Blast From The Past: Investment Advice From The Early 1900′s

Do you ever wonder about what people thought about financial planning before the industry of financial planning was created?  Well, I have a treat for you.  Here are two blasts from the past, courtesy of Project Gutenberg.*

First we have Successful Stock Speculation by J. J. Butler.  Published in 1922, the book give advice on speculating in socks, recognizing stock manipulations and guidance on storing and stop-loss orders, among other things.  Here’s a great quote on bucket shops:**

“Many laws have been enacted against bucket shops, and we believe some way will be found to get rid of them at some future time; but we do not expect that to happen soon, and we warn our readers not to get into their hands, because if they do not get your money away from you one way they are likely to get it some other way. The man who runs a bucket shop usually has no conscience, and it certainly is an unfortunate thing for anyone to get mixed up with such a man.”

Bucket shops are illegal in the U.S. today, and were made illegal shortly after the publication of this book.

The other book is How to Invest Money by George Garr Henry.  This book was published in 1908 and is an excellent view on the perception of what was and wasn’t investment quality financial products.  Most of the book is focused on the largest bonds of the period, such as railroad, utility, and municipal bonds.  There is only one brief chapter on stocks (Since they were considered perilous to invest in at the time.)  There’s nothing on mutual funds (called pools at the time), since they didn’t exist as we know them.  From the book we get this quote, which is as timely now as it was then:

“For the successful investment of money, however, a good deal more is required than the mere ability to select a safe security. That is only one phase of the problem. Scientific investment demands a clear understanding of the fundamental distinctions between different classes of securities and strict adherence to the two cardinal principles, distribution of risk and selection of securities in accordance with real requirements.”

Enjoy!

*  I’m not endorsing the books or any strategies that they contain, I just thought you might be interested in reading them for your general knowledge or edification.  Also, if you’re the type who would read an old investing book on the internet and then do everything that book says, lose money, then blame/sue the person who told you about the book, you should consider developing some good judgement.  Egads.

** Today, if you trade a stock through a broker, your order for stock is executed and you actually own the stock, even if you choose to sell it a few moments later.  Back in the day, bucket shops were establishments that purported to trade the stock market, but really took bets on the market instead of actually fulfilling the orders on the exchange.  So, in a bucket shop, a customer could come in “buy” shares, but they wouldn’t actually own the shares they purchased.  Couple the gambling nature of the bucket shop with the substantial margin that was extended to “traders” at the time, and many people lost their savings to bucket shops.  Also, since the customer never owned to stock or commodity purchased, if the bucket shop went out of business, the customer lost their “investment.”

Watch Donald Duck File His 1941 and 1943 Tax Returns

With the help of an anthropomorphic fountain pen, ink well, and (I kid you not) blotter, you can watch Donald Duck file his 1941 income tax, and more interestingly, find out why he is paying his income taxes.  Spoiler alert: he’ spaying his income tax in order to fight the axis.

Tip ‘o the hat to the Consumerist for bringing it to my attention.

Apparently that wasn’t enough, so we have a sequel.

Not Everyone Should Own a Home, and That’s OK.

There comes a time in every adult’s life when the urge to buy a home comes along.  Maybe friends are buying their first houses, or your elders are telling you how important it is to build up equity, or maybe the TV pundits are saying what a great deal house and mortgage prices are.  Either way, the home-buying bug has bit.  But, should you own a home?  I’m about to buck the great American home ownership narrative,* and say that there are going to be people in situation where home ownership doesn’t make sense, and that’s OK.  let’s think of a few situation where home ownership, generally,** wouldn’t make sense:

1. An unstable job or living situation:  let’s face it; if you’re going to be shipped out, moved to a new community for work, or will have to look for work in a different community, it would be a bad plan to buy a home.  Why?  It’s very expensive to buy or sell a house, so buying and selling houses frequently can mean lots large expenses, repeatedly.  Also, if you’re in an unstable relationship, it may not be the time to buy a house with your significant other.  After all, if the relationship fails, getting rid of the house can be a nightmare-and-a-half.
2. You can’t take care of the apartment you have now:  if you can’t manage the insides of an apartment (where a landlord takes care of all the maintenance),*** how do you expect to manage both the insides and the outsides of a house?  Keeping up a home requires regular maintenance of the lawn, exterior, interior and mechanical systems of the house.  You need to either be able to maintain your house, or be able to recognize trouble and hire capable people to maintain your house.  If you don’t have the inclination and discipline to maintain the home, maybe you shouldn’t be buying one.
3. You can’t afford it:  If you can’t afford it, don’t buy it.  Since most people buy their homes with a mortgage, you need to be able to afford the payments, private mortgage interest, property tax, and homeowners insurance.  This stuff adds up.  If you can’t afford a home in your area, then you can’t afford a home in your area.  It’s too bad, but if that’s they way it is, either work on making more money (my favorite method of affording things), or hope that prices get down to your ability to pay.
4. You don’t have much financial discipline:  It’s OK, most people don’t have much financial discipline, and you can still have a good life without much financial discipline.****  If you make plenty of  money but can’t pay your bills when they’re due, regularly overdraw your checking account, and just can’t seem to save up for a down payment, you probably shouldn’t buy a house.  Even if a lender is willing to lend money to someone who can’t handle their money well, it’s probably not the best idea for someone who can’t handle money well to go into debt for 15 to 30 years.  That’s probably not a recipe for success.**

I know there are plenty of people who would look at this list with a judgmental attitude.  I don’t.  None of these situations are bad or wrong, they are what they are.

Can you think of any other reasons someone shouldn’t get a house?

*  It goes a little something like this:  “Owning a home builds citizenship and community, and makes you a superior person.  It will also be the bedrock of your financial wealth and is the American dream.  If you don’t own a home or are trying to buy a home, something is wrong with you.  Commie.”  Or something like that.

** G E N E R A L L Y.  See you financial advisor for specific advice customized to your particular situation.

*** Hypothetically.  Your mileage may vary.

**** If you just aren’t inclined to develop financial discipline, please, please consult a financial planner.  Us financial planning folks have all sorts of tips, tricks, and tactics to make sure you save the money you need for your life goals, and we can set up systems that get you where you want to go.**

Skeptic’s Guide to Investment: Astrology Edition

Investing is a huge deal, and I really don’t discuss it as much on this blog as I should.*  For many people, their life savings will be invested in various financial products like stocks, bonds, mutual funds, and the like.  Their life savings.  Investing the fruits of decades of labor can be pretty scary, so how can you make sure you’re doing it wisely?  There are a lot of considerations to wise investing, and I want to look at one small but crucial facet today: thinking about and choosing an investment theory to guide your investment choices.

Now, I’m not going to sing the praises of one theory over another today.  If you want to know how we invest client funds, you can take a look at our overview or schedule a meeting with us.  What I do want to talk about is how skeptically approach an investment theory and evaluate its truth claims.

Skepticism has a bad name, mainly because many people confuse it with cynicism.  Definefor.me defines the two terms for us:

Cynicism:  An attitude of scornful or jaded negativity, especially a general distrust of the integrity or professed motives of others…

Skepticism: A doubting or questioning attitude or state of mind; dubiety.

Do you see the difference?  A cynic will dismiss an idea in the spirit of jaded negativity while the skeptic will not accept an idea unless there is reasonable evidence for the validity of an idea.  Why approach investment theories or claims skeptically?  Do you really want to risk your savings and investments on an idea without good reasons to think an investment idea’s true?  That sounds pretty risky to me.

So, let’s look at an investment theory from the skeptic’s point of view.  Our sample investment theory will be investing in the stock market using the influences of the stars. “Wait, wait, wait,” you may say, “it’s not fair that you take on astrology.  After all, it’s well known that skeptics don’t believe in astrology.”  To which I respond: “We’re going to use an easy example, to keep things simple.”

