The Amateur Financier

Chances are, you’ve gone out to eat in a nice restaurant before, and intend to do so again.  Hopefully, when you go out, you leave the wait staff a nice tip, at least if the service is average or better.  (Especially if you live in a state like Pennsylvania, which allows employers to pay less than minimum wage to wait staff and other workers who can expect to get tips in addition to their hourly wages.)  But how can you calculate the tip?

If you’re in luck, the restaurant will print tip suggestions on the bottom of the page; several I visit regularly have begun to do so.  You might also have a tip calculator on your phone or PDA; given the ubitquous nature of these products and the high number with these programs, you may never have to calculate a tip again.

But just in case you don’t have access to any of these tools (or simply want to refresh some of your algebra skills), there are a few methods you can use to make the calculations simpler.  A few tricks I’ve used myself:

1) Multiply the Tax – Probably the easiest and most widely recommended method, you can take the amount of tax you owe, multiply by an appropriate number, and end up with an amount near the typical tip amount.  Consider if you have a dinner that costs $63.54 before tax (like the meal I had with six of my friends on Saturday night).  In Pennsylvania, where there’s a 6% sales tax, the tax would be:

$3.81

We can multiply this amount by 3 in order to come up with a decent, albeit 18%, tip amount (note: I just use the dollars and the dimes columns for my calculations; it makes things a bit simpler and does not cut down the tip amount too much) :

$11.40

The advantage of this method is that it is fairly easy, as long as you remember your multiplication tables.  (Good thing you listened when your teachers told that stuff would be important in the future!)  The disadvantages are that it limits you to multiples of your state’s sales tax; so in Pennsylvania, you could tip calculate 12% or 18%, but you’d have a little trouble coming up with a 15% tip.  Furthermore, you have to be aware of the state sales tax in any sales you visit and adjust the multiple accordingly; in California, for example, the sales tax rate is 7.25%, so multiplying by three would yield a 21.75% tip (and make you the most popular patron in the restaurant).  Other states have no sales tax at all, making this method impossible.  If you want to use this method, be sure to know the sales tax rates in every state you intend to visit, and multiply accordingly.

2) One Tenth plus One Half: This is my preferred method; it can work even in places where there is no sales tax, and isn’t that much harder to compute than the method above.  First, if we consider the example above, and add together the tax and the sales price, we get:

$67.35

We can then slide the decimal one place to the left, giving us:

$6.74

Now, of course, this is just a ten percent tip, which is low for service that is not absolutely horrible.  So, we can take half of this value, (roughly $3.35, to simplify our math a bit) add it to our ten percent value, giving us:

$10.09

Here, we’ve got a solid fifteen percent tip, without too much work.  The pro is that the calculation isn’t too hard; just slide a decimal place, cut the value in half, and add.  It’s not that hard to do quickly on the bottom of your receipt.  The downside is that it is not that flexible; you can only calculate fifteen percent tips, which makes it hard if you want to tip a bit more or less.  (You can multiply by two after you do the decimal shift, yielding about $13.50 (20%); however, that might be a bit high, and it’s still a bit inflexible.)

3) One Percent, Multiplied: As you can see, both of these methods, while useful, do have the limitation of being rather inflexible; you can only calculate multiples of your state’s sales tax or 15% (20% if you multiply by two).  If you want to be able to more closely fine-turn your tipping, you need to take a more complex approach.  Start by shifting the decimal place of your total two places to the left, to get:

$0.67 (Round to $0.70)

At this point, we can multiply by any value we want, to come up with a decent tip value.  Now, because we rounded up, our tips are going to be a little more generous than the percentage would indicate.  If we multiply by 15, for example, we have a total of

$10.50

Which is slightly higher than the 15% we would be tipping without rounding.  Another problem is that, although this method allows you to tip almost any amount, it is the hardest of any of these methods.  If you don’t like math, you’re probably best sticking with one of the other methods (or making sure you have a tip calculator handy when you go out to dinner).

