Daily Intent

Santa Barbara, CA
When studying economics, one of the first things you learn is how to carry out a cost-benefit analysis.  You learn to see things and analyze them from a perspective that compares whether the benefits of something outweighs its costs.

In the context of a purchase, its benefits are determined by the future owner.  The costs, too, are determined by the future owner.   The benefits can be any number of things including the emotions the object will bring about, the experiences the object will enable, or the people the object will attract.  Similarly, the costs are not solely the actual dollars expended, but the emotions, experiences and people foregone.

For example, if I were to be comparing whether to buy a beach cruiser, my economics brain would first pose the question “Does having the beach cruiser, outweigh having $200  in my pocket?”  “Will the experience and the benefits of the beach cruiser outweigh the many other possibilities $200 could afford me?”  “Would I rather go to the movies twenty times over instead?”  “How about two nicer dinners?”   “Maybe I’d rather go skydiving with that $200?”

This analysis is not new.  We learn it at a young age when our parents offer us two items and say we can only choose one of them.  At that moment, we quickly jump back and forth between the chocolate and pack of bubble gum.  “M&Ms sounds so good, but I could blow bubbles with the bubble gum.  Ooohh.  And I get five sticks of gum, which would last me hours, while the M&Ms will be over in ten minutes.”

“Mom, I’d like the pack of Bubble Yum.”

We are fully equipped to make these “one or the other” decisions.  Where it becomes more complex is in deciphering whether the money spent on certain objects is ultimately bettering my life or complicating my life.

Where I see grown adults falter as they grow wealthier is forgetting to factor in stress and simplicity into the equation.   They often forget that money is meant to be freeing.  What they are forgetting is what I call the “Stress-freeing analysis”.

Given the economy, there are many deals out there right now, but a deal or discount doesn’t mean it will better your life.  Yes, the cost is lower.  So, in-turn, the benefit doesn’t have to be as great, but might the benefit get easily eroded by a life more complicated?

Buying a functioning, efficient washing machine to replace a tattered and clothe-tearing old washing machine, we could all agree is a life bettering, life simplifying purchase.  The “freeing” outweighs the “stress”.

But what about the purchase of a boat?  There is upkeep.  There are products to purchase.  There are mooring fees.  There are maintenance fees.  There are people to employ.  Many would even call it a money pit.

The contention here is as one becomes wealthier money is not an object, thus, there is less of a concern even if it is a “money pit”.

In this situation, the wealthy individual still must ask themselves, “does buying a boat complicate my life more than the freeing benefits?”  “Is it the best use of my time, or my spouse’s time, to be coordinating with the many people associated with keeping my boat prepped, cleaned, and ready for sail?”

In short, “am I recognizing the fact that I’m effectively hiring myself to manage a team of people, so I can use a boat freely, whenever I want?  I must, thus, see it as a new enterprise.”

The same goes for buying a second home or investment property.  Sure they are both investments, but in buying them, you must recognize the responsibility of this new enterprise and determine whether running another company is complicating your days or bettering your days.

For some, the answer will be, “I agree. I am complicating my days in the short-run, but I’m bettering them in the long-run.  I will have enough money for retirement if I do this now.  I’m willing to make the sacrifice.”  Or “Yes, but the complication is good as I enjoy such projects.  The complication is freeing.”  Others might see otherwise.

For at the end of the day, it is up to your personality.  One purchase may be a great investment for your balance sheet, but this balance sheet benefit may be fully outweighed by the complications to your life.

I wish you the best in your next purchases.  May you consider the stress-freeing analysis.  May your purchases always be freeing long-term.
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PLAN
Catalyst for Thought.  MINDS executive lunch.  Next up, April 15th, we’ll have Wayne Rosing, Vice President of Engineering for Google from 2000 - 2005, now founder of Las Cumbres Observatory.  Register at www.CatalystforThought.org to ensure you receive the registration emails.
Team in Training.  Tiffany’s Recruitment Party.  Chocolate, Wine and Diamonds.  What more does a woman need?  A group to run / walk a half or full marathon with?  Perhaps.  Come find out if this feat is for you.  This Saturday, April 10th.  6:30pm.  RSVP to Kaitlyn.Evans@tiffany.com
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LEARN
Buzzword: Animal Spirits
“A term used by John Maynard Keynes used in one of his economics books.  In his 1936 publication, ‘The General Theory of Employment, Interest and Money,’ the term ‘animal spirits’ is used to describe human emotion that drives consumer confidence.    According to Keynes, animal spirits also generate human trust.

