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.
Thursday, January 19, 2012
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!
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!
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!
Sunday, July 10, 2011
Save $495 or More on Your Family Vacation
We're just returned from a nice (and I'd like to think well deserved) family vacation. It's a rare occurrence but careful savings, planning and judicious use of my allowed vacation days permitted it. I formulated some cost saving tips along the way and present them here for you.
1. Look for discount programs
During the course of our trip, I was struck by the cost of some of the historical sites we toured. I fully understood the need to charge admission to preserve and maintain services at these sites, but it was still a bit of sticker shock. Fortunately, at the second site we visited (where I made some comment on the cost) the cashier informed me that my passes could earn me a face value discount on a "family heritage membership". This was basically a free pass once paid ($65) to all other Michigan historical Park sites. It saved us $30 something on the last day there when we didn't have to pay a cent to enter a fort for a 4 hour tour. Wherever you're headed on vacation, check into group rates, multi-site rates like this, or other discounts. Our Sam's Club membership got me 5% off at our hotel too, which worked out to maybe $25.
2. Use GasBuddy.com
Knowing where the cheaper gas was told me when to fill up, when to take a partial fill up and when to let the tank run a bit lower. Carefully checking our map for distances we would travel, understanding our MPG and where the cheaper gas was allowed us to save some money. I only got hosed when returning the SUV we borrowed - I wanted to turn it in with a full tank and gas was $3.99 nearby. But the rest of the time, we got gas for $3.49 to $3.69 which was $.32 / gal lower than what we saw at worst. I would guess we saved close to $60 with this.
3. Watch out for summer rates
Peak rates at hotels and restaurants seem to be designed to make maximum profit for the businesses and provide normal service to you. We learned quickly to drive 19 minutes down the road to a less trendy destination to buy Subway sandwiches and make two meals out of them rather than eat a $50 dinner at a restaurant in town. I even tried going low key to a Family Diner and wound up with a $60 tab. Popular vacation destinations KNOW they are popular and stand ready to avail themselves of your vacation dollars. So - take a cooler, buy ice and pack in as much food as you can for cheap. Eat out of your ice box and save $150.
4. Stay with friends or family
We used my folks house as a bookend base camp to our vacation, spending 4 nights with them and 3 in a hotel. This saved us 4 nights of rental which I was able to partially use to upgrade us to a beach front view. Showing up last minute without a reservation to town crammed with partially filled hotels also enabled us to save $60 on our first night as all they had was a suite. They gave me the next lowest room rate when I mentioned the price was more than I wanted to pay. I would normally pay $89 to $110 for a modest two queen unit for my family of four for 7 nights, which would usually work out to $500 - $770 a week for hotel. We spent $547, saving maybe $230 by taking advantage of the folks (I did buy my dad lunch and bring them some fudge!).
So, last year, I spent $2200 on our family vacation through Kentucky. That's a lot of change, but it was totally in hotels, restaurants and a destination a day. This year we did the same program for about 4 days and three nights with lots of time spent with family on either end and I figure we spent about $1200, saving me $1000 over last year. With the tips above, I can track for sure a savings of $495 over doing things the same way we did last year. I guess the difference is in the different destination and some things I'm not tracking to the penny above.
So - if you haven't had a vacation in a while, take these tips in hand and maybe you can enjoy a relaxing week away for less!
1. Look for discount programs
During the course of our trip, I was struck by the cost of some of the historical sites we toured. I fully understood the need to charge admission to preserve and maintain services at these sites, but it was still a bit of sticker shock. Fortunately, at the second site we visited (where I made some comment on the cost) the cashier informed me that my passes could earn me a face value discount on a "family heritage membership". This was basically a free pass once paid ($65) to all other Michigan historical Park sites. It saved us $30 something on the last day there when we didn't have to pay a cent to enter a fort for a 4 hour tour. Wherever you're headed on vacation, check into group rates, multi-site rates like this, or other discounts. Our Sam's Club membership got me 5% off at our hotel too, which worked out to maybe $25.
