Money and Such

Outsourcing: What's Good for Your Business May be Good for You

2009-07-17T09:00:00.000-07:00

Outsourcing. That's how businesses save money by focusing on what they do best, while letting others do work that is not core to their main line of business. Well, what is good for businesses is just as good for individuals. I have had a draft post about this topic queued up for a long time, but last weekend I saw this post from Lazy Man which gave me the push I needed to complete the post. The argument is a simple one: do what you do best and let others handle the rest for a fee. I completely agree.

If anything, I don't outsource enough. I use a tax advisor to do our taxes, I take my car to a shop to get the oil changed and to the cleaners to get washed, and I have no intention of ever trying to mess around with our house's electricity or plumbing. However, I deal with computer problems on my own, and we clean and garden (not very successfully) by ourselves.

Whenever we do things ourselves, the motive is financial, but you have to ask yourself whether that's smart. Unlike Lazy Man, I don't really have a job that pays me by the hour and it's not like I would work an hour more if somebody took over my chores. However, the rationale remains intact even if we use the extra time we save to simply relax. I think it makes sense to pay someone so you can have a bit more quality time to use as you wish (if you can afford to do so).

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Not All Money is the Same

2009-07-16T09:00:00.000-07:00

If you have been following me on Twitter you’d know that I attended a Cold Play concert earlier this week – Monday night to be exact. There’s something really cool about going out on a weekday, especially because I had to take-off from work much earlier than I would normally have left and we had the in-laws baby sit the kids for us. However the topic of this post is not the fun that my wife and I had – although the show was a blast – the topic of this post is the fact that the value of money changes with context.

You know for a fact that everything you can buy at a concert is going to be overpriced to a ridiculous degree, however I did not bat an eye when I paid $13 for a diet coke and some garlic fries. A glass of beer? $9. Really, really crappy pizza? $8 please. No problem at all sir, here’s the cash. However, I sometimes take minutes to figure out whether I should spend 99 cents on a cool iPhone application or to buy a new song. Why is that? It’s all about the context in which I am asked to spend the money. This is not a rational thing, after all, money is money regardless of how you spend it. What changes is my mindset. When I go out, or go on vacation my mission is to have a good time – I come prepared to spend the money. I throw frugality to the wind and laugh in the face of waste. Stupid? Yeah, maybe, but it’s a fact.

But there is some good news – on the way out of the concert we each got a free Cold Play CD. Very cool. My wife gave hers to the in-laws as a thank you gift and then quickly adopted mine. Justice.

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Thinking of Buying a House

2009-07-15T09:00:00.000-07:00

My wife and I are thinking of buying a house. We are both in our late thirties and have never owned our home. I don't believe that a house is a good investment, and since we didn't know for sure we were going to be staying in California, we were never in a rush to buy a house. Now that our kids are growing up and our rented place is getting too small for our needs, we are seriously thinking about getting our own place.

Buying a house in our town is out of the question. There is no way we can afford to buy here - at least, there is no way we can afford to buy anything that could be considered decent. We have started to look in towns that are somewhat more affordable, and this weekend we went to several open houses, a few of which seemed very nice and were within our budget.

I think there are a couple of good reasons to buy a house at this point in time. For one, real estate prices have come down substantially - although not in our town. Mortgage rates are reasonable (check out this calculator), the government is offering some great tax incentives for buying and, perhaps most importantly, I think that in the coming years we will face some inflation - meaning that mortgage debt may diminish in real value as the value of money decreases.

Nevertheless, the decision is not clear cut for us. There is one major factor acting against us: employment. My wife is currently not employed, and getting a new position may take many months. In addition, my own company is not the perfect image of stability. I work for a start-up, and while my company is doing well, you never know how things will work out when you depend on outside funding to keep your business going.

We're going to take it nice and slow. We'll look for something we really like that fits our budget, educate ourselves on what it means to buy and own a house, and make sure we have the right advisers to assist us. If the stars align, we may even own a house by the end of the year.

I like the sound of that. :-)

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Hiring in a Down Market: a Personal Perspective

2009-07-13T09:00:00.000-07:00

My company is one of those rare beasts: a corporation that is hiring in the middle of this nasty downturn. Yes, there are jobs out there even in the middle of the recession. This puts us in the enviable position of being able to hire top notch people being released by other companies. Last week I started looking for a part time marketing contractor to join my team - I did not have to advertise the position, I merely had to reach out to my network, and within a day I received over 50 e-mail applications. Here are some of my random thoughts regarding this whole episode:

No Advertising - note that I did not advertise my open position. If you were looking for it on Monster or any of the other job sites you were out of luck. To know about this position you had to have been told by someone who heard about it from me. Once again, the critical nature of networking is demonstrated.

Unqualified Applicants - even though I avoided the job sites, expressly to avoid a flood of e-mails from unqualified applicants, at least 50% of the applications I received were from unqualified people. Either they were in completely different professions but wanted to take a wild shot, or they lived in another state (even though I expressly stated this was an on site position for local candidates only). Folks like that waste my time and theirs. It's very easy for me to hit the delete key, it's harder for them to write a cover letter.

Calling Helps - as I mentioned I received many applications, and didn't have a chance to read all of them in detail. However, four of the applicants called me on the phone and left me voicemail. I called back three of them. At first, I was irritated to get the calls, but a well targeted and thought out message got me to give these candidates' applications a more through review. I invited one to interview in person.

SOME, Calling Helps - some people make mistakes when trying to get a job. When one guy called, I was actually at my desk and happened to pick up the phone. This person greeted me with a "Hi Shadox" (well, he actually used my first name), and waited for me to respond. This immediately got on my nerves. You have to understand that every executive in this country gets many, many calls a day from vendors trying to sell you anything you can think of. If you got me over the phone, you have about 5 seconds to get my attention and make your case (and that's on a good day). Someone who calls me by my first name and waits to receive a happy greeting back (who I don't already know), is in for some hostile treatment. I told the guy to e-mail me his resume, but I didn't give it a second glance. If you do take the risky move of calling the hiring manager out of the blue, be sure you have a very concise and clear pitch if you do happen to get him or her over the phone. And for God's sake, be polite.

