Death Spiral

Spatial Disorientation remains a big problem for both commercial and general aviation aircraft, when a pilot tries to fly in IFR by the seat of the pants.  In a similar manner, financial disorientation can distract a person from their personal financial situation until it is too late.

If you read NTSB reports, they tend to sound about the same, over time.  In far too many cases, people become disoriented and crash their own planes.  Even commercial airliners fall out of the sky when pilots become confused or distracted and either stall the plane, or fly it right into the ground.

And when this spatial disorientation occurs, the pilot is often unaware anything is wrong, until it is too late.  Since the plane enters a smooth 1-G "death spiral" they feel, flying by the "seat of the pants" that the plane is straight and level.  Until, that is, a wing tears off or they fly into the ground.

And in every case, the Ground Proximity Warning System is the last thing heard on the voice recorder.  "Terrain, Terrain!  Pull Up!"

What causes these "death spirals" in aviation?  What causes us, as individuals, to ignore warning signs of impending financial doom and fly into the side of a mountain - figuratively speaking?

Inexperience is part of the problem.  Oftentimes, we fail to recognize the symptoms of the death spiral, unless we've be caught in it before - and managed to survive.  But even folks who have had a "close call" often fail to learn from it and repeat the process over and over again, until they finally do it one time too often and crash.

And the problem is, during the "death spiral" everything seems normal and "feels" right.  How can the plane be crashing when my coffee isn't even spilling?  We can't be upside down, right?  A 1-G turn can do that.

In a similar manner, people's personal finances can go into a "death spiral" and they won't be aware of it until it is too late.  By the time our Ground Proximity Warning System kicks in, you have only seconds left to breathe.

How does this happen?  Well, our system of debt, aided by the poor normative cues from television (a broken flight instrument, if there ever was one!) can distract a "pilot" from what is really going on.  And this trap, just as it happens to a lot of experienced pilots, happens to a lot of experienced adults - often people making good money, too.

For example, Joe and Suzie Suburbia live near the Capital City and own a nice home.  They have brand new cars and put the kids in a private school.  They eat lunch out every day, and each drives to work separately, for convenience, even though they work only blocks apart in Capital City.  Suzie gets a designer coffee every day on the way to to work.

The whole family has cell phones with an unlimited texting plans.  The kids all have the latest video games and Aeropostal t-shirts.  And they have 500 channels of cable-TV, and a TV in every room of the house. Every three years, Joe and Suzie lease new cars.

Joe and Suzie think this is all just fine - they are living the American dream, after all, and are both making "good money" at their jobs - over $200,000 combined income.  And every month, they are able to pay all the bills on time.  They are not funding their 401(k) as they would like to, but hey, they are young, and have time to do that later, right?

The one thing that nags Joe like a faulty air speed indicator, is their increasing credit card debt.  Years ago, they "paid off the balance every month" and felt that they were doing OK - what with the frequent flyer miles they were accumulating.  One year, they cashed in the frequent flyer miles and made a family trip to Disney World.  The cost of the trip was a little more than they figured on, and for the first time, they did not pay off the entire balance on the credit card.  The interest charges were  pretty staggering.

And within a year or so, their credit card debts started to snowball into the tens of thousands of dollars.  They were making good money, getting raises, so they spent more.  Take out meals, delivery pizza, dinners at chain restaurants, gifts for the kids, small vacations, large vacations, and of course, new electronic toys.

One day, Joe was perturbed to realize they had close to $50,000 in credit card debt.  This sounds outrageous to some folks, but seriously, I know personally, several Joes with this level of debt - including myself at one time.  Joe and Suzie cut back on their savings and their 401(k) contributions, "temporarily" to help get this debt down.  But the debt is so huge and the interest so high, it is hard to do little more than chip away at the debt.

So, Joe and Suzie decide to refinance their house, pay off their debts, and "get a little breathing room" to get around what they perceive to be a one-time "difficulty" or aberration in their finances.  They pay off the credit cards, but do not close the accounts.  And the credit card companies "reward" their financial acumen by increasing their credit lines, announced cheerfully by cover letters sent to them that contain lots of exclamation points!!!

