Chapter 8 – Renting

Chapter 8 – Renting




















Chapter 7 – Housing

Chapter 7 – Housing

“Everyone has a fundamental human right to housing, which ensures access to a safe, secure, habitable, and affordable home with freedom from forced eviction.” ~National Economic & Social Rights Initiative[1]

“All of these government factors contributed to creating a situation in which millions of people were buying homes they couldn’t afford, in which the participants experienced the illusion of prosperity, in which billions upon billions were going into bad investments.”, 2008[2]

We are finally at the point where we can start discussing how spending our money impacts the financial genome.  In our lives, our expenses range on a spectrum from basic needs of survival to luxuries. How you define each expense is a personal choice; however, shelter is almost always considered a basic need, and is where we’ll start our spending.  A basic need is not to be confused with a basic right, which typically drives a political discussion.

Conventional and modern Certified Financial Planning uses a “28/36 rule,” which states no more than 28% of your monthly income should be on housing costs and no more than 36% of your monthly income should be on debt (includes mortgages, consumer debt, etc.).[3]  Dave Ramsey, a popular financial guidance advisor offers a similar recommendation of no more than 25-35% on housing[4].  Finally, the Bureau of Labor and Statistics determined 2015 average housing expenses were 32.9% of income[5].  So, based of all those numbers, the average real expense and advice is 30%, and that’s the percentage we’ll use.  Before we go further, you should check your housing costs to see how much you spend. Do you spend more on housing than 30%?

Once you’re an adult and no longer live with your parents, housing costs are generally within your control and your income is typically the basis for making that decision.  At about this point, your bias may have already kicked in and you’ve already decided that renting or buying is the best option. Please try and clear your mind of which decision is optimal because it truly comes down to timing, location, and the current financial landscape.  To have the greatest influence on the genome, the key to optimizing your income is to consider the Return on Investment (ROI) of every next dollar you spend. Additionally, when you make a decision to buy or rent, there is an opportunity cost with doing one or the other.  So, the decision to buy versus rent is based on the potential ROI and opportunity cost.

There are many types of housing that we get to choose from.  Due to my military background and my frequent moves, walking through the types of housing I’ve been in will help us navigate through the options many of us have.  The key takeaway is that I started small and moved to bigger, more expensive housing options as my income increased.

The first housing type I lived in as an adult was a military dormitory.  This was an extremely small (maybe 150 sq ft.) 1-bedroom, 1-closet, shared bathroom and kitchenette single’s room. It came furnished already, and I wasn’t required to pay for it—well, sort of.  The military pays for dorms by utilizing the funding the Department of Defense receives from federal taxes. In theory, the estimated cost of the housing is deducted from my pay.

After a couple of years, I moved out of the dorms and into a 1-bedroom apartment which had 1 bathroom, a small living room, and a kitchen.  The apartment was nearly 400 sq ft., which felt big compared to my small dorm room.  Once you move out of the dorms or military housing, you receive a Basic Allowance for Housing (BAH).  For civilians, this is just part of your normal salary. I spent about $350 a month and my salary was $1,200—roughly 30%.

A couple years later, we rented increasingly larger houses; the largest being 1,400 sq ft.  Each time we moved, I ensured that (even with all bills included) we never exceeded 30% of my salary.  The places we rented were slightly bigger or were newer.  We finally bought our first house nearly 4 years ago. Even with all utilities, our monthly housing costs are down to 20% of my salary.  This is the definition of living within your means.  If your housing expenses exceed 30%, then you have less income to go to all the other expenses.  Some people I’ve helped with their personal finances have housing expenses approaching 55% of their income.

Despite all the political missteps and the insatiable greed of lending companies and brokerages, if the public kept housing costs to less than 30%, the United States may have avoided the 2008 financial collapse.  Products like interest-only and punishing adjustable-rate mortgages would have been quickly exposed under the 30% model.  How much are you paying in housing costs?  Let’s look at how spending your salary on housing impacts the financial genome.

For starters, you are part of a $217 TRILLION global real estate market[6].  Isn’t that amazing?  Real estate is the combination of all apartments, townhomes, commercial buildings, residential homes and everything in between.  You have a choice of either renting from a company or an individual or buying your own property.  We must be careful on how we use the word “own” in our lexicon.  Typically, people need a loan to buy a house, and you’ll always need to pay property taxes.  So, while you have a loan, the bank technically owns the property.  It is also important to realize the actual value of a property is based on what a buyer is willing to pay.  Many people confuse this philosophy, thinking there must be an intrinsic value of real estate, making it better or worse than any other investment.

