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Archive for January, 2018

Inflation - A Tax on your Savings

January 29th, 2018 at 02:38 pm



You get taxed on your income, you get taxed when you spend it, you get taxed on your property, you get taxed when you visit other properties (hotel tax), and you get taxed when you die.  Americans are subject to taxes in every form.  What most people don't realize is that the government taxes savings as well.

Yep, after you put in your hard effort earning at a discount, buying at an increase and trying to make those ends meet, the government steals away a significant portion of the money responsible people and businesses set aside.  The money is taxed as you earn it, then anything unspent gets taxed repeatedly until it is reduced to nothing.  

What really drives my crazy is there's an old economic saying that you get more of what you subsidise and less of what you tax. The government is taxing the very behavior that prevents individuals and companies from needing bailouts and welfare programs. What does that lead to? More dependency, less freedom.

How are they stealing savings?
One word: Inflation

How is inflation the government stealing savings?
It should be fairly obvious that inflation causes the buying power of your savings to go down.  You might be able to buy milk today for $3.  In a few years, it might cost $5.  In other words, if you put your money into a stagnant account it lost 40% of its buying power.  By setting it aside for your future, you just made your $3 worth $1.8.

Even with an inflation as the current target of 2%, prices will double 2.3 times in the average lifetime. Increase that to 5% and you're looking at almost doubling 6 times! Even normal inflation levels can drastically reduce your wealth.

What is less obvious is how this puts it into the government's pocket.  Imagine you are in severe debt.  Wouldn't it be nice if dollars were worth less?  With a government as in debt as the United States, it is pretty easy to see why they might like inflation.

Inflation is a socialist.  It takes from the prudent and prosperous to benefit the reckless and failing.

But wait Milly, inflation has been near zero for a decade and hasn't been high since 1981.
I guess it all depends on how you measure inflation.

When you look at inflation data, it is usually represented by the CPI (consumer price index).  What is the CPI?  Supposedly it represents the price of household goods.

A tricky method many economists use is the "Core" CPI, a CPI that excludes energy and food.  The justification is that energy and food costs are much more volatile and large moves in those prices don't necessarily indicate true inflation.  The truth is that CPI isn't that great of an indicator unless you are averaging over a long time anyways, negating that argument.

The problem with "Core" CPI is that it is held artificially low by more heavily weighing items that rapidly decrease in price as technology develops.  Remember buying a 1G thumb drive a few years ago?  What does a 1G thumb drive sell for today?

Often they'll even take it a step further using hedonics. With the hedonic regression, they break items down past their unit price into their constituent parts. In other words, TV screens might be much more expensive than they were in 2000, but maybe the per pixel price has gone down, so they announce deflation. Who knows what formulas they use for completely new features on smart TVs. I can buy an amazing smart TV today for a few thousand dollars, where as in 2000, I would have had to pay a team of computer engineers to research it first. With that mentality, a smart TV's price has come WAY DOWN! Just look at the communications portion of 2017's CPI. Did your phone costs go down 4.9%?

Now look at your own expenses from groceries to electricity to toys.  You know prices are going up.  When prices do go up, what is the first thing you start trying to adjust to meet your budget?  Probably energy and groceries, exactly what "Core" CPI doesn't include.  Energy and food matter a lot to the consumer!

The bottom line is that by using different indicators and clever math, inflation can be carefully crafted to whatever the Federal Reserve wants it to show and that means low inflation.  They've even kicked their game up a notch and are making a huge show to try and increase inflation, as if that is a good thing.  If they can get us excited about avoiding deflation, their job gets a lot easier.

Latest CPI data broken down into subcategories and months
Weighting of categories and locations for the CPI (in 2014).  

I ran the numbers against my personal spending percentages for 2016 and the weighting they give each category (at least in 2014) seems reasonable.

Why are they concealing the true inflation?



Every time the Federal Reserve adds dollar, money  already distributed decreases its share of buying  power.  The United States depends heavily on borrowing.  If they let the rest of the world know what they are doing to the value of the dollar, who would loan us money?  At a minimum, they would demand interest to adjust with real inflation, something we simply cannot afford.

Officially low inflation also keeps domestic benefits cheaper.  If they released what the true inflation was, they'd have to also increase Social Security benefits.  Tax brackets would raise as well, limiting the money we give them.

Economists' Plea for More Inflation!
Just hiding inflation won't work forever though. On June 9, 2017, a group of 22 prominent economists including former Federal Reserve President Kocherlakota, wrote a letter urging then current Federal Reserve President Yellen to raise the target inflation rate above 2%.  The argument is that with only 2% of room to play, there will not be enough "ammunition" in an economic downturn to raise up employment with near-zero interest rates (closely tied to inflation).  In other words, if the expected inflation was at 5%, near-zero interest rates would be closer to 5% lower than expected and produce a much faster recovery than a 2% lower than expected interest rate.

Kocherlakota also states, "periods of zero nominal rates are likely to "be more frequent".  With the current 2% inflation target, the rates will need to be at the "zero lower bound about 30 percent to 40 percent of the time."  It is clear that Kocherlakota sees that the economic times have changed and drastic measures must be used.

What is crazy is the Fed's are saying it is great that we are on track and even above our target 2% inflation as if that is good news. They also say that 3% is okay since inflation has been so low for so long. Three problems with that thought:

They are acting as if their target 2% is a benchmark to beat. Shooting an arrow a yard above your target isn't a good thing.  They are making it sounds like we don't need to worry about anything, we are already exceeding our annual goals!

It hasn't been near zero for long. It  averages pretty close to 2% since 2008.

Even if we were near zero for a decade, that mind-set is very hard on the consumer. Imagine going years of near zero inflation. In your perceived prosperity, you load up on all forms of debt.  Then, suddenly prices jump in one year. Between higher living costs and adjustable interest debt (such as credit cards) your budget becomes VERY tight.

