Thursday, November 23, 2006

Be Thankful.

This week, make sure you take stock of your life--financial and otherwise, and give thanks to Whom thanks is due. For me, I thanked the Lord this week for getting my Dad safely out of the hospital this week and for getting the whole family together for a nice Thanksgiving.

Also, take a moment to slide over to visit my boys at http://www.brilliantbrown.com . They're trying to build their site traffic up just like I am, and I know how hard it is to get people to read stuff you write!

For you lurkers out there, if you find anything on this site informative, I'd be quite thankful if you were to do a link exchange with this site. use the comments section below.

Oh yes--it's at this point of the non-article I'm writing to let you know there is obviously no focused topic this week. Take the time to reflect on your accomplishments and blessings and continue to strive for many more. Eat to your fill, and relax.

Then, if you go to the Black Friday sales, by all means keep your head on straight and not forget about all the things you prayed/reflected on this week. Be courteous, and spend wisely!

See you next week.

Wednesday, November 15, 2006

How to Really Do It

A SIMPLE, ACTIVE APPROACH GENERALLY WORKS BEST. HERE’S HOW.

If you’re going to invest money, it’s best to make sure you have the money to do so. I spent the past week or so tweaking my Excel skills in developing a user-friendly, active system to help manage money. (It'll be done next time). There are many ways to do this, and you may determine that the best way to manage your money is to find a tracking system that works for you. However, it is very important that you track it.


Step 1: Train Your Behavior
Some people think that the best way to track your money is using a passive system, like letting the bank do it. (Which means all you do is go online and “check your bank account.” This is definitely not the best way to go about things if you (1) are planning to Run a Business One Day, or (2) if you care at all about keeping an eye on where your money goes. Think about this: Let’s say you had a bank account and everyday I would slip in and take away one buck. How long would it take you to realize that I’m slowly ripping you off? Hopefully not long, but because of “bigness bias” when people have “a lot” of money in their account, they tend to pay little attention to how small fees and expenditures eat into their accounts. Thus, if you make $1000/month, you may not bother canceling that $20-a-month subscription to Columbia House or Netflix that you’re not bothering to stop subscription or the Vibe/Time/Robb Report magazines you’re not reading.

Although most people will “wait until they get a real job/more money” to start managing their money, it really is a great idea to at least take a crack at it now. Remember, all more money will do is further enable the same money habits you have now. What could that mean for you?


Step 2: Determine Income-Outgo from last month.
This is fairly easy if you have a bank statement. Simply determine you income and outgo from last month and look for a net increase or decrease. It doesn’t matter if there was an “irregular expense” from the previous month. There will always be irregular expenses, as we will talk about in the next step. If you can determine spending by category, then you’re in very good shape. If you really can’t, then next month will be the time to do it.


Step 3: Determine Your Future Income-Outgo Money Flow from the past.
Monitoring your spending by using a simple spreadsheet program to track future expenses is the key step. (Pencil and paper work well too.) This is where we separate those who have the discipline to empower themselves versus those who will simply drag along in hopes of “outearning” the need to develop a written spending plan. Writing it down forces you consciously track how you spend as you go along instead of simply checking how you spent your money.

It would make little sense to try to use Mapquest only after you’ve gotten on the road just to “check where you’ve driven so far.” Maps are used to plan your route to your destination, and it complements your own common sense to find your destination safely and in good time.


Planning your spending ahead of time is about as easy as using a (good) roadmap. Most track month-to-month, and some track it monthly, but at the weekly level. There are many expenses that are somewhat fixed (rent, cable, etc) and some that are variable and usage-based (food, cell phone, some utilities, fuel, etc.) These recurring expenses can be tracked and you will know about them before they come up.


Most budgeting systems like Intuit’s Quicken and Microsoft’s Money are good at keeping track of where you’ve been, but to see where you’re going depends on you. You have to track for yourself money you haven’t spent yet because, well, you haven’t spent it yet. Microsoft may be good, but they’re not that good yet. Start with a simple spreadsheet to track your expenses. For those of you who are just “too busy” managing other people’s money to worry about your own, it would be in your interest to make time for yourself. I will end with a couple spreadsheets on that Financial Underground known as the internet where you can get some easy-to-use budgeting tools free-of-charge.


