And the best part is, I haven’t even showed up yet. Which should give you a pretty big hint about what I did.
Every year since 2010 I’ve made the trip down south to the glitz and glamour of Sin City. I like the food, the constant buzz of The Strip, the vast array of entertainment options, the chance to play live poker, and just being able to relax around the pool. It’s truly one of my favorite places on Earth, which probably makes me a pretty boring person. Assuming otherwise would be a pretty bad idea.
But because I am a frugal leader (could there be anything more douchey?) I don’t want to pay 1 million dollars to stay there. I’m already going to spend a bunch of money stuffing my face and losing at the poker/blackjack tables, so I want to keep my costs down. I also want to stay somewhere civilized, because what’s the point of going on vacation just to sleep somewhere crappier than I sleep now? I want to defile a new set of sheets with my nude body, dammit.
Luckily for me, I’ve mastered the wisdom of the Hotwire, a website that lets you save a bunch of money on hotels if you agree to one little condition, which is you won’t actually know which hotel it is until you’ve given Hotwire your cash. Fortunately, I’ve gotten to be pretty good at gaming Hotwire, and if you’re going to Vegas it’s actually really easy to figure out which hotel you’ll be staying at. Let’s take a look at what I did.
I ended up getting the Tropicana Hotel, on the south end of The Strip, for $28 USD a night. Yeah, there’s a $20 resort fee on top of that, but you’re going to be paying that no matter where you stay on The Strip, so let’s just pretend that doesn’t exist. I’ve stayed at the Trop before, during last year’s vacation, where I paid $59 per night. The same room currently goes on Expedia for $88 per night in Canadian dollars, which is where I got the amount I saved for the title of this post.
But I didn’t bother to take pictures of the exercise, so I’ll have to demonstrate a different hotel for the purpose of this post. Allow me to present Vanessa’s favorite hotel, The Luxor.
Notice these are screenshots off my phone. This will become important in a second.
(Seriously, she won’t shut up about how awesome the Luxor is, even though she’s never stepped foot in the place.)
How do I know this is for the Luxor though? Amenities are pretty much identical as every other Vegas resort. It has a casino, pool, places to eat, fitness center, and internet access. So does every other hotel in the city. Oh, and free parking. Everyone likes to park for free. AND THEN NECK BECAUSE THEY’RE TEENAGERS FROM THE 1950s.
That’s when I start to read the reviews, which you can do on the Hotwire App by pressing on the “65% customer recommended” spot there. If there’s a way to read the reviews on Hotwire’s website, I’ve yet to find it. That’s reason number 1 why it’s important to use the app.
Here’s the review screen. I’m about 80 reviews deep here.
The reviews usually cut off once people start putting in stuff that could give you a hint about which hotel they’re talking about, but useful stuff sneaks through. This is why it’s important to read all the reviews you can about a place. It becomes pretty easy to figure out, especially for Vegas hotels. When I was checking out reviews for the unnamed hotel that eventually became the Tropicana, a review snuck through where the person said “We really enjoyed out stay at the Tropicana.” COME ON HOTWIRE. AT LEAST MAKE IT A CHALLENGE FOR ME.
Notice what JLO (the real JLo? Probably.) said in her review up there? She talked about the smoke smell in the pyramid, and then was too lazy to spell out definitely. She all but told us that we’d be getting the Luxor. That’s how easy it is to figure out.
Or, for about a third of Vegas hotels, you can just go directly to the Hotwire website and it’ll just tell you which hotel you’ll get. I’m not sure if this is just a Vegas thing, but it kinda makes all my work for nothing and that makes me sadface 🙁
But wait, there’s more.
If you book a Hotwire hotel using the iPhone app before the end of March, you’ll save $25 on your stay, providing you spend $100. My room at the Trop was $33 per night, which I shaved down to $28 per night by using the coupon code APP25. Booking it on my phone took barely longer than doing it online. They’ve done a nice job designing the app to make the process pretty easy.
