Turn You Inside-Out

Back in the good old days, you would have lived in a town with one or two banks.  If you needed to borrow money - to buy a house, or start a business, or get through a rough patch - you would have gone to the banker.  The banker lived in your community, and would know (or could find out by word of mouth) whether you had steady employment, how good you had been at repaying your tab at the bar, what kind of assets you owned, and so on.  Based on this information, the banker would decide whether or not you were likely to repay the loan, and would decide how much he felt comfortable lending you, and at what interest rate.

That time is long gone.  Instant communication and international corporations have made lending a global commodity.  You can get a mortgage from any one of hundreds of banks.  The people making those decisions live far away, running computer programs to crunch numbers and determine whether you're a good risk.  They don't know you.  So, how can they decide whether and how to issue you a loan?

In parallel with the globalization of lending, we've witnessed a globalization of personal information.  It's no longer people in your community who keep track of you: every bank, credit card, school, and employer you've ever had are collecting information about you and sharing it with one another.  This is very convenient for the lenders... even if you've moved to Texas, they can still learn about that bankruptcy you had in North Dakota.  It's less convenient for you, except to the extent that it enabled you to shop around for more lenders.  A credit card company in Maine wouldn't consider giving you a card unless it could have some confidence that you won't borrow thousands of dollars and then disappear to Mexico.

What does this mean for you as a consumer?  That your actions today will have a profound impact on your finances tomorrow.  It's like your permanent record at school, except this actually exists.  As you make financial decisions, keep in mind that beyond the immediate impact of such decisions, they could affect your future ability to get credit cards, buy a car, buy a house, or even get a job or rent an apartment.

You have probably heard people talk about a "credit score."  A credit score is a numerical value that indicates how credit-trustworthy you are based on past behavior.  A higher score is better, and means that you're more likely to be able to get loans, and such loans can be for higher amounts and lower interest payments.  Lower scores have the opposite effect.  Some large employers or apartment complexes will check on your credit score, and won't want anything to do with you if they think your score shows that you've been irresponsible.

The following actions will generally raise your score:

• Making payments on time.  This is the single biggest and best thing you can do.  The longer you've been making payments on time, the better you look.
• Not using all of your available credit.  A person who has a $4000 limit on their card and is only using $1000 looks better than a person with a $1000 limit who is using $750.
• Having credit for a long time.  Lenders like to see that you've been able to handle credit for many years without getting into trouble.

The following actions lower your score:

• Missing payments.  The later it is, the worse it looks, and payments in collection are worst of all.  Lenders look at how recent a missed payment is, so if you were late last month, it will lower your score more than being late several years ago.
• Bankruptcy.  This is a huge black mark that will follow you for many years.
• Foreclosure.  See above, though this isn't as bad as bankruptcy.
• Opening new lines of credit.  Over the long term, doing this might help your score, but in the short term, lenders get nervous if you seem to be borrowing a lot.
• Using most of your available credit, even if you aren't late.
• Closing accounts.  This is because your available credit goes down, making it look like you're closer to your limits.
• Having an account closed.  During the credit crunch, some banks are unilaterally closing down accounts that haven't been used recently.  This has the same effect as if you closed it yourself.

And these things don't have any impact on your score:

• Your income.  Your credit rating doesn't change whether you earn $10,000 a year or $100,000.  This doesn't mean that the lender won't consider it when, say, you're buying a house, but it's considered separately from your credit score.
• Your savings, investments, or assets.  Again, for a major loan the lender will want to know these things, but a credit card company doesn't care if you have anything at all in your savings account.
• Geographic location, employment, marital status, or other personal information.

There are three major credit bureaus: Equifax, TransUnion, and Experian.  Each keeps its own file on you.  Whenever you apply for credit, the lender may check one, two, or all three of them.  As you use your account, the lender will report information back to one, two, or all three of them.  As a result, it's entirely possible that some of your accounts or history will only show up on some of the bureaus, and as a result each will give you a separate score.  In practice, as long as there aren't any errors, all three bureaus will probably be in the same range.  This is because they all use the same, secret formula for converting your financial information into a score, called FICO.

The lowest score you can get is 300.  The highest is 850.  Higher is better, of course, but in practice lenders establish zones rather than sliding scales when making decisions.  For example, a lender will probably reserve their best interest rate and terms for people with scores over 720.  So, if you're already over 720, it won't do you any good to improve it to 800 or higher. 

There are many different types of scores out there besides FICO.  Credit reporting agencies push these because they're cheaper.  FICO is still the gold standard, though, and is the one people are most likely to look at.

If you want to see your credit score, you'll need to pay for it.  You can go to www.myfico.com to purchase your FICO score from the bureaus - it used to be all three, but they seem to be increasingly trying to differentiate themselves.

You don't, however, need to pay to see your credit REPORT.  The difference is that a score is just a number, a summary of how credit-worthy you are, while your credit report provides all the details of your financial history.  The score is the result of your report.

If any lender denies your credit request based on your credit score, you are eligible for a free copy of your credit report.  Presumably this is so you can see if there's any inaccurate information, correct it, and re-apply for credit.  You'll get a letter in the mail from the lender saying that you were denied and listing the bureaus they used in making their decision.  You can then go to each bureaus web site and, after hunting around for a little while, find where you can get your report.  I suggest searching for "denied credit", but their sites are likely to change over time.

Besides being denied for credit, you can also get a free credit report once a year by going to www.annualcreditreport.com.  Note that the once-per-year limit is applied separately to each bureau.  Because they tend to reflect one another, what I like to do is stagger my reports - for example, checking Experian in January, TransUnion in May, and Equifax in September.  You can request your report online, but in some cases they will require you to fill out and mail in a form to do this - that's generally the case if the personal information you provide them doesn't match what they have on file, which generally indicates that there's an error.

Once you get your bureau credit report, scan through it and look for errors.  I had a bit of a mess a few years ago when Experian got me confused with another Chris King and imported all of his (very bad!) accounts into my report.  For some things you'll be able to make corrections online, but for others you'll need to call them directly.  In both cases, when you point it out, they'll do an internal investigation, which will likely involve reviewing their own history and contacting the lender or merchant in question.  They're generally required to complete the investigation and make a decision within 30 days.  If you aren't happy with their final decision, you can provide a statement that will be inserted into your report describing your side of the story.  This doesn't have any impact on your credit score, but may make you feel better.

I highly recommend correcting even benign or beneficial errors.  For example, if they have an inaccurate address on your report, or an account in good standing that you didn't open, then in the future that account may go into collection, and you'll be hurt by it; it could take a year for you to discover that problem and fix it.

So, in summary, here are my recommendations for managing credit:

• Start early and small.  I was fortunate enough to have parents who co-signed on a line of credit overdraft protection through my credit union when I was just 16 years old.  I never used it, but it showed up on my credit report - heck, it CREATED my credit report - and allowed me to start establishing some history.
• Again: start small.  If you're new to using credit, it's very easy to get confused about how it works, to miss a payment, break your limit, or otherwise get yourself into trouble. Try to keep a credit card for emergencies only, and immediately pay any statements you receive in full.  This will show you're responsible and will do wonders for your credit rating.
• Gradually open accounts or take loans as you need them, not to improve your score or because you can.  You'll want a credit card account by the time you leave college, and will likely have an active student loan, and maybe a car loan as well.  This is a good mix that will help you build a really solid history.  By contrast, opening a lot of accounts will hurt your score, and you won't be able to get a loan you actually need because you look too risky.  Furthermore, having a lot of accounts is just more complicated to manage, and increases the risk of making a single late payment.
• Make payments immediately after you get the statement.  This may not always be feasible, at least when starting off, but try to do them as quickly as you can.  Again, this drastically reduces the risk of making a late payment.
• Whenever you can, pay off a revolving credit line, like a credit card, in full.  This will keep you from paying any interest, help prevent going over your credit limit, and lower your overall credit utilization ratio, thereby improving your score.
• Set up automatic payments for your debts, especially predictable ones like student loans or car loans.  This will ensure you don't ever miss a payment.
• Consider paying off loans early.  If you accelerate your loan payments, your debt burden goes down and your score goes up.  And, of course, you're saving on interest payments as well.

You're keeping your credit score high for two reasons.  First, for the few times in your life that you need to make a big purchase like a house, it will help you get the best possible terms, both making the purchase possible and saving you thousands of dollars in interest.  Second, it keeps your existing lenders happy, so the rates on your credit cards and such stay low and your credit limits go up. 

Don't spend too much time worrying about your credit score.  I actually don't even know what mine is; I've been to cheap to pay to see it.  Just remind yourself to periodically make sure that your credit reports are accurate, keep making smart financial decisions, and everything will work out fine.

The Noteworthy Novel of Michael Chabon

In keeping with my recent trend of "reading well-reviewed recent novels with local connections," I just wrapped up my first Michael Chabon novel, "The Amazing Adventures of Kavalier & Clay." Amazing is right - the story is flat-out fun, exciting, well-paced, and gripping; yet none of that prevents Chabon from telling a really interesting story with richly detailed characters and quite nuanced themes. He does take advantage of working with a broad scope - his story covers more than seven hundred pages and multiple decades - but the result is much richer than it needed to be.

