Scott On Money

While there is much good to be said about online shopping there are some areas where it falls well short of the offline experience.

Browsing is too difficult in online stores. No I’m not talking about web browsing. I’m talking about physical browsing. When I’m looking for gifts this issue hurts. I can walk through a store and let many things sweep over me and catch my eye, inspire things to get. I can’t recreate this online. Sure Googling and the various “recommend a gift for…” features are interesting but they fail to stimulate my mind the same way strolling down the aisles of a store does. I know it is comic irony that browsing is the weak spot of a “browser” based activity but such is life.

Online shopping does little to help with shopping for meats and produce. Yes, I can buy my Cheerios online with no problems. When it comes to ordering a rib-eye steak or a tomato I hit a brick wall. Quality is so often lacking. But even beyond quality attributes like color, aroma, ripeness and marbling are difficult to quantify and express so they are simply left out of the online shopping equation.

Online shopping for clothes and shoes exhibits problems similar to those found in meats and produce. Softness of fabric and stiffness of shoe uppers and lowers aren’t listed. Fit of shoes and clothes are nearly impossible to describe. I need a new pair of dress shoes now and want to save some money but I simply can’t trust that a particular shoe will be comfortable.

Companies can go part way to addressing these issues by better describing the products they are selling. Until the internet industry comes up with an effective way to convey product qualities like fit and ripeness and provide an inspiring browsing experience some shoppers will be turned off by the experience and sales will lag.

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Free Money Finance rounds up capitalism articles for this week. Check it out.

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I was out getting dinner the other night and I noticed a yellow Lamborghini parked at Denny’s. I thought about the person that owns that car and where they were eating. For those of you that may not know the car likely cost over one hundred thousand dollars. For those of you that don’t know eating at Denny’s will cost you eight to ten dollars.

I think about cause and effect. Did this person live a frugal life and set aside money to fulfill their dreams? Did this person as a kid have a yellow Lamborghini on their wall? Did this person decide to eat at Denny’s instead of pricier dinner options to save to make their dreams come true? Could be.

Did this person go into massive debt to buy a Lamborghini on impulse? Are they forced to eat at places they don’t like just to stay above water and pay off their debt? Will they be able to keep up with the bills if they lose a job or have health problems? Could be.

I present two completely different speculative, lives. Which would you choose?

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It is easy to read blogs, magazines and books on how to save, how to invest and how to earn more. This education and knowledge is wonderful way to improve your financial situation.

I personally find that what to do is not nearly as difficult as the motivation to act and the discipline to keep acting. Eliminate credit card debt. Check. Save more money. Check. Eat out less. Check….

Many of us know what to do but are not acting to our full potential.

It reminds me of a quote from Star Wars sage Yoda – “Try not, do or do not, there is no try”.

We need something to help us do the things we know we must do. We need vivid reminders of why we are doing it.

We need goals that constantly give us the motivation to keep doing the right things for our financial future.

I keep my top five goals on a piece of paper taped to my monitor. I’ve written them on the mirror with erasable markers in the past. I even put them on my screensaver (In Windows use the #D text screensaver).

Remember the reason you are saving, eliminating debt or working hard. It will make the path to financial success so much easier.

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Of course the real estate is also fake. I have to say that this is far better than buying fake real estate with real money. I’m talking about the new version of Monopoly called Monopoly Here and Now. Hasbro updated the game to include new properties and new prices. Buying properties for less than a few hundred dollars and developing them for a few thousand dollars at the most is a thing of the past even in this fantasy world.

The new tokens include a plane, a Starbucks cup and an order of McDonald's Fries. I’m not sure I like buying a board game with product placements, but I’ll probably agree to trade in the thimble for a box of fries.

Of course my first question was what replaces Boardwalk? Times Square.

Why bring this up on a finance blog? Its fun. I also venture that most people my age spent more time playing Monopoly than taking any kind of class on finances.

Through Monopoly we learned that:
- Governments can be arbitrary and capricious
- People that charge rents win, people that pay rents loose (mostly true)
- You can’t charge rent when your property is mortgaged (where did this come from?)

What have you learned from Monopoly?

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Diversification is critical to ensuring your financial security. After doing all your research and picking your investments there are still threats to your financial security. Executives lie, lawyers sue, the government regulates and disasters strike. There are many forces that you can't avoid with research. Diversification offers us a defense against the unexpected.

Diversification means distributing your funds among investments with different characteristics. How does this help? In the event that disaster strike diversification helps to limit your losses.

There are many different aspects of diversification you should consider.
Industry diversification - If I invest in Intel and AMD I've chosen two different stock but there are many cases where the stocks will react the same. In this case perhaps a totally new computer technology that renders both companies useless. I avoid having more than 20% of my funds in any one industry.

Investment class diversification - All too often people have a majority of their net worth in the equity of their home.

Job diversification – Be very careful investing in the company you work in. There are many good reasons to invest in the stock of your employer, but you need to strictly limit these investments. If your company experience problems you could lose your job and your investment.

Size diversification – There is a tendency (much less than for a stock's industry) for stock of the same size to trade together.

Diversification is not much more than common sense, "Don't put all your eggs in one basket." But you ignore this principle at your peril. If you aren't diversified a single unexpected event can wipe out all your hard work. Luckily it is both inexpensive and easy to diversify.

Good luck,
Scott

Posted by Scott at 08:52 PM | Permalink | Comments (0) | TrackBacks (0) | Subscribe | Digg | del.icio.us | Technorati

Why does saving seem to be such a difficult thing to do?

Personal Finance Advice offers up a few ideas ranging from the friction with commercial messages to the difficulty of giving up on things we enjoy.

I think those points are valid. Additionally I think that there is often a lack of balance. There is a lot of focus on giving up. Give up eating out. Give up buying a new car. Give up coffee. Give up cable tv. … There is nothing at all wrong with these suggestions. I applaud those that execute on them. Sharing these ideas sparks my thinking.

I also must realize that I must cope with my own mind.

I need to understand what I am going to achieve.

I need to weigh this against what I’m giving up.

I’ve failed too many times by setting a goal that causes me to give up something too dear for a gain that is either too nebulous or too small.

Strike a balance. It is not: give up. give up. give up.

Always understand the reason that you are saving. If you are just giving on something without understanding the reason you are making your life very difficult.

Try to make your goal concrete. Reaching retirement might be too abstract a motivation to compete with the latest model car. Make your goal more real. Something like sitting on a beach in the Caribbean on a sunny, breezy day.

Be creative. Like golfing? Don’t give it up. Try to find a way to do it less expensively. If you really like it think of another way to save money that impact your quality of life less. Better yet find a way to do more of what you like for less money. Like rock climbing? Could you buy some used gear and go climbing outside instead of paying $30 to a rock gym?

There is more to life than money. Find a way to balance your savings with your happiness and I think saving will be much easier.

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