Personal Finance


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double your income

Double Your Income Doing What You Love:

Raymond Aaron’s Guide to Power Mentoring

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The title of Raymond Aaron’s book is misleading. I thought it would discuss strategies to turn your hobby or passion into a profitable business. Instead, it deals with how to set goals and strategies to achieve them -whether the goal is to double your income, give more to charity, or improve your relationship with your spouse, is up to you.

The book introduces a method to systematically analyze your life and set up goals related to different aspects of it -family, work, personal fulfillment. Then you have to work on those goals. Aaron suggests different strategies to help you put a stop to procrastination and start taking steps -however small- in the right direction.

If you’ve read Brian Tracy’s Goals! -or, for that matter, any other book on goal setting or beating procrastination- my summary of Double Your Income may sound familiar. Indeed, the two books share not only the overall theme -how to achieve your goals- but also many of the specific advices -goals should be written down to increase accountability, overwhelming tasks become doable when broken into small steps, etc.

So what’s the unique proposition behind Double Your Income? Unfortunately, the book’s selling point is what I liked least about it: according to Aaron, his method is inspired by the Law of Attraction.

If you’ve seen my post on the Law of Attraction and the ensuing discussion, you know that my main objection to it is the way it presents otherwise sensible ideas wrapped up in a mixture of pop-psychology and mysticism. I agree that clearly defining and thinking about our goals makes us more likely to take a first step and eventually achieve a better life. But I don’t agree this is because thinking about our goals sets the Universe in motion to deliver what we really desire and deserve.

Aaron, however, is a firm proponent of the Law. Every single paragraph of Double Your Income had me cringing with notions such as the following:

  • The Law of Attraction holds the secret to “achieve your goals effortlessly”.

  • It is essential to phrase statements in the positive for the Universe to “deliver [what we] really desire”. Conversely, by making negative statements -and therefore “invoking the Law of Attraction badly”- we become doomed to receive things we don’t want.

  • There is “spiritual proof that you have a life mission”.

I don’t understand the need to contaminate ideas that make perfect sense by themselves with simplistic pictures of a Universe that will deliver our dreams just by the power of positive thought -or, as Aaron puts it, automagically. Let’s be honest: success won’t come without effort. And “the Universe” won’t decide our fate based on our positive or negative attitude -we achieve things not by tweaking our life outlook but through simple hard work.

There’s one more thing I disliked about Double Your Income: every two pages you’re directed to Aaron’s website for complementary material. Once there, you’re asked to provide your email address before you can see the content. Soon afterwards you receive the first email asking you to sign up for Aaron’s expensive 17-month mentor program. This left me wondering whether the book was no more than an elaborate sales letter.

Because of my misgivings, I cannot strongly recommend the book despite all the useful, common-sense techniques it teaches to help define your goals and work on them. Nevertheless, if you’re a Law of Attraction devotee or can cut through all the mystical mumbo-jumbo, you may actually enjoy it. In either case, I’d love to hear your opinion of it -if you’ve read the book, you can leave a comment here.

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Getting Loaded:

Make a Million While You’re Still Young Enough to Enjoy It

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I’ve mentioned previously how valuable I think it would be for kids to get a basic financial education before they go to live away from home. And for those interested in the topic, this book is a fantastic place to start. Getting Loaded is specifically targeted to young people, and it’s a thorough introduction to the main financial issues they’re inevitably going to encounter in the following years: from credit cards to taxes, investing, insurance, pension plans, or buying a home.

As I said, the book is mainly targeted to people of around college age, but it works for older ones as well -I learnt a lot from it about such things as umbrella insurance policies and disability insurance. The quest to reach a young audience, however, sets its tone, which is funny, at times even annoyingly so: each single paragraph seems to contain at least one joke, which occassionally left me with the impression that the author -Peter Bielagus- was trying too hard. He nevertheless deserves praise for trying to make personal finance -not the most alluring topic- accesible to the young.

The book makes a remarkable effort to warn teenagers and 20-somethings against all those things we now wish we had avoided, like getting swamped in debt if you go to college or not taking the opportunity to contribute into your first job’s 401(k) -particularly if it came with matching contributions.

Of course Bielagus is aware that a typical 20-year-old will have a list of a thousand things on which to spend their first wage, which probably doesn’t include contributing to their pension. But instead of telling them to save because “it’s good for you” or “you’ll be happy you’ve done it when you retire” -who can imagine retirement when they’re 20?- he puts forward these hopefully more convincing -and less long-term- arguments:

  • Starting to save while young allows you to rip all the benefits of compound interest. (Granted, this sounds very much like “you’ll be happy you started young when you retire”, but maybe seeing the actual numbers can inspire some young readers to take action).

