This video clip from "The Street" summarizes a lot of what we have been discussing in our blog, so I thought it will be a good refresher, especially before the holidays and in time for making those New Year resolutions!
Useful links to past posts:
How to calculate your net worth
Wealth Generation 101
Plan your retirement now
Thursday, December 5, 2013
Tuesday, December 3, 2013
Black Friday at Walmart - Part 1
Walmart is a classic case of the chicken or egg question - its interpretative ambiguity a wonderful topic for economic discussions which will never know resolution, but interesting to discuss, nevertheless. And it appears to be a recurring topic, especially around Thanksgiving.
This year the headlines were about the Black Friday brawls at Walmart over towels that sold for less than a dollar ( and of course along with the news about the protests by Walmart Union workers, which we will talk about in Part 2) which led me to write this post.
With over 10 million transactions on Black Friday alone, customers swept up over 2 million television sets, 1.4 million tablets, about 2 million dolls and over 2.8 million towels. Should we be thankful for Walmart and for its super sized discounts in a still (sigh) faltering economy?
When we talk about wages and other cost saving techniques employed by Walmart as compared to its so called competitors Costco and Target, what we sometimes miss is the target segment that Walmart is catering to. Walmart primarily targets families with incomes less than $60,000 per year. For this customer segment 'customer care' or the 'shopping experience' is not all that important. Low prices- Always. Period. Why would you need highly motivated, smiley faced, customer friendly employees to run this operation? Costco does not have a layaway section, Walmart is planning to expand it's lay-away. Target does price match for select retail periods but is also looking for opportunities to move away from being a low end retailer - remember the Neimen Marcus line and the Missoni collection?
I think Walmart has a very unique and rather successful business model, which works especially well in economic downturns and no amount of union protests will cause them to change their strategy, because they still receive over 30 applications for each open job at Walmart and numbers don't lie, but then....
When I was little I used to say that I will never become a doctor, because a doctor can be rich only when everyone else was sick. It did not sound very right. Similarly Walmart makes profits when the economy is down, when people fight over towels that cost less than a dollar and when its employees are underpaid - in spite of the successful business model - something does not seem right here. Does it?
But then again, what if no one wanted to be a doctor for the same reasons and there were no incentives for doctors to become the best at what they are doing, what if a cure for cancer will never be discovered, what if there were no vaccinations and flu shots, what if there was no research and no development in medicine, What if...?
I will leave you at that for this week, we will pick up with Part 2 next week. Hope you had a great Thanksgiving!
Thursday, November 21, 2013
It is a long road to Financial Literacy
When the housing bubble burst in 2008 there was hope that this generation will learn from their mistakes and do their own due diligence before they make large financial decisions, but alas it is a long road to financial literacy.
People are being driven to make life impacting financial decisions much earlier in their lives - student loans, credit cards, healthcare, cars. The list goes on. It is almost impossible for people to make wise decisions without some form of financial literacy and this is especially applicable to young people who do not have adult mentors in their lives.
In countries around the world, those on the lower end of the economic ladder have to deal with a corrupt and inefficient political system, social limitations and lack of access to basic infrastructure. Whereas in the United States, there is a lot of basic support available - and in quite a few cases, I think, a little bit of financial literacy coupled with financial discipline can go a long way in improving social mobility.
People are being driven to make life impacting financial decisions much earlier in their lives - student loans, credit cards, healthcare, cars. The list goes on. It is almost impossible for people to make wise decisions without some form of financial literacy and this is especially applicable to young people who do not have adult mentors in their lives.
In countries around the world, those on the lower end of the economic ladder have to deal with a corrupt and inefficient political system, social limitations and lack of access to basic infrastructure. Whereas in the United States, there is a lot of basic support available - and in quite a few cases, I think, a little bit of financial literacy coupled with financial discipline can go a long way in improving social mobility.
Wednesday, October 16, 2013
Goals are for losers
I shamelessly copied that title from Scott Adams ( of 'Dilbert' fame). A soft management issue for a change, but inspiring, nevertheless. And of course, like the kid whose only take-away after listening to an inspiring talk about Bill Gates was that Bill Gates did not complete school, please do not take it out of context!
Fail your way to Success
If you want to be successful ( Read: $$, work-life balance, or however you define success) then don't just sit there talking about it, or crying over past failures and how unfair life has been to you.