2. Use GasBuddy.com
Knowing where the cheaper gas was told me when to fill up, when to take a partial fill up and when to let the tank run a bit lower. Carefully checking our map for distances we would travel, understanding our MPG and where the cheaper gas was allowed us to save some money. I only got hosed when returning the SUV we borrowed - I wanted to turn it in with a full tank and gas was $3.99 nearby. But the rest of the time, we got gas for $3.49 to $3.69 which was $.32 / gal lower than what we saw at worst. I would guess we saved close to $60 with this.
3. Watch out for summer rates
Peak rates at hotels and restaurants seem to be designed to make maximum profit for the businesses and provide normal service to you. We learned quickly to drive 19 minutes down the road to a less trendy destination to buy Subway sandwiches and make two meals out of them rather than eat a $50 dinner at a restaurant in town. I even tried going low key to a Family Diner and wound up with a $60 tab. Popular vacation destinations KNOW they are popular and stand ready to avail themselves of your vacation dollars. So - take a cooler, buy ice and pack in as much food as you can for cheap. Eat out of your ice box and save $150.
4. Stay with friends or family
We used my folks house as a bookend base camp to our vacation, spending 4 nights with them and 3 in a hotel. This saved us 4 nights of rental which I was able to partially use to upgrade us to a beach front view. Showing up last minute without a reservation to town crammed with partially filled hotels also enabled us to save $60 on our first night as all they had was a suite. They gave me the next lowest room rate when I mentioned the price was more than I wanted to pay. I would normally pay $89 to $110 for a modest two queen unit for my family of four for 7 nights, which would usually work out to $500 - $770 a week for hotel. We spent $547, saving maybe $230 by taking advantage of the folks (I did buy my dad lunch and bring them some fudge!).
So, last year, I spent $2200 on our family vacation through Kentucky. That's a lot of change, but it was totally in hotels, restaurants and a destination a day. This year we did the same program for about 4 days and three nights with lots of time spent with family on either end and I figure we spent about $1200, saving me $1000 over last year. With the tips above, I can track for sure a savings of $495 over doing things the same way we did last year. I guess the difference is in the different destination and some things I'm not tracking to the penny above.
So - if you haven't had a vacation in a while, take these tips in hand and maybe you can enjoy a relaxing week away for less!
Wednesday, June 1, 2011
When NOT to Save
Say what? Yes, there are times when saving cash is not the absolute best way to hedge your future needs. So let's backup and look at WHY we save cash in the first place. Having a cash reserve shields us from sudden unavoidable expenses, like insurance deductibles (ding - paying that one on an MRI right now... oh yee-haw). As a person committed to your own fiscal liberty, you should prefer paying cash (or interest free payments, like some hospitals will offer on big bills) over credit card debt any day because, as we have discussed, debt is the metaphorical equivalent of leprosy. We also save cash to buy what we need in the near and medium term. Food, home repair items, etc. You can put it on your plastic as long as you have that non-negotiable discipline to pay it off every month, but paying cash bypasses the "oops - forgot to mail the payment on time" which means you getting hit with interest. Cash good - debt bad.
Hedging against future expenses is a good, sound doctrine and I can't recommend it enough times to you. But, believe it or not, there are times when saving is a liability. One scenario - you're not using a bank but a non-fire-rated safe and your house burns down. Doh. Two, harder to notice, the value of your currency is tanking and driving up commodities. Great time to NOT save. Why?
Let's look at those commodities: wheat, rice, brass, copper, lead .... These are things that have intrinsic value - much more so than paper money - which you can buy now as prices are rising and use later (instead of buying later) when prices are high. Some things you might be enterprising enough to buy low now and sell high later when the items become particularly popular. Wheat and corn futures were going through the roof this spring. I myself don't use a huge amount of wheat products, but a friend likes to bake bread. Talking it over, I shared with him what I knew about wheat rust and current efforts to secure a rust resistant strain as well as the market pressure to produce more corn (for ethanol), which reduces the acres of wheat planted, driving up the futures (projected contracts to purchase from farmers at harvest time). So my buddy got a 5 gallon bucket, went to the bulk store and socked away enough wheat flour to last him a few months till things shaped up. Smart move. He bought low and will be making his bread (good stuff, by-the-way) at the purchase cost "today" rather than the future market price which will be higher.
