Monday, April 21, 2014

The Free Market Wins

My family partook of the typical Easter egg hunt yesterday at the request of the children.  We usually do not setup this event around our house unless we're at the Grand parents where it was a tradition.  In our home, my wife and I have tried to shed some of the trappings around the holidays that distract from the meaning of the event being observed.  Two things motivate this, an aversion to things that create clutter and a desire to elevate meaning and reflection over things that promote greed and consumption based happiness.  We are firm believers that joy is found in Christ, and that happiness is fleeting.  The emphasis is on a strong foundation which provides a joyful outlook which produces conditions for happiness. Teaching our children to follow this path is not without challenges, but often the challenges provide opportunities to educate.

My usual anxiety with an Easter egg hunt is the emotions that swell when children are sent out to scavenge on the day of our Lord's resurrection to find the most loot.  Bickering, complaining, crying... bleh!  But I decided this year, since the children put the work into coloring the eggs with only a tiny bit of help on mixing the dies, and since they requested it, we would have an egg hunt.  My wife even hid the eggs and some sweets in the front yard so all I had to do was sit back and observe.

It wasn't long before the youngest had found about 9 of the dozen dyed eggs and the oldest had found 7 of the 8 sweets.  Tears flowed at the injustice and the oldest proposed a limit on how many eggs you could gather.  My ears perked up.  I asked: "do you propose forced equality?"  It took a while for that question to process on the receiving end and the sentiment took even longer to fade, but the desired effect was had.

Shortly after that, the youngest was bemoaning the injustice that the oldest had the majority of the sweets.  I re-framed the situation to help them think it through. "So you're competing in the market place and your opponent is better than you at finding sweets.  What is it you would propose to make things better for you?"  I got a quick reply (our youngest human-in-training is a sharp one) "Make a rule that [oldest] can't stay out in the yard as long."  

My somewhat triumphant reply came quickly: "Do you know that you just embraced crony capitalism?"  Blank stare. "You just petitioned the government to make a law that favors you and punishes your competition.  Is that what you want?" Deep thought ensued.

Both of these exchanges turned tearful wailing into some personal reflection, which was better than I had hoped. The best part, in my mind, was the last exchange we had.  

Sitting in the living room, the issue of who had how much of what came up again.  So I proposed a scenario to put it in perspective for them.  To both: "When you have an oversupply of something, you have more than you need.  That means you can sell some of it for something you want or need."  Eyes lit up.  To the youngest: "what price would you set on your surplus eggs?"  The oldest piped up with an offer "I'll trade you 1 sweet for 3 eggs". Hastily, the youngest accepted the deal.

I pointed out that they had just negotiated and executed a contract. Whatever, Dad.  My wife was delighted that I inserted some economics education into the midst of the moaning and whining. 

I'm starting to see two things as I get older.  As a parent, every struggle our kids face is an opportunity to learn.  What they learn from their struggles is up to us to provide and shapes their character.  The second is as the title suggests - the free market provides the answers to a lot of struggles.  Moreover, when you apply Biblical truth in how we should treat one another - Love God with all your heart mind and strength and love your neighbor as yourself - you can derive good, fair answers that are the right answers from free market principles.  

I believe this goes to show that we can apply the same approach to more issues with broader scope if we could let go of the things we cling to, like overly large and complex legal codes and behemoth governments to execute them.  The Bible and the free market provide simple and straight forward approaches to dealing with life.  If we all were committed to peaceful coexistence and creative problem solving, I think the need for many of the burdens and shackles we willingly accept would diminish greatly.

Monday, November 26, 2012

Hard Skills and Soft Skills

A couple articles back I talked about Assaying and Bartering, essential soft skills for surviving the economic Armageddon that seems to be upon us.  There are other so-called soft skills you will need to survive. There are also hard skills which we'll cover in the second section of this missive, things I think you should try to learn in order to improve your chances of surviving and sustaining your family.

This is a bit long, so here are some bookmarks.

Soft Skills
- Negotiating
- Leadership
- Teaching

Hard Skills
- Gardening
- Building
- Repair and Maintenance

Appendix
- Negotiating Example
- Negotiating Tips from Christopher Johnson
- Leadership Example

More Soft Skills

Negotiating

Negotiating is probably one of the most widely applicable soft skills you should begin picking up.  If you've ever tried to haggle your way to a better price for your car, you've negotiated.  If you are like me, you got a token concession from the dealer and felt like you pulled one over on him, when really you just took his give away threshold and felt good about it.

Negotiation is a skill useful not only in trade but in establishing treaties.  That's right - if things continue to go south, you might be in the position to negotiate treaties between your block and the next or your town and the local farmers.  You can also use this skill to mediate disputes between other people and could safely be called Mediating where you are both the mediator and one of the parties to the mediation, except then we call it Negotiating.

