Category Archives: money

how to ride a hot streak into the ground

A few years ago I went on a cruise to the islands with my wife, Bubelah. We decided to stop in the casino briefly one evening, even though neither of us are gamblers - I generally find it boring and she generally doesn’t understand it. It was ‘formal night’ on the cruise, which for you non-cruisers means tuxedos for the men and evening gowns for the ladies. So we swept into the casino looking every bit the James Bond - Bond Girl bit, right down to the dirty martini I ordered (shaken, not stirred, which is genuinely better). I know the rules of blackjack (not how to win, though) but Bubelah didn’t so we decided to play roulette instead. We put down $20, and through a few lucky spins we built up to $400. Not wanting to miss the reception, or push our luck, we kindly cashed out and happily decided that at least we had defrayed the cost of the cruise a bit.

On our next cruise, we decided to try our luck again, but there was no formal dinner to attend on the particular night we went, so we were in no rush. We spun, we lost. We put down another $20. Ciao, bella. Another. In the end, we had a 100% loss on a $60 investment, versus our original 2000% gain on a $20 investment. The loss happened JUST AS FAST as the gain - 3 spins. That original winning might have gone to $0 on the next spin.

This anecdote, however, is NOT the point of this post. In the mid-90s, I bought a tech stock in my retirement account. This was back in my “mindless” investing days; I saved money, but I did it almost unconsciously, seldom putting much thought into strategy or even rational behavior. So I bought $2000 worth, if I recall, which was the one-year limit on IRAs at the time. I forgot about it.

A couple of years later, it had soared - my money had almost tripled. The stock wasn’t paying a dividend, but I thought I was brilliant. I let it ride. It stayed up. “Excellent work,” I congratulated myself. “You are the next Warren Buffet.” Then it started to slide a bit. Then, as the dot-com bubble burst, it slid a LOT. Finally it was back down to my original purchase price. I said “well, I might as well stick it out now,” thinking that it might someday come back. It didn’t. It stayed stagnant for another couple of years before I sold it, more or less at the purchase price.

Buying a non-dividend paying single stock in an IRA was not a wonderful investing idea. It could have easily appreciated tax-free outside of my retirement account, and I could have used that IRA money with a dividend-producing stock, a mutual fund or any one of a million different things. But I did not. If it had been a dividend-paying stock, I would have at least collected some tax-free dividend income while it languished. But it wasn’t, and I didn’t. And unlike the time I played roulette on the cruise, I didn’t recognize a fantastic streak of good luck for what it was and tell myself “sell this speculation! It doesn’t pay dividends and you never expected in your wildest dreams for it to triple in price - unload it! Lock in the gains!” I missed a chance to invest wisely, and when my first poor decision resulted in a fantastic windfall, I failed to cash it in, making a second poor decision.

In the end, it was a profitable experience, though, because I learned from it. I learned to put a little more thought into an investing strategy, including my idiot-proof stock sell point calculation (more on that in the future, but basically once it goes up 25% or down 15%, start selling some of it). I also learned that sometimes the smartest financial decision, just as in gambling, is to get up and walk away from the table.

(photo by adewale_oshineye )

a money parable that doesn’t make sense

appetizers

The owner of a successful small business in his hometown had two sons. The younger son asked one day if the father could lend (really give) him a substantial amount of money. The father, being the trusting sort, gave him the money without asking why he needed it. The younger son took off for a distant big city where he spent everything and then ran up substantial credit card debt on top of that. The economy in the big city went south and he had trouble paying for his pricey condo in a “hot” neighborhood. Things got so bad that he took a job in a restaurant and started eating food that people left on their plates.

The young man said “My father has so much money, and I’m starving! I’ll go back to him and apologize and even offer to work for him.” So the young man went home. His father was overjoyed to see him. The young man apologized for his wasteful behavior, and asked to be forgiven. He said he wasn’t worthy to be his son anymore.

The father instead took him to a fine men’s store and bought him a new suit. He gave his employees the day off and took his son and his employees to a fine chain restaurant and threw a party, ordering many delicious appetizers.

Now all this time the elder son, who also worked for his father, was attending to business with an important client. He had worked hard all of these years for his father’s business. He had never asked for anything - he had worked hard, lived below his means and saved for the future. When he checked his Blackberry, though, he noticed that everyone took the day off and was partying at the Outback.

He fired off an email on his Blackberry to his assistant asking what the occasion was. “UR bro is back & we R throwing a party :)” replied the assistant.

