Entries from September 2007 ↓

We live in a capitalist society that glorifies the rich. The mainstream media publishes lists of what the wealthy buy, where they live, and what they are worth. The constant attention to the affluent makes us want to have more and more. For many Americans, their net worths have become their ultimate value in life and they’re constantly comparing their wealth to that of neighbors, friends, and complete strangers. I think it’s incredibly unhealthy and dangerous to keep score in life with money for the following reasons:

1. One can become complacent when comparing with those who have less — If I compared what I have with what others in my peer group have I am very likely to fall into complacency. For example, according to CNN’s networth comparison calculator, people my age have a median networth of $400. If I ran with that statistic then I could spend pretty much all my money and still remain above average. Many of us have also read Casey Serin’s now deceased blog and thought to ourselves, “at least I didn’t get into THAT much debt.” Comparing ourselves with people worse off than us does make us feel better about our own situation, but our misguided comfort may also make us a little less prudent in how we spend and invest money.

2. One can become depressed when comparing with those who have more –I live in the middle of a place where multi-millionaires don’t even feel rich. It is a rather ridiculous and comical situation when you think about it. In the article one millionaire stated, “everyone around here looks at the people above them”. Well, guess what? If they just stopped comparing their networth to that of the billionaire in the next town, then maybe they wouldn’t feel so poor. It’s almost impossible to become the richest person in the world so if you look up you’ll always find someone above you. Even when you are the richest person in the world, you may find yourself worrying that you’d lose the number one spot if you’ve always been worried about what others have. Basically, if you keep on wanting more you’ll never have enough.

3. One may be envying only an illusion of wealth — When I walk through the parking lot at work I see quite a few very expensive cars. I don’t really know which ones are paid for and which ones are leased. What I do know is that if I wanted one of those cars I would have to shell out a significant amount of my savings. It’s very likely that those who lease very expensive cars don’t have more money than I do. However, many people get caught up in appearances and run out to buy that Mercedes or BMW just so that they fit into their parking lots even if they can’t afford it. There is really no point in envying someone’s large pile of debt. However, when we look at our neighbors we probably don’t see credit card bills and negative savings. We see their plasma screens and McMansions, and those physical things certainly could stir up jealousy.

4. One may lose meaningful relationships — Sometimes people lose track of their families, friends, and even themselves in pursuit of money. This could happen if a person works way too much and doesn’t have any time to enjoy their money. Also, sometimes people may alienate their friends and family because of their financial situation. I have seen people isolate themselves because they thought they are too poor, and thus they feel like failures. On the other end of the spectrum I have met people who feel like they’re too rich to speak to you. A person’s wealth shouldn’t prevent him or her from making meaningful relationships. I still believe that if a person is really my friend they wouldn’t care how much money I have.

I believe the key to defeating these potential pitfalls is to forget about what other people have, ignore statistics, and only compete with yourself to improve your life I do not care about how many houses other people bought or how much money they have. That’s their business and not mine. I only keep tabs on how much I have because I know fully what is going on in my life. In competing with myself I try to do better than I did in yesteryears. For example, I set gradually larger financial goals for myself and try to reach them. To reach these goals in a timely fashion I would need to increase my income, and to do that I try to improve my career and investing skills. I accomplish things when I compete with myself because I know where I am and where I want to go. Ultimately, making an inventory of other people’s knick knacks will not improve your life.

Share This

The hubby and I have been married for almost a month now, and we are sort of getting our finances together. I opened a joint account at Vanguard with the new hubby. I told him that we should name the account the Baby + Downpayment Fund. We both would like to purchase a home sometime after we have our first kid. However, babies and houses both cost a lot of money and we need to prepare. So I set up a chart at the No Credit Needed Network for this fund and set an arbitrary goal of $100,000 with a deadline of two years from now. Two years is a good timeframe for this goal because I think the housing market will continue to decline until at least 2009, and also, we would like to have a child two to three years from now so we have a bit of time to ourselves in our marriage. $100,000 isn’t really enough for a downpayment on a median priced home in the Bay Area right now, but maybe in two years there may be some bargains as sellers become more desperate and more ARM loans are reset. There may also be a infinitesimally small possibility that we no longer live in this crazy place and the home prices will be much more reasonable. Either way, $100,000 seemed like a nice round number to work towards.