There has been a resurgence of interest in the idea of animal spirits in recent years.  Several books and articles have been published on this topic.  Keynes believes that animal spirits were necessary to motivate people to take positive action.”  -Investopedia.com

  Six Points to Ponder:

   1. Scared of 11,000.  This week the psychological barrier of 11,000 points on the Dow was insurmountable.    The Dow, up slightly at 10,964. The S&P 500 is up, 1189.  The Nasdaq up, 2442.  Oil continued creeping upward, $86/bbl.
   2. Peace Pursuit.  Thursday, President Obama and Russian President Medvedev signed the most significant arms treaty in two decades. 
   3. Shoppers Spending.  Double digit sales increases were experienced by many household brand name retailers.
   4. 10,000 Price Cuts.  Wal-Mart has declared price cutting on an estimated 10,000 items in efforts to excite the middle class and align with lowering food and electronic prices. 
   5. Carlsberg Rebellion.  Workers at the beer company went on strike because of on the job drinking restrictions put in place.  (All picket lines wreaked of alcohol and offered beer pong for passerbyers.)
   6. Duke Dines.  The Blue Devils took advantage of a weak NCAA this year, winning the men’s basketball national title.  Hats off to Butler and their valiant efforts in proving mid-majors have a right to be there.  The Masters Markets.  Tiger is -4.  Mickelson -5.  Fred Couples leads the field at -7.   Marketers are celebrating.

Positives:

    * Traders are nervous about over-stepping the 11,000 mark.  Are we really improving or could there be a pull back?  This is normal.  This happened at 10,000.  Greece’s woes continue to play on traders confidence.  Indeed, there are many headwinds and pull backs are still expected, but the current levels give future markets belief that this mark is possible and reachable.
    * A reduction of nuclear weapons between Russia and the United States is a tangible step forward.  The more influential parts of the treaty lie in their ability to verify and inspect nuclear cooperation.  In short, the ability to keep each other accountable.  Moreover, it serves as a solid foundation for negotiations pertaining to Iran.
    * On average retailers experienced an 8.7% month over month increase in same store sales.  In March, Nordstrom’s  increased 16.8%, Saks Inc. was up 12.7%, and Target notched upward 10.3%. Consumer confidence appears to be driving this trend.  People are more optimistic.  Fewer fear losing their job and, thus, can spend money on needs.  Purchases are still more thoughtful and conservative than a few years back, but the positive for the economy is that purchases are being made and confidence is slowly being restored.
    * Wal-Mart’s efforts to be the lowest prices, makes for good shopping to all.  Lower prices means you have more money in your pocket to save or spend on other necessities.
    * The Masters.  There is no better golf tournament to watch.  This year, given the leader board, appears to be no different.
    * The way Jason Huffman lived his life and touched thousands in Richardson, Texas.  He gave every bit of fight.  He showed courage, humor and strength amidst a storm of health problems.

Negatives:

    * Crude oil continues nudging higher.
    * Butler had two opportunities to seal a Disney ending to its run.  Who wouldn’t have loved to see the kid hit a half court shot to win the game and write their names into the history books?
    * We are less one inspiring school principal.  A wife is without a husband.  Two children are without a caring father.

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GET INVOLVED
Local:

Sparkle - A Team in Training Open House
Where: Tiffany & Co. in La Cumbre Plaza
When: Saturday, April 10th.  6:30pm - 8:30pm
Cost: Free.
Why:  Mingling.  Refreshments.  Jewelry Fashion Show.  Tiffany & Co. Bracelet Drawing.  Discounted Sign-ups for Team in Training’s next marathon season.
For other fun ideas, go to www.lovemikana.com

Live and Be Well,

Jeff Bochsler