Why I Changed Domains

When I first registered BretFrohlich.com, it was only because I wasn’t able to find a suitable domain name for my personal finance blog.  I’ve never had any desire to become famous or to make myself into a brand.  In fact, I considered blogging anonymously, to make sure it didn’t impact my career.  But, I quickly decided against anonymity, because I just wanted to be myself.  I wanted to be comfortable while explaining finances and to speak to readers on a more personal level.  If there is one thing I have learned over the years, it’s that finances are personal.  And, I never want to lose that element from my blog.

Unfortunately, most of the good domain names were taken by squatters.  In fact, the domain name I really wanted was owned by a speculator who wanted $75,000 for the rights.  Since I didn’t launch this blog to make a ton of money, I didn’t see any good reason to pay thousands of dollars for a domain.  I knew one day I would find my own domain name that would reflect my true purpose for this blog.  I just didn’t expect it to take a couple of years.

Finding Hope to Prosper

One day, while I was gathering ideas for a post, I started to think about my ultimate financial goal.  And, I realized I had a very simple goal of doing well with my finances.  I didn’t need to amass a huge fortune or take over Wall Street.  And, I didn’t care about owning anything fancy or expensive.  I just wanted to live a good life, without my personal decisions being limited by my finances.  I wanted to be happy and to share with others.  In other words, I Hoped to Prosper.

The Einstein Logo

One element I kept from my old blog is the Einstein logo.  Although personal finances are much easier than physics, our financial futures depend on being smart with our money.  Einstein learned a lot about compound interest and he shared this knowledge in one of my favorite quotes.  A little wisdom from a true genius is a valuable thing.  And, every time I see Einstein staring at me from the corner of my blog, it reminds me to be wise with my money.  I hope it has the same effect on all of my readers.

The Bottom Line

The bottom line is that I have worked hard for years on my blog, without any expectation of a return.  And, I have enjoyed creating the posts and interacting with the readers.  What I didn’t expect was to meet so many incredible people in the blogging community.  The learning experience has been well worth the effort.

“The most powerful force in the universe is compound interest”

Albert Einstein – Father of Modern Physics

Blog Action Day

This post was created in participation of Blog Action Day 2009, which is focused on Climate Change.

Bringing Change

In my opinion, the best way to help the environment is to change the cost and economics, so that it favors clean sources of energy.  For example, people will start buying electric cars when they are priced roughly the same as gasoline powered vehicles.  And, they will convert to wind and solar power when it becomes price competitive with utility power.  Until then, people won’t convert en mass to green energy, because most people can’t afford to.

The Monopoly on Energy

Currently, our choice is limited to gasoline vehicles and utility-based energy, because they have a government sanctioned monopoly.  Starting way back in the 1800s with Standard Oil, energy producers have always found a way to limit our choices and avoid competition.  Even though Standard Oil was broken up by the Supreme Court in 1911, Exxon and Mobil have since merged again.  Refinery capacity has been consolidated and this appears to affect gasoline prices, which no longer follow the prices of crude oil. 

The monopolistic practices also continue on a local level.  Oil companies are quietly taking over gas stations, so they can control pricing at the retail level.  I know someone who has owned a gas station for decades who has recently been forced out by the oil company.  They were told their contract won’t be renewed, which allowed the oil company to take over their station.  This has been happening quietly throughout the country for years, which is another reason gasoline remains expensive, even when oil prices drop. 

Renewable Energy

The biggest problem with renewable energy is that it can’t be sold, taxed and controlled.  That’s why we don’t have it available.  Energy providers cannot afford to lose control of their monopoly.  The Government doesn’t want us to have energy sources that are freely available and cannot be easily taxed.  There are some issues related to cost, storage and efficiency.  But these could easily be overcome by commercialization and mass production.

If you follow the development of electric cars, they are being created in partnership with utility companies. Utilities stand to make huge profits in our shift from gas to electric cars.  The effect of these partnerships is that none of the electric cars under development contain a solar panel.  (I don’t count the Prius, which only runs a cooling fan.)  If you ask auto makers why a solar option isn’t available on their new electric car, they will give you a vague answer.  The real answer is they don’t want to lose funding from utility companies and the DOE.

