Category Archives: Personal Finance

Interest Rates And ‘Stacking Benjamins’

A lender contacted me last weekend about refinancing my home.  It seems interest rates have fallen roughly half a point since I first acquired the liability I call home.  But half a point isn’t quite enough for me to go through the pain of refinancing a mortgage, so I told the lender I’d sit tight for a while.  In response, the lender tried to educate me about impending interest rate hikes in December and that I’d be throwing lots of ‘Benjamins’ away if I failed to take advantage of this opportunity.  Ultimately, I think I’ll wait to refinance until a little while later, and here’s my rationale for doing so…

I’m not an economist.  I am simply a middle-aged guy doing his level best to save and prepare for a retirement…of sorts…sometime in the fairly distant future.  And I struggle to understand the intricacies of macroeconomics much less how to save for my own retirement at the microeconomics level.  The differences between microeconomics and macroeconomics seem closely akin to the differences between physics and quantum physics, except in reverse.  Ok, what?  Like, I am trying to understand how the decisions made by ‘Big Whigs’ at the macroeconomic level affect how well I can manage the money I am personally in charge of (microeconomics).  I am pretty sure macroeconomic decisions impact me directly, like in the case of my home refinance opportunity, but how exactly those decisions impact me and even how and why those decisions are made are not quite so clear.  So I am very interested in the ‘big picture’ and how Federal Reserve decisions, with regard to interest rates, impact my life, your life, and our present and future.

Today, the Federal Open Market Committee (FOMC), chaired by Janet Yellen, met to discuss the possibility of rising interest rates before year’s end.   The FOMC seem to say roughly the same nebulous things at each meeting, which makes me wonder about what is truly driving their decisions.  I don’t think the Federal Reserve cares much about people with microeconomic concerns (i.e., concerns such as paying for milk and gas each month much less the mortgage).  Why would they?  They are not elected officials of the people of the United States.  So here’s how I think interest rates are going to play out…

Take a look at the following chart of interest rates in the US since interest rate data have been collected:

Federal Interest RatesThe chart shows, as Grant Cardone has so eloquently pointed out to his listeners, a significant trend…to ZERO!!  In fact, interest rates have pretty nearly done bottomed-out already.  So maybe we get another tiny bump on interest rates in December, but past that, I think we are headed into negative interest rate territory.  I agree with Grant Cardone’s analysis that there is no way interest rates can go up.

I believe the key to understanding the Federal Reserve’s guidance on interest rates is driven not by the strength of the US Economy and Inflation, but instead by the National Debt.  Whoever holds cash benefits the most from rising interest rates.  Right now, many countries hold alot of cash, in the form of notes or I.O.U’s, sold by the United States to pay for things like Wars, seeking-out Weapons of Mass Destruction in Iraq, and then Reconstruction and keeping the Government open for business.  The result is a mountainous debt (thanks to former President Bush (Republican) and current President Obama (Democrat)).  If interest rates do go up, these foreign note holders get more and more leverage as their notes become more valuable.  Simple math says you stand to collect more money if someone is willing to pay you 5% for the dollars you hold over 1%, for example, when your note becomes due.  If interest rates go down, cash and I.O.U’s become less and less valuable.  In fact, if interest rates go down enough, say into negative territory, people and entities holding cash may have to pay someone else for the privilege of holding cash.  Think about that!  The bank could conceivably charge you money to keep your cash in their bank!  You know, kind of like 401k programs do now…sort of.

So, rates may go up some in December, although I’m not sure why they would.  If the real drivers of Federal Interest Rate Policy is the minimization of National Debt obligations, then interest rates cannot go up until the US National Debt is greatly reduced.  Therefore, I think the FOMC is going to lower interest rates even more, and I think they may even go into negative territory soon.  The upside of interest rates going negative is that you might get paid to have a mortgage?!?!

I think there is still some time to consider mortgage refinancing.

 

Book Review: ‘The One Thing’

The ONE Thing

I just finished reading ‘The ONE Thing’ by Gary Keller and Jay Papasan. This book was recommended by several people on many of the different podcasts I listen to, so I thought I’d give it a read. This book both bothered me and inspired me…but it mostly inspired me.

