Seizing your Agency

Normally, I would be having a panic attack
in this situation.

I, like most of you, sometimes find myself in situations where I am completely saturated in frustration.  You know those times I'm talking about when you want to just scream at the top of your lungs or punch a pillow. A blog on maximizing your potential wouldn't be complete unless it dealt with the common sources of stress and frustration.  Over the last few days, I took some time to think about what exactly bothers me.  Here is what I determined.

There are a few situations where I am completely stressed out and they usually are the following; knowing I will not make an event no matter how fast I try, being stuck in a situation where I will not get fed for hours, being stuck in traffic, stuck in plane turbulence, etc...  Notice a theme in my examples...no...me neither at first.  Like most people, these events I have listed are not necessarily pleasant experiences, but knowing how to deal with them in a positive light can be a life changing experience.  Alright, so what do these events all have in common?  They are all situations in which I no longer have control over my future.  This type of event is described by philosophers and sociologists as "losing your agency".

We are all used to the modern definitions of agency that usually involves some sort of business context, however in the sociology perspective, agency is the ability to act out one's will.  In the above examples, my will was to get where I had to go on time, or travel safely.  In all those situations, I lost all control over my fate as I was relinquished to the sidelines of serendipity by traffic or a pilot.

As human beings, having control over one's free will is absolutely necessary to live a fulfilling life.  Wars have been fought for such reasons, and to find yourself in a situation where you have to relinquish all control is downright scary.  You are now trusting in the skills of that pilot or the collective mind of all the drivers in traffic.  Unfortunately, these are all situations in which you will find yourself in more than once for the rest of your life.

So what are we going to do about this?  Well, I'm not about to tell you that you have to find a way to be in control of the situation, because that's not going to work.  You won't find a way to be in control of the plane or make traffic flow faster.  Instead, be in control of your thoughts.  This isn't some wish-washy solution, but hear me out.  The times you find yourself out of control of your own life's destiny is the perfect time to think introspectively.  You have now been given the opportunity to forget about all the junk happening around you and instead focus on where you are going in life, what great new ideas you have to offer, forming life changing thoughts, or even just finding the time to think about nothing.

I debated whether to include this section into my "Modern Day Muses" category, however I think there is more to this than just finding inspiration.  This concept is about accepting your lack of control in these certain situations and learning to adapt.  Believe me, this is not as easy as it sounds, as I also find myself relapsing into deep frustration.  Take a deep breath and instead think about the next steps you will take towards maximizing all that you have to offer.

Wonderful Moment of the Day: Zip-lining 50 feet above the ground from tree to tree with my Wife.

Shaving on the Cheap with Dollar Shave Club

I hate paying more money than I have to, and this goes doubly so for products I feel I must purchase and have no choice on the cost.  Specifically, I'm referring to the obscene markups in male shavers and shaving products.  A quick search on Amazon brings up the following prices: $18.49 for 8 mach 3 razors (or $2.31/blade).  This also doesn't include the cost of shipping, or the handle that comes with it.  I picked the Mach 3, because I think it's a pretty standard shaver that everyone is familiar with.  If you are gifted with a perpetual 5 o'clock shadow such as myself, you can understand how I go through one of these blades a week.  Over the course of a year, my razor expense is about $600/year.  There has to be a better way.

Along came Dollar Shave Club with their cheeky Youtube video and business model.  I thought to myself that this was definitely something worth the effort.  On their website, you are presented with 3 blade options; the humble twin (a simple twin bladed shaver), the 4x, and the Executive which is a whopping 6 bladed razor.  How the program works is determined by which blade you decide.  If you want to go with the simple twin, you pay $1 per month which is automatically charged the same day each month to your credit card, and receive a handle along with 5 blades.  You heard me right, $1 per month which includes shipping and handling!  At the time when I ordered from Dollar Shave Club, the simple twin was out of stock (something to do about communist dolphins hijacking their shipment) however, I decided to splurge a little and purchase the 4X.  I was not disappointed. The 4X came in a little paper envelope along with 4 blades and some merchandise advertising.  You can see the layout in the image below.

My Dollar Shave Club Package

The price came out to $6 per month which translates to $72/year, a net saving of $528 for me.  If you decide to go up to the Executive, you will only receive 3 blades per month at a cost of $9, but you are buying a 6 bladed razor!

Dollar Shave Club's business model is sound: provide simple cheap razors with good quality and people will buy them.  They also have a funny marketing department and seem to have a generally happy time in their jobs.  There is no locking in contracts, and you can cancel, upgrade, or downgrade your razor at any time.  They even have a pretty sweet referral process.  If you refer someone as a customer, you get a free month of shaving.  Do this enough, and you'll never have to pay for razors again.  That said, if you feel that my blog has been helpful to you at all and want to contribute in some small way, purchasing your razors at Dollar Shave Club through this link will help me greatly!

