After reading an economic report, it dawned on me that no matter how much one may use statistics, they are essentially useless. These statistics ignore the important issues of life. In other words, so what if someone lives in a mansion and someone else lives in a modest dwelling? Both are headed to the same place the grave. This is not to ignore the fact of abilities. Each of us must develop our talents to their logical conclusion. A place to live in is just that a place to live in.
The key to living the good life is not to spend more than one earns. This takes what most people lack, self discipline. Most people refuse to do this. This means that someone else must do this for them. This is why credit cards have credit limits. Exceed the credit limit and theses companies who issue the cards cut you off. Like a good bartender who realizes that you have had too much to drink, cut them off before they have gone too far. Most people desire to live in an utopian world, in which, they do not have to pay back their bills. They are wicked, by definition. This is the message of Psalm 37:21, "The wicked borroweth, and payeth not again: but the righteous showeth mercy, and giveth." We see that numbers really having nothing to do with anything. It is an attitude of the heart. Wicked people borrow on credit cards but have no intention of repaying their just debts. This is because they are not justified.
Most investment advisors do not realize that all of life is theologically based. They like so many others are simply fools. They do not and cannot advance good monetary policies. They may rail against the policies of the Federal Reserve but they do not claim that God created the world and therefore, we must conform ourselves to God’s law or fail miserably. They do conform to the extent that allows them to function. However, they do not want the root, just the fruit.
The numbers that economists and financial advisors use are astronomical. They are basically beyond the level or of our comprehension. Besides all of that, they are not realistic to each and everyone’s well being. In other words, each of us must be guided by self-interest to a certain extent but also the well being of our neighbor. Paul expressed this truth in Philippians 2:3-4, "Let nothing be done through strife or vainglory; but in lowliness of mind let each esteem other better than themselves. 4Look not every man on his own things, but every man also on the things of others." Yes, we are motivated by self-interest. However, this must not be our driving force. We must realize that we live in a world with other people. We must, first and foremost, seek to advance their cause, then we can see our ideal moving forward.
The law of God is very clear in this regard in Leviticus 19:18, "Thou shalt not avenge, nor bear any grudge against the children of thy people, but thou shalt love thy neighbour as thyself: I am the LORD." This is the key to long term success in any and every endeavor that we find ourselves. Loving our neighbor does not mean that we tolerate everything that our neighbor is involved in. It does mean that we treat each and every individual that we have contact with the same treatment that God’s law places upon us for them. This means that our prosperity depends upon others more than ourselves. This is, of course, contrary to popular wisdom.
Thus, it should be apparent that our best investment is into what is known in economic terms as "human capital." Capital is comprised of land, labor, and capital. The most important part of this equation is labor. The other components are inanimate objects that cannot think. They are the tools of production that allow us to increase our wealth. It should be our intent to always be increasing our net worth. Productivity is a Godly pursuit.
Wealth creation should be something that we should actively be seeking. It benefits everyone and is a component of loving our neighbor as ourselves. In other words, it is a win, win proposition. They wealthier a society becomes, the wealthier each and every member also becomes. Wealth with godliness is a good thing. Paul expressed it this way in 1 Timothy 6:6, "But godliness with contentment is great gain." We need to learn to be content with our situation. God works through His divine providence. In other words, He knows what is best for each and everyone of us. We must realize that each and everyone of us have limitations. We are not God, in other words.
Each of has been given talents and abilities. We must seek to expand them to their uttermost. This means that we must either be generalists or specialists. Some people are more versatile than others. They can excel at whatever they do. Most, however, can perform certain tasks, if given the right instruction. In other words, the vast majority can only perform within given parameters. There is a tremendous need for these people. They perform the menial but essential tasks within each and every organization. Their pay scale reflects their given skill level.
The market system is not a respecter of persons. Only the successful achieve above market rate of return. The market system weeds out the losers from the winners. The market system sees everything in either black or red. There is no neutrality in the market system. Most employees have no idea what a profit and loss statement is. They are not trained accountants. The profession of accounting is based upon balance. This is what is known as double entry accounting. In this world, everything balances out.