If I had been taking my own advice, I might have bought more corn seed last fall instead of shelling out several dollars for an envelope of sweet corn seeds this spring. Corn meal might have been a good buy-and-freeze food item as well.
So, be paying attention to the costs now and projected costs later of the things you buy and use regularly. Costs appear to be going up, even a few percentage points? Check that against your savings rate. Right. If you can buy and hold and save 5%, you're beating most savings accounts right now by 4.5%. Good time to buy rather than save, I'd say.
That's not to say you STOP saving. You simply take a percentage of your money you normally save and redirect it to commodities you'll be using during the projected price peak. I mentioned at the top of this story that a weakening currency is another time to not save. What then? If practical for you, it's not a bad time to invest in another currency. The British Pound Sterling is a historically very stable currency, typically out trading the US dollar. If you see a sudden down turn in the dollar, and you can use a variety of indicators to help you see this - oil being a good one - buying into a more stable currency can help you weather the storm. If you see confidence returning, sell off your foreign holdings promptly so your profit is maximized before the dollar rebounds too much.
You can also purchase physical assets. Believe it or not, aluminum is a decent investment, as is copper. Just keep it locked up and don't talk around too much - it's also all too easy to steal and turn in for recycling money and not all recyclers bother to check to see if the item is stolen. Buying shares in copper or aluminum funds or futures contracts themselves (more volatile, require more attention and trading skill to profit on) is a fairly good way to insulate your cash value. You can typically profit as the dollar declines. Silver is a good recent example. I bought in at $14 or so about three years ago and sold at $22. Profit. If I'd held on till this past May however, I could have sold at $40. The indication here is that, against silver, the dollar continues to be less favored (weaker) and buying into the metal is a better place to park cash.
Now - let's level set this for a moment. The advice I'm giving above is ALL experiential. I am NOT a licensed broker and can NOT give you investment advice. I'm telling you what I observe and think about things. IF you think you should be investing, get a GOOD financial adviser. I recommend Raymond James & Associates as being the best bang for the buck, most risk adverse and willing to listen. This is not a paid advertisement. I use them and trust them and have managed to put together a growing retirement fund with them.
Take home points: watch the value of the dollar, be familiar with commodities you buy regularly, decide when it's right for you to over-purchase as away to preserve your cash value as opposed to just saving. Use a licensed adviser and/or broker if you want to get into the markets. Finally, cover your bases first - make sure you're not hurting your ability to pay your bills and save for the known unforeseen items (add up all of your insurance deductibles and make sure you SAVE that at the very least!)
Hedging against future expenses is a good, sound doctrine and I can't recommend it enough times to you. But, believe it or not, there are times when saving is a liability. One scenario - you're not using a bank but a non-fire-rated safe and your house burns down. Doh. Two, harder to notice, the value of your currency is tanking and driving up commodities. Great time to NOT save. Why?
Let's look at those commodities: wheat, rice, brass, copper, lead .... These are things that have intrinsic value - much more so than paper money - which you can buy now as prices are rising and use later (instead of buying later) when prices are high. Some things you might be enterprising enough to buy low now and sell high later when the items become particularly popular. Wheat and corn futures were going through the roof this spring. I myself don't use a huge amount of wheat products, but a friend likes to bake bread. Talking it over, I shared with him what I knew about wheat rust and current efforts to secure a rust resistant strain as well as the market pressure to produce more corn (for ethanol), which reduces the acres of wheat planted, driving up the futures (projected contracts to purchase from farmers at harvest time). So my buddy got a 5 gallon bucket, went to the bulk store and socked away enough wheat flour to last him a few months till things shaped up. Smart move. He bought low and will be making his bread (good stuff, by-the-way) at the purchase cost "today" rather than the future market price which will be higher.
If I had been taking my own advice, I might have bought more corn seed last fall instead of shelling out several dollars for an envelope of sweet corn seeds this spring. Corn meal might have been a good buy-and-freeze food item as well.
So, be paying attention to the costs now and projected costs later of the things you buy and use regularly. Costs appear to be going up, even a few percentage points? Check that against your savings rate. Right. If you can buy and hold and save 5%, you're beating most savings accounts right now by 4.5%. Good time to buy rather than save, I'd say.
