Here’s a short 10 minute video I stumbled upon which eerily highlights several things I do and why (ie play guitar), as well as touch upon reasons why some people are willing to do things for free, and others strongly consider giving up big salaries to just work on a hobby.

NODDING MY HEAD

I find myself agreeing with pretty much everything the video has to say.  Money has become a secondary motivational factor for me over the past several years.  Something just happened where I’ve become satisfied in making what I make, oh my!  Sure, I have a “make $1 million bucks” goal for 2010, but that’s really just one of those fun, see if I can do it goals.  Autonomy, mastery, and purpose are things I look forward to now.

Progress is a wonderful feeling, which is why I try and play a musical instrument and sing in my free time.  Music also helps fill the void when I’m injured due to sports.  Going from not knowing the chords and the words of a song, to mastering a tune from memory that’s good enough to record is an unbelievable sense of accomplishment.  I’ve been working on getting the finger picking of Pearl Jam’s “Just Breathe” for the past month, and I can’t seem to get it right.  But dammit, I’m going to keep practicing because it’s such a beautiful song!

After you have a certain amount of money and experience, you definitely want autonomy.  You’re no longer a fresh college grad that is constantly micro-managed by senior colleagues.  A sure fire way for a company to lose a star employee is to restrict their freedom and ignore their good work.  Blogging is an incredible example of autonomy.  Nobody is going to tell me what to write and that’s so liberating.  I’ll thrive and fade with my decisions alone.

Purpose is something that can either be questioned before you start your journey or after.  You can be a high school or college student who has no freaking idea what you’re supposed to do in life.  Or, you can be a 20 year veteran in the workforce who has built a great resume, as well as financial security, but realize you’re middle aged now and wonder if there’s more to life since you’ve already conquered insecurity, be it financial or otherwise.

The purpose of this site was never to make money.  The purpose was to just create something tangible that serves as a creative outlet for someone who was once creative.  I want to be that kid in pottery class again, molding that wet clay on a rapidly rotating swivel stick.

Readers, what are several motivating factors for you in your life or in your job?  Have you noticed money increase or decrease in importance as a motivational factor?

Regards,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamura and subscribe to our RSS or E-mail feed.

Related posts:

1. Where Did All The Time Go?
2. Getting Busy This Valentine’s Weekend! (Singles Especially)
3. Searching For Love And A Little More Money

Pick any private school.  The cost is about $200,000 over four years.  These figures don’t surprise anybody anymore given the ever rising application volume to storied institutions such as Harvard, Yale, and Princeton.  That said, there have to be some who believe $200,000 for a private school is a hard pill to swallow over an excellent public school for just $40,000.

With an estimate 17% of people aged 20 through 24 unemployed, swallowing a bowling ball may be easier than finding a desirable job post graduation.  Let’s say you are one of the unlucky few who can’t find a job after a $200,000 education.  Does it really matter? Let’s think about why it doesn’t really matter from the eyes of several recent graduates.

THE BOY WHO WAS FORCED TO GO

Jimmy graduates from Columbia this year with a degree in History, European History to be precise.  Despite his best efforts to land a summer internship last year, none were available, so he decided to go Euro-railing with his buddies for three months.  What a blast, as he traversed the continent and collected bottle caps and coasters from every bar he patroned.  The total cost of his trip, including airfare, food and lodging was a mere $10,000, just 1/5th what his parents pay for 9 months of school!  What a bargain he reasons.

Everything is a bargain to Jimmy because he doesn’t have to pay for anything.  He was happy to attend a SUNY school for a fraction of the price, but his parents pushed him to attend Columbia.  In return, they would pay for everything, so long as he promised to just do well.  The pressure Jimmy faced was immense.  How could he live up to his parent’s expectations?  He knew he couldn’t.

With Jimmy’s fancy Columbia degree, he reasons that he’s held up his end of the bargain.  He didn’t drop out and instead flourished with a 3.7 GPA and a cum laude designation on his diploma.  Yet, with no job waiting for him at the end of the rainbow, is all for not?  Not so says Jimmy.  The diploma is worth it, and if people don’t want to hire him, it’s their problem and not his.

You see, Jimmy’s parents are multi-millionaires who live in a $2.5 million dollar house in Greenwich, Connecticut.  His father is the CFO of a Fortune 500 company and his mother has never worked a day in her life.  In fact, the nanny who raised Jimmy since birth is still living with his parents even though they are empty nesters.  Someone has to clean up the 5 bedrooms and run errands.

Like Jimmy’s mother, he never needs to work either because his trust fund can easily support him for the rest of his life.  Jimmy is not unique, because all of his friends at Columbia are wealthy.  Just by graduating, Jimmy and his friends legitimize themselves to the world.  To think about starting at the bottom of any corporate is beneath them, when they are the sons and daughters of business leaders.  Hence, who needs a job?

THE WOMAN WHO PAYS HER WAY

Now lets compare Jimmy with Allison, who paid her way through Columbia.  She too, could have decided to attend a school 1/5th the price, but she did not.  Instead, she chose Columbia out of the belief she would get a superior education, and land a dream job in marketing.  With over $100,000 in student loans, Allison is suffocating from debt, and her repayment starts 6 months after graduation.  Allison has no job offer either, and has decided to wait tables until she does.

Allison doesn’t want your pity, so don’t give her any.  She made the choice to spend $200,000 on education even though her middle class parents, who earn a combined $80,000 a year couldn’t afford to offer much help.  Only a small few get to attend such an elite university, and for that, she feels proud to have the opportunity.  Some day, she will see the benefits of her Columbia degree, just not now.

Unless the right job offer comes a long, Allison is happy waiting tables.  She won’t settle, even though it may seem like she already is.  If a year goes by without finding her perfect job, she’ll just go to graduate school for another $50,000 a year.  Allison knows she’s smarter than most people and has a tremendous amount of pride.  Don’t pity Allison for not finding work, because she’s content with her own choices.

THE SUPERSTAR

Sandeep stands above Jimmy and Allison for his brilliance.  He won the National Spelling Bee at age 9, finished multi-variable calculus by the 10th grade, and is on the US national juniors squash team.  Sandeep has a full ride to Columbia and like Jimmy, doesn’t have to spend a dime.

Despite Sandeep’s achievements before and during college, he too, cannot find a job as a strategy consultant.  Sandeep doesn’t care, because he had a grand old time playing squash, experiencing the NYC night life, and learning something new on the side.   Besides, what’s $200,000 when none of it came out of his, or his family’s pockets?  Absolutely nothing.  As far as Sandeep is concerned, his dream job hasn’t found him yet.

Mentally, Sandeep figures that he can take the next four years off since he worked so hard during the past four years.  Maybe he’ll go explore the world and live on a shoe-string budget.  Maybe he’ll try to become a squash pro in Europe.  The uncertainty of his future excites him, especially since he’s armed with a free Ivy league degree!

CONCLUSION

People who go to private schools aren’t stupid, nor are they irrational.  Even under the most difficult scenario where one has to pay their way such as Allison, she doesn’t want your pity.  They knew what they were getting themselves into, and took a risk with their finances in order to experience “the best” education in the world.

The reason why $50,000 a year tuition exists is because enough people believe it’s worth it.  If not, tuition prices would adjust accordingly.  Hence, there’s really no need for mass media schadenfreude gleefully reporting that private school kids aren’t finding jobs.  There’s no need for concern either.  The only people making noise about a tuition bubble are parents who probably can’t afford $50,000 a year, but who believe their kids deserve the best, whatever that is!

Readers, why do you think people make such a big deal about private school tuition?  Harvard could charge $100,000 a year today, and there would be more demand than seats.

Who are the people feeling sorry for private school kids without jobs?

Do you think private schools are worth it over public schools?

Regards,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamura and subscribe to our RSS or E-mail feed.

Related posts:

1. Tuition Hike For The Poor Is Like A Tax Hike For The Rich
2. Don’t Have Children If You Can’t Take Care Of Yourself
3. Do “C” Students Deserve “A” Lifestyles?

It’s difficult to save money and not splurge on things you want.  Let’s face it, those financial goals you made this year will need as much help as you can get.  One of the key ways I save is to play games.  Let me show you what I mean.

