I bet this whole financial mess has made everyone of you open your eyes and question your wants, question your income, question your money management (or the lack of it), question your expenses, question your investment strategies, question your job security, question your $10-per-workday lunches, question your credit card statements, question your insurance coverages ….. sort of made you question your attitude towards money.

For those of you who still have your jobs, I bet you feel fortunate (and generally crib less about being less paid, etc.) - and I bet you are putting in extra efforts to make sure that someone higher up notices your hard work before you get into the to-be-laid-off list.

It has made people question their governments, and governments question their respective policies.

On my part, I have convinced at least half a dozen young people (close friends and relatives) to open their minds about saving more and/or investing in the stock market (on the argument that it’s a good time to buy stocks, develop good money saving habits, etc.). It’s a happy feeling (almost a proud feeling) when these guys and gals discuss interest rates, stocks, ETFs, and portfolio diversification over lunches and other casual meetings.

Of course there is much suffering and stress, but hopefully most of us will come out of it with several lessons for life. Hopefully, adversity will bring out the best of our efficiency and adaptability.

As it is, we have to read/hear bad news everyday … just thought I should throw in a pinch of positive out there.

When you are poor you would like someone to share your financial burdens; you want to someone to give you some tax relief; you want someone to give your kids financial assistance to get through college; you want someone to bail you out of the financial crisis; it seems logical for you that the “rich” are taxed more - you call that graduated tax; you consider it fair that there are incentives/affirmative-action for the economically and socially challenged; the growing disparity between the quality of life in the rich and the poor bothers you; the concept of “free market” doesn’t always work in your interest; you find it surprising that CEOs are paid several million dollars a year while you can barely make your ends meet; you generally don’t like that the fact that health insurance is controlled by for-profit companies; and you want the government to have some control over banks/firms who handle your retirement money; you generally envy the “capitalists”.

When you are rich you want to enjoy all your wealth by yourselves; you think “poor” people are “poor” because they aren’t working hard enough to get “rich”; you think it’s unfair that you are taxed at a higher rate than the “poor” - you call that “spreading the wealth”; for you “charity” is only a means of reducing your taxable income - you generally don’t believe that “wealth should be spread around” so the concept of “charity” doesn’t really appeal to you; you are a staunch supporter of “free market” (but you still want the government to bail you out of financial mess - I don’t know what’s up with that); you recoil in horror because some plumber who earns more than $250,000 a year will pay about $3500 more per year in taxes; you think it’s draconian to limit profits or pay of any company or individual; you don’t care about the fact that health insurance is offered by for-profit companies - because you can basically afford anything they charge; you want minimum government involvement in anything that you are associated with financially; you believe that lack of government control leads to a “self-correcting” market; you generally hate the “socialist”.

The world isn’t black and white.

Here is an excerpt from an interesting article I read a few days ago:

Says Anthea Butler, an expert in Pentecostalism at the University of Rochester in New York: “The pastor’s not gonna say, ‘Go down to Wachovia and get a loan,’ but I have heard, ‘Even if you have a poor credit rating, God can still bless you ? if you put some faith out there [that is, make a big donation to the church], you’ll get that house or that car or that apartment.’ ” Adds J. Lee Grady, editor of the magazine Charisma: “It definitely goes on, that a preacher might say, ‘If you give this offering, God will give you a house.’ And if they did get the house, people did think that it was an answer to prayer, when in fact it was really bad banking policy.” If so, the situation offers a look at how a native-born faith built partially on American economic optimism entered into a toxic symbiosis with a pathological market.  …

“Narratives of how ‘God blessed me with my first house despite my credit’ were common. Sermons declaring ‘It’s your season to overflow’ supplanted messages of economic sobriety,” and “little attention was paid to … the dangers of using one’s home equity as an ATM to subsidize cars, clothes and vacations.”

Read the rest of it here.

