Sunday, July 29, 2007

Find Assets and Spend Less

I was reading the book "Rich Dad Poor Dad" by Robert Kiyosaki a few years back and there were two concepts I really liked and want to share. They are ways to think about wealth and how to accumulate it. First, wealth should be measured in time. How many days could you go without working before you ran out of money? If you are like most people, you divide your monthly expenses (bills, food, gas, fun, etc.) into days (30), then divide your savings by your daily bills. For example, you might pay $300 a month in expenses or ($300/30 days) $10 a day on average. If you have $600 in savings, you can last ($600/$10) 60 days. Kiyosaki points out that most people have so little savings, because they're spending all of their income, that even missing one day of work can wreck havoc on people's lives. Where are you on this scale? For me, I have managed to spend less than 50% of my income. Thus, for every day I work I can effectively take a day off. I've been working for two months now and have enough wealth to last... 2 months. Just think, if I did this for a year, I could take a whole year off to pursue something. Again, where are you?

What is and what is NOT an asset?

The second concept is that Kiyosaki defines an asset as something that puts money into your pocket each month. A liability is something that takes money out of your pocket each month. So, let's test you on this definition. What is your car? A liability because you keep putting money into it for gas and maintenance. What about your TV? A liability because you contribute to electricity, cable and movies (not to mention your time, which is worth something). What about stocks? Actually it's neither because even though you get money when you sell it, you no longer own it, but it also isn't taking money out of your pocket. What about the house you live in? A LIABILITY. You repair the house and make interest payments. Yes, you're earning equity, but that doesn't regularly flow into your pocket. How about a simple savings account? An asset because each month the bank adds money to your account (if you use ING, it's actually a noticeable amount). Other assets include investment real estate, businesses (well, successful ones), book royalties and many more.

Bringing it together

So, you've accumulated some sort of wealth - maybe 60 days, maybe less, maybe more. Right now I have mine sitting in an ING account paying me interest, putting money in my pocket. What can be done to increase those days faster? What if I acquired enough assets, putting money into my pocket, that the days become infinite because I always have enough income from assets flowing in to cover my expenses each month (aka infinitely wealthy)? One way to do that would be to keep saving and live only off the interest. I did the math and assuming I spend/save the same I could be infinitely wealthy in 2 years (I actually give myself 5 years to do it since things happen in life). How long will it take you? More importantly, what can you and I invest in to earn higher returns so we can get there faster? Simply buying a house and living in it won't get us there and neither will only investing in mutual funds. Though those are important, think about ways to get cash flowing, monthly, into your pocket. With this, in combination of keeping your expenses as low as possible, you will be well on your way out of the Rat Race.

Friday, July 27, 2007

I had the pleasure of going to see a wonderful speaker. His name is Edward Tufte (pronounced "tough - tee") and he is the expert in the world of displaying quantitative information. Yes, I went to an all day seminar to learn how to make better graphs, tables and charts. I even walked away with four books full of hundreds of pictures on the principles of data display. I went to see him speak with fellow HP colleagues and here are some of the things we took away from the day:

1) There really is no such thing as too much information: it's just a matter of it being displayed in a way that is relevant and interesting to the audience. For example, newspapers constantly pack as much information as possible on their paper. It's even more intense in the sports and financial sections with all of the pure data. Still, people seem OK looking at the information and are actually thankful it's all their: that's because it's interesting to the audience. The same can be said of aerial photos of your home town.

2) Everything presented should add to the understanding of the information. Colors, graphics and lines should have a purpose to people's understanding - they are busy people after all and it shouldn't be their job to figure out what is and is not important. Here's an easy test: take your material and stand back, away from it. What catches your attention first? Is it the data? Your border? Or, the cute graphic in the corner? Also, if people walk away from your presentation saying, "gosh, that was a nice shade of blue," you missed your mark.

3) Tufte is not a fan of PowerPoint because it deludes speaker's points to meaningless phrases. He is a huge fan of only using it as a slide show or a way to watch video. Instead, just create a handout for people. It's harder to produce because you have to create complete thoughts (sentences) but it gives them much more information and provides them something for later. I see this as a cue we can get from politicians: how many of them do you see using PowerPoint?

