Posts Tagged ‘money’

Every bike shop is stacked to the rafters with expensive accessories. But, wanting to be frugal, I rejected the idea that you needed them. I bought a bike and nothing else. No accessories at all. I refused to be pulled into this expensive world.

And then the real world hit me, and I realised how wrong I was.

This is my story. A story of how you actually do need a bunch of accessories, and will massively regret it if you don’t get them.

Shorts

True, you don’t really need these. Just like you don’t need a cup even if someone is going to kick you in the genitals over and over again. But any sustained time on the bike and you’re going to start getting sore.

I managed one ride. By the end of the first hour, my bottom was regretting it. Padded shorts are well worth the investment.

Bottle cage

Human beings literally die if they don’t get water on a regular basis. Even by re-using a sports bottle that I already owned, I still had to buy a cage to put it in.

Multitool

Oh, you want to fit that cage to your bike? Too bad, because the Allen key size doesn’t quite match the six different ones you have left over from Ikea. So, you have two options. One is to go cap in hand around to your dad’s every time you want to change your saddle height. Or two is to buy a multitool.

I tried to get away with option one. But my parents go on holiday too often for it to work.

Jersey

Great, so, I’ve now got my water, but nowhere to put an energy bar. Or my wallet or keys, or basically anything. This is because if you have a regular pocket on a bike, things fall out of it. So, you either need to use shorts or trousers will jip pockets (of which I do not have loads), or buy something with pockets.

Like a jersey. Which has three. For things like keys. It’s that or use some kind of elaborate wave system to try and tell your wife you’re home and want to be let back in.

Inner tube, pump

On my fifth bike ride, my back wheel fell off. I don’t know how to change a wheel. But even if I did, it wouldn’t have been much use because I don’t own a pump or a spare inner tube. Useful purchases, then.

Saddle bag

Oh, you want to have those things for when you need them in an emergency? Looks like you will be buying a saddle back to store them in, then.

Lock

Now we’re rocking and rolling. Sure, we’ve had to give in and buy seven accessories, but now we’re set, right?

Well, yes, unless you have any friends. Or want to ride your back to any kind of location. Because if you wanted to do any of that, you’re going to need a bike lock to lock it up at your destination.

Again, you have options.

You could get your friend to use their bike lock to secure both your bikes, for example. In which case, hope you have a generous friend with a suitably flexible bike lock.

Or you could move to Oxford, where nobody really uses them.

Short of that, you will be investing in an expensive lock because even the expensive ones only provide about a minute’s protection from determined thieves. And one lock is pretty much a starting point: you will want to get a second one to try and hang on to your wheels as well.

Cover

Now your bike is covered in expensive things in a country where it rains all of the time. Maybe you have an indoor storage area. We live in a flat, so the bikes have to live on the balcony. That means investing in a rain cover.

Helmet

I don’t bother with a helmet because the evidence for them is mixed. But a lot of people look at my weirdly. And if I want to ride any organised events or competitions, a helmet will be mandatory.

Lights

Lights are optional, unless, of course, you ever plan on commuting on your bike. In which case, you best hope you only work 10 am to 3 pm, otherwise, you’ll be riding to and from work illegally.

Glasses

Glasses aren’t required unless you want to a) see where you are going in the sun and b) ever ride near a canal or river. If you do want to ride by a waterway, you have the choice of either wearing some glasses or repeatedly being hit in the eye by insects until you blindly ride your bike into said waterway.

Gloves

You can live without gloves unless you want to be able to use your hands at the end of the cycle. For example, being able to use a keyboard in the office or operate your keys to unlock your front door when you get home.

In either of these scenarios seem likely, you will want to ensure there is at least some heat left in your hands when you arrive at your destination.

Mud guards

I don’t care about getting muddy when I go cycling. However, if you ever plan on riding when anyone else, you might start to care. And, if you go out with a cycling club, they are likely to be mandatory.

Things you don’t need

There is one thing you genuinely don’t need to buy for your bike, and that is a computer. The one thing that is actually fun and interesting. Which really digs the claw in. If you want to be frugal, you need to buy every single cycling accessory except the one you actually want.

