The Amateur Financier

Previously, when Wednesday last got Wacky: You found yourself stranded two hundred years in the future, after a time travel money making scheme went awry.  The good: your investment grew into a multi-billion dollar fortune.  The bad: thanks to higher than expected inflation, that’s less than the typical fast-food worker earns in the course of a year.  The ugly: any attempt to withdraw the money in order to travel back in time (and not invest the money in the first place) causes the money to disappear (something about causality and other things that sound like they should be part of a Star Trek plot line).  What will you do now?

You stare at the ATM for a while, watching as your money blinks in and out of existence while you consider withdrawing it, lamenting the quirks of time travel.  You finally consign yourself to staying in the future (or your new present; you make a brief mental note to invest in a dictionary that will give you some words to describe your new situation).

After withdrawing your entire fortune, a few thousand Reagans (million dollar bills; the basic unit of currency in an over-inflated future), you try to figure out where to go from here.  After making one last attempt to spend this money on a rental time machine (you swear you hear Reagan laughing at you as he briefly blinks out of existence before reappearing), you resign yourself to your fate: working in the 23rd century, at least long enough to earn money to travel back to your own time.

First, though, you need someplace to live, and probably some food, too.  Actually, to judge from the gurgling in your stomach, it’s probably best to go for the food first, and then try to find some lodging.  Luckily, there’ s a little food stand not that far from the time travel company.  Unluckily, it seems that only food products that aren’t insanely expensive are food pellets.

You try to ask, in the coolest way possible, just how many pellets you need to consume in order to stay alive, and find out that you hold a month’s worth of food in the palm of your hand.  Provided you have a hand the size of a shopping cart; it turns out that there’s only so far you can compress the 2,000 some calories, numerous vitamins and minerals, several grams of fiber and assorted flavorings and preservatives you need to consume each day before physics says you have to stop.  You buy enough pellets to last a week or two, fork over a goodly amount of Regans, and pray that you don’t turn into a hamster before you finally make it back to your original time.

Then it’s off to find a place to live.  You don’t need anything too grand; you literally don’t own anything but the clothing on your back and the supply of pellets you just bought.  You manage to find a perfect place for your base of operations; a sleep tube at a hotel that’s half a meter (20 inches) wide, half a meter tall, and 2 meters (80 inches) deep (the ‘Presidental’).  Not much space, granted, but it gives you a place to sleep.

Then comes the real trouble: finding a job.  You think about your line of work before traveling to the future, but that’s probably out.  Your field has probably advanced so far that you would barely understand what was happening.  Much as an eighteenth century doctor who awoke in the twenty century would wonder where you kept the ether and the leeches, there would be almost no way you could simply pick up as, say, an electrical engineer and start working.

Of course, that leaves one very undesirable career path for you: minimum wage jobs.  Not the most appealing possibility, but you have to do what you need to do.  Figuring that fast food would be a good start when looking for a job that doesn’t require crazy twenty-third century skills.  It’s a nice thought, but fast food, like much of society, has gone mechanical: all the prep work, and even the serving, is handled by robots.  Clown robots.

DO YOU WANT FRIES WITH THAT?

After feeling the first sting of rejection, and worrying that you will have nightmares for years, you seek other employment.  You try to find a decent sales job; surely, the techniques for trying to move product can’t have changed that much.  Schmooze, be personable, and push the products.  Yup, that’s the ticket.

Unfortunately, years of (over)exposure to high pressure sales tactics, constant bombardment of advertisements, and of course, lots of advance on fighting temptation have rendered most traditional advertisements useless.  In their stead, a new technique has risen to prominence: mind control!  Yup, rather than subtly (well, at least by comparison) trying to influence your decisions, advertisers took the path of least resistance and started to force consumers to purchase their products.  Of course, with hundreds of different corporations throwing conflicting subliminal messages, the end result is about as effective as twenty-first century pop-up ads (and just as concerning to the average citizen).  Just to be safe, you resolve to avoid all media until you’re safely back home.

You finally find a job, at a pet salon.  Too bad all the animals are intelligent.  It’s incredibly disconcerting to be berated by a dog for screwing up a nail clipping, or mocked by a bird for a bad feather comb-over, or insulted by a cat for improper grooming techniques (actually, considering how cats normally are, that’s not too surprising).  Still, you muddle through, doing your best to save up money for a return to the past, promising yourself that you’ll never, ever, EVER get a talking pet again.

Will you make it through your job without going insane?  How much wood would a woodchuck chuck if he could spend all his time gossiping instead?  Will Roger finally allow you to get out of the future in the next episode?  (Answer: HAHAHAHAHAHA!)  Tune in next time to find out!

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Have you ever found yourself winning a prize you hadn’t even entered to win?  Like, at a drawing at the local fair, you find out that your friends put your name into the raffle, and suddenly you’ve won a big prize, like a car, without any effort or real work on your part?  You’d probably have a huge grin on your face, getting something so great completely out of the blue.

I had a taste of that feeling today.  No, I didn’t win a car or anything like that; but I did have one of my posts featured in an MSN blog post.  Yup, they made a reference to my post on Unemployment and Motivation when discussing the effects of unemployment benefits on motivation to find another job.  Not an off-hand reference at the end of the article or on the fourth page, either; I’m mentioned by name (as Roger, the Amateur Financier) in the third paragraph, and they paraphrase my article over the next three paragraphs.  All in all, it’s one of the coolest things I’ve had happen to me lately (possibly the coolest blogging thing that I’ve ever had happen to me).

Here’s the kicker, though: while my article about unemployment is being highlighted, I’m actually getting pretty close to having a job.  I had an orientation meeting on Monday, and I have an interview on Wednesday.  By this time next week, I could actually be employed again, in a job in my field that pays nearly as much as my last job (which does help support my argument in the article about holding out for a ‘good’ job while collecting unemployment).  If this week keeps going the way it has, I might have to go out to a casino; I never have this kind of luck.

