"How I Spent My Stimulus"

I ran across howispentmystimulus.com recently. It's an interactive blog where anyone can submit an entry describing how they spent their stimulus check, and comment on other people's posts. There was a New York Magazine article about the site, and the web site's creators are even planning to publishing a book (submissions must be entered by tomorrow, June 24, to be considered for inclusion).

It's interesting--and rather voyeuristic--to see the creative & personal things that people are doing with their money, and find out what their priorities are. Spending it on necessities (gas, paying bills) seems to be a popular choice, but some individuals blew their money on entertainment, and the accompanying photos are rather interesting, even humorous at times. I of course didn't qualify for a rebate check, but if I had it wouldn't have made for an interesting story as I would have applied it toward debt retirement.

"Stop the Shopocalypse!"

It looks like Morgan Spurlock (of "Supersize Me" fame) has come out with a new movie titled What Would Jesus Buy? It sounds interesting, and I would love see it, but there are limited screenings at this time. Check out the trailer (QuickTime or QuickTime Alternative required). If you happen to catch it, please report back with a review. Here's a brief description from the web site:

What Would Jesus Buy? follows Reverend Billy and the Church of Stop Shopping Gospel Choir as they go on a cross-country mission to save Christmas from the Shopocalypse: the end of mankind from consumerism, over-consumption and the fires of eternal debt!

From producer Morgan Spurlock (SUPER SIZE ME) and director Rob VanAlkemade comes a serious docu-comedy about the commercialization of Christmas. Bill Talen (aka Reverend Billy) was a lost idealist who hitchhiked to New York City only to find that Times Square was becoming a mall. Spurred on by the loss of his neighborhood and inspired by the sidewalk preachers around him, Bill bought a collar to match his white caterer's jacket, bleached his hair and became the Reverend Billy of the Church of Stop Shopping. Since 1999, Reverend Billy has gone from being a lone preacher with a portable pulpit preaching on subways, to the leader of a congregation and a movement whose numbers are well into the thousands.

Through retail interventions, corporate exorcisms, and some good old-fashioned preaching, Reverend Billy reminds us that we have lost the true meaning of Christmas. What Would Jesus Buy? is a journey into the heart of America – from exorcising the demons at the Wal-Mart headquarters to taking over the center stage at the Mall of America and then ultimately heading to the Promised Land … Disneyland.

Will we be led like Sheeple to the Christmas slaughter, or will we find a new way to give a gift this Christmas? What Would Jesus Buy? may just be the divine intervention we’ve all been searching for.

The Shopocalypse is upon us … Who will be $aved?

Work: It will literally kill you

I watched the Oprah show on the extreme weight losers yesterday, and it got me thinking about how this issue has gotten so out of control in our society.

I think work is a big factor in the obesity epidemic in America, and it really is killing us. How many people do you know fall into this trap? You are so tired from your workday that you don't have time to cook or exercise. Instead, you pick up food from a fast food restaurant, then head home and plop yourselves in front of the TV until you get sleepy from your meal or an energy low, at which point you either doze off on the couch or go to bed (often without brushing and flossing your teeth, leading to dental problems down the road). You wake up at the sound of your alarm feeling tired and unrested, but drag yourself out of bed and stop by Starbucks for a caffeine fix to get you going for the day. Then, on the weekends, you cram all your household chores and shopping, leaving little time to recoup and re-energize. You go to work on Monday feeling tired and depressed, wondering why the weekend went by so quickly.

Year after year, your pant size increases, you develop bags under your eyes, and you get winded from simple tasks such as going up the stairs. You become unhappy with yourself, so you buy things or turn comfort foods to (temporarily) make you feel better. You might try a diet or two here and there, or buy a gym membership as part of a new year resolution, but after a little while you quit the diet and the gym because other things take priority.

I see this happening all around me, and I think it's becoming more and more difficult to avoid the work trap and the kind of lifestyle that it creates, especially as it becomes embraced by society as the accepted norm.

I don't want to fall into this trap. I want to quit work as soon as possible because:

• It makes us inactive. We sit in a car getting to and from work, and once we get to work, we sit in front of a desk staring at a computer screen for most of the day.

• It adds to our stress levels. We have to deal with artificial stress inducers such as office politics, deadlines, and pointless meetings, that sap our strength and energy, leaving us cranky and miserable.

