A blog to share my thoughts about trading, frugal living, money and the economy. Occasionally I might even throw in a few things about better living, technology, futurism, and science but these are always in some way related to finances or speculation.

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Location: Phoenixville, Pennsylvania, United States

"I have become all things to all men so that by all possible means I might save some."

Friday, September 29, 2006

Get your kid up to speed with dirt cheap outsourced tutoring!

U.S. homework outsourced as "e-tutoring" grows

OK - the article's title is wrong, but I like the concept of inexpensive outsourced education. I am a big proponent of online education as well. In some ways I think (hope) the spiraling costs of college will be a self-correcting problem. In many ways universities are shooting themselves in the foot. One day virtual universities (and it may start with hybrids) will be dirt cheap compared to today's universities and they will offer a far superior education. Imagine having the greatest, most talented, gifted teachers in every subject, available to teach a nearly limitless class size with customization for the student's personal interests and aptitude.

How many more years before the inevitable becomes reality? My state already has not just one, but several 100% online k-12 schools (costs the parents nothing, includes free laptop and broadband connection). These are essentially an alternative to home schooling right now, but I can see this moving OUT of the home in the future, so that children will still "go to school" but the experience, teaching methods, and content, will be optimized to their benefit. The way I see it the online schools we have now are a shadow of what is to come. The traditional high priced school is going to either change or die.

Of course there will other challenges such as replacing the social aspect of going away to college or k-12 schools. But there are solutions to every problem.

Thursday, September 28, 2006

20 FREE Ways to Save Energy

From Consumer Reports. The only one I disagree with is the direct vent fireplace - they are for asthetics only and NOT for saving energy. They are not as efficient as your furnace when running - and cold air WILL pour into your room whenever it is NOT running (if you really want to learn why, google on "stack effect" or see Selecting and Locating a Chimney. Gas fireplaces are pretty worthless, and don't even think about a vent free model - combustion appliances should ALWAYS be vented - otherwise they are a health hazard.

  • Wash clothes in cold water. You might guess that most of the energy used by a washing machine goes into vigorously swishing the clothes around. In fact, about 90 percent of it is spent elsewhere, heating the water for the load. You can save substantially by washing and rinsing at cooler temperatures. Warm water helps the suds to get at the dirt, but cold-water detergents will work effectively for just about everything in the hamper.

  • Hang it up. Clotheslines aren't just a bit of backyard nostalgia. They really work, given a stretch of decent weather. You spare the energy a dryer would use, and your clothes will smell as fresh as all outdoors without the perfumes in fabric softeners and dryer sheets. You'll also get more useful life out of clothes dried on indoor or outdoor clotheslines--after all, dryer lint is nothing but your wardrobe in the process of wearing out.

  • Don't overdry your laundry. Clothes will need less ironing and hold up better if you remove them from the dryer while they're still just a bit damp. If you are in the market for a dryer, look for one with a moisture sensor; it will be less likely than thermostat-equipped models to run too long.

  • Let the dishwasher do the work. Don't bother prerinsing dishes with the idea that your dishwasher will work less hard. Consumer Reports has found that this added step can waste 20 gallons of heated water a day. All you need to do is scrape off leftover food. Enzyme-based detergents will help make sure the dishes emerge spotless.

  • Put your PC to sleep. Keep your computer and its monitor in sleep mode rather than leaving them on around the clock. You stand to use 80 percent less electricity, which over the course of a year could have the effect of cutting CO2 emissions by up to 1,250 pounds, according to EPA estimates.

  • Turn down the heat in the winter, and turn down the cool in the summer. Lower the thermostat 5° to 10° F when you're sleeping or are out of the house. "A 10° decrease can cut your heating bill by as much as 20 percent," says Jim Nanni, manager of the appliance and home-improvement testing department of Consumer Reports. And before you put on a cotton sweater to ward off a slight chill from the AC in summer, consider that for every degree you raise the thermostat setting, you can expect to cut your cooling costs by at least 3 percent.

  • A cold hearth for a warmer house. A conventional fireplace draws a small gale out of the room and sends it up the chimney. Assuming the indoor air has been warmed by your central heating system, that means your energy dollars are going up the chimney, too. Instead, consider a direct-vent, sealed-combustion gas fireplace. Consumer Reports has found that those units have an energy efficiency of about 70 percent--and the sight of the flames is a lot more warming than staring at a radiator.

  • Lower the shades and raise the windows. Not at the same time, of course, but your windows and shades are great tools to help moderate temperatures in the home. Because of central air conditioning, we tend to forget these time-tested, traditional ways of making the house comfortable. Shades are particularly helpful in blocking the sun from west-facing rooms in the afternoon. At night, if the forecast calls for cooler temperatures and low humidity, give the AC a rest. Open windows upstairs and down, and use window fans or a whole-house fan.

  • Put a spin on home cooling. You can operate a couple of fans with a fraction of the electricity needed for air conditioning, and their cooling effect may make it possible to cut back on AC use.

  • Take care of your air conditioner, and it will take care of you. Your air conditioner will run more efficiently if you clean or replace its filter every other week during heaviest use. Keep leaves and other debris away from the central air's exterior condenser, and keep the condenser coils clean.