Successful Yakezie Members

I’m not the only one who’s had a run of luck, it seems; when I was looking over latest Yakezie Challenge standings, I noticed that were more than a few of my compatriots who have met their goals.  At least the initial goals; there’s always more than you can do, and higher ranks to be obtained, especially as nobody’s broken 50,000 yet.  Although, our fearless leader, Financial Samurai, is getting there pretty quickly.

With a combination of hard work, luck, and of course, some powerful friends, it looks like Money Funk and Punch Debt In The Face (great blog name, by the way) both beat the 200,000 ranking this past week.  They have a lot of company; Planting Dollars, Sweating the Big Stuff, Monevator, Fiscal Fizzle, MBA Briefs, Early Retirement Extreme, Enemy of Debt, *takes a deep breath*, My Journey to Millions, Deliver Away Debt, and the Ultimate Money Blog, have all cleared the 200,000 Alexa hurdle already and are bearing down on 100,000.  (Hopefully, I’ll join them soon.)  Of those blogs shooting for 50,000, Budgets are Sexy and Free From Broke both cleared 100,000 first (although they were pretty close to that amount at the start), and Eliminate the Muda cleared both 200,000 and 100,000 in its ascent to the top.

It looks like many of my fellow Yakezie members are well on their way to dominating the personal finance blogosphere (and then the world…but perhaps I’ve said too much).  In hopes of boosting up some of the members who haven’t gotten that far yet, here’s a round-up of some of the other Yakezie who are still shooting for 200,000 along with me:

Good Yakezie Posts

Pros and Cons of Being Cash Only – While I’m more a fan of credit card use myself, Red does make some good points about why you might opt for a cash only life.

Day 21: A Dull Monday Morning in Australia… – Not really personal finance related, but how can I resist a post mentioning a photographer who gathered up a bunch of nude people and got them to pose for a picture?

Avoiding Reactive Personal Finance – It’s hard for most of us, but planning ahead for emergencies is much better than trying to react once something happens.

Fix-It Friday: Know Your IRS Forms – Good advice as get (even deeper) into tax season, knowing your tax forms (or getting help from someone who does) can save plenty of time and money on your part.

The 5 Books that Changed My Money Life – As you’ve probably noticed from my weekly (or so) book reviews, I like to read, particularly about personal finance, and so these five ‘mini-reviews’ on books I’ve either read or have on my ‘to read’ list is quite helpful.

“Making Work Pay Credit” and the SAHM – An interesting look at the new tax credit available this year.

What’s Your Latte Factor? – An interesting discussion of the little money vices that end up costing us lots of money over time, using David Bach’s concept of the Latte Factor.

Where the Amateur Financier Has Been Featured

My post on unemployment and motivation was very popular this past week; in addition to MSN, it has been featured in round-ups from Well-Heeled Blog,151 Days Off, Planting Dollars, and Wealth Pilgrim

The latest Yakezie Carnival included my post on the challenges of holding physical gold, as did Monevator

That’s it for this week’s round-up; if you’ll excuse, I’m off to bask in my new-found celebrity a bit more.  (Kidding; I’m just the same Roger, if a bit more shocked.)

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I’m a mood that combines playfulness with nostalgia.  I think it’s because I’m currently back home and have a job interview today, so I’m both happy and thinking about my past.  I’ve been thinking a bit lately about some of the stories and fables I was told as a child.

So today, let’s have some fun with some of the most famous of Aesop’s fables, and see how we can apply the lessons found within to our personal finance situations.  After all, these are stories that I (like many of you, I’m sure) have heard since I was young.  Let’s go on a trip down memory lane and see what we can learn about money management from good old Aesop.

1) Fable Name: The Ant and the Grasshopper

Short and Sweet Summary: There was once an ant and a grasshopper.  (Good start, no?)  The grasshopper laughed, frolicked and played the days away, while the ant diligently spent his time during summer and fall gathering up extra food.  The grasshopper laughed at all this effort; why gather food when there was such an abundance all around them?  When winter came, though, the grasshopper found himself out of food while the ant had plenty, and the grasshopper comes to realize the folly of his short-sighted ways.

A hardworking ant, possibly working hard

(Depending on what version you read and the particular message the author is trying to push, the final fate of the grasshopper and the ant (or ants, in some versions) can vary.  In the most traditional versions, the grasshopper dies from starvation.  Since this doesn’t make the most child-friendly ending, in many cases he gets food from the ant, usually in exchange for providing some service or at least promising not to be as lazy in the future.  There are also plenty of more politicized versions, having the grasshopper suing the ant and taking his hard-earned food (to send up socialist/communist worldviews) or attacking the ant for being so stingy (to attack those who hoard wealth).  For our purposes, we can end the story once the grasshopper realizes the error of his ways.)

General Moral: Prepare today for lean times tomorrow.  Also, if an ant and a grasshopper both offer you financial advice, go with the ant.

Financial Moral: Pretty much the same as the general moral; be sure to stock up on money (or other supplies, etc.) while you have the opportunity, particularly if you know the lean times will be coming.  Replace ‘winter’ with retirement, ‘food’ with money, and ‘ant’ with anyone who didn’t get a trust fund for their 16th birthday, and you have a pretty good plan for saving for your golden years in our ‘fund your own retirement’ economy.

2) Fable Name: The Tortoise and the Hare

Short and Sweet Summary: A tortoise and a hare have a race because the hare was talking smack about the tortoise’s mama (or possibly just called the tortoise slow).  During the race, the hare takes an early lead, getting so far ahead that he decides to take a nap (or goes off to play keno, depending on the version of the tale).  While the hare is distracted, the tortoise slowly but steadily catches up, and then overtakes him.  By the time the hare wakes up (or gets kicked out the of the casino due to his bad credit), there’s no way for him to beat the tortoise.  Victory to the slow guy with the shell!

General Moral: Slow and steady wins the race, OR don’t take a nap until you finish the darn race.

Financial Moral: Pretty much the same as the general moral (the one about slow and steady winning in the end, not the napping one).  A decent to good financial plan, implemented over the course of a lifetime, will be much more effective at boosting your net worth than a great financial plan you only follow off and on.  (Note: you should not take the lesson that betting on a long shot in a race is a good way to improve your financial security; they’re long shots for a reason, and no every gamble will pay off in the end.)

