Book Review: Thou Shall Prosper

Money is a great way to measure if you’re a valuable human being. That’s my controversial one line summary of Rabbi Daniel Lapin’s book, Thou Shall Prosper.

Why I read this book

I have been going through as many of Dave Ramsey’s “library” recommendations as possible, and Thou Shall Prosper has been on my reading list for at least 3 years.

The title alone is intriguing, but it’s usually refreshing to get a different cultural perspective on a familiar topic. I’m not sure how closely Rabbi Lapin’s thoughts on money align with Jewish culture at large, but he definitely gives fresh perspective.

The substance

Rabbi Lapin uses ten chapters to give ten commandments for making money. Some chapters are more “rich” than others, but all were worthwhile. This book is very philosophical (the author would say spiritual) but it is also highly practical. At the end of each chapter, there are bullet point steps to take to fulfill the money making commandment.

The major philosophical argument is that business gets a horrible wrap from the world at large, specifically the media and those with socialistic political views. Rabbi Lapin makes an effective case that not only is business not bad, but it is the very epitome of goodness, something valuable.

How is business so good? Simply because business transactions always involve at least two parties who voluntarily exchange one resource for another. When those exchanges are made, it makes at least those two parties better off than they were before. There are times when there is a winner and a loser in a transaction, but most times there are multiple winners. Everyone is often better off when exchanges, or trades, happen.

Rabbi Lapin says most people don’t succeed in business because their minds and hearts won’t allow them to, because we’ve been conditioned to believe business is evil.

YOU are in business

Before you start thinking this is only a book for business owners, hear this plea from Rabbi Lapin:

Almost everyone is in business. You have your time, skills, experience, personality, and some other attributes to market. You have customers, clients, supervisors, employers, associates, bosses, or patients to please. You many not realize it, but you probably even have a board of directors. It consists of you as chairperson, perhaps your spouse, and maybe some of your trusted friends with whom you discuss your professional career. These people are also unpaid members of the board of You, Inc.

That’s an empowering idea if you can live like you are the CEO and President of You, Inc. Not only that, but it may be one of the most secure ideas you ever let your mind chew on. Because if You, Inc. has one customer generating revenue (your employer), then that puts You, Inc. in a very precarious position. If anything disrupts that one “customer” of You, Inc., all of You, Inc. could be going under.

The alternative is to diversify You, Inc.’s prospects a bit and take more control over your life and money as opposed to leaning heavily or entirely on an employer.

This book gave me a few different nuggets like that which shifted my thinking.

A distorted view of money

My biggest knock on Thou Shall Prosper is the book’s tendency to elevate money to a very high status. Like dangerously high. However, Rabbi Lapin would classify my concerns as part of the negative conditioning this world has laid on business and money.

But as I examine my own experience and Christian Scripture, particularly the Gospels, I don’t see money as having a primary, or even a secondary, role in discovering the fullness of life we believe God created us for. Granted, Rabbi Lapin doesn’t have the Gospels of Christ as part of his Holy texts. But I do, and I think Jesus’s words and life give us the greatest example of how to realize full life and complete joy.

The view of money espoused is simply too high. Instead, I think a neutral money philosophy is the key. Money is not an ends and it is not good in itself, but it is also not evil.

Rabbi Lapin does point to an intense focus on serving and creating value for people as the road to monetary prosperity. And even encourages to not treat people as a means to material wealth. But despite those admonitions, the book does elevate money above people.

The good news is that under this philosophy, even if someone’s end goal is to accumulate as much wealth as possible, they will have to treat people really well and create a lot of value for other people to get there.

As for you and me, I believe we have to relentlessly emphasize that money, time, and our other gifts are all given to serve and love people. And merely using people to enhance our money, time, or other gifts will always leave us discontent.

Finally, Rabbi Lapin does very little to reassure those who have chosen to serve others with their lives and not be monetarily rewarded. The most obvious example in my life is Sara, my wife, who has chosen to dedicate her time serving her husband and children by doing full-time homemaking. Another example as the numerous folks who volunteer their efforts and take significantly reduced salaries to do work they love or feel is valuable.

