J.D. Roth, a very successful personal finance blogger (www.getrichslowly.org), wrote a very helpful post on "Eating Well on One Dollar a Day." He's actually referencing another fellow's blog who details (pictures of receipts, etc.) precisely what he bought and how he bought it to average spending under $1 per day for a month of food.
The reason I'm referencing J.D.'s post rather than the original is that J.D. indexes it in a helpful way to get at the information. From this, I can see that some of my shopping has been all wrong. Especially with feeding all these boys, I needed a primer in cheap shopping!
Thursday, June 10, 2010
Monday, March 22, 2010
Infinite Banking and Bank on Yourself: Scams or Wise Investments?
A friend was considering buying into "Infinite Banking" or "Bank on Yourself", which is a sort of whole life insurance policy that allows you to borrow on your own money once you're fully vested. At first, it seems like a really cool deal: why borrow from a bank when you could borrow from yourself, paying yourself interest rather than the bank?
But the more I read, I determined that some of the supposed benefits were largely illusory. Yet, the fascinating thing was that, after reading for hours on the subject (and I was always good at Math and consider myself pretty good at personal finance and investing - hey, I wrote an entire book on it!), there was still a mental cloud that hung over it. It's sort of like those mathematical puzzles where Sally buys something, sells something, then something complicated happens and you know you're applying all the right equations, but in the end the numbers always come out wrong. When your mind tries to retrace the steps, it gets lost in sort of a fog.
But in this case, the fog eventually cleared for me. Here are my conclusions that I shared with my friend. Feel free to interact if you're considering this. But you may want to go straight to the Kiplinger site, where a ton of interaction is going on. You can read people arguing pro and con, and eventually you, like my experience, might see the fog clearing up.
Here's the Kiplinger discussion, which any person considering "Infinite Banking" should carefully consider:
http://forums.kiplinger.com/showthread.php?t=10496&page=3&pp=15
During the first pages of the discussion, many of the comments are positive toward Infinite Banking, but as people delve into it more, you find more and more negatives. So make sure to keep reading. This is a ton of money you're considering putting into this, so study it carefully. Remember Solomon's warning: "The fool believes everything he hears."
So here are some of my red flags, concerns and questions I'd ask for someone trying to sell me this policy:
Questions, Concerns and Red Flags
1) What is the name of the insurance company you'd be using? I’d like to see how it’s rated. Here's an authoritative source for rating insurance companies:
http://www3.ambest.com/lh/default.asp
But even if it’s rated excellent, that’s lots of money tied up in one company. If that's where most of your savings is going, you're putting a lot of eggs into one basket. Is it insured by the FDIC? If so, up to what level? What happens to the money if the company goes broke? (Just before Enron went belly-up, it was still given the highest ratings. People didn’t know what was going on inside until the very end.)
2) The Websites for these groups immediately start explaining why Dave Ramsey and Suze Orman are against them, saying stuff like “They don’t understand these policies.” Well, from what I’ve read of Suze, although I don't always agree with her, she's pretty thorough on things, particularly insurance. I’d want to know precisely why Suze and Dave are against this. If you don't understand their criticisms, you don't know both sides.
2) Some are saying this isn’t anything new, it’s just being marketed differently. So, if it isn’t new, then why did the others stop doing it? Maybe it’s something that sells well when the economy is looking bad and everyone is scared, but nobody wants to get in when things are going well.
3) Why aren’t the major insurance companies selling this? Are they? I’d like to see what the big insurance associations say about them.
4) The way this is being marketing looks more like hype than solid information. Look at Pamela Yellen's book, Bank on Yourself in Amazon. So it has almost 100 reviews, and a significant percent are five star. But any author can get lots of associates and friends to write five star reviews, particularly if you're selling a product and have other product sales people under you who have a vested interest in making the book look good. But a significant 12% of the reviews are only one star. I often see this in financial books that have some good stuff in them, but also some crap. Lots of five-star fans, but also a significant portion of one-star critics saying, "This is crazy!" Read these one-star reviews carefully.
http://www.amazon.com/Bank-Yourself-Life-Changing-Protecting-Financial/product-reviews/B003156AXW/ref=cm_cr_dp_hist_1?ie=UTF8&showViewpoints=0&filterBy=addOneStar
1) It’s a type of whole life insurance policy. Don’t get it unless your main reason for doing it is to give money to a loved one at the time of your death. Even then, make sure that it’s a good policy compared to other life insurance policies. Example: how much of all that money you’ve saved actually goes to your beneficiaries in the end?
The vast majority of financial counselors that I read say to buy term insurance (which is much less expensive) and invest what you save, until you've saved up enough to be self-insured. If you're 55 years old and you've got lots of money saved up for retirement, you just need to insure the difference between what you've saved and what your loved one would need if you died. So you need less and less life insurance as you go through life. After you've got enough to retire, you probably don't need life insurance at all.
2) The concept of “being your own bank” and “infinite banking” seems largely illusory. I got fascinated with it and was up till 1:00 AM trying to understand people’s arguments back and forth in this regard. When I woke up the next morning, I suppose my mind had been working on it during my sleep, and it seemed clearer to me. I think the quote at the end of this post will show clearly that, if you need to borrow money, in most cases, you’d be better off just finding the lowest cost loan than borrowing from your own money in your insurance policy.
As an aside, I'm in the habit of saving up and buying things, so that I've never made payments on depreciating assets like a car or furniture. Don't borrow on a depreciating asset. And don't borrow on an appreciating asset unless it's absolutely necessary. Borrowing is sometimes a necessity (a medical emergency or to buy a house), but never safe. Even if you're borrowing from your own insurance policy, "the borrower is the lender's slave." There are consequences if you don't pay it back, and you need to know precisely what those consequences are.
3) In what cases are smart people justifying buying one of these policies. Only in limited situations. Some who argue for the wisdom of such a policy are saying that “it’s not a substitute for your retirement, but if you’ve already got a great retirement set up, and if you’re currently making a high salary, so that you’re not likely to default on your payments, then it may be a way to further diversify the assets that you want to go to loved ones at your death.”
4) Some say that they weren’t saving anything for the future, and this is forced savings, like when you have to make your mortgage payment each month. They say it works for them, but it seems pretty expensive to me. You're paying tons of money for the policy that could be growing in a low-cost mutual fund. And if you’re an undisciplined spender today, then might you also over borrow from your insurance fund and get in trouble trying to pay it back?
5) I’d want to know exactly what happens if you can’t keep up your payments, or if you borrow from it and can’t pay it back on time. And can those rules change over time?
6) I’d want to know exactly how the 5% (or whatever) growth per year works. What is the rate based on - how well the company’s doing? If so, what if this type of policy goes out of favor and new people stop putting money in? Will the percentage increase drop?
7) I'd want to see an exact comparison, all costs considered (taxes, service fees, etc.), of how the money you'd put into a policy like this would stack up against a fairly conservative investment in stocks, bonds and cash equivalents at a respected firm like Vanguard.
8) Some people are talking about paying up these policies with the equity in their houses or using this as their retirement plan. This would be a huge step and makes no sense to me at all. What if this company goes belly up? Again, you've got a lot of eggs in one basket. Sure, stocks and bonds and banks and real estate can be scary. But that's why we diversify. If my stock mutual funds are diversified between thousands of companies, then the worth of all those companies could never drop to nothing, except in an Armageddon scenario. And in an Armageddon scenario, say goodbye to your insurance and the FDIC as well. If you're looking for Armageddon, get your life right with God (for your long-term outlook) and invest in guns and knives (for your short-term outlook).
I'm just slightly revising one of the posts from the Kipplinger discussion group. The important thing here is to keep your eye on how much the transaction is costing you out of pocket over time. I think you'll see that in all three cases, you're spending the same amount to borrow the money. Banking for yourself is in reality giving you no real benefit that I can see over taking out a traditional loan.
Example 1: Using CASH for purchase. $10,000 account earning 5% interest.
I take out the $10,000 and make purchase. It is no longer earning 5%. So, after 1 year, I have lost $500 in interest, correct? Well, lets say at the end of the year I put back the $10,000 + $500 ($10500). So, it was as if I never took money out in the first place because I added $500 out of my pocket to make up for the lost interest. The opportunity cost of using the money was 5%, but I made it up by "charging myself" 5%.
This transaction cost me $500 out-of-pocket and I now have $10,500 in my account.
Example 2: Commercial loan. $10,000 at 5% interest
I take a 5% loan from a bank and leave my $10,000 in the bank, still earning 5% interest. At the end of the year, I pay off the loan in full for $10,000 + an additional out pocket $500. My bank account earned $500, but the loan interest cost me $500. The opportunity cost of using this method was 0, but the interest cost of using this money was 5%.
This transaction cost $500 out-of-pocket and I now have $10,500 in my account.
Example 3 (Infinite Banking): Policy loan for $10000, current loan rate 5%
I take a 5% loan from my policy and make my $10,000 of cash value collateral, still earning 5% interest + dividends. At the end of the year, I pay off the loan in full for $10000 plus an additional out of pocket $500 to free up my collateral. My cash value earned $500, but the loan interest cost me $500. The opportunity cost of using this money was 0, but the interest cost that I needed to pay to free up my collateral was 5%.
This transaction cost $500 out-of-pocket and I have $10,500 in my account.
