A few days ago, I was in the car with my wife picking up the kids and this song came on the radio. I turned to here and said, "I guess it's time to wake up." Fortunately, she got the joke right away.
October hits me in the back of the head like this song. Metaphorically, of course, because I'm still typing this article. It's the start of the last quarter of the year. Everyone is in a rush to put up Halloween decorations, while I get advertisements from my local grocery store to plan my Thanksgiving through them. I bet some of the warehouse stores already have rolled out some of the Christmas stuff.
(I promise that this article won't have reference any more song titles... or maybe not.)
Years ago, before credit cards, people turned to Christmas Clubs to save money for the gift-giving season. If you aren't familiar with Christmas Clubs, I won't hold it against you... they were before my time too. Here's how Wikipedia describes them:
"The Christmas club is a savings program that was first offered by various banks in the United States during the Great Depression. The concept is that bank customers deposit a set amount of money each week into a special savings account, and receive the money back at the end of the year for Christmas shopping."
I don't know how much money you are you going to spend this Christmas, but the average is around $900. You could spend more or less, but can't we agree that it's best to put aside money now?
I've found that easiest way to do this is with a Digit account. Regular readers know that I recommend EVERYONE get a Digit account. I even recommend personal finance bloggers get it. One said to me, "I save money all the time and I'm great with it. I don't need that." He ended up following my advice and saved around $4000 for an expensive international trip. He said he didn't even notice that the money was being saved.
What is Digit?
Digit is a FREE service that squirrels away money from a savings or checking account. It analyzes your account balance, spending, upcoming income, and upcoming bills to figure out how much it can safely move to the Digit account. It does a little at a time so you don't even notice it. You can always tell it to squirrel less, but I set it at the maximum squirrel rate. (If you think I'm trying to set the record for using squirrel as a verb in a paragraph you are correct.)
Digit accounts are bank backed, safe, FDIC insured, blah, blah, blah. It's got Google Ventures and other big names as investors.
Perhaps the worst part of Digit is that it will take you 3-5 minutes of your day to set-up. I'm being sarcastic. The worst part is that you earn minimal interest on your money. There aren't a lot of banks paying significant interest nowadays. I'm used to ignoring interest after years and years of receiving almost none from bank accounts.
I've had my Digit account since March or April of 2015 and I've only saved this much:
I should have waited until I got that "snowman" for the first digit, right? Oh well.
Keep in mind that I'm saving the maximum amount and my finances might are different than yours. You can customize it to save what works for you. That's why I feel it will work for everyone. No one has given me a convincing argument NOT to sign up for a Digit account other than, "I'm comfortable with my savings process." That's fine, but I'd challenge the person to try something new. They might just find out it was better than their existing way of doing things. I did.
I also have withdrawn money from my Digit account. My car needed new brakes, so I simply sent off a text to withdraw the money and it was back in my account in a day or two. If I hadn't set up Digit, there's a real chance that I would have spent it.
Forced savings is one of the most powerful forces in personal finance.
My recommendation is to sign up for Digit now so you'll be prepared for the holidays.
The point of many Americans having minimal savings is interesting on it's own. What really makes The Atlantic article pop is that the author seems to be successful by all measures... on the outside. As Neal Gabler says,
"I have had a passably good career as a writer—five books, hundreds of articles published, a number of awards and fellowships, and a small (very small) but respectable reputation."
The author points out that even middle and upper class income earners have problems coming up with a significant amount of money. It's not one age or one demographic either.
One of the biggest issues seems to be the invention of the credit card. People seem to have lost focus on saving money. This lead the following dangerous combination:
"When you combine high debt with low savings, what you get is a large swath of the population that can’t afford a financial emergency."
Essentially people have been given enough rope to hang themselves.
The problem extends deeper than just the availability of credit. The bigger problem is one that I hope readers of Lazy Man and Money have conquered.
According to the article, most Americans are "financially illiterate." One study found that 65% of people between the ages of 25 and 65 could be classified that way.
The author reviews some of his life choices such as being a writer in New York city (not the best combination of income and cost of living) and how the decisions he made were never really about money. They were about how he wanted to live his life.
I'd argue there's nothing wrong with that - to each their own. However, he seems to be realizing now that maybe money should have been more of a consideration.