There you have it; three different ways to calculate your tip amount with relatively simple math.  Now, next time you go out to dinner, you’ll have a few new tricks in your bag!

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One of the things that I enjoyed about getting a psychology minor at college was seeing just how psychologists attempt to examine and classify people.  Since it’s illegal to subject people to degrading and bizarre tests just to see how they will react (unless you are running a reality show), psychologists have come up with a variety of indirect tests to ascertain a person’s basic characteristics.  These can include every from Rorschach (ink blot) tests and dream analysis to more mundane methods like personality tests.

With the widespread nature of the internet, it should come as no surprise that there are even online personality tests.  Recent, My Life ROI pointed out the results he got from 41 Questions.  And, being the curious type that I am, I decided to give it a spin myself.  Here are my results:

My Take on the Results:

The test seems to be pretty spot on in my case.  I do tend to be rather introverted in nature, and focus more on rational thought as opposed to feelings.  I’ve actually held a few jobs in the fields they recommend as careers that could fit me, as a QC chemist and as an organic chemistry tutor, both of which I enjoyed quite well.

That said, their comments are a bit off; I’m not much of a leader, and have trouble turning plans into action.  And furthermore, the fact that there are no negative comments listed makes me suspiscious about the overall results; surely, someone who is as introverted as me should have some negative qualities as a result.

Ultimately, though, the real value of quizzes like this are that they get you thinking about your personality.  And that sort of deep thinking can lead you to make appropriate changes in your life.

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Previously, on When Economists Agree: We saw startling evidence that occasionally, you can put ten economists into a room, give them an issue, and come up with less than twelve opinions.  In fact, we saw five issues where the great bulk of economists had a consensus on the best course of action.  But we’re not done yet; here are five more issues on which most economists maintain the same point of view (and the percentages that agree):

6) Cash payments are better than equivalent transfers-in-kind at increasing the welfare of recipients (84%) -For those who are not already aware, transfers-in-kind are things like food stamps, where the actual items being distributed are not directly salable.  Giving the recipients cash directly and allowing them to spend it as they wish expands the economic choices they can make and (in theory, at least) allow them to maximize the use of the welfare money that is provided to them.

7) A large federal budget deficit has an adverse effect on the economy (83%) – I’m kind of surprised that this one is so low on the list.  A short list of negative effects of a high federal budget deficit: more borrowing to pay for the spending, more interest payments on the borrowed money, and the increased anxiety in the broader economy from fear of higher taxes or decreased government spending if the deficit remains high.

8 ) A minimum wage increases unemployment among young and unskilled workers (79%) – Let’s assume you are running, say, a fast food restaurant.  You’d like to have ten people on each shift, and have $50 per hour to spend on salaries.  If you can pay each of your workers $5 an hour, there’s no problem; you can hire ten people per shift, and each person will make $5 an hour.  If you have to pay out $7 an hour, though, you will cut down the number of workers, to seven employees per hour that your restaurant operates.  As a result there are now three fewer people working for each shift your restaurant is open.  Since young and unskilled workers tend to be on the bottom of the wage scale, they are the ones who lose opportunities when the minimum wage increases.

(This is a bit of an oversimplification, of course.  If you require eight workers for each shift, for example, you’ll have to find some way of putting an extra $6 each hour into your salary budget to hire the needed workers at $7 per hour.  The less flexible the manpower requirements for a particular business, the less effect a change in the minimum wage will have on the number of workers who are employed by that business.)

9) Government welfare should be structured as a ‘negative income tax’ (79%) – This is along the lines of what we just mentioned up in number 6.  The essential idea is that the government sets a minimum income level, below which any person will receive money from the government, rather than paying taxes into the system.  In this way, one welfare system could replace things like unemployment, food stamps, and housing allowances from the government.  This should end up cutting down on administrative expenses and making the government efficient.