In the following chapters we’ll analyze the specific genome connections we connect to when buying or renting.  For now, consider us entering a new galaxy—the “housing galaxy.”  Housing is incredibly connected between all ranges of government, other individuals, corporations, shareholders, insurance companies, and billionaires.  You impact all of these.







Financial Genome Project – Chapter 6

Chapter 6 – Assets and Liabilities

“I can’t lie, I’m guilty of splurging too man
‘Till I learned the difference between assets and liabilities
Really important man, I swear.” ~Ludacris (American rapper)

As I mentioned in Chapter 5, The Payment System, I placed the payment system outside the genome because we’ll trace out each expense. Before we dive into individual expenses though, I want to discuss assets and liabilities. Every penny we spend is either consumed (e.g., food) or becomes an asset and/or liability.

When we buy food, money is exchanged for a good that, theoretically, is consumed in its entirety. This is true until you have kids, where they claim to be “starving”, eat one bite of the food, suddenly become full, and the rest is thrown away. We’ll consider this waste as totally consumed as well. Entertainment is another consumable expense. When we go see a movie or go to a theme park, the entertainment value is consumed.

When we buy clothes, furniture, consumer technology, etc. they become assets. We spend the money; we receive a good in exchange, and we own the product—it becomes an asset. It’s important not to conceptualize assets as a good thing or a bad thing. When I took my first accounting class in college, the professor told me to wipe all word association with the words credit and debit. It turned out to be sage advice, since the main reason students struggled in the class was because they had a hard time classifying credits and debits. If you’re interested, the confusion comes from assigning items to debit “cards” and credit “cards”. Once you get passed that, accounting gets a lot easier (relatively). If you spend all your discretionary money on clothes, then you may have a lot of assets; however, that’s probably not a good thing. Having a lot of assets, that aren’t generating returns, can become costly.

These same assets can be liabilities when we use money we don’t have (e.g., credit cards) to purchase goods. For example, a shirt may cost $10, but when placed on a credit card, we must pay the whole $10 back and any interest we accrued if we didn’t pay off the whole balance before the next billing cycle. Your debt is a liability. When the debt is paid off, then the good becomes an asset; however, that interest you paid siphoned a portion of your salary. Technically, the $10 shirt is an asset and you have an equal $10 liability; however, clothing has nearly no resale value. A $50 shirt sells for 50 cents at a garage sale just like a $10 shirt does. Additionally, too many consumer assets can generate additional expenses if you need to purchase storage to hold those assets. This is becoming a negative trend in our economy, with nearly 1 in 10 households renting a storage facility, compared to 1 in 17 in 1995.[1] Storage costs, in this case, would be a consumable expense.

Some goods, like houses and cars, can be an asset and a liability at the same time. If you buy a $250,000 house and put $25,000 down, then you have $25,000 as an asset (called equity) and a $225,000 loan—a liability. As you put money towards your mortgage, your liability goes down and your assets/equity go up. An additional tangent—the interest you pay on the mortgage is then siphoned off your salary. We’ll discuss all the intricacies of the home purchasing in a future chapter. If the value of your house rises your equity goes up, but then your liability stays the same.

This is an important concept as we spend our income. The way we choose to spend our money determines our ability to influence the financial genome. There are two ways a single individual can greatly influence the genome. The first and most common is to have a large net worth. Your net worth in calculated by total assets less total liabilities. People with a high net worth, as individuals, yield a large amount of influence on the genome. They can invest their money to influence corporations, non-profit organizations, and governments or they consume a lot more, influencing the success of products. The second way a single individual can influence the financial genome is by having a large amount of power. This is intangible and difficult to calculate. For example, the annual salary of a U.S. Senator (not a majority/minority leader) is $174,000 a year.[2] Assuming the Senator isn’t already a millionaire (a rarity in modern politics), $174K is not considered an ultra-rich salary (upper 1%); however, a U.S. Senator can yield a large amount of influence on the financial genome. In most cases, power and net worth typically go hand-in-hand.

Keeping track of your net worth is a beneficial step in basic personal finance. You total all your liabilities and subtract that from your non-consumer product assets (don’t include clothes, furniture, and electronics). As I mentioned above, your house and car can be both as asset and a liability. The equity of your house or car (estimated value less mortgage or car loan) is an asset. The remaining balance of the mortgage and/or car loan is the liability. It’s recommended you record your net worth twice a year or more frequently.[3] When establishing financial goals, you should aim to increase your net worth each year. I have included an example net worth calculation below.


