We are the Super Rich

My post about annual income and net worth was recently referred to in the comment section of another post titled Pity the Poor Couple Who Make $450,000 Per Year (Yet Another Failure of Our 'Elite' Educational System) on a blog called Mike the Mad Biologist. The commenter used the data from my post to declare that "the median net worth for people making more than $150k/year is $1.1 million." Ordinarily, I would not consider this to be a notable event since a few of my posts are frequently referenced by other websites. However, this post has over 60 other comments on it, and I wanted to find out what all of the hubbub was about.

It turns out that this post was a reaction to a blog post originally written by Professor M. Todd Henderson of the University of Chicago Law School. The original post was available on the blog Truth on the Market and had received over 400 comments. However, the author deleted the original article and has decided to get out of blogging all together. This left me even more intrigued as to what was said in the original post to start off this firestorm. So, I started a search for the original text.

Fortunately, I was able to retrieve an original version of the post and have included it below. Before I reproduce that post here, I wanted to say that I think Prof. Henderson's point of view is that President Barack Obama's plan to increase taxes will impact those who are in the lower end of the high-income tax bracket (i.e. making more than $250k per year) and those who are in a situation similar to his. It is clear that the author's family will feel the squeeze since they already have "less than a few hundred dollars per month of discretionary income" to spend. It seems that any tax increase will force the Hendersons to trim some expenses. However based the comments I've seen, I think that few readers will empathize with Prof. Henderson.

Here is the original article:

We are the Super Rich, posted by Todd Henderson on September 15, 2010 (Truth on the Market)

The rhetoric in Washington about taxes is about millionaires and the super rich, but the relevant dividing line between millionaires and the middle class is pegged at family income of $250,000. (I’m not a math professor, but last time I checked $250,000 is less than $1 million.) That makes me super rich and subject to a big tax hike if the president has his way.

I’m the president’s neighbor in Chicago, but we’ve never met. I wish we could, because I would introduce him to my family and our lifestyle, one he believes is capable of financing the vast expansion of government he is planning. A quick look at our family budget, which I will happily share with the White House, will show him that like many Americans, we are just getting by despite seeming to be rich. We aren’t.

I, like the president before me, am a law professor at the University of Chicago Law School, and my wife, like the first lady before her, works at the University of Chicago Hospitals, where she is a doctor who treats children with cancer. Our combined income exceeds the $250,000 threshold for the super rich (but not by that much), and the president plans on raising my taxes. After all, we can afford it, and the world we are now living in has that familiar Marxian tone of those who need take and those who can afford it pay. The problem is, we can’t afford it. Here is why.

The biggest expense for us is financing government. Last year, my wife and I paid nearly $100,000 in federal and state taxes, not even including sales and other taxes. This amount is so high because we can’t afford fancy accountants and lawyers to help us evade taxes and we are penalized by the tax code because we choose to be married and we both work outside the home. (If my wife and I divorced or were never married, the government would write us a check for tens of thousands of dollars. Talk about perverse incentives.)

Our next biggest expense, like most people, is our mortgage. Homes near our work in Chicago aren’t cheap and we do not have friends who were willing to help us finance the deal. We chose to invest in the University community and renovate and old property, but we did so at an inopportune time.

We pay about $15,000 in property taxes, about half of which goes to fund public education in Chicago. Since we care the education of our three children, this means we also have to pay to send them to private school. My wife has school loans of nearly $250,000 and I do too, although becoming a lawyer is significantly cheaper. We try to invest in our retirement by putting some money in the stock market, something that these days sounds like a patriotic act. Our account isn’t worth much, and is worth a lot less than it used to be.

Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby so we can both work outside the home. At the end of all this, we have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive.

If our taxes rise significantly, as they seem likely to, we can cut back on some things. The (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center, but these are only a few hundred dollars per month in total. But more importantly, what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions? Ask the entrepreneurs we employ and the new arrivals they employ in turn whether they prefer to work for us or get a government handout.

If these cuts don’t work, we will sell our house – into an already spiraling market of declining asset values – and our cars, assuming someone will buy them. The irony here, of course, is that the government is working to save both of these industries despite the impact that increasing taxes will have.

The problem with the president’s plan is that the super rich don’t pay taxes – they hide in the Cayman Islands or use fancy investment vehicles to shelter their income. We aren’t rich enough to afford this – I use Turbo Tax. But we are rich enough to be hurt by the president’s plan. The next time the president comes home to Chicago, he has a standing invitation to come to my house (two blocks from his) and judge for himself whether the Hendersons are as rich as he thinks.

