Save $1,000

After you've got into the habit of planning a monthly budget and after you've got current with all your debts, the next step is to save an emergency fund. This savings is just for emergencies.

There's nothing so frustrating as to do all that work with budgets, make progress with bills, and then to get hit with some kind of emergency. You get right back behind on the bills again and you feel, "what's the use?" The emergency fund is for life's little emergencies.

As I said in the past, Dave is okay with his advise, however for many people there may just not be enough income to do all these things. What is needed is discipline and more income. An additional, part-time job to supplement the income may be necessary. Just note, that the Rich Dad crowd doesn't have the corner on financial wisdom, either. Additional income, without the spending discipline steps that Dave Ramsay suggests will only mean more spending. To truly get out of debt, some people may need to do both.

You May Be An Agent And Not Even Know It

People making agreements for another person or company are agents. Agents may have different scope of authority to act but more basic: how are agents created to begin with?

1) By express agreement. That means that the principal and the agent reach an understanding as to what the relationship is. This agreement may be written or oral.

2) By the conduct of the parties. If the two people act like there is a principal/agent relationship, then their conduct create the relationship. In other words, people cannot pretend to have agents in order to cheat others.

3) By ratification of an unauthorized act. This is the same kind of idea as above.

4) By estoppel. If I come home and I see you painting my house and I do nothing to stop you or even find out what is going on, then I’ve got to pay for the paint job, even though there’s no agreement to do so, unless I could satisfy a court that I had good reason not to suspect anything was wrong.

5) By necessity. A child, while away from home, may need to see a doctor on a medical emergency. The doctor has to show that his treatment and his bill was reasonable but if he does so, the parent is liable to pay the bill even though they had no prior knowledge or approval of the action.

However the relationship is established, agents are expected to act in the best interests of the principal.

Hedy Lamarr on Success

Any girl can be glamorous. All you have to do is stand still and look stupid.

- Hedy Lamarr

More on Hedy Lamarr.

90/10 Rule

Their rule is that in investing 10% of the players win 90% of the money. This is opposed to the 80/20 rule where 20% of the clients generate 80% of the money.

What they're trying to say in both rules is that one ought to concentrate one's time and energy on those activities that will generate the most rewards.

The 6 Worst Fears

He says that man's worst fears are:

• Poverty
  
• Death
  
• Ill Health
  
• Loss of Love
  
• Old Age
  
• Criticism

I'm surprised that he did not list fear of rejection as that's what discourages most salesmen.

Hill believes that these fears come from ignorance and superstition. His remedy is organized knowledge.

- from page 122.

Get Current With Debt

By this he means that you stop having past due bills. He suggests prioritizing bills. Get current with necessities first. Things like your utilities, transportation, and so on. You cannot have your electricity or water cut off, nor your car repossessed. So, concentrate on these things first.

Then the other bills like credit cards and student loans. He does not say this, but I think you ought to negotiate with your creditors on ways to make increased payments to get current. You do not have to make lump sum payments, just increased payments to get current.

Final word: this is different than paying off your debt. This is just about getting over the past-due stage. First big savings are those late fees!

Managing Accounts Receivable

Can your company have too much receivables? Yes! There is a cost for each sale, even if that cost is the labor needed to obtain it. Cash flow has to come in before money can be paid out, else the outgo’s have to be paid for by borrowings, or delayed compensation to sales staff and other employees, or by additional invested capital from owners.

In short, accounts receivable costs your company money. They are like interest free loans to customers covered by costs from the company. Cash flow problems from having too much money tied up in receivables can ruin a company.

Financial managers need to calculate the costs of new credit sales to the availability of cash to cover those sales. Sometimes, a company may need to hunker down and wait for the customers to pay up rather than incur more costs.

Dale Carnegie on Success

You can make more friends in two months by becoming interested in other people than you can in two years by trying to get other people interested in you.

- Dale Carnegie

More on Dale Carnegie.

Doing What You Enjoy

Starting at page 87, they go on for several pages about having fun is essential to investing to win.

While it is important to have fun, many of us have responsibilities. Lots of work has to be done in the world and someone has to do it. That work is not fun. - Though menial jobs can be fun. I remember washing dishes in a resteraunt and thinking that if the pay was enough, I would like to do this forever. It gave me a rush to see how fast I could push them through.

The One-A-Week Club

Hill gives a case study of the application of the "Master Mind".

An auto dealer paired up his salesman and set a quota of 1 sale per week. Those who met the quota got special treatment. The pairings meant that people had partners they could rely on and the quota gave them goals to achieve. People seem to work better when they do not work alone and when they agree on what needs to be done.

- from page 118.

About Masters of Finance

My vision for this blog is to identify some of the major writers and thinkers in the area of personal and business finance and to give my views on what they wrote. My posts are short. I encourage my readers to get hold of the books themselves and read them.

