The Financial Freedom Blog – March 2007

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March 1, 2007 06:25 Persuading Your Spouse to Save

I’ve added an article to the “Upsizing” section of the site entitled Money and Marriage — Persuading Your Spouse to Save. This one was inspired by giving a careful listen to the old Beatles song “She Loves You” and for the first time picking up on the money implications of that reassuring declaration.

Juicy Excerpt: Pushing too hard is a mistake. Pushing too soft is a mistake too. When you find yourself pushing too hard, remind yourself what the marriage means to you. When you find yourself pushing too soft, remind yourself what the marriage means to you.

Middle-Class Millionaires Wanted: I am having conversations with a reporter who would like to interview a few people who acquired a high level of financial freedom by working at a regular job rather than through an inheritance or by becoming a star shortstop. If you’re able to help out, please send me a note by clicking on the “Contact Rob” tab at the left side of this page.

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March 2, 2007 11:41 The Case for Selling in a Stock Market Downturn

I’ve added a new section to the site entitled “Stock Drunk.” The new section will offer articles detailing the irrationality of stock investing at times of over-valuation and explore the emotional pain that makes it hard for investors to come back to their senses after living through a wild bull.

The first article written specifically for inclusion in the new section (I’ve also moved several articles from other sections to the new section) is entitled The Case for Selling in a Stock Market Downturn.

Juicy Excerpt: The Cowardly Lion was shivering and quivering and shaking and quaking when the Wicked Witch of the West sent those flying monkeys after him. For good reason! The Cowardly Lion had cause to be afraid of those monkeys. They were creepy as all get-out. He wasn’t wrong to panic. The poor fellow had common sense, that’s all. His common sense told him to run.

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March 5, 2007 07:16 What’s Wrong (and Right) with Using Historical Stock Data to Predict Returns

I’ve added an article to the “The Return Predictor” section of the site entitled What’s Wrong (and Right) with Using Historical Stock Data to Predict Returns?

Juicy Excerpt: There is no other publicly available calculator that does precisely what the Stock-Return Predictor does. There are few web sites or books that offer information even similar to the information available through the Predictor.

It is my hope that that will change over time. As more such calculators are made available, we will discover enhancements that can be made to this one. Someone had to get the ball rolling by making such a tool available, and I am proud of the Stock-Return Predictor. I don’t view it as a perfected tool, however. We learn through trial and error. It’s not possible for the first version of anything to be the perfected version.

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March 6, 2007 07:23 How Much to Save — Anything But 10 Percent!

I’ve added an article to the “Upsizing” section of the site entitled How Much to Save — Anything But 10 Percent!

Juicy Excerpt: It is not three times as hard to save 30 percent as it is to save 10 percent. In some cases, it’s easier. Saving 30 percent can be more fun than saving 10 percent because the Life Goals that can be attained by saving 30 percent are so much more exciting.

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March 7, 2007 08:50 Benefits of Using the Historical Return Data for Predicting Stock Returns

I’ve added an article to the “The Stock-Return Predictor” section of the site entitled Benefits of Using the Historical Return Data for Predicting Stock Returns.

Juicy Excerpt: Stocks really are an outstanding investment class for the truly long run. It’s just important that you understand how long the long run can go at times of high valuation. Holding stocks for 10 or 20 years often is not good enough at such times. Holding stocks for 30 years will in almost all circumstances offer you a likely return that is at least acceptable.