Any opinions?

DC

New Poll: How Much Do You Make?

I've asked the question before, and I'm asking again. It is the question that everybody wants the answer to, but nobody wants to ask it. Since I write an anonymous blog, that gives me the unique luxury of being able to ask the question without personally offending anybody. I mentioned before how readers are innately curious other people's net worth. I think this is because of people's natural curiosity -- wanting to assess how one is doing compared to others.

The last time I asked the question, I received a few responses such as these:

married female, 30 years old (husband is 30 years old). both of us completely self made professionals with degrees from state schools. rental income is approximately $60,000. combined household income is approximately $200,000.

Male, Married,Age 29 and 28, both MSEE, both work for the same company, combined salary 240k. Networth 273k.

So, now I'm asking again: how much do you make? Anonymous comments are welcome. I want to assure you that my Blogger account does not collect Email addresses or any other personal information, if you select "Anonymous" on the comment form. To be doubly sure, you can also sign out of Blogger.

Also I have an updated annual income poll in the sidebar of my blog. I recently reset the poll to adjust the income ranges. In constructing the original poll, I deliberately set the income ranges to correspond with the net worth comparison tool on the CNN Money website; the ranges that CNN Money used were not consistently spaced. This time, I've evenly spaced the ranges in $50k increments. Also, I mentioned that I've been having problems with blogger polls, and that the old poll was no longer recording new submissions. If you've answered the old poll before, please submit your answer again.

DC

Celebrate Arts Month 2010 and Win Prizes

This blog originates from Silicon Valley, California. One of my local readers has again asked me to mention an event celebrating the arts that will take place in Mountain View, California. During the month of October 2010, Arts Action 21, the City of Mountain View's Performing Arts Committee and the Community School of Music and Arts will present "Sunday Arts Live" -- a new performance series celebrating National Arts and Humanities Month.  The first event will be "A Multicultural Celebration" on October 3; and the second event will be "Finding Home: A Kaleidoscope of Musical Journeys". More information about these events is available at: Arts Action 21.

In addition, there will be a free random drawing for prizes worth several hundred dollars, which will be awarded on October 17th. In order to enter the contest, you need to fill out an "Arts Challenge" entry form, and return it by October 16, 2010. Drop off and online entries are accepted. The online entry can be found here: ArtsChallenge2010 Survey

Most of the prizes are provided by local, Silicon Valley organizations. So even though the entry is free, the giveaway is really geared toward people who will be able to attend events and participate in activities in the area. The following organizations will be giving away prizes:

• The Community School of Music and Arts in Mountain View.
• The Mountain View Center for the Performing Arts.
• The horn quartet QUADRE.
• Art-n-Fun of Los Altos.
• The Children's Discovery Museum of San Jose.
• The Peninsula Youth Theatre.
• The Tech Museum in San Jose.

For last year's entry form, I wrote that entries could be mailed in. This year, it seems that you have to drop off your form at the Mountain View library, which is located at 585 Franklin Street, Mountain View, California. Alternatively, you can submit an online entry.

If you would like to publicize a local, Silicon Valley event or know of other special deals that readers might be interested in, please send me an Email message (my Email is in the sidebar) with the details.

DC

Chase Screwed Up!

Many people are aware that the Chase website, Chase.com, was offline for a couple of days this past week. For three days (Monday, September 13 through Wednesday, September 15), customer account information was either inaccessible through the website, or there were intermittent outages. Bill payments that had been previously scheduled were not being made. How this affected me is that I had scheduled a bill payment for my American Express card to be sent on Monday, and completed on Tuesday, September 14 (which was the bill's due date). Unfortunately, that payment was not received by American Express until Thursday, September 16 (two days late).

What happens if you pay a credit card bill late? It could result in a late fee, finance charges, and the credit card issuer can increase the card's interest rate (in my case, that would be increased to 27.24% APR). And that is not even to mention the effect that a late payment can have on your credit score. Well, this was definitely not my fault; I had scheduled the bill payment on-time. It was Chase that screwed up!

Anticipating that many angry customers might be contacting Chase, they sent me a message explaining the situation. Here is the message that I received from Chase:

We are sorry for the difficulties that recently affected chase.com and we apologize for not communicating better with you about this issue. As you may know, we experienced a significant service interruption at the time you tried to initiate, cancel or modify one or more of your scheduled online bill payments.  As a result, the request was not processed.

