Wise Bread

That Age-Old Conundrum: Time vs. Money

Sarah Winfrey — Mon, 13 Oct 2008 21:00:55 +0000

Have you ever thought, "If only I could do X, it wouldn't matter how much money I made?" Or maybe you've wondered, "Why do I feel like I do so much for so little compensation?" If you've had these or similar thoughts, you're not alone, and you're probably suffering from some disjointed thoughts about time and money.

Believe it or not, it's easy to get stuck living a life you're unhappy with because your time and your money aren't connected in the way you'd like them to be. If you don't think about it, you'll live a life that says you value what the people around you value, or what your parents taught you to value, but that may be a far cry from what you actually value. Here are some competing theories about the relationship between time and money, and some thoughts on figuring out what they mean to you.

Time is money

In this theory, your time is only as important as the amount of money you can make. You focus on a particular task for a particular amount of time and get paid a particular amount of money for your trouble. That money, and nothing else, shows you the value of your time.

Many people hold this as true, though some hold it to a greater extent than others. For many, this is only true during the work day, but personal time is different. But for others, this is a ruling principle of life. If you've ever felt like your personal value depended at all on your salary, that's evidence of this sort of thinking.

It's key to note that this is the principle that most jobs are built around. An employer determines how much it's worth to him to have a person performing a certain task for a certain amount of time, and pays that wage. There are definitely complicating factors, but that's the basis on which salaries are determined. So this is a driving principle in Western culture (and increasingly in Eastern ones).

Time over money

If this is what you believe, then the amount of money you make doesn't mean much to you. You'd much rather have your time to yourself, or at least under your control, than let someone else control it for whatever amount of money they value it at.

Do you work a lower-paying job because you get more days off or control your personal time? Then you might subscribe to this theory. Do you freelance because you want to be able to meet those friends for lunch whenever they're free? Then you definitely value controlling your time more than you value making a particular amount of money.

Money over time

Would you rather work through weekends to have more cash, particularly if you get overtime? Is the stress of major responsibility worth it to you because you make more money when you take it on? If it came down to a decision between a date-night with your spouse and a few more hours that would net you some serious income, would you choose to work?

If you answered "yes" to any of those questions, then there are times when you value money over time. You want cash, whether it's for financial security or so you can buy that new toy, and you're willng to give up total control of your time (and other people's) to get it.

Practically

In our daily lives, most of us subscribe to these different theories at different times. Maybe the success of our weekdays is determined by how much money we make, but that of our weekends determined by how much time we get to spend chillin' in front of the television.

We also subscribe to these ideas to varying degrees. Sometimes, money is important, but only so long as a person can take two weeks of vacation every summer. Or maybe someone wants to stay home with their kids, but they also need to make a certain amount of money to live.

It doesn't matter how you fit these ideas together; what matters is that you know how they fit together for you!

Figuring it out

Ask yourself the questions below. Spend 5-15 minutes answering each one, either in discussion with someone else or in a journal. When you've finished answering, you'll have a pretty good idea as to what you value, how much you value it, and when you value something else entirely.

1. If you had the option to work over the weekend making double-time, would you do it? What if your kid had a big game on Saturday or you had planned a date to the Met? How would you justify your choice?

2. Looking over the last year, how often have you taken vacation? Sick days? Did you ever go to work instead of taking time off because being absent negatively effected your paycheck?

3. How do you look at your wages? Are they never enough, just right, or plenty for your needs? Do you feel like you trade your time for money? If so, is it a fair trade? If not, would you prefer more money or more free time?

If you feel the desire, share some of your responses with us. I'd love to know where Wisebread readers stand!

Permalink | 2 comments | Sarah Winfrey's blog | Channel: General Tips

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Surviving a financial panic -- lessons from the past

Philip Brewer — Mon, 13 Oct 2008 13:44:45 +0000

By Philip Brewer

Financial panics used to be quite ordinary. In the century or two prior to the great depression, there was a panic every 15 or 20 years. Since the great depression we haven't had a classic financial panic, until now. There's a thing or two that we can learn from panics past to help us survive the current one.

To begin with, there's a reason why we haven't had financial panics for the past 75 years--fiat currency.

Panics and gold

Panics used to begin when people decided to get their hands on actual, physical gold. That could happen for a lot of different reasons. Often it was because there had been inflation--banks issuing bank notes far in excess of the gold they had on deposit--and people decided that they didn't trust their bank. Sometimes, though, it happened without any particular malpractice by the banks, simply because there was a demand for gold someplace else--an economic boom in Europe or South America could drain gold from the United States or vice versa.

Since issuing banknotes was literally printing money, the temptation to go overboard was immense, and individual banks that did so used to collapse all the time. A prudent bank, though, could be modestly profitable and a great boon to its community, but in a panic, even prudent banks would fail. (You could, in theory, create a panic-proof bank that held enough gold to pay off every banknote, but it would be a money-losing institution. Holding all its gold in its vaults, it would be practically unable to make loans, but would still having to pay for a building, tellers, security, and so on.)

Prior to 1933, it was very hard to address a panic, because there wasn't enough gold. Sometimes, if a panic started small, it could be headed off by large banks (or even wealthy individuals) lending gold to the banks that were under pressure. The banks could then redeem enough banknotes to satisfy worried note holders. When the panic subsided, gold would flow back to the banks, they could pay off the loan, and things would return to normal.

