This is where the cool kids hang out>>>> ControlYourCash.com

If you’re in your early 20s, have negative net worth, and have adopted the belief that debt is just an inevitable fact of life for your remaining decades, you need the book. If you’re adult enough to admit that you don’t know a blessed thing about money, you need the book. If you let someone else do your taxes every year, and isn’t because your finances are so ensconced in LLCs and S corporations that if takes a CPA to decipher your ability to maximize deductions and credits, you need the book. (You also need to start doing your own taxes, at least once.) If you work on Wall Street, dealing in conditional variance swaps and measuring third-order derivatives of the option value to volatility, you can probably skip the chapter on securities and head straight for the chapter on how to buy a car.

We wrote the book to eliminate guesswork for people who can’t be bothered to learn every nuance of someone else’s field of endeavor. Escrow, for instance. Say you’re about to close on a house. If you’re sitting across from an escrow officer who’s talking about proration schedules and title search indemnity, and you nod your head for fear of seeming clueless or unsophisticated, your pride will cost you money. Possibly lots of it.

If you reach that point, in that scenario, your only other option is to admit your ignorance and sit there as the escrow officer goes through every line from every one of the dozens of documents you have to sign. The proceedings will slow to the speed of evolution. It’ll take 5 or 6 hours to go through every contingency, and there’s no way you’ll be disciplined enough to sit through it all anyway.
Or, you can spend $10 or $14 (prices vary, usually downward) on the book. Then you’d know what to have asked the real estate agent and the mortgage lender weeks before you’d gotten to this point.

Tell us, right now: where do the deductions from your paycheck go? (Don’t say “the government”, that’s a D- answer.) How much goes to where? Does any of it ever get returned to you? And if so, then why did the government confiscate it from you in the first place?

Admit it: you probably don’t know. You don’t know what the acronyms stand for (FICA? COBRA?), nor do you know what percentage of your money you’re losing before you even get to touch it.

Are you the least bit interested in minimizing those deductions? In taking home a larger piece of what was yours to begin with? Then you need the book. Control Your Cash isn’t just a memorable and semi-mellifluous title. It’s, as the advertising drones say, a call-to-action. Put it this way: someone’s going to control your cash. If you’d rather it be someone other than you, you’re either a child or retarded.

We wrote the book because we couldn’t find all this stuff – bank accounts, credit scores, home buying, entrepreneurship – in one volume. In the words of Alan Schwarz, author of The Numbers Game and probably not the first author to articulate this thought, “This is the book I wanted to read, but no one had written it. So I did.”

And thus, a book that breaks down your 1040 form line-by-line without boring you into catatonia. A book that teaches you how to walk into a car dealership and treat that tobacco-stained salesman in the Men’s Wearhouse shirt and tie like the petty thief he is. A book that explains how, when and why to invest.

But not what and where to invest. Control Your Cash: Making Money Make Sense doesn’t recommend particular places to put your money. It just explains what those places are, because most people can’t begin to guess. The book teaches you how all the particular investment classes work, and what their potential pluses and minuses are. But what securities, real estate or bank instruments you choose to build your fortune with are your business.

We’ll teach you to drive. Whether you become Dario Franchitti or Chris Waffle is up to you and chance. But you don’t need to be the former to get where you want to go quickly and safely.

Not as good a place as doggie heaven, but still, you'll like it.

Relax. This isn’t our last post, just our last post here.

We’re all grown up now. Visit us at our new permanent home, ControlYourCash.com.

———

Q: Why’d you move?
A: Had to. It’s our own URL, you can buy the book directly there…WordPress has been wonderful, but it’s time to leave the nest.

Q: Anything else good on the new site?
A: Oh, yeah. A forum, prizes, and the “Anti-Tip” of the Day. Guest posts from the brightest personal finance bloggers in the business. And excerpts from the new book, Control Your Cash: Making Money Make Sense, a personal finance book that won’t put you to sleep, and won’t patronize you, but will actually teach you something useful.

Q: Anti-Tip of the Day? What’s that?
A: “Spend your extra money on cigarettes”, “Day trading is a sure path to riches”, that kind of thing.

Q: I dig the old posts. Will they transfer to ControlYourCash.com?
A: They’re already there.

Q: Why do you write like this, in an imaginary conversation?
A: It’s a crutch. Matt Taibbi has profanity, Bill Simmons has “stringing-words-along-in-quotation-marks-ad nauseam“, David Foster Wallace had footnotes, Control Your Cash has this.

Q: Well, it seems to be working for you.
A: Thanks. See you at ControlYourCash.com.

Doo-wop singer. Another legitimate job that doesn't require a college education.

Meet us back here on Election Day 2012, and tell us that “the college crisis” didn’t become an issue in the 33 months since this post appeared.