Also, I should mention, I can borrow money on my home equity loan presently for much less than 5%. And some car loans are at 0%. If I "borrow" from my cash account that's getting pitiful interest, like my Money Market fund, then my out-of-pocket opportunity loss would be only about 1% over a year. My point? Even if you had an "infinite banking" account to borrow from, in many cases you'd be better off borrowing elsewhere.
The bottom line? What benefit was it to me to borrow from my insurance policy?
But the more I read, I determined that some of the supposed benefits were largely illusory. Yet, the fascinating thing was that, after reading for hours on the subject (and I was always good at Math and consider myself pretty good at personal finance and investing - hey, I wrote an entire book on it!), there was still a mental cloud that hung over it. It's sort of like those mathematical puzzles where Sally buys something, sells something, then something complicated happens and you know you're applying all the right equations, but in the end the numbers always come out wrong. When your mind tries to retrace the steps, it gets lost in sort of a fog.
But in this case, the fog eventually cleared for me. Here are my conclusions that I shared with my friend. Feel free to interact if you're considering this. But you may want to go straight to the Kiplinger site, where a ton of interaction is going on. You can read people arguing pro and con, and eventually you, like my experience, might see the fog clearing up.
Here's the Kiplinger discussion, which any person considering "Infinite Banking" should carefully consider:
http://forums.kiplinger.com/showthread.php?t=10496&page=3&pp=15
During the first pages of the discussion, many of the comments are positive toward Infinite Banking, but as people delve into it more, you find more and more negatives. So make sure to keep reading. This is a ton of money you're considering putting into this, so study it carefully. Remember Solomon's warning: "The fool believes everything he hears."
So here are some of my red flags, concerns and questions I'd ask for someone trying to sell me this policy:
Questions, Concerns and Red Flags
1) What is the name of the insurance company you'd be using? I’d like to see how it’s rated. Here's an authoritative source for rating insurance companies:
http://www3.ambest.com/lh/default.asp
But even if it’s rated excellent, that’s lots of money tied up in one company. If that's where most of your savings is going, you're putting a lot of eggs into one basket. Is it insured by the FDIC? If so, up to what level? What happens to the money if the company goes broke? (Just before Enron went belly-up, it was still given the highest ratings. People didn’t know what was going on inside until the very end.)
2) The Websites for these groups immediately start explaining why Dave Ramsey and Suze Orman are against them, saying stuff like “They don’t understand these policies.” Well, from what I’ve read of Suze, although I don't always agree with her, she's pretty thorough on things, particularly insurance. I’d want to know precisely why Suze and Dave are against this. If you don't understand their criticisms, you don't know both sides.
2) Some are saying this isn’t anything new, it’s just being marketed differently. So, if it isn’t new, then why did the others stop doing it? Maybe it’s something that sells well when the economy is looking bad and everyone is scared, but nobody wants to get in when things are going well.
3) Why aren’t the major insurance companies selling this? Are they? I’d like to see what the big insurance associations say about them.
4) The way this is being marketing looks more like hype than solid information. Look at Pamela Yellen's book, Bank on Yourself in Amazon. So it has almost 100 reviews, and a significant percent are five star. But any author can get lots of associates and friends to write five star reviews, particularly if you're selling a product and have other product sales people under you who have a vested interest in making the book look good. But a significant 12% of the reviews are only one star. I often see this in financial books that have some good stuff in them, but also some crap. Lots of five-star fans, but also a significant portion of one-star critics saying, "This is crazy!" Read these one-star reviews carefully.
http://www.amazon.com/Bank-Yourself-Life-Changing-Protecting-Financial/product-reviews/B003156AXW/ref=cm_cr_dp_hist_1?ie=UTF8&showViewpoints=0&filterBy=addOneStar
My Bottom Lines
1) It’s a type of whole life insurance policy. Don’t get it unless your main reason for doing it is to give money to a loved one at the time of your death. Even then, make sure that it’s a good policy compared to other life insurance policies. Example: how much of all that money you’ve saved actually goes to your beneficiaries in the end?
The vast majority of financial counselors that I read say to buy term insurance (which is much less expensive) and invest what you save, until you've saved up enough to be self-insured. If you're 55 years old and you've got lots of money saved up for retirement, you just need to insure the difference between what you've saved and what your loved one would need if you died. So you need less and less life insurance as you go through life. After you've got enough to retire, you probably don't need life insurance at all.
2) The concept of “being your own bank” and “infinite banking” seems largely illusory. I got fascinated with it and was up till 1:00 AM trying to understand people’s arguments back and forth in this regard. When I woke up the next morning, I suppose my mind had been working on it during my sleep, and it seemed clearer to me. I think the quote at the end of this post will show clearly that, if you need to borrow money, in most cases, you’d be better off just finding the lowest cost loan than borrowing from your own money in your insurance policy.
As an aside, I'm in the habit of saving up and buying things, so that I've never made payments on depreciating assets like a car or furniture. Don't borrow on a depreciating asset. And don't borrow on an appreciating asset unless it's absolutely necessary. Borrowing is sometimes a necessity (a medical emergency or to buy a house), but never safe. Even if you're borrowing from your own insurance policy, "the borrower is the lender's slave." There are consequences if you don't pay it back, and you need to know precisely what those consequences are.
3) In what cases are smart people justifying buying one of these policies. Only in limited situations. Some who argue for the wisdom of such a policy are saying that “it’s not a substitute for your retirement, but if you’ve already got a great retirement set up, and if you’re currently making a high salary, so that you’re not likely to default on your payments, then it may be a way to further diversify the assets that you want to go to loved ones at your death.”
4) Some say that they weren’t saving anything for the future, and this is forced savings, like when you have to make your mortgage payment each month. They say it works for them, but it seems pretty expensive to me. You're paying tons of money for the policy that could be growing in a low-cost mutual fund. And if you’re an undisciplined spender today, then might you also over borrow from your insurance fund and get in trouble trying to pay it back?
5) I’d want to know exactly what happens if you can’t keep up your payments, or if you borrow from it and can’t pay it back on time. And can those rules change over time?
6) I’d want to know exactly how the 5% (or whatever) growth per year works. What is the rate based on - how well the company’s doing? If so, what if this type of policy goes out of favor and new people stop putting money in? Will the percentage increase drop?
7) I'd want to see an exact comparison, all costs considered (taxes, service fees, etc.), of how the money you'd put into a policy like this would stack up against a fairly conservative investment in stocks, bonds and cash equivalents at a respected firm like Vanguard.
8) Some people are talking about paying up these policies with the equity in their houses or using this as their retirement plan. This would be a huge step and makes no sense to me at all. What if this company goes belly up? Again, you've got a lot of eggs in one basket. Sure, stocks and bonds and banks and real estate can be scary. But that's why we diversify. If my stock mutual funds are diversified between thousands of companies, then the worth of all those companies could never drop to nothing, except in an Armageddon scenario. And in an Armageddon scenario, say goodbye to your insurance and the FDIC as well. If you're looking for Armageddon, get your life right with God (for your long-term outlook) and invest in guns and knives (for your short-term outlook).
A Comparison of Banking for Yourself (from your insurance policy) and Borrowing from Your Real Bank
I'm just slightly revising one of the posts from the Kipplinger discussion group. The important thing here is to keep your eye on how much the transaction is costing you out of pocket over time. I think you'll see that in all three cases, you're spending the same amount to borrow the money. Banking for yourself is in reality giving you no real benefit that I can see over taking out a traditional loan.
Example 1: Using CASH for purchase. $10,000 account earning 5% interest.
I take out the $10,000 and make purchase. It is no longer earning 5%. So, after 1 year, I have lost $500 in interest, correct? Well, lets say at the end of the year I put back the $10,000 + $500 ($10500). So, it was as if I never took money out in the first place because I added $500 out of my pocket to make up for the lost interest. The opportunity cost of using the money was 5%, but I made it up by "charging myself" 5%.
This transaction cost me $500 out-of-pocket and I now have $10,500 in my account.
Example 2: Commercial loan. $10,000 at 5% interest
I take a 5% loan from a bank and leave my $10,000 in the bank, still earning 5% interest. At the end of the year, I pay off the loan in full for $10,000 + an additional out pocket $500. My bank account earned $500, but the loan interest cost me $500. The opportunity cost of using this method was 0, but the interest cost of using this money was 5%.
This transaction cost $500 out-of-pocket and I now have $10,500 in my account.
Example 3 (Infinite Banking): Policy loan for $10000, current loan rate 5%
I take a 5% loan from my policy and make my $10,000 of cash value collateral, still earning 5% interest + dividends. At the end of the year, I pay off the loan in full for $10000 plus an additional out of pocket $500 to free up my collateral. My cash value earned $500, but the loan interest cost me $500. The opportunity cost of using this money was 0, but the interest cost that I needed to pay to free up my collateral was 5%.
This transaction cost $500 out-of-pocket and I have $10,500 in my account.
Also, I should mention, I can borrow money on my home equity loan presently for much less than 5%. And some car loans are at 0%. If I "borrow" from my cash account that's getting pitiful interest, like my Money Market fund, then my out-of-pocket opportunity loss would be only about 1% over a year. My point? Even if you had an "infinite banking" account to borrow from, in many cases you'd be better off borrowing elsewhere.
The bottom line? What benefit was it to me to borrow from my insurance policy?