Note: the other way they could achieve these results is to toy with Europe's idea of NEGATIVE interest rates.  In other words, paying someone 3% for them to hold your money for you.  This idea could only work if money is trapped in the system.  Like in [href="http://money.cnn.com/2017/01/04/news/india/india-cash-crisis-rupee/index.html]India[/url], we could see a situation where paper money is forced to be converted to digital money, where Uncle Sam can see, track, and tax it all.

So how should we be measuring inflation?
Good question!

You could think of inflation as having two components, the supply of money and the velocity (how frequently the money is passed from person to person in a year) of that money. One is formed by monetary policy, the other by the behavior of the people within the economy. Let's start with money supply:

M3 - Broad Money



Money supply is measured in several categories.  The most useful in this case is M3, or broad money.  This includes cash as well as assets easily liquidated into cash (savings accounts, money market accounts, CD's, repurchase agreements, etc.)  If you look at a historical chart of this number, it has been steadily increasing until 2006, when the Federal Reserve announced they would no longer provide M3 numbers (source).

When my daughter is about to do something she knows she'll get in trouble for, she shuts the door or asks me to go into a different room.  If broad money was increasing like it was when openly disclosed, what do you think has happened since 2006? If you check out shadowstats.com for a private sector calculation of the numbers, you can see a dramatic ramp up in money.  Is there any wonder why there was an inflated real estate bubble and a massive falling out in 2008 with double-digit percentage increases in broad money?

Note: to learn more about where money originates look here: What is Money? and the US Dollar Machine

Velocity
This component seemed strange to me at first. Why would exchanging money make it worth less? Try thinking about it this way. If twice as much money passes through your hands annually, but there are still the same number of products, the product will have to cost twice as much to prevent a shortage.

The Federal Reserve doesn't seem to be worried about inflation because they believe in a "goldilocks economy" that is not too hot and not too cold which is easily tuned with economic easing/tightening if something does get a little out of balance.

What they fail to realize is how behavioral based the velocity component is. Right now, as businesses and families feel economic strain, they look towards securing their future and save money as best as they can.

What happens if inflation breaks out even just a little? Suddenly, analysts will advise corporations to spend on upgrades, inventory, and raw supplies while their money has more power. With the increased corporation spending, prices will rise and individuals will catch on. With a subtle shift, that saving could turn to a spending frenzy that grows exponentially.

I think we are sitting on a situation even more volatile today than in any of the historical hyper inflation stories. On the corporate level, companies rely on computer data and analysts more than ever. With this data and statistical analysis, the strategy has become operate on the tiniest margin possible to capture the largest market share. What happens when a company as large as Walmart or Amazon notice a bad inflation trajectory? Dollars will pour into the economy as fast as the companies can wisely manage it as they scramble to protect their tiny margins.

On the individual level, social media can create massive behavioral movements in just a few days. As each move is made, more parties will catch on and the more aggressive each party will have to become.

What can we Do about it?
There really isn't much we can do to stop the problem except spreading awareness and electing officials brave enough to stand against the Federal Reserve.  Luckily, you can protect yourself from the effects.  When you are storing your economic resources, don't leave the bulk of it exposed to inflation.

The commonly advertised way to do remove the effects of inflation is by investing in TIPS (Treasury Inflation Protected Securities).  When inflation increases, so does the payout.  One major problem, the official inflation tracks CPI, not the money supply/velocity.  Your savings will still get eaten by the dying power of the dollar and you are back where we started.

Here's what you should do.  Keep your emergency funds liquid and ready, but diversify your deep savings such as retirement.  Most people think diversifying their portfolio means investing in various stocks and bonds.  But what happens if it is the dollar that crashes?  All of those deals and obligations become worthless regardless of how diverse they were.  Instead invest in some domestic stocks, some foreign stocks, some real estate, some precious metals, some in long shelf-life food storage, and most importantly invest in your own personal education and skills.  With a diverse portfolio like that, you can weather any depth of economic crisis and make it out just fine.

Further reading:
Peter Schiff's Crash Proof 2.0
What is your money? and the US dollar machine
Upcoming US Economic Collapse - How and Why (coming in a future post)
How NOT to Prepare for the Economic Crisis (coming in a future post)




Disclaimer: I am not a licensed or certified financial coach, planner or adviser, just an enthusiast.  Anything I recommend should be personally analyzed and discussed with your financial adviser.

What is Money? and the US Dollar Machine

January 25th, 2018 at 02:24 pm



Why do we have Money?
The purpose of money is to store our economic value (time, efforts, resources, etc.)  Without money, a carpenter would have to find a chicken farmer that needed a new table if he or she ever wanted eggs.  Because of monetary systems, the carpenter can produce a table, sell it to anyone, and use the money over time to buy groceries from various sources.  Money greatly increase the efficiency of an economy.

Commodity Currency



Money comes in various forms.  Commodity currency is money that has value in of itself.  Salt has been used in Eastern Africa, tea bricks in Central Asia, Parmigiano cheese in Italy, cocoa bean in Central America, and pemmican in North America.    Cattle, knives, and even potato mashers have been used as well.  The most obvious example of commodity money is precious metal.

A lump of gold has substantial value no matter where or when you live.  It is easily worked, carries a current, and is stunningly beautiful.  To further ease transactions, the metal currency is often minted into coins or bars that are recognizable, standard in size, hard to counterfeit, and noticeable if shaved or clipped.  This allows it to be exchanged without a scale and without fear of purity issues.  The advantage of commodity currency is it will always be worth something.  The disadvantage is that it is less portable and cannot be transported digitally.

Representative Currency



Another type of money is representative currency.  This is a certificate that can be redeemed for a commodity (something of value).  Effectively, the object stays in place, but the title of ownership changes hands.  The United States operated under this form of currency for nearly a hundred years.  The United States’ paper money used to be exchangeable for actual silver at the Federal Reserve.  An advantage to this method is the commodity doesn’t have to be continually packed by the owner and it doesn’t get worn or abused.  A disadvantage is it masks the commodity and puts it in someone else’s control.  If there is doubt that the certificate can be redeemed, the purchasing power of the certificate will plummet.