Summary

People sometimes say that you should avoid spending a fortune on cycling accessories.

However, that is a little unrealistic. I tried it. I bought zero accessories for my bike. But, one after another, I was forced to invest in them. Cycling is a tricky thing to do on a budget.

If you work in IT, and have considered making the leap from permanent employee to contractor, you are not alone. Many people want to make the transition because they want to…

• Earn more money
• Be able to take more time off
• Be their own boss

The problem is that having a permanent job is easy: you just turn up five days a week and people give you money. Finding the motivation to research contracting is a tough ask, especially when there are so many minefields and potential trip hazards to avoid.

It’s a shame because being a contractor is awesome. I get this immense feeling of freedom knowing that the only person I am truly working for: is me. I like running my little contracting company, I like being able to provide for Elina and Venla, and I like the fact that when I get bored of a contract I just terminate it and move on.

So, to help anyone else who feels the same way but needs some help making the switch, I am launching the IT Contracting Master Class. A course that takes you step-by-step through setting yourself up as a contractor and continues all the way through to what to do once you find your first contract and start working for yourself.

I have been there and done it all already, so I can save you the heavy lifting. The instructions are specific: I tell you exactly what to do and where to go. None of this “well, you could do A, B, or C”. I will give you the options, but then tell you exactly which one is the right answer and why.

Sound good?

You are probably wondering how much I am charging for such a course. That is the best bit: it is free! You can sign up for zero cost and get access to the first batch of lessons, and to my eBook First Steps in IT Contracting. If you like what you see, you can upgrade to the full course at a later date.

>Register now for immediate access or visit the website to learn more.

Legal tender is money, right? But what is illegal tender? If we have a term like ‘legal tender’, what does that mean, and what does it mean for things that are not legal tender? I was thinking about this on my walk home today. Luckily Wikipedia came to the rescue with a good write-up on the subject.

Legal tender is anything that can be used to settle a debt. If I owe Fred £10, I can give him a £10 note and the debt is paid. He cannot say “no, I only accept coins”, because a £10 is legal tender and therefore has to be accepted as payment of debt. The UK has some quite complex rules on it. For example a ten pence piece is legal tender, but only up to a certain value of £10. Someone is not obligated to accept a payment of £1,000 in 10p pieces. Guidelines are available from the Royal Mint.

Things get a little more complicated around the union. Notes issued by the bank of England are legal tender in England and Wales. Scottish bank notes however, are not. In fact technically Scottish bank notes are not even legal tender in Scotland, though they are typically accepted to be by general agreement.

Another issue that comes into play is whether you have a debt, or whether you are treating. If you have not yet established a debt, the trader is under no legal obligation to accept your money. So a shop or a bus could refuse to accept a £20 note from you (many shops due refuse £50 notes) because no debt has yet come into play. However, if there was a debt established and then payment has requested, so as an invoice or a restaurant meal, they would then be obliged to accept your legal tender.

It is sometimes claimed that stamps are legal tender. This is not the case, and was confirmed by the Royal Mint.

Why Smart People Make Big Money Mistakes – And How to Correct Them: Lessons From The New Science Of Behavioral Economics is a book with an obserdly long title. It’s written by Gary Belsky and Thomas Gilovich.

I first assumed that it was going to be about why professional investors do stupid things. I was incorrect, much to my advantage. It was about us, all of us. We are the smart people making the big money mistakes.

A lot of the content I already knew from reading A Random Walk and Thinking, Fast and Slow, but it was all a valuable reminder. Especially as I am still making many of the mistakes! Though as the book concludes, as fallible humans we are probably going to continually make them. It’s a fun book to read as you get scenarios and have to try and guess the right answer. Just like QI, you quickly learn to avoid the obvious answers.

Mental accounting is a classic example. A pound is a pound. Yet so often we sub-divide our money into different funds that are more or less valuable. I was in this exact scenario as I was reading it.

I had recently received some compensation for a car accident. I was thinking about buying a stand mixer with it. It’s bonus money, right? At the end of each month, I do a spreadsheet of all my bank balances and debts to see how much money I had on. In this case, I had even put a debit in to cancel out the effects of the extra money in my bank account, so that I could keep that money in a separate mental account.

