Marketing (Know Your Enemy)

"Marketing is the process of communicating the value of a product or service to customers, for the purpose of selling that product or service."
Wikipedia

They’re everywhere and they are out to separate you from your money. They are some of the smartest most creative people on the planet, backed by best high technology money can buy, psychologists, statisticians, and sociologists. They are watching you, studying your behavior, and planting their messages deep in your mind.

Outdoor Advertising
Newspaper Advertising
Magazine Advertising
Direct Mail
Radio Advertising
Television Advertising
Internet Banner Ads
Email Advertising
Social Media Advertising

I just read that the total amount of money spent on advertising in 2011 was $464,000,000,000. That is 464 Billion; with a B dollars. This money was spent by flinty eyed, hard nosed businessmen for one reason. It works. Of course they want your undivided attention. They want to tell their story. They do not want you to dump spam emails without opening them, but they do not need your undivided attention. Radio ads are subconsciously delivering their message even as your mind is focused on something else. Certain ads intentionally distract your mind to subconsciously deliver the message. Men, consider beer ads that feature bikini girls jumping around in front of flashing lights. You are not paying attention to the message but it is registering in your brain. Women, whenever you see a strong handsome man holding a baby or playing with a little puppy, someone is coming after your money.

"Data mining (the analysis step of the "Knowledge Discovery in Databases" process, or KDD), an interdisciplinary subfield of computer science, is the computational process of discovering patterns in large data sets involving methods at the intersection of artificial intelligence, machine learning, statistics, and database systems. The overall goal of the data mining process is to extract information from a data set and transform it into an understandable structure for further use. Aside from the raw analysis step, it involves database and data management aspects, data pre-processing, model and inference considerations, interestingness metrics, complexity considerations, post-processing of discovered structures, visualization, and online updating."
Wikipedia

According to a 2009 article from the New York Times entitled “What Does Your Credit Card Company Know About You?” the data mining revolution began back in 2002 at Canadian Tire. One of their executives, J.P. Martin began to analyze every single credit card transaction from the previous year. As he sorted through this data he discovered our purchases were “a window into our souls.” What we bought as well as the brands we bought were in and of themselves very good predictors of our willingness to pay off our debts. Some his discoveries seem pretty funny, “People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments. Anyone who purchased a chrome-skull car accessory or a “Mega Thruster Exhaust System” was pretty likely to miss paying his bill eventually.”

Every time you walk into their store, every time you use your credit card, or one of those loyalty cards that hang from your key ring, they are watching you. They have more time and money to study you and modify your behavior than you have to study them. They even have a given this field of study a name, predictive analytics. It is being used by politicians, football coaches, as well as every major retailer in America. The ultimate goal, the brass ring of this discipline is identifying and capturing your mind at key turning points in your life, when you break old patterns and start new patterns. If they lock you into a new pattern, they have you for years. When we are presented with a new challenge, like running a maze for a piece of cheese, our brains are working overtime. We are presented with a trigger, the maze, then we begin an activity, exploring the maze, this results in a reward, cheese. As we are repeatedly exposed to this same pattern, over time we put our brains on autopilot, just living and reliving the activities of everyday life.

“Marketers must shift their focus entirely from “telling and selling” to “listening and learning.” Customers do not want marketing relationships with your company they want service relationships.”
Hans Peter Brondmo

This quote captures the essence of what is called new paradigm sales, a theory that begins with the notion that every person has his own values and goals. These are not the same as your values and goal but they are every bit as valid and valuable to him/her as yours are to you. These techniques require a marketer to listen to the needs the prospective client. Rather than pitching a product, you as the facilitator allow the customer control of the content of the conversation. In this model the sales person controls only the structure of the conversation, allowing the customer the opportunity to discover her own needs through carefully constructed questions that lead the client to a conclusion that makes them believe buying from you is safe. The goal for the new model marketer is not to treat every prospect as a potential sale but to treat every prospect as a potential profitable relationship.