Then there’s a few extras.

Each week, I give a post on some current finance story in the news. This can be anything from individual tax news to national economics.

Each Saturday, I will review some other finance blog. Occasionally, I shall just talk about this one and what’s going on with it.

This blog’s purpose is to fill a gap. I distrust lengthy articles on individual topics. I think that financial advice ought to be part of a comprehensive philosophy of how to do things. That’s why I wonder if blogs are the best medium to begin with to dispense financial advice. That’s why I take a few important books and go through them, sharing my thoughts with you. The problem with books, though is their inability to keep current. That’s why the news articles.

I learn a lot by doing this blog and I hope my readers do, too.

What's Going On With the National Debt?

Here's a very informative article about an interview the House Budget Chairman gave on the state of the national debt and its impact upon the economy.

Budget Monthly

Budgets need to be practical. That’s why he recommends that you begin fresh each month. Budget what you earn, when the money comes in, and then schedule out what bills to pay.

My parents used a very simple method. They used to cash all checks and then put the money in envelopes. They paid only cash for all their bills and expenses. The system worked for them.

3 Step Direct Forecasting

This fancy term means that forecasts should be analyzed and compared to three kinds of data: national economic, industry, and company.

1) A company can compare its sales projections to economic projections. For example, a 5% increase may be sub-par in boom economy but great in a recession.

2) A company can compare its sales projections to other companies in its own industry.

3) A company can compare its sales projections to its own past sales.

Looking at sales performance from these three perspectives gives management additional information to refine their decisions.

Benchley on Success

It took me fifteen years to discover I had no talent for writing, but I couldn’t give it up because by that time I was too famous.

- Robert Benchley

More about Robert Benchley.

Picture: from "How to Sleep". The short film became his best-known work, and earned him an Academy Award.

Investors

They give 3 types but they really only mean 2: those who invest not to loose and those who invest to win.

Not to loose investors utilize mutual funds and believe in diversifing. This is probably still better than not investing at all. Even if the market falls, and they recover pennies on the dollar, those are still pennies they would not have had had they just spent them.

Investing to win means making informed decisions about a few vehicles. Kiyosaki and Trump both made their piles in real estate but their general idea is to invest in something that one has knowledge of and some degree of control over.

Discouragers

Hill says to avoid them. I'm not so sure. Some projects just are not worth undertaking. (Those bad American Idol contestants come to mind.)

Still, it is better to pursue something than to just drift through life - as long as one can pay the bills!

As for Hill, he recommends ruthlessness in cutting off relations with minds that do not harmonize with your own.

- From page 113.

Blogging Away Debt

This is a personal site of a wife who obsesses about the family debt and decided to blog about it. Thus, it is more of a journal rather than an advice blog. It can be read for inspiration as well as for as a case study of how one family is coping.

She mentions Dave Ramsay in a few posts, so I assume she is following his system. She covers purely personal topics as well. Her latest post is about her pregnancy.

As of this writing she’s got their debt down to $8,000 - all of it student loans. Since there’s no amount listed for home mortgages owed, we can assume they re renters.

All in all, this blog occupies a limited niche but it occupies that niche well.

Computing "In the Clouds"

Ever think of moving your company’s servers into the clouds? (This means leasing servers from companies that specialize in doing this and accessing them remotely.)

Advantages are:

• No more obsolescence. Competitive pressures make lessors keep their equipment state of the art.
  
  
• No more downtime. The lessors worry about equipment not working. Again, competitive pressures. If their customers experience downtime, a competitor will snap them up.
  
  
• In case of power outages, employees can just adjourn to their homes, or to the nearest coffee house, fire up their laptops, and continue working. Lessors will have elaborate backup plans in place, in case power outages hits them. Reliability is what makes their leases attractive, after all.

Google and Amazon are taking this idea of taking your company’s server to a new level with AppEngine. You upload your software application to them and they take care of providing sufficient servers, network capacity, and so on. You just pay them a usage fee of so much per million uploads/downloads.

One last idea is to keep your dedicated servers in-house but have a reserve server “in the clouds” to handle peak demands.

One Step at a Time

He writes that one should not try to accomplish everything at once. In the rest of his book, he writes about taking things one step at a time and in order, not skipping around. Sounds good to me; one must stick to a plan.

In the Rich Dad series, Robert Kiyosaki and Donald Trump deride the advice to live below one's means. They say that their approach is to expand one's means. I think that they're setting up a false conflict here.

Ramsay emphasizes getting one's expenses under control; RK and DT emphasizes expanding one's income. Both emphasize their areas but I notice that neither excludes the other. Hence, Ramsay mentions taking a part-time job in order to save $1,000; and Trump mentions cutting an expense and investing it.

