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Low Self Control and Spending

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As James’ comprehensive exam comes up we’ve been spending a great deal of time going over flash cards together. One of the theories that is big in the criminology world is that of low self control.

As you can imagine, a great deal of crime is attributed to the fact that the perpetrator just can’t control themselves enough to refrain from said activity.

Thinking about this from a financial perspective I believe that this would be the root of all evil, so to speak, around both personal and corporate finance. It certainly has been a large driver in the perpetuation of credit card use, as well as the larger greed seen on wall street and in the banking sector.

Honestly I think that if one is able to manage their finances well, chances are it is in large part due to their ability to control urges to spend and ability to live frugal. Master this, and the rest is a cake walk.

Easier said than done. Even for those of us who try and know better. There are influences at every part of our lives, with social norms that persuade us to spend. From holidays to check out sale items, it all pressures to spend.

I’m still mulling over all of the best ways to apply self-control, particularly in those areas where it is about social influence and we don’t even have as much self interest aside from appeasing others in our life – which I guess in turn satisfies us on an emotional level. If you want to build wealth, self-control is going to be the most important trait you need to acquire.

Anyway, it is certainly an interesting subject to consider and something I’ll be pondering for quite awhile.

Cheers,

Miel

NY Times: Older Investors Taking Less Risk

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The NY Times is reporting that many older investors are rethinking risking their retirement funds on the stock market. This is probably not a bad idea and certainly resonates with my families experience. My mom lost a third of her portfolio in the crash of 01 and a half last year. These major losses of savings have had a huge impact on her ability to build her wealth.

Click here for the write up.

Best,

James

US To Trade Gold Reserves Through Cash4Gold

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Hi All,

Here is an amusing video from the Onion. The premise is that the US government will raise fund to serve the deficit by selling the nations gold in Fort Knox to Cash4Gold. Its funny, but also kind of sad at the same time.

Apologies to those who are reading via RSS and may not be able to view it.


US To Trade Gold Reserves For Cash Through Cash4Gold.com

6 Ways to Cut Down Your Spending

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Since I’m on a budget and enjoy discussing finance, today’s posting is a discussion of ways to save money by cutting your spending. My wife and I have come up with some of these. Other tips come from Jane Bryant Quinn’s Making The Most of Your Money.

Without further ado, here are some ways to painlessly cut your budget.

1) Drink Office Coffee: Many offices have communal coffee brewing, this is usually free. Free is much better than dropping $1.80 at Starbucks.

2) Go to the Library: Libraries are totally stuffed with free entertainment. You can get books and CDs and DVDs for no money at all. For example, you might not think it, but the DC library had a great collection of classic operas. For the cost of quick drive, its well worth a trip to get your free entertainment.

3) Go Shopping with a List: The main idea here is if you shop with a list, you’re far less likely to impulse purchase or buy things you won’t ever use. My wife and I are totally guilty of this. We often go shopping with only a general idea of what we need. That said, shopping with a list is a proven way to cut your expenses.

4) Focus on Inexpensive Entertainment: Try to find cheap restaurants, museums, or zoos. There are usually plenty of these opportunities to be found. Try looking in your local weekly paper. If you can’t find anything inexpensive to do, try staying home and curling up with a good book instead of going out.

5) Go Vegetarian: A few years back a woman changed her name from Karin to goveg.com to promote vegetarianism – I’m not suggesting another so drastic. At the same time, typically meatless meals are less expensive than meals with meat. Think about it, beef and chicken are usually more expensive than beans and rice. While you probably need the protein found in meat, you could try skipping a couple of meat meals or substituting something else (e.g. mushrooms instead of mean in pasta sauce) in place of meat.

6) Ease off on Alcohol and Tobacco: Too much alcohol and tobacco can be harmful to your health. More importantly, if you smoke and drink less, you’ll save on life insurance, doctors bills, breath sweeteners, dry cleaning bills and incidentals like ash trays and wine glasses. If you must drink consider getting less expensive wine or beer.

These suggestions are good because you can actually do them without drastically changing your lifestyle. This is important. If you want to build wealth, you first need to save the cash to invest with. In order to effectively save, what you do has to work within the context of your daily activities. For example, it wouldn’t make sense to move to less expensive housing if it increased your commuting costs by taking you further away from your employment. So, these are painless changes you can can work on within the context of your lifestyle.

If you’re interested in more ideas, The Simple Dollar has a very excellent list on saving money tips. Also, you might pick up a copy of Jane Bryant Quinn’s Making the Most Of Your Money. Its available on Amazon for twenty bucks.

Best,

James

1000 Applicants for One San Diego Position

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Just saw this posting over at Blogging Away Debt.