  • Spend less for hot water. Set the hot water heater at 120° F (or the "low" setting), which is hot enough for most needs. If the tank feels warm to the touch, consider wrapping it with conventional insulation or a blanket made for that purpose. To help conserve the water's heat on its way to the faucets, insulate the plumbing with pipe sleeves; with these, you can raise the end-use temperature by 2° to 4° F.

  • Think twice before turning on the oven. Heating food in the microwave uses only 20 percent of the energy required by a full-sized oven. And while the second-hand heat from the oven may be welcome in winter, it can put an added load on your air conditioner in warmer months.

  • Use the right pan. When cooking on the stovetop, pick your pan, then put it on an element or burner that's roughly the same size. You'll use much less energy than you would with a mismatched burner and pan. Steam foods instead of boiling. If you do boil, be sure to put a lid on the pot to make the water come to a boil faster.

  • Read the label. The EnergyGuide label, that is. When you shop for a new appliance, look for the label that gives an estimate of annual energy consumption. To help you make sense of that statistic, the label also states the highest and lowest figures for similar models.

  • Dust off the Crock-Pot. Slow cooking in a Crock-Pot uses a lot less energy than simmering on the stove.

  • Clean the coils on your refrigerator using a tapered appliance brush. Your fridge's motor won't have to run as long or as often. In addition to saving energy dollars, you'll prolong the life of the appliance.

  • Drive steadily--and a bit slower. Hard acceleration and abrupt braking will use more fuel than if you start and slow more moderately. Keeping down your overall speed matters, too, because aerodynamic drag increases dramatically as you drive faster. If you travel at 65 mph instead of 55, you are penalized by lowering your mileage 12.5 percent. If you get your vehicle up to 75 mph, you're losing 25 percent compared with mileage at 55 mph.

  • Roof racks are a drag. Most cars are reasonably streamlined, but you work against their slipperiness if you carry things on the roof. A loaded roof rack can decrease an SUV's fuel efficiency by 5 percent, and that of a more aerodynamic car by 15 percent or more. Even driving with empty ski racks wastes gas.

  • Stick with regular. If your car's manufacturer specifies regular gas, don't buy premium with the thought of going faster or operating more efficiently. You'd be spending more with no benefit. Most cars have built-in sensors that adjust the engine timing to the gas in the tank. Even if the owner's manual recommends high-octane gas, ask the dealership about switching to regular.

  • No loitering. Don't let the engine run at idle any longer than necessary. After starting the car in the morning, begin driving right away; don't let it sit and "warm up" for several minutes. An engine actually warms up faster while driving. With most gasoline engines, it's more efficient to turn off the engine than to idle longer than 30 seconds.

  • And if you don't mind spending a few dollars:

  • A tighter home is a toastier home. Insulation is your home's first line of defense against the weather, right? Wrong. Before you bulk up with fiberglass blankets, seal the leaks. Inexpensive foam strips and caulking can cut your heating and cooling bills by 5 to 30 percent.

  • Try do-it-yourself low-E windows. If your windows don't have a low-E coating, consider applying a self-adhesive film on the glass. This treatment is a lot cheaper than replacing the units, and better-quality films are quite durable.

  • Use a programmable thermostat. Roughly half of the typical home's energy bill goes for heating and cooling, according to the Department of Energy. The easiest way to save, short of sweating or shivering, is to use programmable thermostats. They can pay for themselves in about a year.

  • Switch to those funny-looking fluorescents. You may not be familiar with compact fluorescent lamps (CFLs), but give them a try. A single bulb can save from $25 to $45 over its life. And it's a long life: Manufacturers claim that CFLs last between 5 and 13 times longer than standard incandescent bulbs.
  • Tuesday, September 26, 2006

    Simple frugal living

    I must admit, I almost got caught up in the consumerism culture that is so prevalent in America today. At first I didn't want to be like my parents, who have never bought a new car in their entire lives despite doing pretty well for themselves (read The Millionaire Next Door and you will get the picture). Today however I recognize the value of frugal living. My brief stint with consumerism is long gone. I have returned to my roots, the roots of my ancestors, and it feels right!

    If you are "off-track" like I once was, you should know that the things you should be doing now to get on track to financial independence aren't temporary, they are life long changes. I could buy any car I want, but when I recently needed new transportation, I bought a $5500 used Toyota echo (private sale of course!) with 38,000 miles on it. It had nothing wrong with it, it gets 38+ MPG, has no timing belt to replace, and is very reliable and safe. I still shop at yard sales and thrift stores. I have no cable or satellite television (digital and High Definition content is broadcast FREE to a vast majority of the US population and yet I'm the only person I personally know that is taking advantage of this). I take advantage of excellent free resources such as the local libraries. This year I'm even planning on heating my house with free wood. I switched to a dirt cheap internet based phone service, and pay less than $9/month for my cell phone. I grow some of my own food, and even planted an orchard. My recurring monthly expenses are miniscule, my biggest bill is for property taxes.