In the case of a large panic, though, the banking system as a whole didn't have enough gold to redeem enough of the banknotes. Banks would pay out gold for a while, hoping that they could thereby demonstrate their soundness. Once it became clear that the gold on hand wouldn't satisfy the demands of note holders, the bank would suspend note redemption. Note that, even when that happened, depositors and note holders didn't necessarily lose everything. In many cases, the bank was actually solvent. As their customers went on paying their debts, gold would gradually flow back to the bank, allowing it (at some point) to resume redeeming its notes.

Since 1933, there hasn't been any gold backing the banknotes anyway, a condition that had seemed to have eliminated the possibility of a classic panic.

And yet, here we are. So, what were the keys to surviving a panic in those days, and how do they apply today?

Liquidity

The first way a panic works its harm is by destroying liquidity.

Once a panic started, the first things to go was the payments system. In normal times, people could spend banknotes as easily as they spent gold and could pay their bills with checks. In a panic that isn't true. Every transaction becomes its own negotiation. Payment in gold is fine (although you have to be sure it's real gold). Payment in the notes of a sound bank is okay, but opinions differ regarding which banks are sound and which aren't, leading to confusion and disagreement--the result is a whole sliding scale from the sound banks to the iffy banks to the banks that have suspended redemption of their notes but are still open to the banks that have closed. Checks have the same issue of bank soundness, only it's layered on top of the question of whether or not you've got money in your account.

Adding that sort of negotiation on top of every transaction was obviously a nightmare. So, if you want to understand why central bankers, finance ministers, and politicians are in such a tizzy, imagine layering those issues on top of the complex payment systems that we use now.

Today, checks are clearing, credit and debit cards work fine, the ATM machines have money, direct deposits are going through on schedule, automated clearing house payments for bill payments and bank transfers are all working smoothly. This is a huge win for the economy. Just imagine what happens if those systems start to break down--if your transfer from your internet bank doesn't show up in your local bank, if your credit or debit card starts being declined, if your landlord and the power company stop taking checks and start wanting you to show up in person with cash in hand.

If it was just liquidity, though, the problems would be manageable. Cumbersome, but manageable.

Solvency

The second way a panic works its harm is by destroying solvency.

As a panic began to set in, a business with merely adequate capital could suddenly find itself on the ropes. Its customers would start paying at the last possible moment, and then start paying late (and, in many cases, going bust and not paying at all). At the same time, its suppliers would start cutting credit limits, pressing for early payment, and then demanding payment in cash. On top of that, its bank would refuse to lend. If you had the cash to bridge the gap--paying your bills on time, even though people were paying you late--then you were fine.

It wasn't that simple, of course. If your bank failed it didn't make much difference how much money you had. The wealthy could take measures--dividing their money among several banks and holding some amount of physical gold for example--but those strategies were largely closed to the poor (who couldn't scrap together enough for one bank account, let alone two, and who didn't have a safe place to store gold even if they could put their hands on some). They were also largely closed to businesses, who had their money invested in the business, not sitting around just in case their customers started paying late the very same week their suppliers started demanding payment in cash.

The key, then, to surviving a nineteenth or early twentieth century panic was to have ample cash, to choose your bank carefully, and to have some actual physical gold on hand. In particular, being one of the first people to panic--showing up to turn your banknotes into gold while the bank was still paying in gold--was the winning strategy. The result was bank runs that could bring down even sound banks.

Since there's deposit insurance to protect small and medium-sized depositors--and since there's no gold at the bank to be gotten anyway--we do seem to have largely eliminated bank runs, and largely eliminated the need for ordinary people to participate even when there is one.

Still, the solvency issues remain--if customers can't pay, even a well-capitalized business can't continue to operate for very long. And, as businesses cease operations--or simply shrink to the point where they're sized to service the fraction of their customers who can pay--employees find themselves out on the street, facing their own solvency issues.

And solvency issues are why, even though they're not obliged to back deposits with gold, the banks are failing.

Our new panic

Even sound banks can fail in a panic, if they're obliged to pay out gold, simply because there isn't enough gold in the system to pay off all the banknotes at once. Since our banks aren't obliged to pay out gold, sound banks aren't really at risk--even if they don't have cash on hand to pay off all their depositors, as long as they have assets (generally, loans that are being paid back), they can get unlimited cash from the central bank. In this situation, what would have been a panic is merely a credit squeeze.

So, how come banks are failing in our current panic? Basically, a lot of the banks aren't sound. Their assets, instead of being mortgages on local homes and loans to local businesses, are instead huge amounts of the sort of "securitized" debt that you've no doubt heard about--groups of mortgages, auto loans, credit card debts, and so on, all packaged up and divided into slices that were supposed to have predictable risk characteristics (but that turned out not to).

Presumably, not all the banks are in trouble. So, a second problem is that nobody knows which banks are solid, which banks are iffy, and which banks are just waiting for the coroner to sign the death certificate.

(That's why the Treasury's plan was to buy up a large amount of this securitized debt. The idea was, if you could put a price on those iffy securities, the sound banks could resume normal operation. If the price was high enough--higher than the assets are really worth--many of the iffy banks would be okay as well.)