In addition to Wall Street, it looks like the faith business also needs a little more scrutiny. Apart from that, I am always surprised at how gullible people can be when it comes to being sold out divine rhetoric.

If we keep up with this even God will need a bailout someday!

Finally, God helps those who help themselves, for everybody else there is Mastercard everybody else needs to clearly understand the meaning of the words “deliquency” and “foreclosure”.

It’s one of those “deep-thought” days when I switch myself into a philosophical mode. Sometimes, this results in some extreme contemplation about the things I have been generally doing in my life. This time it was all about financial contemplation. The choice of the title is obviously inspired by the book “Zen and The Art of Motorcycle Maintenance” by Robert Pirsig.

Before I start my rant, let me give you a very brief summary of what is the concept of Zen. It essentially means going back to the basic fundamentals, starting from zero, and building your way up (Robert Pirsig’s Zen, not the original Zen). This much knowledge is sufficient for the purpose of this article. If you want to read more about this concept click here and here.

Your financial life is a big machine with a lot of odds and ends thrown into it. To maintain this beast, you require some kind of financial prudence. Now, if there is a problem with this machine, the *Zen* way is to start looking at some fundamental issues. To do that, you have to take it apart and try to put it back together. In doing so, you will realize the significance of each component. This is exactly what I will attempt to do in the following.

I have listed some potential fundamental roadblocks that defeat financial prudence. Along each factor, there is a short line of description that sort of adds financial relevance (it’s deep…you could apply this to many other issues in life). Please note that these are from my personal experiences. I will encourage readers to find some peaceful time and do this exercise for themselves at least once.

1. Greed: This is foremost cause of most financial troubles. We want more, and we just don’t want to stop. Our greed not only puts us in the holes but also makes other people’s life miserable.
2. Lack of self-control: Sometimes we acknowledge our greed, but we just can’t stop spending any how. Credit cards don’t swipe themselves, we swipe them.
3. Lack of foresight: Greed also blinds our foresight. We buy stuff, but we simply fail to estimate how much it is going to cost us in the long run. Don’t buy an elephant just because it’s being offered for zero down and no payments for 12 months.
4. Underestimation of consequences: Sometimes, we have all of the above, but we grossly underestimate the financial repercussions of our decisions. You can also term this as too much optimism or lack of proper judgement.
5. Ignorance: Ok, people don’t like to acknowledge this, but this is true. How many of us really know how credit card payments are calculated? Whether your card is a charge card or a credit card? Whether not paying telephone bills affect your credit score? What is the grace period on your credit cards?
6. Inability to recognize a problem: Sometimes we don’t realize that we have a problem. At times we don’t recognize the *right* problem. If you earn $120K a year and still live paycheck-to-paycheck, low income is not your problem, it is something else.
7. Inability to learn from previous mistakes: Ok we made that late payment once and paid for it with heavy fines and increased APR. What did we do about it? did we make changes to the way we do things to avoid making the same mistake again?
8. Lack of organization: Oh ! I forgot to make the minimum payment. Oh ! forgot to mail in the rebate. Oh! I thought this due date was for the other card that I have. Oh ! I thought I had more money in my bank when I wrote that huge check for that expensive television.
9. Sheer laziness/carelessness: Ah!..what’s the hurry, I will do it later. I have seen countless people not willing to check out more than one store for some of their large purchases…the reason: “I am bored already”. Here is another one I have heard recently, “I don’t know anything about what kind of 401K plan our company offers. I have been planning to talk to HR about it, but I find it very boring to discuss this financial stuff”. What?!
10. Overconfidence: This is really dangerous when coupled with ignorance. Leads to situations like “I can make this mess and then I will easily bluff my way out of it”
11. Circumstances: This one is tricky. There are two types of circumstances. Type 1: self-inflicted; these are due to some or all of the above reasons. Type 2: sheer bad luck; these are just out of your control: medical expenses, car trouble, job loss, failure to garner enough votes for the economic bail-out package, etc.,

Except “Type 2″ circumstances, there is a scope for improvement in all of the above. We just need to look into ourselves before point fingers for our financial mess. Once you do that, you will be an expert in the art of financial prudence, and hopefully stay out of trouble for a long time to come. This is more philosophy than practicality, but you can give it a try..it may work for some of you.