10) Effluent taxes and marketable pollution permits represent a better approach to pollution control than pollution ceilings (78%) – Heh, I find this one amusing, as there is currently a sometimes spirited debate over whether we should go for a cap and trade system (essentially marketable pollution permits) or a carbon tax system to control carbon dioxide emissions.  Almost nobody is discussing pollution ceilings for controlling greenhouse gases.

One reason for this, of course, is that taxes or cap and trade both give companies, agencies and individuals an incentive to cut pollution as much as possible, as opposed to reducing emissions to an arbitrary limit.  Companies that exceed the desired emission cuts can either save money on taxes or sell the permits they don’t need for their own use.

And there you have it; ten public policy decisions where most economists agree on the best course of action.  Hopefully, you have a better idea of how economists view the world now.

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Recently, I’ve been doing a bit of spring cleaning, and I came across my old microeconomics book.  (In case you are curious, it’s Principles of Microeconomics by Mankiw.)  Being the packrat that I am, I ended up keeping more than a few of my textbooks from college, rather than selling them back.  I’ve been re-reading the book since I found it, and I’m being reminded of all the interesting economic information contained therein.

One thing I am particularly struck by is a list, early on in the book, that covers ten propositions where the majority of economists agree.  I find it fascinating as to just how few things there are that the bulk of economists can agree on.  Part of it is because, as a biochemist, I’m used to most issues in my professional life being well settled and seldom debated.  Another reason is that I’m attempting to become a professional PF blogger, and it’s interesting to see just what professional economists think.

Therefore, I’m going to be sharing these points of agreement (and the percentage of economists who agree) today and on Wednesday.  Here are the first five:

1) Rent control reduces the quality and quantity of available housing (93% agree) – I can understand this principle pretty well.  Rent control decreases the amount of profit a landlord or other building owner can make, thus providing a disincentive for them to put as much money and effort into maintain the building or apartments.  At the same time, the chance to obtain housing at less than fair market prices increases demand, which further decreases the incentive to make improvements to the building.  (Why invest in upgrades to a building if there’s already a line of people clambering to get an apartment?)  It’s a vicious cycle, too many people fighting over too few properties, most of which probably are declining in quality.

2) Tariffs and import quotas usually reduce general economic welfare (93% agree) – This is also a pretty easy one to follow.  If there is a disincentive to buy foreign cars, in the form of a tariff or other increased charge, the domestic auto industry would benefit, but the buying public would suffer from less selection and potentially higher prices.  Furthermore, the industries that supply the foreign auto companies with raw materials or other items needed to make cars would take a hit.  And all this is before there’s any response from the foreign country in question in the form of counter tariffs or quotas.  While barriers to trade may help some people (those in the protected industries), it’s far from advantageous for the country (and world) as a whole.

3) Flexible and floating exchange rates offer an effective international monetary arrangement (90% agree) – In a perfect world, all exchange rates would be completely free to adjust to the movement of money around the world; so if money flows into a country like China and out of the US, then China’s money will become more expensive and the United States’ currency will become cheaper (that is, a Chinese yuan will buy more more dollars when exchanged).  This would have the effect of making imported goods more expensive, leading to either a decrease in imports or an increase in exports (either of which would help to correct the trade deficit).  One of the reasons for the vast trade deficit between the US and China is that until recently, the yuan was fixed to an artificially low value against the dollar, making Chinese imports comparatively inexpensive.

4) Government policy (tax cuts and/or spending increases) has a significant effect on a less than fully employed economy (90% agree) – The caveat about a ‘less than fully employed economy’ might seem a bit odd, so here’s the short version: if there’s zero unemployment, it’s harder for companies to hire or fire people.  If a company is the recipient of a federal grant and wants to expand its work force, it will have to work much harder (and offer higher salaries) to pull employees away from its competitors.  Similarly, if taxes are raised and the company is feeling an economic pinch, they will think twice about downsizing, as there is not a pool of unemployed workers to draw from when they try to expand again.  In a less than fully employed economy, of course, there is more slack in the system, in the form of us unemployed folks, and the company can add or remove workers from its payroll with some confidence that it can hire replacements for essentially the same cost.