Personalizing Energy

My vision of the future of energy is very positive.  I foresee a revolution unfolding much like it did in the computer industry.  Once people got their hands on a personal computer, it empowered them with innovative and creativity new technology.  The Internet allowed virtually unlimited communication, connections and resources.  Mass production of computers drastically reduced costs and improved technology.  Most important, knowledge and power shifted from the few to the many.

Energy Independence

One thing holding back renewable sources of energy is a suitable energy storage device.  People still need energy after the sun goes down and the wind stops blowing.  And, battery technology is expensive, caustic and inefficient to run a business or a household.  Fortunately, there is a lot of research being conducted in this area.  One potential solution is being studied by Dr. Nocera at MIT.  It is similar to a hydrogen fuel cell, but it mimics photosynthesis and uses non-toxic materials.  This discovery could revolutionize the storage of energy.

The Bottom Line

The bottom line is that we have been manipulated, polluted and cheated for far too long.  And, we are never going to get a fair break from energy providers, because their business model relies on keeping us dependent on them for energy.  We need to seize control of our energy resources and demand products that are powered by nature.  And, we must demand that our elected representatives respect our wishes for clean and renewable energy.  Until we take control of energy, we are at the mercy of those who poison our world for a profit.

John D. Rockefeller – Chairman of Standard Oil

Finance bloggers participating in Blog Action Day:

DebtGoal.com
LenPenzo.com
PoorerThanYou.com
TheDigiratiLife.com

Here is an intersting article in Fast Company:

Beyond the Grid

This post was featured on the Carnival of Personal Finance. If you aren’t familiar with the Carnival of Personal Finance, it’s the premiere carnival of its kind. If you want to read informative articles from knowledgeable bloggers, this is the place.

Lessons in Life

This post was inspired by my son Aaron. He is a typical 20-year old who is trying to find his place in this world and to make a living in tough economic times.

His perspective on life has taught me as much about being a parent as I have taught him about being an adult.

This hasn’t been an easy process for either of us. But, it seems to be working. So, I will share some of what I have learned with you.

Conflict of the Generations

A couple of days ago, I was visiting with my neighbor. And, I asked him if he missed his two daughters who had gone away to college. His answer surprised me. He said, “No, it was a perfect time for them to go. They have had enough of us and we have had enough of them.” He loves his daughters and is very proud of them. And, they are both really great kids. Of course he misses them. But, he is happy the house is peaceful and quiet. He no longer has to argue with his kids and a great weight of responsibility has been lifted from his shoulders.

Children’s Side of the Conflict

Conflict -Young adults believe they are entitled to all of the rights, freedom and privileges of other adults. And they resent being told what to do and when they can do it. They are trying to express themselves freely and live their lives as adults. But, their parents still treat them like children and are constantly nagging them.

Considerations – What kids may not realize is they haven’t yet earned the rights or freedom of an adult. If they are still dependent on their parents, they still have to live by their parent’s rules. And, their parents are still responsible for them in many of ways, even though they have turned 18. Also, parents worry about them whenever they are out late or engaged in dangerous behavior.

Solution -If kids believe parents are interfering with their life, they should move out and pay their own way. The rewards and experience of living on their own will greatly outweigh the tight finances. And, they will be able to make their own decisions. If they are being supported through college, they need to respect and appreciate the sacrifice their parents are making. Most important, they will need to think and act like an adult, before others will begin to treat them as an adult.

Parent’s Side of the Conflict

Conflict – Parents may see their adult children as lazy and irresponsible. Their kids may not contribute to the family financially or by helping out around the house. They may leave messes everywhere and argue constantly. Parents may have to nag them frequently to do the simplest things. Kids may feel entitled to cars, cell phones, computers and a college education, which parents had to earn for themselves.

Considerations – What parents may not realize is their children haven’t yet learned about finances or how it affects their standing in society. And, society is now more protective, which places a higher burden on parents and less accountability from children. Other kids are receiving cars, computers and cell phones, which is why they feel entitled.

Solution – Parents need to stop subsidizing an idle lifestyle and insist their children contribute whatever they can. Parents need to teach their children about finances, even if they aren’t shining examples. Parents need to explain how much money it costs to live and why kids need to choose a career that will support them and their future family. Most important, parents need to prepare their children to become financially and emotionally independent.

