How To Improve Your Finances

Preamble. In what follows I make assumptions that do not hold for many people. Among the most glaring is that my intended audience is gainfully employed and/or they have enough passive income each month to meet basic needs with some left over. Another assumption is that everyone can improve their finances. If I’m wrong about you, I bet you know someone, maybe a young adult child of yours for example, who could use some help building wealth. Consider forwarding this to them if you think it merits it. Thank you.

Official start. Ever wonder why don’t more moderate to high earner families have more long-term financial security to show for all their hard work? In part because financial analysts and advisors make things more complex than they have to so that people will hire them to manage their money.

As a result of needless complexity, and the associated pursuit of the perfect portfolio, people loose focus on what matters most when it comes to building wealth over time, that is, how much they make and spend month-to-month. If asked, how much do you spend on average each month, how precise would your answer be?

Not nearly as precise as it would be if you backward mapped your expenses. Backward mapping, in contrast to budgeting, entails spending regularly without much attention to detail, then totaling everything up after the fact, or more specifically, at the end of each month. Think of it as an x-ray of current spending.

My expense spreadsheet has 7 columns and 12 rows. The columns are for 1) our primary credit card; 2-3) secondary credit cards used less often; 4) cash/checks/wired payments; 5) one-time expenses divided by 12 which include property taxes, home/auto/umbrella insurance premiums, and professional tax preparation; and 6) medical and dental insurance premiums; and 7) a column where I write what the largest expense of the month was in order to see the most expensive outlays of the year in-a-glance. The 12 rows are for each month of the year.

How to build in one-time expenses like a car purchase or new roof? If I buy a $36k car and sell a $12k one, at the end of the year I’ll increase the average monthly total for that calendar year by $2k.* Or maybe I’ll increase it $1k for two consecutive years.

We’re super lucky that we don’t have to budget. With backward mapping though, which doesn’t require much time with credit card statements and most other financial records on-line, I can tell you within a couple percent what our annual burn rate or overhead is. That’s half the battle.

Then comes income. Probably the younger you are, the simpler it is to tabulate. In my advanced age, my income spreadsheet has several columns because in addition to my salary, my university contributes to my retirement fund each month, and then there’s monthly interest from cash and bond investments, and quarterly dividends from stock investments. The wider your income spreadsheet the better. I know, I know, I need a “side hustle” column. I feel younger just for having written that.

Same as with expenses, I keep a running total month-by-month. Here I can be even more accurate than with expenses, even to the dollar. As a result of these monthly calculations, in two weeks, it will take me about 15 minutes to solve for “C” knowing “A” is expenses and “B” is income. If my income exceeds my expenses, “C” will be a positive number. If my expenses exceed my income, like for the federal government, “C” will be negative. Whichever it is, I will carry the number forward and keep a running total from year-to-year.

Building wealth depends upon creating savings on a month-by-month basis much more than fretting about what the market is going to do tomorrow and trying to craft the world’s most perfect portfolio. By far the best way to increase your net worth by $1,200 a year is to make sure your income exceeds your expenses by $100 month-after-month. By far the best way to increase your net worth by $12,000 a year is to do everything in your power to make sure your income exceeds your expenses by $1,000 month-after-month. By far the best way to increase your net worth by $120,000 a year is to make sure your income exceeds your expenses by $10,000 month-after-month.

If that’s so obvious, why do people spend way more time studying stock market gyrations than figuring out how to limit their expenses and increase their income?

If you do well and end up with a surplus of $1,200, $12,000, or $120,000 at the end of the year, invest 50% of it in low cost bond index funds and 50% in low cost stock index funds (+/- 25% based upon your age and risk tolerance). And repeat.

Invest knowing that the most credible analysts in the financial sector seem to be in agreement that future returns will likely pale in comparison to historical ones. For example, here’s Vanguard on 2019 and beyond:

“U.S. fixed income returns are most likely to be in the 2.5%–4.5% range, driven by rising policy rates and higher yields across the maturity curve as policy normalizes. This results in a modestly higher outlook compared with last year’s outlook of 1.5%–3.5%—albeit still more muted than the historical precedent of 4.7%. Returns in global equity markets are likely to be about 4.5%–6.5% for U.S.-dollar-based investors. This remains significantly lower than the experience of previous decades and of the postcrisis years, when global equities have risen 12.6% a year since the trough of the market downturn.”

Subtract 2-2.5% for inflation and another percent for taxes and returns may be 1-3% above inflation. And that’s not factoring in people’s tendency to trade too much with the associated costs that brings. Good luck depending upon your investment smarts to grow wealth.

Building wealth depends upon maximizing income and minimizing expenses a little or a lot. Of course, that depends upon more than using my suggested spreadsheets. Most likely, among other things, it depends upon the degree to which you grew up with role models who lived below their means; how specialized your knowledge and skills are; whether you live in a modest neighborhood; and ultimately, your capacity to delay purchases.

Lastly, one thing your financial planner won’t tell you. Personal wealth won’t amount to much if we don’t revive the Common Good. For us to flourish we need a federal government that can pass budgets without threatening to shut down. We need political leadership that young people can aspire to. We need labor unions to protect workers’ interests. We need health care that doesn’t penalize people of limited means or those with preexisting conditions. We need to partner with other countries to reduce greenhouse gases and global poverty.

Absent commitment to those things, wealth will elude us.

*get a load of this story

What College Professors and Adminstrators Get Wrong

In the age of social media and smartphones, what expectations—if any—should professors have for privacy for lectures and communications intended for students? That’s Colleen Flaherty’s question in Inside Higher Education. The larger question is what expectations should any of us have for privacy?

