Book Review: Free by Chris Anderson

I've been following all the hoopla about Chris Anderson's new book with much interest. I picked up a copy of Free: The Future of a Radical Price for free, appropriately enough, at a Book Expo panel where he spoke. And I have to say, I'm glad I didn't have to pay full price for the book, as $26.99 seemed pretty steep: it was a quick read, at 274 pages including the index and lots of sidebars.
But I did find it interesting. Anderson explores the way we've come to expect to get many tings for free. and how businesses are using free stuff to make more money from other products or services. Much of this is not new and earth-shattering: give away a free razor to make people buy expensive replacement blades, give away a free newspaper to sell more expensive advertising, etc. The part of this that really has people riled up is relates to the latter-- free content, particularly journalism.
Personal finance blogs are a great example of this-- there are hundreds of us now, all spewing out various sorts of advice and stories and information that you would previously have had to buy a newspaper or magazine or book to obtain. (Or at least your local library would have had to buy it.) Of course, much of the content we spew out is inspired by or derived from content that traditional journalists and authors were paid to write. But if consumers are trained to expect all this for free, is it really a sustainable model? Only time will tell...
Some other things from the book that struck me:

• The free classified ad website Craigslist is estimated to have taken $30 billion out of the stock market valuation of America's newspaper companies in the 13 years since it was founded.
• An online game called RuneScape has about the same number of subscribers and annual revenue as the Wall Street Journal's paid online service. As Anderson puts it, "it appears that people would rather pay to cast pretend spells than to read Pulitzer Prize-winning news."
• Chapter 12 gets into an interesting discussion of Maslow's "pyramid of needs," and how a monetary economy can be supplanted by an "attention economy" and a "reputation economy."
• Brazil's government is trying to switch all their computer systems to free open-source software. According to the director of this initiative, "every license for Office plus Windows in Brazil-- a country in which 22 million people are starving-- means we have to export sixty sacks of soybeans."
  

Despite any controversies about passage lifted from Wikipedia, I did find the book thought provoking and worth a read. If you want to read Free for free in electronic form, you can find it here. (I believe this offer may be for a limited time only.) Amazon is selling the hardcover for $16.19.

You can also read some of the other reviews and criticism of the book at the links below:
Malcolm Gladwell review
Chris Anderson response
Seth Godin response
PW article
Chronicle of Higher Education

A Sad Tale from the Publishing World

This item appeared in an industry newsletter called Shelf Awareness the other day:

When Twenty-third Avenue Books, Portland, Ore., closed suddenly last January, Stephanie Griffin lost more than her business. Willamette Week reported that the owner "became homeless after the store closed. Startled neighbors discovered this in June . . . Griffin had started panhandling outside her old store, which was still empty at the time."

"Most people would ignore me and then say 'Oh, the bookstore used to be there,'" she said. "I would say, 'I used to own that store,' and they would keep walking."

The Willamette Week article included the photo below:


It's scary to see how easy it can be for someone's financial life to fall apart: business owner one day, homeless beggar the next. This person may not have been the most astute business owner, and blaming George Bush certainly oversimplifies the many factors that must have contributed to her store's demise, but it's still rather sobering news.

Papal Encyclical About the Economy

You know everyone's got the economy on the brain when even the Pope weighs in:
Pope Urges Forming New World Economic Order to Work for the ‘Common Good’

More than two years in the making, “Caritas in Veritate,” or “Charity in Truth,” is Benedict’s third encyclical since he became pope in 2005. Filled with terms like “globalization,” “market economy,” “outsourcing,” “labor unions” and “alternative energy,” it is not surprising that the Italian media reported that the Vatican was having difficulty translating the 144-page document into Latin....

In many ways, the document is a puzzling cross between an anti-globalization tract and a government white paper, another signal that the Vatican does not comfortably fit into traditional political categories of right and left.

“There are paragraphs that sound like Ayn Rand, next to paragraphs that sound like ‘The Grapes of Wrath.’ That’s quite intentional,” Vincent J. Miller, a theologian at the University of Dayton, a Catholic institution in Ohio, said by telephone.

“He’ll wax poetically about the virtuous capitalist, but then he’ll give you this very clear analysis of the ways in which global capital and the shareholder system cause managers to focus on short-term good at the expense of the community, of workers, of the environment.”

Indeed, sometimes Benedict sounds like an old-school European socialist, lamenting the decline of the social welfare state and praising the “importance” of labor unions to protect workers. Without stable work, he noted, people lose hope and tend not to get married and have children.

Well, that's all very interesting. But I really think he should be more focused on how to get all those rogue nuns to stop doing reiki...

