Is a college degree worth it?

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Well, the first thing thing that I will say is that you had better finish what you start …

… because, if you don’t complete your four year college-level degree, you will probably still end up with the average student debt of $20,000 but only earn $4,000 a year more for your troubles!

But, let’s take a closer look at what the US Census Bureau has to say about students who do complete their degrees against those who don’t:

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OK, so for a $20k ‘investment’ (at least, if we assume the average debt left behind), the average college grad. can earn an extra $19k – $20k per year; sounds like a great deal?

It seems that we forgot to account for the extra four years of income that the high-school grad (but no college degree!) earned while you were off at the frat or sorority house!

So, let’s say that the college graduate starts (4 x $27k) + $20k behind the 8-ball … how long does it take him to catch up?

Well, if we assume that both achieve 4% yearly salary increases (starting from the same date that both are working, keeping in mind that the high-school-only grad. has already put four solid years of work in) and earns 8% on their investments (fueled by consistently saving 15% of their gross income), then we can see that it’s a ‘no brainer’:

– The College Grad would have saved $794,000 after 26 wonderfully exciting working years, and

– The High School Grad only saved $468,168 after 26 equally wonderfully exciting years working.

So, college is ‘worth’ $326k, in this admittedly highly-oversimplified example …. yippee!

But, readers of this blog aren’t thinking of spending the next 26 years working in the Quick E Mart, studiously saving 15% of their hard-earned income, just to earn 8% p.a. …

… no, they are preparing to be investors (say, real-estate and stocks) and/or entrepreneurs. Activities that high-school grads – and, even high-school drop-outs – can and certainly do in equal numbers to college grads!

You see, serious money making doesn’t discriminate on the basis of education … some of the world’s richest people have little to no formal schooling.

And, they aren’t wasting their ‘no college’ years earning $27k (and, salivating over their next 4% pay-rise) … no, they are busy reading this blog and starting their business/investment careers.

They have realized that serious wealth comes not from what you earn, but from the return that you earn on your money. So, with just the benefit of 4 years head start, they can turn a $20k per year earnings deficit into the same amount as a high-flying College Grad, by only increasing their annual return on that 15% savings from 8% to only 11.5%.

[AJC: If they can increase their return to serious real-estate investment territory of 20%, they will blow the college savings rate away by amassing nearly $3 mill. in 26 years, and if they achieve ‘entrepreneurial’ 50% p.a. returns, well they will join the ranks of the rich with more than $300 mill. to their name … really!]

Of course, if you choose to go to college – as I did, and will encourage my children to do – there’s nothing that says that you can’t also be an equally good entrepreneur and/or investor, on the side … or full-time 😉

It’s just not cricket …

Today’s Video On Sunday has absolutely NOTHING to do with money, other than that it may help you win a few bets at the pub 😉

And, my American readers [I hope!] will appreciate learning a little about cricket …

… which is best explained, IMHO, by comparing it to that great American institution: baseball. In fact, cricket is just like baseball, except:

– There are only two ‘bases’: imagine home base being where the batsman (a cricket term for the guy hitting the ball with the bat) stands, and that ‘first base’ is shifted to sit on top of the pitcher’s mound – except that there is no mound, so the pitcher (in cricket terms: the bowler) has no height advantage.

– There are 11 players a side, but two batsmen are on the ground at the same time; one stands at ‘home base’ to hit the ball and the other stands at ‘first base’ near the where the bowler (aka pitcher) will be.

– There are only two innings per side, but each innings is over when ALL of the batsmen from each side is ‘out’ (actually, 10 from each side, because you need 2 on the ground at the same time).

If you can imagine those differences, let me walk you through the video which covers the 3 main aspects of the game:


– The bowler cannot whip the ball (which is VERY hard, much like a baseball … perhaps a little harder) with his elbow, as he MUST bowl with a ‘straight arm action’. A little curious I know, but he gets speed by running as far/fast as he likes, until he reaches a line just behind ‘first base’ than releases the ball; the combination of the run and the fast (albeit strange-looking) straight-arm overhead throw produces the speed.