The law of the market is the law of supply and demand. If the demand for your product exceeds your expenses for supplying the product, then you have a residual known as profit. You are ahead of the game. You have achieved a level of efficiency that is profitable or productive. This is a good situation to be in. The hard work is now behind you because you have achieved an economy of scale that allows you to compete in the market. In other words, you have moved past the critical mass state and now are able to build upon your past accomplishments. The key is to keeping moving forward. Someone who is serious about being successful in their endeavors will not rest on their laurels.
The time to write your memoirs is when you are to old to do anything else. Success is based upon productivity and upon nothing else. Only the productive survive long term in the market system. The rest only eke out a minuscule existence. In other words, excellence is not a watchword for the vast majority of people. They are content with mediocrity. Their names are legion. These are not the movers and shakers within the market. Few and far between are the individuals who impact their chosen profession.
Who do I think will be successful in their chose vocation? Simply, those who understand that the world they live in is guided by law. That is law as an absolute, not as they choose, but that which is already derived from above. They may not know it intellectually, but intuitively, they understand it. The concept of transcendence is not something someone in business would present in his presentation, but it exists as an implication. Most people do not think with theological categories, but they display them in everything they do whether spoken or not. It is never a question of theology or no theology, but which?
The market governs itself upon the basis of law. No employer tolerates lying and cheating. On what basis does he do this? He has to believe in some things are right and some are wrong. Even a sinner does not want someone to lie to him. It is okay if he lies about everything, but just do not do it to him. He will surely resent it. It is amazing what some people will allow with themselves but will not extend the same benefit to others.
One thinks about competence when one wants to hire any individual. Most employers fail at this point. Most employers are too cost conscious. They do not realize that they end up spending more in the long run by their poor personnel choices than by investing a little more in a quality choice. In other words, you get what you pay for. This is the law of likes begetting likes. Mediocrity begets the same. Therefore, the Frugal Accountant is success oriented because he is productive oriented. Being mediocre does not enter into the equation.
Saturday, December 29, 2007
Saturday, December 22, 2007
BUSINESS ETHICS
Introduction
If there is anything that we need in our day, it is practicality. Each and every day I am amazed more and more how much people believe in total nonsense. We are told by scientists that someday that they will find a cure for every known disease. They promise much and end up delivering nothing. People still die. They want more money for research. They always seem to be right on the edge of some monumental breakthrough and then it still remains out of their reach. Even with all of our modern medical technology, it is still wiser to prevent disease and illness before it begins using common sense methods.
As Gary North wrote in one of his Reality Check Newsletters, prevention does not sell. People would rather go through the hard way and pay out money rather than doing something to prevent it in the first place. Foresight is much in demand, as long as it does not require effort on the individual’s part. They want something for nothing, in other words. They want good health without exercising. They want to lose weight and eat every donut in sight. They simply refuse to discipline themselves and then blame on their heredity. Heredity is the cop out that I am not responsible for my actions. The new one is my thyroid. The bottom line is the Little Debbies soon make Big Debbies, like it or not.
Fantasy World
Most people live in a fantasy world. They see the world, not in terms of reality, but what they deem to be reality. They think that they can smoke and not get heart disease and cancer and if they do, they can always sue the manufacturer and claim that they did not know that cigarette smoking is harmful to their health. Or that overeating will not cause health problems. They usually say that they do not eat all that much and when you seem them eat, they act like this may be their last supper.
What does all this have to do with finance and economics? Everything! We have to realize that all men are created in God’s image, even though that image has been marred by sin. In other words, all men are religious and they will act in accordance with their religious presuppositions. There I said it. The financial world is controlled by religion, pure and simple. I know that this is not what the atheist wanted to hear. I am not writing to please atheists.
Pleasing All Men
My latest pet peeve is companies who try to accommodate every type of buyer. Companies have grown so large that they try to cater to every taste, no matter how low that may take them. An example is Barnes & Noble. I enjoy a cup or two of coffee a day. My favorite is Starbuck’s. The Barnes & Noble Bookstore in Johnson City has a Starbucks. Once a month, my daughter and I go and get us some coffee. The last time, I was in there I noticed a display rack of magazines under the title Gay Pride. In this same store, they sell some Christian books and other professing ones and Bibles. Obviously, the Bible and sodomites do not mix. They need to make up their mind what they are going to be. They cannot have Christians and homosexuals mixing. It will not work. (By even saying this I have limited my reachable market but some things in life are more important than money).
