Money is a Bad Master

Money is a good servant but a bad master.
Old French Proverb

The basic meaning of this proverb is obvious and is often stated in various other similar maxims. For example, “The borrower is slave to the lender.” The poor are working for money. Their money is not working for them. In the most extreme instances bad debt has so choked their life that for all intents and purposes they are trapped in a modern form of slavery.

However, this proverb is true on other levels.

Consider the middle class. The middle class live month to month. Let me take a minute and introduce you to my former neighbors. We will call them Jack and Jane. Jack just turned 40. Jane is still in her thirties, just barely. They live fairly near our former church in a house valued in excess of $550,000. Together they earn a little more than $175,000 a year. She is a biotech researcher, works at NIH. He is a middle manager at a major investment banking house. With two mortgage payments, a leased Lexus SUV, payments on a new Chrysler mini-van, and the credit card debt if one of them looses their job, the family would be in trouble within six months. They have essentially no savings. If they were to both loose their jobs, the family would be in bankruptcy court within three months. Their life revolves around those paychecks and their monthly payments. Just like the poor they are trapped in our modern form of debt slavery. Money is their master; not their servant.

Insidiously, even the rich can find that they are the servants of their money. If you have made your financial world is so complex that it is in essence a full time job, you have made money your master. I am not stating that everyone who earns a living in finance is a slave of their money. What I am saying is that if managing your money is claiming an unreasonable amount of your time and emotional energy, just as a poor person trying to pay back a payday loan, you are a slave to your money. If you have no time for your God, your family, or your friends because maintaining your fortune is too demanding something is out of balance. Something is very wrong. It can get worse. Fear of losing your possessions or fearing people who may take advantage of your wealth can poison your ability to have a normal relationship with anyone. Listen to Oprah talk about her so called friends and family members who are always looking for a handout. Even parents can become so fearful of their own children that they essentially cut them out of their lives over money.

Take a look at your life. How much of your time is devoted to paying off your debts and your monthly bills? How much of your time belongs to you? Is your money a good and faithful servant that is quietly doing its job so you can better enjoy freedom or is it a harsh taskmaster that has sucked the joy out of your life? No matter whether you are rich, poor, or just an ordinary middle class American you can have a healthy relationship with your money or money can be your master.

Remember the proverb: Money can be a very bad master.

The Good Sister

While Fannie Mae and Freddie Mac were out trying to wreck the liquidity of the world’s money markets with their bad behavior during the subprime loan scandal, their good sister Ginnie Mae quietly went about her job guaranteeing Mortgage Backed Securities (MBS) backed by residential loans insured by Government agencies.

“The Government National Mortgage Association (GNMA), or Ginnie Mae, was established in the United States in 1968 to promote home ownership. As a wholly owned government corporation within the Department of Housing and Urban Development (HUD), Ginnie Mae’s mission is to expand affordable housing in the United States by channeling global capital into the nation’s housing finance markets.” (Wikipedia)

MBS bonds backed by Ginnie Mae are considered “full faith and credit” securities. That is the timely payment of principal and interest is guaranteed by the United States Government. Period. During the crisis of 2008, the Government came to the rescue of Fannie Mae and Freddie Mac in spite of their bad behavior and the lack of the “full faith and credit” guarantee. Fannie Mae and Freddie Mac were corporations that had been sponsored by the Federal Government, but they were owned by individual shareholders not by the Government. In September 2008, facing bankruptcy, Fannie Mae and Freddie Mac were put under Government receivership, effectively wiping out their shareholders.

Bond funds that buy and sell MBS backed by GNMA are of interest to the conservative investor looking for a bit more yield than offered by U.S. Treasuries, but something that is guaranteed by the full faith and credit of the United States. An example of these products, Vanguard GNMA Fund Investor Shares (VFIIX), currently pays about 2.5%. Nothing to brag about, but better than 0.75% for a five year certificate of deposit backed by the Federal Deposit Insurance Corporation (FDIC). As is always the case with Vanguard funds this product only carries a miniscule 0.21% expense ratio. The industry average for similar products is 0.98%.