You may or may not know that Chabon and Dave Eggers are great compatriots; they both live in the Bay Area, and I've really enjoyed listening to a few programs that they collaborated on. For some reason I'd assumed that Chabon would share Eggers' sensibilities, but he really doesn't... both are extremely talented, and very fun to read, but Eggers is an adventurist who is out to redefine his profession and push the boundaries of what literature can accomplish, while Chabon does excellent work within well-established frameworks. I've just read one novel from each (well, I guess two Eggers, if I count "What is the What," which I should), so I shouldn't really generalize, but I'd say that Eggers will appeal more to adventurous readers while Chabon has a more universal appeal.

MINI SPOILERS

The nominal focus of the book is the birth of the comic book industry, particularly the Golden Age. So, topically, it's about an area that I've become increasingly interested in these past few years. Early on, I often found myself wishing desperately that he would include illustrations to show the comics he was describing. This was not because his descriptions were inadequate somehow; no, it was because he made it sound so incredibly exciting and cool that I wanted to read them for myself.

It is interesting, though... in some ways, a lot of the book is an inversion of the old saw "A picture is worth a thousand words." He can, in fact, spend hundreds of words describing a single frame, using vivid imagery and a raw sense of glee that captures the sense of a narrator who is both steeped in the intricacies of his subject and yet maintains a boyish love for the same.

Speaking of the narrator - one thing I haven't bothered to check yet is whether the footnotes he includes in the book are for real or not. It would be very cool either way. There IS a complete bibliography in the acknowledgments section at the back of the book, which I really appreciated. At first I thought it was odd to put acknowledgments at the back instead of up front, but then I realized that the list of topics gives away most of the impressive plot revelations in the book.

Some of the most interesting parts come when the narrator describes how the artists are re-inventing the state of the art: people innovate, dropping the squarish structure inherited from newspaper comics, and instead experiment with stretching panels and heros across the entire page to display a man in flight, or shattering a page into dozens of shards depicting a ruined man's broken thoughts. They evolve narratively as well as artistically, moving beyond the conventions of caped men beating up criminals, and start exploring questions of identity, destiny, power, mythology. I smiled when I read about an issue where the hero only briefly appears; instead, a street filled with people swap tales about encounters they had in the city. "That sounds like something out of 'Sandman!,'" I thought.

MEGA SPOILERS

Comics are the narrative thread that tie the whole length of the story together, but my goodness, there sure is a lot more going on here. The World War II sections were especially powerful, and the darkening shadow over Europe's Jews is one of the most chilling things I've read recently. Again, Chabon takes advantage of the broad scope available to him: he drags the sorry tale of Tommy out over hundreds of pages, holding out hope after hope that grows steadily fainter but refuses to die. He does the well-known but still excellent thing of focusing in on a particular family to show their anguish and the quality of the horror they faced (even without the ultimate tragedy of concentration camps), and also pulls back to remind us that this was not an isolated incident, that the same agony was repeated millions of times.

For most of the book I thought, "Finally! A great story that I love that I can unhesitatingly recommend to more conservative readers!" Then I realized, "Oh, yeah, there are really bad words in here, and also a lot of homosexual activities." I think that the style and the voice of the book is fundamentally reassuring and classic, even if the actual content is not.

I wonder if the section in Antarctica was at all modeled after "The Mountains of Madness." I suppose the only thing they share is the idea of people going crazy on that continent. H. P. Lovecraft's characters had darn good reasons for becoming insane, while Chabon's characters seem to bear at least some of the blame themselves. Anyways! Idle thought there.

END SPOILERS

Odd that my "reviews" have been getting so short lately... the quality of the books is as good as ever, but I seem to have increasingly less to say. This is probably a good thing. It leaves me with more time for reading great books!

Millennium Hand and Shrimp! Bugrit!

Woooo! With the completion of The Truth, I'm rapidly closing in on being All Caught Up in Discworld. Besides being a great story on its own merit, The Truth also extends the Industrial Revolution theme that began in Moving Pictures and continues in the Moist books of Going Postal and Making Money.

I keep harping on this, but Pratchett really is a satirist, a modern-day Swift, and once I realized that it adds a whole other level of enjoyment to his fantasy. The Truth is, on the one hand, a fantasy-cum-mystery story, complete with imps and wizards and guilds, but it is most interesting as a fable about the rise of modern media as the Fourth Estate.

MINI SPOILERS

As with the other Industrial Revolution books, Pratchett takes a focused look at a particular modern development, and then compresses several hundred years of evolution on Earth into a matter of days or weeks on the Discworld. This is a necessity for telling the catchy stories he has, but it also helps to impress on us just how amazing these developments are. Because they happened so gradually here, we often fail to appreciate the radical impact of entertainment, media, communication, or finance on our society and our personal lives.

So: In this particular case, Pratchett essentially starts us out with Gutenberg, immediately jumps to the invention of movable type, and then races forward to Hearst and the National Enquirer. When the book opens, there is no such thing as a newspaper. The main character, William de Worde, shows the old fashioned way of communicating news: he writes a newsletter that will be delivered to a dozen or so persons of the highest quality. His great innovation is that he writes the letter once, then has it engraved and reproduced. After running into some dwarfs, he quickly grasps the potential of movably type, which allows such communications to be constructed and duplicated almost immediately. The dwarfs further encourage him to abandon his high-end business and instead focus on plebians - selling thousands of newspapers at pennies apiece is better than a dozen at a dollar. The empire grows, grabs attention and resistance from established powers, inspires competitors, and in turn must find new ways to improve and evolve to stay one step ahead.

When writing earlier about Moving Pictures, I'd complained that it had a lot of references, but not much of a discernible point. The Truth doesn't suffer from that at all, and it's really interesting to see how media upends the status quo and becomes a new power in its own right, with a new set of morals and requirements. I attribute the difference between the two books in large part to their settings. Moving Pictures unfolded largely in Holy Wood, which was a blank slate; The Truth takes place entirely within the borders of Ankh-Morpork, and as such is in a more interesting and complex environment to begin with. This also leads to such treats as a significant minor role for the Watch, several good scenes with Vetinari, and the regular mess of bar fights, fires, wizards, sausages-inna-bun, and boarding houses. All great fun!

The characters are also quite good. In addition to established favorites like Vimes, the freshly introduced William de Worde is good... a cast-off from an extremely wealthy, quasi-racist father, he struggles to fulfill his moral sense of responsibility while struggling with the baggage of habits that he has inherited. Otto von Shriek (sp), a vampire photographer, is another good character, one who seems like a one-note joke at first but becomes surprisingly complex by the end. The love interest is kind of a throw-away, but certainly isn't annoying. And the two villains, Mr. Pin and Mr. Tulip, are wonderfully developed: thoroughly sinister and brutal, yet with a sharp comic edge.

END SPOILERS
The Truth isn't just a good Discworld book, it's also just a great read on its own. Even though plot-wise it comes after Moving Pictures, I think I'd recommend that newbies read this one before MP... it's a more mature work, more interesting and complex, and provides a better introduction to Pratchett's excellent satirical voice.

The Lifting

I hope the previous posts on personal finance weren't too annoying.  It's a topic I really enjoy, and think about far too much.

I still warmly remember a special one-time class I attended right before graduating Wash U.  It was just over an hour long, but was one of the most useful things I ever did at the university, even though it was completely optional.  The prof just gave a lot of useful money advice that served me incredibly well over the next year: stuff like the difference between student loans and credit card debt; whether, when, and how to buy life insurance; why it's important to start saving immediately for retirement; and other pearls of wisdom.  I've been kind of surprised by how rare it is to find such simple, basic, useful advice out there that isn't dedicated to selling a particular stock or otherwise encouraging financial wizardry that most of us are far better off avoiding.

I deliberately kept the previous posts as simple as my loquacity would permit.  They are intended to be read in sequence as a core explanation of how one person (yours truly) looks at money, and offer a baseline for setting up your own system.

This is the first in a second series of posts.  Much like everything else on this blog, their primary purpose is just to provide an outlet for whatever I'm currently thinking about.  As such, each post will be a single topic, and can be read in any order, either before or after the core personal finance posts.  Because I'm a financial layman (i.e., everything I write is my own opinion, and you shouldn't use it as the basis for any of your own important financial decisions), I hope to keep the writing fairly high-level and accessible.

So: the topic of the day is inflation.

I think all of my readers already understand the basic idea behind inflation.  Inflation is when the dollar becomes less valuable, so that it buys less than it did before.  The classic example is movie tickets.  Back in the days of the nickelodeon, you could attend twenty features with a single dollar bill.  When I was growing up, tickets were a dollar at the second-run theater, and a few dollars at a first-run theater.  During the brief three years that I attended Wheaton North high school, I witnessed a steady rise in the ticket prices at AMC Cantera 30 theater.  Ticket prices hovered right below $10 for quite a while before finally breaking the line, and now is moving inexorably higher.