5) If the federal budget is to be balanced, it should be done over the business cycle, not yearly (85% agree) – Essentially, this means that, rather than ensuring that each yearly budget spends only the income from that year, we instead allow defecit spending when the economy is poor, to be recuperated when the economy picks up again.  The goal, of course, is to not hit the economy with a double whammy: lowered government spending (as a result of less tax revenue) and business decline, occurring at the same time.  Similarly, such a policy would lead to higher tax rates and/or lowered government spending in boom times, to recover the excess spent during the bad years.  The end result would hopefully be a smoother economic cycle, with the booms being tamped down a bit and the busts being countered.

There you have it; the first five principles with which most economists agree.  Turn in on Wednesday to discover what else meets the approval of most economists.

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The recent economic turmoil has sent people scrambling for someone to blame.  One popular target is short sellers, those stock traders who sell borrowed shares and profit when the prices decrease.  Recently, there have been proposals to put limits on when people are allowed to short stocks, including reinstating the uptick rule.  Short sellers are taking exception to all the blame being directed toward them, pointing out that they are simply profiting from the downturn, not causing it.

With all of this discussion going on, you probably have numerous questions.  Why are short sellers so reviled?  Would the uptick rule really stop them?  And what is short selling, anyway?  Let’s use a simple example:

I’m an investor, and I feel that the Zipper, Yak, and Xylophone, Inc. (ZYX) company is going to decrease in price, due to a recent increase in yak feed prices.  If I want to profit from this price move, I could sell any shares of ZYX that I own and then repurchase them at a lower price, which would allow me to pocket the difference.  If I don’t own any shares, though, I have to look at alternate ways to make a profit.

Here’s where you enter.  You have an account at the same brokerage that I do, and you own one hundred shares of ZYX.  If I want to short sell ZYX, I can have the brokerage sell your shares, leave you with a virtual IOU, and give me the money; then, after the shares drop in price, I buy the stocks back, returning them to your account without you even noticing (the brokerage would not inform you that your shares were being used to short the stock).

If the share price is $50 when I short your stocks, I’ll receive $5000 for selling them.   When the price per share goes down to $30, I can buy them back for $3,000, making $2000 by shorting your shares of ZYX.  (In actuality, I won’t make that much; commission fees in buying and selling the stockes, margin fees on the money borrowed from the brokerage when shorting the stocks, and the cost of any dividends paid out while I’m shorting your stocks will lower my profits.  To make the math simplier, I’ve omitted such costs from all the math here, since the costs would vary with the brokerage and time the short was executed.)

Not all short selling results in profit, though.  If I’m wrong about ZYX and it goes up in value, I’ll spend more money to replace the borrowed shares than I got by selling them.  Should ZYX go up to $60 per share, I will spend $6000 to replace them, a loss of $1000 (on top of the aforementioned expenses).  Furthermore, the downside risk of shorting stocks is greater than owning them.  If ZYX goes bankrupt while you own your 100 shares, you will have lost $5000.  However, if the ZYX share price shoots up to $110 while I’m shorting them, I’ll have to spend $11,000 to buy them back, a loss of $6000, more than the total cost of the stocks initially.  The losses from shorting can theoretically be unlimited, as long the per share price keeps rising (although, that’s somewhat unrealistic).

Now that we have a better idea of what short selling is, you can probably see why it rankles so many investors.  If I’m making money when your investments are declining, chances are you aren’t going to be too happy with me.  I’m not really causing you to lose money if your stocks go from $50 a share to $30 a share, since I’m just a fellow investor and can’t influence stock prices, but if I’m cheering for your stocks to fall, it’s hard to avoid thinking of me as the enemy.