—————

My husband turned in his resume for the government job.

According to HR, he was one of over 1,000 applicants for that position.

I am confident in his abilities and his references but I’m not expecting him to get the job.

I knew the job market was bad in San Diego… I just didn’t know how bad.

I am more thankful now than ever that we are both employed.

—————

Thank goodness my wife and I live and work in the DC bubble. Here unemployment is only around 6%.

Best,

James

The Tax Causes of the Economic Crisis

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Hi All,

Bruce Bartlett over at Forbes has a great op/ed looking at another aspect of the economic crisis. His thesis: over taxation of corporate profits created structural incentives to pile on debt. They are simply adjusting to the “rules of the game” when it comes to building their companies wealth.

From Forbes:

It’s important to understand the origins of the economic crisis so that the correct policies can be implemented to end it and prevent its recurrence. Thus far, most attention has focused on monetary and regulatory policy. But a new study from the International Monetary Fund argues that tax policy played an important role as well.

The IMF study doesn’t cite any particular tax changes over the last few years that were responsible for generating the economic crisis. However, it points to a number of features of the tax code that contributed to it.

The most important problem identified by the IMF is the favorable tax treatment of debt and the punitive taxation of corporate equity in our system. This problem is exacerbated by a higher corporate tax rate in the U.S. than exists in most other countries, which magnifies the benefits of debt relative to equity.

Click here for the rest of it.

Signs of the Times: Fires in Abandoned Houses

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Hi All,

The Associated Press is reporting that the number of fires in abandoned homes has increased by 60% in the past three years. Whats happening is homes are abandoned or put into foreclosure. And since the house’s occupants are typically gone and the owners are distant banking bureaucracy, nobody cares, so the houses are more likely to catch fire.

Its a sad sign of the times, especially when you consider that sooner or later the economy is going to recover and eventually those houses will be worth something. This is a serious waste of our societies wealth.

The full story is at the AP.

Best,

James

Bank Failure Friday

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Hi All,

Well, it looks like the economy isn’t out of the woods yet. The Federal Deposit Insurance Corporation is announcing that three more banks have failed. This time its:

Southern Community Bank, Fayetteville, Georgia

Cooperative Bank, Wilmington, North Carolina

First National Bank of Anthony, Anthony, Kansas

Personally, I’m looking forward to the recovery. It will be nice when this steady stream of bank failures start to wind down as I’m starting to lose track. It’s an unfortunate activity that reminds you we simply are not the “prosperous” society we once were.

The gory details are here.

Best,

James

Reducing Your Credit Card Debt

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Hi All,

In spite of everything, a lot of people still manage to find themselves in a situation where they have credit card debt. So, if you’re in that position, here are some things that might help:

1) Stop Borrowing: This is obvious, but its important. Instead of relying on your credit cards, consider switching your method of payment. The way to do this is to destroy your cards – cut them up or throw them out. Then move over to a debit card, or switch to an all cash or cash/check system. The main idea here is to get yourself outside of the cycle of relying on your credit card.

2) Score A Better Interest Rate: The current trainwreck that is the US economy has made it much more difficult to transfer your balances to a lower rate card. However, if your credit is good you might be able to pull this off. If not, there are plenty of other alternatives for getting a better rate. You could consider a bank loan, home equity line of credit, peer to peer lending funding, or a personal loan from friends or family.

3) Dump High Interest Debt: If you have multiple cards, pay off the highest interest rate first. The reason is that as you eliminate your high interest credit card debt, your cash flow situation improves.

It works like this. If you owe $100 dollars and the interest rate is 29%, then you’d have to pay 29 dollars to carry to the debt. If you owed $100 at 6%, you’d just have to pay just 6 bucks to carry it. The higher interest rates require higher payments. Eliminate this.

4) Raise Extra Money: If you’re like most Americans, you probably have a ton of stuff in your house. Try selling some this by having a garage sale or unloading it on ebay. Then, use the money to give your debt payoff a boost.

5) Remember Credit Card Companies are NOT Your Friend: We’ve been watching the behavior of card companies for a couple of years now. Its a safe bet to say they have their own profit in mind, not your best interests. So remember this, credit cards are not conveniences, you’re essentially taking out a 12 to 29% loan when you use them.

Just as a final note here, there is no shame owing money on credit cards. Over the past 30 years, real wages have been stagnant while the price of housing, food and health has been increasing at a steady clip. One reason why you – and so many others have credit card debt is because the economy is out of balance. Living frugal and doing what you can to build your wealth is the best thing you can do for yourself. So, don’t get too wrapped up in feeling ashamed about your debt – a lot of the country is in the same boat.

Best,

James

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