My goal is not to be the biggest, and richest. To do so, would mean you have to compromise somewhere along the line. It is better to make a living and keep your integrity. Discrimination is an inescapable concept. Our government and especially our judiciary system discriminates against Christians all the time. Christians only rights in the public square is to keep their mouths shut and pay their taxes to fund the religion of humanism. They do not want our input. They think that they can run God’s world without God. Of course, they are miserable failures, but don’t tell them, you will hurt their feelings.
Business Ethics
All of business life is based on ethics. To be successful in the long term, your ethics are going to have to be without spot or wrinkle. Short term gain will come back to haunt you every time. There are plenty businesses that started out well only to fall by the wayside because they compromised their essential values that made them successful in the first place. We live in God’s world and He has established the parameters by which success can and will be measured. Someone may make over $100,000 a year and be considered to be successful by the world’s standards and his personal life be a complete disaster. Christians do not base their standards by the world, but by God’s.
Conclusion
Even at this, if a Christian will follow God’s covenant law, they can become wealthy beyond what they thought possible. This is because God’s law favors the righteous and not the unrighteous. Whether anyone believes this or not, God already has a reward and punishment system that is at work at all times. It is called His sanctions. This provides feedback for us to make necessary adjustments in what we are doing. His sanctions are either positive or negative. If we have a profit from our business, this is a positive sanction or blessing. If on the other hand, we have a loss, this is a negative sanction or cursing. It is going to be one or the other. In fact, these are inescapable concepts. Everyone is always trying to outsmart God. It never works. It is better simply to agree with Him.
If there is anything that we need in our day, it is practicality. Each and every day I am amazed more and more how much people believe in total nonsense. We are told by scientists that someday that they will find a cure for every known disease. They promise much and end up delivering nothing. People still die. They want more money for research. They always seem to be right on the edge of some monumental breakthrough and then it still remains out of their reach. Even with all of our modern medical technology, it is still wiser to prevent disease and illness before it begins using common sense methods.
As Gary North wrote in one of his Reality Check Newsletters, prevention does not sell. People would rather go through the hard way and pay out money rather than doing something to prevent it in the first place. Foresight is much in demand, as long as it does not require effort on the individual’s part. They want something for nothing, in other words. They want good health without exercising. They want to lose weight and eat every donut in sight. They simply refuse to discipline themselves and then blame on their heredity. Heredity is the cop out that I am not responsible for my actions. The new one is my thyroid. The bottom line is the Little Debbies soon make Big Debbies, like it or not.
Fantasy World
Most people live in a fantasy world. They see the world, not in terms of reality, but what they deem to be reality. They think that they can smoke and not get heart disease and cancer and if they do, they can always sue the manufacturer and claim that they did not know that cigarette smoking is harmful to their health. Or that overeating will not cause health problems. They usually say that they do not eat all that much and when you seem them eat, they act like this may be their last supper.
What does all this have to do with finance and economics? Everything! We have to realize that all men are created in God’s image, even though that image has been marred by sin. In other words, all men are religious and they will act in accordance with their religious presuppositions. There I said it. The financial world is controlled by religion, pure and simple. I know that this is not what the atheist wanted to hear. I am not writing to please atheists.
Pleasing All Men
My latest pet peeve is companies who try to accommodate every type of buyer. Companies have grown so large that they try to cater to every taste, no matter how low that may take them. An example is Barnes & Noble. I enjoy a cup or two of coffee a day. My favorite is Starbuck’s. The Barnes & Noble Bookstore in Johnson City has a Starbucks. Once a month, my daughter and I go and get us some coffee. The last time, I was in there I noticed a display rack of magazines under the title Gay Pride. In this same store, they sell some Christian books and other professing ones and Bibles. Obviously, the Bible and sodomites do not mix. They need to make up their mind what they are going to be. They cannot have Christians and homosexuals mixing. It will not work. (By even saying this I have limited my reachable market but some things in life are more important than money).