Fiat Currency



The final type of currency is what almost everyone carries today, fiat currency.  This is currency that only has value because someone says it does.  It is monopoly money when playing a game, tokens when at an arcade, stickers when paying the postage, fancy green paper with historical figures when paying in cash, and a blip on a computer screen when ordering online.  In their own domain, they are each valid currency.  If I were to pull out a checkbook while playing Monopoly, it would ruin the game and if I were to use Monopoly money at the grocery store, I wouldn't have any eggs for dinner. 

If the rules within the domain are unchanging and fully backed, the system works.  I’ve never had a hyperinflation problem while playing Monopoly, because I've never designated an official "game rule maker" who announced midgame that prices would double with each dice roll.  The problem with the real world is there are "game rule makers": the US government, the US Federal Reserve, and other law makers or currency regulators throughout the world.  They constantly play with currency supply, interest rates, commodity prices, taxes, tariffs, and treaties to meet their objectives. Unfortunately, this manipulation has caused the collapse of both the currency and the economy dozens of times in the past.

The US Dollar



The US dollar is even one step more convoluted.  They are not owned by the US Government, but by the Federal Reserve System.  If the US Government needs more dollars than what it collected in taxes, it sells government securities (government debt) in the form of Treasury bills, Government Bonds, and Government Notes. These are bought by other countries, investors, or the Federal Reserve and will eventually need to be paid back with interest. When the Federal Reserve buys the securities, it creates money out of thin air and is reffered to as "printing money", even when digitally created.

Reserve Currency Status



In 1944, 44 delegates from 44 Allied nations gathered together in Bretton Woods New Hampshire to discus global finances in the WWII aftermath.  At the time of the Bretton Woods Conference, the United States was the leading exporter and creditor and the dollar was exchangeable for a fixed quantity of gold (representative currency).  Because of the United States' strong currency, the delegates selected it to be the international reserve currency.  

As the global reserve currency, other nations would have to first trade their money for dollars before exchanging with other countries to settle debts or purchase comodities. Countries also hoarde dollars as their own personal reserves the same way a household would hold some available cash for difficult times. It also serves as some protection against adverse exchange rates with their local currency. No one wants to scramble for dollars when they are needed because that is also likely when they are the most expensive.

Because countries need dollars, it creates an extra demand. This proping up of the dollar and gives the United States a huge advantage in power and prosperity.  As the only legal producer of the US dollar, we also get a discount on transactions by avoiding exchanges.  Much of the prosperity we experience today is directly dependent on holding the reserve currency status.

In 1771, the United States released a series of economic measures known as the Nixon Shock.  It was in these monetary policies that the US dollar lost its representative currency status and fell to a true fiat currency.  This should have plummeted the value, but other countries weren't willing to declare their dollar holdings worthless.

The US Petro Dollar



Knowing the dollar had to be backed by something, even if indirectly, in 1973 the United States made a brilliant deal to protect Saudi Arabian oil fields (specifically from Israel) on two conditions. They had to agree to only sell oil in US dollars and invest their excess profits in US government debt securities.  By 1975, this deal was expanded to all OPEC nations, creating the US petrodollar.  These deals forced other nations to buy US goods to obtain US dollars despite the physical worthlessness of the paper money.  The deals also gave artificial demand to US government debt securities, lowering the interest rates significantly.  Basically, the US is able to print money to buy oil, then have the oil producers buy the debt used to print the money!  It is this circular system that allows the US to print nearly as much money as it wants.

In the past, some oil producers have tried to switch away from the petrodollar system and have felt the full force of the US military.  In Iraq, Saddam Hussein traded his oil for Euros, so we searched for an excuse to take him out.  With the 9/11 attacks, we chose to ignore the fact that most of the hijackers were Saudi (our petrodollar ally) and instead drew up plans against Iraq as the answer.  Kaddafi sold oil in Dinars and met the same fate.  Just about every military decision since the Industrial Revolution is oil dependent.  Vietnam, Pearl Harbor, and even the assassination of Archduke Franz Ferdinand (triggering WWI) all have underlying oil motivations.

Basically, the United States of America, knows that oil rules the world.  If the petrodollar system is threatened, the economy will collapse.  Even President Franklin D. Roosevelt once said, “I hereby find that the defense of Saudi Arabia is vital to the defense of the United States”.

Unfortunately, China has a growing thirst for oil and is now Saudi Arabia's biggest customer.  At the same time, the US oil orders are declining.  Saudi Arabia feels somewhat betrayed by our relaxing of policy against their enemy, Iran, and is questioning the need to maintain the petrodollar system.  In 2010, Russia and China struck a deal and now will exchange oil directly, skipping the dollar.



If oil is bought without the US dollar, nations will have much less tendency to hoard dollars and they may find their way back to the US, quickly.  Countries will want to cash in on their US debt holdings and the dollar value will tank as the domestic money supply skyrockets into hyperinflation. The US dollar is in trouble.

Good luck!

-Milly





Disclaimer: I am not a licensed or certified financial coach, planner or adviser, just an enthusiast.  Anything I recommend should be personally analyzed and discussed with your financial adviser.

A Penny Saved is 1.57 Pennies Earned

January 23rd, 2018 at 02:53 pm



There is a long standing understanding that a penny saved is a penny earned.  I submit that the statement is false.  Here's why:

When you save a penny by substituting out cheaper alternatives, using coupons, or other means, you become one penny richer.

When you earn a penny, it must enter a pool of tax piranhas before you can take a fraction of it home.

Let's start at the Federal Income Tax



When looking up my effective tax rate of 2% on my federal tax return, I really don't feel that bad about taxes.  To make me even happier, it has been going down every year since we were at 7% in 2013 (before we had 3 tax credits, I mean children).

Since we are talking about the marginal level, we will ignore the effective tax and look only at the tax on that last penny earned.  For most Americans, this is a 15% tax ($18,550-$75,300 taxable income for 2016).

