Your Biggest Asset and Foe When Dealing with Matters Money

Any guess as to what it is? Whether you have a high paying job? Trust fund? Good or bad childhood? Nope! It's your ATTITUDE.

I just read a truly shocking article about an ex-accountant (see picture) who stole millions of dollars from her employer winery in Canada. During the trial, she had the audacity to blame the winery for allowing her to do so given her gambling addiction and alcoholism. She even blamed the casino for allowing her to gamble!

Wow. Disgusting. Yet so prevalent in less malicious forms in our society given the move away from personal responsibility and toward entitlement. Her lawyer argued she should be excused given her issues. I argue she should be held fully accountable and given extra punishment for blaming everyone but herself.

So how does this relate to the point I'm proving? This woman chose to steal, lie and blame. Many other people choose to ask for help or simply stop being jerks. With matters money -- just like everything else in life, how you operate is largely a choice. You can choose to have a less emotional, more planned approached to the way you spend and deal with it. Or become a victim full of excuses who refuses to plan and then complains about things "happening" to you.

Instead of spending time worrying, complaining and stressing, I urge you to choose to confront your financial situation head-on in a business like matter. This is what I've been blogging about for nearly two years -- creating a plan, sticking to it, and working towards continuous improvement. While this does force you to take personal responsibility (likely my most treasured value) for your financial situation, it also frees you from the negative forces of "things happening". And the very good news is that if you face life like in this manner, you won't have problems quitting smoking, exercising, eating healthy and accomplishing the things you set out to do.

Each day we make plenty of choices. Make yours mindfully and then accept responsibility for your actions, financial and other.

Wine pairing: pick a bottle that's on sale made from a grape you've never tried before.

A Super and Simple Idea for Congress

STOP SPENDING BEYOND YOUR MEANS!!!!!!!!! (And then moping about it and blaming the rich.)

Why is it that so many businesses and individuals are able to self-regulate? Revenue and income goes down, spending decreases. Revenue and income increases, spending can increase.

I'm so unbelievably tired of all of the dire talk about "our economy in the toilet". Ever been to South Africa and seen a shanty town? Visited Mozambique, Ethiopia and Chad? Or hell, lived in Europe and paid over 50% in income taxes?

I'm still seeing people out and about -- fat (i.e., overfed) people, mostly, which is another post entirely but with a similar theme of moderation. I'm not saying it isn't "tough"out there, nor do I dispute the data regarding employment figures. My point is is a broader, longer-term societal thought.

Has anyone ever read a history book? Studied economic cycles? Bothered to think about the fact that the economy isn't a linear and positive trajectory?

I'm not arguing that things aren't tougher. My point is that the U.S. is still a damn fabulous country. I also have a few ideas that can very simply and cheaply save our country money:

1. Put a cap on medical malpractice lawsuits. (I'd rather send all ambulance-chasing "attorneys" to Mozambique or even Spain, but then we'd have to foot first-class tickets.) This is the elephant in the health care room. Physicians already have to spend about $200k NOT INCLUDING college to become licensed. It takes 10+ years from 18 to become a doctor. These folks didn't get in the business to be sketchy. No one ever said medicine was math. It doesn't always work out. This will decrease health care costs and prevent the USG from trying to make things "fair" (see thinking in idea #3 if you're skeptical).

2. Make health insurance like car insurance. Not dealt with or sold by employers or the government. Just something required and with private companies providing choices. If you want a higher deductible and lower premiums, great. If you smoke or choose to be obese, you pay more. If you choose not to pay for it and have a "lifestyle", then there are consequences. (Those truly in need can go with a temporary government style plan akin to Welfare or unemployment, with an expiration date, of course.)


3. Create a flat tax system of 10 or 20%. Period. Then be done with it. No more thousand page IRS docs. No more arguments about fairness and what is and isn't middle class. Or deduction after deduction after deduction. Why should people who rent be penalized? And why should people who have child after child be incentivized? The USG can't even adjust the AMT rates for inflation or cost of living index, so they shouldn't be trusted with defining "middle class". Everyone pays the same percent. Those with more income pay more. As fair as can be.