Oh, I forgot to mention that the actual shaving experience was a delight as well.  Women, be warned though.  My wife tried out one of the 4X blades and did not enjoy the experience...if only Dollar Shave Club offered a female version!

Take advantage of all the consumer opportunities available to you today and never pay for razors more than you need to again!

Wonderful Moment of the Day - Playing with my kitties!

How can a Factory Worker Earn More than a Doctor?

With all the talk about the college tuition bubble in the United States (link for further information), I started to   think whether it financially makes sense to compare 1 highly educated field of profession to that of something considered less skilled.  For this thought experiment, let us compare the first 10 years of post high school income potential for two very different people.  Raul just graduated from high school and is dutifully anxious to start his studies at Pre-Med U.  From there, he hopes to go on to medical school, attend a residency program, and start earning the big bucks.  John on the other hand has a different route in mind.  He has decided to work at his local ACME plant as a fork lift driver.  Let's compare their income over the course of 10 years and see who is better off.

First, we start with John since the math is a little easier.  John starts his job at ACME right after high school making $30,000/year.  This may be a little high, but we'll just assume he managed to acquire some overtime as well.  Now assuming a 3% cost of living adjustment each year for inflation (i.e. in year 2 John will be making 30,000 x 1.03 = 30,900, etc.), John will have cumulatively earned $343,916.  Seems pretty good.  This is also assuming John doesn't live below his means and invests for his future.  

Let's look at Raul now.  Right out of high school, Raul gets accepted into Pre-Med University where he pays a yearly tuition (we'll assume it's all inclusive at this point and nets out whatever summer job income Raul might acquire) of $20,000/year with a 3% COL adjustment.  Total debt over those 4 years equals $83,673. Now Raul gets accepted into medical school and starts with a tuition of $22,510 and over the course of 4 more years, acquires another $94,174 in debt.  Total debt before Raul even enters the workforce is now $177,847.  Economist have a little trick they like to add to this debt number which is the opportunity cost if he had instead became a factory worker and made $30,000/year.  Adding in the opportunity cost over that 8 year span to Raul's hefty debt load means that the true cost for all that education now equals $444,617.

So far, it doesn't look too good for Raul.  After 8 years of schooling, Raul now gets to earn some money via a residency program where he starts off making $45,500.  After 2 years of this work, we will have reached the 10 year mark since graduating high school.  Let's take stock of what we have thus far.  John has made $343,916, whereas Raul is in the negative by $352,252 meaning John made $696,168 more than Raul in the past decade.

In fact, becoming a doctor is so brutal, that Raul will not have earned more money than John until year 16 when Raul had been earning $170,000 per year for the last 5 years.  This is also assuming Raul doesn't pursue a specialty and has to spend more time as a fellow making low wages.  In the end, Raul will have made more money than John if they had both worked at least 16 years, however, here's the catch.  If John had been wise and religiously saved as much as possible all the while living very cheaply, he theoretically, could be retired at this point whereas Raul now has to work to pay off all that debt.  

This lifestyle for Raul also takes a dramatic toll on family life.  Potential children and marriage could be pushed off for years until Raul is done with school.  If you plan on having kids in your 20's, then becoming a doctor is probably not the best option for you.

The way life deals out our deck of cards can vary drastically from person to person.  Unfortunately, there's not much we can do about where we start, but we do have choices on how to live our life from that point on.  Being an honorable person, working hard, and practicing sound financial principles will put you on the right path towards a prosperous future.  Besides, who says Raul is living within his means?

Wonderful Moment of the Day - Planning my Great Aunt and Father's birthday parties at my house.

Wisdom of "The Prophet" (Part 2)



The "Prophet" himself, Kahlil Gibran

Alas, the dramatic conclusion to our 2 part series on the writings of Kahlil Gibran and "The Prophet".  We last left off with our discussion on what "work" truly means to each of us.  With that knowledge, or definition, we will have a better idea of what we want to do with our lives.  Digging back into "The Prophet", we start with this quote:

"And what is it to work with love?  It is to weave the cloth with threads drawn from your heart, even as if your beloved were to wear that cloth.  It is to build a house with affection, even as if your beloved were to dwell in that house.  It is to sow seed with tenderness and reap the harvest with joy, even as if your beloved were to eat the fruit.  It is to charge all things you fashion with a breath of your own spirit, And to know that all the blessed dead are standing about you and watching."