Friday, December 25, 2009
Moheban Argues: Don't Expect Hyperinflation or the Collapse of the Dollar
Need to understand basic macroeconomics? I just read this book: Debunking the Hyperinflation of Peter Schiff and the Gold Bugs: A Guide for Investors, by Moheban. Recommended read. here's my review.
Peter Schiff predicts "surging long-term interest rates," "runaway inflation" and the ultimate "collapse of the dollar." Will it happen?
Many people proclaim to know the future of the economy. In the 1990's many financial advisers "just knew" that we had entered a "new economy" where technology stocks would continue to rise in value. They had great arguments to back up their claims. Alas, they were wrong; and those who followed their advice lost fortunes. A few years ago, many top economists argued that the housing market wasn't in a bubble and that defaults on the new, creative loans wouldn't cause severe economic problems. They were wrong.
So today many experts argue, with great confidence, that the Fed will have to print tons of paper money to pay off its debts, resulting in hyper-inflation and the collapse of the American dollar. Those who subscribe to this theory and act upon it should, they say, buy precious metals (even at inflated prices) and weight their stock holdings toward foreign securities. While this is a possible scenario, Richard Moheban argues that it's highly unlikely, thus providing a useful counterpoint to Peter Schiff's claims.
I began reading Moheban's book fully expecting to give it a quick read and find a bit of value, but in the end resell it on Amazon. Instead, I underlined, interacted with my pen and kept it for future reference.
Rather than use insider, technical economic speak, Moheban explains the basics of macroeconomics in language that is not only easy to understand, but actually entertaining. During my before-bedtime read, I felt compelled to interrupt my wife's reading to repeat Moheban's illustration of how inflation would occur in a fishing village, as opposed to something as bewilderingly complex as the US economy.
His lucid arguments and helpful analogies resulted in several "Aha!" moments for me, which I wasn't expecting, since I'm a financial writer.
Here's why I recommend Moheban's book:
1.He introduces macroeconomics to the uninitiated. To evaluate arguments concerning our economic future, you need a quick, lucid introduction. This book works.
2.He provides a helpful counter-argument to Schiff and company. To maintain objectivity in any academic endeavor, open-mindedly read intelligent opposing positions. Read Schiff. Read Moheban. Whether you agree or disagree with Moheban, you'll realize that there's another side to these important issues.
3.He helps us to understand just how tenuous economic predictions are when dealing with large, complex economies. Consistent with this, Moheban doesn't declare with certainty where the economy is headed. On the one hand, America may learn its lessons, pay down its excessive debts, and continue to lead the world's economy with its leadership in such areas as higher education and innovation. On the other hand, people may lose confidence in the dollar, cash in their stocks and bonds, pull their money out of the banks and buy guns, knives and gold.
Either scenario is possible; but our economy is so large and complex that we can't make predictions with certainty. And for those who correctly predicted the present economic mess, how can we know with any degree of certainty that they can correctly predict the next stage?
It's important to note that Moheban doesn't believe that all is well with the American economy. He's particularly concerned that if investors in short-term government bonds decide not to continually reinvest, how will the government continue to finance the deficits? Again, we can't know for certain what will happen, so get used to making decisions in the light of economic uncertainty. As Kurt Vonnegut observed in his novel, Slapstick, "History is merely a list of surprises. It can only prepare us to be surprised again."
J. Steve Miller
Author of Enjoy Your Money! How to Make It, Save It, Invest It and Give It
Peter Schiff predicts "surging long-term interest rates," "runaway inflation" and the ultimate "collapse of the dollar." Will it happen?
Many people proclaim to know the future of the economy. In the 1990's many financial advisers "just knew" that we had entered a "new economy" where technology stocks would continue to rise in value. They had great arguments to back up their claims. Alas, they were wrong; and those who followed their advice lost fortunes. A few years ago, many top economists argued that the housing market wasn't in a bubble and that defaults on the new, creative loans wouldn't cause severe economic problems. They were wrong.
So today many experts argue, with great confidence, that the Fed will have to print tons of paper money to pay off its debts, resulting in hyper-inflation and the collapse of the American dollar. Those who subscribe to this theory and act upon it should, they say, buy precious metals (even at inflated prices) and weight their stock holdings toward foreign securities. While this is a possible scenario, Richard Moheban argues that it's highly unlikely, thus providing a useful counterpoint to Peter Schiff's claims.
I began reading Moheban's book fully expecting to give it a quick read and find a bit of value, but in the end resell it on Amazon. Instead, I underlined, interacted with my pen and kept it for future reference.
Rather than use insider, technical economic speak, Moheban explains the basics of macroeconomics in language that is not only easy to understand, but actually entertaining. During my before-bedtime read, I felt compelled to interrupt my wife's reading to repeat Moheban's illustration of how inflation would occur in a fishing village, as opposed to something as bewilderingly complex as the US economy.
His lucid arguments and helpful analogies resulted in several "Aha!" moments for me, which I wasn't expecting, since I'm a financial writer.
Here's why I recommend Moheban's book:
1.He introduces macroeconomics to the uninitiated. To evaluate arguments concerning our economic future, you need a quick, lucid introduction. This book works.
2.He provides a helpful counter-argument to Schiff and company. To maintain objectivity in any academic endeavor, open-mindedly read intelligent opposing positions. Read Schiff. Read Moheban. Whether you agree or disagree with Moheban, you'll realize that there's another side to these important issues.
3.He helps us to understand just how tenuous economic predictions are when dealing with large, complex economies. Consistent with this, Moheban doesn't declare with certainty where the economy is headed. On the one hand, America may learn its lessons, pay down its excessive debts, and continue to lead the world's economy with its leadership in such areas as higher education and innovation. On the other hand, people may lose confidence in the dollar, cash in their stocks and bonds, pull their money out of the banks and buy guns, knives and gold.
Either scenario is possible; but our economy is so large and complex that we can't make predictions with certainty. And for those who correctly predicted the present economic mess, how can we know with any degree of certainty that they can correctly predict the next stage?
It's important to note that Moheban doesn't believe that all is well with the American economy. He's particularly concerned that if investors in short-term government bonds decide not to continually reinvest, how will the government continue to finance the deficits? Again, we can't know for certain what will happen, so get used to making decisions in the light of economic uncertainty. As Kurt Vonnegut observed in his novel, Slapstick, "History is merely a list of surprises. It can only prepare us to be surprised again."
J. Steve Miller
Author of Enjoy Your Money! How to Make It, Save It, Invest It and Give It
Wednesday, September 16, 2009
Money: Teens Don't Get It
I've long been a proponent of teens living at a time in their lives when they can save vast amounts of money. Though their income may be small, they have very few expenses, seeing that their room and board and virtually all their living expenses are paid for.
Warren Buffett seems to be one of the few teens who understood "the power of early" - the vast potential of saving in the the early years so that it could multiply in the latter years. That's how he saved (in today's money, accounting for inflation) $47,000 by high school graduation.
Now you'd think that perhaps the current recession has made teens rethink their spending and begin to save toward an uncertain future. Yet, a recent survey of over 61,000 teens in over 31 countries found 15 percent or less spending less on movies and music. Less than 20% are spending less on console and computer games. I assume that means that about 80% of teens haven't changed many of their spending habits at all because of "The Great Recession."
Does this strike anyone but me as odd? I've heard that adults are spending less and saving more. Why hasn't this trickled down to our young people?
Warren Buffett seems to be one of the few teens who understood "the power of early" - the vast potential of saving in the the early years so that it could multiply in the latter years. That's how he saved (in today's money, accounting for inflation) $47,000 by high school graduation.
Now you'd think that perhaps the current recession has made teens rethink their spending and begin to save toward an uncertain future. Yet, a recent survey of over 61,000 teens in over 31 countries found 15 percent or less spending less on movies and music. Less than 20% are spending less on console and computer games. I assume that means that about 80% of teens haven't changed many of their spending habits at all because of "The Great Recession."
Does this strike anyone but me as odd? I've heard that adults are spending less and saving more. Why hasn't this trickled down to our young people?
Friday, August 14, 2009
50% of Generation Y Has No Savings
The recent survey also found 18 to 34-year-olds giving themselves Cs, Ds or Fs in personal finance skills such as budgeting and effective savings. Further, they were mostly likely, among working age adults, to be putting no money toward retirement. "The survey was released by the National Foundation for Credit Counseling, which polled 1,000 adults nationwide in March."
This is such a shame! I suppose the baby boomers are partially to blame for mentoring a life of spending rather than saving. But it's a shame, because
This is such a shame! I suppose the baby boomers are partially to blame for mentoring a life of spending rather than saving. But it's a shame, because
- those early years can be times for incredible savings. As I share in my book for that age, Enjoy Your Money! How to Make It, Save It, Invest It and Give It, Warren Buffett started the habit of making and saving money before age 10, and continued these useful habits through high school so that he was able to graduate with today's equivalent (adjusted for inflation) of about $47,000.
- they're leaving themselves wide open for an emergency to put them into long-term debt. If you have no savings when you car dies; have no savings when you have an extended illness; then you end up borrowing and paying it off over the long-haul. These emergencies happen on average every 10 years or so, meaning we should plan for them.
