For More Information . . .

I know the information I provide about actual investing is a little ambiguous. This is partly due to the format of this blog.

This year, I'm mostly trying to get out of debt, and this blog's goal is to convince other people why they want to get out of debt. So when I talk about investing or saving, it's mostly in terms of why you should get out of debt in order to do them.

My plan is to continue this blog into next year. This year's 365-Day-Turnaround is about going from debt-laden to even. Next year's 365-Day-Turnaround will be about starting to build wealth.

But I realize some of this blog's readers are ahead of me. To them, I offer some resources.

First, I like the Vanguard PlainTalk investment guides. You can either read them online or ask them to mail you a copy. There are other guides as well.

I do not know this company and I have not read this book, but if you request information from American Century, you get a free copy of the book The Automatic Millionaire. At least one reader of this blog reccomended this book to me, and hey, if it's free, what the heck.

Spin That Wheel!--Gambling: Roulette

Roulette's simple. There's a wheel with 38 numbers on it--1-36, 0, and 00. Some numbers are black and some are red. The zeros are green. They spin the wheel, drop in a little ball, and it lands below one of those numbers.

They let you bet any way you want. You can bet on an individual number, and if you're right, you get 35 bucks back for every one you bet. You can bet on odd or even, red or black, 1-18 or 19-36 and get a buck back for even money. They even have "groups" of numbers you can bet on.

I usually talk about the house PC--the "Percent to Casino." On this game, it's 5 5/19 percent on every bet but one.

How's that possible? If you can bet on red or black, your odds are as good as the casino's, right?

Nope. Those two little green spots with the zeros on them are where the casino makes all their money. Those zeros aren't red, aren't black, aren't odd, and aren't even. They're the sinkhole that makes sure that one out of every 18 spins doesn't pay off on any of those bets. Sure, you can bet on one of them as an individual bet, same as any other number, but that would only pay off 1 out of every 38 spins. And you'd only be making 35 bucks back--leaving you three bucks shy of breaking even. Betting on both would bring it back down to 1 in every 18 spins, but since two number bets only pay at 17 to 1, you'd still come up a buck short.

But wait! What about the bigger group? Those two green squares are also in one of the groups--0, 00, 1, 2, and 3. Should we bet here? Would that plug the loop?

Actually, this is that one bet that has a different house PC than all the others. For this bet, the house PC actually goes up to 7 17/19.

Like last week, there's a moral to the story. Will you win? You betcha. Especially on those even money bets, you can hit them. Will you walk away from the table with more than you started with?

Nope. To win any real money, you have to make single number bets, and the single number bets will swallow your money faster than a hungry rattlesnake landing on a crippled bunny. And by the time your number finally comes up, you've already put down as much as you win.

If, even worse, you chase the numbers, your odds get even worse.

Is there any strategy at all to roulette?

Sure. First, if you can find a European wheel, the house percentage goes down to 2.7%. This is because it only has one 0.

Second, like all machines, roulette wheels are sometimes imperfect. Watch a wheel for a while before you start betting, to see if its favoring one area of the wheel. Betting in that area might slightly increase your chances.

Is either of these strategies going to make you rich?

Does making a hole in your gas tank smaller make it fill itself back up?

Eating Healthy On The Cheap

Checked out the cookbooks at the library yesterday, looking for a book with a title along the lines of the title of this post. Didn't find any. Seems every book at the library is about making cooking easy.

I don't expect cheap, healthy cooking to be easy. There's an expression in marketing--you can have it fast, cheap or good. Pick any two. I know that's going to be true for cooking as well--you can have it fast, cheap or good-for-your, pick any two.

If you want to eat cheap and healthy, I'm sure it means soaking beans overnight and marinating cheap cuts of beef for hours.

Although I don't know yet, because I still haven't found the book.

I'll let you know when I find it.

Willpower Is Not Enough (Erik Gets All Mr. Miyagi)

I read a really fantastic book recently called Willpower Is Not Enough. Although the book was published by a religious press, it was written by two psychologists and teaches some fascinating principles.