In all of those cases, Rabbi Lapin’s money philosophy belittles those who have sacrificed in such ways. Money is not the best way to measure the value of a human, or human productivity. 

Recommendation

I recommend Thou Shall Prosper, but not in isolation. I believe someone whose primary money philosophy is taken from the pages of this book will not clearly see how God designed us to use the resources and economies of this world. Get other perspectives, particularly from the Bible and then test them for yourself.

Book Review: The Millionaire Next Door

I am quick to play the victim card in my head. When something doesn’t go my way or I don’t get something I want, I quickly find the outside forces I can blame on why I didn’t get my way.

Most people suffer from focusing on the external forces rocking our world as opposed to the internal feelings, motivations, and preferences that we actually have control over.

External conditioning (how forces outside ourselves shape our decisions) is the theme of The Millionaire Next Door by Thomas Stanley and William Danko. The premise is that many people who have wealth, or what the authors call PAWs (prodigious accumulators of wealth) don’t live like most think they would. Basically, PAWs avoid high dollar luxuries and live frugally, and it’s that very nature that made them wealthy in the first place.

Contrast that to the UAWs (under accumulators of wealth). These folks may have incomes north of 6 figures, but ultimately, they accumulate very little wealth because of their spending habits. They do what comes natural…they spend…a lot.

Granted, that spending allows them to experience some very nice vacations, some very name brand clothing, some sweet vehicles, and some very large living spaces. However, it does not secure their financial future. If these high earners were to have a disruption in their income, many could not go longer than a year before they would be completely broke and some much less time than that.

The contrast between the PAWs and the UAWs takes up the entire first half of the book. Then the authors took a shift that surprised me. In much of the latter half of the book, it turns into a parenting book!

The authors don’t focus on the contrast of PAWs and UAWs children. Instead, they focus more on what happens to children that causes them to develop into a PAW or a UAW as adults.  Being a PAW does not guarantee your children will pick up on the principles that helped their parents accumulate wealth.

In fact, research shows that children who receive substantial financial support from their parents often never develop the ability to sustain themselves. They survive on what the authors call Economic Outpatient Care (dependency on financial gifts and support from the folks).

It is reasonable and seemingly virtuous for a parent to want to help their kid, especially for something such as advancing education via college. But the research showed that large financial gifts to kids can be incredibly dangerous to a child’s ability to become financially independent if such gifts are given before the child has already proven independence.

Perhaps some parents prefer the children to be indefinitely dependent, because with dependence comes a level of control that many parents desire to maintain over their children, or children-in-law, and later grandchildren.

Personally, I want to raise independent kids. And my guess is you do too. Not because I don’t like to keep my kids close or want them to come around often as adults. I certainly do! But I can’t guarantee how long I or their mother will be around. If something does separate us from our children, I expect my kids to mourn. But not  because they are fearful of how they’ll find provision.

My take is this: our children have to experience pain in their lives so seeds of love, joy, patience, kindness, goodness, faithfulness and self-control can be planted deep within their souls. Powerful experiences are the only thing that can get those seeds deep enough into our children’s hearts to make them take root without our constant supervision or intervention. Those powerful experiences often come with pain.

This book shows the difference financial discomfort can have on our kids. Allow your child to know what work is required to be financial successful, or what it takes to earn and pay for a college degree. They deserve that from you!

But it’s not enough to limit the painful experiences to money. Our children need to learn the same when facing relational turmoil or when searching for answers to the universe’s biggest questions.

Before accusing me of masochism, know that I HATE pain personally. I fear pain much more than death. And I HATE even worse the thought of my (or others’) children enduring pain. But I would much rather have my children go through difficult experiences when I am there to comfort and catch them.

My heart breaks for the kids who are sheltered from pain/sacrifice all their lives only to get punched in the gut by the world once they leave home and feel completely unequipped to pick themselves back up.

I didn’t expect to get fired up about parenting when I read this book! But our children’s lives are the legacy that can be far more rewarding and enduring that our net worth. So it’s worth learning what other financially successful people have done to liberate (or handicap) their children.

Regarding this book and the recommendation to read it…I haven’t read enough other books to classify The Millionaire Next Door as a must read. But I think if you find you and your family taking your cues from the world instead of making decisions based on your priorities, including spending and savings decisions, than this book will be of great value.