 

  • The interview question, ‘How do you eat an elephant?’, came to mind while I read this. The answer is one small bite at a time, and focus while you’re doing it.
  • The domino metaphor is a powerful one. Setup up a *HUGE* domino and try to knock it over by setting up increasingly smaller ones until the initial domino can be knocked over with a simple flick of the finger. In other words, big goals can be broken down into increasingly smaller ones, which when lined up in succession, can lead to an amazing chain of successes. ‘Overnight Successes’ are actually not a thing, but a long succession of ever increasing successes leading up to a big one.
  • FOCUS. Focus on ONE thing. Focus on ONE thing that will knock over the next domino. That’s the trick, now, isn’t it?
  • The first 4-5 hours in the morning are the most productive of the day. Don’t let anyone hijack that time. No Scrum. No meetings. No phone calls. Just productivity. Save the rest for the less productive hours of the day…in the afternoon. Easier said than done. Usually, our professional time is not our own. Perhaps, not yet anyway.
  • Keep your ‘One Thing’ in the fore front of your mind and activities always. Constantly ask yourself if what you are doing is helping you knock over that next domino.

Focusing on one thing is hard for me. I suspect it’s hard for most people. If it weren’t difficult to focus on just ONE thing at a time, I imagine there would be a whole lot more wildly successful people in the world. Focus has to be one of the secret ingredients to amazing success in life. My mind seems to always be wandering out to sea…


Somewhere on the North Atlantic Ocean...
Somewhere on the North Atlantic Ocean…

Summarizing books like this just doesn’t seem to do them justice, so I apologize in advance. These summaries are mostly for me and for solidifying key concepts in my own brain. This ONE book is definitely worth a read, however, so pick it up at amazon:

 



Dreaming Big Dreams Is Hard

“You can do anything you put your mind to.” — Pat Caple

It’s hard to believe it’s August 2016 already.  It’s hard to believe that I’ve been living in a strange house in Silver Spring, Maryland, for the last month-and-a-half, since renting my house was the only way to cost-effectively set off on our ocean rowing adventure.  It’s hard to believe that my girlfriend, Cindy, and I planned to be completing a row across the North Atlantic Ocean about this time…somewhere in Ireland.  It’s hard to believe we failed to accomplish this, and failed in such a big way.  Our row only lasted three days and two nights at sea.  Epic fail.  You can read more about our plans to row across the North Atlantic this summer on our website.

I’ve had more epic failures in my life than successes.  Successes seem really hard to come by.  Is Michael Phelps human?  Am I a sub-human?  I wanted to be an Olympic Sculler in the 1996 Olympics.  While attending Graduate School in Germany in the early 1990’s, I decided to take a long weekend to see the rowing events in the Barcelona ’92 Games.  I totally missed the rowing events, but was able to see some of the Basketball and Waterpolo events.  I was smitten with the idea of being in the Olympics one day.  I bought an Atlanta Braves Ball Cap in the Atlanta Airport on my way home from Stuttgart Germany, where I had just completed Grad School in 1992, as I came back to the United States to pursue my Atlanta ’96 Olympic Dreams.  I moved to Virginia and found my way down to the Occoquan River where the National Sculling Team trained.  I found Igor Grinko, the National Team Sculling Coach, and I asked him what I needed to do to make the team.  He said: ‘row…alot’.  I did a 2k erg test for him.  He said his women rowed faster than me.  But I didn’t quit…at least not for another two years or so.  My son was born in 1997, and that is when I decided to quit.  Ok, so my son off-set my Olympic Dream failure quite handsomely…and then my two daughters.

Looking back, I have realized that alot of my biggest dreams, and failures, have been centered around the sport of rowing.  Maybe that’s because I love the sport and camaraderie so much.  I listen to the Olympics taking place in Rio on the TV, but I can’t watch.  It reminds me too much of broken dreams.  I wish I was competing in the 4x sculling competition in Rio this year, or arriving in Dingle, Ireland, as one of the first American Pairs Boat Crew to ever row across the North Atlantic.  Damn dreams…Maybe I need to have more children to help offset this failure.

The athletes you are watching on TV now, who are competing in the Rio Olympics, have already achieved an amazing feat, regardless of whether they win a medal in the games.  It’s just an amazing accomplishment to even make the Olympic Team and to win the privilege to compete at that level.  Truly incredible!  These athletes have athletic powers well exceeding what might otherwise be attained from 10,000 hours of repetitive practice.

But forget sports.  I’m putting my mind to a new dream.  My new dream is to become Financially Free, Independently Wealthy, and to be able to ‘retire’ well before Social Security is *supposed* to kick in.  I may fail in achieving most (if not all) of my dreams, but I never want to be known as someone who quit dreaming because of failures, or never dared to dream big dreams in the first place.  Plus, this dream has nothing to do with rowing or sports, so maybe now I have a chance of reaching it.