This whole passage can be boiled down to the idea of doing your job to the best of your abilities.  I'm reminded of a Martin Luther King Jr. quote that went like this:

"Whatever your life's work is, do it well.  A man should do his job so well that the living, the dead, and the unborn could do it no better."

Both famous thinkers have contemplated the philosophy of labor and believe that if you are to do a job, do it right and to the best of your abilities.  This comes from the concept of honor in the workplace (something we are much in need of in today's world).  If you shovel coal or produce reports, take pride in your work for you have a job and are operating in tune with nature.  Back to "The Prophet",

"Often have I heard you say, as if speaking in sleep, "He who works in marble, and finds the shape of his own soul in the stone, is nobler than he who ploughs the soil.  And he who seizes the rainbow to lay it on a cloth in the likeness of man, is more than he who makes the sandals for our feet."  But I say, not in sleep but in the over-wakefulness of noontide, that the wind speaks not more sweetly to the giant oaks than to the least of all the blades of grass; And he alone is great who turns the voice of the wind into a song made sweeter by his own loving."

Gibran wants us to understand that no job is better than another for all of us are working towards the harmony of the greater good.  And finally, we conclude with:

"Work is love made visible.  And if you cannot work with love but only with distaste, it is better that you should leave your work and sit at the gate of the temple and take alms of those who work with joy.  For if you bake bread with indifference, you bake a bitter bread that feeds but half man's hunger.  And if you grudge the crushing of the grapes, your grudge distills a poison in the wine.  And if you sing though as angels, and love not the singing, you muffle man's ears to the voices of the day and the voices of the night."

Another very important pearl of wisdom - Loving your job will make the fruits of you labor all the more sweet.  So children, take these points of wisdom with you and as "The Prophet" would quip go forth and multiply...also TGIF!

Let me know what your interpretation is of the above.  I love a good discussion.

Wonderful Moment of the Day: Starting to plan for Thanksgiving dinner at my house...let's just say that this is a big deal.

Wisdom of "The Prophet" (Part 1)

I've had a few philosophical books that have guided me throughout my life.  One in particular is that of "The Prophet" by Kahlil Gibran.  The premise behind "The Prophet" is that a messenger from God comes to a small village and preaches on all things about life.  Villagers ask more questions and the Prophet answers them through parables.  Through this "person" Gibran teaches us his own philosophy and wisdom.

One of my favorite such sections is that of work and Labor.  I'll go through and quote Gibran while also giving a little of my wisdom.

"Then a ploughman said, Speak to us of Work.  And he answered, saying: You work that you may keep pace with the earth and the soul of the earth.  For us to be idle is to become stranger unto the seasons, and to step out of life's procession, that marches in majesty and proud submission towards the infinite."

You can almost feel the ploughman's anguish as he asks the profit why he should keep working.  Almost seemingly throwing the question back to the ploughman, the Prophet basically states that without work, we cannot function to our fullest.  For all of you out there seeking early retirement, take note; sitting idle will lead to an early death.  In fact, in this short passage, the Prophet defines retirement as the freedom to pursue one's passion although this still would be considered work.

"When you work, you are a flute through whose heart the whispering of the hours turn to music.  Which of you would be a reed, dumb and silent, when all else sings together in unison?"

Basically, Gibran is asking us where we would fit in if all the world is working in harmony.  Is it me, or does work still sound less interesting.  It almost seems we are still sugar coating something rather dull.  Let's listen a little further:

"Always you have been told that work is a curse and labour a misfortune.  But I say to you that when you work you fulfill a part of earth's furthest dream, assigned to you when that dream was born, And in keeping yourself with labour you are in truth loving life, And to love life through labour is to be intimate with life's inmost secret."

By defining our lives through work, Gibran has described the meaning of life and where we fit in the whole mess.  It would seem impossible to believe that Gibran was not influenced by the Confucius quote "Choose a job you love, and you will never have to work a day in your life".  I actually stumbled upon this concept again in the bookstore.  A 25 year old MBA grad wrote this book about retiring at 22.  Intrigued, I decided to pick it up and scroll through it's pages only to feel fooled in that "retirement" is defined as still working, but working at something you loved.  She essentially had the same 8-5 job as the rest of us, but loved it and therefore it was never really "working".  When did working ever become synonymous with misery?  Gibran continues:

"But if you in your pain call birth an affliction and the support of the flesh a curse written upon your brow, then I answer that naught but the sweat of your brow shall wash away that which is written."

Once again, Gibran speaks as though hard work is a sort of cleansing or baptism in your life.  In a way, I believe this to be true since after a hard day's work, I almost feel as though I were innocent again.