    Personally I think frugal living is FUN and it has it's rewards! I never inherited a dime, but I don't have to worry about losing my job, because I can live off the interest alone from my savings and investments. I paid cash for my house (incidentally, if you don't hold a title to something, you don't own it, that applies to cars and houses). The credit card companies pay ME (I'll explain this later, but I am currently making THOUSANDS of dollars a year in income from the credit card companies). I can travel anywhere in the world, stick it to da man, and do anything I want without worries. Great freedom comes from the frugal way of life.

    Frugal living is a lifestyle choice. Are you going to take the path of everyone around you, or are you going to make a serious change? Are you prepared for any (often sudden and unpredictable) event that might come along in your life? Are you on a path to a satisfying retirement?

    How can you get out of debt? SNL a few years back put it into shockingly simple terms: Don't Buy Stuff You Cannot Afford.

    Here is a list of traits that describe the typical millionaire in America:

    Who is the prototypical American millionaire? What would he tell you about himself?(*)

    * About one in five of us is retired. About two-thirds of us who are working are self-employed. Interestingly, self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires. Also, three out of four of us who are self-employed consider ourselves to be entrepreneurs. Most of the others are self-employed professionals, such as doctors and accountants.

    * Many of the types of businesses we are in could be classified as dull/normal. We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors.

    * About half of our wives do not work outside the home. The number-one occupation for those wives who do work is teacher.

    * Our household's total annual realized (taxable) income is $131,000 (median, or 50th percentile), while our average income is $247,000. Note that those of us who have incomes in the $500,000 to $999,999 category (8 percent) and the $1 million or more category (5 percent) skew the average upward.

    * We have an average household net worth of $3.7 million. Of course, some of our cohorts have accumulated much more. Nearly 6 percent have a net worth of over $10 million. Again, these people skew our average upward. The typical (median, or 50th percentile) millionaire household has a net worth of $1.6 million.

    * On average, our total annual realized income is less than 7 percent of our wealth. In other words, we live on less than 7 percent of our wealth.

    * Most of us (97 percent) are homeowners. We live in homes currently valued at an average of $320,000. About half of us have occupied the same home for more than twenty years. Thus, we have enjoyed significant increases in the value of our homes.

    * Most of us have never felt at a disadvantage because we did not receive any inheritance. About 80 percent of us are first-generation affluent.

    * We live well below our means. We wear inexpensive suits and drive American-made cars. Only a minority of us drive the current-model-year automobile. Only a minority ever lease our motor vehicles.

    * Most of our wives are planners and meticulous budgeters. In fact, only 18 percent of us disagreed with the statement "Charity begins at home." Most of us will tell you that our wives are a lot more conservative with money than we are.

    * We have a "go-to-hell fund." In other words, we have accumulated enough wealth to live without working for ten or more years. Thus, those of us with a net worth of $1.6 million could live comfortably for more than twelve years. Actually, we could live longer than that, since we save at least 15 percent of our earned income.

    * We have more than six and one-half times the level of wealth of our nonmillionaire neighbors, but, in our neighborhood, these nonmillionaires outnumber us better than three to one. Could it be that they have chosen to trade wealth for acquiring high-status material possessions?

    * As a group, we are fairly well educated. Only about one in five are not college graduates. Many of us hold advanced degrees. Eighteen percent have master's degrees, 8 percent law degrees, 6 percent medical degrees, and 6 percent Ph.D.s.

    * Only 17 percent of us or our spouses ever attended a private elementary or private high school. But 55 percent of our children are currently attending or have attended private schools.

    * As a group, we believe that education is extremely important for ourselves, our children, and our grandchildren. We spend heavily for the educations of our offspring.

    * About two-thirds of us work between forty-five and fifty-five hours per week.

    * We are fastidious investors. On average, we invest nearly 20 percent of our household realized income each year. Most of us invest at least 15 percent. Seventy-nine percent of us have at least one account with a brokerage company. But we make our own investment decisions.

    * We hold nearly 20 percent of our household's wealth in transaction securities such as publicly traded stocks and mutual funds. But we rarely sell our equity investments. We hold even more in our pension plans. On average, 21 percent of our household's wealth is in our private businesses.

    * As a group, we feel that our daughters are financially handicapped in comparison to our sons. Men seem to make much more money even within the same occupational categories. That is why most of us would not hesitate to share some of our wealth with our daughters. Our sons, and men in general, have the deck of economic cards stacked in their favor. They should not need subsidies from their parents.

    * What would be the ideal occupations for our sons and daughters? There are about 3.5 millionaire households like ours. Our numbers are growing much faster than the general population. Our kids should consider providing affluent people with some valuable service. Overall, our most trusted financial advisors are our accountants. Our attorneys are also very important. So we recommend accounting and law to our children. Tax advisors and estate-planning experts will be in big demand over the next fifteen years.

    * I am a tightwad. That's one of the main reasons I completed a long questionnaire for a crispy $1 bill. Why else would I spend two or three hours being personally interviewed by these authors? They paid me $100, $200, or $250. Oh, they made me another offer--to donate in my name the money I earned for my interview to my favorite charity. But I told them, "I am my favorite charity."

    Monday, September 25, 2006

    Tax Cuts Really Do Lead to Higher Tax Receipts?

