by Derek Sisterhen on March 11, 2010
I joke often that, in spite of my degree in finance and career in the banking world, had I just read the Book of Proverbs I would have gotten a much better – and much cheaper – financial education. In this series I’ll highlight a few key principles from Proverbs that you can apply to your finances today.
“A faithful man will be richly blessed, but one eager to get rich will not go unpunished,” is written in Proverbs 28:20.
I’d like to tell you about an exciting opportunity a lot of people like you are talking about…
Ugh! I can’t stand the pitches – whether from people who corner me in a hardware store or from goofy infomercials with horrible actors – for a product, service, or “opportunity” that promises to deliver untold amounts of money with little or no effort.
Give me a break.
You don’t have to look far into the various layers of our economy to find people who’ve been burned by trying to get rich quickly. What I admire in this proverb, is the word “faithful.” When you commit yourself to a discipline of saving money over a long period of time, you are acting in patience and faithfulness.
A brief review of the performance of the stock market shows that those who invest regularly with a long-term time horizon (meaning they don’t jump in and out at the latest fad investment), tend to earn an average return around 11% annually. One recent study showed that the typical day trader – eager to get rich – will average around 7%.
Losing out on 4% might not seem like punishment.
If you invest $200 a month for 40 years at 11%, you end up with $1.7 million; if you invest $200 a month for 40 years at 7%, you end up with $525,000.
Losing out on $1.2 million is punishment to me.
Staying faithful to a disciplined, balanced investing strategy is part of being a good steward, and will surely help you avoid a million-dollar slap on the wrist.
by Derek Sisterhen on January 13, 2010
I was reading a very interesting article about Warren Buffet, the Oracle of Omaha, who runs Berkshire Hathaway and is ranked among the world’s richest men. Turns out, Buffet doesn’t care one iota about appearances, material things, or even technology.
Today, Warren Buffet lives in the same house he purchased in 1958 (he bought it for $31,500 by the way). He loves to watch sporting events, grab a McDonald’s hamburger, and keep a cold bottle of Coke handy at all times.
Many have cited Warren Buffet as the master of value investing. He often says, “The first rule of investing is don’t lose money; the second rule is don’t forget Rule No. 1.” He employs this strategy in his personal life by living well below his means. As a matter of fact, Buffet earns a base salary of $100,000 a year (and has for the last 25 years), despite a net worth measured in billions. He avoids accumulating toys and other trappings of wealth because he views their maintenance and expense as a burden to the lifestyle he chooses to live: simple.
In an interview, he was asked what young people should be doing about money: “Stay away from credit cards,” he replied. Paying interest on credit cards means that not only are you living beyond your means, it also means you’re losing money. Both run contrary to Buffet’s philosophy.
When it comes to success and luxury, Buffet provides additional insight into his philosophy. “Success is really doing what you love and doing it well. It’s as simple as that. Really getting to do what you love to do everyday – that’s really the ultimate luxury…your standard of living is not equal to your cost of living.”
If your outgo is greater than your income, your upkeep becomes your downfall. It’s just better to hear it from a billionaire, isn’t it?
by Derek Sisterhen on December 1, 2009
A recent Bank of America Merrill Lynch study set out to determine whether Americans are actually saving enough money. In the 40 years that followed World War II, Americans typically saved between 6 and 10 percent of their after-tax income. Somewhere around 1985 that figure began to drift south, dropping below zero in 2005 as we spent more than we made with the help of easy credit.
Even the worst abusers of debt knows the best way to build wealth over the long run is to save money; this is no mystery. Economists seem to be on board with this concept again; however some of them are of the opinion that Americans could potentially save too much money in the aftermath of the recent recession. (I’m convinced that opinions are like armpits: everyone has them and a lot of them really stink.)
Save too much money?
John Maynard Keynes came up with “the paradox of thrift,” an economics concept that says if everyone saves money in times of recession, demand for goods will drop. As demand drops the economy stalls, causing a whole host of other problems. Consumer spending drives two-thirds of our economy, so this saving business is no laughing matter.
Here are two reasons why “the paradox of thrift” doesn’t hold water in our current world:
First, when people stop spending money on goods and services, prices fall. This is basic supply and demand. As the prices fall, there will be buyers who enter the market and spend money on a particular item.
Second, even though the money is being saved, it isn’t removed from the economy. When you save money in your bank savings account, the bank lends that money to others for business development. Likewise, you can save by investing in new or longstanding companies. Either way, you’re stimulating the production of goods and services and creating jobs for those companies.
So, you’re actually helping the economy by saving your money. (Those of you stuffing cash in mattresses are not; you’re actually losing money when you account for inflation, but that’s another conversation).
by Derek Sisterhen on July 2, 2009
Would you classify yourself as an independent thinker? Would you say that you are a visionary? Your thought-life has direct implications on your real life, so what do you think about? In researching the characteristics of millionaires, independent thinking and casting vision are common denominators.
Millionaires think differently about everything – not just money – because they know that conforming to social norms is a recipe for mediocrity. From how they spend their time to how they use their energy, these people identify what is important to them and then go about pursuing it.
We tend to sensationalize millionaires in our culture, believing they all have private jets, homes around the world, and heated toilet seats. In truth, the typical millionaire in our country observes what works and doesn’t work, then casts vision for his or her financial future.
What works? Saving and investing money, making wise purchases, living with a purpose for monthly income, and helping others. What doesn’t work? Trying to borrow your way to wealth, having a “keeping up with the Joneses” mentality, following the herd, and being self-centered.
We’ve all heard the phrase “think outside the box,” and most of us recognize that we’re at our creative best when we avoid groupthink. What if instead of just thinking outside the box, you lived outside the box? What if the way you approached all of your financial decisions took into account what you want to accomplish for your life – not just tomorrow, but also ten years from now?
Thinking independently requires we get away from the noise and clutter in our media. Having a vision means sitting down and honestly deciding what you want out of this life. Creativity and a positive attitude accompany those who know what they want. They are the ones who align their beliefs and values with their actions somewhere outside the box.