SAMURAI SEPTEMBER

Last July, I made a resolution not to spend any money on things other than basic necessities such as food and my bus pass in September.  Even filling up Moose with gas was pretty much off-limits as we decided to do a lot of biking, walking, and carpooling instead.

By naming September, Samurai September, the game was set in motion to see if I could succeed.  Not only did I not spend any money that month, I didn’t spend any money in October either!  I wanted to beat the rules of my game, and break the record by as far a margin as possible.  The feeling is just like trying to smash the Pacman record by a wide margin, so nobody will ever unseat you.

THE “I WON’T SPEND MONEY UNTIL…..” GAME

The game is really easy and fun to implement.  Pick something that you hope for, and not spend on anything until your hopes turn true.

1) Until… the 49ers and Redskins make the playoffs.  I love the 49ers and Redskins and I also love the new LED HGTV technology that has come out.  The picture quality is amazing!  Since these 40″+ TV’s are $1,300+, I promise I won’t buy a new LED HGTV until either team makes the playoffs!

2) Until… I record 10 songs and sing to an audience. Music is one of my great passions, especially trying to sing and play the acoustic guitar.  I’m pretty horrible, despite practicing for the past 10 years.  Within those ten years, my desire for a new,  beautifully constructed Martin Brazilian Rosewood guitar has emerged partly due to an increase in income.  Yet, I’ve promised not to get a new guitar until I put together my darn 10 song play-list, and get the guts to sing to a live audience.

3) Until… both electrical car seats stop working. Folks know I love cars. I’m going for a record 4th year in a row of owning one car.  It’s quite an accomplishment since there was a time where I went through eight cars in ten years.  Currently, my passenger side electrical seat no longer adjusts.  Thankfully, it’s set in a comfortable position.  Not until the driver’s seat breaks will I buy a new car!  With the dealer offering a handsome $1,500 trade in value for Moose, I’d rather poke my eye out than trade Moose in and spend $20-50K more for a new car!

4) Until… I can touch my toes without bending my knees. Flexibility is as important as physical strength when it comes to sports.  As the tennis season revs up, it’s important to strengthen my core and stay limber to prevent injury and beat the competition.  Not being able to touch ones toes is pretty darn pathetic.  Luckily, it’s pretty easy to work on!  Hence, if I’ve promised  not to buy any more tennis and general sporting gear (shoes, raquets, clothing, bags, etc) until I can comfortably touch my toes.

5) Until… I get a raise or a promotion. Finally, if you want to really play a serious game, which corresponds completely with personal finance, tie your goals back to work.  Promise yourself that until you do get that raise or promotion you won’t spend money on anything superfluous until that day.  By setting this target, you will focus on your greatest money making asset, you!

CONCLUSION

Finding reasons to save money is pretty boring compared to finding reasons to spend money.   If you can create fun reasons to save money, stipulated on things that have nothing to do with the actual savings process (football playoffs), I think you’ll find it much easier to build your freedom fund.

Time can be your friend or your enemy when it comes to savings.  The weak see more time as leading to more opportunities to spend and blow up their budgets.  The strong see time as an opportunity to build savings and watch their investments compound.  The great thing about this game is that it’s scalable to whatever you wish to strive for.  Once your goals are achieved, you may be so happy that you may not even need to spend any money!

Readers, any goals you’ve set for yourself to achieve before spending any money?  Any type of games you play?

PS Another game played starting last summer was to not buy a new laptop  (bought and ultimately returned) until this site broke Alexa 500,000.  500,000 was breached last winter, and I’m still playing until this site can get into the top 35,000.

Keigu,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamura and subscribe to our RSS feed.

Related posts:

1. Three Keys To Motivation And It Has Little To Do With Money
2. Where Did All The Time Go?
3. My SUV Will Beat Up Your Hybrid & Save The World!

Back in the 9th grade, I remember goofing off quite a bit with my buddies.  We skipped class, stayed out late, and essentially did a lot of stuff that was detrimental to our grades.  Despite working with plenty of Spanish speaking colleagues during my part-time job, I still only got a “C” in Spanish because I didn’t care.   All I wanted to do was have fun, and fun is what I had!

My parents spoke to me one evening and asked, “How are you ever going to be a great business man if you can’t even get an “A” in math?  Do you think award-winning scientists get “C’s” in high school chemistry?  Do you think Andre Agassi doesn’t practice hard every single day?”

The questions stuck with me because ever since I was 12, I wanted to be a “business man.”  I remember getting picked up in a sweet Mercedes 300 SEL by one of my father’s friends to take us to their mansion party.  The whole experience with the infinity pool, car, food, and servants made me want to do what they did, whatever that was!

After the pep talk, I began caring about my grades through college.  I didn’t want a silly thing like grades to get in the way of my dreams.

THE QUESTION TO ASK ALL PEOPLE

It’s pretty rational not to study, because studying sucks.  Most people are probably “C” or “B” students given the law of natural distribution.  Hence, do “C” or even “B” students deserve “A” lifestyles?  If you were a mediocre student, who went to a mediocre school, who works at a mediocre job, why do you think you deserve more than a mediocre lifestyle?

THE SOLUTION

To get people out of debt, we need to make people realize they are unworthy of the stuff they buy, even though they see their neighbors live it up.  Maybe their neighbors all got straight A’s at some prestigious university and are doctors?  We can’t compare ourselves to others, because we don’t know for sure what others make.

Given we have such an omnipresent government, perhaps they should make it mandatory for everybody to have their grades and universities revealed before they are allowed to purchase anything.  For example, only people with 3.5 or higher GPA’s are allowed to buy Armani clothes and Mercedes Benzos.  3.0 GPA folks, sorry, only Gap and Hondas for you!  The government can regulate spending by those who need the most regulating assuming there is a correlation between grades and commonsense of course.  Just imagine if we had this big brother program for potential home buyers 10 years ago.  We’d all be saved, right?

CONCLUSION

In reality, all we can do is be cognizant of our own achievements and spend accordingly.  If we can knock some reality into the average person, then maybe,  just maybe people will spend in-line with their incomes.

Let all the go-getters who are passionate about everything they do soak in all the success.  Let those who never complain and work when others are playing make all the money.  The rest of us can just kick back, whine about why life isn’t fair and tell ourselves why we deserve better.

Readers, do you believe that a main reason for tremendous consumer debt is because there are delusional people who think they deserve more than they can really afford?

If people want all the fancy things in life, why don’t they just work harder in school, be the best employee, or invent something successful to accommodate their desires?

What GPA did you get in HS/College, and will you be justifying your spending habits in the discussion below?

Keiju (Regards),

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamura and subscribe to our RSS or E-mail feed.

Related posts:

1. Who Needs A Job When You Have A Private School Degree
2. Everything Is Rational – The Answer To All Things Irrational
3. Don’t Have Children If You Can’t Take Care Of Yourself

The following is a guest post by long time reader and entrepreneur, Investor Junkie!  IJ writes about how we should stop our complaining, and realize we are wealthier than the large majority of the world.

If you live in the United States, you are wealthy beyond what most others dream of. Your salary is 99% higher than of the world population.  Visit areas like India, and Africa, and you’ll see what real poverty looks like. If you moved there, you could live like a king! Don’t believe me?  Visit Global Rich List and plug in your yearly salary.

So what exactly does it mean to be wealthy anyways?  It’s all relative to the environment you live in. What might be considered below the poverty level in the USA ($22,050 for a family of four), might be considered well off when living in say Uganda.  According to the Global Rich List even at the US poverty level, you still make more money than 89% of the world.

If you look at the Wikipedia chart, you will see the USA has the most wealth compared to any other country (including Japan). No other country comes close to the USA.  So while you may not feel wealthy comparative to what you see in the media, you still are better off than 99% of the world population.  In terms of average income,  the USA is only 13^th in the world, but we still have more stored wealth than any other country.

Stop complaining that you can’t afford that new Lexus you lust for. Many people around the world don’t even own a car! They get from place to place by bicycle. It’s true you may not live like a rock star, famous actor, or business titan, but you live better than most.

Most people in the United States have:

• Enough food to feed themselves daily
• A dry, heated and enclosed shelter
• Enough clothing to wear for one week
• Reasonably affordable health care and this is before ObamaCare
• Even if you can’t afford health care, you still will be treated by Medicaid
• What was once considered luxury items only 10 – 20 years ago, most people own multiple luxury items

How many “poor” people in the United States have items like a TV, computer or a cell phone? These luxury items most people in our country now have and are commonplace. It’s not so bad being poor.   One time in history flying the friendly skies was considered only available for the elite few.  Today, because air flight is so common, it’s one step above bus travel. This once luxury item is now available to most of the population, and with capitalism, at a low price.

