After a thrilling Masters, the Players Championship is the biggest golf tournament until the U.S. Open. The famous island green on the par 3, 17th hole is pictured:
Wednesday, May 11, 2011
TPC Sawgrass in Ponte Vedra Beach, Florida
Roth IRA Guidelines
If you have not received my guide to retirement accounts (5-page Word document) and would like to view it, send me an e-mail at krkreflections@gmail.com .
Relating the National Debt to You and Me
Without a serious reality check on government spending, the United States will endure economic hardship that will make the Great Recession seem like a joyride.
Think of the enormity of one billion (1,000,000,000) of a given item.
For the 2011 budget, we will manage to spend $3,800 billion, compared to $2,200 billion of revenue.
Running a $1,600 billion annual deficit, coupled with a $14,300 billion overall debt, is downright shameful. Our deficit and debt are incomprehensibly large.
For perspective, imagine developing a budget for you and your family. Through past excesses, you currently have $143,000 in credit card debt. Your take-home pay this year is $22,000, but you will spend $38,000.
Furthermore, imagine that you should be saving money now to pay for your kids’ college education in the future. This major expense can be compared to entitlement programs for retirees, which have not been paid for. If anything, you should be running a major surplus now to retire existing debt and save money for college. Unfortunately, this household is hemorrhaging money without caring about consequences.
Clearly, this cannot go on forever. Your lender is getting anxious and will raise the interest rate as you become less creditworthy.
This action will increase your expenses further and could lead to a suffocating debt spiral.
Any sensible person would consider this situation and try to stave off ruin by paring back expenses from $38,000 to around $30,000 at most.
Of course a different approach is to disparage cuts that would reduce your $143,000 debt by a whopping $600, which is equivalent to the liberal position during the recent budget negotiations.
You would be appalled by the fiscal recklessness of this household and would urge a complete overhaul of expenses to prevent financial doom. Yet our country’s state of affairs is equally terrible. Curtailing spending to the levels of just three years ago, which in fact ties to $30,000, would be a completely reasonable and necessary first step.
Like any household, we must determine our absolutely essential expenses and spend little more in order to shore up our finances. We cannot shirk this responsibility, or we will succumb to a devastating crisis beyond anything we desire to comprehend.
Source: http://reddogreport.com/
Basics of Housing Finance
Americans purchase homes and finance them with either 100% cash or a combination of cash and a loan. These financing options are not unique to homes. Most people take out a loan when purchasing an automobile, and some people purchase stocks on margin.
In all cases, lenders charge an interest rate and seek assurance they will get paid back.
Suppose someone is looking to buy a home that costs $200,000. Paying for it using 100% cash may be a tall order, so the buyer would seek to borrow money from a bank. Historically, it is common for creditworthy borrowers to receive mortgages equal to 80% of the purchase price.
In effect, the buyer purchases the home with $40,000 of his/her money, and borrows $160,000 from a bank to close the transaction with the seller. The seller receives $200,000 before paying a sales commission and retiring any outstanding mortgage debt.
The buyer agrees to pay back the $160,000 mortgage to the bank, according to a payment schedule outlined in a contract both parties legally enter into. To protect the lender, after a sustained period where the borrower fails to make required loan payments, the lender can foreclose on the property and gain control of it.
Without the home serving as secured collateral, instead of a borrower obtaining a mortgage at 5 or 6 percent, the rate would be closer to the 12-15 percent range, even for folks with good credit.
Proposal for NFL and NBA Salaries
Unfortunately for sports fans, there is a real possibility of a lockout in professional football and basketball, because of disputes over salaries and revenue sharing between owners and players. This affords an opportunity to consider how compensation is distributed to players. I contend that most NFL and NBA athletes, plus their families, would benefit financially from receiving more deferred compensation.
According to a 2009 Sports Illustrated article:
· By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce
· Within five years of retirement, an estimated 60% of former NBA players are broke
These statistics amply demonstrate the abysmal track record that so many athletes have in dealing with their finances. Conspicuous consumption, bad investment schemes, and poor life choices are typically to blame. High profile cases include Antoine Walker and Scottie Pippen, both of whom earned over $100 million during their careers yet have declared bankruptcy. More typical are NFL players who make high six figures for 3-4 years before their careers are cut short by injury or supplanted by new talent.
For the vast majority of NFL and NBA players, the most money they’ll earn throughout their working years will occur in their 20s and early 30s. This phenomenon is unique compared to most professions and career paths, which in my view justifies players foregoing some compensation now in exchange for receiving more after leaving the league.
If a player makes over $400,000 let’s say, 25% of their compensation should be mandatorily withheld and paid over a 5-10 year interval (or longer in the case of very highly compensated athletes) once they retire. That will force their current budget downward to more prudent and sustainable levels, and smooth out their income stream during the toughest years to adjust to financially.
So if a player earns $2 million a year for 10 years, they’ll receive $1.5 million a year during their career and an accumulated $5 million (plus investment gains / interest) that can be distributed to them during their retirement. By that point they’ll have gained more maturity, discipline, stability, and an income stream which should dramatically reduce the odds of financial ruin.
Unless banks granted players massive loans against their future income stream, I honestly think this framework would solve much of the problem. I encourage you to submit your thoughts.
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