Another excellent post from Dan Cuprill.

Since I’m no longer considered a young adult (and thank goodness for that.  I never liked being asked for my ID), I am now in a position to offer advice to those who are.  Specifically, those under the age of 35.  If I haven’t lived it, I’ve seen those who have.  Here’ goes:

1. Don’t Buy a House: Or if you do, don’t for one second think it’s a good investment.  Home ownership is a luxury, much like a boat or a sports car.  After interest, taxes, and upkeep, you will not get wealthy by owning a house.  That’s not to say that home ownership doesn’t have some advantages, but increasing your net worth is not one of them.  I strongly recommend renting for as long as you can find an adequate home.  You’ll save more money than you can imagine.

2. Dump Your Friends: Okay, maybe dump is the wrong word.  But too often the friends we grew up with are not always the best of influences.  Desire to keep up with them financially can lead to some bad decisions.  If your best friend’s family is better off financially than yours, don’t try to compete.  You can’t win…at least not in the short run.  Be glad they have a nicer car or home.  It just shows what is possible in this country.  But you won’t out do them overnight.  It’s like trying to play one on one vs. Shaq.  Why bother?  If that causes you stress, find friends who have less.  You will learn in time that nothing is more meaningless than possessions.

3. Pay Cash for Everything: If you can get through your 20′s without debt, you have succeeded far beyond the guy who makes $200K a year and owes $300K.  Life is a marathon.  The one who learns early to live within his means ALWAYS wins the race.

4. Save 10% of what you earn: Do the math they taught you in high school.  At 6% over 30 years, you will amass a lot of money.

5.  Learn to Hate Cars: Cars are worse than homes.  They depreciate quickly and have a limited shelf life.  Never fall in love with a car.  It will break your heart.  Buy cars of good quality, modest cost, and drive them into the ground.  At 15,000 miles a year, that means you should own a car for at least 10 years…probably longer.

6.  Exercise: Gym memberships are acceptable.  But use them.  At the very least, they can be great places to find your future spouse.  In the end, good health will save you money and help you to earn more.

7.  Find your faith: Judaism and Christianity are full of great lessons about using money wisely.  The Man upstairs knows what He’s talking about.

8.  Skip the 10 Year High School Reunion: The 10 year reunion is all about being shallow:  Your job, your car, your house.  You’ll leave it convinced you are a failure.  The 30 year is all about what really matters in life.   And sadly, not all of your classmates will be alive at that reunion.  That is the one to attend.

9.  Find a job you love, regardless of what it pays: If you hate it now, imagine how you’ll feel at 50.  Money is not a good reason to hate getting up every morning.

10.  Read: A smarter brain makes better decisions.  Two books a month.  If you hate to read, you won’t after you do it a while.  It’s addictive.

Dallas Retirement Planning – County Government

Wow! A couple of days ago I posted my response to Collin County Commissioner Joe Jaynes.  Apparently, I did not get his attention, maybe my response to his next group of half truths might. – John Pollock

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Dear Friends,

You have seen the numbers before:

Approximately 40% of all current county employees could make over $100,000 per year in retirement.

246 could receive more than $200,000 per year.

More than 500 could receive more in retirement than their final salary just before retirement.

It has been sent out in several mass emails and presented in commissioners’ court.

Those numbers are wrong on so many levels.

They are based on an actuarial table provided by the Texas County and District Retirement System (TCDRS) which assumes that all employees at Collin County will work until they are 60 with new employees working up to 40 years during which all employees will receive a 4% raise per year compounded annually.

The reality is that no one works at Collin County for 40 years with 4% raises compounded annually.  This year we proposed a 1.5% raise and last year we had 2% raise and those raises went only to employees who were our top performers.

More importantly, they do not take into account that we have salary caps for all our employees.  For example a truck driver at Collin County “tops out” at approximately $39,000 a year.

The scenario presented above has that same truck driver working here for 40 years (our average length of employment is 10 years) and making approximately $180,000 a year!

The “facts” stated above are just not realistic. The TCDRS said so in a letter sent to the county on August 12.  According to the TCDRS, “The data provided…was not intended to be used as an estimate of future retirement benefits to be paid by your plan.”

