Growin’ Up Poor in Memphis

Memphis Bicycle 2My parents were ‘Depression babies’ born in 1931. Mom’s family managed to hang onto their farm in Missouri but Dad’s family lost their home in Detroit. Mom and Dad met at Concordia Teacher’s College in River Forest, Illinois, just outside Chicago. They were the first generation in their families to attend college.

We moved to Memphis in 1958 when I was 3. Dad was a teacher and later the principal of a Lutheran grade school. (Yes, being Lutheran in the South can get really weird. Nowadays, I’m Presbyterian and live in a neighborhood that’s predominantly Jewish and Irish Catholic.)

Memphis in the late ‘50s and early ‘60s still had vestiges of the Jim Crow South – White and Colored restrooms. Sharecropper shacks along Highway 61. Sanitation workers carrying mounds of refuse in a washtub on top of their heads. Mom and Dad, to their credit, raised us to not harbor prejudice; we were taught that all people are created in the image of God.

When we moved to Memphis, it was just my sister Lisa and me; we would eventually be joined by 5 other siblings. Supporting 7 children on a modest school teacher’s salary was a challenge, to say the least. We never lacked for basic necessities but wants were almost always put on hold. Mom was a fabulous cook but there were times that she would have to get really, really resourceful when there was more month than money. We wore hand-me-down clothing, rode hand-me-down bikes, rarely ate out. Vacations consisted of staying with either one set of grandparents or another. There was a nagging feeling, that I’m sure a many poor people feel: to be on the outside looking in.

For us kids, if we wanted something, we had to work to pay for it: dues for the boy scout troop, a bike, an occasional Coca Cola. I collected soft drink bottles in the neighborhood for the 2 cent deposit refund. When I turned 12 and was old enough to get a paper route, it was like hitting the lottery. I was earning $30 a month! Mowing lawns during the summer brought in additional income.

My high school was situated in a working class neighborhood. Teachers were very dedicated but resources thin and options limited. I marvel at the vast differences between my high school experience and those of my kids’ attending a public high school in the Philadelphia ‘burbs.

It was a forgone conclusion that my siblings and I were on our own when it came to college. At the urging of a high school math teacher, I applied for and got a scholarship at Memphis State’s Herff College of Engineering. The scholarship was $500 per year and almost covered tuition for two semesters. Most semesters, I worked part time while carrying a full academic load. I lived at home.

Two brothers and two sisters followed me to study engineering at Memphis State (now University of Memphis). Among us, we have one civil engineer, two mechanical engineers and two electrical engineers. For all of us, an engineering degree was a ticket to a better life. Upon graduation, we secured jobs with the likes of Procter and Gamble, Hewlett Packard and the National Security Agency.

Sadly, the city of Memphis still struggles economically. Its sister city Nashville has eclipsed it in population and economic growth. Today, Nashville gets mentioned in the same sentence as Austin and Charlotte while, Memphis gets mentioned in the same sentence as Buffalo, Cleveland and Detroit.

I offer you the following lessons learned from Growing Up Poor in Memphis:

  • Whether rich or poor, parents need to model and teach frugality to their children.
  • Don’t indulge your children’s every whim. A child need to work for and set goals for attaining a portion of the things they want.
  • The oppression of poverty extends beyond lacking things. It is also a state of mind, that feeling of always “being on the outside looking in”.
  • A marketable college degree can still be a ticket to upward mobility. I dare say that selection of a college major is more important that the status of the educational institution.
  • Sadly, the cost of college has far out-paced the general cost of living. While being ever more essential for economic advancement, a college degree is increasing out of reach for many Americans.

© 2016 Paul J Reimold

Heartbreat Hotel Restaurant

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Revisiting The Millionaire Next Door

MNDTwenty years ago this October, The Millionaire Next Door, authored by Thomas Stanley and William Danko, made its debut. As a book, it qualifies as a timeless classic on personal finance. It was published at a time prior to the Dot-Com boom, the Dot-Com bust, 9/11 and the Great Recession. Yet, its insights on accumulating wealth remain relevant today.

No it’s not a book on managing one’s personal finances per se, but an analysis of ‘ordinary’ millionaires and how they got there. The main message: most millionaires don’t look the part or live a flashy lifestyle. They live well below their means and have invested the difference. Many accumulate their wealth as business owners. They tend to drive older cars and live in modest homes.

Continue reading “Revisiting The Millionaire Next Door”

Cut the Cable!… Cut the Costs!

Cut the CableAt age 14, our son Ben transitioned from home schooling to attending the local high school.  Shortly after the term began, he came home all dismayed – “Everyone else has cable”, he reported, “but we don’t.” Yep. We never had it and we never will.

Let’s see: the cumulative cost for cable service from the time Ben was born until he went college would have easily paid for his first semester at Penn State – and that’s not even taking into consideration interest or investment returns!

Folks, the time has come to think long and hard about your cable service.

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When It Comes to Doubling Your Money, the Rule of 72 is Handy

72In an earlier posting Pennies a Day, we demonstrated how the power of compounding can be harnessed to build wealth. You may recall that when a penny is doubled every day for a month, it grows into more than $10 million dollars! If you haven’t seen it, I encourage you to go back and read the article. Meanwhile, in the real world…

How do we calculate the time for an investment to double based upon a given annual interest rate?