We’ve already heard how the domestic automotive industry is the unseverable spinal cord of the American economy, and that it’s our duty to our fellow man (if he’s a UAW member) to spend $50 billion propping up this radiant pulsar of American commerce.

In 2008, you had to go all the way down to the presidential candidate with the 5^th-most votes (the Constitution Party’s Chuck Baldwin) before finding one who didn’t spout off some variation on how crucial it was to “keep Americans in their homes”, even if those Americans borrowed too much money and assumed that a steady increase in their homes’ values was a cosmological constant.

And as we heard from a prior presidential administration, doling out 700 billion taxpayer dollars (that’s $233 for each of us) was necessary to keep some of the nation’s largest investment banks in the business of lending money, otherwise “the whole system would collapse”, which presumably means we’d be reduced to collecting animal pelts in exchange for our mp3s and bedroom linens. “I’ve abandoned free-market principles to save the free market” was the quote. To paraphrase a ‘60s-era t-shirt and bumper sticker, that’s like (having sex) for virginity.

Meet the next bubble – post-secondary education.

The problem is this: despite the recession, our society has gotten so absurdly rich that today, young adults loaded with potential can postpone any worthwhile work and ring up debts in the process, all in the name of getting an education. How “education” became more important than “productivity” or “fulfillment” or “not being a drain on society” is unclear.

Yes, we’ve all seen the studies say that college graduates make more money than high school graduates – somewhere around $15,000 annually. This is a mantra people take to heart without examining in any detail. It sounds logical, as many jobs require applicants to have college degrees. But like many bromides that attempt to persuade you of a fact in as pithy a fashion as possible, the $15,000 allegation tells only a minute part of the story.

The median salary for petroleum engineers is around $108,000. For a physician who’s been out of school for a couple of years, it’s reasonable to assume he’ll make anywhere from $170,000 or so for a pediatrician to more than $500,000 for a neurosurgeon.

What about philosophy graduates? English majors? People who think a sociology degree is worth anything? We don’t have figures for them, because the Bureau of Labor Statistics doesn’t list “barista” and “street musician” as employment categories. Sure, the average college graduate makes a better salary than the average high school graduate. But the average college graduate is part doctor and part engineer. The students who major in the hard sciences are dragging the political science and journalism majors up with them.

This statistic puts the cart before the horse, and puts passivity ahead of activity. For many college graduates who inherently know, just know, that the last 4 or 5 years were worth it, they assume that that diploma is the negotiable equivalent of a $15,000 annuity. God forbid they actually go to the trouble of applying it.

The University of Hawai’i’s spring semester enrollment is up 9.4% over last year. Instead of working harder than ever to find jobs in a weak economy, people are willfully deferring life – and paying money they don’t have for the privilege. And it’s not like UH is creating more engineers and scientists. A college vice president says “They tend to be all over the place. We have graduate students seeking their master’s, students in areas where there’s a shortage, such as teaching, nursing and social work, and business is popular, but so is psychology.”

And parents, don’t leave the room. We’re not done with you, either. The following is your financial obligation to your kids: food, clothing and shelter until they reach the age of majority. That’s it. No one owes anybody a college education, just like no one owes anyone a house or regular doctor visits. Your kid is far better off becoming a welding technician straight out of high school than wasting four years earning a degree in gender & women’s studies and beginning the income-earning years tens of thousands of dollars in debt. Economically speaking it’s better yet that he become a neurosurgeon, of course, but the world still needs welding technicians.

On the macro level, everyone from your neighbor to the president is talking up post-secondary education. The neighbor does it because he doesn’t know any better, the president for the same reason any elected official advocates anything.* The talking points are familiar: the next generation of Americans needs to be prepared in an ever more competitive world, education is a fundamental right, do you really want America to be a nation of blathering idiots, etc., etc.
This obscures the truth by shrouding it in catchphrases. This may be indelicate, but that doesn’t make it false: things cost money.

An investment, even in one’s own education, is a deferment of resources for an expected return. The majority of college kids don’t know a damn thing about what they’ll do when they get out of college. Therefore for them college isn’t an investment, it’s an expense.

That’s not to say that finishing high school is all you need to do to enter the workforce with a minimum of debt. There’s still a thing called motivation. Completing school, at whatever level, shows that you had the diligence to sit quietly and take some tests. There are a million ways to earn a respectable living out of high school – carpentry apprentice, garbageman, junior lab technician – but taking a random selection of undemanding college courses is not one of them.

Yet the government, true to its misguided principles, subsidizes education. President Obama proposes, in public and behind a live microphone, that no college graduate should have to fork over more than 10% of his income in student loan payments. This is what commerce has come to in 2010 – the terms of an agreement are dictated by future occurrences. Of course no one wants to pay 10% of his income on debt obligations, or on anything else for that matter. Not that 10% is an insurmountable number, but if the government mandates that it’s too high, pretty soon people will agree that it is too high, and that no $40,000-a-year junior account executive should suffer the inconvenience of paying more than $333 a month toward her student loans.