But this is nonsense! I have that money, and it is just as valuable as any other money. If I can justify buying a stand mixer, I can justify it from my savings as much as from ‘found’ money as it is often called. If I can’t, then I shouldn’t be buying it. So I took the advice from the book – I removed the entry on my spreadsheet and I sent the money to my savings account. If I can justify taking it out, I can buy the stand mixer. If not, the money stays in my savings. Either way, all money has the same value.

The best way to avoid this issue is to put found money into your savings account, count it as part of your total savings for a while, then see if you still want to make the purchase.

Another example I fall pray to is using big purchases to hide additional extras. When I was going to buy my first desktop computer, I thought about buying a tablet to go with it. In the shadow of the cost of the computer, it wasn’t that much money. Luckily, my dad talked me out of it. I could have bought one later, but I never did because I could not really justify the cost on its own.

Contrast this with when I bought a piano. They offered to sell me a stool with it. It was a small cost in compassion to buying a piano. But did I really need it? I decided the sensible thing to do was wait and see if I really needed it, and could justify the purchase on its own. Six months later and I am still just using a dining chair, and it works fine. Better even, because a stool would get in the way.

Sunk cost fallacy is the idea that once you have spent the money it is gone, but people do not often actually believe this. The classic example is paying for a cinema ticket, or entry to a nightclub, getting bored, and then staying anyway to “get your money’s worth”. Of course, in reality, the money is gone and you are just wasting another valuable commodity, your time, by staying there bored.

This in itself doesn’t cost you money of course. However, other examples do. Take, for example, selling a house. People will often refuse to sell a house for more than they bought it for. Why? The buying price is irrelevant. If you need to sell your house, you should do so for the highest price you can get, rather than holding on to it because of an irrational psychological anchor. Yet, we’re all human, and I am sure I would try and hang on too, even though the rational part of my brain would be calling myself an idiot.

The book also talks about the ideal number of choices. Quoting the famous jam study. If you give people six choices, they are more likely to buy than if you give them 24. I mentioned this a few days ago in my review of the Happiness Hypothesis. It is worth noting that six and 24 were just the values that were picked for the experiment: it does not conclude that exactly six choices is the optimal number.

Insurance is an area that I am getting better at. I never took out extended warrenties and phone insurance anyway, but Daniel Kahneman has long since convinced me that I am correct not to do so. Insurance is a money making product, so if you could afford to replace it, you should not have insurance. I would be very annoyed if I smashed my £600 iPhone tomorrow and had to buy a new one. However, I could buy a new one, and the money I have saved over the past decade of owning a phone, not paying for insurance, and not smashing it, would still leave me in heavy profit.

A sneakier example is insurance excess though. On top of the £150 mandatory excess on my car insurance policy, I have an optional £250. Sometimes I think I should get rid of this. However, as the book points out, that would be a bad move. I can afford the £400 excess I would have to pay if my car was in an accident, so it makes sense to take advantage of the reduction in premiums because most years I will not claim on my insurance. In my case, this is pretty academic anyway, as my insurance company doesn’t think my car is worth anything.

In short, this is a very useful book. It references a lot of Kahneman and Tversky, which is useful for the everyday money mistakes we make. It also talks a lot about retirement planning and stock market investing, which is less relevant to some people, but still useful to most.

How has wealth inequality changed over the previous few centuries and what does that tell us about the present? That is the rather large question that French economist Thomas Piketty attempts to answer in this book.

No doubt his writing is in a far more coherant and structured format than my description of it, but here goes.

H begins with a global outlook. Poor countries are gradually catching up with rich countries, and he notes that wealth inequality is primarily within a country. China is making rapid progress in catching up with Europe for example, while the working class of Europe are not making the same gains on the upper class.

Nevertheless, it is a long and hard struggle. Once one country has an advantage, it can essentially own another. This is how European nations managed to maintain colonial domination while running a trade deficit. We could simply put our colonies into debt and then force them to work for us to pay it off.

Once they do grow, they are unlikely to overtake us because as they become a first world country the growth levels off. They are also a long way behind. Europe has 2000% the wealth of China for example, so even growing at 8% a year, once you factor in that Europe is also growing, that is a long way to catch up.