Flaherty tells the story of Rachel Slocum, assistant professor of geography at the University of Wisconsin-La Crosse, who was. . . 

stunned earlier this month when what she thought was an innocuous. . . email to students about why they couldn’t access Census data to complete an important course assignment became national news.

Her email. . . blamed the “Republican/Tea Party controlled House of Representatives” for the shutdown and consequent U.S. Census Bureau website blackout. Then it appeared on Fox News, the Daily Caller, and in her local paper, after a student posted a screen shot on Twitter. It also caused uproar on campus, prompting numerous calls and emails to Chancellor Joe Gow, who sent an email to students, faculty, and staff distancing the university from Slocum’s ‘highly partisan’ comments.

Slocum said she probably wrote the email too quickly upon hearing her students couldn’t access the site, without sufficient explanation of her political reference. But the chain reaction was hard to believe, given that she never intended—or thought—that her email would be seen by anyone outside of her geography course.

Stunned, really? Michael Phelps can’t smoke a joint inside a dark fraternity house without smartphone pictures of it appearing in major newspapers. Why was it “hard to believe” your email was tweeted? It could’ve just as easily been forwarded, uploaded to Facebook, and blown up and pasted on the side of La Crosse’s busses.

Another tenured professor of creative writing at Michigan State University had his teaching duties reassigned after he embarked on “. . . what’s been described as an anti-Republican ‘rant on the first day of class in August.”

And Facebook helped Santiago Piñón, assistant professor of religion at Texas Christian University, make headlines last month, when a student he invited via email to a study session for “students of color only” posted the message on her page. Almost instantly, the invitation, which many said discriminated against other students, went viral.

Timeout while I replay in my peabrain what I said in class yesterday afternoon. Yikes! When discussing education reform I took shots at Bill Gates, Arne Duncan, Tom Friedman, and 44. When those deets are made public my university’s administration will probably throw me under the bus of public outrage too. If this blog goes dark sometime soon, don’t be surprised. Know that I cherished you dear reader.

Slocum said she saw close monitoring of professor’s words by watchdog groups as potentially chilling to free speech, and as a means of waging the nation’s current political battles on a new front, to the detriment of higher education overall.

Fear is the lifeblood of watchdog groups. And spineless administrators. That’s why tenure is so important. Slocum shouldn’t retract what she wrote, instead she should explain it to any upset students. Granted, they probably won’t agree with her reasoning, but their only concern should be whether Slocum’s politics prevent her from fairly assessing their work.

Gow, Slocum’s chancellor, said that. . . he would have responded “exactly the same way” if Slocum’s email had blamed Democrats or any other group for the shutdown. Both he—a longtime communications scholar—and La Crosse value free speech and academic freedom, he said, but now more than ever the actions of faculty and staff can influence public support for higher education.

Ultimately, Gow said, the Internet has “greatly blurred” the line between what’s public and what’s private, “and we do need to remember that what we’re saying to students may be shared more broadly.”

Come on Gow, “greatly blurred,” really? Try erased. “Blurred” might make more sense if Gow had actually come to Slocum’s defense. Read Gow’s words again. He’s saying maintaining public support trumps free speech and academic freedom.

Gow said that ideally, a student who was offended by a professor’s speech would try to settle the matter internally, first through a conversation with that professor, then through more formal complaint mechanisms as needed. La Crosse also takes student evaluations seriously in personnel decisions, he said.

Could Gow be any more out-of-touch with college students? This generation doesn’t do direct interpersonal conflict. For shitssake, they break up with one another via text messaging. Then there’s Gow’s mind numbing student evaluation hammer. All these years I thought student evaluations focused on whether students learned anything of value in their courses, but I guess they’re at least partly designed to determine whether students are ever made uncomfortable by a professor’s politics. Note to Assistant Professors at Wisconsin La Crosse—wait until you get tenure to express anything that could be deemed the least bit political.

Slocum expressed similar views, saying that taking complaints to the Internet before the institution “seems a breach of trust” and removes them from their context.

Of course that would be preferable, but it’s naive to expect it. Wisconsin La Crosse can update their student honor code, and implore students not to take their complaints to the Internet, but some still will. This generation lives on-line. You can’t put the toothpaste back in the tube.

At La Crosse and other institutions . . . Gow suggested that professors make up their own rules and include them on course syllabuses—as some faculty at various institutions. . . already do. But, the chancellor said, enforcing those policies could be another complicated matter. “That’s kind of uncharted territory there, isn’t it?”

Now I’m starting to feel sorry for Gow. And this excerpt heightens my sympathy for Slocum:

This had never happened to me before so it was a new, unexpected and unpleasant experience, Slocum said in an email. And I didn’t expect it because my emails to students are the boring stuff of ‘Why didn’t you turn in that’ or ‘Here are some important points to remember,’ rather than anything that might cause fury on the Internet.

Here’s some unsolicited advice to my syllabi writing brethren whether Packer fans or otherwise: Do not expect the Internet Generation to come to your office to discuss their concern with your politics. And don’t be surprised if they take surreptitious screen shots of you* and your communication. Or tweet something you’ve said or done. Or post about something you’ve said or done to Facebook. Express partisan political views at your own risk.

* I was a recent victim of surreptitious screen shoting while Skyping with the college senior. Told her about a fun Saturday night out where her mother and I watched Flamenco dancing at a downtown Olympia pizza joint. To give her a little flavor flav of the evening, I demonstrated my pretty astounding flamenco skills. Unbeknownst to me, she took a screen shot midway through the demo. Within a few minutes some of her friends on Facebook were eating it up. The worst part of that whole infringement of my privacy? You need video to fully appreciate my mad flamenco skillz.