Thursday, August 13, 2009
Schwab Study Finds People more Vigilant with Personal Finances
A June survey by Charles Schwab found
One lesson of the crash is that we should all consider worst-case scenarios. Example: is your car paid for? If not, and you lost your job, would you also lose your car due to an inability to pay? Debt introduces risk, making worst-case scenarios more devastating.
How has this economy changed your money habits?
- 51 percent of investors thinking of their finances daily.
- Before the big market drop in 2008, only 27 percent thought daily about their finances.
- Forty-five percent are committed to adopting stricter personal budgets.
- Thirty-eight percent want to keep a closer watch on the economy.
- Forty-six percent want to pay closer attention to what they save and invest.
- One in four are considering changing financial advisers and brokers.
One lesson of the crash is that we should all consider worst-case scenarios. Example: is your car paid for? If not, and you lost your job, would you also lose your car due to an inability to pay? Debt introduces risk, making worst-case scenarios more devastating.
How has this economy changed your money habits?
Monday, August 10, 2009
Teens Worry About Money
Young adults aren't just obsessed with their friends, dates and video games. They also worry about their money, according to a survey released this week by Seventeen Magazine and Bank of America. They interviewed 2,000 young people, ages 16-21. Their interesting findings include:
Teens worry about money and the economy:
- 85% of the teen girls worry about the economy, vs. 75% of the guys.
- 88% of the girls worry about money, vs. 82% of the boys.
- 65% of the teens have changed their spending habits due to the economy.
- 82% of the girls think they'll one day be better off than their parents.
- 64% would rather have a job that makes a difference over one that makes a lot of money.
1. Young people should be very motivated to study personal financial management and business classes. Their worry could translate into motivation to learn these skills.
2. Americans tend to err to the side of optimism, which on the good side makes for lots of adventurous entrepreneurs, but on the negative side can lead to disappointed expectations. Is there really any reason to expect that this generation will do better financially than the last? Do they think they're smarter, harder workers? Do they think the economy will simply be better? I'd like to know why they think they'll do better.
Comments? Ideas?
Thursday, July 30, 2009
Can Experts Predict the Economy?
Many of us need to know our country's economic future, so that we can decide if it's a good time to start a business, expand a business, invest in the stock market, buy a home, etc. Thus, we listen to experts - those with academic credentials in economics, who teach economics in our universities, and who spend their days eagerly studying the minutia of economic indicators.
Thus, the media regularly reports the economic forecasts of these experts.
But how accurate are their predictions? Should we really base any decisions on their predictions?
There's actually a pretty easy way to judge their ability to predict the economy: see how well they've predicted it in the past. Fortunately, researchers have already done this. Here's an example:
"Can the Fed Predict the State of the Economy?"
A June 10, 2009 research paper with this title, written by three members of the Economics department of The George Washington University, studied the Fed's predictions for the years 1965-2001. Why study the Federal Reserve's predictions? First, it strives for objectivity. Secondly, its predictions are taken into account when our government makes policy decisions. Third, it has plenty of money and intellectual resources to gather the necessary facts.
This study examined the Fed's predictions in three areas: economic growth (as measured by the GNP), inflation, and unemployment.
It's conclusion?
"...the Fed knows the state of the economy for the current quarter, but cannot predict it one quarter ahead."
What's So Difficult about Predicting the Economy?
Now I'm no economist, but I'd venture that it's the same difficulty people have predicting the future of the stock market - the past isn't prologue. In other words, just because something happened in the past doesn't mean that it will happen in the future.
Let's imagine that the last six recessions were followed, within a year, by growing inflation. Can we assume that inflation will follow this recession within a year? No. Why? Because the past isn't prologue. The current recession may not have the same causes and cures as the last recession. A war could break out or end; a significant virus could shut down the internet. Any number of things could happen make the end of this recession differ from the last six recessions.
A Helpful Exercise
When a leading economic organization publishes its latest predictions, go back in history to see how their former predictions played out, especially prior to major economic shifts. Concerning the future of stocks, most forecasters fail. Examine their records. One popular media personality who recommends stocks, if you were to look at the results of his past predictions, well, you'd never listen to him again.
When someone asked Warren Buffett about the future of interest rates, he quipped, "There are only two people who know the future of interest rates. Both of them live in Switzerland...and they disagree with each other."
But Some Organizations Have Predicted the Economy Much Better than the Fed
True. But again, that's the past. Is their past performance predictive of their future performance? Only if we can know they succeeded by their skill rather than by luck. And how can we know this?
Studies of coin-flippers show that they come up with much longer strings of "heads" or "tails" than you'd imagine. Thus, what might appear as skill in a different context may simply be luck.
Imagine that hundreds of apes are released, one at a time, into a cage full of bananas. Written on each banana is a possible unemployment rate, from 1% to 20%. If this event were repeated for 10 years, many of the apes would have consistently chosen startlingly accurate predictions of the next year's unemployment rate. But nobody should conclude that the top apes were therefore more economically acute than the others. It was simply luck.
So, perhaps some organization out there can predict the economy pretty well. But how will we ever know for certain whether skill or luck is making them come out ahead?
The Outcome
We can know something about today's economy, but very little about the future. Thus, when making decisions, take into account both best-case scenarios and worst-case scenarios. If you're planning on buying a house, what if interest rates go up? What if they go down? What if you lose your job? What if you get a huge raise?
As author Kurt Vonnegut observed in his novel, Slapstick, "History is merely a list of surprises. It can only prepare us to be surprised again."
It would appear that we must live life on earth knowing that the future is basically unknown. Plan accordingly.
Interesting Quotes
Stock prices "should rise 10% to 12% next year (2008) amid calming credit markets and modest economic growth" (
Update
A recent (Sept. 6, '09) New York Times article asked, concerning the current, deep recession, How Did Economists Get It So Wrong? They answered that, in part, economists had come to feel that the prevailing theory regarding macro-economics, supported by nerds with calculators, had failed to take into account all the variables that can happen in an economy.
Thus, the media regularly reports the economic forecasts of these experts.
But how accurate are their predictions? Should we really base any decisions on their predictions?
There's actually a pretty easy way to judge their ability to predict the economy: see how well they've predicted it in the past. Fortunately, researchers have already done this. Here's an example:
"Can the Fed Predict the State of the Economy?"
A June 10, 2009 research paper with this title, written by three members of the Economics department of The George Washington University, studied the Fed's predictions for the years 1965-2001. Why study the Federal Reserve's predictions? First, it strives for objectivity. Secondly, its predictions are taken into account when our government makes policy decisions. Third, it has plenty of money and intellectual resources to gather the necessary facts.
This study examined the Fed's predictions in three areas: economic growth (as measured by the GNP), inflation, and unemployment.
It's conclusion?
"...the Fed knows the state of the economy for the current quarter, but cannot predict it one quarter ahead."
What's So Difficult about Predicting the Economy?
Now I'm no economist, but I'd venture that it's the same difficulty people have predicting the future of the stock market - the past isn't prologue. In other words, just because something happened in the past doesn't mean that it will happen in the future.
Let's imagine that the last six recessions were followed, within a year, by growing inflation. Can we assume that inflation will follow this recession within a year? No. Why? Because the past isn't prologue. The current recession may not have the same causes and cures as the last recession. A war could break out or end; a significant virus could shut down the internet. Any number of things could happen make the end of this recession differ from the last six recessions.
A Helpful Exercise
When a leading economic organization publishes its latest predictions, go back in history to see how their former predictions played out, especially prior to major economic shifts. Concerning the future of stocks, most forecasters fail. Examine their records. One popular media personality who recommends stocks, if you were to look at the results of his past predictions, well, you'd never listen to him again.
When someone asked Warren Buffett about the future of interest rates, he quipped, "There are only two people who know the future of interest rates. Both of them live in Switzerland...and they disagree with each other."
But Some Organizations Have Predicted the Economy Much Better than the Fed
True. But again, that's the past. Is their past performance predictive of their future performance? Only if we can know they succeeded by their skill rather than by luck. And how can we know this?
Studies of coin-flippers show that they come up with much longer strings of "heads" or "tails" than you'd imagine. Thus, what might appear as skill in a different context may simply be luck.
Imagine that hundreds of apes are released, one at a time, into a cage full of bananas. Written on each banana is a possible unemployment rate, from 1% to 20%. If this event were repeated for 10 years, many of the apes would have consistently chosen startlingly accurate predictions of the next year's unemployment rate. But nobody should conclude that the top apes were therefore more economically acute than the others. It was simply luck.
So, perhaps some organization out there can predict the economy pretty well. But how will we ever know for certain whether skill or luck is making them come out ahead?
The Outcome
We can know something about today's economy, but very little about the future. Thus, when making decisions, take into account both best-case scenarios and worst-case scenarios. If you're planning on buying a house, what if interest rates go up? What if they go down? What if you lose your job? What if you get a huge raise?
As author Kurt Vonnegut observed in his novel, Slapstick, "History is merely a list of surprises. It can only prepare us to be surprised again."
It would appear that we must live life on earth knowing that the future is basically unknown. Plan accordingly.
Interesting Quotes
"I regularly hear the accusation that economic forecasting is no better than weather forecasting, but this does a disservice to weather forecasters," joked Jon Faust, a former Federal Reserve Board economist who is now a professor of at Johns Hopkins University.
"When one does economic forecasting, you have to realize your forecast is going to be wrong," said Harvard economist James Stock.