Please log on to chase.com to check the status of your payment.

If you tried to change or cancel your payment, we are asking that if you have not done so already, please log on to chase.com and resubmit your cancellation or change, if appropriate. If you have concerns about a bill payment that has been made, please contact us.

If you tried to initiate a new payment and it was not made (if you do not see your payment in your online account activity summary), we are asking that if you have not done so already, please log on to chase.com and submit a new bill pay request for any payment that was not made.  If our delay in processing your bill payment resulted in late fees, we will cover 100% of those late fees.

If your payment was made after the date you scheduled, there is no further action needed on your part. Please note:

·    If your payment was to another Chase account (for example, Chase Credit Card Services), we are automatically refunding any late fees.

·    If your payment was to anyone other than Chase (for example, your telephone service, utilities or another financial institution), we are contacting many payees to prevent late fees from being charged.

o   However, if your payee charged you a late fee, please call us at one of the numbers below or visit your nearest Chase branch. We will refund the late fee to you.

We recommend that you keep this letter in case you need to provide information to your payee. 

Please be assured that Chase's online security has not been compromised as a result of this service interruption. Your accounts and confidential information remain safe and secure. 

Giving you 24-hour access to your banking is of the utmost importance to us. This was not the level of service we know you expect, and we will work hard to serve you and communicate with you better in the future.

Again, please accept our apology for this disruption and thank you for your patience. If you have any questions, please stop by your nearest Chase branch or call:

·    1-800-935-9935 for Personal accounts

·    1-877-CHASEPC (1-877-242-7372) for Business accounts

·    1-800-848-9136 for Home Lending and Auto accounts

·    For credit card accounts, please call the number on the back of your card.
 

Sincerely,

Patricia O. Baker
Senior Vice President
Chase Executive Office

One of the key points of this message is that Chase is contacting payees to prevent late fees from being charged. They should; it is their responsibility! It remains to be seen what will happen. I haven't seen any late fees assessed to my credit card yet, and I hope that there won't be any.

Was anybody else impacted by Chase's problems?

DC

Guest Post: True Religion at a Glance

It can be quite a lengthy process to properly research a stock. That’s why I established a few guidelines to help me identify stocks worthy of further research. In this article, I will use these guidelines to evaluate the attractiveness of True Religion Apparel, Inc. (Nasdaq: TRLG) as a candidate for potential further research. All the data I need to do that can be obtained from Google finance.

P/E ratio
I usually look for stocks with low P/E ratios or at least reasonable P/E ratios (generally about 13-15 for blue chips, maybe a bit higher for the really good quality ones), but may accept a higher P/E ratio if the stock has good revenue and profit growth. True Religion has a P/E ratio of a bit more than 10.5 at the time of writing. That’s very good, considering True Religion has had pretty good revenue and profit growth.

Revenue and profit growth
I also look for companies that are growing profits and revenue healthily, and True Religion is doing great in those categories. True Religion grew revenue from about 140.5 million USD in the year 2006 to about 310 million USD in the year 2009. Operating income grew from about 35 million USD in 2006 to about 77.5 million USD in 2009. In percentage terms, from 2006 to 2009, True Religion had a compounded annual growth rate of about 30.2% for revenue and a compounded annual growth rate of about 30.3% for operating income.

Profit margins and return on equity
Investors should generally look for companies with high profit margins and high returns on equity. True religion had an operating profit margin of around 25% and a return on average equity of about 28% in 2009; all in all, pretty good. I looked at operating income growth and operating profit margin instead of net income growth and net profit margin, as the operating profit is the one that gives us the better picture of the company’s everyday business performance.

True Religion might have earned lower profits in the second quarter of 2010, but there will only be trouble if we base our investment decisions only on the latest quarterly reports. Investors need to look at profit growth in terms of years, and True Religion has had stellar growth over the past few years.

Companies don’t always grow straight up, they are capable of having some down years, which is OK; what matters after all is long-term growth. I believe that True Religion is still a very attractive candidate for further research, where we can try and determine, among other things, if the drop in profit is due to permanent impairment to True Religion’s business or if it is a result of the company spending more on activities like opening new stores, which will set True Religion up for greater future profits.