(EDIT: THIS DEAL IS OVER. SORRY ABOUT YOUR LUCK.)
These are American prices, all across the board. As you can see, my $33 hotel room became a $28 hotel room. And that’s how I scored a 4 star hotel for 5 nights for the price of a 4 star hotel for 1 night. Hotwire is the best. Paying retail is for chumps.
Looking to book your own smokin’ deal? Just click this very link here: 4-star hotels. 2-star prices. Save up to 50% with low Hotwire Hot-Rates!
Yes, you read that title right. Even though accepting said loan will turn you into one of these.
Get it? Huh? I’m so clever.
Imagine the following scenario. You’ve spent a little beyond your means over the past few years, and now you owe $15,000 in credit card debt. Because you’re an ambitious debt repayer, you’re looking to pay off this credit card debt in just two years. Here’s a quick look at what you’re up against.
Ignore the car loan part. It was just the first calculator I found.
Looks like our fictional borrower is in for a couple of years of Kraft Dinner, hot dogs, and refreshing tap water. $750 a month isn’t an insignificant amount of money, and neither is three grand of interest.
But wait. One night while eating dinner at their parents’ place, our borrower starts to talk about their love of food that isn’t pasta. Upon a little prodding, the entire story comes out. Assuming our fictional borrower is a woman, there will undoubtedly be some tears, because for some reason that what they do.
After the tears, an offer emerges. Daddy would like to lend his offspring enough money to pay off the credit cards. He can see the debt is a giant burden on his kid, and can save them almost $3,000 in interest just by cutting a cheque. He’s got his chequebook literally out of his desk, all he has to do is write a few words and it’s done.
But wait! Our fictional borrower puts their foot down. There’s NO WAY THEY’RE ACCEPTING THAT DIRTY MONEY.
Oh baby. That story had everything. Where’s my Pulitzer?
One of the greatest roadblocks on the path to wealth is our pride. We decide, for whatever reason, that certain things are above us, that we hold ourselves to a higher standard than to accept that. Many investors won’t invest in shares of tobacco, alcohol, or firearm companies, because those things are bad. (Even though the same investors will happily invest in Walmart or McDonald’s, companies that help create other problems.) I can probably list the personal finance bloggers who would be willing to invest in payday loans on one hand, even though they’re happy to pimp H&R Block all over the Twitter, a company that offers refund anticipation loans at payday loan like rates.
Although we already established the payday loan industry isn’t quite as profitable as everyone believes, it still represents impressive gross margins, assuming they can figure out how to get people to pay them back.
And of course, one of the main things keeping us down is borrowing from unoptimized sources. Going back to our example above, the fictional borrower is looking at saving close to three grand by just taking the money that their parents were happy to give them. This is letting pride get in the way of financial well being, which is generally a pretty bad decision.
I’ve said it before, and I’ll say it again. Emotion has no place with your money. Getting out of debt isn’t a psychology problem, it’s a math problem. As long as you’re actually serious about paying off your debt, why should it matter if your parents help you save interest? Most people got at least a small hand as they went off to college. What’s the difference?
You think that borrowing money from your folks keeps you in a suspended state of adolescence? Hogwash. There’s an argument to be made that your parents giving you money isn’t ideal, but we’re not talking about that. We’re talking about loans, and as a borrower, it’s your duty to your money to seek out the lowest cost financing possible. It’s also your duty to pay back that loan with the same zeal as if you owed it to Visa or Mastercard.
There are other ground rules before I let you borrow from your parents. The money has to be used for something that will benefit your financial situation. No borrowing to buy an overpriced condo in Vancouver or Toronto, and no borrowing for food so you can just allocate resources to buying weed. Also, your parents can’t go into debt to let you borrow from them. Ideally, they’ll also charge you a token amount of interest too, to further cement the realization that there’s a business element to the loan.