Watch What You Write - I am hiring a marketing person. Here's the worst mistake a marketing person can make in a job application: spelling errors. Is this the level of attention I can expect from this person when he writes copy for my marketing materials? That's simply not acceptable and it's not a recoverable error for this type of position. Now, if I were hiring a mechanic, maybe it's not a big deal, but a marketing person? That person will be looking for a job for a little while longer.

Here's another one: you are interviewing for a marketing position but your rambling cover letter is a full length document. You just told me all I needed to know. If you can't pitch yourself coherently, how will you pitch my company?

Show Me, Don't Tell Me - talk is really cheap. If you are looking for a position in which you can demonstrate your proficiency in your very application, do so. Folks that sent me samples of their work immediately got a call from me (that is, if their work was half way decent). That's the difference between talking about what you do, and showing me that you can do it well.

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Good Service is Alive at Netflix!

2009-07-10T09:00:00.000-07:00

Everyone is talking about how customer service is horrible wherever you look these days and it pretty much is - just look at my recent experiences with airlines and credit cards, others have problems with moving companies and don't even bring up the topic of hospitals around me. Well, it turns out there's a shining ray of hope. Last weekend I had a a good customer service experience and from an American company no less. That company is Netflix.

Yes, Netflix, that company that sends you DVDs in the mail. We find their service is great value for money and while we have been members for over 5 years, with the exception of one lost disc and one broken disc we've never had any service issues. In each of those rare cases, the problem was rectified with a brief and painless visit to the Netflix website.

Well, last weekend I ran into a little bit of a problem getting an instant movie stream to work on my laptop (the company let's you watch their online movie collection, free of charge, as part of your regular subscription). I called the company's customer service number to ask for some help, fully expecting the horrible customer service experience we have all come to expect from American companies. No such thing. The experience was positively awesome.

First of all, finding the customer service number was a breeze. The website also told me the expected wait time (under 1 minute). I called the number expecting a crappy voice menu that would take forever to navigate through. Again, no such thing. A human picked up within seconds, with no sign of a voice menu. How unexpected and how wonderful! But wait, there's so much more!

The customer service agent on the other end of the line had an American accent! Wow. Americans working a customer service line? The conversation was pleasant, the customer agent helpful, they answered all my questions and even provided some answers to questions I didn't ask. At one point my Internet router was acting up and I wasn't getting an Internet connection, so I asked the agent if I could call back in a few minutes. She proceeded to explain that they were there 24x7... not 8 to 5 EST, not work days, 7 days a week, 24 hours a day. An American company... can you believe it?

After my Internet service got back online I called Netflix' service line again, and again was answered in a matter of seconds by a live American human, who proceeded to make quick work of my problem, while at the same time not reading from ANY script (or at least not seeming to read from any script). He was intelligent, informed and pleasant.

Well it looks like there is still hope for customer service in America. Netflix: I was already a fan, but now I am a bigger one. You have made a loyal customer happy and more loyal. Hey look, you even got this free advertising post from a cynical ol' blogger like me...

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One Line Answers to Personal Finance Questions

2009-07-08T09:00:00.000-07:00

Every once in a while I go through the search terms that people use to get to Money and Such. Most are typical personal finance terms such as 401K or investing in stocks, but some are really good questions while others are truly bizarre. When the mood strikes - and it just did - I like to take some of these search terms and give one line answers in response. Not all the answers below are what you would call serious. Hopefully you can figure out which ones are which...

Here goes:

"Do you pay money for old furniture?" - Some people pay LOTS of money, especially if the furniture is REALLY old. They call them "antiques"... go figure.

"How safe is the stock market?" - It's not, but it's probably your best shot at a decent return over the long term (as in DECADES).

"Why is money worst?" - Sprechen ze english?

"When is the best time to quit a job?" - Tuesdays after tea time are generally considered appropriate. Wednesdays between 2 AM and 4 AM are generally frowned upon.

"Should executive salaries be capped?" - No, executive salaries should not be capped. Only populist law makers consider this a smart move.

"Saving is bad" - Definitely. In Bizarro world! Oh, hold on, are we talking about endangered species here?

"My assistant is making more money than me. How can I make more?" - Seriously? I would say you have a good case for asking for a raise...

"Is this a good time to re-balance my 401k?" - There's no such thing as a good or bad time, just be sure you re-balance according to a predefined schedule and don't time the market.

"Is the iPhone worth the monthly bill?" - HELL YA! It's the best phone I ever had.

"How much should I waste in rent?" - As little as possible...

"Sentence to ask for raise" - "Could I have more money, please?"

"Can money buy happiness?" - Some people think so.

"Do I need an automatic re-balance in my 401K?" - you don't need it, you can re-balance manually, but automatic is nicer. It's the memory thing, you see.

"Working in a law firm sucks" - Oh, yes it does. From experience. I also find that working in a law firm tends to put you in contact with a lot of difficult people.

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A Few Thoughts About Health Care Reform

2009-07-07T09:00:00.000-07:00

Here are a few random thoughts about health care reform:

First, we absolutely require health care reform. This is not a nice to have, it's not about a long term wish list, we absolutely must have health care reform. It's the smart economic move. It's also a moral imperative.

Now let me tell you something about public health care. There's a lot of fear mongering going on these days about how bad public health care and "rationing" are. I would like to call bulls*** on that. The system we have in the US today can hardly be called a system. It's complex and it is unjust, but perhaps worst of all it's wasteful. Our system forces us to resort to all kinds of strategies for saving some money on medicines and treatment while ensuring that billions go to waste on needless administrative costs. Have you received a bill from a hospital recently? You are practically expected to haggle, much like you are in a rug store or a used car dealership.

I was born and raised in Israel, a state which offers a public health care system and in which each and every individual has health insurance. The health care in that country is no worse than the health care we get here. In fact, in many respects the health care system and the service to individuals is far superior to our experience in this country. I recently went back to visit my old homeland and had a first hand experience with the health care system. Comparing that experience to a previous visit to the emergency room in one of the top hospitals in the US, the service and quality of care we got abroad was superior. Hands down.

