Friday, April 30, 2010

Want to be a Star? 10,000 Hours of Practice

I hope you read the Harvard  Business Review. It is fantastic.

Back in November 2009 Peter Bregman, CEO of Bregman Partners, Inc. published a guest post entitled “How Not Achieving Something Is the Key to Achieving It”. Bergman makes the age old argument that practice makes perfect. He references the Book Outliers by Malcolm Gladwell  that gives some really great insight on practice.

“Gladwell discusses research done at the Berlin Academy of Music. Researchers divided violin students into three categories: the stars, the good performers, and the ones who would become teachers but not performers. It turns out that the number one predictor of which category a violinist fell in was that number of hours of practice.

The future teachers had practiced 4,000 hours in their lifetime. The good performers, 8,000 hours. And those who were categorized as stars? Every single one of them had practiced at least 10,Violinist000 hours.

And here’s the compelling part: There wasn’t a single violinist who had practiced 10,000 hours who wasn’t a star. In other words, 10,000 hours of practice guaranteed you’d be a star violinist. According to Gladwell, 10,000 hours of practice is the magic number to become the best at anything.”

This excerpt really made me think. How much time do I give to practicing personal financial success? Better yet, which category do I want to be in? A teacher, good performer, or a star? Bergman states that he believes that anyone can do anything as long as three conditions exist:

1. You want to achieve it

2. You believe you can achieve it

3. You enjoy trying to achieve it

I agree with Bergman when I say that by far, the most important condition is the third.  You want to be debt free, you believe you can achieve freedom from debt – but unless you enjoy trying to get there, the brutal truth is that you probably won’ t.

To be successful at anything you have got to put in the time. You can want and believe with all your might, but until you try you will not have the opportunity to succeed – that includes achieving your financial dreams.

Thursday, April 22, 2010

“Keeping Up With The Proverbial ‘Joneses’”

One of the really cool things that we get to be a part of here at Gallup is new science in the making. The latest and greatest research going on in the building is on Wellbeing. Wellbeing

A new book from Gallup Press called “Well Being: The Five  Essential Elements” by Tom Rath and Jim Harter will be released on May 4, 2010. I strongly recommend you go out and pick up a copy or pre-order it.

One of the five elements covered in the book is Financial Wellbeing - which just so happens to be up my alley. Here is an excerpt from the book:

“For years, traditional economists have assumed that people make rational decisions that are in their best interests. But the relatively new discipline of behavioral economics is proving otherwise. Consider the following two scenarios. and assuming the same purchasing power in both, which one would you choose?

A. An annual income of $50,000, while the people around you earn $25,000 a year.

B. An annual income of $100,000, while the people around you earn $200,000 a year.

Using a classic economic model, everyone should choose an income of $100,000 over $50,000. Instead, nearly half the people presented with these options pick the lower salary of $50,000 a year. They choose to make half the total income as long as it is double the income of their peers. It seems that the amount of money we make or the size of our home is less relevant than how they compare to others’ income and possessions. This plays out in the decisions we make every day, and that poses a real dilemma.”

Wow, that puts keeping up with the “Joneses” in an whole new light. Comparing yourself to the neighbors isn’t new by any means - in fact I would say that it’s a tail as old as time, biblical even! Cain and Abel for example, Cain kills Abel because he wants what Abel has.

Why is it that we are willing to make economic decisions that do not maximize our potential benefit? Why on earth would you take $50,000 a year when you could have $100,000?! That is absurd people!

Ok I get it, some of us are competitive by nature and beating your  neighbor with the latest 3-D TV3-D television makes you feel good about yourself. But what if every time you spend a dollar, you started asking yourself: “What is this doing for my personal Wellbeing?” I think if you were to sit back and think about the purchases you made last month, you might start to become disgusted by how much money you are throwing away on “stuff”.

For my family, “stuff” is definitely fast food.  When I looked at our spending last month, I just shook my head in disgust. Did I add any memorable moments or improve my Wellbeing by stopping at Taco Bell 5 times last month… I don’t think so. I might have even made my physical Wellbeing worse!

I don’t think that improving your financial Wellbeing is about becoming a minimalist or taking a vow of poverty. It’s about using your resources in a way that creates stability and value in your personal situation. You can keep up with the “Joneses” for a lifetime and not ever improve your Wellbeing.

This is good stuff, more later.