And when one day you are ready to pen that life success story, you will know ( if you don't know already) that success is not all luck and passion. It is hardly, if ever, passed down from fore-fathers. It is not sweet talk, board room meeting, plans and goals. It is not what you wanted to do or what you were capable of doing, but what you actually did. It is always a result of sweat and toil. And every success story will have its fair share of failure anecdotes.
So, roll up your sleeves and get your your-know-what to the grind!
Tuesday, August 27, 2013
Taper talk in Incredible India
Replica of the Empire State Building, Bangalore, India
The Indian economy was cruising at a 9% GDP growth in 2010 when the US was in a recession. It has since plateaued to a more modest 5% over the last year. But tepid economic growth in the US ( less than 2%) and Europe, ensured that India continued to be seen as an investment opportunity - like America was in the late 19th century. The increased money supply caused by Quantitative Easing (QE) at this time, streamlined capital all the way to the Indian shores.
India's woes:
However exciting India might seem, it has its fair share of woes. With an under-developed infrastructure, political volatility and red tape tinged in xenophobia, it effectively makes foreign investment an elaborate and painful process. Any foreign investment was for a quick Return on Investment. Even Indians with cash to invest were looking for opportunities abroad to hedge their portfolios or gain exposure to a more reliable source of return.
US Fed Policy is for the US:
US Fed Policy, ( see Monetary Policy ) while independent of Washington, still works in tandem with Washington and its goal is US economic development (not world economic stability). Following the 1997 Asian Financial Crisis, several discussions were had and several steps taken by various Asian governments to internally strengthen their own financial systems and to insulate themselves from global economic events. With India and China and a lot of Asia demonstrating their resilience as they kept up a healthy GDP all through the US recession, it offered glimpses of hope, but alas hope is drying up rather soon.
Why is the Rupee- Dollar rate at 65.00?
As the US Fed indicates a gradual tapering, investors preparing for a reduction in money supply are pulling their investments from foreign shores and as they bring their money home, they exchange their rupees for dollars. As the supply of rupees increases, its value keeps dropping. Besides, the value of India's foreign debt increases as the dollar strengthens vis-a-vis the rupee, and questions arise about the sufficiency of existing foreign reserves. The Indian Central Bank ( Reserve Bank of India) apparently did not see it coming. Could it do something? Will it be too little and too late. We will wait and see.
What next?
India is well behind any advanced nation, even behind some nations in Asia which were considered contemporaries at some point in the past. But India has a vast pool of young and educated workers who aspire towards upward mobility and are willing to work towards it. There is so much room for development. There are so many people. At this stage, India can only grow. The growth rate may not be as exciting as one would want it to be. Growth may not come from foreign investments. It certainly will not come from any policy changes out of the rather lethargic political system. But India will grow. Future growth will be driven by domestic consumption. As the great Indian middle class gains awareness of western comforts and luxuries and aspires to get there, India will grow. And when growth is driven by domestic demand, growth will be more sustainable.
This is my take for the long term. Obviously, there will be some near term corrections. But if you have a long term outlook and have dollars to spare, this is the time to change it to Rs. 65 and enjoy a slice of the next Indian recovery. Even if it is just a CD ( Fixed Deposit) it will earn you close to 8%!
Resources:
Monetary Policy
Quantitative Easing (QE)
India's woes:
However exciting India might seem, it has its fair share of woes. With an under-developed infrastructure, political volatility and red tape tinged in xenophobia, it effectively makes foreign investment an elaborate and painful process. Any foreign investment was for a quick Return on Investment. Even Indians with cash to invest were looking for opportunities abroad to hedge their portfolios or gain exposure to a more reliable source of return.
US Fed Policy is for the US:
US Fed Policy, ( see Monetary Policy ) while independent of Washington, still works in tandem with Washington and its goal is US economic development (not world economic stability). Following the 1997 Asian Financial Crisis, several discussions were had and several steps taken by various Asian governments to internally strengthen their own financial systems and to insulate themselves from global economic events. With India and China and a lot of Asia demonstrating their resilience as they kept up a healthy GDP all through the US recession, it offered glimpses of hope, but alas hope is drying up rather soon.
Why is the Rupee- Dollar rate at 65.00?