It's very useful to think about inflation when planning your finances.  The biggest concern is retirement.  If you started working in 1960, and wanted to save enough money to watch one movie a week, you may have erroneously planned on spending $0.50 a week when you retired in 2005.  Your actual GOAL wasn't to save enough to spend $0.50 a week; it was to save enough to watch one movie a week.  As a result, you would have needed to save enough money starting in 1960 so that you could withdraw $10 a week in 2005.

Inflation is less a concern when saving for a short-term purchase.  Except for a few brief periods, like in Germany after World War I or, to a lesser extend, in the United States during the 1970s, inflation rarely has a major impact from year to year.  There may be an inexorable rise of 5% in prices from year to year; after 45 years that will be a total of 544%, but next year would just be 5%.  Plus, you can't easily predict what inflation will be for the next year.  I find it easier to budget for the current price, and plan to overshoot it by some small amount, so I'll be prepared for any changes in cost.

All of this is a bit of an oversimplification, though.  People tend to talk about inflation as if it was a constant thing that affected everything; people talk about "prices" going up.  The fact is that each individual thing has its own price, and in any given year some of them will be going up and some will be going down.  Cars are getting cheaper.  Eggs are more expensive.  Houses are less expensive.  Phones are more expensive.  Gas is less expensive.  Newspapers are more expensive.  Internet access is less expensive.  "Inflation" is a summary of what is going on in the entire economy, but we aren't buying the entire economy or some idealized basket of goods: we're buying specific items.  Because of this, it's entirely possible that your dollars might be getting more valuable (you can buy more of the things you want) while the rest of the economy's is getting less valuable (dollars are buying fewer of the things other people want).  Don't pay too much attention to the headlines talking about what prices or the dollar are doing.  Think about the things that you buy, both on a daily basis (what's the cost of gas?  Of bread?  Of your heating bill?) and as special purchases.

A further complicating factor is that the QUALITY of goods is also changing.  The best example here is electronics.  From about 1980 until about 1998, the cost of a computer was remarkably constant, generally a little under $2000.  Obviously, though, a 1998 computer was significantly more powerful than its 1980 counterpart.  Not because of megahertz or RAM or another abstract measure: because the 1998 version could, for example, contain an entire encyclopedia; could play every card game ever created; could play a movie; could play Beethoven symphonies and Bach concertos; could store every photo you had ever taken; and so on.  Now, from an economist's perspective, there is still just a single good called "the computer".  The fact is, though, that a dollar spent on computing today is giving you far, far more than a dollar spent on computing a decade ago.

What about deflation?  Right now, several economists are publicly worrying about the prospect of falling prices.  We haven't had deflation in the US since the Great Depression, but it was fairly common in the period between the Revolutionary War and World War I.  Most economists and historians hate and fear deflation.  Why is this?  Well, imagine that you could buy a house today for $200,000, or you could buy the same house in a year for $100,000.  Which would you rather do?  Many people choose not to buy today if they think they can get a better price tomorrow.  This is an excellent move on the individual's part: they're just making a rational decision and getting maximum benefit from their money.  But, what happens when every person in the entire economy makes the same decision?  For a whole near, nobody buys a house.  Every realtor loses their job.  Companies stop building new houses.  Carpenters and electricians lose their jobs.  All these unemployed people stop going out to eat, which means that waiters and waitresses lose their jobs.  The cycle spins outward, with rising unemployment and shrinking revenue.

Inflation has the opposite problem.  If you can buy a new computer for $500 today, and know that it will cost $1000 tomorrow, you will be strongly inclined to purchase it now.  This spurs spending, which is good for the economy and bad for individuals.  The salesman will get a nice bonus, he'll buy a new watch, the watchmaker gets more money, the watchmaker hires a gardener, etc.  You personally are in great shape if you're getting use out of the computer and not going into debt.  But, if you put it on your credit card, then you've been driven to set aside your personal goals and driven into spending that you would otherwise have deferred until a better time to buy.

All things considered, most historians and politicians seem to think that the best situation is steady, mild, predictable inflation.  This encourages consumers to spend and grow the economy, leading to more opportunities.  That's why people are so scared about deflation.

I have to put in one final note.  Anyone with a 401(k) has probably seen what I think of as "The Awesome Chart."  This is the scenario that goes something like, "Alice starts saving $100 a month when she's 25 and stops when she's 35.  Bob starts saving $100 a month when he's 35 and saves until he retires at 65.  At 65, who has the most money?"  The answer is Bob, and this is a pretty cool indication of the immense power of compounding interest.  An initial investment of $12000 can do much better than one of $36000 if it was made earlier.

I do like this chart, because it conveys the importance of starting to save early.  I also dislike it, because it downplays the importance of inflation.  Most people's incomes will steadily rise over time - partly because their careers advance, but also because salaries generally track with inflation.  So, that $100 a month may be a pretty large share of your salary early on, but 45 years later, it will probably be a much smaller share, even if you are in the same career.  It would be far more accurate to look at what happens if you contribute a steady percentage of your income over the same periods.

Unfortunately, that's impossible to do.  We can't even track inflation from year to year, let alone one individual's career path and earnings growth.  As with all financial models, any time you make something simple enough to understand, you're no longer describing the real world.

So!  That's inflation.  It's something to be aware of and plan for.  To protect your own assets against inflation, you can try these strategies.

• Choose inflation-indexed investments, like Treasury Inflation Protected Securities.  Don't put ALL your money in these, but some as a hedge may be a good idea, especially if you are in or near retirement.  The value of these investments will automatically grow (or shrink!) along with inflation, so your real buying power should remain consistent.
• Buy real, appreciating assets.  The best example is a house - historically, houses have tended to change prices more or less at the same rate as inflation.  You won't get rich, but the value should be fairly safe.  (Again, this is true over the long term - as we've seen, year-to-year fluctuations can be enormous.)
• Buy stock.  Companies directly benefit from rising prices, since they're the ones charging them.  Changes in inflation are usually directly reflected by changes in stock prices - of course, they will still be moving up or down based on how an individual stock or the broader economy is doing.
• Put your money in a savings account.  This won't be as good of a protection for your principal (the amount you invested), but banks do usually raise their interest rates during periods of high inflation, and lower them when prices are steady or low.

Because of inflation, don't rely too much on the following strategies.

• CDs.  What happens if you lock in a 3% APR for the next 10 years, and then we experience double-digit deflation for each of those years?  The real value of your dollars when you take them out will be much less than when you put them in.  This isn't at all to say that CDs are a bad strategy - they can be great, especially if you get a high rate and then prices go down - but you don't want to put all your eggs in one basket.
• Bonds.  The same reasons for CDs apply here.  If a bond's yield was set during a period of low inflation, then it becomes relatively less valuable during a period of high inflation.
• Dollar bills, money in your mattress, or a checking account.  Your money won't have any chance to grow in response to inflation, and will lose value every day.
• Gold or other commodities.  Again, inflation isn't really a constant - some things will be getting more valuable, others less so.  It's entirely possible that inflation will skyrocket and the value of gold will plummet. 

Hm, anything else to write before I sign off?  I'd say keep inflation in mind, especially when planning for far-off goals like retiring, but don't worry about it too much, mainly because worrying doesn't do any good.  Prices will go up or down, and you can't know in advance which they will do.  Don't worry about the things you can't control; instead, focus on the ones you can.  Are you irked that oranges are twice as expensive now as they were last year?  Look around the produce section and see if some other fruit is cheaper.  Are you agonizing over buying a stereo because you don't know whether the price will go up or down?  Don't worry about it.  Focus on whether you actually need or want it.  If so, figure out when would be a good time to buy it.  If it would be better to save and wait, then do so.  If it's on sale now, it'll be on sale again in the future.

So say we all!

The series is finally over!  Here are some parting thoughts, all of which are

MEGA SPOILERS

I'm awarding myself 40% correctness on my pre-airing prediction.  Rosalyn's dream did essentially come true, but it didn't play out literally like I had imagined.  And I was wrong about it being Boomer in the end.  Still, I'm really glad that they did incorporate it.

On the whole, I was thoroughly satisfied with the finale.  The first hour was simply amazing - I believe that was the best battle scene that we've gotten in the entire series, and it has had some memorable ones.  The sight of Galactica frakkin' RAMMING the Colony was incredible.  I was glad to be watching with a crew of devoted BSG fans, and everyone let out a "Whoop!" when, following the initial "Thud", there came the belated "Cruuuuuuuunch" as the ship plowed its way in.

The rescue was amazing as well.  I thought it was a little odd that all the best pilots were acting as marines, but hey, they did a bang-up job, and the job called for marines anyways. 

Man... Athena shooting Boomer was an incredibly powerful moment, one that touched off a surge of emotions that I still haven't fully processed.  Ever since Boomer rescued Hera, I was wondering if the show would allow her to be redeemed.  I think that ultimately, she was redeemed, but was not forgiven.  Would she have lived in calmer times when the fate of humanity was not on the line?  Perhaps.  Was justice served?  I guess so.  It still tore me up, even while part of me was cheering.  Once again, BSG manipulates me towards approving morals opposite my real-life beliefs.