The result has been a situation a lot like a classic financial panic, even without the issue of a shortage of physical gold.

A few words about gold

In panics past, the key winning strategy was to move to gold before banknotes lost all their value. I don't think that's a useful strategy this time. Gold may be a winning investment, but it lacks the key attribute that made it a winner in the past: it isn't cash.

Until 1933, contracts were often written in terms of gold dollars. If your banknote wasn't backed by gold--if your bank had closed or suspended payment--you couldn't use it to pay your bills. That's no longer true. The value of the dollar may soar or crash in terms of its international value and it may lose its value slowly or quickly to inflation (or even gain value due to deflation). But you can be reasonably sure a dollar will continue to be worth a dollar when it comes to paying your bills. That's something that people didn't have going for them in the panics of the nineteenth and early twentieth centuries.

Gold may (or may not) be a great investment, but it's a crappy way to pay your bills. For that, you need money--regular old bank deposits and currency.

The hard money folks like to say that gold is the one financial asset that isn't someone else's liability. In a world where many liabilities are not being honored, that's a big deal. But as long as your liabilities are in dollars (or euros or pounds or krona), you want to have cash on hand to pay your bills. For example, I'm just three months into a one-year lease. I know exactly how many dollars I need to pay to keep my apartment for the next nine months. I have no clue how much gold I'd need.

As an aside, it seems that there actually is a shortage of physical gold. Perhaps in part because a rather new fund (SPDR Gold Shares) has been buying huge amounts of gold and storing it in vault--enough that its gold reserves recently passed those of Japan. Fabricators of gold coins are having trouble getting their hands on enough to meet demand. That's a situation that can't last for long--people will bid up the price of physical gold high enough to draw those large gold bars out of the vaults. That makes gold sound pretty good as an investment--but it doesn't turn it into cash.

Strategies for survival

Knowing that the keys are liquidity and solvency, there are some obvious strategies to begin with.

Don't depend on credit. Arrange your finances so that you can fund everything with cash. If you're a business, this will inevitably make you less profitable, but less profitable is better than being out of business.

Keep your assets safe. Even if you avoid debt, you still have obligations that need to be met--rent, taxes, utility bills, etc. If your income is uncertain (and it is), then you want to have cash on hand to meet those obligations. Things like bank deposits (under the insurance limits), money market funds (now also insured), and Treasury securities are very safe and very liquid.

Cut expenses and diversify your income. Having liquidity is key in the short term, but over the medium to longer term the key is to make sure that your expenses don't exceed your income.

Later, buy valuable stuff cheap. As the panic winds down, large amounts of valuable stuff will be on sale cheap, because those who were not liquid enough will be forced to sell. If you've got cash at that point, you're in a position to make some outstanding investments.

These were the strategies for surviving panics in the past. They're still the strategies today. The one good thing about a financial panic is that it (unlike, say, a war) doesn't destroy the actual productive capacity of the economy. The factories are still there, workers are still there, the land is still there. Staying liquid, and making sure that your expenses don't outstrip your income, will get you through to where that underlying productive capacity can come to the fore once again.

Permalink | 7 comments | Philip Brewer's blog | Channel: Personal Finance

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8 Nifty Tips for Getting the Most from an All-You-Can Eat Buffet

Linsey Knerl — Mon, 13 Oct 2008 01:58:46 +0000

By Linsey Knerl

Food can serve many purposes. For some it is merely for nourishment. For others it is a form of art or a means of entertainment. For still others, it fills an emotional need and could even be considered an addiction or vice. For the purpose of this article, I’d like to point out that my advice is for the most basic of needs: good nutrition, a bit of indulgence, and a chance to fellowship with your family or friends with no dishes to clean up! Here are the 8 ways we make our dining dollars a great investment:

1. Kids eat free (or almost free). Yep, with four of them, it’s important that we at least get a generous discount, if not a total write-off on the little darlings. In my area, Tuesday is usually the “Kids Eat Free Day” and requires that at least one adult purchase is made for every one (or even two) free kids’ meals. Be sure that if you are dining at a chain restaurant, you call ahead to see if they honor national promotions. We once went to a Golden Corral based on a commercial we saw, only to find they no longer participated in the Kid’s Eat Free promotion. We started to walk, but the manager begged us back in – and comped the kids’ meals to boot.

2. Lunch is served. If at all possible, eat the lunch buffet. There is usually at least a $2-3 difference in the pricing of lunch and dinner, and usually the offerings are similar. In rare instance, an evening buffet may offer something special, like nicer steak, crab legs, or a themed dinner. Weigh your options to decide if this is worth it. I won’t justify the extra for a cheap steak, but a couple of jumbo crab legs might seal the deal.

3. Skip the beverage (or plan accordingly.) Drinks can make an otherwise affordable buffet downright expensive. If drinks are included, go for it. If not, you may want to stick to water with lemon, or decide on only one drink. (Some places will let you get a soft drink with your meal and a coffee afterward, but may charge you for two drinks.)

4. Fill up on fresh. I know that those hot wings are tasty, (and I’m also digging the homemade mac and cheese), but the best way to get your money’s worth on a buffet is to eat as fresh as possible. Melons, berries, broccoli, and avocados are yummy ways to eat healthy and increase the value of your buffet. Encourage kids to eat one full plate of fresh stuff before they even head toward the French fries and fried shrimp. (They will get loads of nutrients, and you can feel good knowing the extra cost gave them more than any Happy Meal could really provide.)

