25 Ways To Save Money And Feel Good About It

25 Ways To Save Money And Feel Good About It

“He who will not economize will have to agonize.”  Confucius

To make more money, we need to learn how to spend less, save more and investment wisely.

As the number 1 economic power in the world, the US is a consumption-oriented country, programmed to spend more, which fuels our country’s growth. Among its OECD country peers, the US is not dead last (we are ranked 22nd of 36 countries in 2015) but we are in poor company with Greece and Portugal at the bottom. Anyone remember those countries’s woes?

How we spend now differs dramatically from 1901 if we look at our major spending categories as a percentage of total expenditures. The average family in 1901 included nearly five people, had an income of $750 and only 8.5% of US households reported earnings from wives, while 22% of earnings came from children, 23% came from boarders and 14% came from other sources. The US economy was expanding in 1901 following a recession that ended in 1900. Of course life expectancies were lower in 1901, with males expected to live 47.6 years versus females’s life expectancies at 50.6 years. In 2016, life expectancy for males was 76.1 years compared to females’ 81.1 years in 2016.

According to the US Labor Statistics special report, consumer spending in 1901 as compared to 2017 was as follows:

  • 42.5% of total spending went to food, the largest category in 1901 compared to 12.9% in 2017, with nearly 44% of that amount spent for eating out of our home. This is by far the largest difference in spending.
  • 23.3% of total spending was for housing in 1901 compared to 33.1% in 2017. A fun fact: New Yorkers housing expenditures were in line with the rest of the country but Massachusetts spent nearly 30% in 1901.
  • 14% of total spending went to apparel and services in 1901 versus 3.1% in 2017.
  • 5.2% of total spending was for healthcare and insurance in 1901 compared to 8.2% in 2017, however, that does not include personal insurance which is combined with pensions and likely understates 2017’s healthcare allocation.
  • Only 1.6% of spending was allocated to entertainment in 1901 when labor conditions were significantly longer, harder and not yet benefiting from improved working conditions and laws compared to 5.3% in 2017.

How we spend impacts our personal savings rate and our ability to be comfortable in our lives now and in the future. The US personal savings rate was an improved 7.6% in December 2018. The rate is measured as a percentage of disposable personal income or DPI. You can look at DPI as what you have left after money spent for your basic needs and your income taxes are paid.  Our personal savings rate has been as low as zero in the third quarter 2005, and in the low-mid single digits since then. Our savings rates were in the double digits in the early 1950s and 1970s, with the inflation rate playing a role.

How we think about money has many influences

We have different attitudes about saving money depending on our background, current financial situation and our psychological makeup regarding self-control, fear of economic uncertainty, and pessimistic-optimistic outlook. Someone with modest means often knows better where their dollars are coming from and going as compared to those from affluent means. A 1% annual increase in your savings rate invested wisely at an early age is likely to be a significant nest egg 40 years hence. Targeting a personal savings rate in your household should be at least 10% with a long term goal of 15%. Besides savings, there are environmental reasons for many of the costs we eliminate, such as plastic bottled water.

Anyone recall saving at a young age in a bank account? I do. My classmates and I were encouraged to bring in a few dollars to save every month. This was an educational project between Dollar Savings Bank and our Bronx elementary school sanctioned by parents. We would bring in a dollar in a yellow envelope. I recently found my savings passbook. At a young age, learning how to save was a lot of fun. And it can still be fun if we embrace the challenge to making saving a household priority, especially earmarking money first for yourself as an emergency fund that has an ample amount to cover your most basic needs for 6-8 months. Savings at tax time can be a great starting point for many families as it may be the largest check you will receive all year.

How can we save more money?

Let me show you the ways:

  1. Brown bag your lunch for work. It’s cheaper and healthier. The alternative can cost $50/week and $2600 per year. With these savings you can pick your spots for eating out with friends and family.
  2. Use your local library for books rather than buying books for Kindle or your shelves. I have always loved reading and have spent a big part of my free time reading and writing reviews on Goodreads.  Nothing beats our wonderful small town library where the local librarians know us by our first names, save books for us they think we will like. And I share my reviews!
  3. Don’t buy music if you have Amazon Prime (we are huge fans). We also use the free versions of Spotify and Pandora.
  4. When you vacation, strongly comparison shop for low airfares and try Airbnb. Depending on the location, Airbnb is a great way to save money when travelling with kids and one hotel room is simply not going to cut it.
  5. No more plastic bottled water. Use tap water instead. Although improved, not all plastic bottles are fully BPA-free plastic. The bottled water doesn’t stay cold long and gets suspicious bubbles. Our family drank more than 200 bottles of water per month for over $1200 of annual costs. So we all went out and got our own steel insulated bottles. I have the 32 oz. Takeya which keeps the water cold significantly longer.
  6.  Stop drinking carbonated water and soda, especially in restaurants. These are high margin items for them but not healthy for us and certainly relatively expensive.
  7. Cut out some of the lattes. During my years going to law school as an adult, when we had young babies at home, I literally lived, drank lattes and ate meals at Starbucks for the 8-9 months of school plus studying for the bar. Besides the weight gain and jitters, it was not unusual to spend $400 or more per month, over $3500 per year.
  8.  Eat out less and more targeted. Buy a crock pot and Instant Pot. They have been essential in cooking more, faster and cheaper. Having worked crazy hours on Wall Street, I never ate at home because i never cooked. With kids, it is easier to eat at home and learn how to cook more. We eat home more now. We eat out judiciously and enjoy our special times eating out with great friends and family. Alternatively, we have done a lot more communal cooking at friends’s homes and in ours.
  9. Shop for groceries wisely by doing price comparisons. We have far more competitive choice in grocery shopping now than in the past and that should only get better with Amazon and Walmart entering the fray. Try groceries you have never been too like Aldi’s, Price Rite and Shop Rite.  We arbitrage our shopping outside of the city in farmer markets or buying our groceries out of town where prices are often lower. We shop at Costco for big bulk non-perishable items but found some spoilage when buying too much food. This is a bit sinful for my taste.
  10. Make use of coupons and organize them well. Ebates, Ibotta and Coupons.com are among a growing group for groceries and household items. Also, use store loyalty apps allow you to download coupons.
  11. Buy generic brands for consumer products whenever you can for food, household, pharmaceutical items. They are almost always cheaper than the widely recognized brand name and logo which costs those companies a lot of marketing costs. Many times the generic brand is same product as the brand name but private labelled. Think Kirkland, Costco’s private label.
  12. Comparison shop for gas. A small savings of $0.25 per gallon could amount to $50 per year.
  13. Pay your credit card bills on time to avoid late fees. This could amount to hundreds of dollars of costs saved and not wrecking your credit score. And don’t just pay the minimum monthly amount. Pay it in full when you can.
  14. Don’t buy everything you want immediately. Give yourself the time to research the product online and read reviews especially if it is a new and expensive product for you. I often enjoy the hunt and search part of buying new things and it helps to confirm my purchase bias.
  15. For recurring prescriptions, call your insurance company to ask for prices if you opt for their mail order program. There are usual cost savings and more convenient.
  16. Refinance your home mortgages when interest rates decline or are already low compared to what you are paying monthly. If you have many years left on your mortgage it is usually is a wonderful benefit. If you are able pay down your mortgage if it is at a rate above 6%.
  17. Lower the temperature at home by at least two degrees in the winter and turn it up by the same in the summer. Wear a sweater when it gets cold. The monthly savings are noticeable.
  18.  Use less ingredients than what recipes call for. You can always add for tasting purposes. My pet peeve with my kids: they pour humongous amounts of dressings on their plates and in their bowls and then it gets unused. I am aghast as the amount of ketchup that goes into a bowl of baby carrots. It looks like soup! Really gross. I digress…
  19. Use less detergents as they are sold in concentrated amounts and will get your clothes perfectly clean. Alternatively, check out YouTube or other postings to learn how to make your own detergents.
  20. Unplug less frequently used appliances. Most homes use more 40 appliances in their homes. These account for about 10% of our energy bill. You will not only save costs but plugged appliances can be a fire hazard.
  21.   Learn how to do more things on your own without outside help. You can make your own cleaning supplies or bleach solutions. There are videos for learning how to repair, clean, and make things in our home. We bathe our dog Kelly in our bathroom and she seems to enjoy it over going to the groomer. Our wallet likes it also.
  22. As your light bulbs burn out, consider replacing them with compact florescent lamp (CFL) which are longer lasting and more energy efficient.
  23. If your healthcare plan offers a flexible spending account (FSA), take advantage of it. You put a certain amount of pretax money in the account to pay for certain healthcare costs, notably copayments, deductible costs, some drugs and other healthcare items. You don’t pay taxes on these costs so there annual tax savings that can be meaningful.
  24. Defer any employee compensation up to its limit especially if your employer has a 401K match available.
  25. Enjoy more of the free things in life with your family where you live and when you visit. Depending where you live, take advantage of your parks, sights, special museum days, and your transportation system (rather than  UBER). Take more walks, take trams, take boats.

Even in NYC, the most expensive US city after San Francisco, there are free or inexpensive things to do.

Every major city, town or village has its own charm. Take a ride outside of your city to  the mountains, lakes and rivers .

In NYC, depending on the season, visit the Brooklyn and Bronx Botanical Gardens, the Bronx Zoo, tour the Federal Bank of NY for its gold vault and our earliest currencies,  Alexander Hamilton’s Harlem Estate (Hamilton Grange) and while there visit the Harriet Tubman statue, Bryant Park’s outdoor movies (summer), listen the fabulous music on the subway platforms, Chelsea Galleries, NY Public Library, walk around Central Park,  9/11 outdoor memorial, distillery tours, get tix for the Tonight show, Grand Central Terminal and its awesome clock, and among my favorite, ride the Staten Island Ferry. And while you are on the ferry, make sure to wave to our wonderful Statute of Liberty…she has seen the throngs of our immigrants that have come here and helped make our wonderful country great!

With some imagination there are many different ways to save money. It feels good to experience the accomplishment of saving money for investments, a vacation, a car, or something in the future.

How are you saving your money these days?

How about starting your own business part time?

Related post: Pros And Cons of Self-Employment

Please share your experiences and thoughts with us. We would like to hear from you!






















Women And Money: 7 Steps To Better Control Your Finances

Women And Money: 7 Steps To Better Control Your Finances

“Poor or rich, money is good to have.”  Leah Eliash Kaufman, my grandmother

“Lasting net worth comes only when you have a healthy and strong sense of self-worth.”  Suze Orman

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” Ayn Rand

“Money dignifies what is frivolous if unpaid for.”  Virginia Woolf

“Women with money and women in power are two uncomfortable ideas  in our society.” Candace Bushnell


Women now account for a record 24.2% of those in power in the 116th Congress, more than 2,000 women serving in state legislatures, including women holding the majority within two state legislatures, Colorado and Nevada, and a record number of women running for President in 2020, things are certainly looking up, thank you very much.

But it is not enough…not nearly enough progress has been made for women in many areas of money management, wages, investments, retirement yet women are more educated at higher levels and live longer than their male counterparts. This age gap can cause retirement issues for women. Gender gaps remain but are narrowing, especially for younger women.  There is increased attention on women’s wealth accumulation potential. Such wealth accumulation could positively add to our economy significantly if women take greater control over their finances.

Advancing women’s economic equality could increase US gross domestic product by $1.75 trillion by 2025 according to the World Economic Forum. Research points to women make more than 70% of consumer purchases. It stands to reason that closing the gender gap in wages and wealth could improve our economy’s full potential. Wealth differs from earnings and reflects an individual’s or family’s total assets less what they owe and can be passed on to the next generation or charitably distributed. 

I owe my own success to tremendous women (and my family!) who happened to manage money well

A personal story about those women

I came from a family of strong women who faced and overcame challenges. My paternal grandmother, Jeanette, was the wife of a baker. They had their own bakery serving the tri-state NY area. While he baked, my grandmother was the financial brains, running the business. My maternal grandmother, Leah, perished in the Holocaust but left her own legacy, with her above quoted money saying recited so often by my mom that I never forgot. My mom, a survivor in many ways, barely spoke English when she began to invest, without input from my father and likely without his knowledge. She ran their housewares business. She never stopped encouraging me as a woman on Wall Street to have the confidence to compete in a male-dominated environment. 