    With news like this you do have to question forecasts for imminent "doom and gloom".

    US Treasury Sets New 1-Day Tax Receipt Record Of $85.8 Billion
    -By Benton Ives-Halperin, Dow Jones Newswires; 202-862-9255;
    Tuesday September 19th, 2006

    WASHINGTON -(Dow Jones)- The U.S. government recorded record-high overall and corporate tax receipts on Sept. 15, which was a quarterly deadline for tax payments, the Treasury said Monday.

    Total tax receipts were $85.8 billion on Friday, compared with the previous one-day record of $71 billion on Sept. 15 of last year, the Treasury said.

    Within the overall figure, corporate tax receipts Friday were $71.8 billion, up from $63 billion in September of last year.

    Treasury Undersecretary for Domestic Finance Randal Quarles said Friday's numbers provided a "continuing demonstration of the strength of the U.S. economy."

    "In fact, Friday's gross receipts were the largest in a single day in the nation's history - 20% higher than receipts on the same quarterly tax payment date last year," Quarles said in a statement.


    Recently "housing" has been on the minds of just about every trader I know, the Fed is also concerned. A big headline today is the drop in median existing home prices (first drop in 11 years).

    But housing doom and gloom seems to have peaked recently in the media after seemingly everyone ran multiple stories on it and all the builders and realtors aired their pain and grievances. The housing stocks bottomed months ago and have been showing a nice slow consistent climb ever since. The 10-year yield (and 30 year fixed rate mortgages) continues its creep lower (4.55% right now). Annecdotally I’ve noticed that recently (as in the last 2 weeks) the glut of homes on the market in my area seems to have all but disappeared, houses are selling again. My brother in California just put his house on the market (up there around the 3/4 million range), the very first day it was listed, without even having an open house, he had over 20 visits, one offer, and two more offers expected. His timing is great, he is moving to Utah where he'll be able to buy a much larger house for half the price.

    So is this just the first wave of “suckers” responding to reports in the media that it’s a buyers market and that this is a good time to buy since prices are down? Who knows? All I know is what I observe, and things look like they are firming for the moment… For a nice summary of the negatives we face as they relate to housing, see this recent Schwab Market Outlook by Liz Ann Sonders: Housing: ARMed and Dangerous.

    Also if you haven't read it yet, check out this recent article on housing "lesson's learned": A Cautionary Housing Tale from Japan

    [Our housing bubble seems downright tame compared to theirs. At least we never got to the point of “multi-generational” mortgages (60 year loans)!]

    Thursday, September 21, 2006

    The Persuasive Personality Enemy to Traders [PPET]

    The speculator faces many enemies. Once you have overcome the basic enemies: fear, greed, & hope, you must learn to overcome equally dangerous enemies. One of these is the persuasive personality. Many traders do not realize that throughout the history of speculative markets there has always existed an enemy known as “the persuasive personality”. You cannot graduate to the higher levels of successful speculation until you can easily identify this enemy.

    The following are some of my observations and generalizations concerning PPETs. This is a composite taken from many examples and is not intended to describe any one person in particular.

    Common characteristics of the PPET:

    1) Typically male. Specifically, a man with a magnetic personality.

    2) He has a history of financial failure. Usually has at least one outright bankruptcy on his record or a total trading capital wipeout. Frequently will have a string of catastrophic failures or near total wipeouts.

    3) Could not achieve lasting success as a speculator and has a strong desire to live though others’ success. This is manifested in offering opinions and commentary to others under the delusion of trying to help or “give back” to the investment community.

    4) Distorted self image. Delusions of grandeur and irrationally inflated ego (sometimes this comes and goes in spurts). This ego is maintained at all costs, particularly manifesting itself in the burial of past failures and the incessant trumpeting of successes even when trumpeting is not warranted (i.e. success was highly illusory).

    5) Failure to admit mistakes or take losses when appropriate. Sometimes revises history (either consciously or unconsciously) to “improve” record of past performance.

    6) Failure to correct misjudgments when evidence arises that indicates they were wrong in conclusions reached and touted to others as unquestionable.

    7) Inability to grow. Rejects all criticism out of hand. Discards all arguments, no matter how rational or well formed if they disagree with an already stated conclusion. Lacks maturity.

    8) Has no objectivity. If the evidence does not agree with preconceived conclusions, the evidence is wrong. There is no room for debate.

    9) Is reactive, often jumping on trends just as they have peaked and are ready to change direction. Also known as “piling on”. Thinks his odds of impressing other people are increased by jumping on recent trends and boasting about how they have “been right all along”. They are rarely early on a new trend because they wait for a trend to be established first before jumping on.

    10) Has a background in a trading related industry and enough knowledge and wisdom to offer such that audiences are attracted. This is a key attribute that PPETs need in order to gain the widespread attention they seek. If they do not sound authoritative, convincing, rational, and wise, they will not meet their subconscious desires.

    11) Their true character is often revealed when seriously challenged publicly. This can be manifested with anger, spite, or censorship.

    12) They get a high from media attention (radio, television, print). Likewise, they get a high from industry attention, and try to surround themselves with industry experts and proven successes. Experienced traders on the other hand often recognize them as a PPET and will have nothing to do with them much to the bewilderment of the PPET.