  • Keeping your finances in place can help you achieve your dreams. In other words, instead of longing for the day your parents will buy you a new car, why not make a specific plan, find out how much money you actually have, how much you could save if you gave up cable t.v. or started working part-time, and how long it would take to put the money together to buy the car yourself?

  • Your savings may even provide you with extra money to spend on the other things on your list. (Several chapters in the book cover the basics of investing, an activity that could yield good retuns to readers willing to be patient).

For added value, the book throws in extra tips that young boys and girls can use to reduce their -or their parents’- tax bill or get a discount when buying their first car. It even makes a convincing case for them to start their own business -a suggestion I liked so much that I dedicated a whole post to it.

I was very pleased with the book overall, but of course I don’t know what younger people think about it. If you’re a teenager and have read it -or if your teenage kids have given it a shot-, I’d be very interested in hearing your opinion.

In the press these days:

TALKBACK

  • Have you or your kids read this book?

  • Did you find it useful? Would you recommend it to a teenager interested in learning about personal finance?

PLEASE SHARE YOUR OPINION HERE

The Law of Attraction: a Way to Success or Plain B.S.?

I’m currently reading Raymond Aaron’s Double Your Income Doing What You Love. I was drawn to the book by its title, assuming it would talk about how to turn your hobby into a productive source of income. Imagine my surprise when I discovered that Aaron is a co-author of a couple of books from the Chicken Soup series, and a coach devoted to guide his clients “on a path that supports the Law of Atraction”. Uh-oh, the LofA word was being mentioned on the very first page of the book.

So what’s this Law of Atraction that I find so scary? According to Wikipedia, it “says people’s thoughts (both conscious and unconscious) dictate the reality of their lives, whether or not they’re aware of it. Essentially ‘if you really want something and truly believe it’s possible, you’ll get it’, but putting a lot of attention and thought onto something you don’t want means you’ll probably get that too”.

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If you really want and believe in something, you'll get it.

The above definition encapsulates what I like least about the Law of Attraction: it says that you’re responsible for what you get in life, both good and bad things. So you’re wealthy and enjoying the life of your dreams? According to the Law of Attraction, you deserve it because that’s what you’ve been focusing your thoughts on. The flip side is the alarming one: You’re poor and sick, and have just been fired from your job? Well, according to the Law of Attraction that must be your fault, too. You may not have realized it, but these are the negative outcomes you’ve been subconsciously entertaining in your mind.

Now, I wouldn’t have anything to say against the Law of Attraction if there was any evidence that what it claims is true. If it were an adequate description of reality, I’d just have to put up with it and try my best not to harbor any negative thought. However, don’t be fooled by what the Law of Attraction’s proponents may tell you -Raymond Aaron goes as far as to say that this is a “proven method”-, there is not only not a piece of scientific evidence to support their claims, but there are plenty to refute it.

Let’s start with Julie Norem’s book, The Positive Power Of Negative Thinking. Dr. Norem, a professor of psychology at Wellesley College, draws on the results of her research [references below] to claim that whether you tend to have positive or negative thoughts is partly determined by your personality. While less anxious people are more likely to have an optimistic approach to life, many anxious types manage their anxiety through a strategy called Defensive Pessimism, whereby the knowledge that they’re prepared for the worst-case scenario allows them to approach threatening tasks without fear and do their best.

According to Dr. Norem, these pessimistic individuals not only “have harnessed the power of their negative thinking to increase their self-esteem and make significant progress toward their personal goals”, but, even more importantly, “many people perform more poorly when forced to think positive, since negative thinking is often an effective strategy for managing anxiety”.

There are particular cases in which the Law of Attraction can be particularly harmful. While concentrating on positive outcomes with the hope to attract wealth is a harmless activity -at most you’ll end disappointed if you fail to win the lottery-, what about those who believe their thoughts may be responsible for their illnesses? What about a person who feels understandably down after being diagnosed with cancer and is unable to shake the fear that, if only they could concentrate on positive thoughts, maybe their illness would be cured?

Plenty of scientific studies show positive thinking is at best useless in affecting cancer survival rates or disease progression [link to US News. More references below]. But every couple of weeks we hear stories in the media about people who supposedly were miraculously cured by the power of positive thinking -disregarding the effect this could have on patients who blame themselves for not being able to reach the mental state that will allow them to beat the illness.

In view of all this evidence, why can coaches on the Law of Attraction continue to defend the success of their methods? They claim to have many satisfied clients. Unfortunately for those who’re not so happy with the results, it’d be virtually impossible to prove the Law of Attraction wrong: whenever a client perceives an improvement in their life, this will be attributed to the success of the Law. Whenever they perceive no change, it’ll be their failure at mastering enough positive thoughts. It’s a win-win situation for those Law-of-attraction gurus!

