Financial Reflections

Mint.com is a an online software budgeting package that is a huge success so far. I first heard about it through a “Twitter” sent from a friend who simply said “mint.com is pretty slick” He’s a graphic designer so I was expecting an Adobe Photoshop tutorial rather than a personal finance tool.
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The New York Times just ran an interesting article comparing business budgeting to home budgeting. Apparently, many an entrepreneur out there doesn’t budget as well in their personal lives as they do with their business.

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Budgeting is boring. And paying off a credit card is a lot less fun than just paying the minimum and using the rest of the money to buy the latest MP3 player.  But as those of you who’ve been reading for a while know, I keep pretty close track of my personal financial progress.

I’ll be honest, personal finance isn’t always easy.  It’s mundane, boring and sometimes frustrating.  But it’s worth it.  When it’s time to budget, or remind myself to buckle down to pay off debt, I keep the following items in my mind to keep me motivated:

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I’ve heard this one several times before: everyone’s becoming a millionaire.  It goes right along with the idea that the rich are getting richer and the poor are getting poorer.  These days, that certainly seems to be the case.  Some of us are watching the numbers on our quarterly statements getting bigger, while the rest have the bankruptcy attorney on speed dial.

But there is a question I can’t avoid here:  Why are there so many millionaires today?  Here’s a few answers I came up with:

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I wasn’t known as the best student in high school, but I was reasonably aware of what was going on.  I learned about everything from valance electrons to integrals to The Great Gatsby.  But when it came to money, the one thing I would need to deal with for nearly every day of the rest of my life, the teaching was almost non-existent.  I’m not terribly sure why that is, but I have some ideas about what I’d like to have been taught in High School:

1. How to budget - In four years of high school, the only teacher who bothered to try and show a class what a budget involved was my 9th grade metal shop teacher.  That’s right, it was the guy who poured the molten aluminum who actually spent 20 minutes one day trying to explain to us what a real household budget involved.  No one else said a thing about the one thing I need to do every month - budget.   I will note that the business courses might have had some training on a business budget.  That’s fine, but why not a home budgeting course for everyone?
2. Savings - I don’t recall learning a thing about how much to save or why an emergency fund was so important.
3. Retirement - I went to high school when Social Security and pensions both seemed like sound retirement plans.  Maybe that’s why it was never covered.
4. Compound Interest - This was only covered rapidly in math class one day.  There was no thought given to the idea of actually putting money away for 25 years or more. 
5. Stocks/Bonds/Mutual Funds/Money Market accounts - I had no idea what the difference between any investment vehicle was, nor what any of the terms even meant.
6. The cost of a loan - How much does a 30 year mortgage cost vs. a 15 year on the same property?  How much interest does one pay on a car loan?  What about credit cards, how much will the interest on those add up to over time?  And how about pawn or payday loans?  How much does that interest add up to annually?
7. Ponzi schemes - There’s plenty of get-rich-quick schemes out there, some are legal, some aren’t.  Ponzi schemes are illegal, yet so many people get caught in them.  If we bothered to explain what they are, and why they don’t work to kids, maybe fewer people would end up in trouble with them.

None of those are complicated items, but they are things we face every day as adults.  What did your high school teach about money?  I’d love to find out if my experience was unusual, or if they really did teach all that and I was just sleeping in class (more likely than you might think).  So feel free to comment and let me know what your high school taught and what you would like to see taught.

Unfortunately, I think I’m going to have to do most of the money teaching on my own.  I want to teach them how to make smart moves with their money and avoid the money mistakes I’ve made.

I recently read  The Number: A Completely Different Way to Think About the Rest of Your Life by Lee Eisenberg, which I found only because I confused it with a different book called The Number in Mark Cuban’s blog.  It was a pleasant mistake, because I completely enjoyed the book.   And I enjoyed it for a reason that - strangely enough - has nothing to do with numbers.

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The concept of a burn rate is pretty important for companies just staring out. It refers to the rate that a young company is “burning” through the cash that venture capitalists or other investors have put up. And sometimes it’s pretty large. One startup I worked for burned cash at the rate of 1.5 million dollars a month. It’s been sold to another company now.

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Yesterday, I posted about my money mistakes.  Well, I don’t want to be all negative, so here’s my list of financial hits…

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Writing this blog has given me the chance to reflect on my previous financial follies - hence the name.  I’m not doing that to extend the misery, but rather to identify and correct the problems I’ve had so I can fix them in the future.  Here’s what I came up with:

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I use my debit card (instead of a credit card) now but, I’m always a little leery about it.  The money comes straight out of my checking account.  If there’s an error, then there’s at least going to be a temporary problem.  I recently came across two stories that illustrate the problems with debit cards:

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