When negotiating, you're looking to improve your position while allowing the other party to feel or perceive, in fact or not, that their position suites their needs.  Whether it does or not is not your concern but you should endeavor to discover as much as you may about their actual needs and goals before or in the opening of negotiations.  This is information that will be difficult to extract from experienced negotiators.  Seasoned negotiators will never fully reveal their bottom line unless you have long standing rapport with them.

Once you have as best of a fix on their end game as you can get, you need to work them towards that line.  Negotiating is essentially the art of telling the story from your position in terms that are reasonable and difficult for the other party to argue with.  Observing and pointing out facts that illustrate your position as being the natural mid-way point works to bring the other party away from their favored position towards their bottom line position.  You may decide to approach negotiating as a series of barters with the same trading partner, each time learning a bit more about them to more effectively trade profitably with them.  It's also worth noting that sometimes it is good to make sure they get the better end of the deal so that if you like trading with them, they'll continue to feel the same way.

There's an example of negotiating in the appendix below.

Leadership

Vast quantities of writings have been penned on leadership.  The basics you need to know are that in order to be a leader, you have to be willing to sacrifice your pride and your personal goals to the service of those you lead.  You will have to make difficult decisions that mean you may have to tell someone what they can or can not do.  Being a careful and just judge of what is right and best for the group while respecting the pride and honor of whomever must be corrected will be key to maintaining the respect the group has for you and the cohesion of the group.

Frequent communication, but not fawning or authoritarian communications, is needed to keep the group focused on where it is you are leading them.  Direction needs to be clear and concise, but should be rooted in either governing documents and law or consensus and common sense.

An example of a typical leadership judgment call can be found in the appendix.



Being a leader also means knowing when to act and when to not.  Many situations resolve themselves with little need for leadership when the rules of conduct or charter or by-laws are understood by all.  As such, awareness and adherence to the rules isn't just for the team, it's for you as well.  Even when it's difficult, order is maintained by being a respectable leader who respects the rules and the troops.

Leaders sometimes need to have vision as well.  If the direction and mission isn't defined for you, it may be that the team or your group is expecting you to provide that vision.  Here I can only suggest you prayerfully consider what is best - earnestly.  Some will be inspired by God, some by history, some by the needs at hand.  Do what is best and right.

Teaching

Respect and kindness are critical in all relationships - most clearly in the teacher-student relationship.  Learning to be a teacher is no easy task.  You have to respect your pupil enough to see the world through their eyes, then interpret what knowledge you have to impart with kindness, speaking to their point of view.  Like negotiating, this means knowing your pupil.  You need to know their strengths and weaknesses, their goals, dreams and ambitions.  You need to know something of their preferences and world view.  Getting to know them will make you more able to be kind and more able to give and receive respect.

Teaching then is the art of creatively illustrating complex or difficult subjects in terms suited fully to your audience.  Learning to teach and how to teach others how to teach is an essential soft skill in surviving as a group through hard times.

Hard Skills

Hard skills are those thing which you will need to know and be able to do for yourself.  These are the raw skills of survival that will clothe, feed and shelter you.

Gardening

Learning to collect seed, germinate it to sprouts, harden it off, transplant it and grow it to maturity to bear its  fruits is one of the basis of civilization.  When the Native Americans began moving from hunting and gathering  to agriculture, they began settling down and becoming less nomadic.  The size of their tribes grew with this stability and eventually they connected with the world at large through trade.  For one person to sustain themselves by hunting and foraging alone, they would need exclusive access to 30 or 40 acres of woodlands and meadows, and they would be living on a minimum of calories.  By adding gardening or farming to the program, a family of four can live on 5 acres comfortably.  It is only through mechanization and industrial farming that our current vast population is sustainable.  Small scale operations have much needed nutritional diversity but suffer a penalty where economies of scale benefits are not applicable.  Learning to grow  food and teaching your neighbors to do the same will mean nutritional security during times of economic scarcity.

Building

Shelter is the paramount concern in a survival situation.  Shelters, Shacks and Shanties, by D. C. Beard (founder of the Boy Scouts of America) is a great primer to learning the basics of constructing viable emergency, short term and long term shelter.  Ideally, your house will be where you left it when the economy collapses, but if you  find yourself displaced or in need of making repairs, you'll want to master some basic structural engineering concepts and learn how to use, at minimum, a hammer and saw.  From these two basic elements you can expand your skills as tools become available and by mastering additional tools you can improve the comfort and quality of your shelter.

Repair and Maintenance

Understanding how things work and how they may have got broken are essential skills.  If you can whittle a replacement handle for your hammer or ax, you retain the use of that tool.  If you can keep a gas powered rototiller in running condition though fuel supplies may be scarce, you can cultivate more food.  If you can properly mend a roof, your shelter will weather more than one storm.  Repair and maintenance skills are often taught more by experience and of necessity than by pure academic effort.  That's not to say there are not many excellent books on a variety of related topics but I would consider machine, tool and home repair and maintenance to be the most basic and critical of hard skills outside of those already mentioned.