First, let’s figure out the claim that underlies investing by astrology.  I think it’s fair to say that their claim is that, by observing stars and planets, one can predict the changes of price in the stock market (among other things.)  Now we ask the skeptic’s question, which is “What evidence do we have to support this claim?”

Remember, it’s the responsibility of the person making the claim to show that the claim is true.  It’s not the job of the person evaluating the claim to disprove it.  This is called the “burden of proof,” and the burden of proving a claim is on the person making the claim.

So, what evidence is there to support the claim that observing the stars and planets can predict stock prices?  Let’s just look at a couple of the most frequent evidences given, and see if they are satisfactory.**

1. Look at the track record of this astrologer!  See how the stars predicted these investments, and look at all the money you could’ve made by following these predictions.  This track record means it has to be true.
2. Stock markets run by periodicity, and the stars and planets run by periodicity.  It’s natural that one would drive the other.

Unfortunately, neither of these evidences stand up when critically appraised.  Firstly, looking at the track record of an astrologer is a pretty risky method of deciding that astrology is a valid method of investing.  The problem with looking at an astrologers record is two-fold.  First, confirmation bias alone can explain the perception of success of an astrologer.  If a fair evaluation of all the astrologer’s predictions is preformed, the evaluator should find that there are many predictions that are wrong and some predictions that are right.  However, confirmation bias causes us to focus on the hits, and ignore the misses.  Couple that with the likelihood that, amongst a fairly substantial population of stock-market-predicting astrologers, some will outperform that market due to sheer luck, and you have a recipe for the appearance of an effective method, when in fact it’s the intersection of selective memory and logic-busting biases.  Unless the astrology theory proponent can demonstrate that their analysis of the success of astrology in predicting market prices is free of these biases, I am going to have to continue to not believe their assertion that astrology predicts stock prices.

The second assertion is just laughable.  My dog periodically throws up on the carpet, and I don’t assert that her intermittent stomach upsets are indicative of future stock market shifts.   Why?  Because, even if her past “unfortunate incidents” are associated with market direction changes, there is no mechanism to drive the association.  There is no evidence of a mechanism to tie the spinning of the planets or the apparent shifting of the stars to changes on stock prices, either.  Until there is evidence of a mechanism driving the market that comes from astronomical bodies, I can’t believe that astronomical bodies influence market prices.

Now, imagine if went a particularly skeptical person, and you didn’t look closely at the claims of the astrologers who said they could predict the stock market by the movements of the stars.  Do you think that your investments would be safe?  Sure, things may turn out all right by sheer luck, but is it reasonable to let your life savings be invested according to an unproven investment method?  What do you think?

*  Why?  There are a lot of rules about what a financial advisor can say about investing, and I don’t want to run afoul of them, so I just don’t really talk about it that often.  The regulations have a chilling effect on my blogging, that’s for sure.

** I’m sure there are as many reasons given to believe in astrological prediction of the stock market as there are people who believe in astrological prediction of the stock market.  I’m just going to limit it to two because I don’t have all day to write this post.

Have You Thought About What Happens After You Die?

I’m not talking about what happens after you die in the spiritual/afterlife sense, but the practical sense of winding down your affairs.  Here are some points to consider:

• Do you heirs know where you keep you keys, or have a way to access your home?
• Do they know where you keep you important estate documents?
• Do they know where you keep your financial information?
• Do they know where to find your life insurance policies?
• Do they know how to find your secret hoard of gold doubloons?  (This may be of greater concern to seafaring families.  Maps are the traditional method for guiding heirs to hidden hoards; indicate distance by “paces” and the presence of the cache by an “X.”  Extra style points go to those who use cryptography and require the use major geological features, a human skull in a tree, and a bullet as a plumb line to find the cache.)
• Do they know that some of your possessions are valuable?  It would be awful to lose that first edition “Tom Sawyer” by Mark Twain that your Grandmother gave you to the library resale bin because you had it temporarily shelved with the your last five years of “Reader’s Digest.”
• Do they have access to your social media accounts and email, so that they can close the accounts?