The elder son was furious. He drove to the Outback but sat outside, sulking. His father came out and begged him to come in. The elder son was in no mood to hear this. He snarled, “I’ve worked for you for years. I’ve never done the least thing to embarrass you. I’ve provided for myself and my family, I’ve grown the business, I’ve never gone into debt - and you never threw a party for me at Red Lobster, let alone the Outback.”

“But my little brother blew through YOUR money, spending it all on strippers and appletinis, and yet you’re throwing a party for him.”

The father considered this, then said “Listen, you have been a good son. When I retire, my business is yours. Everything I own goes to you in my will. But we should be happy. Your brother, who had disappeared, is back. He was lost, but now he is found.”

The end.

My story is (of course) a modernization of the parable of the prodigal son. My question is this: is the father’s debt forgiveness really consistent with what we expect as people who pay attention to personal finance? Isn’t it really unfair to reward the younger son’s debt? He’s not a bad person, maybe, everyone makes mistakes - but isn’t the elder son right to be annoyed? Why didn’t they even see fit to invite him to the party? Or is this the whole point of the idea of recovering from substantial debt - that, in a way, the battle to escape debt is worthy of celebration? I guess maybe it’s also about the fact that your love of family should be greater than your love of money (or hatred of waste), but it’s tough for me to grasp.

Photo Some rights reserved by missmeng

8 ways to obtain passive income

piggy bank

piggy bank

A few years ago when I read Rich Dad, Poor Dad, the concept of passive income lit my brain on fire. I had never thought of the idea of making money for nothing. I assumed that money was achieved only due to the hard-pressed exchange of time for filthy lucre. Kiyosaki, the author of RDPD, assured us that passive income was the key to wealth.

Where is the passive income?

I plunged into research. I identified rental income, investment income and even creating original content as “passive income.” I had visions of checks flowing in, one after the other, landing in a pile on my desk called the PI pile. But after time, I realized that the pursuit of passive income was nearly impossible through these routes. How can you really make passive income? Inquiring minds want to know. These are the top 8 “real” ways to make passive income, but even they have a catch - all but the last one.

  1. Pick up spare change off the ground. You do have to bend over, but you probably do that at work every day, so you’ll at least be getting something out of this transaction.
  2. Marry someone rich. You’ll have to do some work, true, but if you aim high enough we’re talking about a huge return on investment here.
  3. Hook up with someone rich and desperate enough to pay to keep you around - the classic “sugar daddy” scenario. Granted, you may have to do some work here… but I’ve seen this work out where surprisingly little effort is expected in return.
  4. Have someone else do the work for you; a nice trick if you can manage it. Ask your buddy the web designer to create a website for you - for free. Why would he do it? The exposure? The joy of being taken advantage of? Don’t worry - you’re getting passive income!
  5. Win an office lottery pool. OK, you risked a few dollars, but someone else went to the bodega, bought the ticket and checked the results. You didn’t put much sweat into your share of the Mega Millions, did you?
  6. Gamble. There is, of course, a potential downside here. But if sitting around sipping free martinis while playing a game and winning isn’t as close to passive income as possible, I don’t know what is.
  7. Invest in dividend-paying stocks. This point is a cheat. You have to earn the money that you use to buy the stock. On the other hand, everything that happens after you buy it is gravy. That income becomes close to truly passive - so the trick is to use windfalls (an economic stimulus check, for example) to invest in dividend-paying stocks.
  8. Be born rich. Yes, you might have to be nice enough to great-aunt Milfred to avoid getting cut out of your trust fund, but let’s face it: this is as close to passive income as you’ll see in this life.

Don’t think you’ll get rich without working for it. Everything you can generate wealth from takes effort. Writing a book is hard work. Blogging is hard work. Rental income is hard work. It may create a wealthstream for years to come, but that’s what you should be aiming for: wealthstreams, not passive income. Don’t imagine that there’s a magical key to wealth that doesn’t involve either hard ongoing work or a good bit of upfront work.

Photo Some rights reserved by Images_of_Money

Making Ends Meet During Prolonged Unemployment

unemployed

unemployed

The American job market is fairly grim, and one of the hardest aspects of unemployment in the new millennium is the length of time workers are going without a job. According to a recent Labor Department study reported in the New York Times, the average length of unemployment has now surged to approximately 40 weeks. Unfortunately, that amount of time spent pounding the pavement is not only demoralizing, but it’s also extremely tough on a family’s budget. Here are some very important methods for keeping afloat while you work to find your next job:

1. Register for unemployment. There is good news and bad news when it comes to unemployment. Even if you did not immediately file for benefits after you lost your job, that does not necessarily mean it’s too late to take advantage of unemployment. So if you believed that your period of unemployment would be a quick blip rather than a weeks-long (or longer) phase of job-searching, you can still qualify for benefits.