Summary

Surviving a depression or total economic collapse will require more than just these soft and hard skills.  You'll also find you will have need of a reason to keep going.  It is good now, while things are still somewhat fair and decent, to decide what it is that will sustain you mentally and emotionally till the end of your days.  Chose wisely - place your hope not in things that are easily destroyed or stolen such as material wealth, and place it not in one person who can become ill and die or have a change of heart and leave.  Put instead your hope and energy into altruistic values that will create and sustain a world in which you will want to live and leave to your children if you wind up having any.  Put your energy towards a better future and your hope in the knowledge that you are building and leaving a legacy of that which you are best able to provide, whatever it is that constitutes your strengths and character.  Worry not for things you can possess but for the things you will leave behind - your reputation, your mark on the world and the lives you touch.  And when there is nothing left to you, ultimately, you may decide to trust in that which can not fade, waste away or be taken - trust in God.  Many of us have looked down the long road of the future and already decided that our focus is best kept on Christ because he charted a most excellent way where we focus on our standing with Him first, and in doing so we put others before ourselves, and take concern with our own needs last.  This is the basis for kindness and respect that is not subject to whim because it is rooted in an eternal concept that does not change nor is subject to fashion.  It is the rock upon which we stand, and when the world falls down around us, the foundation upon which  we will rebuild.

Appendix

Negotiating Example

Let's take the example of negotiating trade between a town and the surrounding land owning farmers.  The town will need food, and the farmers will need a variety of services to operate their farm from labor to security to technical support, tooling, mechanical service, etc.  Let's look at goals.  The goal of the farmer is to prosper and sustain his operation and family.  The goal of the town is to avoid starvation.  The town could band together and raid the  farms, but this would mean no future production from the farm.  The town would essentially eat for a day and starve for a season.  Better to enter into a treaty with the farmers so that there is a reliable supply of food coming to the town.  The farmer may start the negotiations with the understanding of what it takes to run his farm, but may want to limit how much food he trades for goods or skilled labor so that he can trade with other towns.  Negotiating will require the town to illustrate the value it represents to the farmer in meeting his apparent needs.  The town may also intimate that there is intrinsic, indirect value in allying with the town when it comes to defending the farm from raiders from other parts.  The farmer may need to point out to the town that his food supply will be providing sustenance for those who will not work directly for it - children, the infirm, etc., and therefore the labor required to satisfy his needs will be perhaps more dear - that is more labor will be needed to be provided by the town - than first proposed as the value of the food has been assayed by the farmer in the context of the needs of the town.   Bartering skills will provide the basis for the negotiations, and negotiating skill will help craft a treaty or contract that provides well for the long term goals of both parties.  It will also have the foresight to provide a periodic review of the terms so that adjustments can be made as needed.

Negotiating Tips - kindly provided by Christopher Johnson
More than a few years ago I was able to learn something about haggling from a street vendor in Italy.  He was the only vendor in that ally that had prices marked on his goods and was not haggling.  He had gone to university in the United States and was willing to talk with me.

In the course of the discussion he agreed that we would attempt haggling but that I would not actually be buying the item we were haggling for.  (I did buy a sliver necklace at the posted price as a thank you)

He said "pick anything" so we were haggling over a quartz chess piece, very nicely done (made in China).  We began.  He said 10,000 I said "5,000" he said "sold".

The first rule of haggling is know what it is worth to YOU.  You don't base your offer on what he is asking but on what the item is worth to you and with an idea of where you want to end up.

The second rule of haggling is to realize that it is not about meeting in the middle.  It is about getting the right price.  Just because they drop their asking price by 1,000 doesn't mean you should raise your offer by 1,000.  If they are off by 10,000 from the price you are willing to pay and you are only off by 1,000 then each drop of 1,000 is worth only a raise of 100.

The final rule of haggling is to know that at times the best choice is to walk away.

P.S.  Most vendor's are not offended by an offer that is too low. 

Leadership Example

Let's look at an example of having to correct a member of your group.  You're part of a team governed by a charter document which sets up the rules by which your team will operate.  One team member has volunteered for extra duty.  They are skilled in both this new duty and in their current duty and you don't have anyone else that can take either over.  But the charter specifies that the two roles must be handled by separate people for security purposes.  You are faced with having to tell this person that they have run afoul of the charter.  You have a choice.  You can chastise them for contravening the charter, or you can approach them in the spirit in which they have volunteered.  The course that will earn their respect and maintain the team will be to inform them that you have to ask them to make a difficult choice in how they will conform to the charter.  By taking this approach, you have neither corrected them by telling them what to chose nor condemned them by telling them they have chosen incorrectly.  You are simply bringing the reality of the situation into  focus for them and asking them,  difficult as it may be, to chose how they will resolve the conflict between themselves and the charter.  If you came at it heavy handed, the conflict would immediately be between you and the team member.  The respect from them for you and your position would be diminished and they may be embittered against the charter, you and the team.

Monday, November 12, 2012

Health Care or Health Insurance?