4. Make serving the USG an honor. Not a career. You serve a term. And you get back to doing what good Americans do -- contributing to society in something other than taking tax-payer money legislating for a "living". No black-tie affairs. No jets. No pomp and circumstance. US taxpayers should not be charged with paying for government parties. If they want to have a party, they can pay for it out of their own pockets. This is not a private company with profit and loss responsibility -- it's a "firm" that takes more money when it's losing.

5. Create incentive-based pay for government employees. Ever been to the Social Security office or post office. Enough said. Or hell, go out on a limb and PRIVATIZE everything.


Happy 4th of July! I urge you to be POSITIVE. Since sentiment also drives the market we can all do our part in taking off the party-pooper hats.

WINE PAIRING: South African Chenin Blanc.

The Dow is falling! The Dow is falling!

The obsession with the Dow Jones Index is ridiculous, much like Chicken Little's gloom and doom view about the sky and it's trajectory. The media loves to spout off reports "on the 10" regarding its every movement: "Up 2.. down 288...big gain of 100... big loss of 220..."

The wave of numbers is never ending. And it's quite common to get the movement without the total number. If the Dow Jones was 100 and it lost 50, this would be a major movement. But if it's at 10,000 and loses 50, not so interesting.

More importantly, the Dow Jones is a poorly constructed index. It is based on the trading

prices of the 30 included companies. 30. Thirty. Hardly representative of the US stock market! Five hundred companies. Furthermore, the companies trading at higher prices have a greater relative effect on its performance. Regardless of the number of shares outstanding.

A better index for measuring US stock performance is the S&P 500. It is comprised of the largest 500 equities and is based on market cap weights. This means companies are given weight based on how many shares are outstanding -- not the trading price.

The media's not too interested in delving into the S&P -- it is trading somewhere around 900 these days (versus the Dow in the 8,000 range) so the reported numbers are smaller and therefore much less interesting.

Making Money

With investing, the amount of money you make is your return -- i.e., your personal ROI or return on investment. When looking at your portfolio over a specific period of time, your amount of gain or loss constitutes your rate of return. It's rather obvious that we all want a higher rate of return. What may not be obvious are some of the factors affecting your actual or net rate of return:

1. Defining that period - some of us are as obsessed with our return fluctuations as we are with our weight. The majority of us don't need to look at our investments, especially those set aside for retirement, much more often than once or twice a year to monitor and rebalance. That's because the best practice is set a strategy of buy and hold. Daily Dow Jones fluctuations make for talking head fodder and not much else. (In next week's post I'll explain why the Dow is not even a good index.)

2. Factor in expenses - this is one of the primary reasons I'm an index fund lover. If your overall rate of return was 10% but your asset manager charged you 3%, you actually only booked a 7% gain. And if you're holding a taxable (i.e., not a retirement account), any trading you do increases this number as well. Yet another reason to buy and hold. (If you don't believe me, have you ever heard of a guy, Warren Buffet?)

3. Account for inflation - From the example above, the 7% return is truly 5% if inflation rose 2% during the year.

4. Benchmark - it's important to define your benchmark so you have something against to gauge your success. A 10% return sounds great, but if your benchmark index returned 15%, you're actually lagging. The beauty of index funds is that the index itself becomes the benchmark. Since you're guaranteed to perform as the index does net a small fee, you'll always be on benchmark.

WINE PAIRING: For some reason a rosé just seems to have a fantastic rate of return. They're rarely more than $20, many between $10-15, and offer a refreshing bang for your buck. I associate rosé with warm days, sunsets and fresh flavors. They're best enjoyed chilled, outside and with some nibbles like olives, nuts and Parmesan cheese. There are some absolutely delicious Spanish rosés, typically made from Garnacha (Grenache). Try one!

TVM: Key Concept in Finance

TVM stands for time value of money. It is a basic finance principle stating that a present amount of money is worth more now than it will be in the future. My economics professor often used the following expression: "One dollar today is worth more than one dollar tomorrow."

The reason for the TVM is because the money you hold today has the ability to earn interest. You'd rather receive that dollar today so that you could put it in an interest bearing account and let it grow. For example, I receive $100 dollars and deposit it into a savings account earning four percent interest. A year from now, I'll have $104. So given the choice between receiving $100 today or a year from now, I definitely want it today!

Extra credit: TVM explanations like the one above are often simplified and do not take into account inflation or deflation. If, in the above example, inflation were also four percent, it would intensify the TVM concept because the $100 received in the future would actually only be worth $96.

