Wednesday, July 23, 2008
Just because you're paranoid doesn't mean they're not out to get you
I dunno about you, but I waffle between a really optimistic relaxed attitude about finances and retirement (everything will work out, man) and a total and complete sense of sheer panic (we're gonna be on the street, man!). Money doesn't grow on trees, unless you're the Fed, in which case you can print as much as you want, right?
If it was the 1950s we'd all be comfortable living on one income, own a decent home in a nice quiet tree-lined Beaver Cleaver community, have a high probability of a funded pension and social security retirement benefits, and probably have enough left over to raise two or three (or five) kids without major stress beyond not punching Mr Dithers in the nose at work.
But today we're a DINK (dual income, no kids) with no pensions, no guaranteed social security benefits, spiraling health care costs (I debate bagging them and taking on all the risk sometimes), massively higher energy costs, and massively higher college costs for any possible kids. Since I run my own business it's up to me to decide what projects or advertisements are worth funding with infusions of owner equity (read: money that would go into savings or retirement) in the hopes that the ROI be worthwhile. It might not occur to you reading my laissez-faire blog, but this year OSB will spend close to three grand on direct advertising. This includes the cost of printed materials, sponsoring a race series, email campaigns, website hosting, graphic design costs, etcetera. For each of these choices I have to use a combination of quantitative analysis and intuitive sense to decide if something is worth it or not. Every decision has an opportunity cost. Later this year and next year I get to decide how, when, and where to market the Powerstroke DVD. We've done everything up to this point with self-financing, but I've started debating a small business loan. Then you have to factor in the cost of financing into your rate of return. Yadda yadda.
It's also up to me to fund my retirement account. All the calculators I plug our numbers into say we'll be good enough in retirement but this is provided that the inflation rate stays around 3% and our investments grow at 8%+ for the next thirty years. I factor out social security because we can't count on it. Past results are no guarantee of future performance. In ten years it seems the entire financial system in the US could collapse. At that point we all need to head to the hills with our shotguns.
And then when I find myself dwelling on thirty years from now I have to look around and say, what about what's going on today, right now?
There are essentially three paths to becoming comfortably wealthy for those of us born without a silver spoon in our mouths: Work diligently for other people for 40+ years, save a good portion, and retire at 65; work diligently for 40-X years to achieve a high executive position and take a golden parachute or well-compensated professional position and save a good portion of your earnings; Start a successful business and get rich either running it, selling it, or selling part of it; Or win the lottery.
So what I'm getting at is today is one of my sheer panic days.
Have a happy Wednesday!