Michael Law's Blog

The Difference Between Facebook and Twitter

Michael Law — Wed, 05 May 2010 17:52:12 +0000

“”Facebook is the people you went to school with. Twitter is the people you wished you went to school with.”

Marginal Revolution via Ben Casnocha

Atypical Things to Do Before You Consider Buying a House [thesimpledollar.com]

Michael Law — Fri, 30 Apr 2010 01:20:29 +0000

Trent over at The Simple Dollar wrote a great piece on atypical things you should do before buying a house.

Save a significant amount each month like clockwork for at least two years
- I couldn’t agree more. His recommendation to save the difference between what you are paying now and what your mortgage payment would be plus 50% for insurance, taxes and other expenses is brilliant.
Sell all of the stuff you don’t use
- His rationale of less stuff = smaller home = increased likely hood that you’ll be able to afford your mortgage makes good sense. I generally believe we all have too much stuff anyways.
Fix some stuff
- Seems like good common sense.
Figure out why you are buying a home
- As I mentioned in a previous post on personal finance, lots of people do things when it comes to their finance just because they feel like they should or like it is what they are supposed to do.

All of those points are really great but I think the list is missing a few important things:

Rent in the neighborhood in which you plan to buy before buying
- It’s one thing to have a sense of what it might be like to live in a given neighborhood, it’s another to actually live there. I’m reminded of a time when I was certain I wanted to buy a home in Port Moody BC, a suburb of Vancouver. After renting there for over a year not only was I sure I didn’t want to buy there, but I was also sure I didn’t want to rent there either.
Have a 5 year plan
- Home ownership can be a good investment in the long run but it’s generally a poor investment in the short run. If you aren’t sure where you’ll be or what you’ll be doing in a year or 2 years even, buying a home probably doesn’t make a lot of sense. Do you want to travel in the next few years? Then maybe you don’t want to end up house poor by buying something right near the max of what you qualify for.

Buying a house is a huge commitment, the more time you spend making sure you’re making the right decision for the right reasons, the happier you are going to be in the end.

Four Atypical Things to Do Before you Consider Buying a House [thesimpledollar.com]

Will work for taxes

Michael Law — Thu, 29 Apr 2010 14:40:16 +0000

In Mexico, artists can pay their taxes with art. It’s an option that has existed since 1957 and has allowed the Mexican government to amass a huge collection of art from some of Mexico’s great artists. The pieces are displayed in museums and loaned out to exhibitions around the world. They are also displayed in government offices. It seems the government is always struggling with finding the right balance between supporting the arts, while continuing to provide the money needed to support essential services. What if instead of providing money the government offered artists the ability to pay their taxes with a work of art? What would that mean for artists?

What if time spent volunteering for a charitable organization could count against your taxes?

What about building schools and roads? What about teaching a class? Acting as a volunteer firefighter? Caring for the ill and the infirm?

Governments are bad at spending money. They over-spend, they are wasteful, they allocate funds politically instead of by need. Maybe there is a chance that society would benefit if it was an option to give back a portion in service rather than money.

In Mexico, artists can pay their taxes with artwork [USAToday.com]

Travelling with the iPad – An Early Review

Michael Law — Mon, 26 Apr 2010 20:26:11 +0000

Pros

Battery life: 2 flights. 10 hours. Movies, books, games and music. No charging. Because it’s not your phone, there’s no worry about running the battery completely dead and being without the ability to make or receive a call/email.

Size matters: Not only is the screen beautiful to look at, but the larger size makes watching video a more enjoyable experience than it would be on an iPod Touch or iPhone.

Not too big: It fits in the seat pocket. Want to pause that movie to have a drink or a snack? No problem. Just slide the iPad into the seat pocket in front of you. Want to drift off after reading a few chapters? Same thing. The iPad is a great size for travelling.

Cons?

The inquisition: At least in this early stage of release (note: I’m in Canada, where the iPad hasn’t even been officially released yet) you can expect a LOT of questions about your device. While the most common question by far is “How do you like it?”, you can also expect to get “Can i hold it?” and “How much did you pay for it?”. Unfortunately, most of the questions will come while you are actually using the device. Be prepared to pause The Na’vi to answer questions.

Case: The Apple Store was sold out of cases when I got my iPad. You’ll want a case. If you’re there and they have them, buy one. You’ll regret not doing it later.

Wi-Fon’t: There was no wi-fi on my flight and while that doesn’t take anything away from the greatness of the device, it was a reminder that there are still a lot of places where wi-fi isn’t available that it should be. It’s also a reminder that I can’t tether my iPad to my iPhone, leaving me to struggle reading webpages not formatted for mobile on a tiny iPhone screen.

Strange career advice – eat your vegetables

Michael Law — Wed, 07 Apr 2010 14:17:09 +0000

My wife recently connected with an expert in her field in the hopes of getting some career advice. The expert made the point that being a healthy happy human being was a fundamental component of being effective at her job. The expert asked my wife the common career oriented questions but she also asked about her less-than-stellar eating and sleeping habits. My wife learned the best thing she can do for her career is to get a good night sleep and eat properly. My wife was already following all the standard career advice. She was working hard, she was constantly trying to get better, she had a great attitude and so on. She was doing everything you’re supposed to do to be a good employee while neglecting some things you’re supposed to do to be a good person.