– The ball can be thrown directly at the batsman (within reason … you aren’t allowed to deliberately try and hit him!), but is usually bounced off the ground making it much more erratic and harder to hit.

– In fact, the red (or yellow) ball has a very pronounced seam effectively dividing the ball into two hemispheres, therefore a slower ‘spin bowler’ can be equally effective as a ‘fast bowler’ by deliberately imparting spin and/or aiming the ball at a spot on the ground that is rough or has cracks from the heat to make the ball ‘jump’ or ‘spin’ one way or another.

– The IDEAL outcome for the bowler is to get the batsman out, not by ‘striking him out’ but by using the cricket equivalent of hitting those three little sticks sitting right behind the batsman. Very quaint. It gets better! If you look carefully, balanced in little grooves on top of the stumps (i.e. those three little sticks) are two even smaller pieces of wood called ‘bails’, and the batsman is OUT if the bowler can hit the stumps with the ball AND the little sticks fall off. Cute 🙂

Watch the video until 1:30 and you’ll get the idea …


– Of course, the other team is all on the field, carefully positioned to ensure this doesn’t happen. For example, if the batsman happens to hit the ball then they can get him out – just like in baseball – by catching the ball before it hits the ground.

– Because both bases – hence most of the action – happens right in the middle of the pitch (which is usually a large oval playing field), the batsman can hit the ball in ANY DIRECTION (there is NO ‘foul ball’ rule in the game of cricket), so it is just as critical in cricket to carefully place the fielders – but, in this case, all around the entire ground –  depending on the characteristics of the specific batsman (is he a left-hander? is he likely to accidentally ‘snick’ the ball or is he going to whack it a long way?)

– Remember that really hard ball? Well, the cricket fielders prefer to catch them without wearing gloves. Just watch the video until 3:00 minutes in, and you’ll see what I mean [AJC: if you really want to see a tough sport, if I get enough interest, I’ll tell you about Australian Rules Football in a future post!]


– Of course, the batsman are in there trying to make runs, just like in baseball; and, they do it by running from ‘home base’ to ‘first base’ and back again as many times as they can, before they are at risk of getting out.

– But, in cricket, a batsman can ONLY get out four ways:

1. By being ‘bowled out’ i.e. the ball hits the stumps and those little bails (remember them?) fall off,

2. Or by being bowled out on a technicality (much like a ‘technical knock out’ in boxing) where the umpire (aka referee) rules that the ball WOULD have hit the stumps EXCEPT that the batsman stuck his leg in the way (instead of his bat) to avoid that from happening. This is called ‘Leg Before Wicket’ … imaginative, huh? 🙂

3. By being caught out (just like in baseball), either by the fielders around the ground, or by the wicket-keeper, who is the cricket equivalent of baseball’s short-stop except he wears NO body of face protection. But, the wicket keeper does usually wear TWO over-sized gardening gloves (that don’t look anything like baseball mitts).

4. By being ‘run out’ which is where the batsman hits the ball and madly dashes for the ‘base’ (actually called a ‘wicket’) which is merely a line drawn on the ground a couple of feet in front of the stumps:

– If any part of his body or his bat (because, in cricket, the batsman always seem to carry their bat when they’re running) touches the ground between the line and the stumps BEFORE the opposing team can get the ball to knock those little bails [there they are again!] off the stumps, the he is IN (aka SAFE!)

– If the opposing team can throw (or touch) the ball to the stumps and get the bails off before the batsman reaches that ‘line drawn in the sand’ (literally!) then he is ‘run out’ i.e. OUT in any sport’s language! Oh, and touching the ball to the batsman or catching the ball and standing on the line means nothing in cricket, sorry 🙁

All of this means that the batsman can score in a few different ways:

– They can hit the ball (or bunt it, or miss it entirely if they like) and attempt to run between the wickets as many times as they like (i.e. until they feel that they would be at risk of the opposing team getting the ball to hit the stumps before they are ‘safe’).