Last week I watched Nobel Prize winning economist Paul Krugman being interviewed by Charlie Rose on PBS. Here's an interesting statistic: according to Krugman about 60% of dollars spent on health care in this country are already spent by the government, between Medicare, Medicaid and the VA. Think about that the next time health care lobbyists try to sell you horror stories about how the country will go to the dogs if we adopt a public health care model.

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Starting Your Career: Big vs. Small Companies

2009-07-06T09:00:00.000-07:00

I work in a start-up, employing about 50 people in all, and have tended to work for smaller companies throughout my career. In spite of my own entrepreneurial tendencies and inclination to work in smaller companies, I believe that most people would probably be better off starting their careers in a larger organization before taking the small company route. So before you sit down to write a resume and send it to potential employers, take quick stock of my reasons below:

Training - to be frank, in a small company people expect you to pull your own weight from day one. Small organizations have very little inclination or resources to train employees for their roles or to invest in their professional development. Hey, it's not a good thing, it's simply reality. Small organizations are too busy surviving. In every small organization I ever worked, I felt like I was riding a bullet train, with work continuing around the clock and even on weekends. Training? Forget about it.

By contrast, large organizations are more inclined to take the long view and spend more on employee training and professional growth. They hold employee orientations, send team members to professional training seminars and often appoint more experienced employees to mentor new ones. The environment of a large organization tends to be more nurturing and tolerant of newer employees and their potential early stumbles.

Experience - you have to give it large organizations, they have perfected many practices that small organizations can only dream of. In everything from quality control, to manufacturing practices to analytics and beyond, large organizations have the edge on their small brethren. For someone starting their career, a good foundation in best practices is critical. Such a foundation would serve you well if you ever decided to move to a smaller organization to which you could bring these skills. Having such a solid foundation would be equally useful if you decide to start your own business.

Depth vs. Breadth - one of the reasons I like working for a small organization is that I get a lot of variety in my work. My core job is business development, but I also do a great deal of strategy & marketing. If I want to get involved in a new area, it's very easy for me to pick a project and get started. However, I believe that for someone starting their career, building a deep foundation of functional expertise is the way to go. Working for a small organization one tends to become a jack of all trades, while in a large organization where responsibilities are more carefully defined you get to become a master of one functional area. Diversification is excellent, but in my opinion it should come a bit further down the road. Also be aware that in a small organization you may be the only person with your job description. If you are just starting out and you are the only marketing or purchasing guy on staff, who will you learn from? How will you grow your skills except for through trial and error?

Having said all this, under current economic conditions most people can't be picky about which job they take. If you get an offer, be grateful and take it. Forget about small or large. If you're unemployed, you might want to take a look at this survival guide.

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Mail Fraud - a Colleague Foils an Attempt

2009-07-03T09:00:00.000-07:00

All those scams that you read about online apparently actually happen to some people. Yeah, we all get those Nigerian scam e-mails, but I don't often come across folks that have first hand experience of attempted mail fraud. Well, last week my office manager (let's call her Helen) told me about the following dilemma:

She has been selling some baseball cards on eBay in recent months (I don't know if this is a temporary shtick or a real side business, apparently everyone has a side business these days, except for me), and one of her buyers sent her a cashier's check as payment for his purchases. The check was for a total of $1,200 while the purchase price was under $200. The purchaser asked Helen to cash the check, keep the full purchase price, plus a fee for inconvenience and to send the rest to a person he designated. This was accompanied by an elaborate apology and by a seemingly rational explanation about why this was necessary.

Most of you probably recognize this as a well known scam. The short version of it is this: the seller cashes the check, which appears to clear, and sends the extra money to the designated party. After a few days the seller's bank discovers that the check is fraudulent and claims the money back from the seller. The seller has a crappy day and learns to be more suspicious of strangers.

Helen, being a smart individual, figured that something was wrong here, but was trying to understand what that was exactly. She was also trying to decide what to do next. Here is what Craig's List suggests you do to avoid getting scammed and to report attempted fraud. Needless to say, that the cashier's check was never cashed and a formal complaint was filed with eBay (where it was promptly sucked into a black hole, probably never to be heard from again).

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Lower Cost vs. Lower Price

2009-07-02T09:00:00.000-07:00

Back in 2002 we bought a computer. Seven years later, that computer is approaching the end of its life - still, almost everyone will agree that 7 years for any piece of consumer electronics is pretty incredible. The longevity of the computer is a testament to the value of a simple consumer principle: don't go for the cheapest option, or for the product in the fanciest package, go for the most cost effective option. In business we call this the Lowest Total Cost of Ownership.

Here are the different components which together make up the total cost of ownership of any item:

Purchase Price - in many cases the purchase price is the highest component in the total cost of ownership equation, which is why many people are tempted to buy the item with the lowest price.

Maintenance Costs - when buying a car, many people consider the cost to maintain that car over its expected life time. How expensive is the regularly scheduled maintenance? How complicated is the car to maintain? What happens if something goes wrong? This is where issues such as reliability and serviceability come into play. The thing is, the exact same principle applies when buying a computer, a new refrigerator or pretty much any other item you can imagine.

Operating Costs - a car consumes gasoline, a computer runs on electricity, a pony consumes food and needs to be housed in a stable. The cost of operating an item frequently greatly outweighs the cost of buying it. For example, buying a hot tub may not be that expensive, but over time heating and cleaning costs can really add up. Operating costs are often a category in which smart consumers can generate the bulk of their savings.

Salvage Value - salvage value = resale value. Even when you no longer want a product, it may still retain some residual value. Used cars can be sold, but even if no one will buy your car, you may still be able to donate it for the value of a deduction, or sell it for scrap. Some items hold their value better than others. While consumer electronics are notorious for losing their value quickly, you are more likely to be able to sell a used iPod than you are to sell a used no-name MP3 player.