3) Fable Name: The Dog and the Bone (noticing a pattern to these names yet?)

Short and Sweet Summary: A dog goes walking alone with a bone in his mouth.  He looks down into a still pool of water, and sees another dog looking back at him, also with a bone in his mouth.  Getting greedy as he looks at the other dog’s bone, and thinking that the other dog looks like a bit of a push over, our first dog opens his yap and barks at the second dog.  His bone drops into the water, disappearing under the waves, leaving the dog (and his reflection) without any bones at all.

Pictured: Dog; Not Shown: Lost Bone

General Moral: If you get greedy, you risk what you already have.  Also, mirrors can steal your soul (or at least, confuse you, if you happen to be a dog).

Financial Moral: Let’s quote another source of great wisdom, Warren Buffet: ‘Rule #1: Never lose money.  Rule #2: Never forget Rule #1.’  As with bones, so it is with money; it’s much easier to keep what you already have then it is to earn more.  If you get greedy and try for excessive gains, you can end up losing what you already have.  (Add in the number of scams and other simply fraudulent ways people will try to get your money, and the importance of keeping what you have comes into sharp relief.)  Invest smartly and don’t try to shoot for the moon with your returns, and you’ll have a much better shot at growing your wealth and adding to your supply of bones (or cash, if you prefer that type of thing).

4) Fable Name: The Goose that Laid the Golden Eggs (just like that, the pattern is gone)

Short and Sweet Summary: A farmer and his wife (I picture them as Ma and Pa Kent from the Superman comics, but I’m pretty sure that’s not what Aesop intended) discover that they have a goose who lays golden eggs.  After a few days of enjoying the bounty this goose puts out, they get impatient, and slaughter the goose to get all the golden eggs at once.  Alas, once the goose is dead, they find no golden eggs inside, and realize that they’ve just killed a source of great wealth.

General Moral: Greed and impatience destroy wealth.  Also, geese aren’t filled with all the eggs they’ll ever lay (at least, not in fully developed form).

Financial Moral: As usual, the general moral can be pretty easily applied to the personal finance; get greedy and it’ll backfire on you.  This is most apparent when looking at your nest egg (an apt term for a waterfowl based fable); if you start with a small, safe withdraw rate when you retire, your nest egg will have the chance to grow, continuing to generate more money (golden eggs) for your spending pleasure.  Pull out too much of your money in the first few years, and watch as your nest egg quickly withers away, and you spend your retirement years desperately searching for more money (or a goose that lays golden eggs).

Alright, that’s enough nostalgia for one day; hopefully, there’s plenty of stories mentioned here that spark a few memories of your own childhood, and maybe, just maybe, remind you of a

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Whistles blow, car horns honk, things get thrown around the room and screams echo throughout the room.  The sounds of bulls, bears, and pigs are heard on a frequent basis.  Occasionally, even the sounds of ghosts are heard in the distance.  Is this a sign of the Apocalypse?

No, it’s Mad Money, the investing show from Jim Cramer.  If you ever felt the urge to go behind the scenes of this madness, you can read Jim Cramer’s Mad Money to get an even deeper understanding of the show, as well as Jim Cramer’s broader investment strategy.  Is the book a ‘Buy, Buy, Buy!’, as Cramer’s sound effect board would say?  We’ll have to look closer to find out

Summary

Jim Cramer’s Mad Money is a stock investing book, pure and simple.  The introduction plays up the book as a follow up to Jim Cramer’s Real Money, his first investing book.  It’s designed to share many of the lessons that Cramer learned in his first year or so of running his Mad Money show, in all its crazy glory.

The first three chapters are all about how to buy a stock, Mad Money style.  The first chapter is about knowing yourself and your goals.  Cramer makes the point that different people, at different stages of life, can invest in different ways; when you’re younger, you can afford to take more risks with your money.  The chapter stresses four different aspects that will determine how much (if anything) you should invest in stocks: your age, income, personality, and priorities.

The second chapter is all about doing your homework, at least one hour per week per stock that you own (or want to own), according to Cramer.  He has five areas you need to cover before you buy a stock: how the company makes money, the sector of the market it is in and how that sector has performed, the stock’s performance, how the competition is doing, and looking at the company’s balance sheet.  Chapter three is where you finally buy the stock; always using limit orders (where you set the price you’re going to pay for the stock) and buying a little bit at a time.  Once you buy the stocks, though, the homework has to continue, at one hour per week.

Chapter four looks at the other side of the coin, how to sell the stocks when the time comes.  Cramer provides a number of suggestions for when to sell (no hard and fast rules, as he acknowledges that everyone is different and has different needs).  One suggestion is to sell enough to get the amount of the stock you own back to the dollar amount you initially invested.  Another one is to set a target price you expect the price to hit, and sell when it reaches that price.

Chapters five and six cover the ‘Lightening Round’, the part of Mad Money where Cramer takes phone calls and provides a buy, sell, or hold verdict on a particular stock after just a short period time to consider them.  Chapter five details much of the thought process he goes through during that time, and shares the three dirty secrets he uses to do it every night.  (They aren’t that secret; he (a) has lots of experience, (b) really enjoys stocks, and (c) finds it easier than it looks.)

Chapter six covers how to do the same type of quick analysis yourself (the ‘Lightening Round Home Game’).  It’s a three step process; first, know what sectors (and subsectors) there are, then, form an opinion on each one (whether the automobile sector is going up or down, for example), and lastly, rank the top few stocks (’best in breed’) in each sector.  That way, when you’re asked about a particular stock, you have a ready rubric to help you decide whether it’s a buy or a sell.

Chapter seven covers what to look for in the interviews that Cramer does with CEOs and CFOs.  Depending on how they react (and in particular, how open they are about their company, even if it is currently going through tough times), there’s apparently a lot of information that can be gleaned from these interviews, even if SEC regulations prevent them from revealing anything not disclosed to other investors via public notices.