The bad news is that unemployment benefits have fairly low dollar amount caps that differ from state-to-state. The average unemployment check nationwide tops out at $270 per week. So the money you receive from this program can help, but do not expect it to replace your income.

2. Make your budget your new best friend. One silver lining to the big fat hairy storm cloud of unemployment is that it forces you to differentiate between your wants and your needs. While denying yourself retail therapy and dinners out is hardly fun at the time, many families find that Thoreau was absolutely right and living simply is much more satisfying. It also establishes the excellent habit of tracking your spending, which is something that will help you both weather any future financial upsets and keep you on track with all of your money goals.

3. Find alternative ways to make money. Most American attics, basements and garages are full to bursting with items the owners don’t even remember buying. Hold an old-fashioned yard sale (or a virtual one via Craig’s List or Ebay) and sell off that old bread machine, exercise bike and tie rack you only used once each. Don’t worry about seeing your stuff sell for less than you paid for it. It’s still worth more to you in someone else’s hands.

You can also look for small ways you can add to your income while you’re looking for a job in your field. Baby-sitting, dog walking, handyman repairs and house-sitting are all services you could provide that would not take away from your job search. As a bonus, doing this kind of work will also get you out and talking to new people, and networking really is the best way to find a new job.

4. Talk to your creditors. If you simply do not know how you will get all of your bills paid, it’s time to have a chat with your lender. Creditors would prefer to have an open and honest discussion with you about what you can and can’t handle financially than sic a collection agent on you. Even the most monolithic of banks is still made up of people who do not want to see you default, and letting them know that you are struggling will assure them that you are responsible and fully intend to take care of your debts. Simply not paying your bills gives them no such assurance.

Keeping your finances on track after a lay-off is not an easy prospect, but getting through it will give you confidence that you can handle anything life throws at you.

Emily Guy Birken is a freelance writer and stay-at-home-mother in Lafayette, Indiana. Her musings on life and parenting can be found at The SAHMnambulist.

Some rights reserved by jronaldlee

Lessons From an Economic Downturn

bad economy

bad economy

As much as I hate to admit it, I tend to be a head-in-the-sand type when it comes to bad news. I stopped reading the news after I found each day’s trending articles were upsetting me so much that I couldn’t focus on my own work. And although I am the daughter of a financial planner and have had a lifelong interest in money and investment, I have simply stopped paying any attention to the recent stream of bad news about our economy. I don’t feel particularly mature for this attitude, but sticking my fingers in my ears and singing “la la la” seems to be working for me.

And, as it turns out, it’s not entirely a bad idea for the average investor when all the news about finance seems to be negative. I am insulating myself from both panic and panic-driven impulse decisions by ignoring the news. Since investing is a waiting game, it shows good financial sense when you refuse to be swayed by momentary hysteria.

Weathering an economic downturn is not anyone’s idea of fun, but it can help you to become a better investor—and not just because it helps you to determine when to ignore trends and when to jump on them. Here are three more important lessons to take away from the current trouble with the economy:

Lesson 1: Diversify!

A diverse portfolio is a healthy one, and it can be no more apparent than when everyone is experiencing a downturn. If you have a well-diversified investment portfolio, chances are that not everything will be doing poorly all at once, even in a down market. If ever you see that everything you have is going down, then it’s time to spread your eggs out to several different baskets.

Lesson 2: Know your risk tolerance.

There is no such thing as a risk-free investment. (I personally believe that this sentence should be embroidered on pillows and given out to investors—along with “This too shall pass” on the reverse side of the pillow). Thinking that anything is a sure thing is a sure way to delude and disappoint yourself. A better strategy for dealing with the risk inherent in investment is to know yourself and decide how much risk you can tolerate—while recognizing that lower risk equals lower returns.

For the most part, risk-averse investors are currently watching their (slow-growing) investments at least maintain their value, while the riskier investments taken by devil-may-care investors are tanking. If you are feeling heart palpitations over your risky investments because of how poorly they’re currently doing, then you haven’t been true to your risk aversion. Know that nothing is a sure thing and dial back the risky investments a bit.

Lesson 3: Keep some money liquid

Down markets can offer some great bargains on normally high-performing investments. If you keep some of the money you intend to invest easily accessible in a CD or money market account, you can take advantage of these opportunities while many others are running around shouting about the sky falling. Taking advantage of the money to be made during a bear market not only requires a cool head, but also some cold hard cash for investing. Keeping both will set you apart from many others—and help you to maintain your portfolio no matter the vagaries of the market.