Replacement or Obsolescence Cost - this is where we saved big on our computer. When buying our computer we bought a near top-of-the-line machine, rather than a discount model. Yes, we could have purchased a computer for 30% less, maybe even more, but we would have needed to replace it within two or three years. By paying a bit more, we were able to get much more value out of the system.

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Insanely High Public Pensions

2009-07-01T09:00:00.000-07:00

Last week I came across this article in the WSJ which talks about the insanely high public sector pensions that some individuals are receiving. Here is a brief excerpt from the article:

"Those named are former public employees and their dependents who receive an annual pension of more than $100,000. Atop one list is a former city administrator from the small Southern California town of Vernon, whose annual pension is $499,674.84."

How insane is that? By comparison, the President receives an annual salary of $400K. Look, I am all in favor of people saving for retirement and having a decent pension after many years of loyal service. I think this is entirely justifiable. However, How is it possible or even legal for government agencies and public sector entities to pay such ridiculously high pensions? More interestingly, how is it even fiscally possible for a tiny town like Vernon, CA to support (never mind justify) such an obscenely high pension? According to Wikipedia that town had a population of 91 in the 2000 census. What is going on here?

Leaving aside the town of Vernon for a second, I did some research online to find the database of high pensions mentioned in the WSJ article and here it is. This list contains over 5,000 names of individuals who receive public pensions of over $100K annually, but it only includes individuals from California. How widespread is this phenomenon? Can it be justified that former public "servants" receive such huge pensions, backed by tax payer dollars, while the rest of us are expected to do our best and come up with whatever retirement savings we can scrape together, with or without a company match? Incidentally, do you think that these folks' pensions were reduced when the markets tumbled and the rest of us lost much of our retirement savings?

In California, $100K may not be excessive given the very high cost of living, and especially when such pensions are paid to high ranking former public servants, but some of the examples on that website are dramatically higher. How about some oversight? How about some sanity? Next time you are worried about your retirement savings, maybe you should consider working for the government... The rest of us will pick up the tab.

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Travel Protection Insurance - What a Scam...

2009-06-29T09:00:00.000-07:00

It's summer and many of us are planning trips and vacations. As we are making our plans, and trying to find the best possible deals on those vacations, some of us may be tempted to purchase travel protection insurance. Such insurance is supposed to refund the cost of travel if you are unable to go on your vacation for a reason which is covered by the plan. Before you are tempted to purchase such insurance, check out this article in the NY Times describing one couple's experience in trying to claim the supposed benefit offered by their travel protection plan. Here is a brief excerpt:

"All told, my parents paid Vantage $9,688 for the trip and an additional $978 for the travel protection. One month before the planned departure, my father suffered a heart attack. My mother canceled the trip and requested a refund.

However, Vantage Travel responded by sending my parents vouchers for credit for future travel with Vantage. Apparently, in one of the many mailings there was fine print indicating that the “refund” would be in the form of credit."

I think that there are two issues here. First, the specific case being discussed in the article is borderline fraud - in fact, as described in the article the company was making an effort to mislead its customers without actually going on the record with anything that customers could use to sue them. The second issue is the value of travel protection. Even if it worked exactly as expected, why buy insurance for something which is not critical? In addition, the couple in the article paid an extra 10% of the total cost of the trip to cover the travel protection... that's simply preposterous in my opinion.

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Should Bonuses Be "Fair"?

2009-06-26T09:00:00.000-07:00

Earlier this week I had a meeting with some of my fellow executives in which we discussed awarding bonuses to company employees for achieving important company milestones. We started to argue about how such bonuses should be paid. Should they be awarded to those individuals who truly did an amazing job and performed above and beyond the call of duty? Should they be distributed equally among the entire team according to seniority level? There were three of us in the room and I quickly found myself arguing a 2:1 minority position.

My take is that bonuses should be awarded to those who truly over performed. I think that we need to differentiate between those who merely perform and those that outshine the rest of the pack. In every organization there are a few individuals who carry more than their fair share of the load. These stars should be publicly recognized and lavishly compensated. They are the example for the rest of the team. My colleagues believed that differentiating in this fashion would lead to frustration and discontent among those individuals who would not receive a bonus. They think that the bonuses should be paid as a reward to the entire team on a job well done, not to reward individuals.

My colleagues' position should be divided into two parts. First let's look at the discontentment argument. My problem with this argument is that it can easily be reversed. In my opinion, if we gave our star performers the same treatment as everyone else, THEY would be demotivated. Why work harder if you get the same treatment as everyone else? In addition, as long as the criteria for awarding the bonuses are clear and fair, and everyone knows that they too could achieve the same rewards by executing to those standards, what is there to complain about? My point is that business should be a meritocracy, not a commune. Yes, as heartless as some think it sounds, some people do deserve more than others because they give more to the organization. What's wrong with that?

The second argument made by my colleagues is a bit tougher to deal with. They claim that the team as a whole should be recognized for the achievement and that this would encourage team work and limit political behavior. Possibly that's true. However, I think that we can recognize the team's overall performance by giving some kind of group award, such as having a big party, giving each team member a small token of appreciation (a bottle of wine? a certificate to Amazon?) or having a fun event. That does not mean that the bonus pool needs to be "fairly" shared...

By the way, just so that I am not suspected of ulterior motives, no-one is talking of giving a bonus to the executive team. In fact, our bonuses this year were eliminated in recognition of the economic environment, while the rest of the team received their bonuses as scheduled.

I would love to know what the rest of you are thinking about this issue, but I can't promise to change my mind.

Incidentally, check out the Money Hacks Carnival at Blogging Banks.

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Why I Want to Be Rich

2009-06-25T09:00:00.000-07:00

I read a post on the Simple Dollar about the connection between money and power. Trent was making the point that many people want to be wealthy to gain respect and influence. That's obviously true, but my reasons are different. To me wealth equals freedom. It's not so much that I want to buy stuff, or own things or spend my money like a drunken sailor. There are certainly things that I would buy or do if I had the money to do so (buying a trip to the international space station is probably the most expensive of these), but my real drive to wealth comes from insecurity.