 It’s important not to just track your net worth, but it’s also beneficial to track your monthly expenditures (or expenses). We’ll go into all the different genome connections we make when we spend our money in future chapters. After a couple years of tracking your net worth, you may be surprised to find your net worth stop growing and plateau. A lot of times, this is because your expenditures have increased quicker than your salary; thus quicker than your savings (a.k.a. lifestyle inflation). You can record your expenditures at the same time as your net worth—every six months or sooner. A lot of monthly expenses can be renegotiated to lower your costs. In the last year, I’ve managed to reduce my phone, internet, and cable TV bills by calling each service and asking them to find ways I can lower my bills without reducing services. Some people have found success in reducing expenses/increasing services with shopping around for car, property, and life insurance. With advancements in technology, some people can eliminate classic bills. Some people are foregoing expensive cable plans and going with streaming service which can cost 80% less. Here’s an example of tracking your expenditures. This is not an all-inclusive list and some people may have fewer expenditures.

If you’re able to lower your monthly expenditures, place this money into savings or invest it to increase your net worth. If you have sufficient emergency savings, are appropriately insured, and invested correctly, you should see your net worth increase year after year. Thanks to the power of compounding interest/returns, and reinvested dividends, your net worth will start to grow exponentially. I remember it took me nearly 5 years to become debt free and to save my first $10K. It took me only 2 years to save my next $10K after that. 3 years after that (10 years total), I was still debt free and my net worth was at $100K. Shortly after, I bought my first house yet still managed to have a positive net worth.

Below is our current genome sequencing. We’ll start to trace out each expense in the next chapters, and when we do, we’ll mark its connection to an asset or a liability (or both). It’s important to note, that while we have some control over the job and income we have, we have significant control on what we do with our money, and how it impacts our net worth. Where we go in the genome from this point depends on your goals in life.





Financial Genome Project – Chapter 5

Chapter 5 – The Payment System




















Financial Genome Project – Chapter 4





















[6]  (Archive page: found in this article:


Financial Genome Project – Chapter 3

Chapter 3 – Benjamin Franklin the First Tax Planner

“…but in this world nothing can be said to be certain, except death and taxes.” [1]

 ~Benjamin Franklin (1789)

As we discussed in Chapter 2, you are part of a feedback loop that keeps the genome constantly running. We looked at our first connection between you and your employer, and how your salary is sent to your bank account. We showed that if you’re not cognizant of the process, you may be charged bank fees—robbing you of receiving your full salary. Those bank fees are within your control, but there are other genome connections preventing you from receiving your full salary—and those are not really within your control.

Genome – Fee Connection

We left Chapter 2 with our first connection between your employee and you. The picture above is what we’ll call sequencing—a visual representation of the financial genome. The sequence above shows your salary being distributed from your employer, to your bank account, where you can access the money and where you might be charged bank fees. Now, we’ll look into the distribution of your paycheck further to see how payroll taxes, our next genome connection, represent further reductions to your income. The payroll taxes we’ll cover are the Federal/State Income taxes, the Social Security tax, and the Medicare tax. In the first chapters of the financial genome, we’ll stick with the genome in the United States of America. As the popularity of this project grows, we’ll continue exploring other countries, and eventually map out the whole world.

Imagine you’re interviewing for a job and your future boss shows interest in hiring you and offers a $100K salary. You accept the job offer, but your future boss responds, you’ll have to take an immediate 30-40% pay cut. Would you still be interested in this job? Would you be shocked to know that this happens with every job offer in the US?

Payroll taxes have become somewhat transparent in our modern genome. The taxes are automatically deducted from your paycheck and the remainder is deposited to your bank account electronically. Your paycheck stub should show your gross pay less deductions. Your gross pay is the amount before withholdings (taxes and voluntary withholdings), while your net pay is the amount that is actually deposited into your bank account—also known as take-home pay. I remember the difference by thinking about putting a net into a gross pond and your take-home pay is what’s in your net.

You and your employer both pay taxes for your employment—and if self-employed, you pay both sides. You only see your portion on your paycheck. My personal opinion is that people would be more upset about taxes if they saw the full amount. Depending on your state, you may have to pay a State Income tax which goes directly to your state’s government. You also pay a Federal Income tax which goes to the federal government. You can manage the amount both State and Federal is taken out by adjusting your W-4, Personal Allowance Worksheet. Some companies allow you to make changes online, while others require you to visit your Human Resources department. States taxes vary by state—my home state of California is 6.6%, while New York is 9% (2017 rates).[2] Federal Income taxes vary by whether you’re married or single, and by how many “exemptions” you claim. With my income, claiming single and zero exemptions would give me a 12.8% federal income tax. In reality, I claim married with 5 exemptions for an 8.5% federal income tax. I choose to claim more so I get more in my paycheck monthly and receive less in my tax refund; while making sure I don’t owe anything either.

