The Greatest Invention - MONEY

Money is not a force of nature, but an invention of mankind.

As a Patent Attorney, oftentimes I get asked, "What do you think was the greatest invention of all time?"

Without missing a beat, I reply, "Money."

This usually generates two negative reactions. First, there are some that think that money is not an invention at all. But if you think about it, it is not a part of nature, it is an invention of man. Actually, if you think about it, money exists totally in the mind. Today, we recognize "methods of doing business" as Patentable, and if such Patents had existed in 10,000 B.C. (or whenever), money could have been Patented - if the actual inventors could have been tracked down.

However, like most great ideas, money evolved in a number of different places in the world at around the same time, with no one birth mother claiming credit for the idea. Nevertheless, it is an invention. It did not occur in nature.

The second objection I get is from folks who say things like "Money is the root of all evil! It says so in the Bible! Money is bad! Money is the cause of all the problems in our society!"

These sort of rants can be difficult to parse. To begin with, the Bible does not say that "money is the root of all evil" unless you take the quote out of context. That would be like saying Bill Clinton once said "I. . ... had sex with that woman!". When you delete the words "did not" from the quote it changes the whole meaning. By the way, people who do things like that (Second Amendment types, for example) really annoy me. The actual quote is:

“For the love of money is the root of all evil.” Timothy, 6:10.

Note that this quote from Timothy is neutral on money itself, it is the LOVE of money that is bad. So forget alleged Biblical admonitions. And besides, the whole point of this blog is just what this quote from Timothy is getting at - that chasing after and spending money is evil - and destructive. You can live a "rich" life without loving money. That does not mean you shouldn't respect it as the powerful and potentially dangerous invention that it is.

All inventions are dangerous and destructive in some applications. From the first inventions ever made by man (the blunt club, fire, the sharpened stone tool) to the latest (nuclear power, the internet, the automobile). All can be used for good or evil purposes. Cars kill 45,000 people a year in America alone and also pollute the air and diminish resources. A sharpened stone can be used to scrape an animal hide or kill the caveman in the next cave. It's all in how you use it.

And yes, money can be used in very evil ways. But oftentimes, it is the "love of money" that is the downfall of the victims of money. People who end up being scammed by evil people are scammed because they are greedy. In your typical MLM scam or Nigerian scam, or Invention Broker scam, or Real Estate scam, who is the "evil" person? The one raking in all the money, or the greedy victim who thought he could make "something for nothing" and "get rich quick"?

The folks who decry money as inherently "evil" are usually the ones who do not understand it or treat it carefully and with respect. They get burned by money a lot, so they blame money for their woes, when in fact it is often their own actions that are the real source of their misery - money is only the scorecard of their difficulties.

And that is the point of this blog. If you treat money carelessly, like a loaded handgun, it will probably hurt you or someone you love. If you treat it carefully - like a loaded handgun - it will be safe and might be useful to you.

So why do I think money is the greatest invention of all time? Well, without it, most subsequent inventions would not be possible. You cannot build a moon rocket without money. Bartering chickens or eggs for a Saturn-V booster just is not practical. So any major undertaking of mankind usually requires some sort of money or money-like medium of exchange. Money allowed the creation of modern societies. Money allowed us as Humans to do things other than scratch in the soil all day long. Money allows me to sit here and type this blog, rather than be out hunting for food all day long.

Money also allows us as humans to time-shift wealth. In many more primitive societies, people try to have as many children as possible in order to insure that in their old age, they will be cared for. Overpopulation has often been the result of this practice. Without money, and a means of storing it over time, the only option for insuring wealth over time is to have a large family and hope they will take care of you later on.

Now, one might argue that such an arrangement tends to strengthen the family unit more. Since parents rely on their children in their old age, they might tend to treat their children better, and children tend to honor their parents (as it says in the Bible) as part of a cultural tradition. And these cultural traditions are precisely the outgrowth of such human necessities.

However, such arrangements can be grossly unfair. A couple without children might find itself destitute in such a society, whether they cannot conceive or whether their children die off. People without families are left with few options other than begging. In an industrializing society, where mobility of the workforce is essential, such arrangements may not be practical. And finally, such traditional arrangements prevent one from breaking free of traditional roles and boundaries.

Money allows a person to create wealth and also store it for future needs. You can invest money in stocks or bonds or whatever, and later on in life have a resource to rely upon to support yourself. Money allows a person to live independently and provides freedom. I'll take money over bartering, any day.

Now, with the recent downturn in the stock market, some folks might argue "Well, that defeats your argument - how can you save for retirement if the market crashes or is manipulated?"

Well, that's why I mentioned that you have to respect money. It takes a long and painful time to save up even a few dollars. With all the expenses of living and the scarcity of wages, saving even a buck or two is a heroic process. One would think that after all that sweat and toil most folks would be vigilant of what they do with their savings.

One would think, anyway.

In reality, most folks have little or no idea where their money is. They might put it all in a mutual fund and occasionally glace at the Statement every month. "I don't know what to invest in" is a common thing I hear from regular folks. Or, "I just don't understand these things, so I let my broker handle it."

Even more disturbing is when people actually try to invest their money and things go horribly wrong. Most phoney investment schemes target the poor or lower classes, as they tend to be less educated and respect money less. How can I say this? Well, think about it, why are they poor in the first place (lack of education and respect for money). So things like MLM (Multi-Level Marketing) schemes are targeted at the poorest segment of our population, with the promise of easy riches - for a small initial investment.

Let me just note the obvious here. If there were such a thing as easy riches, everyone would be doing it, and you wouldn't be hearing about it through an e-mail or on a cardboard sign tacked to a utility pole. If you could make a fortune in MLM, Warren Buffet would be hawking health products door-to-door. The reality is, MLM is nothing more than a pyramid scheme, and only those running such schemes make any real money. Period. And no, this is not open for discussion.

In my line of work, we have what are called "Invention Brokers" who promise starry-eyed inventors riches beyond their dreams - if only they can pony up $5,000 to $20,000 in fees. Oftentimes the victims of these cons are from the poorest segments of our society. How they come up with the money is beyond me. But they do. And the largest invention brokers rake in tens of millions of dollars a year in these fees. They don't really care about the inventions (which never go anywhere) they want the fees.