"We are forecasting solid growth for 2008," top White House economist Edward Lazear told reporters. (Nov., 2007 prediction.)
"CBO forecasts that GDP will grow by 2.3 percent in real terms in calendar year 2007 but by 3.0 percent in 2008" (Report by Congressional Budget Office, which provides "objective, nonpartisan, and timely analyses to aid in economic and budgetary decisions on the wide array of programs covered by the federal budget."Stock prices "should rise 10% to 12% next year (2008) amid calming credit markets and modest economic growth" (
Update
A recent (Sept. 6, '09) New York Times article asked, concerning the current, deep recession, How Did Economists Get It So Wrong? They answered that, in part, economists had come to feel that the prevailing theory regarding macro-economics, supported by nerds with calculators, had failed to take into account all the variables that can happen in an economy.
"Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation."
"It’s much harder to say where the economics profession goes from here. But what’s almost certain is that economists will have to learn to live with messiness. That is, they will have to acknowledge the importance of irrational and often unpredictable behavior, face up to the often idiosyncratic imperfections of markets and accept that an elegant economic “theory of everything” is a long way off. In practical terms, this will translate into more cautious policy advice — and a reduced willingness to dismantle economic safeguards in the faith that markets will solve all problems."
Tuesday, July 28, 2009
A helpful angle on long-term savings versus short-term spending was well expressed in a memoir that my wife is reading:
"I had seen a shiny new Nash roadster parked at the store in Sacred Heart and had been captivated by it. I'll have one of those one day, I assured Barney. I would find a way to make a huge amount of money. Barney put on his older brother hat and asked me why I wanted a huge amount of money. I said I'd buy a Nash. Maybe even a Packard. Barney was not impressed. If you have food to eat and a warm, dry home, there's just one thing money is really useful for, Barney told me. You can use it to buy your life back. Then you don't have to waste time doing things you don't like to do just to make money. I didn't understand this theory, so he explained it. Don't look for a way to make money; find a way to make a living doing what you like to do anyway. Otherwise you're just raising funds to buy yourself out of slavery."
From "Seldom Disappointed, by Tony Hillerman: a Memoir (2001).
"I had seen a shiny new Nash roadster parked at the store in Sacred Heart and had been captivated by it. I'll have one of those one day, I assured Barney. I would find a way to make a huge amount of money. Barney put on his older brother hat and asked me why I wanted a huge amount of money. I said I'd buy a Nash. Maybe even a Packard. Barney was not impressed. If you have food to eat and a warm, dry home, there's just one thing money is really useful for, Barney told me. You can use it to buy your life back. Then you don't have to waste time doing things you don't like to do just to make money. I didn't understand this theory, so he explained it. Don't look for a way to make money; find a way to make a living doing what you like to do anyway. Otherwise you're just raising funds to buy yourself out of slavery."
From "Seldom Disappointed, by Tony Hillerman: a Memoir (2001).
Saturday, June 6, 2009
Who Wants to Be a Millionaire? Change Your Car Buying Habits.
Many who lament not being able to save any money could save millions by changing the way they buy cars. Often, a small change of habits can make huge differences, like the difference between retiring financially free or having to greet people into Wal-Mart in your later years.
In 2007 Consumer Report studied the difference between buying a new Honda Civic EX and maintaining it for 15 years, versus buying a new one every 5 years. If you kept it 15 years, you'd save about $1400 per year. (They were pretty thorough in this study, figuring in the costs of repairs, etc.) Do that for a lifetime and invest that $1400 at the market average of 10% per year and in 60 years of driving you've got $4.5 million!
Think about this. It's astounding. Just by keeping a car longer, you could save a fortune. Even if you just kept the car for 10 years instead of 5, the savings would be astounding.
One of my cars, a Mazda Millenia, has 230,000 miles on it and is running great. I can't find a good reason to trade it in.
If you want to save even more, do what I do. (Don't turn me off here...I know it's radical.) Think of a car as reliable transportation, period. Forget the image thing. Get over the peer pressure to have a car that reflects a high status - many never get over it, and it costs them millions.
Find a good, trustworthy mechanic who sells used cars that have already depreciated greatly. I bought a car last month with under 80,000 miles for $1400, including four new tires. I buy cars outright, never making payments. It runs great and I hope to get 200,000 miles out of it. But the reason it sold so cheap was that it has a big dent in a part of the car that's difficult and costly to repair. But it doesn't affect the performance of the car in the least. I have no plans to repair it.
I don't feel embarrassed to drive a car like this. I actually feel rather smug for beating the system. I recall recently speaking to a lawyer who'd been downsized out of his practice and had to launch out on his own. Money was suddently tight and he was stuck making huge payments on his exorbitant car. "I thought I was pretty smart when I bought it," he told me. "But now I feel pretty dumb."
One of the reasons that self-made billionaires Warren Buffett and Sam Walton did so well was that they were totally unconcerned about the appearance of wealth. They drove normal cars (Walton drove an old truck), especially in their early days. Their frugal, early decisions paid off over time in both their personal and business finances.
Many people could be having a lot more fun and saving a lot more money if they simply didn't have a car payment. Work toward paying off that car, save up for the next one, and get on the road to financial freedom.
In 2007 Consumer Report studied the difference between buying a new Honda Civic EX and maintaining it for 15 years, versus buying a new one every 5 years. If you kept it 15 years, you'd save about $1400 per year. (They were pretty thorough in this study, figuring in the costs of repairs, etc.) Do that for a lifetime and invest that $1400 at the market average of 10% per year and in 60 years of driving you've got $4.5 million!
Think about this. It's astounding. Just by keeping a car longer, you could save a fortune. Even if you just kept the car for 10 years instead of 5, the savings would be astounding.
One of my cars, a Mazda Millenia, has 230,000 miles on it and is running great. I can't find a good reason to trade it in.
If you want to save even more, do what I do. (Don't turn me off here...I know it's radical.) Think of a car as reliable transportation, period. Forget the image thing. Get over the peer pressure to have a car that reflects a high status - many never get over it, and it costs them millions.
Find a good, trustworthy mechanic who sells used cars that have already depreciated greatly. I bought a car last month with under 80,000 miles for $1400, including four new tires. I buy cars outright, never making payments. It runs great and I hope to get 200,000 miles out of it. But the reason it sold so cheap was that it has a big dent in a part of the car that's difficult and costly to repair. But it doesn't affect the performance of the car in the least. I have no plans to repair it.
I don't feel embarrassed to drive a car like this. I actually feel rather smug for beating the system. I recall recently speaking to a lawyer who'd been downsized out of his practice and had to launch out on his own. Money was suddently tight and he was stuck making huge payments on his exorbitant car. "I thought I was pretty smart when I bought it," he told me. "But now I feel pretty dumb."
One of the reasons that self-made billionaires Warren Buffett and Sam Walton did so well was that they were totally unconcerned about the appearance of wealth. They drove normal cars (Walton drove an old truck), especially in their early days. Their frugal, early decisions paid off over time in both their personal and business finances.
Many people could be having a lot more fun and saving a lot more money if they simply didn't have a car payment. Work toward paying off that car, save up for the next one, and get on the road to financial freedom.
Tuesday, May 26, 2009
Textbook for Personal Money Management
I believe in getting massive input before publishing a book. The more people who read the manuscript of Enjoy Your Money!, the more I saw a theme coming in like a mantra: "We've got to get this into the schools! Every young person needs to read this book in order to learn personal finances before they get in a financial mess!"
Thus, as I continued to rewrite, I included discussion questions, assignments, riddles, web-based teacher resources - anything and everything to make it easy on teachers and captivating for students.
If you're looking for a personal financial management text (for public or private schools, home schoolers and service organizations), see the appropriate page on the publisher's site to promote it as a personal finance text.
Thus, as I continued to rewrite, I included discussion questions, assignments, riddles, web-based teacher resources - anything and everything to make it easy on teachers and captivating for students.
If you're looking for a personal financial management text (for public or private schools, home schoolers and service organizations), see the appropriate page on the publisher's site to promote it as a personal finance text.
Saturday, May 16, 2009
N.Y. Times Financial Reporter Faces Financial Ruin
He should have known better. Edmund Andrews is a seasoned economics reporter for a major newspaper. He'd covered the Asian financial crisis of 1997, the Russian economic crisis of 1998, the dot-com crisis of 2000. He warned people about risky mortgages even as the current mortgage crisis developed.
So why did this middle-aged economic expert take out his own extravagant, risky mortgage in 2004, plunging him into the depressing world of unpaid bills, badgering debt-collectors, strained personal relationships and panic attacks? Today, his house awaits foreclosure and his once pristine credit score lies in shambles, making him a poster child for "Victims of the Mortgage Crisis."
His recent N.Y. Times article describing his personal woes deserves a slow, reflective read.
Here are some of my takeaways:
1) Rather than taking comfort in "what everyone else is doing" or "what many experts are saying," don't make big financial decisions without thinking them through dispassionately and rigorously.
Warren Buffett's mentor, Benjamin Graham, put it this way concerning investing:
"You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right." (The Intelligent Investor, revised edition, 2003, p. 524).
2) Get plenty of objective wise counsel, particularly on issue where emotions may hijack our reason.