I am worried. I am worried that I will one day lose my job and won't be able to get another. I am worried that I will not be able to provide for my family. I am worried that my kids will have to support me in old age. I am worried that one of my family members will become chronically ill and that my medical insurance will not be sufficient to treat them. I am simply worried. Wealth would create security and remove these concerns.

It's not that I walk around constantly obsessing about these things. I consider myself a well adjusted human being. I am simply very cognizant of the fact that bad things happen to good people, and if bad things happen to me or to my family, I want to have the resources to deal with them. Wealth for me represents freedom from worry. Peace of mind.

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The Tangible (but Limited) Benefits of Positive Thinking

2009-06-24T09:00:00.000-07:00

We are going through a very exciting and nerve wracking time at work these days. My company, which is a technology start-up, is about to launch its first commercial product in just a few short days. This is a high-stakes and highly emotional time for us. Our ability to raise more funds and to survive in a very tough market are at stake. When you are so involved in "the game" it's tough to maintain your long term perspective and to identify the long term positive trends. The progress you are making is only visible if you compare your current position to where you were several months prior. On a day to day basis, it's tough to avoid getting on a roller coaster of hopes and disappointments as potential deadly challenges appear and are overcome.

I believe in the power of positive thinking. No, I am not one of those starry eyed individuals who believe in the power of holistic medicine or in faith healing. I am squarely on the side of science and atheism. However, it is clear to me that in an organization there is such a thing as momentum. Momentum is a self reinforcing trend whereby success breeds success and failure leads to more failure. I am not sure what the mechanism whereby positive feelings lead to positive results are, but I feel strongly that it has a lot to do with motivation.

When people see the rest of the team is feeling positive, or when they feel that things are going well, they recognize that they are part of something good and that success is within their grasp. They are motivated to try a little harder to achieve that success. The same is true in the reverse case - if people believe they are going to fail, they have no motivation to work hard. Why should they? Whatever they do, they can't succeed... failure is then sure to follow.

Last year we had a little bit of negative momentum going in the organization. One part of it was a leadership problem. The other was a lack of focus. Over the past several months, momentum has decidedly shifted to the positive due to some good management decisions and a little bit of luck. Our team is energized and confident. Yes, you can still hear the odd negative voice out there, but overall it is clear to the team that things are moving in the right direction. Which brings me to my "No Bad News Friday" initiative. I started this as a joke, after a week of technical set-backs. In a meeting with some of the engineers where many of our technical challenges were discussed, I said "fine, but since tomorrow is No Bad New Friday, I expect some positive results". Call it a coincidence, and it certainly was a coincidence, but that Friday we had some very encouraging developments.

Since that time, everyone in the office is talking about No Bad News Friday. I am not superstitious enough to believe that anything real is happening here, but I do know that the overall sense, attitude and motivation of the team is improving. There is nothing wrong with encouraging people to feel good about themselves and about what they are doing, provided that you don't stick your head in the sand and refuse to deal with reality as it is. Having said that, there is nothing wrong with pushing bad news to Monday... :-)

Take a look at a few other career related posts from around the PF world:

Debbie of American Consumer News has a post about how to avoid lay-offs. One of her tips: pretend like you just got your job and need to impress people.

Boston Gal offers a glimpse into the world of the unemployed. It's rough out there. No doubt.

Jim of Bargaineering offered a post about the top paying companies. Interested, but I am wondering if those averages aren't skewed by a a relatively small number of highly paid individuals.

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Don't Kid Yourself: We Are NOT More Frugal

2009-06-23T09:00:00.000-07:00

There is much talk these days about the American Consumer's new found frugality. Turn on the news, open a newspaper or browse the money sites online and everyone is saying that frugal is now fashionable and that over spending is "so 2007". For example, in this month's edition of Money Magazine the Editor's Note includes the following:

"...For one, the American consumer will no longer support global growth on his debt burdened shoulders..."

I don't buy it.

True, folks are spending less and saving more these days - the savings rate hit 5.7% in April according to the Federal Reserve Bank of St. Louis. However, looking at the data more carefully shows the personal savings rate almost always spikes in recessions, only to fall back down once the economy recovers. What makes us think that this time will be any different? Yes, this time the spike in the personal savings rate appears sharper than usual. However, I believe that this sharper spike is a response to what is turning out to be a very deep recession which is stoking people's justified fears about losing their jobs.

Once the economy recovers, I am willing to bet our compatriots will fall back into their free wheeling, crazy spending ways.

This leads me to another point. Have you noticed how easy it is for people to assume that things are permanent? People's ability and willingness to adjust their baseline and to assume that whatever is now happening is the new reality which will last forever is asstounding to me. When the stock market or real estate prices go up, people assume that the good times are here to stay - "it's a new economy". When the markets decline, people flee for the hill with shouts of "the sky is falling" echoing through the wilderness. It is a flaw of human psychology - our memories are short and our tendency to extrapolate is over developed.

Recognizing this, I try to avoid thinking too highly of my own abilities to spot a pattern, and try to make as few predictions as I can (especially about the future, to borrow a phrase).

Here are a few other posts that deal with the topic of frugality:

Trent of a Simple Money explained that cutting spending is not the same as saving. You also need to make sure the money is not wasted on some other unnecessary activity.

Frugal Dad makes the point that eating out is not always a waste of money.

Blunt Money has a post about spending $900 in unplanned expenses this month. Nothing wrong with spending the cash if you have it. Just make sure you don't rob your future self of a decent standard of living to pay for a higher standard of living than you can afford today.

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$25 Give Away: Announcing the Winner!

2009-06-22T09:00:00.001-07:00

The first ever Money and Such give away contest came to a close last night. After cleaning up entries which were not valid, only 14 eligible entries remained. At that point I put them all in an excel file in the order in which they were entered, and gave each a serial number. The random number generator from Random.org did the rest, and named the winner:

It gives me great pleasure to announce the winner of the contest is Frugal Zeitgeist, a long time reader of Money and Such, and a talented blogger (also supposedly she spent the weekend in the Hamptons according to her blog - good for her). Frugal, hopefully this makes for a good start to your week.