How do you use health insurance?  As a health plan or as catastrophic insurance?  

Walmart recently posted rising costs for employees who take coverage benefits.  This has proven to be the same for me personally lately as well through my own employer.  

We use it as the later.  The rising costs of the company provided plan we were on, which didn't provide the options we wanted anyway, forced me to get individual coverage from the same carrier.  We were able to get a high-deductible, 100% out of pocket with no life max plan that had an HSA attached.  That means my deductible and all costs are tax deductible, for now, and we just keep that HSA growing as we know with age will come higher health care costs for us individually.  

Using health care as a "plan" is a bit of a bad investment.  Consider what you pay for a health club membership and compare to what you pay for insurance.  If you expect insurance to cover every sinus infection, you're using a product intended as a safety net incorrectly and perhaps are contributing to the overall rise of health care.  Consider this - paying for your own Dr. Office visit incurs very little administrative overhead for the Dr., especially if you pay cash or use a debit attached to an HSA account.  When you use insurance, there is a cost in man hours and paper work to get that claim processed, and guess where the cost gets passed on to?

Part of fixing our country is reducing welfare use, but also wising up and using the tools we have in a more intelligent fashion.  Paying out of pocket and taking out catastrophic coverage will get you in the mode of saving up your money for that higher deductible, but it also makes better use of your dollars in the short term.  Be frugal and spread the word.

Thursday, August 23, 2012

Assaying and Barter

Last time I talked about cash and how our perceptions of value shape its use and adoption.  We looked at how cash as a medium can be manipulated, even in a very basic system and how most of our world system of commerce today is based on fiat currencies - those which have no intrinsic value of their own but the "full faith and credit" of the issuer.  This time I want to talk about how we determine the value of things and how that can substitute for cash when there is no agreed upon or suitable cash denomination to cover the transaction.

Assaying

Assaying is the art and science of determining, to a high degree, the condition of something precious or worth having.  Mostly this is applied to precious metals, but you can assay antiques, stamps, coins, baseball cards, farm equipment, fire arms and more.  Knowing how to assay requires knowing foremost what a fake is and how to identify it, and secondarily, what something in mint, good  or fine condition looks like when it's the genuine article.  We see this a lot with car dealerships and gun shops.  Owners will usually take items on trade.  They specialize in assaying the condition of these specific items so that they can ensure they remain profitable in their business while offering meaningful value to their customers.

Perhaps ironically, assaying also involves having a current knowledge of what something is worth in a particular currency.  Most things in the US are assayed in US Dollars.  This is also common coin in Liberia and other African countries and parts of central America and the Carribean.  In Europe, it's likely Euros, British Pounds or Swiss Franks.  Russia, China and India and the middle east variably trade in gold, oil, US dollars, Euros or an agreed upon barter, rarely in their own currencies when dealing with each other.  The variety of currencies one can value material goods in should give you an idea of the potential to substitute other material goods for currency in this equation.  If you have a good idea of the accepted value of something : oil, wheat, goats, water - you can estimate the value of something you assay.  Catch that distinction?  Assigning value is a separate but related step from assaying.

So you come to me with a shotgun.  It's a break action, single-shot gun.  On it I find a makers mark and a model number along with a sort of serial number.  Breaking open the action and looking down the barrel, I observe pitting indicating either the age or lack of cleaning during it's lifetime of service.  The firing pin sticks a bit but otherwise appears to be in good shape.  Assaying would be my ability to understand that the gun was made by Savage arms in the 1930s or 40s, that the 16 gauge variety was a common give away item of the time, was going to be fairly useful for hunting small game and fowl and that given it's condition, which I rate to be fair given the beauty of the outside of the gun and the minimal impact on the function of a shotgun pitting in the barrel has, estimate it's value at about $200.  Since I want to profit if you are bringing this gun to me in trade, I will offer you $125 to start and might go up to $150 on trade.  Your ability to barter will get you closer to the price you want.

Barter

This is where bartering comes into the picture.  If you want to barter successfully, you need to be able to assay a bit yourself, and you also need to know what losses you are willing to take, or what profit you need to make on a trade.  You need to be up on a wide variety of topics and material goods in order to become successful at bartering.  Market prices are certainly part of this knowledge, but sometimes the market can lag behind the true value of something, especially in situations of sudden demand.  In the morning, a pound of rolled oats might be worth $3, or three two liters of pop, or a dozen twenty ounce bottles of water.  If there's a blackout in your area due to a storm, regional or national market prices won't move very much, but you might be willing to give $5 or a whole case of bottled water for those oats if your pantry is empty.  Demand and supply are quick manipulators of value, or the perception of value.

For a travelling trader, having a stock of small, portable trade-able items ensures a higher degree of successfully meeting someones needs and executing a trade. Successful trades where you both get something you want make you a successful trader.  Bartering skill is crucial if this is going to be your trade.  Simply surviving in your area by bartering with neighbors gives you a lot more flexibility in terms of what you can offer.  You have the option to offer labor or skilled services in exchange for goods or access to tools and equipment.  My neighbor and I often operate this way as cash is just impersonal and really not what we are after.  I like being his IT guy and he likes sharing stuff from his garden.  Beyond the material value, we enjoy the comradery and trades we execute in this fashion strengthen our bond and sense of community.