Mr. Andrews had tons of information available to him. But emotions (e.g., "I'm in love and must find a decent place to live!") can bias information to serve its purposes. I recall, I believe it was a researcher, saying that if you torture the data enough, you can make it tell you whatever you want it to. When we want something badly enough, it's human nature to torture the figures to make them tell us, "It's okay to buy the house."
3) Before you flaunt the tried and true rules of thumb, make sure you're truly an exception.
So what are some tried and true rules of thumb for home buying? Unfortunately, when the mortgage crisis was brewing, the rules of thumb changed. From one blog a couple of years ago:
When mom and dad bought their house 40 years ago, the rule of thumb given to them was that you could afford to purchase a house up to 2x your salary. That's if you put down 20% and don't have other significant debt. (They were neither making car payments nor repaying student loans.)
Crown Ministries suggests this rule of thumb: "Purchase/rent only if payments – mortgage, taxes, insurance, utilities, phone, and maintenance – don't exceed 38 percent of your net spendable income."
4) Don't assume "Best Case Scenarios." Always consider "Worst Case Scenarios."
Mr. Andrews knew that his salary would only cover the new house payments and his alimony payments. He assumed that his partner could land a good enough job to pay for everything else in their lives. What if she didn't land a job? What if she didn't land a good enough job? What if the job doesn't last? What if there's an economic downturn? What if emergencies happened?
Typically, Americans are overconfident about their investments, their abilities, and their future. Don't let your overconfidence lead you to over-borrow.
Other insights from this story?
So why did this middle-aged economic expert take out his own extravagant, risky mortgage in 2004, plunging him into the depressing world of unpaid bills, badgering debt-collectors, strained personal relationships and panic attacks? Today, his house awaits foreclosure and his once pristine credit score lies in shambles, making him a poster child for "Victims of the Mortgage Crisis."
His recent N.Y. Times article describing his personal woes deserves a slow, reflective read.
Here are some of my takeaways:
1) Rather than taking comfort in "what everyone else is doing" or "what many experts are saying," don't make big financial decisions without thinking them through dispassionately and rigorously.
Warren Buffett's mentor, Benjamin Graham, put it this way concerning investing:
"You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right." (The Intelligent Investor, revised edition, 2003, p. 524).
2) Get plenty of objective wise counsel, particularly on issue where emotions may hijack our reason.
Mr. Andrews had tons of information available to him. But emotions (e.g., "I'm in love and must find a decent place to live!") can bias information to serve its purposes. I recall, I believe it was a researcher, saying that if you torture the data enough, you can make it tell you whatever you want it to. When we want something badly enough, it's human nature to torture the figures to make them tell us, "It's okay to buy the house."
3) Before you flaunt the tried and true rules of thumb, make sure you're truly an exception.
So what are some tried and true rules of thumb for home buying? Unfortunately, when the mortgage crisis was brewing, the rules of thumb changed. From one blog a couple of years ago:
"Northwest Community Credit Union says 1.5 times your gross annual income:
If you and your spouse have a total income of $50,000 the general rule would be that you shouldn't borrow more than $75,000 for your home.
CNN Money says 2.5 times:
The rule of thumb here is to aim for a home that costs about two-and-a-half times your gross annual salary.
Washington Mutual Bank suggests anywhere from 3 to 5 times:
In retrospect, no wonder Washington Mutual went down.As a broad generalization, most people can afford to purchase a house worth about three times their total (gross) annual income, assuming a 20% down payment and a moderate amount of other long-term debts, such as car or student loan payments. With no other debts, you can probably afford a house worth up to four or even five times your annual income."
When mom and dad bought their house 40 years ago, the rule of thumb given to them was that you could afford to purchase a house up to 2x your salary. That's if you put down 20% and don't have other significant debt. (They were neither making car payments nor repaying student loans.)
Crown Ministries suggests this rule of thumb: "Purchase/rent only if payments – mortgage, taxes, insurance, utilities, phone, and maintenance – don't exceed 38 percent of your net spendable income."
4) Don't assume "Best Case Scenarios." Always consider "Worst Case Scenarios."
Mr. Andrews knew that his salary would only cover the new house payments and his alimony payments. He assumed that his partner could land a good enough job to pay for everything else in their lives. What if she didn't land a job? What if she didn't land a good enough job? What if the job doesn't last? What if there's an economic downturn? What if emergencies happened?
Typically, Americans are overconfident about their investments, their abilities, and their future. Don't let your overconfidence lead you to over-borrow.
Other insights from this story?
Tuesday, April 28, 2009
What's It All For?
Most money books give advice on how to amass wealth, but fail to ask the deeper questions:
In Enjoy Your Money, I argue that most of us are searching for deep and lasting happiness. To see if that's your ultimate goal, do this little dialogue with Socrates (substitute your financial goal for the "Corvette" and substitute your name for "Bob"):
Socrates: Give me one of your financial goals.
Bob: I want a Corvette by my 35th birthday.
Socrates: Why do you want a Corvette?
Bob: Because Corvettes are super fast and look cool!
Socrates: And just why do you want something that's fast and cool?
Bob: Because people would look up to me and respect me.
Socrates: And why do you want people to respect you?
Bob: Because if I could get people to respect me...I suppose they'd want to hang around me.
Socrates: And why do you want people to hang around you?
Bob: Because if people wanted to hang around me, I'd be happier.
Socrates: So, you want the Corvette because you think it will make you happier. In other words, if you knew that buying a Corvette wouldn't make you happier, you wouldn't buy it. Right?
Bob: Right.
I think Socrates would tend to lead us back to happiness as one of our ultimate goals no matter what our financial goals may be, which helps us to clear away a lot of fog and simply ask the question, "How can I be a happier person?" Attaining certain financial goals may indeed make us happier. Others may not. We'd do well to think it through.
Fortunately, Psychologists have done some pretty extensive studies to try to narrow down what makes some happier than others. Interestingly, once we've crawled above the poverty line and have basics such as food and shelter, just making $5000 or $10,000 more per year doesn't do much for our happiness. What does?
In part, psychologists have found that giving people are happier people. Those who seek hardest for wealth in itself are less happy than those who seek hardest for the welfare of others. I noticed that today, as I was inexplicably down this morning. With my mind distracted by life's heartaches and troubles, life looked grim.
Around noon, a neighbor knocked on the door, leaving a card. In it, she thanked us exuberantly for a little act of kindness we did last Saturday. Having just found out that her husband was recovering from a stroke, my wife and I walked over to find him trying to fix his lawn mower. I asked what we could do to help and he suggested that it would take a couple of hours for him to pick up all the pine cones left from the winter, so that he could mow.
No problem. I asked David and Paul, my 15-year-old twins, to come over and help out our neighbor. It took a bit over an hour. While we were picking up, another neighbor saw us and asked if I was making extra money (which wouldn't be beneath me, I might add). I told him about the stroke and he said, "after you get the pine cones picked up, I'll do the mowing."
To us, it was no big deal. To the family reeling from an unexpected blow, it meant the world. And hey, what could be a better memory to build with my kids?
So we brought a bit of happiness to a struggling family. In return, they gave us a deep feeling of fulfillment. Even now, three days later, their card pulled me through a downer morning.
So my answer to the "what's it all for?" question involves serving others. Is one of your long-term goals "to be the greatest possible assistance to the less fortunate by using my God-given gifts and abilities?"
I'm able to pick up pine cones. What can you do?
As Albert Einstein once stated concerning life's meaning:
"The life of the individual has meaning only insofar as it aids in making the life of every living thing nobler and more beautiful." (Albert Einstein)
Meaningfulness...and happiness, today's scientists might add.
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
- "What am I doing all this for?"
- "How do I define success?"
- "Precisely what am I trying to achieve by bettering my personal finances?"
In Enjoy Your Money, I argue that most of us are searching for deep and lasting happiness. To see if that's your ultimate goal, do this little dialogue with Socrates (substitute your financial goal for the "Corvette" and substitute your name for "Bob"):
Socrates: Give me one of your financial goals.
Bob: I want a Corvette by my 35th birthday.
Socrates: Why do you want a Corvette?
Bob: Because Corvettes are super fast and look cool!
Socrates: And just why do you want something that's fast and cool?
Bob: Because people would look up to me and respect me.
Socrates: And why do you want people to respect you?
Bob: Because if I could get people to respect me...I suppose they'd want to hang around me.
Socrates: And why do you want people to hang around you?
Bob: Because if people wanted to hang around me, I'd be happier.
Socrates: So, you want the Corvette because you think it will make you happier. In other words, if you knew that buying a Corvette wouldn't make you happier, you wouldn't buy it. Right?
Bob: Right.
I think Socrates would tend to lead us back to happiness as one of our ultimate goals no matter what our financial goals may be, which helps us to clear away a lot of fog and simply ask the question, "How can I be a happier person?" Attaining certain financial goals may indeed make us happier. Others may not. We'd do well to think it through.
Fortunately, Psychologists have done some pretty extensive studies to try to narrow down what makes some happier than others. Interestingly, once we've crawled above the poverty line and have basics such as food and shelter, just making $5000 or $10,000 more per year doesn't do much for our happiness. What does?
In part, psychologists have found that giving people are happier people. Those who seek hardest for wealth in itself are less happy than those who seek hardest for the welfare of others. I noticed that today, as I was inexplicably down this morning. With my mind distracted by life's heartaches and troubles, life looked grim.
