You Can’t Spell “Wealth” Without “O”

September 13, 2013
Every personal finance blogger's favorite baseball team

Every personal finance blogger’s favorite baseball team

 

Sports analogy time!

Adopting the logic of most people who dispense personal finance advice, the Kansas City Royals are the standard to which all other American League baseball teams should aspire. They’ve set an example that the rest of the league, indeed the rest of the world, can only look at with awe.

Why?

The standings don’t bear that out. The Royals have the 9th-best record in a 15-team league. They’re in 3rd place in the Central Division, 7 games back of Detroit. The Royals are also 4 1/2 games behind Texas in the wildcard race, with 4 other teams between them. They’re about as average and nondescript as a baseball team can be, all the way down to those godawful homosexual blue road uniforms that most major league teams had the good sense to get rid of in the ’80s.

Here’s what makes the Royals special: they’ve allowed only 555 runs, fewest in the league. In personal finance terms, they’ve incurred as few expenses as possible. The Royals are the baseball equivalent of the blogger who makes his own laundry detergent from leftover dish detergent and hand soap, leaves used wet paper towels in the sun to dry for reuse, drives across town because GasBuddy told him that a station 10 miles away is selling 87 octane for 4¢ a gallon cheaper than the station across the street, and makes his own dish detergent from leftover hand soap and laundry detergent.

What the overbearing voices of groupthink will tell you is that frugality – keeping the other team off the basepaths – is the only metric that matters. The fewer pennies you surrender, the happier and more fulfilling your life will be. Assuming, of course, that you enjoy denying yourself the pleasures that only spending money can bring. Yes, sunsets and the smiles on your kids’ faces are free and priceless. Great. If that’s all you need out of life, why are you looking at a computer screen right now?

There are two components to building wealth, and their relationship is every bit as symbiotic as that of the rhino and the tickbird. Your money can’t grow unless it exists in the first place (which is the lament of the frugality zealots.) Equally important is that you can’t just spend all your time amassing a modest pile of post-expenses cash and then trying your best to keep that pile from decomposing. Being adept at scoring runs gives you far more margin for both error and creativity on the other side of the ledger. The Boston Red Sox have a sense of proportion. They’ve allowed 8% more runs than the Royals have, putting Boston in the middle of the pack as far as defense goes. The Red Sox have also scored the most runs in the league, and not coincidentally have its best record. (The Royals are 11th in the league in scoring.) Offense without defense is useless, and vice versa.

You gotta make money, and holding yard sales isn’t going to cut it. So what’s the quickest and most efficient way around that conundrum? You could make yourself more valuable at your place of employment, but a) we can’t help you with that and 2) your employer will still be profiting off your hide. Instead, you have to learn how to leverage: how to defer current rewards for larger rewards down the road, ones that are positively disproportionate to the time elapsed. You need to know the difference between an IRA and a 401(k). And between a Roth and a traditional version of each. What a mutual fund is, and why it’s not a choice between investing in a mutual fund or a 401(k), etc. Learning about investment vehicles might not sound all that gripping to you. It might not be, and almost certainly isn’t, what your formal education focused on. Consider basic financial knowledge to be part of the price of being a functioning and productive member of society.

You know the rudiments of physical health, right? Smoking bad, grilled salmon good, sitting on the couch bad, riding a bike good etc. You didn’t need a degree in dietetics to comprehend that. Similarly, you don’t need a CPA designation to understand how tax brackets work and what the difference between credits and deductions is. We’re leading to yet another plug to buy our book here, but that’s not the primary purpose of this. Rather, we’re beseeching you to stop being fanatical about saving as much money as possible. Per hour committed to the task, it’s far more efficient and beneficial to look for ways to increase your existing stock of wealth than to look for ways to cut spending a little more. No worse advice has ever made it into axiomatic form than “A penny saved is a penny earned.” Nonsense. Once you start building a positive net worth, earning pennies becomes far easier than saving them. Also, the opportunities to earn greatly outpace the opportunities to save. You can only save so much. Your powers of accumulation are greater than that, and probably greater than you can imagine.

Or as we say over and over again, buy assets and sell liabilities. $7 spent on our book beats $7 saved by making your own toothpaste and placing the proceeds in a jar. Even if you’re saving orders of magnitude more than that, you can still do even more by buying assets. $2000 in an index fund beats $2000 negotiated off the price of a car. The former is dynamic, the latter static.