With all of this talk about comparing yourself to the world, I’m not saying you shouldn’t strive to better yourself. Instead, be thankful for what you have, compared to the world population.

MORE, MORE, MORE

It’s part of human nature to want more, and unfortunately in some circles it is frowned upon. It is known as the evil G word, greed. Gordon Gekko said it best:

“The point is, ladies and gentleman, that greed — for lack of a better word — is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms — greed for life, for money, for love, knowledge — has marked the upward surge of mankind.”

You see greed will always exist regardless of the “ism”. If you live under Socialism, Communism, and especially Capitalism – greed is still there. The thing is with Capitalism, despite its flaws, still appears to be the best economic system to work with human nature.

Milton Friedman said it best:

“What kind of society isn’t structured on greed? The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system”

So why are we better off than 99% of the world population? Why are we economically better off? The only logical conclusion is because of capitalism and the free market system we have. Even with our recent setbacks questioning capitalism, no better system exists. Capitalism is still the best method to raise people out of poverty.

CONCLUSION

Be thankful you live in a society that allows you to exploit greed. In the process, you not only improve your living conditions, but also helped your neighbors in the process. That’s the magic of capitalism. History has shown the United States has raised its living standards to be better than 99% of the world population. We have capitalism and free markets to blame for our success. It has been shown, the more freedom people have in society the more wealth is created. The USA may have creeping Socialism, but we still have much more freedom than many other countries.

If you want to decrease your living standards, continue to approve the path the US government is heading towards.  As history has shown, more government intervention and less free market solutions will lead to a overall poorer nation.

Readers, do you agree with Investor Junkie’s view that we are already wealthy?  If everybody is a millionaire, are we wealthy or just average? Why is it so difficult to realize how good we have it in America?

Investor Junkie - His blog discusses all things related to investing and being an entrepreneur. It’s about making money work for you by passive and active investments; stocks, bonds, real estate, businesses, and other investments.  You can follow him via Twitter @InvestorJunkie.

Related posts:

1. Only The Poor or Super Rich Say, “Money Can’t Buy Happiness”
2. Everything Is Relative Superstar – Being Happy With What You Have
3. The List of Jobs I’d Do For Free Baby!

If I read one more biased article pushing people to convert to a ROTH IRA I’m going to lose it!  Not to be melodramatic or anything, but the lack of unbiased analysis is like seeing a sea of zombies instructed to walk off a cliff. Wake up zombies, wake up!  Don’t make a decision without seeing what lies down below.

The ROTH IRA conversion idea is that those who have pre-tax funded retirement accounts such as a 401K or Traditional IRA pay taxes UPFRONT in 2010, so as to not pay taxes when you retire.  This is just absolute hogwash donkey dumb for a large majority of people out there.

Proponents of the ROTH IRA conversion argue:

1) Tax rates are low and are just going to go up in the future.

2) You will likely make more money in your retirement years, and hence pay more taxes.

3) Paying taxes now improves performance in the long run all else being equal.

THE SAMURAI REBUTTAL:

1) The government is smarter than you.  They are geniuses at spending other people’s money, and extracting as much money from you! Despite so much red-tape, when it comes to fiscal and monetary policy, they’ve got geniuses running the show.  Sure, back in the 70′s and 80′s the absolute marginal tax rates were higher, but there were many more income levels of taxation, and if you calculate the inflation-adjusted income levels, we’re actually better off now!

Think about why the government introduced this wacky piece of legislation from the government’s point of view.  Obama and team are running a $2-3 trillion deficit.  How the heck are they going to fund their binge spending?  By introducing a new idea to be able to allow millions of people, and billions of dollars to be taxed right now to shore up their deficit!

They float the idea, that doing a ROTH IRA conversion is a GREAT IDEA, knowing in the back of their minds that taxes can’t go much higher than what Obama is proposing already.  Furthermore, the government gets people who make over $100,000/yr excited when they say “no income cap in terms of contribution and conversion”!  Another smart move so they can collect MORE tax dollars from the wealthier population now.

2) Love your enthusiasm that you think you’ll make more in your retirement years than in your prime 30-50 earning years.  But I just have one question.  Are you crazy? Let’s say you average $100,000 / year until you retire.  To replicate $100,000 in income, you will have to have at least 25X your income in capital, or $2.5 million at a 4% risk free return to produce $100,000/year!  The last time I checked, the best 5-yr CD’s now pay 3%, which means you need 33X your income as capital to produce $100,000 of income.  GOOD LUCK!

Let’s say Social Security brings in $25,000 a year, to make $75,000 still requires you to have $1,875,000 in liquid assets at a risk free 4% return.  When people are struggling to accumulate 10X their income in retirement savings, what makes you think you’ll be able to achieve 19-33X?

Let’s be realistic here guys.  The only age group that might make sense are those in their 20′s, when their earnings power and therefore tax rate is still relatively low.  Then again, if you are earning a smaller amount, the absolute tax savings won’t be that important anyway.

3) The results are the same based on 2nd grade math. Whether you pay taxes now and let your investment grow tax free, or you let your pre-tax investments grow, and then tax it upon retirement results is more or less the same! Don’t believe me?  Do a calculation yourself.  Here’s an equation: Y = A * B.  Re-arrange to A = Y / B.  Or Y = A * B is equal to Y = B * A.

CONCLUSION

Whenever something sounds too good to be true, it probably is. There is a reason why the government is offering this new “one time”, no income limit ROTH IRA conversion in 2010.  The reason is they need your money!  The government knows that they can’t possibly raise income taxes much further than the already 5-10% increase Obama proposes in 2011, otherwise nobody would work, and capitalism would fall for good!

Lucky for you, you’re not a mindless zombie listening to everything the government and other sites tells you.  You realize there are seven no income tax states in America you can retire in, thereby immediately wiping away 5-10% of your taxable bill.  If you move to Hawaii, the state can’t legally tax your pension or retirement contribution!

It’s a good problem to have if you are making more in retirement than during your working life.  However, the facts reflect a high unlikelihood you will have have 20X-33X+ your income  in capital to draw from when the time comes.  And remember, 20X your income is just the BREAK EVEN amount in taxes you’ll have to pay, all else being equal.  You need to have 30X+ your income as capital for a ROTH IRA conversion to make sense at an interest rate return of 4%. Even if you do have 30X your income in your 401K, you can draw on the NUT at a much LOWER level to keep you in a lower tax bracket.

Never pay taxes unless you absolutely have to. Can you imagine when you’re about to retire, the government introduces new legislation which benefits Traditional IRA and 401K holders by offering LOWER tax rates?  Meanwhile, over the past 20-40 years, the government has been using your ROTH IRA conversion to spend on a party that one day needs to be repaid.  I’d be pissed.  Don’t let the government trick you into converting.  Once you pay them, you can NEVER get the money back.

Readers, if you don’t agree, don’t be shy and tell me why.   I’m sure I’m probably missing something, but I don’t know what.

If you believe in paying more taxes up front with a ROTH conversion, do you mind giving me 25-35% of your money now?  I promise I will give you your money back when you retire in 20-40 years.  Some new guy will be in office but I promise!

If you are from the FBI or government watch guard, sorry, but the people have the right to know THE TRUTH.  Your “Cash For Clunkers” program put in debt 200,000 people for cars they didn’t need.  We won’t allow hundreds of thousands more to not fully understand their decisions.

If you do agree with this article, please share with others to prevent them from walking off a cliff. Have a nice day.

UPDATE 07/19/10: If you ended up not listening and converting, and are stuck with a higher tax bill than your ROTH is worth since the markets declined, don’t worry.  You might get a second chance by “recharacterizing” your loan.

Keiju,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamura and subscribe to our RSS feed.