But even middle class America ends up getting screwed through their own ignorance. Several older friends of mine have complained that, during the recent downturn their retirement incomes have been cut way back. I was flabbergasted to hear this from a number of people, as all the literature I've read has said that, by the time you reach age 70, you shouldn't be playing the market.

A person in their 30's or 40's should have 3/4 of their retirement savings in equities (stocks) and maybe 1/4 in "safe" investments like bonds or government funds. By the time you are nearing retirement, the ratio should be reversed - mostly bonds and "safe" investments and maybe a small portion in stocks and other riskier investments.

But for some reason, my friends, based on advice from brokers, ended up in stocks, and now, at age 70, are looking at a bleaker retirement as a result.

Respect for money means that you have to take advice from investment managers, brokers, retirement planners and the like with a grain of salt. Bear in mind that all of these folks get commissions from your investments. They are not your friends giving you advice from the goodness of their hearts. They are out to make a profit.

So the onus is on YOU to educate yourself the best you can as to how to invest. Many people think that this is impossible to do, as the subject is too complicated or difficult to understand. Nonsense. Libraries are full of books with investment advice. And most of it is just plain common sense.

Anyone can figure out basic investments without too much difficulty. The first thing to rely on is your gut instincts. If something doesn't sound right to you, or you are being asked to invest in something you don't understand fully, or if someone promises crazy returns for your investment, then just GO with that gut feeling and walk away.

The second thing is to DIVERSIFY. Handing over all your money to one investment adviser or broker or mutual fund, or stock, or whatever is never a very good idea. If that adviser or broker turns out to be a crook, or the mutual fund is run into the ground, or the stock crashes, you are dead broke.

In my short time on this planet, I've seen all of these things happen. People who invested all their money in Enron stock, only to lose everything they have worked for. People who put all their money in one mutual fund, only to see it mismanaged into the ground. People who handed over all their money to a crooked broker who "churned" their account for trading fees until nothing was left. Warren Buffet has said "put all your eggs in one basket - and then watch that basket" but I disagree. Even the best-watched basket can fall and break all your eggs. Better off to have multiple baskets so that at least SOMETHING is saved if the worst happens.

The third thing is to avoid fancy investments. The invention of money has also allowed the creation of many derivative investments. When I say "derivative" I mean this in the Calculus sense. In mathematics, speed (change in distance over time) is the derivative of distance. Acceleration (change in speed of over time) is the derivative of speed, or the second derivative of distance. With money, things like "futures" are called "derivatives" for the same reason. You are not betting on the price of a commodity or stock, but the direction of travel (and how far) the price will change over time - which could be considered the second derivative of price.

Such investments are complex and require skill and management. For the average investor, playing with derivatives is like playing Russian Roulette. You have to respect a loaded handgun. You have to respect money. I know folks who tried to "bet" on the price of a stock, only to end up losing tens of thousands of dollars, maybe more. Such "investing" is little more than gambling. And gambling is no way to respect money.

Similarly, other "schemes" like day trading of stocks are a really, really bad idea. Betting on the direction of a price of stock during one day is little more than gambling, unless you have insider information, which is illegal. Yet may do it, claiming to have a "system" for always coming out ahead. But here's the deal: Money doesn't conform to some "system" where prices and values go up and down according to anything other than the perceived values of the underlying stock. Betting on stocks based on phases of the moon makes as much sense as betting on horses based on numerology. You are better off betting on the fastest horse.

Which brings us to the ultimate in disrespect for money: Gambling. Gambling is just plain bad, and if you one of those people who likes to throw biblical verse at me about "Root of all evil" check your Bible to see what God has to say about gambling.

Gamblers always lose. Period. Movies, television, and literature are full of romantic stories about how "professional gamblers" make big money at gambling. James Bond saunters into the casino in his white dinner jacket, and bankrupts the evil opponent at Baccarat. It is a glamorous fantasy. The casinos and other gambling businesses (who euphemistically refer to gambling as "gaming") love to perpetuate these myths. The cold hard reality is that if you gamble at a probability game long enough (slots, roulette, etc.) you will eventually lose all the money you came in with. The house always takes a percentage, and for every dollar that enters a casino, less than 90 cents goes back out (if that). And no one in a modern casino is wearing a dinner jacket. There is no glamor in gambling, just ugliness.

Gambling games which are not entirely dependent on probability, such as card games (poker) or sports events (races, football, etc.) are also losers. Yes, someone who is a good bluffer in poker might be able to win - against players with less skill, but on the average, most people walk away from the card table with less money than they came in with. The popularity of poker tournaments in the US recently has illustrated that even "professional" players can lose on more than one occasion. In many instances, some unknown player of mediocre caliber wins the tournament, not because of skill, but the sheer law of probability.

Playing with your money is not respecting it. And yet many folks do just that, and lose enormous sums in the process - money they can ill-afford to lose. Gambling ties into the compulsive-addiction parts of our brains, and those who have addictive personalities are particularly susceptible to gambling's allure. Like drugs, you can't do "just a little bit" and kid yourself that you have the problem "under control". The best thing to do, is just say "No" completely.

The only people to make money gambling are the casinos, the people running numbers, or the folks taking bets on college football. Governments make billions on lotteries and payout maybe a few million to some "lucky" chump once in a while. If you want to make money gambling, open a casino. Otherwise, forget it.

So, money can be powerful. Money can be dangerous. Money should be respected. But what exactly IS money? It is an IDEA, plain and simple - and nothing more.

In popular action movies, there is usually a scene where the bad guys open an aluminum briefcase filled with neatly stacked $100 bills. Everyone in the audience drools at this point. Lookit all dat money! But often in the same movies, the villain (or hero) replaces the briefcase with one filled with worthless pieces of cut up newspaper. Boo! Hiss!

But what, exactly, is the difference between the two? Both are suitcases filled with paper. Why is one valuable and one worthless? The difference between the two is all in your head - literally. (And if you think about it, it is just a movie, and even the "real" suitcase is just filled with fake prop money and has no real value other than the suitcase itself.)

Money is nothing more than an IDEA. It doesn't physically exist anywhere. Those hundred-dollar bills are merely an expression of the IDEA of money, not actual money itself. Most money exchanged today doesn't even have a physical embodiment, but exists merely as numbers in banking computers, representing balances, charges, debits, and credits.