June 09 Net Worth and Expense Recap

June wasn't too bad a month-- my net worth increased despite the stock market not being all that great. I'm now at approximately $352,752, an increase of 1.6% from last month. Here's how it divides out. (The figure for Bonds is not up to date, as I haven't visited the Treasury Direct website lately to check on it due to their very complicated log-in process!)

Cash & Bank Accounts	$47,778
Retirement Accounts	$193,812
Bonds	$4,860
Stocks/Mutual Funds	$13,677
Home Equity	$94,311
Credit Cards	($1,686)

As for expenses, this month I thought I'd do a January-June comparison vs. last year instead of the monthly details.

	Jan-Jun '08	Jan-Jun '09	% var
Income
Bonus	$15,187	$11,765	-23%
Gift Received	$100	$944	844%
Interest Inc	$605	$428	-29%
Other Inc	$5,294	$5,541	5%
Salary	$46,500	$48,103	3%
Tax Refund	$6,024	$4,211	-30%
TOTAL	$73,710	$70,992	-4%
Expenses
Bank Charge	$51	$70	39%
Charity	$231	$261	13%
Clothing	$1,778	$1,317	-26%
Dining	$4,305	$4,079	-5%
Education	$249	$195	-21%
Entertainment	$104	$330	218%
Gifts Given	$997	-$218	-122%
Household	$867	$757	-13%
Housing	$7,454	$10,403	40%
Medical	$1,001	$708	-29%
Misc	$3,834	$1,415	-63%
Taxes Deducted	$17,865	$16,874	-6%
Recreation	$13	$0	-100%
Subscriptions	$443	$461	4%
Travel	$9,206	$479	-95%
Utilities	$1,041	$984	-5%
TOTAL	$49,437	$38,116	-23%

A few notes on the above:
Income was down mainly due to my bonus being lower, and a smaller tax refund, which resulted from lower withholding kicking in.

Gifts Received was high due to an attempt from my mother to advance my sister and me some inheritance!

Interest income is down because interest rates are down.

Dining is a bit skewed due to some stocking up on wine, but aside from that, I was pleased to see a nice decrease here due to buying less breakfast food in delis as opposed to bringing it from home. I also ate dinner in restaurants a bit less, I think-- the only complication here is that Sweetie and I often alternate paying for things, so sometimes one of us buys the groceries in exchange for the other paying for a restaurant meal. This makes it a bit more difficult to track how I'm actually spending my food budget.

Entertainment is way up due to the tennis tickets with Mortimer.

Gifts Given was really high last year because I bought my mother a plane ticket, and really low this year because I returned a lot of Christmas presents that I ended up not needing to give people.

Housing isn't really up that much, it's just that a tax refund hit during this period last year.

Medical was higher than usual last year due to a lot of shots needed for my trip to Africa.

Miscellaneous was high last year because I bought a new computer.

Travel was way high last year, again due to the Africa trip. No vacation travel yet this year, and nothing major on the horizon! And yes, I swear I will finish the post about that trip someday, maybe on its one-year anniversary!

Utilities are down because I'm not home as much and therefore using less gas and electricity.


All in all, the net results are good: I made less money, but I saved more money. Averaged out, my savings this year were about $5,479 per month total. Even if you just look at my expenses vs. salary YTD, I saved about 21% of my gross pay-- and bonus, interest income, etc is all gravy on top of that. That number makes me feel a lot better about surviving a tough economy. Onwards and upwards!

Money Doesn't Motivate People to Lose Weight?

An interesting tidbit from the NY Times:

Behavior: Money Not a Motivator in Losing Weight

Researchers studied 2,407 overweight and obese people enrolled in weight-loss schemes at their jobs. Participants were divided into three groups. The first received $60 for keeping a 5 percent weight loss for a year. The second agreed to pay about $100; the money would be returned if they lost 5 percent of their weight, and they would get bonuses for losing more. The third, a control group, was offered only $20, a reward for staying in the program for a year.

The study, published by the National Bureau of Economic Research, found that money had very little effect. The group that was offered $60 lost an average of just 1.4 pounds, while the controls lost 1.8. Those who made the $100 deposit dropped an average of 1.9 pounds more than the controls, but, the authors write, people motivated enough to risk their own money would most likely have lost weight with any program.

The article points out that the study had some limitations that make it far from conclusive. First of all, the amounts of money in the study were quite small, probably not enough to seriously motivate anyone. But it's not exactly practical to try studying the effect of a million dollar bonus for dieting! Also, I believe there have been other studies that have shown that when you pay people to achieve something, it doesn't always help encourage that behavior-- it's as if it obscures the fact that the goal is worth striving for on its own merits.

