Your Greed is Robbing Your Future Self

Look at that stressed out old man. He's probably worried about money.

I just read an article that makes me sick. Here is the link. It's long, but you can get by without reading the whole thing to get the gist of it. Basically, the world is entering a massive retirement crisis. The baby boomers are starting to retire and government benefits are not going to be able to keep up with the strain on the system.

The article points to three main problems that are converging to create the perfect storm of retirement crises.¹

Here are the three main points:

     - Countries are slashing retirement benefits and raising the age to start collecting them. . .

     - Companies have eliminated traditional pension plans that cost employees nothing and guaranteed

     them a monthly check in retirement.

     - Individuals spent freely and failed to save before the recession, and they saw much of their

     wealth disappear once it hit.

I added some italics to point out something important. Which of those three factors has the largest effect on your eventual financial position? Which of those factors do you have even a small amount of control over? The answer is the same: your individual spending and saving rates.

If you give in to rampant lifestyle inflation and don't save for retirement then you have no one to blame but yourself and your bad decisions. Now I know that stuff happens. The economy goes bad. We start wars. People get sick or lose their jobs. But if you save a sufficient percentage of your income you will be prepared for those types of problems and be able to weather the storm.

The reality of modern life in a first world country is that ninety percent of the things that we have are really wants, not needs. Our greed has made us almost unable to distinguish between the two. Allow me to quote a wiser man than I am, "If we are not careful, it is easy for our wants to become needs. Remember the line 'There, there, little luxury, don’t you cry. You’ll be a necessity by and by.'”2

I would submit that many, if not all of us, are already there to some degree. So don't worry so much about the national debt or excessive spending on entitlements. You can't control everything that will happen. However, if you can manage your own greed then this retirement crisis doesn't have to ruin you.

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1 Do you remember the movie "Perfect Storm"? It was awful.^↩
2Joe J. Christensen, April 1999 Conference "Greed, Selfishness, and Overindulgence"^↩

Captain Kirk Will Get You a Cheap Hotel

I don't really want this blog to turn into a series of ads for services that I like, but if there's something good that I think saves me money, then I'll definitely give it a post. In this case, I really like Priceline negotiator for booking hotels. It's not so great if you're looking for a cheap motel during a roadtrip, but if you want something pretty nice for a good value, I've never found a service that works better. So without further ado, this is my (mostly) foolproof system for getting good rates on hotels:

1. Figure out the general details of the trip. You obviously need to know how you're getting to your destination, how long you'll be there, etc.

2. Once you've got the general outline of things and it's time to get a hotel, then go to priceline.com and click on the "Name Your Own Price" section. After you enter your info, you'll get to the important stuff.

3. Priceline won't let you enter identical (or nearly identical) bids within too short a timeframe, but with small changes you can put a lot of bids in during a short time period.

4. Decide what level of hotel you're interested in. As I said, this really only works with slightly better hotels, so I put my cutoff at the 3.5 star level.

5. Go through each of the different areas and note the ones that don't have 3.5 star hotels in their area. This will be important.

6. Now select all the areas that you're interested in staying and put in a bid. I usually start at $30. If it's accepted, fantastic. If not, go back and add one of the areas to your list that doesn't have a 3.5 star hotel in it. That way, you're still bidding on the same pool of hotels, but the site will let you enter bids rapidly back to back.

7. Move your bids up in increments of about 5 until you get a hotel.

8. Congratulations. Thank Captain Kirk because he just got you a cheap hotel.

Using this method, I've gotten 3.5 and 4 star hotels for as cheap as $40 a night. It's way cheaper than the posted discounts. I'm a big believer in frugality as a general rule, so anything you can do to save money on a vacation or business trip is totally worth it.