– Batsmen can usually run back and forth between the wickets 1, 2, or 3 times … only very rarely will they get 4 runs in (usually because somebody has tried to throw the ball at the stumps, missed it, and the ball has started to run on towards the other side of the ground … ooops!).

– The bowler can throw the ball so badly (or make any number of ‘technical errors’) that the batsman has no real chance to hit it, so the team is automatically awarded one extra run (conveniently called an ‘extra’)

– But the best is if the batsman can hit the ball so hard that it bounces or rolls until it hits – or crosses over – a rope encircling the ground just inside the fence (hence, it’s name: ‘the boundary line’), as he is awarded 4 runs (nice!) … but, if he can hit the ball all the way over the boundary line without it touching the ground (or anybody else) first – the cricket equivalent of a ‘homer’ – he gets 6 runs (better!).

– Best of all, each batter stays in and keeps hitting the ball until he goes out (in one of the four ways mentioned above); so it is typical for even a bad batsman to score a few runs (eg 15+) – and, not uncommon for a GREAT batsman to score up to 50, 100, or (extremely rarely 200+) runs in each of the two innings!

– Remember, the team innings isn’t over until all 10 batsmen from the team go out, and the game isn’t over until both teams go out twice … two innings … no wonder a game routinely lasts 4 or 5 days with each teams scoring 150 to 450+ runs!

Oh, and because a 5 day ‘test match’ (as they are called) is way too exciting for the Average Joe (or, more likely, Bruce in Australia and Nigel in England), two new versions of the game are being played at the moment:

– The One Day Games, which have been reduced to a mere 8 hours of excitement, simply by having only one innings per side, which finishes when the 10 batsmen are out OR 50 overs (6 balls – or ‘pitches’ – constitute an ‘over’) which usually comes first, and

– The 20 Over Game (i.e. each side is limited to seeing how many runs they can score in only 20 x 6 balls/pitches), which is proving to be way too short and exciting at a mere 4 or 5 hours, so is in danger of being consigned to the ‘cricket trash can’.

Well, it’s nearly summer here in Australia, so if you don’t see a post for 4 or 5 days you know where to find me …. yawn … 😉

Safe as houses?

Picture 2Well, I did ask for it, and the first cab off the rank for the ‘diss Adrian party’ is Dan who thinks that one of my favorite posts – Contrary to Popular Opinion, Paying Off Your Mortgage Is The Dumbest Move You Can Make – is ‘ridiculous’. Seriously, thanks for opening up an important new discussion with this comment, Dan:

This is ridiculous. The author apparently believes he is untouchable and will never lose his job, get sick, or die.

You can do all the complex math you want, but the simple fact of the matter is that Risk is the biggest variable, and I don’t see it show up in your equation once.

Don’t be stupid America, and dont prescribe to a system that encourages you to continue owing people money long after you need to.

Pay off your house, free up some income, then pay off your credit cards, pay off your car, and be a happier, less stressed individual.

Hmmm …. paying off your mortgage as a ‘risk management tool’?

Before we even consider why anybody in their right mind would pay off a (say) 8% mortgage before paying off a (say) 19% credit card or car loan, let’s review the substance of my “don’t pay down your mortgage early” argument:

Look at everything that you own as a business: if it’s your own home, separate the ownership of the property in your mind from it’s use …

… for example, even if it’s your own home, treat yourself as your own tenant and figure the rent that you would otherwise had to pay when doing the sums.

Then evaluate the investment against any other investment or ‘business’ …

… but, if you’re still trying to get rich(er) quick(er)?

If you own a home, don’t pay it off … use the upside to help you buy more and more of these wonderful, one-of-a-kind, almost-too-good-to-be-true ’businesses’ …

If you have other sources of income (businesses, investments) don’t spend it or reinvest all of it … use some of the spare cash to help you buy more and more of these wonderful, one-of-a-kind, almost-too-good-to-be-true ’businesses’ …

That’s my advice to you, but only take it if you want to be rich!

But, Dan says that the ‘math’ matters not, you should consider what happens if you “lose [your] job, get sick, or die”. Well, what happens?