But it's an interesting question-- losing weight is a very difficult thing for many people to do. I'd like to think I would have the discipline to achieve a goal like weight loss, or quitting smoking, etc. in order to win a large sum of money, but who knows, maybe I'd blow it! How about you? What amount of money would motivate you to stick with a diet and exercise plan and lose weight?

Four Years of Personal Finance Blogging!

I just realized today's my 4-year blogoversary. It's hard to believe! I started this site on July 6, 2005 and wrote 46 posts that month, and if you count this one, 1,479 total posts to date!

What a fun ride it's been. I never thought I could churn out this much writing... and I certainly never dreamed it would be mentioned in national media... and best of all, I never knew I'd find so many great people out there in internet-land who'd be willing to read what I have to say and respond with words of advice, encouragement, humor, kindness, curiosity, criticism, outrage, disbelief, befuddlement, marriage proposals, indecent propositions, offers to share their inheritances via direct bank deposit, etc. etc....

Thank you all for being such good company along the way!

Is Eye Candy Always Expensive?

This post from The World of Wealth reminded me of something I'd been trying to write about a few months ago. First, an excerpt from MEG's post:

It's been over a month since I joined my new upscale gym, and I have never looked back!

It costs over $130 a month (compared to the $44 a month I used to pay for a regular gym), but I have not had even a twinge of buyer's remorse.....

Going to the gym makes me feel strong, healthy, and energetic, but this one in particular - like any upscale spa or designer boutique - also makes me feel pampered, composed, and worthy.

Also, there is plenty of good eye-candy!

That last line was the kicker for me (emphasis mine). The post I'd been working on several months ago was inspired by two lunches I had at places near my office, one being a typical NYC pizza joint, and the other an upscale, expensive, gourmet Italian cafe. I never got very far writing it, but the tentative title was "Where Do the Beautiful People Eat Lunch," because it seemed to me that the more expensive the lunch spot, the more attractive the clientele was, which seems to have been MEG's observation about gyms as well. Are expensive places really frequented by cuter customers? How might that work in terms of cause and effect, or mere correlation?

There's some logic to thinking people are more likely to be attractive if they can afford upscale lunches and gyms-- money can't create good looks, but it can certainly help enhance an otherwise average appearance. People of a higher socio-economic status are also more likely to be healthier and less overweight, which can improve one's looks. And in the case of restaurants, people who eat pizza for lunch every day might indeed be less healthy than those consuming organic salads from the gourmet place.

Then there's the question of who can afford the more expensive places: I'm sure I've read of plenty of studies showing that attractive people are more likely to be hired for jobs, and paid better. I can't cite any of those studies now, but I think this is something most of us would instinctively believe is true, whether or not it should be!

And there are psychological reasons-- if people value the things that differentiate upscale places from their less expensive counterparts, they are also more likely to prioritize appearance and wear the sorts of clothes or jewelry that might be judged fashionable or attractive by others. And from the perspective of the beholder, perhaps we are predisposed to find people more attractive because we think they have money.

Of course, all of this is very subjective-- everyone has different definitions of what is attractive in the first place. If your aesthetic tends more towards artsy thrift-store skinny-hipster chic, you might not find much eye candy at any gym, at least not in the weight room!

Where do you find your eye candy? Does it have anything to do with money?

Weekend With the Parents

It was a couple of weeks ago now that I went to visit my parents. It had been a couple of months since I was there, which seemed okay since my father's health has been relatively good, but I was getting anxious about visiting again so I'd have a chance to check on my parents' finances! I'd been hearing lots of stories about all the things my mother was trying to get done around the house, and was starting to worry about how much money she was burning through.

You may wonder why my mother would be doing all this. She's a full-time caregiver to an invalid husband, so where does she find the energy to deal with hiring people to paint the house, pull out trees and shrubs, replace the windows, and put up a new fence? She also had people giving her estimates for repaving the driveway, putting a new roof on the porch, and gutting the one full bathroom in the house. She did acknowledge that this last item was crazy to do given my father's health situation-- which is why she was also getting an estimate on expanding the downstairs half-bathroom into the garage and adding a shower stall.

My mother is just manic when it comes to home improvements and decorating-- it's a bit scary. My father has always checked her impulses to do these things, but now he doesn't have the energy. My mom was also quite inspired by our estate planning conversations with the lawyer several months ago. He said that if my father was about to go into a nursing home, it would be a good idea for us to spend down some assets so he'd be eligible for Medicaid sooner, and that putting money into improving the value of the house was a good way to do that-- music to my mom's ears!

