AskDong

I think many of us who blog about personal finances take it for granted that our readers may have read many of the same books that we’ve read. The question is what books have we all read? I think there are a few books that belong in everyone’s library. Many these books I imagine are also owned by other bloggers.

The Millionaire Next Door, Thomas J. Stanley and William D. Danko

I believe every single personal finance blogger has read the Millionaire Next Door. I would say most bloggers are disciples of this book. It’s a good book, and well worth reading, but probably could be summarized by two statements. “Spend less than you earn. Don’t compete with the Joneses.” Those are certainly two principles I agree with. Personally my biggest gripe about the book is that it’s both overly simplistic, and academically sloppy. The latter I wouldn’t have a problem with except the writers present as if it were an academic study. It’s not. The book is anecdotal rather than data driven despite citing plenty of simple statistics. The book is simplistic because it approaches the process of wealth creation from a one size fits all approach. While there’s no question in my mind the first step to sustained prosperity is spending less than you earn, that simple statement has two complicated parts, earning more and spending less. The Millionaire Next Door will not teach you how to earn more, and really the only lesson it gives on spending less is, buy a used car and a small house. Still this book is a must read. Read it and you’ll understand most personal finance bloggers, as we all like to fashion ourselves the would be “Millionaire Next Door.”

A Random Walk Down Wall Street, Burton Malkiel

This is probably most definitive book about the act of investing rather than how to invest. As the title suggests it tends to believe that equity performance cannot be predicted, hence the random walk. While the theme of the book is to basically invest in index books, there are few books that match it in explaing the general nature of stocks.

The Intelligent Investor, Benjamin Graham

Benjamin Graham was Warren Buffett’s mentor and this is his definitive book on value investing. It’s must read for any aspiring value investor. That said, it’s dated on many topics, and both a lengthy and muddled read. There are also many people who believe that Benjamin Graham to be far too conservative in his investment approach. Warren Buffett is widely accepted as having improved on Graham. However, you can’t talk about value investing without talking about Benjamin Graham and the Intelligent Investor.

Rich Dad, Poor Dad, Robert Kiyosaki

This last book I suggest not because I think it’s a particularly well written or informed book, and hesitate to even recommend it any fashion. However it’s an influential book, and one illustrates an alternative line of thinking.  The book can be illuminating for individuals who have never really thought about money.  I’m not sure who the best benefits by reading this book. Regardless, there’s no question the influence this book has had. For many people this book has changed how they think about money.  Reading provides insight into how other people think even if ideally you take no hard money lessons from the book.   The book given that it’s authored by an “expert” who is on the seminar circuit is all about pitching a path to riches rather than concrete steps to take.

I like most Americans who are “online” use bill pay. I use my bank, Citibank, bill payment service, but I predominantly use the online bill payment options provided directly by the vendors. Hence, most months I end up visiting at least 5 different site to pay my bills.  Many people suggest consolidateingBill Payment via one provider, most likely your bank. I have often thought of doing this, but I actually like paying my bills at the individual websites.

Payments from your Bank take at least one day to credit if not 2-3 days to credit. Bill payments made at the individual website are usually credited same day even when it takes one day to actually pull the funds from the account. Also for my bills that are not credit cards, I prefer to pay via credit card which I can only do via the website. Because of those factors, as much as I’d like to consolidate all my bill payments onto one platform, I know I won’t.

However, one drawback to this system is that sometimes I’ll forget to pay a bill, usually a cable or electric bill. I’ve never forgotten to pay my credit card bills, but I worry someday I might. So I’ve decided to actually start paying my credit card bills via my bank on the next cycle. I don’t plan on making the full payment but rather setup repeating automatic payments for a nominal amount like $100 that should almost always above the minimum payment. I will continue paying the balance of the payment at the individual credit card sites, but this way I will know even if I forget, I will not suffer a late payment.  If I were still playing the balance transfer game, having automatic payments  would be imperative. Miss a payment, and promotional rates jump to the standard rates that are easily over 15%.

While setting up automatic payments will be a slight improvement to my current system, I’m continuing to explore ways to both simplify and make bill payment stress free. I know many people prefer automatic deduction of bills, and while I have done so in the past, I’m generally not a fan of the “pull” system. It’s not that I don’t trust my utility or any other vendor, but I also know the nature of bureaucracy.  Let me say, never ever ever get your Gym membership attached to any account. As is, the vendors who do offer automatic deduction do not do so in way that is transparent. Until I have full control over that system online, I remain skeptical. The only thing I have billed directly is Fastlane (the MA version of EZ-PASS), and personally I don’t trust it. I don’t even get a itemized statement.