Finally, if you need some financial empowerment, this book can deliver. The case is strongly made that your ability to accumulate wealth rests solely on your shoulders and your ability to make wise spending (and earning) decisions. If you can do that, financial independence is within reach for you. And for all people…that’s news worth sharing.

Book Review: The Great Depression, A Diary (or why buying low is so hard)

Benjamin Roth was a young lawyer living and working in Youngstown, Ohio during the Great Depression. In June of 1931, just over 19 months after the calamitous stock market crash in late October of 1929, Roth started journaling his thoughts about the stock market, banks, his law practice, politics, and investment opportunities.

After the stock market crashed in 2008, Roth’s son, Daniel, knew it was time to honor his father’s memory by publishing his father’s writings. The timing was right, and although we are now 8 years removed from the stock market lows of 2009, Roth’s accounts of the Great Depression refreshed my thoughts of our most recent economic catastrophe.

The importance of this book

Beware the danger of hindsight bias. Here’s the definition:

 “the inclination, after an event has occurred, to see the event as having been predictable, despite there having been little or no objective basis for predicting it”

It is a near impossibility to keep our hindsight bias from kicking into gear when examining historical events. Our bias often leads us to overconfidence, luring us into making decisions for the wrong reasons, possibly damaging our lives and our loved ones along the way.

That is exactly why Roth’s personal account of the events and people of the 1930s is so valuable. When considering the Great Depression, I have been quick to make judgement on how leaders, business people, and families should have reacted if they would have only kept their calm and made rational decisions.

I can’t say how representative Roth’s reactions to the Depression were of all who lived through it, but he is proof that there were people able to keep their emotions in check while the economy was collapsing around them. Roth’s dispassion is remarkable, especially considering he was responsible for providing for his wife and 3 young children during that time.

But Roth was not without reasons for hope even during dire economic times. He was an educated professional, and as an educated man, he had knowledge of history to rely upon.

Most historical market charts used today start in the 1920s which causes the history of markets before the 20s to be downplayed, if not forgotten.

However, Roth had a high awareness, not only of the stock market and investments in the 1920s, but also of economic recessions in the United States prior to the Great Depression. Roth didn’t even own stock when the Great Crash hit (only 2.5% of Americans did), but he was highly aware of stock markets happenings and history.

Roth often references the crashes and recessions of the 19th century, and uses them to forecast the length, severity, and opportunity of the Great Depression. Many of his predictions are far off (just like everyone else’s of that time…and today). But many of his insights were remarkable. The richest part of Roth’s diary is his predictions of the  future and the later comments he made about his predictions and whether they were right or wrong or very wrong.

But therein lies the tragedy of Roth’s diary: he had fantastic insights and admirable emotional self control, yet he was still unable to take advantage of the investment opportunities the Depression offered. In fact, only an elite class was able to take advantage of the rock bottom asset prices because only they had surplus income/capital after they made sure they could provide for their families.

Why buying low is so hard

Starvation is not a threat in 21st century United States, and it likely wouldn’t be even if another depression hit. But the same dilemma that kept Roth from taking advantage of panic prices in assets in the 30s still keep people from doing the same today. Why is that?

The dilemma is that the only time assets lose significant value is when the economic stability of the future is jeopardized and uncertain. It’s at that moment when a working family can’t rely on their ability to earn an income, because their business may dry up or they may be laid off. So instead of looking for investment deals, a family pays off debt to lower their risk, or they increase their savings, or they use all they have to buy necessities. And the opportunity of a lifetime drifts by.

However, hindsight bias kicks in again. If we truly knew the opportunity of 1932 or 1939 or even 2009, there is no doubt we would have made some radical choices to get any assets we could invested in the stock market or other assets like real estate. But in the midst of those times, investing looks like foolishness, not opportunism.

Most discouraging about those missed opportunities is that even when someone recognizes the opportunity and has the resources to take advantage of the opportunity, it’s still not certain they’ll profit!