I thought that the show was very savvy to do the flashback of Boomer and Adama after the shooting instead of before.  This was we had fully surprise during that whole arc, while ultimately getting the same sense of closure and understanding about what happened.

The endgame of the Human/Cylon conflict - promising resurrection, allowing a brief hope of peace to flourish, and then having it all come apart as the cycle of violence and retribution continued - was another thing that tore me up.  After such a long conflict, I thought it would be a beautiful note to end the series on for the two sides to come together.  Again, BSG mirrors our own world, and doing that would argue for similarly unthinkable actions in our own times to achieve a greater good... helping out your enemy is anathema after blood has been spilled on both sides, but beyond a certain point nobody can truly win through additional conflict.  Well, we all know how that turned out.  It is an interesting thought experience to wonder what would have happened if the Five had successfully transferred Resurrection.  Maybe Cavil would have kept his word.  Maybe not.

And the final resolution of the series... wow.  I was totally blindsided by the Earth thing.  Some of the people I've chatted with are kind of upset about it.  For the most part, I like it, because of the way it ties into our own experiences, seeming to further drive home the point that BSG is not purely fantasy, it's meant to in some ways reflect our own world.  I really want to re-watch the mid-season finale to decide how mad I should be about the fake-out.  If I remember correctly, I think that the planet they show has Earth colors (blue with clouds), but I don't recall them showing continent shapes.  On the other hand, I could have sworn that they showed Galactica flying past Neptune, Saturn, etc. on their approach.  Eh.  Either way, ending up at Earth was the right thing to do, I'm just curious how much of the trickery was through cleverness and how much through falsification.

The winding down on Earth felt satisfactory.  I was pretty amazed to note that no major characters died - even Helo, who I had given up for dead, made it to the end.  That's one prediction that I majorly missed out on.  I couldn't totally buy the idea of people giving up all their technology, but at least they addressed it head-on in the show - "I find it hard to believe that there's so little fuss about us giving everything up and becoming a primitive tribal society!"  And all the character moments felt really sweet and satisfying.

One thing did really strike me during the finale, though: now, I'm not going to read too much into this, but it felt a bit jarring to have a happy ending where an almost entirely white group of advanced, civilized people colonizes a black planet.  It's even more peculiar when I think back and realize that Ron Moore had killed off almost all the non-white characters this season.  Dee committed suicide, Gaeta was executed... Athena isn't white, but there are a lot of her running around, so it would have been hard to kill all of them off anyways.  Again, I'm not at all accusing the show of racism or anything, but it was a pretty striking image to end the series on.

I was really happy with what they did with the hallucinatory Gaius and Six.  I don't think we've seen hallucinatory Gaius for a while, so that was a treat on its own.  And in general I just really enjoyed the meta, spiritual angle they bring to everything.  The words felt a bit to mumbo-jumbo Hollywood-religious for my tastes - "Oh, there's this greater being out there who's controlling things, but I don't want to call him/her/it 'God', it's really more of a life energy force that we can't describe..." - but the overall idea was interesting.  In particular, I dig the idea that the prophecies and visions and such were not literally true in the sense that they happened exactly as described, but rather that they were true in the sense that they really did have a supernatural origin.  The purpose of the prophecies was to make people behave in certain ways, and in that way they succeeded.

I also thought it was interesting that, at the end, "All this has happened before and it will all happen again" was NOT, as I sometimes had believed, a description of a literal chronological repetition, Wheel of Time style.  I had imagined that at some point there would be time travel or something, and the seeds would be laid for the exact same events to be played out again.  Instead, we learn that this phrase is more about the axiom that "Those who do not learn from their history are doomed to repeat it."  The saying is a warning that the bad times have come before, and that once again events are moving towards the same mistakes, misunderstandings, violence and conflict.  The phrase ends up having a more conventional meaning to it, which I think actually is more powerful than the metaphysical one I had imagined.  Again, things that tie into our own human experience are more valuable.

And the final scene?  Wow!  I thought it was amazing.  Loved the Ron Moore cameo, loved the sight of hallucinatory-oh-wait-they're-real Six and Gaius strolling arm-in-arm in our present day.  It's one of those rare moments that can jolt us out of our blinkered existence and begin to grasp the amazing times we live in.  Just think about it: we can learn about our ancestors, gain a picture of what happened six thousand years ago, can construct new life-forms, can construct artificial life-forms, can destroy the planet, can travel in outer space.  Wake up, planet: we ARE living in a science fiction world.  Now, play us out with Jimi Hendrix and dancing robots!  Wooooo!

END SPOILERS

Wow.  Just wow.  Pulling off a finale is always hard.  The better the show, the more pressure there is to do something amazing.  I think that Moore and crew succeeded - no, triumphed.  I have my niggles, but I'm not in the mood to quibble at an amazing end to an exceptional series.  Good show, everyone!

I'm in the High-Fidelity First Class Traveling Set

After you have paid off your debt and built up your emergency fund, the next step will have you entering the elite high-roller class: the investor. It's a little intimidating; you see those business people reading the Wall Street Journal and money magazines, and wonder how you're ever going to understand what stocks to buy and what to skip.

The good news is, you don't have to! It's actually a simple process. First, ask yourself whether you should be in stocks and bonds to begin with. If you're reading this post in the future, remember 2008: will you be OK if you lose half of your money in a year? If you're like me and have many years until retirement, then the answer is "yes". If the answer is "no," then consider putting less money into stocks. If the answer is "absolutely not," then steer clear.

After deciding that you want to go in, then just remember this: never buy an individual stock. Never buy an individual bond. It's easy to focus on the Microsofts and the Googles out there, and daydream about how rich we'd be if we invested in them at the beginning. But we don't think about the hundreds and thousands of companies that went bankrupt, leaving their shareholders nothing.

What you want to do is buy a mutual fund: a collection of stocks or bonds that is managed by another company. A mutual fund can still go up and down, but it won't become totally worthless: some companies will do well, others will do poorly, and the fund as a whole will average out.

There are a dizzying number of mutual funds out there. Almost every one has a focus, which might be an abstract investment strategy like "Growth" or "Value", or might be related to a particular area of the economy like Energy or Health Care.

Personally, I'm a big fan of "Index Funds." These are mutual funds that are designed to reflect the performance of a particular stock index, like the S&P 500, or the entire stock market. In other words, the people who run these funds don't try to guess which individual stocks will do well or poorly: they buy everything in the market. This has two benefits. First, your results will be in line with how the market as a whole goes. By definition, half of the investors will do better than the average and half will do worse than the average, so you're in a relatively safe place. Second, account fees are generally much lower for index funds than they are for actively managed funds. Because other people are paying higher fees than you, you're actually doing better than the average! In a field that's notorious for its unpredictability, that's an enviable position to be in.

Stocks are sometimes referred to as "equities". This means that when you buy stock, you actually OWN part of a company. Over the long run, you'll probably earn more from owning a range of companies than you will lending to them. Historically, the long-term average return of the stock market has been around 8%. If your investment timeframe is very long, it'll be hard to find any other investment that can offer you that kind of return.

That being said, even if you have several decades until retirement, you shouldn't just buy the Total Stock Market Index Fund and be done with it. (There are far worse decisions, but it isn't the best.) The key is diversification. By picking a stock index fund, you've diversified the specific stocks you've picked. By picking a bond index fund as well, you can diversify the type of investment you're making.

In some ways, bonds are a little bit like a certificate of deposit. You lend some money to a company or a government, instead of to a bank, and in return will earn a fixed amount of interest for a specified number of years, after which time you will get your money back. The biggest difference between the two is that CDs are federally insured, while bonds are not. If a city or company goes bankrupt, their bonds may become worthless. (Bondholders are paid before shareholders, though.) Because of this risk, they need to pay more money than CDs do in order to attract investors. Additionally, government bonds may allow you to deduct money on your taxes.

As with stocks, you don't want to buy in individual bond; it would be horrible to loan money to the next Enron or Circuit City. Instead, get a bond fund. This is a giant collection of money that invests in bonds. Unlike individual bonds, you can buy or sell the fund at any time. Like a stock index fund, the bond index fund will be an average of every bond's performance.

Bonds aren't a totally safe investment; even an index bond fund can go down, and most did in 2008. But in general they are much safer than stocks. They don't earn as much money, and at the same time, they won't lose as much money. As you get closer to retirement age, and start shifting to be a more conservative investor, you should start taking on more bonds and fewer stocks.

Does all this seem complicated? It is, kinda. Fortunately, there's an excellent solution out there. Funds called "Target Date" or "Lifecycle" funds are sort of meta-mutual funds: funds that are made up of mutual funds representing stocks, bonds, and other investments like TIPS. Each fund is oriented towards a specific "retirement date". So, if you plan on retiring in 2025, you can invest in the 2025 target date fund. Over the years, the fund will automatically shift investments from a more aggressive to a more conservative mix. And, since they're generally made up of low-cost index funds, the charges are usually very low. You don't need to worry about anything; just make your contributions, and let the fund do its work.