Now excuse as we hit you with the hard truth. The post up to this point was written for the benefit of those who aren’t carrying consumer debt. If you have a credit card balance or outstanding student loans, forget everything we said. Different, more spartan rules apply to those with a negative net worth. If you’re below zero, that’s where (and only where) the frugality kooks have a point. Do everything in your power to pay off those debts. Wear cheap clothes. Amuse yourself. Don’t be an idiot and plan a $20,000 wedding. You can’t build anything until your net worth starts with a +, however unassuming that number might be. Having a little bit of money puts you on a different and better continuum than the one the indebted are on. A failure to grasp that is why almost all poor people stay poor.

Filed Under: Making Smart Choices, Math, Net Worth Tagged With: , ,

Now Trent Hamm’s Just Daring Us To Name Him Financial Retard of the Month

April 27, 2012

There’s GOLD in them there textile fibers!

 

By far our favorite punching bag here at Control Your Cash is Trent Hamm, the hyperfrugal crazy person who runs The Simple Dollar. 14 times a week, he writes about compulsive, creepy, maniacal methods for shaving undetectable amounts off your expenses. Meanwhile he writes next to nothing about how to increase your revenue, which is swell because we don’t need the competition.

In previous posts he’s recommended bypassing the toothpaste aisle at the drugstore so you can collect the ingredients to make your own inferior version, and also told female readers that they should never spend more than $3 on a swimsuit. When a commenter pointed out that $3 swimsuits don’t exist, Trent helpfully suggested that women swim in their underwear. Yet people still continue to read this corn-fed monster of impracticality, and not always for the undeniable comedic value. That he has any audience at all is testament to the axiom that stupidity begets stupidity. Also, people = sheep.

By the way, Trent Hamm didn’t suggest homemade toothpaste brewing as a fun craft project for the kids on a night when the TV and the internet are down. He suggests it as a legitimate way to save money. And dozens of his devotees cyber-chime in to nod their empty heads.

One of his latest money-saving tips is so bizarre, so utterly immersed in minutiae, so microscopically unhelpful, that we had to let it sink in for a few weeks before choosing the right way to poke fun at it. Here, we’ll let Trent take it away:

Several months ago, I was curious about how much heat was lost when I opened up the oven to inspect a dish cooking in there. I put an oven thermometer in the oven, waited until the dish I was cooking was almost finished (a casserole cooking at 400º), then opened the oven door for about ten seconds to inspect it.

During those ten seconds, the thermometer dropped almost 20º. When I closed the door, the temperature slowly returned to 400º, but during that period, the oven had to put in some extra work to return that heat.

How much? It’s really difficult to exactly calculate that without a meter running specifically for the oven. My best estimate, using a lot of math and thermodynamics, is that you lose about 2¢ worth of energy every time you open the oven door.

My solution? I turn on the oven light when I’m cooking anything in the oven. That way, I just lean over and check what I’m cooking without opening the oven door. 

 

Where to start? With his discovery of the oven light? It’s not quite the game-changer that Leif Ericsson landing in the New World was, but it’s close.

 

How about that! Those forward-thinking engineers in the appliance industry researched the problem and put a light, a source of illumination, INSIDE the oven. Combined with a glass window that sits between the interior of the oven and the outside world, that means you can look at your food as it’s cooking.
Trent? You know we’ve sent men to the moon and back, right? That was 43 years ago.
Now that we’ve made fun of his stunning appreciation for the glaringly obvious, let’s not forget Mr. Hamm’s bread-and-butter: the cheapness that would put Hetty Green to shame.
It costs 2¢ to open the oven door. Even if you’re opening the oven door for no better reason than to warm up the kitchen a little…well, you don’t need us to tell you that 2¢ isn’t going to bankrupt anyone who can afford an oven, electricity, and food. We wonder how long it took him to calculate the 2¢ figure, and whether he could have spent that time earning money instead.
Throughout your life, how many times have you opened an oven to check on a dish before it was ready? Does 100 sound about right? If you have, that’s 2 WHOLE DOLLARS you figuratively flushed down the drain. You could have used that money to buy several servings of Trent Hamm’s homemade laundry detergent. Instead, you just tossed it away like it grows on trees. Nice going, you wasteful pig.
Nor does Mr. Hamm show his “math and thermodynamics”, presumably because he thinks the rest of us will flee at the sight of an equation or two. Then again, given his readers’ intelligence, that presumption might be the most rational thought Trent Hamm has ever had.
But wait. Light bulbs don’t power themselves. So where’s he getting the money to turn the oven light on with? 
The light bulb uses less than a cent of energy per hour of use …”
Well, that’s a relief. Measuring the difference between the two, you can replace your daily regimen of oven-opening with one of light-keeping-on and be on your way to economic self-sufficiency in no time.
Mr. Hamm isn’t just taking his obsession over minute amounts of money to its nadir, he could be indirectly responsible for the deaths of millions. Why, he’s openly encouraging his readers to die of trichinosis: 