In all humility, I am guilty of some (almost all) of them at some point or other, but I am learning.

This is not a political blog, but perhaps I am a bit cranky after losing electricity and water for 5 days, so I will let this one slip by.

So here goes:

Image source: http://codenameblogtastica.blogspot.com/

…. he killed a helicopter with a car, and then he walked bare-foot on broken glass, and then he fired a few people, and then he suspended whatever that was going on and proceeded to Capitol Hill to beat the crap out of bad dudes and to rescue the economy.

Oh wait… it’s McClane not McCain you idiot. Oops! it’s probably the uncanny similarity between the looks of Mr. Willis and Mr. McClane Mr. McCain that confused me.

I don’t mean any disrespect, but I had to get this out because I actually had a dream of John McCain hanging “suspended” upside down in New York’s Central Park right above a huge pile of money (that looked like it was about $700 billion). I woke up a little scared and then realized that it’s because I read about David Blaine’s stunt before going to sleep last night - while I was being constantly bombarded by television commentary on McCain’s suspension of his campaign (or whatever - didn’t look much of a campaign anyways) and the $700 billion bailout.

You can imagine the kind of maverick-ish impact Mr. McClane Mr. McCain is having on me.

Anyways, with that out of the way, there is something else I need to say. It has recently come to my attention that some people don’t really know how many zeroes are there in a billion! That calls for a little bit of elaboration on the numbers you might hear in the next few months.

$700 billion = $700,000,000,000

300 million = 300,000,000 (as per Google search, the actual number is close to 301,139,947 - go figure what this number is)

Now, $700,000,000,000/300,000,000 = $2333.33 per person

As per 2006 tax figures, there were 135,660,228 tax returns filed.

Now, $700,000,000,000/135,660,228 = $5159.95 per tax return

Some other numbers to put things into perspective.

For the year 2007, AIG CEO’s (Martin Sullivan) monetary compensation was $13.9 million ($13.9 million = $13,900,000)

Earlier this year, most people I know received economic stimulus payments that ranged between $600 and $1200

It’s probably just a few more hours before we lose electric power, and have trees flying around. I don’t know long it will be before we have electricity back up, so I just thought of dropping a line here.

If you don’t have anything better to do, follow the eye of the storm closely and you would be able to zero in on my current geographical location.

Anyways, about TV reporters - man, those guys get so animated (even when other people in background are going about peacefully doing whatever they are doing). Interestingly, this afternoon, one of them even suggested this as a part of “survival tips for hurricane”:

People who use electric toothbrush should buy manual ones, and people who use electric shaving machines should get manual ones …

Ha ha.. I couldn’t stop laughing.

The only other funnier thing I heard this week was some other reporter dude suggesting that the CERN Particle Accelerator/Collider may create a black hole that would destroy the earth!

Since reading some comments on my last post, I had been thinking about what this whole deal with “personal finance” is about; is it about making the most amount of money? or is it about saving the most amount of money? or is it about spending the least amount of money? or is it about reducing stress due to money matters? or is it about this obscure concept called “financial freedom”?

The more I think about it, the less specific I get about possible “correct” answers to that question. In fact, looking back at my life, it seems that at different times, a different answer suited me depending on my financial and personal situation at that time.

What came out of this thought process was the realization that personal finance is not just about “maximizing money” - as I used to think earlier - and like most people probably think about it.

It’s not about maximizing. It’s about optimizing.

Given a financial situation, personal finance is about making the best of that situation. Sometimes it means trying to make as much money as you can, and at other times it means trying to make your money work to make you more efficient by reducing your stress, and at some other times it means that you save every penny to make sure that your children don’t inherit your burden of debt.