It gets better. (Or worse, if this kind of thing bothers you, which it should.) The president adds that student loans should be forgiven after 20 years – 10 if the borrower “enters into a life of public service.”

His definition of public service goes beyond Green Berets and SEALs. Say you want to take your forestry degree and be a National Park Service ranger, which offers room and board and pays $35,000 annually. Thanks to the time value of money, you’d be getting close to a complimentary education while doing nothing that makes a measurable impact on America’s gross national product.

But after the 10 (or 20) years, the unpaid part of your education doesn’t suddenly become “free”. Services were still rendered, the college still paid its professors and maintained its classrooms and grounds. Who makes up the difference? (Hint: the same generous soul who already bailed out Chrysler, GM, AIG, Lehman, your deadbeat neighbor who didn’t know how to sign a loan document, etc.)

People respond to incentives. If the government declares that the price you pay for your education will be arbitrarily lowered, more people will go to college. And earn useless degrees. And take their sweet time paying them back, if at all. But at least our elected officials can brag that a higher percentage of Americans go to college than do the Irish or the Icelandic.

*To get elected.  (And in this particular case, to distract attention from more pressing matters, such as the ever-closer destruction of Social Security.)

There are thousands of women like this, which is a problem unto itself, but introducing her leads to a larger point.

Not pictured: Kids #2, 3, 4, 6, and 9, and Baby Daddies #1, 2, 3, 4, and possibly 5 and 6

The well-fed 35-year old woman in the middle of the picture is Tessa Savicki (anagrams include “Avast, Sickies” and “Cake Ass Vista”), a Massachusetts welfare queen. Her oldest kid is, ahem, 21. She has another adult kid. She’s “planning on getting her GED next month”, not unlike the stripper who’s working on her Ph.D. or the fat girl who’s definitely going to start going to the gym. A chronic plaintiff, Miss Savicki (That’s “Miss”, guys! She’s available!) once sued a major drugstore chain for selling her an expired spermicide. (She might have a case. That spermicide looks like it went bad sometime around Reconstruction.) The remainder of what you need to know about Miss Savicki is captured in the caption, with one exception.

When this human gumball dispenser jettisoned her most recent kid, the attending physicians, God bless them, finally tied her tubes before she could create a designated hitter for the Savicki family softball team.  She’s suing the hospital, and her attorney says the hatred his client is spawning engendering “blows your mind, because you see how ingrained the bigotry is against poor people.”

Wait right there, attorney Max Borten [(781) 890-9095, inquiry@GBMedLaw.com]. But thank you for leading to this week’s topic: the difference between poor and deadbeat.

The Control Your Cash authors have been poor. They’ve been rich. (Sophie Tucker: “Rich is better.”) But every step of the way, they’ve been unaware of any bigotry against poor people in the United States, at least unaware of any practiced by adults. The kid who wears tattered clothes to school might get laughed at by his peers, but the adult who openly pokes fun at someone for not having sufficient material luxuries in his life is either rare or nonexistent.

There’s no shame, none whatsoever, in being poor. Most of us have been there, making very little money and living in the rustic apartment immediately out of college or high school, furnishings courtesy of the Home Depot particleboard collection. Poverty, or at least extreme modesty, is usually a necessary step before you can earn your place among the middle class.

Being deadbeat is something else. Denuded of its buzzwords (“great society”, “hand, not a handout”, “living with dignity”, “economic security”), it’s theft. Taking money from industrious taxpayers, even if it’s for food, clothing and shelter, is stealing if the recipient offers nothing in return. Receiving the money through the conduit of a government agency doesn’t make the recipient any less culpable.

-Artie Lange completing a triathlon.
-A Libertarian candidate becoming President.
-Nauru taking home Olympic gold in speed skating.

These are things that will occur millennia before a welfare queen (or king, or princess) Controls His or Her Cash.

Few of us start life with the advantages of a Jennifer Gates or a George W. Bush, but that’s not the point. If you’re born healthy enough to have your faculties, your senses, to be able to speak (and sue drugstore chains), and to make it to the age of 35 and counting, then you can theoretically someday make your way to comfort if not affluence. Here’s how not to do so, with a virtually guaranteed rate of success:

-Jump from relationship to relationship
-Spread your legs, repeat ad nauseam (or for you guys reading, plant that seed in any warm place it’ll land)
-Drop out of school, again more than tangentially related to the previous two points

If you do the above, you’ll have less chance to get a job. You’ll all but eliminate your chance at getting a job with vertical room to progress. But thanks to the largesse of an increasingly squeezed public, you’ll get enough money to live and keep cranking out babies. Unless a surgeon with some foresight decides to throw the rest of us a bone.

We preach discipline at Control Your Cash, which should be neither hard nor painful for you. Spend less, save more, keep your mind open, learn how investments work before committing to them. Know what an investment is, and don’t confuse it with an expense. In short, show up here every week and get yourself informed.