How to Learn About Investing In Real Estate

You’ve probably seem the infomercials late at night that sell the real estate investing courses.  ‘Look how I parlayed 25¢ and a plucky attitude into a ten million dollar fortune, and you can too!  Just put your money in real estate, which is the safest investment ever since ever, and watch as the rent checks come rolling in.  It’s so easy!’*

So you may wonder to yourself, hey, how would I go about learning more about investing in real estate?  I could buy a home study course for a few hundred dollars, or go to some two-day seminars for a couple thousand dollars, or even buy some one-on-one coaching for around ten thousand dollars.  I kid you not.

Did you know that there are scads of people learning about real estate every day?  They go to training courses on becoming a real estate agent or get major in finance with an emphasis in real estate.  They learn about real estate by working in the industry and getting a professional education.  They probably don’t use infomercial study courses or over priced weekend seminars.

Overpriced?  Compare the cost of these seminars to the cost of attending college.  I expect to get my MBA for less out-of-pocket than one of these coaching programs plus one weekend seminar.  Seriously.

So, instead of buying an “aftermarket” education, consider getting the formal training that professionals in the industry receive.  That way you will get a strong, legitimate background in real estate, and avoid falling prey to people who wan to blow smoke and sell you courses.

*  I’m being facetious and hyperbolic, but, come on, you’ve seen these things.  Is it really that inaccurate?

Pulling Up Orchards

A cherry orchard.

Alright, it’s metaphor time.  Imagine that you’re a farmer who is starting an orchard.  Now, orchards take several years to mature into full fruit production.  So, you start work on your orchard, but a year in, you have a financial crisis, and have to pull up some of your trees.  So you start over.  And a few years later, there’s another crisis, and you have to pull up some more trees.  So, you start over again.

My question to you is: who would have a more productive orchard, someone who has to pull their trees up every few years, or someone who is able to let their trees mature without disturbing them?  Well, of course it’s the orchardman who doesn’t disturb her trees.  But why bring this up on a financial planning blog?

Because, investments are like orchards, in that they generally take some time to mature and become profitable.*  If you put money in your retirement plans or long-term investments and then remove the capital before it has a chance to take root and compound, then you won’t get as much traction as you would if you let your investments mature over the long haul.

This is my number one reason for encouraging people to get an emergency fund: by having ready cash for emergencies, then you won’t have to disturb your wealth building investments.  Since emergencies seem to happen every few years, an emergency fund can prevent the repeated disruption of an investment plan.

So, let your investments grow** by leaving them undisturbed, by having a plan in place when inevitable crises occur.  That way you’ll enjoy the fruits of your long-term investments that much sooner.

* If they become profitable.  Remember, nothing is guaranteed in the investment arena, and you can lose money on investments.

** Or shrink – that could happen, too.

Some High Income Toronto Residents Apalled That, After Spending All Their Income, There Isn’t Much Left Over

In a virtuoso display of real-life trolling by Toronto Life magazine, essayist Jonathan Kay bemoans that earning the top 1% of income in Toronto (according to the article, $10,400 per month after taxes) doesn’t make one rich, it makes one more middle class.  To quote:

Break it down, and it translates to roughly $10,400 a month, after taxes. For many Torontonians, that $10,400 disappears fast. Thousands go to the mortgage. For those with young kids, daycare can cost upwards of $1,500 a month. There are the car and RSP [Retirement Savings Plan - A.H.] payments, wardrobe refreshes, utility bills and something to set aside for when the furnace inevitably conks out. Plus the cost of the sushi, pad Thai and butter chicken that we order in three nights a week—because we’re all too tired to cook by the time we get home from work.

Let me play you a song of sympathy – I think I have my violin around here somewhere.  Let me look for it.  It’s really small.

Hamilton Nolan addresses this article with withering wit and a spattering of curse words over at Gawker.

And here we see the fundamental dishonest characteristic of each and every article which advances this particular enraging argument. “Sure, it’s an objectively large sum of money,” they say. “But it is far smaller after I spend it.