5. Take your time. Buffets are not a dine-and-dash type of atmosphere. If you are squeezing in your meal between two other pressing matters, pick another day to buffet. We like to take a weekday with nothing else to do, go early, and stay late. We snack, talk, and enjoy each other while sampling all kinds of new foods. If we do it right, we can have a lunch/dinner combo that knocks out two meals in one. (Leaving by 4:30, so as not to get charged for dinner, too!) We think of it as the same concept as a brunch, but with the two later meals combined. (And if kids get hungry at home later, we snack on yogurt and granola, or another kind of light breakfast food before retiring for the evening.)

6. Know what’s safe. Even the most talked-about buffets can be a health risk. Be aware of your surroundings, and watch for common food safety issues that may make you sick later. Look for foods that are fairly popular, get switched out often, and appear fresh. If anything doesn’t look right, please don’t eat it! (And let a manager know of your findings.) Raw fishes should be approached with caution, and any salad made with mayonnaise should be eyed carefully. (It’s a bad idea to go for that tuna salad with the orangish-looking crust on top.)

7. Explore your options. There are many types of buffets that appeal to our family. We like Chinese, American, and Italian the best. (In areas that offer more diverse options, I’m sure there are many more kinds to choose from.) Encourage your family to try new things while at the buffet (after all, if they don’t like their first choice, they can just try another dish – and you won’t be out any more.)

8. Be courteous. While buffets are great for saving money, they also seem to attract dining dunces that have little to no common sense or courtesy. While most all of you will know these, I feel they are at least worth saying:

Just because it is a buffet, doesn’t mean you don’t have to tip (even if they only pick up your plates, they deserve the minimum for your region.)

Don’t take more than you can eat at one time (wasting food is a no-no, no matter where you are at.)

Don’t let little kids get their own food (most places have a 10 years or older policy for the buffet line.)

Clean up after yourself. It’s a restaurant, not an abandoned lot. Pick your trash up off the floor, and try to make the server’s job at least tolerable. They work hard, too.

We look forward to our monthly outings to a buffet-style restaurant. When a family of 6 can eat well for under $20 -- that’s a great deal! And with a wide variety of dining options, buffets can fit any style or budget.

Permalink | 11 comments | Linsey Knerl's blog | Channel: Frugal Living, Food and Drink

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Book Review: Personal Development for Smart People: The Conscious Pursuit of Personal Growth

Kate Luther — Sun, 12 Oct 2008 03:28:55 +0000

By Kate Luther

Some books draw you in with mystery and suspense. Others keep you hooked with drama or intrigue. And then there are some that just manage to really hit home and make you say "Ah-ha!"

Such is the case with Personal Development for Smart People by Steve Pavlina. Using what Steve calls "personal growth from high-level concepts to practical actions", Personal Development for Smart People goes beyond just setting goals and takes us much deeper into the human psyche.

Now, for those of you who may not be a fan of concepts such as the Law of Attraction, keep reading because this isn't your everyday "think it and you'll receive it" kind of book.

Instead, Steve approaches some of the tougher questions that deal not only with our own individual satisfaction but also how we connect to the Universe around us. And interestingly, this approach takes away our ability for self-denial and puts us back into the driver's seat of our own lives.

Using seven fundamental principles - truth, love, power, oneness, authority, courage and intelligence - Steve encourages us to approach life by asking the question "where is the path with a heart?". This enables us to stay focused on the things that really matter and steer clear of mindless preoccupation for the sake of avoiding the things we're not ready to deal with yet.

And perhaps that's one of the reasons I liked this book so much.

Its not that you have to change everything in your life right now. In fact, its quite okay if you aren't yet ready or equipped to change those things that aren't in-line with your dreams and ideals. But you do at least, need to acknowledge that the conflict exists and more importantly, that you'd like the changes to occur.

"Whenever you're faced with a part of reality you don't like, and you feel powerless to change it, the first step is to accept the truth of your situation. Say to yourself: This situation is wrong for me, yet I lack the strength to change it right now."

And in case you're wondering, this was just the first of many "Ah-ha!" moments for me. How many times do we continue going through the motions, knowing somewhere deep down inside that it isn't really what we want but because we feel unable to change it, we just pretend it doesn't exist?

Does acknowledging this kind of "Truth" make things better? Oddly enough, I think it does. I think when we stop lying to ourselves about who we are versus who we'd really like to be, it makes it much easier to see where we need to adjust our course.

Its so easy to fall into the many traps of our modern-day society. There's peer pressure to keep up with those darned Joneses all the time and we're constantly being told by our political and religious leaders what's right and what's wrong without any real thought being given to whether or not those opinions mesh with our own. Instead, we often follow along, trying to fit in with a particular party, clique or class.

But in doing so, we've agreed to let someone else do the driving on our behalf and then when things don't turn out the way we like, we feel surprised and certainly betrayed that our driver didn't get us to the destination that we wanted.

But Personal Development for Smart People puts all of this right back at our own doorstep which, I'll admit, can be a scary concept but its definitely one worth examining.