The Game of Life

I remember playing a board game called Life when I was a kid. As I moved around the board and landed on squares, I was able to graduate college, get a job, get married and have children. At age 10, I didn’t realize the significance of this game. At age 45, I understand it completely. Unfortunately, accomplishing these goals in real life is much more difficult. So, planning and execution are critical.

How I Played the Game

Final Score - My goals that were planned well and executed well turned out well. Goals that weren’t planned well caused me a lot of financial hardship. Goals that weren’t executed well cost me dearly.

Future Considerations

The future for young adults in America is more uncertain than at any time I can remember. Your parents have lived through recessions and tough economic times before. Young people may not realize this, but the economy, housing and the stock market move in cycles. So, they have crashed in the past and they will crash in the future. This is natural and should be expected. In fact, you should prepare for it. What is different this time are some of the new problems in America that your parents didn’t have. Here are the new issues you will face:

Irresponsible Government – Never has the burden of our Government looked so ominous. The corruption, bickering and reckless spending has put America in a very bad position. Younger generations may be facing a future where America is not the leader of the free world.  You may face higher inflation, taxes, currency devaluation, unemployment and failing infrastructure, courtesy of the disaster that is our Government.

Income Disparity – Everyone knows the rich are getting richer and the rest are getting poorer. The working class is disappearing, along with the jobs that used to support them.  There are many reasons for this including greed, corruption, globalization and our transition to a knowledge economy.  The net effect is there won’t be many good jobs for the uneducated.  So, unless you can live on $9 per hour from a McJob, you better plan on going to college or starting a business.

Aging Population – Because of the demographics of the Baby Boomers and because fewer children are being born, you will be saddled with an incredible burden from the aging population.  This problem is already occurring in Europe, Asia and other parts of the world.  This burden may become overwhelming, considering our Government’s mishandling of Social Security and Medicare.  You may have to personally take care of your loved ones in the final days of their lives.

The Bottom Line

The bottom line is that you will decide how to run your life and accomplish your goals.  And, you will have to live with the results from your efforts.  And one day, if you are very lucky, you will have to pass your experience onto the next generation.

Thomas Jefferson – Founding Father of America

Recommended Reading

This post was featured on the Carnival of Personal Finance. If you aren’t familiar with the Carnival of Personal Finance, it’s the premiere carnival of its kind. If you want to read informative articles from knowledgeable bloggers, this is the place.

This doodle sums up almost everything you need to know about Personal Finance at its most basic level.  You are in control of your finances and you make the choices that decide how successful you will become.

Justifying the Irrational

One thing the Subprime Crisis has reinforced in my mind is that people can always justify irrational choices.  They buy a house they can’t afford and justify that it will go up in value.  They buy furniture on credit and they justify that a new house must have new furniture.  While they are struggling to make the mortgage, they take out a second to remodel, and justify it as an investment.  They buy the latest electronics or new appliances and justify that there are no payments for a year. 

Recently, I listened to a teenage girl making minimum wage try to justify a $500 purse, because it was of such high quality.  I listened to a broke 24 year-old justify paying $500 to sit at a table in a nightclub.  And, I have listened to people justify cars, TVs, cell phones, dirt bikes, vacations and many other things they couldn’t afford.

The Affect of Bad Choices

Nothing is sadder than watching someone lose their home.  Almost as sad, is watching people struggle in debt, while they waste their precious income on frivolous things.  All of the money spent on late fees and credit card interest would make a great investment into a retirement account.  Instead, this money is bestowed upon banks, which are more than happy to profit from our indiscretions.

But, it is nearly impossible to convince people to make better decisions with their money.  I don’t have the heart to explain the affect of these bad choices on their finances.  Nor, do I feel it is my place to judge people’s purchases or to kill the joy they receive from buying something.  So, I smile and act happy for them.  Inside, I am biting my tongue and thinking of all the foolish things I bought on credit.

Making Wise Choices

It takes an incredible amount of discipline to say “I really want that new HDTV, but I can’t afford it right now”.  It’s very easy to justify that it’s Christmas and the family deserves it or I’m having friends over to watch the Super Bowl and I am embarrassed of my old TV.  But, if you put this purchase on a credit card or are late on just one of those zero-interest payments, the TV will cost you much more than it’s worth.

Stop the irrational behavior and the excuses for buying things you can’t afford.  Your family deserves to live debt-free, without the stress of money problems.  Your friends should be happy to watch your old TV and enjoy your hospitality during the big game.  If not, they can host the party and you can watch their new TV.  Or, you can find some friends who value your company, instead of your possessions.