    13) While they often pretend to be emotionally detached, they are often HIGHLY sensitive people that live for positive affirmation which is one reason they get involved in the media.

    14) Pattern of personal relationship failure. Typically has been divorced at least once. Often has had multiple failed marriages, and estranged family members. Sometimes the PPET himself has done jail time or has close friends or relatives who have. PPETs often fail to take responsibility for their own role in their volatile relationships. They push people away rather than take time and energy resolving relational issues or putting others first. This leads to bouts of loneliness, which serve to perpetuate the vicious cycle of seeking new followers.

    15) They inevitably lead their blind followers to the slaughter. It’s not in any way intentional, just inevitable. While they feel bad about it, they will do everything in their power to hide the facts and often make new attempts to gain trust after such incidents, making every effort to censor critics.

    I have found that occasionally PPETs who are bullish will make television appearances. When they are bearish they tend to flourish only in print or on the radio (traditional home for most big-time PPETs). Financial history is littered with PPETs and the carcasses of speculators they have destroyed. This is why I always teach people to develop and nurture their own critical thinking skills. Question everything and everyone. Know your enemies or be destroyed by them.

    In closing I’d like to quote from the greatest book on speculation ever written, Reminiscences of a Stock Operator by Edwin Lefevre, copyright 1923.

    [Select quotes from Chapter 12]
    “[The persuasive personality] was a thinker… an unusually well-informed man… He loved to hear and to express ideas and theories and abstractions… he had traded for years and had made and lost vast sums…”

    “When I said to you some time ago that a speculator has a host of enemies, many of whom successfully bore from within, I had in mind my many mistakes. I have learned that a man may possess an original mind and a lifelong habit of independent thinking and withal be vulnerable to attacks by a persuasive personality. I am fairly immune from the commoner speculative ailments, such as greed and fear and hope. But being an ordinary man I find I can err with great ease.”

    “I ought to have been on my guard at this particular time because not long before that I had had an experience that proved how easily a man may be talked into doing something against his judgment and even against his wishes…”

    “It was always a pleasure for me to listen to him, he knew so much and he expressed his knowledge so interestingly. I think he is the most magnetic man I ever met.”

    “We talked of many things, for he is a widely read man with an amazing grasp of many subjects and a remarkable gift for interesting generalization. The wisdom of his speech is impressive; and as for plausibility, he hasn’t an equal. I have heard many people accuse him of many things, including insincerity, but I sometimes wonder if his remarkable plausibility does not come from the fact that he first convinces himself so thoroughly as to acquire thereby a greatly increased power to convince others…”

    “He kept at it until I no longer felt sure of my own information… That meant I couldn’t see the market with my own eyes. A man cannot be convinced against his own convictions, but he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort.”

    “I cannot say that I got all mixed up, exactly, but I lost my poise; or rather, I ceased to do my own thinking. I cannot give you in detail the various steps by which I reached the state of mind that was to prove so costly to me.”

    Needless to say, the protagonist (Jesse Livermore) went broke following this persuasive personality and learned his lesson so as not to repeat it. It is my hope that others can learn these lessons WITHOUT going though the pain. I’ll leave you with Jesse’s conclusion:

    “To learn that a man can make foolish plays for no reason whatever was a valuable lesson. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind. It has always seemed to me, however, that I might have learned my lesson quite as well if the cost had been only one million. But Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill, knowing you have to pay it, no matter what the amount may be. Having learned what folly I was capable of I closed that particular incident. [The PPET] went out of my life.”

    If you happen to have a PPET in your financial life, do not attempt to rationalize keeping these influences in your life. PPETs will be correct for a time, but ultimately cloud your judgment and lead you to financial ruin. Be objective and seek input from objective sources. There will always be a host of suckers to satisfy the PPET, don’t be one of them. If you happen to be a PPET: do not attempt to change your format, just get completely and permanently out of the media altogether if you really care. Focus on making an honest living and rebuilding damaged relationships. It may be the hardest thing you have ever done, but it will be well worth it.

    The money-and-happiness correlation

    The money-and-happiness correlation
    Tuesday August 22, 6:00 am ET
    Jay MacDonald

    Wise men from Aristotle to The Beatles have observed that money can't buy happiness, but what inquiring minds really want to know is: Why not?
    After all, we're constantly bombarded with evidence to the contrary, some of which must surely be true. The rich and famous seem to be fabulously happy as they scamper the globe in their private jets, acquiring real estate and adopting orphans, while we mere mortals simmer in rush-hour traffic just to keep food on the table.

    Heck, money and happiness even seem to go together better than love and marriage, which, statistically at least, continues to have the same success rate as a coin toss.

    But appearances can be deceiving.

    According to a June 2006 study spearheaded by Princeton economist Alan Krueger and Nobel Prize-winning psychologist Daniel Kahneman, once you reach a certain income level, more money does not contribute significantly to well-being and may actually result in more stress and less bliss.

    "The belief that high income is associated with good mood is widespread but mostly illusory," according to the study. "People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense and do not spend more time in particularly enjoyable activities."