The author still did well, but financial emergencies popped up. (They always do.) It wasn't something simply like a lawnmower breaking down like in the picture. Instead it was one of the biggest expenses, housing. It seems like housing and medical bills always seem to cause the biggest financial problems. In this case, he was keeping up with two mortgages.
And while it might not be an emergency, sending two children to top colleges with little financial aid was another big blow. Finally the nature of getting big book advances means a lot of upfront taxes and lean years with little income.
The other big issue he found is that wages aren't increasing. His weren't. He said he was getting paid the same as he was 20 years ago. Inflation will eat your buying power. He points out that America isn't much better, but at least wages have been flat with inflation... not losing their buying power. It seems most of the gains over time went to those who were already in the top 25% with the biggest gains going to those in the top 5%. (Somewhere, I picture Bernie Sanders saying, "I told you so.")
The downward spiral continues.
The lack of money is the highest cause of stress. Stress itself can cause health problems. However, think about combining that with poor eating habits (the unhealthy stuff is usually the cheapest) and the high cost of health care. As the author put it:
"Money may change everything, as Cyndi Lauper sang. But lack of money definitely ruins everything. Financial impotence casts a pall of misery."
It seems to me that the main reasons we fail with money are:
We don't have an understanding of money (we're financially illiterate)
We don't think about money (we chose to focus on other things in life)
We don't have the self-control (we overuse credit)
It's a competitive environment with respect to wages
Crappy financial things happen
I've never really stopped to think about this topic until I read the article in the Atlantic. What do you think about how we fail with money? Let me know in the comments.
There are few people who I have more respect for than Mark Cuban. Did I just lose half my audience? Oh well. For those still here, feel free to skip the next section unless you feel the same way.
My Mark Cuban Man Crush
I can't say that I've followed everything he's ever said, but usually when he says something, I find myself agreeing to it. Sometimes when I feel something is a scam, Cuban comes out and says so. For example, here's his take on Power Bracelets:
"There are no shortcuts. NONE. With all of this craziness in the stock and financial markets, there will be scams popping up left and right. The less money you have, the more likely someone will come at you with some scheme. The schemes will guarantee returns, use multi level marketing, or be something crazy that is now 'backed by the US Government'. Please ignore them. Always remember this. If a deal is a great deal, they aren’t going to share it with you."
And while this article isn't about MLM, I have to note the irony that Dallas-based Mark Cuban calls them "scams" while I'm being sued by Dallas-based Le-Vel for have the same opinion. (* See note at the end of the article).
Have I appropriately disclosed my man-crush on Mark Cuban? Good. (Though if you see on me on Shark Tank, I'm going to try to get Mr. Wonderful in a bidding war. And since he's a Bostonian he might just win.)
1. Social Media Influencers are more important than traditional political endorsements
I mostly agree. Social media is greatly important and it probably has surpassed traditional political endorsements. However, there's a lot of other media out there that shouldn't be discounted.
2. SocioCapitalism is and has been Capitalism for Millennials. You haven’t been paying attention. Bernie has.
I agree with the points Cuban makes, but I think that he overstates the importance of SocioCapitalism in general. It can be a big deal if things go viral and/or reach a critical mass/tipping point. If I create a shoe company like Tom's Shoes giving a pair it isn't necessary going to beat out Nike... or even compete. That's not say it can't be successful, but I think it is best-viewed as a "would be nice" not a "must have."
If you want to see an example of this NOT working visit my website: Be Better Now. I've donated a few hundred dollars to charity. That amounts to about as many visitors as I get on a typical month... and I have no advertisements on the website. (I admit that I've terribly mismanaged the website due to my other commitments.)
3. There has not been a single instance of leadership from any of the candidates
True... Cuban goes in detail how it's just "us" vs. "them" with each party. There's no one attempting to bridge (or even narrow) the gap. Cuban has a great conclusion, "There are new ideas in this world that matter. It would be nice to get one from a Presidential candidate."
4. It’s a problem that all the candidates appear to be technologically illiterate.
As Cuban might say on Shark Tank, "Oh Hells Yeah!" I'm not sure that any of the candidates have any grasp of technology... and Cuban explains why it is vital. Candidates can bicker back and forth about things are very subjective, but where's the candidate that understands very basic technology? Demonstrating knowledge of technology is easy when everyone else knows nothing. In the land of the blind, the one-eyed man is king.