4) If your content is so boring that you feel you need to dress it up: get better content. Seriously, if nobody will be interested in what you have to say, why say it at all. I think this is one of the reasons why I like to listen to Steve Jobs of Apple Inc. talk: I like what he's talking about. I see this as tying back with #1: make your information meaningful to the audience.

For more information, you can check out his website at or read about him on Wikipedia. I would definitely recommend checking him out if you regular give presentations.

As an aside, if my transformation to Geek-dom wasn't bad enough already. My colleagues and I did walk a few blocks afterwards to check out OSCON, the Open Source Conference. The worst part is that I actually saw companies who I know about and I regularly use. We even got to check out the $100 laptop and it is pretty cool.

Wednesday, July 18, 2007

Advice for Sony's PS3 Division

I can't help but wonder what Sony is up to with their PS3. If you haven't been following gaming news lately (don't worry, you're not alone), Sony isn't doing so well with the new generation of consoles. Basically, their consoles are not selling nearly as well as what Sony expected. It must be hard going from the number 1 console to last place in the industry. Sony came out with the most graphically advanced and most expensive system. Unfortunately, gamers are struggling to justify spending so much money given the other options in the market. After months of watching, without being in the board room, here's what I think Sony should do.

First of all, a price reduction is not the answer. Unless Sony has market research showing that dropping their price 20% will given them a 100% increase in market share it probably isn't worth the gamble. Besides, Microsoft can easily match any price war Sony wants to start - and nobody should mess with Microsoft when it comes to finding out how deep in the pockets you're willing to go (yes, I do think Google is playing a risky game too with Microsoft). Instead, Sony should focus on what makes them different and help gamers justify the high cost of their system.

Focusing on something different needs to go beyond Blu-ray and "amazing graphics" because gamers already know that. Sony needs to start sharing a different story to peak gamer's interest again. The only real place to do with this with games. How will great games played on a graphically superior console benefit gamers that no other system can match? Talk about the games.

Here's a crazy idea. Instead of dropping the system price by $100, give the money you were willing to give up to companies like EA and Rockstar to help them fund game development. Those companies want to produce games that will earn them the most profit, which is a factor of that console's install base, gamer's ability and willingness to purchase the game and their development costs. (price x volume - costs = profit). If Sony can decrease developer's costs, they will be willing to spending the time to make better games which will ultimately increase the number of games sold. True, this is also like giving a price reduction to software developers, but this is a gamble to spur on innovation which will lead to purchases.

Sony, if you're reading, continue to take the high road with better games. Don't just give up on that dream and play the cost game. At the same time, spend more money/time doing research to find out which gamers you want to serve and be happy when you win them instead of simply going for the whole market.

Friday, July 06, 2007

If you were independently wealthy...

A professor of mine once posed the question to me: If you were independently wealthy, what would you do with your time? That right there is an important question. Let me explain this a little more. Being independently wealthy means you don't have to do anything for your money - it's just there like a well of oil in the back yard. In other words, you have 24 hours a day to do whatever you want with no financial constraints.

Most people start their answers with "buy a new car" or "purchase the largest house in a nice area". Others start with "visit Europe and my whole family." These are all awesome ideas, but the crux of the question is what happens next. OK, you've bought everything you want, now what? What would you do day to day? Would you volunteer at a local homeless shelter? Go back to school? Knit a blanket? Perhaps try to take over the world? What would you do with your time?

Answer that question now. It's your dream, so be honest about it.

Now here's the trick: how can you start living your dream today? If you want to direct movies, how can you get involved with movies? Perhaps you can't do exactly what you want to do instantly, but you can at least get yourself a step closer in the right direction. Honestly, it really doesn't matter how well your current job pays if it's not what you truly want to do.

Finally, this question falls right in line with the statement I first heard from my dad: do what you love, and the money will follow. How are you incorporating what you love in your life?