There is some risk associated with these products. When a lot of people are paying off their loans at a rapid rate or refinancing at a lower rate, the value of your shares will decline. While the principal and interest of individual securities is ultimately guaranteed, the instantaneous value of the bonds represented by your shares rises when interest rates drop and drops when interest rates rise. Vanguard also allows the VFIIX investor the ability to write checks off their holding, effectively offering a checking account with a 2.5% interest rate.

Something to think about, but as always:

Let’s be careful out there!

The Charles Schwab Guide to Finances After Fifty

The Charles Schwab Guide to Finances after Fifty by Carrie Schwab-Pomerantz is a useful reference book to add to your collection. If you are customer of Charles Schwab you can obtain a copy for free at your local office. It is also sold in bookstores and on line. This isn’t a typical “how to” personal finance book. Although it generally covers planning for retirement, living in retirement, and preparing and dealing with death, it really isn’t the kind of book that is meant to be read cover to cover. Rather than chapters, the book answers fifty questions divided into six parts.

Part I When Retirement is at Least Ten Years Out
Part II Closer: Transitioning into Retirement
Part III Life in Retirement
Part IV Maximizing Social Security and Medicare
Part V Estate Planning
Part VI The People in My Life

Although the book is obviously aimed at people over fifty, I would recommend it to anyone over forty who wants to dig a little deeper into questions concerning finances in the second half of life.

This book assumes that you already have a basic knowledge of personal finance and an increasing net worth. Although the author reminds the reader of the basics from time to time it is really an intermediate sort of text book that answers specific questions you may face.

For example, one of the question titles is, “I’m thinking of downsizing once I retire. Will I get hit with a tax bill when I sell my house?” After covering the basics and pitfalls associated with the question, the author ends each “question” with a list titled, “Next Steps” that refers the reader to other associated “questions” such as how to invest the capital generated by your house sale or the effect of mortgage debt on retirement planning.

The author also covers “questions” that one does not generally see in books of this sort. For example, “My partner and I aren’t married. What do we need to know about managing our finances as a team, especially when it comes to planning for retirement?” The author introduces the reader to a binding Domestic Partnership Agreement that will provide legal protection to individuals in a relationship that is not covered by the laws concerning marriage, benefits that are available to everyone and not available to unmarried people (such as Social Security spousal and survivor benefits). Safeguards such as a HIPAA compliant advanced health care directive are particularly important in such relationships, as a partner could be denied access to important medical information at critical moments.

As you consider various questions confronted in the second half of life, look up the appropriate question. You will be given a good solid answer with references to the appropriate source material and that list of other associated questions.

Family Emergency (Extreme Decision Making)

I am hoping that the recent problems generated by my family emergency are sufficiently under control that I can, once again, return to normalcy. I will try to share what I have learned to the best of my abilities.

The day may come when you will find it necessary to make life or death decisions for someone you love. You will not have the technical expertise to make these decisions and you can’t expect the physicians or other professionals to give you useful statistical data. A doctor isn’t going to tell you that this course of action will produce this result 90% of the time. Living wills are often out of date or conflict with the stated desires of the author. Still, you must choose to sign or not sign permission documents.

I am basically satisfied with the decisions I have made for others over the last few months. I do not seem to be suffering from the “what if?” syndrome. Here is an attempt to deconstruct what I did in moments of crisis.

Run. Do not walk to the best experts you can find, always remembering that in a multitude of counselors you will find wisdom. Pump them for as much information as they are willing to share. It is important to learn the best outcome, the worst outcome, and the most probable outcome for a particular course of action. Often one of these three bits of information will make the decision for you.

In one of my decisions every professional with the exception of one social worker recommended a particular course of treatment. I went against the majority opinion because the worst outcome of one course of action would be equal to the best outcome of the second. This decision turned out to be excellent because the actual outcome exceeded any reasonable expectation.