The Bottom Line

The bottom line is that our lives are a continuous series of choices.  And, nowhere are the choices we make more important than in our finances.  Whether you choose to save your money or live your life in debt, the choice is completely up to you.

Stephen Covey – American Author

One reason this advice may not be so popular, is because it may appear self-serving to some people.  But, income is one of the key pillars of sound financial planning.  And, it is critical for meeting life’s necessities as well as meeting your financial goals.  So, here are some reasons you should be planning to increase your income steadily.

Never Limit Your Income

I bargained with life for a penny
And life would pay no more
However I begged at evening
When I counted my scanty store

For life is just an employer,
He gives you what you ask,
But once you have set the wages,
Why, you must bear the task.

I worked for a menial’s hire,
Only to learn, dismayed,
That any wage I had asked of Life,
Life would have willingly paid

- Author Unknown

What this Poem Meant to Me

I first read this poem almost 20 years ago.  Until then, I was content with my meager salary, even though I knew I was underpaid.  And I lived a happy life, even though I wasn’t able to achieve many of my financial dreams.  After reading this poem, I was no longer willing to settle for less than I was worth.  I realized that I worked very hard and I deserved a fair income.  Much to my amazement, life was willing to pay me a lot more.  I simply had to ask for it.

Is it Wrong to Want More?

I’ve noticed some people are very judgmental when it comes to income.  They act as if it’s noble or virtuous to live on less and selfish or greedy to want more.  I don’t subscribe to this kind of scarcity thinking.  Nor, do I think it is right to cast judgment down upon the incomes of others.  As long as someone is legally and morally creating value which supports their high income, they are rightfully entitled to it.

Except for some in the legal, political and financial professions, income isn’t a zero-sum game.  You don’t have to take money away from others to create income for yourself.  You can create jobs, create products and create opportunities for others, which also generate income.  You can choose to be a wealthy person of high integrity, much like Warren Buffet.  And, you can employ your wealth to help others who are less fortunate, much like Bill and Melinda Gates.

How Much is Enough?

For most of my adult life, $100,000 per year was my magic number.  I always felt this was an attractive amount that would allow me to lead a comfortable life and help others along the way.  Inflation has diminished the purchasing capacity of $100K over the past 20 years, but this remains a fond and familiar goal of mine.

Lately, I have begun to realize that it’s silly to worship this milestone of $100K in annual income.  If I am fortunate enough to reach this goal, it will happen because I am producing more value than I am right now.  It’s not that I want or need more income to live on.  But, I have come to realize I could do some wonderful things with the excess.

The Magical Powers of Income

As an Investment -What investments have you made in your income?  Chances are, the less you have invested in your career, the less income you receive.  You can easily get an entry-level job and make the minimum wage.  If you invest the time to learn a trade, you will be paid the wages of a skilled laborer.  If you invest in college and get a degree, you will receive a professional salary.  If you invest in a business, your income is not limited to wages.  The key is in understanding that you have some control over your income.  And, you must invest in yourself, if you wish to increase your income.

As a Resource – What is the number one cause of stress and divorce in America?  The answer is money problems.  Unfortunately, a high income won’t solve money problems.  In fact, it often creates problems.  Like most other valuable things in life, income is a resource that must be managed wisely.  If you save a good percentage of your income, you will have a nice cash reserve to cushion any problems.  If you increase your debt and payments to match your increasing income, you may be headed for disaster if your income is ever reduced.

As a Foundation - I have set a future goal to donate 10% of my net income to various causes.  And, if my income increases steadily in the next few years, I may be able to increase this to as high as 20%.  Many tithe to the church or help family members who are in need.  Others help their children through college.  Whatever your cause, raising your income can build a foundation for the benefit of others.

The Bottom Line

The bottom line is that income is simply a tool to meet your financial goals.  Just as a bigger hammer will pound nails faster, a bigger income will help get you out of debt or fund your retirement faster.  Excess income can always be used for a benevolent purpose.  So, don’t be afraid to pursue a larger income, as long as it doesn’t come at the expense of your family or your lifestyle.