Social Security & Medicare Tax
Also taxed at the federal level and collected by the IRA are the Social Security Tax (6.2%) and the Medicare Tax (1.45%).  This is a flat tax with no brackets or caps until $118,000.  These taxes are in addition to the federal income tax and neither one is deductible from the other.  The vast majority of Americans pay the sum total of a 7.65%  tax towards these funds.

State Income Taxes



Each state has its own income tax and tax brackets ranging from 0-13.3%.  I'm going to use California as an example.  The average Californian household income was about $64,500 in 2015 (source), If they don't have a $4,522 worth of deductions, that puts them in a 6% tax bracket ($59,978-$83,258).

Running Total: 28.65% tax

Unfortunately, that's not the end of the story...

Invisible Taxes
Yup, we have those too.  It turns out businesses must also pay additional Social Security and Medicare taxes when they pay you.  Your employer sends off both portions before you see any money.  Although one is "paid by company", the company sends both portions out of your wage by simply paying you less.  This adds another 7.65% tax, bringing you up to a running total of a 36.3% tax.

Corporations also pay an "income" tax.  Economists debate as to how much of that tax is actually transferred to the workers and how much is "paid" by the share holders, but 20% of the 15%-35% tax is a pretty good estimate (source).  Because I have no clue how to estimate how much earnings per employee is a good estimate, I'm going to leave off this tax in my numbers. Just know that your income is taxed even higher.

A Penny saved is 1.57 Pennies earned



With a tax of 36.3%, you would have to work the equivalent of a 1.57 cent wage to take home 1 penny.

$0.0157 * (1-0.363) = $0.01

There you have it, while earning extra money is really nice, much of it disappears long before you see it.  Dollar for dollar, saving is a more powerful tool.

Limits
Obviously, there are limits to this thinking.  There is only so much money you can save and infinite money you can earn.  It is also true that there is infinite money you can want to spend.  You can have a million dollar salary and still be broke.

It is also important to note that saving money isn't really saving money if it leads to a more costly alternative.  Ignoring the oil changes and being forced to buy a new engine, is obviously a bad idea.

Where to focus your efforts, depends on where you are on your financial journey.

-Milly





Disclaimer: I am not a licensed or certified financial coach, planner or adviser, just an enthusiast.  Anything I recommend should be personally analyzed and discussed with your financial adviser.

Ultimate Anti-Take Out Plan

January 22nd, 2018 at 09:19 pm



It's been a long day at work and an hour past your usual dinner time.  As you approach your home, you drive past your favorite Thai restaurant.  You had better have a equally tempting anti-take out plan.

You are pregnant and feel rotten.  The more you think about food, the more disgusting it sounds.  At the same time, you know if you don't eat something soon, you'll just be sicker and your family will be grumpier.  You had better have a simple anti-take out plan.

You just got back from an extended vacation.  Anything perishable in your fridge has perished.  You haven't done any meal planning and don't have time to hit the store anyways.  You had better have a robust anti-take out plan.

The window between helping someone move and your child's performance is closing rapidly.  You are going to have about 20 min total to cook, eat, and change clothes.  You had better have a lightning-fast anti-take out plan.



Want a 5% Raise? Get an Anti-Take Out Plan
According to the Bureau of Labor Statistics, the average American household spends $3,008 on food away from home.  Zagat determined, that 4.5 of meals are eaten out weekly.  That's 43% of their entire food budget on about a fifth of their meals!

Surprisingly, lowest 20% of income earners, the middle 20% of income earners, and the highest 20% of income earners all spend 5.1-5.4% of their total income on eating out.  With this plan, I've reduced my eating out to less than 1% of my annual spending and even less of my annual income!  In other words, rich or poor, we can all give ourselves about a 5% raise with a solid anti-take out plan.

What type of raise do you get annually?  1-2% to keep up with inflation?  3-8% in a developing career?  Imagine if you could tack on an extra 5% this year! Since that is a tax-free raise (see my post: A penny Saved is 1.57 pennies Earned!), it is probably actually closer to 7-8%.  That is the power of an anti-take out plan.

The Anti-Take Out Plan
Option #1: Lightning Fast Meals
My favorite is meals that I can make in a flash.  If you can have a fresh, tasty, home cooked, inexpensive meal in less time than driving to a restaurant, it makes it easy to follow through.  Make sure your anti-take out plan only uses ingredients that you pretty much always have on hand.  I can make a tortilla soup in 15 minutes (instructions below), but I don't usually have 4 tomatoes available to blend (canned tomatoes?).

The key is to have lots of ingredients ready to use in the freezer.  Pre-cooked meats and diced veggies are a life saver!  Every time I cook chicken breasts on our smoker, I throw in twice as many as we need, dice it, and freeze it in Ziplocks.  Make sure to lay them flat so they are easy to break off into smaller portions or thaw quickly.  Whenever I get a bag of onions, bell peppers or broccoli are on sale, or I pull beets out of the garden, I dice them all up and do the same thing.  I even do this after cooking a pot of beans to avoid the price of canned.

If you aren't going to do any of these, at least buy frozen cooked meatballs, diced grilled chicken, and frozen veggies.  It isn't quite as cheap, but it sure beats eating out!

Here are some of my lightning fast meals, make a list of your own and post it on your fridge.

Lightning Blender Tortilla Soup (adapted from Danica's Daily):

Stick the following ingredients in a blender: 4 tomatoes, 1 large carrot broken in half, 1/2 onion, 1/2 bell pepper, 1 clove garlic or 1 tsp minced garlic, 1 Tbsp Taco Seasoning, 2 chicken bouillon cubes, and up to 2 cups water depending on what blends nicely in your blender.  Sometimes I also add a handful of tortilla chips to make the broth thicker.

Blend until smooth

Pour into sauce pan with remaining water, add any other ingredients you want: a drained can of corn, a drained/rinsed can of black or pinto beans, and fully cooked diced or shredded chicken (if you happen to have it on hand).

Cook until it doesn't taste oniony (boil 5 min?)