Chapter eight is a compilation of some of the mistakes that Cramer has made on his show, and the lessons he’s learned from them.  Some of these lessons include how to do the right type of homework (if you’re planning to buy and then sell in the short term, you shouldn’t be looking at the longer term prospects for the company, and vis versa) and that commodities companies are not interchangable, even though their products are identical.  In the same vein, chapter nine covers some of the lessons gleaned from his successes; some examples include to watch what the Street (that is, big mutual and hedge funds on Wall Street) does and mirror that unless you have good reason to think that they’re wrong, and not to be snob and consider all investment ideas, even those that come from an average middle-class life.

The last few chapters go into more depth on the show itself; chapter ten covers how Cramer chooses the stocks that are to be featured on his show, including watching what his charity fund invests in and paying attention to what he likes and dislikes on the show itself.  Chapter eleven covers many of the aspects of the show itself, from his trademark ‘Boo-yahs’ to the sounds on his sound board and what he intends them all to mean.  The book ends with a worksheet to evaluate stocks (a la Chapter two) and a revised guide to cyclical investing (which he introduced in Real Money).

Pros

-Intelligent and Insightful: Although you might not guess it from watching the show, there is in fact a method (and a rather impressive one) behind what Cramer says and does in the course of his broadcast.  He emphasizes the importance of doing thorough research before making a stock investment and knowing how to read through the information provided by companies.  If you followhis techniques, you should have more success in stock investing than if you merely follow stock tips (including, interestingly enough, the tips on Mad Money).

-Stresses the Importance of Research: Almost everywhere you turn in the book, you’ll find Cramer hammering home the need to do research before and after any stock purchase.  A repeated refrain throughout the book is the need for at least one hour of research per held stock per week to keep up on the changes with the company or the stock that might change its prospects.  Add in the warning against buying a stock recommended on his show (or any show) in the first twenty-four hours, and you have a surprisingly sedate argument for a calm, methodical investment method from a guy most famous for almost literally bouncing off the walls on screen.

-Entertaining: Probably not a surprise, the book is rather amusing, even laugh-out-loud funny at times.  Even when discussing things like P/E and PEG ratios he manages to be more entertaining than many personal financial writers are while trying to make jokes.  It makes the book a rather quick moving read, as well as a general pleasure.

Cons

-Aimed at Mad Money Fans: If you haven’t ever watched Cramer’s CNBC show, much of the book will make little sense.  After the first four chapters (which are fairly useful regardless of how much CNBC you view), the book pretty much turns into all Mad Money, all the time.  The last few chapters in particular are less investment advice, more behind the scenes.  If you’re not a fan, much of the book will seem rather unhelpful.

-Lots of Information, Without Much Explanation: The parts that do focus on investing directly (rather than Mad Money) are useful, but in his attempt to give you all the information you need for investing in a few chapters, Cramer sometimes makes his book nigh incomprehensible.  This is most notable in chapter two, where you get a flash lesson in cash flow statements and balance sheets.  It took several read-through to get everything that Cramer was trying to illustrate (and I write about this stuff for my blog).

-Focuses on Short(er) Term Trading: While Cramer doesn’t explicitly recommend day-trading (and chides people for doing so), he does tend focus on short term investing, holding stocks for months or even mere weeks, to say nothing of buying stocks in small portions over a period of time.  While this can be profitable (Cramer himself is proof of this), for many people it can lead to excessive buying and selling.  If you can keep up the research that Cramer recommends, it can work out, but otherwise, it just adds to your costs.  (Plus, as you’re probably aware, in the mutual fund world, indexes are more profitable than actively managed funds for exactly this reason.)

Conclusion

If you’re a huge fan of Mad Money and want to learn how to play along at home in a smart manner, Jim Cramer’s Mad Money might be right for you.  If you’re simply interested in learning how to buy and sell individual stocks, you’re probably much better off with Jim Cramer’s Real Money, which provides more information for the first time stock investor (and less promotion for the show).  If you’re not interested in individual stocks at all, Jim Cramer’s books, while still interesting, probably aren’t the best for you.

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In the spirit of the ‘Playful Dance‘, that is, responding to other bloggers’ posts in my own posts, I’m going to start what I hope is a long-running series where I write a response to something another author has put up.  Sometimes I’ll agree, more often I’ll disagree (it gets pretty boring if everyone is saying the same things all the time), and most of the time I’ll simply try to find an alternative view on what is being said.  Enjoy it, and be sure to check out the article I’m responding to, as well; there’s plenty of great personal finance writing out there, just waiting to be found.

When going back over some of the posts published last week to find what I should include in my latest round up, I came across Holding Physical Gold is About Safety, Not Speculation from 20s Money.  He advocates holding gold (actual, physical gold, stored at home) as a way to be more secure.

I have to disagree.  While gold can be add diversification to your portfolio (I said as much way back when I covered gold for my Investing 101 series), I think that some of the reasons provided could be misinterpreted.  Here’s my take on a few of the claims made:

Claim One: ‘The reality is that gold [and silver] will have value today, and hundreds of years from now.’

Yes, and no.  True, there are uses for gold beyond serving as a store of money.  However, the major use for good in current society is to look pretty and serve as a store of wealth.  If something happens that would lead to a great deal of new gold being produced (say, a massive new gold mine or the discovery of alchemy-like process that can generate a great deal of gold), the price could very easily drop far below the current levels, leaving you holding gold worth much less than you actually paid.  If gold prices behave as they have in the past, after the last big run up in price, they’ll actually start falling once things return to normal (as they have for most of the past quarter century).

Claim Two: ‘If the dollar continues to weaken, which has been the trend, we will be not hurt as badly if we own gold [and silver].’

This is a trickier one.  Yes, holding assets that aren’t denominated in dollars and which tend to hold value even as the dollar declines is one way to hedge against a falling dollar.  However, holding physical gold is far from the only, or even the best way, to do so.  Holding foreign stocks, bonds, or even foreign currency provides a more ready way to hedge against falling dollar prices; when a stronger foreign currency is converted into a weaker one, you’ll end up getting more bang for your buck (or rather, more bucks for your Euro, pound, yen, ruble, etc.).  The transaction costs will be less than buying and selling physical gold, and if you’re holding foreign stocks or bonds in a mutual fund, the disbursements will be automatically converted to dollars before being sent to you.