This, however, did not deter some from the continued presentation of these “facts” in mass emails and in interviews with the Dallas Morning News.

Our county retirement plan through the TCDRS is a 2:1 match plus 7% guaranteed annual interest after a vesting period of 8 years.

Is that plan to rich?  That’s a fair question which I look forward to addressing in future emails.

However, in the meantime, I wanted to set the record straight and cut through the reckless and misleading political spin that has been presented.

It is my belief that you should always shoot straight with the taxpayers and that is what I will do as we carry on this conversation.

On another note, my family and I were deciding how to spend the $5.50 annual tax savings that the commissioners’ court recently passed.  We decided to go to Starbucks and used the savings to buy and share a skinny vanilla latte.  Unfortunately, on the way home it spilled all over the car when we hit a pothole.

Best,

Joe

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Joe,

With each new email you send you are exposing your lack of touch with reality. Let me attempt to open your eyes. “The reality is that no one works at Collin County for 40 years” The reason for this is the very rich retirement makes it possible to retire earlier and that is why most county employees do, because they can. “This year we proposed a 1.5% raise and last year we had 2% raise and those raises went only to employees who were our top performers” This is great that you focused on the “top performers” but top performers all through Collin County lost their jobs, didn’t get ANY raise and most business owners took pay cuts during the same period of time.

The “facts” disseminated by your free market opponent were still sound, your twisting of the numbers to protect your pension is typical of liberal ideologues. You asked “is that plan rich?” My question is “Is your plan the richest in Collin County?” And since I know the plans of the TI, EDS, Dell and Raytheon, some of the biggest real employers in Collin County I can comment intelligently and the answer is YES. You have the richest plan in the county, the only exception is key executive compensation in the private sector, but you have made it clear that you would prefer to compare averages.

“It is my belief that you should always shoot straight with the taxpayers and that is what I will do as we carry on this conversation” REALLY! You have been working tirelessly in email and blog posts to maintain the status quo. But, you stood up in Allen Sunrise Rotary and claimed “we” cut government $10 million, when the truth is you are opposed to cutting government, which you are making abundantly clear.

How about being honest yourself and changing your party affiliation to Democrat so we can vote on how you govern.

As for your latte! I think this is awesome, I hope the other 4,500,000 refunds are spent in Collin County, that is 25 million in the hands of those that need it instead of in the hands of a few out of touch government employees or contracts.

Joe, you have sided with liberal ideology in the worst time in the last 50 years, and you sided with Obamanomics in one of the most conservative counties in the most conservative states in the union. This is not going to end well for you. I recommend you reverse course, FAST!

John

Financial Planning Advisors – Building Portfolios

Like lots of financial planning advisors, I’m a subscriber to Paul Zane Pilzer’s newsletter.  If you aren’t familiar with Mr. Pilzer, he was a kind of child prodigy in the financial world.  He was Citibank’s youngest officer at the age of 22, and its youngest VP at 25.  He sat on Reagan’s board of economic advisors.  You get the idea – he’s sharp.  A recent topic from him identified why some things work well over time, but not every time. Here’s a quote:

“One major frustration facing new entrepreneurs and managers, particularly in sales, is why a particular process that works most of the time does not work every time.  When it comes to predicting the weather (70% chance of rain today), illness (15% chance of getting the flu), or business success (50% of new businesses fail), our lives seem ruled by statistics. But statistics are only relevant after you have tried a process a significant number of times, what mathematicians call having enough “frequency.””

This says all sorts of useful things to me and other financial planning advisors.  I get visits from customers who have heard about what they believe to be the next big thing in investing.  Inevitably, these things are fads.  “I met this guy who has a system that has beaten the market since the 90s!”  “I’ve got a guy who has a system that works great for him – you should see his 6 month returns!”

Financial planning advisors are vulnerable to this sort of thing, if not armed with data to combat it.  What’s wrong with these claims?  Not enough “frequency”.  There’s just not a big enough base of data there to see that this system is all that great.  Here’s an example of this kind of thinking.  If I flip a coin 10 times, statistically I should get 5 heads and 5 tails, right?  There’s a 50% chance of each outcome.  But if I flip a coin ten times, and get 7 heads and 3 tails, I just “beat the market” by 20%!  Are you ready to bet your portfolio that the next time I flip the coin, it’s coming up heads?  What if I flip the coin 100 times, and get 70 heads – is that enough for you to invest with me?  Maybe?  More data makes the difference.