The book is divided into two parts, the first dealing with the seven principles and what they mean. The second part delves into actual application and gives you ideas for applying these universal principles to all areas of your life, whether its bad habits you'd like to break, health you'd like to improve or money you'd like to make.

When I finished reading, I felt a little less stressed and certainly much more focused and "in control" of where I'd like to go next. My problems and concerns hadn't magically disappeared but I felt like I was much more equipped to tackle them head on.

And that's really the whole point.

In the introduction, Steve says that the

"goal of this book is to teach you how to bring all areas of your life into alignment with these universal principles [the seven mentioned above]. This requires injecting truth into your relationships, aligning your career with love, and bringing power to your spiritual practice. This is what it means to live as a conscious, intelligent human being."

After reading Personal Development for Smart People, I'd say he met that goal and then some.

Permalink | 5 comments | Kate Luther's blog | Channel: Life Hacks, Productivity

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Please Pass the October Surprise

Catherine Shaffer — Sat, 11 Oct 2008 13:49:49 +0000

By Catherine Shaffer

I've always believed that mastery of vocabulary is at least halfway to mastery of the subject. Words are power--the kind of power commonly wielded by eggheads with pocket protectors, but power nonetheless. In the past weeks and months, I've seen a lot of new vocabulary thrown around in the media, and most of us are too busy ducking and diving out of the way to ask what all these crazy words mean. So let's demystify the language of the new economics, right here, right now. Here's a list of common terms you might encounter in your newspaper, on television, or even in a blog.

Commercial paper: This is an IOU, good for maybe a month or two. Unlike a regular IOU, it's written for very large amounts, and companies accept them from each other pretty much without question. Apparently, commercial paper is the way that many companies meet payroll and buy inventory. I always thought they used money. Who knew?

Credit default swap: Halfway between an insurance policy and a racetrack wager, this is a way that mortgage lenders made themselves feel safe giving loans to people about whom they otherwise knew nothing. No job? No documentation? No problem. We have a credit default swap.

Subprime debacle: The inevitable outcome of widespread use of credit default swaps to back sketchy loans. The word 'debacle' has somewhat of a Victorian ring to my ear. It sounds like something that might happen in “The Importance of Being Earnest.” This is how the whole mess was described earlier this year, when we were all in an enviable state of denial. Notably, a 'debacle' is nothing that ever happens to oneself. It always happens to other people. Like the time our neighbors, a husband and wife, met each other driving separate cars in opposite directions on our street, and proceeded to have a very loud argument between the two cars. Boy, was that ever a debacle. So glad I wasn't involved!

Liquidity crisis: Until recently, I would have told you that a liquidity crisis is what happened when my sixty-pound puppy wasn't put outside often enough. But apparently, 'liquidity crisis' is actually what happens when you can't borrow enough money to keep going. Next time your buddy asks you for $100, just until next payday, you'll know he's having a liquidity crisis. Let's just hope that his employer is not relying on commercial paper to make payroll, or his liquidity crisis will become yours. Which, when I think about it, is the essential circular nature of this whole mess.

Tranch: This is a silly, made-up word that big investor types use to explain why they can't look closely at the history of individual mortgages bought and sold by their companies. See, it's in a “tranch.” It's meant to evoke bundles, or “bunches,” which are sort of shrink-wrapped so you can't open them up and look in side. Someone once suggested calling them “faggots,” but that idea was quickly shouted down.

Toxic assets: Imagine that pirates Larry and Lunt from Jonah, the Veggie Tales movie, had successfully invested their prize money from the Mr. Twisty's Twisted Cheese Curls Sweepstakes in cheese curls, as they wished to do. And suppose that after they bought those cheese curls, but before they had a chance to resell them at a profit, they learned that the cheese curls had been manufactured in China (not Nineveh), and that they had high levels of melamine...

Mortgage meltdown: This is the same as subprime debacle, but a bit later in history, when everyone is feeling that it is not so funny anymore. It's like those neighbors shouting in the street are suddenly in your living room, and their car is parked in your driveway, and their trunk is full of those toxic cheese curls, and it turns out they are radioactive, not toxic, and they are going into nuclear meltdown!

Irrational despair: This is one half of a very small set of emotions which Wall Street stock traders are capable of (the other being irrational exuberance). Their severely limited emotional range literally controls our economy, while regulators feebly scold them from afar.

Economic collapse: In physics, there is conservation of matter and energy. Sadly, there is no law of conservation of money in economics. Money can simply disappear, and if enough of it does so, you have economic collapse.

Iceland: A small country in the extreme north populated by the descendants of Vikings which has recently experienced economic collapse (see above). If not rescued by other nations of the world, Iceland will have no choice but to replenish its coffers by raiding the coastlines of Europe and America. Guys with names like Sven and Eric Ericson, with Swedish Chef accents, will be burning our houses and raping our women. Also, they will be sending millions of emails that read, “Dear Friend, We would like to offer you a unique business opportunity...” (with Swedish Chef accents).