The utilization of social media, such as Facebook or Twitter is still in its infancy but consider how much information is available, personal information. Right now companies are just using banner ads and an occasion “like this” ad in your stream. If you like it, they spam you. Sooner or later, they will get smart and begin to tailor what you see to who you are. Remember, you are the only product that Facebook has to sell to its real customers, the ones who pay the bills. Consider, what if a really smart marketer determined I was interested in investments from data mining my Facebook page. He already knows my age. He could learn from my posts that I am retired. How valuable is that information?

The best marketing organizations already understand retention is the name of the game. This has been called “Thank you” marketing. The casinos in Las Vegas have been living on this for years. Their best customers receive a limousine ride to their local airport where a private jet will whisk them to Las Vegas at no charge. Even when a really small time gambler who worked in my office went on an annual trip with his buddies to a second tier casino in Vegas they upgraded their rooms, gave them money to put in the slot machines, and discount coupons for their meals. Loyalty card programs are beginning to offer coupons that you might actually want to use based on your buying patterns. Say you buy a bag of coffee every two weeks. Right before they think you will be buying your next bag of coffee, you will magically receive a discount coupon for a more expensive brand. As the use of Facebook or Twitter or the “next big thing” become more sophisticated, thank you marketing will become more personal and more important.

This is for churches.

“Suppose one of you has a hundred sheep and loses one of them. Doesn’t he leave the ninety-nine in the open country and go after the lost sheep until he finds it?"
Luke 15:4

Some marketers have even figured out the parable of the lost sheep. Why would the good shepherd leave the ninety and the nine to waste his time on the one? This doesn’t make any sense. Why would Steve Wynn, one of the men who built Las Vegas, celebrate and reward his employees when they engage in this kind of activity. Why would the Internet millionaire, Gary Vaynerchuk, tell stories about giving ridiculous levels of personal service even when it does not make any financial sense? They understand it isn’t about the lost sheep. It is about the ninety and the nine who are talking with their friends in person, on Twitter, or Facebook. How many thousands could ultimately hear your story because, just for a couple of hours, you left the ninety and the nine?

These very smart men know there is another Bible verse that applies the shepherds who understand the parable of the lost sheep.

My sheep hear my voice, and I know them, and they follow me:
John 10: 27

Too Soon Old Too Late Smart

It was a while ago so I don’t remember the particular event, but it was one of customer service center phone calls. I think it may have had something to do with the estate bank account. We were hit with an unwarranted fee. It was going to be removed or the account would be terminated. Period. I was not a happy camper. After going through the phone tree and listening to several minutes of elevator music punctuated with apologies I had the opportunity to speak with a human being who could actually speak English. She removed the offending fee or fixed the problem. Then I hung up the phone. My wife observed, “You didn’t say thank you.” She then preached a little sermon on the virtue of saying thank you to people who actually do what you want them to do for you.

Mea culpa, mea culpa, mea maxima culpa.

I think I was pretty good at saying thank you in the workplace, but I probably have been pretty bad about rewarding (through a simple thank you) behavior that I want even if I didn’t get the desired result or in the case where getting the desired result was a pain in the butt. Behaviorists have demonstrated that the most effective method of conditioning involves rewarding the desired behavior; not the desired result or punishing undesirable behavior. I think anyone who has ever tried to train a child or a puppy understands this concept.

I am trying to do better. I don’t like saying thank you to people who are just barely doing their job or who work for an organization that is manifestly not doing its job, but I am trying to improve. I am willing to admit that my wife and my mother are probably right on this one.

I like to really mean it when I say thank you. When a clerk goes to the storage area to determine if they have something that is not out on the shelf, I thank them profusely whether they find what I was looking for or fail in the attempt. Sporadically, throughout my life I have tried to put some teeth in my thank yous for really extraordinary performance. Most recently I wrote a letter to the president of my first alma mater, detailing the extraordinarily excellent performance of one of his ticket agents. One time she opened her office and fired up her ticket machine an hour early just for me. On the second occasion she gave me a free upgrade to better seats because she could not provide me with what she considered acceptable seats. If he had six more employees like that one working in his ticket office, I believe ever game would be a sellout.