Serve topped with tortilla chips, cheese, and sour cream (cilantro, avocados, and/or olives if you are feeling fancy and have the time to chop it while it cooks)

Spaghetti with meatballs


Boil water and prepare noodles according to package

Meanwhile, thaw pre-cooked frozen meatballs in microwave

Lightly grill the meatballs in a sauce pan or on a George Forman

Add a can of spaghetti sauce to the meatballs and cook till warm

If you have time while the rest cooks, butter up some bread, sprinkle with garlic salt, and broil for a couple minutes (check often!) for garlic toast.

Grilled Veggie Quesadillas


Grill all sorts of veggies, beans, and leftovers together with some garlic salt (favorites: onions, tomatoes, corn, spinach, beans)

Layer with cheese on a tortilla and top with another tortilla or fold in half

Grill in pan or on griddle, flipping once (unless you are using your $4 thrift store quesadilla maker woot!)

BBQ Ranch Chicken Quesadillas
This was our fall back meal in college, but it always felt like we were getting a special treat.

Thaw frozen cooked diced chicken

Put cheese and chicken on tortilla and smother in ranch and BBQ sauce, top with another tortilla or fold in half

Grill in pan or on griddle, flipping once

Chicken 'n Ranch Grilled Sandwiches (From Life in the Loft House
This is a brand new discovery I got from my "Monthly Meals" Pinterest Group Board.  I LOVE IT! Here's the recipe

Mexican Tuna Wraps (From Kim's Cravings)
The flavors sound weird, but it turns out SO GOOD!  I usually have my super easy homemade yogurt on hand, but if you don't have plain yogurt, you can just use all mayo.  Make sure to drain things very well it always goes a little runny the second day (still good, just pour it off... or drink it).  The only thing I change is I omit the olives and avocados (for time and cost) and use a little less tuna (a 7 oz can).  Here's the recipe

Microwave Baked Potatoes


Scrub a few potatoes

Stab them several times with a fork (to prevent explosions)

Double wrap them in tied grocery sacks

Nuke them in the microwave for a few minutes per potato (we do about 15 min for 4 potatoes)

Top with baked potato toppings (butter, cheese, sour cream, chives, peas, salt, pepper), or BBQ sauce and ranch, or warmed up chili and cheese.

Stir Fry Ramen
Break ramen noodles apart and boil for like 5 minutes

Drain most of the water

Add seasoning packet, 2 eggs, 1 Tbsp butter, any veggies you have on hand, any meats you have on hand, and optional seasonings (soy sauce, crushed red pepper, crushed peanuts, etc)

Stir Fry until desired consistency

Cheater Omelets


Fun fact: I was an omelet chef my freshman year in college.  I learned how to make a lot of omelets in a little amount of time.  I also learned how to flip spatulas, spin pans, and made stick figures out of omelet slices (the many adventures of Greg the Egg), but back to making omelets.

Put a little oil in the pan and get it medium hot

Throw in some onions, bell peppers, or whatever (zucchini tastes good too, get creative) and saute

Whisk 2 eggs together (or even use a blender because the more homogenized the easier it is)

Pour into pan with veggies

Work the edges of the egg with a high temperature spatula, tilting the pan to get the uncooked egg underneath the cooked layer.

Get the whole omelet loose so when you shake the pan, the omelet slides freely

Flip the omelet upside down to finish cooking the top side

Top with cheese

Optional: serve with salsa and sour cream or baked beans

Note: If you are making lots of omelets, it might be worth it to go the normal route and have a separate pan for sauted veggies.  In that case you would flip the omelet, top with veggies and cheese, and fold in half like a taco.  But then again, if you are making more than two of them, it isn't really a lightning meal.

Huevos Rancheros
Fry an egg
Place on lightly toasted corn tortilla
Top with cheese, refried beans, Mexican style rice, or whatever else you have and salsa


#2: Frozen Meals
Ever have leftovers?  Lots of the freezer meals you see online require planning ahead, setting something in a slow cooker at least 4 hours before consumption, and waiting.  That's great if you know you're going to be low on time (scheduled events with a small dinner window).  Most of the time, though, you'll need your anti-take out strategy last minute.  You need something that can heat up in a microwave and still taste great.

Whenever you finish a meal and there is enough leftovers for tomorrow's lunch and then some, think to yourself if you've ever seen something like it as a frozen entree (think Lean Cuisine and TV dinners).  Meats, cooked veggies, beans, cheese, breads, pastas, rice and broths all freeze very well.  Fresh veggies and milk based soups/sauces don't.



Whenever you make a classic freezer item, go ahead and make some extra and portion it out for your next anti-take out strike.  Whenever I make pizza, I make an extra pan, cut it into gallon-sized Ziplock squares and stack them in the freezer.  It can be thawed in the opened bag in the microwave, then popped onto a pan under the broiler to avoid the soggy microwave finish (or just use one method).

Option #3: Commercially Ready Dinners
These are generally more expensive than prepping your own meals, but they sure beat eating out!  Don't feel guilty if you have a bunch of commercial ready-made food in your freezer as long as you don't use it for normal dinners.  You are saving money and it probably isn't any worse than the fast food alternative.

Some frozen foods we like are: chicken nuggets, green chili steak burritos, orange chicken, pot pies, corn dogs, and steamer bags of veggies.



Some boxed/bagged foods we like are: Bear Creek Country Kitchen soup mixes, stuffing, instant potatoes, ramen noodles, and pancake mix.

Just because you are eating out of a box doesn't mean you have to feel like it.  You can make your own dip concoctions for your chicken nuggets or corn dogs while they cook.  Put shredded lettuce and salsa on top of your microwaved burrito.  Dress up a can of tomato soup with some grilled cheese for dipping.  Add a side of canned veggies or quick rice.  Top your main dish with cilantro, basil, cheese, sour cream or anything else you want.