If your recipe says “Preheat the oven to 400º” and then later says “Bake for 30 minutes,” don’t preheat the oven at all. Instead, put your food in the oven, then set the temperature to 400º. Then, add about half of the preheat time to the cooking time. Why? When you open a preheated oven to put in your dish, it’s no different than opening the oven to check the food near the end of the cooking time. You lose that 2¢.

(Italics and boldfacing ours.)

“Damn it, don’t you people understand? Those 2¢ increments are valuable! You wasteful reprobates probably keep your toasters plugged in when you’re not using them, too.”*

And if that doesn’t beat all, this will. Here’s another excerpt from The Simple Dollar archives, from February 26, 2009:

There’s also a group of what I would call “frugality extremists.” These are the Ziploc bag washers, the people who will gladly invest quite a bit of time to save a dollar or two. I find these people and their ideas interesting, but not necessarily applicable to my life.

Got that, everyone? Washing a Ziploc bag is going over the line, but calculating that it costs 2¢ every time you open your oven door to check on what you’re cooking is completely normal. Trent Hamm, you’re magical. Since we have to pick a Retard of the Month 12 times a year (a calculation which required lots of math, not so much thermodynamics), promise us you’ll never change.

*Of course, he’s written about this too. 

Filed Under: Bad Examples, Financial Retard of the Month Tagged With: , , , , ,

Financial Retard of the Month, February 2012

February 29, 2012

 

Smile!

 

We were all set to give this month’s award to Trent Hamm yet again. Trent has made the Financial Retard of the Month his to lose, commandeering it like Bobby Orr did the Norris Trophy and Hank Hill did Strickland Propane’s Employee of the Year. We had Trent’s name on the plaque and were ready to request another acceptance speech that he was doubtless itching to give.

And then, everything changed like a flash of lightning. In the most stunning rally in the brief history of the Financial Retard of the Month honors, Kris at Simple Island Living came from several points down to fire past Trent and all other comers. She first came to our attention with this comment, from another contestant’s recent Carnival of Wealth submission:

I just looked into [food stamps] for our family when I became unemployed. In Hawaii, there is an asset test ($3k in assets or less for a family of 3) you have to pass in order to qualify for welfare like food stamps. The only reason I qualify for state health is because I am pregnant and my son is a minor. If those weren’t the case, I would be shelling out $800 a month for healthcare for the two of us.

The one thing I do disagree with you about is the use of food stamps for organic food. When it comes down to it, getting organic milk for my son is extremely important for me because he is 19 months old. When a child is that young, if it is possible to get milk that is free of hormones it is, to me, one of our higher priorities. It’s just that their bodies are so fragile and while he’s so young, we want him to be as hormone and pesticide free as possible.

Apart from that, if you’re talking millionaires who are on food stamps and getting their organic truffle oil, well then, perhaps a touch of reality would be good for them.

Two paragraphs of why she needs other people to support able-bodied her, followed by an indignant slap at other people who have chosen to do the exact thing she did – take advantage of a political construct that allows the unproductive to flourish on the backs of the productive.

We touched on this in the linked post, but in her position as an unemployed mother of one (with another en route), Kris has chosen to live a gratuitously costly lifestyle that used to be the exclusive province of rich people. It wasn’t that many years ago that insisting on expensive organic milk (by the vernacular definition of “organic”, not the true definition) for your fragile offspring was a symptom of being idly rich. Being privileged enough to find death and mayhem at every turn in the grocery aisle was a status symbol, one that showed you were beyond concerning yourself with philistine worries like simply buying whatever milk was cheap.

But today, you can have discriminating tastes while being on food stamps. It’s the democratization of insanity.

So here we have a woman who collects largesse that’s “free”, without ever thinking about where and from whom the resources originate. On the surface that sounds like an eminent disqualification for blogging about personal finance, but what do we know?

