I stumbled upon the book Willpower: Rediscovering the Greatest Human Strength by Roy F. Baumeister and John Tierney when a columnist mentioned the book in pointing out the difference between the productive and the not so productive. We think of willpower as something that can help us win more sports contests, save more money or be more productive at work. However, the authors found that the people with the strongest willpower were also the most altruistic, gave more to charity and were basically pillars of their community.

More selfishly, as the authors noted, you cannot plan a 3 week vacation in paradise without making plans in advance.

Usually, book reviews outline the narrative of the book, highlight a funny story or two and give a ranking. I am going to take a slightly different approach. Most likely to Baumeister and Tierney’s dismay, I am going you the main suggestions raised in the book so you don’t have to read the book if you are not super interested:

(I highlighted the personal finance aspects of the book in a previous post)

1. Willpower is a muscle. Like any muscle, it can tire out. The more you tax that muscle during the day, the less your willpower, and decision making process, declines. This is why complex decisions should be made in the morning or shortly after having eaten.
2. Pick your battles. If you want to improve, pick one area of improvement and concentrate on it.
3. To do lists work- but not in the way you think it works. Writing a “to do” or a “to don’t list” eases your unconsciousness into not worrying about the next task. Less worry equals less stress.
4. We tend to be wildly optimistic about the time it takes to do everything. We are often wrong. Limit the number of goals (3 is the ideal number a week) and focus on them.
5. Better self-control = watching what you eat + getting more sleep. The organizational experts are also right. The neater your desk, the more productive you will become.
6. To break bad habits, break your routine. Buying a donut on the way to work each day? Take a different way to work then.
7. Monitoring is important. It helps long term planning and it forces you to focus on your goal.
8. Reward often for exercising willpower. ‘Nuff said.

I would recommend this book for anyone struggling with achieving goals or those wanting to be more self-disciplined.  If nothing else, it raises some interesting issues in a world of too much choice and tries to bring back into vogue probably something we, as a society, should pay more attention to.

The post title is self-explanatory and focuses gives some ideas on investment issues to pay attention to in 2012. I will be blogging about some of these issues in depth for the next 4 months (as you may know, this blog ends April 30 of this year). Without further ado,

1. Work on one aspect of your personal finances this year. Studies show the more diverse your goals, the less likely you will achieve any of them (my review on the book Willpower will be posted this month)

2. Setting a goal and achieving it are two different concepts. Track your goal religiously and have an accountability partner to help you.

3. Remember you are ultimately responsible for the outcomes in your life.

4. Do not forget to work on your human capital. Find ways to increase your earning potential through skill improvement, networking and gaining new experiences.

5. Returns on the market have always been unpredictable. Focus on tax and costs (commissions or MER): the two factors we truly can control when investing in the market regardless of the economic cycle.

6. Pay down your debt.  It is unsexy and prudent. This is why you should do it. Personal finance is not supposed to be exciting. What you do with your excess cash is what is supposed to be exciting.

7. Take anything you read with a grain of salt. The media is in the business of selling ads. Bloggers have their own personal agenda. Read to gain knowledge, not to follow blindly.

8. The closer you are to the daily pulses of the market, the more volatility it seems. Take a long term view.

9. Bad times are supposed to happen. Do not let fear paralyze you. As a matter of fact, downtimes are often times of great opportunity in our lives and finances.

10. Money doesn’t buy happiness. We became a very affluent society and seemingly an unhappier one at the same time. Family and community are riches we often overlook when pursuing the all mighty buck.

Good luck in 2012!

As a follow up to my post in November pointing out how regulators fail to collect fines for white collar offenses, the Ontario Securities Commission reported last week that its collection rate on collecting regulatory fines since 2005 is 1%. The morale of the post continuing to be it is better to be an aware and educated investor rather than relying on regulators to protect you fully.

While a positive step to promote transparency and accountability, has the law of unintended consequences taken over and we are too hyper-critical and reluctant to give as a result? The dialogue on charitable giving is generally being boiled down to two metrics- how much money has the charity spent on administration and what is its fundraising expense ratio (which is the amount of cents spent to raise $1.00- the higher the ratio, the better).

A recent study found that 40% of all surveyed believed that a charity should spend no money on fundraising costs (I am guessing these 40% also believe governments can deliver civilization with a 2% flat tax as well).  Another 60% believes that charities should have a fundraising expense ratio of approximately 15% (in other words, 15 cents is spent to raise $1.00).