Related posts:

1. The Katana: Help Haiti If You Can 1/17
2. Charles Farrell of “Your Money Ratios” Speaks! Part I
3. Conventional Wisdom Leaves Much to Luck

David by Michelangelo

Here’s a guest post from Ryan at Planting Dollars.  I was intrigued by one of his comments of “failing forward” (not falling forward) and asked him if he’d be interested in writing a guest post about the topic.  Please enjoy and visit his site afterwards.  He has my envy of living in Hawaii and pursuing his dream of being a shark photographer!  Best, Sam

Have you ever noticed that some of the most successful people in the world seem to just naturally fit in their role? It’s as if they’ve been perfectly sculpted to be the best actor, businessman, or even blogger.

I have a secret to tell you… It’s because of their previous experiences… The one’s you didn’t see before they became wildly and unbelievably successful. These people are actually the biggest failures in the world! But shhhhh, I didn’t tell you that…

Don’t believe me? I want you to try something… The next time you talk to a successful person simply ask them this question:

“What failures have you experienced on your journey towards being where you are today?”

They’ll probably talk your ear off for hours and you’ll begin to realize this: They’ve just swung the bat of life a few more times and eventually hit one out of the park.

SCULPTING A MASTERPIECE

Think of your failures as the strike of chisel. Each chisel strike adds a little more depth and a hint of uniqueness to the block of marble your live started as. Each new experience and failure is a lesson in life that teaches you something. Now, if you decide to not take risks, to be complacent, avoid new experiences, and ideas your life will not change much. You’ll still be just a hunk of un-sculpted marble waiting, just waiting, for someone to come along and call you a masterpiece.

But if you take risks and fail, and fail you will, you’ll be chiseled into greater and greater detail until finally, you’ve become a masterpiece. A masterpiece that you’ve made yourself. Through failing forward.

WHAT’S THE BEST WAY TO CREATE THIS MASTERPIECE?

Dive In! Just Jump! Feet first, eyes wide open!

If there’s something you’re curious about, simply try it. You’re going to suck at it, I guarantee it. In fact, you’re going to look like an absolute moron, but you know what? Who cares? You’re still alive so just laugh about it, get up, brush yourself off, send me an email about how horrible it was then go try again. You should be excited to fail forward because you’ll be learning new things, constantly growing, and becoming step by step closer to your very own version of success! How is that not exciting?

THERE’S FAILING, AND THEN THERE’S FAILING FORWARD

There’s a big difference here. Einstein said it best when he said:

“Insanity is doing the same thing over and over again and expecting different results.”

If you’re not constantly failing forward, you’re probably not aware you’re failing at all. Be honest with yourself, see the signs, take a step back, and swallow your pride. If you’re not happy, if you’re not growing, if you’re not trying new things, you’re probably failing. Once you’ve realized you’ve failed there’s only one question you need to ask yourself to fail forward:

“Why did I fail?”

Was it because you didn’t try hard enough, was it because the other person was better prepared, was it because you were going in the wrong direction, was it because you’re overweight and frankly, she doesn’t dig fat guys? It could be any number of reasons, but ask this question to yourself, and more importantly, ask it from other people who’ve seen you fail. They’ll often give you priceless feedback that you can learn from.

PUTTING MY MONEY WHERE MY MOUTH IS: A COUPLE EXAMPLES

A One Way Ticket to Hawaii from Wisconsin: That’s what I bought two months ago when I took a risk and decided to follow my passion of scuba diving. I rolled the dice of chance to follow a dream without regrets. Turns out I didn’t have anything to be scared of. I snorkel in my free time, still work off my debt, and landed a job in a field I enjoy M-F, 40 hours a week. Meanwhile back home they’re getting snowed on! I think this might not even be a failure, but if it was… It would’ve been me failing forward…

This guest blog post. I’ve never written a guest blog post before. Especially not for a blog ranked in the Alexa top 100,000. This is intimidating and odds are, it’ll fail. But here I am, jumping, throwing my self out there so you can tell me how crappy this article is, but yet how I can improve it (hint hint… comments much appreciated). However, tomorrow I’ll know that I did something completely new, something that’s scary, and something that made me grow.

CONCLUSION

I challenge you to do the same, to leap, to jump, to try something new.  Once you’ve failed, realize that by doing so you’ve just become a little bit more chiseled and one step closer to becoming your very own masterpiece.

Ryan is a recent college graduate who blogs about personal finance, financial freedom, nomadic living, and following your passions.  One of my favorite articles of his is “How To Live In Honolulu for Less Than $1,000 A Month”!

Readers, how have you “failed forward”, and what have you learned from the experience?

I tried to teach my wife how to surf yesterday and failed forward.  She told me to leave her alone when I tried giving her a push a couple times when the waves came.  I was annoyed she didn’t want my help, because the iddy biddy waves weren’t big enough for her to catch on her own.  However, I knew she’d figure this out eventually, so I left her alone, not wanting to fight.  Besides, I think she was nervous, wanted to acclimate on her own, and felt bad “wasting” my time.

When I returned 20 minutes later, she was exhausted and realized she needed some help.  On one of the very last attempts, I gave her a push, and she stood up for a good 20 yards!  Success!  Sometimes she’s stubborn when it comes to learning new things as many of us are.  I feel that each time she pushes me away and fails, she realizes that I’m only trying to help.  This is my small story of failing forward towards better communication and understanding as a couple.  What’s yours?  Sam

Related posts:

1. The Elegance Of Failure
2. Creating Powerful Friends: Samurai’s Alexa Ranking Challenge
3. Financial Samurai Guest Posts For Wise Bread!

Raging against the machine is in my nature.  It annoys me to no end when I read about injustices such as government raises during our recent implosion.  I once skipped a morning of work to demonstrate against an apparel company which used racist slogans.  Up yours Abercrombie!  As I age, I’m discovering a more peaceful side that just accepts things the way they are.

There’s a lot of messed up things in the world such as war, poverty, and corruption.  Some things we can try to explain, and some things we can’t.  And yet, I wonder if every irrational thing has a rational reason?  Let’s look at some examples and decide for yourself.

The Kid Who Just Wants To Have Fun

Everybody knows that grades start accumulating in the 9th grade, and without good grades and SAT scores, the chances of getting into a good college, and therefore landing a desirable job goes down.  Is it really so bad that Johnny High doesn’t go to Yale, and become a rich physician?  What’s so bad about community college and working for $20,000/yr at a dead end job which he enjoys?  Nothing at all!

Johnny High’s decision to not study hard in high school is perfectly rational.  He chose to have a whole lot of fun, while other kids were miserable studying and participating in extracurricular activities to boost their resumes.  When he’s 35 years old and still working at his job with the same salary, he’ll think back at all the fun he had in high school and smile.

Who’s to say that being a multi-millionaire physician and going to Yale is good anyway?  He could end up incredibly miserable, with tremendous amounts of anxiety everyday as a doctor. Instead, Johnny High chooses to live a more relaxing life, and doesn’t care about money.  If he did care about money, he would have studied harder.  And if Johnny starts to care about money, he may go to grad school and give himself another shot.

The Lady Who Loves To Eat

Two years ago, my friend Shirley at 5 feet 3 inches tall, weighed 205 pounds.  She was considered obese, and didn’t have a boyfriend.  Sure she was out of shape, and longed to have companionship, but what she loved more than anything else was pizza, strawberry frosted cupcakes, and Mountain Dew.  Food was her first love, and everything else came second.

Shirley’s decision to eat herself into obesity is perfectly rational.  Shirley is proud of her body just the way it is, and therefore continued to consume copious amounts of food.  A year ago, Shirley asks if I’d like to work out with her once a week.  I say sure, but why the sudden desire to exercise?  She mentions there’s a guy that caught her fancy at a party, and she wants him to notice her.

Six months later, Shirley is down to 150 pounds, and is happily going out with her new man.  Pizza and cupcakes are no longer Shirley’s first priority, he is.

The Chain Smoker Who Enjoys His Lucky Strikes

Smokers know that smoking damages the lungs, instigates cancer, and shortens lifespans.  Yet, smokers smoke because the pleasure from smoking outweighs the long term detriments.  Smokers are willing to accept the pain of lung cancer for the buzz of nicotine.

After spending $100 on cigarettes a month for years and coughing up blood for weeks, a relative of mine decided to quit.  The desire to live long enough to see his daughter give birth outweighed his desire for nicotine.  It’s been 6 years since he last lit up, and grandpa visits his granddaughter every Sunday.

The Consumer With Seven Credit Cards

People realize that credit card debt is the highest debt around, yet thousands still don’t pay off their debt in full every month.  Credit card debtors are willing to pay 10%+ interest rates because the pleasure they derive from the items they buy outweigh the burden of debt.

