Management Overhead

All products and services that companies sell cost money. Management must know what it sells are generating profits and what do not.

So how can a company show a profit on everything it sells but still operate at a loss? - By not factoring in overhead. The cost of the managers, their offices, their support staff - indeed all the indirect costs of the company has to be allocated to products/services sold in some way, manner, shape, or form. Only when the products/services are burdened with their total costs can their profit/loss be truly evaluated.

Dyer on Success

Critics hang around and wait for others to make mistakes. But the real doers of the world have no time for criticizing others. They're too busy doing, making mistakes, improving, making progress.

- Wayne Dyer

More about Wayne Dyer

The Perfect Storm

They believe things are going to get worse, citing:

1. Growing trade deficit. This is like a family earning $5,000 per month, spending $6,000.
   
   
2. Growing national debt. G.W. Bush's administration borrowed more from foreign sources than all previous administrations combined, but he had at least eight years to do that in. Since the book was published before Obama was elected, it is silent on the present administration, but I'm sure he's closing in fast.
   
   
3. Falling dollar. This leads to inflation which causes wealth go drop.
   
   
4. Baby boomers without money. - And they're reaching retirement age.
   
   
5. The entitlement mentality. People look to the government to solve their problems instead of looking for opportunities.
   
   
6. Higher oil prices. There's a point where this could trigger the entire economy to implode due to those other factors.
   
   
7. Tax breaks for the rich. My reaction is "huh?" The facts they present do not justify this statement.

- from page 77

The Leader's Vital Creation Is Harmony

Hill defines "harmony" for purposes of life success as "organized energy". This strikes me as an interesting thought:

Success in life, no matter what one may call success, is very largely a matter of adaption to environment in such a manner as there is harmony between the individual and his environment. The palace of a king becomes as a hovel of a peasant if harmony does not abound within its walls.

Trouble is, fear of being kicked out in the street may inhibit what is otherwise a happy home.

The Jones Can Not Do Math

Don't worry about keeping up with the Jones. Generally, they appear to be more prosperous but they're not. Better to live within your means than to try to keep up appearances.

- From page 81.

The Federal Courts' Organizational Structure

Under the Supreme Court there are the Appeals Courts. These consist of 12 Circuits + a special Appeals Court in the District of Columbia.

Under the Appeals Courts there are 94 District Courts. In addition, there are Agency quasi-courts and the Tax Court. At this level, there's also the U.S. Court of International Trade and the U.S. Claims Court.

At the bottom of the heap lies U.S. Magistrates and U.S. Bankruptcy Courts.

- From page 43.

Honda on Success

Many people dream of success. To me success can only be achieved through repeated failure and introspection. In fact, success represents the one percent of your work which results only from the 99 percent that is called failure.

- Soichiro Honda

More on Soichiro Honda

The General Motors Example

Here’s an illustration of the mentality of what has gone wrong with finances at the national, the corporate, and the individual level.

Between the years 1985 and 1994, General Motors earned $17.92 per share of stock but paid out dividends of $20.62 per share. So, where did the $2.68 come from?

But wait! In addition to paying out $2.68 more per share than they took in, GM also spent $102.34 per share on capital improvements.

But wait! There’s more: loss of market share, employees out of work (but still being paid) and under-funded pension plans and medical liabilities. No wonder they needed a bailout.

While the book is silent on how Donald Trump got himself in so much debt, the wisdom here applies to us all.

- from page 69.

Meetings: The Rally

Hill states that he recreated the psychology of religeous revival meetings in sales meetings. The same idea applies: get more converts in one; get more sales in the other.

I've been to both; I've not got caught up in either. I certainly do agree that continual reinforcement by having people work together continually produces more and better results.

Seeking Alpha

This is the name of a super financial site. It is not exactly an aggregator. People submit articles to this site as they would to a magazine. It has a very large number of authors and readers. Most of its content is economics and investments.

Fund Borrowing Is Not Revenue

The fiscal year end financial statements for the United States Chess Federation were released to their Finance Committee today. They will review them over the weekend prior to wider release. Already there is discussion over the meaning of the word "revenue".

A special fund, the Life Members Assets Fund loaned money to the General Fund during the course of the year and somewhere that is showing up as revenue. (So one of the members claim; I have not seen the financials.)

This case has some instructive points. Here's what the accounting rules are.

Within the over-all organization, transfers of money from one department to another are not revenues. Even from just the individual fund's perspective, this kind of transfer is not a revenue to that fund since the General Fund owes the money back to the LMA Fund. If it were not a loan, the transaction would be suspect. Special restricted funds cannot override their restrictions by just transfering their money to the General Fund.

When you read financials, beware of those inter-fund transfers!

Finance Knowledge Is Made, Not Born

People should not be ashamed of being financially ignorant. (Unless you’re a CPA like myself!) Many folks do not want to admit they need help. Seeking financial advice is one way of having to admit that; reading a book or a blog is another.

No one is born with the knowledge of how to drive a car. Neither is one born with financial acumen.

One of the goals of this blog is to encourage people to get books and read the wisdom of one of the masters.

Managing Current Assets and Liabilities

Current assets are liquid enough that they can be converted into cash within a short period. Current liabilities are due within 1 year.

The key to managing these is to determine the minimum and maximum levels during the year. How will the debt payments be made? Where will the cash come from?

Comparing the current ratio from past years and to other companies of the same size in the same industry can help determine how your company is doing in this area.

Jobs on Success

If you are working on something exciting that you really care about, you don't have to be pushed. The vision pushes you.

- Steve Jobs

More on Steve Jobs

Focus Your Energy

Concentrate all your energies on the task at hand. At some point one must determine what tasks to do and what order to do them in. This is where discernment comes in. Making a little effort to decide what to do and then doing it will matter a lot.

Knowledge + Organization = Power

Knowledge, general and unorganized is not power, only potential power. – Thus Hill.

I like to think of science. There is pure science and applied science. Applied science takes the general knowledge of science and applies it to inventions, drugs, and what have you. It uses knowledge to make practical things.

It seems that this process is what Hill is talking about. Before you can apply your knowledge to solving the problems in your life, you must first have a pool of knowledge to draw from.

Master Blogger on Personal Finance Blogging

Here are the submission guidelines for Get Rich Slowly. This is one of the top blogs on personal finance, #4 on Wisebread’s top 100.