Joe and Suzie want to believe that they are pretty smart people, and so they think of themselves as being "smart" and financially responsible, and moreover "rich" compared to their neighbor across the street who - if you can believe this - has been driving the same old Camry for 10 years now!  Poor people, they are so pathetic!

But Joe and Suzie's personal finances are losing altitude quickly, but they fail to realize it.  They intentionally ignore all the other warning signs - convinced that those gauges are broken and that their stuck altimeter is "right" - after all, no one is foreclosing on them today and they still have credit left on their credit cards, right?  And they are still making all the minimum monthly payments - right?

What they are doing, though, is taking on more and more debt, over time.  So their personal net worth is actually decreasing.  And worst yet, it is decreasing on paper, as their net worth is based on some pretty specious valuations of Real Estate and Stocks in their 401(k) plan.  But all seems well, so why bother taking action now?

And they can't be doing anything "wrong" in piloting their personal finances - after all, according to the television, their lifestyle is "typical" - and all of their friends are living a similar lifestyle as well!

And they can go on like this, for years, sometimes.  They get into the death spiral, and then pull up at the last minute - refinancing everything in yet another home equity loan.  But they are losing altitude with each loop.

And then, one day, they hit the side of a mountain.  The economy wobbles and becomes unstable.  Housing values drop - cutting off their funding options.  Their 401(k) value drops. One or more of them loses their job - which is akin to losing an engine in flight.  Or worse yet, they delude themselves into thinking they are doing so well that one of them quits their job.

The subsequent crash is inevitable.  Since they have no altitude (savings) to trade-off for speed, they can do little more than auger into the ground in a glorious fireball.  Another couple bankrupt, foreclosed upon, and likely divorced.  And yet, they were making well over $200,000 a year!

How can we avoid spatial disorientation?  For starters, maintain your altitude.  If you see your savings dropping, or your rate of savings drop, take this as a warning sign to be taken seriously.  And while your altitude over the ocean may be 10,000 feet, bear in mind that when you fly over a 10,000 foot mountain, your altitude drops to an effective zero.  And savings and investments work the same way - you can have a hefty balance in your 401(k), but it can drop off rapidly if the market goes south.  You can't be too rich or too thin - or have too much altitude.

Second, don't be distracted by broken gauges and erroneous instrument readings.  The television is not a good instrument for IFR - it does not provide you with good solid data on where you stand, financially.  And in fact, if you use the media as your artificial horizon, you will likely crash.  The TeeVee is one glass cockpit display you should avoid at all costs!  Stop taking your normative cues about spending from the TeeVee.  I cannot emphasize this enough.  Best to just stop watching it, period!

Third, don't be so distracted by one instrument reading that you ignore all others.  In more than one case, airline pilots have flown planes right into the ocean, convinced that a chorus of alarms and warnings are all "wrong" while they blindly assume that the one broken instrument in the cockpit must be right.  The altimeter says they are at 10,000 feet and their speed is increasing.  The Ground Proximity Warning System is saying they are about to crash and the stick shaker says they are about to stall.  Not understanding how the instruments work, the pilots blithely ignore good data and accept bad, not realizing that a 2" strip of duct tape over the pitot holes can cause both the altimeter and air speed indicator to go berserk.

Similarly, most middle-class consumers will believe themselves to be fiscally solvent if they can pay all their bills every month.  They ignore warnings signs, such as increasing debt load, deceasing savings and savings rates, increasing spending, and increases in interest payments.  Everything is fine, because that one instrument - the checking account balance - is above zero.  So they must be climbing, right? 

Wrong.

Fourth -  don't try to fly by the seat of your pants!  That is the last nail in the coffin for most pilots.  The airplane can actually be inverted - flying upside down in a spiral loop, approach a "VNE" speed where the wings tear off at the root - and yet there is no vibration, no acceleration, no disturbance - your coffee cup remains right side up and doesn't even slosh out.  And yet, you are in extreme peril, but don't feel it.