The oil countries could see huge growth though because of their sovereign wealth funds.

Europe itself remains incredibly rich. Richer than anyone else in the world. Though admittedly the United States are the only real competition. However this wealth is all in private hands. European governments themselves are heavily in debt, mostly to their own citizens, and typically have a capital of 0, because their public assets only just cover said debts.

It is traditionally highly unequal wealth. Far from being the land of the financially free, it was the United States that pioneered high tax of the wealthiest and it is only in recent decades that America’s wealth inequality has become greater than Europe’s.

This wealth is very concentrated. One way is labour inequality. Some people are paid far more than others. Though this is not always the close. In 1970s Scandinavia the top 10% of earners claimed 20% of the earnings. This seems a reasonable level of inequality to me.

A much more pressing issue though is capital inequality. Even in the most equal societies the bottom 50% will typically own nothing. Before the World Wars 1% typically owned 50% and 10% owned another 40%. The Wars changed this, but only as far as to allow the next 40% to buy their own home, which is not much by comparison, and still leaving 50% without assets.

Capital inequality is typically inherited. Thus it is not a useful form of inequality because it does not provide motivation for people to earn money. The point of inequality is to motivate people to work hard and earn money, but there is no utility in allowing people to merely inherit large amounts of capital – in fact this encourages them to do nothing.

It is also worth noting that labour inequality does not necessarily provide this motivation either. This is because the differences in “super manager” compensation cannot be directly related to a persons output but rather by industry and non-talent based conditions (luck).

Once people are rich the problem of wealth inequality perpetuates itself. Inflation, which many assume would reduce wealth, actually makes the situation worse. This is because poor people see their savings eroded by inflation while large amounts of capital is able to better protect itself.

It does this in a number of ways. By being larger, the capital of American university endowments when compared to individual savers for example, can afford to spend far more on management. Harvard has around $30 billion, so can spend $100 million a year on management with that only being 0.3% of their capital, which will be more than made up for in growth.

Secondly, with a bigger fund you can diversity into more risky assets. This produces a less predictable short term but a more profitable long term. Thirdly, many options that Harvard invest in may simply be entirely unavailable to small amounts of capital, such as products which require a large minimum investment.

Thus the rich get richer and the poor get poorer with no relation to the work, productivity or utility of the individual. There is no self-correcting mechanism for this.

What can we do about this?

Free university could be one way. It seems to have reduced inequality in the Nordics, though this has not been entirely proven. Picketty also suggests minimum wage will not help in the long run.

He suggests a global tax on capital. This would be low, initially at 0.1% of total capital, progressively rising to 0.5% for the largest fortunes.

This would have to be done in a global level, or at least a European level and require cooperation from banks. Otherwise people would just hide their assets. Indeed, it should be noted that the balance of payments for Earth is currently negative! More wealth flows out that comes in. This is of course theoretically impossible, but could be accounted for by tax heavens not being transparent.

A global tax on capital would encourage people to generate money and become rich, which ensuring that these fortunes cannot be used by future generations to unfairly dominate the economic landscape.

In summary, the following points:

• Capital inequality is the biggest form of inequality
• The twentieth century saw some reduction in the importance of inheritance, but this is now returning
• Large inherited fortunes serve no utility to society
• Large fortunes are able to perpetuate themselves and thus the rich get richer and the poor get poorer
• There is no natural self-correcting mechanism for this
• The best way to tackle this would be with a global tax on capital

Michael Shermer recently tweeted a link about income inequality in different countries. One of the most interesting graphs can be seen here.

This shows the share of income that the top 1% have. In the UK this peaked (technically it troughed) in 1977 when the level reached 6%, the lowest on record. This suggests we had the lowest levels of income inequality at this time.

From here on it goes up. The data only goes as far as 1988, but other sources shows that it has continued to increase.

Notably, 1977 is two years before Margaret Thatcher came to power. “Ah ha!” I hear you yell, “I know it all along”. To some extend, it probably is Thatcher’s fault, as the UK income equality gap has grown more than most. However, it is unfair to lay all the blame at her door (or grave) because this has been a global trend. Almost all countries in the developed world peaked in the late 70s and have since become less equal.