Yet it seems that no one really gets it. (Carly Fiorina at least made an effort, but fell very, very short.)
Finally, Cuban on Personal Finance!
Here's Cuban point that caught my attention:
I think the real problem is the uncertainty that comes with more than half of the country having under 10k in liquid assets and about 35pct having under 1k.
I’ve been there. When you don’t have enough to buy ealth insurance, even with subsidies, that is stress. If you are fortunate enough to get insurance and your savings are less than your deductible, that's stress. When you know that one problem with your car and you are carless, that is stress.
Much of the savings from the drop in gas prices has not been spent because of these stresses.
It reminds me of a joke from one of my favorite comedians:
We can laugh at that because of course we aren't going to drown.
It's not so funny when half of America has a very small emergency fund and a third not much of anything. (Seriously people, Get Digit Now)
Add it all up and at least half the country is stressed about keeping their heads above water. It’s not that they are mad at politicians, it’s that no one, politicians or elsewhere has proposed anything that gives anyone a glimmer of hope of swimming above their debt.
I'm not saying that blogs have all the answers for America. However, there is probably a large portion of people who could be helped by the information. (Of course having the information and actually acting on it are two different things.)
It's just a matter of logistics in getting the food to the people. I have to believe that shipping the food is a solvable problem. We've been shipping food for years right? Also, the world appears to be drowning in excess cheap oil. Maybe the devil is in the details.
(Thank you for following me on the journey of this blog post. I realize it was all over the place. I simply felt like I needed to reiterate the financial problems that many in the country face. Perhaps, if we work together, perhaps we can bring financial knowledge and help to everyone.
* This article is not targeted or aimed towards Dallas, Texas, or any particular state. I'm noting the coincidence Mark Cuban's and his views to an international audience about MLM and my own views to a similarly international audience. This website is very rarely geared to a particular state and when it is, it explicitly and clearly stated such as Can You Fix California’s Budget?. I shouldn't have to include this disclaimer at all, but it's better to be safe, clear, and transparent, due to the number of scammers who want to harass me with lawsuits for expressing my opinion in order to help consumers.
"If you’re constantly scouring the Internet for deals or whipping out your coupon binder, you could be saving boatloads of money on everything from groceries to office supplies. But, what if you actually transferred those savings into an actual savings account?
Eric Nisall from DollarVersity once tricked himself into saving money by doing exactly that. Each time he used a coupon or earned significant savings somehow, he would move that money into a special account. Over time, this helped him build a stash of cash that practically came out of nowhere, he says.
'So, if I went to the grocery store, or any shopping really, I took the ‘total savings’ from the bottom of the receipt and transferred it,' says Eric. “I transferred all of my overtime payments as well. Since I only budgeted for gross spending and regular paychecks, I didn’t notice any difference in my everyday account.'”
I have two non-sequiturs* that I'll save until the end so I can get to the real point.
This sounds like a very cool way to save money. I immediately dismissed it because I'm Lazy and I'm not going to go into my bank account and physically transfer the money. When you are on the go, it simply doesn't make a lot of sense. I could save receipts for home and do it then, but it still is "bookkeeping" and part of my message is that you shouldn't spend time managing your money.
It was then I realized that I had my Digit account. I can just text, "Save 13.72" in the SMS thread with them on my phone and move on. Digit will transfer the money out of my checking account and put it in their (FDIC-protected) savings account.
One person asks for an app to make this easy and the author of the article agrees it would be "amazing."
The very next person asks if someone has heard of Digit and proceeds to explain how it squirrels away little bits of money each day. This is my main reason for using Digit. However, the person bringing up Digit and the people responding don't bring up the texting functionality of Digit that is the amazing app that the author is looking for. It seems like it was brought up as an alternative to Nisall's way of saving money rather than a way to easily implement it as a complimentary savings tool.
* 1. I had dinner at a Five Guys with Eric last year at FinCon. First time I had gotten a chance to really talk with him. Great guy.
2. This is the first time I've had to embed three layers of quotes with the "total savings" quote in the article. I have to admit that I didn't know what to do here, so I just stuck with the single quotes.