For example, I go to a restaurant and have a meal. I give the owner a card encoded with a number on it. He processes the card through a computer, which then debits a balance sheet with my name on it by a number deemed equal to the value of the meal.  Later on, a client sends me a slip of paper with another number on it.  I give this to my bank, and they credit the same balance sheet with another number deemed equal to the value of my services. The entire transaction really doesn't "exist" anywhere except in the bank's servers and other records.   We might exchange slips of papers with numbers on them to "prove" the transaction took place, but more and more, we are dispensing even with that.   Receipts are often just a waste of paper.  And mailing checks is giving way to electronic transfers (and with Check-21, a check is little more than a request for an electronic transfer).

In the early days of money, precious metals or other materials were used to represent the idea of money. Why was this? Metals like gold and silver were valued for their relative rarity, to be sure.  But the real reason earlier cultures used metal-based currencies was simply to help prevent counterfeiting. Think about it. In Roman times, counterfeiting their primitive coins was not a difficult matter, given the primitive dies of the time.  But if the coins were made of precious metals, it made it harder to make fake ones, unless you scrounged up more metal that the counterfeit would be worth.  It was a pretty good self-policing system.  Detecting fake coins (made of lesser metals) could easily be determined by the weight and density of the coin.

By the way, the penalty for counterfeiting, in most primitive societies, was usually death.  This alone tells you how important it is to police the idea of money.   If people get it in their heads that money is nothing more than slips of papers, well, then, the game is up.  Chaos would result.

Many (idiots) are calling for a return to the "Gold Standard" or some other metal-based money. However, even if you based currency on the price of a commodity such a Gold or Silver, it still does not make your money anything more than a concept or idea.  Gold and Silver have some industrial values.   However, their perceived value is based entirely on the IDEA that they are valuable. We tell ourselves they are "precious metals" and as a result, they are. Gold has no intrinsic value in and of itself, other than as an industrial material.

Diamonds fall into the same category.  Despite the fact they are made of one of the most common substances on the planet (carbon) the folks who mine and market diamonds are careful to insure that the perception of diamonds as "precious stones" is not tampered with. Industrial processes can now make flawless diamonds artificially. Such stones have no value, as you can make an infinite amount of them. The diamond people are not happy about that!

You can't eat gold. You can't eat diamonds. You can't burn them in the engine of your car, or use them to build tall buildings or rocket ships. They have some industrial uses, but that's about it. When we exchange gold coins for merchandise or services, we are trading the IDEA of wealth for those goods or services. The recipient of that gold coin, in turn, hopes to exchange the coin for goods or services that he might need. He cannot use the gold coin in and of itself, unless he melts it down to make jewelry or electrical connectors.

And that is the point of money - and its genius. Money provides a means whereby one can exchange any good or any service, anywhere in the world, with any other person, for any other good or any other service. Corn grown in Illinois can be traded for a car made in Michigan, which can be traded for a computer made in Taiwan, which can be traded for a barrel of oil from Saudi Arabia, which can be traded for a load of timber from Canada, which can be traded for a week's labor in Utah, which can be traded for something else, and down the line. No complex system of bartering is necessary. And the system is self-regulating in terms of exchange. Each user finds the correct "price" for the goods he wants (or the best price he can get, anyway).

Now to be sure, there is a dark side to this intellectual fantasy.  Money also allows an hour of prostitution from New York to be exchanged for a bag of cocoa leaves in the mountains of Colombia. Money has the power to do good or evil, depending on how it is used by the user. Money itself, however, is value-neutral.

Money can also be used to buy money. You can spend money to borrow money, and you can also make money by lending it. These are the first derivatives of money. And yes, some say the Bible warns against money lending. Ben Franklin is alleged to have said "neither borrower or lender be". Given the potential for mishaps in borrowing or lending money, it is not hard to understand why some folks would prescribe a blanket proscription of such practices. If you loan out money to someone who defaults, you could be broke. And if you borrow too much and cannot pay it back, the same thing could happen.

However, loaning money is probably the cornerstone of our economy. In fact, the real value of money today is not determined by the value of Gold or Silver, or even a barrel of oil, but by the interest rates set by the Federal Reserve. Big M, they call it, the Money Supply, controls the value of money, and Big M is tied to the prime rate. The more money in the economy, the cheaper it is to borrow it. But the more money, the higher the inflation rate can be. So the Fed controls Big M to try to control the value of money. It is not an exact science, to be sure.

The value of money is what it will be worth tomorrow. This means, however, that since not all of us have access to loans at the "prime rate" or can earn interest at the highest rates, money has a higher value to some folks than it does to others. And as you might expect, since the rich have access to the best rates, money is much cheaper to them than it is to the poor.

And that, perhaps, is the most interesting thing about Money. Even though it is an age-old invention, and we've had tens of thousands of years to play with it, experiment, examine it, and understand it, mankind still does not have a real handle on this deceptively simple invention. Economics is still considered a dark art - more magic than science. And even today, new "theories" of economics are still being developed.

The more complicated aspects of money are still not fully understood. Every time some young hotshot claims to have a new computer model for trading derivatives, you can be sure that a major market crash is right around the corner. Most of the new models (like "mark to market" accounting) end up being less science and more people telling themselves what they want to hear. When fantasy clashes with reality, the inevitable happens.

Dealing with money requires little more than common sense, respect, and perhaps a little luck. But bear in mind, it is an invention, not a force of nature.

UPDATED, reformatted, and corrected, June 2015

See also:

http://livingstingy.blogspot.com/2008/12/owning-money-concept-to-think-about.html

http://livingstingy.blogspot.com/2011/10/downside-to-owning-money.html

http://livingstingy.blogspot.com/2012/06/renting-money-versus-owning-money.html

http://livingstingy.blogspot.com/2011/10/money-as-commodity.html

Simple Car Care Tips

 The best used car value is often parked in your own driveway - this car was over 13 years old at the time this picture was taken.  Garage kept its whole life!

Many folks squander an enormous portion of their wealth on automobiles - and not very nice ones at that. The go from car to car, paying enormous prices for new cars, only to dump them a few years later for a fraction of their original value.

Why is this? Many folks argue that they are scared of "unexpected repair costs" that could pop up.