These guidelines form an interesting essay on the art of writing on financial issues. He stresses original writing and thinking and having an original point of view. He stated he does not necessarily want new ideas but new slants on old ideas. A lot of this is great wisdom but I do not think this is for everybody.

The shelves in the local library and the ones in the local book stores fairly groan under the weight of business/personal finance/development literature. Even I am overwhelmed by them all – and I’m a CPA! When I read a book or a blog, while I do want good writing, when it comes to this area, I want the important information first. – And hopefully as succinctly as possible. How about you?

Frankly, too much writing gets in my way. As you can tell, I admire Rich Dad, Poor Dad series but how I wish Robert Kiyosaki was less creative! Just give me the info, dammit!

Also, different blogs have different focus’ than that one does. This one, for instance, covers selected master writers or doers together with my thoughts on them. Most entries are short. They are not meant to be a substitute for those books but an encouragement to read them. In addition, my focus is broader than just personal finance. On the one hand, this blog goes into business knowledge in the corporate environment; on the other it goes into personal development.

There is much to admire in this guide. I’d suggest that all finance writers ought to read it. But in the end, it is a guide not the 10 Commandments. We all have to follow our own muse.

Teen Driving Down

Percent of teens with drivers licenses.

	Age 17	Age 19
1978	75%	90%
2008	50%	77%

Source: Advertising Age via The Motley Fool.

Less teens are driving now than before. What are reasons for this and what are the implications?

Why: internet means folks can communicate and shop without having to travel. In large cities, teens can text and play games on their cell phones while using public transportation.

Implications: Auto and retail stores in trouble – long term.

Footnote: The bad economy will explain declining auto sales among teens. It does not explain declining driver licenses.

Kids' Credit Cards

Another of Dave's big no-no's. Giving children credit cards does not teach them to be responsible with their money. It does the opposite.

What Price To Charge?

Marketing people say that pricing of products and services is part of the sales process. “Set prices to maximize sales,” they say. Accountants look at pricing this way: “Set prices to cover costs + profit.”

 

Prices can be set too low. The higher the price, the higher the perceived value of the product or service becomes. If the price is too high, though, then it becomes “too expensive”.

 

3 Considerations:

 

• Integrate prices with rest of the elements of the marketing strategy
• Relate prices to needs and perceptions of target market’s members
• Modify prices to match changing competitive environments.

 

So, pricing is an art. The accountant still says, “do not price below your cost.”

Bill Gates on Success

As we look ahead to the next century, leaders will be those who empower others.

- Bill Gates

More on Bill Gates

Photo (cc) Kjetil Ree.

Bad Times Can Give You an Edge

- By selling harder. Selling in hard times gives the person who works harder and smarter an edge because the toughness of things weed out competition. "If you are in business, you need to learn how to sell."

I spoke today to the manager of a cab company. He told me that he's never seen times as tough as they are right now. I told him that I've experienced cab drivers who are not nice to the customers. He said some were like that. I did not have the heart to tell him that I think almost all the drivers I've experienced treat people badly.

I believe that the key to success in this business in tough times is to be treat customers nicely - and ask them to repeat the experience.

Summary of the Laws of Success

Here’s a summary of Napoleon Hill’s Laws of Success:

1. A definite chief aim
2. Self confidence
3. Habit of saving
4. Initiative and leadership
5. Imagination
6. Enthusiasm
7. Self-control
8. The Habit of doing more than paid for
9. Pleasing personality
10. Accurate thinking
11. Concentration
12. Co-operation
13. Profiting by failure
14. Tolerance
15. Practicing the golden rule

Are these laws all there is? I just cannot help but think of those folks on American Idol who seem to be so determined to become singing stars but cannot sing. At some point, being smart in the selection of one’s work becomes a necessity. On the other hand, I’ve spent years of my life on jobs that were “safe” but I did not like while avoiding those that I wanted because they were not safe. There has to be a trade-off between following one’s dreams and monetizing them.

All on One Page

The Simple Dollar is another fine blog. I like that word “Simple”. The author, Trent Hamm, wrote a small book that summarizes the field of personal finance as succinctly as possible. He’s giving it away for free.

His upcoming book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams, is coming out later this month.

Sample post: 7 tips on getting things done.

I like his blog and I like this book! Visit it and tell him Jack sent you.

Illustration cc Trent Hamm.

Religion in the Workplace

The law does not always follow common sense but let’s start with common sense, anyway. People ought to try to avoid being “in your face” with their religion. Apart from legal issues, it is just not effective. Common sense kinds of things, like posting a favorite Bible verse on the wall of one’s own office or cubicle is allowed both common sense-wise and legally.

Cliff Ennico, of Townhall Finance wrote,

Generally, employers are required by law to make "reasonable accommodations" to employees with religious needs, just as they are required to do for the disabled. Title VII of the federal Civil Rights Act of 1964, among other laws, offers broad protections to religious-minded people.

Extreme views about separation out of religion are just as bad as extreme views about turning workplaces into de-facto semi-churches. In a controversy, both sides need to chill.

Leave a Will

Dave says that over 70% of Americans die without a will. Personally, I think that if one has no assets but life insurance, then a will is not necessary. If one has children, then a will to provide for their upbringing is still a good idea.

While all the professionals in the whole universe will hate me for saying this, I just not think paying a lawyer a whole lot of money for a will when assets are minimal and the children are grown is needed. But yes, except for that, most people do need a will.

About That Deficit

I recall a Kiwanis Club Meeting around 1994 where the local Congressman was talking about cutting the deficit but people were confused as to why the national debt was still going up.

The reason is that a non-profit organization by definition does not report profits or losses. Instead they report surpluses and deficits.

That’s why management may report cutting its deficit while still increasing its debt. Cutting the deficit just means that the organization is loosing less money than before but it is still loosing money. In fact, an organization may actually report a surplus while still increasing its debt. It all depends on whether it uses the surplus to pay down debt or use it for something else.

Cicero on Success

Genius is fostered by industry.

- Cicero

More on Cicero

Oil and Gas Prices Going Up

They discuss the general trend of oil prices going up. This is before the great BP oil spill in the Gulf. Obama has shut down other off-shore oil rigs.