Thank you all for participating. I hope you enjoy my blog.

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Last Chance to Win $25

2009-06-21T11:35:00.000-07:00

There is still time to enter into the first ever Money and Such giveaway for $25. The deadline for entries is 5 PM PT today and the winner will be announced tomorrow. So far there are more or less a dozen valid entries, so chances are pretty decent.

To read the rules and to place your entry follow this link.

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The Labor Market from a Personal Perspective

2009-06-19T09:00:00.000-07:00

In recent weeks a number of people close to me have lost their jobs. While the job market is in shambles, these folks are out there trying to find their next position. Some are also thinking about some creative alternatives. Here are a few examples:

I have previously mentioned that my wife's consulting contract is now over and she is looking for a new full time marketing position. She has had a few phone interviews over the past couple of weeks, but no concrete progress as of yet. We are prepared for a long and arduous search process, but she is doing all the right things to try to move things along. The leads she has been able to generate so far, have mostly come from within her network. She has also applied for a number of jobs she found online and - amazingly to me - has gotten a few call backs from what I normally consider a black hole method.

One of my oldest friends has recently lost his technology job. We were both in the same industry, so I am doing my best to help him find a new position. However, since we live in different parts of the world, my ability to assist is fairly limited. He has been searching for a job primarily through headhunters, so far with very few results. He is getting both discouraged and bored. To pass the time he has undertaken a personal project of transferring all the family videos to DVD. I offered to connect him with my father, who has some industry contacts that might be useful, but he politely declined. I am not exactly sure why. I think that given his job search strategy his job search will be a very long one.

Another one of my friends lost his job just two weeks ago. He is now pursuing a dual approach of looking for a new position, while also thinking about starting a business in his area of expertise. I think that this type of strategy is pretty common out there these days. I also think that one of the lasting effects of this nasty recession will be a plethora of new businesses and a spike in innovation.

My CEO recently fired our VP of Sales. He was nominally let go for performance reasons, but my thinking is that he was let go because he was not an integral member of the team. He never fit in with the rest of the management team, and never built the strong alliances that make one successful at work. I also think that my CEO let him go for political reasons, but I will not get into that in this post. I have been trying to help my former colleague find a new job, by connecting him with headhunters and potential employers.

Finally, a good friend of mine from business school was let go from Citigroup a few months ago, in one of their massive lay-off waves. He did not give up. Seeing the writing on the wall for his group months in advance, he started networking within the organization. Even though he was let go on paper, he never actually left the organization since he was immediately snapped-up by a different group in the company. The down side? I spoke to my friend last week and he tells me that the job he is doing is substantially below his skill level and well below the position he previously held with the organization. Nevertheless, he is not bitter. He is happy to be working gainfully throughout this downturn, while many others in his industry are out looking for a job.

The job market is really crappy these days, but as you can see from the examples I outlined above, different people are reacting in different ways. Some are getting frustrated and giving up, while others are re-doubling their efforts and looking to the future. I know which camp I am in.

Here are a few other posts about the downturn and about how people are handling it:

All Financial Matters wrote this brief post introducing Kiplinger's economic recovery index. Interesting. I have my own metrics which I consider - including LIBOR rates, TED spread, unemployment, treasury yields, international shipping rates and commodity prices.

Investoralist is looking at the crisis and its impact on China.

Spilling Buckets has a post about how the Buy American provisions in the federal stimulus package are bad for our economy. I completely agree. In fact, I have an interesting personal story to tell about these Buy American provisions. Look for a post in the coming days.

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The (New) Case for Economic Trouble

2009-06-17T09:00:00.000-07:00

My regular readers know that I have been pretty optimistic about the near to mid term prospects for the economy, for the past few months. See for example this article I wrote in February before the stock market rally began, and this article I wrote in late April. However, over the past few weeks, I have begun to get nervous again. It's not that I think we are headed for a "great depression" style economic calamity as was a distinct possibility late year, but I think that significant headwinds are once again gathering for the economy. Here are a few indicators that I find disconcerting:

10 Year Bond Yields - with the government issuing prodigious amounts of debt, the yield on the 10 year treasury note has moved up from a low of about 2% late last year to about 4% currently (see chart). People are nervous that the government is selling so much debt that it will have to offer very generous interest rates to make people buy that debt. Why should you care? If treasury yields continue to go up, interest rates will go up in the rest of the economy as well. This will make borrowing money more expensive, and could potentially stifle the recovery before it has a chance to take hold. A concrete example: over the past few weeks, mortgage rates have shot up. This is bound to put new pressure on home sales and prices. This will also prevent some homeowners from refinancing their mortgages, which in turn will mean that they have less money to spend or invest.

Dollar Weakness - the government's massive spending and bailout programs (which probably saved us from complete economic collapse) are leading foreign governments to doubt our currency's role as the world's premier reserve currency. Countries like China and Russia are talking about selling some of their dollar denominated assets, or at least slowing down purchases of such assets. This increases the chance for a further dramatic decline in the value of the dollar. In the short term, a decline in the value of the dollar will make our exports more competitive and may actually improve the odds of recovery, however this same decline also decreases our purchasing power and lowers our standard of living. In addition...

Commodity Price Increases - commodities are often traded in dollars and a decline in the value of the dollar often leads to an increase in commodity prices. Oil is the example which is easiest for most of us to notice. As of my writing these lines, oil trades at $72 per barrel, up from a low of about $37 early this year (see chart). The US uses about 7.5 billion barrels of oil per year, meaning that the $45 per barrel increase from this year's lows will cost us an extra $337 billion this year alone (assuming prices for the year average about $72 per barrel). This is like a massive tax increase, money out of our pockets that we cannot spend or invest. This amount is equal to approximately HALF of the federal government stimulus plan...

