2006 03 Money

Money

The word salary came from ancient times when salt was a medium of exchange. Before that, barter was how goods and services were exchanged. After that coin, then paper, represented value. Now we have “plastic” or electronic exchanges where the medium of money has come to include the one’s and two’s of computer code. From the very earliest of times money has solved problems but it has also created problems. It has led to market efficiencies—and/or—it has led to addictions.
First off, how much money is enough? One could argue that all any person requires is to satisfy thirst, hunger and shelter needs. In the right climate, even clothing is not considered a necessity. For many years, indigenous people did not even need to barter for necessities. They simply lived off the land and what was naturally provided for them. They shared the bounty with their families. If only our fore bearers hadn’t called them savages, we could have learned a lot from them. Even today in many parts of the world, all people have is the barest of provisions. I met several such people in Mexicali while we were on a church mission trip over a decade ago. In spite of poor medical care (the death of a newborn infant) and extreme poverty (cardboard homes), these were happy folk. They worked hard while they laughed about little things. While it’s true that money doesn’t buy happiness, having comforts does indeed help shape most people’s outlook on life.
My first memory of money was the five cent allowance. My father was the keeper of the allowance in our family and he dutifully entered the sum in a little ledger book every week as he gave me my nickel. He and my mother were careful to not tell me what to do with my allowance so that I could make purchases of items which interested me. They did not loan me money when I was short of what I needed to buy something I wanted. They did encourage me both to save and to give away some of my money. Gradually my allowance increased. Mom and dad helped me open a passbook savings account as soon as I had enough to qualify for the minimum. It was a Berkeley Savings and Loan on Solano Avenue in the business district near our home. The opening balance was probably about $10 and I must have been about eight years old. The tellers hand wrote the deposits and withdrawals in an impressive passbook.
We followed the tradition of allowances into the next generation. Our standard was initially half of the grade level per week in dollars. So, when our child was in first grade, it was fifty cents a week. Looking back, that represents inflation of tenfold in one generation. By the time they got to high school we were somewhat more generous, but they were expected to buy more of what they needed as well.
We marvel at what things cost in the “good old days”. A house purchased in 1973 for $29,500 would sell today for twenty-five times that. On the spending side, inflation is scary because it robs you of value (unless your assets are working in current terms). On the borrowing side, inflation can be helpful, since you can pay back borrowed dollars at a discount.
My work involves meeting with customers to acquire and protect assets. Many people struggle in the acquisition and protection phases of managing money. Some of my customers call regularly to try to lower their obligations. Many of these same customers fret over not having enough money to make it until next month. There have been times in my life where that was the case as well.
Acquiring assets starts with an attitude: “I’d rather own than owe”. So if you set out to own property of any type, the first question is how to get started. Even very young people can set out to own property. One way to get started is to work within your available means. By putting aside a percentage of income which will not be touched except for a specific goal, you are saying to yourself, “I can wait for this thing and it is worth waiting for.” The alternative is to use someone else’s money, and let you pay it back with dividends or interest. That method assumes, “I cannot wait for this thing, I need it now.” Or…”This opportunity is so good, that if I wait, I’ll allow someone else to capitalize on it instead of me”.
Advertising is pervasive in its ability to influence us to think we need something and that we’ll be happier if we can obtain it now. It assumes the little bit of greed in all of us and plays on our feelings. “You’re worth it!” the ad shouts. “You cannot afford to be without this whatever for another day. And, you won’t even have to pay for it until whenever!” How seductive! I can have it now and I don’t have to pay for it? What a deal. But if you really think it through, you’ll be paying for this whatever for months or years. Owning it creates a temporary “high” which usually wanes in a matter of hours, days or weeks. After all, there are only twenty four hours in a day and you don’t even have time to enjoy all the things you can buy on a daily basis. I attribute the amazing sales of electronic equipment to the inherent desire to feel good. We want to be entertained rather than put the time and effort into being entertaining. So one solution if you have a spending problem is to limit your exposure to advertising and focus on what really matters…your relationship with other people and whatever is your passion in life.
What is the secret to happiness with money? I believe it is to focus on a few things which are important in your life. For example, a trip to visit your grandchild is important. The purchase of a device you’ll actually use often is important. Examples abound, but here are a few tangibles which have been important in my life: Food, water, clothing, a house, violin, bow, music, computer, automobiles (we make them last!), camping gear and cameras. Of course some of those items require maintenance, like gas and oil for the auto, paint for the house, strings for the violin, film, batteries or photo paper for the camera. Pretty much everything else is a want, not a need! Of course, your list will be different. That is what makes life so interesting.
Another way of putting money in perspective is to ask yourself the question: “What is fulfilling in my life?” If it is relationships with other people, the money invested in that relationship is precious. So a diamond ring is a good purchase! So is the air fare to visit loved ones living far away. If it is good health, the membership in the gym or the equipment to stay fit is a good purchase (if you use it). If it is music, the best equipment you can afford makes the experience more meaningful.
The financial press talks a lot about financial independence…having enough money to make it possible to live on income from your investments rather than your labor. But I know octogenarians who continue to happily work because money is not the object of their passion. Instead it is the work itself which is satisfying. These active elderly are interested in other people and taking the life they have been given to express that interest in helpful ways. They are not interested in hoarding money per se but they always seem to have enough. They also appear extremely generous—giving to many good causes.