With less supply of oil, this means that prices will go up, even if only because we have to replace the domestic output with foreign sources. This is in addition to the general upward trend in oil prices.

Henry Ford on Education

I don't agree with Napoleon Hill's view on the role of education in achieving success in life.

He tells the story about Henry Ford suing the Chicago Tribune for calling him "an ignoramus". At the trial, the Trib's lawyer tried to demonstrate Ford's lack of education by asking him a bunch of trivia questions which Ford parried. Then the witness countered by telling the lawyer that on his desk lay a row of buttons which he could use to summon experts who could provide the answers to all these questions and more.

The moral that Hill teaches from this story is that

Education - let us not forget this - consists of the power with which to get everything one needs when he needs it, without violating the rights of his fellow man.

Hill is on much firmer ground when he looks at the case from the lawyer's point of view.

The successful lawyer is not one who has memorized the greatest of principles of law. On the contrary, the successful lawyer is one who knows where to find a principle of law, plus a variety of opinions supporting the principal which fit the immediate needs of a given case.

My own opinion: being an expert does not necessarily mean knowing a lot of facts (- that forms the basis of expertise!) is is knowing how to find out the facts that one does not know in a timely and efficient manner.

Lessons from the Oil Spill

Last April 20 the Deepwater Horizon drilling rig exploded, killing 11 crew members. Two days later it sank while oil gushed out of the broken piping below. This was an offshore drilling rig 50 miles south of Louisiana. Three companies were involved: BP, Halliburton, and a company called Transocean. The three companies are blaming the others for the disaster.

As the blame-shirking and the finger-pointing commence, one thing is clear. There was no unity of command, no central management of the project. As the different companies say the others were responsible, it becomes clear that no one was in charge. This was the first management failure.

The second is implied by the two day time lag between the explosion and the leaking. Why was there no immediate response team in place? Why was there no disaster plan? It appears there was no contingency planning done at all?

Unforeseen disasters happen to any project, no matter how small. Proper management structure and contingency planning can contain unforeseen disasters.

More info at The New York Times.

Basic Insurance

Some insurance you just cannot do without. Car insurance, for example. The law requires that you have it. Here are some other kinds of insurance:

Life Insurance. Purchase only insurance, no saving plan features, only insurance. Some riders may make sense but buy only those riders that actually affect the insurance. For savings and investments, life insurance is just about the worst vehicle there is.

Disability Insurance. Did you know that you’re more likely to get disabled than to die? Dave recommends that you buy enough insurance to replace 50% to 70% of your income.

Health Insurance. Dave’s book was written before Obamacare, so I’ll say this about health insurance. While the payments may go up, the quality of the insurance policy may go up, too. – At least what the Democrats think goes into a “quality” insurance policy. You may agree or disagree with them on what that is. The newspapers reported monthly premiums going to $500 per family. You doctor may not participate in some of these new government programs, so getting the insurance does not necessarily mean that you will get treated. You may have to look around and wait for doctors who will treat you.

Long Term Care. When your age gets to the late 50’s, your premiums goes way up. Best to get this kind of insurance in late 40’s to early 50’s. Dave recommends it if you’re over 60. My opinion is that over 60 know that the insurance companies are looking at the same cost calculations that you are and have priced their policies accordingly.

Homeowner/Renter Insurance. This posts addresses personal property.

I’ve seen a number of yard sales as old people try to unload their accumulated belongings. The plain fact is that for most household items, very little value will ever be recovered from them. Also, a lot of the junk you have you can do without. Sorry, but that’s the facts. Dave does not address this but I believe that you should just determine what you absolutely have to have in case your home/apartment building burns down and buy enough insurance to get that.

Note that real estate is another matter

Exchange Rates

How many pesos can you buy with one dollar? This kind of question illustrates the concept of exchange rates.

The more you can buy, (dollars appreciated) the more import prices fall and export prices rise. That means that foreign imports are more affordable to domestic purchasers and our products are less affordable abroad.

On the other hand, when the dollar depreciates, the reverse happens. So, it follows that the best way to help our foreign trade is to devalue the dollar to the lowest, possible, right? Wrong. The less value the dollar has, the more dollars it takes to buy things. This is also known as inflation.

In the USA, the dollar’s exchange rate floats on the open market. I once had to do bank reconciliations of amounts held in foreign banks in foreign denominations and compare to transfers to and from U.S. banks in dollars. It was a headache! The exchange rate fluctuates.

The concept of foreign exchange is critical in international business.

Hamilton on Success

Men give me credit for genius but all the genius I have lies in this: When I have a subject in mind I study it profoundly. Day and night it is before me. The result is what some people call the fruits of genius, whereas it is in reality the fruits of study and labor.

- Alexander Hamilton

More on Alexander Hamilton

Retirement Ripoff

This is the headlines in a TIME Magazine story from the October 31, 2005 issue:

The Great Retirement Ripoff

Millions of Americans think they will retire with benefits are in for a NASTY SURPRISE.

How corporations are picking people's pockets with the help of Congress.

The generations have developed the mentality of just kicking the funding of retirement issues over to the next generation. Trouble is that this just makes the problems even worse. Eventually one generation will get stuck with the tab.

People have go to develop their own retirement personal fund that they alone control.

Source of Ford's Wealth

At his height, Henry Ford’s assets consisted of 25% tangible (cash, plant, equipment, etc.) and 75% intangible (his experience, his associates, his organization, etc.). Hill makes this interesting point:

Destroy every plant the Ford Motor Company owns: every piece of machinery; every atom of raw or finished material, every finished automobile; and every dollar of every deposit in any bank, and Ford would still be the most powerful man, economically, on earth. The brains that build the Ford business would duplicate it again in short order.

To me, it follows that time is our friend, not our enemy. The longer we have lived, the more experience, knowledge, and relationships we have had the opportunity to accumulate. The more intangible assets we have accumulated.

Bots on Social Marketing

Facebook and Twitter are all the rage and yes, I joined in, too. The time to keep up with all the tweets and wall messages overwhelms. So, I see that people have resorted to automated services. They automatically generate replies and follow people who follow you. I notice the same canned messages coming in over and over.

So, how many of the communication is from real people and how much of it is just bots talking to other bots?

