The Money Game Book - Essay Example

? A. Introduction Just like any new field of knowledge to be learned, the undersigned initially took the with the outlook of merely “broadening one’s perspective”. But as I go along taking the course, my perspective was not only broadened but empowered me as well. It basically changed some paradigm I used to believe and begin to treat my finances from a different perspective. Believe it or not, after taking the course, I begun to be conscious about my spending after the subject elaborated the opportunity costs associated with a mere dollar of unnecessary spending. I began considering to have a “budget” and decided to put off some planned but unnecessary purchases. I just opened a savings account with a passbook dedicated for future investment. The course affected me and I would like to answer the questions below with how I understood the subject except on some occasions that it will be best for understanding to lift something from the book. I believe it will best serve the purpose of this course to use my own words as much as possible and also for my better understanding, to conceptualize my answers as I understood it. B. Questions for Book Report 1. Why is the book called “The Money Game?” The book is called “The Money Game” because it teaches us to understand the dynamics of how to secure our future from a pragmatist perspective. When I said, pragmatist, it tackles the subject not merely from academic point view, but on its real life application. Moreso, when it also presented the perspective of the both sides of the coin, the Wall Street view and the Main Street with the author being partial on us the consumers on how we could avoid the financial pitfalls and better secure our future by giving us a hindsight about the other side of the fence. The author has no pretension about the reality on how we should go about in handling our finances, especially in dealing with financial institutions inorder to be financially secured. In fact, a game plan was introduced called Big Dog Playbook II which details the play on we can better our financial position and get rid of debts. 2. Why do many Americans die before they ever have a chance to live? Many Americans die before they ever have a chance to live because they work all their lives and never had the chance to enjoy it. This is because of wrong mindset and priorities and being unprepared for the financial uncertainties and old age. During the most productive part of their lives, they worked so hard to acquire the “bling-blings” or facade of success and thus raising the standard of their lives but not the actual quality of their lives. They are so mired with work that they did not notice how good the “rose smell”. As they acquire, they fall to the trap of indulgence, living for today (and more often than not, beyond their means) and not preparing for tomorrow. Such that when financial uncertainty and/or retirement come upon them, many of them are caught unprepared and had to continue working despite retirement age. 3. Who are the three main characters in the book and what impact do they have on your finances? The Invisible Man- The Invisible Man represents the unaccounted expenses that we don’t usually notice because they are just small. But when they are totally accounted for, we will be surprise to learn how much they add up so quickly. The real danger about the Invisible Man is that we do not know that he is already taking toll on our resources. The Money Monster – The Money Monster represents our tendency to consume; our endless wants that could never be satisfied. This Money Monster is insatiable and will continue to eat our resources no matter how we much feed it. If we do not tame or put the Money on a diet, we will always be on spending binge without any savings with a mounting debt to surmount. The Precreditor- “The Precreditor has a growing appetite for our money and will influence law to keep the gravy train going. His hunger has manifested into hundreds of billions of dollars in opportunity cost for consumers and wealth of historic proportion for the financial industry: over $1 trillion in the past decade that was generated from outrageous fees alone and extortionist interest rates of 30% or more.” The Precreditor represents the credit cards companies, most people in Wall Street, most Investment advisors who guise themselves as advancing our interest when in practice, it is their interest that they are serving. 4. What is the millionaire mindset and how does it help you to create wealth? Millionaire mindset is the state of mind where an individual thinks about his future and never ceases to think on ways on how he could give his dollar a job. It is a mindset that avoids excesses and self-indulgences and is ever mindful on how to improve his financial position. Millionaire mindset is also a state where an individual has properly anchored himself of what really matters in life. That he secures his future that he may enjoy a “quality life”. 5. What is the best way to play the credit card game to limit the impact of debt on your finances? Pay credit cards off. Credit cards are designed to keep us in debt forever. It is the modern form of slavery where we are shackled to the credit card companies whose rules they wrote. So the earlier we get off from it the better. And if we are not yet hooked on it, better not start indulging in it. If we have a remaining outstanding balance, the best way to limit the impact of debt on our finances is to “hedge 50-50”. That is to put 50% of our cash towards paying credit card debt and the other 50% as savings for emergency. It may take longer to pay off our credit card debt by hedging 50-50, we can limit the risk of a catastrophic financial event that can destroy our finances if we have no emergency fund or credit available on our credit cards”. 6. Why is your house your castle? How is it unemployment insurance and retirement security? ”Our house is our castle because it’s the safest and surest investment available; and it provides security from a world of financial uncertainty in the economy, stock market, employment and retirement.” It will stand the test of time when nothing else does. When we got unemployed “homeownership will provide a hedge against this risk and insurance against homelessness if our job or gets downgraded.” In retirement, it will reduce the income requirement and we can do a reverse mortgage (at 62) it could provide us a guaranteed tax free income for the rest of our life if we need it. If we opt for a reverse mortgage, we can remain in the home until we decide to move or become deceased. And for as long as we live or occupy the home, we do not have to pay back a penny of the money. Our home provides the collateral for the loan. You can borrow about 60% of the value of your home; hence, a home that is valued at $200,000 is eligible for a $120,000 reverse mortgage. The interest rate for a reverse mortgage is about 5%, but interest cost is mostly or entirely offset by the appreciation 7. What does it mean to get time on your side? What is the New Normal and why does it matter? Simply put, if we have enough savings and invested it properly, putting every dollar at work for us, time is on our side as good investment is self-perpetuating. It continues to make money for us as time goes by, securing our future and improving our quality of life. The New Normal meant that the days of easy credit and over-indulgence is over. Party is over. That life now will be harder due to the excesses of the past. And Americans has now to learn to align to their expenditures according to the actual money they make. Jobs become harder to find as companies thinks twice before hiring and they rely on technology first before hiring actual people. And to make the situation worst, highly skilled and educated labor abroad are competing for American jobs as they are cheap. And the future now is no longer certain as before. 