Naturally, cash is more portable than goods, and some people count their success in dollars rather than in honest haggling and swapping of goods or services, but in doing so they neglect their ability to assay, estimate value, barter and the opportunity to build and strengthen relationships through good faith trade.  There's nothing wrong with that, and during stable economic times with strong currency, it may even be much more suitable.  But we're more and more talking about unstable times these days - hence the topic.

Now, a word of warning.  If you operate a business or make a substantial amount of income by barter, you need to estimate the dollar value of received goods and report it on your taxes.  I believe there are some specific forms for this - consult your CPA on this point as my knowledge is sketchy in this area though I'm aware there is a threshold you eventually cross where you need to be reporting to your taxing body.  Our friendly neighborhood exchanges never come close to approaching the bulk of our income - seldom even the amount of half a days pay.  But, we like to keep in practice with these skills for that potential point in the future where dollar bills are nothing more than conveniently sized tinder for starting the evening fire.

Sharpen Your Skills

Gun and knife shows are a great way to start as many vendors will consider trading if you bring something to the table.  It will have to be something good that they want, and you'll get less than top dollar, but it will provide you the chance to assay their wares, as well as your own, and pit your skills against seasoned veterans in a friendly exchange.  You could also try this approach with garage sales though I don't think many people do so.  Got some old tools you want to unload?  Take them with you when you go to the next rummage sale in your area and see if they'll trade with you.  Know what you are looking for, what it looks like in poor, fair, good or mint condition and what you're willing to give for it.  Have fun!  The beauty of barter is the relationship you build over a simple cash in hand transaction where you pay the asking price and walk away.  Engaging in conversation can yield up a wealth of information you might otherwise not come by.

Thursday, January 19, 2012

Cash

This is actually a much more complex subject than I think I can safely go into here, but I'll try to convey as much meaning in as little discussion as I can.  Let's start with a question: what is cash?  Cash is a promise.  You may have a US dollar denomination handy upon which is written, "this note is legal tender for all debts, public and private".  That declarative statement says a lot.  One, it sets the context under which that note is valid, that is, within the jurisdiction of the U.S. Federal government.  Voluntary adoption of the same currency which occurs throughout the world is just that - voluntary.  If I'm in Europe, I don't have to accept US currency, though I can elect to voluntarily.  But I digress.

The currency of a nation is only good as long as people value it.  What value people ascribe to that paper money is sometimes  a very subjective thing.  Generally we have financial markets, of rather immense complexity, which help set the value of currency.  Typically, this valuation is tied to the credit-worthiness of the issuing country.  Once upon a time, a promisary note was intended to be good for redemption in gold.  This soon proved to be impractical as inflation increased the value people ascribed to other tangible goods, the pressure on the dollar to gold ratio increases.  More to the point, as more money is printed to meet the rising demand for cash, the on-hand gold to back it must likewise increase.  For a long time, the amount of on-hand gold at Ft. Knox in Kentucky was a closely guarded secret, the facility protected by high security and snipers.  At length, though, it has become known that there is no longer enough gold in the possession of the US government to back the paper money in circulation.  In fact, President Nixon closed the "gold window", taking the US dollar off the gold standard seemingly once and for all.  Now, the paper is merely backed by the "full faith and credit of the United States Government".  What's more, it appears the government may have divested itself of the gold on hand just last year. 

But, to understand this problem, we need a basic understanding of cash on a micro economic scale. Let's for a moment pretend that each 1 dollar bill is a bottle cap (ala the Fallout universe).  If there is a limited sum of bottle caps, the value of the bottle caps would never really change materially.  Subjectively, one trader may value an article of food or clothing at 3 caps and another trader in another settlement might value it at 4 caps, but that is down to the skill of those engaged in barter.  The currency is remarkably stable due to it's fixed supply.  If someone was able to get a press up and running, and start stamping out new bottle caps, they would begin manufacturing wealth.  This wealth would be used, most likely, to engage in trade - for what is money not spent but so many rusting bottle caps?  As this wealth was distributed through trade, the supply of caps in the economic system would increase, enabling more wealth to be held by more individuals, or for some individuals to aggregate wealth to themselves so as to be able to wield power.  Now, let's say that I am a trader and I've done well for myself and have amassed a fortune of 4000 caps.  With it, I recon I can buy a shack and keep myself in beans and bullets till my last day.  Along comes Mr. Stamping Press and dumps a hundred thousand caps on the local economy.  Suddenly, my sleepy little settlement is a boom town.  As the local merchants gain wealth through the expenditures of the wealthy man, they are able to order more and better merchandise and supplies.  In some cases, they raise their prices, in others they drop them as they are able to purchase in volume and pass savings on.  But now the merchants and the suppliers (many of the locals) are also wealthy.  My one time fortune of 4000 caps is now fairly standard.  Not to worry, prices are marginally stable.  One day, one of the merchants decides he wants to be the big man and uses his wealth to buy out a competitor who was wanting to retire anyway.  Now, he's the only supplier for say, guns, in town.  Being as there is no longer any competition, he is free to raise his prices.  My 4000 caps isn't going to buy as many bullets if they go from 1 cap for 5 rounds to 1 cap for 4 rounds. 