But wait, you’re saying. Nelson doesn’t know the emotional stress that comes with borrowing money from your parents. God, it’s so degrading! I want to be a strong independent woman, who won’t lever my current advantages by borrowing at lower rates, even though I’ll lever my ability to look good in a low cut shirt into free drinks at the bar. THOSE ARE COMPLETELY DIFFERENT, DAMMIT.
Well, I hate to break it to you, but I’ve borrowed an assload of money from my parents. I invested that money in income producing assets, and used that income to pay back every single dime that I ever borrowed, plus interest. I’m not going to say how much, but suffice to say I’ve paid back a considerable chunk more than anyone’s student loans or credit cards. It’s easy, once you treat that loan just like a loan from anywhere else.
You might be tempted to take this newfound low interest loan and delay paying it off, using it as cheap money while you pour your money into more profitable endeavors. This is when things get a little tougher. If you have financially unsophisticated parents, it’s probably not best to try it. If you do try it, it’s best to explain beforehand what you’re looking to do. Explain the merits of this new investment, and why you think it’s better to pour your cash into that.
And for God’s sake, don’t take any exotic vacations. That’s pretty much a slap in the face to your lender.
As long as a borrower does it responsibly, there shouldn’t be any issue borrowing money from family. It’s also up to family to make sure they aren’t lending money for any old reason. As long as a borrower takes their loan seriously and actually repays it to the best of their ability, they owe it to themselves to seek out the lowest cost financing. We have no problem using our other advantages to our benefit, why not that?
What the what? $149,816? I could, like, pay Taylor Swift and Katy Perry to have a threesome with me for that much money. I could travel to Antarctica, capture a penguin, and then eat it when it inevitably dies. (I’m assuming it tastes like chicken) I could pay someone to do my bidding for five whole years, assuming I could find somebody for $30,000 per year. I could afford to give 30 women breast implants, with the caveat that they’d let me squeeze them whenever I wanted in exchange for free enhancements.
In short, I would have a lot of fun with $150,000 if I wasn’t such a naturally cheap bastard.
But still, who couldn’t use an extra $149,816? Everyone, right? And just how are you supposed to get it? It’s actually really simple. Don’t have an emergency fund.
At this point, I think I’ve crapped on emergency funds more than I’ve crapped on The Simple Dollar. I’ve said before that you shouldn’t have more than 5% of your net worth as cash, mostly because having $10,000 just sitting around as an extra insurance policy makes no sense. I’ve always said that you should invest it in bonds, and make it the lowest risk portion of your portfolio. Have available credit just in case it hits the fan, and draw on it if you ever need cash. Then you can sell your bonds at your leisure, and our little problem is solved.
A few of you disagreed with my hypothesis, pointing out that available credit lines will go away quickly if you lose your job. There are a couple retorts to that. First, how would your credit card company know unless you told them? I don’t think credit card companies get informed when you get whacked. As long as you keep paying, they’re cool.
And second, it’s not like you won’t have any money. Remember, the second part of my plan, which is to sell your bonds when needed. Unlike with equities, bonds tend to have stable prices. Even if you get laid off during a stock market slump, bonds should still perform relatively well.
Let’s crunch some integers, math bitches!
Let’s assume that you get some sort of return on your emergency fund, but it’s not much. These days high interest savings accounts yield around 1%, but rates are lower than your great aunt’s sagging bosom. For our example, we’ll assume that you’ll be able to average a 2% return on your emergency cash.
Meanwhile, over the last 50 years, U.S. Treasury debt has returned 7.24%. Because I’m good at math, I know that 7.24 > 2. Assuming you do this for 40 years as an adult, just how big is the difference between the two types of emergency funds? I ran the math, and the difference is…
Wait. You already know the answer, cause some moron put it in the title already.
If you have $10,000 in an emergency fund earning 2% over 40 years, it’ll grow to $22,167.