There is nothing wrong in trying to “maximize money”, but it is important to realize that, depending on your personal situation, there are costs (in terms of stress and time) associated with trying to do that.

Examples are numerous (but vague and difficult to explain) in this area, but a simple one would be to think of a job in which you are paid overtime. Every extra hour you work might mean that you will become richer than the previous hour, but it does not mean that you would be stress-free - or that you would be able to devote enough time to your family. If you overdo it, it wouldn’t be too hard to make yourself and your family feel miserable even with the extra money you earn.

Working your ass off for a few extra bucks might be a good idea when you are a bachelor with hardly any cares in the world, but if you are a family man, then you might be better off by working a little less in lieu of spending a little more time with your family. Now, just because you gave up that little extra money to spend time with your family or to reduce your stress, it does not mean that you are careless or frivolous with your personal finances. In other words, just because you chase every penny, it does not mean that you are an epitome of financially astute people.

In general, for the sake of the betterment of the whole universe and your own self, try optimizing your money instead of maximizing it. It also helps to reevaluate our understanding of “personal finance” in perspective of our changing personal situation and revise our money-chasing efforts accordingly.

Duh!

Since a little more than seven months ago, I made some adjustments to the path in which my career was taking me and took up a job instead of pursuing PhD. One of the main reasons for going that route was that I was so narrowly focused for so long that I forgot why I was doing PhD in the first place (of course, there is more to that story that just that, but I won’t go into that with this post).

Anyways, our household income increased by about four times after I took up the job. Initially, things were taking a deflating turn for the first couple of months - I guess this was in part because I was a relatively “newly employed” and was undergoing training without any major responsibilities (plus,  I apparently hadn’t discovered new ways of spending the increased income). However, our spending took a turn for the worse right after I published this post in early February.

Additionally, I have now started paying a lot less attention to our financial details (”details” is the key word here). There are only two fundamental concepts that I have been keeping in front of me: 1. to not spend more than what we earn (look at #7 in the linked post), and 2. to not time the market. Everything else is just falling in its place automatically.

The rest of our life is now governed primarily by convenience. Here are just a few changes in our spending habits and financial attitudes that occurred over the last few months.

1. Paradigm shift in the way I manage credit cards: I no longer have the time or the patience to follow those balance transfer offers and research/keep track of how our income would be increased by juggling such offers. I don’t care about optimizing the rewards anymore, and just use credit cards for the simple reason that I get an itemized list of where we spend our money at the end of the month.

As such, I am not using all my credit cards anymore. The fact that I have so many of them seems a bit ridiculous to me at present (this is an interesting development). Plus, I have discovered other practical problems in having too many credit cards (more on this later), so I am down to using just two credit cards at present.

2. Preferences for schedules rather than prices. We have flown thrice since February and every time, we went for flights that were more “convenient” instead of flights that were cheaper. On one of those three occasions, we had the option to drive (which would have been a whole lot cheaper), but again, the time spent in driving didn’t seem worth money saved. Interestingly, in the past, we have driven to that very location twice and at that time, the money saved seemed a lot more worth than amount the time spent in driving.

3. Buying what we “like” rather than buying what is “cheap”. Affordability is still in our minds but we don’t kill ourselves trying to save a few cents (or even a few dollars at times). For example, earlier, for cereals, it was usually “Great Value” from Walmart - now, it’s Kellogg’s or whatever brand that seems better - from a store that is closest to home.

4. Outsourcing clothes for ironing. Ironing is one activity I hate - it may be because I never ironed my clothes (over several years) when I was a student. It either took 10 minutes of my time every morning, or about an hour every weekend. Now that’s replaced by 5 minutes of detour every other week and $25.

5. Eating out more. This is again a product of optimizing convenience rather than costs. If we are too tired or not in a mood to cook, we just eat out without worrying too much about it. And, when we eat out, the choice of restaurant is usually dictated by time (and sometimes by what we feel like eating) rather than by how cheap or expensive it is.