Financially, most of us start out life flying by the seat of our pants - which is fine for VFR flying.  So long as you can see the horizon, everything is fine.  Fly into a dark, cloudy night, and you end up like that Kennedy kid in short order.  But we all do it, when young.  We want a lot of eye candy and electronic crapola, and of course new cars, take-out pizza, cable TV, and cocktails at singles bars.  We spend and spend until we are broke, and for many, this is the first experience with the death spiral - which most of us pull out of and say, "We'll never do THAT again!"

And yet, we do.  In many Spatial Disorientation accidents, the pilot in trouble becomes disoriented again and again.  In one accident, a VFR pilot found himself in the clouds, became disoriented, and ended up in the "death spiral" dive, which he pulled out of at the last moment, as he exited the clouds and realized he was inverted and headed toward the earth.  So what does he do?  He rights the plane, climbs back up into the clouds and does the same thing all over again.  Six times.  Eventually, the poor plane can't take it anymore and a wing snaps off.  End of story.

Breaking this cycle of bad behavior is the key.  And hopefully you won't have to have a Spatial Disorientation incident to learn the lesson.   Because it is a very painful and often deadly lesson - most do not survive Spatial Disorientation incidents.  Financially, most of us can't afford to.

The Occupy Generation

Let's label an entire generation based on the actions of a few people!  It's fun!

The media has yet to label the current generation of young people with some sort of stupid label, like "Generation X" or "Generation Y" or "The Woodstock Generation".  So I will beat them to the punch and label these kids with an ill-fitting moniker of "The Occupy Generation."

Why not?  After all, these stupid generational labels in the past have been poorly applied - labeling an entire group of people based on the actions of a very few.  And moreover, they ascribe attitudes, opinions, and characteristics that often do not apply to but a small minority of people.  The media paints in broad stokes, using a 6" house painter's brush.

For example, the whole "Woodstock Generation" thing is bogus.  Many on the Left claim that Woodstock was some sort of "defining moment" of their generation.  "They closed the New York State Thruway, man!" they say.  Here's a clue:  They close the New York State Thruway when it snows - or when even there is a heavy rainstorm.  Ain't no big deal.

And getting a half-million people to show up for a free orgy of sex, drugs, and music isn't really that hard to do, even today.  Despite the alleged political leanings of the event, most folks were there for the party.  In fact, it was never billed as any sort of political event, and the folks who tried to hijack it as that were beaten down by Pete Townshend.

But beyond that, a surprising number of that generation - a majority in fact, were not pot-smoking hippies bent on ending the war or overthrowing the government.  Growing up in a Left-leaning household with pot-smoking hippies for siblings, I naively assumed that everyone of that generation was all of one ilk.  I later learned this was not so.

For example, I met a fellow Engineer who mentioned that he was a student at Kent State during the shootings.  I asked him what it was like, and he replied, "Well, I didn't really see anything. I remember seeing some National Guardsmen when I was changing classes, but for the most part, I read about it in the paper, like everyone else."

This sort of floored me, as from the media reports, you would have thought that everyone was protesting at the time, when in fact a small group was.  As my friend put it, "I was in school to get an education.  Not all of us were smoking pot and protesting."

And this basic fact is often lost on the media, which draws its reporters and announcers from a more Left-leaning group.  And today, when we do the demographic math, people are perplexed why the "Woodstock Generation" would do things like vote for George Bush.  And the simple reason is, that not everyone of that Generation was of the same mindset then, or now.

And of course, people do change over time.  Even the most Liberal become ever so slightly more conservative - and some extremely so.  You put a little money on the table, and funny things happen to people, over time.

And that is where I expect to see the "Occupy" movement people, in about 20-30 years.  They will, by then, have houses, cars, a good job, and children.  They will be trying to finance their retirement and their kid's college and their mantra will morph from "overthrow the system" to "don't rock the boat!"

But every anniversary of the "Occupy" movement, they will get together and share a joint and reminisce about the "good old days" when they were going to "change the world" and wonder "what the fuck happened to us, man?" and "can you believe I used to wear my hair like that?"

It will happen.  Just wait for it...

Expensive Gifts - Can You Afford it?

Sorry, but I didn't buy you a gift this year!  This 'app' is designed to track gift-giving and spending.  Note the normative cues embedded in it.  We are supposed to spend hundreds of dollars on gifts for people?  Who said so and why do we buy into this?