Hey! It doesn’t cost you anything and it just might make the world a better place. Can you imagine a world where your boss noticed what you were doing and actually thanked you for desirable behavior?

Why do I have this memory of my mother saying in that tone of voice that mothers get, “Say thank you to the nice man.”

An Old Man Meditates on The Jobs of a New Millennium

I was born into a world where a high school graduate could reasonably expect to support his family with a somewhat unpleasantly mindless job in a factory. If he was even half way reliable, he could expect near lifetime job security minus a layoff or two here and there along the way. The same job would provide the employee and his family with health insurance. After thirty years of faithful service, he could expect to receive a gold watch and a guaranteed pension. A little further up the socioeconomic ladder a college degree, any college degree guaranteed a white collar job in some factory back office, a bank, or some Governmental sinecure. A degree in a technical or medical specialty guaranteed a good paying job for life.

That world is gone. Globalization, automation, and regulations (particularly environmental regulations) have eliminated something on the order of 20,000,000 industrial jobs in this country. American industry, once the wonder of the world, generated the surplus wealth that allowed an unprecedented quality of life for even average men and women.

If your job can be outsourced to a lower cost subcontractor in this country or a low wage worker in some third world country, your job will be outsourced. If the task you perform on the assembly line or even if you practice a skilled trade, if you can be replaced by an intelligent automated machine tool or a programmable robot, you will be replaced. This applies equally to white collar jobs that are disappearing into the cloud. If regulations make an industrial operation unprofitable in this country, those jobs will migrate to a less regulated region of the world. The Chinese in particular are intent in building their country into a first class superpower. A few million dead from industrial pollution is considered acceptable collateral damage.

Today we are maintaining the illusion of wealth through two income families and borrowed money. There will be a future. Some will become successful, but that future will demand new assumptions and new skill sets.

First, do not assume that you will be able to support yourself throughout your lifetime with one skill. Even technical and medical skills can grow stale. Certification in some computer specialty that is in high demand today will be worthless tomorrow. The ability to operate a hard chrome plating bath is of no value when regulations limiting exposure to hexavalent chromic acid fumes shuts down your plating operation.

Think like an employer. Ask yourself, what am I worth? If you want to earn $40,000 a year, understand that you are costing your employer somewhere between $60,000 a year and $80,000 a year depending on the overhead associated with your industry. Would you pay yourself $75,000 a year for what ever it is that you do? If you want that job you will need to provide at least that much value to your boss or he will go out of business.

The best way to increase your value to your organization is to increase your own personal value. How can you make yourself a more valuable human being? What skills can you add to your toolbox that will make you a more desirable employee? What are the problems and questions that keep your boss awake at night? How can you answer those questions?

Of all the skill sets that will be required in this brave new world, I believe entrepreneurship will be the number one, most important skill. When I was in school we were not even taught how to spell entrepreneur let alone how to become one. We were taught how to sit in rows and obey orders. Those were valuable skills on an assembly line in the industrial age. They are no longer of much use.

An entrepreneur needs:

The ability to spot opportunity
The ability to properly evaluate risk
The ability to sell a product

Psychological and social skills including:

The ability to engage others, generally (networking)
The ability to negotiate with other organizations
The ability to organize and inspire employees

Oh, let me mention sales skills a second time.

English is still the worldwide language of science, technology, and business. This is gradually changing as globalization continues to develop. As the newly industrialized states of the developing world begin to generate surplus wealth, they will develop their own technological and financial infrastructures. The ability to speak a second language, now a luxury, will become a necessity. A second language by itself isn’t worth much, but a second language combined with a valuable technical or business skill set will make you an extremely valuable employee in this country or in another country. Your children or grandchildren may become immigrants even as your grandparents or great grandparents were immigrants in this country.

