Thursday, May 26, 2011

Be Prepared

The Boy Scouts' motto is "Be Prepared". Once, Baden Powell, the founder of Boy Scouts, was asked the question, "Be prepared for what?"

He answered, "Be prepared for any old thing".

Tornados are not old things, though I am guilty of often treating them with the ho-hum attitude of a seasoned Midwesterner. Since Sunday's tornado in Joplin, MO, however, many of us have a new respect for these twisted natural events that can ruin a well-lived life in a matter of minutes. Indeed, I just returned to my office from the basement of our building – with several dozen University day-care children, from toddler to five-years old - where we waited out the latest in the series of storms that have menaced Missouri over the past few days.
With a focus on financial success, how do we financially prepare for cataclysmic events? With all due respect to the author of an educational guide sheet on the subject ( which can be found here<>), a summary of ideas follows.

1) Household inventory – For insurance claims you must have proof of your loss. It is easy to take a digital recording of the contents of your house, while narrating descriptions about the contents. (Try to stay focused on the contents and not the life history of the items, though that might be interesting to your grandchildren.) Keep a list of what you own and keep it in a safety deposit box. If you have antiques, jewelry, or artwork, it is a good idea to have an appraisal of their actual value. Useful tools may be found at<>.

2) Insurance - Make sure you have the right amount of insurance on your home and your personal possessions. (Step 1 will help with determining the value of your possessions.) Make sure you understand the difference between standard coverage and replacement coverage. The former values your items at their current, used value, while the latter values your items at what it would cost to replace the possession. When you remodel, review your insurance coverage. Consider earthquake and flood insurance if you find these to be necessary and cost effective. Flood insurance must be purchased from the Federal Emergency Management Administration, although your insurance agent can provide access to FEMA coverage.

3) Emergency fund - I don't want to be too redundant but make sure you have three to six months living expenses in your emergency fund. Cash is king during a disaster and electronic access to sources cash may not be available. Some people keep an open line of credit on a credit card, just in case of an emergency – if they cannot learn to save money!

4) Documents – If something is not able to be replaced, keep it in your safety deposit box – with your household inventory. All stocks, bonds, birth certificates, discharge papers, wills, deeds of trust, trusts documents, special photos, passports, marriage certificates, and whatever you deem to be irreplaceable should be kept secure. (My son was at the bank this afternoon, when the storm hit. They put the customers in the bank vault. That is what I call protecting my valuables!)

5) Of course, keep your smoke and carbon monoxide detectors in good working order. Keep dead limbs trimmed from your trees. Keep dried grasses from your home. Know where you are going to meet your family outside, in case of a fire, and where you need to take shelter, in case of a storm or earthquake. Practice these steps with your children. Do NOT just talk about it – do it with them. Then, when the siren blows or the earth shakes, you will all know what to do. Make sure your family knows how to turn off the gas line, water line, and electrical service.

6) Disaster Kit – At a minimum, your disaster kit should contain:

a. A supply of water that is less than six months old. Old, clean unbreakable containers can be recycled for this purpose.

b. Non-perishable food, such as canned goods or freeze-dried backcountry foods. If you use canned goods, please keep a non-electric can opener in your pantry.

c. Clothing, particularly rain gear and layers to keep warm.

d. Sleeping bags and blankets. If you camp, your tent could be quite handy, as well as cozy and warm.

e. A first aid kit with essential first aid items, mostly to prevent infections and treat mild sprains – including prescription medicines. Know enough first aid (e.g., Boy Scout training!) to be a resource to others.

f. A battery powered radio, flashlight with plenty of extra batteries.

g. Cash and credit cards.

h. Keys to your cars, house, garage, sheds, or other structures or vehicles.

i. Special items that might exist in your family for special people, such as mobility aids, feeding aids, and other items.
Finally, nothing can prepare us for the aftermath of a disaster the caliber of the tornado that hit Joplin, New Orleans and Katrina, or Japan's recent earthquake and tsunami. I, however, do know something about the human spirit. If we are faced with disaster, we will be challenged but we will prevail. It is what we do. We survive to grow and to love, yet again. Being prepared just makes it easier for that human spirit to blossom anew.

Thursday, May 19, 2011

Seek and ye shall find

tl;dr: Memorization of facts is out; Know how to find it; Mastery is not going away




Today's Financial Tip diverges from purely financial topics to talk about knowledge. The idea is to spark conversation between readers. As always, I welcome comments to my email address,, but I would really welcome comments to the FTOTW blog:


Memorization of facts is out


Preparing taxes is more than just a mundane task filled with numbers and obscure laws. Tax preparation is actually a window on how government, households, and businesses interact to encourage or discourage certain behaviors, while also raising revenue to finance our government. During the past few years, I have noticed that politicians have been much more willing to make changes to the tax code. For example:


     on your 2009 taxes, you could actually increase your standard deduction by the amount of your real estate taxes;

     also, you could exclude the first $2,400 in unemployment income on your 2009 taxes.

     the Making Work Pay credit involved lowering everyone's income tax withholding for 2009 and 2010, while also giving them a credit of $400 ($800 married filed joint).