Gradually, inflation works its way through the local economy and all of us who thought we had it made, are really once again struggling to get by.  Except for Mr. Stamping Press.  He pretty much laughs at inflation because he can press more caps any time he likes. 

So it is with cash today.  We call this "fiat currency", meaning the creation of money by dictate of the governing authority.  The US government, along with many other governments, are operating like Mr. Stamping Press.  Because the exercise of wealth gives them economic power and the ability to steer both a local economy and the fortunes of the private individuals that comprise it, they have an interest in continuing to print money once inflation sets in. 

I started a job in 2008 with a new company.  Since that time, the consumer price index shows that the value of the dollar has eroded a full 9%.  My wages have remained flat, along with many other people in the US (those who have jobs anyway).  In effect, my wages have decreased 9%.  It's a bit like my fictional self as a trader with inflation eroding the value of my stash of caps. 

That brings me, long way around, to the point of this post.  What to do about cash?  Should we save it in a bank?  Should we horde it at home?  Credit Union? Capital assets?  Land?  Yes.  All of the above.

Since cash is losing value, saving it in the  bank is really just making sure there is something there later when you need some money.  It will NOT increase in value, even with interest earned.  Inflation is sucking the wind out of the sails faster than they are being filled.  But, it's not as risky as investing in stocks, which can vary wildly with the mood of the markets, or bonds, once though to be safer than safe.  Having some money in savings is good because you're going to need to conduct financial transactions with the bank to pay your mortgage (if you have one) or write checks to pay bills, so a checking / savings account is going to be something you need.  But don't park all of your wealth there.

I do advocate stashing some.  Nothing grandiose, you don't want your retirement money sitting around the house, but get a fire safe or other secure device to lock up a month or two worth of expenses in on-hand cash.  If, as some early reports suggest, banks are rapidly collapsing and becoming insolvent at an increasing rate (See Barnhardt, January 19, AD 2012 12:35 PM MST), there is likely to be a big government directed reorganization of the commercial banking in this country - soon.  What money you have there then may or may not survive, but chances are it will at least be inaccessible for a time.  Cash on hand will enable you to not starve and take care of basic needs for the short term while things shake out.

I at this point have more faith in credit unions than banks, but with a federal government that only sometimes follows the law of the land (in a highly selective fashion), one can not be too sure.  At the very least, credit unions are not FDIC insured but are backed by the NCUA, a separate but different organization.  While the FDIC risks becoming quickly overwhelmed with over hypothicated banks, the NCUA should be in better shape if credit unions are smart enough, and I belive they are to an extent, to not hypothicate or re-hypothicate your savings out as unstable high risk loans.  So, a CU is favored over a commercial bank at this point. However, you may note: "the NCUSIF is a federal insurance fund backed by the full faith and credit of the United States government."  Again - I trust thrift focused institutions more than I trust profit motivated ones when it comes to handling my money correctly, but the "full faith and credit" means much much less than it used to.

Money Markets were once a great, medium risk way to make better interest and they function like a checking account.  I have had one for years and recently elected to move most of the funds to the CU, some of which I'll diversify into stable assets.  Which brings me to what to do with cash you don't want to keep as cash.  I believe, and I think history will bear this out, that certain commodities will increase in value with time as cash declines.  Look at Gold.  At $1400 an ounce, it's a bit late to get into the game there, though you could if you wanted to but without actually taking delivery, the receipt for your gold in some warehouse is as worthless as the dollars in your wallet.  Things of local utility are a better option.  If you live near the ocean, stocking up on supplies that enable people to survive through fishing and boating would be a wise investment.  Pacific Northwest?  What do people need to survive in a heavily wooded, mountainous region?  Dried food, seed stock, flour, sugar, band-aids and other medical supplies, bullets, tools, raw materials such as stock aluminum and steel, fuel for generators, cutting torches and cooking... these are things of real value that will soon be very expensive if traded for in cash.  Let me put it this way: gun sales are going through the roof in this country right now.  The general sentiment is that things are precarious at best.  Park your money in things that are easy to obtain now but may become scarce later.  Innocuous things that don't make you stand out as a panic-buying survival nut.  Just the things you and your neighbors are likely to need in the coming year.  Trade and barter is something you'll want to become good at. 