Ultimately, it’s important for Americans to recognize that bleak economic news does not signify the end of the world, no matter what the talking heads on television might say.

Emily Guy Birken is a freelance writer and stay-at-home-mother in Lafayette, Indiana. Her musings on life and parenting can be found at The SAHMnambulist.

Photo Some rights reserved by spDuchamp

was it easier to be simple in the past?

70s bike

70s bike

Minimalism and frugality* have been hot topics since the financial crisis of 2008 dropped the US into a deep recession, a shallow recovery and now apparently the beginnings of a second recession. As I’ve read about the minimalist, frugal lifestyle and thought about my own childhood, I’ve wondered about whether the ability to achieve a simpler lifestyle is more influenced by the times in which you live versus your own desires, regardless of the times? In medieval Europe, people lived a simple lifestyle, for example. In the future, I am sure in 2085 there will still be people living in cabins in Montana without Smellovision or AI robots whose lives will still be far less simple than ours because of the advances in technology. And just by the accident of my birth in America, my life was inevitably less simple than someone born in a remote part of Indonesia.

My childhood in the 70s USA was fairly simple. There were no answering machines/iPads/cable TV/DVRs/Starbucks/organic foods/etc. etc. to waste money on even if you had the desire. So all of the posts from people like myself who cut cable television only bring us back to the status of, well, everyone in the world, pre-1980. When Jerry Baldwin, Zev Siegel and Gordon Bowker sold their coffee shops to Howard Schultz and he created what we now know as Starbucks, he didn’t create a new product, but he did create a new way to make people pay for something that used to be, for all intents, almost free (the same thing happened with bottled water). So these types of products - which are now frequently used as examples of things you can quit consuming in order to save money/become more environmentally responsible/etc. - just weren’t on the table 30 years ago. Nobody was making a smart choice in avoiding these items; they just weren’t available. People didn’t use credit cards widely or get deeply in consumer debt because credit cards weren’t easy to obtain and once you did, few stores accepted them. The only ones that did so widely were gas stations.

My dad was in graduate school until I was 10, and my mom didn’t work. They had limited money and therefore did many frugal things: lots of vegetable gardening, only one car, simple clothes and so on. Some of that was rooted in my parents’ moderately hippie-ish lifestyle choices, and some of it was based on lessons passed down to them from their Depression-era parents, but part of it was simply the way things were – you couldn’t buy a bottle of spring water or diet Coke. You couldn’t waste money on cell phones. You didn’t need to buy organic meats because feeding animals with corn, which then requires they be pumped full of antibiotics, was not a widespread practice.

So I’ve argued with my parents and other people from earlier generations that their simplicity, frugality and more natural/organic lifestyles were often the product of the era in which they lived. Our choices are both more complex and more difficult, particularly concerning food and debt. I am glad we have some of these choices, of course - I love the internet and technology and some (but not all) of the food choices we have today that were either prohibitively expensive or simply unavailable 50 years ago. But the challenge to be simple or to live a natural lifestyle is much greater today, and finding the balance requires more knowledge and a more critical attitude (maybe even paranoia) than it did in the past.

*I know minimalism and frugality and simplicity are not all the same thing, and I often use the terms interchangeably, but let’s assume for the sake of this post that we’re talking about some vauge point in the overlapping part of a Venn diagram of the three. I’ll use the term “simple” or “simplicity” to cover all three.

Photo Some rights reserved by NJ..

How to Determine Needs vs. Wants

One of the biggest things you should do as an adult is to learn to distinguish between your needs and your wants. A mark of childhood is the inability to do just this. Most children don’t understand that there is even a difference between what they need and what they want, which is why grocery-store-fits over candy bars are so common in the under-five crowd.

Learning to determine needs vs. wants is a mark of maturity, but it’s unfortunately one mark of maturity that many adults haven’t learned to grasp yet. This is evidenced by the fact that so many people are living well beyond their means, racking up credit card debt to unbelievable levels in order to keep up with the Joneses.

If you’re struggling to rein in your spending – or if you just want to live a more fulfilled life – one of the first things to do is to learn to separate what you really need from what you just want. Here are a few ways that you can do that:

Understand What Makes People Happy

Lately, lots of psychologists and sociologists have been studying what it is that really makes people happy. Sometimes, there really is a link between money and happiness, but that link, it seems, only goes so far.

According to a study published in the Proceedings of the National Academy of Sciences, money can actually “buy” happiness on some level. This study found that people were increasingly happy as they made more money, but the happiness leveled out after they hit an annual income of $75,000.