Eventually, the pleasure from buying an incessant amount of useless things wears off.  Unfortunately, the payments still remain.  Some go cold turkey and cut up their credit cards, while others find second jobs to accelerate their debt repayments.

The Mediocre Blogger

Consistent blogging is hard.  If you want to create one of the best blogs, you’ll spend hours a day trying to develop relationships with others.  You’ll submit to every single carnival, write tons of guests posts, publish more frequently, be absolutely self-less in promoting others, respond to all your comments and buy an iPhone so you can become a Twitter and Facebook maniac to keep in touch with your readers.

Yet, you realize blogging is a hobby, which shouldn’t get in the way of a vacation, a relationship, or your full-time job, which is what really pays the bills and allows you to reach financial independence sooner.  You don’t let blogging take over your life, especially if you are the obsessive type.  It’s OK to step back and not publish as frequently.  It’s OK not to be the most popular and get all the awards.  Your main goals are to have fun, meet some new folks, learn, perhaps make a little money on the side, and find your own voice.  I love having a mediocre blog, and so should you.  It means we’re balanced!

The Defunct Politician

Corrupt politicians exist because we let them exist.  We elect corrupt politicians into office and allow them to take advantage of the system for their own good.  If we don’t like what they do, we vote them out.  The people of Illinois did just that to ex-Governor Rod Blagojevich, and impeached him for wire fraud and bribery.  We are pumped that 1,700 people from the Department of Transportation now make over $170,000/yr from only one, two years ago.  If we weren’t, we’d cause a raucous.  Instead, I went online to learn everything about becoming a DOT analyst!

The majority of people voted for George W. Bush that’s why he did a second term.  He may not have found the WMD’s, and sent thousands of troops in harms way, but at least he kept America safe from further terrorist attacks since 9/11.  Apparently, the Republicans caused this entire financial mess, and the people voted for change.  Whose now to blame for 10.2% unemployment, one year later?  It’s rational to assume that most Americans want bigger government involvement in our daily lives, massive budget deficits, and higher taxes.

The Miserable Employee

The miserable employee is OK with being abused, taken advantage of, and underpaid by her boss.  Everyday she happily comes in knowing that it’s just another day in paradise.  The miserable employee stays at her job because her fear of the unknown is much greater than the misery her work and boss brings.

Fast forward five years later, the miserable employee continues to stay miserable at her job so she never has to take any risks and therefore never has to fail.  The miserable employee, if she were truly miserable, would have found a new job by now.  All her complaining and whining is just smoke screen, as she secretly enjoys job security more than anything else.

The Absent Minded

Finally, ever forget to do something you tell yourself to do just moments earlier?  Damn, I forgot what I was going to write…. Oh yeah, for example, if you forget to pay your bills on time, it’s because bills aren’t important to you, and you are willing to pay late fees.  You forget your anniversary because you really don’t care about such things.  If you did, you’d have a present ready for him or her and waiting!

The next time you feel there’s something you should remember but can’t, tell yourself this: The reason why you can’t remember is because the thing you’re supposed to do is not important.  If it were important, you’d remember!

CONCLUSION

From the examples above, it sure seems like everything is rational.  We do things which seem wrong to others, but really makes perfect sense.  The next time you start feeling pity for someone or questioning their actions, don’t.  Eventually, everything comes back to center. If not, it’s because things are fine just the way they are!

Readers, do you agree that everything is rational?

Why do we care so much about how other people are?  Is our concern really our own selfish projections?

Shouldn’t we just leave people alone and let them be?  Everything seems to take care of itself in the long run, does it not?

Happy Holidays everyone!  Stay-tuned for the next Katana where we introduce a fun community event everybody can partake in next week.

Keiju,

Financial Samurai – “Slicing Through Money’s Mysteries”

Follow me on Twitter @FinancialSamura and subscribe to our RSS feed.

Related posts:

1. How To Dramatically Increase Your Job Security For Life!
2. Do “C” Students Deserve “A” Lifestyles?
3. The Most Important Tip For Job Hoppers: Join People, Not Firms

A Reuben, My Favorite!

There’s a fine line between being a jerk and being constructive.  As a parent, manager, spouse, or friend, most of the time we just want what’s best for others.  The problem is, we’re afraid to offend and we therefore lose any ability to help.

There’s no better reward than advising someone how to improve, and then watch them flourish.  Push the person too far, however, and you’ll engender resentment.  The Sandwich Method is one the best ways for delivering constructive feedback.

SCENARIO: Your friend Sam comes up with a corny idea for a website called “Financial Samurai.”  Sam thinks it will become a Top 25 personal finance site in the world one day and thinks the tagline “Slicing Through Money’s Mysteries” is catchy.  He thinks he’ll be able to retire off the advertising revenue and is already thinking about buying the latest Audi S5 and quitting his day job with his expected income.

You know better because there are 50 million active websites out there (200+ million total), and only the top 100,000 (0.2%) sites earn 74% of all the revenue according to Alexa.  As a friend, how do you knock some reality into Sam, without crushing his enthusiasm?

THE SANDWICH METHOD TO HELP SAM FACE REALITY:

1) Top slice of bread: Provide positive reinforcement about his idea!  Even if you think his idea is the lamest thing on Earth, it’s important to believe in the person because frankly, anything is possible.  You don’t want to be the friend who didn’t believe in him, and then see him crush it and resent you for not supporting him in the beginning.  Specifically highlight things he’s positive about that you can support i.e the domain name and tag-line in this example.

2) The Corned Beef & Sauerkraut: After providing encouraging words, provide suggestions on alternatives to his idea, the difficult competitive landscape, and the realities of starting a business in such a hyper competitive world.  You have to be the voice of reason, because whenever someone is so gung-ho about their idea, they often lose site of reality. It’s your job to shake reality into their souls.

“Did you know that after 6 months, most publishers quit due to a lack of interest, income, and drive?”

“Even if you had 1 million page views a month, at a CPM of $2.5, your one ad would only make you $2,500!”

“How are you going to compete against guys who blog full-time?  What about sites that have a conglomeration of writers?  There’s no part-time, full-time, conglomeration separation of battle fields.  The odds are stacked against you! But good luck, sucka!” (omit sucker and replace with fool).

“You may have to work harder than others because nobody will care about your project more than you.  You have no computer skills, you still have a really crappy computer, and you’re just not that interesting.”

Realities like the above helps squeegee the mist off of Sam’s delusional windshield.

3) The bottom slice of bread: Before your criticism goes too far, it’s important to return to all that’s positive about his idea.  Mention to Sam that with the right dedication, you believe he will succeed.  Highlight those who’ve made it, and use them as anchors to encourage his efforts.  The conversation should end with unconditional support, given that you have already provided all the pitfalls.

CONCLUSION

The Sandwich Method is a powerful tool for providing constructive criticism to your loved ones.  Sometimes huge financial risk is at stake, such as taking out a second mortgage to lever up and buy gold at $1,200!  It’s important to beat the living sense into those you care for without ruining your relationship.  After many blunders of my own, trust me when I say they’ll thank you, eventually!  The Sandwich Method will help if properly employed.  Anybody starving for a Reuben yet?  Happy Thanksgiving weekend because mine has already started!

Related Post: “You’re Rejected!  How I Use Rejection To Motivate Me Every Single Day.”

Readers, how do you provide constructive criticism to the people you care about in a way that doesn’t offend them?  Is it me, or do younger folks take criticism more personally that older folks?

Any full-time publishers out there?  If so, can you share with us your story of how you got there?  A link to your post if you wrote one with an intro is fine too.   Mike, Fitz, Jim, and David N. are also full-timers who I follow as well.  Neal, well I donno, he just seems like a Jet-setter!  Care to share your stories guys?

Keiju,

Financial Samurai - “Slicing Through Money’s Mysteries”

Twitter @FinancialSamurai and subscribe to our RSS feed.  You can also follow the comment thread by clicking the bottom button on the bottom left.

Related posts:

1. The DVD Method to CD Investing: The Only Way To Achieve Maximum Yield
2. Samurai Predictions And Resolutions For 2010
3. Why Do People Spend More Than They Earn?