But you’ve got to at least want to. It’s clear that lots of people can’t be bothered to.

Last month we awarded the golden Control Your Cash Man of the Year chalice to a guy with no debt, growing investments, and a reasonably well-spending lifestyle who would sooner rob a bank than suck at the taxpayer teat. In Control Your Cash Bizarro World, we’d have a prize for Tessa Savicki. Maybe a platinum-coated IUD.

Economic opportunity comes in odd forms, including this one.

Even a catastrophe can demonstrate how important it is to think as someone who Controls His or Her Cash. If doing so can dispel some class warfare misconceptions too, then all the better.

Unfortunately, for some the Haiti earthquake is more than just a colossal tragedy, since it’s possible to attach a moral component to some benign human behavior in the earthquake’s aftermath.

Haiti is the size of Massachusetts, with more people than Michigan. And since people started keeping records, Haiti has been the poorest country in the Western Hemisphere. The citizenry has endured uninterrupted horrible government since independence two centuries ago, unless you count bloody coups as “interruptions”. As you’ve probably heard, shortly after Haiti fell to rubble Royal Caribbean cruises’ Independence of the Seas made a scheduled stop 2 miles from the major northern city of Cap-Haitien. Never an industry to look beyond the surface, the media helped matters by using loaded terms like “frolic” and “frivolity” to describe the pampered passengers on board, who allegedly sipped mai tais and played shuffleboard while thousands of people died relatively close by. While you’re welcome to bash people who vacation on cruise ships as emblematic of indulgence and sloth, that isn’t the point.

If you glean one piece of knowledge from Control Your Cash, let it be this: alternatives must exist. Given that cruise ships exist, and that that existence is somewhat permanent, exactly what is supposed to happen if the Independence of the Seas cancels its visit to Cap-Haitien? The ship has to go somewhere. Were the Independence of the Seas to drop anchor a few miles off the coast of Hispaniola, or continue uninterrupted to San Juan, perhaps that would somehow mitigate the carnage around Port-a-Prince. Out of sight, out of mind, right?

Circumstances placed the passengers on board the Independence of the Seas in an awkward situation (yes, it’s all relative. “Awkward” compared to the passengers who took the same cruise the previous month, not compared to the Haitians waiting for the International Building Code inspectors to come by and slap a giant “Condemned” sign on the entire western half of the island.) If it’s distasteful to play on waterslides and sample the breakfast buffet while docked in Haiti, would it be any less so to do the exact same thing a few dozen miles offshore, where the locals couldn’t see the ship? Do you really believe the poor dark-skinned unfortunates can be that easily fooled?

Refusing to dock by Cap-Haitien won’t alleviate anyone’s suffering, unless you count assuaging the partially developed consciences of a few uptight and unthinking people. Furthermore, Cap-Haitien was 50 miles from the epicenter of the quake and is relatively unscathed. So naturally, the logical thing to do would be to bypass the port and keep tourist dollars from entering the country when they’re needed most.

Haitians, by virtue of being poor and rendered poorer by tectonics, don’t have the luxury of concerning themselves with such secondary cares as etiquette and propriety. While the spectators can debate the merits of hybrid subcompacts vs. SUVs, or refuse to eat food grown 101 miles away from their homes, the Haitians themselves have more pressing problems. Such as getting fed and sheltered.

It shouldn’t take a natural disaster to illustrate this point: while ordinary modern humans don’t live at the beck and call of rich people, it sure is handy having them around. Because once someone elevates from mere comfort to affluence, the difference between the two is measured by money that needs to be spent or invested. That money will almost always be spent or invested with people poorer than that rich person.

Liquidity of money is everything. Liquidity means the speed at which funds get spent in the economy as they move from lower-valued uses (sitting in a tourist’s pocket) to higher-valued ones (being exchanged for food and shelter, by a Haitian selling whatever goods or services.)

The irony is that cruises, despite being synonymous with ostentation, are anything but ostentatious. 75 years ago, the average person had as much chance of going on a cruise as she did of traveling in space. Today, cruises have been democratized to the point where Royal Caribbean offers 4-day junkets from Miami to the Bahamas (and back, presumably) for $247. That’s not per night, either.

Perhaps the distaste and second-guessing stems from the level of pampering the passengers on board the Independence of the Seas enjoy. If she had only one whirlpool instead of two, or served off-brand ice cream in her coffee bar instead of Ben & Jerry’s, that might mitigate the protocol horror.

Kudos to Royal Caribbean CEO Adam Goldstein for putting practicality ahead of public relations. He unapologetically made the economic case for docking in Haiti, hoping to persuade the holdouts who think it’s bad to patronize the hundreds of local merchants who rely on moneyed Americans to indirectly feed their families.

