Month: November 2011

It’s laughable how fast many of us non-conformists buckle in the face of public opinion when it comes to some purchasing decisions.

For many years, the diamond industry has told American grooms-to-be that they should spend two month’s salary on an engagement ring.  Brides-to-be are not immune; they have been conditioned to measure the depth of his devotion by the size of the rock.

So if you shouldn’t spend two month’s salary, how much should you spend?

The “easy to say but not so easy to do” answer is to spend what you can afford and do it in proportion to the ring’s importance to you and your fiancée.

Let’s look at this more closely.

Case 1: We have the money, we have no debt, and we have a 6-month emergency fund.

If one of the mutual early goals of your marriage to is buy an old farmhouse on 10 acres or to travel extensively, or become a single income family, how much money do you already have put away to pursue these dreams? If you spend $5 or $10 k or more on a ring, how much longer will it take you to reach that goal? Is that wait worth it to each of you?

Case 2: We have the money, we have no debt, but if we buy the ring we want, we will have only  a $1000 emergency fund.

Tread carefully here.  Don’t listen to those that tell you a diamond is an investment. It’s not. You do not intend to hold this ring for five years and then sell it for a profit. A thousand dollars is a tiny emergency fund especially if you own your home (think leaky roof or broken water heater), have children (think orthodontist or math tutor) or have just one income. Maybe you would have less stress and more happiness if you purchase a less expensive ring and left more in your emergency fund.

Case 3: We have the money saved but we have debt.

Seriously consider going cheap and paying down that debt. Really, who cares what your friends whose marriage lasted 9 months think? Money fights are one of the leading causes of divorce. Make the commitment starting with this decision to become a financially healthy couple.

Case 4: The jewelry store will give us 6 months to pay with no interest.

Yikes. There is a tried and true method to determine how much you can afford to spend. It works for rings, TV’s and cars. Go online and look at the balance in your checking account. If you cannot afford to pay for it, you cannot afford to buy it. Do not mark the beginning of you new life by going further in debt.

Spending less on an engagement ring does not mean you have to settle for a cigar band. There are lots of options and you certainly can find a way to stay within your means.

• A second hand ring may allow you to have what you want at a price you can afford.  Often you can find a very unique cut or style in a pre worn ring.
• A fake. If you’ve really got you heart set on a diamond, get  a decent quality fake and replace it with real at your 5th anniversary.
• An engagement ring can be anything you want. It doesn’t have to be a diamond, it can be a pearl or sapphire, it can be a antique band.
• Ask the family, is your great grandmother’s ring sitting unused in someone’s jewelry box?

Let this be the first place that you and your future partner question the often-unrealistic expectations of our society.  Whether you decide to spend $100 or $25,000, buy a ring that you can afford and one that fits you new life.

If you think of yourself as an entrepreneur, small business owner or even a key employee who cares about the growth of the company you work for, you should be reading Seth Godin. Like, I mean everything you can get your hands on. Read his books, his blog, his interviews and watch his Ted talks like this one. 

Godin has a ton of real world, right now, business stuff figured out and he has a special gift of being able to tell you about it in a very few words.

This is a recent blog of Godin’s. If you will take the time to honestly and thoughtfully answer the questions he asks in this 313 word essay you will gain more insight into your new business venture than if you read any 3 of the best  “How to Start and Run Your New Business” books.

Questions for a new entrepreneur

A few things came up over coffee the other day. His idea is good, his funding is solid; there are many choices. Some of the questions that don’t usually get asked:

Are you aware of your cash flow? The thing about a fish in the stream is that it doesn’t care if the water is six inches deep or a foot deep. As long as it never (ever) goes to zero; it’s fine. What’s your zero point? What are you doing to ensure you get to keep on swimming?

Are you trying to build profit or equity? A business that builds a brand, a footprint, a standard and an audience might end up being worth millions (witness Tumblr, which has many millions in value but zero profitability). On the other hand, a business with no exit value at all might spin off plenty of profit (consider the local doctor’s office). It would be great if you could simultaneously maximize both the value of your company and the profit it produces (in the short run) – but that’s unlikely.

What’s your role? Do you want to be a freelancer, an entrepreneur or a business owner? A business owner is the boss, but it’s a job, a place that is stable and profitable. An entrepreneur is an artist of sorts, throwing herself into impossible situations and seeking out problems that require heart and guts to solve. Both are fine, but choose.

Are you trying to build a team? Some business owners want to minimize cost and hassle. Others are trying to forge a culture, to train and connect and lead.

Which kind of risk is okay with you? There’s financial risk, emotional risk and brand risk (among others). Are you willing to put your chips on the table daily? How about your personal reputation?

And finally, and most important, why? Why are you doing this at all?

If you want to be a successful entrepreneur or small business owner, you need to move faster, work smarter and latch on to people that can help you figure out what you should be doing next. Seth Godin is definitely one of those people.