Around noon, a neighbor knocked on the door, leaving a card. In it, she thanked us exuberantly for a little act of kindness we did last Saturday. Having just found out that her husband was recovering from a stroke, my wife and I walked over to find him trying to fix his lawn mower. I asked what we could do to help and he suggested that it would take a couple of hours for him to pick up all the pine cones left from the winter, so that he could mow.
No problem. I asked David and Paul, my 15-year-old twins, to come over and help out our neighbor. It took a bit over an hour. While we were picking up, another neighbor saw us and asked if I was making extra money (which wouldn't be beneath me, I might add). I told him about the stroke and he said, "after you get the pine cones picked up, I'll do the mowing."
To us, it was no big deal. To the family reeling from an unexpected blow, it meant the world. And hey, what could be a better memory to build with my kids?
So we brought a bit of happiness to a struggling family. In return, they gave us a deep feeling of fulfillment. Even now, three days later, their card pulled me through a downer morning.
So my answer to the "what's it all for?" question involves serving others. Is one of your long-term goals "to be the greatest possible assistance to the less fortunate by using my God-given gifts and abilities?"
I'm able to pick up pine cones. What can you do?
As Albert Einstein once stated concerning life's meaning:
"The life of the individual has meaning only insofar as it aids in making the life of every living thing nobler and more beautiful." (Albert Einstein)
Meaningfulness...and happiness, today's scientists might add.
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Friday, April 24, 2009
Ramsey Reflections, Part 5
Continuing reflections on Dave Ramsey's Town Hall for Hope...
Takeaway #6: Three Things to Do If You're Losing Hope
1 - Get up! Take action! Get moving!
Don't wait for Congress or the President to rescue you. There's a great place for you to go when you're broke: to work! If you don't have a job, talk to everyone. Think creatively, be proactive.
2 - Don't participate in loser talk!
One survey found that your income will likely be within 10% of your closest friends. Some have "The Spirit of Eeyore" upon them, because they sit around moping with their loser friends.
Read "Who Moved My Cheese?" Our cheese has been moved. We've got to start thinking different. Be a reader. Keep learning.
3 - Learn to Give Again
Give extra during difficult times. If you don't have money, give of your time. Serve the homeless, serve soup at the union mission. Visit someone in a nursing home. The more you give hope, the more hope you'll receive.
Thanks, Dave, for an inspirational, fun-filled, hope-filled evening!
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Ramsey Reflections, Part 4
Continuing reflections on Dave Ramsey's Town Hall for Hope...
Takeaway #5: Don't Fear
Your faith in God should keep you from fear. If a spirit of fear pervades our lives, we're paying too much attention to the news and not enough attention to our heavenly Father. Dave's wife reminded him of this one day in New York, when Dave allowed the depressing talk of others to get him down.
But faith and work must be kept in balance. As someone said, "Trust as if it all depends upon God; work as if it all depends upon you."
Once upon a time, a person came to visit a beautiful ranch and commented to the owner, "How blessed you are that God has given you this wonderful ranch." To which the owner replied, "Truly, I'm blessed. But you should have seen it when only God had it."
Some of the greatest companies began during recessions or depressions. Dave listed several, including Hobby Lobby and Microsoft, encouraging us to keep working and innovating. Don't be immobilized with fear!
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Takeaway #5: Don't Fear
Your faith in God should keep you from fear. If a spirit of fear pervades our lives, we're paying too much attention to the news and not enough attention to our heavenly Father. Dave's wife reminded him of this one day in New York, when Dave allowed the depressing talk of others to get him down.
But faith and work must be kept in balance. As someone said, "Trust as if it all depends upon God; work as if it all depends upon you."
Once upon a time, a person came to visit a beautiful ranch and commented to the owner, "How blessed you are that God has given you this wonderful ranch." To which the owner replied, "Truly, I'm blessed. But you should have seen it when only God had it."
Some of the greatest companies began during recessions or depressions. Dave listed several, including Hobby Lobby and Microsoft, encouraging us to keep working and innovating. Don't be immobilized with fear!
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Ramsey Reflections, Part 3
Continuing reflections on Dave Ramsey's Town Hall for Hope...
Takeaway #4: It's a Great Time to Invest!
For the long term, that is. As far as stocks are concerned, it's like K-Mart is running a blue-light special on stocks. We don't know if they'll go down further. We don't know when they'll come back up. But for the past 100 years, they've always bounced back, and buying them when they're so far depressed is a good idea.
Don't buy gold. Sure, it's gone way up recently. But don't buy it while it's so high. Some buy gold because they fear that our currency might be in danger and that we'd have to return to trading gold. But the last time people went to trading gold after an economic setback was during the Roman Empire.
Real estate can also be a great investment. You can get great deals and the interest rates are lower than they've been in decades.
But don't invest if you don't have the money to invest. In his early years, Ramsey went from controlling over $1,000,000 of real estate to losing it all. Six months later, a friend sat him down, told him to quit whining and take responsibility and move on. He did.
More next blog...
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Takeaway #4: It's a Great Time to Invest!
For the long term, that is. As far as stocks are concerned, it's like K-Mart is running a blue-light special on stocks. We don't know if they'll go down further. We don't know when they'll come back up. But for the past 100 years, they've always bounced back, and buying them when they're so far depressed is a good idea.
Don't buy gold. Sure, it's gone way up recently. But don't buy it while it's so high. Some buy gold because they fear that our currency might be in danger and that we'd have to return to trading gold. But the last time people went to trading gold after an economic setback was during the Roman Empire.
Real estate can also be a great investment. You can get great deals and the interest rates are lower than they've been in decades.
But don't invest if you don't have the money to invest. In his early years, Ramsey went from controlling over $1,000,000 of real estate to losing it all. Six months later, a friend sat him down, told him to quit whining and take responsibility and move on. He did.
More next blog...
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Ramsey Reflections, Part 2
Continuing reflections on Dave Ramsey's Town Hall for Hope...
Takeaway #2: Don't Go Hysteric!
At this point, we're not looking at a full-blown depression. So we have 4% more people out of work. Granted, many are hurting, and we don't want to minimize that. But we're not all standing in soup lines, the stock market hasn't tanked nearly as much as in the Great Depression, and the worst of the foreclosures are restricted to five states.
Ramsey's point? Employment is well over 90%. Scramble around and find work! Get new training for new jobs! As Solomon said three thousand years ago, "The diligent prosper." Sitting around sulking and watching negative news doesn't qualify as "diligent." Get out and make something happen. That's what Americans are known for.
Takeaway #3: Look for the Silver Lining
Yes, it's a storm. But storms often have silver linings.
First, recessions and depressions have a way of shaking us up and re-ordering our priorities. Our grandparents, who experienced The Great Depression, might pull out an old nail and use it again. Many of us have become wasteful and flabby.
Second, recessions weed out the slackers in our fields. Some serious realtors are selling properties again, and have less competition.
Third, recessions make us work harder at serving our customers. A restaurant that fails to provide great food while making customers feel special deserves to die. Money is simply a certificate of appreciation for a great service or a great product. If you're providing neither, prepare to be run over by those who do.
Fourth, a recession can bring us back to our senses about wise money management. Now is a great time to reintroduce a lost word in the English language: "No!"
So someone wants you to loan them money to buy a house. But they're broke. You say, "No. You're broke. You can't afford a house." When broke people buy houses, they become broker. That's why they call the people who seal the deals "brokers."
So your teenager doesn't have a decent job but wants you to buy him a Corvette. You say, "No. You can't afford a Corvette. Why should I help you to buy one?"
More to come...
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Takeaway #2: Don't Go Hysteric!
At this point, we're not looking at a full-blown depression. So we have 4% more people out of work. Granted, many are hurting, and we don't want to minimize that. But we're not all standing in soup lines, the stock market hasn't tanked nearly as much as in the Great Depression, and the worst of the foreclosures are restricted to five states.
Ramsey's point? Employment is well over 90%. Scramble around and find work! Get new training for new jobs! As Solomon said three thousand years ago, "The diligent prosper." Sitting around sulking and watching negative news doesn't qualify as "diligent." Get out and make something happen. That's what Americans are known for.
Takeaway #3: Look for the Silver Lining
Yes, it's a storm. But storms often have silver linings.
First, recessions and depressions have a way of shaking us up and re-ordering our priorities. Our grandparents, who experienced The Great Depression, might pull out an old nail and use it again. Many of us have become wasteful and flabby.
Second, recessions weed out the slackers in our fields. Some serious realtors are selling properties again, and have less competition.
Third, recessions make us work harder at serving our customers. A restaurant that fails to provide great food while making customers feel special deserves to die. Money is simply a certificate of appreciation for a great service or a great product. If you're providing neither, prepare to be run over by those who do.
Fourth, a recession can bring us back to our senses about wise money management. Now is a great time to reintroduce a lost word in the English language: "No!"
So someone wants you to loan them money to buy a house. But they're broke. You say, "No. You're broke. You can't afford a house." When broke people buy houses, they become broker. That's why they call the people who seal the deals "brokers."
So your teenager doesn't have a decent job but wants you to buy him a Corvette. You say, "No. You can't afford a Corvette. Why should I help you to buy one?"
More to come...
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Ramsey Reflections, Part 1
Last night I attended Dave Ramsey's Town Hall for Hope. I figured that since some people are looking to me as some kind of money expert, I should be up on an event of this magnitude.
