AskDong

The Wall Street Journal ran an article last week about the slew of new sites allowing you to share information on your personal wealth. Flexo over Consumerist Commentary give a good run down on the article. I’m not here to rehash the article, but rather discuss to what degree of information sharing is common and good.  Some choose to share nearly everything with everyone. While many of my fellow bloggers would certainly be listed in this group, I am not. I share many aspects of personal financial situation, and if you take the time to read all the articles, you probably have a good sense of what it might actually be. However, I don’t publish my net worth, or how much money I make. That’s too much sharing for me given this site is not exactly anonymous. People know who I am. Sometimes I even know who they are.

However on the relative scale of things I’m probably on the more open side. I’m always up for a discussion on personal finances. If I’m chatting with you over dinner and the conservations turns to 401ks, I’ll gladly tell you how much I have stashed away in blow by blow details on which funds. If we’re having a couple brews at the pub, and I learn that you’re interviewing for new jobs, I’ll tell you how much I make to better guide your own salary negotiations. I don’t do this to brag (as there’s scant evidence that I have anything to brag about), but because I believe acquiring financial knowledge starts with your family and friends (not to say that your family and friends can’t be dead wrong). It’s one thing to read about finances from a book, but it’s another to see things play out with people you know. A lesson learned from someone’s actions is so much more valuable than a lesson gleaned from a book. Personal finance is really more personal than finance.  Being able to talk openly about personal financial matters amongst family and friends is a useful excercise - everyone learns something.  Ideally it’s not about bragging or whining.

One danger of not talking openly about personal finances is that it can lead to false assumptions about family, friends, and indirectly ourselves. Not talking about money means that you only observe other people’s consumption rather than the whole financial picture. The only way to keep up with Joneses is consuming more. When was the last time most people tried to one up their neighbor by how much they put into the 401k? While, I’m personally not an advocate of trying to compete in consumption or savings for that matter (everyone needs their own plan), I would rather see people compete to save more rather than buying flashier cars. 

While I do think being open is almost always a better way to be, there are are limits as well. I doubt I would be ever perfectly comfortable discussing details of salary with coworkers. I’m completely open with my immediate family, divulge as much detail as possible to friends in the course of any discussion.  I am happy to answer most questions from acquaintances, but unlikely to volunteer my salary or networth information.  I share the outlines of my financial life (via this blog) to the entire world.

The other day I had some time to kill at the bookstore. I picked up the recent copy of Smartmoney and perused it. One article caught my eye. It was a strategy guide to becoming a Pentamillionaire. I don’t subscribe to Smartmoney as I only have the budget for one personal finance magazine and as a result didn’t get a chance to finish the article which is excerpted on the website. Kiplinger’s as an FYI is the one magazine I subscribe to based to my own informal review personal finance magazines.

The article raised two solid points. The first is implied by the title. A Million dollars is not what it used to be. 5 million is the new Million. The 2nd and main point was that becoming a Pentamillionaire is not as “easy” and straightforward as becoming the “Millionaire Next Door.” It’s one thing to save money for comfortable life and a carefree retirement, it’s another to make it big. The article in Smartmoney is about making it BIG! 5 million is really at the bottom of that scale.

I like many of other people who write about personal finances preach the slow and steady approach to propserity. J.D. does not write a blog called getrichquick, it’s getrichslowly. We are disciples of the Millionaire Next Door rather than Tom Vu’s late night television ads. As assuredly as living below your means, and putting it steadily into the equity market is proven way to prosperity, it’s decidely not the only way. The fact is if you want to be REALLY rich, you have to take risk.

Most Pentamillionaires as the Smartmoney article reports are entrepreneurs, or other folk who got in early with someone entrepreneurial. Starting your own business is risky even if the market is ripe and your skills perfect. There are some who would argue that being employed these days is as risky. Lifetime employment is a thing of the past. I agree to a degree, but the risks startup of any kind faces in terms acquiring and retaining clients is significant. Without clients no business can survive. Even if the risk for small business is overstated, psychologically for most individuals it’s a level risk that is hard to surmount. Setting off on your own is difficult course to embark on. According to one study, a startup that has employees has a 9% chance of surviving ten years. Those are slim odds.

I imagine those 9% who do survive often find success to be quite profitable. The question for most people who want to start a business is do they believe they will be in that lucky 9%. Obviously if you don’t believe that then it wouldn’t make sense to try to start business. Of course that 81% that fail obviously didn’t think they would fail but they did. So what does it take? One problem with the Smartmoney article is that it doesn’t really study people who failed. It says successful people have a “swell attitude”, “friendly”, and “eager for new experiences.” While I personally believe these are actual ingredients for business success, I wonder do people who fail in their business ventures also have these attitudes? It’s a question not asked by the article as it’s skewed to profiling success rather than failure.

So let me pose this question. If you knew for certain that you could work slow and steady to an accumulated wealth of $3 million in 20 years, or you could take some chances and either have a 10% probability of having 20 million, and 90% chance only having 1.1 million in 20 years, what course would you chart?  From a risk neutral perspecive,  the expected value is the same $3 million.

Normally I wouldn’t have occasion to link back to Cary of “Ask Cary” on salon.com, but today he answers a question that is actually quite related to personal finances. For those who don’t know me personally, I actually started this blog in homage to Cary, hence the ever so creative name AskDong.  I also wanted to answer relationship questions, but that’s a story for another day.

If you get a chance, read the actual letter, Cary’s response, and comments.  All three usually make a good read.  However, in synopsis; the letter writer is a 50 year old jazz pianist, accomplished but not a success, and barely scraping by. He’s been doing what he loves, but wants to at this point in his life to make some money. Who can blame him, the life of a musician is hard. The industry is super competitive, and the pay generally stinks unless you’re famous.

I know I often like to say, “Do what you love, and financial success will find you.” However, if I had complete faith in that I probably would’ve studied something else other than economics in college.  I value a measure of a security, and I realize there are tradeoffs for many people between financial rewards and personal job satisfaction.  The lucky few have both. Finacial Zen discusses at his blog his own career path and job choices and doing what you love (and how one can kill the other).  But the question remains, do you believe if you do what you love, enough rewards will come?

p.s. If you get a chance comment on Salon, the letter writers often read the comments, and are generally appreciative of good advice.