Why is this? Researchers think it’s mainly because at an income of around $75,000, people can take care of their basic needs and fulfill many of their wants. Beyond this, though, the income just buys extra stuff that isn’t really necessary to basic existence or happiness. So, it’s a good idea to get your finances under control so that you don’t have to constantly stress about things like bills, mortgage payments, and retirement, but you don’t need to constantly be striving to make a six figure income, either.

Another study published at the meeting for the Society of Personality and Social Psychology showed that experiences, rather than things, are what make people really happy. In this study, people who spent money on new items they didn’t really need were apt to have buyers’ regret within a few weeks or months. Those who spent money on new experiences like a vacation, though, were more likely to look back on their purchases with satisfaction and to experience more happiness!

Truly Think About Your Purchases

Understanding what makes people in general happy can help you understand a little more about yourself. When you can pay for your basic needs, you’re more likely to be happy because you’ll have less stress in your life. However, it might take some time to learn to separate what you need from what you only want, and then it might take even more time to learn to prioritize your “wants” so that you can spend first on things you want most.

The first step to determining your needs is to write down the things you think you truly need, and then to mull over that list. What would happen if one of those things was missing from your life? Would you actually die or at least experience a lot of hardship? This list will actually look different for different people.

For instance, for some people, having a personal car truly is a need. In the Midwest, for instance, most cities are so spread out that you can’t walk or bike to work, and without a car, you might not be able to hold down a job. In other areas, though, where walking and biking are easier to do, you can more easily live without a car – even though it might be a little inconvenient.

Once you’ve got your list of needs down, it’s time to figure out what you want most so you can spend your discretionary funds wisely, and only after, of course, you’ve taken care of paying for what you need.

Think about some things you’ve been wanting to purchase in the near future. Think about how much use you would get out of these things and how they would add to your life. If you find that they would add a great deal to your life and that you would use them often, put them at the top of the list. You might be surprised at the things you end up crossing off of your “wants” list altogether when you really think about them and find that they would probably end up in a garage sale in two years!

One final technique for determining whether or not you really want something is to delay your purchase of it. Next time you’re in a store and see something you want, tell yourself you’ll go back and buy it in a week. If you still really want it in a week, go for it. Most things you want, though, will fall out of mind within a few days, and you won’t end up spending money on them!

Determining needs vs. wants is an essential skill for adulthood that you should start working on today. Whenever you have doubts about whether you need or merely want something, just think about what your life would be like without it. If you could survive – even with a bit of inconvenience – then the item is just a “want,” and you might be happier in the long run if you don’t spend money on it.

The author of the article, Daniela, blogs at Credit Donkey.

updating my financial goals, July 2008

Back in December, while participating in the Carnival of Financial Goals started by Patrick of CashMoneyLife.com, I gave my 2008 financial resolution. I’m pretty happy about where I’m at with it now.


Creative Commons License photo credit: Tigr

Here was my resolution and how I intended to accomplish it:
I will average $1000 per month in alternative income in 2008.

More specifically, these were the SMART measurements I came up with to measure this.

  • Specific - I’m going to expand my alternative income through this blog, through writing freelance articles, through my investments (although those will be reinvested) and through my other blogs.
  • Measurable - In December I will look back, take the total of my non-wage income for 2008, and divide by 12. That number will be higher than $1000.
  • Actionable - I’m already started on this goal - this blog is earning nearly $0.03 per day, I have some dividend-and-interest-producing investments, and I have started submitting a few freelance articles here and there. I just need to increase the intensity of all of these actions!
  • Realistic - If you’ve read this blog for a while you know I believe that just setting a goal down to (figurative) paper means that you can achieve it, but even without that belief I’m sure that if I work hard enough at 10 different income streams I can manage to generate that much, or more, if I make it a resolution.
  • Timely - I will have a good idea if I’m headed in the right direction by February 1, but even if I earn $10 in January it just means I have to average $1090 for the next 11 months. I’ll have a moving target each month, and I’ll know on December 31 if I hit my goal or not.

I followed it up a couple of months later, pointing out that I had come up far short of that goal. I interviewed myself (yes, I actually did - it’s a slightly disturbing one-person two-sided conversation). At that point, I had made far, far less than my original goal.

Well, as Jack Nicholson said in Wolf, “The worm has turned and it is now packing an Uzi, Mary.” I spent some time focusing on this goal and a surprising thing has happened. I am now close to halfway to my goal of earning $1000 a month on average. Considering how badly I did for the first month of the year you can imagine that things have really started picking up. I’m not even counting dividend or investment income at this point.