Low debt and good liquidity
Everyone knows that too much debt is bad, and that’s why I usually look for companies with low or at least reasonable debt levels. Liquidity is also very important, as there have been many companies that got into trouble because of a lack of liquidity. At this stage, I simply look at current assets to current liabilities to determine if a company has ample liquidity, I will take into account things like inventory turns and etc later when I look into the annual reports and conduct proper research.

At 2010/06/30, True Religion had 120 million USD in cash and short-term investments to only about 35 million USD in total liabilities, which indicates the company has good liquidity and very little debt.

Conclusion
If a company meets the guidelines that I have set, I would then consider digging into at least its latest annual report and its latest quarterly report, and conduct thorough research. When conducting proper research, all decisions that require information from the financial statements should be based on the financial statements in the company’s annual report, as I think that’s the best source.

In my personal opinion, I think True Religion meets the guidelines I have set. But as always, decisions to invest or to single out stocks for further research should be independent and based on your own research. If you liked this article, you might like to check out: Real Estate Real Returns and Things I think about before making investment decisions. Take care and may your portfolios generate good returns.

About the Author:
Justin Teo is a private investor and is currently studying for his degree in international business.

Guest Post: Why Credit Card Companies Charge Yearly Fees

For many consumers, credit cards provide a very helpful tool in their pursuit of financial independence. If used properly, credit cards can help people build their credit and even reward users with cash bonuses and gifts. However, if not used properly, that little piece of plastic can engulf irresponsible shoppers in a vicious cycle of debt that spirals out of control.

How Credit Card Companies Make Money
Credit card companies make the majority of their revenue from interest charged on existing debt. So while consumers enjoy the advantages of delaying full payment and accumulating rewards, credit card companies will happily oblige because they're making a mint on interest. On the surface, it seems like a mutually beneficial relationship.

In theory, it would make the most sense for financial institutions to have as many people using their cards as possible. Like most businesses, having more people use your product should equate to making more money.

That isn't necessarily the case, however, with cards offering generous rewards. Sure, most companies provide bonuses to consumers to instill customer loyalty and encourage frequent transactions each month. That only works if those same users are keeping a balance on their card.

Users who pay off their full balance each month, but still spend enough to collect hefty rewards, are known in the industry as "free riders." To dissuade these types of users, credit card companies charge annual fees. Doing so filters out these frugal chargers. Further, with the Credit CARD Act of 2009 taking effect, financial institutions are trying more than ever to find new ways to cut costs and drive new revenue streams.

No More Free Rides
In the past, credit card companies would entice new customers with low interest rates and high rewards. Companies could make more money on customers who accumulated debt interest than on annual fees. Once in the door, they could get their money back in many different ways, chiefly, raising interest rates at a whim. Not anymore.

So while annual fees do provide revenue for financial companies, it's not really a huge factor in relation to how much they can potentially earn from high-frequency users who carry a balance.

Also, if you notice, large annual fees can also serve to attract more desired customers, which helps to maintain a level of prestige for the brand. They want those customers who are willing to pay the annual cost. Yes, there is such thing as luxury-brand credit cards. It's the same idea of paying $200 for a T-shirt with a designer logo on it.

Credit Card Rewards
So does this mean that all rewards cards charge annual fees? Not even close. There are still many cards that provide users bonuses without the yearly membership payment. The difference is the rewards aren't as bountiful as they once were. That doesn't mean you can't still take advantage of them, though.

Here are a few cards that offer customers generous rewards, with and without an annual price tag. Depending on how much you earn back, sometimes it does make sense to bite the bullet and accept the fee.

No Annual Fee Rewards Cards
As with most no annual fee rewards cards, these usually require good to excellent credit to qualify:

• Chase Sapphire and Chase Freedom: These two cards from Chase charge no annual fee and offer cash back rewards at select merchants. Sapphire lets you earn $100 cash back after your first purchase. Free lets you earn 5 percent cash back on select quarterly categories, and an unlimited 1 percent on all other purchases. Both cards provide additional discounts with cash back rewards through select retailers.
• Discover More: This card provides 5 percent cash back on changing categories that you need to sign up for like travel, restaurants, shopping, etc. You can also earn 1 percent on all other purchases. There are additional discounts available through select retailers.
• Capital One No Hassle Rewards: If you're looking for a card with no expiration date for rewards, this card has it covered. You can earn 2 percent cash back on gas and groceries, and 1 percent on other purchases. The card does charge annual fees for average to low or limited history credit scores.