The basic premise goes something like this:

If you're having to use "willpower" to do something, if you have to grit your teeth and make a fist and force yourself, you're not only likely to fail at it, but you're working harder than you need to.

Most often, willpower is a function of the mind. The mind intellectually understands something, and wants us to do it (or stop doing it) even if we don't want to. It's as if there's two people inside us, the one who understands what he should and should not do, and the one who doesn't want to be bothered with such restrictions.

The book identifies this other creature as your heart. Willpower issues, it says, come from times when your mind and your heart are in conflict. When you force yourself to do something, the opposition comes from your own feelings. Our culture devalues feelings, focusing instead on intellect and logic. Even most of our religions claim our passions are evil and must be suppressed. "Mind over matter," we say. "Put your mind to it."

Eastern philosophies are not so lopsided. They're all about balance. The real trick isn't so much finding a way to overpower your heart as it is to work with your heart. Involve your heart.

What do I mean by this? Well, you can take it a couple of ways.

First, let's say you want to begin a new behavior. Your brain knows it's a good behavior, but your heart doesn't want any part of it.

Your brain might know you should exercise more, but you can't get fired up about it. Stop and think about the things that do get you fired up. Maybe you're a social butterfly, and you love to be around people. If you make your exercise program into a group activity, your heart and your brain could get behind it.

The book tells of one young man who had terrible study habits. He'd study hard, cramming for a week, but then he'd burn out and ditch class for a week to hang with friends. Then, out of guilt, he'd go back to cramming and burn himself out again. As he started looking at this from a heart/mind perspective, he realized his heart wasn't in his major. By changing majors to something that excited his heart, studying was no longer a chore for him. No more real discipline was required.

Think about it. Does it take discipline for a kid to wake up on the day when she's going to Disneyland? Does it take discipline to call a radio station when they're offering those incredible tickets?

When the heart and the mind are behind things, they become far easier.

So what about the opposite? What if you want to stop a behavior?

First off, you stop assuming the desires of your heart are bad and need to be suppressed. While the means you may pursue to achieve those desires might be unhealthy, the desire itself is probably perfectly normal and important. It becomes a matter of fulfilling that need in a non-harmful way.

For instance, the next time you want to indulge in the behavior, stop and do a self assessment. Ask questions like: What am I feeling right now? What will indulging in this behavior accomplish? What need am I trying to satisfy? Is there another way I can fulfill that need?

It may sound like psychobabble, but you might be surprised to find that a tendency to overeat is actually because of a desire for affection (It's not called comfort food for nothing!). A drug problem might come from a desire to feel important.

You don't overcome those by gritting your teeth, trying to be tough, and forcing your way through it.

If I tell you for the next thirty seconds not to think of a pink elephant, pink elephants will flood your thoughts.

If instead, I tell you to try to picture a white tiger, nary a pink elephant will enter your brain.

You overcome a negative behavior by indulging those decent, honest feelings in more wholesome and positive ways.

That's not to say that there won't be times where you'll need to rely on willpower alone, nor that your heart can always be trusted.

But it is far less stressful (and more Zen) to try to bring the heart and mind together, rather than pitting them against each other.

Like a judo master can use his opponent's strength against him, by using his opponent's momentum to bring him down, so you can bring your heart into submission not through overpowering it, but through letting its powerful desires pull you into the behaviors that will bring you true joy.

Tale Of The Tape: Down Six Pounds

I attribute it all to a "lifestyle change."

I went from being a guy who mostly sat around at a desk and in his car to a guy who spends his days bailing buckets of water from flooded offices and running a wet-dry vac.

I think it's my bedtime.

Why Teenagers Should Read This Blog

When I was a child, I was really interested in time travel. My boyhood journal contains entries like:

Erik, if you're reading this in the future, if you have a time machine and some money, you can send it to me.

I was very interested in getting hooked up by my future self.

Well, now that I'm older, I know that traveling back in time is probably impossible. However, I also know something that never occurred to little Erik.