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March 8, 2007 08:44 Non-Money Things You Can Learn By Keeping a Budget

Four examples of non-money things you can learn by keeping a budget:

  1. There have been times in which I spent money on things that I didn’t want my wife to know about. For example, I bought a candy bar at a time when I was trying to lose weight. She keeps the budget updated, so I need to provide her each week with a list of things I’ve spent money on. I learned how much I value honesty with her. She learned that I slipped on my diet.
  2. At one time, I was determined to come up with a new spending cut at a time when all the low-hanging fruit had been taken. I finally decided to take a chance on a spending cut that at an earlier time I would have considered “extreme” — the cable bill that permits us to watch television. I learned that the biggest “cost” of television was the time it uses up because so much time for other things opened up to me when I tested this cut for a few months (it became permanent).
  3. I learned how fair-minded my wife is when she offered to make cuts in the category she cared most about (furniture) to help us meet our goals. She learned what works persuading me when I responded to her suggestion that we cut furniture by saying that I would try the idea of bringing a homemade lunch to work (an idea that she had suggested and that I had rejected on earlier occasions).
  4. I learned through the negotiation sessions that we hold when rewriting our budget (we go to a bed-and-breakfast inn for two days and go item by item through each spending category) how the marriage relationship is strengthened by tackling a challenge together. The negotiations are sometimes difficult. But we always feel romantic at the end of the budget rewrite.

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March 9, 2007 11:30 Rob Goes Country

Liz Pulliam Weston has written an article for MSN Money entitled To Cut Costs, Move to Small-Town USA.

Here is the text of the section of the article that profiles me:

“After losing his dream job in the 1990-1991 recession, Rob Bennett made financial independence his goal. A former reporter covering tax legislation on Capitol Hill, Bennett took a corporate job ‘for the money’ and started saving as much as he could. He and his wife, Mary, paid off the $148,800 mortgage on their Arlington town home in four years while researching small towns where they could live inexpensively.

“Blowing Rock, N.C., was an early favorite but was too far away from Bennett’s elderly parents. So the couple settled on Purcellville, Va., population 5,000. They sold their town house for $260,000 and paid $220,000 cash for their Purcellville home in November 2001, shortly before the birth of their second son (the boys are now 7 and 5). Bennett left his corporate job and became a self-employed writer.

” ‘Most of our basic costs have either been eliminated . . . or are covered by earnings on our investments,’ said Bennett, 50, who wrote a book about his experiences called Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work and who runs the PassionSaving.com Web site. ‘So the amount that I need to earn on the writing business is small.’

“Technology helps make up for what Bennett sees as Purcellville’s two big deficits: no movie theater or bookstore. Netflix and Amazon.com help fill in the gaps for his family, he said, but others may miss city entertainments and conveniences more.

“People seeking to make this sort of move need to think through each aspect of their daily lives, Bennett said, to make note of what conveniences of a larger town they will miss.

“Bennett also notes that there are some tensions between longtime residents and the more educated, affluent families (like his own) that have discovered Purcellville in recent years.”

I like the profile. One observation I would add is that the people who lived in Purcellville before it was “discovered” by outsiders are generally as well educated as the newcomers, just in different sorts of things. In some cases, the sort of education that counts in trying to make it in the big city generates a big financial payoff. That’s nice. In some cases, that sort of education can cause you to value the wrong things or to value money over things that are more important. I’ve seen it play out both ways.

The city mouse does not necessarily live better than the country mouse and the country mouse does not necessarily live better than the city mouse. The smart mouse seeks the good and seeks to avoid the bad in both ways of living out his or her time down here in the Valley of Tears. More on This Topic

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March 12, 2007 09:49 TV Timeshifting

The St. Paul Pioneer Press recently ran an article entitled “Time-Shifting Technology Puts the Viewer Back in Control.” Here is the text of the section of the article that describes my experience:

“Netflix, meanwhile, is a treasure trove of old shows on rent-by-mail DVDs. This is how Rob Bennett of Purcellville, Va., introduced his two sons to the wonders of ‘The Honeymooners’, ‘Alfred Hitchcock Presents’ and ‘The Twilight Zone.’ It’s how he time-shifts TV that “was, in some cases, recorded nearly 50 years ago.

I pay $8 per month to Netflix. That’s a good bit less than I used to pay for cable.