If you have paid out your mortgage, your money is locked in the safest bank vault imaginable … all you have to do it sell the home to access the cash. Just pray that the market is an up market and not a down market, when these events outside of your control force you to sell. Or, would YOU prefer to choose the timing? Hmmm …

Of course, you could just borrow some money against the house; but then, aren’t you now putting yourself in EXACTLY the financial situation that Dan wants you to avoid: i.e. “owing people money long after you need to”?

And, even if you still do want to use your Zero Mortgage Bank, what are the chances of the bank actually lending you (or your survivors) any money when you are jobless, sick, or dead?

Oh, and let’s say that you do happen to be unfortunate enough to “lose [your] job, get sick, or die” while you are still in the 10-15 year period when you are well ahead of the 30-year payment curve, but haven’t paid off the mortgage in full, yet? How easy will it be to refinance, or even convince your bank to hold payments for you? Even if you THINK they will, you had better be certain 😉

What do you reckon? Dan’s on the right track? C’mon, be honest … would you feel safer paying off your mortgage early, or letting it ride?

With this text, I thee wed …

Picture 3With this simple text message, I purchased a commercial property for $1.5 million (plus taxes and closing costs):

demo $75 and roofing $60 the rest $200 – $250 approx.

Good enough for me to close the deal!

Let me backtrack a little …

Over the past three or four weeks, I’ve been going through my numbers on developing a main road site into a high-rise condominium complex (60+ condo’s over 8 stories plus basement car-parking), but the project didn’t start that way:

It actually started as a buy-with-a-twist project that I favor so much (for good reason, I might add) …

…. the idea was to buy an unloved showroom/warehouse and rehab it into a bright, modern showroom with an excellent main-road frontage, then rent it out as a ‘buy/renovate/hold’ investment. It was only AFTER I made the decision to acquire it that we found out about the potential to rezone as multi-story.

So, let me walk you through the buy/renovate/hold scenario; you’ll be surprised [AJC: unless you’ve read this series of posts ] how LITTLE financial analysis that I do before acquiring 🙂

Step 1

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The first step is to understand what your end product is worth: to that end, I undertook EXACTLY the kind of analysis that I talk about in this post. This tells me that a showroom in this area should rent for approx. $250 per square meter (or, $23.25 per square foot) for office/showrooms in the 800 square meter (8,600 square feet) size range. It also tells me that the ‘capitalization rate’ in this area/market – at the current time – is approx. 5.5% to 6%, which is (a) not much in absolute terms, and (b) not even much when compared to prevailing interest rates.

So, now I know two things:

(i) Buying and holding a ‘ready made’ investment (i.e. something in good condition, already leased to a good tenant) ain’t gonna do much for my future financial well-being, and

(ii) Creating a ‘ready made’ investment for some other sucker … I mean, investor … could be the way to go.

Step 2

I now need to work out how much the project will cost me; which is easy, thanks to that little text:

– Purchase Price: $1,500,000

– Taxes and Closing Costs: $200,000 (approx.)

– Rehab costs; this is where that text – which was from my builder [AJC: whom, I should mention, is a trusted friend … otherwise, I would have looked for written quotes before proceeding] – comes in handy because it lays out the major costs for me:

– Demolition works – at $75,000 actually a large expense because the roof is asbestos and has been fire damaged, so needs to be entirely (and, carefully!) removed and disposed of; also, the building was formerly squash courts, so there are remnants of internal brick walls that need to be removed

– New roof – once the old roof is gone, it appears to be (surprisingly) cheaper to put up the new roof than it was to demolish the old!

– Renovations – now that we have a ‘clean’ four walls and (new) roof, $200k to $250k should be enough to render the horrible old yellow-brick exterior, put in nice large aluminum showroom windows, new plasterboard interior walls, suspend a new ceiling and associated lighting, dab a little paint on the walls, and put in some flooring (and, a little kitchen and bathroom) and we have a ‘new’ building for not much money!