Wine pairing: TVM can be a funky concept, so try something really different, like a Pinotage from South Africa. Pinotage is a cross between the grapes Cinsault and Pinot Noir, and often has gamey and earthy aromas and flavors mixed with bright cherry fruit. Some more available brands are Fleur du Cap, Fairview and Ken Forrester.

The Economy is not the Market

I hear a lot of people confusing the U.S. economy with the U.S. stock market. For example, two gentlemen at my gym were talking and one said, "The economy sure is unstable with these 200 point gains and losses." The other responded, "Yes, I sure wish it would recover." To a finance geek like myself, this conversation is part funny (ha, ha, he thinks the economy is the market)and part scary (so do a lot of people).

The economy is a broad collection of factors related to the production of goods and services. Its health is typically measured by economic growth (or recession) numbers, which by the way, tend to be backward looking. When measuring the real economic growth rate, we're looking at the nation's GDP (gross domestic product) from one period to another. GDP is made of of consumption (C), government spending (G), investments (I) and net exports (exports minus imports, NX). In fact, G=C+G+I-NX. (Note that I should not be confused with the stock market -- it is the measure of business spending on capital.)

The stock market is made of up of shares of publicly traded companies -- i.e., those who have sold stock to finance their businesses. The return for investing in companies is return on the investment, or the share price rising due to higher valuation. There are many different markets -- for example, based on company size (i.e., Nasdaq for smaller) or nation (Tokyo exchange). The stock market is not a measure of the economy. Stocks can do poorly in times of economic growth and well in recessions.

Wine Pairing: try a Semillon with mussels and then a Syrah with lamb. They're both very different pairings. Remember this next time you're about to confuse the economy with the market!

Save on Travel Costs

Ever since I planned a high school senior year Spring Break trip to... you guessed it, Cancun, I've been obsessed with deals on travel. In March of 1996, our group paid $700 each for round trip airfare, rooms at the Cancun Palace, and all inclusive food and beverage. While that charter flight was not the most professional or timely, the package included alcohol, so we basically flew and stayed for free!

While what constitutes a vacation for me has certainly changed in the last 13 years, the booking principles are the same: shop around and book in advance. There are of course last minute deals to be found, which is great if your travel plans are flexible, but for the purposes of this post I'm assuming they're not. (I did once book a $1300 week-long trip to St. Martin on Expedia 10 days before I left that included airfare from SFO and lodging.)

The first step is to plan your trip budget. Then how you will you spend it. Are you happier eating fabulous meals and staying in a less-than-stellar hotel? Or do you prefer upscale accommodation and like to bring take out to your room? Will you be in a place like the beach where you won't spend much time in your room, or does the property and/or location matter? What will you need? Does an apartment or home rental make sense, or is the best bet a hotel.

After you've answered these questions, you're ready to use Google to find a deal. Google might lead you directly to a booking site, or perhaps to a rental property manager. When getting price quotes, be sure to ask when payment is due, what the deposit amount is, and what extra (hidden) fees there might be. Be up front about your lodging budget -- i.e., help them help you.

If your trip requires airfare, my favorite site is Kayak. Here you can compare deals on all flights available and specify time windows. You can also set up a travel "alert" if you travel frequently to a particular area -- for example, I have one set up between Portland, OR and Oakland, CA since I'm often en route to California for work. The one thing to note is that Southwest Airlines does not display, so I advise you to check the airline site directly to see its rates as well.

If your trip is bringing you to a particular city, check out its associated travel and tourism site. For example, this site has fantastic deals in the Portland area. There are pre-pay hotel discounts that include parking, breakfast and a $75 gift card. The packages change but the idea is the same -- take advantage of deals designed to lure tourism. If there are particular sites or museums you want to visit, chances are there will be coupons included, and you can always ask.

Travel can be fun and exotic, just like a Chilean Carménère, which is this post's wine pairing! Carménèreis a "noble variety" in Bordeaux but is almost always a minority part of the blend. In Chile, it is arguably "king". Carménère is a medium-bodied wine with red fruit, spices and softer tannins than in a Cabernet Sauvignon, for example. This Casillero del Diablo is a great value from one of the bigger producers, Concha Y Toro and costs less than $10.