“…This argument is like a man eating a hearty meal, licking his plate clean, then turning to a starving person and saying, “Look, we’re in the same boat. My plate is empty too!”

You see, one of the problems high income earners have is that they earn a lot of money, yes, but they don’t feel rich.*  That’s because, after living the lifestyle of a high income person (i.e. spending all their money on nice things), there isn’t a ton of money left over for building wealth.  Because they spent it all.

The secret, of course, to becoming rich on an above average (or ridiculously large) income is to make the difference between your income and expenses as large as possible.  This will create something called “savings.”  That “savings” can then be invested into income producing ventures, or buying investments that you hope will rise in value.  This will increase your income and/or assets, which will help make you richer.

It’s obvious, of course, but it’s funny how this escapes so many people.  Either that, or they just won’t do it.

Or, they’re just trolling.

* It’s a nice problem to have, but still a problem.

When Is Homeownership Like Playing In The Road?

So, I skimmed “The Single Woman’s Guide To Real Estate” by Donna Raskin this weekend, because, hey, I’m a single woman, and I’m interested in real estate.  Funny thing, though; the book was written in 2006.  Do you know what else happened in 2006?  If you answered “housing bubble burst,” then you get a gold star.*

It’s really interesting to read advice given when the markets going up, up, up, and then thinking about that advice after the bubble burst.  The book has quite a few first-person vignettes about home buying.  Knowing what everyone knows now, with the advantage of hindsight, some of their stories seem frighteningly risky.  At the time, though, the stories were thought to be reasonable enough to include as examples of prudent purchasing.

One of the stories stuck with me.**  In it, the woman talks about how she mistakenly thought that she should pay off all her credit card balances before she bought a home.  She said that it was just too hard to pay off her credit cards, and that she couldn’t make any headway on saving for a down payment.  Then she talked about how she worked with a mortgage specialist, who helped her qualify for a loan and helped her figure out how much house she could afford.  Then she bought a house, which was kind of hard to pay for, but she got a raise that covered the cost, and so everything worked out.

Is anyone else getting the creeping willies?  I wonder what happened to her, and if she still owns her house.

I get the creeping willies for a couple of reasons:

1. Ok, you don’t have to pay off all your credit card debt, or (at the time) save up that much for a down payment.  But the story talked about how the writer couldn’t pay off the debt, even when she tried, or save up a down payment.  That implies, to me, that there is a cash flow problem in the household.  I don’t know the details, but there was either an income problem, and expense problem, or someone was not a good budgeter.  Buying a house doesn’t solve any of these problems.  Usually, it compounds them.  Why?  Because, if a homeowner can’t diligently save up to pay off credit cards or get a large down payment, is it reasonable to assume that they will suddenly change their behavior and same up a sinking and/or emergency fund for irregular household expenses?  Doubtful.
2. Talking to a mortgage agent or lender before you know what you want and whether or not you can afford it is pretty risky.  Mortgage lenders are salespeople who get paid when deals close.  Many reps were also paid more (at the time) for putting people in loans that were not as favorable to the borrower.  Trusting the salesperson to sell you the best product for your needs is asking to be taken advantage of.  Sure, some reps would do the right thing, but throwing yourself on the salesperson’s tender mercies isn’t a low-risk strategy.  Instead, it would’ve been wiser to become knowledgeable about the basics of mortgage products, and how to determine a home’s affordability, and do a lot of comparison shopping.  It doesn’t sound like that happened here.
3. Oh looky there.  It turns out that she really couldn’t afford her house – she needed a raise to make the payments.  What happens if her wages are cut or she loses her job?

Could everything have turned out fine for her?  Maybe.  But the story is risky because she’s put herself in a position that may be difficult to maintain if anything goes wrong – and life has a habit of going wrong from time-to-time.  It’s like teaching a child not to play in the street.  Most of the time, a kid running out into the street doesn’t end badly.  Even so, we teach kids to be careful and not run out into the street, because all it takes is one car to ruin their life.