This, of course, is a myth. You can never have a repair cost that exceeds the value of the car. So the idea that your car is going to bite you on the hind end for $10,000 is utter nonsense, unless you do something stupid like never change the oil.

The other thing is that modern cars are far more reliable than the "they don't make them like they used to" cars of the1950's and 1960's.

Most cars from that era had odometers that only went to 99,999 miles for a reason: Most were in the junkyard by 80,000 miles. Today, even a poorly maintained Toyota can easily reach 150,000 miles, and a lovingly cared for car can see 200,000 or even 300,000 miles.

Most folks don't have the skills, tools, or work space to do their own car repairs. But there ARE a lot of things you CAN do that don' t require much in the way of skill, that can make your car last a lot longer and look a lot newer. The latter is very important, as one reason people sell off cars prematurely is that they "look old".

Here are some tips:

1. GARAGE YOUR CAR: If you have a garage, your car should be in it every night. If your garage is full of JUNK and you have a $20,000 car sitting outside, you have your priorities backwards. Throw OUT the JUNK and put the expensive asset in the garage. Garaging a car keeps the paint looking newer by keeping off sun, rain (acid rain and other droppings) and also keep the car cleaner looking by preventing dew from forming. Cars also can leak (and do leak) and a garaged car is less likely to have funky mold smells than one left outside. Also if you garage your car, you are less likely to have water problems with electrical components (see below).

Don't have a garage? Think carefully before buying a fancy car. Living in an apartment building or (worse yet) government project and owning a BMW is never a clever idea. In addition to the wear and tear mentioned above, the car will be scratched, broken into, and possibly stolen. Save your money for a house with a garage, THEN get yourself a fancy car.

2. KEEP IT CLEAN: You don't need to be a brain surgeon to wash a car, but few bother. If you don't have the wherewithal to wash your car at home, get a coupon booklet at your local car wash and use it. Learn how to wash a car (there is a trick to it, and I learned how washing trucks at UPS to work my way through college) and don't use home cleaning products to do it. Cleaning the interior is just as important, as buildups of dirt grind into the carpet and destroy the nap and also make the car smell awful. Clean all the "junk" out of the car every time you use it - don't let it turn into a rolling version of your sock drawer. If you have kids, teach them the same thing - to treat this investment with respect - that it is something expensive and not a junkyard or a toy for them to break.

3. RESPECT: Treat it gently. This means simple things like not slamming the door like the vault to Fort Knox. Not only does this wear on the hinges, it can put a door out of alignment and even break the power window actuators (at least on BMWs). Most cars will close with a fairly gentle touch. No need to wind-up like you are pitching for the world series. The same is true with hatches, trunks, and glove boxes. I've seen people SLAM and JAM these things and wonder why the glove box door is falling off after 5 years (Hint: Don't put a lot of junk the glove box, either, and then try to SLAM it shut, you'll just break it). Don't wear riveted jeans in a car (don't buy them period, they'll tear the upholstery on your couch as well) and when you sit down, don't just do the "drop from three feet" which not only flattens the seat bottom, compresses your spine.

Children are especially fond of pushing open car doors with thier feet, which not only scratches the door, runs the risk of doing a "door job" on the car adjacent to you. Teach your kids to respect your car, and also others. I see a lot of folks fling open their doors and slam them in to a neighboring car, denting both. No self-respect and no respect for others!

I had a neighbor who bought a brand new car, and then attempted to clear snow off it with a shovel, leaving rows of deep gouges in the paint across the hood. She treated the car with no respect. Within a year, those gouges were rust gashes. Within two years, she was trading the car in at a great loss. What a waste!

4. CHANGE THE OIL & OTHER FLUIDS: This may sound self-explanatory, but bears mentioning. Generally, it is a good idea to change the oil every 3,000 miles if you are using regular (mineral) motor oil. Synthetic oils can go longer - some say to as much as 15,000 miles, although I am not quite comfortable with anything over 7K miles myself. Don't neglect other fluids, though. Some manufacturers recommend flushing radiator fluid and brake fluid as often as every two or three years. And transmissions and differentials may need to be changed every 5 years or so. Check your owner's manual to be sure. And if you have the work done, make sure you are there to witness it. Many quik-lube type places have been caught charging for such services while not actually performing them.

5. DRIVE GENTLY: Hitting potholes full force and banging into curbs, or even taking every off-ramp at full 1g cornering capability will wear on your front end and cause your ball joints, tie rods, and shocks/struts to wear prematurely. Fast starts and standing on the brakes at the last minute will wear your drive-train and brakes rapidly. Brake wear, in particular, is particularly variable with driving skill. If you ride the brakes or accelerate toward red lights (only to slam on the brakes once you reach the crosswalk) you'll be buying pads and rotors more ofen (and possibly suspension bushings as well). Peeling out and smoking the tires not only wears on your tires, but also on the clutch, transmission, and other driveline components. How you drive radically affects how long a car lasts. That's why a car in the hands of a teenager rarely lasts more than a year or two.

Note also, in these days of wildly fluctuating gas prices that driving gently and more slowly can really save on gas. One of my cars has a mileage computer than shows instantaneous and average milage. It is very accurate. On a recent trip, towing a trailer, I found that driving 70-75 mph, I was getting an appalling 12.5 miles per gallon. On the return trip, I found that by slowing down to 60-65 mph, my mileage shot up to over 18 mph, a 50% increase in gas mileage. Slowing down made the trip more enjoyable, put less wear and tear on the car, saved me 12 gallons of gas, and added less and a half-hour to my overall trip time.

6. WAX IT: There is no big secret on how to wax a car. If you can't figure it out, ask a friend who is into cars. It can be a relaxing weekend hobby and a great way to build upper body strength. Even if you do it only once or twice a year, it will help the paint last a long longer. The secret is to get the car very clean first, and have lots of soft clean rags. You needn't buy fancy caruba waxes (which often don't last very long). The "once a year car wax" in the orange bottle does the job just fine for most folks. Car wax prevents water damage, causes water to bead up and also helps with sun damage. Next to garaging, it is the best thing to protect the paint on your car. The paint is a part of the car, and an expensive one to replace.

