Personal Money Management 101 Blog

The financial markets have begun 2008 in turbulent fashion, with huge falls being followed by recoveries of almost the same magnitude. The turmoil is being blamed on US sub-prime mortgage losses (ie greedy banks getting their fingers burned) and the subsequent fear the US is heading for recession.

So what can the small player make of all the chaos?

Firstly, the efficient market hypothesis – the view that markets always price every stock correctly – is looking somewhat shaky. How can the right price for a stock vary so wildly over such a short time and still be always right?

Second, we are witnessing cast-iron evidence that markets are driven at least as much by sentiment as any mathematical concept of “value”. In any case the theoretical value of a stock is based upon its future earnings, and there’s no mathematical way of predicting what hasn’t yet happened. Read the rest of this entry »

State/National lotteries have been described as taxes on fools. Most involve trying to pick a subset of numbers from a much larger master set with ludicrously long odds against success (In the UK game of trying to pick 6 from 49 the odds of winning are something like 14 million to one!) Week upon week we try, week upon week we fail; yet we keep coming back for more. Why?

Despite its ability to create millionaires overnight, the lottery is a terrible investment. If you’re playing the probability game (and as a rational investor you ought to be) you’re much better off sticking your cash into real estate, stocks, bonds, savings accounts or even keeping it in a tin box under the bed. The chance of winning is just too small.

But playing the lottery isn’t about investment, probabilities or rationality – it’s about buying a dream. Don’t risk your shirt on the lottery, but spare a dollar or two each week and from the moment you get your ticket ’til the moment the draw is made (or when you check the result) you have that tiny hope that it might be your turn to win a life-changing sum; after all someone’s gotta win it. That’s gotta be worth a couple of dollars. Read the rest of this entry »

Described by Jack Canfield (of Chicken Soup fame) as Donald Trump’s version of The Secret, Think Big and Kick Ass must be causing librarians around the world a dilemma over whether it should be filed under business or self-help.

Think Big has arisen from Trump’s association with the Learning Annex Wealth Expos and is co-authored with Learning Annex founder Bill Zanker. Real estate tycoon Trump’s larger than life persona shines through every page as he shares the mindset and strategies that have taken him to the pinnacle of his chosen line of work. Read the rest of this entry »

One of the most common and demanding goals in personal financial planning is to accumulate enough money for putting the kids through college. While I don’t doubt the value of education I strongly recommend serious consideration of whether a full-time college degree or diploma for your offspring is necessarily the best use of the time and money involved.

Taking a purely business perspective we ought to weigh the merits of each of the various ways that time and money could be used. For example, the tuition fees and living costs of a full-time college course would amount to a substantial deposit on a first home, or provide junior with the capital to start a business.

The three years spent in an academic environment could alternatively be used gaining real-world work experience in the “university of life”.

You have to honestly ask whether your kids have the academic potential to benefit sufficiently from college to make the investment worthwhile. Not everyone is capable of becoming a doctor, lawyer, nuclear physicist etc. What are they planning to study? If it’s medicine, law, business, IT etc at a decent institution, the best to go for it. But if it’s media studies, history or sociology at a less-regarded school, perhaps you and they should think again.

There is no shame in following a less prestigious but still highly useful (and lucrative) career path. The world will always need mechanics, plumbers, technicians, retailers etc etc. And remember, lots of successful people either quit or never attended college – Bill Gates for one.

I once played a small part in the planning of an MBA course and overheard the following in the admin office:

Secretary 1 – “We’ll soon be dealing with enquiries from all the successful business people.”

Secretary 2 – “No, the successful ones are too busy running their businesses and making money.”

Education IS very valuable, but not going to college no longer means turning one’s back on education. In this, the age of lifelong learning, there are far more opportunities than ever before for part-time study and distance education courses that can be combined with gaining that all-important practical vocational experience. Plus you get to earn while you learn.

So, don’t abandon the idea of sending the kids to college, but think carefully whether it’s the best option for them as individuals, make your choice accordingly, and remember education is important but it now comes in all shapes and sizes so might as well choose the most appropriate.