• It prevents us from developing healthy habits. We go out for lunch, and eat portions that are too large for us. Or we get vending machine food because we can't make time for a healthy meal break. Or we give into temptations in the form of cookies, cakes, and doughnuts left over from office functions. Work robs us of the most productive time of our day, when we have the most energy to do things that are good for us like working out and cooking meals from scratch. It keeps us from getting restful and sufficient sleep because we're trying to cram other things into what's left of our busy days.

My primary motivation for wanting to quit the rat race is not so I can pursue other interests (although that is certainly a big reason), but so that I have the time to lead a healthy and active lifestyle. My health is the number one priority in my life, and I find it sad that Americans have put it on the bottom of their list.

A lot of people say that they don't want to quit work because it gives meaning to their lives, and cite references to people who die shortly after retirement because they have nothing to do. My question is, have you thought about what work is taking away from you?

3 steps to achieve financial success

I believe that most Americans can achieve financial success. I am living proof that it's possible. Granted, I have a well paying job, but I don't make an obscene income. Besides, I know plenty of people in my income range that have little to show for their years of working. And I think that even if my income was more modest, I would still be well on my way to financial independence; I just wouldn't have accumulated as much.

Here are the three steps that I feel are necessary to achieve financial success:

1. Live below your means. I realized that to make money, I needed capital, and to generate it I had two options: reduce my expenses or increase my income. I increased my income by gaining valuable work skills and hopping jobs, but that may not always be possible depending on the stage of your career. I also kept my overhead low, and that is something that everyone can do.

For one thing, I never tried to keep up with the Joneses. I knew from reading "The Millionaire Next Door" that self-made millionaires lead pretty modest lives, and people who flaunt extravagant lifestyles are financing those lifestyles at enormous opportunity cost. I kept my focus on becoming debt free and saving for early retirement.

I differentiated my needs from my wants, and carefully evaluated each expense that fell into the "wants" category. If it didn't match my priorities, then I opted to forgo it or found cheaper alternatives. That meant no luxuries like designer clothing, Starbucks, BMWs, concerts, etc., but I really didn't care about those things anyway. That doesn't mean I always deprived myself, I just made sure that any money spent on non-necessities was used to buy things that brought real, lasting happiness. I bargain shopped to find the best deals, and I made sure that I could pay off the credit card bills when they arrived. I also understood the eroding effect of taxes on my money: the combined impact of income tax and sales tax meant that only about half of every dollar I earned was available for me to use, so I spent them very sparingly.

2. Save. I knew my ability to work was finite, and I wanted to have the option of not having to work as soon as possible, so I treated my earnings like lottery winnings. I socked away the max into my 401(k) plan immediately upon starting my first job, and continued to do so as I changed jobs (and never cashed out). I figured I wouldn't miss 15% of my salary, and even if I did I could always scale it back. I survived just fine though, and because I kept my expenses low, I was able to save a significant portion of my take home pay and use it to pay off my first house early. I also started a ROTH IRA as soon as I was eligible, and maxed it out every year.

3. Invest.I learned about the amazing power of compounding, and the risk of inflation. Because I started early and had a long time horizon, I was able to invest aggressively. So far it has worked out pretty well for me.

There you have it, the three key steps to building wealth. These aren't new ideas, and it takes time and patience to see the results, but as someone who has done it I can confirm that they will work for you--unlike most get rich quick schemes. I think the most difficult part is the first step, where you have to make the paradigm shift from instant gratification to delayed gratification. Think of robbing your future self when you spend your money in the present, and perhaps that will help you resist the temptation to buy stuff you don't really need.

So if you want to do something to get started on the road to wealth, here is a simple action you can take now: log into your employer's 401(k) plan, and bump up your contribution amount. Remember, if you find that you can't live without the reduction in take home pay, you can always change it back, but I'm betting that you'll learn to live without it, and you'll be thanking yourself later.

Open enrollment reminder: sign up for disability insurance

Open enrollment is wrapping up at my workplace, and one thing that I find people often neglect to think about is disability insurance. Unless you work in a state that is covered by a mandatory disability insurance plan, I strongly urge you to consider signing up for Short Term Disability insurance--especially if you don't have a sufficient emergency fund established. Statistics show the odds of becoming disabled are higher than most people realize, and Social Security and Workers' Comp (which only covers on-the-job injuries) may not be adequate to replace all lost income, so I recommend opting for Long Term Disability insurance as well, if your employer offers it.