Back in March of this year, I heard about Digit and signed up for it. For those of you who are new to Digit, it squirrels away money from a savings or checking account. It analyzes your account balance, spending, upcoming income, and upcoming bills to figure out how much it can safely move.
That's not a bad little emergency fund, right? My Digit account actually has even more money in it. If you sign up through this referral link you can actually earn $5 by referring other people. I've collected quite a few of those $5 bonuses. It almost sells itself. No one is against saving money the easy way.
The other day it occurred to me that Digit could be a new kind of Christmas Club. If you aren't familiar with Christmas Clubs, I won't hold it against you. I think they were a little before my time. Here's how Wikipedia describes them:
"The Christmas club is a savings program that was first offered by various banks in the United States during the Great Depression. The concept is that bank customers deposit a set amount of money each week into a special savings account, and receive the money back at the end of the year for Christmas shopping."
I don't know how much money you are you going to spend this Christmas, but I read the average is around $880. I'm sure everyone's Digit savings are going to vary over time, but mine seem to be around $200 a month. That means in about 4.5 months, I'd have enough savings to fund the average Christmas budget. What I like most about this is that you set it up once and you never need to do anything. For the most part, I don't notice what's in my Digit account unless I'm writing an article like this one.
So my recommendation is to sign up for Digit now so you'll be prepared for next Christmas. You might even be able to snag some free money yourself by referring friends and family.
A couple of months ago, I wrote about how Digit Saved me Over $100 in One Week! When I love a financial product and it works well, I make a point to provide a few updates. This way you not only get a follow-up, but those who missed it the first time get a second chance.
Last week I hit a milestone with Digit. They sent me a text message: "Making it rain savings, like a boss. You now have over $250 in your Digit account." Along with it, they attached the image to the right.
Pretty cool, right?
Umm, What's Digit Again?
I forgot, some of you are reading about Digit for the first time.
Digit is a way to save money automatically. You just link your checking account to Digit and it analyzes your income and spending. Then it squirrels away a little money each day or a few times a week. You don't even notice it is going on.
We all know that you should pay yourself first, but it is really hard to do. You can set up automatic transfers, but that's going to be a fixed amount and not very smart. Also, how many people actually save money? I have a better chance of getting my kids eat broccoli. I bet if I took a poll fewer than 10% consistently save money through automatic transfers.
The other issue with automatic transfers is that it doesn't hide the money from me that well. I see it every time I log into my bank. When it is right in my face, it's almost like it isn't squirreled away at all. It's too easy to say, "Hey I'm a little low in my checking account this money, let's move a chunk in there." And then I can keep spending. That's no good.
"I told them there won’t be much money left because we are spending it! We have a lot of commitments. What comes in, we spend, and there isn’t much left. I certainly don’t want to leave them trust funds that are albatrosses round their necks... They have the work ethic that makes them want to succeed on their own merit."
There are lots going on here. With an estimated net worth of around $300 million dollar, what kind of commitments does he have? The interest alone is worth $9 million if it earned a paltry 3%. I don't want to tell Sting how to live his life, but that's some serious spending. He might have a problem. Furthermore to spend it all down at age 62 before his death... well that sounds a little like Brewster's Millions.
I can respect not wanting to spoil your kids so much that they can't fend for themselves. At the scale of millions it probably makes sense.
Looking at it from a personal view, though I feel differently. I am without even a single million. Yet I'm thinking about leaving money to my kids. Am I crazy? Perhaps.
My thinking is that there must be some way to structure a trust fund so that it incentivizes the kids to save money. Maybe it would look a little like a company match in a 401K. If the kids add money to a fund they can pull some extra out down the line. Perhaps the money could be structured in a trust to give them 15% annual interest rate on money deposited.
This would create a lasting legacy for Sting's future generations. Seems like a better plan than just spending it all.
As an aside, I've never really liked Sting. I thought his music is kind of girly. However, I don't mind the Police. I kind of even like them. Am I the only weird one who thinks this?
Some days I feel like I write too much about money. Then I read something in the news that makes me feel like I couldn't possibly write enough about money.
This article in Aeon magazine is a great example: Costly new longevity drugs could help the wealthy live 120 years or more – but will everyone else die young?
The article explains that there's a "longevity gap" between those with money and without money. For example, "College-educated white men can expect to live to age 80, while counterparts without a high-school diploma die by age 67."