Not sure if food prices are going up? Just watch what Wal*Mart says about it's future projected earnings. Sometime they will even come out and tell you - expect to pay more in the coming months. We're already paying more, just not seeing it. Notice how frozen pizzas have been going on a diet lately, but cost the same? That's one way the seller can keep their price constant and appear to not be charging more but in effect sell you less, offsetting their cost increases. Sooner or later, though, we'll realize a 3" square of 'za shouldn't cost $4.
That's not to say you STOP saving. You simply take a percentage of your money you normally save and redirect it to commodities you'll be using during the projected price peak. I mentioned at the top of this story that a weakening currency is another time to not save. What then? If practical for you, it's not a bad time to invest in another currency. The British Pound Sterling is a historically very stable currency, typically out trading the US dollar. If you see a sudden down turn in the dollar, and you can use a variety of indicators to help you see this - oil being a good one - buying into a more stable currency can help you weather the storm. If you see confidence returning, sell off your foreign holdings promptly so your profit is maximized before the dollar rebounds too much.
You can also purchase physical assets. Believe it or not, aluminum is a decent investment, as is copper. Just keep it locked up and don't talk around too much - it's also all too easy to steal and turn in for recycling money and not all recyclers bother to check to see if the item is stolen. Buying shares in copper or aluminum funds or futures contracts themselves (more volatile, require more attention and trading skill to profit on) is a fairly good way to insulate your cash value. You can typically profit as the dollar declines. Silver is a good recent example. I bought in at $14 or so about three years ago and sold at $22. Profit. If I'd held on till this past May however, I could have sold at $40. The indication here is that, against silver, the dollar continues to be less favored (weaker) and buying into the metal is a better place to park cash.
FYI - $40 is about the historic high for silver set back in the 1970's. It's not the best price to buy at, as a result - that would be buying at the historical highest value hoping it reaches unprecedented heights so you can sell and profit. Check around, see if you can find something not presently trading at a historic high but shows a little upward movement trend over the past several quarters and consider that as a medium term investment.
Now - let's level set this for a moment. The advice I'm giving above is ALL experiential. I am NOT a licensed broker and can NOT give you investment advice. I'm telling you what I observe and think about things. IF you think you should be investing, get a GOOD financial adviser. I recommend Raymond James & Associates as being the best bang for the buck, most risk adverse and willing to listen. This is not a paid advertisement. I use them and trust them and have managed to put together a growing retirement fund with them.
Take home points: watch the value of the dollar, be familiar with commodities you buy regularly, decide when it's right for you to over-purchase as away to preserve your cash value as opposed to just saving. Use a licensed adviser and/or broker if you want to get into the markets. Finally, cover your bases first - make sure you're not hurting your ability to pay your bills and save for the known unforeseen items (add up all of your insurance deductibles and make sure you SAVE that at the very least!)
Wednesday, May 18, 2011
Cash Discipline
I asked my sister, with years of experience in the food industry, what the biggest challenge for people entering the workforce is. Answer: cash discipline. Well, not in those exact words, but basically, tracking what you earn. Why is this important? If you don't know what you are taking home, you don't know what you have and hence can't; effectively budget, pay taxes accurately or save.
Don't get me wrong - you could *guess* at these things and probably do alright, but would you want to wing it all the time? (sure - makes life more exciting). Would you want to OVER pay your taxes or fritter away your money in an unstructured fashion and have NO savings?
Being wait-staff means highly variable income, much of it paid in cash. While it's tempting to put that in your wallet or purse and just live off of it, it is a very shaky way to manage. The suggested solution is to pick up a Ledger book at Staples or Office Max or Office Depot or whatever you've got. They can run from $5 on up. All you need is a simple tabular format where you can write the date and the amount of your take home. At the end of the month, you know what you made and what you have to work with and you can start budgeting, saving, setting aside for your taxes, etc.
