The top 2 celebrity endorsement equity deals of all time

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What’s the best part of being a celebrity? The fame? The VIP status? No, I would argue that the ability to slap your face on a product, and get paid for doing absolutely nothing. In other words, being an endorser. While people like Kelly Ripa and Peyton Manning make millions of dollars on endorsements, some celebrities choose to use their business sense, to make cents. And by cents I mean hundreds of millions of dollars. Here are the top two craziest endorsement deals of all time.

  1. 50 cent- When Coca-Cola bought his Vitamin Water drink, Formula 50, Curtis Jackson (50 Cent) made somewhere between $100-$400 million on the deal. Galceau, the original manufacturer of Vitamin Water, had hired 50 as an endorser and drink creator, and he chose to take his compensation in stock. That was a really good idea. He got rich and didn’t even have to die tryin.
  2. David Choe- He’s come a long way from tagging bridges. Famed graffiti artist David Choe painted murals in the Facebook world headquarters in 2005. Instead of accepting cash to paint the murals, he chose to take his compensations in stock. His share of Facebook is rumored to be worth $200 million. Not bad for a vandal turned artist.
So the next time you are famous and are offered money to endorse a product, consider taking equity shares instead.
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There has never been a better time in the history of America to buy a home

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Mark the day. I’m officially bullish on the housing market. I believe that we have hit bottom on both interest rates (within a few bps) and residential real estate prices. Of course there are pockets all over the country where prices haven’t completely bottomed out yet (e.g. south Florida). And there are various statistics that still point the other way. But the reality is when the numbers officially point to the turnaround, then the turnaround already happened. I think that time is now. And hey, if Cision wants to name me the fourth most influential personal finance expert in the nation, then I might as well use my influence. Right?

Don’t stop reading and call your REALTOR. Read this whole post, digest it, and then evaluate how, or if, it affects you. And if you skip the bottom part of this post that discusses who should buy and who shouldn’t, then you will get what you deserve. That’s not a good thing. Your diligence in trying to understand what I’m saying is crucial.

The two measures that support my assertions are interest rates and housing prices. Let’s take a close look at both.

  1. Interest rates- Mortgage rates remain at historic lows. It has never been less expensive to borrow money to buy a home. According to the chart below (courtesy of mortgagenewsdaily.com), rates have fallen consistently since 1980. My best guess is that mortgage prices will stay very low for the next 12-18 months. To me, this means that 30 year fixed rate mortgages will stay well below 5%. Rates are currently in the mid 3% range. The lower the rates, the lower your payment will be. Or the lower the rates, the more home you can afford. You decide which route you would like to take. Just stick to my 25% rule. Keep reading. Look at the rates over the past 40 years (below).
  2. Housing prices- The housing market crash is now a good thing…if you are wanting to buy a home. Inflation-adjusted housing prices have returned to normal levels. They were absurd from 2002-2007. Those housing prices were driven by banks lending money to people that never should have been able to borrow money. This drove demand, thus prices increased. It was basic high school economics. But now lending has tightened, foreclosures have driven prices down, and the realistic capitalist in me knows that this is a good thing. I hated seeing people lose their homes. But I don’t hate seeing people get denied loans that they shouldn’t get. It’s not a matter of sympathy. It’s a matter of economics. If everyone starts getting loans again, despite the fact that they shouldn’t, then we will repeat the housing market crash. The big banks have a small amount of culpability in the housing crash, but I believe that the majority of blame lies with the consumer. That is unless you believe that McDonalds is liable for obese America.

Why mortgage rates matter

Let’s examine a current interest rate (3.75%) and a “normal” interest rate (6.0%). Below you will find the first 24 payments of a 30 year fixed rate mortgage for each rate. The comparison is meant so show the relative affordability of today’s mortgage rates.

The first 24 payments at 3.75% 30 year fixed rate mortgage

The payment of $926.23 is acceptable if your net income is $3704.92 or more per month (based on Pete the Planner’s Ideal Budget). That translates into a gross annual household income of about $60,000. Thus a family with a $60,000 household income can afford a $200,000 mortgage because the mortgage payment based on a 3.75% rate ($926.23) is 25% of their household income. The 25% allocation towards housing is the foundation of being able to truly afford home ownership. But it’s not the only factor. More on that later.

The first 24 payments at 6.0% 30 year fixed rate mortgage

The payment of $1,199.10 is acceptable if your net income is $4796.40 or more per month. That translates into a gross annual household income of about $75,000. Thus a family with a $75,000 household income can only afford a $200,000 mortgage if interest rates were at 6.0%

Additionally, getting a mortgage at 3.75% versus getting a mortgage at 6.00% will save you $98,233.15 over the life of the loan. That’s nothing to scoff at either.