    The study found a weaker-than-expected correlation between income and moment-to-moment happiness in two surveys: a 2004 survey of 909 employed women in Texas and a 2005 survey of 810 women in Ohio. The researchers also looked at a Bureau of Labor Statistics survey on how folks at various points of the income spectrum spend their time. They discovered that women who make over $100,000 a year spend 19.6 percent of their time on passive leisure (i.e., fun), compared to women who make less than $20,000, who spend 33.5 percent of their time kicking back or socializing. The findings suggest a "focusing illusion" that leads people to work for more money even when happier pursuits would ultimately do them more good.

    "Despite the weak relationship between income and global life satisfaction or experienced happiness, many people are highly motivated to increase their income," according to the study. "In some cases, this focusing illusion may lead to a misallocation of time, from accepting lengthy commutes (which are among the worst moments of the day) to sacrificing time spent socializing (which are among the best moments of the day)."

    While we like to think we're just a lotto combination away from solving all of life's problems, experts agree that money itself has very little to do with living happily ever after.

    The Jones factor
    Remember the Joneses down the street? Daniel Gilbert says they actually might have more influence on your happiness than all the zeros in your savings account.

    The Harvard psychology professor recently condensed 15 years of thinking about the elusive concept of happiness into his new book, "Stumbling on Happiness." He says that beyond a certain point, money has very little to do with happiness.

    "The basic idea that 'If I could make more money I would be happier' is true if you're living in a cardboard box under a bridge; it's probably not true if you're making $190,000 a year," he says. "Money does make a difference when it moves you from abject poverty into the middle class, but it stops making a large difference at about that point. In terms of happiness, the difference between making $5,000 a year and $50,000 a year is dramatic, but the difference between making $100,000 and $100 million is negligible, almost nonexistent."

    Nevertheless, an asset shortfall can dampen your bliss when it comes to keeping up with the Joneses.

    "A lot of the happiness we get from money we don't get from money, per se -- we get it from our money divided by our neighbor's money. So much of our satisfaction with our income is relative, not absolute; it's not based on the number of dollars we make, it's the number of dollars we make relative to the number of dollars that other people around us are making. When people say, 'Gosh, if I could just earn a little more I'd be happier,' well, if you're the poorest guy in the neighborhood, that might be true, even if you're the poorest guy in Greenwich, Conn. But if you're the richest guy in the neighborhood, even if you're the richest guy in the Bronx, it probably isn't true."

    Gilbert says one way to free ourselves from the "money-go-round" is to recognize when enough is enough.

    "People would be wise to earn money up to the point of inflection, to the point where more money isn't going to make much of a difference," he says. "One of the things that people have to think about when they talk about money and happiness is where they are in their reference group. If you're in the middle or high end of your reference group, more money isn't going to make it better. If you're in the low end, it actually might make a difference."

    Paul Taylor says Americans have always stalked life's pleasures, so studying the causes seems prudent.

    "The pursuit of happiness has had a particular resonance in our own national history; it's embedded right there in our founding document. But it has a pride of place in the whole of human history; human beings want to be happy. So understanding what the track record has been and what elements contribute to that pursuit is important," he says.

    As executive vice president of the Washington, D.C.-based Pew Research Center, Taylor headed up a February 2006 survey -- "a snapshot," he calls it -- of how that pursuit is going early into the new millennium.

    February 2006 survey -- a snapshot

    Among its findings:

    Republicans are happier than Democrats.

    Married people are happier than unmarried.

    Churchgoers are happier than nonchurchgoers.

    Sunbelt residents are happier than those living elsewhere.

    Contrary to expectations, however:

    Retirees are no happier than workers.

    Pet owners are no happier than those without pets.

    Where income is concerned, the Pew survey found that happiness does indeed increase with income; those who said they were "very happy" increased consistently with income, from 24 percent in the under-$30,000 income category to 49 percent in the $100,000-plus category.

    But Taylor is quick to point out that there's a chicken-and-egg element to these findings that might lead to misinterpretation: "Perhaps money leads to happiness. Perhaps happiness leads to money. Or perhaps both are influenced by some other, more powerful factor."

    Whatever the case, Taylor says the findings indicate that while money might not make you happy, not having money certainly contributes to unhappiness.

    "The linear relationship that 'the more income you have, the happier you are' has been around a long time, despite the persistence of the old adage, 'Money doesn't buy you happiness.' Well, the one may not buy the other, but they do seem to hang out together in ways that suggest there is a relationship between the two," he says.

    The Pew researchers intentionally left it to the 3,014 respondents to define what happiness means for them.

    "That's going to mean different things to different people, but if you take a big enough sample, you'll at least get some broad gauge of people's self-assessment," he says.

    The happiness paradox
    Bruce Weinstein, "The Ethics Guy" and author of "Life Principles: Feeling Good by Doing Good," says those who confuse the accumulation of quantifiable things like money, power or fame with happiness are doomed to miss the love train.

    "Aristotle says that happiness is the only thing that is coveted for its own sake rather than for the sake of something else. It's the ultimate end, the ultimate good. Money is only of instrumental value, only good for what it gets us. So what we find is that people who value money never have enough. If you ask anyone whose primary purpose in life is to acquire wealth if they have enough now, they will say no, I don't. The same with power or fame -- it's never enough.