With all these changes in the tax law, I have told students who volunteer to prepare taxes not to memorize the law, the complicated rules or specific amounts (annual exemptions). Not only does the law change, important amounts (standard deductions, exemptions, income limits, etc.) are often indexed to inflation and can change annually. By the time they have the rules memorized, someone will tweak them slightly. Congress is even tweaking them after the rules are published.


So if memorization of facts is out, how do we prepare tax returns or undertake most tasks requiring knowledge?


Know how to find it


Instead of memorizing facts, it is becoming increasingly more important to know how to find information. Through our computers - and our phones - we have access to a growing cache of information. However, this treasure trove is also full of junk. So we can't rid ourselves of the information. We need to know how to rifle through the information to find the treasure we want today.


Here are some simple ways to find information:

     Dump your query into the search engine. Someone else has probably asked the same question or answered it somewhere on the web.

     Know what the search engine can do: Google's search box is also a:



                                     weather forecaster

                                     movie listing service

                                     comparison shopping tool

                                     recipe repository

                                     and more

     Know the large repositories of free knowledge on the web:

     MIT OpenCourseware

     Khan Academy

     Academic Earth

     YouTube EDU


     Find the forums community that caters to what you want to learn

     FatWallet Forum

     Bogleheads Forum


These are only a sampling of the ways to find information on the Internet.


Mastery is not going away


With all this available knowledge on the web, will we ditch experts and do everything ourselves? The answer really depends on the subject matter. Although the information is available, there can be a large gap between theory and practice. For example, I recently successfully retiled a section of my bathroom by watching several videos on YouTube. There are also plenty of videos on open heart surgery, but I do not believe that I could successfully perform open heart surgery - nor would any patient want me to - after watching a few videos. Similarly, it would be difficult to prepare a tax return the first time based on Internet searching. Although the web provides plenty of information, the information may not be enough; in order to complete a task effectively, it may require time spent practicing -or it may be best to leave the task to an expert.




This post is not meant to start another form of the "calculator debate." Instead, I hope to start a conversation about information on the web - how we access it and how we use it. With the coming ubiquity of smartphones that offer an always-on connection to the Internet, what is important enough to memorize? Is it important to memorize the capitals of all 50 states? Or the first 36 elements in the periodic table? Or is it more important to know how to find both pieces of information on the web? How will this change testing standards? Will evaluations become harder or easier?


Please share your opinion online at the Financial Tip of the Week Blog.



-          Andrew Zumwalt


Thursday, May 12, 2011

Workin' for a Livin'

Besides the title of an old song by Huey Lewis and the News, working for a living is something that most of us do and what many students seek to do every summer.   Let’s think about the benefits and costs of different approaches, as well as your goals.


Perhaps the first question is what are your goals from the experience?  Do you want career related experience, similar to what you can receive from an internship, or are you in the job market for the money?  There can be a huge difference.


Let’s talk about doing it for the money.  The benefits are obvious: wages, tips, commissions, and etc.  The larger the pay, the better, right?  With unemployment hovering around 8.8%, finding a job may be more daunting than usual.  There are huge differences in summer experiences and, if you need the money, the monetary rewards can drive your decision.  Being a waiter in a posh restaurant or club can lead to lots of tips, as could a job in a well-paying construction job – if you can find them.  Yet, the experience may carry the opportunity costs of not providing much in the area of career related personal development.   You need to consider the costs of every job, including opportunity costs.  Other costs include: transportation expenses, either a car or public transportation; living expenses if you need to rent a place; specialized clothing; taxes on your income, as some cities have their own income tax; as well as any benefits you might qualify to receive, even if only for the summer.  (Thinking of benefits, you are probably in as low of a tax bracket as you will ever be, so saving some money for your retirement in a Roth IRA might be good to add to your list of summer activities!)


Some students opt to seek internships for the summer.  In fact, many university degree programs have expectations for students to complete an internship and, yes, job experience(s) in your chosen line of work can help propel your career.  The bad news is that many internship opportunities are unpaid and some of these offer the best experiences, as well as references for your future “real job”.  Moreover, if you are not getting paid, you are often able to receive more varied experiences, as the “employer” is not expecting as much productivity from you.  That is the good news.  For some additional bad news, many of the best experiences are in Washington, DC, New York, NY, or other large metropolitan area.  Thus the costs of living may preclude this option.  Of course, you can limit your search for an internship to areas where you have lodging and transportation – your home town – or you can branch out.  If you move to a big city and the internship pays little, be prepared to take a second job, consider living in a dormitory for a local college or university, or limit your search to where you have relatives that welcome you for the summer.  (Of course, you can always search for a roommate on Craigslist!)