There are many very successful business owners and CEO’s that take great pride not only in the product or service they sell, but also in the relationship they have with their employees. They genuinely care that their employees make a living wage and have opportunities for education and advancement.

They understand the difference between greed and ambition.

Unfortunately many do not understand that distinction. In a great economy the greedy may fail to attract and keep great employees; but in this economy many employees feel grateful to have any job – even while they feel a building resentment toward their greedy bosses.

So, what’s the difference between greed and ambition and how can you tell when you have crossed the line?

Here is a simple test:

If you are driving a car that cost three times your lowest paid employees annual wage (or spend a similar sum on a different luxury), can you meet this criteria?

My lowest paid employee is paid well enough to house, feed and provide health coverage for all of his/her family members.

My lowest paid employees are given opportunities for education and growth.

My full time employees do not qualify for aid. Their kids don’t get free lunch or have Medicaid or state subsidized insurance, the family does not need food stamps or subsidized housing.

My college educated employees are paid a wage high enough to allow them to repay their student loans.

The ugly truth is some businesses have used the poor economy as an excuse to exploit their workforce. They have cut hours and/or cut staff and imposed long unpaid overtime hours on salaried staff. They have frozen wages and cut benefits. The businesses have done these things not because it is an economic necessity but because they can.

These misguided company leaders underestimate the power of an engaged and motivated workforce. They are failing to invest in their company’s’ most important asset, and it will affect their future growth.

Even more disturbing is the fact that these potential community leaders have no ability to demonstrate consideration and compassion even for those that work for them.

If you struggle with greed cut out the quote below and tape it to the edge of that $80K rear view mirror.

Do to others as you would have them do to you Luke 6:31

Obama’s “new” student loan plan is a modification of the existing Income-Based Repayment Plan   for Student Loans. Instead of setting monthly payments at the current 15% of discretionary income, the new plan sets payments at 10%. If you qualify, this change may significantly reduce your monthly payments. The new plan should be available in January 2012.

To get an idea of what your payments would be, use this calculator for the old 15% plan here

Also, the forgiveness timetable in Obama’s plan is shortened from 25 years to 20. Additionally, the plan also offers borrowers who have a loan from the Federal Family Education Loan Program and a direct loan from the government to consolidate them at an interest rate of up to a half percentage point less.

If you are currently under employed (or over indebted) and struggling to make your student loan payments, this may help keep you out of default (which you should be doing everything possible to avoid). The 10% will be recalculated each year and as your income increases so will your payments. However, if you should remain  under paid relative to your student loan debt for 20 years (oh my, we certainly hope not) and faithfully make you payments, any unpaid balance will be forgiven.

This plan is not available to those who are already in default (Another important reason to do everything possible to stay out of default).

Your monthly payment will be lowered by extending the term of your loan. As we know, extending the term on a loan increases the amount of interest we will pay over the life of the loan. But this plan has an important escape. If after making twenty years of payments (again, I hope not – as it would probably mean you have never reached your employment potential) your loans are not paid off, the remaining balance will be forgiven.

Like with any other loan, you should pay as much as you can as fast as you can.

Here are a few real life examples:

Bill has a MBA from a good school and student loans of $85,000. He is unmarried and has been fortunate in this economy to land a job paying $60,000 a year. His loan payments under the normal 10 year payment plan would be about $978 a month. Under the current 15% Income based repayment plan, his payments would be about $545 and under Obama’s new plan $363 per month.

On the old plan if your monthly payment amount did not cover the interest that accrued each month, the government paid the unpaid accrued interest on only Subsidized Stafford Loans and only for up to three consecutive years. I expect the new plan to work the same, forgiving interest only on subsidized loans, but those details are not yet available.

For Bill, the 6.8% interest for the first three years will exceed $363 a month but all of his loans are not subsidized. For those loans that are not subsidized the interest will accrue; in other words the balance owed on those unsecured loans will continue to increase.

The longer you pay on the loan the more you will pay.

 Ann is a teacher with an income of $42,000, student loans of $55,000 and two children. Her 15% Income-Based plan puts her monthly payment at $180 a month as opposed to the $632 on a ten-year plan. The new 10% plan should drop the payments down to about $120. Since Ann works in the public sector as a teacher, her balance could be forgiven after ten years if she makes her payments for that period.

The “pay as you earn” plan can offer some real relief to those who have or will graduate with a bunch of student loan debt and inadequate income to make their loan payments.  As with all debt, BE VERY CAREFUL to understand all the rules BEFORE you agree to a new payment plan or consolidation. This stuff is incredibly complicated and it is easy to screw it up.

A call to the Federal Student Aid Center revealed that they have not yet been notified how the 10% plan will work, for example will existing 15% plans be convertible to 10% plans? This document answers many questions on the current plan but we’ll have to check back at a later date for more detailed information on the new plan.