After spending some time going over all my mother's credit card receipts, I had to tell her to put the brakes on any further projects. At the rate she's burning through money, my parents will be broke within 10 years, and this is not even counting major expenses for the house, or funerals, or potential costs like a nursing home. My mom is only 65, so this is a major problem.

When my father first got sick almost a year ago, I went through all their accounts and bills and put together a budget that I thought would allow them to live very comfortably, without changing any of their habits. I was happy to see that the budget would stretch their savings out to last over 20 years. I knew they'd have to be careful about major expenses, but I also knew that some of their expenses would decrease as they got older, so I wasn't too worried. But unfortunately, when I made that budget, I made two major errors. First, I didn't account for the fact that my mother hadn't actually been living with my father for almost a year. I thought it would be enough to take his grocery spending and more than double it. I might even have tripled it, just to be safe. This came to a budget of $775. But now that my mother's back, her actual spending on groceries tends to be more like $1500 a month!

To be fair, she doesn't only buy groceries at the supermarket-- she buys cleaning supplies, paper products, and sometimes plants and cosmetics. But still, it just boggled my mind that she could spend that much, especially since my dad was on chemo for most of the past 6 months and didn't have much of an appetite. I'm still a bit baffled-- she's not eating caviar and steak all the time, and most of her spending is at Stop and Shop, not Whole Foods. I think she just somehow consumes a lot.

The other budget item I got wrong was medicine. Although my dad has supplemental insurance and a prescription plan that gives him better coverage than Medicare, he has so many ailments and takes so many medicines that his co-pays seem to be coming to over $300 a month. I had budgeted about $50 a month, which I should have known was way too low.

When I re-ran all my budget numbers, I felt almost nauseous. It was the same kind of stress I felt when I learned several years ago that my mother had run up $50,000 in credit card debt. I thought since then that she had learned a lesson, and that my openness about the family finances would have cleared up her illusions about there being unlimited funds for her to spend. And in a way, she is being more conscientious-- she's spending money on the house because she thinks the lawyer told her she should. And as far as the rest of the budget went, the problem is that her idea of normal and necessary spending is just different from mine. But it was just extremely frightening to me to feel like my family was speeding towards a financial disaster. I was so wound up and frustrated one night, I ended up just crying in Sweetie's arms.

The next day, I sat my mom down for a talk. I tried to include my dad, as he sometimes seems to feel insulted when he's left out of things, but he walked away halfway through the talk, as if he just couldn't handle being involved. My mother had been jokingly referring to me as "her accountant" and telling the contractors who gave her estimates that she had to "get permission from her bookkeeper" but I tried not to get too dictatorial with her. I told her that I'd looked at over 6 months of her actual expenses and that they were much higher than the budget I'd originally done. I said she could go ahead with having the outside of the house painted, which would have been done already if not for the rain, but that I wanted her to put a total stop on any further household improvements for 6 months, and try to see if she could cut back some areas of her spending, emphasizing that it was her money and her choice in how to spend it, but that once it was gone, there would be no bailout available to her. She could make some moderate changes now, or she'd have to make drastic changes later. I explained that there was not much buffer for emergencies and that the only other source of income she'd have would be a reverse mortgage, which still wouldn't cover her spending at her present level. She didn't seem too happy about it, but asked for a printed out copy of the budget and said she wasn't sure how she could cut back but that she'd try.

I thought I'd gotten through to her but a couple of days later when I was back in New York, she called me at work and then said "you know, I'm still going to just go ahead and have the driveway repaved, it's only a couple thousand dollars." I just lost it. "No, Mom, do NOT repave the driveway. The driveway is fine. This does NOT add value to the house. You can NOT afford it. Would you rather eat for a couple of months or have a smoother driveway?" I was probably a little too harsh and she got off the phone in a bit of a huff but I think sometimes I have to be harsh to get through to her.

I talked to my sister ZZ a little while later and she said "Mom's kind of depressed. She's freaking out about the budget stuff." ZZ also can't get her head around the immense amount spent on groceries, but she did have one good idea for cutting some money out of the budget. My parents spend several thousand dollars a year to have someone do their landscaping and shovel in the winter. ZZ pointed out that she and her husband could just visit more often to mow the lawn in the summer, at least, and that they could probably pay some neighborhood kid much less to help shovel in the winter. We'll see how this works out. I hadn't originally thought the landscaping was something to be cut because I was focused on not causing my parents any extra stress or discomfort, but I need to think more creatively about it. We'll all be trying to find ways to balance their budget over the next few months... we'll see how it goes.