A few years back, I saw an ad on TeeVee for a "big box" electronics store (guess which one) which showed a merry, clueless woman shopper, off to do her "holiday shopping!" with her Christmas list.  On the list was a new Microwave for Mom, a Chest freezer for dad, a new TV for brother, a laptop computer for sister, a new video game console for Junior, and a DVD player for the postman!  Whee!  What fun!

The ad shocked me, as it was a very bizarre set of normative cues.  According to the ad, we should all be spending hundreds of dollars on each of our family members and friends, every holiday season, buying them things which ordinarily would be very personal purchase decisions that would be carefully thought over.  And cumulatively, this would amount to thousands of dollars spent, every year, and most likely put into the form of credit card debt.

And the media plays this like it is a normal thing whose very premise is never challenged.  Nothing to see here, folks!   And in February, they report, every year, how we all have staggering credit card bills from our orgy of Christmas spending.  Situation Normal, move along!

And a lot of middle-class people buy into this, for reasons I cannot fathom.  Someone can be smart enough to draw down a $100,000-a-year salary, and yet dumb enough to spend it all because the television said so.  Go Figure!

But in a real sense, no one can afford to do this.  As I noted before, your disposable income is only a tiny fraction of your overall income.  You may be making the vaunted six-figure salary and think you are "rich" but in reality, you may only have about 1/10th of that to "spend" as you see fit.

(By the way, when I was in school, the big "dream salary" was $30,000 a year.  Times have changed since then.  Today, it is the vaunted "six-figure-income" and a lot of people make it these days - and are still broke!).

When you take away taxes, house payments, utilities, groceries, insurance, automobile expenses, plus the amount you should be putting into savings and your 401(k), the amount left over to "spend" is barely a few grand, at best.  If you are spending more than that, buying people appliances for Christmas, well, chances are, you are living beyond your means and accumulating credit card debt.

And for years, people did this, spending up their credit cards and then paying them off with a home equity loan.  And instead of becoming wealthier, they ended up becoming poorer, with a house full of small appliances and small purchases of made-in-china crap which cluttered up their garages.  And a ton of debt, to be sure.

Owning things is not real wealth.  And you are not obligated to buy people televisions and major appliances for Christmas.  Getting off the gift bandwagon is a good first step toward financial independence.

So, how do you figure out how much you can afford to give as gifts?  In the example shown above, a person has programmed their iPhone with a budget of over $1000 for three people.  Ouch.  That is a lot of money - more than I could afford!

And for someone making $100,000 a year, it is more than 10% of their disposable income! 

Now, some might point out, particularly if they are aggressive about Christmas gift-giving, that one expects a similar pile of "loot" in return, from the people you are giving gifts to, so, in theory, you are not giving away things, but exchanging gifts.

The problem with this model is twofold.  First, if a quid pro quo is expected in gift-giving (and in today's competitive world, it is) then you are not really giving a gift, but merely bartering in the name of Jesus.  Second, when you barter, you often end up with things that you don't quite want, would not otherwise buy for yourself, or are not quite the right product you had in mind.

Rather than buy a television for your friend, so that they can buy you a new iPad, why don't each of you just go out and buy what you want for yourselves?  You end up with the right product (no exchanges needed) and you can forgo the pretense that you are being "generous" with someone, when in fact, you are merely bartering with each other.

And suppose you decide you don't need or want a new TeeVee, iPhone, or whatever?  Yea, you've heard that expression,  "He is so hard to shop for!" - because such people often don't want a lot of crap in their lives.  Under the system foisted upon us by the retail industry, we are obligated to accept things we may not want, and also obligated to buy items of similar value to give to others.  The net effect - if you buy into this nightmarish version of Christmas promoted by the retail industry - is that you end up consuming more than you intended.

This is not to say I am anti-gift.  Gifts should be from the heart, and should be made with no expectation of reciprocity.  Otherwise, as I noted before, it is just bartering.  And gifts can be given at any time of year, for any reason, or none.  There is no law saying "You HAVE TO give a gift in December and no other time!"  It is just idiotic to even think so - and you have to wonder why our entire Western society has fallen victim to this plain and apparent marketing trap.