So how did this happen? I’ll attribute it to three specific actions:

  • My network, The Money Writers, has provided some help with obtaining revenue (namely advertisers) but far more importantly they’ve helped with ideas, tips and support. This is a perfect example of the mastermind concept in action. I wouldn’t be where I am without these guys (and gals).
  • I reengineered the blog and its advertising. Instead of my previous throw-everything-at-the-wall approach, I stuck to about four categories of ads and studied what worked. I tried to eliminate some of my in-your-face ads but put more ads on older posts. I deemphasized or removed ads that didn’t work, rather than hoping they would generate trickles of income; the purpose was to keep the overall experience of reading fun.
  • And I am sure this final point appeals to half of you and disgusts the other half, but I really concentrated on attracting success; not just for this alternative income but in my overall financial life. I decided that from being positive and writing more about what I feel needs to be said - from my gut - success would follow. I hope it has, in the sense that I hope what you read continues to deliver more value to you (in terms of ideas and maybe even just some fun reading it) than it takes from you (in terms of time). Only you would know that! Otherwise, you’d go read CNN Money.

So I’m halfway there, after an awfully slow start. Later in the year I’ll also pull in other alternative income: totally independent (rather than contracting) consulting in a slightly different field, my work-in-progress book, dividends, referral fees that I mentioned before (I have “headhunted” some former colleagues into positions this year - one 60-minute phone call netted me a $2000 fee for one of them, for example). I have a lot of plans, and the only constraint I have is time. Scratch that… I watched 45 minutes of Star Wars II: Attack of The Clowns, er, Clones last night, so I have time. The only constraint I have is myself, and I’m working hard on not constraining myself in anything!

And to quote again from my interview article update: “Well, the playoffs WERE good. 17-14, baby.” Anything is possible, even beating “The Greatest Team in History.” Nothing is impossible. Nothing.

David Tyree New York Giants Super Bowl XLII

follow the white rabbit to financial freedom

Trinity: Please just listen. I know why you’re here. I know what you’ve been doing… why you hardly sleep, why you live alone, and why night after night, you sit by your computer. You’re looking for him. I know because I was once looking for the same thing. And when I found him, he told me I wasn’t really looking for him. I was looking for an answer. It’s the question that drives us. It’s the question that brought you here. You know the question, reader, just as I did.

What is the secret to financial freedom?

If you are deeply in debt, or spending more than you earn to acquire stuff, you are living in a world that is less than what it could be. Corporations and consumer society have constructed an elaborate world that is filled with shiny things and toys and useless items. In this false world, you are told that true happiness comes with the acquisition of things, that your attention should be focused on today, that tomorrow will take care of itself. In this Matrix, it’s always Black Friday and it’s always the Presidents’ Day Sale.

Morpheus: What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad.

But just maybe, while making a call on your iPhone, driving your leased car wearing your latest fall fashions on your way to the mall on your one day off from your crushing commute and your boring job, you had a sudden thought. Maybe the world isn’t supposed to be like this. Maybe we weren’t all meant to be shopping units in the corporate world’s vast consumer Matrix. Maybe our happiness doesn’t come from owning CDs, or watching American Idol, or buying a Wii. Maybe there is another world - the real world - where your work and your life are one and the same because you love them both, where you can do what you want, when you want, where you have time to give to people and experiences, not just to commuting and working for a faceless employer. No, it’s not possible. Your neighbors look like they are doing fine, and they have lots of stuff, right? This is how it has to be. This is how it has always been.

Morpheus: I’m trying to free your mind. But I can only show you the door. You’re the one that has to walk through it. There is a difference between knowing the path and walking the path.

Maybe you’ve started reading Rich Dad, Poor Dad or Dave Ramsey or Your Money or Your Life. Other people are trying to show you the way out. The trouble is, you set down the book and remember “I need a new belt! I want to rent “Wild Hogs”!” Only you will start the journey out of the Matrix, and it will be difficult - there will be roadblocks everywhere: pricey restaurants, bigger homes, newer cars, fancier cell phones. The Matrix will do everything it can to keep you, because its existence depends on your continued function as a shopping unit. Without shopping units to generate power, the consumer Matrix will weaken. You have to stop, today. Put down your credit card. Stay away from the store. Cook a meal at home. Turn off the TV.

Neo: Why do my eyes hurt?
Morpheus: You’ve never used them before.


When you finally leave the consumer world, you’ll notice that your old behavior is now awful to consider. You’ll see credit card debt, still-functioning cell phones gathering dust in cabinet drawers, barely-worn clothes in the back of the closet, half-empty rooms never used in your house. Your eyes will hurt looking at all of this STUFF that you valued so much, because you never really SAW before.