The antithesis of this generosity is greed and what I call unhealthy money. When I was about eight, my grandmother joined our family at Lake Tahoe for a summer visit. As part of our family outings, we enjoyed driving the wonderful winding road over Kingsbury summit in Nevada to go to a favorite Basque family style restaurant in Gardnerville. Being in a state where gambling was accepted for those over age twenty-one I asked my grandmother if she would play my ten cents in a slot machine. She admonished me to save my money, as it would be a waste to put it into the machine. I begged her incessantly until she finally acquiesced with the warning, “Frank, you’re wasting a good dime”. Of course you know what happened! Out clinked eleven dimes which I put in my pocket. Since then, I have visited Las Vegas and Reno on convention travel a number of times. I always remember the incident with my grandmother, but I never fail to put at least one quarter in a slot machine to see what might happen. Of course, the casinos are ahead.
The last trip to Las Vegas, we had way too much time at the airport, so I took $20.00 and started to play a nickel machine. When I was down to $10.00 I cashed out, but then thought…”I wonder if the next pull would get my $20.00 back?” So over the next half hour I squandered all the rest of my nickels down to zero. I tried a number of strategies…three nickels at a time. One at a time. Or three when I lost the previous pull and one when I won. Of course my rational self tells me that no strategy is going to beat the house. When they say 97% payback, what that really means is 3% guaranteed loss! My statistics class at Cal taught me to play 100% on one roll and then walk away no matter what happens. The longer you play, the more the house is favored.
So why is it that people think it’s fun to gamble? It’s that great sense that we’re the lucky one. We’re on a streak. Life should be good for us without effort. And it leads to financial devastation for some. Surrounding the casinos are many who are said to be “down on their luck”. The fact is, they are not down on their luck…they wanted something for nothing which is never satisfying. If you think of the most satisfying times in your life, they are probably related to the difficult challenges which were overcome in one way or another. The tall peak climbed. The event where you trained hard and won. The sale made in the face of stiff competition. The difficult course passed with an A+.
Using credit has the same feeling as gambling. It is the instant gratification for something which is not otherwise obtainable. But the lingering effects are only justified if you have the ultimate goal to own the item outright. Credit card companies have sold us on the idea that plastic is safer than cash. What a lie! I can only think of a couple of acquaintances who were robbed of cash. The exposure to each loss was a hundred dollars or less. However, the exposure to lost interest is far greater than that for many people using credit cards. When I have customers with too much consumer debt, my advice is to cut up all credit cards except one. The one remaining card must then be frozen—literally iced! Put the card in a plastic bag, fill it with water and place it in the freezer. It won’t damage the card. Then, before you take it out to thaw it for use, you must ask yourself the question, “Is this purchase a want or a need?” Because it takes a while to thaw, you’ll have time to ponder this question. If the answer is a want, then the credit card stays frozen. If it’s a true need (for your survival), then it can come out. While the card is frozen, you must only use cash for purchases. With cash you cannot spend more than you have. By doing this exercise, some of my customers have gotten rid of their consumer debt very quickly.
Clutter is something that can happen whether we have too much money or just a little bit of it. One woman I knew several years ago had virtually no income, but had an incredibly cluttered apartment. Duplication abounded. While I was an assistant scoutmaster, we’d have garage sales to help support our summer camp program. Our real estate agent scoutmaster knew when estates were coming on the market and he would ask the selling families if they wanted the Boy Scouts to take away whatever the family didn’t want. Invariably we’d find duplication of items like toasters, barbeques, shovels, hammers, kitchen utensils, etc. And then at the garage sales, people would become pack-rats of consumption…buying as much of the junk as they could. We’d see the same people year after year browsing the sale tables and filling their bags with trinkets. Some would try to negotiate down from a dollar on certain items to save a few cents.
Increasing income does not solve money problems. Someone with an income of $10,000 does not erase money problems if they go to $100,000. Recipients of large life insurance proceeds typically go through the money in about two and a half years. Winners of the lottery think they’ve made it big and can spend, spend, spend. However, many of those winners have nothing at the end of a year or two. And many of them don’t understand the impact of taxes on large sums and are ill prepared to deal with that unexpected drain. Our government has a plan for good which leaves us with no choice about some of our money. Knowing and planning for taxes is part of every good money strategy.
The role of charity in managing money is interesting. Whether you’re rich or poor, giving what you have away gives good feelings both to the recipient and the giver. My strategy on giving is to focus on a few charities in which I am personally involved. That way, decisions as to the use of the money are controlled. I can have a direct impact on lives and I can see the benefit being enjoyed. Being actively involved means attending meetings, helping in the decision making process and being present when grants or scholarships are delivered. Examples are the Kiwanis Club and church.
The Bible is an interesting source of information about money. Many Bible stories relate to transactions involving money. I just searched the Bible for the word “money” and came up with 114 references. The first one in Genesis involves buying people with money—slavery. The final passage from 1 Peter admonishes against greed. In the Bible, the money themes include atonement, exchange, coveting, corruption, honesty, poverty and sacrilege. Many of the references show money in a negative way in an apparent effort to demonstrate the antithesis of how money can be used for positive ends.
So money can be healthy if it is used for things which will make life better. And money can be unhealthy if it is used for junk. It can be marshaled into a fund for comfort or it can be squandered. It can be accumulated in a plan or it can be spent willy-nilly. It can be tracked in a computer program or it can be plopped into a shoebox. It can be invested in business. It can be given away. What are your thoughts about how to use money to create a better life? What changes can you make in your life to make money a tool for good? What will be your financial legacy?

©Frank Bliss 2006 All rights reserved
March, 2006