7. KEEP THE ENGINE CLEAN: I am a nut on engine cleanliness, and you don't have to detail your engine like I do. But you should periodically clean out any dead leaves and other debris when you open the hood. Dead leaves and particularly pin oak leaves and the like (and some pine needles) can clog vent holes in the body, allow water to accumulate and flood sensitive electronics. Also, if you have a sunroof, don't let dirt and leaves accumulate in the tracks. There are usually FOUR drain tubes in a sunroof track and these exit below the car. If they clog, your sunroof will "leak" and your car will smell funky and you won't be happy.

8. CHECK YOUR TIRE PRESSURE: This is so easy to do, it is hard to understand why there is an epidemic of low-tire pressure induced blowouts in this country. For many car ignorati, the myth persists that a tire blowout is caused by "too much air pressure". The opposite is true. A tire's ability to carry a load is proportional to air pressure. If tire pressure goes low, the tire "squats" and the sidewalls flex. At speed, this flexing is like bending a coat-hanger very fast - the sidewalls heat up, and eventually fail, blowing out the entire circumference all at once. It is a very dangerous event, particularly in some top-heavy SUVs. Buy a simple tire gauge and check your tire pressures constantly. Usually there is a tire pressure chart in the inside of the driver's door or in your glove-box. A new tire can be over $200, so it pays to take care of the ones you've got - and possibly save your life in the process. Get in the habit of looking at your tires and if you see too much "squat" get our your air gauge and check it.

9. FIX THE LITTLE THINGS: Oftentimes small things break on a car - a trim piece, for example, or a small scratch. Most folks say "It isn't worth fixing those small things" so they just let them go. As a result, the car looks like heck, and the owner ends up selling it sooner than they should. Small trim pieces may be expensive, but without them, the car looks like a junker. Ask your parts guy if he can get you a part at a discount. Or maybe you can replace a simple part yourself. Touch-up paint may make small scratches less noticeable - and also prevent the car from rusting.

These are all very simple things that anyone can do without a lot of tools or special skills. If you keep the car LOOKING good, you'll feel better about it and want to keep it longer. If you take care of it, it will be less likely to break down and you'll feel better about owning it.

YOUR FREE CREDIT REPORT!

1. The Scam: Free Credit Reports That Aren't Free:

You've seen the come-ons online : GET YOUR FREE CREDIT REPORT! Click Here!

And they are come-ons. The credit report is not "free" - you have to give them a credit card number and you are signed up for a "credit protection service" for $9.95 a month with a "negative option" cancellation.

Negative Option is a term that describes any service where are signed up for free initially (usually requiring a credit card number), and then have to actively cancel the plan if you don't want it. Otherwise they keep charging your credit card indefinately. The trick is, most "negative option" places make it hard, if not impossible, to cancel (i.e., requiring written cancellation request 6 weeks in advance, and then saying they never received it, etc.)

NEVER sign up for anything that has a "negative option" cancellation plan.

(And NEVER click on the first hit on GOOGLE as it usually is a con-job!).

2. The OTHER Scam: Credit Monitoring Services:

You do not need a "credit monitoring service" to obtain your free credit report. And so-called "credit protection services" are totally unnecessary. The media loves to hype stories of "identity theft" in order to sell these services (sometimes offered by subsidary companies). However, you do not need to spend $29 a month to "protect" your credit.

The idea that you need to "monitor" your credit or credit score on a monthly basis is bogus. If having credit is that important, perhaps you need to rethink your priorities. Beyond a certain age (30-40) a person should start thinking about borrowing less and OWNING more. After all, it won't be long (sooner than you think) that your ability to earn disappears all together. At that point, you should be debt-free or very close to it.

Your credit card company or bank may offer you these services, usually each time you call them. Be careful, as the telephone operators are on a commission basis, and you should make clear that you are refusing this "service". Yet many folks have been "signed up" against their will. You should check your Statements every month (more often, online) to make sure these junk services are not added to your account.


3. The Real Deal: Really FREE Credit Reports:


The truth of the matter is that you CAN get a free credit report, and the credit reporting agencies are REQUIRED BY LAW to provide them in many circumstances.

For example, if you access the EQUIFAX site, they have lots of links to sign up for various services to monitor your credit for $7 to $14 a month. Not worth it!

However, in a small part of the "contact us" link, you'll find this link:

http://www.equifax.com/fcra

to obtain a REALLY free copy of your credit report.

Or, you can go to this link:

https://www.annualcreditreport.com/cra/index.jsp

To obtain copies of all your credit reports.

You are entitled to a FREE copy of your credit report under several circumstances, depending upon the State you live in:

State First Copy
California $8.00*
Colorado Free
Connecticut $5.00*
Georgia Free(2 per calendar year)
Maine Free
Maryland Free
Massachusetts Free
Minnesota $3.00*
Montana $8.50*
New Jersey Free
US Virgin Islands $1.00*
Vermont Free
All other states $10.00*

Note also that you can obtain a FREE copy of your credit report on that link if you have been denied credit, are unemployed, or believe you may have been a victim of fraud. So there are a lot of circumstances where you can get this service for free.


4. Should You Worry About Your Credit?


Obsessing about your credit score is much hyped in the media. While it is true you need a decent credit score to get a mortgage or other loan, you are far better off not having any debt at all. So while it is important to have good credit, it also important not to need it badly. The old saying is true - the banks will only loan money to you once you can prove you don't really need it.

If you desperately need to borrow money, chances are, your credit score will reflect this, and you will be charged the higest interest rates. The best way to get a good credit score is to not borrow so much and not be in such desperate straits to borrow.

Bear in mind that most of the money people borrow is not really necessary to live - only necessary to live a more comfortable life. So while you may view a car as a "necessity", a brand new car is certainly a luxury, and it is possible to drive a "paid for" car for years and years, without having to be constantly borrowing money to make car payments.

The "great deals" on car loans and leases that are touted to people with "good credit" still pale in comparison to the much, much lower cost (nearly half, in most instances) of paying cash for a decent car and driving it forever. Again, you cannot spend your way to wealth, just as you cannot eat your way to slimness.


5. Gaming the Scoring System:


Oftentimes financial articles about credit reports and scores will give nonsensical advice, such as saying you should borrow more money to improve your score, or leave old credit cards or accounts active to improve the "age" of your score. While this may help one "game" the credit scoring system, the reality is, having a lot of open accounts is probably not a good idea in general. They are harder to keep track of, tempting to charge on, and make you more likely to be targeted as the subject of fraud.