Claim Three: ‘What does concern me is that I am more secure by having some holdings of physical gold [and silver].’

This one, I suppose, depends on your definition of security.  Holding a sizable amount of physical gold in your own house will save you from paying the costs for a safe deposit box or other source of gold storage, but there are downsides, as well.  You need to worry that your gold could get lost or stolen, that the gold is, in fact, gold (as well as the same quality and quantity you originally paid for) and whether the transaction costs of buying and selling the gold will destroy the actual value of the gold itself.  With all those problems, it seems hard to justify the ownership of gold, at least, physical, you need to find a place to store it and protect it, gold.

My Conclusion

In spite of all of this, I have no real problem with gold investing.  All I ask is that you consider exactly why you’re doing so, look at some of the alternatives (both alternative ways to invest in gold, rather than holding gold bullion at home, and alternatives to gold investing itself), and do what makes the most financial sense for your situation.  If that means having some gold at home in a safe place because it helps you sleep at night, go right ahead.  Just know the real price of that insurance, in terms of dollars, investment risk, and storage costs.

(Before I forget, Kevin wrote a post that referenced my blog, the The Allure of Alexa, which inspired me to read his blog and write this post in response to one of his other posts.  So, um, this is a sort of thank you where I nitpick your argument the whole time.  You’re…welcome?  It was really all in good fun and the attempt to spread the word, my friend.)

What do you think about gold investing?  Did I miss any major pros that more than justify the cons listed here?  Did I completely misunderstand Kevin’s point and reasoning behind his gold investments?

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As you’re probably more than aware by now, I’m participating in Financial Samurai’s Alexa Challenge in an attempt to boost my blog’s visibility and influence.  I’m proud, if a bit surprised, to say that in the course of less than a week, my ranking has gone from roughly 515,000 to a little more than 393,000, a jump of nearly 118,000 ranks.  If I keep up this pace, I’ll meet my original goal of breaking 200,000 by the end of the month!

Admittedly, the higher I climb in the ranks, the more intense the competition becomes; it’s like going from the minor leagues into the majors, you just find yourself facing tougher and tougher opponents the higher you go.  Additionally, as Financial Samurai notes, the challenge increases as time goes on.  The goal of 200,000, once a ranking that put you amongst the top one hundred personal finance bloggers in the world, is no longer enough.  (FS also made mention of these very round-up posts, which was certainly a nice gesture.)

All the more reason to work even harder, to do whatever I can to improve my image amongst other bloggers, and to promote the heck out of them in hopes that they will do the same.  On that note, let’s get to the real fun of these round-ups; great posts from other bloggers:

Good Yakezie Posts

CARD Act: Credit Card Reform Act of 2009 – A great list of all the changes to credit card law brought about by the CARD act that recently put into place, one that puts even mine to shame.

Why Does Joe Public Love Sweatshops? – Not just getting the products from them, but the idea of working in them.  I think it’s nostalgia for an older, simpler (although also dirtier, more exhausting, and more painful) time.

Why Does Everyone Hate on Financial Planners? – My guess: a combination of anger at the corrupt ones (who are a small percentage of the whole, I might add) and feelings that they (the public, not the planners) should be able to handle their own money without help.

Combat the Closing Techniques – The Power of Suggestion – Another in a series I really like, showing you how to fight back against various sales techniques.

No More ‘I Can’t Afford That’ - When you have the money, but choose not to spend it, you should be proud to say as much.

‘The Snark Handbook’ Review and Giveaway – Be sure to enter for the chance to win what seems like a hilarious book!

Should Wannabe Entrepreneurs Eliminate Debt Before Opening Their Doors? – It’s probably a good idea, but probably not necessary.

You Can’t Afford Kids – A conversation stopper right there, although it raises some interesting points about when in your financial journey you should add kids to your household.

The Reason for the Dearth of Investment Posts on ERE – A cogent reason for not posting more on investing from a fellow blogger; if I didn’t love writing about investing so much, I might just take his advice.

It’s Your Money, YOU Spend It! – How to handle being ‘volunteered’ to spend money (for special events like birthdays, anniversaries, etc.)

Other Good Posts

Unconventional Personal Finance Advice – Some advice that might go against the grain of commonly cited personal finance rules.

5 Situations Where You Should Leave Your Credit Card in Your Pocket – A good list of times to use cash rather than plastic (paying taxes is one I wouldn’t have guessed)

6 New Credit Card Rules – Another article about the CARD act; a very succinct one, as well.

Can America Learn to Save From My Dog? – Dogs put aside biscuits or bones for a rainy day, why can’t we?

$3,000 Cash for Caulkers Revealed - The details of the new plan revealed, for better or worse.  (Also, who do I have to write to in order to get people to stop giving these programs alliterative nicknames?)

The Amateur Financier Around the Web

The Carnival of Money Stories hosted my last Wacky Wednesday post

Monevator’s latest Round Up featured my post on Taxing Financial Transactions, as did the Weekly Round Up on Money Funk

A Weekly Wisdom round-up (great name, by the way) featured my post on Hyperbolic Discounting

If I missed any round-ups or other posts that featured my blog entries, just let me know; I want to promote the heck out of you (and not just because it’s a roundabout way of promoting myself)  Good day, everyone!

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So, if you’ve been watching the US Senate, lately, you’re probably well aware of the latest drama, with Jim Bunning attempting a one-man filibuster to stop the payment of unemployment benefits.  Although he recently backed down, the reaction to his stand brought out some interesting discussions about politics, budgets, and spending.

Another issue that was brought to surface by this debate is whether unemployment benefits are even good for society as a whole.  The benefits are that it provides a safety net for those who find themselves out of work, enabling them to take time to find another job of their choice, usually in the same field for about the same rate of pay.

Unemployment benefits seek to keep us out of here...

