October 20, 2020

Bucks Blog: Tracking Your Finances, One Number at a Time

I think it’s true that if I want to improve my performance in something, I need to measure and track it. As Thomas Monson, an author and president of the Church of Jesus Christ of Latter-day Saints, said: “When performance is measured, performance improves. When performance is measured and reported back, the rate of improvement accelerates.”

I’ve certainly seen this in my life. It’s pretty amazing the difference it makes in my exercise habits when I can see on my watch how far I’ve gone and how fast I’m running. Just a little feedback sharpens my focus.

For some people, the simple act of stepping on a scale first thing in the morning and recording what it says helps manage weight.

This seems like a simple thing. In fact, when it comes to improving our financial situation, it feels as if it’s too simple. So we don’t do it. I wonder if something super simple, like tracking a single number, consistently and for a long time, may be the subtle nudge we need to improve our finances.

Most of the people I talk to, regardless of income or net worth, have no budget or financial plan. So it’s pretty clear that anything that we can do consistently will be better than the nothing we’re currently doing.

So the question I have is: How simple can we make this process and still see improvement?

What if we just tracked one number consistently, over a long period of time?

Which number would be both easy and beneficial?

The default answer is usually spending, but the idea of tracking spending makes people think of budgeting, and budgeting has a marketing problem — very few people like to do it. But it can be effective and simple.

Take 10 minutes at the end of each day and record what you spent. Use a notebook or your favorite app and track it. Over time, you start to see patterns. You learn things you didn’t know about yourself in terms of what your spending says about your priorities. That will naturally lead to change.

One of the reasons I focus on spending is that people think tracking doesn’t help. A great (or not so great) example is the time I taught a financial literacy class to people who were working their way out of the local homeless shelter. The first week, 20 people would show up. I gave them a pocket-size spiral notebook and asked them to record everything they spent for one week and to come back so we could move onto the next step. No one ever came back. After a few weeks, we canceled the class.

And it’s not just people in the homeless shelter who seem to have issues when you mention tracking spending. Most of the people I talk to who make more than $100,000 a year and have money invested think they are way beyond budgeting. So they don’t do it either.

But maybe what you spend each day is the wrong number to focus on.

What about tracking a different number like the value of your savings, investments and retirement account? Once a week, you add up the balances and write down that number. Measure it over time. Just one piece of paper with a simple line graph.

Would that lead to change?

I like this idea because it’s what many of us are focused on: having enough money saved to meet some future goal like sending your children to college or retirement. It seems to me that by just focusing on that one number, a lot of the noise goes away.

Another idea would be even simpler. Track the amount you are able to able to save each week or month. That’s a number that gets rid of the short-term variation that comes from the market and focuses clearly on something that we have control over — how much we save. In theory, if you focus on that one number, you will find ways to improve it. That could mean you will find ways to spend less, earn more, or both. Because you want to see that number go up.

Since I know many of you have tried one or all of these things, tell me what your experience has been.

  • What number(s) do you track?
  • How often do you track them?
  • How do you remind yourself to do it?
  • Have you seen improvement?

I think we all know that some improvement, any improvement, is better than standing still. Maybe something simple like tracking and measuring a single number will give us the nudge we need to be smarter about our money.

So, what’s your number?

Article source: http://bucks.blogs.nytimes.com/2013/03/25/tracking-your-finances-one-number-at-a-time/?partner=rss&emc=rss

A Primer on Buying Life and Disability Insurance

Death and disability are two of the most difficult things for a family to discuss. But insuring against both is an important part of safeguarding a family’s future. While most families have some form of life insurance, usually purchased at marriage or with the birth of children, disability insurance is not a given. But if one or both spouses become disabled during their working life, not having it is a far greater risk to family solvency. This is where disability insurance is important. This primer will examine the basics of both types of insurance.