There are some general rules on gaming the system, but they basically are the rules that apply if your financial house is in order. If you have a long credit history, that helps. So an account that has been open for years and years is a plus. Not having too many open credit lines helps as well. And having balances on your credit lines less than half helps as well.

Like buying your way to wealth, you cannot borrow your way to good credit (or eat your way to slimness). You are generally better off not to borrow at all, than to borrow just to try to enhance your credit history.

6. No Credit History At All:

The only exception to this rule, of course, is that if you have NO CREDIT HISTORY whatsoever, you will find it hard to even rent an apartment or find a job. I once interviewed a tenant for an apartment I was renting and I ran their credit history. The fellow at Equifax told me they came back "clean". I said "That's good, right?"

"Heck no!" he said, "According to the computer, these people don't exist, other than as a name and social security number. Think about it, how can you live any length of time in the USA and not have ANY credit history?" He had a point.

So it is often good advice to have SOME credit history, even if it means buying something on time and then paying it off in full. I did this as a youth, buying a waterbed. The salesman talked me into a "90 days same as cash" deal with Household Finance Corp. (HFC). I signed the papers, and on the 89th day, walked into HFC and paid the balance in full. They were NOT HAPPY with me, and offered to "roll over" the amount to a new loan (with the 90 days original interest now due, of course). I said "no thanks" and started my credit history off on the right foot.

By the way, I am not recommending or endorsing consumer lending agencies such as HFC. Their interest rates are far too high. If you really must borrow, join a Credit Union.

7. Credit Repair Scams:

Note also that advertisements to "repair" your credit are often bogus. Many are merely come-ons to high interest "consolidation loans" or home equity loans. If you find yourself in credit trouble, there are legions of folks willing to "help" you out by victimizing you further.

Most credit cannot be "repaired" and any REAL "repair" that CAN be done, you can do yourself with a few phone calls or letters.

For example, my mortgage (on a previous home) was sold to KeyBank in the 1980's. I had just signed up for automatic payments on the mortgage and a payment was taken out of my checking account. I assumed the money would be forwarded by the bank to the new mortgage company, but it wasn't and the next month I get a deliquent notice from Key Bank. I take a trip down to my old bank, explain the problem, and it gets straigtened out. No problem, right?

Wrong. Being "late" on a mortgage payment is one of the big hits your credit report (and score) can take. I called Key Bank and explained the situation to the person on the phone. They could see in their records that the payment was made (transferred from the other bank) and it was in the first month after the mortgage was sold to them. So they gladly wrote to the credit bureaus to have the information corrected and updated.

Total cost? A phone call. No big mystery, and you don't need some "Credit Repair Agency" to "fix" anything.

In reviewing the credit history, I noticed some other items that I felt were inaccurate - minor dings for late payments on department store accounts, for example. I've found that creditors who have been paid regularly will remove reports of late payments, provided your payments are up to date. All it takes is a phone call to the credit department and acting nice. Total cost: $0.

And bear in mind that eventually, late payments and such will "fall off" your report over time. Of course, some things fall off faster than others. Bankruptcy and late mortgage payments and uncollected debts can linger quite a while.

You can also DISPUTE items in your credit history, and I have done this and found the data later corrected. Again, no money or special agents are required.

The funny thing I see about these "Credit Repair" agencies is that they advertise on carboard signs nailed to utility poles. Would you really trust your credit history to someone who advertises this way? Apparently some do.

You can correct misinformation on your report simply by writing a letter to the credit reporting agency, or by writing to the company making the report (or both). Note that some items will eventually "fall off" your report over time, so if you can be patient, your score will eventually go up.

* * * * * *

Keeping track of your credit history is not a bad idea. You can do so for free, online, without having to pay for some "credit monitoring service". Obsessing about yoru credit history is not necessary, though. Not borrowing money is far better than having "good credit". And if you don't borrow much, and you pay your bills on time, you'll automatically have good credit.

EDUCATION - the FIRST and BEST Investment

Poverty may be created by circumstance, but it is perpetuated by bad economic choices.

Many poor people eschew education and reap a lifetime of woe as a result.

When you go through a poor neighborhood, you see poor economic choices everywhere you go. Paycheck Loans. Pawn Shops. Rent-To-Own Furniture. Expensive cars parked on the street in front of hovels or housing project. Drugs. Alcohol Abuse.

But the worst economic choice the poor make is in regard to education. It is no accident that the poor are by and large the more poorly educated, and that the higher your educational level, in general, the wealthier you will become.

It seems like a simple concept. Get educated. Get wealthy.

But in most poor neighborhoods, whether they be black, white, Hispanic, or other, education is not valued, and in fact, is mistrusted and ridiculed.

In many poor black neighborhoods, a youth who takes education seriously is viewed as "acting white" and may be subject to harassment or even violence.

In many poor rural white communities, education is viewed as "elitist"and not to be trusted.

In order to move out of poverty, the first thing a person has to do is change that attitude within themselves, and then, hopefully, among others.

Of course, just any old education is not going to make you wealthier, as many a Philosophy or Physics major will sadly tell you. As recently as the 1970's, a Liberal Arts degree with an Major in English Literature was a ticket to a good job in business or industry. However, today, things have changed, and the world is a more specialized and unforgiving place.

This does not mean that one must give up education for education's sake. But that some sort of PLAN should be in place to get an education of value.

Like a lot of young college-bound kids at age 18, I had no idea what I wanted to do with my life. I enjoyed tinkering with cars, so I went off to General Motors Institute. It was a good education, and I often learned things working in the factory that GM probably didn't intend me to learn (for example, why they are in such trouble now). I ended up dropping out, mostly due to personal problems, and also because I did not value the experience enough.

Two things to take away from that, maybe three: First, you don't need a wad of money to get a college degree. Major magazines like to run articles about how many hundreds of thousands of dollars you need to get a college degree these days. But they use benchmarks like Harvard and Yale to make these assumptions. Many schools have much lower costs, and college can be had at a reasonable cost - if you are smart and hungry for it. GM actually paid me to work while I studied, and that made it a lot more affordable.

Second, going to college when you don't know what you want to do can be a foolish waste of money. But maybe not a total waste of time. Most of the credits I earned there transferred to Syracuse University later one. Third, being a college dropout is no fun, but it ain't the end of the world, either. Once you experience failure early in life, it doesn't seem so frightening.