When facing another decision, the worst outcome was unthinkably horrible. One course of action had little hope of success and a great probability of a ghastly failure. The second course of action had little hope of success but the probable outcome was acceptable, a natural death without suffering. The third course of action (a lack of any action) would result in certain death. I choose the second course of action, leading to the predicted result.

I won’t sit here and tell you that my heart was not a part of my decision making process. This is family. It is impossible to make completely rational decisions in such situations. Therefore it is important to provide your loved ones with as much information as possible long before the moment of crisis. Write out a living will. Make certain that the person who will hold medical power of attorney on your behalf not only has a copy of your living will, but an understanding based on open and frank conversations as to what you believe the words the lawyer put on that piece of paper actually mean to you.

Openness and honesty are important in all aspects of healthy close personal relationships. Life and death are no different than finances, as we approach the end. Unless you die suddenly, without warning, a day will come when someone else will need to pay your bills and tell the doctor how to proceed. The more tools and information at the disposal of the individual who holds medical power of attorney or durable power of attorney on you behalf, the better she can perform her job.

Let me add that I have read that doctors request much less end of life medical care than the general population. What does that tell you?

The Family Emergency (Lessons Learned)

The most important and urgent problems associated with my recent family emergency are beginning to abate. Although I needed to mail three different forms to IRS yesterday, this was the first day in a long time that I did not need to deal with a medical bill or a financial institution. Although there are a number of significant tasks that remain, I am evaluating my performance to date, hoping that I can discover something of value to share with others.

Big Picture – Small Picture

At the outset, I was confronted with an unknown but large number of significant, complex, legal and financial issues that had to be addressed. Everything had to be done correctly. Everything had to be done quickly. Everything had to be done completely. The consequences of failure were too significant to even contemplate. Failure was simply not an option.

I was able to define the big picture goal in a single sentence. This is important. If you can’t define your big picture goal in a single sentence, it is unlikely you will ever achieve it. The most famous example of this principle is Kennedy’s famous quote, “man on the moon in ten years.” That galvanized the efforts of an entire nation.

After obtaining the proper legal documents, I had to then categorize my subordinate goals according to urgency. Anything that required immediate attention caused interaction with that institution to rise to the top of the pile. Generally speaking time remaining before an undesirable outcome was the primary driver; then the legal status of the particular financial position.

Finally, it was necessary to relentless attack paperwork as soon as it appeared. There were so many forms from so many institutions that needed to be finished, notarized, and transmitted that if I had allowed them to stack up for even a few days, I would have been suffocated in paperwork.

It’s Only Money

On several occasions it was necessary to stop what I was doing, due to immediate medical issues. When the life, death, or the quality of life of a family member is at stake, financial and legal issues must correctly take second place. There were times when I had to stop in the middle of an ongoing battle, turn ninety degrees to attack a different problem in a different direction. I also learned that at certain times, the most expensive solution might well be the only solution. For someone like me who reuses paper towels, this was a stretch. Fortunately my wife worked in hospitals as a medical social worker and case manager. Her experience and expertise were a great help in this difficult situation. There were times she gently pushed me out of the way and took the lead.

I Didn’t Come Equipped With an Off Switch

My biggest problem in dealing with this emergency was shutting down operations when necessary. Even if I managed to step away from the battle for a little R&R, my mind never stopped. I thank my friends who listened to me rant and rave during the last two months. I tried to rotate my outbursts around to different people so no one person would be overwhelmed with my story. There are times that the most productive thing that you can do is scream at an innocent friend who is not directly involved in your drama.

Although I quit walking for a month, I learned just how important exercise has become in my life. By far the worst hours of the day turned to be the hours between 6:00 and 9:00 in the morning. I have always been an early morning person. By 7:00 my motor is turning over at maximum RPM. Unfortunately, banks and billing offices don’t open until 9:00. I learned that was absolutely the best time to walk the Swamp Rabbit Trail. Walking allows me to clear the mind of negativity, plan the day, work through some imaginary conversations prior to actually interacting with another human being, and yes, even pray.