Roth tells the story of a friend who had the wherewithal to buy 1000 shares of Warner stock in 1935 for 3 ⅛. The stock went to 18 in two years turning a approximately $3,000 investment into $18,000.  Instead of selling out, his friend borrowed money on margin to buy more stocks. The crash of 1937 came shortly after, and his friend lost everything. Even someone who maintained the optimism to invest got taken down by the market…if only he had not borrowed to invest.

Lessons for today

Roth comments often on the dangers of borrowing money to invest in anything. Sure, in a rising market it makes an investor much more profitable to borrow to invest. But markets have never, ever sustained their rises indefinitely, and at times, you get entire decades when the market crashes frequently, decimating anyone who has borrowed to invest. Roth claims that every single person he knew who had borrowed to invest was wiped out in the 1930s.

Roth became a student of investing during the Depression, and he shares a lot of his education in his diary. Most of this investment advice is very conservative in nature, but an ultra conservative investment strategy is the only way investors didn’t lose their shirt in the 1930s. Today, many people are comfortable taking considerably more risk than Roth would recommend in the late 30s. And if we never hit another depression like the Great one, then it is a wise strategy.

But is it a guarantee that we won’t hit another depression as long and deep as the Great Depression? Absolutely not. However, is it even remotely likely? That’s where the real debate lies. Much has changed since the 1930s. Our financial system today is much different from the system of Roth’s time. Perhaps we have the mechanisms to avoid another depression…or perhaps it’s arrogant to think we are different from those in the generations before us.

And that to me is the greatest value of this book. Although we live in very different times, we are not so different than the generations before us. We can learn from what they went through, but we cannot claim we have a superior enlightenment that will protect us from all catastrophe.

We have to live and make decisions in humility, recognizing our own naivety and limitations. If we do so, we still may fall victim to the disruptive forces of this world, but we will have the strongest defense available to us: the willingness to educate ourselves.

Recommendation

I can’t recommend this book to every reader. Roth’s inclination to make investment strategy a major theme of his writings will bore and disengage many. To those who enjoy investment insights and the stock market, Roth’s book, along with editor’s James Ledbetter’s insight, are guaranteed to entertain and educate.

If you don’t fancy stock talk, I don’t recommend this book. However, it is essential that everyone spend time educating themselves about the Great Depression to 1) learn to be thankful for the era of plenty in which we currently live, 2) to humbly recognize how vulnerable the complex systems around us are, and 3) to have a basis for how to react in the case we go through something similar…or worse.

No matter what lies ahead of us, ultimately, if we understand the true nature of this world…the best is yet to come.

My old 401(k): Here’s what you really need to know

You have an old 401(k) (or other company retirement plan) your former employer is telling you to do something with or you feel is hanging out there aimlessly. You need to “take care of it” one way or another.

It’s the #1 reason people reach out to me as a financial planner. It’s also the exact situation financial advisors seek to prey upon because it’s the easiest way to gather assets on which to make a fee or commission.

That leaves you, holder of the old 401(k), in a tough spot. You want to get closure on this account, but you don’t know how, and you don’t know who to trust to help you figure it out. There is no clear path ahead. It’s a crummy feeling.

In 5 minutes, let’s clear your path so you’ll know how to handle your old 401(k).

First, you don’t have to do anything with the old 401(k). You can leave it there if you’d like.

Is that the best decision? It depends. Worst case scenario is the plan provider will boot you out, send you a check for the proceeds minus tax and penalty withholdings. Those withholdings won’t be a lot in dollar terms, because providers usually only boot you out of the plan if your balance is small (usually $5,000 or less).

So what would it look like just to leave it where it is? Why would you do that?

Old 401(k)s may afford you benefits you can’t find anywhere else. There are a few benefits to look out for. First, do you have company stock in this plan? If yes, you have to consider your long term tax plan. The retirement plan structure gives you options with how to treat that stock in the most tax efficient manner possible. How that works is beyond the scope of this post, so get professional help if you own a lot of company stock (more than 5% of your net worth).

Second, does your old 401(k) offer you access to investments no other plan or provider can? Some company plans have negotiated some sweet investment options, most commonly a stable value or guaranteed fund that pays a more robust interest rate than relative alternatives.

Finally, by moving the old 401(k), will it be subjected to new expenses and fees? As mentioned earlier, the financial advising sales force is always interested in folks moving old 401(k)s so they can make a sale.