Here's one complete meal that you can make as fast as you can boil a few pots of water:
Pot 1: Instant Mashed Potato Flakes (follow directions on box)

Pot 2: Stuffing Mix (follow directions on box, I throw in a hand full or two of Craisins for extra flavor)

Pot 3: Gravy= Put as much measured water as you want gravy in a pot.  Add 1.5 tsp chicken bouillon (this brand is preferred for both flavor and cost) for each cup water.  Bring to a boil.  Separately mix 1 Tbsp cold water and 1 Tbsp corn starch for each cup gravy.  Whisk corn starch slurry into boiling broth.  Cook until thickened.

Microwave (optional): Throw some frozen veggies in a bowl, add a little water, cover with a plate, and nuke it until heated through.


Option #4: Snacks
One final strategy is to buy yourself some time with filling snacks.

When we are out of town at the doctor's I would much rather bring some Trail Mix granola bars to keep my kids happy for an extra hour and warm up some leftover lunch when I get home.  I keep quite a few in my van's center console and at only $0.25/bar (Costco), it saves me quite a bit on fast food.

Find what snacks are convenient for your family and keep good in a hot car.



At home, if we get back late and need something to hold us over, smoothies are our go to "half-meal".  We keep Kirkland Signature 3-berry blend as well as Wawona festival blend in our freezer at all times.  Throw in some homemade yogurt if you have it, any near-date fruit you have, some fruit juice if able, and oats if you want it to be more filling.  Don't tell my husband, but I always throw in a carrot with the tropical smoothies or beets with the berries (color match).  Blend till smooth.  Once you've downed a full glass of real food like that, you can get away with something pretty small, simple, and late for dinner.

Which Anti-Take Out Plan is for You?
Probably all of them.  You need to have several options available to make the system robust.  You need fresh food when you feel like it, prepared food when you are out of ingredients, and sometimes you just need food NOW.  If you only have microwavable burritos in your arsenal you will get tired and hit that Thai restaurant.  Get stocked up on several strategies.

Just reading this blog post isn't going to change anything long-term.  You need to make a plan and get organized.  Spend the next few minutes with a piece of paper or at least a bulleted list on your mobile device.  List every lightning meal that you usually have the ingredients for.  List all of the commercially prepared meals you usually have on hand.  Put the paper on the fridge and add to it every time you remember another one or come up with a new concoction that is worth repeating. (Then pin this to help your friends too!)



Above all else, please don't be caught saying "I can't afford the down payment on a house", "I can't max out my IRA", or "I am one of the 69% of Americans who have less than $1,000 in an emergency fund"... "because I'm too lazy for an anti-take out plan."

-Milly




Disclaimer: I am not a licensed or certified financial coach, planner or adviser, just an enthusiast.  Anything I recommend should be personally analyzed and discussed with your financial adviser.

Why you NEED Precious Metals in your Investment Portfolio (especially in 2018)

January 19th, 2018 at 11:40 am



Gold and Silver should be a part of anyone’s savings and investing. My personal goal is to have it represent 10% of my retirement portfolio and up to a quarter of my emergency savings.

I didn’t start out believing in gold. It gets a lot of hype in sensational language, which always makes me skeptical.

My biggest obstacle to adding precious metals to my portfolio was is it is hard for me to imagine going back to using gold and silver as currency. It is just too out of place in today’s modern society and impractical in the digital world. If there were a dollar crisis, my tools would probably be worth more than useless metals and I can use them now.

I knew their are some inherent physical properties to the metals that make them valuable in industrial and medical applications, but I still don’t think it would cost nearly as much if those were the only competitors for the metals. Only 10-12% of the gold out there is used industrially. It is mostly people just liking precious metals and speculating in the metals that keeps the prices so high. I didn’t want to invest in other people’s fancies.

Let me Change your Mind
Now I see gold and silver in a new light. A lot of the people who don’t like precious metals point to the S&P 500 and show that gold isn’t going anywhere, but the stock market is. Well, it may be true that US stocks have matched or out performed gold, but not by nearly as much as we are led to believe.

Gold as an Investment
From 1971 (when the US abandoned the international gold standard) through 2016, gold has actually tied the return of the MSCI US (large and mid cap US market) at a return of 10.6% annualized. That wasn’t all in the huge gold jump that happened at the beginning either. The last 10 years has returned an average of 7.7%, lagging the US stock market by only 0.5% (source with pretty pictures).

I did my own math and graphing with an exponential trenline (to avoid cherry picking dates) and came up with both the S&P 500 and the Perth Mint gold prices returning 7.3% annually.

That is not a lot of missed gains compared to the risk of a major market correction any day. You might pay the 0.5% in fees to your brokerage anyways. If you agree with Lewitinn in Yahoo Finance that 93% of the stock growth since November 2008 is resultant of Federal Reserve moves, then that is a lot of risk. You could see 93% of those gains come crashing down any day, especially if the Federal Reserve isn't able to do the tightening and normalization they planned (rate hikes and unloading the balance sheet).

Precious Metals as Protection
Even with all of those investment benefits, I still see precious metals as the way to preserve wealth, not to invest. I suspect much of the gold rise is actually dollar weakening. No matter what any politicians or leaders do to the US dollar (and you know what they are going to do), precious metals will hold value. Jim Rickards once asked someone how their family preserved their wealth for 800 years. The response was a third in land, a third in art, and a third in gold. These are the things that last.



Another benefit to precious metals is they are individually and physically owned. I believe Jim Rickards’ “Ice-9” prediction (Road to Ruin). There will come a day when the government will be forced to freeze all digital money except for a small amount for gas and groceries, much the same way as they have done in Greece. Even if the money never is seen again, or inflation happens to an extent that it isn’t worth anything when we get it back, precious metals will preserve.

Why 10%?
One question you might be asking: If you believe that much in gold and silver, why only 10%? One answer is I’ve seen a compelling prediction of a $10.000/oz price of gold. That's in today's dollars, so if there is major inflation, the number will be higher. This isn't some fudged Wall Street chart pattern prediction either. This is a mathematical analysis done by a world expert on currency wars and is based on the required non-deflationary price of gold. If we reach $10,000, your 10% would become about 100% and even if you loose everything else, you’re insured.