    "Beyond a certain point, more money does not equate with more happiness. If it did, you would expect to find the wealthiest or most famous people to be the happiest, and that simply is not the case. Once our basic needs are met, it turns out that it's friendship and being loved and having someone to love that makes life worth living," he says.

    Want to find true happiness? Weinstein has a suggestion:

    "I think the solution to happiness lies in the little things. When you're on the bus, instead of whipping out the BlackBerry, maybe actually strike up a conversation with the stranger next to you. Or do nothing; stare out the window or be quiet. I suspect that either or both of those things, practiced regularly, would bring a bigger sense of well-being."

    Gilbert maintains that the whole concept of somehow accumulating happiness is both foolhardy and even a little scary.

    "It's important to recognize that you're not meant to be happy all the time," he says. "That's not what your brain is generating emotions for. Emotions are a very primitive guidance system. It's your brain's way of telling you when you're doing the right thing or the wrong thing. That's why you get a positive emotional reaction when you approach a naked woman but not a bear. Imagine that you somehow found a medication or a surgery or a deodorant or whatever that made you permanently happy all the time. Well, now you're smiling when you approach the bear, and that's a problem.

    "At least, luckily, we could say you won't have children to pass this problem along to.

    "Your emotional system is guiding you through life, so it has to respond positively and negatively. A compass that's stuck on north all the time is useless, and that's what a person who is stuck on happy would be."

    Wednesday, September 20, 2006

    How NOT to buy happiness

    Well, I think "How to buy happiness" would be a more constructive topic, but the basis of my title comes from an interesting research paper I stumbled upon a while back from the MIT Press: How not to buy happiness by Robert H. Frank. Here's a brief excerpt:

    "An enduring paradox in the literature on human happiness is that although the rich are significantly happier than the poor within any country at any moment, average happiness levels change very little as people’s incomes rise in tandem over time.1 Richard Easterlin and others have interpreted these observations to mean that happiness depends on relative rather than absolute income.

    "In this essay I offer a slightly different interpretation of the evidence–namely, that gains in happiness that might have been expected to result from growth in absolute income have not materialized because of the ways in which people in affluent societies have generally spent their incomes.

    "In effect, I wish to propose two different answers to the question “Does money buy happiness?” Considerable evidence suggests that if we use an increase in our incomes, as many of us do, simply to buy bigger houses and more expensive cars, then we do not end up any happier than before. But if we use an increase in our incomes to buy more of certain inconspicuous goods–such as freedom from a long commute or a stressful job–then the evidence paints a very different picture. The less we spend on conspicuous consumption goods, the better we can afford to alleviate congestion; and the more time we can devote to family and friends, to exercise, sleep, travel, and other restorative activities. On the best available evidence, reallocating our time and money in these and similar ways would result in healthier, longer– and happier–lives. "

    I'd like to go beyond the philosophical or a discussion limited to this research alone and actually discuss my ideas for "long term happiness bang for the buck" if such a thing makes any sense. The goal is to devote more time "to family and friends, to exercise, sleep, travel, and other restorative activities" with the result of "healthier, longer– and happier–lives" (to quote the above article).

    The things already mentioned in the research are the obvious (save money instead of wasting it, so you can ultimately work fewer hours. Find a job and/or house that enables shorter commute times. Do not move towards isolation - i.e. no neighbors).

    Happiness and long life are highly correlated. Many of the ideas for achieving both involve reducing stress. This recent article on aging covers many of the categories mentioned in the Robert Frank article.

    Some other ideas:

    Category - exercise

    Join some amateur sports team or activity. Not only is it great exercise, but it can make for good comradery with friends. A friend of mine just got really into road biking - he does this with coworkers several times a week. My brother races "quads" with his father in law. I joined an indoor soccer league last winter (hadn't played soccer in over 15 years, and there were people there of all ages). I also took up kayaking a couple years ago, which ties in well with camping vacations (which are also cheap by the way!). To me, hiking & camping, going out in nature, are very "restorative".

    Category - family

    I'm a big believer in "the family vacation", which is typically a week out of the year, but if you can get away with it, do it more often. Anyway, one of the most memorable vacations I've taken was actually a trip my wife and I took with my in-laws. We rented a house (cheaper than hotels and more amenities!) in a tropical island, and had a blast. One thing we do is take "crazy pictures" (funny pictures) which just seems to make the whole experience all the more fun and memorable. Anyway, even though its been a couple years, every time I think about that vacation I can't help but smile. I think another thing that contributes to happiness is trying new things, and perhaps just as worthwhile - being with people you love when they try new things (which incidentally, I think is where the major joy of raising your own kids probably comes from). For example, being with my in-laws as they experienced snorkeling and deep sea fishing for the first time was immensely entertaining.

    Another in this category: You would not believe how many strange reactions I get when I tell people every Wednesday night is "date night" with my wife. "Why do you still date, aren't you already married?" or "Every week?". Yes, once a week "date night" with the spouse definitely fills the "happy" meter, plus its something to look forward to in the middle of the week. And no, we aren't newlyweds. In fact, we didn't start the official "date night" until after several years of marriage. Throwing something crazy into the mix is always good for creating memories that will last a lifetime, but they don't always have to be elaborate either. Making a meal together, or just going for a walk while discussing something interesting all qualify.