But would the uptick rule actually stop short selling?  The uptick rule says that, if I’m going to short a stock, I have to wait until there’s an uptick, that is, for the selling price of the stock to be higher than the last previous sale.  This rule had been in place until 2007, when it was repealed, but in light of the past year’s turmoil, there’s plenty of talk about bringing it back.  The goal is prevent short sellers from piling on when news gets bad, continually driving down the price and beating down the stocks.

My view: while a reestablished uptick rule may decrease short selling of beleaguered stocks, it won’t necessarily save them.  Stocks will still be able to fall, as the the owners sell their stocks and mutual funds need to gain cash for redemptions.  All that banning short sales may do is prevent those few people who are benefiting from the falling prices from, well, benefiting.

Furthermore, with the number of trades that are executed each day, especially for large cap stocks, the uptick rule may be little more than a formality.  Most popular stocks will be traded hundreds, if not thousands of times each day.  A dedicated short seller would simply need to wait for an opportune moment and leap in after a small uptick, and then be able to short sell to their heart’s content.

I personally am interested in just what the Securities and Exchange Commission will decide regarding this practice.  Hopefully, you now have a better understanding of short selling, and might just be more interested yourself.

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One of the great debates in the financial advice world, extending into the personal finance blogosphere, is over credit cards.  On one side, you have the Dave Ramsey view, that credit cards and most other credit should be avoided completely. There’s some validity to this perspective, especially if you’ve had trouble overusing credit in the past.  Much as alcoholics should avoid all alcohol, if you are prone toward building huge deficits on your cards, you should rely on debit cards and cash.

On the other hand, for many others, using credit cards can have many advantages.  As long as you don’t carry a balance, the charges on the card are effectively an interest free loan from the credit card company, allowing you to delay when the money for your purchases leaves your accounts (and when it stops earning interest for you).  Additionally, many credit cards offer reward plans, allowing you to benefit from your spending.

As you can probably guess, I favor credit cards over debit cards or cash for most of my purchases.  I do understand the risks, of course, and I do what I can to avoid spending too much via my credit cards.  My main technique is to keep a credit card register.  Essentially, I record every transaction I make on my credit cards in a notebook, writing the date, place, and amount (just like a check registry).  I start each month with a particular budget, and subtract the spending with each purchase from this total amount.  There are numerous advantages to this approach:

1) Record Creation – By recording every credit transaction as it occurs (or immediately afterward), you get a written record of my spending.  The time you spend doing this is more than compensated when it is time to pay your credit card bill; you can double check your bill against the credit register in a fraction of the time it would take to gather and go through all my receipts.

2) Easier budgeting – If you keep a running tab of how much you spend, you will be in a better position to stick to a budget.  You can allocate a set amount to spend each month, and subtract from that amount in your register with every purchase (just like you were using a debit card).  Further, you can easily allocate portions of your total spending to different categories, and limit your spending in each category to a particular amount each month.

2) Decrease Spending - Alright, follow me here.  It’s been noted that people spend more with credit cards than debit cards or cash.  Part of the reason for this is that credit cards don’t seem like real money; you don’t get the bill until weeks after you’ve done the spending, and then, you only have to pay back part of what you spent.  By keeping a register, you make the credit spending more immediate, and can see just how much money you have left in your ‘credit card account’.   Not only should your spending decline as a result of this new perspective on credit card spending, but you can also lower the budget a little at a time, decreasing the amount you’re willing to spend each month.

As a result, I feel that using a credit card in conjunction with a credit registry is a good method, enabling you to use, but not abuse, your credit cards.

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Welcome, one and all, to Financial Literacy Month.  Yes, April is the month when the federal government has set aside to help educate the public about finances and money management, in cooperation with numerous state governments and independent organizations. And this year it’s especially important, given the broader economic situation.

For my part, I’ve resolved to spend the rest of the month adding as much basic financial information to my blog as possible.  Just as you can’t build a house without first laying down the foundation, you can’t build up your financial knowledge without a firm understanding of basic financial and money-management concepts.