My goal is not to be the biggest, and richest. To do so, would mean you have to compromise somewhere along the line. It is better to make a living and keep your integrity. Discrimination is an inescapable concept. Our government and especially our judiciary system discriminates against Christians all the time. Christians only rights in the public square is to keep their mouths shut and pay their taxes to fund the religion of humanism. They do not want our input. They think that they can run God’s world without God. Of course, they are miserable failures, but don’t tell them, you will hurt their feelings.
Business Ethics
All of business life is based on ethics. To be successful in the long term, your ethics are going to have to be without spot or wrinkle. Short term gain will come back to haunt you every time. There are plenty businesses that started out well only to fall by the wayside because they compromised their essential values that made them successful in the first place. We live in God’s world and He has established the parameters by which success can and will be measured. Someone may make over $100,000 a year and be considered to be successful by the world’s standards and his personal life be a complete disaster. Christians do not base their standards by the world, but by God’s.
Conclusion
Even at this, if a Christian will follow God’s covenant law, they can become wealthy beyond what they thought possible. This is because God’s law favors the righteous and not the unrighteous. Whether anyone believes this or not, God already has a reward and punishment system that is at work at all times. It is called His sanctions. This provides feedback for us to make necessary adjustments in what we are doing. His sanctions are either positive or negative. If we have a profit from our business, this is a positive sanction or blessing. If on the other hand, we have a loss, this is a negative sanction or cursing. It is going to be one or the other. In fact, these are inescapable concepts. Everyone is always trying to outsmart God. It never works. It is better simply to agree with Him.
Saturday, December 15, 2007
FINANCIAL IGNORANCE
It is quite fascinating to read the financial messes that people get themselves into even when they are conscientious in trying to do the right things. One thing that is never taught in the public school system is basic finance. I never learned how to balance a checkbook in school. Finance is essential for our lives outside of school and yet its importance is not even registered in the curriculum of the government school system.
Most people do not understand how financial products work. They do not understand basic budgeting. They were never taught and then when they get into a financial bind, they expect the government to bail them out. Instead of learning basic finance, they go through life making the same mistakes and never correct them. This is the reason why cash advance and title loan businesses are thriving and opening up new stores.
The Frugal Accountant dislikes financial ignorance with a passion. The the purpose of these essays is to inform others about finance from a biblical perspective. Finance is not hard to understand. The basis of finance is the budget. The key to having a solid financial base is not to spend more than you earn. This means that you know how much you have coming in (revenues) and much is going out (expenditures). The net of the two (revenue - expenditures) is discretionary income. Discretionary income is available to be used for what an individual desires.
If you spend more than you earn, then you are forced to have to borrow money (go in debt) to make up the shortfall (difference). Most people do this by way of credit cards. When purchasing something on a credit card, it is considered an unsecured loan. The credit card company is requiring no collateral be put up to secure the loan. This arrangement is open ended. It cannot be amortized. The balance of your account is not fixed and therefore varies depending upon usage.
Since the credit card company is loaning you money without any collateral, they are going to charge you a higher interest rate than you would usually pay on a secured loan. It is imperative to know what the interest rate of your credit card is. The way that credit card interest is calculated is on a daily periodic rate. For instance, if the interest rate for a credit card is 18%, the daily periodic rate is calculated as follows, 18%/365 = .049315. To figure the interest rate of a $1,000 credit card balance will be as follows: $1,000 x .049315% x 31 (days in billing cycle) = $15.29. This means that what is owed to the credit card company is $1,015.29.
It is no mystery how much interest will be charged on a monthly basis. You can figure it for yourselves and then see if it is the same as the credit card company. Just knowing this much about the way credit cards work puts you in the 1% bracket. Most people do not know how credit cards work and they are not interested in finding out either. They desire to take the hard way by remaining ignorant. They think the less they know, the better it will be for them.