Because one skill is no longer enough, dedicate yourself to becoming a lifetime learner. The world is constantly changing. There is no guarantee that what you are doing today will be of value to anyone tomorrow. Look for opportunities to study new subjects or keep your current specialties current. I think this is particularly true in the scientific and medical communities, but even more humble trades like the automobile mechanic have become technical professions requiring advanced computer diagnostic tools as well as specific certifications for particular types or brands of vehicles.

Do not believe that another degree or certification in another computer language will guarantee your future any more than that first degree that didn’t get you a job. Once you have that new skill, find a way to practice that new skill, even if you need to start your own business.

Teach others even as you learn. Knowledge and wisdom are the only things that you still possess once you have given them away. If you are able to successfully teach a skill to another you will find that you have deepened your own understanding. You have also made the world a better place. That will not go unrewarded.

Think Like a Sicilian

You know the story. Virgil “The Turk” Sollozzo has a dream. He wants to become the drug kingpin of post World War II New York. He has the connections necessary to bring the drugs into this country, but he lacks a distribution network, start up cash, and political and police protection for his new business. An alliance with the Tattaglia family provides him with a supply system through their prostitution network, but only one man in New York has all the judges and politicians in his pocket, Don Vito Corleone. The Turk sets up a face to face meeting with the Corleone family. In exchange for $1,000,000 in cash, as well as political protection for his racket, Sollozzo offers Don Corleone a 30% interest in his business, “Three or four million in the first year. More after that.”

Don Corleone declines, but as Tom Hagen, the family consigliere, observes Virgil Sollozzo is a Sicilian. He is not a man who will take no for an answer. Sollozzo, a new immigrant just off the boat, orders the murder of Don Vito Corleone, the most powerful mob boss in New York. The failure of this assassination attempt results in an all out bloody gang war involving all the Five Families. Sollozzo attempts a peace meeting with Michael Corleone, a man he seriously underestimates. It turns out that like the Turk, Michael Corleone is a Sicilian. Along with the key members of the family, Michael plans the murder Sollozzo. Michael is willing to murder the man who attempted to murder his father, no matter what the cost. If he dies, so be it. If he spends the rest of his life in exile, so be it. If he ends up in the state electric chair, so be it.

No matter how much it costs; no matter how long it takes; no matter how much effort is required; Sollozzo will die.

In the course my work in this ministry I am confronted by people with very serious problems. Some of them have lost a job. Some of them are heading towards bankruptcy. Young people are facing the option of no education or crippling student debts. When I consider these problems, I feel as though I am standing on holy ground. What I say may change the course of a life for good or evil. It is difficult, because while I can provide the basic tools necessary to help solve a particular life problem, I can not live another person’s life.

Many of these situations require something more than tools. They require a personal commitment that says, “This game isn’t over until I have won.”* There is a time for thinking like a Sicilian. I am not suggesting you tape a handgun to the back of a toilet to murder your former boss. I am suggesting that you make the decision: No matter how much it costs; no matter how long it takes; no matter how much effort is required I will achieve this goal. I will find a job. My family will be debt free. I will graduate from college without student loans if it takes me 10 years of night school.

In looking at my own life, there are only three times where I made this kind of commitment. Like Tom Hagen, I am German Irish, not a Sicilian. I am not a super competitive kind of guy, but there were three times that you simply did not want to get in the way of what I was trying to achieve. In each case the results were life changing.

In 1969 I decided that I was going to marry the woman who became my wife. I wasn’t going to take no for an answer. If plan A wasn’t working, I tried plan B, plan C, and plan D. I never gave up. It took over five years, but we have been married now for almost 39 years.

I decided I was going to engineering school so that I could leave the American factory forever. I didn’t have any money and I was told I would be a C+ student. That didn’t matter. School became my job. If 50 hours a week wasn’t enough, I would work 60. I learned how to get free tutoring from professors. I learned how to collect homework, class notes, and tests from previous semesters to bolster my own efforts. I got a scholarship and a work study grant. I even managed to obtain a key to the building so I could work on the computer network on weekends when the building was locked. I graduated with a 3.8. I found a job in Research & Development.