In a stunning move to shore up a $535 million budget gap, the UC Regents voted to raise student undergraduate tuition by 32 percent (to $10,302/yr) this past Thursday!  Nothing like a little 10X increase over the rate of inflation to get blood boiling.

It’s really sad that during a difficult economic climate, the University of California Regents can conceivably raise tuition by such a magnitude.  Part of the reason why many of these fine students attend the UC system is because of cost.  Students from UC Berkeley or UCLA, for example, can easily get into many of the best private schools in America.  But for many, $40,000 a year in tuition is just too hefty a burden to carry.

The reality remains that due to careless spending by the state, budget cuts and a competitive market place for attracting top professors, tuition increases are inevitable.

TUITION HIKE FOR THE POOR IS LIKE A TAX HIKE FOR THE RICH

The parallelism of a tuition hike and a tax hike proposed by the Obama administration for the “rich” (35%->40% for the highest marginal tax bracket) is an eye-opening irony. As a student, I remember rallying against “evil corporations and the rich people who run them.”  It was just cooler being a liberal then since I had nothing monetary-wise to lose.  I may have felt very differently if my tuition bill arbitrary went up one day.

Students by definition are poor, because they are students and don’t work full-time.  Why should these UC students help fund the atrocious spending habits of the State? These students worked their tails off during high school to attend a world class university and shouldn’t have to pay for another organization’s indiscretions.  Yes, the education budget is down, but shouldn’t the budget have baked in spending over a normal cycle?

I feel the rage of the students because such a large increase is ridiculous.  What I wonder though, is whether students can better empathize with “the rich” for suddenly having to pay 5%-10% more in total taxes due to a new administration?  Those doctors, lawyers, and other high income earners, like the students, also worked hard to get to where they are.

Imagine if you’re a doctor who spent 8 years and $240,000 in tuition.  You’re ready to make your well-deserved 35%-taxed salary when the government tells you, “So sorry, give me 40% of your salary now! On top of that give California another 10% to pay for their bankrupt ways!“ How would you feel?”  Should the government disproportionately tax high income earners for their spending mistakes, just as the UC Regents bilk bright, hard working students by 32%?

Guess how many of the UC Regents took a pay cut?  Zero!  Oh how nice it would be to get a 27% pay RAISE to $400,000 as the Chancellor of UC Davis, or a 100% pay raise to $900,000 as the President of the UC this year!  This is a classic case of “Do as I say, not as I do.”

CONCLUSION – A BETTER UNDERSTANDING & EMPATHY FOR “THE RICH”

What I hope from this unfortunate situation is a better understanding from “the poor” why raising taxes for “the rich” by a disproportionate amount is not right.  Why should existing or incoming students pay for a budget gap they had no hand in creating?  The budget gap responsibility lies in the hands of state regulators and politicians.

The bright side is that the University of California has unknowingly created thousands of future fiscal conservatives who believe big government is bad and egregious pork spending should be curbed.  The solution to all government budget problems lies in fiscal prudence and not taxing honest citizens up the wazoo!

Remember, if you vote for big government, whether you are rich or poor, they will eventually come for you. And when they do, be prepared to greet them with your arms and wallets wide open.  Here’s hoping for a cash-for-jewelry program since I’ve always wanted a Rolex Stainless Steel Daytona!

Fight on students and never surrender.

Related Posts:

“We’re Ignorant Idiots!  Tell Us Why A Flat Tax Isn’t Fair” (105 comments, join in on the fun!)

“Do Higher Taxes Lead To Socialism In America?” (obviously, maybe)

Readers, what do you think about the UC system’s 32% tuition hike?  Is it a necessary evil?  Are there other ways we can fix this budget gap without putting the burden on students?  Do you think students experiencing this tax hike from famously liberal Berkeley will start empathizing with the rich?  Why are rich people so often considered evil?

Keigu,

Financial Samurai – “Slicing Through Money’s Mysteries”

Twitter @FinancialSamurai and don’t sign up for our RSS feed so you can visit more often and comment.

Related posts:

1. Why Are President Obama And The Democrats Against Charity?
2. We’re Ignorant Idiots! Please Tell Us Why A Flat Tax Is Not Fair.
3. Who Needs A Job When You Have A Private School Degree

A True Hybrid

Why is it that some hybrid vehicle drivers eventually start looking down at non hybrid-owning drivers in disdain?  Is the “holier-than-thou” complex too hard to contain during flights of fuel sipping passion?  It’s natural to feel that whatever you purchase is the right purchase.  After all, if I overpaid for a hybrid vehicle (zing!) in hopes of saving the environment when a similar non-hybrid vehicle will do, I’d defend my decision and look down on others as well!  Don’t be mad, let me explain.

THE FINANCIAL SAMURAI VEHICLE

For those of you who have been following this site for a while, you’ll know that I’ve had plenty of cars over the past 10 years, and I now drive a 9 year older beater SUV which is MAYBE worth $6,000.  I love “Moose“, as I affectionately call him, because he adeptly takes us up the snowy mountains during the winter with its 4-wheel-drive capabilities.  Moose can conveniently carry up to  5 people with plenty of storage space, which is especially helpful when our parents visit.  Too bad Moose only gets 15mpg in the City, and 19mpg on the highway.  I can hear the hissing and booing now!

I bought “Moose” for $8,000 three years ago, from a woman who was in a hurry to dump her car before relocating to Amsterdam.  Special brownies anyone?  The hybrid craze at the time was dizzying, where seemingly rational people would spend $25,000 for a Prius vs. $15,000 for a comparable Toyota Corolla.  If people did the calculations, they’d realize the premium price paid for the car is much greater than the gas savings over an average 7 year ownership period.

Consumers weren’t adhering to our “1/10th” rule either, as I knew plenty of sub $100,000/yr income earners spending $25,000 for these hybrids.  I must repeat here again that it is absolutely financial destruction if you are spending more than 1/10th your annual gross income on a car.  Multi-millionaires follow this rule, why shouldn’t the rest of us?  Don’t give into your weak desires!

MOOSE GETS DISRESPECTED, I FIGHT BACK

Moose and I lived in harmony with the hybrids for a couple years until we encountered an evil man on a bike one day.  The bicyclist rides up to Moose, gives him a “thumbs down”, and rides away.  After five minutes, we see the same bicycllist in a parking lot loading up his bike onto his Prius!  Annoyed by the encounter, I drive up to him and explain his hypocrisy.

“Hey you, with the spandex, and shaved girly legs.  You got a problem with us?” I ask.

“Uhhh, no problem.  How can I help?” he answers in shock.

“You dishonor Moose here,” I say as I pat the dashboard. “Let me tell you why your hybrid is worse for the environment than Moose.  You think you’re all enviro friendly and cool just because you have a Prius, but you’re wrong.”

“Uhhhh?”

“By buying a new hybrid, you do more damage to the world than any second hand purchase car can do.  You see, unless you destroyed your old vehicle, you ADD to the world’s pollution when you buy new.  You encourage car manufacturers to pump up their production volume, emitting an incredible amount of waste in the process.  Your Hybrid has higher emissions than zero, compared to zero incremental emissions from my second hand car!”

“Hmmmm, I see.  Please don’t hurt me.”

“So quit with your superiority complex Steve, and hand me a beer!”

“Ok, Sam, you win.  I was just fooling with you!”

We hug it out and go for a ride together.  We’re actually not strangers, but buddies!

CONCLUSION

Good for you for owning a hybrid, just don’t look down on us who don’t.  We may not be able to afford a $30,000 level 4 Prius because we don’t make $300,000 a year like you.  More scientifically, now you know that if you don’t lead your old car to the slaughter house, hybrid owners are doing more damage to the world than us poor second hand vehicle user folks. If you’re considering a car to save the world, then ALWAYS buy second hand, and preferably make it a hybrid if you really care!

Don’t be a vegan who wears leather shoes.  It’s just not right.  Let us all continue to co-exist peacefully.  Ahhh, I feel better now.

Readers, why do you think people buy hybrids when the price premium over a comparable non-hybrid car takes at least 5 years for the consumer to break even under normal driving conditions?  Do some consumers try and belittle other consumers to justify their purchase?  From an environmental point of view, are there better ways we can help the environment?  Do you name your cars silly names like I do?

Keigju,

Financial Samurai - “Slicing Through Money’s Mysteries”

Twitter @FinancialSamurai and subscribe to our RSS feed!