"You have been told also that life is darkness, and in your weariness you echo what was said by the weary.  And I say that life is indeed darkness save when there is urge, And all urge is blind save when there is knowledge, And all knowledge is vain save when there is work, And all work is empty save when there is love; And when you work with love you bind yourself to yourself, and to one another, and to God."

I'll stop there for today's reading, but percolate a little on the above topic.  Gibran is saying that you will have darkness and misery in your life without an urge to carry on.  However, you cannot have a good idea of what your urge is in life without knowledge, and knowledge can only be acquired through hard work.  Work, unfortunately, is empty unless there is love in your life, whether it is love for your work, or love for another.

Later this week, I'll conclude the "work" chapter of "The Prophet", but meditate on this: What exactly is your definition of work?

Wonderful Moment of the Day - Attending a Catholic/Sri Lank-an Wedding.

Make Money Through Your Ideas

Within each of us lies the creative power to change the course of history.  With that in mind, it's important to understand that we as humans need to invent and create in order to reach our true potential.  Our taxonomic name of Homo Sapiens literally means "wise man", and our tool creating abilities have been what literally elevated us to greatness amongst the species.  Throughout history, those people with the greatest ideas have been the victors.  Nations and empires rose and fell on the unique and innovative ideas offered by their people.  Throughout this historical timeline of innovative greatness have been people of great wealth as a result of their ideas.  For that reason, I'm writing today's post.

Innovation in itself can be a daunting task.  Going alone with a good idea from ideation to production can destroy someone financially if they are not careful.  Legal fees, patent fees, design expenses, factory expenses, and more can bankrupt a would-be entrepreneur before they ever see their first dollar.  We can now avoid most of these nerve racking undertakings due to some great websites.

The first I'd like to mention is called Quirky and this is by far the easiest and most fun way of seeing your ideas come to life.  You start out like any site making a login and reading through the general process of how the site works.  Upon clicking on the "participate" section, you'll see a list of ideas that people are submitting and subsequent abilities to vote or comment.  For a nominal fee of $10, you can submit your invention idea in any digital form you like and have the chance for people to comment and make suggestions on the general design.  After you submit a design, your idea is "live" for 30 days in which your goal is to generate as much buzz as possible.  This may include social networking, word of mouth, or other informal forms of advertising. After your 30 days are up, you either stop there and have to decide whether to resubmit or (if you're one of the few lucky ones), your idea will be adopted by quirky and move on to the design, branding, and pricing stages of development.  If your idea then makes it into store, you'll enjoy a nice share of the project throughout the life of the product (around 12%).

I've had my own trials and failures with some previous inventions mentioned here and here.  I did learn a bunch about my potential products' prospects along the way.

Even if your not the inventing type, you can still take a share in the profits by earning "influence".  This concept is acquired through suggestions and voting on improving the overall product.  My experience is that if you get any influence, it will be around 0.001% of the overall product.  Needless to say, those are some slim pickings.

If you decide to buy anything from the site, I humbly request you click my referral link.

Another great opportunity lies with the interesting product site ThinkGeek.  This normally standard online retailer of fun and interesting products has just released their Idea Factory in hopes of cashing in on the ideas of others.  You will need a good idea and a pretty good design to submit anything, but once you do, Think Geek will decide whether to choose your product.  They will then pay you a certain amount for each sale they generate...not too shabby.

These two sites are just some easy ways for anyone to dabble in the inventing trade.  If you decide you actually enjoy the whole process, you could use those profits to invent something new and take it through the traditional method.

Wonderful Moment of the Day: Getting some good constructive criticism on my writing style.

Try Doing Something the Hard Way at Least Once

When I first set out on my own, I hardly had anything (in fact all my possessions fit in my car), and I set off for my career.  While having pretty much nothing, I learned very quickly that I would need to cook for myself in order to save some serious cash.  I opened up a cook book, gathered the necessary ingredients and began  on my quest towards culinary delights.  Shortly after I started, I looked in my cookbook at a request for pressed garlic (or at least minced).  My roommate at the time happened to have a garlic press, but I refused knowing that I needed to at least learn how to mince some garlic.  The resulting flurry of chops and slashes resulted in a slurry of garlic that looked amateur at best.  Either way, I learned how to mince garlic that day and will carry that knowledge with me for the rest of my life.  Going forward, I actually bought my own garlic press.

The point I'm trying to get across to you is that it is important to at least attempt a new task the manual or hard way at least once.  By doing this, you'll develop a fundamental understanding of how things work together and why the quick option is better.  You may learn some other important lessons along the way such as temperance, patience, and a whole bunch of other adjectives ending in "nce".