I expect I will have more to share in the future, as my life returns to normalcy. Out of respect to you, my readers, I have tried to be as open as possible while honoring and protecting the privacy of my family. I am finding it difficult to achieve this balance. If you believe I have erred on one side or the other, I request your patience as I find my way.

Body, Soul, and Spirit (Generosity)

When I started working on this list, I intended to title this section giving. The more I thought about the problem, the more I thought this was OK as far as it went, but giving does not go to the heart of the matter. Giving is just an act. An act that can find its source in all sorts motivations, some good some bad. Giving can come from a fear in a bitter resentful heart, a malicious attempt to manipulate another in blatant quid pro quo, or even an attempt to heal our own guilty conscience. I believe that Jesus is always more interested in the state of our heart than he is in our actions.

I have a friend who once needed to take a second, part time job waiting tables at a local restaurant. He told me he hated to see people pray before they ate. It inevitably meant that he would receive a lousy tip. In fact on one occasion a Christian customer left him a soul winning Bible tract instead of any tip at all. Then as now, I find this act so inexcusably despicable that as a Christian, it is hard to put my feelings into words. Given what I know about religion in the Bible Belt where he lived, it would not surprise me a bit to discover the customer who left my friend a Bible tract was a faithful church member and I bet he tithed. I expect he took great pride in tithing and frequently reminded God of his faithfulness. A bit ashamed of himself, my friend confessed his favorite customers were drunks. They left good tips. Fortunately, he was a lot better at forgiveness than most people in the food service industry.

There is a better way. We are told the queen of Sheba gave King Solomon an hundred and twenty talents of gold, of spices very great store, and precious stones. The narrator goes on to observe that there came no more such abundance of spices as these which the queen of Sheba gave to King Solomon. The king, by the way, returned the favor. This is what kings and queens do, even in this day. They give out of a sense of abundance, knowing that there will be plenty more where that came from. After all, basically they own an entire country.

Once again though, the condition of your heart does not depend on the material world. The famous Jewish psychiatrist and Holocaust survivor, Victor Frankl, observed, “We who lived in concentration camps can remember the men who walked through the huts comforting others, giving away their last piece of bread. They may have been few in number, but they offer sufficient proof that everything can be taken from a man but one thing: the last of the human freedoms -- to choose one's attitude in any given set of circumstances, to choose one's own way.” They had a sense of abundance that could not be overcome by even the most horrifying depravation imaginable.

I believe I have it all wrong. So often I act out of a sense of scarcity not a sense of abundance. After all, we are sons and daughters of the King. Jesus told his disciples, “freely you have received, freely give.” Try to be a blessing. Once again, it isn’t necessary to perform some great feat to become a blessing. Start small. Once I was walking down a street on my way to a meeting with some unpleasant sponsors. I noticed one of the parking meters was within a minute or two of expiring. Only a few cars behind me a meter maid was working her way up the street. On an impulse I fished into my pocket, pulled out a quarter, and dropped it into the meter. I gave a small blessing to someone I never met and probably never will meet. It felt good.

In Lawrence of Arabia, Anthony Quinn portrays Auda Abu Tayi, a corrupt, self important old tribal chieftain and war lord. A one point he informs everyone within earshot, “I am a river of blessing to my people.” In fact he was greedy but lovable thieving scoundrel, but what an idea! Could I be a river of blessings to the people I meet? What a way to live, to continually look for an opportunity to be a blessing to others.

Of course just as there are many bad motivations for bad giving, there are many good motivations for giving. I contend that while it is possible to give without a heart full of gratitude. That it is impossible not to give if your heart is overflowing with love and gratitude to the Lord of the universe. Consider a grandfather. He is very likely to spoil his grandchild, just because he is so happy and grateful to see the child of his daughter alive in this world. Keep practicing generosity. The time will come when you will be in a position to make a difference in some wonderful life and as you reach out your hand, friendship and blessings will keep flowing forward forever, even into eternity. You will be ready for the truly important moments that can change the history of a life if you practice giving as you receive.