I found a more in-depth writeup about disability insurance here, and unfortunately I personally know of two coworkers who have had to leave their jobs due to serious off-the-job injuries. One of them was a promising young employee who suffered debilitating injuries as the result of a motorcycle accident, and to make matters worse, he hadn't bothered to enroll in LTD insurance coverage because he didn't think he needed it at his age. His parents ended up caring for him, but it was a significant burden that they had never planned for. Your ability to work is your biggest asset--especially when you're young, so protect it.

Click here for a CNN Money article with other open enrollment tips.

Those Black Friday deals

Well, another Black Friday has come and gone. I'm sure there were some good deals for people who needed them, and were willing to fight the crowds. However, if you didn't need the items, then they probably weren't a good deal. For one thing, things like consumer electronics tend to get better and cheaper over time, so what seems like a good deal today probably won't seem that way a few months from now. Secondly, if you watched the Oprah show on hoarders, you know that keeping stuff has associated costs: making space for it, keeping track of it, and opportunity cost.

Although I enjoy a good deal as anyone else (and I do bargain shop when I need something), I value my time too much to spend it waiting in line battling the elements (it was interesting to drive around and see all the people who were willing to do that, however). Instead, I spent my Thanksgiving evening with family, followed up with an enjoyable experience at the movies.

Enjoy the rest of the holiday weekend, and as you browse through the ads, think about whether you own your stuff, or your stuff owns you.

Making money in stocks: The only 6 things you need to know

I recently ran across an old issue of Family Money Magazine from 2000 that I saved. It featured an article (the title of this post) on investing in the stock market, and I think the advice is still pretty valid today.

Here are the six principles discussed in the article:

1. Systematic investing can improve your results dramatically. The author says that investing on a regular basis helps you to develop the discipline to stay in the market for the long term. She also mentions dollar cost averaging, which enables you to buy more shares when prices are low, and fewer shares when prices are high, but it's a strategy not without criticisms. I think simply getting started can often be the most challenging step, and systematic (or automatic) investing can lessen the pain because you are buying a little chunk of the market at a time, rather than taking a big bite at once. If you do decide to use the DCA approach and choose to invest in index funds, be aware of the impact that trading fees can have on your investments.

2. How you diversify is the most important determinant of your investment return. Yahoo! Finance featured an article before Halloween about personal finance horror stories, and one of the tales involved an investor who, over the course of four years, lost 98% of an $8 million portfolio that was invested in seven or eight stocks. Clearly diversification is important, and I would add that including international stocks in your investment portfolio is a good diversification strategy as well.

3. No money manager can beat the market over the long run. Neglecting the fact that even pros are unable to consistently predict how the market will move, the author points out that trading costs erode returns by about 0.81% a year, and management expenses further eats into returns. Large company funds have an average expense ratio of 1.23% a year, compared to 0.43% for the average index fund (according to Morningstar, 2000). If you think of money managers as middlemen who take their cut of the profit, and it's easy to understand why they have to outperform the market just to break even. I usually prefer ETFs or index funds to actively managed funds for this reason.

4. Over the years, growth stocks are your best bet. The author says you want to buy companies that are growing consistently and steadily, and that it's harder for investors to predict which value stocks (whose shares are cheap compared to the company's current earnings) are going to take off. I suppose from a risk perspective, it makes sense to buy companies that have proven track records than to gamble on newcomers, although I think owning value stocks can be part of a diversified portfolio.

5. A good stock is a bad investment if it's overpriced. Look at the P/E (price-to-earnings) ratio. If the stock is trading at a high P/E compared to historical values, you may want to wait, according to the author. I think there's more to determining the worth of a company or stock than simply looking at its P/E ratio, but it's certainly one factor to consider.

6. Trying to time the market is futile. Market timing is an investment strategy that never pays off in the long run, because the likelihood that you'll enter and exit at the right time is slim. It's better to buy and hold, which also prevents commissions and taxes from eroding your returns.

If you're a beginner investor, these six simple rules may help you to get started in the right direction.

Source:
Karen Cheney
Family Money Magazine
October 2000 issue