New Testament - from the Sermon on the Mount

Recommended Reading

This post was featured on the Carnival of Personal Finance. If you aren’t familiar with the Carnival of Personal Finance, it’s the premiere carnival of its kind. If you want to read informative articles from knowledgeable bloggers, this is the place.

Having spent a couple of years working on Year 2000 issues, I can sympathize with the characters in this movie.  Sometimes, the dehumanizing aspects of greedy, self-serving corporations can make you depressed.  After I quit my last job, I watched Office Space a couple of times and it really cheered me up.  It reinforced my belief that I shouldn’t put up with abuse at work, just to earn a living.  There are many great companies out there and I am thankful to be working for one right now.

The Million Dollar Question

During one scene in the movie, Peter asks Michael and Samir what they would do if they had a million dollars.  They talk about investing in mutual funds and taking care of their families.  Peter’s answer is that he would do absolutely nothing.  He would just get up every morning and do whatever he wanted.  In the past, I have had a similar “dream goal” of taking it easy and enjoying my day. It’s all about the freedom for me.

My Million Dollar Dream

Now that I have such an enjoyable job, my goals have changed quite a bit.  Instead of slacking off and lounging around, I think I would like to do something for the betterment of mankind.  I would like to contribute to the world in some way that isn’t possible with the resources I have right now.  If I had a million dollars, I would devote some of my time and money, to a higher purpose.

I’m not yet sure what my contribution will be.  But, I have an interest in the field of energy.  I believe the control and pricing of energy is the biggest criminal enterprise I have witnessed in my lifetime.  I grew up in one of the smoggiest cities in the nation.  And, I have always felt we were being poisoned for the sake of someone’s profit.  Having lived through the Oil Embargo, Rolling Blackouts and the recent manipulation of oil prices, it seems we are being cheated for energy at every turn.

Here is some good news.  We are on the verge of a revolution, where people will be in control of their own energy resources.  Just as computers, blogs and the Internet have broken the monopolies over music, news and communications, new technologies will destroy the monopolies over energy.  In a few years, electric cars, solar panels and energy storage devices may be as ubiquitous as personal computers and cell phones are today.  I believe we are nearing the end of the era of burning things to create energy.  And, I would love to do something to help affect this change.

What’s Your Million Dollar Dream?

The real question is; what would YOU do if you had a million dollars?  Would you enjoy a life of shameless luxury?  Would you pay off the bills and help out your family?  Would invest the money and ride the markets?  Or, would you party large until it’s all gone?  There are as many answers as there are dreams and dreamers.

The Bottom Line

The bottom line is that it’s easy to dream of a million dollars.  But, it’s not so easy to deal with the reality.  The grim statistics of lottery winners will confirm that it’s not always a blessing.  So, be careful what you wish for.  And, never lose sight of your dreams.

Eddie Rickenbacker – WWI Fighter Ace & Race Car Driver

Recommended Reading

This post was featured on the Carnival of Personal Finance. If you aren’t familiar with the Carnival of Personal Finance, it’s the premiere carnival of its kind. If you want to read informative articles from knowledgeable bloggers, this is the place.

Size of the Problem

The notional amount of outstanding positions in the derivatives market was almost $700 Trillion in 2007.  That’s about 11 times the combined GDP of every country in the world.  I don’t know how others feel about this, but it seems pretty irresponsible to me.   The recent explosion in the volume of derivatives highlights their profitability, but it also creates a lot of risks.

Why this is Risky

There are way too many complex derivatives products and they are often used to gamble for profits, instead of being used responsibly for hedging.  Another problem is that over-the-counter trading is non-transparent and poorly regulated.  Also, there are some highly leveraged and naked securities, which have such a high loss potential they never should have been legal in the first place.

The only reason this is allowed to go on is because bankers and brokers are making a fortune off of these products. In case anyone thinks I’m overstating this problem, here are some examples.

High-Profile Failures

AIG Bailout - Taxpayers are painfully aware that over 100 billion dollars was spent to bail out AIG.  What most taxpayers don’t understand is why.  AIG was engaged in the selling of Credit Default Swaps, which exposed them to total losses of around $100 billion.  Since they weren’t properly reserved or hedged against these losses, the Government stepped in to bail them out, with our money.