According to an article on the BBC, the UK has reached 16% by 2005. This means that despite a decade under Labour, the income equality in the UK did not stop growing after Thatcher was gone.

Ultimately, what this tells us is that we should definitely vote Loony.

When someone says the phrase “high frequency trading” (HFT), most of us have no idea what it means. Even those of us with some idea, probably think it is trading by computers, but essentially doing what traders do – wheeling and dealing in an attempt to make some money.

Michael Lewis’s book “Flash Boys” tells a different story. High frequency trading is all about front-running. You want to buy 10,000 shares in Apple? Great, I’m going to buy them before you can and then sell them to you at a higher price. It’s illegal, or it was, but with the deregulation of central stock markets in favour of competition between markets, you can now exploit milliseconds it takes for them to talk to each other.

This caused huge investment into the history with HTF firms making enormous profits. The banks didn’t say anything because they were making money from selling the HFT companies the data they needed. The stock markets didn’t say anything because they were making money from the huge increase in trading activity. Everyone was getting rich from scalping the ordinary investor.

I say was, but the problem has not gone away. However, the book also discusses how former trader Brad Katsuyama has gone on to set up IEX, a private stock exchange that tries to eliminate all the unfairness in the market.

It is a fascinating by scary read. To see how totally wrong the entire banking industry is. We all kind of know it, but it really brings it home.

Last week, we tried to get Elina’s bank account sorted out. When she originally set up the account with Lloyds TSB, they would only give her a cash card account, which is a weird account that has limited functionality, including not being able to use Link ATMs. They kept saying they could eventually change it, but they never have, despite nagging.

So we went into HSBC as I bank with them and have generally had less bad experiences than other banks. They weren’t too happy about doing it at 2:30pm on a Saturday, but eventually agreed to see us. However, they then moaned that we only had two months of bank statements, not three, and so couldn’t continue. So we stormed out of there.

Next we went to Lloyds TSB and once again asked them if they could upgrade the account. They said that their old system that isn’t 100% accurate said no, they couldn’t give her a real current account, but they couldn’t check for sure as their new system wasn’t working. They couldn’t give us a reason either – just “computer says no”, so we left there too.

The next bank along the street was Natwest who aim to be “Britain’s most Helpful Bank”. That is an admirable aim, but then, when you think about it, it’s really like being “Britain’s most gentle rapist” = admittedly more gentle than other rapists, but still ultimately a dick that abuses everyone who comes near it.

So we decided to skip that one and pop in to Nationwide, who are a building society.

They closed at the same time as HSBC, but were willing to set up the account anyway. Indeed, our account manager Shabana actually kept the branch open for us for an extra half an hour while we sorted everything out! She talked us through all their accounts and they immediately accepted Elina for a proper account.

I was so impressed, that I left with a new current account for myself as well! Of course, time will tell whether they continue to deliver on customer service, but so far it has been an incredibly refreshing experience.

This month at the Humanist Society of West Yorkshire, Simon Wellings presented a talk on Positive Money: A Simple Solution to the Debt Problem. It is a talk similar to the one he had given at Leeds Skeptics, though truth be told, I enjoyed the Skeptics talk a little more.

It was certainly thought provoking as Simon laid out the problems with the monetary system, and much debate followed the talk, though one of the members, who works in a bank treasury, strongly disputed some of the facts in the talk.

Ultimately there were two possible take home messages from the talk – you need to overhaul the monetary system and completely change the way the financial sector operates across the world. Or you need to start a bank.

This week saw the first meeting of the Humanist Society of West Yorkshire for this academic year. We run in academic years due to our venue following an academic calendar (it being an education centre and all, though with it being an adult one, that still seems a little strange).

It was rather manic with me having taken over as treasurer. Lots of people wanting to pay and I’m still not clear on everyone’s name in the society, so we ran out of time in the end and I’ll need to hand some of the membership cards out next meeting. All in all, lots of money collected though, which is the important thing.

The talk was interesting, Dr Bruce Turnbull talking about synthetic biology, but I had heard it before, as he had already given the talk at Leeds Skeptics earlier this year.