Tithing

No financial principle more distinctly sets Mormons apart from the rest of the world than tithing. While many other churches encourage donations as the members of the congregation feel inclined to do so, Mormons donate a set percentage of their income. The law is simple: pay 10% of the money you make to the church. I consider this to be the cornerstone of financial success. We are promised to have the windows of heaven opened to us if we pay tithing. Why would you try and build your net worth without that kind of wind in your sails? Even more importantly, "It profits a man nothing to give his soul for the whole world ... but for Wales?"

Tithing is simple. Tithing is easy. Tithing is effective. There are plenty of arguments for it and stories about how things work out when you pay your tithing. I have my own share of those stories, and I imagine that many of the people who read this will have similar experiences. This post doesn't need to be long because not much needs to be said about tithing. Pay it promptly and strictly honestly and you will always have what you need.

Successful Money Management is More About Psychology than Optimization

I don't really follow sports, so I got to this article a little bit late, but it illustrates a huge point about money management that I wanted to mention. Essentially, this basketball player (Michael Carter-Williams) created a trust fund for himself with the massive amount of money that he's earning from his basketball salary.

A trust fund is kind of a strange vehicle for someone to create for himself or herself. Usually they're used to transfer wealth between parties. In this case, it seems like he created a trust to prevent himself from doing something stupid and blowing all his money. By forcing himself into a sort of savings plan, he can avoid the pitfalls that many other pro athletes fall into.

I think that's brilliant.

Managing your money is about playing to your own strengths and doing things to compensate for your weaknesses. If you can't deal with seeing stock prices fluctuate, maybe you should invest in real estate or something else where you don't get constant price quotes. If you can't read a balance sheet and you don't want to think too much about your investments, then index funds are a beautiful thing. There are options for every disposition and temperament, you just have to know yourself well enough to choose the right thing.

Also, my brain exploded when I read this paragraph:

The lack of financial health is a major epidemic in pro sports, Dzamba said, with 60 percent of NBA players declaring bankruptcy within five years of their athletic retirement and some 78 percent in the NFL doing so, according to a Sports Illustrated report.

What!? There are no words for how ridiculous this is.

The tale of three siblings: Stocks, Bonds, and Cash

I was thinking about asset allocation this morning, and I hit on a good metaphor. Let me know what you think.

The proper asset allocation is one of the most important decisions that you can make when dealing with your stash. Unfortunately, the ideas about the proper asset mix range from people like Peter Lynch who would say that you just stay 100% in stocks all the time, to people who avidly listen to Rush Limbaugh, many of whom I assume have taken their savings out of the market and invested heavily in gold. That assumption is based entirely on the commercials I heard when I stopped on his show for ten minutes once when driving. Therefore, I'm sure that it's 100% accurate.

I believe the more conventional idea that most people should have some mix of stocks, bonds, and cash. To illustrate my point, I'm going to use my wife's family as an example. Not so much their financial situation, but the life situation of some of her siblings.

First, my sister-in-law just got her mission call (huzzah!) to Taiwan. It will probably be a crazy ride. Weird, unexpected things will happen. It will probably the very stressful until she adjusts. The reward for all of this will be exponential growth. I'm not one of those who believes the stupid idea that a mission is the best two years of your life, or even the hardest two years of your life, but missions do a fantastic job of preparing you to meet later challenges.This to me is analogous to investing in the stock market. You get the expectation (over a long timeframe it's a near certainty) of fantastic growth, but there are a lot of ups and downs along the way. Stocks are the thing that does the heavy lifting in your portfolio.

My first brother-in-law is doing a degree at BYU. He's changed his major once or twice, but no matter what he does, as long as he finishes he'll get a degree in a relatively useful field (this doesn't apply to everyone...myself for instance). He'll have some growth, but not as much as a missionary. The main thing here is that he invests a certain amount of money and work for a virtually guaranteed reward (a degree). This is like bond investing. You're not going to hit it out of the park with bonds. The goal with bond investing is a predictable return and safety of principle They reduce your portfolio's volatility and act as a hedge against deflation.