I started the final run to retirement when I was about 50 years old. Don’t make the mistake of starting that late. However, I went after that goal with a ferocity and passion that matched anything in my life. Losing 20%-25% of my money in 2008 only served as motivation to increase my efforts. I continued to invest all the way down. Then the market came back. In one year, through savings and capital gains, I increased my net worth by more than my total pretax income from my full time job. I was able to safely retire at age 62.

There are times in life when it is appropriate to think like a Sicilian. I can’t tell you when you are facing one of those situations. Ask God. Ask your heart. I think you will find the answer. If you are facing something that is threatening your family or the basic quality of your life, make the decision, “This game isn’t over until I have won.” No matter how much it costs; no matter how long it takes; no matter how much effort is required I will achieve this goal.

If you lost your job, do not say, “I am unemployed.” Instead tell yourself you have a new job looking for work. If you worked 40 hours a week at your old job work 50 hours a week at your new job.

Don’t limit yourself to personnel officers and financial aid counselors. While you should use their services, remember part of their job is keeping people like you from reaching your goal. If you want to work somewhere try and meet people who already work there. If you want to get a scholarship or a grant begin to cultivate relationship with your faculty. Somewhere there is a man who has powerful friends, a million dollars in cash, a man who carries around politicians in his pocket like so many nickels and dimes. Somewhere there is a man or a woman who could provide you with a job or a scholarship. It is part of your job to find out who has that kind of power. It is part of your job to convince them that they need to change your life.

It turns out in some companies about 50% of their new hires come from personal recommendations made by their existing employees. This is a growing trend that crosses many types of businesses. Companies are looking for quick efficient results. If a high quality ambitious employee is willing to put their reputation on the line by recommending someone in their network, there is a very high probability this person will be a very good employee. I don’t imagine finding scholarship and grant money is all that different.

*Thanks to Les Brown

The Millionaire Next Door

I went on a search to determine the number of millionaire households in the United States. These would be households with a total net worth in excess of $1,000,000. This proved to be a pretty elusive number. Different articles and even different statistics collected by Government agencies present different results. I have learned that net worth and even the number of households are estimated and reported in different ways.

The best numbers I can come with are between 5.2-5.9 million American households have a net worth in excess of $1,000,000. There are somewhere between 114-118 million American households. That means roughly 4.5%-5.0% of American households are worth in excess of $1,000,000. Somewhere between 1 out of 20 to 1 out of 25 of the cars you see out on the Interstate as you drive from here to there contain a millionaire family. Any way you cut it; that is a lot of millionaires.

What else can we say about millionaires? The most complete study of millionaires I have read is The Millionaire Next Door by Danko and Stanley. I classify this book as a must read for anyone looking to better their financial situation. It will totally revolutionize the way you think about wealth.

The millionaire household is normally a traditional family unit, one husband, one wife, for one lifetime. Divorce is a great destroyer of wealth. The number one cause of divorce is money problems. Then people who could not maintain one household are forced to maintain two households after enriching a couple of attorneys.

About 50% of millionaires are self employed.

About 80% have college degrees, but only 18% have Master’s degrees. 8% have law degrees and 6% have medical degrees.

Dry cleaning has produced a larger number of millionaires that any other business.

Between 75%-85% of millionaires are self made first generation millionaires. Most inherited wealth is dissipated by the second or third generation.

Most are in their 50s or are older, but 80% are still working. Only 20% of millionaires are retired. This makes sense. Most people outside of sports, music, and entertainment aren’t going to make most of their money in the first three years of their career. Danko and Stanley also discovered that millionaires, particularly self employed millionaires love their jobs.

