The Antibiotic Insurance Policy

Marketplace had a brief report yesterday on the FDA's new rules about giving food-producing animals antibiotics.  Read the article here or listen to it now.

This will cost the food industry, especially large cattle farms.  Likely, that cost will get passed on to us in the form of higher meat prices.  I wish Marketplace had gone into some more details about those costs and their extent.

BUT, it helps stave off the microbe apocalypse.  We make an investment now to change the way we handle raising animals for food, followed by a somewhat more expensive ongoing process, but those premiums are paying to reduce the likelihood that a superbug will kill us all.

Next step, stop asking your doctor for antibiotics every time you stub your toe.

You Could Use a Mint, Part II

I started adding accounts and checking out the different features.  Adding accounts is fairly simple, similar to logging into a credit card website.  Some accounts are easier to add than others, though.  Our primary bank took less than 30 seconds, while the servicer of most of our student loans can't seem to connect correctly.

The expense tracking and budgeting tools are the first features I noticed.  Mint pulls the transaction data from our checking and credit card accounts.  It then assigns categories to most of those transactions (food, restaurants, gas, student loans, etc.), and I have to assign the category to some transactions (it doesn't know that big paper check transaction every month is the rent).

It uses this data to build pie charts of where we are spending our money.  We can also build budgets, which is useful for tracking our going-out-to-eat budget.  For a broader view, it can give you Net Income numbers for every month; so you know when you are living in the black or the red.  In the long run, the Net Worth number will also be good to track, but right now it's just depressing.

At the moment, I feel like Mint is a better connected and cleaner version of Quicken.

You Could Use a Mint, Part I

Last year sometime, I heard an article similar to this one, and thought about using a site like Mint.com to help manage our finances.  I signed up, but when it got to the point of asking for usernames and passwords to get access to my bank accounts, credit cards, and brokerages, I took a step back to make sure I wanted to put all that information into one place.  It is now ten months later, and that account is just sitting there.

Today, though, I got a message from a friend asking what I thought about sites like this, and I remembered my account.  I'm going to give it a try, and document my experience here.

I don't need Mint.com to manage our finances.  I do it pretty well with a spreadsheet, a check register, and my brain.  That said, those tools have some disadvantages:

• I sometimes find myself doing the same cash flow calculations multiple times during a complicated month; perhaps a site that put all our accounts together could help there.  
• We have money sitting in a savings account for Nicole's maternity leave that might earn a better return at our brokerage invested in Treasuries or CDs, but I often think about savings and brokerage accounts as being holders of money for different uses (a common behavioral finance trap).  Perhaps seeing these accounts together would make me more efficient with our cash and liquidity management. 

I think Mint.com will be most useful, though, if I get hit by a truck (a useful potential scenario for lots of life planning).  Nicole has access to all the usernames and passwords for all the accounts, but she doesn't interact with them as often as I do (such as my Roth IRA or student loans).  I hope that having all that information listed in one place will allow her to more easily see our overall financial status, and take over as the primary money manager if needed.

Sociological Disclosure: Yes, I am a man, and currently the primary money manager in our family.  Nicole is currently the primary breadwinner.  We both keep house.  Don't judge.

I'll start entering my information, and will post about the process as I go.

We're the Red One

Investor's Business Daily had a graph on their June 7 front page that compared employment losses of all the recessions since 1953.  They cited Calculated Risk as the source.  I couldn't find the exact same graph there, but I did find the one below, which I thought was pretty interesting.

Questions?  Comments?

Relax Luther, it's much worse than you think.

Sydney posted some good questions on What is Arbitrage?.  I'll take them one at a time over the next few weeks.  First, I have to contest the assumption that money in the bank is totally safe and secure.

It is true that money you have deposited to your FDIC insured bank is guaranteed by the federal government against loss.  If your bank goes bankrupt, and they don't have enough cash to pay you back, the FDIC steps in and pays you for every dollar up to $250,000.  Banks and the tax payer fill the pool to provide this insurance.

But what about the robot apocalypse?  Your trust in the bank and the FDIC rests on the belief that the federal government will always be there.  I think this is a fairly reasonable assumption, but you should be aware of it.  Also, one could argue that your American dollars won't be very useful in this scenario anyway.  Food, water, and a gun big enough to hurt robots would be preferable.

Here is the other, and more applicable, problem.  Your money is losing value in the bank.  Very few banks pay interest that is higher than inflation.  So you might get paid 1% a year by your bank, but when inflation goes up by 2%, you lose.  You have a little more money, but it doesn't buy you as much stuff.

I understand the desire to accept zero risk (assuming no robot apocalypse).  There are other investment options available to a risk averse investor that pay better than saving accounts, such as United States Treasury bills and bonds.  I'll describe them in detail soon.

What is Arbitrage?

My latest post, which happened to involve food, got more visits and acclaim than my typical posts.  In fact, one reader explicitly said that food based finance was more accessible.  So, let's try it again.

The term arbitrage is common in the finance industry.   Performing arbitrage is profiting from the variance in prices in the market.  Take the vanilla bean example in my last post.  Imagine that the big grocery store had a really liberal return policy, and they would let me "return" vanilla beans with or without the original container at the price of $16 for 2 (the price they sell them).  I could go to the local spice shop, buy 10 beans for $20, and then go sell them to the grocery store for $80.  I keep the $60 as profit and have successfully arbitraged. 

This helps explain why many stores require a receipt and/or original packaging to accept returns.