Last month, with my mother dying, I traveled to Seattle to see her. I tweeted this. No one responded. Just the same messages came in as before. Now personally, I don't care but the implication for actual communication that is occuring is large.

One has to measure the amount of authentic communication that is occuring in this media.

Carry Cash

Dave advises to carry cash instead of credit cards even though you may get robbed. He believes that you loose more money through credit card fees than through the risk of robbery.

My parents used an envelope system for their expenses. They had envelopes for groceries, mortgage payments, gas and so on. Then they cashed their paychecks and allocated the money amongst the envelopes. They lived out of these envelopes. That’s how they budgeted.

Statute of Frauds

This law requires agreements to be in writing concerning:

1) Land
2) Performance greater than 1 year
3) Sale of goods of $500 or more
4) Promise to pay the debt of another
5) Promise made in consideration of marriage
6) Promise of an executor or administrator of an estate to pay estate’s debts out of his own funds.

From watching Judge Judy and other such shows, they seem to live on the disregarding of agreements in writing.

As a practical matter, one should always get it in writing. I recall from 20 years ago, a mechanic who declared to me that he would put nothing in writing; if people would not trust one another’s word, he would have nothing to do with them. Since he was so adamant, I let him get away with it. Needless to say, the relationship ended badly. – Lesson learned.

Pliny on Success

It is a maxim universally agreed upon in agriculture, that nothing must be done too late; and again, that everything must be done at its proper season; while there is a third perception which reminds us that opportunities lost can never be regained.

- Pliny the Elder

More on Pliny

From Mark Twain

They cap their section on self reliance with a quote from Mark Twain.

"Don't go around saying the world owes you a living. The world owes you nothing. It was here first."

The Master Mind

Every mind is a TV station that has both a transmitter and a receiver. Napoleon Hill’s corollary to this concept is that the mind needs at least one other station to network with it. One will go father with a partner/mentor/advisor to bounce ideas off of and to receive encouragement from.

Thomas Paine noted that he experienced two distinct kinds of thoughts. One class were those that came from study and reflection; the other just entered through their own accord. Most success authors address the first class; Napoleon Hill’s writings on “The Master Mind” addresses the second.

Has Print Media Hit Bottom?

Finally advertising revenue is going up for the industry. But not subscriptions. Over at the Washington Post, they’re selling Newsweek Magazine. There does not appear to be a path for recovery for that publication.

Part of the industry’s problem is loss of credibility. Too many times ideology has trumped facts. Even readers who agree with a publication’s point of view can feel that they’re being manipulated over being informed. Management of these declining media may not be able to control many factors in this internet era but this is one that they can.

There’s a lesson there for the internet publishing industry.

On another front, internet media needs a viable business plan. This plan should have 3 legs to earn revenue: 1) Reader support; 2) Advertising; and 3) Sponsorships. We can understand the last two legs but how to garner reader support? Getting readers to pay $ remains this industry’s biggest challenge.

Debt in Divorce

Divorce decrees may obligate one spouse to pay the debt but both are still responsible for it. The creditor can still go after the “innocent” spouse. That spouse still has to pay. The divorce decree just gives the “innocent” spouse lift to sue the other spouse. Moreover, the credit report of both spouses still gets hammered.

Dave counsels people to refinance debts in the individual’s name before the divorce gets finalized. Divorce attorneys ought to make that part of the divorce process.

Internal Rate of Return

Is a big investment worth the money? Well, what rate of return do you expect to realize from it?

Imagine that someone offers you an annuity of $5,000 for 5 years. How much should you pay for it?

The rate of return is similar in concept to the interest rate. You are putting out money for something and you want to know what you are going to get back out of it.

Here’s a test case: what is your rate of return for your social security? Hint: It’s lower than you think.

Drucker on Success

For it is the willingness of people to give of themselves over and above the demands of the job that distinguishes the great from the merely adequate.

- Peter F. Drucker

More on Peter F. Drucker

Today's Major Economic Problems

What are today’s major problems? (Remember, the book was published in 2006.)

• Dollar is falling
• Debt is rising
• Retirement funds (social security, Medicare, pensions) going bankrupt
• Oil prices rising
• Gap between rich and rest increasing
• Wages decreasing

They say and I strongly agree that the reason for these long term problems when they first arose. Instead people were taught to depend on government to solve their personal problems for them.

The Laws of Success

Napoleon Hill is one of the titans of self improvement. He's got great ideas but sometimes he gets carried away. For example, he talks about how two or more people can encourage each other and pool their mental resourses to achieve more but then he goes into mental telepathy. The first part is great; loose the second part.

He starts the book by taking up the importance of inter-acting with other people. He would love the possibilities presented by Facebook and Twitter!

"Success is the matter of tactful organization with other people." In the end, it does seem to me that having some kind of mentor/coach/advisor/chief assistant will help anyone "think rich".

How Many Books to Read?

The number of books on personal financial planning, business success, and personal growth are overwhelming. The number of blogs and websites are even worse. Worst of all, many of them contradict one another. I'm a CPA with years of experience and even I am overwhelmed by the volume of the literature.

I suggest not reading too many books. Yes, I know that this seems to contradict the output of this blog but if you notice, major authors are not here. I like to read this stuff because it's fun and interesting as well as rewarding. You don't have to.

The most important thing about having a plan is that you have one. It may not be the best one but as long as it's not really bad, you're better off following one than going through life aimlessly.

I suggest that everyone gets just one book and reads it thoroughly. Know it inside and out. You'll be better off than having a library of books which you know only in passing.

Debt Management Companies

Debt management such as Consumer Credit Counseling Service help get debtors out of debt by consolidating debt and getting lower interest rates. Dave says that they hammer your credit rating by hammering your credit rating the same as if you had filed a Chapter 13 bankruptcy. While people may not be able to get home loans by going through this program as he claims (I do not know about this) I do know that people were able to obtain car loans as well as new credit cards after going through this program.

Sometimes a person just needs outside intervention. Being able to make just one payment a month can get that past that psychological block of keeping track of many payments each month to multiple creditors.