Surge in the Stock Markets - I have now stopped putting new money into the stock market. I have been putting more money into stocks ever since this crisis began, but no more. With the Dow up about 37% from its lows in March (as of Friday), I just feel that we have come too far, too fast. Yes, things are looking better, and I don't think depression is in the cards anymore, but I also don't think that the economy is a picture of health. If stocks return to a downward trend, consumer confidence may tank again too.

Consumer Frugality - there has been much talk about the new found American consumer frugality. Certainly Americans have been reducing their debt load, however according to this article and chart, when measured as a percentage of net worth, consumer debt is at incredibly high levels. In fact, when measured in this context, Americans' debt load has gotten worse, not better. Can overextended consumers pull the economy out of recession? Good question.

Still - many metrics continue to improve, including the TED spread, LIBOR rates, international shipping rates and international trade. Signals continue to be mixed, and this is clearly still a very challenging time for the economy. I don't think we are quite out of the woods yet, but it's better to be in the woods than to be falling off a cliff... :-)

Here are some other posts about the economy which you might enjoy:

All financial matters also asks whether we can really have a recovery when people have so much debt. Yup. That's my question too.

The Weakonomist has a detailed post looking at the pros and cons of universal health care in the US. For me, that's not even a question. I think market based health care is an idea that has been thoroughly discredited.

Bad Money Advice takes on another favorite topic of mine: the government taking over the car industry. What a nightmare...

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Welcoming My Newest Sponsor

2009-06-16T09:00:00.000-07:00

I would like to welcome a new sponsor for Money and Such. You may have noticed the widget in the sidebar of this blog advertising a company called Regus . My relationship with them goes back several years, to my first executive position.

Back in 2002 I ran operations for a start-up company based out of Denver. My operations were distributed around the country in a way that made it unreasonably expensive to rent an office in each location. That's how I first came across Regus. The company offers high-end offices for rent in a multitude of cities around the country and around the world. I rented two offices from them - one in Chicago (my office had a panoramic view of the runways at O'Hare International Airport - no view is more exciting than watching passenger jets take off at a rate of 1 per minute...) and the other in Dallas.

The offices were high end and the service was great. My customers never knew that our company was small and had highly limited resources. I was able to host them in style.

When Regus contacted me about advertising on Money and Such, I was happy to oblige, since I personally used and appreciated their services.

Anyway, that's the back story behind my new sponsors. Take a look at their services, they know what they are doing.

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When People Take Advantage

2009-06-15T09:00:00.000-07:00

Since I moved to my current job over a year ago, I brought three people from my old company to my new one. These are all highly talented, skilled people that I enjoy working with. So far, they have all been very successful in our new company. Recently I tried for number four and so far, things are NOT turning out as well as I had hoped. In fact, results have been dismal.

This most recent person I brought over to my company, Rick, was VP in my previous company. He left that company about 6 months before I did, after getting into some serious disagreements with my former CEO. Nevertheless, he is a very talented individual who added a lot of value to my previous company and I enjoyed working with. I always thought that he got a raw deal when he was let go.

About six weeks ago, when it became apparent that I needed a consultant to assist me in some key projects, I reached out to my network, and it turned out that Rick was available. Since I knew him well, respected his abilities and thought that he would be perfect for the job, I brought him over for a three-month full time consulting stint. My hope was that during this period he would gain a lot of exposure to my CEO, who would then offer him a full time executive position.

Rick's responsibilities and tasks were well defined. I spent a decent amount of time with him, teaching him about our products, introducing him to key people around the company and clearly explaining the results that I needed. On several occasions I asked him whether he understood his role and whether he needed any further guidance or assistance from me. Each time he responded that he had everything under control.

Three weeks into his consulting gig with us, he is failing miserably. And what's worse, he is acting as if he doesn't give a damn. He shows up to work at 10 AM and leaves at 4 PM. One day last week he didn't even bother to show up until noon and when I called him to find out what's going on he explained that he had some errands to run.

In my line of work it's not all black and white. I am VP of Business Development and Marketing for my organization, and I hired Rick to do some business development work for me. This kind of work is all about results, it's not about the time you put into it. For all I care, he could spend three hours a week working and spend the rest at the beach, if he got me the results that I am looking for. You also need to understand that I am not a micro-manager. I am the kind of executive who explains the mission and checks in twice a week to make sure that all is going according to plan. I don't have the time to do anything else, even if I was so inclined. As long as you accomplish the task, you do not need to see me or talk to me more than those two times a week. Until last week, it looked like Rick was on shaky ground, but I decided to give him the benefit of the doubt. Last Friday, I received Rick's weekly written report, and things are not going well. In fact, it looks like there are not that many things GOING at all.

It's time to take action.

On Monday I will meet with Rick and explain to him that his performance is not to my liking. I will lay down the law and explain when I expect him to be in the office and what the results I am looking for are, on a daily basis. I will also explain that if things don't work out for me and VERY quickly, his contract will be terminated.

I don't like it when people think that just because they know me they can cheat me out of what I am entitled to receive. I also don't like it when they interpret flexibility and latitude as a license to slack.

It all comes down to this: if you report to me, your performance reflects on mine, and I will not accept anything short of excellence. Friends or no friends.

I will keep you all posted.

By the way, the worst job in the world apparently has nothing to do with working for me. Meanwhile Money Smart Life talks about a different kind of scam...

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$25 Give Away Reminder

2009-06-13T16:48:00.000-07:00

With only a week to go in the first ever Money and Such contest, so far I only have about a dozen valid entries. If you're interested, take a look at the rules and submit a quick entry. The prize is $25 and the odds are looking pretty good right now.

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Gambling Your Finances

2009-06-12T09:00:00.000-07:00

We all like to think that our lives are well planned and well thought out. I certainly like to think that I do everything in my power to mitigate the risks and protect myself and my family against the vicissitudes of modern life. From time to time we all make major life decisions which potentially have major financial implications. However, as we make these life changing moves, we rarely consider or care about the financial impact of those decisions. Here are a few examples:

Having Kids - when my wife and I were thinking about starting a family, my main concern was whether I was ready for what everyone described as a major life change. I didn't really consider the financial implications. We have three healthy and fun loving boys - a major expense, but one that we are well equipped to handle. Some of my friends are not as fortunate. One of my friends has a child with down syndrome, another has a child with a mild form of autism, and many others that I know have a kids with a variety of other challenges. When you are planning to have a child, you rarely consider that you are also taking a financial gamble.