Body, Soul, and Spirit (Faith)

As I am learning how to write these entries, I am learning how to exercise my faith, because learning how to write is an important goal in my life.

Once we have made an effort to purify our hearts, once we are focused and working towards a goal in a manner that is systematically in line with our thoughts, values, feelings, and natural talents, we must exercise faith if we are ever to see that goal actualized in the material world. The world often presents difficulties that we must overcome. To reach our goals, we must continue to believe that we will achieve them. We must continue to visualize them in our mind’s eye. We must continue to believe that we are acting in accordance with the will of God for our life. Without faith that we can complete the task, we could not graduate from college, build a house, run a race, or find a mate. If we have made the effort to set a goal in line with our Divine purpose, we can believe that the God who has given us our desires will help us fulfill them.

I have spent some time wondering why I have a measure of faith in some areas of life and not in others. I have analyzed my own behavior and I have found that in the areas where I have been able to walk in faith, I often practice an exercise that can be found in the life of King David. I think back on my training as a child or as a new Christian. I recall the times God moved in my life and delivered me from some trial. I say to myself, “God delivered me from this and God gave me the strength to do that, surely I will overcome this new obstacle in my life. When King David faced a problem, he was fond of reminding himself of what God had done in life. Consider this example can found in Psalm 18:

[29] For by thee I have run through a troop; and by my God have I leaped over a wall.
[30] As for God, his way is perfect: the word of the LORD is tried: he is a buckler to all those that trust in him.
[31] For who is God save the LORD? or who is a rock save our God?
[32] It is God that girdeth me with strength, and maketh my way perfect.
[33] He maketh my feet like hinds' feet, and setteth me upon my high places.
[34] He teacheth my hands to war, so that a bow of steel is broken by mine arms.
[35] Thou hast also given me the shield of thy salvation: and thy right hand hath holden me up, and thy gentleness hath made me great.
[36] Thou hast enlarged my steps under me, that my feet did not slip.
[37] I have pursued mine enemies, and overtaken them: neither did I turn again till they were consumed.

I believe David benefited from good training as a child. No doubt his father, like my father, made David a sling and taught him how to use it. The sling is still a dangerous weapon (particularly in the unsupervised hands of a small boy), but in the ancient world it was a weapon of war. I expect Jesse taught him how to handle a long staff, another standard martial arts weapon and the basic tool of a shepherd. Furthermore, we know had a number of older brothers. Based on my observations of sibling behavior, it is easy to conclude that even without training, David would have to learn how to defend himself.

Out in the wilderness with the sheep, David probably found plenty of opportunities to practice with the sling and the long staff both as he protected his father’s sheep and out of sheer boredom. The point here is he did not start with Goliath of Gath. He started with smaller goals, most likely learning to hit anything at all with a sling. As a child, I could hurl a rock a great distance with my sling but I was unlikely to hit anything I was aiming at. For this reason, my sling practice was limited to areas not inhabited by windows or other children. The wilderness seems like a perfect place for a boy to learn how to use a sling. Start with small goals, build your confidence. Then look for bigger and bigger goals, understand that the God who helped you reach your first goal will help you reach your second and third goals. Then when the time comes that you must face a truly frightening challenge, like Goliath of Gath you will be ready.

I believe that David could have hit Goliath 100 out of 100 times. The giant was too big a target for an expert to miss. I believe David could have hit Goliath in his helmeted head 80 out of 100 times. But a kill shot with a single stone? I think even for an expert that is a 1 in a 100 throw, bad odds when facing a heavily armed giant. David, however, had the training, he had the experience of God’s power moving in his young life, and David confessed his faith in the present moment, in the moment of crisis. It wasn’t faked. He wasn’t pretending. It was real.

Of course we all know the outcome of this most popular of Old Testament stories. A junior high school aged boy, too young to march with the army, took out the biggest, badest martial artist of his age with a single stone.

Go thou and do likewise.