Depressed housing prices

Sounds depressing, right? Wrong. Depressed housing prices means that homes are more affordable than they have been in the last several years. In fact, sales prices have depreciated 25.2% over the last 5 years in Indianapolis, IN (for example). Homes aren’t only for sale, but they are now ON SALE. You can use the historically low mortgage rates to buy more home…if you so choose.

Of course there’s a big but

Are you excited? If so, things are about to get real. All the above information is great, but we are neglecting one major factor. Should YOU buy a home?

There are two groups of people: people who should buy a home, and people who shouldn’t. This isn’t measured once and judged forever. These two groups are constantly reassessed. It’s quite possible, likely, and encouraged that someone who is in the “shouldn’t own” camp on February 1st, 2012, could find himself in the “should own” on February 1st, 2013. If you can’t afford a home now (by my measure, not the banks), don’t get angry. Just get going. Put yourself in a position to be in the “should buy a home” group.

There are three main factors to consider when assessing your ability to afford a home. We dealt with the foundation factor earlier (mortgage payment at 25% of your net household income). But there are two other factors.

  1. Mortgage payment no more than 25% of your net income- While you can get approved for more, I suggest that you try to keep your allocation to 25%. In fact, just buy less house. Don’t push the limits. If you “underhouse” yourself, then your life can be much more fun.
  2. Down payment of 10%- Yes, I realize that you need 20% equity to prevent Private Mortgage Insurance (PMI). But there are other ways around that. My 10% requirement is based on the fact that if you can’t afford to scrap together a 10% down payment, then how are you going to afford the expenses of a homeowner? How are you going to be able to replace that furnace? How are you going to be able to keep your yard looking nice? How are you going to be able to afford an increase in property taxes? If you can’t put 10% down, then don’t buy a home this time around.
  3. Stay in the home at least 5 years- You expose yourself to great risk when you move into a house on the premise of moving again within five years. Not only was this a popular strategy during the real estate boom of the 2000s, but it had a name: starter home. “Oh, we’ll just move into this house for a couple of years until we can afford more house.” Wha wha what?!?!?! Your goal should never be to constantly afford more. A grounded person’s goal is to constantly need less. Be a homeowner to own the home…long term.

Other considerations

There has never been a worse time to get an Adjustable Rate Mortgage (ARM). If rates are at historic lows, then that means that they are most likely going to rise. ARMs adjust every 3, 5, or 7 years. This means that your mortgage rate, if adjustable, will rise just when mortgage rates find their “normal level.” You don’t want to be in the middle of this normalization. Get your 30 yr or 15 yr fixed rate mortgage now, and leave the ARMs for people that can’t read historical rate charts.

Be smart. Don’t grow into your payment. I said that the housing market is coming back, not employment. Many a young person has put him/herself in a terrible spot by projecting desired income and using that information to make a housing decision. If you have the 10% down payment, then just follow the 25% of household income rule, and you can’t go wrong.

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Did you accomplish anything in January?

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January is over. Gone. Done.

How’d it go for you? Did you accomplish anything financially? Did you go backwards? You need to evaluate your progress towards your financial goals today. Take time to access your progress. If you failed to set goals, then you failed. If you failed to reach your January goal, then you failed. If you fail to set a goal for February, then you fail. Stop failing, and starting progressing. You start by setting a goal for February, and then you start trying to win weeks. By win weeks, I mean make wise financial decisions for an entire week. These decisions should lead you towards your February goal.

This is how I think: you need to win three weeks to win a month. You need to win two months to win a quarter. And you need to win three quarters to win the year.

What are your goals for February? Do you want to have saved another $500? Do you want to pay off $1000 more debt? Do you want to ask your boss for a raise? Whatever it is that you decide, write it down and get to work.

I’ve got a really cool partnership that I’m going to announce in February. The good news is that this announcement will help you set and achieve your goals for March. Just make sure that you take care of February, so that we can work together in March.

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Pete the Planner’s guide to selecting the right job

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Last week, a dear friend of mine was at a career crossroads. He had a job, but was inline to be offered two other jobs with two other well-respected companies. He was torn. He was stressed out. And he was losing sleep over the prospect of making the wrong choice. His current job paid well, it was in his dream industry, but it still left a lot to be desired. One of his suitors offered to match his current pay, but the health insurance benefits became an issue due to their added expense. The other suitor offered to pay more, but the position presented some challenges of its own. Don’t get me wrong, he was in the midst of “good” problem, but a problem none the less.