It seems to me that one ought to be concerned about increasing income and decreasing expenses. I would integrate the two by saying this. While one ought to seek additional income, that income ought to be used to accomplish Ramsay's steps first. (Get an emergency fund and get out of debt.)

Quickbooks Makes Accounting Unnecessary?

If you have Quickbooks, do you need to know accounting? Well, if you have a car, do you need to know how to drive it?

Quickbooks, like cars, are just empty vessels which depend on human knowledge and judgment to work properly. One part is the essential mechanics – knowing what buttons to press. But the other part involves higher knowledge. Like knowing which way to turn at an intersection or knowing which landmark to look for.

Sure, cars of the future may be able to navigate to destinations without human intervention. Quickbooks may someday be able to operate without human accounting knowledge, too. But neither can do that yet.

Bismark on Success

Be polite; write diplomatically; even in a declaration of war observe the rules of politeness.

- Otto von Bismark

More about Otto von Bismark.

Picture (cc by-sa 3.0) by SPBer.

The Importance of History

Everything that is in our minds die when we die. Whatever is left of our thoughts, either from the written word, memories of those still living, indirect evidence from clues we left behind, those are the stuff of history. History is the shared knowledge of real people great and small that came before.

Knowledge is power.

Donald Trump writes:

Give some thought to your roots and why you're doing whatever it is you're doing today. It's a good way to start thinking for yourself - and it's likely no one else but you will come up with the right answers.

- from page 84.

Ally With Other People

There is the old saying that two minds are better than one. I know that I seem to work better when I have someone around me who agrees with what I am doing. On the other hand, when people around me are against what I am doing, discouragement comes easily.

Napoleon Hill relates this to his principle of "harmony".

- from page 109.

The Consumerist

I see that a top rated blog is The Consumerist. It is visually attractive but its content seems to me to be shallow. Now a blog is not a book. I realize that posts ought to be short and they need to get to the point. Still, things ought to be explained, I believe. Also, there needs to be some indication where a person ought to go for further information.

Two posts troubled me.

1) Their top post as I write this is about short selling houses. The item contains an interesting story but does not explain what short selling homes means.

2) Friday Flickr finds highlight pictures to be used in future posts. These are just eye candy. They do not convey any additional information. Indeed, the publisher does not even identify what topic these pictures will be used for. This is a regular Friday feature of the blog.

It has interesting news items. I just note that this is the top rated blog on Wisebread at present. We all could do better (yes, I know "we" means me,too!) but I think the very best should be better than this.

New IRS Policies on Tax Liens

Exciting new policies for taxpayers who are about to get hit with tax liens or have already been hit with one.

• The tax owed the IRS is now $10,000 instead of $5,000.
  
• It will be a lot easier to get a lien removed. In fact, one may get it removed by getting a direct withdrawel agreement with the IRS, after a probationary period. (This makes so much sense one wonders why the IRS have not been doing this all along!)
  
• Small businesses with $25,000 in unpaid taxes can now get an installment agreement over 24 months. Earlier threshold was $10,000. At least this is a step in the right direction. One still wonders why businesses cannot get agreements based on projected ability to pay.
  
• On the Offers in Compromise front, taxpayers with incomes < $100,000 are eligible (versus < $50,000 earlier). Tax liability must be < $50,000 (versus < $25,000 before).

Many people may have just given up. They now have some hope of getting out of their tax debt.

More info from the IRS.

Status Symbols

Dave's was a Jaguar. He has a story about it starting on page 87. My take on that is why own an expensive thing you do not need if you cannot afford it?

From doing people's people's tax returns, I've seen the harm that status symbols can cause. People live in houses that they cannot afford, take vacations, wear clothes and play with stuff - all on borrowed money. Since, I do not have these things, I have hard time relating but I know that this is a real problem for many people.

A Basic Concept of Graphs

Graphs in business and economics visually tell you how two or more variables are related to one another.

In a line graph, the slope of the line tells you how. Remember "rise divided by run". Rise is the change in the verticle axis, while run is the change in the horizantal.

Here's a little homework assignment. On a piece of graph paper (or an excel spread sheet) draw a couple of x,y lines 10 squares across and 10 squares up. x (the horizantal line) = # hamburgers you can buy; y (the vertical line) = number of sodas. Here's your budget: slope = -2. How would you draw the line?

If x = 0, then y = 10. If x = 1, then y = 8. If x = 2, then y = 6. What's the maximum number of hamburgers in the budget? Extending the line to y = 0 will cross the x axis at 5.

Graph analysis get's way more complicated than this but is very useful!

Stevenson on Success

An aim in life is the only fortune worth finding; and it is not to be found in foreign lands, but in the heart itself.

- Robert Louis Stevenson

More about Robert Louis Stevenson