nehal : Jun 10, 2009
I just finished watching I.O.U.S.A., a documentary describing the history and current status of the U.S. National Debt and fiscal policy. It is quite an eye-opening movie as it talks about the four greatest deficits we (as a nation and as individuals) face: Budget, Savings, Trade, and Leadership. Initially I was afraid this would be more right-wing propaganda lambasting “big government”, but I was pleasantly surprised at a pretty non-partisan approach. The movie does not seem to favor one political agenda over another (though it does seem to poke a little more at Reagan’s supply-side economics and the Bush Tax Cuts). Former U.S. Comptroller David Walker and Bob Bixby of the Concord Coalition play pretty big roles, and Alan Greenspan and Warren Buffett make appearances as well.
The main topic of the film is the National Debt (which is over 10 trillion dollars now) and how weour nation is saddling future generations with more debt than they can possibly hope to pay. It emphasizes the weight of the Social Security and Medicare programs and how they may continue to eat up larger and larger portions of GDP if we do not do something about it. It utilizes some pretty interesting charts and other graphics to show the history of the national debt, budget deficits, and savings rates throughout history. It also provides some education about how Monetary Policy attempts to create economic growth while trying to limit inflation. It also shows how government debt has changed over time. Whereas after World War II, 100% of the government debt was held by U.S. citizens, it is no longer the case; China, Japan, and other nations hold about 25% of our debt.
The movie is careful to point out that the creators do not favor one political or fiscal policy over another; the main purpose seems to be raising awareness of the crisis, presenting the facts, and motivating us to take action. While the film is nearly two years old, it is still worth watching. It is informative with facts and statistics as well as educational about how fiscal and monetary policies interact with inflation, savings, and economic growth. I wonder what they would say about the current situation with bail-outs and President Obama’s plans.
nehal : Jun 3, 2009
JP lent me The Dip by Seth Godin. It is a really quick read and Godin poses a pretty interesting idea. Far too often, we’re told we just need to keep pushing and “winners never quit”. But what if we’re trying to win at the wrong thing? What if the effort we’re putting in on the current project could be better used to really win big on a more important (and fruitful) one? Also, it turns out we are trying to do too many things at once. He points out that the ones who really wing big are those who focus and are in first place. There is a significant drop-off between #1 and #2. So the first point is to only take on projects where you can win.
His next idea introduces the concept of his ‘curves’ – the ‘Dip’, the ‘Cul du Sac’, and the ‘Cliff’ – mapping results vs. effort. The trick , it seems, is being able to recognize which curve you happen to be on. If you find yourself on the Dip, then it makes sense to keep pushing through. If you’re on a Cul du Sac, according to Godin, you need to get off it right away; it’s a dead end keeping you from doing something better. The Cliff is pretty rare where everything just falls apart one day.
Later, he talks about generalization vs. specialization. We grew up being told we had to do well in all areas of school. (I actually think that’s a good thing – give yourself the broadest base and most opportunities to choose from). But, as Godin points out, do you really care if your doctor did well in English Literature? Do you care if your auto mechanic or accountant are good tennis players? No, you care that your doctor is good at being a doctor, your mechanic can fix your car, and your accountant can manage finances. You are glad they specialized and are good at what they do. If they happen to be good at something else, great; you’re not going to pay them for that.
While the book is definitely an interesting read, I’ve had a tough time with a couple things. First, just because you can’t be #1 doesn’t mean you shouldn’t try at all. There is still value in being #2. Even though #1 reaps the most rewards, #2 still gets something. Of course, striving to take the #1 spot away is always good, and you can always create your own niche where you are #1. The second issue I have is that while Godin describes the curves, I never really quite got a feeling for how to tell if one is on Dip vs. a Cul du Sac vs. a Cliff. My job seems pretty tough right now and I want to quit. But is this feeling of wanting to quit merely a Dip (meaning I should redouble my effort), a Cul du Sac (I’m never going to be compensated appropriately) or a Cliff (the company decides to lay me off tomorrow)? It is pretty difficult to tell which curve you happen to be on when you are on it. You can only tell once you’ve passed the dip or cliff (if they happen to be there at all).
nehal : Mar 13, 2009
I recently finished reading Your Money or Your Life. This isn’t just another book about saving money or investing; it is about re-examining your relationship with money. It is a nine-step program for identifying how much money you spend to earn, what you value, how much you really need to live, how you can align your spending to your values, and how to apply principles to achieve Financial Independence. There are many exercises in the book, and each serves to build consciousness of your behavior and values.