Shame used to be something of a motivating factor for public behavior. Maybe it still is, in some backward and less enlightened parts of the planet. But as for now, impunity reigns supreme. Want to finance an education without estimating its costs and eventual benefits? Why not? If you end up borrowing more than you can ever pay back, demand clemency. Then again, in a society where a corporate executive can run a multibillion-dollar company into the ground and expect (and receive) taxpayer support, or when the political appointees who run the superfluous secondary mortgage market can escape with billions, why shouldn’t a simple housewife spend money on something less vital and more fun than inexpensive supplies for her toddler?

There are millions of leeches in this formerly robust country. What makes her so special?

We’ll let our subject handle it:

We’ve been planning our anniversary trip for a year – saving up for it for two years.  Since we were married on Leap Day, my husband decided that very (sic) four years we would take a trip, thereby warding off the stereotypical flowers-dinner anniversary that most anniversaries default into.  Since we have a toddler, I tried to think of something that would be toddler appropriate while still being a blast for us.  What did I think of?  Disney Cruise!

We’ll be setting sail on the Disney Wonder next week.  It had a special “kids-sail-free” special going on, which made our balcony room (all included meals) about $2K.

Is it expensive? Sort of.  We bought the extra trip insurance because I’m pregnant and we have a toddler – in case the doc had put me on bed rest or something, at least our trip would have been covered.  Since we did, though, it comes out to around $350 a day for the 3 of us.

It is a bold departure from our honeymoon trip…We also got tipsy and went to an art auction.  Not a good idea.  Don’t recommend it.  Buh-bye moolah.

Buying stuff with no utility, while drunk. How did we forget to include a chapter on that surefire wealth-building method in Control Your Cash: Making Money Make Sense?

But in reality, we are excited.  Happy to be getting away from my current drama…

Every woman in a similar position seems to have some form of “drama”. Like many of our previous honorees, this month’s is suffering from the shellshock that affects so many of our returning Iraq vets.

Just kidding, of course she isn’t. No, she has a husband and a kid and another on the way. She lives in a place that millions of other people pay good money to visit. Her “drama” consists of not looking too hard to find a job, and then again, why should she seeing as she’s a few months pregnant?

In the paragraph about trip insurance, we’ll assume that she submitted to pronoun confusion and that the $350 a day refers to the cost of the cruise + trip insurance, not just the trip insurance itself. Assuming it’s the former, that means she’s paying $450 in trip insurance. Or as the trip insurance provider calls it, the easiest damn money in the world to make. A gigantic premium for essentially no work and no risk.

And happy to pretend for a second that our life isn’t quickly becoming, well, sort of ghetto (I duct-taped my kids diaper today because it ripped.  Is that normal?)

Given the comments and responses to that last line, we’re assuming it’s not hyperbole and that she’s being sincere.

So that’s $2450 for a cruise plus trip insurance. She said she’s going to buy a sombrero, so we’re presuming she’s taking Disney’s week-long Mexican Riviera junket. Which would also entail schlepping the family from Honolulu to Los Angeles and back. Which is probably at least another $1000 or so.

Even better, this post follows up one on her blog entitled “socially acceptable stealing…right or wrong?” She’s talking about company office supplies, etc., but no one mentioned whether going on cruises while sucking at the taxpayer breast qualifies. But it should. It’s clearly stealing, and God knows it’s now socially acceptable.

Trent Hamm became our go-to subject for Financial Retard of the Month because of his pathological attention to the small picture. (His sanctimony, lack of humor and stubbornness were just gravy.) But that being said, he’s worth emulating in every way if the alternative is this. Which is worse – having the wherewithal to lead a comfortable life and refusing to, or having no wherewithal yet overextending yourself to lead the comfortable life anyway? Going on a weeklong cruise while duct-taping diapers. Trent would duct-tape diapers because it’s fun, not because it’d save a few dollars he could then spend on a tiny percentage of a cruise that he shouldn’t be going on anyway because he’s collecting health care and food benefits from his fellow citizens through the conduit of a state agency.

Oh yeah, the award. The February 2012 Financial Retard of the Month honoree is not Kris of Simple Island Living. There’s somebody far more complicit here. It’s you, the American taxpayer. (Assuming you’re among the 80% of our readers who are American, and among the 50% of those who pay taxes.) Congratulations on letting a system that allows this kind of abuse to grow roots, and good luck ever getting it modified. Take a look in the mirror and embrace your retardism. You earned it.

Filed Under: Financial Retard of the Month, Making Smart Choices Tagged With: , ,
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