If you have $10,000 in Treasury debt and it returns 7.24% over 40 years, it’ll grow to $171,983.
By leaving your emergency fund in ultra-safe investments, you’re forfeiting $150,000 over your working career. That’s compound interest working against you, and last I checked, that’s bad.
It gets even worse if you have credit card debt. How many times have you heard
experts personal finance dumbasses tell people in credit card debt to have a $1000 emergency fund? That advice is dumber than trying to seduce the ugly girl from Two Broke Girls. (It’s a trick. They’re both ugly.)(Although, upon further thought, maybe that wouldn’t be so dumb, since they’d probably be likely to please.)
If you’re sitting on credit card interest of 18%, paying it off is the best financial move you can make. I would sell all of you into slavery to our secret alien overlords if it would guarantee me an 18% return on my money. If you have a spare thousand dollars and credit card debt, YOU SHOULD PAY THE F’IN CREDIT CARD DEBT. God, how bad are you people at math?
And here’s the beauty of it. If on the off chance that you do have a legitimate emergency that would cost $1000 to fix, you have a credit card that has $1000 worth of credit available, since you just got finished paying the damn thing down. You could just charge the thing back up again, and be back in the same spot you were in before, except you’d likely have saved a few months interest. Six months worth of interest on a $5,000 credit card debt is enough to buy a lot of chips, which I assume you eat exclusively because of me.
Emergency funds are for personal finance amateurs. They’re just additional insurance. But as you can see, they’re costly insurance. If we’re all gonna get rich, we need capital working for us, not sitting in a bank somewhere for an unlikely emergency.
Sometimes people (usually women, let’s face it) like to think about how their lives would have been different if they had made some different decisions. What would have happened if they’d pursued that relationship? How different would life have become if they’d taken something different in college? We all know that seemingly small decisions can have large impacts, thanks to luck and all that junk.
Although I’m no woman, (checks pants to confirm) I’d like to take you back to the year 2004 and the story about my series of interviews with one of Canada’s largest money managers, Investor’s Group. I promise, the story has a point. It does not, however, contain any gratuitous nudity. The internet is filled with porn, go nuts you horndog.
I was 21 years old, working in a grocery store. I was also a business channel addict. When I wasn’t working, I was watching and learning everything I could about the markets. I was also starting to dabble in buying stocks, basically doing a less refined version of the contrarian investing that I do now. I was single, naturally, because I’m always single. Watching BNN for 5 hours a day probably had something to do with it, but I digress.
One day, I noticed an ad in the paper. Investor’s Group was looking to add a second rep to my town. As you can probably tell from my BNN addiction, I desperately wanted into the business. Naturally, I applied, and got a call back for an interview. I’m sure I celebrated by dancing like some sort of white guy with no rhythm.
Aside: Go check out that time I was “recruited” by World Financial Group.
Before we continue, a little background for those of you unfamiliar with Investor’s Group. They’re a wealth management company with many billions under management. Reps have their own office space, supplied by the company, and they’re responsible for building up their business. The company offers mutual funds with some of the highest expense fees in Canada, they also offer life insurance products and some (at least last I checked) really horrible mortgage products. Like any financial company, they want all your money. Back to the story.
I go to the first interview and it’s pretty uneventful. The guy interviewing me is nice and we’re joking and laughing a bit. I was there for all of about 15 minutes. I’m assuming the first interview is a way to weed out all the crap, people who would have no chance of selling a thirsty traveler a Coke.
I go to the next interview, like the first it’s conducted in the local rep’s office. This time I’m armed with some questions. Just how much is my base pay? (bupkis) Where would be my territory? (Half my town, half a neighboring town, meaning 3-5 hours of travel per week) Am I forced to only sell the company’s funds? (No, but selling in-house funds paid a much nicer commission)
The guy conducting the interview had definitely drank the company’s Kool-Aid. Yes, he explained, the fees on their mutual funds were much higher than comparable ETFs, but that was because Investor’s Group reps did such a good job educating investors. The difference in fees was more than made up with the terrific service.