Life Insurance

Life insurance comes in a variety of forms meant to accomplish a range of objectives, from providing for survivors to moving assets out of your estate. The prices for it depend not only upon how much coverage you want but also upon what type of policy you get, either for a finite period of time or indefinitely.

The first question you need to ask, though, is how much insurance do you need? There is not a clear answer on this because it depends on your expectations. The better question is this: What am I trying to provide for with life insurance? If your concern is your spouse, a common calculation is to take out a policy that would cover all living, personal and household expenses for at least one year. This allows the surviving spouse to grieve without worrying about bills, and it also gives the spouse a period to begin making decisions for life without you.

If there are dependent children, however, the amount of insurance you need increases. Again, the dollar value depends on several factors, including the age of your children and what you want to provide for them. The person who wants to send his three children to private school and private college is going to need a lot more than the person looking to provide for the basic needs of one child in public school.

In insurance, desire is something that does not always align with reality. How much life insurance you are going to get also depends on what you can afford in terms of premiums as well as how much insurance a company will sell you. Just because you want a $5 million policy and can pay the premiums on it does not mean a company will underwrite that amount. Like a loan to a person flush with cash, insurance companies would rather sell large policies to healthy people who are going to live for decades. This gives them time to turn your premiums into more than the face value of your policy. The person who is already sick but wants to provide for his family will, in all likelihood, struggle to get an adequate amount.

Now onto types of insurance.

TERM Term life insurance is a popular and relatively inexpensive form of insurance. It covers a person for a period of time, usually 20 years. During the term, if the insured dies, his heirs receive the full value of the policy. After the term expires, they get nothing. Furthermore, the policy never has an intrinsic value — unless the person dies during the term.

Term life, then, is a contract, not an investment, to buy peace of mind. It is a good for a particular period — say the time it takes for a child to mature and leave home — and will pay the insured’s heirs the full value of the policy if he dies, regardless of how long he has been making the payments.

One variant on this, offered by a few insurers still structured as mutual companies — where their policy holders actually own the company — is convertible term life. This starts out as basic term, with its comparatively low premiums for the amount of coverage. But within a set period of time, often the first 10 years, it can be converted to whole life. The premiums will increase but the person does not have to be screened again for insurance.

WHOLE Whole life insurance plays a dual role for many people. It is both insurance in the case of an untimely death as well as an estate planning tool for when that final day comes. It is also considerably more expensive than term life. The reason is that it has an intrinsic value, from which you can draw if you need the money. And whereas term life is for a period of time, whole life lasts in perpetuity, unless you stop paying the premiums or cash in the policy.

Since whole life is also an investment for some people, some companies offer the policy holders the option of selecting the underlying securities that back the death benefit. This adds a small element of risk to the eventual payout. While the value of the portfolio can, obviously, increase or decrease, the insurer sets a floor for how low its value can fall. While investment losses are capped there are other downsides. First, there are fees associated with the trading portfolios, which can also chip away at the policy’s value. And then there are those who believe that you can get better returns by investing on your own.

This is where you have to evaluate why you want a whole life policy. If it is to move assets out of your estate tax-free, then any additional upside is good. If it is to increase the amount you leave to your heirs through the underlying portfolio, then you may not see the increase that you expect during your lifetime. Buying term life for a greater amount is an option, though those prices increase as you get older (and closer to the point where the insurer is going to have to pay out). Regardless of the type of policy you select, the payment to your beneficiaries is tax-free.

Disability Insurance

Article source: http://feeds.nytimes.com/click.phdo?i=4b0a2538fb3ecdf9ecf42a81fc12c805

Economix: Length of Unemployment Continues to Break Records



Dollars to doughnuts.

The average worker who is unemployed has been searching for a job for 40.4 weeks, or more than nine months, according to new Labor Department figures.

That is the longest average unemployment duration on record:

DESCRIPTIONBureau of Labor Statistics

This pattern is especially worrisome because unemployment begets unemployment — that is, for a whole host of reasons, people who are already out of work for a long period of time have very slim chances of finding new work in the near future. Just consider the catch-22 some employers are creating by stating that they’ll only hire workers who already have jobs.