But that doesn’t mean leaving it is your best choice because…

Your old 401(k) may be awful. Awful would be defined by three factors: high costs, poor investment selection, and shabby service/user interface.

High Costs

How do you know if the costs of your plan are high? First, know what you’re looking for. The costs most commonly assessed on you are fund expenses (expressed as an expense ratio), advisory fees, and recordkeeping fees.

Next, login into your old 401(k)’s online account access (if you don’t know how, reach out to the HR person in your old company), then within the website, find the Summary Plan Description. It should be available to you in PDF format.

Once you’ve opened the PDF, do a CTRL+F (or COMMAND+F) to pull up the document search and try using any of the following terms: fees, expense(s), commission, charges. That should lead you to the content you’re looking for to determine what costs your old 401(k) levies. If it doesn’t, keep searching the website, the information is likely there. Still no luck? Call the customer service # to get help. Information on costs is too important to remain naive.

Crummy Investments

How do you know if your plan has poor investment selections? This is tough, because everyone’s investment preferences are different depending on their perceptions, experience, beliefs,  and risk tolerance. Very generally and simply speaking, I’m looking for low cost, highly diversified options in stocks and bonds. That is enough for me to have confidence an investor can be successful.

No engagement

Finally, you’ll know if your old 401(k) has shabby service or a complex user interface by answering this one question: is it difficult for you to access, get information on, and make changes to your retirement plan? If you’ve tried to work with your old 401(k) and you find any of that to be true, then you need to simplify by moving the account.

If there is a high risk your old 401(k) will fall into your “out of sight, out of mind” mental category, neglect could wage a high cost, and you should move it. Change happens in life and these assets may need altered in response. But you’ll never know if the old plan is basically abandoned as an afterthought.

There lies the single most powerful factor in deciding what to do with your old 401k. It needs to be in a place where it can empower your decisions today. However many assets you have in the account, they should be aiding in your pursuit of the most important matters in life, whether now or in the future.

Alright, I need to move my old 401(k), what do I do?

Let’s say for any of the reasons above, you’ve decided you need to rollover (the technical term for moving your account) your old 401(k). You’ve got a couple more questions to ask yourself: How capable are you to find a solution without paying for help? And if you’re not capable, where’s the best place to turn?

If you have financial savvy and some time to dedicate the required work and enjoy working with your assets, then you do not need to pay for help. But those three factors found together are rare.

Even if you don’t have all those working for you, you’re still not without options. In fact, your most simple, cost effective option is to open an IRA account with Vanguard (whom Warren Buffett recommends). Vanguard has a customer service force ready to guide you through your next steps (beware though, some customer service folks are more helpful than others).

However, you are likely part of the 90% (that’s a guesstimate) of people who would gladly pay for some personalized guidance on your old 401(k). It’s great when you can take the burden off yourself. You may not have the confidence, the time, the energy, or the focus to make the right choices with your account.

Then I have no hesitation recommending you find and pay for professional help. My only plea is this: know how you’re paying for the advice and know your alternative options. If you do those two things, you will be able to find professional, knowledgable help with your retirement plan account.

Okay, so it’s not simple to make a confident decision with how to handle that old 401(k), but by going through the progression I’ve listed above, you’ll gain the confidence this account is in the place that’s best for you.

Book Review: Not Buying It

I try to soak up as much perspective as possible on raising children well because 1) Sara (my wife) and I strive to help our own children become joyful, independent people and 2) Greater Than Financial claims to be suited to help parents do the same through their financial resources, and to back up that claim, I have to stay sharp.

So while perusing the library last month, Sara saw Not Buying It in the New Items section, and thought it was a great fit to move to the top of my reading list.

Not Buying It: Stop overspending and start raising happier, healthier, more successful kids was written by Brett Graff, a former US Government economist and editor of the site TheHomeEconomist.com. She has one daughter, and much of her advice comes from her own experience, often learning by doing the opposite of what she advises.

The book’s subtitle gives a thorough and accurate description of its content. Not Buying It targets parents who believe (or are easily convinced by marketers) in ways to buy an advantage for their children, whether through educational materials, teachers/coaches, food, clothing, or medical care.