[AJC: commercial renovations are generally cheaper on a per-square-foot basis than residential because the quality of finishes is lesser and there are no – or, small – kitchens and bathrooms to fit out]

Step 3

Now, I get to redo the sums:

a) I have an ‘as new’ showroom in a prime position that cost me $2,085,000 all up,

b) It provides a ‘net lettable area’ of approx. 800 square meters at $250 per square meter … we’ll have some letting, management costs out of this, but the tenants pay ‘all outgoings’, so let’s say that this nets $200 psm x 800 sm = $160,000 per year

c) This provides me with a $160k / $2,085k = 7.7% return

Step 4

Now, a 7.7% return isn’t shabby (in the local market that we are talking about); but, I could now turn around and find one of those lazy investors that we spoke about in the beginning … one of those guys who is after a low-maintenance, fully-let property and who is willing to accept a paltry 5.5% – 6% return.

They should be willing to pay me $160k / 5.5% to 6% = $2.7 mill. to $2.9 mill. or a cool $600k+ profit for not a lot of work/time on my part …

So, if I decide not to build the condo’s, my backup plan is complete 😉

Let me know if this long-winded series on real-estate has been useful to you …

Speak up!

Picture 1Speak up, everybody … it’s important!

Take a look at the image (or scroll down to the very bottom of this page, to see the ‘live’ version) … it’s our ‘user cloud’ and reflects the quantity of recent comments by various users. It would be great to see your name on this list …

… in fact, while this blog receives its fair share of comments, it doesn’t – IMHO – receive its fair share of NEGATIVE comments.

C’mon guys, I write a controversial blog, one that flies in the face of conventional financial wisdom … don’t I? 😛

If not, I may as well shut shop …

Now, don’t get me wrong, I love positive reinforcement-style comments – the ones that let me know that I’m on the right track, BUT …

… it’s the negative comments that drive change and we should all be challenged from time to time [AJC: now, let’s not go overboard on the negative, shall we? 😉 ]

Later on in the week, I will introduce Dan, who challenges the notion that paying off your mortgage is the dumbest thing that you can do

The end of capitalism?

I love Michael Moore, he can make shotguns in the hands of teenagers seem like a bad thing …

… and, now he’s on to big, bad, ol’ Capitalism.

I wonder how much of the proceeds of this film he’s donating to equalize wealth across the American population? And, I wonder what he’s proposing to replace capitalism with?

If you’ve seen the movie, or have any for/against ideas of your own, let us know by dropping a comment …

An ad free blog!

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Adrian J Cartwood Esq. [AJC: Euphamism for ‘Nobody Important’]

I use a tool called ad-blocker to do exactly what the name suggests: block ads from appearing in my browser. There’s no real reason for this, other than I wanted to see how it works …

… but, it’s (hopefully) well known  by now that I don’t accept advertising, promotions, or cross-links for any products or services on this blog.

I do, of course, mention books, products and services from time to time … but, only those that I genuinely use and like, and I NEVER accept payment or join affiliate programs.

The reason is simple and two-fold:

1. A multi-millionaire can hardly be credible if he writes to earn a few extra bucks per week from advertising revenue,

[AJC: Although, this reminds me of a joke that was a huge hit at Blogger Con 2007: A blogger gets on The Apprentice, and says to The Don “You know, Mr Trump, if I were you I would be richer than you”. To which Trump raised an eyebrow and responded “How so?”. The blogger, with a totally deadpan face, said: “Well, Sir … if I were you, I would still do a little blogging on the side!”. Oh, those blogger’s conventions are such a riot! 🙁 ]

2. Even if I donated that extra few bucks to charity (I give plenty, already) YOU wouldn’t know or believe me, even if I said that’s what I was doing.

So, no solid good reasons, just the way I feel … and, others are entitled to feel totally differently … which is why I present the little owl-logo, above, just in this post, and  probably won’t promote their site by placing it in my sidebar 😉

However, what I would like to see is a ‘community service’ advertising program, where a trusted third-party places ads on your site, collects the revenue (or, maybe the spots are free community service announcements), which goes directly to a panel of trusted and worthwhile charities and/or non-profit organizations.

Anybody up to the challenge? Give me an exec. summary of your business plan!