And it is a marketing gimmick.  If you research the origins and history of modern Christmas, the entire gift-exchanging, in the modern sense, has only been around for less than 100 years.  And it is only in the last 20-30 years that this orgy of "Black Friday" and the concept of buying hyper-expensive gifts has come to be.

Sort of like dancing the Hokey-Pokey at weddings - a modern tradition that, frankly, we could do without.

Black Friday

People line up for 'door buster deals'.  Is this a good way to save money - by spending it?

A couple of years back, I wrote about Black Friday and what a bunch of bullshit it was.  But the media ain't about to give up on this.  So the only thing you really can do, is give up on the media.  Unplug from the 24/7 news cycle, the blaring advertisements, and the loud commercials on radio.  And when you do hear something hyped or heavily advertised, just assume it is a load of crap and a rip-off, because it is.

Why is Black Friday such an utter load of crap, bad normative cues, and a horribly bad idea?  A number of reasons:

1.  You are being told, by the media, that this is the most important thing in the world going on, because, well, it is.   They just said it was.  Now shut up and eat your media kibble!

2.  Never mind the fact that the media is funded by selling advertisements for the retail concerns that are selling things on "Black Friday" - this is a real news story!  Funny how that works, eh?

3.  You can't "save money" by spending it, that is Q.E.D. - and yet most people fail to realize this, thinking they are "saving money" by camping out overnight to get a "bargain".  If you want to SAVE money, put it in to SAVINGS.

4.  Buying people a lot of expensive crap for Christmas is a bad idea - and the media reinforces the normative cues that spending $100 to $500 per person on your "Christmas List" is just what everyone does.  On NPR this morning, they interview a guy who is buying a television for his Mother and a laptop computer for his brother.  Huh?  Spending hundreds of dollars per family member on gifts?  This is simply not affordable for the average American.  Plus, those are sort of personal items that people just might rather choose themselves, no?  An ad on TeeVee a few years back suggested it was "normal" to buy a DVD player for the postman.  Of course, the ad was for a place selling DVD players.  And they are so cheap, why not?  (maybe because he already has one?).

5.  Consumption is not what Christmas is all about.  Talk to your Christian friends about this one.  They are so wrong about so much, but not this.

6.  Consumption is gross.  Buying someone a small appliance that they don't really need is just squandering your precious resources and leading to clutter in your friend's home.

7.  This wasn't our idea.  We have been brainwashed that we have to spend tons of money every year buying crap for people.  And for some reason, we've gone along with it.  If you look back at the history of Christmas, people exchanged small gifts that would fit in a stocking or boot.  Today, we give cars.  Something has gotten seriously out of hand!

8.  The emotional reasons for doing this are sick.  As I noted before, I've seen people "keep score" on the presents front, carefully evaluating what gift someone gave them and the gift offered in return, often with crass comments being made.  Women, in particular, seem to be caught up in this trap (and it is usually Women who try to organize "Secret Santa" gift parties at offices, which just create more stress for everyone, like we don't have enough to do all day long!).

9.  The deals often are no deals.  Yea, Wal-Mart would have a total of three flat-panel televisions offered for the low, low price of $499 one year.  Some guy gets trampled to death so that Lurleen can be the first in the trailer park to have "one of them flat-screen TeeVees!"  But the joke is, within a year or so, you can buy an even better television with LCD technology for even less.   Or you can go online and get better prices on most products.  Or, by the time you get there, unless you camp out overnight, the "deals" are gone and you end up buying stuff at regular prices.  Or, if you do get one of the "deal" items, you end up spending more than you intended, by buying other items that were not such deals.  Retailers are not idiots - they do not give products away or consistently sell for below market price.

10.  Shopping is a waste of time and money.   If  you have carefully decided that you need a particular product, the best thing to do is to research the item, find where you can get it at the best possible price (which is usually online) and then go buy it.  Buying things on impulse is never a very good idea - you end up getting not what you want or need, and paying more than you should.  Buying things for other people, without knowing their needs, particularly when they are expensive things, is an even worse idea.