I like the Netflix viewing experience better. More on This Topic

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March 13, 2007 07:47 The 24 Most Common and Most Costly Investing Mistakes

I’ve added an article to the “Investing for Humans” section of the site entitled The 24 Most Common and Most Costly Investing Mistakes.

Juicy Excerpt: You need to know what you are worth to make realistic financial plans. At times of overvaluation and undervaluation, your stock portfolio is not worth what the newspaper numbers say it is worth; its true worth is a good bit less or greater than what those numbers indicate. If you fail to make adjustments, you will find yourself over time becoming more and more reluctant to accept the realities. Down that road lies real trouble.

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March 14, 2007 07:52 The Experts Speak on the Effect of Valuations on Long-Term Returns

I’ve added an article to the “Return Predictor” section of the site entitled The Experts Speak on the Effect of Valuations on Long-Term Returns.

Juicy Excerpt: William Bernstein, author of The Four Pillars of Investing: “The ability to estimate the long-term future returns of the major asset classes is perhaps the most important investment skill that an individual can possess.” — Page 73, The Four Pillars of Investing

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March 15, 2007 09:20 Unwritten Rules of Wage Slavery

I’ve added an article to the “The Self-Directed Life” section of the site entitled Unwritten Rules of Wage Slavery.

Juicy Excerpt: I don’t expect the company I work for to share my tastes in food or music. I view the relationship as a business transaction, nothing more, nothing less. But prospective employees are well-advised not to press the point over these “little things” when interviewing a new employer. Generally, pay is negotiable and not much else. So it’s almost always the employee who makes adjustments to fit the company profile, and rarely the other way around.

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March 16, 2007 16:27 How Did Common-Sense Investing Become Controversial?

I’ve added an article to the “Stock Drunk” section of the site entitled How Did Common-Sense Investing Become Controversial?

Juicy Excerpt: You want to know how we got tricked into buying overpriced stocks? Have a talk with Adam and Eve. Ask them how it is that they came to be involved in all that business about the forbidden fruit.

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March 19, 2007 16:04 Price Negotiation

I am a big believer in making a price negotiation a win/win and also in making it feel like a win/win. I would not use a phrase like “I feel like I’ve been tricked” (by a request to pay a price that is too high) because it puts into question the integrity of the seller and you don’t want the seller to feel that he will lose face by agreeing to a lower price.

I would try to make the seller feel that he is getting something from the negotiation, or even that it was partly his idea. I might say: “You know, I am really tempted to buy, it looks like just what I have been looking for and my sense is that you sell fine merchandise. My problem is that I do not have the money you are asking in my budget at this time. If you were to offer me a deal for 20 percent off the listed price and say that it does not apply if I come back for it later, I would need to take the deal and figure out a way to cut somewhere else to make the budget numbers fit. Otherwise, I will think about buying at your current price, and I might well come back, but I cannot say for certain if I will or when I will.”

The seller is not being insulted in any way in this scenario. He is being flattered. He is being offered a way to take a potential sale and turn it into a definite and immediate sale. That’s an appealing offer.

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March 20, 2007 02:40 Remembering to Mosey

I’ve added Stephanie’s story to the “Middle-Class Millionaires” section of the site.

Juicy Excerpt: I’ve had horses and raised my kids in a country environment for 35 years now. They are better people for it. They appreciate the value of a dollar and are not driven by making a lot of money.

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March 21, 2007 17:20 Saying “No”

It is often hard to say “no” to spending in today’s world. Say that you are at a baseball game. You want to limit the amount spent on food because prices are so high. So you limit your two boys to one hot-dog each and tell them that they need to share a soda. They see other children being permitted to eat more than that. How do you say “no”?

You need to turn the “no” — which is a negative — into a positive. I point out to my boys that the money that we save during the year by not spending on things like second hot-dogs goes into a fund that pays for our beach vacation. This message is repeated regularly so that they come to feel part of the effort to fund the vacation.