In the interest of full disclosure, here is my current setup. I'm a fairly young professional with a few decades until retirement. In my rollover IRA and Roth IRA, I am 100% invested in my Target Date Retirement Fund (from Vanguard). My 401(k) does not offer this fund. There, I am 80% invested in the S&P 500 Index Fund, and 20% invested in an international mutual fund. If my 401(k) offered a Total Stock Market Index Fund, I'd be in that instead, but the S&P 500 is still pretty good. I really should include a bond fund - the rule of thumb is to have a percentage of bonds equal to your age in years - but I have a very high tolerance for risk, so I'm going all out for maximum long-term earning.

Outside my retirement accounts, I do have some discretionary savings invested in a Vanguard Total Stock Market Index Fund. I bought into it over a period of about a year, when I was thinking that my next major expense would be a down payment for a house, and that it would be more than five years before I would be purchasing. Now, I am starting to look at possibly purchasing within the next year, but will most likely not be tapping that account, just because of how far it has declined.

There! Hopefully that sheds a bit of light on the world of equity investment. And frankly, a little light is all you need. The less you try to be clever about stuff, the more successful you will be.

And that, ladies and gentlemen, concludes the primary portion of this series on money management! It was a lot of fun to write. I doubt it was nearly as much fun to read, but thanks for sticking with it! I have a few one-off topics in mind for the next few weeks, after which time I will write as things occur to me or upon request.

In review, here are the take-away messages I hope everyone got.
0. Before you start even thinking about money, decide what is most important in your life.
1. Your career is probably the largest contributor to your income, so carefully consider whether it will help you achieve your goals.
2. Take control of your spending by keeping track of where your money goes and making decisions about your priorities.
3. Keep your money in a checking account, paying bills off as they come in.
4. Focus on paying down your debt and building up an emergency savings account. Then try signing up for a retirement account, start funding that, and begin putting aside money for future purchases.
5. Debt is bad. Unavoidable, but bad.
6. Keep money that you will need in the next few years in a safe investment.
7. Keep money that you won't need for many years in more lucrative, but well-known, investments.

The best part of all is, after you get the hang of it, you don't even need to think about it any more. Stuff runs on auto-pilot, and you'll be pleasantly surprised at how the money you never really looked at amasses over time.

Bibliography

I have absolutely no formal training whatsoever in money matters. The last financial class I took was a semester on micro- and macro-economics back in high school. I scored a 5 on the AP exam, for whatever that's worth. (Nothing!) Like I said at the beginning, take all money advice with a grain of salt, and consult a true professional before making important decisions.

Any expertise I may have, assumed or actual, comes partly from my real-life experiences, and even more from a few sources that I really trust. If you're interested and want to dive deeper into this world, I highly recommend the following.

"Smart and Simple Financial Strategies for Busy People." This really nails all the actual things we need to worry about. Not whether a particular stock is "Hot" or "Tired", but how to automatically transfer money to a retirement account, how to tell whether it's a good idea to buy a house, etc. This may be the only personal finance book you'll ever need to read.

"Marketplace Money." Man, I love this show. They're incredibly smart, humorous, wise, and timely. The show combines expert question-and-answer sessions, snapshots of various careers, in-depth (yet comprehensible) investigations into the economy, summaries of political and business news, and more. It has a permanent spot on my iPod podcast roll.

Kathleen Pender. I'm a bit biased - she's local - but she may be my favorite economic columnist. (Unless you count Paul Krugman, who I probably shouldn't.)

Go forth, save, and enjoy!

Battlestar Galactica

One more episode!

MEGA SPOILERS

I don't see how they can wrap everything up in the time they have left.  I enjoyed the first part of the finale, but thought it was pretty strange that they spent so much time doing flashbacks to Caprica and introducing new characters.  I mean, yeah, it's cool that Six found Gaius's father a nursing home before she vaporized him and the rest of humanity, but personally, I was much more interested in, for example, seeing how Anders managed to track down the Colony. 

Don't get me wrong, it wasn't bad or anything, but the clock is definitely ticking.

My crazy predictions for the end:

• You remember Rosalyn's dream?  I think that it will actually happen in the last episode.  The twist is that Gaius and Six are actually there to save Hera.  And it isn't Athena in the dream, it's Boomer.
• At least one more beloved major character will die.
• The episode will be awesome, but some major plot lines will be left unresolved.  Moore will attempt to address these in the follow-up movie.

You remember how Gaius convinced Adama to give very large guns to his cultists?  Andrew had a great line about that.  "Sure, let's equip religious fanatics with heavy weaponry.  We'll call it 'Operation Cannot Possible Fail.'" 

I thought it was interesting that there was no flash-forward at the start of the episode.  A sign of the end times, perhaps?

Overall, I'm extremely pleased with how the final season has played out, especially since they found the way to Earth.  That despite Helen coming back.  Man, I was so happy when her character was killed.  She's way less annoying now, though. 

END SPOILERS

That's it for now.  Just a few more days!  Can't wait!

Divide By Zero

Divisadero is the first book that I've read from Michael Onajadabadapetapetalonaman.  Apparently he's also the author of "The English Patient", a novel that I haven't read which is the basis for an Oscar-winning film that I haven't seen.

Divisadero is good, and I enjoyed it, but I think I missed out on the greatness.  I don't doubt that it's in there, but I think it's largely implicit, and I made the mistake of primarily reading it for the story, which evaporates about 2/3 of the way through.  I was left with some extremely well-drawn characters, a surprisingly vivid landscape, and too few memorable scenes. 

MINI SPOILERS

Divisadero came up on my radar shortly after it came out, largely due to kind mentions in the local press.  It's easy to see why; Michael did a lot of research for the book, and the parts that are set in California have a very settled, real feel to them.  It isn't flashy or showy - there's never a moment when a character sits down and relates the history of the state or anything like that - but there is a great naturalness about it, the way city names roll off the narrator's tongue.  Everything feels right, down to the details of Bancroft Library and the drive down the Central Valley.

Three characters form the core of the story - Anna, Claire, and Coop - but I thought the most interesting ones were the minor colorful characters that only appear to draw out Coop's later life: The Dauphin, the Brethren, the singer, the hippie.  They're shallower than the central trio, but much more vivid and gripping.  Everything they do drives his story forward, while the others seem to largely react, ponder, and synthesize the world around them.

There are a couple of really cool things Michael does, like not revealing one character's physical ailment until about halfway through the book.  It's delivered as an afterthought, which seems fitting... after all, these people grew up together, and when you know someone that well, you get used to who they are and don't consciously think about things that would be obvious to strangers.

The final section of the book is what will probably make or break it for most people.  It took me a while to get into it - I really wasn't very interested at all in the chapters with Anna, but once you start pushing back into the past, it became more interesting.  Again, the peripheral characters are shallower, but more interesting than the ones the story supposedly revolves around.

I THINK that I get the "point" of the book - it's alluded to in a Nietzsche quote at the beginning, about the power of art to protect us from reality.  We cannot truly know the past or know another person, so we're constantly creating stories to make sense of the world.  Ultimately, those stories say as much about us as they do about their supposed subjects.

END SPOILERS

All in all, a good read, one that will especially appeal to people who enjoy character-rich fiction.  If your tastes run more towards snappy plots or surreal imagination, keep looking.

Money, It's a Hit

Getting out of debt is a wonderful feeling.  I recently finished paying off my car, and it's a palpable relief.  Now I can pay myself instead of paying someone else.

Getting out of debt may take no time at all, take a few months, or several years.  You can get accustomed to writing those checks every month.  When you finally pay something off, that is a great opportunity to capture that money and put it to work for you.  Don't allow yourself to start spending it - sure, go ahead and treat yourself a little for clearing that milestone, but do look ahead towards your next goal.

With debt out of the way, you can focus on saving and investing.  "Saving" just means putting money aside and not spending it.  It's technically "saving" even if you stuff dollar bills into your mattress.  "Investing" actually puts money to work for you.  You are now switching places with your lenders: you are lending your money to someone else, and expecting something back from them in return.  That might be regular interest, a fixed payment at the end, or some indeterminate growth of value.

There are a broad range of investments available out there.  If you take one lesson from the subprime crisis and credit crunch, it should be this: never buy an investment that you don't understand.  Financial people can earn huge sums of money by creating exotic investments and selling them to people, but 99% of us should only use a handful of tried and true options through our entire lives.

This session will cover "safe" forms of investing.  The next will cover more exotic forms.  I'll briefly look at each type of investment, how it works, and why it might be appropriate to use.

BANK SAVINGS ACCOUNT

What?  You got one of these for free when you opened your checking account.  It comes with a tiny interest rate, probably somewhere around 0.25%.  It is 100% FDIC insured.  (As with all FDIC/NCUA accounts, it is insured up to $100,000 per account.  Through 2009, it is insured for $250,000.)  You can move money in and out almost instantly.