Financial planning advisors take note:  small samples of data will occasionally show spectacular unexpected results.  Don’t get fooled into investing money in a “system” that got 4 heads in 5 flips.  Don’t bet your portfolio on somebody’s lucky streak.  Building a portfolio that grows over time requires the discipline to dodge the flashy, dramatic new ideas, and a choice to invest based on ideas that have worked over a long period time.

Dallas Retirement Planning – Government

I received an email from my County Commissioner, Joe Jaynes. It highlights how government officials regardless of party affiliation (he is a Republican) will work to protect their own best interests, not the interest of those they were elected to serve.

I have posted the Joe Jaynes’ email first and my rant second. Enjoy and I hope you are getting involved with you local governments as well. – John Pollock

Dear Friends,

Today was the first day of the county budget workshop.  I have to say this has been the most political and strangest budget that I have ever been associated with.

First of all, there has been severe misinformation sent out concerning the county retirement plan.  I will address that issue in a future email.

First, however, the budget issue that we are facing tomorrow is the county tax rate.  As many of you know, the Collin County tax rate is .2425 cents per $100 evaluation.  An average Collin County homeowner pays approximately $500 per year in Collin County property taxes.  This is approximately 9% of your total property tax rate.

For this amount, you get a criminal justice system, which is two-thirds of our budget, and over $1 billion in transportation projects.

I am happy to say that we have the lowest tax rate of the ten most populous counties and about the fifth lowest of all 254 counties in Texas.

The question is this:  Should we lower it a quarter cent?  If we do, the average Collin County homeowner will save approximately $5.50 per year.  Yes, you read that right–$5.50 per year!

While lowering the tax rate may sound like a good idea, I believe it is shortsighted.  Unfortunately, lowering the rate a quarter cent means that in our next bond election we be unable to construct another $25 million in roads.

So the question comes down to this:  $5.50 a year per homeowner or $25,000,000 in road projects?

Also keep in mind that our population continues to grow.  Land-wise, we are approximately 50% undeveloped.  During the last year, as bad as it was economically, 53 people a day moved into Collin County and I am convinced that each of them brought at least two cars!

I am also a big believer that infrastructure investment translates into economic development which means more commercial tax base and, thus, less taxes on families.

I know it is short notice, but please let me know your thoughts.  I have always enjoyed being your public servant and welcome your input.

Best,

Joe

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Joe,

I for one am thrilled that something as mundane as the county budget is being politicized, I am happy for the exact reason, that is clear from your note below, that you have lost touch with why it is being politicized or don’t understand the basic tenets of economics (I am not talking Keynesian economics taught in our colleges, I’m talking the economics that actually work like Smith and Hayek). Since I will be posting this discussion on my blog (www.johnpollock.tv) I will explain why as a financial advisor, a business owner, employer, citizen and dad I am for keeping the $5.50 per year.

First let me unravel your reduction to the ridiculous strategy. I am not average, so I am automatically going to pay more than $5.50, apartment complexes, commercial buildings and other large productive members of our county are going to pay substantially more. Others will pay nothing at all. No one will pay the average tax because an average is part of the collective, not an individual tax. As for trying to make the case that me not paying my $5.50 will cost $25 million in roads?

Here is where government philosophy has gone awry on the national scale and where you have missed the mark locally. Individuals matter more than groups. Protecting the right of the individual to keep 50 cents or $50 should be paramount in the mind of our County Commissioner. Lowering the tax rate is NOT short sighted, it is a realization that governments can and should have to do with less, just like its citizens have had to do with less. It is also a realization that money in the hands of the private citizen will have a far bigger impact on driving growth than in the hands of any government entity, on any level. The county buildings are the nicest buildings in the county, the new court house would have never been built by a commercial free market company, because of its opulence and spectacular waste of space, that building could have been built for half the cost and it would have been built for less if it HAD to. The only way to force you and those that think like you to trim the fat is to give you less, because there is always a NEED for more and there is always a noble cause to fund.