In summary, cash is breathing it's last as we know it for the time being.  Some reorganization will occur in the near future and cash savings will be worth practically nill - maybe.  I'm no prophet, but the circumstances are very much like those surrounding the revolutionary war when that $4000 was the sum held by a man by the name of Fulton, one of the first inventors of the steam boat.  Inflation, driven by the war, reduced it to about $40 in the space of 2 years.  The only difference is we have a central bank that is ostensibly there to help balance the currency supply and hence value, but most of those in charge of that franchise have an interest in seeing it enter crisis mode as it will provide them ample reason to reorganize it and remake the rules to their advantage.  Just like our friend with the stamping press.

Monday, December 19, 2011

Discipline

A number of months ago, I was asked to serve as the chair of our stewardship team at church.  This event, in itself, is a short story about God's will and the Holy Spirit.  I went to bed the night before my decision was due telling God that I wasn't his man, that there were too many problems with the finances and that I was too nice to address them head on.  I was thoroughly discouraged as I lay my head down on my pillow that night.  During the night, however, I had a very clear dream of serving in that role, addressing the very problems that I feared with even temperament and grace.  I woke up feeling encouraged.  I believe the Holy Spirit worked in my heart through my dreams to encourage me and inspire me to service.  I woke up with a mission and a vision:  sort things out with our finances and improve the accountability and accuracy of our record keeping.

One of the responsibilities of my new role is writing for the church newsletter when I am able.  I thought I would publish these notes here as they invariably deal with finances and are more geared towards Christian living than the largely neutral tone of my other financial articles.


December, 2012 Newsletter (updated and edited)

I hope you enjoyed Christmas in all the ways that matter.  Did you make any New Year's resolutions this year?  How's that going?  Sticking with them?  If not, I'd like to suggest one or two.  

We derive a lot of comfort from our possessions, don't we?  Warm coats are especially comforting in Winter, as is a well insulated home with a heater that works.  And a pantry with the basics in stock is always a welcome thing.  Perhaps this past Christmas, you've been made aware of those who go without or are less well off.  I suspect a lot of us are one paycheck away from having to do without, ourselves.  Indeed, many Americans live paycheck to paycheck making thoughts of tithing or charitable giving far removed from daily life.  For some, this is a cause of stress and can bring strife into marriages and even friendships.  Asking to borrow money from a friend can have lasting repercussions on a friendship: that feeling of a debt owed, the shame of being unable to pay it, the awkwardness in each meeting with that friend... being a borrower is a tough thing.  How fortunate are we that we have one friend who has paid our debts who doesn't charge interest or ask to be repaid.  We can look at our Lord and Savior without shame! Amen.

Then there's the debt to credit cards, when we're charged interest by a bank.  Interest you earn is great - it compounds slowly over time and grows your investment in a predictable and low risk way.  Interest you pay on credit also compounds, but adds to your debt if you only make minimum payments.  Are you in debt with credit?  Can I encourage you to begin digging out by paying more than the minimum payment?  If the minimum payment is $25.00 a month and you can afford to pay $5 more, you'll be chipping away at that debt a lot faster than you were, and on your way to being free from debt.  If you can double it, even better.  If you can pay off your card each month, that is ideal.  Carry no debt if you are able.  Getting rid of a sin debt is easy - we give it to Christ, lay it at the foot of the cross, and walk away.  Financial debt though is a bit more difficult to shake.  Getting out of debt is like the battle for holiness in our lives... little by little, persistence and consistency wins the race.  

If you're already living without a credit card (I commend you!) but you still find yourself in a holding pattern on needed expenses (food, clothing, shelter and transportation) -- living paycheck to paycheck -- I encourage you to start a savings account, even if it's a minimum deposit to open it.  If you can tuck away $5 or $10 a week, do it right when you get paid.  You may have to give up some treats or sweets or find cheaper alternatives, but the rewards of diligence accumulate and pay off.  Pay God first, then your bills and put whatever is left, or a set portion of it, in savings.  Building savings and getting just one paycheck ahead gives you enough breathing room so that your finances will not distract you so much from your worship life or bring discord into your quiet time before God.  I'm definitely not saying that you should seek peace in a pile of cash.  On the contrary, the Bible is clear that storing up here on earth where moth and rust destroy and the thief  breaks in and steals is by no means security, and that's not what we're talking about here.  We're talking about stewardship... setting aside just enough for tomorrow so our finances are not a distraction from a life lived in service to Christ.  

Why am I encouraging you to manage your money this way?  Because once you free yourself from the paycheck to paycheck cycle and the fear of the world, you will no longer have a problem being a cheerful tither and acts of charity will now seem possible without the worry that a bill will be late or you'll be short on food.  Don't mistake this as me saying you shouldn't tithe if you're poor.  Financial teacher Dave Ramsey says he has tithed into and out of bankruptcy... it's a choice he made to remain faithful to God even when times weren't their best. Also don't take away the message that conquering our financial situation conquers all fear.  Only your faith in Christ can do that. But when we take some simple steps in discipline, we are more at ease and more naturally cheerful in giving God his first fruits, and we build the discipline we'll need to manage our affairs with the remaining 90%.  It is then much easier to remember where our eternal security is; not in the crude matter of our current existence, but in the Salvation of Christ Crucified.