Why not more than 10%? Right now we are in a very difficult time for investing. According to John Keynes, we are in a depression which is highly deflationary. Companies are laying off workers (who in turn find part-time jobs, "creating" jobs on federal reports), individuals are deep in debt, and savings are at a record low. In times like this, short term opportunities are the way to go.

At the same time, countries around the globe are cheapening their currencies with monetary easing. The US government simply cannot afford the real value of their dollar denominated debt to increase. Eventually, they will have to change course and switch back to monetary easing "money printing". Inflation will win at some point.

In his book, The Big Drop, and in this article, Jim Rickards explains the thoughts and methods behind a "barbell" strategy that is loaded up on the ends as a protection against inflation AND deflation, with cash in the middle ready to pivot positions as needed. So if you put 35% of your investments in hedge funds, private ventures, angel funds, and the like for your deflation hedge, and leave 30% cash (and treasury bills) in the middle, you only have 35% to diversify into a inflation hedge. As stated earlier, those should include precious metals, undeveloped land, and fine art (try 10%, 20%, 5%). If you want to tweak those numbers you are always welcome to.

I know that was a lot of external thoughts and analysis in a beginner's precious metals post. The bottom line is you don't want to put it all into gold.

In any case, Jim Rickards recommends 10% and most precious metal companies recommend 10%. If people who do more research than me and are an even bigger believers in precious metals than me recommend 10% in gold, I should say the same.



What about confiscation?
When looking into gold as an investment, fingers are often pointed to Executive Order 6102 signed by President Roosevelt in 1933, which required gold to be traded in to the Federal Reserve for the official gold price of $20.67 per troy oz. The criminalization of “hording gold” in the US lasted all the way until 1974, after we left the gold standard. Other gold controls have occurred in Australia and much more recently in India. I’m not going to let fear of confiscation prevent me from buying for 5 reasons:

1. There was a good reason for gold confiscation at the time. It is one thing for the government to confiscate items that cause destruction such as illegal weapons and drugs, but the confiscation of gold comes down to one thing: they needed it, so they took it. As terrible as it is to have the “land of the free” to secure themselves a discount on your savings, it was this confiscation that allowed us to keep on the gold standard for about 40 more years. Without this questionable move, we would have had a run on the gold reserves and it is impossible to say what that would have done to the American future we live in today. Was it the right thing to do? I doubt it, but I may be reaping the rewards today. (or maybe it just means it is going to be that more painful when the ungrounded financial system fails)

2. Gold owners were compensated. It is against the constitution for gold to be sized without just compensation. Sure, the government might do something sneaky like dump a bunch of gold supplies into the market to suppress the price just before they close the market so that they can buy at discounted prices. Even if they don't, you’ll still miss out on some massive gold hikes in the event of a gold crisis. Either way, you’ll probably still be better off buying gold today and selling it to the government in a few years than just holding onto dollars. The shakier things get, the more gold will go up.

3. Not all gold was confiscated. There were exceptions for industrial uses and some personal exceptions as well. Rare coins were exempt and individuals were even permitted the equivalent of 5 troy ounces of coins.

4. Owning gold is the patriotic thing to do. If there is going to be a future gold confiscation, wouldn’t it be much better for the United States to get a bunch of gold from it’s citizens than to have that gold sitting in India, China, and Russia? I don’t want to give away real money for fiat currency, especially when it is in a crisis, but at least it is going to someone who wants the United States to be strong. We want as much of the world’s supply of gold in our own borders. Owning gold is the patriotic thing to do.

5. The risk of confiscation is smaller today. In 1933, the dollar was backed by gold (what it is backed by today). They had to stop a run on the gold reserves when the gold peg was strained.
Today, we live in the world of floating exchange rates.
If the US really gets into a bind, instead of confiscating gold, they can just print whatever money they want to cover their debts. Yes, creditors will be upset about taking a "haircut" when paid in a debased currency, but they took an inflation risk when they bought the government securities.


Good luck!

-Milly

This is part 1 of Milly's "Precious Metals for Beginners" series
For Part 2, click here: Should I buy Silver or Gold?





Disclaimer: I am not a licensed or certified financial coach, planner or adviser, just an enthusiast. Anything I recommend should be personally analyzed and discussed with your financial adviser.

How to Pay off your House for Much Less

January 18th, 2018 at 12:54 pm



When it comes to finances, nothing makes me more excited than seeing a ton of money leave my bank account each month. I just can’t wait to enter it into my “House Payment Analysis” spreadsheet, to see the amount saved go up a few hundred dollars, and be one month closer to payoff. Why does this make me so happy? Well, a lot of it is because I love numbers, but also because we made a plan to own our home in just under 7 years, 76.9% faster than the 30 years the loan was signed for.

Forget the Tax Deduction
Some people say you shouldn’t pay off your house because there are so many tax benefits. While there could be strategy in focusing on debts without tax benefits first, not paying it off for tax reasons doesn’t make any sense. Yes, you won’t get a tax deduction for the interest you are paying, but that’s because you don’t have to pay it at all! Would you rather get $100, pay the bank $100, and have Uncle Sam give you back $20 he took from the other part of your paycheck? or would you rather get $100, keep $80 and give $20 to Uncle Sam without anything extra coming out of the remaining paycheck?



Saving/Investing vs. Paying Down your House
Other people are more comfortable saving their money instead of dropping it into their house. In the current state of things, I can get as high as 1% interest on my savings, maybe 2% if I have a lot to save and can stash it away for a long time in a certificate draft (CD). My mortgage rate is 4.625%. Despite it’s phenomenal performance from 1971 to 1995 even the S&P 500 isn’t set to beat that rate (in a future post, I'll show you how I came up with those numbers). In other words, unless you are in a more specialized index, the interest you save on your house is probably your biggest gainer.

If you get a higher return out of savings or dividend stocks than you are paying on your house, and it fits within your risk tolerances, you might do better with a mortgage offset account. That is, pay the minimum on your home and put the excess you could have put on your house into the high return investment. The investment account will grow faster than your house would have paid down. Once you have enough money in the account to pay off your home, you can either withdraw it and become debt free, or keep it for a few more years and pay it off with some money to spare.