The worst feature of credit cards are cash advances. If you have to have a cash balance from a credit card, you are in financial trouble. Most people taking out cash advances are not aware of the interest rate. On a credit card that I have that has a fixed rate of 7.9% fixed, the cash advance rate is 24.24%. This means that for a $100 cash advance, you will owe $24.24 in interest. Say you borrowed $1,000, the interest would be $242.40. The total amount borrowed in the first example is $124.24 and in the second $1,242.40. Interest money is dead money. It is not deductible for tax purposes and just enriches the credit card companies.
People taking out cash advances could care less about the interest rate. They are short term in their thinking and all that matters is that they got the cash. They ignore the interest being charged. There are consequences to our actions. Interest is a consequence of borrowing money and it adds to the amount that has to be repaid. This never enters into the equation for cash advance borrowers. They never consider it.
An example of someone not understanding credit cards was reported by the Associated Press in an article titled Credit card interest rate changes hurt on-time payers. The Hard family of Freeland, Michigan is used as an example in this article. The credit card company in this article is Discover. The Hard’s interest rate on this card is 18%. The first question that needs to be asked is why are they using a credit card with that high of an interest rate? I would never use a credit card that had that high of an interest rate. The worse thing that you could do would be to carry a balance with that interest rate. Do they not know this?
The credit card company upped the interest rate to 24.24% because of a credit report on the Hard family. The credit card company penalized them because of the family being a risk for defaulting on their payments. This means that this family will end up spending more money on interest. Instead of disciplining themselves and paying off their credit card balances each month, they have gotten themselves into a situation whereby they may never extract themselves.
Of course, this family blames the credit card company for their financial mess. The credit card company did not hold a gun to their head and force them to get a credit card and then use it and not pay it off monthly. The increase in the interest rate is irrelevant. What is relevant is that this family has not learned the basics of finance and especially credit cards. I do not have any sympathy for them. Their ignorance has caused their plight. They have no one to blame but themselves.
Instead of taking responsibility, the mother Janet Hard testified before the Senate Permanent Subcommittee on Investigations. She said, "My husband and I feel as though we have been robbed." Robbed by who? No one was robbed. She and her husband willingly received the credit card and charged it up. They received something of value in the exchange. They would have been robbed had they not received something of value. They received an unsecured loan every time they used the card. Their ignorance is no excuse. They refused to learn how credit cards work and they have gotten what they deserve.
Of course, this article and example is all a setup. Senator Carl Levin, Democrat-Michigan, who is the chairman of this committee is sponsoring legislation to protect the Hard family from their decisions. What happens is that financially ignorant people like the Hard family go out and make poor decisions, do not like the results and look to the government to try and get even with the big bad credit card companies. They consider these companies to be loan sharks just trying to get rich off poor working families like the Hard family. This absolves them of any responsibility for their actions. Their financial ignorance then gives a reason for the government to seek to regulate the market system to a greater degree.
What is needed is less people like the Hard family. While they may be a hard working and nice family, their financial ignorance ends up costing all our freedom. Their ignorance ensures that the government will put more regulations on the market. This will end up driving up the cost of doing business and each of us end up paying for that. This could have been avoided if the Hard family were financially responsible. They need to learn a lesson but they refuse.
Saturday, December 8, 2007
BASIC ECONOMICS
It is obvious that Alan Greenspan does not know the first thing about economics. He operates out of a fantasy world of magic rather than law. He wants the consumer to consume more. How does he want them to do it? By going into debt. That is, going into deeper debt than they already are. He wants people to spend money on things they cannot afford with money they do not have. After all it is for a good cause, he says.
George W. Bush wants to get re-elected so he has signed off on this disastrous course of lowering interest rates to try and stimulate the economy. As a business man, he should know better than turning on the printing press. But you have to buy votes. Money is the only language people know. This is because they are covetous. The other 12 interest rate cuts have done nothing long term. But these men do not care because they are lower class and present oriented.
The Bible says the borrower is a slave to the lender. It is wise to stay out of debt. I am doing my part to help this economy. I am spending less and saving more. This way the tax man will get less. Long term: thrift, hard work and frugality pay off. This is upper class thinking. You can go ahead and sell yourself into slavery, I prefer freedom.