When do you begin searching for your summer job?  If you’re reading this in May, you may have waited too long.  I usually recommend to my students that they begin their search in Thanksgiving of the year before the summer they want to work.  Why not introduce yourself to employers and set yourself apart from others?  Call professionals who work in the area you’d like to work and ask them if you can interview them about their career, so you can learn more about the occupation.  Be prepared with a list of questions and be ready for them to say “yes”, as people like to talk about their life.  When you go to the interview, be ready to be interviewed – have your resume and transcript in your portfolio.  Importantly, do not be afraid of setting yourself outside of the crowd of peers.  Take steps to make yourself a part of the 20% that make things happen for them, as compared to being a part of the 80% that wonder what is happening to them.  Assume the best is going to happen in your life and financial success will be in your future.  Assuming the worst is going to happen in your life is likely to assure that you are correct.


Good luck.  Now, get to work!


Tuesday, May 3, 2011

Wellbeing Part II

Last week we explored the concept of Wellbeing as defined in Tom Rath and Jim Harter’s book Wellbeing – The Five Essential Elements ( We looked at Career, Social, Physical and Community Wellbeing.


This week we are going to go into more detail about Financial Wellbeing.


Financial Wellbeing is about effectively managing your economic life. The authors note that it is difficult to be happy in any area of life if you cannot meet your basic needs (remember Maslow’s Hierarchy of Needs?), but that the amount of money we have, beyond a certain point, has less of an impact on our overall wellbeing than the concepts of “financial security” and effectively managing our finances (see “Happiness at What Price?” for more details: Of course, financial security is going to mean different things to different people. To one person having $1,000,000 at retirement would be financial security but another person might need much less or more than that to feel secure.


“People with high Financial Wellbeing manage their personal finances well and spend their money wisely. They buy experiences instead of just material possessions, and they give to others instead of always spending on themselves. At a basic level, they are satisfied with their overall standard of living.” (Rath & Harter, 2010, p 154).


There are several important concepts in that statement. People with high Financial Wellbeing:


·         Manage their personal finances well

·         Spend their money wisely

·         Buy experiences instead of just material possessions

·         Give to others

·         Are satisfied with their overall standard of living

Let’s discuss a few of those concepts.


Give to Others


The authors cite three studies that showed that spending money on yourself may temporarily make you feel good, but after time that good feeling fades. While spending money on yourself does not boost wellbeing, spending money on others does. When we help others out we feel good, even if it is just a little bit of money.


Buy Experiences


While spending on material goods doesn’t increase wellbeing long-term, spending on experiences does.  Think about some of the material items you purchased over the past year, and then think about some of the experiences you purchased in the last year. Experiences can include trips or something as simple as going out to a nice dinner or going to a movie. Do the material items or experiences give you the most happiness? Most people would agree that experiences give them the most happiness. Things that come to mind for me are date nights with my wife, going to a movie as a family, and taking a trip over Spring Break. With experiences we get to look forward to the event, enjoy the event and have fond memories of it. It is interesting to note that for those that earn less than $25,000 per year experiences and material purchases show similar gains in wellbeing, but after $25,000 experiences provide two to three times the levels of wellbeing when compared to material purchases.


Manage Personal Finances Well


This concept brings us back to many of the things we discuss with people; budgeting, protecting yourself from identity theft, having a basic estate plan in place, saving for emergencies, investing for the future, etc. The authors also suggest you establish default systems, such as direct deposit, automatic deduction for investments and enrolling in your 401(k) at work so savings is automatic.



It is important to remember that all areas of Wellbeing work together – you can’t just focus on one area and ignore the others.


The authors have a paragraph that puts everything into perspective:


“One of the best ways to create more good days is by setting positive defaults…You can intentionally choose to spend more time with people you enjoy most and engage your strengths as much as possible. You can structure your finances to minimize the worry caused by debt. You can make exercise a standard part of your routine. You can make healthier decisions in the supermarket so you don’t have to trust yourself when you have a craving a few days later. And you can make commitments to community, religious, or volunteer groups, knowing that you will follow through once you’ve signed up in advance. Through these daily choices, you create stronger friendships, families, workplaces, and communities” (Rath & Harter, 2010, p 112).


Ryan H. Law, M.S., AFC

Department of Personal Financial Planning

Office for Financial Success Director

University of Missouri Center on Economic Education Director


239E Stanley Hall

University of Missouri

Columbia, MO 65211


573.882.9211 (office)

573.884.8389 (fax)