There are meaningful gaps that women need to overcome

The gender wage gap is an age-old issue that persists obstinately. In 2017, the ratio of women’s to men’s median annual earnings was 80.5% for full time year round workers, up from 63.9% in 1955. But at that rate, it may take until 2059 for women to reach parity with men. The gap is more significant when part-time workers are included as women are more likely than men to work reduced schedules to care for children and are also often caregivers for other members of the family. Positively, the wage gap narrows for adults ages 25-34 years, indicating that women earn 90% of their male counterparts according to the US Bureau of Labor Statistics in 2017.

To earn more, women have turned to higher education levels. Women dominate in college enrollment and graduate within six year at higher rates.To obtain higher salaries, women have sought higher levels of education than men. Women earned nearly 60% of all master’s degrees in 2015-2016 and just over half of doctorates according to The Chronicle of Higher Education. While women attend college and graduate at higher levels, female college freshman rated their academic ability, creativity, leadership ability, mathematical ability, public speaking ability and risk-taking  below their male counterparts.

Women exhibited lower confidence that they would have sufficient funds to pay for college. Women also tend to graduate with degrees that have less earnings potential. Despite lower graduation rates, men were overrepresented for the highest paying college majors for the class of 2014, at 80% of the top ten areas. Specifically, 80% of those who graduated with a degree in Engineering, Computer Science, and Management Information Systems (MIS) were men. Women earned 84.4% of the bachelor degrees in nursing, the only one of the highest paying undergraduate degrees category that women dominated.

To go to college, women borrowed more money than men.  Almost twice as many of women attended for-profit colleges than men in 2016 for their more flexible structure for students with children but invariably at a higher cost. This has been costly, with women holding two-thirds of the nation’s student debt of $1.4 trillion. Women may carry 46% more in student loans in their 30’s than while in their 20’s, significantly above the 23% student debt increase men have at the same age.  Black women hold the highest average debt of any racial, ethnic, and gender group among graduates who completed bachelor’s degrees. In certain professions, such as social work, student loan forgiveness may be available after a certain number of years of repayment.

Financial literacy is needed for all, especially for women who need greater confidence in managing money. While the gender gap persists,FINRA’s study examined financial education gender differences in America across three generations (millennials, Gen Xers, and boomers) over a six year period (2009, 2012 and 2015). They found a narrowing gender gap in 2015, with millennial women exhibiting the lower level of financial literacy relative to men, but the 10% gap was improved from 19% for the boomer gender gap. FINRA measured self-assessed financial knowledge for the same timeframe, which is rising regardless of gender. More importantly, younger married women expressed greater confidence in financial knowledge at 53% in 2015 versus 40% for the boomer married women.


Related Post: Challenges Women Entrepreneurs Face And Overcome

There are actions women can take to achieve increased wealth accumulation. 

Among the steps women should take:

  1. Set financial goals and commit to achieving them. Start a budget, spend less in areas you can target and get easy results. Whether you are married or single, you should have your own money, goals, targets and achievements.
  2. Education is always important and a great equalizer in our society. Women should target higher paying undergraduate majors such as in finance, technology, nursing, and medicine. After college, consider working a couple of years before going on to graduate school. Some employers will pick up part or all of the costs of your graduate degrees which will put less pressure on your debt levels. Consider going to public colleges versus private colleges, if the latter’s cost is too prohibitive. There are some excellent public colleges that warrant your attention. Seek jobs during school and during breaks and summer.
  3. Financial literacy workshops are important especially if they are devoted to women. They are increasingly available in our communities, in our colleges, and in our workplace. Learning how to reduce debt and spending, learning how to save, and using your savings for both investing and retirement accounts. Most importantly, increase your confidence in all areas involving money.
  4. Invest your savings for workplace retirements accounts but set up investing accounts once you have an adequate emergency fund. Your  cash and bank accounts provide liquidity but leaving all your savings in zero or low interest-bearing accounts will not keep pace with inflation longer term. In Fidelity’s 2018 study on women and investing, 44% of women are investing savings they have outside of retirement and emergency funds in stocks and bonds. But that compared to 59% of men. Millennial women are investing more than Gen X and boomer counterparts.
  5. Women tend to be better investors than men. According to a 2017 Fidelity study, women are better investors than men but don’t realize they are. Only 9% of women believe they could outperform men with respect to investor returns, in reality women performed 0.4 percent better in investment returns than men. While that seems like a small percentage, through compounding the higher returns count amount to significant dollars over the years, especially for younger investors.  Women also saved an annual average of 9.0% of their paychecks for workplace retirement accounts, above 8.6% for men. Women also save more in accounts outside of workplace savings, adding an average of 12.4% to their account balance versus 11.6% for men. Fidelity reported that they have seen significant growth in the number of women investors, up 19% over three years.
  6. Because women may leave the workforce more than men, and live longer than their spouses, there are certain retirement benefits they may be eligible for. As of 2016, there were 82,000 centenarians according to the US Census Bureau, with 80.5% being female. Women report having a median of only $42,000 in total household retirement savings versus $123,000 among men. According to a Merrill Lynch done with Age Wave, a firm focused on an aging population, women collect $1.1 million less pay than the average men over a lifetime of work. This is because a woman spends 44% of her adult life taking time out of the workforce caring for children and additionally is often the caregiver for her parents and others compared with 28% for men. Leaving the workforce early, or changing jobs before your pension plan vests (if you have one) could mean leaving some of your retirement money behind.
  7. Given their longevity and lower lifetime earnings, women will need to be vigorous about retirement planning, including setting up a spousal IRA account, similar to a traditional or Roth IRA, but for women who do not work outside the home but has a spouse who does.  That spouse can contribute to the nonworking spousal IRA. Another benefit is social security benefits which generally require 40 sequential quarters of work. However, if you left the workforce for caregiving, you may be eligible for benefits through accumulation of at least 40 “service credits” as long as you have 10 years of paid employment.You may also be eligible for survivor benefits associated with your company’s retirement plan, usually the traditional pension plan. If you are married when your spouse retires, you are normally entitled to a survivor’s benefit if your spouse dies before you. However, under certain circumstances, you may have waived away your rights by granting your right to a child, for example. There are also some considerations you may need to know about a pension earned during a marriage in the event you are getting a divorce. On these issues, you should always consult your attorney or financial advisor.