It was possible for him to hook me up.

How is that possible? What did little Erik have that big Erik doesn't?

Time. Time, as the song goes, was on his side.

If you're a teenager, it's on your side, too.

When you invest money, it earns interest. Once that money earns interest, the interest and the money start to earn interest. Then the money and the interest and the interest all earn interest together. This can snowball into bigger and bigger savings.

Let's say little five-year-old Erik had got his hands on $100. It would have been tough, but if he scraped together allowance, birthday money, Christmas money, maybe everything he got that year, he could have done it. And let's say instead of spending it, he put it away somewhere where it would earn 12% interest, compounded annually.

If that money was destined for me, 30 year old Erik, his $100 would have given me just shy of $2,000. Pretty generous of that little boy.

Of course, if the money didn't go to me, if it went to 65-year-old Erik, getting ready to retire, it wouldn't be $2,000. It would be worth over $100,000. All it cost him to do that was that $100. I don't even know what he really spent it on.

So what does this mean to you, the sixteen-year-old who's just starting his part time job? It means you have a huge advantage over me to give your future self that gift.

Guess how much it would cost you to become a millionaire? What could you do, right now, that would place a million dollars in a little box with a bow on it, labeled To: Me From: Me?

The answer is: $2,000 a year, for two years.

For $4,000, you can retire a millionaire.

Now I know what you're thinking. You're thinking, "That's a lot of money. I want a stereo. I want CDs. And I really want a car. When I'm older, I'll have more money for stuff like savings. I'll have lots of time to save for retirement later."

What you don't understand, though, is that time is what you're giving up if you wait. If you wait just a little, if you wait until you're twenty, you won't be able to do it in two years any more. You'll have to put in $2,000 a month for four years if you want to retire with a million dollars. Instead of costing you $4,000, it will cost you $8,000. Those four years cost you $4,000.

But hey, that's still not so bad. $8,000 to retire a millionaire? Maybe I can do it when I'm twenty, you say.

But you know what'll happen when you're twenty? You'll be going to college, and then starting a family, and then wanting a house. Pretty soon you're going to be thirty, like me, and you're going to finally get around to starting your investing.

Guess how many years I would have to save $2,000 a year if I wanted to have a million dollars when I retired? Ten? Fifteen?

Well, technically I could stop in twenty years, when I turned 50. But I would still have about a hundred thousand less than you'd end up with from your $4,000. In fact, I could put away $2,000 a year every year, from now until I retired, and I still wouldn't have as much money as if you invested as a teenager. I wouldn't even have as much as if I'd invested at 20, and stopped at 24. I would never catch up.

So who's the wisest?

The guy who does all three. The one who leaves himself a million dollar present as a teenager, leaves himself a million dollar present as a twenty-something, and then leaves himself another million dollar present from thirty on.

Now, if you're a particularly sharp teenager, you noticed a little something on that paycheck you got. You didn't get it all. The government gets a good share in taxes. So you're probably worried that when you save that million, the government's going to take a huge chunk of it away. Up until just a few years ago, you'd have been right.

But a few years ago, a guy named Roth came up with a tiny little change in the way Individual Retirement Accounts work. Instead of paying with pre-tax dollars, and then taxing retirees when they withdraw money, what if they pay with after-tax dollars, and the money grows tax-free?

In other words, there is a place you can put your money where the Government cannot tax it, where it will grow free, and every penny of it is yours when you're done.

It's called a Roth IRA, after that Roth guy, but you may call it your little patch of heaven. Because it's sheltered, the government limits the amount you can put in it, but don't worry. The limit is exactly $2,000 a year. And there's no age limit on when you can start contributing.

Even if you can't do the full $2,000 this year, do $1,000. If you do $1,000 a year in a Roth IRA, you'd only have to pay until you were 20--an extra $1,000--to hit the million. A $5,000 total cost.