Bankruptcy of Orange County - In 1994, Orange County, CA was bankrupted by Treasurer Robert Citron.  Citron purchased derivatives called Inverse-Floaters that were tied to interest rates.  When interest rates rose, these securities lost two billion dollars in value and the county was forced into bankruptcy.  Citron plead guilty to six felony counts, but never spent a day in jail.  Orange County taxpayers were stuck with the tab and 3,000 public employees lost their jobs.

Long-Term Capital Management - LTCM was a high-profile hedge fund, which failed in 1998.  LTCM engaged in various leveraged trading strategies, including Fixed Income Arbitrage, Interest Rate Swaps and Pairs Trading.  The East Asian Financial Crisis and a Russian Bond Default caused liquidity problems for LTCM, resulting in $4.6 billion of losses.  The Federal Reserve engineered a bailout by a number of large investors to avoid further disruption to the financial system.

Failure in Regulation

Bank regulators don’t seem to have learned anything from their continuous series of failures, except how to unload the losses onto taxpayers.  Speculation-based bank defaults date all the way back to the Great Depression and the Bank Panics of the 1800s.  Yet, we seem no better protected today then we were back then.  Even as the Federal Reserve grabs for more power over our financial institutions, it has become obvious they are a source of the problems.

New Laws on the Horizon

According to Reuters, Congress is considering curbs on speculation in the Credit Defaults Swaps markets and they may ban naked swaps outright.  Congress also wants to shift oversight from the Federal Reserve to the Securities and Exchange Commission (SEC).

The Obama administration wants to curb over-the-counter trading, by forcing these derivatives through a clearinghouse, if they are not traded on an exchange.  This would make these trades more transparent to regulators.  The White House is expected to release this proposed legislation sometime today.

The Bottom Line

The bottom line is that financial institutions can’t be trusted when profits are at stake.  And, our banking systems will never be secure as long as high leverage is allowed for speculation.  Until we get some real oversight and practical limits on leveraged securities, we will all be at risk of more banking failures in the future.

We can’t allow bankers to regulate themselves.

George Bernard Shaw – Irish Playwright

Recommended Reading

There was a fantastic article in Rolling Stone that details how Goldman Sachs manipulates the futures and commodities markets. The author Matt Taibbi also explains how Goldman Sachs uses it’s political clout to affect legislation and eliminate protections for consumers.  I shied away from describing commodities manipulation in my post, but the markets are definitely inflating the costs of items such as oil and we are paying for it.  If you want further evidence of how we are being taken for a ride by investment banks, this article is definitely worth reading.

This post was featured on the Carnival of Personal Finance. If you aren’t familiar with the Carnival of Personal Finance, it’s the premiere carnival of its kind. If you want to read informative articles from knowledgeable bloggers, this is the place.

I usually avoid political posts, so I will try to keep this strictly related to finances.  The cost of our health care is unsustainable, considering the number of people retiring and others using Medicare services.  If we don’t come up with some sound financial solutions, Medicare may become insolvent.  Plus, there are an estimated 45 million people who are uninsured and medical costs are the single largest cause of personal bankruptcies.  This has become a huge problem that will affect everyone at some point.

Why Costs are so High

Political Clout - Our politicians are primarily to blame for high medical costs.  Powerful special interests in the legal, medical and insurance industries are enriching themselves at our expense, with the aid of our elected representatives.  These special interests have a vested interest in maintaining the status quo, which has been very lucrative for them.  Politicians have a vested interest in getting re-elected and they welcome the campaign contributions.  None of this works in the favor of affordable health care.

Administrative Overhead - One huge component of cost inflation is administrative overhead. There are dozens of proprietary medical systems which don’t integrate to the standardized EMR systems.  And, there are many different codes, forms and insurance plans, which contribute to medical mistakes and make billing a nightmare.  Standardization has been slow to occur and the costs of computerized medical systems are staggering for large organizations.

Medical Malpractice - Another heavy cost that is passed onto the consumer is in the legal and insurance costs of medical malpractice.  Granted, there are medical mistakes and patients are sometimes harmed by the health care system.  But, our litigious society and an abundance of aggressive lawyers aren’t helping to contain medical costs. 