Just ask the merchants along Front Street in Lahaina, Hawai’i, who salivate when a cruise ship docks at the nearby terminal and passengers disembark, ready to spend. The people running those shops are Americans. If it’s a slow day at the shop, the merchants and their employees still have warm beds inside structurally sound dwellings to sleep in that night.

But for a Haitian local, the $15 he can earn for a day’s worth of tour guiding can mean the difference between going home, and going home hungry. The alternative (there’s that word again) would be for the cruise ship passenger to keep that money to spend it at the next port of call, which is certain to enjoy a higher standard of living than anywhere in Haiti does.

If the passengers are “uncomfortable” with coming within 50 miles of a disaster zone, or if people with no vested interest in the situation are uncomfortable, suck it up. Or you could ask a Haitian who just lost his house, his income, and a family member or two if there’s anything he can do to salve your discomfort.

One way to solve the problem of naked income disparities would be to have Royal Caribbean only cruise to ports with substantial per capita incomes. Luxembourg, for instance. That way, neither the cruisers nor the locals will perceive any inequality.  Alas, Luxembourg is landlocked.

As to the finger-pointers who decry the Independence of the Seas’ passengers as representing all that is unholy with the festering white underbelly of globalization? If those naysayers really gave a damn about Haitians, they’d buy a cabin, dock at Cap-Haitien, ask for the deluxe tour from whichever Jean-Michel or Rene greets them at the port, tip generously, then head into a local café and order as much tassot et banane pesé as their well-fed First World stomachs could hold.

“Rich”, “out-of-touch” and “pampered” are perfect descriptors for anyone who recommends essentially forbidding poor Haitians from earning a livelihood. Especially now. A physical distance from the problem doesn’t exonerate you, either. If you’re ready to chastise Royal Caribbean and its customers, while you’re spending even a nickel on non-necessities of your own, you’re far more loathsome than the cruise passengers you condemn.

I haven't seen this many Indochinese dong since Sunee Plaza. Hi-oh!

Strong dollar, weak dollar, what does it mean?

It means the price of the dollar, as quoted in foreign currencies. (It doesn’t make a lot of sense to quote the dollar in terms of domestic currency. It’s always going to be worth $1.) There are 182 national currencies in circulation across the planet, but for this post we don’t need to concern ourselves with sparsely traded ones like the Botswanan pula or the Kyrgyz som (no offense to our readers in Gaborone or Bishkek. Control Your Cash is huge in Bishkek.)

Most of the world’s large cross-currency financial transactions are undertaken in just a handful of currencies: among them the euro, the pound sterling, the Japanese yen, the Canadian dollar, the Australian dollar, the New Zealand dollar… and the U.S. dollar. In the world financial markets, the U.S. dollar’s value is expressed relative to the prices of these other currencies. And around the world, that can be vital. One Control Your Cash author had the perspective of growing up in Canada, where the value of the Canadian dollar (quoted in U.S. cents) is at least as prominent a financial indicator as the Dow is in the U.S. Given that the U.S. dollar has historically been the most widely held stable (and most stable widely held) currency in the world, it makes sense that it’d be the one that other countries would choose to quote their currency in terms of. In many parts of the world not referred to above, three particular (foreign) currencies carry equal importance when measuring their relative strengths. In South Africa, for instance, the U.S. dollar, pound, and euro are quoted in terms of each other, making for 3 daily rate quotes (6 if you count each quoted in terms of South Africa’s own rand.)

We do this – quoting euros in dollars, or dollars in pounds, or pounds in euros – because there’s no pure, objective measure of wealth: no commodity whose value always stays the same with respect to everything else. There can’t be, as the economy is dynamic and accelerating. Millennia ago, it might have made sense to count, say, a suckling pig as a unit of currency. My hog is worth 4 of your sucklings. My horse is worth 20. My cow, maybe 8. Oh, wait, it’s a bull? Fine, you can have it for 3. When consumer electronics and decorative tiles and golf clubs don’t yet exist and therefore can’t be quoted in terms of suckling pigs, no problem. But the moment an economy advances even a little, you need something uniform and readily transferable to conduct business in. Even cigarettes work better than piglets, but that implies that your economy has already advanced to the point where cigarettes can be manufactured. Gold works to some extent, as we discussed here, but there are myriad reasons – mostly nationalism and conspicuity – why each nation insists on printing its own money.

If everything has a value – and if anything should, money should – it stands to reason that currencies can be traded for each other. And what makes a currency worth buying? Well, considering money isn’t edible, what makes it valuable is its potential for growth. It’s an investment, like anything else people trade in the financial markets.

If I buy ExxonMobil stock, I’m betting that the stock will increase in value – or in other words, that each dollar I’m buying the stock with will one day be worth less stock.

Yes! Breakthrough.

But currencies are different. If I buy pounds, doesn’t that mean I’m betting that my dollars will one day be worth fewer pounds?