The article digs into some of the reasons why those with less money are likely to die younger:
"Scraping to come up with routine living expenses – food, shelter, medical care, transportation – can cause chronic insomnia and anxiety, which boosts levels of cortisol, the stress hormone in the blood. This already makes the poor more vulnerable to a cascade of debilitating, life-threatening ills, from diabetes to high blood pressure and heart disease... People who are poor get sick more often. They live in higher-density households, and when one gets sick, everyone gets sick. And these disparities are going to expand.
On the other end of the spectrum are those who are more financially secure:
"[The benefits] range from simply growing up in less toxic environments with two financially stable parents to the ability to secure good jobs that provide decent salaries and adequate health insurance. They live in more prosperous communities with less crime and decent public schools, ample doctors and hospitals, better food and nutrition, and superior social services that cushion any fall.... [Gerontologist Caleb Finch says], 'They engage in health-promoting behaviours, they don’t smoke, and they’re more likely to have time to exercise.'"
It hardly seems like surprising news that having financial success would lead to living longer.
However, the magazine points out that the gap has widening. Not only that, but paints a picture of new medicines being able to the rich that could drastically widen the gap even more. I'm a skeptical of their examples, we've been hearing about scientists extending rats lives for years, but translating the research to humans is a whole other ball of wax. Still, I'll agree with the magazine's general premise even if I believe it is a little aggressive.
Do you think people might think about money differently if they knew that managing it wisely could lead towards living a lot longer? I like to think they would. Then again, people don't always make healthy choices when eating so I can't see them suddenly saving money as if their life depends on it... even if it does.
[The following is a guest from Amber Satka. She writes on financial topics, and much of her research can be found at her app site: www.carloancalculator.org. Amber is a former office manager and current mother and writer.]
The day you have dreaded has come: Your teenager is ready to drive. Not only that, but he wants you to buy his car. I mean, it's his first car! Aren't you, like, morally obligated or something to buy him his first car? How is he supposed to afford to buy it himself? Don't you want him to focus on his school work instead of worrying about how to come up with the money to buy a car? Geesh.
Maybe you've gotten past that fight discussion and come to the conclusion that your teenager will, in fact, be buying his own car if he wants to drive any car at all and now the issue has turned to how much you are going to help him buy the car -- if any. Will you give him a little cash to help with a down payment? Offer a match? Or will you agree to co-sign on a lease or loan for him?
While you might be inclined to dismiss the possibility o becoming a co-signor, it's worth a second look. In addition to the many cons you may have already thought of, there are also a lot of pros. Here are a few things you should consider when trying to decide if you should co-sign on a car loan for your teenager:
Pro: It Provides a Safety Net
This may be a pro for your teenager and not so much for you: When you co-sign for a loan, you offer a safety net in case he isn't able to pay the bill for some reason. If he defaults, the bank is going to look to you to pay up. That means you can help save your teenager from himself (which is really what the job description of any parent should actually say: "Here to save you from yourself") and can help to protect his credit and ensure that he doesn't lose his very first car.
You can also use the opportunity to try to teach him about financial responsibility and the consequences that he can face if he doesn't meet his obligations. (We say "try" since you will likely be having this conversation over rolled eyes and shoulder shrugs.)
Pro: Allows Them to Get a Safer Car
Let's face it: When your teenager only has about $1,000 to spend on a car, he's looking at options like an old Jeep without a cover or a broken-down Chevy that requires special voodoo to start and a system of hand maneuvers and pullies to stop. Most teenagers aren't going to be able to afford a new car or even a certified used car that is up-to-date, in good repair, and packaged with safety features -- that is, unless, they can get financing, and they are unlikely to get financing without you co-signing.
If you want to sleep easier at night (an elusive quest for parents of teenagers), you should co-sign on the car so you can at least know that the car your teen is driving won't be won't causes him to get into an accident -- it will be the game of chicken or the off-road racing.
Pro: Protects Them from Financial Issues
There are a lot of shady dealerships that would be all too happy to take your teen's money and sign him up for financing -- which is also likely to come with outrageously high interest rates and other cut-throat terms. Or you can leave him to his own devices in the Wild, Wild West that is the secondary market. He can just hand over his money to someone who "seems like a really good guy" who promises that the car was only driven on Sundays, only to find out that the car is never going to run without a hope and a prayer (even with a good mechanic).