People in Your Customer Company

When selling to Corporate America, realize that while your formal customer may be the company, you must deal with individuals within the company. So, how to plan a sales strategy for:

1) Gatekeepers, who answer telephones and control the information flow
2) Influentials, whose opinions are valued by
3) The Decider, who decides whether or not to buy your product or service
4) The Buyer, who negotiates the terms of the sale
5) The User, who will actually use and benefit from what you sell

When you've developed a strategy for selling accounting and tax services to these groups, call me. It's harder than the textbooks say.

Washington on Success

No man who continues to add something to the material, intellectual, and moral well-being of the place in which he lives is left long without proper reward.

- Booker T. Washington

More on Booker T. Washington

Investment Diversification

Warren Buffet said, “Diversification is protection against ignorance. (It) makes very little sense if you know what you’re doing.”

Their book is about knowing what you're doing.

Sharpen the Saw

This means deliberately taking time out to work on self-improvement. Covey identifies 3 areas: physical; mental; spiritual; and social/emotional.

While the book does not mention it, I recall that Jesus Christ regularly took time out and withdrew into the desert to fast and pray. I like the idea of time-outs and I certainly do think that people ought to do more of them.

HP Buys Palm

Hewlett Packard’s purchase of Palm for $5.70 per share should be a case study in corporate mergers. The bottom line question is this: Is Palm worth $1.2 billion?

Worth is more than just what’s left over after subtracting liabilities from assets. There’s the company’s prospects for the future. There’s the intangible of the worth of the workforce. In Palm’s case, neither of this appears to justify the price.

The company has posted $430 million in losses over the last 4 quarters. It has $202 million in cash (a $1.25 per share) but at the rate it is bleeding cash, even that is iffy.

The company’s smartphone business has dropped off and there does not appear to be solid prospects of recovery. As for the workforce, chief competitors such as Apple have been gaining.

Some observers place the worth of the company more near zero that $1.2 billion. Sieman’s and Motorola paid suitors to take their money-loosing cell phone operations off their hands. Will Hewlett Packard someday do the same?

More on Budgeting

John Maxwell wrote, “A budget is people telling their money where to go instead of wondering where it went.” Everyone ought to budget – everyone!

Cash Equivalents

These are short-term investments that are so liquid that they can be readily cashed in. The downside risk is negligable. These include bonds that are almost at the end of their maturity. Examples include money market funds and treasury bills.

These are included in cash on the Statement of Cash Flows.

---

For my accounting reference book, I use
Wiley GAAP 2010: Interpretation and Application of Generally Accepted Accounting Principles (Wiley Gaap (Book & CD-Rom))

Jordan on Success

The minute you get away from fundamentals - whether it's proper technique, work ethic, or mental preparation - the bottom can fall out of your game, your schoolwork, whatever you're doing.

- Michael Jordan

More on Michael Jordan

Photo cc Steve Lipofsky.

The Entitlement Mentality

Both men are against the entitlement mentality. Too many people figure that they are entitled to government to take care of their needs – and not just poor people, either. Pensions are a huge national liability and it is not certain that they will be collectable with the time comes.

People have to take charge of their own finances and their own futures.

It's significant that their book was written before Obamacare passed last year.

Synergize

This means several different things working together and the whole being greater than the sum of the parts. Covey’s chapter on synergy is a bit hard to understand. I think he means all of the habits working together. He talks a lot about different people working together on something.

The Moral Perfection Project

In 1733 Benjamin Franklin began a project for self improvement. He listed 13 virtues he would work on. He thought this a managable list and so it helped him to focus on what he thought was important. This is his list together with his definitions of virtue.

Temperance: Eat not to dullness; drink not to elevation
Silence: Speak not but what may benefit others or yourself; avoid trifling conversation.
Order: Let all your things have their places; let each part of your business have its time.
Resolution: Resolve to perform what you ought; perform without fail what you resolve.
Frugality: Make no expense but to do good to others or yourself; (i.e. waste nothing).
Industry: Lose no time; be always employed in something useful; cut off all unnecessary actions.
Sincerity: Use no hurtful deceit; thing innocently and justly, and, if you speak, speak accordingly.
Justice: Wrong none by doing injuries, or omitting the benefits that are your duty.
Moderation: Avoid extremes; forbear resenting injuries so much as you think they deserve.
Cleanliness: Tolerate no uncleanliness in body, clothes, or habitation.
Tranquility: Be not disturbed at trifles, or at accidents common or unavoidable.
Chastity: Rarely use venery but for health or offspring, never dullness, weakness, or the injury of your own or another’s peace or reputation.
Humility: (this last was added at a friend’s suggestion. – JL)

His project aimed for success in this world and not so much as exaulting his soul in the next. He strove for the practical.

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Pictured: Benjamin Franklin at his regular day job, working in the printing office.

More information: Wikipedia, Franklin's Autobiography

Prepayments Are Bad

Prepaying things like college tuition and burial expenses are not good investments. The rates of return do not justify the investments. Better to invest the money in mutuals and use that to pay expenses later. Making arrangements in advance are good; it is just that prepaying those arrangements that are bad.

Use of Statistics

Here’s a few examples of using statistics in business:

Quality Control
Say you have to inspect a shipment with a large number of items in it. Instead of inspecting each and every item, you select a few at random. Statistics can help you determine how many to select and how well your sample reflects the whole shipment.

Market Surveys
This is like opinion polling.

Demand for Products
Statistics can help determine what factors make up demand and how important each factor is. Example: selling ice cream. Factors: price point, weather, average income, number of children.

Financial Auditing
CPA’s exam random transactions and use statistics to project these to the whole.

Product Testing
Statistics are used to determine if results are caused by products or by other factors.

I’ve seen statistics over-used, too. Overall, it is a good tool to have.

Sarnoff on Success

A career, like a business, must be budgeted. When it is necessary, the budget can be adjusted to meet changing conditions. A life that hasn't a definite plan is likely to become driftwood.

- David Sarnoff

More on David Sarnoff

How Government Makes More Problems

According to Trump and Kiyosaki, in the 1930’s FDR rolled out social security which is a huge problem for us today. In the 1960’s Medicare and Medicaid came out and now these, too, are huge problems today. In 1971, the dollar went off the gold standard and the falling dollar is another huge problem today.

Many of the economic problems that so bedevil us today are caused by government programs that were supposed to be solutions to problems. They just kicked the can down the road. Now the problems are much worse.