The downside, though, is that such benefits may actually aggravate the level of unemployment.  If you don’t have to work to get money, after all, aren’t you going to be less motivated to do so?  Nina Easton, among others, notes that studies have found that the unemployed people tend to stay unemployed as long as the benefits keep coming, using the benefits as an excuse to put off taking lower paying jobs to survive.

So, who’s right?  It’s hard to say exactly how unemployed people are affected by having unemployment benefits available; there are currently millions of people out of work, and as with any group, different people will react in different ways.  Luckily (or unluckily, I suppose) I happen to have a perfect subject to gauge just how unemployment benefits can distort incentives right here: me.

A Case Study in Myself

Yes, in the past year or so, I’ve found myself out of work on two separate occasions.  (Technically, three, although the third was for a brief period after I ended a temp position but before I started another one, so I didn’t take unemployment benefits, and thus, I’m not counting that.)  As a result, I’ve been collecting unemployment benefits for much of the last year, so much so that I’ve actually exhausted the normal amount of benefits available to me and am only still receiving unemployment due to the many extensions that have been passed over the past few years.  (Just like the one Jim Bunning was filibustering against, to tie everything back in.)

So, how did unemployment benefits affect me and my desire to gain a job?  Well, the critics of unemployment do have a point; I HAVE been pickier about possible jobs than I might be otherwise.  Since my most recent job loss in November, I’ve been focused more on trying to regain a job at my previous level of employment, rather than ’settling’ for a lower income job as I might have been forced to without unemployment.  From an economic stand point, the existence of unemployment has demotivated me in my job search, exactly what critics fear would happen.

HOWEVER, that’s not the whole story.  While it’s true that I haven’t been working in a paid position during that time, I haven’t exactly been idle during this period, either.  In addition to continuing to search for a job in my field of study, I’ve also taken the GRE in preparation for going to grad school, continued the work on this very blog, and looked into other possibilities for making money outside a typical nine-to-five position.  What is often left out of the debate over unemployment benefits is exactly this kind of transformation; having a period of time after losing your job to re-evaluate your life and make changes for the better (without needing to take any job that will have you just to put a check in your account and food on the table) is one of the greatest advantages of unemployment as it currently exists.

(While we’re on the subject, I’m a little leery of the argument that society as a whole is better off if I take a low-paying job, at least in the short run.  Yes, in the long run, my work will help the company to expand, provide money for me to spend or invest, and generally help the economy to keep growing; far be it from me to argue with any of that.  However, in the short run, I’m shorting myself of time to building my skills or work on an entrepreneurial endeavor, taking a job that could be filled by someone else, and causing the company I’m working for to spend money training someone who’ll leave at the first opportunity that presents itself.)

Even with the possible demotivational effects, I tend to think that the pros of unemployment benefits far outweigh the cons.  Yes, they might have the adverse effect of keeping unemployment higher that it might be otherwise, but the advantages offered to the unemployed more than make up for that fact.  At least, they do in the case of this one guy I know…

What do you think about unemployment benefits?  Are the cons enough to outweigh the pros?  Is it better to encourage people to take a job, any job?  Do you think that employment status makes it hard to think about this issue objectively?  (I.E., I’m currently unemployed and like the unemployment system.)

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Wow, February went by fast, didn’t it?  I suppose this is to be expected, since it is the shortest month, but dang, twenty-eight days never seemed to move so quickly.  It’s probably a sign that I’m getting old; when I was younger, it seemed to take forever for each day to go by, let alone an entire month.

I suppose this is part of growing older, partially because it puts time into perspective, and partially because we inevitably get busier.  Yes, the carefree days of youth are long since past, and even when I’m between jobs, there is inevitably so much to be done.  In fact, it seems like I’m even busier now; looking for jobs is nearly a full-time job itself, to say nothing of trying to keep my blog running, doing chores around the house (I’m the official dishwasher and dog walker at home, among other things) and doing other hobbies.  Pretty soon, the whole day is gone.  Plus, apparently the day is literally getting shorter; NASA notes that the recent earthquake in Chile actually shifted the Earth’s axis, shortening the day.

Alas, such is life, I suppose.  We have to adapt to whatever life throws our way, even shorter days and more work to be crammed into them.  With that out of the way, let’s get to the real fun; it’s time to go over how my financial situation has changed in the last month:

Money-wise, February was pretty good; I increased my net worth a bit, decreased my outstanding debt a little (although, since I pay off my credit cards each month, this means I spent nearly as much in February as I did in January, when I spent more than I was planning to spend), and my investments did alright overall.

You’ll also notice an interesting addition on the bottom of my net worth chart.  Since I joined the Financial Samurai Alexa Challenge last month, I thought it might be fun (and informative) to start keeping track of my Alexa ranking right along with my net worth.  In the course of a month (actually, less than a month; the starting number was taken on February 5th, and of course, February is the shortest month) my ranking jumped up more than 100,000 ranks, putting my humble little blog solidly in the top half-million websites IN THE WORLD!

Most incredibly, more than half of the gain occurred over this past weekend; I went from 515,000 on Friday to 480,000 on Saturday to 460,000 on Sunday.  I’m not sure what exactly what made this weekend so special, although my post on death taxes brought out more responses than I usually see.  A few more weekends like that, and I’ll make my goal of 200,000 by July 4th easily.  Banzai!

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One of the biggest problems with many personal finance books is that they are written with the assumption that everyone is the same when it comes to money.  There’s a single path to financial security that is laid out, which may be different for each adviser, but assumes that everyone has the same goals and end desires.  You might not be on the same step, but inevitably, you’re moving toward the same goal.

Master Your Money Type from Jordan Goodman takes a different approach.  Rather than assuming that everyone is the same when it comes to money, it looks at six different money ‘types’; distinctive personalities and approaches to earning, investing and otherwise using money.  Does a more varied approach yield a better personal finance book?  Let’s find out.

Summary

The first chapter starts out with the basic premise: that by understanding how you deal emotionally and psychologically with money, you can get a better grip on your finances and control your spending, investing, and saving habits better.  It then provides a brief overview of the six money types covered in the course of the book: Strivers, Ostriches, Debt Desperadoes, Coasters, High Rollers, and Squirrels.