The real point--beyond the security you'll be giving yourself--is that you'll learn something about your money. As you put it in that account and watch it grow, you'll be slower to give your money away for "stuff." I'm not saying you can't get some "stuff." Stuff's fun, and having fun is part of what teenagerhood is for. But there's this powerful ability you have right now to turn that one dollar into many, many more.

Because if you did it consistently, do you know how much you would have, if you invested $2,000 a year from age 16 until retirement in an IRA, earning around 12% interest in some good growth stock mutual funds?

Over 5.3 million dollars.

Wait two years. Go ahead. Start when you're 18. The number drops to 4.2 million.

Still sound okay? Sounds like you can wait?

Well if you wait any longer, say until after college, and start saving for retirement at 25, the number drops to 1.9 million.

Wait until you're thirty, like me, and you'll barely clear a million.

But please, don't put it off any longer than that. Do you know what the number drops to if you wait until you're 40? Take a guess.

$300,000.

Wait until you're fifty, and it's not even $100,000.

Time is money. That's not just an expression; that's the mathematical truth.

The little boy me eventually grew up to understand the laws of physics that prevented future me from shooting those dollars back to him, so he forgave me, I think. After all, it just wasn't possible.

But I wonder about future me, waiting there at the end of my career, knowing full well that I had it in my power to leave him a wonderful gift of security and peace of mind. I wonder about my wife's future self, who may have to be without me for a time, who also understands the power our younger selves had to launch this gift forward to them.

Will they forgive us, because they remember how pressing the purchases of today seemed to us? Or will the purchases she and I are making, the stuff we put on credit cards, the money we spent paying interest instead of earning it all be as inconsequential to them as the purchases little Erik made are to me?

Sunday Book Review: Financial Peace Revisited

Dave Ramsey's story goes something like this:

Back in the day, Dave was into "creative real estate." You know the kind--it's the kind that you see advertised on late-night TV, where you try to buy real estate you can't afford by financing it for "nothing down." He did other types of real estate as well, but he was caught up in the get-rich-quick mentality that dominates a lot of wealth-building videos and seminars. Before too long, he was an on-paper millionaire.

Of course, it wasn't too much longer before bad market conditions, some changes in real estate law, and a whole bunch of debt caught up with him, and he was right back to being, not stone cold broke, but drowned in debt he couldn't afford.

So he dumped the "Get Rich Quick" mindset and adopted a bunch of tried and true, no-risk ways of getting out of debt and building wealth. As he likes to say, "It's the kind of financial advice your Grandma would give you."

As some of his old associates started seeing how well he was doing and as some of the pastors at his local churches asked him to help people in financial dire straits, he decided there might be a market for a book about simple financial principles.

He wrote it, called it Financial Peace, and self-published 1,000 copies. Around the same time, he started doing a little show on a local radio station.

Now, his books are bestsellers, and the radio show is nationally syndicated. Seems people are hungry to hear no-risk, simple, common sense financial talk.
This is an expanded version of that original manuscript, with a few new chapters and additional commentary by his wife Sharon. This is basic, nuts-and-bolts commentary on debt and finance. If you only buy one book on money (and why would you only want one book on a topic like money?) this would probably be the one.

It gives simple explanations about everything from how to pick a mutual fund to what all the "alphabet soup" (529? 401K? IRA? 403B?) savings plans are all about.

But most importantly, this book seeks to give you the emotional drive to do all of this, not just the logic. After all, when was the last time you saw somebody running down the street like a mad man, screaming, "ARRRGH! I have come to a logical conclusion!!"

The truth is, until we get emotional about something, we flat-out don't do it. Hopefully, this will give you some of what you need to get going. Like the title states, it isn't so much about getting rich (although it certainly tells you how to do that by retirement) as it is about peace. Not staying up at night, worrying about how sick your daughter might be, and where you would get the co-pay from if had to take her to the emergency room the next day.

I've been there, and I'll tell you, I'm not going back.

Fame!

Thanks to Jarle at Poundfighter for the link. Jarle is Norwegian, but living in Sweden, and running a very interesting weight loss blog.