Seek Understanding

Interesting thought: we listen and read by channeling information through our own frame of reference. Covey recommends “empathic listening” by changing perception away from first person frames of reference.

This includes taking the time to talk to people one-on-one.

China's 1st. Quarter Growth Is Great

While western economies are reeling, China’s economy appears to have turned the corner. Its GDP grew 11.9% in the first quarter reversing poor numbers from last year.

I see two themes in today’s reporting.

1) Western economists want China to export some of that growth to the rest of the world by increasing the yuan’s exchange rates. Fat chance.

2) Fears of inflation due to the hyper economy. China, unlike Malaysia and India, has not raised interest rates to cool their economy.

They have kept a lid on credit, however. The government cut the 2010 quota for new bank lending 2.1 trillion yuan to 7.5 trillion.

China is now on track to pass Japan to become the world’s second largest economy.

Mobile Homes

He’s against them – because they loose their value like cars. His suggests renting instead of buying a mobile home.

This works only so long as rent payments for an apartment are lower than mortgage payments. In my own opinion, a better way to look at this is to estimate the time one lives in the mobile home and then compares the total amount of the mortgage payments versus the total amount of the rent payment for the same period. An added wrinkle is to determine if the mortgage interest and the real estate taxes throw you over the threshold of itemizing taxes. The taxes you save because of itemizing go in favor of mobile homes.

Conclusion: he believes mobile homes are a bad choice; I believe that it depends.

Government Policies in a Recession

What can governments do to improve economies in a recession?

One tool is monetary policy. It can increase the supply of money to increase aggregate demand. In a recession money is not flowing enough to cause inflation but as the economy heats up, then that becomes more possible.

The other tool is fiscal policy. Government can run a deficit. It can do this either two ways: a) spending more money on targeted areas of the economy, or 2) tax reductions. The problem there is that the government then has to borrow money in order to cover the deficit. That means that money is turned back over to the government in exchange for notes.

This indicates a consequent reduction in government operations to cover the costs of its economic management policies.

Steinbeck on Success

People need responsibility. They resist assuming it, but they cannot get along without it.

- John Steinbeck

More on Steinbeck

Money Can Not Solve Poverty

No it cannot. I recall that during the period when welfare spending was riding high, over a trillion dollars was spent. If that money had been given directly to the poor, this was enough to make each of them rich. All that spending really accomplished was to create a culture of poverty: government bureaucrats and recipients alike enjoying careers based on this program. What the poor really need is financial education. – And jobs.

Think Win-Win

An organization works better if everyone is cooperating. He goes into the Emotional Bank Account. Trust comes from past positive actions. Win/Win comes from building trust. He compares this to compromise. Compromise comes from Loose/Win and Win/Loose scenarios.

He talks about the Win/Win Agreement. These agreements have to have 5 explicit elements:

1) Desired results
2) Guidelines
3) Resources
4) Accountability
5) Consequences

With this habit, he shifts from personal stuff to human interaction.

Franklin on Social Networking

Benjamin Franklin started one of the first professional networking clubs in America in the fall of 1727. Think of today's Kiwanis Clubs or the Rotary Clubs and you get the idea of his "Leather Apron Club". His club was informally known as "The Junto". To help discussions, he wrote this guide:

1. Have you read anything lately that is remarkable or suited to be communicated to the Junto?*
2. What new story have you lately heard agreeable for telling in conversation?
3. Hath any citizen in your knowledge failed in his business lately, and what have you heard of the cause?
4. Have you lately heard of any citizen’s thriving well, and by what means?
5. Have you lately heard how any present rich man, here or elsewhere, got his estate?
6. Do you know of any fellow citizen who has lately done a worthy action deserving praise and imitation? Or who has committed an error proper for us to be warned against and avoid?
7. What unhappy effects of intemperance have you lately observed or heard? Of imprudence? Of passion? Or of any other vice or folly?
12. Hath any deserving stranger arrived in town since last meeting that you heard of? And what have you heard of his character or merits? And whether you think it lies to the power of the Junto to oblige him or encourage him as he deserves?
14. Have you lately observed any defect in the laws of your country of which it would be proper to move the legislation for amendment?
15. Have you lately observed any encroachments on the just liberties of the people?
16. Has anybody attacked your reputation lately, and what can the Junto do toward securing it?
17. Is there any man whose friendship you want and which the Junto or any of them can procure for you?
20. In what manner can the Junto or any of them assist you in any of your honorable designs?

* reworded by myself – JL

In this internet age, some of these topics could be used for Twitter and Facebook, too, though these topics seem to me to be mostly for local and in-person meetings.

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Pictured: Benjamin Franklin at his regular day job, working in the printing office.

More information: Wikipedia, Franklin's Autobiography

Life Insurance

Whole life insurance is one of the worst products available. Do not buy life insurance with a savings plan feature. Life insurance is for insurance in case you die. Period. Riders that address payments under various contingencies are okay.

Do not buy life insurance with cash value, no matter how it is disguised. Ever.

There! I cannot make it any plainer than that. Dave's book gives some details.

Types of Franchises

There’s three of them:

1) Distributorships. Gives the right to sell products.
a. Example: Auto Dealers.

2) Format Systems. Gives the right to operate a business using the franchisor’s name and methods.
a. Example: Fast food restaurants.

3) Manufacturing or processing arrangements. Uses franchisor’s formula or ingredients to make and distribute products.
a. Example: soft drink bottlers.

A franchise can come with of a territory or just one location. Franchisees can pay fees for advertising, overhead, and so on. All of this is spelled out in the franchise contract.

Lombardi on Success

The quality of a man's life is in direct proportion to his committment to excellence, regardless of his chosen field of endeavor.

- Vince Lombardi

Mutual Funds

They say that they do not invest in mutual funds because the funds’ expenses are not disclosed. For myself, I think that mutuals are a way station on the path to building wealth. It is a place for ordinary people to get their start. And mutuals give a rate of return that is higher than bank accounts.

Once one builds a pot of money that one can afford to loose (at least partially), then I think that one can “gamble” on a wise, active investment.

Put First Things First

In other words, make priorities and don’t get distracted.

Time management issues have always left me discouraged. It seems that I never can complete a checklist. Covey recognizes this and talks about managing yourself instead of managing time.