Why?  Don't use this if you can avoid it.  It isn't as liquid as your checking account - in other words, it's a bit harder to move money in and out.  And the interest you earn is practically nothing.  If you don't have any of the later options in this session, then park your extra money here while you're opening a better account.  You might consider parking some emergency money here to cover things like insurance premiums, but these days most of those charges can be put on your (paid off!) credit card, and you'll have time to tap an online savings account by the time your statement comes.


ONLINE SAVINGS ACCOUNT

What?  This is an online account that pays a (relatively) high interest rate.  You tie it to your traditional checking account.  After that, you can move money back and forth between the two; it typically takes between three days and a week to execute a transfer, during which time you won't be earning any interest.

How? Go to bankrate.com to search for the current best options.  Make sure that there is no account fee, and that you have enough money to open it.  (Try to avoid one that has a minimum balance requirement after opening.)  Be sure that it is FDIC insured!  It doesn't really matter whether it is technically a savings account or an MMA (Money Market Account), as long as it is FDIC insured.  Check out the star rating - I personally would only choose a bank 4 stars or higher, but again, as long as it is federally insured and you have less than $100,000 in the account, you should be OK.  Periodically re-visit this page, perhaps a few times each year, to see if rates have significantly changed or you have enough savings to enter a higher-paying account.  I have jumped from ING Direct to Grand Yield Direct to Capital One Direct Banking over the years; my rule of thumb is that if I can make 0.5% more at another bank, I'll switch.

Why?  Online savings is perfect for your emergency savings fund.  As a bonus, because it's harder to access than your regular savings fund, you're less likely to tap it unless you really need to do so.  This is also the perfect place to keep savings that you expect to spend within the next year or so - say, if you're saving for a new car or a down payment for a house.


CERTIFICATE OF DEPOSIT (CD)

What?  With a CD, you give the bank a sum of money.  They keep it for a pre-determined period of time that you choose - generally anywhere from three months to five years.  At the end of that time, you get your money back, along with a pre-determined amount of interest.  If you're investing $1000 in a CD that pays 5% for 1 year, at the end of that year you'll get back $1050.  If you invest in a CD that pays 5% for 5 years, at the end of those years you'll get back $1276.28, thanks to compounding interest. (Edit: CDs may or may not re-invest your earnings back into the CD; if they do not, you will get some of your earnings back each year. In that case, you'll get back a total of $1250 by the end of 5 years.)

How?  Again, I like using bankrate.com to find the best rates.  You can also check for advertisements from your bank or in the paper, but don't rely on them alone.  Remember, if a bank is spending money on advertising, that's money that they are not spending on giving you a higher interest rate.  Be sure your bank or credit union is FDIC/NCUA insured.  Only invest money that you don't plan to need in the near future, and keep it there through the end - you'll pay a penalty if you withdraw it early.  Most CDs will automatically renew when the term is up - for the same duration of time, but at the current interest rate - so watch your mail and tell them not to renew when it's coming up.

Why?  CDs are perfect investments if you know about how long it will be until you need to make a purchase.  They generally (but not always) will offer a slightly higher interest rate than an online savings account; unlike the online account, though, the interest they pay is fixed, so you don't need to worry about the rates going down and you can plan better.


Treasury Inflation-Protected Securities (TIPS)

What?  This is less common, but I wanted to include it here anyways since it's the ultimate "safe" investment.  TIPS are sold by the federal government, and like regular Treasury bills, are considered the safest investment on planet Earth.  The key feature of TIPS is that the rate is tied to inflation, so that you will be protected if inflation suddenly spikes.  In other words, if there is no inflation, you might earn just 0.5%, but if inflation jumps, you could earn 20% or more, whatever the current rate is.

How?  I haven't bought these myself, but you can get them from any brokerage (think Charles Schwab) or your regular financial firm (think Vanguard, Fidelity, etc.).  You can also buy them directly from the Treasury online.

Why?  This is the very safe place to be if you're worried about your money and the economy.  The rates are low, but you're buying peace of mind.  TIPS are good to include in your retirement account as you get closer to your retirement date.  For the rest of us, they probably aren't appropriate unless you're very conservative.

And that's it!  Unless I'm overlooking something, this concludes the entire range of good "safe" investments out there.  These are excellent places to park your money, and different places are appropriate for different goals.  Next up, we'll be looking at the riskier but more lucrative investment options available to us.

A Humorous Work of Staggering Guile

I've disliked "A Heartbreaking Work of Staggering Genius" from the moment I first heard its title.  It seemed specifically designed to annoy me, and I refused to have anything to do with it.

Since then, my siblings have read and enjoyed it, and I've gradually warmed to Dave Eggers through reading "What is the What," some McSweeney's issues, and more importantly, their Internet Tendency.  I've even made the pilgrimage to the Pirate Supply Shop, which I think I might add to my San Francisco tour for out-of-towners.  I've liked what I've encountered so far: earnestness, humor, thoughtfulness, exuberance, and a particular voice that really appeals to me.  Eventually I shrugged, decided to give up on my prejudice, and picked up AHWOSG.

Only a few pages in, I knew I was going to enjoy it.  Eggers packs every scrap of the book with stuff, from the copyright information page to the table of contents to the most sprawling introduction that I think I've read.  I can easily see how many readers would find it annoying, but I think I've been primed by now on other Eggers media to the point where I feel like I'm in on the joke.  I quickly decided to turn off the criticism sector of my brain, release, and enjoy.

This post isn't intended as a full review, just a chance for a couple of specific reactions I had to particular sections of the book.

MINI SPOILERS

Wow, Eggers' description of the transition from Illinois to the Bay Area was amazing.  The second chapter opens with this incredible description of him flying down Highway 1, headed towards the beach with his younger brother.  The contrast between the gray, chilly Midwest and the absolute freedom and energy of the west coast is shocking, and completely matches my own experience.  Throughout the book I was amazed at what a wonderful job he does at describing the local scene here, whether it is Berkeley or San Francisco, the geography or the culture, down to all the little details that are still totally true 15 years later (urination on Market Street, the look of the bridges, the relative merits of The Mission and SOMA).

One thing that I'm not clear on is exactly where "South Park" is located.  In the book, this is where Might Magazine makes its home, in the same building where Wired was started.  I'd assumed that this was in SOMA, because that's where such things are often located, but there are no parks here to be south of.  It may be referring to an area in the Avenues, south of either the Presidio or Golden Gate, but that's just speculation, and it doesn't seem like a media-rich area.  I suppose that this area has probably changed name or gotten absorbed into another neighborhood in the interim, because I don't think I've heard of it.

(And, now that I actually look at the Google Map, I see where South Park is.  Geez, that's tiny!)

There's an uncanny passage late in the book where Eggers describes seeing Bill Clinton as he's leaving Chez Panisse in Berkeley.  His description of his attitude towards Clinton is staggeringly appropriate, and seems like it could have been written a few months ago about Obama.  Reading it made me feel dizzy, and made me desperately hope that Obama can fulfill his potential.

I dig the idea Eggers builds throughout the book and articulates around the midpoint, this thought that people can build social lattices around them.  I'm reminded of Kurt Vonnegut's plaintive slogan "Lonesome No More."  The more people you touch, the more people who touch you, the more support you have - not financial or physical, but psychological.  Just knowing that people care about you makes your burdens easier to bear.  This flies in the face of American individualism, and sounds really nice.  Most of us have lattices of, I dunno, maybe a few dozen or, in some cases, a few hundred people.  Is Eggers' dream of a mega-lattice of thousands or millions feasible?  He sure seems to be trying for it.  I loved the part of the appendix where he described leaving his car trunk open so strangers could connect with him.  And, it dovetails nicely with the introduction where he invites people to send him their pictures and share their stories.  You can see the lattice-building continuing with Eggers' current projects, which focus on telling people's stories and helping us share experiences with those with whom we otherwise would have nothing in common.

END SPOILERS

All in all, an awesome book.  I hesitate to give it a blanket recommendation, but do suggest that you pick it up in a bookstore or library and just read the first page or two.  If you like what you read there, you'll enjoy the book.  Not to say that it's all in that same voice - parts are extremely dark and, well, heartbreaking, but that's part of the point.  As Eggers eloquently argues in the appendix, our culture is too devoted to the dichotomy between earnest and ironic, serious and humorous, literary and fun.  His book cheerfully transcends all such barriers, and is far better for it.

Got to Keep the Devil Way Down in the Hole

I'll cheerfully admit that I'm often a follower.  If enough people who I respect recommend the same thing, I'll eventually check it out.  I keep it up because it keeps on working - people tend to enjoy things because they're really good.

The latest incarnation of this trend is The Wire.  It seems like most people had heard of it, but nobody actually had watched it, during its run on HBO.  When the show was wrapping up, suddenly there were loud accolades everywhere about how this was possibly the greatest show on television.  People began watching the DVDs, and the praise continued to flow.  I eventually checked it out myself.  It's pretty darn awesome.

First off, I think you can make a strong case that this is the most talented ensemble cast of any televised series.  That isn't meant to short anyone else - there are a surprisingly large number of well-acted shows this past decade - but The Wire is simply jaw-dropping.  A few particular characters are so perfectly magnetic that they can captivate you by just raising an eyebrow or twitching a jaw muscle.  Everyone is just perfect.