I have been the breadwinner during most of my marriage but wasn’t always the one making sure our finances were in order. That was be a problem! How are you financially empowering and protecting yourself in all financial matters? We want to hear from you!







11 Reasons Why Investors Need To Understand The Fed

11 Reasons Why Investors Need To Understand The Fed

When the Fed speaks, investors listen…really closely.

The Fed (formally known as The Federal Reserve System) is the central bank of the US. The Fed regulates commercial banks and has the responsibility for conducting monetary policy to achieve its dual goals of achieving full or maximum employment and stable prices, that is low inflation.

Through its monetary policy, the Fed  influences money, credit, interest rates and  the US economy overall.  The Federal Open Market Committee (FOMC) is made of the seven Board of Governors of the Fed, including Chairman Jerome Powell, plus the Presidents of five fed district banks (include the New York Fed).

The Fed affects every aspect of our financial lives.

Those interested in personal finance and investing, in particular, should have a working knowledge of what the Fed does, particularly if you are interested in all aspects of money and investing.

The Fed influences our economy, our borrowing rates, our investments. They communicate with the public and add their voice of reason when our financial system is being threatened as it was during the Great Recession. They can also provide uncertainty to our financial markets through poor communications as Chair Jerome Powell when they raised rates in late 2018 amidst a stable, not rising, economy. The financial markets do not handle uncertainty well. Stocks react swiftly, declining at the end of last year,erasing strong gains.

 Powell Added Uncertainty About Future Rate Hikes Unnecessarily

Chair  Powell signalled  upcoming Fed action in last few months of 2018. Specifically, he suggested the FOMC  may be raising the fed funds rate a few times in 2019. The fed funds rate is the overnite borrowing rate between commercial banks and is the primary means by which the Fed adjusts their stance in monetary policy. While we can’t borrow at the fed funds rate, it directly influences other borrowing rates such as mortgage loans, car loans, prime rate, and affects securities such as treasuries and even stocks.

The S&P 500  responded negatively to the comments, dropping “as much as 8%”  in October-December 2018. Investors were concerned about potentially higher interest rates as well as trade policy initiatives, slowing global growth and partial government shutdown. Powell later backtracked from his earlier comments at the December 2018 meeting.

The latest Fed minutes from  late January 2019’s meeting indicated that the Fed has taken on “wait and see” attitude which has provided comfort to investors. But it was a reminder that the Fed has certain power over the money supply and credit in our country.

Understanding The Fed’s Role

1) FOMC’s regular meetings are scheduled well in advance and made public.

Individual FOMC members schedule speaking engagements and are watched very closely. Formally, the FOMC meets about eight times a year to determine monetary policy according to its dual goal mandate provided by Congress. They have targets for these goals, pointing to  longer term normal rates of unemployment of 3.5-4% and inflation rate of 2%. They assess our economy through examination of a broad range of economic and inflation indicators, economic forecasts and consideration of financial markets.

2) The Fed looks at all kinds of economic and inflation indicators.


A sampling of indicators:

  • Gross Domestic Product (GDP)
  • unemployment rates
  • industrial production
  • wage growth
  • retail sales
  • consumer and business spending
  • housing permits, starts, home prices
  • confidence surveys
  • S&P 500
  •  wholesale price index and consumer price index

They will also look at the economy from different points of view, such as  demographics (eg. minority communities), or regionally(different parts of the country). They look at all of these indicators to better gauge where we are in the business cycle.

These indicators are either:

a) leading indicators from every sector which predict future economic activity;

b) coincident indicators which are in line with the economy and

c) lagging indicators which tend to rise or fall a few months after business cycles expansions or contractions.

S& P 500 stock prices are an example of a leading economic indicator and may forecast a downturn or strong growth.

3)The Fed needs to know about external variables that they don’t directly control but could be impactful to our economy.

The Fed  looks at important factors that could affect our economy, one way or another, such as trade talks between the US and China, overall trade policies, the government shutdown, tax reform, hurricanes, and the global economies

4)The Fed makes assessments and manages risk, including to the financial system.

It is easy to criticize the Fed at having missed or having been slow to manage the risks that were building in the months leading up to the Great Recession of 2008-2009.  Investors experienced  significant losses in the financial markets (S& P was down about 55%). Housing prices went down about 20% in a fifteen month period.

Stock performance and housing prices provide Fed insight into the “wealth effect” of household net worth.  Losses in household net worth affects whether to continue or constrain their spending in our economy. Household spending accounts for about 65%-70% of our economy. Our financial health and confidence matters significantly to our economy.

5)The Fed’s monetary policy offsets changes in our economy.

When our economy is worsening and unemployment is rising, the Fed will adopt a more “accommodative” or “stimulative” monetary policy. They will take action to gradually reduce fed funds rates as a first step. Lowering this benchmark rate will influence  consumer borrowing rates, which will decline in tandem.

Lowered rates for auto loans, mortgages and credit cards tend to lead to higher spending and borrowing. Ultimately, it should stimulate the economic growth.

The Fed has a number of tools in their arsenal and in times of severe recessions will use all of them. The lower interest rates also benefit stocks which in turn, generally appreciate. The lower interest rates sometimes encourage companies to use their capital for corporate buybacks, expansion and mergers & acquisitions, all positive for stocks.

6) Higher economic growth may lead to stronger inflation as signals to the Fed to tighten money supply. 

When we are experiencing strong economic growth, it could fuel higher than normal inflation. The Fed’s action would be to tighten or constrain growth and often be referred to as “tight or “restrictive monetary policy”.  Otherwise, left unchecked, this economic expansion could lead to tighter credit and potentially higher inflation well above the targeted 2%.

Higher inflation reduces your purchasing power.  Wages will not keep pace with the inflation rate. Purchasing power is the amount of goods and services your income will buy, but your necessaries such as groceries, rent, transportation, and clothing, will cost more.

How higher inflation affects business spending

High inflation also has a dampening effect on your investments as companies pay more for wholesale prices, or experience higher interest rates when they borrow. Businesses cannot necessarily pass these higher costs to the consumer, though they will try. They will postpone or cut their capital expenditures which may mean less future hiring.

