Brainersize

The other day when I was talking with Ecologista she told me something that really struck me. Way back before writing was invented, and all of the histories were orally passed down from father to son (and mother to daughter), people had much better memories. They had to to in order to preserve their histories. Since we don't have to memorize all those things today, our memories don't work as well. That would explain why I'm so terrible with names. When I was a kid I memorized several scriptures (because I had too) but lately I just haven't memorized anything.

There has been a lot of talk about how fat Americans are getting. Technology is making our lives so much easier that we don't naturally work out our bodies, and all the leftover energy is just working out our bellies. We need to go out of our way to exercise the body. It would seem that thanks to technology our brains are also getting fat and lazy, and we need to go out of the way to exercise the brain, or brainersize. I have a feeling that just as exercise has two fundamental parts: cardio and resistance training, brainersize has two analogous parts: reading and memorizing.

Fortunately I have been doing a lot of reading lately. So far I've read the following books this year (some were audio books):

• The Total Money Makeover by Dave Ramsey
• Financial Peace Revisited by Dave Ramsey
• The Millionaire Next Door by Thomas Stanley
• The Five Secrets a Millionaire Taught Me for Women by Richard Paul Evans
• Who Moved My Cheese by Spencer Johnson
• The Chronicles of Narnia by CS Lewis
• Tribes by Seth Godin

I'm also in the middle of reading:

• 48 Days to the Work You Love by Dan Miller
• Thou Shall Prosper by Rabbi Daniel Lapin
  

And I have a list of a few scriptures that I'm going to start memorizing.

Book Review: The Total Money Makeover

In my last post I talked about the need for a good financial plan, and I mentioned financial plans that just seemed lacking. At the time of that post I had found a great book with a simple, yet powerful plan. That book is, "The Total Money Makeover" by Dave Ramsey. (Amazon or Dave's site.)

There are two great things about this book. The first is that it outlines a simple plan to become debt free and to build wealth. Seven simple steps are outlined:
1) Build a $1000 emergency fund
2) Pay off all debts (except the house) from smallest to largest
3) Build a 3-6 month emergency fund
4) Save 15% of your income for retirement
5) Save for, or fund, college for children
6) Pay off the house early
7) Build wealth and give
(Source)

These are simple steps; nothing new and nothing surprising. What I like about this is the way the steps are put together and are very focused. While Dave outlines these steps, he also addresses common money myths such as the advantages to keeping a large mortgage and explains why these myths are so bad.

The second thing I like about this book is that when you read it, you can't help but be filled with confidence and motivation to complete the process. Dave talks about his own story. He became rich using debt. Then he lost it all and had to file bankruptcy. After the bankruptcy, he built up all of his wealth again using these principles. Dave also has in this book lots of stories from others that have followed this plan, and are now loving life because of it.

After reading this book, I highly recommend it to anyone.

Personal Finance Thoughts: Debt Free

A while ago I started to get really interested in finance. I remember picking up a book at the library about personal finance, but I put quickly put it aside for a couple of reasons. The first was the author talking about how anyone can get out of debt (after all, she did,) but then the author admitted that she got out of debt by getting lucky and making a lot of money from the housing boom. To me that is the same as saying, "I got out of debt by winning the lottery, and I'll show you how to get out of debt too." Yeah, right, sure. The second reason I didn't like the book was that her definition of debt free was to have no debt except a home mortgage and home equity line of credit. Now I know that it's next to impossible to buy a house without getting a mortgage, but I don't want to have my mortgage for forever. And I definitely don't want to have a second mortgage of any type on my house.

I also get monthly letters from my mortgage broker about finance. Considering the source, it's no surprise that most of the time they are outlining the wealth building power of mortgages with ideas such as: money grows faster in the stock market than a mortgage, if all your money is in the mortgage then it's hard to pull it out when disaster strikes, and you'll lose all your equity in a foreclosure, and so forth. The math is convincing, but isn't it safer to pay off the mortgage as soon as you can? They say it isn't.

On the other hand, I once saw a community education class that said something to the effect of, "learn how to get out of debt completely in six months, including the mortgage. Stop putting money in savings and the 401k/IRA and get out of debt fast." Getting out of debt sounds great, but not having money in savings sounds scary for when disaster strikes. I didn't like the debt models of having as big of a mortgage as possible, but this idea seemed just as bad on the other side. I also couldn't see how someone can pay off a mortgage and all other debts in just six months.

I want a money plan that's in the middle. One that will lead to no debt whatsoever, but still allow for savings for the future. I recently found that plan, but I'll save it for another post (this one is already plenty long.)

What would you do with $800?

A while ago, when the government was first talking about the stimulus package, the local newspaper here had a front page article: "What would you do with $800?" The package has now passed, and I keep seeing the same idea from this article in lots of places. In short, most americans will receive a check from the IRS in a few month. They have three options with the money:
-spend it
-save it
-pay off debt

The general consensus is that the best thing for one's personal finances would be to pay off debt and save it. However the best thing for the economy would be to spend it.

I argue that the best thing for the economy would be to first pay of debt, and second save the money. Think about it. The main reason for the current downturn of the economy is that people spent too much money on houses and credit cards, and now people are defaulting on those accounts and financial corporations are posting huge losses of money. This in turn is affecting the rest of the economy. The brightest looks at the economy say that the housing/credit crisis will continue to be a problem. So I argue that the best thing to do would be attack those directly, not attack the side effects. So how do we do this? First pay off debt. If we all payed down debt, then there wouldn't be a big of losses, and the economy could start going up again. After that: put the money in the bank. You see, that money in the bank not just a nice fall back, that even pays you back through interest. When the banks have more money then can open up lending again (only be wiser about how they do it. That money goes to large things like buying houses (hey a solution to the housing crisis) and building businesses (wow, creating jobs, feeding money back into the economy.)

So what about spending the money? Well from an economy standpoint, it can create a short term jump in spending that ends in a few weeks. Most likely people will spend more than they get, go deeper in debt, and we're even worse off then before. Compare that to the idea that after the current debt is payed down, people are able to spend more in the long run. Also when people have savings, then the next time there's a downturn, they can turn to savings and live off that. That way the downturn doesn't last as long.

So when you get a rebate check, I beg of you, help the economy and pay off your debt and save it. When others talk about spending it, tell them to help the economy and spend the check on paying off the credit cards. After that, maybe they can buy themselves a present like a shiny new, high yield savings account. It's the gift that keeps on giving (literally.)