October surprise: As if having toilet paper in your trees and rotten pumpkins smashed in your driveway were not enough of a surprise, the October surprise is lore believed by stockbrokers and other Wall Street types (see 'Irrational despair,' above). Apparently, people who work in the New York Stock Exchange are among the most superstitious people on Earth. To a man, they take vacations each year in Ireland to hunt leprechauns, and can be found any time clutching rabbits feet, voodoo charms, saints medallions, and all manner of good luck items. Apparently, these denizens of the trading floor believe bad things happen in October, and in the way of many such prophecies, it happens to frequently be self-fulfilling.

So that, in a nutshell, is the lingo. Know it, understand it, use it wisely. And yet, one thing is still missing. We still don't have a comprehensive phrase to describe the whole phenomenon. I submitted my entry, “The Great Economic Shitstorm of 2008,” to Ben Bernanke, but I haven't received a response from him yet.

Permalink | 9 comments | Catherine Shaffer's blog | Channel: Personal Finance, Consumer Affairs

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Book review: Internet Riches

Philip Brewer — Sat, 11 Oct 2008 12:30:17 +0000

By Philip Brewer

Internet Riches: The Simple Money-making Secrets of Online Millionaires by Scott Fox

If you've never considered starting an internet business--but now that I mention it, it seems like a good idea--this is the book for you. If you've considered starting an internet business--but you've done no serious thinking about how to approach actually doing it--this is an excellent book. If you've already got an internet business, or you're otherwise familiar with one's inner workings, I'm afraid you won't find a lot in this book that you don't already know.

For me, the book started off a bit slow. A good bit of the first part of the book was devoted to two ideas: that the end of the dotcom boom didn't mean the end of internet business, and that an internet business can be started on the cheap, compared to starting a bricks-and-morter business. The thing is, I already knew those things.

After that the book picks up a good bit. It looks in some detail at a series of internet businesses, talking about how they were structured and how they earned money. It provides a number of worked examples of how different internet businesses work.

Business goal

It's worth comparing this book with Tim Ferriss's book The 4-Hour Workweek. Both recommend creating small internet businesses. Ferriss, though, wraps his whole suggestion around a very specific pattern--creating a business (or a few businesses) that provide enough money to live on with an absolute minimum amount of work--to free the time up to do other things.

Fox's idea is different. He recommends that you create your internet business around something that you're interested in--a hobby, perhaps. Something that, if you spend a good bit of time doing it, you'll be happy to have done so.

Business analysis

Perhaps the best part of Fox's book is the section on brainstorming possible business ideas and then evaluating whether they might support an internet business--it's good stuff.

Because there's a steady stream of newer, better, easier tools and systems to build e-commerce sites with, Fox faced an impossible task in discussing the mechanics of actually building your site--anything specific enough to be useful would have been out of date before the book was printed. On the other hand, the target audience for this book--people who had barely begun to think that running an internet business might be a neat thing to do--need a considerable amount of handholding. Fox does a pretty good job of threading that needle. There's a lot you'd have to learn to actually create and run a web-based business beginning where Fox's book leaves off, but nothing that a bright person who was willing to put in some effort couldn't do.

Business expectations

If all you want to do is make a bit of money off your hobby, I think there's a pretty good chance you'd be successful following a program like the one that Fox lays out. If you pay particular attention to the sections on evaluating and testing your ideas, and follow his advice to start small and keep early costs to a minimum, your risk is very small, and your chance of at least some reward is pretty good.

Just about at that point, though, the book quietly slips from talking about creating small sites where your hobby brings in enough money to support itself (and maybe pay for beer and pizza), to sites that let you quit your job, and then to sites that bring in millions. If the book explained how to take your site from the first category and slide it into the second or third, though, I missed it.

If you've thought of setting up an internet business (even if you've just thought of it for the few minutes that it's taken you to read this review), Internet Riches will show you how to get started--and how to do so at minimal cost and minimal risk.

Permalink | 4 comments | Philip Brewer's blog | Channel: Entrepreneurship, Making Extra Cash

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Why young investors should "Stay the Course" and continue to invest

Xin Lu — Fri, 10 Oct 2008 06:25:13 +0000

By Xin Lu

With the recent upheaval in the financial markets, many individual investors are feeling the pain of shrinking investment accounts. In fact, retirement accounts have lost over $2 trillion dollars in value in the past 15 months. One of my friends says that it seems that every bit of money he contributes into his 401k is gone by the next statement. I understand how he feels, but I believe that young investors should try not to panic in these turbulent times and "stay the course" with their investments.

Right now, no matter what you have invested in in the past few years probably lost value, but if you have an investment plan where you regularly contribute money you would be buying in at a low point right now. It is true that the market could fall further, but your regular investments would buy at those lower points, too. This is basically dollar cost averaging and it is a strategy that has been shown to work even during The Great Depression . If you believe that the stock market would recover some day then buying in at a low point is a good thing.

Another point is that noone knows when we will hit bottom and market recoveries happen just as fast as market crashes. If young investors like me are too spooked to put in any money now or just hold too much cash for a long time then we might miss the recovery and receive returns below the market. Cash is a safe bet, but it is eroded by inflation so holding a disproportionate amount of cash is not the most profitable investment in the long term.

Also, what many people are doing now is to cash out their stock holdings in fear of further drops. I think this makes sense if the cash is needed for immediate use and if you believe the investments you bought will become worthless. However, if you are a long term investor with a balanced portfolio of stock mutual funds then there may not be much to worry about. It has been shown that individual investors in mutual funds tend to have less returns than that of the funds they invest in because they tend to pull out their investments at low points and buy in later at a higher point as an emotional response. So if there is no need for the money and you believe that in the long term stocks will recover then it may be best to leave it alone even though it is stressful to see your nest egg shrink.