The federal income payroll taxes you pay monthly are estimations of your annual tax on your income. Like I mentioned above, by adjusting what you claim on your W-4 you can reduce or increase how much you pay per month. Depending on your personal situation, you may receive a tax refund or you may owe. If you get a refund, it means you paid more payroll taxes than you needed to. If you owe, then you didn’t pay enough. This generates a common debate amongst taxpayers—is getting a large tax refund a good thing? Mathematically, the answer is no. Continually striving to minimize the amount of taxes one pays is a pillar of a sound personal finance strategy. By maximizing your monthly income you can reduce debt and increase savings much quicker. That being said, behaviorally, people must look within themselves to see if they’re able to effectively utilize the additional money in your paycheck versus receiving a large tax refund. For some (many in my opinion), a large tax refund forces people to save. Unfortunately and only through anecdotal evidence, I feel most people don’t save the refund and make a large purchase instead. It’s really a personal choice; however, most certified financial planners will focus on you maximizing your monthly paycheck. Additionally and ideologically, some people acknowledge a danger of giving the government their own money during the year and then receiving it back without interest later the next year. In 2017, the IRS is already warning taxpayers that their tax returns may be delayed. The IRS will hold refunds for taxpayers claiming the Earned Income Tax Credit and Additional Child Tax Credit until February 15th, so there is some basis to that ideology.[3]

The taxes that you and your employer pay are the Social Security and the Medicare tax. These are both paid equally (50/50) by you and your employer—or completely if you’re self-employed. The total Social Security tax is 12.4%–with each paying 6.2%. Total Medicare tax is 2.9%–each paying 1.45%. So when you combine all the taxes, you’re looking at roughly 30% or more of your paycheck not going to you. In 2014, the average taxpayer paid 31% of his or her income to taxes.[4] This isn’t a conspiracy, it’s just how we created our financial genome in America. The picture below shows our current sequencing with taxes shown.

Genome – Payroll Taxes Connection

President Franklin Delano Roosevelt signed the Social Security Act in 1935. In 1937, Social Security was taken out in one lump sum and then the monthly payroll tax started in 1940.[5] The Medicare tax started in 1965. The Federal Income Payroll tax is different than the Social Security and Medicare payroll tax. The federal income tax originally started in 1861 to help pay for America’s Civil War, and then was repealed 10 years later. In 1913, with the ratification of the 16th amendment, the federal government gained the power to tax the income of individuals.[6]
Unlike the scenario in the beginning of the chapter, employers don’t discuss your net salary prior to mandated withholdings. When you apply for a job, you’re applying for the post-employer taxes salary; however, the salary advertised is before your own payroll taxes. When applying for jobs, you should automatically deduct 23-30% to figure your pre-insurance salary (we’ll talk about that in the next chapter). So the $100K a year job you’re looking at, may only be $70-$77K a year after payroll taxes.

When companies factor in labor costs, they are calculating your total salary. So that $100K salary that they’re advertising costs your employer an additional $7,650 (6.2% Social Security/1.45% Medicare) plus their portion of health insurance, retirement benefits, and any other employer-provided benefits. This is why companies are so resistant to support a federal minimum wage increase. It’s not simply an increase in wages, but a proportionate increase of employer-paid taxes and benefits. Fair wages isn’t as black and white as you may read on mainstream media—it’s actually very complicated, but that’s out of the scope of this chapter.

So far, we’ve only looked at the connection between your employer giving you a salary and how you don’t receive 100% of your salary due to payroll taxes and potential bank fees—but we’re still not to the point of receiving your salary. On top of Medicare, you must also pay for your own health insurance. In the next chapter we’ll look at health and life insurance before we talk about the connections once you finally receive your salary.

[1] (To M. Le Roy, 13 November, 1789)

Picture link:






Financial Genome Project – Chapter 2

Chapter 2 – Newton’s Third Law





Income Feedback Loop





Genome – Fee Connection









Financial Genome Project – Chapter 1

Chapter 1 – It All Starts With You

“We shouldn’t expect immediate major breakthroughs but there is no doubt we have embarked on one of the most exciting chapters of the book of life,” Professor Allan Bradley, director of the Wellcome Trust Sanger Institute.[1]

     Like the movie, The Matrix, there is a complex system operating around you. Instead of operating off of sleeping humans, like in the movie, the system operates with our finances. It impacts you every day without you knowing it. I’ve called this financial system the Financial Genome; comparing it to the Human Genome Project. Once you know about the financial genome, then you’ll be able to influence it to secure your future, protect your family, and understand the world around you. It is like the galaxy, infinite in all directions with complicated networks of connections. We’re going to start small and then expand farther out making “connections” with various parts.  Every day that passes without you knowing and understanding it, the greater the influence other people have on you and soon you won’t have any more control.