Yes.

Does that make me a traitor to my country?

No, it makes you an investor. Indeed, currency transactions differ from most transactions in that when you deal in currency, you’re exchanging two abstract quantities whose only practical purpose – whose primary purpose – is ultimately to buy other things with. But if the currency you do business in (and if you’re American, that’s largely going to be U.S. dollars) is in danger of losing value relative to other currencies, there’s no point in waiting for it to happen while watching your dollars get weaker.

A “weak” dollar only means weak relative to other currencies. A currency can also lose value relative to itself over time (and almost always will), but that’s a different phenomenon – inflation, which can occur without respect to what’s happening in the rest of the world.

There are plenty of reasons why currencies fluctuate in value, a big one being interest rates. Let’s use the U.S. dollar and the pound as examples. The United Kingdom’s central bank*, the Bank of England, recently set its bank rate (the rate at which commercial and investment banks can borrow money from it) at ½%.  Every few months the Federal Reserve sets the American equivalent, the federal funds rate. Instead of a number, it’s a range, which is currently 0–¼%. (The more a bank borrows, the lower the rate it pays.) The effective federal funds rate, which is a weighted average of the money borrowed by banks, is .11%.

The U.K. rate is unequivocally higher, and not by a little. Which means that ever since those rates were set, the pound has promised higher returns than the dollar. Which makes the pound more desirable than the dollar, which is why the pound is worth more dollars now than it was a few months ago.

(The Bank of Japan’s rate is .1%. The European Central Bank’s is ¼%**, as is the Bank of Canada’s.) We’re not recommending currency investing, nor discouraging it. We’re just trying to explain how it works, which is better than you understanding it retroactively.

In the last 10 months, the pound has gained 20% on the dollar. Does that mean the entire American economy is weak relative to the Brits’? No. If your U.S.-based business buys a lot of British materials (labor, capital, whatever), it’s gotten more expensive to operate, because your business is taking in money in dollars and paying it out in pounds. If your U.S.-based business exports a lot to the U.K., then life is magical. You might not have noticed a thing regarding the price of what your company sells, or what it costs to make it, but from the perspective of a British consumer, your products got cheaper (in pounds.) Which is a big advantage over any British competitors of yours.

There are other criteria that determine currencies’ relative strengths, of course. A country with a lot of debt relative to its size (e.g. Venezuela) might have a crazy person in charge (which it does.) That crazy person (Hugo Chavez) can keep printing currency to settle the country’s debts, making the currency worthless and vaporizing the wealth of all the Venezuelans who earn and save money in that currency. But a country with a vibrant economy, little debt, and lots of imports relative to its size (e.g. Singapore) will usually have a stable currency. Singapore has to buy goods from other countries in order to survive, which means Singapore has a vested interest in keeping its currency worth something. It doesn’t have a lot of financial obligations, so there’s no incentive to weaken its currency by inflation.

Where do we fit on this scale? The United States has a tremendously vibrant economy, at least relative to the rest of the world, regardless of what’s been happening the last 18 months. The U.S. also has a lot of debt. However, we import a lot in absolute terms (although in relative terms, it’s nothing compared to Singapore. Plus we export a lot, too.) And while our chief executive isn’t crazy, it’s not a stretch to call him an opportunist who’d think nothing of ordering the Federal Reserve to help accomplish certain political goals that might not be economically sound.

Where to find currency rates? Yahoo! Finance is our favorite all-purpose financial site: it’s clean, comprehensive and easy to navigate. Scroll down to “Currency Investing” on the left column and have at it.

*You do a blog post, and then you realize halfway through that you might introduce an unfamiliar term. A country’s central bank – most every country of decent size has one – isn’t a bank in the sense that it has branches you walk into and make deposits in. A central bank exists to lend a country’s government its currency. The central bank actually creates the money the government borrows, which is why the dollar bills in your pocket carry the phrase “Federal Reserve Note”.

**You can choose between decimals and vulgar fractions on your own blog. We’re using both.

**This post is featured at Compounding Life**

This week, a nontechnical but nevertheless effective way to build wealth, or at least increase cash flow by reducing outflow.

The Census Bureau claims that the median household income in the United States was $50,233 in 2005. Other sources claim that the average household spends 7.5% of its income of groceries. Yes, there’s a danger in mixing “average” with “median”, but it shouldn’t affect our calculations too much here: besides, there’s a larger point to be made. The average household makes more than the median, because there’s a lower bound to household income (which is of course $50,233 less than the median), but no such upper bound. Just as obviously, the less money a household earns, the greater the share of that income it’ll spend on groceries. Regardless, the average household spends somewhere around $4000 a year on groceries.

Would it be worth your while to cut that number by, say, $1600? As there’s no way to escape having to eat, you could almost think of it as a 40% return on a $4000 annuity.