After leaving GM, I found a job with Carrier Corporation. They had a tuition program (those were the days!) that paid for some of my night school classes at Syracuse University. Other classes I had to pay for myself. As a lab tech, it was a pretty hefty amount of money. I started to look at my courses in terms of dollars per class (about $100 a seating, as I recall). As a student-consumer, I wanted to take the best classes from the best professors, and get a real education. No more slacking off and skipping class - this was an expensive business.

That probably was the turning point for me. I realized that education was an expensive proposition and moreover it had real value. What I learned in classes I was applying to projects at Carrier. I learned to design circuits in class, and then applied that learning in the field. It lead to something concrete.

Law School was probably even a greater revelation. Courses like Tax Law were particularly useful. To most folks, Federal Income Tax is a total mystery. Heck, I could explain it to you in ten minutes. I ended up tutoring Law Masters candidates in the subject. Courses like that were like being handed the keys to the city or joining some secret society - "here is how our society works, and how you can make it work for you."

As with my undergraduate degree, my employer (the Patent Office, and later a law firm) helped pay the tuition for my law degree. I still took out some student loans (more than I should have - resist the temptation as much as possible!) but it IS possible to "work your way through college" and even law school even in this day and age. College is still "affordable" to someone who wants it badly enough.

Sadly, though, fewer and fewer people seem to want it badly enough. The native population of America seems less and less interested in higher education, and when they do go to college, often major in subject that are of little real value, but cost tens of thousands of dollars to obtain a degree in.

Recent immigrants and foreign students seem to fill the classes in Engineering, Math, Science, and Medicine. This is not to say other subjects don't also have value, but the appalling lack of interest in technological sciences in a technological society should strike us as troubling.

Education is your first and best investment.  As a youth, you have little way to make money or get ahead in life, which can be frustrating - I know it was for me!  But at least in America, an education is offered for free, for the first 18 years of your life.  Take advantage of this - study hard and get good grades.  Get secondary education, whether it is college or a trade school.  Learn a valuable skill or have some knowledge that someone is willing to pay you for.

The vast majority of the poor today have little or no education, and moreover look upon being ignorant as a blessing or advantage.  "I don't need no book-learning" is a phrase we hear all-too-often in rural Georgia.  And today, more than ever, educated people are viewed with suspicion and distrust by the unwashed masses - who are convinced that the educated are pulling some horrendous con on them which prevents them from being the millionaires they otherwise would rightfully be.

But the reality is, if you are uneducated, you will never find a job that pays well.  And even if you manage to make some money, if you are uneducated, you will squander it in short order.

Lack of education = poverty.  It is a simple equation.  So why remain ignorant?

SURVIVING THE ECONOMIC MELTDOWN

SURVIVING THE ECONOMIC MELTDOWN - A Personal Perspective

Note:  This entry was originally posted on November 18, 2008, during the darkest days of our economic meltdown.  At the time, it seemed that everything was falling apart and there was no way out for many Americans.  Times have changed and things are getting marginally better.  However, I think a lot of the lessons we learned from 2008 were valuable ones.  They certainly were for me!

* * *

The economy is in the tank, that is for sure. While I haven't yet been severely affected by the downturn yet, other than to see my investments shrink by about 20% (isn't that enough?) I have had to cut back on spending recently.

Before the Real Estate market melted down, I sold out and cashed out. This was a good thing. However, it meant I had to pay 15% Capital gains tax, as well as State tax (6%) on the sales of my properties. If you've owned a property a long time, and taken depreciation deductions every year, you can end up having a higher capital gain than you take out in cash. And sometimes this means that you can end up with more owed in taxes than you have cash on hand. Ouch.

So this year, I have to tighten the belt a bit and cut back on spending to pay off the old tax bill. I know, you really, really feel sorry for me, right?

But, being "Mr. Stingy" I took this as a challenge. Personal Finances can be like a game sometimes, and it is fun to play - and win. But how to cut expenses further when I have already cut expenses to the bone?

Well, here's some more "Stingy" ideas:

1. Check your insurance policies: I found that my local agent had not been giving me discounts for multiple policies, for good driving, for airbags, etc. In addition, I found that he had tacked on unnecessary coverage (rental car, etc.) to the policies. I dumped health coverage (I already have health insurance, and the $10,000 provided by the car policy is really very expensive coverage for what you get). I also raised my deductibles to $1000 (it pays to own your cars outright) and dumped collision and comp from one older vehicle. I started getting check after check in the mail from my agent. I also made sure that collision coverage for seasonal vehicles was dropped when those vehicles were not in use. I also shopped my plans with several other companies, but found my present agent's rates competitive. Total Annual Savings: Over $1200 a year. (Again, this fits right into the "rowboat" theory of plugging those leaks!).

Update: I have since switch my insurance to GEICO, and found their rates lower and the service better. I also reduced my uninsured motorist coverage as well. If your goal in life is to sue your own insurance company, uninsured motorist coverage is probably a good idea. But that is why it is so expensive - the coverage is a boon to personal injury attorneys and is priced accordingly. I many States it is not required at all, so consider whether you need it or not. See my article on "Understanding Auto Insurance".

Note also that poorer people tend to obsess on obtaining cradle-to-grave coverage on depreciating assets like cars and boats, but rarely insure the things that really matter. an umbrella liability policy and a term life insurance policy are a much better bet that a "stated value" policy on your Corvette. Your greatest risk is being sued, and your greatest asset is your income stream. What is parked in your driveway should not be the most valuable thing you own.

Update:  2011 - My insurance costs - for health, liability, car, life, whole life, disability, homeowners, etc. has dropped by a staggering $1000 a month or more.  Getting rid of disability coverage, converting life policies to "paid up" status, dumping collision, comp and other junk coverage, selling a house, the boats, etc. has cut my insurance bill by more than half.

2. Check Out Your Local Library: I used to go to the local chain bookstore and buy a half-dozen books, CDs, and DVDs, plopping down my credit card and coming away $200 to $300 lighter (plus finance charges). Later on, I'd be tripping over boxes and boxes of books. While the local library might not ahve every book you are looking for, you'd be surprised at what they do have. And let's face it, your local Borders or whatever has mostly the latest tomes from some quasi-famous person who is cashing in by "writing a book." Oftentimes, that sort of "literature" is less than satisfying.