Close your Mortgage in Half the Time!
(For a LOT less Money)

So how am I paying it off so quickly?  It turns out that just adding a little to your monthly payment can make a HUGE difference.  Even $5/month extra will save a few thousand dollars and a few months over a 30 year loan.  At the beginning of your loan, most of your payment goes towards all the interest you owe on the principal (the amount needing paid off), not reducing the amount you still owe.  You'll just have to pay nearly all of that interest again next month and make you feel like you're running in place.  Adding just a little straight to principal will give you much more bang for your buck.

Not sure how to find a few extra dollars?  Stay tuned for more posts.

Make sure when you add the little extra that it is explicitly marked as towards the principal.  Otherwise, it will likely go towards the next payment and not get any compounding effects.

Here’s my simplified formula to pay off your mortgage in half the time:
Because this ignores some funny exponential math, it isn’t exactly half the time, but pretty close.  If your 30 year mortgage rate is over 4.6%, you’ll pay it off a little faster.  If it less, it will take a little longer (but you'll be saving more money anyways). You’ll have to do your own math if you are in the middle of your loan or have a different length.  Click here for my free fancy calculator so you can see what happens with YOUR numbers.

Your monthly payment has three components:

1. Principal = The principal is actually the amount of money you still owe on the house, but they make it confusing and reuse the term.  The principal payment is the money that actually goes towards paying down the house (towards the actual principal).

2. Interest = The amount charged as interest on the remaining principal.  It decreases as you have less money borrowed.

3. Escrow = This covers your home insurance and property taxes.  The lender forces you to pay it to a special account to ensure they never get stuck with back taxes or an unfunded burnt down home.  Even after you pay off your home, you will continue to pay these amounts, but directly to the insurance and government instead of escrow.

Your loan is worked out such that your monthly payments are constant despite the lowering interest.  This is done by increasing the principal payment slowly over time.  Principal payment plus Interest should equal a constant.

Here's the equation you've been waiting for.  Just look to your statement to see what your numbers are:

Escrow + 1.5 x (Principal + Interest) = amount you need to pay each month to cut your loan length in half!

Alternative way of looking at it because words and math are hard to mix: Take any statement, add the principal and interest payments together, the divide that number in half.  The result is the additional amount that you need to pay to principal each month.

Did you notice?  You add less than 50% to your payment and it counts as two (200%) payments!



Alternative Double Principal Method
My father had a different approach which also cut the mortgage length in half.  He would simply write another check for whatever the principal portion of each payment was and put it straight to principal.  The advantages of this method is that the number you need is written right on your statement and it is relatively easy to implement at the beginning when the principal portion is so small.  As the principal portion grows, theoretically so does your paycheck making it is okay that you'll be almost doubling your whole payment near the end.

You are going to be SO MUCH better off with this method in comparison to the straight 30 year loan, but I see 3 disadvantages to the Double Principal method in comparison to my half Principal + Interest method:

1. The beginning is when you have the greatest power to knock months off your loan and save money.  You won't save quite as much money with the double principal method.

2. You might make more money as you go, but your lifestyle will grow too.  I think we all know life only gets more and more expensive.  In your future you'll probably add children, catch the travel bug, demand better kitchen appliances, get more picky about food, or otherwise increase your cost of living.  Also, I wouldn't count on wages growing faster than inflation for the next decade.  We are in a currency war and, in the words of Jim Rickards, "the only way to win a currency war is to stay out of it".

3. Maybe the most significant flaw in this method is you can't automate it.  Every month you will have to look at the numbers and make a payment.  Autopay won't work.  As I learned from David Bach's book, The Automatic Millionaire, the key to growing wealthy over time is automation.

As life gets more expensive and your principal portion jumps up more and more rapidly, you will need a huge amount of discipline and capital to keep this method up.  I don't trust myself that much.

Alternative 15 Year Plan
You could instead look into getting a 15 year loan from the get go.  The advantage is that they usually have a lower interest rate and they force you to stick to your early payoff plan.  This is a great idea if you need help sticking to the early pay off plan.  The only problem is you also have to hope life won't throw you any dramatic curve balls in the next 15 years. 

Worst case, you do have to drop down to a smaller payment and refinance to a 30 year loan.  You'll have to pay closing costs, but those fees will likely be added to the principal so you don't need the cash on hand in your rainy day scenario.  It will set you back, but hopefully you'll have enough years paying it off at a 15 year rate that it will make up for the loss. 

I personally like the safety net of being able to go back to a low payment for rainy day purposes.  This way, I can put the extra principal payments in the "investment" category of my spending tracker instead of "bills", effectively lowering my living costs. 

Unless you can get a substantially lower interest rate and you are confident in your other rainy day funds, I’d just go with the full 30 years and cut it in half on your own.  It won't cost much more.



The Home Improvement Pitfall
I have a friend who bought a home at the peak of the market.  He and his wife are among the most intelligent people I know, so paying his house off early was a no-brainier for them.  They set a plan to pay it off in 10 years despite the high price tag.  They stuck with the plan for a while, but as time went on, they made some trade-offs.  Instead of paying the extra towards their mortgage, they started paying it into the house with kitchen remodeling and various flooring. 

10 years later, when they would have been all paid off, they moved.  In that amount of time, the housing market had crashed and they were forced to sell for less than they still owed, even with the updated kitchen. Had they stuck with the plan, they would have come out of the transaction with the entire sale price (minus fees) as liquid money for a down payment on the next home.

Moral of the story: If you pay off your home, you can always sell it for something.  Stick to your payoff plan and get there as fast as you can.  You never know what the market or your life has in store for you.  If the market just goes up, you can always do the projects later.  It won’t hurt you to focus on payoff first.

-Milly




Disclaimer: I am not a licensed or certified financial coach, planner or adviser, just an enthusiast. Anything I recommend should be personally analyzed and discussed with your financial adviser.