One of the thing that I am indeed saving up for is to purchase a place to call my own eventually, as most of us are and most of us did. Just today, the condo unit right across from my rental is doing an open house. Out of curiosity I stepped in to check it out. What I saw is a completely remodeled unit with new carpet, crowned ceiling, granite kitchen-top with extended length *drool*, custom-built cabinets *drool*, and also a renovated bathroom with granite top that matches the kitchen *DROOL*.

Just from looking at all those, I am extremely tempted to jump on the ship. However, my gut feeling tells me this is not the time yet for me, and I AM going to listen because the place is a small 1 bed room condo. Despite great location, I imagine the reselling will be difficult. I could rent it out later but another reason for me saying “not the time yet” is that I will stretch myself out too thin if I do buy now. On a side note, this arises a bit of jealousy inside me toward my similar-aged peers who are receiving help from their family. However, I am already doing my best and am moving along pretty well, so that feeling is quickly subdued :)

Besides stretching my finance too thin by buying now, there is also the market factor that tells me to be patient. First, the mortgage crisis will probably top out in the next or 2 years, so the housing price COULD adjust to my advantage. Second, there is still chance for the Fed to cut rate further after this initial cut, which can affect the mortage loan rate. We will just have to wait and see.

I will just keep chugging along like I do for awhile.

It is safe to say that almost everyone knows, has heard of, or has read the book “Rich Dad and Poor Dad” by Robert Kiyosaki. I myself read the book about 2 years ago. Before I introduce what other people have said about Robert Kiyosaki and his book, let me briefly mention my opinion.

The Good Stuff

• Encouragement for people to change their mentality and to a paradigm shift in financial thinking — This is a big plus because not being trapped in a narrow perspective and having the right mentality is the first step to do anything right.
• The importance of passive income — It is necessary to set yourself up with passive income to become financially secure and get rich faster.
• The mentioning of various financial concepts — I classify this as good stuff because this introduces people to new concepts and therefore, motivates and intrigues people to go out and learn about them. I became more apt to go study how the market and personal finance works. Financial knowledge and literacy is essential for financial security.

The Bad Stuff

• The mentioning of various financial concepts — I also classify this as bad stuff because I believe he either exaggerates in his stories or provides misleading information. In a few places, he seems to be nearly promoting illegal behaviors.
• Strong opposition to formal education — I believe formal insitutions still have their practical values and useful knowledges depending on how much individuals make use of the experience. It is detrimental to discourage and turn people away from academia.
• Negligence to mention or explain the risk in the entrepreneur endeavors that he advocates readers to do — From what I read in news, this has led people to take reckless financial actions leading to financial disasters. I am not holding him responsible because people should think for themselves, but as an author of a “financial book”, he should provide the full picture and cover the topic of risk somewhere… especially in the high-risk financial maneuver he tells people to do.
• Many vague areas in his stories — This makes me wonder how many of his “successful business” stories are true, and that he created them just to boaster himself and to help sell the book.

In short, I think the book is good in that it incurs people to think about their own finance and to do something about it. It is bad because of possibly misleading, false, and incomplete information, which can lead to dangerous and disastrous consequence if read incorrectly. That’s all from me. Below is what other people have said.

John T. Reed’s analysis of Robert T. Kiyosaki’s book Rich Dad, Poor Dad – I read this VERY detail research and analysis on Robert Kiyosaki and his book recently. Together with the vagueness that I personally noticed in his book, we need to remain skeptical of this man and his words.

Let’s Read Some of Robert Kiyosaki’s Drivel – Silly words spoken by Robert Kiyosaki. This teaches us to do our own research and be cautious and skeptical about advice from “financial advisor”.

Kiyosaki is a Liar? – More “interesting things” said by Robert Kiyosaki!

Rich Dad, Poor Dad :: review – Brian and I agree on the positive points in Rich Dad, Poor Dad.

Book Review: Rich Dad, Poor Dad – Concise review on the book stating the good and the bad.

Cautions on “Rich Dad” Robert Kiyosaki – Frugal talks more about things we need to be careful about the author and his book. He then talks about his view on how to obtain wealth and the importance of formal education.

Robert Kiyosaki, A Smart Investor? – Once again, you probably should not take Robert Kiyosaki seriously when he advises you how to invest. Let’s just keep him as someone who may inspire people to think differently.

Deconstructing Robert Kiyosaki – Trent provides insights into the kind of man who he thinks Robert Kiyosaki is.

Review: Rich Dad, Poor Dad – Full book review by Trent.

It seems that people generally agree on the few ideas Robert Kiyosaki has done correctly on his book, and they also agree on the same skeptical things. It’s probably enough Robert Kiyosaki for one day.

Today marks the second day after the Fed decides to cut the rate by half a point. And today, also marks the day after many weeks that my 401k gets out of the red. I know you are not supposed to have emotional swing with the market because if you do, you will lose many nights’ sleep and have numerous heart attakcs, but nonetheless, this is a bit exciting. Moving on.

In the news and especially lately, we hear people talking about the Fed. We also hear people talking about “the rate”. But what exactly are they?

The Fed
Fed stands for the Federal Reserve System that is the central banking system of the United States that has members ranging from goverment officials, regional banks, some private banks, economists and what have you. Slightly irrelevant. The important thins is that the current chairman of the Fed is Ben Bernanke and with the famous Alan Greenspan as the predecessor, so pay attention to them in the news if you care about the financial market.

