Saturday, January 2, 2016

What I Write. Why I Write.

After a year and a half and 125 posts, I wrote an article reflecting on the experience and analyzing what I was doing and why I was doing it. Today, I am closing in on seven years and I have passed 750 essays. What am I doing? More importantly, why am I doing it? The simple answer is that I see a crying need for sane financial behavior in a consumer society that seems to have gone mad.

I would love to see everyone who reads even one article I have posted in this blog become part of the 1%. I don’t want you to live an average life. I want you to live an extraordinary life. I would love to learn that twenty years from today some former reader reflecting on her life would say, “I remember reading an article in somebody’s blog back when I was still in school. That got me started in learning about investments and here I am today.” Every teacher worth anything wants his students to exceed him in every way.

If the last paragraph is a little messianic for your tastes, I would be perfectly content if all of you found financial freedom before passing on to an existence where there are still rewards, but no money.

It starts with debt. I was born with a third generation fear of debt that has served me well. It simply never occurred to me to borrow money to buy a car or attend school. While I was still in my twenties, I saw what credit cards did to some of my friends. I didn’t get a credit card until I was about 35 years old. By that time life without a credit card was just about impossible. Avoid debt. Find another way to do it. Drive a clunker until you can pay cash for something better. Apply for grants, scholarships, and work study programs. Do two years at an inexpensive junior college. Find a part time job that offers tuition reimbursement. Starbucks comes to mind. In the depths of your soul, eliminate debt as an option. Even “safe” debt, your home mortgage, can be dangerous. Some of those who bought in at the top of the bubble in 2005 are stuck in homes that are still underwater almost a decade after the crash. Unless your state government is making an offer you can’t refuse, the traditional 10% down is a minimum, the new normal, 20% down to avoid the dreaded private mortgage insurance is better. Carrying a balance on your credit card? As they say in Brooklyn, “Forg’t about it.”

The left hand side of the money equation, your job, is much harder to discuss than how to spend your money once you have it. There is no single answer to question, “What do you want to be when you grow up?” It’s your life. There is only one of you, but there are some general principles that seem to be universal. It starts with the stories you believe about the nature of the universe and your place in it. Your decision making processes and your actions will be based on the stories you tell yourself about life. At the laboratory, I worked with white engineers, black engineers, Asian engineers, and even a couple of Hispanic engineers. Even though we came from every possible economic strata, from extreme poverty to serious wealth, we all pretty much shared the same basic beliefs. This led to a lifetime of similar decisions and actions. We all got pretty much the same results. We live in what is basically a cause and effect universe that has been corrupted by the Fall. Yes, good things happen to bad people and bad things happen to good people, but for most of us good luck and bad luck are something that balances out over the course of a lifetime. In mathematics this phenomenon is termed reversion to the mean. You aren’t responsible for the hand you are dealt, but you are responsible for the way you choose to play the cards in your hand. Hard work, high moral standards, the ability to defer gratification, respect for education and learning, talent, and the courage to take a calculated risk all are factors in your success or failure regardless of your starting point.

I must admit I have spent a lot more time and effort avoiding failure than trying to find my way to success. During my working years, engineering (if you could make it through three semesters of calculus and one semester of differential equations) was the ultimate safe bet. There has always been a shortage of engineers. Companies not only hire these graduates to work as engineers, but also as project managers, factory supervisors, and program analysts of one sort or another. However, if you want to go beyond safety, avoiding failure, to success whether you are working for a lawn service or attending Harvard (like Bill Gates) find a way to become a greater blessing to your neighbor. I can’t tell you that you will become rich, but I can predict with some certainty you will become richer than you are today if you look for opportunities to bless your neighbor.

I was shocked to discover the importance of timeframe in achieving financial freedom. If you want to become rich or at least achieve financial freedom, start setting long term goals and develop the determination necessary to finish the race.

“The very poor think day to day.”
“Poor people think week to week.”
“The middle class thinks month to month.”
“The rich think year to year.”
“The very rich think decade to decade.”

The final key is investment, for most Americans that either means income producing real estate or the stock market. Since I am not a real estate kind of guy, I write about what I do with my money. I buy bonds, bond funds, individual dividend stocks, stock mutual funds. I seldom sell. The world is a more dangerous place than assumed in Modern Portfolio Theory, the best tool at the disposal of the average investor, but if you spend less than you make over a working lifetime, you will have a surplus to invest in stocks, bonds, or real estate. If you don’t invest too much in any one thing or too much at any one time, it is likely that you are going to be all right.

By the way, I also discuss giving. Generosity, an open heart, is an important part of anything that claims to be true religion.

James 1

[27] Pure religion and undefiled before God and the Father is this, To visit the fatherless and widows in their affliction, and to keep himself unspotted from the world.

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