    Finally - an idea I think my wife and I invented that may sound strange but you should try it. This could just as easily be in the friends category by the way... Rent a comedy movie, and decide ahead of time that you are going to laugh at everything, even if it isn't really funny. The mere fact that other people are laughing will force you to laugh anyway, this is SO MUCH fun. Just make sure everyone in the room is fully on board with the concept before the movie starts or you won't get the desired effect. The thing is, you won't know at the end of the movie if it was actually a great comedy, or if you just made it feel like one. Either way - you will have a great time and feel great afterwards. I think laughter is probably one of the best things you can do for your physical & mental health. One thing I've heard of is "laughter groups" which seems almost a little TOO odd but I wouldn't mind trying it ONCE maybe. These groups of people just get together and start laughing - at absolutely nothing. At first its forced, but after a few seconds, you can't control it and you are just laughing because everyone else is. It's supposedly very therapeutic, but I don't know how you find these groups or where they exist (I'll probably stick to the movie idea).

    Category - friends

    I think just spending more time with friends and neighbors is key. I know its almost cliche now, but since the whole poker craze began, I've been playing cards with neighbors once a month (about 10 guys). I definitely enjoy this a lot and would consider it "restorative". Assuming your skills are as good as everyone else's this shouldn't cost you any money over time. That's what they keep telling me anyway ;)

    Inviting groups of people over for "game night" also falls in this category. These can be some of the most entertaining nights of the year. Also a good way to get to know new people. Some games that are good for this: Cranium, Scatergories, Mad Gab, I know there are many others... with smaller groups, yahtzee, dominos, card games, etc. millions of great choices.

    Vacations, cookouts, camping, hiking, etc. can all apply to the "friends" category.

    Category - sleep

    OK - it might seem odd to even include this category. But I have a couple of thoughts on this. First - I am a much happier person when I get 8 hours of sleep. I've actually done a LOT of "sleep research". Not everyone has the same sleep requirements, some only need 7 hours, others need 9. If you find yourself "sleeping in" on weekends (or sleeping longer), its actually a sure sign that you aren't getting enough sleep during the week. Your health suffers when you don't get enough sleep.

    Dreaming - somewhat unrelated to the above, but another hobby of mine that falls into the "sleep" category is Lucid Dreaming. I don't want to get too far off course - so if you are interested - just follow my link or see if your library has the book "Exploring the World of Lucid Dreaming" by Stephen LaBerge, Ph.D. and Howard Rheingold. There are many books on the subject, but that one is the best (and incidentally, the only book on the subject I've found to be worth reading!). Anyway, most people don't realize that you can even increase your happiness WHILE YOU SLEEP!

    Category - giving

    This is the only category not mentioned in the original article. Anyway, I think giving to charity is another way to "buy happiness" so to speak. Things like habitat for humanity (helping to build a house for someone in a desperate situation), or the million other service organizations out there. I'm involved with Big Brothers Big Sisters where I mentor a boy - we basically just get together a couple times a month - play baseball, watch movies, hang out. There are millions of kids growing up with no father present - while you might not think you can do anything to make a difference - you can. Similarly I give financially to causes that help underprivileged children in 3rd world countries. Note: I don't give either time or money because I expect "happiness" out of it, I just think that the more people in general who give, the better off society is - which leads to higher overall "happiness". I also think everyone's quality of life improves when there are fewer people living in desperation or involved in crime, etc. I'm also motivated because I am a Christian, and I just know inside it's the right thing to do.

    Well - I've rambled for way to long... I would really love to see others' ideas as I've never really come across a discussion of this before.

    I know some readers might be wondering, "What's this have to do with finances?" And my response is: "EVERYTHING!".


    Hello, I am an avid market participant and hobby economist of sorts. I study all things economic, and have made a living as a professional trader full time and part time. More about me can be found here:

    I am also interested in a wide variety of things including science, invention, alternative energy, lucid dreaming, the Bible, gardening, orcharding, bee keeping, cooking, the Great Outdoors, travel, home theater, frugal living, making money, and saving money!

    I don't pretend to be a know-it-all, and no, I do not consider myself a "wizard". I am CONSTANTLY learning, and will be for all eternity! In fact, I believe one key to success is an unquenchable thirst for knowledge, discovery, and truth. This impacts many aspects of my life, not just trading.

    I am unashamedly Christian. What does this mean? Simply stated - I believe that Jesus Christ died for my sins, and that only though faith in him, can one be forgiven, and therefore made clean in God's eyes. This is the one and only way to heaven. Many of us try to do the right thing as often as possible, to help others, and to live a "good" life - I think that is all great, and I try to live my life this way too - but we ALL fall short. We are sinners (which is a nicer way of saying we are all pretty much scumbags of varying degrees, that's right, there is no such thing as a "good" person) and we all need forgiveness. If you have any interest in learning more, I suggest you read the Bible for yourself and find out what Jesus said, and what he did.