11 December 2006

A Season for Peace of Mind - Ben Stein

I randomly found this article while on Yahoo Finance checking out my very, very small stock portfolio. I found it interesting and poignant at this time of year, especially for my generation. Ipods and Razrs not withstanding. Anyways check it out.

A Season for Peace of Mind: How Not to Ruin Your Life - Yahoo! Finance
How Not to Ruin Your Life
A Season for Peace of Mind by Ben Stein

Monday, December 11, 2006
[Ben Stein]
I was going to write about the falling dollar and why it's happening.

Basically, it has to do with the truth that U.S. interest rates are falling or not rising while European interest rates are rising or not falling. Money tends to flow to high-inflation-adjusted-rate countries.

It has nothing to do with the possibility that the U.S. may be entering a recession or a slowdown in growth. In fact, historically, as nations fall into slowdowns, the real interest rate -- nominal rates minus inflation rates -- rise and their currencies rise.

This means the dollar would normally rise in a recession. There are a lot of other factors at work in currency fluctuations, too. But I'll write about this and what it means to us as investors and consumers another time.

A Friend in Need
For now, I want to write about something a lot more important and personal to me. If I may say so, it's especially apt at this major consuming time of year.

When I was a child, I went to junior high school with a fellow I'll call Marcus. He was a likeable guy, a great musician, and a prodigious joke-teller. Although he was not poor by any means, he was terribly broke on a regular basis.

He just liked to show off with money and he gambled. He was constantly asking to borrow money from me, and I often obliged. As far as I can recall, he never once, not even once, repaid me.

Time passed. I went off to college in New York City. Marcus went off to college in California and I rarely heard from him. But every once in a while he would write an affectionate note, always ending with a plea that I lend him money.

Usually I obliged, but still, he never paid me back. I heard from various friends that he had dropped out of school, was chronically broke, had been married and divorced repeatedly, and was living a marginal existence. (This story is somewhat fictionalized.)

Ups and Downs
Then, in the early 1970s, something happened to Marcus. He got into real estate syndications that threw off a huge tax shelter for affluent buyers. He was a born salesman with a powerful gift of gab, and he had found his career.

He sold and sold and sold, made money, bought real estate, appeared in California newspapers, dated movie stars, and drove Ferraris. He still never paid me back a cent.

Then Congress ended the real estate tax shelters sometime in the early ‘80s. Marcus' business fell apart. But he still owned some real estate and still had the salesman's gift. So he still lived fairly well.

Then came the real estate crash of the early ‘90s, and he was genuinely down and out for awhile. He still pretended, though. He couldn't give up the pretense that he was rich and he didn't want anyone to know he wasn't.

He mortgaged his real estate. He remortgaged it. He had it repossessed. He lost it all. Then came the residential boom of the late ‘90s and 2000-2005, and he still lived like a king with a rented home at the beach and another in Beverly Hills.

Finally, real estate really collapsed in residential in Southern California. (Marcus had somehow burned his bridges in commercial real estate long ago. I don't know how.) He simply had no money coming in for about 10 months straight.

Down and Out in Dreamland
Yesterday, I got a call and an e-mail from Marcus. "I desperately need to borrow $100,000 from you. I'll pay you back in a year or so. I could borrow it from a bank, but I don't want to be in the newspapers." Plus, he might have added, the bank would make him pay it back and would demand collateral. (Again, I have fictionalized a number of these details to protect the privacy of this man.)

This time was too much. I told him that I couldn't afford to "lend" (really "give") him that huge sum, and he had better go to the bank.

The whole episode sent a chill down my spine. This is a man who's made millions, probably tens of millions, over his lifetime. Had he invested even a little bit of what he made 30-some years ago in a broadly based mutual fund, he would be rich now.

Not just safe -- rich. Had he done what my pal and ace financial advisor, Raymond J. Lucia, recommends -- match foreseeable liabilities with assets, instead of living in dreamland -- Marcus would be comfortable for life.

Showing Off, Going Broke
His is a sad story, and a lesson in what happens when a man (or woman) has to show off, has to put on an act about what his life is like to make himself feel big. It's a story of what happens when human beings try to pretend that life is not ruled -- at least in large part -- by arithmetic.

Marcus tried to show that he was more powerful than the gravity of money. But he wasn't, and now he's facing an IRS lien on his car and his furniture and whatever else he owns. He's facing intense embarrassment and aggravation all because he refused to admit reality and lived in a fantasy world.

As I ponder his story, I mostly think, "There, but for the grace of God, go I." I'm wildly extravagant about money. But I also earn a halfway decent living and always save. Or at least I almost always save.

However, as we enter this gift-giving time of year, I know that many of my closest friends are in true disarray about money. Invariably, they're men and women who try to live like people in magazines, who try to put on false airs about money, who try to live -- simply put -- beyond their means.

Usually, they're men and women who are -- in the words of a classic big book -- constitutionally incapable of being honest with themselves. ("They are not at fault," says the book. "They seem to have been born that way.") They are also usually men and women without steady habits or steady work.

A Peaceful Season
My point here is simple: If you're not rich, please don't show off at this time of year by spending money you don't have.

Not one relative or friend who genuinely cares about you wants you to put yourself in extremis by spending too much on him or her. No one who really wishes you well wants you to overspend on him or her.

If you know anyone like that, he or she is not a real or close friend. Any real friend wants an expression of remembrance and affection from you -- not an encumbrance upon you. Every person who cares about you still cares just as much if you send them a heartfelt card as if you spent real money.

It's Madison Ave.'s task to make you think you can spend your way into someone's heart at Christmas. That's fine, but it's not true. No one who can be bought is worth buying. That's especially true where romantic love is concerned. Besides, this is the season of peace. For any real friend or lover or relative, your peace of mind comes first.

This is easy to forget at this time of year, but it's truer than ever now. To be broke and scared about money is not what "Merry Christmas" means. Give love, not heartache, this time of year -- and all year, every year.

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