The vignette is the financial equivalent of darting out into a busy street.  Sure, this story may end well and everything may workout, but it’s still a risky way to live.

* All gold stars are delivered via telepathy.  If you didn’t receive a gold star, then the problem is on the receiving end.

** I’m going from memory here, so I may be conflating a couple of stories.  If so, I beg the reader’s forgiveness, but I also think the point still stands.

Get Your Financial Concern On

I stumbled across a couple Dateline NBC programs on YouTube that you may be interested in.  The first is about credit card debt and the second is about mortgage fraud.  I don’t really have time to blog today, so I hope this will keep you busy for the weekend.

March Motivation – Perfection: The Enemy of Success

It’s that time of year again.  The time of year when the after holiday rush at the gym peters out.  The time of the year when the best laid plans in January get crowded out by all the urgent, important and unexpected details of life.  The time of the year when most people start to feel bad about not adhering to their goals, or are discouraged that their lifestyle changes are not working out as they had planned.

Instead of getting down on yourself about not being executing your lifestyle changes the way you had hoped, I’d like you to think about how both nature, and people, succeed in the real world.

Consider the coral reef.  If you’ve ever tuned in to the Discovery channel, you know how they form.  Billions of little animals, coral polyps, secrete calcium, and over thousands upon thousands of years, they build huge reefs.  Now, did any of those little polyps contribute to the reef perfectly? No.  They just slapped down some calcium while going about the business of living.  It’s all those little additions, accumulating over time, that gets the job done.

Now, you may be saying to yourself, “Abigail, I don’t have a geologic timeframe for my self-improvement project.  I was really hoping to get it done this year.  How is this even remotely relevant?”  To which I say: “Consider your dental hygiene.”

You probably brush your teeth.  Let’s say you brush your teeth once a day.  You talk to your dentist, and she recommends that you brush at least twice daily and floss at least once daily.  Now, you have to make some changes.  So, you stop by the store on the way home for some floss and resolve to start brushing after breakfast and flossing after you brush at night.

What happens on the first day of your new lifestyle change?  You probably remembered that you were supposed to brush your teeth after breakfast around lunchtime.  Oops.  Now, here’s my question for you: now that you’ve failed to adhere to your new regime of tooth brushing, will you give up and never change how you brush your teeth?  Do you plan to tell your dentist, at the next visit, that you gave up on improving your brushing routine because you missed a day?

Of course not, if we all did that we would have rotten teeth.  Instead we just try again.  That’s because, like so much of life, it’s the aggregate over time that matters, not executing perfectly every time.  It matters that we brush and floss every day, not that we perfectly brush and floss every day.

Yet, for some reason, we expect to make major lifestyle changes – like improving our finances or changing our diet – perfectly every time.  In reality, it’s the accretion of little changes over a long period of time that pay off.

So, skip the perfection.  Instead, concentrate on trying to fulfill your goals by making a consistent, habitual effort toward your goal.  It’s how goals get achieved.

What Is Balance Sheet Repair?

The latest and greatest fad in personal finance is “balance sheet repair.”  So, what is balance sheet repair, and does your balance sheet need to be repaired?

First, what is “balance sheet repair?”  It’s one of those delightful phrases you hear bandied about when someone wants to sound smart and informed, but ends up being a little ambiguous.  What balance sheet repair means is that debt is being reduced and that assets are being increased.  So, if you pay off some of your credit cards and save some money in your emergency fund, then your repairing your balance sheet.  The phrase also implies that you had an undesirably high level of debt or low level of savings in the past, but you’re fixing it now.

Perhaps you remember Balance Sheet Repair In Action, where I took a look at U.S. household debt reduction.  Research suggests that, when household wealth decreases, household savings increases, which we’ve seen a lot of, these last few years.