8. How do you invest in yourself and pay yourself first? How does this relate to the Brokenaires? To paraphrase the book, ”the amount of money you pay yourself now will have a direct impact on the quality of your life today and in the future. “ It is a well-known fact that people who pay themselves first are much wealthier than others who even make more money, because wealth on a longer-term is not necessarily a function of how much money you make, but how hard your money works for you. “ Investing in ourselves meant learning to take control of our own finances and not rely on Investment Advisors. They failed before and most likely they will fail again. And they don’t necessarily advance our interests but instead serves theirs. Brokenaires were once rich but as they did not prepare for their future, ended poor. They did not pay themselves first by setting aside money for savings and investment. Instead, they indulge, lost track of the future and when the source of income was gone, they were left unprepared and poor. 9. What is the Big Dog Playbook II and how is it structured with regard to risk and reward? Simply put, The Big Dog Playbook II is a game plan toward economic emancipation and financial freedom. It is a set of plan to improve cash flow by maximizing 401k/403b by matching it, paying off credit cards, saving for home/emergency fund to buying a home with less number of mortgage years. ”It is structured with regard to risk and reward as it recalibrates the risk-to-reward tradeoff and adjust assumptions accordingly.” It addresses the risk about the underperformance of the stock market from historical norm, given elevated future risks to capital and less potential for reward.”” 10. What are the assumptions of “buy and hold” investment strategy? Does it still work? Buy and hold investment strategy assumes that over a period of time, the stock market will eventually rise (at an average return of 8%). It is the diversification of investment portfolio where a potential investor will buy a stock, hold or wait, under the assumption that the tide will rise lifting all the boats. It assumes that stock will always go up over time. It is already a defunct investment strategy as proven in the “2008 Financial Crisis”. With the current structural defect in the US economy, stock market is no longer bullish and will take time before it will be restored to pre-2008 level. The stock market tide will no longer rise and lift all the boats and as such, buy and hold investment strategy no longer works. 11. Explain how ESC works differently from buy and hold as an investment strategy? ESC (which stands for Economies, Sectors and Companies) differ from buy and hold as an investment strategy as it considers the market fundamentals and macroeconomic condition of the market and industry while considering the technical aspect of the market (resistance, floor and ceiling) while buy and hold investment strategy leaves us broadly exposed during an economic downturn because it always assume that market will be going up over time. With an ESC approach, market drivers such as DJIA (Dow Jones Industrial Index) are being considered. Take the case of the DJIA which fell below 12,000 level before the financial crisis hit us. It’s the market telling us that something ominous will be happening in the stock market in the near future. ESC also considers the fundamentals of an economy. Say for example the case of United States, which has low savings, trillion of debts and minimal investment in the future, ESC will tell that it will take a long time for the US economy to recover and for the market to pick up. Industry and company performances are also considered. Take China for example which we know has an annual increase of 10 % in GNP, meaning that it needs a lot of energy to fuel its growth. So we may want to look at the performance of the industry to validate it and eventually pick a company to invest. Whereas buy and hold investment strategy is merely buying a broad range of stocks, without consideration of the market, waiting and sitting for the market to rise until it hits us. 12. What is the outlook for the US economy and how will this impact your future? United States has structural issues, not cyclical, and cannot be fixed with a cyclical approach of throwing money at the economy. It will take a lot of time before it can recover from decades of overspending, easy credit and non-saving. Despite the government stimulus package, if consumer confidence will not pick up, no jobs created and no investments nor savings be made, the money infused in the economy will eventually dry out. This will impact my future by learning to go back to the old American way again which has catapulted us to economic greatness. To discipline myself to live small, avoid excesses, save and invest and let my dollar work for me. 13. Are there better options for investing than the US and why? Yes there is. Emerging economy such as Brazil, India and China shows so much potential of higher returns for investments. I would like to take the case of China with a 1.5 Billion population. The economy is growing by 10 % for several decades now, creating 77 millionaires a day with a continuously growing middle class. It has a savings rate of as much as 50 % and has a 12 year current program to invest in the future. It has one of the highest if not the highest investment in education and has interests in research ranging from industry to bioresearch. Simply put, their market today can be likened to the US during its nascent years and is continually invests for its future. So it very likely that it will pose a higher returns for investment in the stock market compared to the United States for a very long time. 14. What does it mean to “invest in your future?” Investing in my future simply meant I have to save today so I can invest and make my dollars work so that time will be on my side. And I have to learn how to handle my own finances and investments. I can no longer rely on Investment Advisors because they do not necessarily advance my interest but theirs. They already failed before and most likely they will fail again. So that when I have adequately invested for my future, I may be able to have a peace of mind with regard to my financial stability and will be able to enjoy a “quality life”. C. Conclusion After finishing the course, I realize it does not only teach a certain subject matter but rather educates us about our security in life. On how to become economically viable in a tough time such as today, but also how to achieve a “quality life”. And it does so without pretension and tackles the issue head-on without having to be academically polite; calling a spade a space. Because when it did, it was able to emphasize the realities that make us economically vulnerable. And more importantly, the course made me realize that no matter what my economic condition today, I can always improve my financial condition, shield myself from financial uncertainty and secure my future through proper financial foresight, discipline and know how to execute it. Read More