I hope it’s clear by now how important it is to view the Law of Attraction in a critical light. It may be true that thinking of something we want takes us closer to it, but this will be due to our having clarified our goals and taken action, rather than to the whole universe conspiring to reward our positive thoughts.

At the same time, there are things in life that unfortunately lie beyond our control. Blaming bad thoughts for people’s lack of wealth, loss of jobs, illnesses, and every single negative event in their lives is, at best, simplistic -at worst, it can lead an individual to mental illness or despair.

So do keep striving for improvement, but also maintain a healthy dose of skepticism. Remember, the ultimate goal is not success at all costs, but success accompanied by a minimal level of sanity.

TALKBACK

  • Do you agree with this post?

  • Do you strongly disagree?

PLEASE STATE YOUR OPINION HERE

REFERENCES:
Coine, James, and others (2007) Emotional well-being does not predict survival in head and neck cancer patients In: Cancer

Norem, Julie and Edward C. Chang (2002) The positive psychology of negative thinking In: Journal of Clinical Psychology

Rittenberg, Cynthia N. (1995) Positive thinking: An unfair burden for cancer patients? In: Supportive Care in Cancer

We don’t need no education

I’m spending the summer in England -hence the Pink Floyd-inspired title- and reading the English newspapers for a change. Yesterday I came across an article in The Guardian which touched on an issue I feel very strongly about: financial education.

Talking about Bernard Madoff’s victims, Hadley Freeman writes: “The root problem here, as with the other current financial disasters, is that most people don’t know how to read financial records and are easily cowed by supposed experts’ obfuscation”.

“There was an acronym on 80s Wall Street that investment banks used to put next to names of certain investors -WDIS, standing for the only question these clients would ask: “Where do I sign?””. [Read the whole article here]

Freedman is not alone in denouncing this lack of financial preparation. I often hear from people working in banks how they meet clients who will fight endlessly for a 0.05 percentage-point reduction in their mortgage interest rate, but will then fail to read the small print, where they could have seen that the mortgage they have chosen comes with enough hidden commissions to more than compensate the savings on the interest rate.

Why don’t we spend some time learning about financial products before we get a credit card or a mortgage? My theory is that our everyday life is sufficiently complicated with work, kids, etc., for anybody to be willing to learn about dull financial concepts. This is why I believe that financial education is a subject we should be exposed to much earlier, optimally before leaving high-school.

Think about it: high-school kids are about to enter the real world of taxes, credit cards, bank accounts, and car insurance. Most of them won’t have come across any financial product yet, which means theirs is the perfect age to get this type of knowledge, which will certainly save them money in the long run.

Indeed, people who don’t have a basic grasp of financial concepts are at a significant disadvantage in life: they end up paying more in interest and insurance premiums, are more likely to have credit card debt and to fall prey to scams, and less likely to contribute into their 401(k)s or keep a rainy-day fund with enough cash to get them through a couple of months.

I’m recommending the teaching of financial education at schools as a young woman who would have liked to have learnt basic financial skills herself early on. It took 10 years after I left high school until I read David Bach’s The Automatic Millionaire and discovered such elementary concepts as the power of compound interest.

I found it immensely empowering to discover that any one of us, no matter how low our monthly wage, can reach middle age with a comfortable money cushion, provided that we understand the basic rules of saving and avoid spending money needlessly on things such as credit card interest, pay-day loans, or excessive bank- and insurance-related commissions and fees.

So why aren’t more people campaining for a financial education for the young? I suspect that this partly has to do with the perception that financial concepts are difficult, dry, and boring. But I don’t agree they need be so. Students may actually find basic finances more interesting than other more theoretical subjects, if they’re shown their close connection to “the real world”.

I don’t suppose we’ll see a sea-change in attitudes towards early financial education any time soon, but I remain hopeful. One day it will be obvious that understanding personal finance is as important as reading and writing. Until then, we’ll have to continue to learn about such important topics on our own and, very often, when it’s already too late.

More on the importance of financial education:

  • Federal Reserve chairman Ben Bernanke’s speech

  • Economist Annamaria Lusardi’s report to the National Bureau of Economic Research

Please leave a comment about this post HERE

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The Millionaire Maker:

Act, Think, and Make Money the Way the Wealthy Do

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My first impression reading The Millionaire Maker is that all the key ingredients are in there: Loral Langemeier’s writing transmits energy and determination; the first chapters are motivating and encouraging; by the end of the third one I want to get up and take an active step to accelerate the process of building my wealth!