This principle applies in all areas. It can be hard to turn down someone who asks you to a social gathering. It could sound as if you do not enjoy their company. You need to say what you are doing instead that forces you to turn down something that in other circumstances you would enjoy. You might say: “I made a decision that I want to read one book per week for the next year and this is important to me because time is slipping away and I have not read many books in recent years, so I am not accepting many social invitations for a time.” This makes clear to the other person that the rejection of the invitation is not at all personal.

It’s the situation that girls face when turning down a boy for a date. The girl has to be firm in saying “no.” To be less than firm just causes trouble because there will be more requests and more rejections. She wants to avoid making the rejection personal. She doesn’t say: “You’re not my type.” That invites argument over whether it is so or not. She says: “No, I am too busy with my school work and I don’t see that changing, but thanks for asking.” That allows a graceful exit while being firm.

To say “no,” you need to be comfortable saying “no.” You do need to think it through in advance to be sure of your footing or else you will be tempted to take the easy route and say “yes.” But, once you learn what works, you just stick with it. Some people are effective at saying “no” and it makes a big difference in their ability to achieve their life goals. More on This Topic

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March 22, 2007 16:33 Our Personal Finance Vietnam

Here’s a link to Robert Shiller’s (author of Irrational Exuberance) article on Bubbles, Human Judgment, and Expert Opinion.

Juicy Excerpt: “Janus refers to a tendency for people to try to conform to the consensus of the group in order to preserve their status within the group. He refers to “the effectiveness trap.” The terms derives from interviews he made with people in the Lyndon Johnson administration during the escalation of the Vietnam War….

“By dissenting from the prevailing view of the Administration, one gradually begins to be viewed as a has-been, and is gradually excluded from voice and power. People were allowed to express some dissension without losing effectiveness, so long as it was presented in a suitably detached way, and in good humor. The dissenter would have to accept mild jokes at his expense….

“Janus concludes that their subdued and collegial criticism of the policy served more to sustain conventional wisdom than to challenge it. Their weak presence gave decision-makers the mistaken impression that they had considered the dissenting view and rejected it. Moreover, the dissenters were forced to remain silent publicly about their dissension, which blunted their ability to pursue their arguments.”

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March 23, 2007 17:46 “My Usual Skepticism Went Out the Window”

I’ve added Blane’s review of my book (Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work) to the “Can I Get a Witness?” page of the site.

Juicy Excerpt: I had stumbled on his web site from a link in another article, and after only a few moments reading, knew this was surely something that I had been looking for. My usual skepticism went out the window, and I ordered my copy in just a few minutes.

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March 26, 2007 09:40 A Cheat Sheet for Ed Easterling’s Unexpected Returns

I’ve added an article to the “The Book I Read” section of the site entitled A Cheat Sheet for Ed Easterling’s Unexpected Returns.

Juicy Excerpt: A huge flaw in the conventional investing wisdom of today has been discovered: The phrase long-term is poorly defined. Is the long-term 5 years? Is it 10 years? Is it 15 years? Is it 20 years? Is it 25 years? Is it 30 years? Is it 40 years?

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March 27, 2007 08:54 My Ten Favorite Articles at This Site

  1. The Meaning of Work — A Love Song (at the “The Self-Directed Life” tab)
  2. Why Is Today’s Investing Advice So Poor? (at the “Stock Drunk” tab)
  3. Ten Reasons for Paying Off the Mortgage (at the “The Turned-On Budget” tab)
  4. Why “Stocks for the Long Run” Is Wrong (at the “The Book I Read” tab)
  5. Financial Intimacy (at the “The Self-Directed Life” tab)
  6. I’m So Bored With Financial Pornography (at the “The Self-Directed Life” tab)
  7. Market Timing — What Works and What Doesn’t (at the “Valuation-Informed Indexing” tab)
  8. Unconventional Mid-Life Career Change Tips (at the “Retire Different!” tab)
  9. Six Non-Patronizing Tips for the Young, Fabulous and Broke (at the “Upsizing tab)
  10. John Bogle’s Big Mistake (at the “Heroes and Villains” tab)

To offer comments on or ask questions about blog entries or any of the articles posted at this site, please click on the “Comments Posted” link (in blue) below.