Jewish and Asian households contain a much higher than average number of millionaires. I couldn’t find a good number on the percentage of Asian households, but I discovered that about 18% of Jewish households have a net worth in excess of $1,000,000. It would appear that a strong work ethic, a love of and respect for education, a strong social or family support network, a willingness to take risks, and an above average IQ all contribute to high personal net worth.

Some of these components, such as the ability to take a calculated risk have been studied by Danko and Stanley. Millionaires typically know how to evaluate risk. Think about the boat people from Vietnam. After risking death on the high seas in a rickety boat in a nearly suicidal effort to escape Communism, what is the risk involved in quitting a secure job to start a new business?

I have seen studies that demonstrate a close correlation between salary and IQ up to 120. Beyond that number there is no correlation between IQ and salary. I have never seen a study that correlates net worth and IQ.

Danko and Stanley have observed a number of common characteristics of millionaires that have made their study famous. Millionaires consistently live below their means. They avoid buying luxury or status items. They avoid debt. They spend more time planning their investments than they spend in researching and buying their cars. Generally they buy pretty ordinary used cars. Like everything else they purchase they avoid debt when buying a car.

Danko and Stanley discovered a simple formula that is surprisingly accurate for individuals and couples over 40 years old. It produces some pretty weird results for folks in their 20s.

Predicted Net Worth = (Age X Current Annual Salary)/10

Hence a 50 year old couple earning a combined income of $100,000 a year should have accumulated a net worth of approximately $500,000. That seems pretty reasonable with equity in the family home and things like 401 (k) accounts or IRAs added into the total.

People with roughly twice that number are categorized as Prodigious Accumulators of Wealth.

People with half that number or less are termed Under Accumulators of wealth. Surprisingly many professionals, such as doctors, would be classified as Under Accumulators of wealth. Many doctors tend to live a high consumption lifestyle, buying mansions and driving the latest and finest examples of German technology. They tend to believe they can earn their way out of any cash flow problem or debt. Since their income is somewhere in the top 1% or 2% of all American households. This is probably true.

So how are you doing? What could you do to improve your situation?

Remember the money equation:

Money In = Money Stored + Money Spent
(integrated over the course of a lifetime).

Earn more, spend less, or put your savings to work. Any or all of these actions will lead to financial freedom; however you may choose to define that term.

Irish Spaghetti and Your Investment Portfolio

How would you learn to cook spaghetti? If you were really serious about becoming a great chef you might enroll in the Culinary Institute of America located in Hyde Park, NY. If you wanted to do a little upscale cooking for your family and friends as a hobby, you might take a course or two at a local community college. If you were a hungry single man without a lot of money, you might buy a couple of jars of commercial spaghetti sauce, a pound of ground beef, and a box of spaghetti noodles. Then eat the results of your experiment over the course of the next few days. If you were cooking for your girlfriend, you might want to add a loaf of garlic bread from the frozen food section and a bottle of cheap red wine to the menu.

Irish spaghetti is something I can cook. It is always popular at potluck suppers, so I know it isn’t just me who likes the stuff. It is really pretty good. Take two jars of any commercial spaghetti sauce that is on sale at your grocery store. Add one pound of browned ground beef. Add one pound of cooked Italian sausage slices. Add a palm full of salt. Add maybe 8 ounces (uncooked) sautéed sliced mushrooms. Chop a large Vidalia onion into very small pieces, dump it into the pot with everything else, and let it simmer for several hours, until the onion bits essentially disappear into the sauce. You can sauté the onion bits before dumping them in the pot or throw just throw them in raw and cook them longer. If you want to get really fancy, chop up some garlic, sauté it for a few minutes, then throw it in the pot. I have never put too much garlic into my spaghetti sauce, but I really like garlic.

The real key to learning how to cook spaghetti sauce is (you guessed it) cooking spaghetti sauce; then tasting the results. Really, there isn’t too much risk if you start with decent ingredients in reasonable proportions.

