What Is: Inflation


Why is inflation so important?  And how does it impact our economy?  Wondering why we should care about the consumer price index, or the Fed’s interest rates?  It’s not complicated, give me three minutes and you’ll get it.  Here’s the basics on inflation:

What is inflation? Inflation causes each dollar to buy less.  (Deflation causes each dollar to buy more).  You can look at inflation as the changing value of a dollar, or as the changing costs of items.  Inflation is why one dollar used to be worth something, and why gum used to cost a penny.

What causes inflation? One theory is “demand-pull” which says if there is more demand (money) then supply (stuff), prices will increase.  The other theory is “cost-push” which says if a company’s costs go up they raise their prices.

The Consumer Price Index is how inflation is measured.  It is a survey of the price of a bunch of different goods and services (gas, clothes, cars, etc) and how that cost has changed. When the consumer price index goes up, that means prices in general are rising.

When interest rates drop, loans are cheaper, and consumer spending increases, which in turn causes prices to rise (demand-pull theory, remember?).  So the Federal Reserve sets the interest rate as a way of controlling inflation (raise interest rates to lower inflation rates / lower interest rates to raise inflation rates)

Are we pro or anti inflation?  Apparently a developed country wants to have 2-3% inflation per year.  As a consumer and investor, you have to factor this into your income (a stagnant salary is actually a decreasing salary since your life costs 3% more each year) and you have to factor it into your investments (a 3% return on your investments is actually a zero return, since your money is worth 3% less each year)

too much inflation is bad because:

1) your tourism and exported goods become too expensive.

2) People living off of a fixed income have decreased spending power.

3) Uncertainty about how fast the prices will rise makes people and companies not want to spend.

too little inflation is also bad, because:

1) It means the economy is not active.

2) Inflation encourages investments (which grows the economy) because holding onto cash means losing wealth since the value of your cash is decreasing.

3) When the economy goes into a downturn we need room to maneuver the interest rates down, which we can’t do if the interest rates are already at zero.

I think that’s it!  Did I miss anything?  Do you get it?

[image here]

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I don’t know if you saw in the comments here, but there have been a few bids to switch #moneymonday to #financefriday.  The problem is, I don’t give two shits about anything by Friday afternoon.  Except pizza.  So I am going to persevere on my Monday plan, which is today.

We are going to errand our hearts out today: the grocery store and the hardware store and the dry cleaners.  We are going to plan, strategize, and worry about our money today. Lists will be made, bills will be paid, and I will look at our budget (which always looks great on the first on the month!).  But then, tomorrow, and for the rest of the week, we won’t do any of that.  Can you compartmentalize your finances, and only worry about it one day out of the week? I’m going to try.

Also, if you are bummed about being back to work this morning read this: how to love your job even if you don’t like it.

[image here]

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Moral Investing


There is a debate on the investor side (which I touched on here), of whether you are leaving money on the table if you choose to only invest in companies that are aligned with your morals and priorities.

I made the point, which I still stand behind, that if you are investing in individual stocks you are taking a gamble.  If it were a sure bet that bad-guy stocks were going to make a big return than I would say yes! Invest with the bad guys!  But that’s not how it works.  And sometimes, it’s quite the opposite…

Here’s what Tim Cook, CEO of Apple said at a public shareholder meeting last year: “If you want me to make decisions that have a clear ROI, then you should get out of the stock, just to be plain and simple.”  Wha-what?  He said they make decisions because they are “just and right” and they “advance humanity.”  Ok, this is from the CEO of the most valuable company in the world.

The quote above is drawn from Fast Company’s coverage on what they call “Generation Flux,” which is a group for whom “purpose is at the heart of their actions…a mission is the essential strategic tool”

The article put Ells, of Chipotle, in the same boat as Cook, and says they “represent a rising breed of business leaders who are animated not just by money but by the pursuit of a larger purpose.  Their motivation may be personal, emotional, and, yes, moral, and yet their idealism is rewarded in the marketplace.”

The caution as an investor is that when you are investing in companies you believe in you can start to feel loyal to them.  As an investor, you have to be willing to cut your losses when you have made a bad investment, and to sell at a peak when you think the ceiling is close.