Related posts:

1. Sometimes Saving Money Is About Principle
2. Play Games To Save Money And Achieve Your Goals!
3. Germany’s Missed Opportunity To Save Greece & Themselves

I thoroughly dislike watching CNBC for investing purposes due to all the noise.  When the markets are up, they bring on every single pundit to talk about how the market is going higher.  When the markets are down, they bring on all the bearish pundits to tell you why the world is coming to an end.  I remember when the S&P hit the ominous 666 level earlier this year, they brought in a “famed” technical analyst who said to expect S&P 200 by year-end.   What was her name again? I forget.  Watch CNBC for entertainment purposes mainly, and a little bit of learning.  Don’t watch CNBC to get rich.

Sometimes though, CNBC puts together something great.  And that great feat was bringing Warren Buffet (Columbia B-School Alum) and Bill Gates together in a town hall with all their business school students to ask them questions.

Here are some of the most memorable lines paraphrased from the show:

“Work for someone or an organization you admire.  When I moved from Nebraska to New York to work for Ben Graham, I didn’t care what my pay was.  I had no idea.  All I knew was that I admired Ben greatly, and was happy to be working for him.”

Warren’s response to what advice he has for anybody who doesn’t know exactly what they want to do?

“Buy and hold is not dead.  This financial crisis has not deterred our investment philosophy at all.  I don’t care about what happens tomorrow, next week, or even a year from now.  Invest in the long term as good businesses are going to be worth more over time.”

Warrens response to whether this financial crisis has changed his buy and hold investment philosophy.

“Run this business like this is the only business you can run for the next 100 years.  Understand the motor of the business and its competitive advantages.”

Warren’s annual letter to his 70 managers when asked how he continues investing for the long term.

“Everybody says cash is king, but it is not.  Cash is a terrible investment and will likely lose value over time.  By the time you see the Robins sing in Spring, it’s too late.”

Warren’s response to whether he believes the latest rally is for real and whether investors should hold cash instead of invest in the market now.

“It’s 50 years of preparation and 5 minutes of decision.   The good big decisions don’t take any time at all.  If they take any time at all, you’re in trouble.”

Warren’s answer when asked how he can make such quick and massive capital deployment decisions.

“There are a few magic moments where you have confidence in yourself.  You have to have brash self confidence.  Trusting yourself, and saying yes.  These opportunities don’t come a long very often, so seize them while you can.”

Bills answer to what one of his defining qualities are as a person to make him such a success.

“I’m good at making money, however, if you read Adam Smith’s book, it’s all about the specialization of labor.  I know that Bill & Melinda, as well as my children are better than giving money away and helping others than I am.  That is why I entrust them.”

Warren’s answer to discussing his $30 billion charitable donation to the Bill & Melinda Gates foundation.

“If any student wants to sell their future stream of income, come see me after the show.  I’ll buy them now for $1,000,000, or 10X your estimated yearly earnings.  If you improve your communication skills, I’ll pay you 50% more!”

Warren’s answer to how he see’s value investing and the value of an MBA education.

“You bet!” and “On Margin!”

Bill and Warren response to whether they’d buy the United States if it were a stock.

CONCLUSION

I can see now why someone bid $2.1 million to have lunch with Warren Buffet in 2008.  He’s a smart, humble, and inspirational man.  Bill, you’ve changed from a tenacious business titan to a great philanthropist, so you ain’t so bad yourself.  Thanks to both of you for your inspiration!

Questions for Readers:

* Warren Buffet went to business school and is the greatest and wealthiest investor of all time.  Do you think business school has anything to do with his success?  I ask because Bill is even wealthier and didn’t even finish college.

* Do you think Columbia business school students, and business school students in particular have a competitive advantage due to the access they receive?  If so, why don’t more people apply to top business schools if they want to make more money?

* Who are other inspiration leaders and business men you follow and why?

Here is the full video:

Keigu,

Financial Samurai – “Slicing Through Money’s Mysteries”

Twitter @FinancialSamurai and sign up for our RSS feed.

Related posts:

1. Charles Farrell of “Your Money Ratios” Speaks! Part I
2. The Katana: 200th Post And A Thank You To All Readers!
3. Hire A Financial Adviser or Lose Money All By Yourself For Free?

Art by Daryl Cagle

People have been freaking out lately by a weak US dollar.  I’m here to tell you it doesn’t really matter.  Did you know that 60% of Americans have never left the country and less than 25% of Americans own passports?  Most of the 40% who leave come back, so it’s only a temporary amount of time when their purchasing power may be relatively hurt.

An even better statistic states that only 20% of Americans speak a foreign language.  Hence, where the heck are the 80% of Americans going to go if they can’t communicate with the locals?  Ok, so they may understand what “I want a double quarter pounder with cheese please” in English means, but we aren’t going very far if we can’t speak another language.  Sure a vacation is fine, but it’s not like we Americans are suddenly going to relocate overseas and establish roots.

If you are an American who makes a US$ denominated salary, buys US$ denominated assets like property, consumes Levi’s jeans, and never plans to leave the country, what are you freaking out about? The US Dollar can depreciate by 90% against the Euro, and it still wouldn’t really matter.

INFLATION FEARS OVERBLOWN

Economic theory states that for every new dollar printed, inflation will rise by a commensurate amount, eventually.  You can read more about the IS/LM model at work here, but it’s boring as hell. The issue is that the output gap is running at 7-8%, so there’s still a ton of slack and you don’t have to worry about inflation.

Yes, it might suck that your BMW becomes prohibitively expensive in the short run, but in the long run, if European and other foreign producers desire to sell to the US, they will find ways to lower their prices accordingly.  In the meantime, shouldn’t you be buying American in this economy anyways?

You might argue that so much of the input costs of the final good comes from foreign labor and parts.  That’s true, but all you have to do is move down the cost curve in your consumption patterns.  Instead of buying the TV from Best Buy, you go to Costco.  Instead of buying the couch from Pottery Barn, buy from WalMart.

GOOD FOR EXPORTS

A weak USD helps US exports, making our goods cheaper to foreigners.  If we can’t sell goods at home due to a weak economy, what a blessing it is to sell to foreigners!  We dump our inventory on them, and make some money in the process!  The problem is the US is a relatively closed economy with exports as a % of GDP hovering at 11%, or #157 in the world compared to Singapore, at 173%.  In this regard, a weak dollar only helps a small percentage of the economy, but also  argues the point that we are a self sufficient country.

The most interesting exchange rate competition lies between the Korean Won and Japanese Yen.  Over time, you’ve seen Korea’s export economy resemble that of Japan’s export economy.  Toyota is matched up against Hyundai, while Sony battles with Samsung Electronics.  Korea’s export manufacturers are eating a lot of their counterpart’s bento boxes recently!

FUNDING OUR DEBT

Many fear that if the USD continues to depreciate, foreigners will stop funding our debt (buying our treasuries).  That could be true, but frankly, foreigners like the Chinese are STUCK with over $800bn in US treasuries!  If they stop buying our pitifully yielding 3.3% 10-year Treasuries,  their US Treasury portfolio is going to tank, and they are going to lose billions more!  Would you chop off your arm if you only had to chop off your pinky (accept lower rates)?

China can’t help but not continue funding our debt because it is one big “virtuous” cycle.  Americans need cheap money to leverage ourselves to buy cheap Chinese goods (we imported $340bn worth of Chinese goods last year), and China likes selling their cheap goods to us.  The world knows Americans are addicted to consumption and in a way, foreigners are like junket Casino operators who extend credit to addicted American gamblers.  One day we will have to pay back the loan, or face a big man in a dark alley ready to break our knee caps. But, for now, the USD will remain the reserve currency of the world as foreigners can’t live without our consumption power.

CONCLUSION

Let’s be very clear here.  The fear of a weak USD stems from the protectionist mentality of America’s business and political leaders whenever a recession hits.  A weak currency invites “foreign invaders” who end up purchasing more of our assets, goods & services which for some reason folks don’t like.

There’s also a pride issue for those who really care about our currency.  We’re embarrassed when we see that the USD no longer buys 100 Yen to the dollar.  But, who cares?  Honda Accords are made in the US anyway!  A weak US dollar is a symptom, not a problem. Get over it and start chanting, “USA, USA, USA!”