He needed an objective way to make an informed decision. He would be foolish to accept the highest paying job based solely on the fact that it is the highest paying job. This was his career that we were talking about, not just a paycheck. Assuming that you aren’t willing to take just any job that you can find, selecting the correct job is vitally important to your financial life. There are times when income is all that matters, but for your career’s sake, letting the income guide your path is a really bad idea.

There are several factors to consider when selecting a job. Ignoring the “other” factors will often result in leaving a job after just a couple of years. Money isn’t everything. And for that matter, base salary isn’t the only thing you should consider in regards to money. Below you will find what I feel to be the ten most important factors. They are in no particular order.

  1. Base income- Traditionally, base income is the very first factor in whether or not you should accept a new job. We’re talking dolla dolla bills, ya’ll. Don’t be ashamed if all you care about is base (guaranteed) pay. I get it. There are times in life when your base income is all that matters. However, I urge you to think bigger. The longer you have been in the workforce, the more you will care about other things.
  2. Additional compensation- Will your potential new job allow you earn commissions, bonuses, or overtime? If so, you need to fully understand how difficult it truly is to earn this additional comp. Don’t just take the hiring manager’s word for it. Ask to speak to someone else in a similar role, and make sure that the compensation claims actually are possible.
  3. Income growth potential- Some jobs will only allow you a “cost of living” salary adjustment from year to year, while other jobs will allow you to earn substantially more money as your role increases. Don’t take the higher paying job now, if the lower paying job can be higher in just a couple of years. Be sure to think long term.
  4. Health insurance benefits- Health/dental/vision insurance benefits are not created equal. Don’t take a job unless you have fully investigated the insurance benefits that come with it. I have seen several instances of people accepting “higher” paying jobs, only to find out that the higher cost of insurance caused the new job to be lower paying.
  5. Retirement options- Does your new job have a retirement plan? If so, does the company add money to the plan for you? Will you have a pension? A pension is MUCH different than a 401k. Make sure you know what you are getting yourself into.
  6. Equity options- Does your potential employer offer stock options? Can you own part of the company? I have had several friends take jobs with tech startups based on the equity shares they received. Not only did they get a job, but they were given partial ownership of the company. This isn’t all roses, though. Often times this sort of benefit is given when job stability is in question.
  7. Professional development- Is your mind turning to mush at your current job because you are in a rut? That feeling could stem from a lack of professional development. Some employers truly see the value in developing talent within by pushing (in a good way) their employees to be more. Other companies just don’t get it. They don’t help you work on you, and everyone suffers.
  8. Distance from home- Will your new job force you to commute hours per day? Or will your potential new job allow you to work to work? I moved my offices from 12 miles away from my home to .25 miles away from my home. This is so I could walk to work. The cost of a commute can be substantial. Make sure you factor these costs into your decision.
  9. Time commitment- Does your new job force you to travel all over the globe? If so, is that a good thing or a bad thing? Do you have to work longer hours in order to get a higher pay? Some people would rather give up thousands of dollars in salary in order to manage their own schedule. Consider how flexible your hours are when you select a new job. This matters tremendously, especially if you have children. Kids get sick, kids have soccer games, and kids need their parents to sleep at home, not in hotel rooms on the other side of the country.
  10. The people factor- Have you ever seen the videos of people “losing it” at work? I’m sure you have. They are throwing computer monitors, tipping over desks, and various other acts of temporary insanity. All of that can be caused by an unhealthy work environment. As we discussed the other day, office bullies are real, and they can make your career hellish. You need to consider the people who you will work closely with. Don’t make the wrong people choice. You’ll end up spending all your extra money on therapy, seriously.
I tweeted a few weeks that I respect people who leave one job for a lower paying job. What I didn’t explain was why. Income, as you can see above, is just one factor when deciding what job is right for you. But more importantly, it’s your ability to manage your household finances that allows you to take a lower paying job. You earn the right to leave a job you don’t like, when you have your financial house in order. Hate your boss, but can’t afford to quit your job? Then focus hard on your household budget, and give yourself the option to accept a lower paying gig.
If you are thinking about changing jobs, then take yourself through this matrix (below) first. Line up the jobs on the matrix, and then list the different details of each factor. Then circle the winner for each category. Obviously each factor is weighted differently. You aren’t going to take a job that is two miles closer to home despite the fact it pays $25,000 less than another job. In my opinion, the biggest factors to consider are: income growth potential, professional development, time commitment, and the people factor. Below the matrix, vote and tell me what you think the most important factor to consider is.
Job #1Job #2
Base salary
Additional compensation
Income growth potential
Health insurance benefits
Retirement options
Equity options
Professional development
Distance from home
Time commitment
The people factor

Remember, if you are in a competitive situation in which you are being aggressively recruited, make sure that you step back from the sales pitches, and look objectively at the offers. Conversely, you should consider all of the above factors even if you don’t have any other job prospects. If you are currently in a job that is lacking, then use the above matrix to help find you a better position with a better company. Again, try to make your decision on something besides pay. You won’t regret it.