Once again, I leave you with a rather brief entry for the day, but hey, it's Friday!  Have a great weekend!

Wonderful Moment of the Day - TGIF!

Seven Wastes: Rework

Continuing with our Seven Wastes series, I present to you our next topic, Rework.  As you can probably already guess, rework by definition means doing something over again.  This concept came along with the ideals of factory production, because having to redo a manufactured item is not only expense, but it wastes time and resources.

Imagine if you were a shift supervisor on a factory floor and 1 out of every 10 widgets you produced needed to be remade.  Think of all the wasted material that goes into fixing something that should have been right the first time.  Since you now have workers dedicated to repairing or reworking the products you should have gotten right the first time, you are struggling to balance your shift's quotas and will fall behind this month.

Most of us are not shift supervisors, but we can learn some important lessons while performing our own projects.  Say you are proud of your handiness and have decided to replace your defunct dish washer (on a side tangent, I know that actually having a dishwasher was a huge achievement in my life).  You rush through the installation, don't read the directions, and your dishwasher now has issues and is leaking on the floor.  Because you did such a poor job installing it the first time, you need to buy new connectors and other materials and will need to re-install the whole mechanism again.  How do you think you would feel at that moment?  If you had just put in the time to do it correct the first time, you would have overall saved yourself more time and annoyance.

Examples also occur in the white collar world.  Imagine you are an analyst at a company that depends on your reports for key industry information.  You decide to leave a little earlier or maybe stop working and fly through the most recent batch of reports.  Because of your sloppy work, your boss gets angry with you and makes your reproduce them all over again.  This rework now demands that you stay after work to produce it right.

Often times, it pays to take your time and do good work the first time around.  Not only will you save yourself time, but you will also succeed more throughout your life.

Wonderful Moment of the Day - Finishing another section in my book.

Early Retirement Extreme: Book Review

For awhile now, I've been an avid reader of Jacob Fisker's blog called Early Retirement Extreme  (ERE for   short), and subsequently became enchanted with the idea of reading his book by the same name.  The concept of early retirement is not anything new; in fact people have been living off their savings, the land, or any other "retired" means for as long as humanity, however Fisker is of a new breed of modern pioneers striving to spread the gospel and question the status quo.  

Upon opening up the book, you are immediately prefaced with some caveats on the academic nature of this book.  Make no mistakes, this is no "xx tips to a debt free you", but instead Fisker focuses on the philosophical, theoretical, and mathematical concepts behind seeking early retirement.  Through his visions, he offers a philosophical path to find your own early retirement while also giving some practical insights that question your current level of spending.

The beginning of the book and subsequent first few chapters were rather depressing yet spoke true to the mores and ideals of today's consumer society.  Fisker questions such basic concepts of working a 40 hour work week, buying new appliances, or even the traditional concept of a house.  His goal here is to open your eyes and become what he calls a "Renaissance Man/Woman".  This I thought was a very important concept in that I too am currently striving for this goal, but what does it mean.  He comments on how in today's world, everyone has become so specialized that finding a new career or source of income once you loose your current job often becomes very strenuous.  Imagine a graph with the x-axis being the array of human skills and the y-axis being the depth of knowledge.  Today's modern day experts study one field and so are visualized as a vertical spike on said chart. If technology or society were to change so that the need for knowledge shifts, the expert will find themselves without a beneficial impact to society.  Instead, he suggests that everyone should strive for a breadth of knowledge visualized as a gradual hill along the x-axis (imagine a flat bell curve).  Technology changing or society's views shifting has very little impact to the Renaissance man, and so he can adapt and find future forms of employment.

Fisker doesn't just stop there.  Drawing on concepts derived from such philosophers as Marcus Aurelius's Meditations and Plato's Allegory of the Cave, Fisker finds a way to tie this all together into a completely different frame of mind.  As one gradually reads through his "Manifesto", you will slowly move away from the philosophical and towards the practical.  He questions all things and makes suggestions such as living in a trailer or mobile home (even a boat) instead of a brick and mortar home.  Having a PhD in Theoretical Physics, he can't help himself in touching upon the mathematics of personal finance and investment theory.

I learned much from this book, but I do challenge some of his theories.  One problem he poses is related to the 40 hour work week.  He correctly concludes that the world has become twice as productive as it was in the 1950's, so why don't we work half as much?  I answer this for two reasons; one in relation to competition, and the other for always seeking self-improvement.  First, if you were a company and only let your employees work 20 hours per week, I'll come along and make my folks were 40 and thereby price you out of the market through improved efficiency.  The second revolves around the human desire for always wanting more.  I can survive on 20 hours per week of work, but I can thrive on 40 hours per week.