[A valentine Tim Cook deserves, here]

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Allowance: Yea/Nay


[surly teenagers: should we pay them allowance?  shirt here]

I am putting this topic forward with a pinch of salt, because I really don’t think there is a wrong way to raise your kids, as long as you are cheerful about it.  But now I also have to come clean and say I probably over-intellectualize every parenting decision I have ever made.  All that said…what do you think is the “right” way to do allowance?

I think having an allowance is a great opportunity to shift some decision making power and responsibility over to your child.  Here’s my five step philosophy on how to do allowance:

1) Do not link allowance and chores.  Pitching in to do a sizable amount of work for the family is just part of being part of a family.  Helping mom is not a job, it’s a birthright.

2) Wait for your child to be interested in having independent purchasing power before starting an allowance; the initiative and interest for money should come from them.  That age will depend on where and how you raise them.  I think in general, though, middle school is a good time to start giving allowance.

3) Give your child enough money to cover whatever their expenses are.  This way, you can give them their money and then be hands-off.  If you give too little, then you have to come fill in the gap.  When mom is always there to re-fill your wallet or pay the balance at the toy store, you loose the chance to learn about the real consequences of spending decisions at a young age.  If you give your kid enough allowance, however, then if they run out of money you don’t have to get involved to make up the difference.

4) Give your kids some tools along with their money.  Help them budget and prioritize what they want the use their money for.  Help them set goals, and give them some responsibility to buy things that you used pay for: haircuts?  birthday gifts for friends?  treats for their dog?

5) Be generous with your kids.  Help them out of tough spots.  Buy them candy.  Don’t make a big production about teaching your kids lessons.  They’ll get a job as a teenager, and at that point they can learn about earning money from a jerk.

I would love to hear how you guys are teaching your kids about money, or what worked/didn’t work for you as a kid.

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Sell High


[speaking of knowing when to quit…Kate Spade Saturday is closing + big fire-sale]

You probably heard that the stock market is at an all-time high.  While I’m no expert, it seems like that’s a pretty obvious signal to hedge your exposure to the stock market by putting some if not all of your investments into bonds that you can reinvest when the market dips back down.

I think anytime between now and the next few months is a good time to move money out of your index or mutual funds and into bonds or other funds that are designed to maintain their value rather than be exposed to the market.

This does not mean cash out your investments.  If you agree that the market is near a high, and will trend down in the short-term, just login to your IRA, your 529 accounts, and your investment account and move your money within those accounts so that it is not as exposed to the market.

I just transferred our 529 accounts from an aggressive fund – which has the money 100% invested in the stock market, to the most conservative fund, which invests the money only 25% in stocks and the rest in conservative bonds.  I also moved around 30% of our retirement investments out of index funds and into bonds.

What do you think, are things going to continue to trend up up up or are we going to see a dip in the market this spring/summer?

p.s. congrats to the lovely folks who won our giveaway of Robinhood invitations!  Sign up for our weekly newsletter (link at the top of the page) to get in the running for our future giveaways!


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Personal Care Budget: Grooming


I am gratefully spending this weekend on a warm sandy beach. If there are children at said beach they will not be mine, and I will ignore them. But slipping into a bikini in mid-February, well…

This was a spot-on commentary on the long and ever-growing list of body parts women need to “fix.”  Just when you think you’re looking good-enough, you realize your nipples are the wrong hue, or your private parts aren’t pretty.  Um, duh…that’s why they’re private. But anyway, the question here is: how much money, if any, do you throw at this ever-expanding genre of personal grooming?

I have to admit, apart from the occasional manicure I have spent almost no money on personal grooming.  Not because I didn’t think I could benefit from it, mind you.  But I look at the list of services offered and just do not know where to to start, or what to prioritize. Eyelash extensions? Eyebrow threading? Waxing? Or maybe I should spend this phantom grooming budget on fancy wrinkle-lotions, toners, and facials? Or would maintaining a youthful hair color, a professional cut, and hair products be more impactful?  The list of things I could be maintaining/enhancing/fixing is too long, too expensive, and too time consuming.

Since I’m an all or nothing person I have tended to just do nothing. Ha! Or I’ll drink extra water, which is free, and which all the famous people lie and say is their secret to being beautiful. But when I do blow some cash on my vanity I tend to go for the wow over the subtle.  I’ll dye my hair hot pink over a facial any day.  I admire people who are subtly beautiful, my look is more ALL CAPS and works best in dim lighting.

Also: on another personal care budget: exercise. AND follow along with me in real-real life on instagram

[image here]

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