As the US Fed indicates a gradual tapering, investors preparing for a reduction in money supply are pulling their investments from foreign shores and as they bring their money home, they exchange their rupees for dollars. As the supply of rupees increases, its value keeps dropping. Besides, the value of India's foreign debt increases as the dollar strengthens vis-a-vis the rupee, and questions arise about the sufficiency of existing foreign reserves. The Indian Central Bank ( Reserve Bank of India) apparently did not see it coming. Could it do something? Will it be too little and too late. We will wait and see.
What next?
India is well behind any advanced nation, even behind some nations in Asia which were considered contemporaries at some point in the past. But India has a vast pool of young and educated workers who aspire towards upward mobility and are willing to work towards it. There is so much room for development. There are so many people. At this stage, India can only grow. The growth rate may not be as exciting as one would want it to be. Growth may not come from foreign investments. It certainly will not come from any policy changes out of the rather lethargic political system. But India will grow. Future growth will be driven by domestic consumption. As the great Indian middle class gains awareness of western comforts and luxuries and aspires to get there, India will grow. And when growth is driven by domestic demand, growth will be more sustainable.
This is my take for the long term. Obviously, there will be some near term corrections. But if you have a long term outlook and have dollars to spare, this is the time to change it to Rs. 65 and enjoy a slice of the next Indian recovery. Even if it is just a CD ( Fixed Deposit) it will earn you close to 8%!
Resources:
Monetary Policy
Quantitative Easing (QE)
Thursday, August 15, 2013
Using your $$$$ wisely
Hello everyone. I am back from my long summer break now and what caught my interest during my travels was a couple who said that they loved to pay taxes. Seriously, they love to pay taxes. They think they need to pay more taxes. God bless their souls. No matter which side of the political aisle my friends sit on, I have never heard anything like that before.
Are they some kind of Warren Buffet wannabes? Just that they do not realize that their net worth is possibly a millionth of Mr. Buffet's or plain simple people who just do not understand how to maximize their dollars? I don't know, but I had to write about it, you never know there might be more people like them!
Lets use this oversimplified example of men and their driving machines. A is a simple man and B is a smart woman and both make $ 100,000 per year. The federal tax on that amount is about 25%
Simple man A happily pays his taxes and is left with $ 75,000 to spend. He buys a Toyota Rav4 for $30,000. His financials look somewhat like this.
Tax: $ 25,000
Purchase of car: $ 30,000
Total expenses: $ 55,000
Assets: A Toyota Rav 4 and $ 45,000 of cash. And he is very happy.
Smart woman B on the other hand, buys a BMW X1 for $ 40,000. Since she uses it primarily for business purposes, she can deduct up to $ 25,000 of a heavy SUV from her pre-tax business income.
So her taxable income is now $75,000. The federal tax on that is about 18%.
And here are Smart woman B's financials:
Tax: $ 13,500
Purchase of car $ 40,000
Total expenses $ 53,500
Assets: A BMW X1 and $ 46,500 cash. Ladies & gentlemen, "Smart is the New Rich".
Personally, I don't see the US tax code being simplified anytime in the near future. It is important that we be tax smart and use the system to our own advantage. Unless, you are some sort of ascetic. Then, of course, you should not be reading this blog:-)
Footnotes:
1. "Smart is the New Rich" is the title of a book by CNN anchor Christine Romans. I have not read the book, but have watched her show occasionally and agree with her most of the time. In this blog I am only borrowing her very ' true and catchy' title.
2. Please note: The example in this post is conceptual and intended solely to create awareness not to serve as financial advice. Please seek professional help specific to your needs if you think you will be eligible for similar or other tax credits.
Wednesday, May 22, 2013
Cool app for the gas misers
I don't know what it is, but if I have filled my gas tank and then drive down a couple of blocks and see a lower gas price, it makes me real mad. I am generally not a miser, but there is something about paying higher because of my own ignorance that really gets to me.
When I discussed this with a few of my friends, some of them quietly agreed that they share the same feeling, and over time, they discover a favorite gas station where they have confirmed by periodic observation that the price is generally the lowest on the block or that they provide some value-add for charging extra.
Hearsay, trial and error are so last generation. And what if you are on the road? This is the smartphone generation and there is an app for everything that you can possibly think about. And of course there is an app to find out the gas prices in a specified location, so can you have this feeling of empowerment.
