Editor: Crass Cash

I'll be on vacation this weekend visiting my cousins who have just graduated or getting ready to graduate from college.  I ran across a yahoo.com article about just such a subject, but I'd like to edit it.  

1. Don't make career decisions based only on dollar amounts.
You're in your 20's so spend this time exploring and finding out what you want to do in life.  Take jobs that interest you, not just pay you more money.  This is one of the last few times (unless you're me) where you'll be totally free from responsibility. No spouse, no kids, no pets, etc.  Live life!  Travel!  

2. Know what your take-home pay is—it's not as much as you think.
It's time for you to start learning about taxes.  What's the difference between the federal income withholding tax and payroll taxes?  You need to know what all this is.  FICA, Social Security, Medicare, etc.  

3. Be realistic about your expenses and essentials.
Be conservative!  This is a great life long lesson for everything.  Over estimate your expenses and under estimate your income/revenues.  This is important for your personal finances, investment analysis, and also if you decide to start a business.  

4. Understand cash flow.
Find out not only exactly how much you'll be paid, but also precisely when, and when your bills will arrive

5. Keep an emergency account.
The standard is to keep 6 months of living expenses in an easily convertable cash account.  This should be invested in a money market account, not stocks or bonds.  

6. Get renter’s insurance.

7. Begin contributing immediately to a 401(k) plan or an IRA account.
“Even if you start off slow and modest, it will make a huge difference,” Morrison says. You may miss the $50 or so you put aside out of each paycheck, but it will grow and grow and save you from panic later.

8. Don't be afraid to invest.
You're young so if you're going to make a mistake now is the time since you will never have more of it than you do now.  Put money into index funds like ETFs (Exchange Traded Funds) and do so for the rest of your life.  

9. Keep living like you're in college. 
The temptation when you get out of college and hopefully have a "high" paying job is to upgrade your lifestyle.  Resist this temptation with all your might!  We call this lifestyle inflation, where you're constantly spending more money as a result of you making more money.  This is the most important time to be frugal.  

10. Save AT LEAST 25% of your income.
 This won't be as difficult as you think if you keep living like you did in college.  Continue this for your whole life and you'll be retired by the time you're in your mid-50s.  Which seems like a lifetime away, but it'll be there before you know it. If you can save half of your income you can retire by the time you're in your 40s.  If you save around 70% of your income then you'll only have to work for about 10 years.  Pay off all your debt first though.  

11. Pay off debt in this order.
Credit cards, auto loan, student loans, and then start saving for a down payment on a home.  You should be completely debt free (not counting your mortgage) by the time you're 30.  

Editor: Crass Cash

"History may not repeat itself, but it rhymes."
-Mark Twain

Back testing a stock theory has become very popular and even the great Benjamin Graham has dabbled in it.  This is a very serious problem though that you need to be made aware of.  Back testing is when you take certain parameters and see how they performed in the past.  Theory being that that's how they'll perform in the future.  

The problem is that this pretty much never happens.  Economists and financiers love to take certain parameters and make them do what they want.  Or at least fiddle around with them until they do.  This is called data mining and has gotten a lot of brilliant people in trouble.   

Have you ever heard of a private equity group called Long-Term Capital Management?  Look it up and read the history of what they did.  Don't fall into the same spell that they did believe that history repeats itself...although it just may rhyme.   

Editor: Crass Cash

Last weekend I watched the documentary Inequality For All.  It's good, but it makes a number of mistakes.  It completely contradicts itself as to how much the 1% makes within just a few minutes of each other.  It was such a blatant mistake I had to go back and check for myself to see again.  Secretary Reich also fails to explain how income inequality continued to rise when income taxes increased dramatically for the rich from 1913 to 1929.  That was conveniently left out. 

Robert Reich also makes the false assumption that this whole thing is going to follow a pattern that some how looks like the Tower Bridge in London.  And his prediction that income inequality will fall since 2007 have already proven to be false.  I think that Secretary Reich has good intentions, but he falls prey to the same thing that economists do.  He believes that complex systems like our economy with thousands of variables can be predicted by a few factors.   

Another part of the problem is that he only goes back to when the income tax started in 1913 (although the chart only starts at 1920 for some reason).  This is understandable since there was no data used before then for income taxes...or was there??  Little known fact is that Honest Abe Lincoln instituted an income tax to help pay for the civil war.  Amazingly this data is still around, even though the IRS loses their e-mails after only 6 months.  

If you want to see some serious income inequality, look at this!  During the American Civil War the top 600 families/people (out of 800,000 in population) in NYC controlled 61% of the income.  Everybody talks about how unfair it is now and how the 1% own over 35% of the income in this country.  Well back then the top 0.075% of NYC owned 61% of the wealth and income!  Huge difference!  I'm not saying we need to go back to those ratios.  But society still found a way to function.  This vast income inequality also led to reforms that were ushered through the subsequent decades.  Reforms such as work place safety, 40 hour works weeks, etc.  Note the minimum wage was not one of them.      

I've explained in previous posts that income inequality is a function of mathematics due to compounding interest.  The very top get to the point to where they can't spend or even be taxed enough so that they don't accumulate more than the middle class or poor.  This is never mentioned in the documentary either. 

There is nothing fair about equality.  Why people think that everybody should be financially equal when they have different levels of intelligence, ambition, risk tolerance, and work ethic is beyond me.