In addition to staying the course and continuing to invest, this could be a great time to diversify your investments since nearly every asset class has fallen in value. If you are heavy in stocks then you could look into some real estate, commodities, or bonds. The goal is to have a well balanced portfolio that you understand, and eventually the current bear market would seem like just a bump in the road.

Permalink | 11 comments | Xin Lu's blog | Channel: Personal Finance, Investment

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What Makes You the Expert?

Linsey Knerl — Fri, 10 Oct 2008 03:10:28 +0000

By Linsey Knerl

Bloggers get flack sometimes. Even here at Wise Bread, we get the occasional, “Who died and made you the King of Frugality?” rant that leads us to continually examine the quality of posts we offer our readers. But perhaps the most enlightening part of writing for such a richly diverse audience is the genuine sharing of knowledge – one that allows for us to learn as much as we teach.

With every claim to a financial expertise, there are some important things to consider:

We are all human. Textbooks cover economics in a theoretical sense, and for the most part, these theories hold true. What the textbooks don’t take into account is the element of humanity, personal decisions, and the feeling and emotion that make up most decisions of a material kind. Love, in particular (or the desire for it) can cloud the judgment of even the most educated economist. Why am I saying this? Because I have known and respected many self-proclaimed financial “experts” who were successful in their finances, until a sticky personal situation came along (like lending money to a relative, divorce, etc.) They were no more able to handle it than most financially-illiterate people.

You can’t sell it ‘til you’ve lived it. A good friend of mine and her family were recently featured on a national talk show in order to get tips from a frugality expert. The expert studied her lifestyle, and suggested some hacks to help stretch her grocery budget a bit further. The entire scenario played out on TV, and I was able to watch my friend’s smile fade as she listened to the “expert” and her tips. Many of the tips were atrocious, and sounded great in theory, but I could tell that this woman had never actually tried most of them (or attempted to make children go along with it.)

I’ll admit that tough times do call for tough measures, but my friend was far from destitute. Instead of getting tips for using coupons, hitting sales, or making her stuff last longer, she got one-size-fits-all cheats for the very, very poor. (And the “expert” seemed far removed from the advice she was dishing out.)

Economy is relative. One thing that I have learned from writing here at Wise Bread is that my economy is not my neighbor’s. Assuming that my rural, farming family can follow the same tips as my fast-driving city friends, it doesn’t mean it will always be. We’ve seen commenters from all over the world that see U.S. values as something to be desired (or in some cases, something to be avoided.) This will affect how our “expertise” is received, and we must always be sensitive to others in this manner.

A good track record speaks volumes. Some of my favorite financial experts have years of experience behind them. They have not only maintained a successful financial picture, but often times they have come from nothing, only to rise above it. They have grown. They have met the challenges. They have been encouraging in their message. Mary Hunt, Suze Orman, the late Larry Burkett, and Dave Ramsey (among others) are popular, not because they have fantastic PR reps (although that helps), but because they have proven themselves. And their message will stick around as a result.

Nothing says it like a testimony. I see more and more “experts” popping up on talk shows, newspapers, and blogs. I am always on the lookout for something that gives credibility to their message. Many of them have really slick websites, have been featured on talk radio, and even speak at sold-out events, but have they ever really helped anyone? Those experts that can provide me with a testimony (or twenty) are the ones I will trust the most. To know their techniques are proven is a must!

Experts are everywhere. Believe it or not, most of us are an expert in something. If you’ve overcome incredible debt, raised a large family on a limited income, put yourself through college, or started a successful home business, you ARE an expert in finances. Regardless of how many talk shows you’ve done, you do have something positive to offer the world. If you heart is in it, and you have a desire to help others, I encourage you to share it!

The world can’t have enough of these kinds of experts.

Permalink | 9 comments | Linsey Knerl's blog | Channel: Personal Finance, Frugal Living

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How to Financially Educate Your Children

Nora Dunn — Thu, 09 Oct 2008 01:42:49 +0000

By Nora Dunn

You have the power to create and mold your child’s financial imprint. It is through your own actions, discussions, and attitudes towards money that your children will develop habits – both good and bad – that will carry them through and last a lifetime. They won’t learn it from anybody else; finances are not taught (at least not thoroughly enough if at all) in schools, and nobody else is going to show them how to succeed in life and avoid the huge financial pitfalls that lurk around every corner.

So do your child a favor and give them a huge helping hand! Here are a few ways you can help them create a healthy relationship with money:

Don’t Bribe Them with Money

By offering money as a reward for good behavior, your kids will learn that money is an end, instead of a means to an end. Try rewarding them with tangible life-enhancing experiences which the money would buy, like taking them to the movies, or out for a family lunch. Better yet, you can reward good behavior with things that don’t require money like having a sleepover with friends.

Go With the Flow

If your child wants to count the coins in your purse, let them. Use the opportunity to help them understand what each coin is worth and their relative value. You may even help them identify what each coin can buy (if anything). If they receive birthday money, then talk about the benefits of opening a bank account. As money works its way into your child’s life (and it will), use the opportunity to talk to them about it.