Morpheus: Have you ever had a dream, Neo, that you were so sure was real? What if you were unable to wake from that dream? How would you know the difference between the dream world and the real world?

The dream is the 9-to-5 world. The dream is a 3000 square foot home for a family of 4. The dream is a $400 per month car lease. The dream is an iPhone, a Wii, digital cable, the latest fashions. And the dream is a nightmare. You have to wake from that dream and realize that in the real world there is VERY little you need other than shelter, food, friends, family and basic clothing and entertainment. In the dream you have no time - but you can have all the time in the (real) world if you just wake up.

Neo: I know you’re out there. I can feel you now. I know that you’re afraid… afraid of us. You’re afraid of change. I don’t know the future. I didn’t come here to tell you how this is going to end. I came here to tell how it’s going to begin. I’m going to hang up this phone, and then show these people what you don’t want them to see. I’m going to show them a world without you. A world without rules or controls, borders or boundaries. A world where anything is possible. Where we go from there is a choice I leave to you.

(with many thanks to The Matrix)

emotional finance

The following post originally appeared as a guest post on Mrs. Micah: Finance for a Freelance Life waaay back in 2007.

How can emotions help (or hurt) your finances? Take a simple example: let’s assume there are two kinds of moods, good and bad, and two kinds of financial situations, good and bad. Remember: simplistic. If you are in a good mood but a bad financial situation, you are probably doing OK. You can see the problems with your finances and a way out of them. If you are in a bad mood but your finances are good, you can afford to just back off and wait for a while. But if your mood is bad and your finances are bad, you will likely have trouble improving things; and if your mood is good and your finances are good you are set, although you do have to watch for overconfidence.

Do not discount emotional health and stability when considering finances. Making decisions out of despair or ridiculous enthusiasm can be just as bad as making ill-informed decisions. If you don’t think that’s true, you haven’t followed the real estate market recently; many otherwise intelligent people were caught up in a euphoric belief that the real estate bubble would expand forever, despite signs that it was simply a repeat of the real estate boom of the 80s.

For years, I allowed emotions to control my finances.I let good moods and good money relax me. When I had money, and felt good, I would spend it. I might invest in a crazy dot com, or buy a new TV. When times were bad I would sulk and sit on cash instead of promptly paying off bills or moving my money to high-yield savings accounts. I let my mood determine how I spent my money. In my case, I let my mood make my money decisions, and engaged in a terrible form of emotional market timing; I tried to be frugal when frugality wasn’t called for and I spent when I should have saved. If you find yourself allowing yourself pity purchases or hoarding money in fear, there are a few steps you need to take to get out of that rut.

  1. If you need help, get help. I have always been at the mild end of mood swings. I never took medication or counseling, but if I needed it, I would. If you don’t feel in control of your moods, or you can’t recognize them as temporary moods, seek help.
  2. Take some of the ‘free will’ out of your money. I am sure you’ve heard ‘pay yourself first,’ but it’s critically important if you have moody financial tendencies. Make your savings automatic, or your debt repayment plan automatic.Don’t count on yourself to show the same peppy enthusiasm for paying off your debt next month that you do this month. Make sure that money is gone to repay debt or straight into your retirement account, before you even touch it.
  3. Don’t spend on highs or lows. If you are feeling down, stay away from the store or the online shopping or whatever tempts you.If you are feeling too high, do the same.Make sure that you don’t put yourself in positions where you feel that buying that CD is going to lift your spirits, or that you need to buy those shoes because everything’s going so well.Impulse spending will almost always cause regret.
  4. Talk about it. I have made the mistake repeatedly in my life of assuming that my moods were some inner battle that I had to suppress.They aren’t.They are a normal part of life, and it’s easier if you tell people that you aren’t in a good mood when you aren’t.Friends, family and coworkers understand; none of them are Vulcans, and they can all understand that some days you don’t need to be pestered to go out to dinner, for example.
  5. Learn ways to reward yourself without spending money. If you need to spend to reward yourself - to lift yourself out of a trough or ride a great mood - you will always be in trouble.Learn to lift lows with exercise, or enjoy highs by cooking or spending time with loved ones.
  6. Change your mood. There is only one thing in this universe that you control.You don’t control your own body (it can get ill without your permission) or other people or time or your future.You can only control one thing:your own mind.The next time you feel down, tell yourself you are going to acknowledge the mood but you’re not going to let it make you irrational about money.Your mood and your actions are two separate things.So take it from someone who goes by the nickname brip blap ; you can keep your moods from controlling your personal finance situation!
  7. For those who are in control of their finances, still there are legitimate concerns - for instance the security of our home and family. If finances are tight, consider searching the web for one of the many inexpensive cctv camera systems. With a system such as this, you’re able to both locally and remotely keep tabs on your home and its occupants! Check out some of the economical cctv cameras available at this site for more information.