One of the first things I did when I started to care more about my finances was to learn everything I could about money and investing.  Some of my favorite sites for researching basic concepts:

1) The Motley Fool School – The Motley Fool, one of the first sites I encountered, has an abundance of information, covering a variety of finance related subjects.  The best place to start, particularly if you are just beginning to learn about stocks and other investments, is in their ‘basics’ section.  You’ll find numerous well-written, highly informative articles covering a variety of subjects, most with more than a touch of humor to them.

A word of warning, though: the Motley Fool strongly favors investing in individual stocks.  The site is also known for an (over)abundance of articles that end with pitches for their premium services, wherein they recommend which stocks to buy or sell.  If you find such pitches distasteful or have little interest in individual stock investing, you should limit how much time you spend on the Motley Fool site.

2) Investopedia – Another great site that has helped me advance my financial education a great deal, Investopedia has a huge number of articles directed at starting investors.  One article I found particularly interesting was their guide to twenty investments every investor should know; if you’ve ever wondered what a ‘zero coupon bond’ is or why people invest in ‘Real Estate Investment Trusts’, this is an excellent guide.

Investopedia also has an extensive investment dictionary, with thousands of entries covering all kinds of subjects.  If there’s a more exotic investment you’d like to research, or you’ve simply heard an unusual phrase being brandished on CNBC, you can look up in the Investopedia dictionary.  Plus, it can be entertaining in its own right; how many other places can you read about the Paris Hilton stock index, for example?

3) Money 101 – The investing basics site created by CNN-Money Magazine, covering numerous topics in a clear and comprehensible manner.  I enjoy Money Magazine quite a bit, and the website is a good companion to the magazine.   One of the most interesting features is that each of the two dozen lessons comes with a quiz to test your knowledge (and make sure you were really paying attention).

Exploring the rest of the Money website leads to some other helpful assets, like an array of retirement calculators.  One that particularly struck me was the net worth calculator.  Apparently, I’m about three thousand dollars short of the average net worth for someone my age.

4) Other Blogs – Not to sound too proud of my compatriots, but there’s plenty of useful and interesting information out there on other blogs.  J.D. of Get Rich Slowly just published a compedium of investing basics last week, to kick off Financial Literacy Month.  And My Life ROI has covered some of the basics of calculating taxes.  A complete list of the useful information on other personal finance blogs would fill numerous blog entries by itself; the best way to see what’s out there is to read a few entries from any blog that looks interesting to you.  You can start with my Blogroll, for some of the blogs I try to follow.

5) My Blog! – Alright, a little bit of self-promotion to finish off this entry.  As you might know, since you are reading my blog, I try to be informative.  If you are looking for some of my most educational posts, you can check out all of my Investing 101 posts; I have covered stocks, bonds, mutual funds, and ETFs, with more information coming soon.

Hopefully, these sources will get you off to a good start, learning as much as you can during this Financial Literacy Month.  Have an informative and entertaining month.

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Every so often, I wonder if I’m on the right track financially.  It’s hard to gauge your progress sometimes, when you don’t have benchmarks.  Luckily, Kiplinger’s has put out a list of ten financial commandments for those of us in our twenties.  I like having a way to measure my progress, so this is just perfect.  (I’m the sort who works well in a structured environment.)  Let’s see how I stack up!

1. Plan Ahead – I do this to a pretty good degree (my girlfriend and I have talked about where we hope to be a year, two years, and five years from now, for example).  But, especially now that I’m in between jobs, it seems that solid, firm plans are harder to create, and I’ve been forced to be more flexible in my planning.  Let’s call this one half-done.

2. Live Within Your Means -I definitely do this.  I live on a fraction of what I’m currently getting in unemployment compensation, which in turn is less than half of what I made at my previous job.  I’m a pretty frugal guy by nature, I guess.

3. Make Saving a Habit -This one’s a big check, as well.  I put aside a nice portion of money each month, and have been adding even more now that I’m saving online and can transfer funds automatically.  Thank goodness for online savings accounts.