We’re bombarded with messages about eating right, getting enough exercise, getting enough sleep, and yet few of those messages relate how being well nourished or physically fit or well rested can help you with your career.

The impact on energy level and decision making ability is obvious. But it’s also worth noting that physically fit people are generally considered more attractive in our society. Attractive people make more money (here) on average than less attractive people. Unfortunate but true.

Sometimes good life advice is also good career advice.

Advertising is the price companies pay for being unoriginal

Michael Law — Tue, 23 Mar 2010 14:14:03 +0000

Let’s face it, we aren’t all blessed to have a product as sexy and with as much mass appeal as Apple has with its range of iStuff. It’s unlikely that major media would show up and provide free advertising if our turtle-necked leaders called a press conference to announce the next iteration of our widget. We’re off the hook to a certain extent in regards to our unoriginality but that doesn’t mean that we shouldn’t find ways to make our offering unique, exciting and novel.

Zappos isn’t as successful as they are because they have shoes nobody else has
The Grateful Dead didn’t tour endlessly for decades because they were the best musicians
Perez Hilton doesn’t get millions of page views a day because he’s a great artist

They all found a way to take a product in a highly competitive market and make it completely original. Zappos distinguished themselves by making their customer service all about wowing their customers. The Dead toured somewhere in the vicinity of 2300 shows by helping foster a sense of community among their fans. Perez Hilton became “Hollywood’s most hated website” by ruthlessly attacking celebrities and drawing obscenities on their pictures.

Ultimately their success lies in their ability to innovate the way in which their offer is consumed. They face less if any competition because they are no longer one of many doing the same thing. They are the ONLY ones who do what they do.

First day on the job – pretend you just moved in together

Michael Law — Mon, 22 Mar 2010 15:45:47 +0000

Think of the hiring process like ‘dating’ your candidate. There’s no commitment, you’re feeling each other out, trying to see if she is ‘the one’. You’re building a relationship that you hope will not only be long-lasting, but also, mutually beneficial. Things are going well, you’re both into each other so you decide that you’re ready to move to the next level and you make an offer. An offer to ‘move in with you’. It’s a commitment, a big step up from your current relationship. There are logistics to work out, and costs involved. She will have to give notice on her old ‘place’, but you’re both excited about this new relationship so it’s worth the risk.

Now imagine it’s moving day, and she arrives at your place to find that you’ve made little to no preparations for her arrival. There’s no room for her stuff, you haven’t gotten her a key, the place is a mess and you aren’t there to greet her when she arrives. How do you think she’s going to feel about this relationship that she was so excited about? What do you think her disappointment is going to do for the potential long-term success of this new relationship? There’s no way anyone would be that un-prepared right?

And yet, we see it all the time when we start new jobs. We show up on the first day of a new job and there’s no computer for us, no email, no phone, or even no desk. We aren’t introduced to the people we’re going to be working with. Nobody takes the time to show us where the washroom or the coffee is. We aren’t made to feel welcome at all and all that goodwill that was generated throughout the hiring process goes right away instantaneously.

It’s an easy problem to avoid. Create a detailed on-boarding checklist that’s followed for every new employee. Be as ready for them on their first day as you expect them to be ready.

Why losers get hired – The Stigma of Uncomfortableness

Michael Law — Fri, 19 Mar 2010 14:11:17 +0000

Every organization out there, big or small has made a bad hiring decision. Some organizations are riddled with B, C and D players. We spend hours crafting interview questions and agendas, we check references, and yet people who aren’t very good continually find ways to get themselves hired. Why does this happen?

Mark Horstmann at Manager-Tools once said that interviewing is about looking for a reason to say no. Unfortunately most people aren’t looking very hard because it’s uncomfortable to do so. When a candidate avoids a question by giving a canned response that doesn’t really answer the question it’s uncomfortable to drill down and MAKE them give us a real answer. When we ask “what are your weaknesses?” and a candidate for a sales position answers “well I’m not very technical so don’t ask me to change the toner.” we don’t press for a real weakness that’s job related and what they are doing to work on it. Putting people on the spot is hard. It’s not something you probably do in your social life, and it doesn’t come naturally to most of us as interviewers.

The good news is that it doesn’t take very much effort to be just a little bit better than every one else. Force yourself to make candidates answer the question that you ask, don’t shy away from making things uncomfortable, and you’ll find yourself with plenty of reasons to say no to someone to whom you might have said yes.

Design Outside the Box: Jesse Schell at DICE 2010

Michael Law — Thu, 18 Mar 2010 19:03:17 +0000

This video is brilliant, especially mind blowing in the last 5 minutes or so of Part 3. I can’t recommend watching this enough as not only does the content provide an interesting hypothesis about the bleeding of gaming into every aspect of our lives, but Jesse Schell is a wonderful and dynamic presenter who’s odd delivery and perfect pacing make watching and listening to him a unique experience.