Update: In “Samurai Predictions and Resolutions for 2010” you’ll see why a weak USD doesn’t matter.  The reason is simply because I’m bullish on the USD!

Readers, do you agree with the thesis that a weak US dollar doesn’t matter?  If so, why do you think it’s necessary to have a strong US dollar?  And please, do mention how many languages you speak.

Keigu,

Financial Samurai - “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamurai and sign up for our RSS feed!

Related posts:

1. The World Stock Markets Are Crashing & You’re Going Shopping?!
2. Should I Refinance Now? Does A Bear Poop In The Woods?
3. Why Do People Spend More Than They Earn?

The first winner is Eric, a senior from UCLA!  Eric commented sincerely about his concerns post graduation, and whether or not it is a good idea to go to a “2nd tier” business school or just work for whatever company that hires him first.

We’ll be working with Eric to strategize a plan after UCLA and coach him through the process of finding a job in his desired field of finance, or applying to business school.

A Special Thanks To The Following For Retweeting:

@EvolutionWealth from Evolution of Wealth

@MinorityFortune from Minority Fortune

@WiseBread from Wise Bread

@MoneyNing from MoneyNing

@Green_Panda from Green Panda Treehouse

@Studenomics from Studenomics

@BudgetsareSexy from Budgets Are Sexy

@BrianScheur from My Next Buck

@SarahTownes

@CJBowker

We’ve decided to keep the competition open for another week to see if there are any other folks out there interested since we said there would be two winners!  How many times have you gone on Craigslist to inquire about that something you’ve wanted, to only find out it was sold!  We hope by extending the competition we’ll be able to give more people a chance to discover our giveaway.

Twitters please feel free to e-mail me as well about your interests, because besides being so generous about retweeting, I’m not entirely sure whether some of you are at this time interested in applying to b-school.

We’d love to help so don’t be shy.  Happy Halloween!

Related Posts:

“Financial Samurai $1,000 Giveaway And Your Chance To Make Millions Over Your Career”

“Go To Grad School, Get Rich Or Die Trying”

“Survey Says: Get A 3.9 GPA and 1,300 On Your SAT’s And You’re Set For Life”

Best,

Financial Samurai – “Slicing Through Money’s Mysteries”

Twitter @FinancialSamurai and subscribe to our RSS feed.

Related posts:

1. Financial Samurai $1,000 Giveaway & Your Chance To Make Millions Over Your Career!
2. Samurai Reflections of October & Goals for November
3. Book Review & Giveaway: “Your Money Ratios”

“It’s not whether you have your MBA, it’s where it came from,” writes John Micklethwait, Editor-In-Chief of The Economist. I’m sure on at least two levels, he’s upsetting people. On one level, those without MBA’s are going to find it presumptuous that getting an MBA is a foregone conclusion.  On another level, there are thousands of MBA grads who didn’t attend the top tier schools who will take offense as well.

John is smart to be so opinionated because after all, the people who will be buying his magazine are those who have always wondered whether getting an MBA is a good idea.  He forces the assumption that if you picked up his magazine, you must get an MBA, and not just any MBA, but one of the top schools from his polls.

I don’t entirely agree with John, but let’s face reality, getting an MBA is gradually becoming the new standard for newcomers to the world of finance because some go-getter decided it was the right thing to do and succeeded to get others to follow.  The MBA is also too expensive to not try and go to the best school possible (although it’s not the end of the world).  The inertia is too strong to reverse now!

Here are some of the takeaways from the magazine:

1) The average MBA graduate from all schools in the world earn about $90,000.  European MBA graduates earn $107,000, compared to $70,000 in Asia.

2) The Top 10 US MBA schools have an average salary + bonus figure of $120,000 – $125,000 post graduation.

3) All six of the American schools in the top ten have average GMAT scores of over 710 (out of 800). In contrast, students at London average 693, at IESE 685 and at IMD just 675.

4) The rankings are based on what the students want: increased pay, to open new career opportunities, develop a larger network, and personal development.

5) “Cheap” programs regularly cost well over $100,000 after accounting for lost wages, tuition, books and living expenses.  More emphasis should be put on part-time programs and their benefits given the costs.

SAMURAI $1,000 READER GIVEAWAY

I think it’s pretty clear by now there are enormous monetary benefits of getting your MBA from one of the top schools.  We highlighted last week those with graduate degrees have net worth levels 160% higher than those with only bachelor degrees. If you want to make more money, know that an MBA helps your cause tremendously.

The giveaway we are proposing is $1,000 worth of consulting advice to give you the highest chance of getting into your dream school!  Getting into a top tier business school could mean the difference of making millions over your post grad career.  Go to any MBA consulting service, and they often charge much more.  In fact, I was surfing the web and found that a site called “Personal MBA” charges $1,500 to coach someone 2 hours a week for a month for someone to get a “Personal MBA!” (not a real credential, but a great service and good idea!).

What We (Editor and I) Are Going to Do For You:

* We are going to be brutally honest and tell you whether your application has a chance or not.  Your parents and friends are nice, but can’t be trusted to tell you the whole truth!

* Good or not, we will optimize your resume, essays, and overall application.  You need as many objective eyeballs reviewing your application as possible!

* We will conduct two mock interviews and provide communication tips you need to work on, because frankly, communication is one of the key deciding factors.

* We will will be as involved as you want us to be and are committed to spending up to 8 hours just on your application.

We Think We Are Qualified Because:

1) We both have MBA’s from a couple of the top 10 school listed in The Economist’s rankings above.  We’ve also been accepted to several other business schools and have a proven record for success.

2) We have interviewed over 150 MBA candidates in our careers post grad and more than 400 candidates if you include undergraduate candidates.  In fact, I (FS) was just at a Haas Berkeley recruiting fair last month for 3 hours.  We are the end game (a post MBA employer), and have a solid grasp of what an ideal candidate looks like.

3) We know how the admissions process works and what they look for.  How?  We have developed friendships with senior people in the admissions department.

We might be small fish in the personal finance blogosphere, but believe me when I tell you one of us, was a very senior executive at a major Fortune 500 firm, and I am no dog chow either.  We genuinely just want to help and are not driven by money as evidenced by the lack of ads on the site.

Maybe you’re not interested in getting your MBA, but you have a friend who does. Please feel free to let them know.

To Participate Simply Do One or More of The Following:

* Provide a comment as to why exactly you want to get your MBA and why you disagree or agree with The Economist’s ranking.

* Twitter this post and let me know you’ve done so.  Our address is @FinancialSamura

* Tell someone at a major media publication about our giveaway and let us know who.  Frankly, if this post gets picked up by The New York Times, you win!

* Invite friends to Financial Samurai by highlighting this post, or any post in our archives on your Facebook “What’s On Your Mind?” box.  Have them comment “(Your name) sent me” and any other thoughts as evidence.

Winners Will Be Announced on Sun,  Nov 8!

There will be one main winner, and one minor winner based on who are the best publicists.  Maybe nobody will be interested, but maybe the internet will work its magic and find people who believe in the degree, and care about their careers, especially since round 1 applications are due in November.  It will truly be interesting to see how this promotion evolves or not, and will be the topic of a future post.

People are spending thousands of dollars on GMAT courses as well as personal consultants. High GMAT scores alone aren’t good enough.  In fact, I’ve seen plenty of sub 600 GMAT scores and poor undergrad GPA candidates get into top schools. The difference is your overall application, communication skills, and whether you have a connection helping you succeed.  This is our attempt at evening the odds!

If you build a relationship with us, by the time you graduate, you’ll have some of your biggest champions introducing you to various people in the private equity, investment banking, management consulting and start up arena.  How much is your future worth?

Related Posts:

“Get A 3.9 GPA and 1,300 On Your SAT’s And You’re Set For Life!” (a first chance at school)

“Go To Grad School, Get Rich Or Die Trying” (a second chance at school in case you messed up the first time)

“To MBA or Not To MBA” (what went through my head when I was deciding whether to go)

“The First $1,000 MBA Giveaway Winner Is…..”

Keigu,

Financial Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamurai and subscribe to our RSS feed.

Related posts:

1. And The First $1,000 MBA Giveaway Winner Is………..
2. Survey Says: Get 1,300 on Your SAT’s and a 3.9 GPA And You’re Set For Life!
3. Ouch! Sam Bradford & New College Academic Polls