 miles to the gallon. That’s roughly $3.00-5.00/month in gas. If I’m spending $200.00/month as it is, I could save (I’ll estimate) probably $150.00/month if I switch from my truck to a scooter only. Of course, that’s not 100% practical since I still need to haul my gear to church. If a scooter costs $2499.00 new, it would pay for itself in 16 months. If I go with one that has less power, it would cost about $1700.00 new and would pay for itself in 11 months. Either way, I will be spending this money over the next 16 months, whether it be on gas for my truck, or another form of transportation. The ultimate goal is to reduce my monthly expense and to reduce it as quickly as possible.

I could just ride my bike I suppose?!