Big thanks to G4TV.com for recording the presentation and to kottke.org for posting it.

Parts 2 and 3 after the break

Debt is NOT a four-letter word

Michael Law — Thu, 09 Jul 2009 13:48:32 +0000

I’m a finance guy. It’s a big part of what I do and it’s also fairly common knowledge in even my extended social circle. So I guess it should come as no surprise that I’m often asked for advice when it comes to matters of dollars and cents. It just comes with the territory, and I’m always willing to spend a little time educating people on personal finance and taxes. I use the term “educate” specifically because the first thing I generally tell people is not to take anyone’s advice. I tell them that it’s important to educate yourself and that what’s right for your friend, or your brother-in-law or your office-mate may not be right for you. Generally in a conversation, it’s hard to demonstrate exactly how true that is, so I decided to illustrate that point with an example that debunks some generally held beliefs about savings and debt.

The setup

Kelly from Toronto is pretty good with his money. He doesn’t carry a balance on his credit card, lives within his means, and his only debt is a $1,000 line of credit (8.5% APR). He’s got a little bit of money at the end of every month and he’s trying to decide what to do with it. He’s getting all kinds of advice but he decides to ask his especially handsome friend Michael to help him decide what to do. Michael doesn’t want to give Kelly advice so he decides to walk him through a couple options and let him decide for himself. Let’s see what they come up with.

Option #1 – Payoff his line of credit

If Kelly pays $87.22 per month towards the balance on his line of credit, he’ll have it completely paid off in one year. In that year, he’ll have paid $46.63 in interest vs the $85 he would have paid in interest had he not paid off the LOC.

Net Gain: $85 – $46.63 = $38.37

Net Worth (all things being equal): $0 (nothing owed and nothing saved)

Michael lets Kelly know that this is a very safe option. It helps his liquidity in the short term and increases his overall net worth from -$1,000 to $0.

Option #2 – Save for a rainy day

If Kelly takes that same $87.22 per month and puts it into a savings account for 12 months he’ll earn about $52 in interest (this is a generous estimate). He’ll also have paid $85 in interest on his still outstanding LOC.

Net Loss: $52 – $85 = $33

Net Worth (all things being equal): $0 ($1,000 owed and ~$1,000 saved)

Michael lets Kelly know that this is also a very safe option. While he’s actually losing a little bit of money by not paying off his debt, he’s accumulated a nice bit of cash (something everyone should have). If times get tough or Kelly loses his job, he’ll have his $1,000 to be able to pay bills etc.

Option #3 – RRSP contribution (For those in the US, an RRSP is very similar to a 401k)

If Kelly takes his $87.22 per month and contributes it to a RRSP for 12 months and we assume Kelly’s income tax rate is 35%, he’ll receive a tax credit of about $366. Like the previous example, he’ll have also paid $85 in interest on his LOC.

Net Gain: $366 – $85 = $281*

Net Worth (all things being equal): $0 ($1,000 owed and ~$1,000 saved)

*Does not include the potential to gain income over the life of the investment

Michael advises Kelly that this is a long-term play. It makes him less liquid now, but any amount he can save for the future at this young age will maximize the potential growth of that investment. He also defers some tax liability to his retirement age when he’ll conceivably be at a much lower tax rate.

Option #4 – Borrow MORE money (what?!)

In addition to the RRSP contribution made in Option #3, Michael advises that Kelly could also take out an RRSP loan to get an even bigger tax credit. Most Canadian bank offer “RRSP Loans” to clients at extremely low interest rates in order for them to be able to make the biggest contribution possible to retirement savings accounts. If Kelly takes out an RRSP loan for $1,000 at 3%APR and adds that money to his RRSP contribution for the year his combined tax credit will be about $716. He’ll have paid $85 in interest on his original LOC and will also be responsible for $30 in interest on his new RRSP loan.

Net Gain: $716 – $85 – $30 = $601*

Net Worth (all things being equal): $0 ($2,000 owed and ~$2,000 saved)

*Does not include the potential to gain income over the life of the investment

Michael advises Kelly that this is the least liquid, and most risky of the four options he’s presented. It’s risky because it puts Kelly at risk should he lose his job, or have any type of financial crisis in the short term of not being able to meet his debt obligation. Conversely, it also provides the highest net gain of the four options.

So, after all of that, which is the best strategy? As I’m sure you’ve guessed, there is no “best” answer, only a “what’s best FOR YOU” answer. What’s best for Kelly (or you) is going to depend on a variety of factors including:

Tolerance for Risk
Needs (short term vs long term)
Certainty (liquidity vs not)

The options presented above are by no means the only options available either. If you have a mortgage (and are allowed) making one-time payments directly to your principle can dramatically reduce the interest you’ll pay over the life of your mortgage.

Educate yourself to the best of your ability on your situation, your needs, and your options, and it will become evident which strategy (or combination of strategies) make the most sense for you.

Wait, I guess that sounds a bit like advice doesn’t it?