In my head, I’m disagreeing with every word he said. Fees kill the average investor’s return, anyone with a grade 6 understanding of math can figure this out. The whole reason for the financial plan wasn’t to educate investors, it was to identify areas where a rep could sell other financial products to someone in need.
As we concluded the interview, I was given a homework assignment for the week until my final interview with buddy’s boss. I was supposed to talk to 50 people and ask them if they’d be willing to commit to doing business with me as an Investor’s Group rep within the next 6 months, and to ask specifically how much money they’d be willing to invest with me.
I was flabbergasted. Firstly, I was trying to keep this whole interview process as quiet as possible, since I didn’t want my employer to find out about it. And secondly, why should I go and do all this work when I was guaranteed nothing? I wasn’t looking forward to doing this but, undaunted, I started to call people.
I got about 8 callers in and promptly declared the whole operation stupid. So I faked it. I made pretend notes for 50 actual people I knew. Armed with my pretend prospective customers, I went up for my final interview.
As soon as I walked into the guy’s office, I knew this wasn’t going to go well. He was the stereotypical finance type, talking brash to his secretary, wearing an expensive suit, and let me to an office with autographed hockey memorabilia all over the place. He begins the interview.
“Why aren’t you wearing a suit?”
I look down at my dress shirt (no tie) and dress pants. I fire back.
“Because you don’t need a suit to sell mutual funds.”
He looks a little surprised, and then proceeds to lecture me for 5 minutes about the importance of impressing your client with your clothes. After he’s finished, he asks where I’d rank my financial knowledge on a scale of 1-10.
I think about it for a minute and say I figure I’m about a 7.
“No you’re not.”
“Oh really. How would you know?”
“Because you’ve never worked in the industry.”
I frown, almost shocked at the lack of logic. He continues.
“What kind of car do you drive?”
“I don’t have a car.”
“What? Why not?”
“Because I’d rather invest the money instead.”
“How do you expect to work for us if you don’t have a car?”
“I have the cash to buy one.”
He looked at the notes I had made about my imaginary prospects.
“How come you didn’t ask them specifically how much they’d invest with you?”
“Because I thought it would annoy them.”
We wrapped up the interview shortly after that. It was pretty obvious I wasn’t going to get that job. I later met the girl who did. She was not unattractive.
Anyway, what’s the lesson here? There’s 2.
1. Investor’s Group sucks. Although I’m a little conflicted because I bought some of their stock back in 2006 and still own it. Still, Investor’s Group sucks. Balls.
2. I am much more comfortable being a blue collar guy. It would take me a few more years to learn this lesson after a failed attempt at being a mortgage broker starting in 2007, but I’ve learned it now. That’s the important part, right?
You hit back like 5 minutes ago? Yeah, I don’t blame you.
If you’ve been paying attention, I’m kind of anti-college around here. I believe that college should be path to get to a specific career. If you want to be a nurse, or a teacher, or an engineer, or a crap-ton of other things, then your path will need to go through a college. If you go to college just to read up on interesting things, that’s probably not the best use of your capital. Going to college to learn specific skills is (usually) a terrific investment. Going to college to get a degree in Women’s Studies isn’t going to get you much more than a job at Starbucks, which I’m pretty sure even you could get without going to college.
So you’re 18, and you haven’t a clue about what you want to do with the rest of your life, like a lot of 18 year old kids. You’ve heard that people who go to college get paid more than their
dumbass non-educated brethren, and you want some of that scratch. You can buy all sorts of stuff with extra money, even love. (although only temporarily) But what to do? Hopefully, you have some awesome relative who will forward you this post when you’re about 17.5. Maybe that awesome relative will also buy you booze.