Walter Updegreave got what I thought was interesting question from a reader about buying a 1st home in Silicon Valley. The reader is 27 year old guy living at home who’s managed to put 80,000 into CDs and Money Market Funds. 80,000 would be plenty for downpayment on a very nice home in many parts of the country. Silicon Valley is not one of these places. Personally, I didn’t care much for Walter’s suggestion to the guy. He basically suggested that the poor guy should move. Relocation should be a consideration, but I strongly believe that finances should not be the primary driver in deciding where one lives. So what should someone who lives in one of these sky high markets do?

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I often approach personal finance from a time perspective.  I firmly believe time is money, and what I really want is more time.  Give me enough time, and I’ll probably have enough money.   Many experts suggest that over the course of week or month that we should tally what we spend our money on.  They say carry a notepad and take notes.   I’ve done this in the past, and found it an incredibly useful exercise to see where I was really spending my money on.  It was probably one the first exercises I did when I was looking to get my financial house in order.

Today, I know where my dollars are going, and am happy with the allocation.  I only “waste” money on what I want to waste money on.   I ask myself now, can I say the same about time?  I’m often frantic, and when I’m not I complain about how little time I have.  However, I really don’t know where it goes.  Some people keep immaculate calendars.  I don’t.  I try to make sure my meetings are scheduled on my calendar at work, but that’s about it.   On the most part, I have little idea where all my time goes.

If it’s time that I’m really concerned about, I should be tracking it in some form.  I’m never going to be the type of person who keeps a super organized calendar, nor do I want to be.  What I do want to ensure is that I’m not wasting my time.  In the next week, having started today, I’m going to track how i spend my time down to the 15 minute increment.  Fifteen minutes may not be good enough for billing lawyers, but it’s good enough for me.

The point of this exercise is not to learn to keep a better schedule, but to be more efficient.  Effectively, I want to cut out the “lattes” in my schedule.   I don’t want to waste my time.   I moved last year to cut down my commute time.  However, it’s time to look again at where I can steal some time back from.  Check back with me next week to see how I’ve done.

I was reading an article over at CNN/Fortune by Alan Sloan about the recent “bailout” from the feds. I don’t think I’m quite as angry as Alan about the whole affair, but I think he raises a great point how many people including myself cast bailout of institutions differently than bailouts of individuals or even corporations.

Had the Government stepped in and decided to help the many sub prime borrowers who are on the verge of defaulting on their loans, there would be chorus of protest from the one of end of the political spectrum, and cheers from the the other end. While I’m incredibly sympathetic to the individual plight of homeowners who may lose their home, I do not feel it’s the government’s place to step in when people bet wrong.  I am in general a firm believer that people must reap the consequences of their actions. 

The Fed has effectively come to the rescue of Wall Street by its initial injection of 38 Billion into the banking system, and then subsequently cutting the discount rate, the rate at which the Fed lends banks money, by half a point to 5.75%. While these moves do not target any particular corporation or help any specific hedge fund, the Fed has made a life a little easier for the corporations like Countrywide who are tapping their lines of credit, and the many hedge funds who have had their fill of sub prime secured debt and are now having a hard time finding buyers. The Fed has effectively extended easy money to the distressed. The Fed doesn’t help directly, but through moves that filter themselves easily and widely through the banking system. The last time the Fed stepped in so directly into an impending financial crisis was the collapse of Long Term Capital in 1997.

In general I think these moves by the Fed are good ones. I do believe the Government should have a hand in preventing financial collapse. The Feds actions of the last week are not unlike FDIC insurance. FDIC insurance may seem like benefit to bank customers, but what it really does is help the institution of banking. During the great depression, “bank runs” were common. A bank run occurs when too many bank customers attempt withdraw funds all at once. A Bank Run nearly destroyed George Bailey’s Saving and Loan in It’s a Wonderful Life. The Government set up FDIC insurance in 1933 and bank runs have since ceased to be a major issue as the public has greater confidence in the safety of their funds. The Fed by injecting liquidity into the system by both by buying mortgage backed securities, and making money cheaper is basically trying to prevent something akin to a bank run.

While I applaud these proactive actions, I also find them unfair. Yes, we need to make sure are financial institution continue to work, but these bailouts also reward poor behavior on the part of some hedge funds and corporations who unwisely misjudged risk. In itself it doesn’t bother me that much some people/organization have effectively been given another lease at life. What bothers me is that those at the bottom of the food chain, the ultimate borrowers, gain no direct benefit yet wealthy hedge fund managers and their clients have much to gain (or rather not lose).

In the next couple months we’ll see if the actions by the Feds will be enough to advert disaster for both individual organization and the economy as a whole. In the meantime, I’m make time to read When Genius Failed , the highly rated book covering the collapse of Long Term Capital by Roger Lowenstein.  I’ve been meaning to read the book for the last 2 year, and have been putting it off to reader other fare such as Harry Potter: The Deathly Hallows…