Allowances: Stick to the Plan

If you give your child an allowance, be exact and consistent with the amount and timing of each payment. This will get them used to timing and managing their income stream, as they will need to do when they later have jobs and careers.

Allowances and Pocket Money: Pay Yourself First

The best way to get your kids into the habit of paying themselves first is by doing it right from the beginning. Discuss long-term and short-term savings, and encourage them to put at least 10% of their allowance either in a bank account or even a piggy bank. The piggy bank option will require additional discipline (on their part) not to delve into it for candy, and could go two ways. On one hand, irresponsibly accessing their long term savings (maybe they are saving up for a video game) may affect their ability to reach their goals; a great lesson to learn - the hard way - early on in life. Then again, using a bank account instead may take just enough of the impulse urges out of their hands to help them achieve their goals and feel the satisfaction of getting that video game after saving up for it.

Put a Positive Spin on it

Even if you don’t have a positive attitude towards your own money matters, don’t allow your children to inherit this unhealthy disposition. Don’t let them associate money with anxiety or stress. Instead, teach them practically how money can help achieve their goals and get the most out of life through avenues like creating financial independence, creating a better world with charitable contributions, and even giving it to loved ones. Again try to stay away from the idea that money is an end or is happiness in and of itself; instead show how money can be a conduit to positive things.

Talk About it, Lots!

Money is not a taboo subject, even though we may have been raised to believe it is. If you aren’t comfortable telling them how much money you personally have in the bank (either because you believe you are not a shining example or because you simply don’t want to), then that’s okay. But when your child asks why you can’t go to Disney World, this is an opportunity to discuss the household’s budget, the cost of living, vacations, and entertainment. Involve them in the family finances, and they will learn to take ownership naturally – a skill that will take them through life.

Money Milestones

Involving your kids in the family budget when they are only three years old may be a bit of a stretch. (!) Instead, consider these money milestones as a way of incorporating finance education seamlessly into their lives.

Coins

When your kids start to become curious about pretty coins and money in general, educate them as to the value of coins and what they can buy. It also makes a great lesson in math: start with pennies as building blocks, then introduce higher value coins as their numerical repertoire increases.

Bank Account

As soon as pocket money and birthday gifts start adding up, take them into the bank to open an account. There are lots of child-friendly accounts out there, so make sure you actively involve them in the process. They will derive great pride from having their own account. This is when you start to discuss the concept of earning interest on savings.

Budgeting

Now that they have a bank account and the ability to save up for things, it is time to start budgeting. If they receive an allowance, hopefully they are already paying themselves first and putting away at least 10%, as with money received as gifts.

They are also probably talking about toys they want (like video games). So help them budget for it! With pen and paper in hand, help them construct a budget by determining how much their toy costs, figuring out how much they currently have, and calculating how long it will take them to save up for it. Seeing the plan on paper may encourage them to save more than just 10% towards their goals, depending on how motivated they are. Again, this is a great exercise in applicable math.

Extra Income

Let’s say your child is now motivated by their budgeting goals, and eager to reach them sooner. You could consider paying them extra pocket money for additional chores performed (they call this “overtime” in the working world, and it is outsourcing for you!), or help them if they want to earn money entrepreneurially. Teach them good business principles if they come to you wanting to open a lemonade stand, and help them to launch their enterprise successfully, starting with a solid business plan.

Investing

As your child continues to understand and appreciate the delayed gratification of saving and budgeting, and has a good handle on the interest their bank account earns, they may be ready for something more. Talking about various investments is the next step. A small lesson in big business and stock investments could turn into a game, as they follow the share price of companies they are familiar with, like Coca-Cola, or Disney. Although having them invest their hard-earned pennies in the stock market is not recommended just yet, you could set up a mock investment account, and get them to follow the value of their money along with the stock (again, a great lesson in applicable math). Even if they forget about it for a while, a reminder a year or so down the road that they had “money” invested and what it is now worth may lead to a pleasant surprise about market growth; or conversely a rude awakening about market downturns.

Family Finance

As your child gets a good grasp on the above financial matters (they will likely be in their teenage years by now), it is time to involve them actively in the family budgeting and finances. Help them to understand what their own short term and long term goals are, such as the cost of higher education (even if you plan to pay for it), and eventually getting a car (or conversely what their alternative transportation options and costs would be), housing, and the cost of getting set up comfortably to live on their own (and hopefully, before the age of 35)!

When it comes to family vacations, involve them actively in the process, by working out with them the cost of various vacation options and funds available, and then decide together what the family would most enjoy doing. Budget together for excursions and souvenirs, and your kids will take ownership of the trip and learn to appreciate the experience so much more. Not only that, but they will be much less likely to try to guilt you into unreasonable expenditures since they already know what the budget is; they may even help other family members to stay on track!

You may not see yourself as the world’s best financial example. But this is no reason to sit back on your haunches and do nothing; in fact this will only increase the chances exponentially that your kids will follow suit! Instead, be prepared to come clean with your own mistakes, and celebrate your victories, in order to help your kids learn from you and start their own financial lives on the right foot.

Permalink | 9 comments | Nora Dunn's blog | Channel: Personal Finance, Life Hacks

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