Update:  2011 - we still use the local library.  Most books you could want are available on the library system and you can order them to be sent to your local library, which takes a week or two.   We have not visited a Borders in over two years and can see no reason to ever go back.

3. Wally Wal-Mart: Discount shopping outlets are doing well in the recent recession. While most retail outlets are reporting decreases in sales and profits, Wal-Mart is one of the few places bucking the trend. But be cautions about "discount" shopping. Places such as Dollar Store, Dollar Tree, and Family Dollar sell goods so cheap that they often are not worth buying. You are not "saving" money buying something that is so poorly made that it breaks soon after you purchase it. I was pleasantly surprised the other day to visit Wal-Mart and discover that they sell products other than melamine-laced dog food. Many name-brand products from "gourmet" stores are on the shelves there at almost HALF the prices. It is possible to save a considerable amount. The downside to shopping there is how the employees are paid and treated. And you do see some interesting customers there.

We stopped buying things like carbonated and bottled water, pre-sliced or pre-shredded cheese, or other pre-packaged goods, whenever possible. We've never been ones for frozen entrees, either, which cost more per serving. Cutting back on potato chips and snack foods is not only good for your wallet, but your health as well.

Update: 2011 - We continue to use WalMart as our primary grocery outlet and can see little reason to go back to Publix or Harris Teeter.  Many friends proclaim their status by saying they would never shop there - friends with incomes and net worths far less than our own.  Stupid, eh?  Pride goeth before the fall.

4. Doing Without: Even shopping at a place with lower prices, you can't "Spend your way to success" as many try to do. Spending to save money is like eating to lose weight. It is just the opposite of what you need to do. I found that much of what I was spending money on was really a lot of junk - and that at a certain point in your life, you become tired of possessing things. On a recent trip, I resisted the temptation to buy souvenirs or other non-essential items. I've never been much of a "shopper" so this wasn't too hard.

5. Paying Cash: One thing I've tried to do in recent years is to pay cash for purchases. I surprised a friend of mine the other day when I withdrew $700 from my bank's ATM (Note: I never pay ATM fees and neither should you!). He said "I never knew you could take out that much money at a time!" I generally take out enough cash to last a week or two to pay for expenses and groceries and the like. Oddly enough, having cash reduces the temptation to spend. With credit cards, paying for a meal or other item is merely a matter of swiping the card and maybe signing a slip. It doesn't feel like you are spending. But when you have to fork over hard earned cash, it makes one more cognizant that you are spending. Paying cash also helps avoid the credit card trap - keeping a running balance on a credit card and ending up paying revolving credit every month.

UPDATE: Using your DEBIT card is another good idea, and you can run this as a CREDIT card in most cases to avoid Debit card fees or having to enter your PIN. When run as a Credit card, you are afforded the protections that apply to regular credit cards. Just be sure to enter all your puchases in quickbooks daily!

6. Borrow Instead of Buy: A friend of mine came over to visit with their young baby. We needed a crib, a stroller, a car seat, and other toys for her to play with, as the parents couldn't carry all of it on the airplane. We bought a car seat for $40 (cheap enough) but the other items were quite expensive. We found that a friend with numerous grandchildren had loads of such baby items. Another friend at a local church that I had done some pro bono work for had set up a "grannies' closet" filled with child accessories and also other occasional use items (need a walker for a week? They've got it). For a small donation, they were happy to lend us a high chair. And when we return it, we'll donate the nearly new car seat to the cause.

7. Eating Out - Carefully: A lot of folks use local restaurants as a cafeteria or kitchen, eating out as many as 5 nights a week or more. They are so tired at the end of the day from bailing out that rowboat that they grab a bite on the way home, or say "Honey, let's just eat out" or they order take-out or pizza, often for considerable amounts of money. Not only is this expensive, it isn't healthy, as most restaurant food is quite high in calories. While it is fun to be waited on and catered to, eating in a restaurant, even a fast-food one, is the most expensive way to go about getting fed. But eating out should be more than just refueling the body - it should be about having a good time. In that regard, most chain restaurants and places where people view portion and price as the primary indicia are usually less than satisfying.

But rather than give up eating out all together, we've just tried to be smarter about it. For example, the local Hotel is far too pricey (and formal) for dinner. However, they have an afternoon "high tea" every day at 4:00 which is not well attended, but lavishly served. For a fairly reasonable charge, you can sit with friends for hours and have good food in great surroundings.

But entertaining at home is probably the best bargain. Most folks today find it too much work to clean the house, decorate the table, and then cook and serve a meal. But it doesn't always have to be on the host entirely. A good friend offered to cook an ethnic meal for us and our friends and asked to have the party at our house (as we have a huge dining room table). A party like that can help spread the labor around, and also the costs. For a lot less than eating out at some crowded restaurant, we could sit for hours and have a good time in good company. Who says entertaining is a lost art?

8. Slowing Down and Save Gas: The price of fuel has dropped way down as demand has slackened. This is a good thing for our economy. Using less fuel is not only good for your own pocketbook, it keeps demand down, which in turn drops prices. So don't go back to your old habits! On a recent trip, I used my car's trip computer to calculate gas mileage. Driving the way I used to (70-80 mph, rapid starts, etc.) I found I was getting about 26 miles per gallon. Making a game of it, on the way back, I tried to keep to at or below the speed limit and accelerated gently and tried to anticipate stops. My mileage rose to an incredible 36 mpg in some places and averaged over 32 mpg for the trip. Overall this saved about 3.6 gallons of fuel, which at the going rates (at the time) meant a savings of $14 for the trip. It would have been $28 if I had driven carefully both way. No, it's not a huge amount of money, but enough to buy lunch. And if you add that up, say, over a year's time, it could easily exceed a hundred gallons of gas. At $4 a gallon, that's $400 right there.

* * * *

These are just a few ideas I've had. You don't have to SPEND or waste a lot of dough to be wealthy. Wealth is a state of mind.

UPDATE:  The ideas we have discussed in this blog over the last three years have paid off.  We are living like retirees now, spending a lot less, but doing a lot more.   It has taken a lot of effort and also some re-thinking of our priorities, but it has been totally worth it!