The trick is to do this at night when you get off your shift and have the money in hand. Don't put the money in your stash till after you've recorded it. Trusting it to memory later will certainly lead to error. Get in the habit of doing this and you'll take a lot of guesswork out of your future and reduce your long term stress. Sometimes the IRS will ask you to pay quarterly or monthly taxes depending on your income. Sometimes you don't have to come up with it till the end of the year. Fact of the matter is, these days, the IRS is going after not just more of the big fish but ALL the fish. So if you keep accurate records and hold your projected owed taxes back on your cash take home, you'll be prepared to pay that tax bill instead of struggling to come up with it.
You might be tempted to not report cash. Consider the liability this presents. The IRS likes to find out about this stuff WAY down the road and assess penalties. With interest. Trust me, I speak from experience (one time!) when I say that this is no joyful bit of news to receive. Pay what's due when it's due as, unfortunately, our overlords demand it and will make us pay pay PAY later if we don't.
Cheers!
Don't get me wrong - you could *guess* at these things and probably do alright, but would you want to wing it all the time? (sure - makes life more exciting). Would you want to OVER pay your taxes or fritter away your money in an unstructured fashion and have NO savings?
Being wait-staff means highly variable income, much of it paid in cash. While it's tempting to put that in your wallet or purse and just live off of it, it is a very shaky way to manage. The suggested solution is to pick up a Ledger book at Staples or Office Max or Office Depot or whatever you've got. They can run from $5 on up. All you need is a simple tabular format where you can write the date and the amount of your take home. At the end of the month, you know what you made and what you have to work with and you can start budgeting, saving, setting aside for your taxes, etc.
The trick is to do this at night when you get off your shift and have the money in hand. Don't put the money in your stash till after you've recorded it. Trusting it to memory later will certainly lead to error. Get in the habit of doing this and you'll take a lot of guesswork out of your future and reduce your long term stress. Sometimes the IRS will ask you to pay quarterly or monthly taxes depending on your income. Sometimes you don't have to come up with it till the end of the year. Fact of the matter is, these days, the IRS is going after not just more of the big fish but ALL the fish. So if you keep accurate records and hold your projected owed taxes back on your cash take home, you'll be prepared to pay that tax bill instead of struggling to come up with it.
You might be tempted to not report cash. Consider the liability this presents. The IRS likes to find out about this stuff WAY down the road and assess penalties. With interest. Trust me, I speak from experience (one time!) when I say that this is no joyful bit of news to receive. Pay what's due when it's due as, unfortunately, our overlords demand it and will make us pay pay PAY later if we don't.
Cheers!
Wednesday, May 11, 2011
The Law of Unintended Consequences
If you've been reading along, you may have caught the fact that individual spending habits are what drive the spending habits of a society. This applies to borrowing and savings. We tend to tolerate, as a whole, that which most of us accept on our own account. So if I'm OK with maxing out my credit card and paying the minimum, I'm likely to view government spending on borrowed money as "normal" or "acceptable".
So, our views of money as a society tend to influence the way our governments handle money. This is more or less true depending on the amount of influence the populace has over its government. The reverse is true as well, however, and often not in the same way. Let me explain.
Government use of public funds influences private money use in often unforeseen ways. Two recent news stories caught my attention. One was a proposal to levy a tax on parents of overweight children, presumably due to the increased public health burden these children would come to represent during the course of their lives. The other was a plan by the Irish government to tax private pensions in order to, ostensibly, grow jobs.
Now - being cost averse as a rule, what do you suppose the reaction in the general public would be in these two seemingly disparate cases? Well, I suspect the intent of the first proposal is to induce parents to provide better nutrition to their children and take an active responsibility for the health of these kids. In practicality, though, many children were set on a path to obesity from the start due to their genetic sugar thriftiness. Our western diet is packed with sugar. Many Latino and other children with Native American or Mezo-American heritage have a thrifty gene that makes optimal use of low glucose food sources and defaults to storing as fat the over abundance of high-glucose sugary foods. Obesity and diabetes are common in these population groups as a result. Nothing short of a whole-sale diet change to now hard-to-obtain, low-glucose and slow burning glucose foods will help these kids. For a low income family, that option is going to be hard to come by. Taxing them is less likely to produce a healthy diet choice and more likely to see parents unintentionally mal-nourish their children in an attempt to avoid the tax. Income level apart - I think that would be the unintended consequence in this case.