The formula for determining this requires either a scientific or financial calculator or, using logarithmic or financial functions in a spreadsheet program.

However, there is another option that only requires simple division: The Rule of 72. While it is an approximation, it is uncannily accurate. It’s a quick, easy way to estimate the time required to double an investment on ‘the back of an envelope’ or ‘in your head’.

Here are some questions that can be quickly answered with the Rule of 72:

  • If I have a CD with 2% interest, how long would it take to double my money?
  • If I have a mutual fund that historically returns 6%, how long should I expect for my investment to double?
  • If average annual inflation is 3%, how long will it take for prices to double – and for the dollar to only be worth half of what it is now?

To get an estimate divide 72 by the interest rate (in digits). For the questions above, we get:

  • 36 years for the CD to double at 2% (72 ÷ 2)
  • 12 years for the mutual fund to double at 6% (72 ÷ 6)
  • 24 years for inflation to double at 3% per year (72 ÷ 3)

One caveat: The doubling factor for the CD and mutual fund does not take into account the impact of taxes or inflation.

Here’s the actual formula (or formulas) to calculate the exact period time for an investment to double:

Time to Double Investment = log(2) ÷ log(1 + (Interest Rate ÷ 100)) —Or— Time to Double Investment = ln(2) ÷  ln (1 + (Interest Rate ÷ 100))

‘log’ is the Base 10 logarithm, while ‘ln’ is the ‘natural logarithm’ based on the mathematical constant ‘e’

No need to worry if these terms sound like geeky gibberish.  These equations are mathematical tools that assist us in calculating compound interest. Note answers are the same whether you use the ‘log’ or ‘ln’ function.

Let’s go back to the 3 questions asked earlier. The actual answers do vary from the Rule of 72 approximations, but not by much:

  • For the CD to double at 2%: log(2) ÷ log(1 + (2 ÷ 100)) = log(2) ÷ log(1.02) = 0.3010 ÷ .0086 = 35.00 years (vs. 36 years from the Rule of 72)

In a similar manner:

  • 11.9 years for the mutual fund to double at 6% (vs. 12 years from Rule of 72)
  • 23.45 years for inflation to double at 3% per year (vs. 24 years from Rule of 72)

Refer to the table below for an actual vs. Rule of 72 comparison for a range of interest rates. How about the flip question…

For my investment to double in a given number of years, what rate of return percentage would I need?

Using the Rule of 72, you would simply divide 72 by the number of years. Example: if you want an investment to double in 18 years: 72 ÷ 18 = 4% annual return. But the actual formula is a bit more involved:

100 x (10log(2) ÷ 18 – 1)     or   100 x (eln(2) ÷ 18 – 1)

Both formulas provide the same answer: 3.93%, quite close to 4% that the Rule of 72 gives.

Which approach would you prefer for a quick estimate? The Rule of 72 obviously wins hands down.

Hopefully you will find the Rule of 72 helpful in your financial planning and decisions. The Rule of 72 also reinforces the power of compounding that can and should be harnessed in your investments.

Regards, Paul

PS Here is a reference that explains the mathematical derivation for the Rule of 72:  https://betterexplained.com/articles/the-rule-of-72

Interest Rate % Rule

 of 72

Actual Calculated % Difference
1.00 72.00 69.66 3.36%
2.00 36.00 35.00 2.85%
3.00 24.00 23.45 2.35%
4.00 18.00 17.67 1.85%
5.00 14.40 14.21 1.36%
6.00 12.00 11.90 0.88%
7.00 10.29 10.24 0.40%
8.00 9.00 9.01 -0.07%
9.00 8.00 8.04 -0.54%
10.00 7.20 7.27 -1.00%
11.00 6.55 6.64 -1.45%
12.00 6.00 6.12 -1.90%
13.00 5.54 5.67 -2.34%
14.00 5.14 5.29 -2.78%
15.00 4.80 4.96 -3.22%
16.00 4.50 4.67 -3.64%
17.00 4.24 4.41 -4.07%
18.00 4.00 4.19 -4.49%
19.00 3.79 3.98 -4.90%
20.00 3.60 3.80 -5.31%
21.00 3.43 3.64 -5.71%
22.00 3.27 3.49 -6.11%
23.00 3.13 3.35 -6.51%
24.00 3.00 3.22 -6.90%
25.00 2.88 3.11 -7.28%

© 2016 Paul J Reimold

 

 

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Dining Out – a Special Occasion not an Everyday Habit

Ben's Birthday 12/2014
Ben’s Birthday 12/2014

One great benefit of living in the Philadelphia area is seeing the city become a foodie’s paradise with seemingly endless options for wonderful food.

But even when dining out, frugal principles can still be applied.

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The Cool 9: Ways to Cut Summer Cooling Costs

Electric Meter CompresserI am currently reviewing our June electric bill. It’s a grand total of $106.38. Not too bad for the first month of summer. We only consumed 845 kilowatt hours from June 3rd to July 5th. Granted we were away for several days and, so far, it’s been a fairly mild summer. However, we did run the air conditioner on a number of hot days. I’d like to think that we are doing some things right.

Here are nine ideas for lowering your summer electricity bills while comfortably keeping your cool. I am doing my best to offer unique and effective ideas rather than merely repeating the usual litany of ways to cut air conditioning costs that the media dishes out this time of year.

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