It is the YP mobile app. Yes the good old yellow pages. Install it, go to gas prices. Type in your zip code or the GPS on it will detect all of the nearest gas stations and will also tell you the price of gas. How cool is that!
And do let us know if you have any other cool apps as well!
And do let us know if you have any other cool apps as well!
Thursday, April 18, 2013
Start Early, Little Millionaire!
If you put aside $ 5,000 every year from the time you are 20, ( assuming that you earn 6% interest) that's about all you need to do, to retire a millionaire!!!!
I am certainly not making this up.
Pick up a spread sheet and input the following numbers:
Interest Rate (rate) = 6%
Number of interest earning periods [ if you start at 20, then you will have 45 years till you retire( nper)] = 45
Annual Payment [ How much you will be putting away every year (Pmt)] = $5,000
And here is the formula.
=FV (rate, nper,pmt) = FV (6%, 45,5000) = ? Check it out to see if I was telling the truth. Never under estimate the power of compound interest.
Well, if you are over 20, it is never too late to start, but also go and educate at least one 15 year-old, so he / she will have time to plan to start putting away at least $5,000 every year starting at age 20 or even sooner.
Educate your kids, Educate your friends kids. Educate anyone who you have access to. Let's make everyone a millionaire. Start early. Start now.
And believe me, one who becomes financially wise at 20, will certainly not stop at the first million. Here's to a million millionaires!
And believe me, one who becomes financially wise at 20, will certainly not stop at the first million. Here's to a million millionaires!
Thursday, March 14, 2013
Happy Pi Day!
They say writing is 99% perspiration and 1% inspiration. But I'm pretty sure it takes the 1% inspiration to lead the way and it has been evading me for some time now. But today is a new day. It is the 14th of March (3/14). It is being celebrated as Pi day. That's a neat way to help one remember that Pi=3.14. It also happens to be Einstein's birthday. And I found out that Einstein, like Edison, had lived and worked in NJ, which I call home. Now isn't that some inspiration!
Alright, lets get back to Pi, which is the subject of this post. Well, the Archimedian Pi that is being celebrated today is not quite used in Finance, but we can talk about something which sounds exactly the same - PI or the Profitability Index, which is just a twist on the NPV and Time Value of Money
PI can be a rule of thumb to determine if your cash outflow will generate any returns. If your PI > 1, then it is a good investment. If not, it is money down the drain. Click here if you like the math of it all. With all the talk about spending cuts and austerity, I thought this would be a timely topic for discussion.
Spending by itself is not an evil. But the question, "Are we spending too much?" and "Should we be cutting back on our spending?" - whether it be for the government or corporations or personal spending- depends on our answer to the following questions:
1. Is your spending greater than your income? (See Wealth Generation 101 )
2. Is your cash outflow a 'spend' or an 'investment'?
2. Is your PI positive? ( PI > 1 is same as NPV > 0) (See PI Math and Time Value of Money)
Here's wishing us all many positive PI days!
Friday, January 4, 2013
Education Pays
Happy New Year to all of my readers. Here's wishing you a very prosperous 2013!
Switching back to personal finance just in time for your new year resolutions, there are a lot of decisions that we can make in our lives that is more important that how many pounds we chose to gain or lose in a year. And right on top of my list will be the one to go get an education or higher education or some trade related certification or just to start reading a good book on personal development.
To all my friends who are either working towards getting a new degree or have got a degree in the past year, my hats off to you and to all of you on the sidelines wondering, I hope these numbers will convince you, "Education Pays".
The average unemployment rate in the US was 9.6% in 2011 and 8.1% in 2012, but you can see how it got materially lower as the education level increased.
Date Source: Bureau of Labor statistics
If you don't have a business idea or a product and the backing of a shark, the least you will need is a Bachelor's Degree!
A lot of the $451 per week jobs have gone overseas and that is a problem, but a lot of the $1,665 jobs are very much in the US and we are bringing in people from overseas to fill them - isn't that an even bigger problem? Or shall I say , "Opportunity"?
A lot of the $451 per week jobs have gone overseas and that is a problem, but a lot of the $1,665 jobs are very much in the US and we are bringing in people from overseas to fill them - isn't that an even bigger problem? Or shall I say , "Opportunity"?
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