Some of the Occupy protesters have called for boycotting Black Friday (I guess you'd have to, if you are occupying a park all the time, right?).  Others have called for occupying malls to make a statement about consumerism.  I am not sure the latter approach is such a swell idea.  While I may think that people who obsess about "Black Friday" are, perhaps, a little dense (if not in fact, trailer trash), I certainly don't think it is my place to stop them from being fools.  After all, I own stocks in the companies that profit from their foolishness!  Please, keep being fools!  Smoke some cigarettes while you are at it!  It puts money in my pocket!

But the Occupy protesters are right in that indulging in an orgy of consumerism is really just a waste of time and energy and money, and one sure way to go broke in a hurry.  But of course, it is really very easy to take that position when you are flat broke and living in a tent in a public park, right?

UPDATE:  After I wrote this piece, I saw this article about shoppers pepper-spraying each other, being pepper-sprayed by security guards, fighting over electronics, and other idiotic things, mostly at Wal-Marts.  White Trash of the world - convinced it is a privilege to be allow to buy crap.  And they wonder why they are poor all the time....

Being Successful in America by Not Being Stupid

How do you become successful in America?  It is not hard to do.  All you have to do is avoid the following traps for the unwary (in no particular order):

Credit Card Offers

Frequent Flyer Miles

Prosperity Theology

Believing in Angels, Fairies,Witchcraft, or Fundamentalist Religions

Day-Trading Stocks

Leasing Cars

Funny-Money Deals

Anything heavily advertised

Anything heavily promoted in the Media

Cable Television

Television, Period

Smart Phones

Home Refinancing to Pay off Credit Cards

Payday loans, pawn shops, title pawn, rent-to-own furniture

90 days same-as-cash

Shopping as a hobby

Facebook (the Television of the Internet)

Something for Nothing

Obsessing about Politics

Get-Rich-Quick Schemes

MLM Marketing Schemes

Pyramid Schemes

Buying gold as an investment

Taking your job for granted

Not getting a good education

And so on....

Sounds like a pretty obvious list, right?  I mean, what idiot in their right mind would do ANY of the things listed here?  No one, right?  And yet, all of us have done one or more of the things listed here, or have at least thought about them.  We all are guilty, on occasion, of believing in free ponies.

And if you look at the economy over the last two decades, and see how things have panned out, in most cases, people who have "fallen on hard times" have fallen victim to one or more of the items listed above.  In other words, there are no innocent actors here.

So what is the good news?  Well, it is ridiculously simple to get ahead in America.  You can be a millionaire.  And no, I am not selling some "system" or set of cassette tapes to listen to.   There is no marketing program, no inspirational speaker at meetings.  All you have to do is this:

Not do any of the items on the list above.

Sounds "too good to be true" - don't it?  After all, if you want to be "rich" you can't just save your money, diversify your investments, and work hard.  There has to be a trick, right?  After all, those "rich dudes" all know how to scam the system, right?

Not exactly.  Yea, there are one or two people who, through mostly luck, float their way to the top of the septic tank.

But most successful people in the USA succeeded through the old-fashioned techniques of working hard, saving money, and spending less than they made.  And it does work, over time - although it might mean forgoing that new Camaro SS you've been dreaming about.

And that is GOOD NEWS.  If you have half a brain, you will make out OK in this country.  All you have to do is not fall victim to our media-saturated society and its poor normative cues - to not buy and consume your way into perpetual debt slavery, but rather to live within your means, accumulate enough wealth so that you can afford to retire, and live happily every after.

And when it comes down to it, that is all most of us want, anyway.

But sometimes, we get distracted along the way.  On the way to "happily ever after" we decide instead to go for "happily in the here and now" and convince ourselves that a new car, cable TV, or a fancy house are the things that will make us happy.  And we kid ourselves that they "don't cost that much" or that they are in fact "a good investment."

But again, the good news is, you can turn this around, and you can always improve your lot in this Country.  Despite what the naysayers say, we do have upward mobility in the US - moreso than anywhere in the world.  You can do pretty much what you want to here, without having to worry about the secret police, or the tax man (no really, we have some of the lowest taxes in the world!)

And that is a lot to be thankful for, if you think about it.  We should be thankful that the only impediment to success in this country is usually our own actions or inaction.