The second chapter takes a closer look at the emotional relationships we have with money, and how it can affect our attitudes and actions.  As Goodman notes, there are many different things that money can mean to us; for some of us, money is a source of security, for others, it’s a source of power, and for still others, it means means love, happiness, or a way to relieve our pain.  These feeling are born from a number of different sources, from our parents’ and grandparents’ attitudes about money to our experiences in childhood and as young adults.  The chapter ends with some of the basics of acknowledging, confronting, and changing our undesirable fiscal personality traits in order to get our financial house in order.

The next six chapters (which compose the bulk of the book) look over each of the aforementioned personality types in depth.  Each one explains what the main traits of the personality type are, the pros and cons associated with each type, and several examples of people whom Goodman has worked with in the past who exemplify those those personalities.  He then covers some of the more harmful traits each personality exhibits, and provides a shift in thinking to help rectify them.  Once the emotional stuff is out of the way, he provides a financial plan to help each type get their finances under control, usually with tools most appropriate for each type.  Each chapter ends with a list of resources that will be most helpful to people with those personalities.

First up in chapter three are the Strivers.  These are the people with a strong desire to be successful, or more importantly, to be perceived as successful by those around them.  At their best, Strivers are driven, focused, and determined to make their goals a reality; at worst, they stretch too far to appear well off, overestimating their income and underplaying their expenses.  The solution for this overreaching is to rein in the tendency to stretch their budget to show off their self-worth, and there are numerous budgeting and cash flow tools at the end of the chapter to allow them to still put their wealth on display, but doing so while staying in budget.

The second major type is the Ostriches, so called because they bury their heads in the sand when it comes to money (never mind that real ostriches don’t do that; it’s too good an image to resist).  The good news is that this group isn’t consumed with money, but they take it too far, not knowing (or caring) enough to get their money under control, and sometimes falling for bad advice because they don’t have the savvy to realize how bad it is.  The solutions given are to take control of their money, in the least painful ways possible, by automating their savings and investments as much as possible.

The next chapter covers the Debt Desperadoes, possibly the group with the fewest positive traits (mainly the ability to bounce back from a crash) and several negative ones, including denial of the reality of their situations.  The chapter opens with a quiz to see if you’re spending too much and several of the reasons that people can get in high levels of debt.  The list of financial solutions range from creating a financial plan to deal with the existing debt to the possibility of bankruptcy.

The Coasters are an odd breed, having a a decent handle on their spending and earning, but not having a longer term plan.  They have a tendency to prefer stability to change (even positive changes).  There’s a sub-category called Optimists who have a tendency to believe that everything will work out, and that the universe will provide what they need in life.  The major piece of financial advice for these groups is to expand their financial planning to ensure that their plans will cover ALL their goals, with plenty of retirement planning tools included.

The High Rollers are next; their pros include a high tolerance for risk and belief in their vision, while their biggest problem is the tendency towards thrill-seeking and gambling.  The major suggestions include making educated gambles, shifting a portion of invested money into safer investments like bonds, and making sure that the money put into speculative ventures can reasonably be lost without adversely affecting longer term goals.

The final group is the exact opposite; Squirrels value stability and safety over everything else, and as a result, have a tendency to live much below their means and not enjoy life as much as they could afford to do.  This is taken to the extreme in the sub-type of Bag Ladies, who tend to accumulate a great deal of wealth without any enjoyment (think of the stories you’re heard of the people who live like paupers and end up leaving several million dollars to charity when they die).  The solution is to slowly bump up the risk they take, to be better prepared for the future.

There’s a list of resources at the end of the book, providing a collection of material that could be useful to anyone who needs further information.

Pros

-More Individualized Approach to Personal Finance Advice: As mentioned at the beginning of this article, one of the strongest advantages of this book is the lack of a ‘one-size-fits-all’ attitude.  The book understands that all the readers are not the same, and attempts as best it can to tailor the advice in such a way as to be helpful for everyone.  While a book can’t hope to provide every single person with a unique plan for financial success, it does manage to differentiate significantly to help a wide variety of people.

-Interesting View of Money and Psychology: In a similar vein, too many books don’t take into account the effects of individual personalities and attitudes on how to handle money.  While some books cover the problems or goals for a particular group (get out of debt books for Debt Desperadoes, for example), a holistic approach for many different personalities is a bit of a rarity.  Getting advice on a variety of different money issues from both an emotional and monetary perspective helps to handle numerous different problems.

-Solid Financial Advice: It might seem like this book focuses on the mental aspect of using money, possibly skimping on the details of how to actually manage your money.  But, Goodman provides a solid foundation of money management and plenty of tools to help plan your financial future, from retirement planning figures to basic budgets, spread throughout the book.

Cons

-Sometimes Hard to Find Needed Information: Since the book is organized primarily according to the money types rather than the tools provided, it can be hard to find the budget tables (in the Striver chapter) or the investment return tables (unexpectedly, in the High Roller Chapter).  Given that many of the financial tools could be helpful to multiple types (there are several references telling one group to look in a different chapter for the appropriate tools), it seems like a better organization would be to put all the financial planning tools in one section, like an appendix.

-No Advice for Blended Types: Although there are early comments from Goodman about the need to consider that you may fall into multiple types and need to look at all aspects of your money type, the book doesn’t make this easy.  All the examples are solidly (and usually intensely) within one type and the book provides advice for only one type at a time, some of which contradicts the advice for other types.  A bit more advice for those who fit into multiple types (perhaps a section at the end of each chapter describing how to handle money for people with some traits that fit into another type) would be helpful.

-Too Many Resource Pages, in Too Many Places: At the end of each type chapter, there’s a list of resources specifically suited to that money type, and there is also an appendix that includes a list of general resources.  Many of the recommended books, magazines, and websites, showed up multiple times following the individual chapters, and again in the appendix.  Cutting down the number of places to list resources would make the book run smoother (and seem a bit less like an attempt to sell other books).