One benefit of higher interest rates is there are more incentives for households to save money at the bank at higher yielding rates. With raging inflation in the early 1980s, banks were literally throwing out double digit savings rates at their banking customers.

7) The Fed has other tools it can use to push the economy into the direction of its stated goals.

The Great Recession was more severe than previous ones.  The Fed aggressively utilized its tools.  The Fed is always purchasing (adding liquidity to financial markets) or selling (tightening money supply) treasury securities from commercial banks.

For example, in a weakening economy, the Fed  purchases government securities from the balance sheets of the commercial banks in exchange for money to provide liquidity to the public. But during the Great Recession, the Fed was more aggressive in their purchases.

They adopted quantitative easing (QE) which are large scale asset measures. They essentially bought predetermined amounts of government bonds and other financial assets, including mortgage-backed securities. This in in contrast to buying conventional short-term bonds to keep fed funds at its target value.  powerfully put a lot of needed cash into the banks to stimulate more lending.

8) It took three phases of QE over four years to stimulate our economy.

As a result of QE1, QE2 and QE3, the Fed had a lot of those government securities accumulated in reserve  on their balance sheet and they have been working to reduce the amount. According to their latest minutes, the Fed reported that the peak amount of $2.8 trillion in October 2014 has declined by $1.2 trillion.

Investors had been concerned that further declines would act to “tighten” our economy, creating reduced credit even though we are experiencing low inflation. The Fed has indicated that reserves may soon approach efficient levels later in 2019.

9)The Fed works with the US Treasury, the latter being responsible for US fiscal policy.

The US Treasury also needs to raise capital to fund the US budget policy as part of its fiscal policy. They work interdependently, with the Fed serving as US government’s banker. As the largest borrower in our economy, the US Treasury raises capital through issuance of treasury securities through a weekly auction.

The large budget deficit on its own puts upward pressure on interest rates, so Fed looks at this budget deficit closely.

10)The Fed is also known as a bankers’s banker, or banker of last resort.

They will lend money at the discount rate (set above the fed funds rate) to our commercial banks in times of liquidity crisis. Both the Fed and US Treasury worked feverishly as Bear Stearns, collapsing in April 2007. Their hedge funds were exposed for holding high risk subprime mortgage securities securities. JP Morgan Chase bought Bear Stearns well the previous value.

After Bear’s dismantling, on September 15, 2008, Lehman Brothers collapsed, filing for Chapter 11 bankruptcy. This event nearly caused systemic risk to our entire financial system.

I highly recommend the book “Too Big To Fail” by Andrew Ross Sorkin. He chronicles the unimaginable circumstances of the Fed, the Treasury and Congress racing to save some of our oldest financial institutions. By the way, the movie is pretty good if film is better for you.

11)The Fed is the role model for central banks around the world.

Other central banks look to the Fed and the action they take. The Fed in turn also looks closely at the actions of the central banks of major economies, as well as taking into consideration international issues, such as trade policies, global growth and Brexit. The Fed looks at the US dollar and its relation to major global currencies. A weak dollar, on its own, tends to be beneficial to our economy as US exporters benefit against their global competitors. The Fed looks at action taken by global central banks and their currencies as well.

Want to become a  Fed watcher? It pays to be at least aware of what the Fed does and says given its potential impact to our economy and financial markets. Everything you may have wanted to know about the Fed and how it may affect your financial lives. The next important FOMC meeting is coming March 19-20. Take a look at the markets in the days before the meeting, during and especially at 2:00 pm when Chair Jerome Powell announces the FOMC decision. When the Fed speaks, investors pay attention!

Where were you when Lehman Brothers was collapsing? Do you recall the impact of the Fed on the financial markets at any time? We would love to hear from you!





15 Personal Finance Lessons From Warren Buffett’s Latest Annual Letter To Shareholders

15 Personal Finance Lessons From Warren Buffett’s Latest Annual Letter To Shareholders

Chairman and CEO Warren Buffett’s annual letter to Berkshire Hathaway’s shareholders for 2018 results was recently released.

The letter is a treasure trove of personal finance lessons.

Business and investment savvy Buffett has long been an American folk hero whose optimism for the financial markets, American business, and America herself has been cause for celebration.

As a Professor teaching business students, I have used Buffett’s shareholder letter for lessons on Berkshire’s various businesses. These diverse businesses represent a tapestry for our economy, stock investment strategies, accounting standards, business ethics, management style, and his indelible wit and humor.

As a Wall Street analyst, I often read Buffett’s letter. But there was no comparison.  Buffett writes his own letter every year, edited by his friend, and his contemporary, and journalist (former editor of Fortune) Carol Loomis.

At age 88, Buffett along with his older compadre Berkshire’s Vice Chairman Charlie Munger, age 95, is the oldest leadership team of Fortune 500 companies, providing superb insights with an energy level that could and does challenge far younger management teams.

15 Personal Finance Lessons:

1. Berkshire’s outstanding stock price performance is the best measure of the company’s business.

In its 54 years history (with Warren Buffett at the helm) Berkshire compound annual return of 20.5% exceeds the S& P’s not too shabby 9.7%. In 2018, Berkshire outperformed the S&P by 7.2 percentage points. Indeed, Berkshire stock beat the market 38 times out of 54 years, a great record for any company.

 2. Diversification is a hallmark of Berkshire’s success.

Just like any stock portfolio, Berkshire’s holdings reflect diverse businesses while providing insights into the health of our overall economy. Buffett’s prowess in buying wonderful companies “at sensible prices” is well known in both insurance and non-insurance businesses, such as GEICO (in 1976) and Johns Manville (in 2001), the latter after having been troubled by asbestos lawsuits.

Five Groves

Typically, Buffett buys 80%-100% controlling interests of these businesses. In this letter, Buffett likened his businesses to economic trees, though imploring shareholders to “focus on the forest-forget the trees.” Berkshire’s businesses are in five groves, from twigs to redwoods.

The largest grove is the huge collection of insurance operations. However, the company’s most valuable groves are the largely acquired diverse non-insurance businesses,  including from largest: BNSF railroad, BH Energy, Clayton Homes, International Metalworking, Lubrizol, Marmon, Precision Castparts, Forest River, Johns Manville, MiTek, Shaw, and TTI. They also own many smaller businesses.

