Monday, March 2, 2015

Trust No One!

In the dark of the night, a nameless, obviously powerful man, known only as the well manicured man, gave Fox Mulder some advice, “Trust no one, Mr. Mulder.” When it comes to issues involving your freedom or your money, two deeply intertwined issues of life, trust no one. Don’t even trust what you read in the pages of this blog. Instead, study, evaluate what you have learned, propose an experiment to demonstrate the efficacy of a proposition, run the experiment, and evaluate the results.

It is your life. Decide what financial freedom means to you. If you have not achieved this goal, examine your life. Where do you stand? What is working? What isn’t? Then begin to study the teachings of authors and experts who claim to have the answers to your questions. Evaluate their creditability and their track record. Does what they are saying make sense? There are some highly skilled snake oil salesmen out there, but the gurus who offered become an instant real estate millionaire with no money down seminars in 2006 have been overtaken by events. There are some books like Your Money or Your Life by Joseph Dominguez that have been around for more than 40 years. Get the latest edition. The investment advice in the original is no longer valid in the Bizarro ZIRP (Zero Interest Rate Policy) World created by the governors of the G20 central banks.

Even successful, responsible pundits make mistakes. Paul Samuelson, the father of modern economics, once quipped, “To prove that Wall Street is an early omen of movements still to come in GNP, commentators quote economic studies alleging that market downturns predicted four out of the last five recessions. That is an understatement. Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties.”

Books and lectures are good. A life, well lived, is better. Look around you. Who is doing better than you with what you have? It is not likely that I would be able to learn much of value concerning money management from a cardiologist earning $350,000 a year, especially if he is up to his eyeballs in debt. There are two measures of money income and net worth. It might be more useful for me to find a 60 year old couple with a combined household income of $60,000 who have managed to build a net worth in excess of $720,000. According to the well proven formula proposed by Danko and Stanley in the Millionaire Next Door, this couple would qualify as prodigious accumulators of wealth.

Once you have a grip on basics, like consistently live below your means, save 10% of your take home pay before creating your monthly budget, and pay off your credit cards every month or don’t use them until they are paid off; start an experiment in the laboratory of your own life. Then measure the results.

Unlike questions of faith there is no infallible authoritative Word of God when it comes to financial questions other than the Intelligent Investor by Benjamin Graham. That’s just a personal finance joke but take the time to read that book as well as the latest edition of A Random Walk Down Wall Street by Burton Malkiel. No one can predict the future with 100% accuracy. However there are financial principles that are timeless. You can find many of them in places like Deuteronomy, Proverbs, and Ecclesiastes.

The Golden Rule might be a good foundation for any business relationship or financial transaction.

Luke 10

25And one day an authority on the law stood up to put Jesus to the test. “Teacher,” he asked, “what must I do to receive eternal life?”

26 What is written in the Law?” Jesus replied. “How do you understand it?”

27 He answered, “Love the Lord your God with all your heart and with all your soul. Love him with all your strength and with all your mind. And, Love your neighbor as you love yourself.”

28 “You have answered correctly,” Jesus replied. “Do that, and you will live.”

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