6. Using toll roads instead of regular roads. I tried using regular roads (read as traffic-light-infested-roads) for the first couple of months. However, as the stress at work started growing, I started using toll roads more frequently. The toll costs me a lot more than I would like, but using toll roads has reduced a lot of stress in my life. I am now happy when I reach my workplace in the morning, and I am happy when I reach home in the evening, and I don’t have to bitch about how horrible my luck is to catch all the red lights on the way.

Also, the drive that used to take me 30 minutes via regular road now takes about 10 minutes via toll road. That much time saved everyday is just priceless.

7. If the market bothers me, I just don’t look at it. Out of sight, out of mind is what probably works with me in this case. I have some set investing goals this year (in terms of how much I should invest and where) and I just stick with that without really worrying too much about what the market is doing at any given time.

Come to think of it, the increased income is working towards making our lives a bit easier. Call it lifestyle inflation or improvement in the quality of life, or call it just sheer laziness (I am sure there will be different perspectives), or whatever. All we care about is that there is a lot less stress in our lives by spending a little more  money.

As long as we avoid these problems with lifestyle inflation, I think we are okay.

After debating with myself on whether to use the BS word in the title or not, I finally decided not to censor myself on my own blog and went ahead with it. Censoring the BS word on a BS topic is actually some BS in itself; and using BS instead of bullshit is also bullshit … so what gives.

Anyways, the point of discussion is that, recently, it has come to my attention that one of our “highly decorated” acquaintances might have misled a number of scholarship organisers with her “powerful” essays and personal statements. We (me and my wife) happened to figure this out over a dinner meeting when we heard of some extraordinary high-flying crap (unreasonably lofty ideals, fake “personal life experiences”, etc.) from this person. A few things just jumped out at us as pretty obvious discrepancies (when you have been through a similar experience, you can very easily tell when the other person is exaggerating/lying - sort of) and a few other odd things we figured out after pondering over the entire story all over again.

I was thinking over it for a while and then realized that she is just playing the scholarship system to her advantage. Almost every scholarship/award that I have seen in seven years of graduate school asked for an essay or a personal experience statement, or some document of that sort. Many of the scholarships/organizers specifically state (verbally or otherwise) that, generally, very similar academic profiles of graduate students, scholarship decisions will ultimately boil down to a contest between personal statements. “Powerful” personal statements will have a better chance of getting the scholarship.

Now, I haven’t really understood this obsession with “powerful” personal statements and essays .. and with preferences for people with “powerful life experiences”. Sounds very “Miss America” like. This obsession for larger-than-life idiocy encourages words over deeds, lofty ideas over achievable targets, and bullshit over plain old simple truth.

Why should something dramatic happen in your life to make you eligible for a scholarship? Why is it necessary to relate your success to obscure words that your mom/dad (or a dead relative) said 20 years ago? Why is it necessary to “boast” about your far-fetched “noble” intentions in future (which are not really “noble” the moment you start boasting about them)?

Interestingly enough, almost none of the scholarships will actually take the pains to verify any of your “personal” events. So whatever you throw at them will be accepted - and even glorified. So where is the motivation to be honest and straightforward about who you are, why you want the scholarship, and what you want to do with the money you will get from the award?

As educational expenses rise, we will probably see more such bullshit floating around in future.

I wonder what else we will do for money.

Is it too much to ask for a very little tiny bit of personal honor? Or is that some kind of bullshit too?

I guess by now nobody cares if I am around … so this would be just to motivate myself to write a little more.

Looks like the site was down for a couple of months after some screwup with Wordpress/Hostmonster/Upgrade/That-Kind-of-Crap; so it took quite some efforts to get it back on track. Now, it looks all messed up so it will be a while before it looks pretty again.

Hoping to see some old friends again.