In the process of becoming Financially Independent, the book teaches principles of Financial Intelligence and Financial Integrity. Financial Intelligence is about understanding how money works. The book walks through calculating your true hourly wage by examining what you spend money on because of your job – commuting, special clothing, meals out, vacations, etc. You also analyze how much money you’ve earned so far in your lifetime to understand your earning potential, and then taking an inventory of all your possessions, to figure your Net Worth – what you have to show for all those years of hard work. Next you begin analyzing and tracking income and expenses – but with a twist. You also track, for each expense, whether that expense would increase, decrease, or stay the same if you did not have to work.
One of the exercises (and it gets a little hippy-dippy here) is to do some introspection and take stock of your values. The reason is that when you understand your personal values, the decisions you make – social, work, and financial – become more clear. You become more conscious of how you spend your time and energy. You begin to think of money not just as numbers and papers, but as your life energy – because that is really what you are trading. The only thing your really possess is your time. You trade your time for money which you spend on things that bring you fulfillment. So now, when you do your income/expense analysis, you also track your expenses in terms of life energy and ask yourself if what you spent brought you fulfillment accordingly. This sets you on the path to Financial Integrity – aligning your decisions with your values.
As you continue to track your income and expenses, you should see your expenses decrease and achieve a steady-state. Along the way, you’ve been saving the difference between your income and expenses and putting it into savings. When the income you earn from those savings (via various investment vehicles) exceeds your expenses, you have achieved Financial Independence! You are free to quit your job and spend your time and energy on things you find more fulfilling.
I highly recommend this book for anyone looking to re-evaluate their relationship with money – whether you are fed up working for “the man”, you want to live in service to others (but you realize you still need to be able to pay the bills), or if you’ve realized that you’ve become a “consumer” and want to break the cycle of spend-debt-earn.
nehal : Mar 6, 2009
The previews looked good, and I generally enjoy superhero movies, but The Watchmen was a bit of a disappointment. It opens with a cool action sequence, but then slows down for most of the movie, with little fits of action until the end, when you finally piece together the whole plot. Quite a bit of time is spent in back-story and flash-backs. Few of the characters or their stories are really compelling; all are flawed in some form (but they are human, right?).
The most interesting character is probably Rorschach. He’s dark and brooding, and about the only one who suspects something is amiss. Throughout the whole movie, however, I could never quite figure out how he got his name. The other highlight in the movie is Miss Jupiter, and that’s mostly just because she’s pretty. And then there is Dr. Manhattan. He’s the only superhero with any real powers other than crazy martial-arts skills. He is, however, disturbingly blue… and naked. There are far too many shots of his blue junk – it’s like a car wreck; you know you don’t want to look, but you can’t really avoid it. Especially when it’s waving at you.
The action and fighting sequences are pretty spectacular, but there are times when the gore is almost too graphic to bear (but I think that’s what they were going for).
Overall I have a difficult time justifying to anyone why they should spend $10 on a movie ticket to see this movie (luckily we only spent $7.75 for the matinee show), especially when I nearly fell asleep part way through it.
nehal : Feb 11, 2009
I recently finished reading The Millionaire Next Door by Thomas J. Stanley and William G. Danko. The book provides interesting information learned from their study of America’s wealthy. The book reveals some facts that would seem alarming at first, but after some consideration seem pretty obvious. What is interesting, though, is that the authors actually back up their conclusions with data from the study.
Basically, they place people into two buckets – Prodigious Accumulators of Wealth (PAW) and Under Accumulators of Wealth (UAW). PAWs are the high-net-worth group – either millionaires or on the way to being millionaires. UAWs tend to live beyond their means – they buy expensive homes, cars, jewelery, and the like. The UAW‘s net worth is generally less than their age times his annual income divided by 10. The people who are wealthy don’t necessarily look it, and those who look wealthy are not necessarily so.
The PAWs are the bulk of the discussion, and they examine their habits with regards to earning and saving. For example, PAWs tend to be more frugal, live below their means, are business owners or self-employed professionals, and don’t receive financial assistance from their wealthy parents. While they may go about purchasing a vehicle differently (new vs. used, etc), they usually don’t spend much on it and tend to hold onto it for a while. Likewise, not many have spent more than a couple hundred dollars on a suit, shoes, or watch.
So while much of the information in the book was not all that surprising or exciting, it was reassuring to read that becoming a millionaire is possible. But there is no “magic pill”; it’s a long, slow, disciplined journey. Near the end of the book, the authors describe how one could capitalize on the knowledge in the book – choose a profession whereby you cater to the wealthy. They need accountants, attorneys (especially those specializing in estate and tax law), and other professionals they can trust. It is not that they don’t spend money; it is that they are very discerning about how they do so.