Thanks for reading. Have an excellent Thanksgiving.



Some of the best of the web (more to be added later):

From the It's Your Money blog site.
http://www.mdmproofing.com/iym/files/spendplan.zip


Thursday, November 02, 2006

Life's Terrible...Uh, Right?

Because that's what I heard on TV!

Nevada and Colorado are considering legalizing small amounts (up to 1 oz.) of pot. Arizona is considering a ballot initiative giving $1 million dollars to a lucky voter. Michigan voters are considering eliminating Affirmative Action in public institutions. Yes, this off-year election season is very interesting. (Let me cue up some evil election ad music…You can’t hear it of course, but work with me here.)

Both Democrats and Republicans want you to think that this is The Most Important Election of Our Lifetime, because if Democrats win the terrorists will detonate a bomb in Your City later in the week, and if the Republicans win then citizens will be out on the streets standing in bread lines because of lower pay and no minimum wage increases.

People are running out of money. They cannot pay their bills. People aren’t saving like they used to. Things must change. You must vote.

The recurring theme is the same as it is every even-numbered year: Life is more terrible than ever. (hear the eerie music?) buh-buh-buuuuuh!) Yeah.

But is it really?

I took a look at this Forbes article on how the Average American is doing today compared to the middle of America’s Golden Age 1965. (By the way, have you ever met the Average American? Where does this guy live?) Here are some of the stats the article highlighted:

48% of Americans believe they're worse off than their parents were.

Troubling…but vague. However…

Mr. and Mrs. Median's $46,326 in annual income is 32% more than their mid-'60s counterparts, even when adjusted for inflation, and 13% more than those at the median in the economic boom year of 1985. And thanks to ballooning real estate values, average household net worth has increased even faster. The typical American household has a net worth of $465,970, up 83% from 1965, 60% from 1985 and 35% from 1995.

The article goes on to say that people may be dissatisfied because of what Milton Friedman calls Permanent Income Theory (PIT). Be warned—the preceding link will take you to Wikipedia page on boring economic theory. For those who don’t salivate at reading ramblings that use terms like “propensity to consume,” I’ll save you a bit of time. In simple terms the PIT means people measure their “better/worse off” assertions based on how they were doing a couple years ago (not a couple decades). They couple that idea with the future money they’re “going to make” with little consideration to how the cost of living will increase as well. Thus, if you expect to have 5% pay increases over the next 3 years and you only receive on average 3.5% increases, you’ll tend to be unhappy (even though you would have more spending power than you did before).

In addition, people compare how they’re doing to their rich neighbors and famous people—which is a poor marker. We always advise against comparing yourself to the Joneses. Seek to make enough money to pursue your dreams and to help you to achieve financial independence, and do not look for acceptance among your neighbors or what you see on TV. Who knows, they may be trying to impress you. Contrary to popular belief, most people are doing OK. For you mutual fund owners out there, if you’ve diversified well and solidified in index funds, you may realize that long-term, you’re doing pretty good.

Finally a word on this permanent income thing: one thing people do (without thinking properly) is that they will make more money in the future and they bank their current purchases off of future income. The trouble arises when that doesn’t happen. It’s like when people accept one of those dog-awful Interest-Only or Adjustable-Rate mortgages, fooling themselves into thinking that (a) they will invest the extra money they have to work with or (b) their adjustable-rate mortgage will adjust down. Remember, very few companies set an interest rate and then say “You know what? Let me adjust your rate down for you so I can collect less money… Cause I just love making less profit!”

Life hardly ever plays out like we expect it to. People have kids. People buy 40-inch flat screen TVs and new cars. People get hurt and sometimes have health issues they never saw coming before. So make responsible decisions and don’t listen to the negative hype machines out there. Oh yeah…go vote too…I guess. See you next week.