Offering to co-sign on a loan will allow your teen to shop at a reputable dealer and avoid being taken in by these scams, which could end up causing long-term financial issues. And who do you think he's going to call when he finds himself in trouble anyway? Better to take a proactive stance.
Con: They Might Default
Obviously, the biggest drawback to co-signing on a loan is that you might actually get stuck with the bill -- and if you refuse, it's your credit that will go down the toilet with his. There's no way to get around this reality. You can try to minimize your risk by having a discussion about the serious nature of the responsibility of taking on a car loan (see eye rolling above) or by asking your teen to enter into a "contract" with you about paying for the loan (though, if the contract with the dealership isn't enough, we're not sure a contract with you will be any different).
The bottom line is that you take a chance. Either way, it's a good opportunity to teach your teen something about financial responsibility. Worst-case scenario: You've got yourself a nice new car if he defaults.
Con: They Might Push to Get a Car They Can't Afford
On any dealership lot, there are cars that range from your basic box car with an analog radio and roll-down windows (which is going to be your jam when you're shopping for a teenager's first car) to top-of-the-line, suped-up luxury cars (which your teenager is definitely going to gravitate towards). When the car is being financed, your teen may not have a tangible concept of how much money is actually being spent, so he may push to get a car he can't actually afford -- of course, thinking that you'll make up the difference when he can't. Lay down some boundaries and a strict budget before you go shopping.
Con: You'll Have to Pay for More Insurance
Most parents opt to put their teens on their insurance policy to give everyone a discount (since you'll get a multi-car discount, and that will bring down the sky-high rates that your teen is charged). However, if your teen is financing a car, you'll have to pay more for insurance as you'll have to have full coverage. You'll also likely want to get GAP coverage to pay the difference between the payout value of the car and the amount you still owe on the loan so you don't get stuck with a bill if your teen is in an accident.
Ultimately -- as with all things concerning your teenager -- there's not going to be an easy answer. But it's worth considering these pros and cons to make sure you know what you're going to be up against and then making the best decision you can. Co-signing on a car loan will definitely make you your teen's hero, but forcing him to buy a beater from someone you help him screen on Craigslist will also help him learn the value of working and waiting for nice things. You decide what's in his (and your) best interests.
Did you agree to co-sign on a loan for your teen's first car? Tell us why or why not in the comments!
I've been a big fan of Men's Health for over a decade and a half. It seems that in the past few years they've sprinkled in a little more personal finance into every issue. The latest one is no exception. One article in particular caught my eye: Build Wealth in Troubled Times. Their idea was to ask a variety of money people (traders, economists, and money managers) and ask them their advice for navigating these difficult financial times. You'll notice that these are all Wall Street people. You won't find Clark Howard or Jean Chatzky here. Men's Health is realistic with the information that they received saying, "Some of their prescriptions are unorthodox and unproved, and just because these experts were right once doesn't mean they know what's right for you. On the other hand, whose advice are you taking now?"
I thought it would be worth giving my personal finance spin on their advice.
Frank Partnoy (Finance professor, University of San Diego school of law)
Frank's Take: Partnoy focuses on picking stocks of a few companies and being optimistic, "Pick out about a dozen companies that sell products you know and understand, and research them. You'll still be taking risks, but at least you'll understand those risks. Buy the stocks and then forget about them." and "Over the long run, our economy grows... People become better off, and technology improves our lives. If you come out of the blogs and news feeds and look at the arc of history, it's a story of human beings getting better over time. So stay optimistic."
Lazy Man's Response: While the advice to buy and hold equities is a fairly proven mainstream strategy, Partnoy loses points for lack of diversity in number of equities and types and of equities. Just because you know a company, it doesn't mean that you truly understand the risks. So many things can happen at the management level of a company to that the average Joe probably wouldn't know about. Blackberry maker RIM comes immediately to mind. Worldcom comes to mind as well. This advice leaves people with no bonds and/or potentially little or zero foreign exposure.
As for being optimistic, it's good advice, but I don't see it as financially applicable. It essentially claims that we'll have a better quality of life over time, which is true. Optimism doesn't put more moeny in your wallet and it isn't much of a "financial move."