We’re both putting $10,000 in this account now as a start. The new contributions will be whatever we manage to save together as a couple after we take our individual 401k contributions. Right now all the funds are in the Vanguard California Tax-Exempt Money Market fund so it’s pretty safe. Eventually I may move some of the cash to other funds. We are $80,000 short right now, and that means for us to achieve the goal in 24 months the account has to grow on average of $3,333 per month. Can we do it? We will see, but I think it’s very possible.

Share This

When I graduated from college and got my first job my mom said to me, “if you want to live at home it’s fine, but you’d have to pay rent.” I didn’t want to live at home at all because it would take a 1.5 hour trek across the Bay Bridge to get to work. If you’ve ever been on the “MacArthur Maze” you’d know why I do not want to drive through that deathtrap everyday. So I packed my suitcase and moved to San Mateo and my parents breathed a sigh of relief.

I have met quite a few “boomerang kids” since then. They are mostly young adults who have well paying jobs. Most of the ones I know that do not pay room and board to their parents are young Chinese men. This may be a cultural thing because in China sons are especially coddled. One woman read my story about my “Super Cheap Ex-boyfriend” and said that she’s very afraid that her child will return home and mooch off of her. My answer to this is that these parents need to grow a backbone and ask their kids for compensation or ask them to move out.

Here’s an example of a family that’s got it figured out. At work I met a girl who happened to be the same age as me and also attended the same school as me. We became good friends and I found out that she lives at home, but her mom takes a bank draft of $1000 from her account every month. She says that she doesn’t want to move out because her parents cleans and cooks, and they no longer give her a curfew. Her parents have sort of become her roommates and landlords. Her other reason for not moving out is that she’s keeping the money in the family. Since she’s an only child her parents’ assets will eventually be hers.

If I had kids with good jobs that wanted to move back in with me I would ask them for rent at market price. If they really can’t afford it then I would rent to them at the Section 8 rate or 30% of their gross income, whichever is lower. I may ask them for a bit over the market price if they are paid very well just so that I encourage them to find a place themselves. If they don’t have a job then I will make them get one as soon as possible and then repay the rent they owe as soon as they are able. I probably don’t need the money, but a lot of parents nearing retirement do need the money. The point is that so many people my age need to learn what the real costs of living are and budget and save accordingly. Children cannot depend on their parents forever, and parents need to learn to let go and give their kids a little nudge out the door.

Share This

Ecclesiastes is probably my favorite book in the Bible because it is a little bit cynical, and at the same time full of hope and faith. It’s a book that matches my personality very well and it has quite a few acute observations about human nature and wealth. Whenever I feel discontent about my career or wealth I read this book and it really puts things in perspective. Here I will highlight some timeless verses from the book, with my comments on how they relate to me.

Chapter 1:

What does a man gain from all his labor which he toils under the sun? Ecc 1:3

 

This is the main topic of Ecclesiastes. What do we gain from working and living? In other words, why are we here? What do we get for working for most of our lives? I think everyone asks this question once or twice.

“Is there a thing of which it may be said, “Behold, this is new?” It has been long ago, in the ages which were before us. There is no memory of the former; neither shall there be any memory of the latter that are to come, among those that shall come after.” Ecc 1:10-11

This verse can be interpreted to mean that history repeats itself and we only think that something is new because we no longer remember that it happened or existed before. For me, it means that there is no point for me to participate in fads and fashions and purchase the most popular and flashy thing. This verse is especially true for technology products, because people are trying to reinvent the wheel all the time, and many companies and products are very quickly forgotten.

Chapter 2:

The entire second chapter of Ecclesiastes is great reading because it shows that rich people aren’t necessarily happy. The author (who is usually believed to be King Solomon) set out to accumulate great wealth and he successfully gathered a fortune that was above all who were before him in Jerusalem. (Ecc 2:9) Yet he says “so I hated life, because the work that is worked under the sun was grievous to me; for all is vanity and a chasing after wind. I hated all my labor in which I labored under the sun, because I must leave it to the man who comes after me. Who knows whether he will be a wise man or a fool? Yet he will have rule over all of my labor in which I have labored, and in which I have shown myself wise under the sun. This also is vanity.“ Ecc 2:17-19 In these verses the author realizes that he can’t take his wealth with him when he dies, and he has collected so much just to give it to others. This is true of anyone with too much wealth. Bill Gates and Warren Buffet are great examples. They’ve worked their entire lives just to give their enormous wealth to others. Additionally when people make too much money they also pay large amounts of taxes, which is also distributed to others. I don’t think leaving your wealth to others is necessarily a bad thing, but what really struck a chord with me is verse 19 when the author questions whether the receiver of his hard earned fortune is a “wise man or a fool”. At this very moment my tax dollars are being spent on mortgage bailouts, the war in Iraq, and probably ten thousand other issues that I consider foolish, but what can I do about it? Some hope and answers are offered in chapter 3.

Chapter 3:

For everything there is a season, and a time for every purpose under heaven:
a time to be born,and a time to die;
a time to plant,and a time to pluck up that which is planted;
a time to kill, and a time to heal;
a time to break down, and a time to build up;
a time to weep, and a time to laugh;
a time to mourn, and a time to dance;
a time to cast away stones, and a time to gather stones together;
a time to embrace, and a time to refrain from embracing;
a time to seek, and a time to lose;
a time to keep, and a time to cast away;
a time to seek, and a time to lose;
a time to keep, and a time to cast away;
a time to tear, and a time to sew;
a time to keep silence, and a time to speak;
a time to love, and a time to hate; a time for war, and a time for peace.
What profit has he who works in that in which he labors? I have seen the burden which God has given to the sons of men to be afflicted with. He has made everything beautiful in its time. He has also set eternity in their hearts, yet so that man can’t find out the work that God has done from the beginning even to the end. – Ecc 3:1-11

These chapter offers encouragement that God has a plan for everything, but God is eternal and timeless so that we don’t know what he has already done for us. It also encourages me to have patience, because eventually I will experience God’s work.

Chapter 3 also has this verse, which is a good verse for those who hate their jobs:

And also that every man should eat and drink, and enjoy the good of all his labour, it is the gift of God. Ecc: 3:13

Chapters 4 & 5.

These chapters are mostly about all the people that are not satisfied with what they have. It’s a little comical in some parts.

Then I saw all the labor and achievement that is the envy of a man’s neighbor. This also is vanity and a striving after wind. The fool folds his hands together and ruins himself. Better is a handful, with quietness, than two handfuls with labor and chasing after wind. Ecc 4:4-6

Verse 4 sums up what we call today “keeping up with the Joneses”, and basically says that labor driven by envy is pretty pointless. Verse 5 is sometimes also translated as “The fool folds his hands and eats his own flesh”, which means that some people are so lazy that they don’t work at all and end up eating themselves. I thought that was funny because my mom told me of a story once of an extremely lazy child who died from starvation even when his mom put a giant pie on his head. This verse reminded me of that story. The opposite of these fools are people are those who work for a lot more than they need, and they’re the ones who have “two handfuls” in verse 6. This brings to mind of those people who bought “McMansions” only to work two jobs to keep their homes. So it is best to be at the middle ground which is work and earn the “handful” I need and be happy with it.

Then I returned and saw vanity under the sun. There is one who is alone, and he has neither son nor brother. There is no end to all of his labor, neither are his eyes satisfied with wealth. “For whom then, do I labor, and deprive my soul of enjoyment?” This also is vanity. Yes, it is a miserable business. Two are better than one, because they have a good reward for their labor. Ecc 4:7-9

I have met people like this who really have way more money they can spend, but still isn’t satisfied. A good example is my company’s CEO whose networth is probably a few hundred million, but he is single and still works to 2am sometimes. I can’t say if he finds it miserable, but I probably would find it fairly depressing if all I had in my life was work. For me, two are definitely better than one, and I wouldn’t trade my hubby for a few hundred million dollars.