“The Rate”
“The rate” stands for the federal funds rate, which is the interest rate banks charge each other. Banks are required to keep certain level of federal funds at the Federal Reserve. They want to keep their federal funds as small as possible because money in federal funds is just sitting there and does not make them MORE money. A bank with an excessive level of funds will charge another bank with a deficient level of fund to borrow money at “the rate”. Also, when the rate is low, banks can borrow more money to generate more business at a lower cost. You see how much the banks are affected by the rate. This is why the stock market is affected when the rate changes.

Now, how does that relate to us?
Because the federal funds rate affects the cost of the banks, it makes the interest rate on loans offered to consumers goes up or down (i.e. auto loan, credit cards…). This means the cost of the banks got partly transferred to us consumers, so the rate also affects the spending power of consumers. When consumers can spend more, all business will do well. When they can’t spend as much, business will grow slower or stop growing. This is another reason why the rate affects the stock market.

In short, rate increase leads to higher cost for business (bad news).
Rate decrease helps in stimulating business growth (good news).

These are my basic understanding of the fed and the rate and quickly explained.
As you can read, it is quite straight-forward.

However, there are many other factors and market conditions also involved. For example, too much growth will cause inflation to go up dramatically, which is bad for the long term. In that case, the rate will be increased to curb growth to allow sustainability of the economy. Additionally, as far as now is concerned, the rate cut may lead the people who made the mistakes that lead to the current credit/subprime crisis to overlook their flaws. Then history will repeat itself, with a worse occurrence possibly…

Hear what Greenspan explains some of this on Daily Show!

I enjoy how Jon Stewart rasied the critical questions with Greenspan about how the economy favors investing in the market , hedge funds, short bettings over work and simple savings and also the illusion of a free market.

Sometimes we get too caught up by media and TV about all these things we should purchase and own and to upgrade our life-style to be happier. What they want to do is to brainwash us so we inherently make purchases without hesitation and any deep second thoughts.

How do we defend ourselves? To defend ourselves, we must first understand what we’re facing, so let’s understand these people’s agenda…

The people sellling these “things” are business people. They have their agenda. What is the agenda? It’s none other than – making as much money as possible, under the postulation of a capitalistic society, and guess from whom they want to make the money? Us! We the consumers. We have to understand that they are driven by profit, by business. They need to make their numbers, their quotas because it’s their jobs and we are living in this wonderful society of capitalism. That’s why we must think for ourselves if those things really make me happy.

Now I’m not saying it’s their fault since they are just doing their jobs, but we need to defend ourselves here.
Since the best defense is the best offense…
Let’s take offense in that they are trying to take our money from us!
Let’s be stubborn, stay frugal, and fight against these people who are trying to take money away from us!

Each time you want to buy something, think about if it’s really useful and add values to your life, and make sure you are not buying because they told you so.

Peace~~

Sunk cost is a most important idea I learned in a Decision Analysis class. In “technical” terms, sunk costs are costs that had already been incurred that is irrecoverable.

Why is this so important?

Sunk cost is an indispensable idea that enables you to have rational thinking and to make rational decision, and rational thinking and rational decision are what you need to prevail in many areas in life, such as investing, making business decision, deciding the next move in relationship/career/life, etc.

In a practical example of whether to sell your car, you can:

1. Compare current selling price with how much you paid for the car and think about the loss (the difference) if you sell the car now. If the loss is too big, you keep the car.
2. Think about how much you gain by selling (maybe use that toward a more fuel-economical car) and/or the maintenance and insurance you DON’T have to pay later, which will lead to more saving. And if those gain and savings do not provide more value than not selling, you will keep the car.

Now I didn’t cover every aspects and parameters involved in the decision of car-selling in real-life, but you get the idea.
Which do you think is a rational decision?

In the 1st scenario, you let something that has already happened in the past to drive your decision.
In the 2nd scenario, you consider all future potentials and base you decision upon those.
Pretty obvious.

The price you paid for the car is no longer relevant. However, you can imagine how people will choose not to sell like in the 1st scenario in real life.

Quickly, we can translate the same idea into making decisions in a business project and a personal relationship setting.

Instead of deciding whether a project should be continued with focus on how much money and human resources had been invested, you need to focus on how much potential investment return if the project is to be finished, the probability of the project failing, and how much more cost will be incurred, etc. You do not focus on those “wasted” resources because they are already sunk cost.

Now in terms of personal relationship, instead of deciding if you should stay with somebody based on the amount of time and effort spent, you evaluate about the current trust/confidence/comfort level you have with this person (that is a result of past experience, but NOT the past experience), the potential amount of happiness/sadness, whether he/she can change bad habits or if you can endure them, and many many other aspects involved in a intimate relationship looking into the future.

Those are just some very generic examples. But to put in more generic term of how sunk cost assist you to be more rational is that “what happened has happened and you should not let yourself get dragged down by the past”. I’m am not urging you to be completely rational and throw away the past, but it’s age-old wisdom that you do not let the past becomes the burden of future, especially the mistakes and bad experience. This is the same idea as we tell each other to “let go”.

Look into the future and based your decisions on those visions, my friends.

To have all the details and technicality on the idea of sunk cost, visit here.