Now, who’s got my money?

 

Crossing the Economic Chasm: From Average Wage to Economic Freedom

I was curious about putting the salaries of the US National Average into context with the salaries of the Top 1% earners, American CEO’s and Billionaires.  How significant are the disparities between these groups?  For people in the lower and middle class, how much money do they need to be considered among the Top 1% earners in the United States?

Consider the following data I found on the web…According to the Social Security Administration, the average American salary in 2014 was a paltry $46,482.  Given the cost of living in the United States, this seems pretty bad (perhaps not relative to India or Ethiopia, for example, but for America, it’s bad).  This is especially scary relative to the average CEO salary: $16,316,000.  The average income of a person in the top 1% of all American earners is $717,000.  Then there are the Warren Buffet Billionaire types…Warren Buffett earns roughly $37,000,000…A DAY!!  The amounts of money some American individuals bring in each year is simply staggering!

Here is some context represented in the following bar graphs:

Average American Salary relative to the Average Top 1% Salary
Average Income Relative to Avg CEO Pay
…relative to the Average CEO Salary…
Average Income Relative to Top 1%
…relative to Warren Buffett’s DAILY salary…
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…relative to Mark Zuckerberg’s Net Worth.

The average American wage earner truly has their work cut-out for them if they want to live like the average Top 1% income earners.  But the average Top 1% income is not even in the same Solar System as the income of the average American CEO.  And Billionaires?  They are in a whole different Universe.

So what’s the average American wage earner to do if they wish to achieve financial freedom like the Top 1%, the Average American Millionaire or Billionaire?  That is the question I would dearly love to answer for myself right now…

 

Book Review: ‘Money Master the Game’

Money Master the GameI just finished reading ‘Money Master the Game: 7 Simple Steps to Financial Freedom’ by Tony Robbins.  I am not a fast reader.  At over 600 pages, this book took me over two months to get through.  I stuck with the book because I want to be financially free and I’m trying to figure out how to get there.  While I was a bit disappointed in the main premise of the book – that investing in the Stock Market (bonds, stocks, treasuries, REITs, etc) was the main way to achieve financial freedom (which I hope I have stated correctly) – I loved Mr. Robbins positive admonishments throughout the book as well as his interviews with billionaire investors and his polite insistence that they share their secrets to investing success with everyone who has ears to listen.

I started this book from the fundamental belief that the U.S. Stock Market is corrupt and rigged.  I have cooled on the value of participating in the US Stock Market as an ‘average Joe’ investor – from too much manipulation by the Federal Government through Corporate bail-outs and Quantitative Easing (QE1-3) policies, to the Federal Reserve Bank and possible involvement in equity purchases, to High Frequency Traders (HFT) manipulating stock prices, etc..  Mr. Robbins book, however, is mostly about portfolio balance and diversification in equities.  While reading this book, I realized that the Stock Market cannot be ignored as at least part of an overall financial freedom strategy.

All-in-all I thought this book was extremely well researched and very good – well worth the investment of time to study and money to purchase.  It seems to be a heart-felt attempt on Mr. Robbins’ behalf to help the average investor prepare for retirement in the face of a growing retirement crisis (most Americans are not saving nearly enough money for their retirement – myself included).  While many of his recommendations for getting started toward some hope of retirement are mostly common sense steps you’d no doubt hear from any personal finance guru (i.e., save more than you spend, get out of debt and invest your savings), Mr. Robbins goes into great depth into how successful institutional investors, like Ray Dalio, Jack Bogle (Vanguard) and Charles Schwab, invest and make money (and rarely ever lose it).  I found great value in this book from the interviews Mr. Robbins shares near the end of the book with several billionaire investors, and that, I believe, is the true genius shared in this book: that we should study and emulate the behaviours, mentalities and money management practices of the truly wealthy in order to increase one’s chances of realizing financial freedom.

To that end, I realize the Stock Market cannot be ignored; however, I intend to tread cautiously in regard to these types of digital investments.  I choose to remain largely in cash right now (perhaps even in nickels, a la Kyle Bass (mostly joking)), with limited monthly investments in my 401k, and some small physical real estate investments (sorry James Altucher).

Tony Robbins, thank you for your hard work in writing this book, sharing interviews with such highly successful people, and for encouraging all people to improve their (financial) lives!  Here’s to a better (financial) future!