All in all, I highly recommend this book as a way to completely change your mindset on the world.  As someone who was already the proverbial choir to his preacher, I can say I am already on board, however I may want to live more than the bare minimum when I retire.  Take the time and request your library borrow or purchase this book, which is how I came across it.

Wonderful Moment of the Day: Surviving the day on 3 hours of sleep due to a late flight the night before.

Covester Review: How to Rack up some Fees

I consider myself a child of web 2.0, and so I've considered it a hobby of mine to find new and interesting ways to maximize my potential.  Well one such site called Covester seemed pretty interesting to me, and therefore warranted a more in-depth review.

From the outside, Covester is a pretty neat looking site and with an even more "neat" form of investing.  Right away, I was lured by their 1, 2, 3 step investing towards better and more rewarding portfolios.  Here's how it works:
1.) Sign up and commit a certain amount of funds towards your investing.
2.) Scan the many "portfolio managers" and how well their current portfolios are comparing to some sort of indices.
3.) Select the portfolio that suites your risk tolerance and overall investing style.
4.) Watch as your portfolio now mirrors everything that the manager does.

The concept itself is rather novel, and I applaud the site for thinking outside of the proverbial box, but there are some things an investor should be wary of.

First, who are these so called managers?  I looked through the application process, and it doesn't seem all that difficult to become one.  Granted, their performance is out in the open for everyone to see, but how do we know that their performance isn't due to luck?  Well, I guess most financial managers have some form of luck to be successful, but still, I find the lack of legitimacy rather disturbing.

Secondly, if you don't initially invest a bunch of money (say $50,000 or higher) from the start, you could be racking up some huge trading fees.  Some of the portfolio managers are day traders, and if you happen to pick one of these folks to follow, you'll be stuck paying a trading fee (or commission) everytime they do.  Imagine paying $80 - $100/day in trading fees!  Secondly, like all mutual funds, the fund managers have set up expense ratios for themselves to receive.  These portfolio fees are usually between 0.50 and 2.50% which are rather on the high end. 

Given the amount of fees, I would definitely stay away from this style of investing.  If you find yourself still intrigued by this concept, try to find a fund manager who only makes a couple trades per year. 

The real benefit to this whole trading scheme comes to those of you who would like to be a portfolio manager.  At minimum, Covester offers a no fee way of tracking your own portfolio performance.  On top of that, if you are indeed doing a good job, you could possibly earn some trading commissions from customers who choose to follow you.  This definitely seems like an interesting option!

So customers beware, and sellers be happy, because Covester may have some options for you.

Wonderful Moment of the Day: Realizing that my tomato plants are going to survive one of the worst draughts in our area ever!

Act Like A Billionaire - Think Long Term

The following is a conversation I witnessed while riding in the elevator of my employing institution:

(To set the scene, I was standing next to two women in their mid 50's).

Woman 1: Boy, I am really struggling for money.
Woman 2: Tell me about it!
Woman 1: I only have $100 dollars in my checking account and payday is still a week and a half away.  Oh well, at least tonight I'm getting a pedicure and manicure done.  It'll cost about $50.

This conversation was taking place while both of them had venti frappucinos from Starbucks which cost around $5 a piece.

If this conversation didn't send shivers down your spine, then you may need to readjust your mindset.  From my perspective, I saw two people discussing their financials woes, all the while with the means to save themslves. Did she really need that pedicure and coffee?  Who am I to judge, but this whole scenario is a great segway into one of the main reasons why the poor stay poor and the rich get richer.

What do Billionaires do that the rest of us don't, well, for one thing, they know how to think in the long term. I was once taught that the economic classes can be broken up into the time frames they focus on.

The poor think only about today and tomorrow.  Much of this is brought on by the problems faced with not having enough funds to potentially feed one's family.  With so many social programs in today's world, food shouldn't be so much of an issue.  I direct you to this article which demonstrates that the "poor" have just as many flat screen TV's in their house as any wealthy family.  Is this considered poor, or are they leveraging debt?  Probably a little bit of both.  Thinking only in terms of today and tomorrow does not lend well to saving and being financially responsible.  The immediate pleasures of spending today are what drives this economic class.

The middle class tend to think in the short run (a couple months or so).  They usually have enough money to get by for a couple months, but generally don't have a well established savings or investment account.  They are content to save around 10% of their income in a 401(k) and work until they're 65.  Early retirement is not even a consideration amongst  them and they are perfectly fine buying more things to impress the neighbors.