4. Pay Off Your Credit Cards -This is a total non-issue; I’ve never carried credit card debt, and have no intention of starting now.  No worries about this for me.

5. Start Investing -I’m on a roll; this is another one in the win column.  I maxed out my Roth IRA last year, I’m on track to do the same thing this year, and I’ve even been investing a substantial amount in my non-retirement account.  Once the market picks up again, I’ll be sitting pretty, investment-wise.  (I just hope I have a little more time to get in while stocks are so beaten down; buy low, sell high, and all that.)

6. Establish Credit – Another financial task under my belt.  I’ve been using credit cards (responsibly) since high school, and have a credit score over 780 to show for it.  Even in this poor credit environment, I should be able to get a decent rate on a mortgage or other loans if I need them.

7. Develop a Marketable Skill – I thought that I had one, with a degree in biochemistry, and now I have some quality control experience as well.  But it has not been much help lately, and I’ve been considering things like going back for a graduate degree.  We’ll call this one half-done, as well.

8. Cut the Financial Umbilical Cord – This one’s a toughie.  On one hand, I’m still living in my mother’s basement (rocking it, nerd-style!), and I did get her help on my taxes.  On the other hand, I do pay rent, albeit less than I might pay to live on my own, and I take care of most aspects of my finances (investing, saving, budgeting) on my own.  Let’s call this one another half-credit.

9. Marry Wisely -Well, I’m still unmarried.  And although my girlfriend and I have talked about marriage, certain factors of our situation mean it would be hard to do so in the next year or two.  I like to think that marrying her will be a wise decision, but only time will tell.

10. Have Some Fun – I do, I have plenty of fun.  And I’m usually a pretty cheap date; something like staying at home and watching a little TV usually keeps me happy.  This one is a big check.

So, there you have it.  By my count, I’m doing six of these already, have three partially done, and only have one that I still need to complete (and that’s marrying a financially responsible person, so I’m not too worried about that).  Not bad for someone who still has three and half years before he turns thirty to finish getting his financial house in order.

(Thanks to JLP at All Financial Matters, whose blog entry on the 10 Fiancial Commandments for your 30s pointed me toward the article that inspired this posting.)

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Some comments that My Life ROI made on my last Thoughtful Thursday post got me thinking about pet ownership.  ROI has argued that owning a dog has many financial benefits, including health advantages, socialization, and security.  (Although, as I noted in my response to his post, a yappy little poodle is unlikely to scare off any potential robbers.)  On the other hand, Free Money Finance, for one, has been decidedly negative about pet ownership, noting the yearly and one-time costs associated with owning a pet.

My view?  I think both views, while valid, miss the point.  The main benefits of pet ownership are psychological; if you are someone who loves pets, there’s little chance you’ll be satisfied without owning a pet.  It’s a quality of life issue, first and foremost.  You need to look at your interests, and if owning a pet is something you want in life, you will just need to integrate pet-ownership into your other household expenses.  Going broke in order to own a dog won’t be good for either of you.  (And if you don’t have your finances properly in order, you might find yourself facing some hard choices if your financial situation worsens.)

But as with most things in life, it’s not an all or nothing proposition; if you treat pet ownership like any other ongoing expense (similar to car ownership), plan ahead, and budget for your cuddly puppy or adorable kitty (or other non-exotic pet), you’ll be able to handle anything that owning a pet can throw at you.  Some things to consider:

1) Know the costs of your pet before you adopt it. The Society for the Prevention of Cruelty to Animals (SPCA) lists the costs of owning several common pets.  There are ways to cut down on some of the expenses (for example, by getting the equipment you need to care for them second-hand), but some expenses like food are inevitable.  If you can’t afford the costs of the pet, you need to (a) cut other household expenses, (b) find ways to earn more income, or (c) consider a cheaper pet (or even no pet, at least until your finances improve).