Learning to be an investor isn’t all that different. Start with a couple of jars of low cost index funds (both stocks and bonds). Add a pound or two of conservative dividend paying stocks chopped up into a number of different small holdings. Then add small amounts of something spicy, like technology stocks, small cap pharmaceuticals, foreign stocks from developing nations, or precious metals. Then cook the mixture for a really long time. The only difference is that you dump everything into the spaghetti pot at one time. You continuously add small amounts of ingredients to the investment pot over a very long period of time.

The real key to learning how to invest is (you guessed it) putting money into investments; then watching the results. The biggest risk is never taking the first step. If you want to become a world class investor get a Master’s degree at the Wharton School of Business then go to work for Goldman Sachs. If you want to be better than the average investor, read the classics like The Intelligent Investor by Benjamin Graham. If you want to learn how to do a little better than 0.1% in an insured money market fund just go ahead. Get it started. A lit bit here added to a little bit there cooked over a long period of time makes for a pretty tasty sauce.

It’s 10:00. Do You Know Where Your Children Are?

Back in the 1960s and 70s, every evening a serious announcer would ominously intone, “It’s 10:00. Do you know where your children are?” Back in those days some cities had curfews. It was illegal to be out roaming around after 10:00 if you were 18 or under. If the police found your child out on the street you could retrieve him at the local stationhouse-after paying the fine.

If parents have minor children it is their responsibility to know the comings and goings of their progeny. Apply the same principle to your money. If you don’t know where your money is located or where it is heading, someone will grab it. Unfortunately, when dealing with banks or credit card companies, you have to pay the fine but you don’t get your money back.

It is the first day of a new month. Absolutely, no exceptions unless you are rich enough that your accountants handle this task for you on a quarterly basis, calculate your liquid net worth. Do this every month for the rest of your life. There is no single action that can tell you more about your money in less time or with less effort. If you have a mortgage, handle that as a separate calculation. Once you have performed this task a couple of times, it shouldn’t take more that 20 minutes even if your financial situation is complicated by multiple credit card balances. Given the power of the Internet, the hardest part of this task is remembering all your passwords. Kind of like giving your kid a cell phone; now you have him on a first class electronic leash.

First add up all your assets that can be converted to cash (bank accounts, money market funds, brokerage accounts, and retirement accounts). Then subtract all your debts except your mortgage. This would include credit cards, car notes, and unsecured loans. The sum of these numbers is your liquid net worth. Now compare these totals with last month’s numbers. This can be done in a spreadsheet or on a simple piece of paper. Since I am painfully old school, I keep these numbers in my Franklin Planner.

If you don’t like what you see or you don’t understand what you see dig into the numbers. If you honest with yourself (and that is a big if) it won’t take long to figure out what is going on. If you really don’t know what happened to your money, track all your expenses to the penny for a month. Then you will know the truth. The formal budget is the gold standard of basic money management, but let’s save that lecture for another day.

This month the balance in my primary working checking account dropped a couple of thousand. What happened? There was a foul up with my retirement annuity. I was told by the Navy that Maryland state taxes would be deducted as when I was drawing a regular paycheck. I found out by accident from OPM when changing my health care provider that nothing had been withheld for that purpose. A quick trip to my CPA for an estimated tax calculation and $2,400 later, problem solved. Since a number of my readers are Federal employees approaching retirement, this could be something you need to know. OPM does not withhold state income tax unless you specifically tell them how much to withhold.

When I had a mortgage I kept my payment history on a spreadsheet. Every month I knew my exact remaining balance. I had a pretty good idea of what house in my neighborhood was worth, so:

The Value of My Home – Remaining Mortgage Balance = Equity

Add that number to your liquid net worth. Now you have your total net worth.

Note: I don’t include cars or furniture in this calculation; neither should you. Consider that money fully expended on the day you buy the item. If you get anything back when you finally trade it in, you will be using that money to buy the next car.

If you don’t know where you are, you are lost. If you aren’t already calculating your net worth on a monthly basis, start today.