I want you to embark on an exciting adventure as we explore the Financial Genome together—known as the genome from here forward. Exploring the genome can help you with your personal finances; though it’s not a personal finance book. Economic principles will be the highway as we explore the genome, but don’t worry, it’s not an economics book. This isn’t a self-help book either, but one of the key concepts of this book is that time will continue to push and evolve the genome, whether you understand, believe, or participate in it.

This is simply a way of understanding the genome and exploring the exciting connections around us. There are some great parts of the genome where the smallest, marginal, influences can create a positive impact on the whole genome. And unfortunately, there are a lot of dark areas in the genome where bad influences can negatively influence the genome—some overt and some covert. Simply knowing about these great parts and dark areas are can help most of us. In our vastly complex genome, we must start somewhere.

I had a hard time deciding where to start our journey into the genome. My first thought was to start with money—but what is money? The concept of money is extremely complex and we’ll cover our concept of money in another chapter. My second thought was to start with “the why” of exploring the genome. “The why” will be explored through each chapter as we go deeper into the genome. But for now, “the why” is simply to allow you to understand where you fit in the genome and, most importantly, apply force to your surroundings—creating a change in your financial environment.

The most logical point to start to me is to start with you. Not you specifically. You as a human being, which as a species, has accepted and participates as a functioning part of the genome. It’s important not to think of the genome as some linear shape with input and output, or a hole that we can go deeper into until we meet an end. Instead, think of the earth in the entire galaxy. If the galaxy is infinite, then you’d need to start somewhere, and most of us would start on Earth. You are the Earth of the genome.

99.9% of the time, the “person”, or you, our starting point of the genome, is a plugged-in member of our genome. When we discuss money in more detail, you’ll see that the entire genome relies on our belief in the entire construct. The genome slowly evolved into the complex system it is now. Once one of our ancestors traded a product for another product, it created a connection in our genome. Those two humans believed that those two products had an equal value in which a trade was completed. Assuming these two humans didn’t immediate kill each other, and the trade went through without conflict, then the first verbal contract was completed. The majority of our genome is simply a verbal contract, growing larger and larger, and more complex as technology advances.

The modern genome relies in your utmost faith and obedience to the verbal and written contracts you engage in every day. As a human, you absorb an input, typically as an income and you produce an output, typically as you spend, save, and are taxed.

You exert influence on genome connections in three ways. 1) You exert influence based on how much you believe in the system and how obedient you are. 2) Your influence is usually greater as your income increases. In almost all cultures, the rich are able to control more connections and exert influence on genome connections that increase their control.  3) The genome can exert influence on you through your output. Governments can tax you and companies can increase prices. Your ability to manage your consent, input, and output will determine your impact on the genome.

The genome is constantly evolving around you, regardless of how much influence you may have on the genome. No matter how complex it becomes, your understanding of how you influence the genome will help you navigate through it. Despite our knowledge of the system or how powerful some connections become, there are also outside pressures on the genome as well.

There’s an external pressure on the genome, that has nothing to do with your participation, understanding, or obedience. It is time.  Time is the greatest pressure on the genome. It can be a negative or a positive force. The longer you remain ignorant of your presence in the genome, the more negative the force is perceived—like pressure building as you go deeper underwater. For those of us that become aware of the genome early, the positive force is like the wind in your sails pushing your boat effortlessly. Remember, time exerts its pressure on the genome no matter what you do.

The biggest secret of the genome is…the entire system can be altered, changed, and modified if enough connections (people in this case) make it so; however, the system has been carefully crafted to prevent that from happening. There is a surface layer that most of us know about—and accept and are obedient to. An example of a simple connection, in which we’ve accepted and are obedient to, is the 40-hour American work week. Back in the late 1800s, the 40-hour work week was actually an improvement on the average 100-hour work week that some industry workers experienced[2]. The 40-hour work week isn’t common among all countries and neither is the Monday through Friday work week. We’ve accepted the 40-hour work week and the 5:2 work-to-rest ratio. Financially independent people don’t have a 40-hour work week. They may have more or they may be completely free.  There are many more examples deeper into the genome. There are some we can modify ourselves, and some that require an entire culture to change. This is why it’s so important to explore the Financial Genome. Come with me.