What Percent of Your Income to Spend on Rent

For Rent Crop- Infrogmation Yesterday the Wall Street Journal’s Developments blog (it covers real estate) carried a post Is Your Rent Too Damn High? inspired by a classic only-in-New-York character, Jimmy McMillan, the Rent is Too Damn High Party’s candidate for governor. The photo alone makes it worth the click.

The post muses, without resolution, on the eternal question of how high is too high.

Many personal finance experts say you should spend no more than 35% of your gross income on rent (not including renter’s insurance) whether you live in a high- or low-cost area. Of course, this amount can mean the difference between living in a studio on the outskirts of an expensive city or living large in a condo overlooking the beach in a low-cost area.

Many experts say this? It is the sort of faux wisdom that is often attributed to unnamed others and then passed on half-heartedly. I spent several minutes looking around the web for first hand advice on how much to budget on rent. I didn’t find much. There is lots of stuff out there on how big a mortgage you should take on, but relatively little discussion of renting. I guess renters just aren’t interested in personal finance.

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High Tech Credit Cards and Fraud

Smartcard2 - Channel R The New York Times ran an article over the weekend about how even though “smart” credit cards are more advanced, there is almost no reason to expect them to be adopted here in the USA. That is an interesting story, which I will get to in a moment, but the article revealed an astonishing statistic that is worth the distraction.

Fraud losses for the credit card companies are currently running at just six cents per $100 charged. That is 0.06%. Put that into the context of the average fee paid by the merchant to the card company, around 1.8%. Or the 1% to 2% that we all expect to get back from our cards in the form of rewards.

0.06%, or as we finance types would call it, 6 basis points, is a very small number. In the context of a retail store it is the moral equivalent of zero. For most merchants it is an order of magnitude smaller than “shrinkage” i.e. theft of inventory.

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The Truth About the Shiller PE

Is now a good time to invest in stocks?NYSE floor Old - Crop

Like the weather, the market outlook is a topic that can always be discussed, whatever the circumstances, and generally without much in the way of a definitive conclusion. It is often reduced to a question of whether or not the market is expensive or cheap just now.

Lately, the most popular measure of market valuation appears to be the current market price divided by the last ten years average earnings. This is variously known as PE10, the cyclically adjusted PE (CAPE), or Shiller’s PE, in honor of the Yale economist Robert Shiller who has popularized it. (But would never claim to have invented it. He calls it CAPE and so shall I.)

In just the past week, CAPE was sagely mentioned in both The New York Times and The Wall Street Journal. The Times called it “a conservative method” and used it to make the case that stocks are not particularly cheap at the moment. The Journal used it to make the argument that the market can be effectively timed, but left it to the reader to draw his own short-term conclusions.

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Exciting New Research in Finance

Time to review the latest cutting-edge academic research, as discussed in our country’s leading business newspaper. A report in the Wall Street Journal from Monday brings us two items that expand our understanding of that mysterious beast known as the stock market.

NYSE-floor The first item is a recently released report from the Investment Company Institute (the trade group for mutual fund companies) which revealed that the average mutual fund investor’s willingness to take risk is lower now than it was two years ago before the market experienced its well publicized unpleasantness.

It is a report that is just chock full of enlightening insights. A person only needs to skim the chart captions to learn a lot. Turns out, “Tax-Deferred Accounts Are A Popular Way to Hold Mutual Funds.” And “Fund Performance Is the Most Important Factor Shaping Opinions of the Fund Industry.” Further, “Mutual Fund Industry Favorability Rises and Falls with Stock Market Performance.”

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Why Go to College?

[Today’s Thursday re-run first ran October 6, 2009.]

There’s a good post today at Wise Bread making the argument that going to college just for the learning doesn’t make sense. In a nutshell, the post makes the case that, with only some peculiar exceptions, a person can learn Grads Kit stuff just as well and a lot more cost effectively on their own. I couldn’t agree more.

Of course, a person should probably go to college anyway. It’s just that learning things is not, per se, reason enough to spend four years and a modest fortune in tuition. There are good dollars and cents motivations for college and keeping a clear head about them is important.

(I haven’t researched this, but I write this blog under the assumption that my readership amongst high schoolers is zero. So to a certain extent this discussion is, you will pardon the expression, academic. Perhaps there are parents of high schoolers reading.)

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