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March 28, 2007 15:30 Woody Allan’s Take on the Efficient Market Theory

I’ve added an article to the “Stock Drunk” section of the site entitled Woody Allan’s Take on the Efficient Market Theory.

Juicy Excerpt: There recently was a discussion at the Vanguard Diehards board at which William Bernstein said that he believes only in the micro version and not the macro version of the Efficient Market Theory. The macro version is the one that counts for the purist indexers who congregate there because it is their belief in a macro-efficient market that causes them to believe that they should not change their stock allocations in response to wild price swings. So that was potentially a bombshell admission. Not to worry, though. The entire board community just pretended that Bernstein never said it, and life went on as usual. I don’t get the feeling that Bernstein is preparing an article exploring the implications of his belief that the market is not macro-efficient. So long as we all pretend that he never said what he said, it doesn’t really make much difference that he said it, does it?

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March 29, 2007 15:07 Advertisements for Self-Denial

I’ve added an article to the “Upsizing” section of the site entitled Advertisements for Self-Denial.

Juicy Excerpt: The biggest obstacle to effective saving is the power of marketing. There are lots of people who benefit from our decisions to spend and just about no one outside of ourselves who benefits from our decisions to save. So there is a lot of money spent to entice us to engage in immediate self-gratification and just about none to entice us to engage in self-denial.

The solution to the saving problem is the creation of advertisements for self-denial. We need to develop those advertisements ourselves and then run them in our heads when we are enticed to spend.

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March 30, 2007 15:20 “My Boss Thought I Was Insane”

Payscale.com recently published an article entitled Thinking Big: From Middle-Class American to Millionaire.

Here is the text of the section of the article reporting on my views:

“Rob Bennett, a Purcellville, Va.-based journalist and author of the Financial Freedom blog, agrees with Bolon that saving money is a critical element of financial freedom.

” ‘Saving money is five times more important than investing. People who save well always end up fine, no matter how they invest. People who invest well don’t always do well if they don’t save well,’ Bennett said. ‘Investing does matter. But the big problem most people have is that they don’t save enough.’

“Bennett, 50, was a correspondent at the Daily Tax Report from 1983-1989, and later served as the electronic publications editor and columnist at Tax Notes, from 1989 to 1991. From 1991-2000, Bennett worked in the National Tax Department at Ernst & Young, first as senior manager and later as director. It was the loss of his Tax Notes job that prompted him to find a path to financial freedom. He and his wife re-evaluated their personal finances and established a plan rooted in saving money, ultimately enabling him to resign in 2000 from his $125,000-a-year job at Ernst & Young.

” ‘I continued living the middle class life but was saving enormous amounts of money. My best year I saved $88,000, but I only did that for a few years. When I had enough to make this switch I handed in my resignation. My boss thought I was insane,’ Bennett said.

“Today Bennett’s total net worth, including the value of his house, which is paid off, is about $850,000. ‘My hope is that in time the writing business will generate a large enough income to get me over $1,000,000,’ he wrote in an e-mail message.

“Bennett said he believes individuals who achieve financial freedom all have one thing in common: motivation.

” ‘Something motivates the person to care about saving money more than the average person does. Once they do that, all sorts of things follow. Unless you do that it won’t happen-it doesn’t happen by accident,’ he said.

“Bennett also pointed out that so-called middle-class millionaires — to whom he dedicates the “Finding Life Purpose” section of his Website [see the ‘MIddle-Class Millionaires’ tab] — figure out that having money in the bank means having power.

“You’ve got to have some power or you’re not going to get done with your life what you want to get done. Money is power, choices, opportunities,” he said.

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February 2007 << >> April 2007