Finally, the super wealthy think in the long term (years or decades).  They buy stocks to hold onto for a decade at a time, or invest in companies that might not pay back for 4 years or more.  Much of this attitude is coupled with the security that they will have enough to pay the bills, however there is some real practical skills we can learn from this mindset.  Retirement might seem like a far away prospect, but it will come sooner than you think.

The lesson of today's message is that the decisions you make today as far as saving and investing will set you down a road that will define which class you stay in for the rest of your life.  I'm a strong believer that this nation gives each of us the opportunity to make the most out of our situation and pull ourselves up by the bootstraps.  Identify your situation, how you can improve it, and start thinking in the long term.  This fundamental shift in your mind will benefit you greatly throughout your life.

Some practical long term steps you can do today include:
1.) Create long term financial and personal goals.
2.) Review periodically and stick to your goals.
3.) Invest in the long run, maximize your 401(k), start an IRA, and other savings accounts.
4.) Live below your means and save at least 20% of your income
5.) Constantly seek education in financial matters.  Nobody has this figured out completely so you will always learn more.

These simple steps will get you back on the right footing nomatter what age you might be.

Wonderful Moment of the Day: Realizing and being thankful for not yearning for a pedicure or manicure.

Hierarchy of Wealth

The Hierarchy of Wealth

What better way to start a Monday then some good old money discussions.  Whether you have practically nothing or amassed wads of doe, you will find yourself somewhere within the next topic I want to present.  Based on the concept of Maslow's Needs Hierarchy, I've created what I like to call the Hierarchy of Wealth.

As you can see from the diagram above, the general concept is simple.  You start at the bottom and work your way to the top all the while taking advantage of all the concepts below, but I'm getting ahead of myself. Let's start from the beginning.  At the bottom of the pyramid, we have the concept of "Cash In-Flows".  This is just a fancy way of saying find some way to bring money into your life.  For most of the population this is through the form of a job.  Other options include intellectual property rights, land-lording, etc...  Before you can start moving up the pyramid, you need a stable foundation in the form of a job.

Moving up through the pyramid, we arrive at the "Pay Off Debt" category.  I should have made this  little more specific, but their is good kinds and bad kinds of debt.  Good debt are those loans you use to either improve yourself (student loans), or increase your assets (mortgage).  As long as the interest rate is pretty low, the tax benefits associated with this debt may be reason enough not to payoff.  The debt I want you to pay off is that high interest credit card debt.  When you purchase with your credit card and carry a balance, you are sacrificing more in the future so that you can give yourself less now.  This is absolutely the worst kind of debt to maintain.

Once you have paid off your bad debt, you can start contributing to your 401(k) if your company provides it.  If you have a pension, well then bless your heart, because you are in the rarity my friend.  Depending on your age, you can cater the make-up of your 401(k) to suite your needs.  Starting in your 20's, you'll want to keep at least 80% of your money in equities, the rest in bonds.  For every decade that you age, decrease your stock portion of your portfolio by 10%.  This will make sure you take on enough risk to maximize your wealth without going too crazy.  Make sure to contribute at least enough to your 401(k) to match your employer's contribution.

Once you've setup your 401(k) to run on autopilot, you can now start worrying about investing additional funds.  Opening up an IRA or Roth IRA is the next best option.  In both cases, you can contribute $5,000 individually, or $10,000 joint into a tax benefiting account.  For a Roth, you pay the taxes before you contribute, and with a traditional IRA you pay taxes once you withdraw.  Do a little research on this subject, because there are some income restrictions associated with a Roth.  I also include "Other Investing" in this category, because if you manage to maximize your funds in your IRA, you should be investing the rest of your money in your own home-brewed fund (more on that in the future).

Second to the top is "Tax Benefits".  At this point in the game, you've invested as much as you possibly can, and the only way to get more out of your funds is to take advantage of all your tax breaks.  At this point, consulting with a licensed CPA may be your best option.

Finally, once you've done all the previously mentioned wealth building steps, you have reached the "Maximize Return" peak.  The only thing you can do at this point is to try to maximize the returns in your previous investments.  Keep doing research on your funds, and strategize for the best results.

Congratulations!!!  If you've made it to the top, you are a ruler of your wealth.  Just make sure it doesn't rule you!

Wonderful Moment of the Day: I've started reading "Early Retirement Extreme" by Jacob Lund Fisker.  It's a really good book on the overall mindset and strategies associated with maximizing your wealth.