Getting Married - talk about taking a financial gamble. Never mind the fact that a large percentage of marriages end divorce, entitling your spouse to half of what you jointly own. The bigger gamble is the fact that from the minute you get married, your financial fate is essentially in the hands of another human being. Their bad financial decisions will reflect poorly on you. Your financial plans may not suit them. That's a big bet you are taking. Luckily, someone else is taking that bet with you. I am fortunate in that my wife and I see eye to eye on most financial decisions. We are both careful with our money and both take our credit and spending decisions very seriously. Having lived with my wife for a few years before we got married, I knew exactly what I was signing up for.

Switching Jobs - now that's one where the financial implications are very clear, and most people switch jobs primarily for financial reasons. However, even where the primary motivation for the decision is financial, I find that many people don't consider the possible implications of their decision. For example, I often meet individuals that take a job that pays more in the short term but that does not offer promising career prospects. There is also considerable risk in the very act of switching a job - e.g. there is always the risk that you will not get along with the new boss. Regardless of how well you think you understand the opportunity, you must recognize that you are taking a risk.

Getting an Education - yes, yes, getting an education is not only about improving your career prospects, and I agree that studying philosophy may be good for the soul, but I find it difficult to understand folks that choose an undergrad major (for example) without due consideration for the financial implications and career implications of their decisions. True, you may be able to find a job outside of your chosen field of study, but you must recognize that there is some level of risk here.

Now here is my point. I am not advocating that decisions must always be made for financial reasons. That would make for a very dull and sad life. However, what I am saying is that many times our decisions have very large potential financial implications which we choose to ignore.

When I moved to my current job in March 2008, I was very conscious that I was placing a financial bet. So far, I seem to be winning this bet. Back in 1999, I was very aware that by going to business school I was placing a bet on the health of the economy two years later. I lost that bet, at least in the short term, with the dot com crash. When we decided to have kids I was aware of the financial implications of having a healthy child, but did not even want to contemplate what having a child with special needs would to do our life, never mind to our finances. We all make financial gambles, more often than we would like to admit.

May your gambles pay off more often than not.

Here are a few other interesting posts about financial gambles that I spotted around the web:

My blogger friend Frugal recently wrote about a financial gamble that paid off. OK, it wasn't really a financial gamble, but she got some money in an unexpected way. It's nice when nice things happen.

Brip Blap talks about the differences between his old neighborhood and his new and about how taking some financial gambles and starting a business may have a nice pay-out.

Talk about the financial gamble of having kids. Clever Dude has a post (and video) about a man who is completely disregarding the cost of childcare. Some people should not be allowed to have kids.

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What's Wrong with Bond Ratings

2009-06-10T09:00:00.000-07:00

There has been much talk in recent months about how bond rating agencies are at least partially to blame for the economic crisis. The argument is that these agencies have granted AAA bond ratings to bonds that belong on the junk pile, thus encouraging folks to take risks that they really should have avoided and inflating asset prices to unreasonable levels. Maybe that argument is sound and maybe it isn't, however there is something clearly wrong with the way bond ratings work and here it is: bond ratings are paid for by the sellers of bonds...

Yup, that's right. The good people who rate bonds get paid by the very people who stand to gain most from a favorable bond rating. This is so absurd that it boggles the mind and it goes back to my own thesis about the cause of the economic crisis: misaligned financial incentives. If you are buying a house, would you consider having the seller pick and pay for the home inspector? If you intend to sue someone, would you feel your interests are served if the defendant chooses the judge and pays for his salary? How about when you buy a used car. Would you feel comfortable taking the recommendation of the seller's mechanic? I sure wouldn't.

And yet, bond rating agencies are paid by the very people whose bonds they are required to rate. Since bond issuers get to pick their own rating agency, do you think rating agencies would risk losing business by protecting the interests of bond buyers rather than the interests of the ones who pay their bills? I don't think so.

Now here's where it gets REALLY fun. Last week I was listening to an NPR radio news item and heard the head of this or that rating agency describe his bond ratings as "the world's shortest editorial", thereby trying to invoke the first amendment and turn his agency's ratings into protected speech... how about that for a good deal? Give bullsh** recommendations, get paid princely sums for your supposedly objective statements, and make sure that investors who relied upon your due diligence cannot sue because all you did was express an opinion which is protected by the constitution... give me a break.

I'll get off my soap box now, but here's one good way in which the risk for future financial crises can be diminished: align the economic interests of all participants in the market. Make sure that the ones who are supposed to be honest brokers are indeed honest brokers, and those that are supposed to be neutral evaluators do not have a financial stake in the end result. It just seems like common sense, no?

As a complete aside, the same case can be made against political contributions by corporations, institutions and large private donors. While our politicians have an economic interest in listening to the special interests who fund their campaigns, we will never be able to get decent work out of Congress.

Here are a couple of other interesting posts about the economy:

All Financial Matters brings up a timely item: how can the administration tell how many jobs it is saving through the stimulus spending, if any? Yeah well, it can't. It's all about political parties and pundits playing the political game and looking for an edge. The better question to ask is, "are they doing the right thing". By and large, I think that the answer is "yes".

Frugal of My First Million has a gloomy view of the economy and complains about financial institutions paying back TARP money to escape government regulation of their compensation plans. I don't share his opinion about the banks. I think they are in a hurry to get out of TARP because Congress has changed the rules on them after they got into the program. And please remember that the government literally FORCED some of these institutions to take TARP money. On the other hand, it's too true that many of these institutions would have failed without the government. It's a difficult problem, but I for one think that the faster the government gets out of private sector business ownership, the better...

Finally, check out this post from Weakonomics about how credit card companies make money.

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