In other words, what started out as a cyclical problem could morph into a structural one — particularly if the country allows the nation’s 14 million jobless workers to become a sort of underclass like the one many European countries have struggled with.

Article source: http://feeds.nytimes.com/click.phdo?i=5a10a665118a520990b31057f8dec314

You’re the Boss: Do You Still Use Print Ads?

Staying Alive

In the 25 years I’ve been in business, I have tried a variety of ways of reaching customers: print advertising, a retail store, a Web site in the days prior to Google and search-engine optimization, a Web site with extremely poor S.E.O. and the early versions of AdWords, and now a Web site with good S.E.O. and the current AdWords.

Back when there was no Internet, I ran an ad showing my tables and chairs every month in the local city/lifestyle magazine, and it did pull in customers. I did this from 1994 to 2004, after which it was apparent that Google was far more efficient and effective. My print ad (if I recall correctly, it was a 4-inch x 5-inch ad, in black and white) would generate on average two calls a week. Each ad cost me $2,500 a month, and never produced more than $350,000 annually in new sales.

Each new dollar would yield, on average, another 17 cents somewhere in the following three years in repeat business. (Keep in mind that I sell furniture, where the opportunity for repeats is limited –how many dining tables do people need? And word-of-mouth business in furniture sales is almost nonexistent.) This was sufficient for a while, but I could never get beyond that $350,000 ceiling. I tried running in other local publications, but the sales did not rise proportionally to the higher spending — most likely the same people were reading all of the magazines I tried, and the additional ads were redundant.

Now, using Adwords and an effectively designed site, I spend about $8,000 every month and pull in between $150,000 and $250,000 a month in sales. Higher spend but much higher yield. Also, I am reaching a different client, one who, in the days of print, would have been inaccessible to me. My corporate and government clients are widely scattered, and only interested in my products for a brief period of time. Google brilliantly connects this type of buyer with specialized producers like me. These clients are primarily interested in completing the transaction so they can resume their ordinary duties. This contrasts with residential work, where the sales cycle can last years, and the demands for extreme customization make production inefficient. Our margins for conference tables allow the business to thrive, while the margins on dining tables are barely adequate for survival. Consequently, I’m no longer interested in residential business.

I still get calls from people trying to sell me print ads — the local magazines and newspapers, various directories, charity-event programs, you name it. I politely decline, of course. I have better ways to spend my ad dollars. And at the same time, I do see advertisements in local and national magazines, and get all kinds of catalogs and junk-mail advertising. Our phone company drops off a heap of Yellow Pages every year that I promptly recycle. The local newspaper is still filled with ads, although the classified section is pretty much gone. There’s still a lot of print advertising.

It looks to me as though magazine ads make good sense if you are a nationally known, established brand. They act as a little nudge, saying “Remember me? I do this!” I imagine they work best when they are run continuously and ubiquitously. But wow, the price of a national print campaign must be enormous. The newspapers and magazines I read are full of that type of ad, but there are also ads for smaller, local concerns. These people couldn’t possibly be running a national campaign. It would be way too expensive.

Here’s my question: Are the people buying those ads simply caught in past habits? Or victimized by clever sales representatives? Or are there situations where putting your message on a dead tree is still the best option? For what type of business is this the best option? I’d love to hear from any small business who is using print media successfully, and please be detailed about the type of business you are in, the type of ad you run, and what kind of publication you choose.

Maybe it’s a local shopper newspaper, maybe you distribute fliers, maybe you put postcards in those strange packets one gets in the mail. In these days of Web and social media, it’s easy to assume that the old channels are dead for small companies. Can someone show otherwise?

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.

Article source: http://feeds.nytimes.com/click.phdo?i=a5924e78f9b834c6ddaea6420739b0c0