So, how do you know if your balance sheet needs to be repaired?  There are some long-standing rules of thumb for that.  First, compare your debt payments to your gross income.  This is called the debt-to-income ratio.  It’s really easy – take a piece of paper and sum up your monthly debt payments.  Then, compare the total of your payments over your monthly gross income, like this: $150 in debt payments over $2,500 in gross income per month.*  That would mean 6% of your gross monthly pay goes to service your debt.  Is that bad or good?  The rule of thumb is that you debt-to-income ratio should be 28% or less.  This rule comes from the mortgage industry, where conforming loans require that the debtor have a debt-to-income ration of 28% or better.

If you’re not happy with your numbers, how can you repair you balance sheet?  There are two methods: increase assets or decrease liabilities.  You can increase assets very reliably by saving more or increasing investment contributions.  You can decrease your liabilities by paying them off (here are some suggestions for paying off your debts.)

Repairing your balance sheet takes time, but with diligence, persistence, and a little luck, you can get your finances in good order.

* Gross income is the amount you are paid before any taxes or deductions.  It’s usually the top line on your pay stub.

Overcoming Unreasonable Financial Expectations

Do you find that some days it just feels like everyone is richer than you?  Read this, and feel better about your financial life.

This morning I got a text from my sister that reminded me that being a financial planner gives a person special insight into people’s personal finances.*  She texted me saying that she didn’t feel that she related to rich people.  She overheard a conversation between some people who were discussing their Tiffany candlesticks, second home in Aspen, and a $250 key chain, and she felt like they were from another world than her.

I told her not to worry, odds were good that they weren’t rich at all.  You see, it’s far easier to pretend to be rich than to actually be rich.  Anyone can, with a high enough income, borrow all the money they need to mime a spectacularly wealthy person.  For example, my sister has no way of knowing if the Tiffany candlesticks and key chain were bought with cash or credit.  She also has no way of knowing if the second home in Aspen was owned free-and-clear, or mortgaged to the hilt.  All she knew is that they could spend money freely.

I’ve met my share of these “fakers” as a financial planner.**  I’ve met a C-level executive of a Midwestern manufacturing firm that, at the approximate age of 60, had less than two years income saved for his retirement.  It’s not that he had periods of unemployment, it’s just that so many expenses had gotten in the way: private schooling for his children, the lake house needed to be kept up, they had to keep their cars up-to-date, and so on.  He had a tremendous income, but he just didn’t take that income and turn it into enduring wealth.  He looked rich, but wasn’t.

So, if there are so many people faking wealth, how do you know where you stack up?  There’s a nifty net worth calculator over at CNNMoney.com that can show the median income for a certain income level and age group.  If you’ve been fortunate enough to earn more than your expenses, and diligent enough to save up some money, then you can go see how you stack up against your cohort.  Remember, this calculator uses representative samples.  If you fall under the median, don’t beat yourself up.  You may have circumstances that prevent you from hitting the median, which is perfectly reasonable.

And, don’t feel bad that you aren’t spending as much as your friends, and don’t compare yourself to them.  They may have a situation that’s completely different from yours, and it is probably not a fair comparison.  Instead, compare yourself to what you are reasonably capable of.  Maybe you’re at a stage of your life where you can’t save up.  If so, just keep plugging away.  Remember, spending doesn’t equal wealth.

* As well it should.

** The stories are true, but identifying details have been changed to protect identities.

An Adventurous Palate Can Give You Easy Grocery Savings

Does healthy eating make your both your physique and wallet lighter?  If you’ve got an adventurous spirit and want to save a few bucks on filling your stomach, have I two simple tips for you:  take a look at your local Asian grocery, and learn the art of stock making.

Traditional Asian cuisine is full of balanced portions of lean meats, vegetables, and grains.  All these can be bought at very reasonable prices from your local Asian grocery.  I’ve been a patron of Asian groceries for several years, and have enjoyed some delicious, inexpensive food.  For example, I can buy a half-gallon container of pre-prepared green tea at Whole Foods for about $5-6, while, at the Asian grocery I can buy a bag of Sencha (green tea leaves) that will make dozens of quarts of tea for only about $7.  The savings over time is huge, and I get to control the freshness and strength of the tea.