Graff doesn’t claim spending in those areas don’t have real benefits. Her argument is there are more important factors in creating happy, healthy, successful kids. Many families put too much emphasis on expensive things and experiences, while not emphasizing what’s most important such as time with family and a college education.

The Value

Graff’s writing caused me to consider what Sara and I have spent so far on our children, and for that reason, I got value from this book.

In our heavily marketed culture, not spending money at every sale, on every idea, or at every whim doesn’t come natural. Especially when the marketing targets one of our most intense passions: our child’s well being. It takes training (aka hard work) to make wise purchasing decisions. This book helps condition you against being duped by clever marketing and to instead put your resources toward what is truly important to you.

To give an example of Graff’s philosophy let’s look at the chapter most challenging to my way of thinking. Chapter 5, titled Your Star, goes after the amount of money parents spend on cultivating their children’s skills and talents.  

How many families do you know spend thousands of dollars on training sessions for sports or dance or singing? I know many, have spent on such things myself, and have thought about investing a lot more. The idea is our kids’ skills will translate into a rich college scholarship so it’s a worthy investment, and maybe they’ll even become a professional,  turning their skill into money.

But what are the odds that your child will fall into the small group who become a division I or II college athlete, or even a professional? And if they do become a professional, what are the odds they’ll make a fulfilling income? Very few professional athletes get paid like LeBron. And even if they do, they may pay the cost with their long term health.

The worst part, if we are honest as parents, is much of our kids’ development is really about us:

But while our kids are winning, singing, or starring and we are beaming with pride, a tiny portion of that accomplishment is fueling our own lunacy. That’s part of what drives us to pay for lessons and police the practicing.

I admit, I’m already guilty of this with my 5 year old daughter’s piano lessons. I can easily rationalize my insistence as motivated by developing diligence and patience in our girl, but I admit I’m highly conscious of how her piano talent (and work to develop it) reflects on Sara and I.

Graff makes more of these points, with some backed by solid research. But other, less powerful points feel as if she added them to fill space. Many of her ideas for alternatives to high spending are already being practiced by the common sense parents I know (cue the cliche about common sense not being so common).

So much for examining alternatives

I don’t agree with Graff’s recommendation to use savings from spending smarter to fund your child’s college education. Her book’s main premise is to buck the status quo purchasing decisions and take up more cost efficient alternatives that are more effective at ensuring our child’s well-being, yet she abandons that philosophy by painting a college education as the holy grail for kids.

Here’s the reality: college education is rapidly becoming commoditized. It is not the best path for every child’s well being. For some, it makes a lot of sense, but not for all. If we’re looking for ways to get the most bang for the bucks we spend on our kids, then a college education should be front of the line for scrutiny, not the answer.

In chapter 4, Graff makes the case for choosing a public education over a private education, citing studies which show public school as at least on par with private school when controlling for demographics. Yes, private schools have better performance, but the correlation does not equal causation. It’s one of her strongest points in the book.

There is no such reference to studies that control for those same type of factors when considering how much value a college education gives. College education vs alternatives needs to be examined by Graff just as public vs private secondary education is. This glaring mistreatment undermines her credibility and makes the book difficult to recommend.

I would love to hear a dialogue between Brett Graff and Joshua Sheats, who spoke at length about college education in episode 276 of his Radical Personal Finance podcast, titled Why this financial planner refuses to save money for his kids’ college. I highly encourage you to listen to Joshua dissect the value of college education in 60 minutes.

Should you read this book?

If you have ever uttered the words “kids are so expensive,” then yes, you should read Not Buying It. There is enough content to cause you to examine or reexamine spending on your children and the value they (or you) receive from such expenditures.

If you are already highly conscious of the money you spend on your children, this book may not provide you much. There were no ideas I’d consider novel. However, it’s one thing to think you’re spending money with purpose, but another to practice it. For me, I usually err on the side of I’ve got something to learn.

My primary takeaway

Examine everything you spend on. Don’t believe what the world tells you. Do your own research. Especially when it comes to the education of your children, including preschool, primary, secondary, and postsecondary.

And finally, spend quality, purposeful time with your children.