Sunday, May 31, 2009

Example of Self-Reliance

“If we are not taking care of ourselves physically, we are not in a position to help others,” he said. “For emotional and spiritual strength, we need to exercise faith and obey the commandments, pray daily and study the Scriptures and serve others.

“If we don’t have faith and are not serving others and drawing on the power of God, we are not being successful parents and disciples in serving other people.”
Bruce Priday, Lenexa Stake President, in an interview with the Kansas City Star.

The Kansas City Star has posted an article about an LDS family that has worked hard to be self-reliant. I was impressed by how much of their house was designed around food storage. Definitely worth a read.

Friday, May 29, 2009

Gambler's Ruin

I found an interesting instance of the Gambler's Ruin problem the other day.

A simple version of the Gambler's Ruin:

Assume a gambler finds the only fair casino in the world. At a normal game of chance at a casino, the return is less than one dollar per dollar for each bet. This means that over time a gambler is statistically guaranteed to lose money.

At this casino, however, he finds a game of chance where the return is one dollar per dollar. Given a fair game of this sort, if he plays long enough he is still statistically likely to lose more than he wins. Why?

In a game of chance with an even return, like this one, what matters in the long run is who has more money! Since the casino almost certainly has far more money than he does, statistically he will run out first.

Check this out if you don't believe me: Gambler's Ruin (Wikipedia)

Index funds are a way to invest your money automatically across a lot of different companies. An index fund could, for instance, attempt to match the performance of the S&P 500 by investing in the stocks listed in the S&P 500. There are actually funds that will attempt to double or triple the return of some index in this way. To make it work, the fund managers basically borrow money to invest extra. It would be the same as having $100,000 and borrowing $200,000 to invest a total of $300,000.

When I heard about this some time last year, I thought people must be crazy to gamble like that. When I mentioned it to one of my coworkers though, he said "Oh, you should obviously do it, since the stock market always goes up over time, thus mathematically it will work out in the long run."

It certainly would probably work out in the long run, assuming the stock market keeps going up generally, but only if one has infinite capital! Otherwise, any time the index the fund is tracking falls by 1/3, you lose everything. The Dow itself has fallen further than that lately.

The entire economy right now is suffering because of people who told themselves that investments always appreciate and borrowed enormous sums of money, hoping to get rich quick.

Tuesday, May 26, 2009

Giving Yourself an Allowance

Jeremy jokes that every time I mention my allowance in public, he wants to sink into his shoes. It makes him sound like he's really keeping me in check-- the little wife whose husband doles out ten dollars at the beginning of the month, expecting her to cover all the household expenses while he spends whatever he wants. He finds himself wanting to say that it's not as bad as it sounds: he has an allowance too, it's something we both agreed on, I helped determine the amount, etc. etc. Unfortunately, he doesn't often get to explain himself. And usually when I say "I'd love to buy this, but I'm all out of allowance this month," people just have to speculate.

I don't mind making Jeremy squirm a little. It's good for a man. But giving yourself a personal allowance each month has a lot of other benefits as well.

Number one benefit-- freedom. You read that right. While it may not be a huge amount, I have a certain number of dollars every month that I don't have to answer to anyone about. I can spend it all on candy if I want... or maybe one of those elegant German bread pans I was reading about.

Second benefit-- it's easier for me to recognize a good deal now. Have you ever bought a shirt on sale, brought it home, and realized after wearing it once or twice that it you don't even like it? When I am limited by a dollar amount, instead of thinking what a bargain, I should buy two, I think well, it's 75% off, but is it really worth ten dollars of my allowance? You can spend all your money on great bargains and come away with all sorts of things you hardly use and end up throwing out.

Third benefit-- exercise in creativity. I am always coming up with things that I need to buy: new furniture, gadgets, hair products. Anytime there is a problem to be solved, it seems there is a product to help you out. Fortunately, as I have discovered, most of the time there is a way to solve the problem without spending money. Finding the solution takes work and brain power, and it is immensely satisfying.

Fourth benefit-- marital bliss, at least a little bit of it. I don't have to worry about my husband's electronics-buying habits. As long as it's in his allowance, he can get all the computer accessories he wants. In return, I don't have to worry about him rolling his eyes when I come home with an elegant German bread pan.

Fifth benefit-- the obvious. Allowances help us keep our spending in check. For us, this means that someday we can get a house, with some good cupboard space for my European bakeware.

Hard Time

The LDS Public Affairs channel on YouTube has been putting up some great videos.

Sunday, May 24, 2009

House Math 2.0

I found a great website about buying a house:

We're currently renting, so I figured I'd look into whether or not it would make sense for us to buy a condo. Even in the current recession, house prices in the San Francisco Bay Area are rather astronomical.

I input the price of a condo about the size of our apartment in our area (I found it using, the length of time we would likely stay in the house (5 years), the expected bank interest rate, expected appreciation etc. The web site then computed what price we could rent at instead to be in the same financial situation in 5 years after selling the condo. Based on that, it was pretty clear that we shouldn't buy right now - in fact, that we shouldn't buy unless we were planning on being in the area for 10 years. My life hasn't been that predictable so far, so I figure it's not worth the risk.

If you're trying to decide whether to rent or buy, this site is a pretty good resource. Check it out!