Final Grade: C+
Robert Wiedemer (Economist that predicted "the housing crash, the stock crash, the credit crunch, and the recession")
Robert's Take: Invest in gold and stable currencies like the Swiss franc, the Canadian dollar, and the Japanese yen via ETFs. He realizes this is high-risk: "The days of comfortable investing are over. You're trying to make money in a crisis." Also, he suggests, "If your focus is on protecting what you have, then you might want to keep most of your money in cash and eventually move into Treasury Inflation-Protected Securities (TIPS)." Since "luxury goods will suffer", he suggests "aiming your career at businesses that produce basic necessities, like medical care, food, repair and maintenance, education, and utilities."
Lazy Man's Response: Regular readers know I have long been against gold for a variety of reasons. It's the currency of the past, not of the future and it has little practical value (in comparison to its cost). It also is really expensive after the run up over the last few years. I really don't see currency trading as a practical solution for most people. Not only is it risky, but the average person doesn't understand it. I'll give him some points for ways to protect your money, but moving to cash isn't exactly rocket science and putting most of your money there isn't going to help it grow. The final advice about business with basic necessities is a very good one. I love it.
Final Grade: B- (Almost entirely on the strength of the last piece of advice.)
Janet Briaud (moved clients money out of stocks to avoid both the dot-com crash and the financial crisis)
Janet's Take: "Wait until prices are so low that your friends say they'd never consider buying stocks again, and then buy heavily." Also "If you're just starting out in your career... focus on earning more, saving heavily—as much as 20 percent of what you earn—and paying off debt. Are you carrying a credit-card balance at 16 percent? Paying it down is like getting a 16 percent risk-free return on your money." Finally, if you have an emergency fund and credit card, use the emergency fund to pay off the credit card debt and fall back on the cards if you need to.
Lazy Man's Response: Not since Janet Jackson's Love Will Never Do video has a Janet delivered the goods like this. (Is that too much information?) I almost agree with everything 100%. I'm a little on the fence about on the stock buying advice, but I had the same thoughts in 2002 and 2008 when the market was really low. I considered selling every worldly possession to generate more cash to put in the market. If I had bought in at those points gains of 30-50% were pretty easy to come buy. Yep, it's marketing timing, but it's not that bad since you are essentially waiting for a sale on stocks. The rest of the advice is spot on and brilliantly condensed into just a few sentences.
Final Grade: A
Nassim Nicholas Taleb (predicted the Black Monday stock market crash of 1987 and authored The Black Swan)
Nassim's Take: Put 80% of your money in safe investments like CDs and TIPS and 20% of your money into high-risk, high-reward investments. The low-risk side protects most of your money from Black Swans (similar to Perfect Storms). The high-risk side exposes you to those that might pay off. Finally he suggests staying out of debt, "The more debt you have, the more precise you have to be about your future income."
Lazy Man's Response: I don't like this advice. The high-risk portion will likely balance out as some investments will do well and others will fail. The 80% will just stay ahead of inflation as Taleb points out. This plan isn't likely to help you grow your money much, which isn't very exciting.
Final Grade: B- (The final advice to avoid debt, despite being simplistic saves this from being a worse grade)
Raghuram Rajan (Economist at the University of Chicago Booth School of Business; predicted the current financial crisis)
Raghuram's Take: There's a growing gap between the haves and the have-nots. Invest in your education. "Finding the best jobs might require moving around. Home prices may seem appealing these days, but beware: The economics of home ownership can lock you in place for years."
Lazy Man's Response: This is sound advice. The only fault I can find with it is that there he doesn't provide any information on where to invest your money.
Final Grade: B+
Simon Johnson (His book, 13 Bankers, describes exactly how a cabal of big banks gambled with our money, wrecked the economy, and then accepted huge taxpayer bailouts, all the while paying out gigantic bonuses and fighting financial reform. )
Simon's Take: Get your money out of the big banks and support smaller banks and credit unions.
Lazy Man's Response: I like this a lot. I'm doing more and more of my banking with USAA instead of Bank of America. For me, it's the perfect combination between a credit union and a big bank.
Final Grade: B+ (This is fine advice, but it's going to have a limited impact to your finances)
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