“I am also a big believer that infrastructure investment translates into economic development which means more commercial tax base and, thus, less taxes on families.”

You may be a big believer in this, but it is not entirely true. First of all I am for infrastructure, but I am currently surrounded by empty buildings so not sure how pressing infrastructure is in the short term. Also, this is the same exact belief the Obama administration has and it has failed. Just like it failed during the great depression.  From FDR’s Treasury Secretary in 1939, admitting the failure of The New Deal: “We have tried spending money. We are spending more than we have ever spent before and it does not work… I say after eight years of this Administration we have just as much unemployment as when we started … And an enormous debt to boot!” All that infrastructure did not yield growth. I guess the only thing I can learn from history is that politicians learn nothing from history.

So we have established your beliefs have not worked in recent history and they have not worked every time they are tried all through history. Here is my suggestion, your goal should be the absolute lowest not almost the lowest taxes of any county. I think striving to be the best in a category makes more sense. You do have kids don’t you? Are you telling them to strive to be almost the best, to settle for fifth best overall, but at least you are the best in this one category? Being the lowest will send a message to citizens all over the state that we are serious about curtailing government. The resulting growth will easily offset the $25 million that is “needed”. (What does $25 million in roads actually mean? 5 ft, 5 yards?)

Will this method take longer, yes, but that is how prudent businesses grows, they grow and then reinvest after growth to deal with the growth, it is messy in the short run and cleaner and smarter in the long run. I think you are the one being short sighted. So much so that I am requesting that you send me my $5.50 so that I can get the 5^th best hamburger, go to the 5^th best store or maybe give it to the 5^th best candidate for County Commissioner, since I now know your target maybe that will even be you.

Sincerely,

John Pollock

Best Financial Planner - Tax Deductions

I try to be the best financial planner I can be; so it says right on my business card, “Integrated Tax and Retirement Planning”.  So you’d be right if you guess we spend a lot of time helping our clients save money on taxes.  There are great ways out there to reduce your tax burden and keep more money in your profile.  Many of them only apply to investors with certain circumstances, but there’s a tax deduction out there that everyone can take advantage of, and it has benefits that may surprise you.

I wouldn’t be the best financial planner in Dallas if I didn’t stop to explain what creates a tax deduction.  Most tax deductions come as compensation for having some cash flow out of your life.  The classic example is buying a bigger house.  A lot of financial advisors tell clients who want bigger tax deductions to buy a bigger house.  Why?  That way you can deduct a larger amount of mortgage interest, and thereby pay less in taxes.  But think about it – when you buy a bigger house, is your interest payment the only thing that changes?  Nope.  Heating bills are higher, electric bills are higher, maintenance costs go up – it’s expensive to save that much tax money!  Plus, a bigger house is more work!  I’ve got a deduction that’s even better, and you don’t need to increase your monthly overhead to get it.  Are you ready?  Wait for it…

It’s charity.  Surprised?  Some of the best financial planners out there don’t even have this one on their radar.  Giving your money to a charitable cause has the same tax impact of giving a larger mortgage payment to your bank, doesn’t it?  And you don’t end up stuck in a bigger house than you need – one which will consume more of your life to maintain.  Give that extra money away instead – you’ll get the same tax benefits, and you don’t complicate your lifestyle.  You avoid giving up time you could spend with your family in order to care for a new big house, and you’ll be putting money in a place where it actually makes people’s lives better!

Let me take off my best financial planner hat for a moment, and put on my philosopher hat.  Consider this:  how many problems in our country would improve if charities were better funded?  Think how much less our country would need to depend on the government to help people, if charities could accomplish more of what was needed.  It’s worth pointing out the obvious here; charities are way more efficient at allocating money to places where it’s needed than governments are or ever will be.  This will never change, because charities can give money directly to the people that matter.  Of course, use discernment when picking a charity; some charities are more efficient than others, and some spend a surprising amount of money on their own administration costs.  But I assure you – the best tax deduction ever is the one you get when you freely give your money away to a good cause.