Drug Costs - The U.S. is one of very few countries in the western world that allow advertising of prescription drugs and this is a recent change.  A number of years ago, you didn’t see commercials on TV telling you to “ask your doctor” for drugs.  This simply wasn’t allowed and it shouldn’t be now.  There are also a lot of “promotional” programs that reward doctors for prescribing drugs.  There are a lot of new drugs that are less effective and more expensive than their predecessors.  Also, a suspicious number of new drugs must be taken for life, instead of being taken for a couple of days or weeks.  Finally, prescription drugs are more expensive in the U.S than they are in other countries, even though they are often made right here.  All of these things add up to skyrocketing prescription drug costs with no relief in sight.

What is Wrong with the Obama Plan

I applaud President Obama for recognizing that there is a crisis in the coverage and cost of health care in America. Unfortunately, his plan does virtually nothing to contain costs and instead cuts everyone in for a big share of taxpayer money.   This is supposed to be paid for by the rich, but this cost will ultimately fall on the working class.  And, the last thing we need is our Government becoming our health insurance company. Just look at all of the fraud in Medicare and you will get an idea of how effective this plan would be.  And, if you are worried about the quality of health care provided by the Government, you can gauge that by the health care provided to our Veterans.  I foresee a lot more problems than solutions.

My Solutions to the Crisis

Direct Provider Model - I selected Kaiser for my health care benefit, because they provide the health care directly. This means that I don’t pay an insurance company in addition to the provider. By cutting an insurance company out of the loop, medical costs are greatly reduced. In addition, there is greatly reduced administrative overhead, because the provider doesn’t have to fill out dozens of unique forms to get paid by dozens of insurance plans. And, I don’t receive letters from doctors who didn’t get paid by the insurance companies, who rejected the claims. Although you give up some freedom in choosing your medical care, the reduction in costs and hassles are well worth it.

Cost Containment - One scary aspect of an HMO provider is that they have incentives to cut costs, even if it means cutting necessary medical procedures.  The alternative, which is equally scary, is a system of providers who have incentives to run up costs, even if it means providing medical procedures which may not be necessary.  This is not a pleasant choice to think about.  But, medical costs must be contained, so a model that provides incentives for controlling costs makes a lot of sense.

Health & Prevention - This may sound like an absurd claim and I have no scientific basis for making it.  But, I personally believe we could cut our long-term health care costs by at least 20% just by removing six key ingredients from our food supply.  (nitrates/nitrites, hydrogenated oils, artificial sweeteners, corn sweeteners, MSG and preservatives such as Sodium Benzoate, BHA and BHT)  If we could reduce the epidemic numbers in cases of diabetes, obesity, heart disease, strokes and cancer, this would not only reduce medical costs, but improve our quality of life.

Alternative Medicine - More and more Americans are aware of the issues and limitations related to our traditional form of medicine, including the nasty side effects of synthetic drugs.  It’s a crime that very little research is being conducted on natural remedies and alternative forms of medicine.  There is no doubt in my mind that these options are being limited by vested interests in the status quo.  People would welcome these alternative solutions, but they simply aren’t available through traditional medical channels.

The Bottom Line

The bottom line is that there isn’t an easy solution to our health care crisis.  We can’t continue to pay 16% of our GNP for health care, we can’t have millions of uninsured citizens and we can’t have the looming disaster called Medicare bankrupt out Government.  What we really need is a vibrant, private direct provider system, with portable benefits and no pre-existing conditions.  We need to eliminate the proprietary nature of health care and standardize medical records, forms and coverages.

Unfortunately, the current Obama proposals are bloated, inefficient and costly corporate giveaways.  We simply can’t afford that if we are going to remain healthy and solvent as a nation.

Recommended Reading

This post was featured on the Carnival of Personal Finance. If you aren’t familiar with the Carnival of Personal Finance, it’s the premiere carnival of its kind. If you want to read informative articles from knowledgeable bloggers, this is the place.

• Boring conversations at dinner parties or on dates
• Being considered a cheapskate by your spouse and friends
• Bouts of insomnia, while thinking of ways to save money
• Funky smell from that homemade soap or deodorant
• Missing invitations to events where they split the bill

Stepping Off the Frugal Path

Many of the posts from Personal Finance bloggers are about climbing out of debt, strict budgeting and living a frugal existence.   This appeals to a very small percentage of the population, most of whom are PF bloggers.  I’m taking a stand against this.  I’m calling B.S. on the lifestyle police and giving frugalistas the finger.

I don’t want to clip coupons or shop in thrift stores.  And, I don’t want to have to count my dimes or create a monthly budget.  I don’t want to dwell on my bills or my expenses.  Most of all, I don’t want you to waste your time on this either.