What's the occasion? Why would Ramsey go to all the trouble to do a free telecast and do enough advertising to attract over 1,000,000 people to personally attend at the 6,000 locations? He wasn't announcing a new product. He wasn't running for office. He seemed to just have a passion to do all in his power to snap America out of despondency over the economy. Over the next several blogs, I'll try to summarize my main reflections and takeaways.
Takeaway #1: Don't Allow Bad News to Immobilize You!
Bad news travels through a lightning fast T2 line; good news through snail mail. I've noticed that, even during good times, the news is quick to print how many jobs were lost in any given month, but fail to report that the new jobs created during that month more than made up for the losses. Bad news sells. As a result, everyone is soaking up reports of dismal job markets, retirement funds disappearing, businesses going under. Ramsey example: the stock market went up 20% in recent weeks. How many saw that in the headlines?
Ramsey's fear is that many are immobilized by bad news. So you lose your job or your hours are cut back. Rather than learning new skills to start a new job or beating the bushes to see who's hiring, you sit at home, watch Oprah, and complain to your friends about the dismal market.
The Ramsey remedy? Choose Tigger over Eeyore. Be an optimist instead of a pessimist. Be proactive rather than reactive. If you've just been thrown off a cliff, you've got a choice: either allow your body to bounce along the cliff, or spread your wings and fly. Perhaps you've been thrown out of the nest for a reason. Don't despair! Move on to the next thing.
(More Next Blog)
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
What's the occasion? Why would Ramsey go to all the trouble to do a free telecast and do enough advertising to attract over 1,000,000 people to personally attend at the 6,000 locations? He wasn't announcing a new product. He wasn't running for office. He seemed to just have a passion to do all in his power to snap America out of despondency over the economy. Over the next several blogs, I'll try to summarize my main reflections and takeaways.
Takeaway #1: Don't Allow Bad News to Immobilize You!
Bad news travels through a lightning fast T2 line; good news through snail mail. I've noticed that, even during good times, the news is quick to print how many jobs were lost in any given month, but fail to report that the new jobs created during that month more than made up for the losses. Bad news sells. As a result, everyone is soaking up reports of dismal job markets, retirement funds disappearing, businesses going under. Ramsey example: the stock market went up 20% in recent weeks. How many saw that in the headlines?
Ramsey's fear is that many are immobilized by bad news. So you lose your job or your hours are cut back. Rather than learning new skills to start a new job or beating the bushes to see who's hiring, you sit at home, watch Oprah, and complain to your friends about the dismal market.
The Ramsey remedy? Choose Tigger over Eeyore. Be an optimist instead of a pessimist. Be proactive rather than reactive. If you've just been thrown off a cliff, you've got a choice: either allow your body to bounce along the cliff, or spread your wings and fly. Perhaps you've been thrown out of the nest for a reason. Don't despair! Move on to the next thing.
(More Next Blog)
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Sunday, April 19, 2009
Why Save Money?
That's the question a student asked of our panel at KSU Thursday night. I appreciated her candor. Her parents keep nagging her to save, but she simply couldn't see why they made such a big deal about it. Although other interesting questions involved the best places to put investment money and the future of interest rates, I felt, in retrospect, that the question about saving might have been the most significant. Why save? Because:
1) Saving breeds more savings.
The more you save, the more you can take advantage of bulk purchases. If you save up for items rather than making payments on credit cards over time, you save tons. Saving up for a car and buying it outright (instead of making payments) can save many tens of thousands of dollars over a lifetime. By paying for things outright, you avoid expensive payments and can invest more each month for future needs.
2) Saving protects us from debt.
Most people run into serious debt because of an emergency, like a job loss or medical issue. Had they saved up enough ahead of time, many of these could have weathered the storm without incurring crippling debt.
3) Savings can grow into millions.
As we've said before, just $20 per week stashed away in long-term investments can multiply into well over $1 million by retirement.
Money guru Ron Blue spend a lifetime studying, writing about, and counseling people about their personal finances. One day someone asked him to sum up in a sentence what he'd learned. He thought about it and responded,
"Spend less than you earn, and do it for a long time."
As Solomon wrote thousands of years ago:
"There is precious treasure and oil in the dwelling of the wise,
But a foolish man swallows it up."
It's foolish to swallow up all that we make before the next paycheck. Perhaps savings could be considered the cornerstone to successful money management.
The questioner bought a copy of my book (Enjoy Your Money! How to Make It, Save It, Invest It and Give It) after the discussion. I hope that reading it helps motivate her start the most powerful habit she could adopt: living way beneath her means in order to find financial freedom.
1) Saving breeds more savings.
The more you save, the more you can take advantage of bulk purchases. If you save up for items rather than making payments on credit cards over time, you save tons. Saving up for a car and buying it outright (instead of making payments) can save many tens of thousands of dollars over a lifetime. By paying for things outright, you avoid expensive payments and can invest more each month for future needs.
2) Saving protects us from debt.
Most people run into serious debt because of an emergency, like a job loss or medical issue. Had they saved up enough ahead of time, many of these could have weathered the storm without incurring crippling debt.
3) Savings can grow into millions.
As we've said before, just $20 per week stashed away in long-term investments can multiply into well over $1 million by retirement.
Money guru Ron Blue spend a lifetime studying, writing about, and counseling people about their personal finances. One day someone asked him to sum up in a sentence what he'd learned. He thought about it and responded,
"Spend less than you earn, and do it for a long time."
As Solomon wrote thousands of years ago:
"There is precious treasure and oil in the dwelling of the wise,
But a foolish man swallows it up."
It's foolish to swallow up all that we make before the next paycheck. Perhaps savings could be considered the cornerstone to successful money management.
The questioner bought a copy of my book (Enjoy Your Money! How to Make It, Save It, Invest It and Give It) after the discussion. I hope that reading it helps motivate her start the most powerful habit she could adopt: living way beneath her means in order to find financial freedom.
Wednesday, April 15, 2009
The Power of "Making Do"
Frugality is in! And long overdue, in my opinion. Many major newspapers include columns and blogs about how to cut back and save money. But frugality isn't just about surviving the recession. It's about wise money management.
When Professor Stanley (The Millionaire Next Door) studied self-made millionaires, he was surprised to find them living in normal houses, driving normal cars, and saving money any way they could. One of his chapters described them as "Frugal, Frugal, Frugal."
And it makes sense. To amass wealth, you've got to live beneath your means. And since savings aren't taxed, $1000 saved may net you just as much as a $2000 earned. And when you think about it, $1000 is simply a year of $20 weekly savings. Invest $20 a week starting after high school graduation and invest it wisely to retire with over $1,000,000. Don't believe me? Google "interest calculator" and put in $1000 per year at 10% interest (average stock market gain) and see what you've got in 50 years.
That sure does simplify things. All young people have to do is to come up with $20 at the end of each week. If all our earnings are gone by the next paycheck, we can either earn an extra $20 by mowing a yard or babysitting, or, we can find ways to cut back. That's where "making do" comes in.
My brother works as an engineer for a large company. He recently walked into the coffee room to find that, apparently, the coffee machine carafe (the glass container that the coffee drips into) had broken and his engineer friend had "made do" instead of purchasing a new machine. To the right is his fix looked.
Now most of us would have gone right out and bought a new coffee maker for about $20. Former generations were more innovative and not embarrassed in the least to "make do" with what they had.
I've noticed that my grandad often replaced a tool handle with his own piece of wood rather than throw it away and buy a new one. I watch mom tear off a tattered collar, turn it over, and sew it back on to keep a comfortable shirt she liked. No wonder she saved plenty to retire comfortably.
The next time something breaks, don't immediately replace it. See if there's a way to make do. Make do every week and invest your savings and you just might become wealthy.
When Professor Stanley (The Millionaire Next Door) studied self-made millionaires, he was surprised to find them living in normal houses, driving normal cars, and saving money any way they could. One of his chapters described them as "Frugal, Frugal, Frugal."
And it makes sense. To amass wealth, you've got to live beneath your means. And since savings aren't taxed, $1000 saved may net you just as much as a $2000 earned. And when you think about it, $1000 is simply a year of $20 weekly savings. Invest $20 a week starting after high school graduation and invest it wisely to retire with over $1,000,000. Don't believe me? Google "interest calculator" and put in $1000 per year at 10% interest (average stock market gain) and see what you've got in 50 years.
That sure does simplify things. All young people have to do is to come up with $20 at the end of each week. If all our earnings are gone by the next paycheck, we can either earn an extra $20 by mowing a yard or babysitting, or, we can find ways to cut back. That's where "making do" comes in.
My brother works as an engineer for a large company. He recently walked into the coffee room to find that, apparently, the coffee machine carafe (the glass container that the coffee drips into) had broken and his engineer friend had "made do" instead of purchasing a new machine. To the right is his fix looked.Now most of us would have gone right out and bought a new coffee maker for about $20. Former generations were more innovative and not embarrassed in the least to "make do" with what they had.
I've noticed that my grandad often replaced a tool handle with his own piece of wood rather than throw it away and buy a new one. I watch mom tear off a tattered collar, turn it over, and sew it back on to keep a comfortable shirt she liked. No wonder she saved plenty to retire comfortably.
The next time something breaks, don't immediately replace it. See if there's a way to make do. Make do every week and invest your savings and you just might become wealthy.
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