AskDong

I was reading over at Five Cent Nickel about how two years ago Mr. and Mrs. Five Cent took stock of of where they were and where they were going. It wasn’t pretty, but I believe they’ve turned it around and then some. Sometimes it’s as simple an exercise at looking at what you’ve made in your working life and then looking at what you have to show for it now.

Most of us probably have not kept meticulous records of our earnings, but we don’t need do that. The Social Security Agency sends to us every year a record of our earnings once we turn 25. This can be and should be sobering moment for most individuals. It was sobering moment for me, and is part of the reason I started to look at my personal finances more actively. Most people don’t have much to show for all that they’ve earned. I’ll take you on walk through my own social security report through 2003, in addition to the years and wages that art part of the standard report, I’ve added my age and short description of my employment. You might be asking why 2003? 2003 was the first year, I really started not only thinking about where I was but I where I was going financially. It was the first year, I started actually tracking my finances. The first year, I can actually tell you what my Net Worth was.

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I written before about being prepared for personal financial downturns.  I think it’s always important to be prepared.  Part of being prepared is knowing what can be trimmed at moment’s notice.  This is one reason I think if you can avoid signing contract, do so.   Clearly companies give you financial benefits for commiting to a longer periord. This is true of Gym membership,  Cable and Sattelite service, Mobile Phone, etc.  But how do you value the tradeoff between a lower monthly fee vs. the flexibility of being able to quit whenever you want?

The simplest way to compare is to just compare the cash difference.  For example if a phone plan with a 2 year contract is $40/month, and without the contract is instead $50/month, we might be able to simply look at the difference in payments over that 2 year period. 40X24=960.  $50X24=1200.  The difference in payments if $340.  So the question is the option to exit at anytime over the next two years worth $340? Most likely it’s better to sign the contract, and get the lower monthly rate if you look any single item.   Still this tells us nothing about really how valuable being able to quit something is.  Sometimes it’s about the flexibility to switch to a cheaper or better service.   However, what I’m really concerned with is understanding if we can afford the commitment.
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I’m all about being frugal, but I don’t believe frugality extends to tipping.  The U.S. in many regards in anomaly when it comes to tipping.  Neither Europeans nor Asians typically tip in their home countries, hopefully they tip here in the U.S.  And while there’s a part of me that is somewhat bothered that tipping is required, making it a bit of misnomer.  I would personally prefer that service was always added to the price, and tipping was always a genuine sign of appreciation.  It’s not however, and many workers depend on tips as a substantial part of their income.

The problem with tipping is that nobody sits you down and tells you whom and how much you should tip.  I learned some tips (pun intended) from my Dad who despite growing up in a foreign land is generally pretty good about tipping, but there’s always a new situation to deal with.  Yes, we all know we should tip waiters and waitresses 15-20%.  But who else?

There are never hard and fast rules when it comes to tipping, but these are the people I tip and how much I tip:

• Waiters/Waitresses:15-20% and more for extra service

• Bartender: 15% or at least $1 per drink

• Buffet: 10%+/-, depending on how much service. i.e. how many drinks and plates taken away, etc.

• Taxis: 10% if they don’t try to rip me off

• Hotel Housecleaning: $5+ a day, more for extra messes and extra people.  Hence on a Bachelor party it’s usually $10+/day per room.

• Bell Hop: $2-5 per suitcase depending on the length and difficulty of journey

• Concierge: $5, extra for special services.  Personally I’ve never been good with tipping the concierge, mostly because I’ve hardly used one.  I certainly don’t think you need to tip for a quick question.  They need to make a reservation or arrange something to make tipping appropriate.

• Delivery Service: 10%

• Valet Service: $1-3 when the car is returned

I’m sure i’ve left off other who should be tipped as well.  And of course there’s tipping etiquette associated with particular events such as weddings.

If you want to save money by not tipping or tipping poorly, I’d rethink that decision and choose another option.  Do takeout instead of delivery, go to the self serve buffet instead of dining out.  Service people work hard, deserve to be paid.

One of the toughest things to do when starting to invest in picking which mutual funds to invest in, even when you’ve wedded yourself to mostly tracking the indexes. There are many different indexes, and there are many different funds that track these indexes. Then you have to decide if you want an exchange traded fund (ETF) which you can buy and sell during the day like a stock or a plain old vanilla mutual fund. The paralysis that comes from making these decision can often be much more costly than choosing one fund versus another. Generally speaking the most important part of investing is to be invested. Letting a IRA account sit in cash for years does no good.

So what should you invest in? I don’t have any firm answers, but below are some index funds that I’ve either personally invested in or taken some time to look at.

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I was reading 2million’s blog how his financial discussions with his his fiancee were going, and I couldn’t but help of think Captain Picard. Apparently the soon to be Mrs. 2million is very concerned with financial security to a degree that conflicts with 2million’s own view on money. I’m sure you’re asking, “So what does this have to do with our favorite bald Star Trek captain?” Episode No. 141, The Tapestry

In that episode Picard is about to get heart surgery, and Q offers gives him glimpse of his life had he not gotten into that fight that originally caused his heart problems. That alternate future is a bleak one, he ends up being a lowly junior grad lieutenant, very ensign like. We know what happens to ensigns in Star Trek - certain death. I know you’re still thinking, “and this has to do with personal finances, how?’

Well in many ways we are all like the young Picard. Sometimes when you play it safe you’re actually taking on more risk. In our finances, the most obvious symptom of this is a reluctance to invest in the stock market. It astounds me that I still meet people (not often but it happens) that will tell me that they rather put their money into CDs rather than into the stock market because it’s safer. Getting a 5% return that gets eaten up by taxes and inflation is not safe. As individuals we shouldn’t be welded to the financial definition of risk, volatility. Risk for us as individuals is more about opportunity cost, and having an adequate safety net.

However this risk aversion extends beyond just how we manage money. This type of risk aversion probably has the greatest impact on how we manage our careers. I’m not a career first kind of guy. I think the work/life balance should be tilted towards life. However, taking “risks” especially when you’re young is critical in career development. In today’s world this means jumping for greener pastures when an opportunity arises. It also means taking work that may be out of your comfort zone. The next best job is not the job you’re good at, but the job you want to do be good at. Maybe that means making a move across the country, taking pay cut or simply  jumping on a assignment at work that’s above your head. Maintaining the status quo might seem less risky, but as Picard learned it can put your future at risk.