Premium Reward Cards with Fees
Usually, credit cards will charge annual fees for individuals with less than stellar credit. In this section, we're focusing on cards that charge fees for their premium rewards.

• American Express Green and Gold Cards: These cards waive the annual fees for the first year ($95 and $125, respectively) and let you earn one point for almost every dollar spent, three points when shopping with select online retailers and double points on its travel program. Though you can redeem points for rewards, there isn't a cash back option.
• Chase Sapphire Preferred: For $85 a year (first year waived), earn one point for almost every dollar spent, and double points for airfare booked through the card's reward program. There is also a 7 percent annual points dividend for all points earned. You can also get $250 in rewards; that is, if you spend $3,000 within the first three months.
• CapitalOne Venture Rewards: If you're a traveler, you can accrue miles with this card. The $59 annual fee is waived the first year. You can earn two miles on every purchase and get 10,000 bonus miles if you spend $1,000 in the first three months. Reward points allow you to fly free on any airline with no blackouts. You also won't get dinged for foreign transaction fees.

High Roller Cards
This bunch stand in a class of their own:

• American Express Centurion Card: Though it isn't necessarily a credit card, you can't mention high roller cards without mentioning the original "black card." The Centurion card is actually a charge card that users have to pay off each month. There is a one-time activation fee of $5,000 and an annual fee of $2,500. It's so exclusive, even the website is designed to be cryptic and vague for outsiders.
• American Express Platinum: Like the Centurion, this is also a charge card. The annual fee is a friendlier $550 per year, but applicants need to have an annual income of $65,000 or more. While you earn one rewards point for every dollar spent that can go to travel or charity donations, the card also provides luxurious perks, too. Members can get complimentary airline tickets for companions, access to VIP lounges, complimentary upgrades and more.
• Visa Black Card: Designed to compete with the two above, the Visa Black Card is actually more of a traditional credit card than charge card. The annual fee is $495, but members get similar benefits as the American Express Platinum. One difference is that users can opt for a 1 percent cash back return over airline points.

So there you have it. Which rewards cards do you like using? Are you willing to pay an annual fee for extra bonuses?

About the Author
This guest post was written by Go Banking Rates, bringing you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide.

Guest Post: Learn To Be Smart With Your Savings

With the debt figure in America rising precariously every minute, it is no surprise that most of the people today are rather unwise with money management. What should one do in such a scenario? Resort to debt relief companies for help? Well, they can probably help you but is it really an answer to your problems? Can these companies help you keep away from debt problems in the future too? Face it, the problem lies in you! And you are the solution yourself. The answer to your worries lies in some smart ways which can teach you to save your money and be financially savvy!

Listed here are some steps you can consider to start saving your money:

Open a savings account: The very first step you can take is to open a savings account with a bank. Shop around and choose a bank which just suits your needs; the one which offers the highest interest rate and low service fees.

Start saving: Now, start putting your money in your savings account. Do not be bothered about filling your savings account with huge cash, it is important to first start putting something into the account, however small it is. Develop the habit of contributing something regularly towards your savings account.

Consider investing your money: You can make more money by starting to invest in the market. Here are some investment options to consider:

• Stocks: When you buy a stock, you actually buy a tiny piece of a big company. Though the stock market abounds with several market risks, you can still make quite a lot of money here with some intelligent dealings. Since there are fluctuations in the stock market, it is advisable that you start investing in stocks after gaining considerable experience at the stock market.
  
• Bonds: Bonds are defined as a piece of big loan. This can be one of the safest investment options for you because it has the backing of the government. When you buy a bond, you get it back with interest on the date of maturity of the bond.
  
• Mutual funds: The risk involved with mutual funds is very low because of the diversification of assets across different sectors. Therefore, this can be the perfect choice for you to start your investment career. Because of this reason, sometimes mutual funds are also regarded as risk free investments.

Everyone should try to build up some easily accessible cash to be prepared for the rainy day. In the current environment of market uncertainty, there is no better way to help oneself other than building up a solid foundation of some wise money management. It requires a degree of commitment and making a determination to make your money work for you is what is required to secure a financially secure future.

About the Author This guest post was written by "Jack Reed". He writes on various financial topics with a special focus on bankruptcy. If you are interested in writing a guest post, please contact PF Stock at the Email address listed in the sidebar.