Overall

Master Your Money Type is a pretty solidly written book.  A few organizational changes would make the book a bit more useful, but it’s still useful and interesting.  Knowing your money type is an interesting point of view for money management, and it’s good to see someone looking at finances through a psychological perspective.  If you’re looking for a solid, unique personal finance book to help understand the basics, it makes a good introduction.

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“The only things certain in life are death and taxes.”  There are few guarantees in life, but these are two of them; you will die at some point (hopefully, not soon), and you will have to pay taxes.  Of course, with such inevitability, it was only a matter of time before someone decided to tax death.  (Or rather, the money left behind after someone dies; after all, as another old saying goes, “You can’t take it with you when you die.”)

The ‘Death Tax’ Explained

There are actually two different types of taxes that are commonly called ‘Death Taxes’: inheritance taxes and estate taxes.  To understand the difference, let’s consider a hypothetical example.  Your great, great uncle Jedidiah dies, leaving a large fortune (let’s call it $10 million dollars) in his estate, a goodly amount of which is going to you (let’s say that old Jedidiah left you one tenth of his final estate).  Of course, such a fortune is high enough to be taxed; the taxes could be taken in one of two ways:

While You're Visiting Angels, Your Family Might be Facing Taxes

Estate Taxes: Jedidiah’s entire $10 million estate could be subject to taxes, taking a substantial portion of the money in the estate before the money is disbursed to you or any other beneficiaries.  Essentially it’s a ‘tax’ on the whole ‘estate’ (witty, no?)  Since Jedidiah is gone, it falls to whomever is administering the estate, and there is usually a single rate applied to the entire estate after any exceptions or allowances are applied.

Inheritance Taxes: In this case, Jedidiah’s fortune isn’t taxed, but the amount that you receive IS taxed.  If the entire $10 million dollar estate is disbursed, your share ends up being $1 million, on which the tax ends up being levied.  Inheritance taxes also can differ according to whom is being taxed, with direct lineal relatives being taxed the least and non-relatives facing the greatest tax rates.

There are numerous similarities between the two taxes; both types usually exempt transfers to a surviving spouse as well as charitable contributions, for example.  (The federal government only levies an estate tax, although some states tax inheritances.)

Also, it’s probably worth noting gift taxes, taxes designed to limit the amount of money transferred from one person to another while they are both still alive.  A major reason that such taxes exist is so that Jedidiah (or other persons of means) can’t give away all their money before they die in order to avoid estate or inheritance taxes, which is one reason why they are frequently grouped together in legislation.

This year is a bit odd; for 2010 (and only 2010, barring any Congressional changes to the current policy) the federal estate tax has been repealed.  It’s scheduled to make a come back in 2011, meaning that this year is likely to have some debate over whether it’s better to allow the tax to reinstate or eliminate it permanently.

The Cons and Pros of Estate and Inheritance Taxes

If you’re a long time reader of The Amateur Financier (or any personal finance publication), you probably realize that there’s going to be some argument of whether these taxes are good or bad.  For a change of pace, let’s start with the cons first:

-Inheritance or estate taxes may reduce the incentive to save.  If Jedidiah knows that up to half of his fortune will go to the government rather to his heirs, he might not make as much effort to gain more money.  Essentially, it’s the same argument against excessively high income taxes; if the tax rate is too high, the amount of income (or bequest) needed to get a net increase isn’t worth the time and effort.

-These taxes are also a form of double taxation; every dollar that gets passed onto your beneficiaries must have been earned and taxed already, so the estate and inheritance taxes are at least the second round of taxes to which the estate is subject.

-The tax adds to the complexity of the tax code.  As with any type of additional tax, there’s added paperwork and red tape to go through.  Add in the numerous ways people try to avoid the tax (by giving away their fortunes, for example) and the counter measures the government adapts (like the aforementioned gift tax), and soon the tax code gains another few volumes.

-Lastly, the argument is made that death is not the appropriate time to be collecting taxes.  The term ‘death tax’ that’s frequently attached to these types of taxes is used by many opponents to emphasize the improper timing of such taxes (and arguably, the wrongness of the tax in general).

That’s quite a list of arguments opposing inheritance and estate taxes.  Of course, if those were the only arguments, these taxes would already have been repealed.  Let’s see what’s the proponents of keeping such taxes have to say:

-Since the taxes typically fall only on the wealthiest estates (those in excess of the 1 million dollars as of 2011 assuming that the tax is reinstated), the tax is progressive, only affecting the wealthiest individuals in the country.  Many proponents argue that’s it’s a reasonable way to ensure that the overall tax system is progressive as well, preventing the wealthiest individuals in the country from dodging taxes altogether.

-Estate taxes can increase the motivation to accumulate wealth.  Though this seems like a direct contradiction of the first ‘con’ above (and it is), the fact is that different people have different motivations and will be affected differently by the existence of an inheritance tax.  One wealthy person might be demotivated near the end of their life, not wanting much of their estate to go to the government, while another might look at the tax as an obstacle to be overcome on the way to giving the amount they want to their beneficiaries.

-There’s also an argument made that the estate tax is ‘fairer’ than many other types of taxes.  Since it’s levied after the person who originally earned the money is deceased, taking money from heirs who didn’t materially contribute to earning it seems more justified.  (Opponents of the tax would argue that the government has no more (and probably less) claim on the money than do the heirs.)

-A final justification for the estate tax is pretty simple; it brings in money to the federal government.  The Center on Budget and Policy Priorities puts the ten year cost of eliminating the tax beyond 2010 at $1.3 trillion, money that will have to come from other tax revenue or be eliminated from spending (or, given how our government tends to handle such situations, just added to the deficit).

With so many different aspects to the estate tax, both in favor and opposed, it’s hard to make a blanket statement about whether it’s better to keep it repealed or reinstate it.  Not that will stop any number of commentators (myself included).  Personally, I’m inclined to think that the good outweighs the bad, although I’m betting I’m missing part of the story.

Did I miss any major effects (positive or negative) of the estate or similar taxes?  Do you think the estate tax should remain repealed?  Do you expect (or hope) to be wealthy enough to be affected by the estate tax when you pass on?

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