 

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The CLASSIC student loan story

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When I wrote a book about student loans, I never expected the sort of backlash that has occurred. How can so many people misinterpret my message? Or worse yet, how could so many people judge a book by its cover, literally? For someone who HATES drama, I found myself in several heated debates over the last couple of weeks. My favorite was a debate with a man that chose to debate the author of a book that he hadn’t read. He accused the content of being fraudulent and undoable. Huh? Sigh.

Anyway. The book isn’t about avoiding college. It’s about avoiding student loans. I encourage you to pickup a copy for your favorite high school student. No seriously, buy the book. Why? Well, I’ll let Sally tell you. Thanks to my Google Alerts (which tells me when people mention my name in cyberspace), I found this post by a blogger named Sally. Go to her blog to read the whole thing, but here is a crucial excerpt. The post is titled A Student Loan Story: In Defense of Pete The Planner’s Stance on Student Loans.

I changed my major 4 times while in college, and it took me 5 years to finish school. Most of my peers were the same way. I worked a part-time job all through college and that money was used to supplement what student loans and credit cards didn’t cover. I graduated, and despite my best efforts, I was unable to find a job in my field. Knowing I had student loan payments coming up in 6 months, I took a job with Verizon Wireless as a customer service representative. I made $12.00 and hour and received benefits. I was in heaven with my $25,000 a year job.

I was clearing about $1600 a month after taxes. I set myself up with a nice little apartment and started assimilating into the adult world. I wasn’t making much money, but I was doing well enough to provide for myself. I thought I had it made.
“Bring on the student loan payments!”, I thought. “I can afford loan payments!”
I got my first student loan bill in the mail December 2007. I opened it expecting an affordable bill. The reality was much different…
Amount due by January 2008: $600.12

Then came the bill from SallieMae.

Amount due by January 2008: $200.34

This is why you must avoid student loans. You don’t have to put yourself in a terrible financial situation upon graduation. Read the rest of Sally’s post to get the whole story. Oh, and buy the book.

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Kindness: The ultimate business skill

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I go to Trader Joes every Sunday morning, after church. I get there at about 10:30. The timing is more important than you might think. I want to see George, and George’s shift ends at 11:00. George is why I love Trader Joes. George is a store-worker who brightens my day every time that I see him. Seriously. I’m not making up some BS story here. I know his name. He knows mine. He loves my daughter. She loves him. She runs into the store looking for George. His coworkers love him, and so do all of the other customers. He possesses the ultimate business skill: kindness.

I will always trust George. If he tells me to try new food, I will. If he tells me that my favorite food is gone for a good reason, I will believe him. George has earned the right to accomplish anything within his workplace because of his kindness. But what if George wasn’t nice? Could he accomplish as much in the workplace? I say no.

What can harshness accomplish in the business world? Can rudeness be productive? Is kindness, weakness? Nothing. No. No.

What do you want people to say about you when you leave a business meeting? Take a moment, and really think about this question. What do you want a person to say to their co-worker the moment you leave their presence during a business engagement? “Oh, he’s super smart.” “Wow, he’s really funny.” “Hmm, he was kind of a dick.” “What a nice guy!”

In my opinion, kindness is the aim. You can accomplish any business goal that you might have, yet still employ kindness. You can fire someone compassionately. You can interrogate someone with care. You can appreciate a job well done with sincerity. We’ve all left a business encounter with someone who values something else. They might value power, belittlement, or superiority. Can these negative aims accomplish something that kindness can’t? Nope. Quite the opposite. Aggressive behavior is counter-productive and a career killer.

My dad always told me that “you can attract more bees with honey, than vinegar.” This statement has always resonated with me. But then again my father is a very kind man. I think this is why I see value in kindness. I resolved long ago that I’m not willing to forego human connection in lieu of “business.” No one likes an a-hole, so why be one? Power comes with influence. You can either force your influence on someone by being aggressive, or you can earn their respect by being kind. Your kindness will then result in influence, earned influence, not taken influence.

There’s an increased scrutiny of bullies in our society today, as there should be. But have you encountered a workplace bully yet? Wow. It sucks. There is an entire organization that was created to help people deal with the psychological damage of workplace bullies. I can’t fathom having a co-worker go home at night psychologically damaged by my actions. Yet it happens all the time. Well, not my co-workers. But you know what I mean. So not only are people not being nice, but they are the other extreme, rude. So rude that they literally ruin the days of their coworkers, day after day. Don’t let this be you. And if it is you, why? Why in the hell would you do that? Stop, man.