Finally my second brother-in-law basically finished his degree at BYU, but didn't apply for graduation yet, so that he can take a few extra classes and (I assume) figure out what he wants to do with his life. I don't think he has been working much, and he definitely hasn't settled in to a career path. He's not married, not dating anyone seriously (that I know of), and basically still in the process of figuring out what he wants out of life. But when my wife got sick and we needed a lot of help around the house, which of the three siblings do you think was the first one to come and stay with us? Which one was the first person to make sure our house kept on running smoothly when everything was falling apart? This brother-in-law is like having cash on hand. You won't see the same growth the you will from the other two investments, but cash is there when you need it. When everything falls apart in your life (and believe me it will at some point), you want to have some cash on hand to make sure that you're not completely derailed.

So there you have it. Three siblings, three investments. If you haven't looked in a while, maybe it's time to check on your asset allocation.

Money Management and Marriage

As I said in the last post, I want to start breaking down the "One for the Money" pamphlet in more detail because it's such a great resource. After some initial introduction, the pamphlet opens with a story about a young couple who is planning on getting married. They're basically in good shape, but they haven't talked about money at all. He goes on to share some numbers (which I couldn't find anywhere) that something like 88% percent of divorces can be traced back to money quarrels.

Okay, I admit, that number seems high to me. Like really high. However, whether the number is accurate or not is irrelevant to the point. A significant number of divorces occur at least in part because of money problems. So what do we do about that? Elder Ashton gives a few good points. First, when choosing a spouse, "money management should take precedence over money productivity." I love that quote. Don't worry about how much your spouse will make, worry about how they'll manage what they get.

This idea is deeply connected to the Micawber principle. Micawber was a character in Charles Dickens' novel David Copperfield. He articulates a foundational principle of money management, "Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery." It's better to be poor and solvent than rich and in debt.

Finally, Elder Ashton's other suggestion is that the money management in the home should be "on a partnership basis." Even children should be involved on a "limited partnership basis." Don't stick your head in the sand and leave the financial work to your spouse. Division of labor is one thing. In our house, my wife pays most of the bills that aren't automated, but I still try to be aware of what is going on. The illustration of a yoke of oxen is apt in this situation. You need to have both partners pulling together in the same direction in order to get where you want to be.

"One for the Money" - Still Good After All These Years

When I think of money management, one of my first thoughts is this old pamphlet put out by the church called "One for the Money." It's based on a talk by Marvin J. Ashton given in 1975. I've been given probably 10 or more copies in my time in the church. Bishops seem to love handing it out.

I reread it today, and I can honestly say I'm blown away by how good all the advice is. He lays out step by step how to take care of your financial house. If everyone followed this pamphlet, I would have a lot less to write about. Reading through it, I think I could do dozens and dozens of posts on the content in there, while it covers everything in about 15 pages. I'm going to start breaking it down in detail in future posts, so look for that in the next few weeks (or months depending on how in depth I decide to go).

You can get the pamphlet online here.

Welcome

The first post of new blog is always a bit of a pain to write. I, like many people, have the skeletons of several now-defunct blogs floating around on the internet, so I've written several of these. I'm never really happy with how they turn out, but I figure I have to put something down on the page so I can get started writing about what interests me.

As far as this blog goes, I want to talk about personal finance, but I want to be free to put a religious perspective into my posts and thoughts. Since I'm a Mormon, the religious stuff will mainly come from an LDS perspective. Basically, I've been reading and studying about this stuff somewhat obsessively for the past six or eight months and my wife is starting to get a glazed look in her eyes when I talk too much about money. Thus, you find me here.

A little about me, I'm in my late 20's and nearing the end of my DMA program. As I've mentioned, I'm married and I have two little kids. After I (finally) finish school, I'm planning on saving as aggressively as possible in order to retire early. I'll probably get into more specifics as my posting continues, but that's enough for now.

If you're new here, feel free to look around and drop me a line if you have any questions, gripes, moans, complaints or suggestions.