Another example of savings I’ve had from the Asian grocery are on the purchase of shrimp.  At the standard grocery store, previously frozen, cleaned shrimp generally cost $5-7 per pound.  At the Asian grocery I patronize, I have bought whole shrimp for a little over $1.50 per pound.  Even after cleaning and deveining, that’s a significant savings.  (By the way, we’ll come back to what you can do with the “waste” in a minute.)  I’ve found lower prices at the Asian grocery to be consistent across the board, with fresh herbs at about 1/3 to 1/6th the grocery store price, vegetables generally at 1/2 the grocery store price, and meats at varying prices, but generally a little lower than the usual price.

There are a few cons to this story, though.  If you don’t like Asian flavors or can’t handle the sight of whole foods (fish or shrimp with the head on, for example, or dried whole squid) then you may not enjoy shopping at an Asian grocery.  Also, the Asian groceries generally doesn’t label things as well as most shoppers expect, or the labels are in the language of the country the item was imported from, so if you’re looking for wakame or bok choy, and don’t know what it looks like, you will be in trouble.  Another thing, make sure you set your expectations properly.  They’re Asian groceries, not conventional groceries.  Don’t get irritated if you can’t find Italian pasta sauce or noodles, or onion, carrot and celery for French cooking.

Speaking of French cooking, what will you do with the “waste” from cleaning your inexpensive meats from the Asian grocery?  French cuisine has a healthy, delicious answer that will perk up all your cooking: stock and broth making.  Take the shrimp, for example.  After cleaning and deveining the shrimp, you could be left with lots of heads and shells.  Most people would just throw them away, but why be wasteful?  You can take the shells, along with some onion, carrot, celery and a bay leaf and make a quick and delicious shrimp stock.  Now you have an easy base for seafood soups or a bowl of noodles.  If you can’t use it all right away, stocks and broths freeze easily for later use.  French cuisine has a use for just about every animal in making a stock, so save bones and parts from chicken, beef, fish and shrimp for later stock making.  If you need recipes, I recommend looking on the internet or getting a copy of “The Joy of Cooking.”

These two tips have saved me a lot of money and improved the quality of my nutrition.  I hope you experience the same.

What Does The Lottery Really Cost?

I’ve met more than one person, in my time, who has a lotto habit.  Now, I’m not going to knock playing the lottery every once in a while, since it’s cheap thrills; but I do want to show what it costs to make playing the lottery a retirement plan.  Let’s look at a popular lottery game available in Arkansas: Powerball^®.

Powerball^® is a multi-state lottery game that is drawn twice a week and costs $2 to play, with the option of increasing non-jackpot winnings by paying an additional dollar.  The prize starts at $40 million, with the odds of winning the jackpot at 1 in 175,000,000.*  Pretty slim.

So, let’s say you make a habit out of playing the lottery by buying a ticket for every drawing.  You do this since from the age of 25 to 65, as if it was your retirement plan.  How much money did you “invest” into Powerball^®?

Two dollars per drawing, 2 drawings a week, 52 weeks per year for forty years: $8,320.

I can buy a reasonable little car for that money.

Odds are, you may win a tiny prize a couple of times during this period, but nothing to write home about.  So you’re out the cost of the tickets, over a lifetime.  It’s not that bod, right?  Even so, there’s another cost we haven’t looked at – opportunity cost.

You see, when you buy lottery ticket, you not only are buying something that has very little value (a $40,000,000 prize into, say, 175,000,000 tickets brings the value to just shy of $0.23 per ticket), you’re also losing the money that money could’ve made for you.  Let’s pretend that, instead of buying a lotto ticket twice a week, you put that same cost into an entirely fictional account that has no costs or taxes and then compound it at, say, 7% over the 40 year period.  What would you have?  About $45,860.  That’s pretty expensive.

* Information from Arkansas Scholarship Lottery FAQs and Powerball.com.