He who loves silver shall not be satisfied with silver; nor he who loves abundance, with increase: this also is vanity. When goods increase, those who eat them are increased; and what advantage is there to its owner, except to feast on them with his eyes? The sleep of a laboring man is sweet, whether he eats little or much; but the abundance of the rich will not allow him to sleep. There is a grievous evil which I have seen under the sun: wealth kept by its owner to his harm. Ecc 5:10-13

I think these verses give the answer to why people are always pursuing more money. When I first read this I also thought that he meant those who have more to eat got fatter (increased), and that’s harmful to the wealthy. Then again, not all rich people are fat. I think mostly it means that when you have more money it also becomes harder to manage and there is a fear of losing that wealth. Thus the “abundance” sometimes makes the rich lose sleep. Instead of sleeping they could be working to get more money, or managing their money. So wealth produces more work and stress. I have felt that in my life when I am really afraid that the stock market will tank or maybe someone will just steal everything I own, but what I should really be doing is to enjoy what I have been given. So I am still working on this, so that what I have been given does not become harmful to me.

Chapter 6:

There is an evil which I have seen under the sun, and it is heavy on men: a man to whom God gives riches, wealth, and honor, so that he lacks nothing for his soul of all that he desires, yet God gives him no power to eat of it, but an alien eats it. This is vanity, and it is an evil disease. Ecc 6:1-2

The author speaks of a common affliction of the wealthy. There are many who are blessed with all the riches they desire, but are still depressed and conflicted. Just walk into a supermarket and you’ll see tabloids plastered with pictures of celebrities who could buy everything but happiness. Basically, wealth without the power to enjoy it is worthless, and “an alien” would enjoy it instead. I think the alien here means someone you’re unfamiliar with. For example, there are often stories of people who win lotteries and then suddenly random relatives pop out of the woodworks to befriend them. Money sometimes attracts people who aren’t really your friends, and they may enjoy your wealth more than you. If that happens then there is no point to having all that money.

There are a lot more great verses in this book, and I feel grounded when I read it. Ultimately the book says that God gives people all that they have, and if we enjoy what we’re given it is a gift from God. Also, without some sort of afterlife or eternity every bit of wealth we collect here on earth is meaningless and empty.

Share This

Mark Twain once said, “There are three kinds of lies: lies, damned lies, and statistics.” I always thought that the Consumer Price Index is all three. Every month we get a number from the government telling us how much prices have risen, and every month I am quite shocked as to how ridiculously low “inflation” is reported. In the past seven years, housing and energy prices have soared. If you forget about the statistics, you can just look at the size of your new neighbor’s mortgage, your gas receipt, or your grocery bill to see significant increases. So how is it possible that the CPI we see in the media is always so low?

The answer can be found here at the California Division of Labor Statistics and Research:

Q3. Is the CPI a cost-of-living index?

A3. No, although it frequently (and mistakenly) is called a cost-of-living index. The Bureau of Labor Statistics (BLS or the Bureau) has for some time used a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain “utility level” or “standard of living.” … It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime that would comprise a complete cost-of-living framework.

Fine, now I understand that it’s very difficult to construct a cost of living index and I suppose that’s why “almost 60 percent of the CPI covers prices that consumers pay for services ranging from airline fares to movie tickets and laundry charges“. But why do 80 million people’s incomes adjust according to the CPI if it doesn’t reflect the movement of their living expenses? How could our seniors who live on their pensions or social security funds that increase according to the CPI handle cost of living adjustments that are several times of the CPI? Should they be adjusting their spending so that 60% of their money is spent on movie tickets and airfare? Why are we using a statistic that we know is broken on something as important as the livelihoods of entire families?

The government does benefit financially in several ways by reporting a lower CPI rate. Since they adjust their wages and retirement benefits according to the number, the lower it is they less they spend. The tax brackets and exemptions are also tied to the CPI, so a smaller increase in the tax bracket means more tax revenues if most people’s wages adjusted more than the artificially low CPI. Additionally, a low CPI in the media reassures consumers that things aren’t getting more expensive and it’s okay to spend. More spending stimulates the economy, but decimates the savings rate and actually increases inflation.

I have no idea what the “true” inflation on everyday living expenditures is, but I am absolutely positive that it has been much more than 3 percent a year for the last seven years. That’s why whenever I see retirement calculators that use a historic CPI rate to estimate my future costs I tend to be skeptical. I always add at least 3% to the CPI inflation number to estimate my future costs. I am pretty sure that real inflation will hurt us next year since the Fed has cut the interest rate a whopping 0.5% and crude oil is now at an all time high. In conclusion, don’t trust the CPI numbers as a measure of inflation. In fact, don’t trust any numbers but your own because only you are familiar with your own situation and needs.

Share This