This is where his famous Time Management Matrix comes in. He has two columns: Urgent and Not Urgent. He has two rows: Important and Not important. Then it becomes logical to concentrate on the first row and then move on down to the second one. Spending more time on the Not Urgent/Important quadrant will shrink the Urgent/Important one.

Job Hunting in the Facebook Age

Some odd things are happening in the job hunting this year.

One applicant was rejected because after “friending” the manager on Facebook, the manager saw “a semi-nude picture” of him or her. Now, to be sure, people need to be circumspect on Facebook but what is “semi-nude”? - Wearing a swimsuit at the beach? - Shorts and a halter-top in the backyard?

A big no-no is to describe the job you’re applying for as “your dream job”. This means that you’re not sincere. - As in not honest. - As in, “get lost.” So, how can employers be so sure? Cannot applicants have more than one dream job? I’ve dreamt of being a movie star, of being President, of being a really rich writer. – And of being a CPA, too. Was I not being honest when I told employers that this was my dream job?

I saw that one financial services company requires all of its representatives to post nothing about finances on the internet. – Nothing?

Now, people do need to be circumspect on the internet. There’s way too much irresponsible behavior out there. All participants in the business world, employers, their employees, job applicants need to develop a mentality of acceptable conduct on the net which catches up to the technology.

Get Rich Quick - Forgetaboutit

This goes back to Ben Franklin. Basically both Dave and Ben agree on the principle that any scheme that advertises riches for just a few hours a day is bad.

I do not necessarily agree with this. Some schemes are valid but are just marketed wrong. For example, Dave disses real estate. He states he worked 60 hours a week and it took him years to get to a six figure income. I can’t help but think of people who work two or more jobs and never get to a six figure income.

The way the scheme needs to be evaluated is this: with a lot of effort, is a target level income achievable?

If the scheme is multi-level marketing, and an up-line is promoting it as easy money, maybe you need to get under another up-line. The problem may be with the particular individual trying to recruit you, not with the MLM company itself.

I’ve noticed that all the legitimate schemes have one thing in common: they all require a great deal of work. So, I would not dismiss schemes out of hand. Like everything else in business, independent, informed evaluation is necessary.

Financial Planning

This is the process of estimating future financing needs. We look both forwards and backwards. How were previous funds financed and for what purposes were they spent?

The management of a company can determine if the financing and spending patterns are in line with the company’s goals.

Looking ahead, management can budget timing and amounts of when funds will be needed and how they will be obtained.

Bombeck on Success

If you live with someone with the "Sorry-I'm-Late Syndrome, you must resign yourself to never seeing the bride walk down the aisle, never seeing the opening moments of a movie, and never hearing the national anthem to a ball game.

- Erma Bombeck

More on Erma Bombeck

Financial Planning for the Poor/Middle/Rich

The poor are advised to count on Social Security and Medicare. My own advise is to increase income. Personally, I suggest the poor start in network marketing because that way they get financial and business education. This is addition to the obvious: get the best job you can.

The middle are advised to work hard, live below their means, save, invest for the long term in mutual funds. They are passive investors who invest not to loose.

The rich are active investors who invest to win.

All of this tells me that the problem of poor/rich narrows down to achieving the active investor status. Of course, one has to know how to do this – and be smart.

Begin With the End In Mind

This gets back to having a goal. Covey says that all things are created twice, first in the mind and then in the physical.

He talks about the difference between leadership and management. His metaphor to explain this is to imagine cutting a path through the jungle. The leader chooses the path, the manager are the ones cutting through the undergrowth.

This is the chapter where he goes into why and how to make a Personal Mission Statement.

This habit is about leadership, starting with leadership of yourself.

Ben Franklin's Rules of Life

In July 1726 he was 20 years old. Sailing from London to a new job in Philadelphia, he wrote out for himself his “Plan for Future Conduct”. In this plan, he listed four basic rules he would live by. These are those rules.

1. It is necessary for me to be extremely frugal for some time, till I have paid what I owe.
2. To endeavor to speak truth in every instance; to give nobody expectations that are not likely to be answered, but aim at sincerity in every word and action – the most amiable excellence in a rational being.
3. To apply myself industriously to whatever business I take in hand, and not divert my mind from my business by any foolish project of suddenly growing rich; for industry and patience are the surest means of plenty.
4. I resolve to speak ill of no man whatever.

Franklin was one of the earliest self-help improvement authors in America.

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Pictured: Benjamin Franklin at his regular day job, working in the printing office.

More information: Wikipedia, Franklin's Autobiography

The Gold Myth

He believes gold to be a bad investment. I agree that the historical rates of return on gold have been around 2% to 4%. Not good on a long term basis.

I disagree with him about what to do in times of economic collapse, though. In those kind of times, gold can be a safe place to stash your cash until times get better. At least you know it won’t loose value.

Restaurant Marketing

Why do you suppose an Italian restaurant in New York’s “Little Italy” quickly goes out of business?

In terms of the 5 criteria for defining a market segment:

1. Substantial: there were not enough people in the neighborhood to patronize another Italian restaurant. They either ate Italian food in their own homes or they ate Italian so much, their idea of going out was to eat something else. – Chinese, anyone?
2. Homogeneous: inability to identify what group of people would patronize this restaurant.
3. Heterogeneous: the place failed to form a separate identity with respect to other restaurants in the area. Suggestion: “we’re the place for Tuscan food.”
4. Accessible: Location, location, location. Could people find it?
5. Operational: Difficult to find out the attitudes of the target market, since people in the neighborhood might be reluctant to admit they were tired of Italian food.

This kind of thing illustrates the importance of planning a marketing strategy. Who are you going to sell to and then, how are you going to approach them?

Winget on Leadership

Service must be the ultimate motive of your life. Your work is the way you perform the service. Success, happiness, and prosperity come from having served well.

- Larry Winget

The Problem of Financial Education

Both men believe that much of the economic problems the middle class and the poor face is caused by lack of financial education. In another book, Robert said that one has to know how to earn money before one can know how to spend money. He cited that as the reason that many lottery winners are unable to keep the fortunes that they won.

I think that this is a reason that the economy is the way it is. People listen to politicians who make no sense because they do not know better.

Be Proactive

Steve means more than just taking the initiative by this. He also means to stop seeing ourselves as others see us and letting that affect our behavior in negative way.