You won’t always succeed in your goal to be seen as kind. I’m sure that people have left interactions with me saying something less than “wow, he’s really nice.” We aren’t always at our best. But I don’t think we will ever be at our best if we aren’t kind people. If I somehow was able to accomplish every career goal, but did it at the expense of relationships and people, then the accomplishment would be pointless. I choose kindness. You?

“Don’t you take my kindness for weakness” – Dilated Peoples

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The 5 biggest myths about budgeting

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Prior to telling people that they should Avoid Student Loans, my suggestion to budget was met with the greatest amount of resistance. Whereas I have no idea why everyone is so angry about me suggesting that they seek other types of college funding other than student loans, I completely understand why people hate budgeting. People think budgeting is boring and restrictive. They think it’s tapioca.

For 32 years, I hated tapioca. It was vile. The texture was awful. The color was awful. And the taste? Well, I don’t know. I had never tasted it. I had turned my back on tapioca for 32 years without fully understanding what it had to offer. Um, tapioca is FREAKIN’ GOOD. I tasted it last year. It was really good. I was immediately pissed at myself for wasting so many years of tapioca eating time. Budgeting is the financial tapioca.

But what is budgeting? This actually isn’t a stupid question. Part of the anxiety that surrounds budgeting is its propensity to be misunderstood. Budgeting is several things. Budgeting is the process of determining how much money you should spend on each expense category. Budgeting is also looking to see what you DID spend on each particular budget category. The thing is, in order to budget correctly, you have to do it all. You have to decide how much you should spend on things, and then you have to determine how much you spent. You also have to try to spend less in order to accomplish particular financial goals. Budgeting is great, once you decide to give a real chance. Don’t judge budgeting on it’s texture and appearance. Try it. But do it the right way. If you are aren’t budgeting, chances are that you believe one the following budgeting myths.

1. Budgeting is pointless once you make over $100,000 per year- Budgeting is important no matter how much money you make. Having worked with several professional athletes in the past, I can tell you that even people who make over $1 million per year should budget. Many people strive to make more money so that they don’t have to budget, only to find out that expenses are tighter than ever despite the higher salary. This is because of unaccounted for spending. If you feel like you are still living paycheck to paycheck despite getting a substantial raise, then it’s likely that you need to budget.

2. Life becomes miserable once you start budgeting- If you resent your life once you start budgeting, then you’re doing it wrong. Budgeting, when executed properly, is delightful. No, seriously. It is. If you are budgeting and hate it, then let me show you how to do it right.

3. Budgeting requires too much math and time- Well, it requires a little math. Use a calculator. As far as time, being a financial disaster requires too much time. Do you know how hard it is to fix your financial life once you have broken it? Years. It takes years. It takes only 20 minutes per month to budget properly. That’s not too bad compared to fixing your financial life over a period of years.

4. You don’t need a budget if you’re smart- The most overvalued skilled in the financial world is intelligence. Intelligence and a $4 can buy a cup of Starbucks. Discipline is where it’s at. If you think that intelligence gives you some sort of budgeting exemption, then you aren’t as smart as you think. Budgeting is the practice of identifying the finite amount of financial resources that you have in any given month. Identify the resources (income), then assign it to expense categories.

5. Budgeting is stressful and panic-inducing- Actually, that stress you feel when thinking about budgeting, is your lack of a budget stressing you out. Being organized is not  stressful. It just isn’t. Stress is relative. The stress of a bankruptcy and/or other financial tragedies are much worse than the stress of budgeting.

I’m going to increase the budgeting lessons over the next month or so. If you can master budgeting, then everything else falls into place. Budgeting really is that essential. If you can budget, then the rest of your financial life gets easy.

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What I teach

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I teach personal responsibility.

I teach that you shouldn’t buy things that you can’t objectively afford.

I teach that you should search for alternative funding sources, including ones that you don’t even know about, prior to taking on student loan debt.

I teach that communication will save your marriage. Whether you are beefing over money or something else, structured communication is the key.

I teach that you don’t have to make a ton of money to be a success.

I teach that you can give you and your family an amazing life, if you believe in yourself and your ability to be disciplined.

I teach that borrowing money from your family isn’t cool.

I teach that lending money to your family isn’t cool.

I teach that education can get you a better job, if you get the right education.

I teach that you should buy life insurance.

I teach that you have much more to do with your chances of being a financial success than you think.

This is what I teach.

I will stand by this. These teachings won’t be compromised.

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