2) Set money aside for emergencies. Even if you know how much your pet will cost each year on average, there can be problems and unexpected events that exceed the normal pet budget.  Having an ample emergency fund, enough to cover expenses for you, your family, AND you pet, is invaluable.  (And can help you avoid situations where you have to put your pet down because you can’t afford to care for him or her.)

3) Be aware of your life situation, and have a back up plan. Life happens, as we know; you need to know how likely it is that you will be unable to care for your pet through its whole life.  If you have a puppy, it’s possible that it will live another fifteen years, or longer; for cats, the maximum life is even longer.  Are you going to be able and willing to care for your pet more than a decade from now?

If not, or if you are not sure what the future will hold that far in advance, you need to have a back up plan for your pets.  You could arrange for a relative to take your pet or make sure that your local shelter will be able to care for your animal if you cannot do so yourself.  As with any life-altering change, adopting an animal should not be undertaken lightly; you need to provide for your pet should something happen.

4) Adopt an older pet. There are multiple benefits to having an older pet.  You usually find pets that are well trained, friendly, and have all their shots, cutting down on out-of-pocket expenses to get them ready to live with you.  You can also get the mental boost of helping organizations like the Humane Society and ASPCA to adopt animals that might be put down or spend the rest of their life in a kennel.  Older animals are also less likely to be hyperactive, which can be an advantage if you are a more sedate person by nature.

Follow these suggestions, and you should be able to integrate owning a pet into your financial plans without a problem.

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One of the ways I volunteer my time is to serve on my church’s consistory.  It’s essentially the Board of Directors, making decisions about budgets, hiring, and strategic planning.  If it happens in the church, we need to approve it, determine how to implement it, and get regular reports on the progress that’s made to complete it.

It’s an interesting view into running the church, getting to see behind the scenes.  I’ve learned many things about the expenses associated with even a small church. One of the most important, if somewhat disillusioning, things I’ve learned it that money really does make the world go round.  It’s nice to think that our churchs, mosques and synagogues are immune from the money-grubbing ways of the outside world.  Unfortunately, that’s not the case.  My church (and yours, if you are a church going person) has all the expenses of any other business, including salaries, building maintenance, and administrative expenses.  If these things aren’t all paid, the church will fail to run, and might even fall into bankruptcy.

Furthermore, our church holds several investments, of which I was not even aware before joining the consistory.  We have three mutual funds from Vanguard, which fell in value along with the rest of the market over the past year.  These falling investments have put pressure on our finances, along with every other organization with exposure to the stock market.

Another lesson is that, as the number of volunteers decrease, the number of paid positions we need to fill increases.  We’ve had to add at least two positions in the course of my one year tenure on the consistory, each requiring a salary to get the needed work done.  As more work goes undone by volunteers, more employees are added, leading the remaining volunteers to feel as if they should be receiving a salary as well.  And the cycle continues, with an ever larger portion of our work being done by paid professionals.

One particularly sharp lesson is that when the broader economy goes sour, the ripples can spread further than you’d initially believe.  In part because of the economic downturn, the attendance at our church has been down and the offerings decreasing.  Combined with the aforementioned investment declines and increasing number of staff members, and we’re finding ourselves in a financial crunch.

All of these have helped to put our church in a bad way financially.  We are considering cutting down our giving to other churches and charities, looking at what functions we can do without, and even debating whether we should merge with our neighbors.  In any case, there’s no chance that we’ll be able to continue the same way we’ve been going so far.  In many ways, it’s much the same situation many individuals find themselves in currently, debating what needs to be removed from the budget in order to make ends meet.

I’m not writing this to bring anyone down, merely to describe some of the things I’ve learned as a volunteer with my church.  It’s given me a valuable look at how the church is run, enabling me to have a better understanding of the money, time and effort needed to run a sizable organization.  It’s been an enlightening experience, one I’d highly recommend to anyone who’d like to help their community and gain some first hand knowledge at how an organization like this functions.

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