 3. Conservative accounting standards and disclosures are favored.

Buffett refers to earnings, as bottom line or net earnings. This means earnings after taking into account all income taxes, interest payments, management compensation, restructuring costs, depreciation and amortization, and home office overhead costs. This is, in contrast, to often practiced adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). The latter results in a much higher number than the net earnings that Berkshire always uses and is more conservative.

The use of the EBITDA is typically deployed by high growth companies that do not focus on earnings. The practice has been endorsed by Wall Street bankers and analysts to sometimes drive investors to consider alternative valuations for growth companies.

Buffett is critical of companies that report earnings before “one-time events” such as restructuring and stock-based compensation costs. What he means is that these costs still need to be deducted from earnings. Some management don’t want to include these items as an expense, but as Buffett quips: “What else could it be–  a gift from shareholders?” Buffett’s use of the quintessential quote of Lincoln’s is fitting: “If you call a dog’s tail a leg, how many legs does it have? Four, because calling a tail a leg doesn’t make it one.”

 4. Business ethics are strong.

Berkshire Hathaway’s “Code of Business Conduct and Ethics’ is not part of the company’s shareholder letter but worth inspection. It can be downloaded from the company’s website. The letter stressed the desire of corporate management to meet Wall Street expectations to be so great that it has led to ‘bad corporate behavior” as companies felt the pressure to hit quarterly expectations.

Long term perspective

Berkshire takes a longer term perspective than most companies. As Buffett writes: “What starts out as an “innocent” fudge in order to not disappoint ‘the Street’….can become the first step toward full-fledged fraud..” (As an equities analyst, I still cringe at the amount of fraudulent carnage I saw among the corporate management I trusted. I also was a casualty at Drexel Burnham at an early stage of my career..but that’s a story for another day).

Buffett and Munger have always communicated directly and worked for shareholder-partners, rather than analysts. Buffett used the letter to point to the company’s long term strategy designed for their longstanding shareholders, rather than temporary shareholders who buy and sell Berkshire shares for a quick trade. Berkshire Hathaway maintains a different culture throughout its subsidiaries and does not seek to hit analysts’ short term estimates for the company.

 5. Berkshire Hathaway does not have a company-wide budget.

It does not prepare monthly earnings reports or monthly balance sheets. What? Unlike its Fortune 500 brethren, the holding company has few employees, and depends on its terrific companies to report results to their parent. However, Berkshire instills a culture that looks at long term, not short results. Buffett regularly views monthly reports of most subsidiaries but reviews earnings and financial position on a quarterly basis.

6. Tax reform benefits were released as the corporate tax rate was lowered to 21% from 35%.

Last year’s tax reform passage was beneficial for Berkshire Hathaway as for many companies. Buffett pointed to how the US government receives dividend payments from Berkshire in annual tax payments. In 2018, one of Berkshire’s larger companies (its utility business) passed that savings directly onto customers.

 7. Buy-Hold investment strategy is a trademark of Warren Buffett and Berkshire Hathaway.

Berkshire has a significant collection of equity holdings. This portfolio is separate from the companies Berkshire controls. Here, Berkshire has ownership typically about 5%-10% stakes (though stakes like American Express are higher than 10%) in very large companies which deliver dividends and stock appreciation. There are fifteen positions thoughtfully bought and intended to be held long term.

At the end of year, Berkshire’s portfolio had a market value of $172.8 billion, well over its $102.9 billion cost. This portfolio does not include Berkshire’s bigger holding in Kraft Heinz because they are in a control group. Berkshire has taken a significant hit to its valuation given that Kraft Heinz’s stock price caused by Kraft’s fourth quarter results.

The Kraft Heinz Issue

Kraft Heinz also disclosed that the Securities and Exchange Commission sent a subpoena to Kraft relating to its accounting practices. This is not usually good news. This is one acquisition that Buffett likely believes the company overpaid. One of his few mistakes. Overall, Buffett often is praised for his buy-hold portfolio diversification. He is also known for his preference of low-cost index funds (see below), rather than the higher fees charged by many investment management firms.

 8. Berkshire remained a significant repurchaser of its own shares.

Company management will repurchase shares at prices above their book value (cost) but below their estimate of intrinsic value.  The management of their constituent companies will also repurchase shares, using their retained earnings. This boosts Berkshire’s ownership percentage from the lower outstanding share count.

The use of the company’s capital to buy back their shares has become something of a political football as some politicians and pundits have expressed that companies should use that capital for wage growth and other sources. As a capitalist who has been generous by dedicating the vast majority of his wealth for charitable causes, Buffett seems to be unfazed the day-to-day news.

 9. Berkshire has an ample emergency fund.

Berkshire maintains a high level of cash-equivalent securities, including US Treasury bills of $112 billion at the end of 2018. Buffett admits to making expensive mistakes and has missed opportunities. Berkshire could also take an equity hit if investors flee the market  and it also has some risky businesses. To guard against any potential calamities, the company will always maintain a minimum of $20 billion. Berkshire will never want to sell any of the businesses which are core to Berkshire itself.

 10. Berkshire uses a disciplined approach to risk, using debt sparingly.

Berkshire’s property/casualty insurance businesses provide a lot of capital by virtue of “float” or “free money’  as they receive premiums upfront from the sale of insurance policies for payment of claims later on. Assessing insurance risks carefully doesn’t mean there couldn’t be mistakes. Events like Hurricane Katrina are risks. There is intense competition in this business and over time its float is expected to decline but in the meantime, it gives the company financial flexibility.

For funding, Buffett prefers equity, and Berkshire stock has been an able means of capital.   Buffett has used little debt personally and does not favor using debt for acquisitions. The unpredictable nature of times when credit disappears and holding debt can be painful. Buffett says, ” Rational people don’t risk what they have and need for what they don’t have and don’t need.” A personal finance gem!


11. Like traditional IRAs, Berkshire defers tax liabilities. 

Berkshire has significant amount (close to $15 billion) that arises from unrealized gains in their equity holdings. These liabilities are accrued at the now 21% corporate rate and will eventually be paid at the prevailing rate when the investments are sold. So it works as an interest-free loan that allows the company to make its money work. When you save money in your traditional IRA  account, you are saving money tax-free, deferring taxes until you begin to withdraw at age 59.5 years.