But when I do get up I cannot think of a single idea from the book I could apply straight away. I’m not able to translate the impressive-sounding concepts that surround me from page one -Lifestyle Cycle, Freedom Day, Wealth Cycle Process, Wealth Plan, Wealth Account, Wealth Team, Conditioning, Team-Made Millionaire- into concrete actions. Is it just me, or is there a problem with the book? In order to answer this question, let me go back to the beginning.

The premise in The Millionaire Maker is simple: the author introduces us to a series of fictional characters who have different financial backgrounds -too much debt, a job they’re about to lose, abundant but unproductive assets- but share one thing in common: they are not rich. Langemeier claims that she can transform all these people into millionaires. And, according to her, this is an easy task, as she and her colleagues have unveiled the secret to making wealth. The purpose of the book is, of course, to reveal this secret to us.

As I continue reading, I can’t help but notice that the wealth-building secret presents many troubling aspects. The profiled individuals are encouraged to take unrealistic steps. We come across middle-class families who are advised to set up a structure of S and C corporations; countless people with no previous experience in business quitting their full-time jobs to start one; couples encouraged to refinance their primary residence to invest the proceeds in rental properties. By chapter 6 I’m wondering what happened to all those who followed the author’s advise to invest in buy-to-let at the peak of the real-estate market after the 2008 collapse. Are they now part of the foreclosure epidemic?

Langemeier’s defense of her risky suggestions is that wannabe-rich people don’t invest in the meager opportunities available to you and me. Apparently, it’s usual for them to come across projects offering 50 percent yearly returns with “no money or credit down”. As for the risk involved, she goes as far as to claim that “risk can be measured, quantified, and often removed”. How curious that the promise of high profits with no risk was also used by Bernard Madoff to lure his clients.

And even if these investments existed, where does this selected group of people find them, anyway? The answer is that they have a team of professionals scouting the country for the best deals. The role of the team is emphasized over and over in the book. The key to wealth building appears to be to throw a team at it. This team must include mentors, professional advisers, bookkeepers, graphic designers, field partners, lawyers, accountants, business brokers, assistants, commercial and residential brokers, builders, contractors, and computer support personal, among others. Well, I bet you can make anybody rich with this type of support!

By the end of the book I’ve realized that this is not the place where I’m going to find resources to help me take my start-up business off the ground, or make decent returns on my investments. And I don’t think it will be the place for you either. Although if you’re into thinking big and decide to take the book’s advice, be warned: risk may be measured and even quantified, but it can never be removed while ensuring consistent profits. Whoever claims the opposite isn’t telling the truth.

TALKBACK

Have you read this book? Please leave your opinion about it HERE

About Bernard Madoff’s Victims

As the news broke this morning that Bernard Madoff had been convicted of engineering the largest-ever Ponzi scheme and sentenced to 150 years in prison, articles began to crop up reminding us about the victims’ fate: since the Securities Investor Protection Corporation (SIPC) will only guarantee up to $500,000 per eligible claimant, all those who invested higher amounts are set to recover no more than pennies on the dollar out of the remaining funds.

For some weeks now, the victims have been conveying their anger and sense of injustice at the loss of what often amounted to their life savings. But while I sympathize with them up to some extent –clearly, nobody deserves to be wiped out of the money they had invested in good faith-, I can’t help wondering about the reason they trusted Bernard Madoff’s firm in the first place.

Accessing Madoff’s fund was not easy for individual investors. The process to get into the fund was shrouded in secrecy, with Mr. Madoff making a point of being all but unapproachable to his clients. But for those who were able to make it through the apparent obstacles –sometimes lured by the appearance of exclusivity-, the rewards were plenty.

According to Robert Chew’s thought-provoking article in Time -where he gives a first-person account of how he became one of Madoff’s victims-, when he first invested in it the fund had been providing generous returns for decades, “ranging from 15% to 22%”.

It doesn’t sound very plausible to come across an investment which consistently provides such extraordinary returns regardless of the stock market’s performance. Madoff, however, managed to convince his clients that he and his colleagues had discovered a system to consistently outperform the market. What made these claims believable to many rich investors was the idea that such opportunities are indeed available to a few chosen and very rich people like them. As Robert Chew acknowledges referring to himself and other victims, “we deluded ourselves into thinking we were all smarter than the others”.

It is not my intention to generalize or blame the victims for the consequences of Bernard Madoff’s hideous actions. Many of them didn’t even know the funds they were buying had stakes in Madoff’s organization, and even the ones who were duped by him directly have the right to wonder how the Securities and Exchange Commission (SEC) allowed the Ponzi scheme to go on for more than 40 years. However, if any good can come out of this tragic story, I hope it’s a reminder to all investors that the old saying remains valid: if it seems too good to be true, it probably isn’t.

For more information on Bernard Madoff’s victims, check the following sources:

Please leave a comment about this post HERE

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