I have a much better plan.  I want my finances to be fun.  I want to check my investments and dream of where they will be in twenty years.  I want to see my income steadily rising.  I want a bigger budget for fun and entertainment.  I want to invest more of my income and pay less in interest.  I want to enjoy the money I have worked so hard to earn.  Most of all, I want you to have this lifestyle too.

Why Being Frugal Doesn’t Always Pay

I understand there are people of limited means who must be frugal in order to survive financially.  Twenty years ago, I was one of them and I knew every frugal trick in the book.  The reason I wrote this post is because I spent years of my life scraping by just to make ends meet.  I firmly believed I was doing the right thing at the time by limiting my expenses and I was very proud of my frugal accomplishments.  But, now I know I was definitely on the wrong track.

I should have been working much harder to increase my income.  Instead, I was expending most of my energy working long hours for low wages.  And, I was squandering my mental talents on creative ways to save on every expense.  This approach cost me a lot of time and money during my 20s and 30s.  I still live a pretty frugal lifestyle for my tax bracket, which allows me to invest 20% of my net pay.  But, I am way happier now that I have sufficient income to enjoy my life.  My family is much happier as well.

Reasons to Increase Your Income Instead

Savings are finite, while income is virtually unlimited.

It’s not possible to cut 100% of your expenses, unless you mooch off others or live in a homeless shelter.  It would be difficult for most people to even cut 10% of their expenses.  But, it’s very possible to raise your income by 10%, 100% or even more.  In fact, I have more than quadrupled my income in the past twenty years.  And, I don’t work any harder than I used to.  I just get paid a lot more for my efforts.  In a way I am very lucky.  But, I made a conscious effort to boost my salary and it worked.  I wish I had thought of it sooner.

There are economies of scale with a bigger income.

You will pay higher taxes, but your budget allotments will increase as well.  For example, I always pay myself first by putting away a percentage of my net income.  Obviously, the amount of money I was able to save grew a lot as my income increased.  So did my allotments for food, clothing, travel, transportation and entertainment.  As the pie gets bigger, so do the slices.

Many of your biggest monthly costs are fixed.

Unless you inflate your lifestyle, your fixed expenses will become a smaller percentage of your income.  For example, my mortgage payment is the same as it was 13 years ago (actually it went down), while my income has more than doubled.  This allows me to comfortably pay extra each month on the loan.  Insurance, property taxes, utilities and other fixed costs are also much more affordable on a higher income.

Savings are incremental, while raises are exponential.

Would you rather get a 5% raise or save 5% in expenses?  After taxes, it may seem like the 5% savings is a better deal.  But, your income will be up 5% every year and this could add up to a lot of money over time.  When you get your next raise, it compounds on top of the old one.  So, regular increases in income tend to grow exponentially, just like investments.

The Bottom Line

The bottom line is that you must keep a lid on your spending. But, this doesn’t mean you should become preoccupied with being frugal. It is much more efficient and enjoyable to use that energy to increase your income. As your income rises, it’s OK to increase your spending, as long as you eliminate debt, avoid payments and save for your future.

Recommended Reading

This post was featured on the Carnival of Personal Finance.  If you aren’t familiar with the COPF, it’s the premiere carnival of its kind.  If you want to skip the junk posts and read informative articles from knowledgeable bloggers, this is the place.

• Spend some of your spare time increasing your income.
• Pay off any consumer debt or loans as quickly as possible.
• Don’t buy anything you don’t need or can’t afford.
• Don’t spend a lot of money on depreciating assets, like cars.
• Pay your bills promptly and in the most efficient manner.

Saving & Investing

• Invest at least 10% of your net, before you pay anyone else.
• Buy your own home as soon as you can comfortably afford it.
• Study all types of investments, even the ones you don’t own.
• Never invest in anything you don’t understand completely.
• Properly diversify your investments, including real assets.
• Never give up control of your accounts, even to an advisor.

Life & Finances

• Have written financial goals and review them regularly.
• Make sure you are fully insured and protected from loss.
• Create a will and instructions for those you leave behind.
• High savings and low debt can mitigate a financial crisis.
• Sound finances can greatly reduce the stress in your life.
• After you save 10% and pay your bills, enjoy your money.
• People are the reason for money, not the other way around.