To the Irish proposal to tax private pensions in order to fund job creation spending on the part of the government, there seems to be a bit of a competing interest here. Ireland, in the 80's and 90's made itself a choice technology center for manufacturers via tax incentives. This worked fabulously well but resulted in a tech-heavy economy which suffered with the periodic down-turns in the economy. So, now the plan is to spend money, probably on enticements or special programs, to try to stimulate more job growth. That alone may well succeed. However, funding it via a tax on private pensions has an obvious souring effect. If you live in the EU and can easily choose from among many countries to work in, would you choose Ireland if you know your private pension will be taxed? The unintended consequence here is likely that jobs, at least those with private pensions as a part of their compensation, will not be grown but will in fact be repelled or driven away.
So to, on an individual level, we are faced with the often painful law of unintended consequences with the power money has to serve as incentive towards or away from a behavior. Have a coupon for $10 off your purchase of $100 or more? Well, that's a nice 10% off (or less). But it's 100% more than you are likely to spend when you are not presented with the enticement of a coupon. Signing up for coupons or club memberships is nice - you can find good deals. But if you're susceptible to the sway of coupons, having more coupons at your disposal may mean you spend more money on things you didn't really need or want in the first place, just to "save" 10%.
Two take home points to consider then. One, be aware of the power of money to persuade, both positively and negatively. Two, when you hear an offer or proposal, think through all the possible unintended consequences.
So, our views of money as a society tend to influence the way our governments handle money. This is more or less true depending on the amount of influence the populace has over its government. The reverse is true as well, however, and often not in the same way. Let me explain.
Government use of public funds influences private money use in often unforeseen ways. Two recent news stories caught my attention. One was a proposal to levy a tax on parents of overweight children, presumably due to the increased public health burden these children would come to represent during the course of their lives. The other was a plan by the Irish government to tax private pensions in order to, ostensibly, grow jobs.
Now - being cost averse as a rule, what do you suppose the reaction in the general public would be in these two seemingly disparate cases? Well, I suspect the intent of the first proposal is to induce parents to provide better nutrition to their children and take an active responsibility for the health of these kids. In practicality, though, many children were set on a path to obesity from the start due to their genetic sugar thriftiness. Our western diet is packed with sugar. Many Latino and other children with Native American or Mezo-American heritage have a thrifty gene that makes optimal use of low glucose food sources and defaults to storing as fat the over abundance of high-glucose sugary foods. Obesity and diabetes are common in these population groups as a result. Nothing short of a whole-sale diet change to now hard-to-obtain, low-glucose and slow burning glucose foods will help these kids. For a low income family, that option is going to be hard to come by. Taxing them is less likely to produce a healthy diet choice and more likely to see parents unintentionally mal-nourish their children in an attempt to avoid the tax. Income level apart - I think that would be the unintended consequence in this case.
To the Irish proposal to tax private pensions in order to fund job creation spending on the part of the government, there seems to be a bit of a competing interest here. Ireland, in the 80's and 90's made itself a choice technology center for manufacturers via tax incentives. This worked fabulously well but resulted in a tech-heavy economy which suffered with the periodic down-turns in the economy. So, now the plan is to spend money, probably on enticements or special programs, to try to stimulate more job growth. That alone may well succeed. However, funding it via a tax on private pensions has an obvious souring effect. If you live in the EU and can easily choose from among many countries to work in, would you choose Ireland if you know your private pension will be taxed? The unintended consequence here is likely that jobs, at least those with private pensions as a part of their compensation, will not be grown but will in fact be repelled or driven away.
So to, on an individual level, we are faced with the often painful law of unintended consequences with the power money has to serve as incentive towards or away from a behavior. Have a coupon for $10 off your purchase of $100 or more? Well, that's a nice 10% off (or less). But it's 100% more than you are likely to spend when you are not presented with the enticement of a coupon. Signing up for coupons or club memberships is nice - you can find good deals. But if you're susceptible to the sway of coupons, having more coupons at your disposal may mean you spend more money on things you didn't really need or want in the first place, just to "save" 10%.
Two take home points to consider then. One, be aware of the power of money to persuade, both positively and negatively. Two, when you hear an offer or proposal, think through all the possible unintended consequences.
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