Which brings us to Costco, one of the quietly great successes in American retailing. Control Your Cash got to the party late on this one, but that doesn’t make Costco any less amazing.

Stop buying your groceries at Safeway. Or Albertson’s. Or Ralph’s. Or Lucky. Or Vons. Despite its mellifluous slogan, Vons is not value. Nor is Publix nor Piggly Wiggly nor Wegman’s nor Pamida. Fine companies all, to be sure, but not committed to the principle of Controlling one’s Cash.

Pay $50 and buy a Costco membership instead. If you’re a human who enjoys eating things, it’ll pay for itself 40-fold. This is not an exaggeration.

Quick recap, if you’ve only driven by a Costco and have no idea what goes on inside: that membership entitles people to buy groceries and other stuff at prices around 30-40% lower than you’ll find elsewhere, with much of the merchandise stacked to the ceiling in aisles wide enough to hold chariot races in. This leads to the perception that Costco only sells in colossal lots, requiring you to buy, say, a year’s supply of cereal at a time. This is false.

Costco and its competitor, Sam’s Club, represent the zenith of human achievement, on a par with space travel and sanitation. With every dollar these retailer/wholesalers reduce prices by, customers have to expend ever less incremental effort to earn money to feed themselves with. Costco performs wonders by exploiting a fundamental economic truth: the more a seller can sell to a buyer, the more likely the seller is to discount what he’s selling. Therefore, the more you buy, even if it’s in concert with other members, the cheaper each unit becomes.

Costco and Sam’s Club have 90 million members between them, so it’s not as though either company is operating in the shadows.

Costco doesn’t just sell groceries. The displays are loaded with everything from vacuum cleaners to tires to flat-screen TVs to books. Even hearing aids and prescription glasses.  Another misconception is that Costco only deals in minor brands, which is also false. A look at digital SLR cameras at Costco.com, for instance, shows Canon, Nikon and Pentax offered, among others.

Downsides to buying at Costco:

-Parking is scarce on weekends.
-They keep standard retail hours, closing around 8:30 on weekdays and 6:00 on weekends.
-You have to bring your own bags, or boxes.
-There’s little variety among brands. Costco typically carries only one brand of a particular item (e.g. NutriSystem but not Alli.) But this isn’t necessarily a negative.

When you’re torn between the Prego and the Ragu, or the Coke and the Pepsi, what criteria do you typically weigh when you buy? Be honest with yourself and ask: is there really that much difference between one and the next? And if price isn’t a criterion for you, would it become one if the differences among brands were large enough?

“I would never dream of shopping there.”

Some people find the idea of deciding to save lots of money on groceries to be gauche, a step up from collecting soda cans or beachcombing. Often, these people will justify it by assuming that no retailer could set its prices so low without exploiting its employees. Fine. If you’re wealthy enough to have such a limiting grocery-buying philosophy, or if overpaying somehow makes you feel rich, have at it. Have your kippers and water biscuits shipped over from the Marks & Spencer flagship store at Marble Arch. The rest of us will save money, thank you very much. And hopefully use it to buy assets with.

Bob enjoying his Man of the Year trophy (reenactment)

Lately, we’ve been guilty of accentuating the negative, poking fun at people who refuse to foster their money while not giving enough positive examples of what to do and who’s done it. This week, that changes. Sports Illustrated announces its Sportsman of the Year about a month in advance. Time names its Person of the Year around the same time, and as often as not awards it to multiple people, a symbolic person, or whomever happened to see the magazine on a newsstand.

At Control Your Cash, we actually wait until the earth completes its lap around the sun before handing out honors. And so, our inaugural Man of the Year: a person who exemplifies adopting the habits we’ve been trying to avail you of for the last few months. Anonymity precludes us giving our honoree’s full name, but here he is: Bob G., a 44-year old radio personality who lives in Las Vegas. For a decade, Bob worked for a particular station where he and a series of co-hosts did a morning show that was consistently both lucrative and popular. But because Bob works in the least rational industry in all of commerce, 2 years ago he was fired and replaced by a tardy borderline illiterate who commands half Bob’s salary. Even worse, Bob’s contract included a 6-month noncompete clause – the rationale presumably being that Bob is no longer talented enough to work for that employer, yet still so talented that he’d indirectly cost that employer money were he to work for a rival. You figure it out.

Even with a college degree (Wisconsin, communications, 1988), Bob was now rendered legally unemployable in his chosen field in the city he’d called home for most of his professional life. For most people placed in such a situation, the strategy would be simple:

-eat potato shavings while tallying the days until the noncompete expires;
-ask the wife to pull a double shift at the medical clinic;
-set fire to the credit rating;
-hop around the nation from medium-sized city to medium-sized city, a/k/a the transient career path of the doleful would-be radio star.