Thursday, April 15, 2010

Free Tools For Your Success: Mint.com

Last week I mentioned a couple of my favorite free on-line resources: Mint.com and Wesabe.com. After I posted, several of you asked me about how these work and what is so cool about them. So I’ll tell you a little about my experience with Mint.

image

At it’s core, Mint.com is an account aggregator. Basically that means that the Mint site pulls in the information from all of your accounts, that you give it access to. But the coolness doesn’t stop there, some intelligence is built into the site that automatically categorizes your transactions. Let’s say that you go to Starbucks twice a week for a latte – Mint is smart enough to recognize when you swipe your debit card for the purchase and it will automatically categorize the transaction as a “Coffee Shop” expenditure. Obviously some transactions won’t be recognized by Mint and you have to manually categorize them but it is surprisingly accurate.

This categorizing feature is really cool for two reasons. First, you can input your monmint_white2thly budget into the site and then compare your actual spending to your budget. Since Mint catches most of the transactions with the auto categorization there is really not much work for you. Second, the site automatically generates money saving tips based on your spending and saving habits. If you carry a credit card balance it will give you ideas for ways to pay down your balance and save some money.

So you are probably asking yourself: “This site sounds sweet! How do they offer such a cool product for free?” Well, Mint also offers information from for-profit financial institutions like banks about their products example: high yield savings accounts and investment services. So essentially Mint.com keeps the lights on by selling advertising.

Some of you may have tried to use Mint in the past but found that it did not pull in your information from Gallup FCU, I am pleased to announce that we are now compatible with Mint.com! So try it out and let me know what you think!

Thursday, April 8, 2010

Know What it Costs

I have been on a kick lately to encourage all of you to really understand what you are doing with your money. Where are you spending your hard earned dollars? What is affordable given your current income situation? Are you saving enough? etc.

Here are two great web sites you should check out that can help you have a better understanding of where your money is gwesabeoing:

Mint.com and Wesabe.com – The best part is it’s FREE (which also happens to be my favorite price)!

True story:

Like any good finance guy I personally started a Roth IRA as soon as I had earned income. I eagerly plopped down my hard earned money and took advice from a guy who I thought was an expert. Looking back I now realize that several “Not Cool” things took place and I understand that I was taken for a ride.

“Not Cool” Event #1: The advisor told me that I was investing in an international mutual fund. I really wanted to be investing in an international fund and I specifically wanted to be exposed to the asian markets. The reality was that he sold me a Large Cap Blend fund that has less than 15% in the international market – nice. I am a young man and I have a relatively aggressive investment profile so it makes me especially annoyed to now know that the fund he sold me also has nearly 6% in cash and fixed income! This was a completely inappropriate pick for me. 

“Not Cool” EventMutual Fund #2: The advisor sold me the most fee-heavy class of shares possible. For a long term investor, aka every young person who opens a Roth IRA such as myself, the suitable mutual fund classes are “A” shares and “B” shares. “B” shares are by far the best choice for a long term holder but are often unavailable. Really in no-event is the “C” share class appropriate for a retirement investor, unless of course the guy who is selling the product wants to make more money. Guess what? This advisor sold me “C” shares, the average annual cost of my investment: 2.43% – Outrageous!

“Not Cool” Event #3: Since we met for the very first time several years ago, this “advisor” has contacted me 1 time. So much for being an advisor.

My take away: I clearly did not understand what I was doing with my money.

I now have some more knowledge, experience and understanding of the investment world and can evaluate the quality of securities. The problem is, I already made the mistake back when I didn’t understand!

My experience is just one of what I am sure many of you have had dealing with less than scrupulous financial “professionals”. The guy that I worked with not only blew it with me but now has the pleasure of giving me content to blog about my terrible experience.

This is just one example of the type of stuff we are trying to help you avoid. I don’t think that I can say it enough: you have to understand what you are doing with your money! We are here to help fill in the gaps and give you insight into the decisions you are about to make. Stop by, give me a call or shoot us an email. 

Thursday, April 1, 2010

The Unofficial Start of Spring: April Fool’s Day

This was Ronny’s office this morning courtesy of yours truly. Happy April Fool’s day!April Fools

For me, April Fool’s day is the unofficial start of spring. Temperatures are in the 70’s and the days are longer, only a few more weeks before summer! It’s about time for some spring cleaning but not just around the house, it’s time for spring cleaning of your personal finances too.

Ron Lieber recently published and article in the “Your Money” section of the New York Times online. His article includes a great checklist of things you should be doing to “tune up” your personal finances this spring.

The checklist includes topics such as Investments and Retirement, Loans, Credit, Planning, Insurance and Consumer issues. This is such a powerful tool that covers areas of life that you might overlook otherwise. Take an hour this weekend to work through the list, it will give you some really nice pointers for change and hopefully energize you to get back on the path to financial freedom.

Call me this week if you want to set up a time to talk about your financial checklist.