 12. The magic of compounding interest.

Berkshire’s strategy of long term holding of businesses and equity holdings that has resulted in compounding interest has been a huge benefit. Retaining all earnings that can be used to buy more companies has allowed Berkshire to grow into the financial behemoth it is now.

Using the example of $114.75 that Warren Buffett infamously used at age 11 in 1942 (77 years ago) to make his first investment, had he put that amount into a no-fee S&P index fund, with all of the dividends reinvested, it would have grown to $606,811 on a pretax basis on January 31, 2019, a gain of 5,288 for 1.

Buffett used a different example, using a $1 million investment made by a tax-free institution such as a college endowment fund, which would have grown to $5.3 billion. However, if that institution paid a 1% to investment managers (a frequent peeve of Buffett’s) its gain would be halved. Powerful lessons here.

 13. The American Tailwind

. Warren Buffett has never hidden his enormous optimism and respect for America. He referred to three periods of 77 years since George Washington’s installation as President and founding of our country. The first two periods (up to 1942) saw America grow into the most powerful nation on earth but faced tough challenges amid the losses in World War II and continues to be challenged today.

To prove America’s endurance and the reason to continue to invest, he used the apt example of government budget deficits. Our national debt has increased 400-fold since 1942, or 40,000%. Buffett pondered: “Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency.

To “protect” yourself, you might have eschewed stocks and opted instead for 3.25 ounces of gold with your $114.75.”  The punchline: your gold would be worth $4,200, less than 1% of what would have been realized from the unmanaged investment in American business. Buffett’s message: have faith in America and long term buy-hold stock investing.

 14. Savings.

As a result of savings and investments, US household wealth is estimated to be $108 trillion according to the latest Federal Reserve. Buffett and Munger acknowledge their success has been a product of the American Tailwind. In a humorous quip, Buffett wondered whether he and Munger in “their old age” would become consumers rather than investors. My guess would be “no, of course.”

15. Older age doesn’t mean you stop being productive.

Berkshire Hathaway has the oldest senior management team among the top Fortune 500 companies. Warren Buffett is among the wealthiest and generous CEOs in the US and globally. He doesn’t have to continue to work, read 500 pages daily, and contribute to shareholders and to society. Buffett and Munger are refreshing in sharing their long term views. They are American icons who still have a lot to do.

 Berkshire Hathaway’s Annual Shareholder meeting is on Saturday, May 4, 2019. You can attend if you are a shareholder or you can obtain a pass ahead of time. The event begins the evening  It takes place in downtown Omaha where both Warren Buffett and Charlie Munger will field questions and answer them fully, not partly as is often the case. Yahoo will webcast the Saturday meeting, going live at 8:45 AM.

Beside being a mecca for investors, it is a tremendous shopping day filled with company-backed products. One question that will likely be raised and addressed perhaps by a twinkle, is when will Warren Buffett and Charlie Munger step down and announce their successors? There are two important prospects and internal management—Ajit Jain and Greg Abel–touted increasingly in this year’s letter. My guess? Buffett and Munger seem to be having too much fun at the moment to step aside at the pre-announced date.

There are so many enjoyable stories about Warren Buffett. Has Buffett influenced you or your investing in any way? Do you have one any you might want to share? We would love to hear from you!









How To Start Investing: A Guide For Beginners

How To Start Investing: A Guide For Beginners

 Ready to learn how to invest?

Take heed from Warren Buffett’s famous quote:

“Rule number one: Don’t lose money.

Rule number two: Don’t forget rule number one.”

Whether you are learning how to invest on your own, with a finance professional, via robo-advisors, or for starting your retirement options, you should have a basic understanding of the financial markets and your options.

It is prudent to start investing as early in life as possible due to the following factors:

  • The longer time will afford you the ability to take greater risks and recover from any mistakes.
  • The enormous benefits of compounding interest work in your favor as you reinvest your earnings from dividends and appreciation.
  • A longer time horizon allows you to take advantage of likely downturns in the market and reduce the costs of some of your holdings in your portfolio.

First, you need to put your financial life in order by asking yourself a few questions:

  • Are you able to pay for your basic needs?
  • Are your bills, including credit card bills being fully paid and on time?
  • Do you have enough accessible liquidity in savings accounts or an emergency fund in the event of unforeseen circumstances?
  • Is your budget relatively balanced with some flexibility?
  •  If offered, are you taking advantage of your employer’s match to your 401K retirement plan by contributing the maximum amount to the retirement plan?
  • Are you emotionally ready to lose hard earned money?

Even if you answered affirmatively to all the above questions, it is never easy to lose money in the market.

Mistakes happen, even to my hero, Warren Buffett,.

I still remember one of my earliest investments soon after college graduation.

I was living at home until I could find an apartment so I did have some savings.

For my first investment, I called my broker as there were no online brokers at the time. I bought 100 shares in a California-based energy company that made biofuels which would be used for  more efficient gas for cars

Without doing much of  any research other than listening to a “smart’ coworker,  I plunked down $3500 for this progressive company and watched the shares trade avidly even as its price turned south almost immediately. It was delisted when there was little value left in my shares.

Later I found out my shares represented ownership in a company whose holdings were eight lonely gas stations in Southern California with few other assets. It was my first experience in losing most of my money on one trade and put me in touch with my own risk and emotional tolerance. It was time for me to really learn all about the financial markets, my investment choices among various securities, and evaluating stocks on their own, or as part of mutual funds or exchange traded funds or ETFs.

Know the differences between savings and investing


If you adopt a “pay yourself” savings policy, you may direct a portion of your paycheck to directly deposit into a checking or savings accounts at your bank. You can add to your account with excess funds after your spending less than you earn.

These cash or cash-equivalent accounts are insured up to $250,000 per depositor, per insured bank for each account ownership category by the Federal Deposit Insurance Corporation (FDIC). Having cash is safe if you are totally risk averse. You can hold your cash in interest-bearing accounts. Banks compete for your deposits such as Ally Bank.