The most impressive part of The Wire, to me, is its scope.  I'm only partway into the second season, and it's already dizzying.  Most televised shows, even big-budget ones, focus on a few particular locations, a handful of characters, and a couple of plot lines.  The Wire simply sprawls.  A single episode will take you from a dirty crack-house filled with druggies and needles to a political fund-raiser in a swank hotel to a quiet suburban street to a courthouse.  Even something that I would often think of as a single setting, like a police station, becomes incredibly complex.  I think that it's the very first episode where you first get to see where the various characters work, and can contrast the crummy, dingy space that the Narcotics unit occupies to the brightly lit, corporate-style floor filled with Homicide detectives.  You see - and it needs no comment - that Narcotics is using old 1950's style typewriters and metal folding chairs while Homicide has modern computers and swiveling office chairs.  Details like that give the series a great sense of realism.  Continuing on the tour of the police building, you grow amazed at the palatial offices occupied by the department's top brass, and realize that they have nothing in common with the people at the bottom of the totem pole.

There is a single amazing shot somewhere early in the series that I think encapsulates the goals and artistry of the show.  You see a drug deal go down, as the goods are passed from one hand to another.  Then the camera goes WHOOOSH!  It pulls back and you see the courtyard these two people are standing in, then the block, then more and more of the city, until it rests on a picture of all Baltimore, lights twinkling.  You have the feeling that this show has created an entire city, and is showing you a fraction of its stories, but could just as easily be showing you anything else.

I get the feeling that I toss around the word "epic" too easily, probably because I love things that are epic.  When I talk about The Wire to other people, I find that I keep on using words and phrases that for the past few years I have reserved for Battlestar Galactica: "epic," "best show on television," "best cast," etc.  Some of these are just because it's hard to judge the relative merit of two shows that are at the top of their class.  I'd like to dig a bit more deeply into the "epic" label, though.

Both The Wire and Battlestar Galactica feel huge, but for very different reasons.  I think BSG feels huge in large part because of its setting.  I mean, come on - it's a show about the nuclear near-annihilation of an entire species; the handful of people who survive and must try to keep surviving in a universe filled with insanely powerful robots trying to kill them.  That's pretty epic.  Add in ancient prophecies, a long journey, and massive evolutions in plot and character development, and you've got a winner.

If BSG is huge by its setting, The Wire feels huge by its detail.  Everything coheres, everything hangs together, and every piece seems utterly believably, more realistic than life itself.  Tiny offhand comments or gestures prove to have enormous ramifications, and you believe that this is not because a bright writer set it up, but because those comments and gestures betrayed reality.  Now, the technical scope of The Wire isn't as grand as in BSG - we are talking perhaps dozens of deaths at most compared to billions, and drug deals in a single American city rather than a war raging across the universe - but it seems to speak more directly to the human condition, to illumine facets of ourselves that we typically just don't see.

If I can be permitted a poor analogy, I think that The Wire is epic in the way Hamlet is epic.  It's filled with passion, with marvelously drawn characters, tight plotting and action, and by its skill the author can draw out timeless truths and improve our lives.  I think that BSG is epic in the way Paradise Lost is epic.  It's a grand, amazing, sprawling story, filled with outsized personalities, enormous struggles, and a scope so large that it allows the author to talk about absolutely anything.  I don't think one is better than the other; both have their place, and both are amazing.

So, other than the scope (actually, related to the scope), the part of The Wire that impresses me the most is how it shows society.  Again, it reveals the peaks and the troughs of our cities, from people living in misery in slums to comfortable couples and the wealthy and powerful.  The camera moves with ease between these extremes, but you get a palpable sense for the different worlds occupied by these characters.  They're all part of the same city, but a kid from the projects will never see the inside of the Deputy Commissioner's office, any more than a white politician will hang around with Bubs.

MINI SPOILERS

So, for the first couple of episodes, the show sets out the prejudices and stereotypes, and you start to get a feel for the characters.  On one side you have the  criminals, on the other the police.  As the show goes along, though, they keep on tweaking our perceptions.  As in real life, people and situations are more common than you initially may believe.  How should a drug kingpin behave?  Brutal, efficient, smart-talking, okay.  How about attending night school so he can pick up an economics degree and learn how to expand and price his market?  Sounds weird, but the more you think about it, the more sense it makes.

Tangent - another thing I love about the show is how it de-mystifies the drug trade.  You've probably heard about a study done that compared the corporate structure of McDonald's with that of a drug gang, and found that if you show the relative salaries and remove the job titles, they're virtually identical.  The men at the top of the organization are smart, flexible, incredibly talented, and make a lot of money and oversee large organizations.  The bottom rungs are staffed by poorly skilled people doing crummy jobs for minimum wage.  Some people can, through hard work and talent, climb the middle rungs of some responsibility and incentive rewards, but the overall structure is clearly pyramidal.  The Wire gets this to a T.  A lesser show would have mainly focused on Barksdale, or on the couch, and just sketched in the other extreme.  The Wire shows everything, every stage, every rung, every transaction, how each dollar moves from the welfare check to Barksdale's safe to real estate.  It's easy to point a finger and say, "Tsk tsk, drugs are bad."  It's a much harder and much better thing to show what drugs ARE, what they do, how they work, who buys, who sells, who loses, who wins. 

Back to society - there's this ongoing crumbling in the show.  The characters feel locked into their worlds - many of them have never even left Baltimore - but we gradually realize that those worlds are more complex than we initially believed.  As the show continues, you start to gradually realize that the division between the ghetto and City Hall is not as solid as it first appeared.  A character will show up in a place where they don't belong, you'll kind of shake your head - "What's going on?" - and then start re-processing, updating your view of the world based on the new information you've received.  There are many layers to this onion, and everything is connected.


END SPOILERS

And I'm less than halfway through season 2!  Pretty amazing, and I get the feeling this will be even more epic by the time it's all done.

Keep Your Hands Off of My Stack

Debt sucks. It's also often unavoidable. Reconciling these two facts is tricky, and I can't claim to have all the answers, but I'll do my best in this session.

So, a recap: debt is when someone lends you money, and you need to pay them back later. This almost always is accompanied by interest, the money you pay for the privilege of having early access to money. The more time you take to pay off the debt, the more interest accumulates. If you fail to repay a debt, catastrophic consequences can ensue.

There can be good reason to go into debt. Almost nobody has enough money in their checking account to buy a house, and it can take decades to save it up, so it can make sense to take out a loan to buy your home. Importantly, you're borrowing money to buy an asset: something real, which has value, and may become more valuable over the long term. You can also take out a loan to buy a vacation to Rio - this may be a lot of fun, but when it's over, all you'll have are the memories.

Here are some different types of debt you will likely encounter, and how to handle each one.

CREDIT CARDS

When it comes to sheer number of transactions, you will do far more with credit cards than any other type of debt. They are a huge convenience in today's world - the only option for most online purchases, a handy alternative to carrying cash and checks.

How to get one: You're probably inundated with offers in the mail. (Tip: you can opt out of these mailings. I've done this, and cut my junk mail in half.) Some of these may be good, but many will be bad - read the fine print carefully. You can also shop around online - try bankrate.com, or go directly to a bank's web site. Finally, you may also be able to get one through your regular bank. The bank will run a credit check on you - basically, see whether you have a history of paying your debts. If your credit score is low, you may get poor terms or altogether refused.

How to pick one: Every offer letter should contain a box that shows the interest rates, fees, etc. First of all, ignore any with an annual fee. Next, consider the interest rate. If you're going to pay the card off in full every month, this can be relatively high; if you're going to carry a balance, you want something low. Finally, consider rewards. I've been happy with Capital One's No Hassle Cash Rewards, which gives a simple 1% rebate for all my purchases. Other cards may offer higher but more restricted rewards (for example, 5% rebate, but can only be used to buy a car from GM). Rewards cards usually have an annual fee or higher interest rate, so only consider them after you've paid off any credit card debt. Oh, and be sure to pick a card with a grace period (at least 14 days, longer is better.) This will let you avoid paying interest as long as you're making full payments. Once you get your card, sign up for an online account, and get ready to pay it off with your checking account.

How to use it: Use throughout the month. If you have a rewards card, you should generally use it even when you could pay cash - AS LONG AS YOU ARE ONLY BUYING THINGS YOU WOULD ANYWAYS. You should pay off your credit card in full every month. If that isn't possible, pay off as much as you can. You'll be paying interest on new purchases, but should be closing the gap. You might want to occasionally log onto your credit card web site to see how big your next statement is going to be. You'll generally have about 2-3 weeks after receiving your statement to pay it off. Either set yourself a reminder, or (my preference) pay it off immediately. Just one missed payment can cause you to lose your special terms, increase your interest rate, etc. If you pay through the mail, give plenty of time for them to receive and process the check. If you pay online (which you should!), note that it can still take 5 business days or so to process a payment - their web site should say exactly how long. Give yourself plenty of time.