I do not think that this means that we should be indifferent to how people see us. My dad admonishes me to this day to dress right. People will more naturally be willing to do business with someone who looks professional rather than a slob. Girls and boys will be more willing to go out with someone who looks good than someone who does not.

What I got out of this section of Covey’s book is the importance of attitude. Like Napoleon Hill’s, “Think and Be Rich”. Covey’s approach to changing attitudes is to act. Positive attitudes come from positive behavior.

The Permanent Portfolio

I am not sure what makes this portfolio (PRPFX) permanent other than the marketing gimmick, “the only investment allocation mix you will ever need,” but the mix is easy to grasp and anyone can set up their own fund for themselves. Here’s the formula:

• 15% Aggressive growth stocks
• 35% U.S. government bonds, bills, and notes
• 20% Gold
• 5% Silver
• 10% Swiss Franc assets
• 15% Real estate and natural asset stocks

Source: Permanent Portfolio Funds.

This is a conservative mix which outperforms other mutuals in bad times but lags behind in good times.

The problems are: 1) the 35% in government bonds and 2) the 25% in gold and silver.

Bonds usually get a lower rate of return than stocks. You pay for the security. If you believe the future to be mostly bad, then by all means invest in bonds. Despite the recent downturn, the past history of the 20th. century and the first decade of the 21st. have been mostly good.

Gold simply does not keep pace with either stocks or bonds. Despite all the booming in conservative circles, the numbers don’t lie. Between 1802 and 2006, the value of gold has barely doubled. That’s pathetic.

To sum up, last October, when the financial markets imploded, and you saw on your TV John McCain wanting to cancel a Presidential Debate in order to deal with “the crisis”, it would have been a good time to have dumped your regular funds and bought into this one. Once it looks like the economy is coming out of the recession, then it may be a good idea to move your money back.

Source: The Motely Fool.

Don't Worry About What Other People Think

Whether it be network marketing or frugal living, friends and neighbors may look down on financial makeovers. DR advises to not even consider keeping up with the Jones. Chances are that they're broke.

I would also advise that earning extra income through some honest labor is as good as cutting expenses. As a CPA, image is very important to me. Financial security ought to be even more important to all of us.

Accounting for Leases

Is your lease an operating lease or a capital lease? The magic number is 90%.

If the lease payments (less interest) add up to 90% or more of the asset’s value, then you’ve got to put it on the balance sheet as an asset. You still get to depreciate it and expense the interest, too but the lease payments go to pay down the liability. Oh, yes – you’ve got to calculate your lease liability and put that on the balance sheet, too.

If lease term is 90% or more of the asset’s estimated useful life, then same thing: capitalize.

It’s so much simpler to just expense the lease payments as an operating lease.

The rules for leases are much more complex than the above. This gives you an idea of what to look out for.

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For my accounting reference book, I use
Wiley GAAP 2010: Interpretation and Application of Generally Accepted Accounting Principles (Wiley Gaap (Book & CD-Rom))

Tracy on Leadershop

When you create a clear mental picture of where you are going in life, you become more positive, more motivated and more determined to make it a reality. You trigger your natural creativity and come up with idea after idea to help make your vision come true.

- Brian Tracy

Cash Flow Quadrant

There are 4 ways to make money:

I. THE RAT RACE
1) Get a job and work
2) Self-employed (you own your job)

II. THE FAST TRACK
3) Business Ownership (your business has employees)
4) Investors (not day-traders but folks who put their together their own investments.

This actually is not a bad way to look at things.

When you own a business, you have people doing the work and you make money off of them. Like Network Marketing structures, business owners sit on top of something like a pyramid scheme. The employee takes only a part of the value he adds to the business; the owner takes the rest.

Investors have to know what they're doing. That's why they have to have owned companies themselves. That's how they can really evaluate the good ones from the bad ones.

Change Bad Thoughts to Good Thoughts

Stop thinking, "I have to do ____." Replace it with, "I choose to do _____."

Here are four other negative thoughts to convert:

1) "I must finish." Instead, "When can I start?"

2) "This is so very, very big!" (My largest hangup.) Instead, "I'll take just one small step."

3) "I must be perfect." Try, "I can be human." (Sadly, too many times I turned in work that was both imperfect and late. - By commencing on a project timely, at least I eliminate one of the flaws.)

4) "I don't have time to play." Replace this with, "I must make time to play." For me, this means scheduling a me-break.

Now the problem becomes of when shall we begin the process of replacement of those bad thoughts with the good ones. I guess, we have to stop procrastinating, sometime. Just make the decision and do it!

Alimony Versus Child Support

Regarding Tax Treatment of Divorces:

Did you know that alimony payments are deductible to the person having to pay, and taxable income to the person receiving it?

Child support, on the other hand, is not deductible or taxable. That's supposedly something parents would have to pay for their children whether they stayed married or not.

Review: Rich Dad, Poor Dad

One can go far just from reading from Robert Kiyosaki’s Rich Dad, Poor Dad series. The series takes its name from this first book. RK writes down to the reader so that anybody can understand what he’s saying. Since he illustrates his teaching with abundant stories, there’s a lot of fluff to someone like me. I just want the meat and go on. Here’s my summary of the book.

Introductory material says he has two fathers. His real father was poor but a boyhood friend’s father mentored him in the mysteries of finance. His stories contrast what ordinary people think (Poor Dad) versus what rich people think (Rich Dad).

Rich people don’t work for their money; they have their money work for them. In other words, passive income.

Assets are things that earn you money. If a thing costs you money each month instead of earning you money, it is a liability, not an asset. For example, you personal home is a liability, a necessary liability true but still a liability. If you rent a part of it out then that part becomes an asset.

Rich people own their own businesses. They may have a job but they have some income-producing activity on the side. Exception: top executives at major corporations.

Corporations reduce taxes. I got a lesson in that recently. I’ve got to start my own, even though I’m not rich and happy working for other CPA’s.

Use jobs as learning experience. Sales is a particular experience that you need. That is why he recommends Direct Marketing, if only to learn how to sell. The biggest problem there is fear of rejection and that can only be learned by doing.

There’s more but that’s what I got out of the book. The next book in the series is The Cash Flow Quadrant.