The interest you earn from these accounts will likely not keep track with inflation. The risk/reward profile for cash-equivalent securities, also known as money markets, is low relative compared to bonds and stocks. These bank accounts also offer certificates of deposits (CDs) which can be desirable places to be when inflation rates rise to mid single digits or higher.  In August 1981, one year Treasury Bills yielded 14.54% and three month CD yielded more than 14%.


The risk/reward is different depending on where you invest but tend to be higher when you put your money in stocks. That is, the greater the risk, the greater the rewards. Investing in stocks are not federally insured, you can lose your principal investment, and/or lose your dividend income if your shares offer dividends but the company suspends payments.

Stock market returns measured by the S& P 500 composite, the preferred index (versus the sometimes better known Dow Jones Industrial Average) have averaged about 9.8% in the past 90 years. However, that nearly 10% return doesn’t reflect the volatility the market has seen during that time.

Market volatility happens regularly

To get a better sense of the market volatility there have eleven historic bear markets (market declines of 20% or more) from the Great Depression (early 1930s) to the Great Recession (2008-2009).  The high and low S& P 500 prices during the 34 months between October 1929 and June 1932 reflect an 86% decline, while the drop between the 17 months between October 2007 and March 2009 was 56.4%.

Those were particularly painful declines, but just imagine for those who invested for the first time at the trough in the market, say in March 2009. When you start to invest, take it slow and understand the stock market is not linear, it doesn’t go straight up or down. You may want to simulate the market, by playing in the stock market game available on marketwatch.com.

An Investing lesson for my college students:

Stock Market Game. The college students I teach in my finance classes are required to play the stock market game with $1,000,000 (don’t worry! they have to give the money at the end of the term) and create their own stock portfolios. I use the free stock market game on marketwatch.com website.   We use the simulation to learn about the financial markets, institutions, the Federal Reserve (the Fed) and to evaluate the fundamentals of stocks and respective valuations. They monitor their portfolio performance throughout the term, writing how certain stocks better weathered earnings reports, the Fed news, and financial headlines in the current news.

Even though it is not real money, they get the feel some of the rhythm of the markets and its sensitivities associated with macroeconomic (the economy) and microeconomic (industry/company) events. The students are attuned to Brexit fears, trade talks with China, the Fed consideration about raising/lowering the fed funds rates.  

How you invest will depend on many factors:

  • will you seek a finance professional such as an advisor or robo-advisor? There may be minimum amounts required for financial advisor, and just like all advisors, they need to be thoroughly researched for your comfort;
  • Do you plan to be an active investor? If you are doing your own work, make sure you have the time to invest to really understand the big picture and recognize that what the Fed says could impact your stocks along with many other external factors along with following the companies you invested in. Recognize your picks should reflect a diversification strategy over different sectors, industries, and companies.
  • would you rather be a passive investor? This is a recommended strategy for newcomers as well as very experienced investors. There are tons of  low cost index funds, higher cost mutual funds and ETFs to choose from that appeal to any investment style, whether you are an aggressive, moderate or conservative investor, or want target-date funds which reflect funds managed according to an age-based or lifecycle timeframe. A great place to start is Vanguard with its diverse set investment products but there are many competitive offerings from many others available.

Be aware of risks that affect investor returns.

It comes with the territory of stock investing even if you are fully diversified and do a lot of the work or have hired the best fiduciary to manage your investments.

Market or external risks come from changes in the economy,unemployment, inflation, the Fed’s action or inaction or statements, regulatory  action, politics, scandals whether in the US or abroad. Overhangs on the market have come from Brexit (UK leaving the EU), trade talks, changes in interest rates, tax changes, social media privacy, wars, tensions, 9/11, and many other factors.

Investment Risks can occur with the companies you have invested and may reflect some actual events that happen to companies that are different than what the market expects or what the analysts who follow these companies expect or what the companies themselves expect.

What is considered good news for the company and its stock. Stocks may rise on better than anticipated reported results whether it is revenues and cash flow growth, company’s future upward guidance, possible merger or acquisition, new product rollouts, reduced tax rates, addition of new management, stock repurchases, dividend increases, among many other factors.

What is considered bad news for the company and its stock. On the other hand, stocks may decline on company results that disappoint, departure of a favored CEO, stale products, increased  competitive threats, increased regulatory costs, suspended dividends, increased capital spending or business failures that could result in corporate bankruptcies. 

Read our two part series on Investing in IPOs. With all of the upcoming IPOs, including UBER, Pinterest and others, read our case study on Facebook’s IPO pricing and its aftermath in the secondary market. 

Read our post: 11 reasons why you need to understand the Fed

How to learn more about stock investing

There are many ways new (and experienced) investors can remain aware of the potential risks.

All publicly available information is available for us to learn about investments.

if you are managing your own stocks, register for investor relations information, find out when your companies are reporting their quarterly earnings and listen to a conference or read the transcript of conference call, visit various websites with company information and investor comments.

There are a ton of free apps: CNBC, The Street, marketwatchMorningstar, and Seeking Alpha.

I also recommend watching CNBC, especially Mad Money with Jim Cramer. I am also on the Bogleheads community forums which address many investment and personal finance topics.

You are at the beginning of your financial journey and you have many roads to go.

Be patient. Don’t be rash.

You will likely make money through investments in the long run.

You will lose money along the way but stay rational.

There are many books to read on stock investments and a few I will recommend now are:

The Intelligent Investor by Benjamin Graham. Graham was Warren Buffett’s mentor and the book is still his recommended source.

Little Book of Common Sense Investing by John C. Bogle who recently passed away. He co-founded Vanguard and gave us the gift of low cost index funds and much more.

Anything Warren Buffett! I read all of Buffett’s well written Letters to Berkshire Hathaway Shareholders. 2018’s is now out. The Snowball: Warren Buffett and the Business of Life by Alice Schroeder provides great insides to the man and his start in investing at age 11.

Get Rich Carefully by Jim Cramer. As mentioned earlier,  I am a fan of Jim Cramer who was a former hedge fun manager, co-founder of TheStreet.  I have been part of  his Chairman Club for years.

The Little Book That Still Beats the Market by Joel Greenblatt, a phenomenal investor and runs a private investment partnership.

Happy Investing! Have you started investing yet?

Please share your early investing experiences with us. What was the first stop you bought? We want to hear from you!

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