Building cash discipline builds a disciplined life.  It will also improve your discipline in pursuing the things of God.  Check out Proverbs 13:18 and 19:20, and have a blessed month!

Tuesday, December 13, 2011

Self Employed, Salaried or Hourly?

It might seem like an odd question given the difficulty many people are having landing a job these days, but I suppose that also makes it a great time to be thinking about it.  Should you shoot for a salaried position, an hourly pay scale, or go self employed and reap what you may?  I've done all three and I hope my experiences and reflection on what it has been like are helpful to the reader.


Self Employment

I've started three businesses in my life.  One still remains.  Owning your own business is an interesting, and at times, terrifying experience.  You get out of it what you put into it.  If you fail, it's no one's fault but your own.  If you succeed, you have tomorrow to contend with and striving yet again for success.  You're responsible for your own taxes, your own medical plan (if you chose one), insurance (if required) and so forth.  You have to be part salesman, part accountant, part customer service manager, and all CEO, laborer and gopher (unless you've got kids).  If you are good at what you do, you may be lucky enough to be able to hire some employees to help out... and then you have to worry about their taxes, their benefits (if you decide to offer them) and managing their time as well as your own.

Being self employed, once upon a time, was a very simple thing.  It's what most people did - learn a trade or skill or specialty, open up shop in your kitchen, barn or front room and set about making a name for yourself.  These days, regulations and laws intended to keep large companies in line make it so difficult to run a small business it's practically punitive and certainly provides much discouragement trying to make a go of it.  But, if you can keep yourself straight with the tax man and keep your customers happy, a little careful planning can take the one-man shop a long ways.

As a self employed individual, I was also contracting hourly.  I prefer hourly wages as it more accurately rewards my efforts and investment of time.  If I need more money for some big expense, I can drum up a bit more work to cover me.  If I am doing fine and don't need to kill myself, I can take every other Friday off.  Money exchanged for value on a scaled basis is very equitable, especially if you take the view that you negotiate what you need and reject that which is too low.  You're in charge.  Proceed with three parts confidence and one part fear and you'll do just fine.  You'll probably like the boss, too.  If you can't get a job due to a past criminal record or bad credit or just a lack of experience and resume, starting your own business can be a great way to establish yourself and build your own success.


Hourly Wage Earner

Working hourly for someone else, however, is another matter.  Especially where you're restricted to a set number of hours or expected to put in the minimum while observing unpaid vacation days.  Self employed, all vacation days are "unpaid", but you build that into the rate you charge. Being employed by someone else on an hourly basis takes a bit more negotiating, a willingness to walk away from the job if they're not meeting your expectations or needs, and a willingness to bend to their schedule rather than one you set.  You still have the equitable value for money paradigm, but you're likely viewed as just hourly labor that can be replaced easily.  It takes special care to build and maintain a good relationship with your employer so that you are the preferred choice for hourly work.  So, even if you're employed as an hourly worker, treat your employer like a customer and they will treat you like a preferred vendor.  Unless of course they're just exploiting you... in which case, walk.  No skin off your nose.  Don't be a chump.


Salaried Employee

Working salaried is a different mind set.  You're paid the same amount whether you work 8 hours or 12 hours a day.  Overtime is likely not paid (you're probably listed as exempt) unless you specifically negotiate it in your hiring package to be paid for OT.  Being salaried, the value for money exchange isn't as direct, but it's there.  You have to have a much longer view and should definitely be talking about performance bonuses and the like.  Working harder, earning more for the company should be rewarded.  Ask for it.  As a salaried individual, you have to advocate for your career more than yourself as a service provider but the relationship should still be viewed as a customer relations effort on your part.  Never fall into the trap of assuming you are indispensable just because you're a salaried employee (or associate as many companies call them these days), or the trap of assuming you are owed something you are not or that you are above certain work. 


Attitude
 
In all cases, be humble but be honest - if you think the pay isn't fair or the work isn't your thing, say so, but be willing to try your best working at new things.  It always pains me when I hear someone say "I don't do that" or "it's not my core competence, so no thanks" when offered a chance to do something different.  I prefer to say "it's not my forte but I would really enjoy working on that with you.  Can you give me a (few hours / days / a week) to come up to speed on that (system / technology / process)?"  Opportunity knocks.  Don't send it away.  Realize though that not being the expert puts you at a disadvantage.  You'll need to have built a strong relationship with your customer to get the nod in a situation like this.


Where are you?

So, which is best?  It's up to you.  How do you work best?  Are you more motivated by the security you have with a steady paycheck in a salaried job, the reward for your every effort of an hourly wage or the many exciting things you get to challenge yourself with being self employed?  Knowing the answer to that will prepare you to find, or better yet - create, the perfect job for you.  Good luck, God speed!