The gist of the plan is simple – you take the capital you would have invested in your college education and plow it into investments. After 4 years your investment is hopefully churning out some serious passive income. If you reinvest those distributions, you can really kick some ass after a few years. Here’s how you do it.
You’d be living like some sort of cheap-ass in college anyway, so step 1 in my plan is to live as cheaply as possible.
Ideally, you’d take up residence in your parents’ basement, since they’re going to be nice and charge you sweet bugger all for rent. Thank them by cutting the lawn once in a while, you slacker. If your Mom makes you dinner, at least pretend it tastes good. You’re going to want to load up on the freebies, since you’re going to want every spare penny.
If you parents are bastards and kick you out of the house once you hit 18, it’s time to hit up Craigslist to find the cheapest place to live you can find. Unless you live somewhere ridiculously expensive, finding a bedroom for less than $500 a month is achievable. While you’re at it, find the cheapest transportation you can and try to avoid all the expenses that come with being 18 years old.
If you do all these things and work hard, saving $15,000 per year is an obtainable goal. Now, what to invest it in?
What To Invest It In?
I just asked that. Who writes this crap?
There are two routes you can take. Since we’re looking for perpetual income, we want to either invest in debt (or highly secure stocks that almost act like bonds) or real estate.
I think real estate is the ideal path for this strategy, providing you don’t live in the parts of Canada that have crazy expensive real estate prices. If you buy a rental property (or you mix up the investment in a few REITs) you’re looking for a 10% return on the total investment after expenses.
A real life example. Say you buy a $40,000 rental property that rents for $500 per month. There are $2,000 per year in expected expenses, mostly bribes to the mob for not burying squealers in your backyard. In the U.S., these types of properties are common. In Canada they exist, but not in the big markets.
If you buy your first rental property when you’ve saved up $10,000, that leaves you with a $30,000 mortgage, assuming my 5th grade math skills aren’t failing me. At the end of year one, your mortgage can be down to $25,000 without spending a dime of rent. After putting your $15k towards the mortgage during year 2, you’re mortgage is down to $10,000, and you’re on pace to own a rental house outright by the time you’re legally able to gamble in Vegas.
If you do it again at the beginning of the 4th year, you’ve got an extra $750 per month you can add to paying down the mortgage on a second property. If you continue to save $15,000 per year and add $8,000 per year of rent to the mortgage, it’ll take just over a year to pay off that second house.
By the time you hit 23, you can own two rental properties that should spin off $750 per month after expenses. Not bad for some moron who didn’t go to college.
If owning rental houses doesn’t get you aroused in the pants, you can basically do the same thing by buying conservative stocks or somewhat higher risk bonds that will get you to that magical 10% return.
These days, getting a 10% return isn’t easy, since it seems like low interest rates are here to stay, at least for a little while. You’ll certainly have to take your time to scour the markets for investments with a relatively safe 10% return, but they exist.
You guys know I love the sugar business. I’ve held Roger’s Sugar since about 2005, and that bad boy has given me a steady 10% return without anything close to a hiccup. I also hold the Dreyfus High Yield Bond Fund, which has consistently given me a 10% return since 2007. If you diversify your holdings a bit and keep an eye on the underlying earnings, maintaining that cash flow is very possible.
After year one, your $15,000 initial investment will be poised to return $1,500 per year, every year, plus it has the potential for capital gains. If you reinvest those dividends, you’re looking at $6500 per year in dividends by the time you’re 22 years old. If you want to supercharge these returns even more, use leverage. That adds risk though, so be careful. Do whatever the financial equivalent of putting on a condom is.
Yeah, It’s Hard. Stop Whining.
I’ll admit, most 18 year old kids don’t have the maturity to pull this off. Financially, this plan isn’t really that hard to pull off, it just takes commitment. It isn’t really much harder than going through college. Saving money can be pretty easy when you still live at home with few expenses. Instead of pissing away that money, maybe it’s time to encourage young people to get a head start investing. It’s better than spending it on beer, anyway.