Instead, Bob descended to the figurative basement shelter and hooked up with a competing station shortly thereafter. Although he of course missed the $2,000 biweekly direct deposits, practically speaking, Bob and his household barely felt a breeze. Bob spent the previous decade contributing to his 401(k), automatically sending monthly payments without even thinking about it. He transferred it over to an IRA that’s now worth $165,000, and after getting fired set up a Roth IRA.* He also cut a regular monthly check to Vanguard, his mutual fund company. Today, that mutual fund is approaching $170,000. When the market dove, losing almost 40% of its value, Bob didn’t flinch. Instead, he took the drop in stocks as the buying opportunity it is, knowing they were bound to rebound. He started writing bigger checks, and watched his fund rise 30% over the year. And, while temporarily barred from earning income (yes, he signed a contract with draconian restrictions, but that’s another topic), Bob could at least reduce his expenses.

Except Bob barely had expenses to reduce. Credit card debt? Please. Bob carries a single MasterCard, using it for household expenses as a matter of course. He pays the balance in full every month, subscribing to the quaint notion that the price on the tag is what the buyer should pay. Bob would rather eat his groceries than spend years financing them.

Those household expenses aren’t particularly exorbitant, either. Dog food. Cable. An occasional night out with the fellas and a beer or two. A quarterly lovers’ junket to San Diego. Bob has yet to pay $300 for bottle service at a nightclub, and his next clothes-buying spree will be his first.

Bob, his gal pal “Susie” and their Rottweiler “Pinto” live in a house Bob bought new 7 years ago for $185,000. Even though Pinto’s had a health problem or two, his care runs about $800 a year, which is several times cheaper than a child would be. Bob caught the housing market before it exploded – which it did in Las Vegas in a more pronounced fashion than it did in most places. So was his home purchase a strategic decision, bought when it was bought because Bob predicted what market forces would soon do to the value of his property?

No, he bought because he needed a permanent place to live. He was tired of living in an apartment, wanted to build equity, and finally had a worthwhile partner to share his life (and expenses) with. Bob’s house shot up in value in the ensuing years, through no intrinsic reason. Buyers were just bidding prices up faster than builders could build, and Chez Bob went along for the ride. In theory, Bob’s functional house was worth $300,000 in early 2007. That fell as quickly as it rose. An identical house across the street sold 2 months ago for $172,000. Retroactively, it’d seem that early 2007 would have been the ideal time for Bob to have sold and enjoyed the $115,000 gain he’d spent 4 years building.

So did Bob cost himself $13,000 by buying when he did, instead of this past November? If he were a real estate investor with thousands of other options, maybe. But as a human who needs shelter, Bob made out just fine. Yes, his home depreciated. However:
-he and his home still have plenty of years left. In Bob’s case, to live. In his house’s case, to regain value. There’s no such thing as a permanent price level of any kind.
-what was he supposed to do instead, keep renting an apartment? He still had to have lived somewhere. Say he found one for $850/month. Instead of being down $13,000, he’d have been down $71,400.

Bob’s built equity in the house. He deducts the mortgage interest payments from his annual tax bill. Oh, and that mortgage? Its rate is fixed at 6¼%. Always has been. No nasty surprises that way: the nasty surprise of paying for his professional success by getting fired was plenty, thank you very much. If Bob were reckless, when the home reached its maximum value he’d have opened a home equity line of credit – also known as a second mortgage, it’s a loan from the mortgage company that’s tied to the new, enhanced value of the home. At the height of the market, some people did this, which is risky if you want to use the lent money to buy assets with. It’s ultrasonically risky if you want to buy jetskis and vacations with it, yet people did. And then cried about the heartless bastards at the mortgage companies when the bills came due. Not Bob. He just continued cutting the mortgage company checks without thinking about it.

He drives a 2000 Maxima with 120,000 miles on it. Bob signed a 5-year deal, always overpaid what was due and paid it off 2 years early. He gets the oil changed every 3000 miles and has yet to add aftermarket bumper canards or tinted windows. Every Thanksgiving and every summer, Bob and Susie visit his family in the upper Midwest. They buy the tickets months in advance, saving them a few dollars more for no incremental effort.

Bob’s not wealthy, not does he have any particular desire to be. However, he has a fanatical desire to avoid being poor. While putting that into practice, he’s managed to remain in the 90-somethingth percentile of net worth in this country despite getting fired. He didn’t, and doesn’t, even have to work more than 30 hours a week to get where he and Susie are today.

When informed of his honor, Bob celebrated the news by announcing that he was on his way to a movie. With Susie. And complimentary tickets. Controlling His Cash yet again.

*Real quick: whatever you contribute to a traditional IRA is deducted from your income for tax purposes, with the interest and appreciation taxed years later when you start collecting payments. With a Roth IRA, you pay taxes on the income when you earn it, but those payments, interest and appreciation in the future will be tax-free. You can only get a Roth if you make under $95,000. Bob’s salary of 0 thus qualified him.

**This post is featured at Funny about Money**