When I was 10 years old, my mother took me on a drive through our neighborhood. My upbringing was solidly middle class. The homes were nice, the cars were large and there was usually more than one in the driveway. My mother showed me a home and asked me if I liked it. Sure, I said. You like that car? she asked. Sure, I said. But by now I was beginning to feel uneasy. After a few minutes of this my mother hit me with the punch line: [keep on reading!…]
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It was 1997, June, and I had just come to the realization that I was drowning in debt. I had a pretty morbid thought when I was driving home one day after work, that I was better off dead. At least the life insurance I had would be enough to cover my debts, there would have been little left for my loved ones but my debts would be handled. In June 1997, I decided to get my financial house in order. I sat down with myself, pulled out the credit statements and started to figure out what it would take to tackle that debt.
I realized that I had to cancel some cards, renegotiate rates and renegotiate some services in order to free up an amount of money I could reliably apply to my debt. Getting a raise in the short term was not possible, [keep on reading!…]
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I used to be long on APPL. I bought when Apple missed earnings early in 2000 and bought at $22 dollars a share. I got stopped out during the market meltdown of 2008. Did I re-purchase? No. Why? Because I wasn’t going to get as good a price as I got when I originally bought Apple. In other words, I got cheap. Also when I bought in 2000, I bought with the general feeling that Apple was a good company with good products and that the overnight halving of its stock price was market overreaction. I had no understanding of Apple’s financials, I just had a feeling. Feelings were very different during the market panic that began in 2007 and gathered steam in 2008 when I was more heavily vested in the markets through my 401K and watched my portfolio shrink by a third. It was painful, it was hideous and that time brought out one of the main reasons most people, including 80% of fund managers suck at stock picking: we cannot control our emotions when making crucial buy and sell decisions. The other reason of course is what I call the “Walmartization” of America. We are always looking for things on the cheap, rather than things of genuine value or the pearl of great price. Most of us consider our investments defensively, even the investments we understand. I am lousy at picking stocks but I am a pretty good real estate investor. I buy cash producing properties. What I find is that even when looking at two properties, the fundamentals of which I understand, I will go for the property that feels safer or more comfortable for me to buy rather than the property that seems a little bit riskier even if the riskier property has the greater upside potential. About 18 months ago I purchased two triplexes rather than a 4 plex because I felt more comfortable with the triplexes, smaller loans, known costs to repair, known rents. The 4 plex had a larger mortgage and I was going to have to increase the rents 25% to make the property work. The property, however, abuts one one of the most popular open malls in the city. The failure to buy the 4 plex is a reminder to me to broaden my comfort zone to accept, yet manage slightly more risk and to value investments properly rather than look for cheap. The reason that I enjoy real estate investing is that I can mitigate loss through legal entities and insurance. I am not nearly so confident with stocks. Finally most people play small with their investments, buying 25 shares of a stock rather than 100 or 1000 and blunting their returns and settling for a little bit of gain rather than risking greater loss by investing more. All of these actions and results can be traced to the emotional environment of investing and it is a wonder therefore that we do as well as we do. I cannot help but wonder, though, if part of the reason that 43% of americans have less than $10,000 saved is that many Americans are ultimately pessimistic when it comes to money and don’t believe they can accumulate it and manage it wisely.
Are you emotional when it comes to money and investing? Please comment.
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I used to have this problem. After I had gotten out of debt I became very good at not spending money while engaging in small acts of financial self sabotage. I got very focused on making the amount of money in my bank account grow every month. About once a year, though, something would happen that would threaten to undo several month’s work. I would over spend. Not by just a few hundred dollars, but by quite a bit more. To remedy the situation, I would have to take money from my savings account to cover the excess spending. I was engaging in a frustrating pattern. The pattern wasn’t enough to undermine everything I was working for, but it was enough to annoy and unnerve me. While listening to a T. Harv Ekker seminar, I heard the solution to my problem. Develop a spending plan. In other words, Give myself permission to spend. What a novel idea! According to T. Harv the mind is ruled by the conscious and subconscious minds. The subconscious mind governs desire and motivation and action and can often act like an undisciplined child. Frankly, when I over spent, I felt like a child. To remedy the situation, I developed two accounts one called Short Term Purchases and the other was called Long Term Purchases. Short Term Purchases were the purchases I wanted to make 30 to 60 days out and Long Term Purchases were the purchases that I wanted to make 4 months out or longer. If I wanted to take a trip or buy a computer, I saved money into the Long Term Account. If I just wanted to go out to dinner without guilt I took that money out of the Short Term Account. I then decided on an amount of money that would go into both accounts every month. I set the amount that went into the accounts as an amount that I was comfortable with that would still allow me to save in line with my financial accumulation plan. The key is that I am always depositing money into those accounts. If I spend it, that is okay. If I don’t, that is okay as well. Giving myself the permission to spend did the trick. The massive overspending stopped and I felt better about my overall financial plan.
Would having a spending plan assist you? Please comment.
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