Advantages of credit cards:

• Convenience - it's less to carry around, quick and easy to use.
• One nice perk of a credit card is that, as long as you pay it off in full each month, you don't need to pay any interest at all. In other words, even if your card has a 15% interest rate, if you buy something for $100 on the 1st, receive your statement on the 20th, and pay it on the 30th, you still only owe $100.
• Credit cards come with protection against theft: if someone steals your cash, it's gone; but if they steal your credit card, you're only liable for the first $50 of purchases, and your bank might waive even that.
• Some credit cards come with minor miscellaneous perks, like free travel insurance, automatic warranties, etc.

Disadvantages of credit cards:

• Convenience - it becomes very easy to spend money without thinking much about it. For many people, credit cards don't feel like "real" money, so they spend more.
• "Gotcha" clauses - especially in recent years, many contracts are set up so that if you fall behind in payments (even on another card), your interest rate will go up.
• Banks can also change their contract at any time, although they must notify you and give you an opportunity to cancel your account.
  
• Usurious rates: it isn't unusual for a "default rate" card to charge over 30%.

Other alternatives: A bank debit card is available to everyone with a checking account, even if you have lousy credit; the debit card can generally be used wherever a credit card can, so it is useful for online purchases, certain vending machines, etc. Note that you cannot spend more than is in your account, and that you do not get the same protections that you do with a credit card. (For example, if someone steals your debit card, you are theoretically liable for all charges, although in practice banks will often waive this.)

STUDENT LOANS

You'll probably keep this debt longer than any other, besides your house. Most of us don't have a ton of money when we graduate high school, so we take these loans to close the gap between what we have and what we need for college. Unlike credit cards, this type of loan is an investment - you are buying a better future and probably higher earning potential.

How to get one: Your school's financial aid office will probably provide you with a package of loans. You (and your parents) will need to fill out FAFSA in advance so they know how much you are eligible for. You can also take out loans from private lenders - again, bankrate.com is a good resource - although you probably won't get great rates. Note that there are two major classes of loans: "Subsidized" and "Unsubsidized". Subsidized loans are generally from the government, and have a very low interest rate, lower than anything you can find on the market. Unsubsidized come from everywhere else, and have a more conventional interest rate.

How to use it: Very little effort will be required other than your signature; money goes directly from the lender to the school. You are not required to make any payments while you are a student, even though the loans accumulate. After graduation, you will have a short grace period, after which time you will need to start making payments. You will get new loans for every year you borrow. You will have the option to "consolidate" your loans, which means combining a collection of smaller loans into one big loan. Usually this will also provide you with a fixed interest rate rather than one that changes every year. Read the fine print to see whether this is a good deal for you - if rates are very low, like they are now, then it's probably a good idea. Once you begin making payments, treat it like any other debt. Pay the minimum on everything, and put as much as you can towards the highest-interest rate loans. Note that, if you're lucky, your subsidized loans might have an interest rate that is even cheaper than the interest you earn in your online savings account. In this case, even after you have paid off the rest of your debt, it makes sense to continue just paying the minimum on these loans - as long as you save the money in that account instead of spend it! Sign up for automatic bill payment, since your loan repayment will be a consistent charge every month.

Advantages of student loans:

• They generally offer lower interest rates then you'll find on credit cards.
• They're one of the few sources of enough money for today's really high education costs... Wash U will be charging over $50,000 next year, which you couldn't put on your credit card even if you wanted to.
• They offer flexible repayment plans.

Disadvantages of student loans: It's easy to forget about them while you're in school, and they can really surprise you after you leave.

Alternatives to student loans: Grants, fellowships, and scholarships are always better than loans. Do consider cost when you're looking at colleges - a more expensive school doesn't necessarily mean a better experience. If you're already earning a decent living, consider saving up in advance for tuition, or working to put yourself through school (possibly part-time) in order to avoid debt.

CAR LOANS

This really stands in for a class of similar loans where you borrow a large sum of money to make a single purchase. Many of us require a car in order to get to work and necessary stores, and also enjoy using a car to visit friends or go on trips.

How to get one: Dealers are very eager to lend you money. Many companies, like GM, actually make more money charging interest on cars than they do on selling them. You can also borrow money from your bank, or any other bank; this is the only option if you're buying from another individual instead of through a dealer. To decide who to borrow from, look at who offers the lowest interest rate. If the dealership offers a choice between "cash back" and a low interest rate, use math to figure out what is the best deal. After you decide, they'll run a credit check on you, so don't get too attached to a car until you know that you've cleared it. Decide what repayment schedule you want - longer periods usually mean lower payments every month, but more total money spent in interest. You should pick the shortest payment schedule that you can comfortably afford.

How to use it: If financing through the dealer, they'll handle everything, and you'll just sign papers. If through a bank, they'll give you a check from the bank that you'll fill out after you agree on a purchase price. In either case, you'll start making monthly payments almost immediately. Sign up for automatic bill payment, since this will be a consistent charge every month. Laws vary by state, but generally, you will need to give your car's title to the lender, and won't get it back until the loan is complete. The lender actually owns the car.

Advantages:

• This may be the only option for getting a car if you need one and don't have the money.
• Unlike credit cards, the term is fixed, so you know exactly how much you will owe every month.
• In certain circumstances you can get very cheap interest rates that are lower than the market average.

Disadvantages:

• You're borrowing money to buy an asset that is depreciating over time; it's possible that at some times you will owe more on the loan than the car is currently worth.
• This type of loan is what is known as "secured": if you fall behind on your payments, the bank has the legal right to take back the car, and will do so. (By contrast, if you fall behind on your credit card payments, your credit score will suffer and you may be sued, but people won't take stuff from you.)

Other alternatives:

• Buy a cheaper car! In retrospect, I wish I had bought a used car instead of a new one after I graduated from school; I would have still needed a loan, but it would have been smaller.
• If you can, seriously consider saving up to pay for the car with cash. You'll save a lot of hassle, and may save on interest as well.
• Best of all, forego the car altogether. If you're lucky enough to live in a city, you can probably get along just fine with walking and public transit, potentially supplemented by a bicycle. You'll save a lot of money, get good exercise, and let someone else do the driving while you read, listen to music, or write blog posts.
  

MORTGAGE

I'm stepping more on a limb here - I've never had this type of loan. Still, I'm aspiring to become a debtor, and so have been doing a lot of reading on it.

How to get one: You can find a mortgage through your bank, or any other bank; it is very common to use someone else for mortgages. Look at bankrate.com for cheap rates. If you are buying new construction, the builder might strongly encourage you to use their lender. There's a bit of a dance involved; you won't know how much a house will cost until you negotiate with a seller, but you don't want to start negotiating unless you're certain of what you can afford; additionally, sellers will want to know that you've already been approved before they take their home off the market. So you'll need to determine an upper ballpark of what you can afford, apply for approval, get a letter saying that you're good for it, and then after you find the house, apply for the actual loan. There are many other options involved, such as the duration of the loan, whether it is fixed or variable interest, and whether you will pay "points" to decrease the interest rate. These factors deserve their own blog post, which probably won't go up until after I've actually done it.

How to use it: The bank will send a representative to closing, and you will sign an enormous number of papers. The situation will vary depending on the lender and the state you live in, but generally, you will make a regular monthly payment to the bank, which may also include prepayments for property taxes and insurance.

Advantages:

• Even for wealthy Americans, this is the only option if you are going to buy a home.
• You can deduct the interest and some other expenses on your income taxes, potentially saving a lot of money.
• Homes are generally (not always) appreciating assets: you're spending money that you would be paying on rent anyways, and will eventually own something more valuable than when you first got it.

Disadvantages: Like car loans, the mortgage is a secured loan: if you fall behind on your payments, the bank can kick you out and take possession of the home. The many options for mortgages can be confusing. If you get a variable interest rate (ARM) loan, it's hard to plan how much it will cost in the future.

Other alternatives: Rent. Take a serious look at how much you would pay every month on your mortgage, and all the other expenses (down payment, taxes, insurance, homeowners association fees). You might be better off saving or investing the extra money rather than paying it on interest for your house. Don't take a mortgage that will suck up all your funds - what's the good of having a house if you spend all your time and go broke trying to keep it? Consider how expensive renting is in your city versus housing. Look at how expensive home prices are compared to the median income. If housing looks very expensive in those regards, compared to the rest of the country, then housing might be over-valued, and perhaps you're better off renting for now.

There... between credit cards, student loans, car loans, and mortgages, I think I've (briefly!) covered the debts that most of us will encounter. If I've left out anything major, please remind me in a comment.

In general, then: debt is a reality of life for most of us, and with some advance planning, you can keep it under control. Try to keep your debts low, so you can spend your interest on your own dreams instead of your lender's.

After your high-interest debts are paid off, and the remaining ones are under control, you'll be ready to move on to the next stage of your financial foundation: investment. You don't need to be a wizard or know all the obscure funds out there - in fact, you're better off if you don't. Just use a few well-tested and well-understood investments, which we'll start looking at in our next session.