Why I Love Public Transportation

                        

By now, you've probably assumed that I love my public transportation routes, but don't get me wrong, I also love the occasional car ride or family road trip.  Like most other articles you've probably read, I want to share with you my own experiences with public transportation and how it can really enrich your life.  So, in no particular order of importance, I give you the top reasons why I love public transportation:

Very Cheap - If you are like me and live in a city, you may have to deal with the expensive nature of parking your car.  Where I work, it costs $6/day just to store your car where you work.  If you add on top of this maintenance, fuel, and insurance, then you're talking some big bucks just to get you to the place where you can make some money.  It's almost like a tax on your work!  Well, in my case, I take a subway train that costs $4/day round trip and drops me off right in front of my work.  It's even just as fast as if I took the car downtown.

Good for You - Just from a healthy living standpoint, I have to walk about 4 blocks in order to get to my local subway shop.  This nice little walk in the morning is at least some level of exercise that I would not get if I just walked to my garage and drove to work.  This special time in the morning has become my own personal time in which I get to experience the weather, nature, and fellow neighbors.  

Good for the Environment - I think this is pretty obvious and you've probably read a number of articles on the subject, but using public transportation is much better for the environment than if you took a car.  Take, for example, the simple bus.  If 40 people took the bus everyday, then that is 40 less engines working all towards the same goal.  Traffic would decrease, and your overall commute would be much more pleasant.

Don't Worry about Driving - One of my favorite reasons to take public transportation is that it takes almost all the stress in a commute right out of the picture.  You don't have to worry about traffic, construction, or any other problems that would normally cause a delay.  Instead, you rely on the skills of the driver to get you where you have to go safe and sound.  I also find this time to be perfect for reading a good book, or thinking about other blog posts.

Become Exposed to Different Types of People - Let's face it, currently most people riding public transportation are those who cannot afford a car.  Taking the time to sit next to them in your daily commute opens your eyes to a world that you may have never thought about.  It's this cross-economic class exposure that provides great insights into today's average person.  

With all these opportunities available to benefit from your local public transportation, it starts to seem foolish not to take advantage of them.  Your homework assignment for the next week is to try getting to your work at least once via public transport.  You may find that it's more enjoyable than you thought.  The worst case scenario is that you saved some money along the way.

Wonderful Moment of the Day: It's Friday, what more!

The Value of Index Funds: Part 2

Historical S&P 500 performance (thanks to Google Finance)

...and now for our dramatic conclusion of this series!

Previously, we left off on the cliffhanger on what should one invest in when it comes to their 401k or IRA?  Well, before I get into that, let me explain something else to you...I know, the suspense.  Whenever you look at different mutual funds, stock funds, or other types of investments in your 401k selection, I want you to draw your eye to a little section called "expense ratio".  This little expense is the management fee for your particular investment.  If it says something like 1%, then each year, the operators of this fund you have selected will take out 1% of your average assets for that year.  This can definitely lower your returns if you have a high expense ratio.  So what is the best investment you can select, while still keeping the expense ratio low?

INDEX FUNDS!!!


An index fund is a collection of stocks that tries to mimic a particular index like the S&P 500 or Dow Jones Industrial Average.  This investment you should select is essentially the market growth rate.  If you remember my post on beta, than you'll know that beating the market rate of return without taking on more risk is almost impossible in the long run.  Look in your company's investment choices and see if there is anything close to an index fund.  On top of the best returns you can expect, these type of funds are usually very hands off to run, and therefore are very cheap to you.  Whereas the typical mutual fund can have an expense ratio up to 2.5%, the expense ratio in an index fund is usually around 0.04%!  These cheaper fees go directly into your pocket.


Here are some other options for index funds that usually perform 1-2% better in the long run than a traditional index fund.  Company 401k programs usually don't include these, so you are more likely to use them in an IRA.  A simple search on any of these topics will bring up a series of funds to invest.


Equally Weighted Index Funds - Instead of being weighted by market cap (or size of the stock), these funds hold all companies in say the S&P equally as a portion of total fund's balance.  The benefit here is that it allows small cap companies to have much more influence over the fund


Fundamentally Weighted Index Funds - These take the same set of S&P stocks and weights them by economic size which includes factors such as 5 year averages of book value, cash flow, dividends, and sales.     The result is something similar to a market cap weighted index fund, but brings in a more true look at each company's economic strength.  This allows you to invest more in the better companies.


Value Weighted Index Funds - These funds weight the stocks by their relative value based on their stock price relative to their earnings.  The goal here is to own more of the stocks measured to be undervalued, thereby maximizing returns.


Any one of these investments will take care of you throughout your life, but just remember, these funds move with the craziness of the market.  In the short term (less than 5 years), you're bound to see dramatic ups and downs if your fund's value.  Just know that you are in it for the long haul and it will pay off.

Wonderful Moment of the Day: Eating a homemade chocolate covered marshmallow!