is college worth it? (part 1)

guinea pig reading a book

Based on a few recent comments on some of my articles about careers (this one, for example), I started wondering about the difference in wealth between college graduates and skilled non-college graduates. A college graduate can usually expect to go into the professional world as a “white-collar” worker, earning substantially more than his non-college graduate peers. However, the college graduate - unless he is very athletically or academically gifted - will probably come out of college with at least some student loan debt. He will probably start earning money several years (4 or more) later than a non-college graduate.

So I decided to do a comparison of the two career paths, and see what those big choices meant for someone later down the road. Specifically I wondered if I could answer a few questions:

  1. Can the late start in saving by the college graduate be overcome through higher salaries?
  2. Does the lower earning potential of a non-college graduate mean that the non-college graduate will be required to “work until they die”?
  3. Who will be able to quit the rat race first?

I made a lot of assumptions and put together a spreadsheet to try to come up with answers to some of these questions. I’ll cover that in part 2. I ignored a few things - I didn’t worry about inflation, for example, since it would affect them both equally. You could argue this is wrong, because inflation moves at different rates in different parts of the country, commuting costs (gas, etc.) might expose one or the other to more inflationary pressures, etc. I skipped that. I also assume that both are highly disciplined savers, always saving 10% of their income and getting decent returns over time. If, of course, both started saving as soon as they start earning and never reduce that amount, they would be in the .000001% of the US population that does so.

My findings were a surprise and weren’t a surprise to me. The main point of the exercise was for me to challenge my own personal context (a concept Robert Kiyosaki talks about a LOT in his book “Retire Young, Retire Rich“). My context is that smart people go to college and get desk jobs. My context is that wealth is created through earning as much as possible. I am trying to challenge my own prejudices about what “building wealth” and “escaping the rat race” actually mean to me. It’s interesting, because I don’t have much exposure to people who don’t subscribe to the “go to college, earn money” credo; but fortunately I’m learning more about the opposite mindset and it’s interesting for me. It’s too late for me to undo my decision to go to college for 7+ years. There were alternatives - I could’ve started a business and educated myself. It’s not too late for me to learn something new.

Stay tuned!

(photo by GirlReporter)

4 quick steps to building wealth

1. Find something you can do well and (at least moderately) enjoy doing.*
2. Do it.**
3. Try to save some of the money you make doing it.***
4. Repeat steps 2 and 3.****

I think that may be it. What do you think?


Creative Commons License photo credit: woodleywonderworks

* Notice I didn’t use a phrase like “doing passionately” or “doing because you love it.” You don’t have to love it, but you have to enjoy doing it enough that it is not annoying to you. If you love helping people, maybe working as a nurse’s assistant is enjoyable. If you have a passion for music, maybe owning a record store would be fun. If you have a love of football, maybe being a sports writer is enough. You don’t have to be Brett Favre, always “having fun out there.”

**It helps, obviously, if you enjoy investment banking or building fantastic dot-com startups instead of making rag dolls for the neighborhood kids. However, I don’t think you can discount loving doing it. If you want to make rag dolls, figure out a way to get rich doing it. Launch a rag doll company, or write a how-to on the internet. Somebody got rich on Cabbage Patch Kids, after all.

***As I’ve pointed out before several times you’re always better off thinking of more ways to MAKE money than SPEND money. At the same time, UNLESS you are investing in your wealthbuilding (spending money to increase your skills or education or to grow a business, etc.) you’re better off spending no more than 99% of your income. The difference between spending 99% of your income and 101% of your income is the difference between getting richer and getting poorer, any way you look at it.

****I hope that the general theme of wealth and ‘becoming rich’ doesn’t always come off as a crass pursuit of one more dollar. I realize, for example, I might have made a lot more money continuing to claw up the corporate ladder, but I felt so drained and lifeless doing it that I had to quit (see step #1). I like the idea of doing something more-or-less enjoyable, while making money doing it. It may sound childish, but if you work hard at something that makes you miserable you have to wonder whether you’ll be able to continue doing it well enough to succeed. Something you like doing - even something you just TOLERATE doing - is a better option. If you become wealthy doing it, so much the better; life is easier when you have a little money in the bank.

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