Here’s the catch- the governments contradict the public on this issue. The Canada Revenue Agency (“CRA”) generally accepts a fundraising ratio of under 30% without comment (for clarity, these are guidelines and not hard and fast rules; CRA has stated that the analysis is contextual).

Here is the second issue- it appears that the higher the charity spends on fundraising and administration a, the better the charity is rated within an acceptable range of expenses. The lesson seems to be looking at charities is not like looking at an investment; since the return is hard to quantify, one cannot boil down looking at charitable dollars with one or two metrics. Certainly, an increased focus on costs has been welcome but swinging too much the other way to look at costs and nothing else is not constructive either.

As I have written before, if one really wants to do good and are concerned about fundraising ratios and administrative costs, one should volunteer even one hour a year to a charitable cause (or bid on bloggers for charity if you feel charitable and telling the world your story).

The first is monetary fines for violators should theoretically act as a deterrent to all participants in the financial industry. Set the fine high enough and it should send a chill against illegal behavior. There’s two problems with this approach. In 2010,  Goldman Sachs agreed to pay the Securities and Exchange Commission (“SEC”) a $550 million fine in connection with Goldman Sachs misleading the public about subprime mortgage products. The amount sounds staggering but, as many commentators noted, this amount was equivalent to 4 days revenue to Goldman Sachs.  A $550 million fine may sound great on main street but it is merely the cost of doing business on Wall Street.

The much larger problem with levying large fines is actually collecting these fines. In 2002, the United States General Accounting Office, a non-partisan branch of the United States government, found that the SEC’s collection rate in its disgorgement policy (disgorgement policy is the concept that a wrongdoer give back the profits obtained from illegal activities) was 14% between 1995-2001 (although, to the SEC’s defense, in many cases of out-right fraud, the guilty have hidden or spent all the money). The General Accounting Office also found procedural problems in tracking disgorgement. In plain English, the SEC was not following up well after fining market participants.

Although a follow up report in 2005 found the process was improving, it did note progress was slow. Tellingly, no updated collection data was provided (as far as I can tell, Canadian regulators do not release any comparative data- although they should). It would appear than justice is sometimes given if not necessarily fully executed.

The second way of looking at the issue is how quickly are regulators responding to white collar crime? It has been commented by many that the justice system simply does not act quickly enough in white collar crimes, either allowing the alleged to hide assets or leave many of the victims waiting many years for justice. For victims who are seniors, this is a delay that is simply not acceptable.

For example, Norbourg Asset Management, one of the largest financial frauds in Canadian history, was exposed in 2005. Two years later, the principal was convicted of securities act violations. Four years later, he plead guilty of criminal charges. Six years later, in early 2011, the investors finally came to a civil settlement to reimburse monies invested. As reported recently in the asset-back commercial paper case, settlement funds can also sit in the bank accounts of regulators for an unduly long period of time.

This is not to suggest that accused should be run over by a justice system focused more on proceeding quickly rather than properly. More accurately though, it seems like that justice is a slow-process (if it proceeds at all- Conrad Black was never charged in Canada even though Hollinger was listed on the Toronto Stock Exchange).

The morale of the story being don’t depend on the regulators to bail out investors or, if it does, be patient. As always, be an aware and educated investor.

One of the observations I have made in my hiatus is how our 24-7 news cycle may actually be making us worse investors by ignoring historical lessons (or history simply being downplayed in order for everything to seem new and novel) and, to borrow a political term, creating and/or exploiting wedge issues to draw our attention.

In particular, what I have noticed is the hysteria in which the next recession is being portrayed. To read the experts and to hear our political experts, one would think that recessions are earth-swallowing events that will consume us all. But here’s a list of years in which recessions have begun since 1945:

1949

1953

1958

1960

1969

1973

1980

1981

1990

2001

2007

Remove the last 9 year gap between the periods of 1960-1969 and the 11 year gap period of 1990-2001 and recessions are more or less unavoidable every 4-6 years. If we hit anywhere close to historical pattern, a recession would hit sometime in 2012-2013.

Recessions occur for a wide variety of reasons. To the extent anything good comes out of them, it is generally that the excesses are wrung out of the system and policy mistakes corrected.

Yet, if you read many media outlets or listened to our elected officials, this next recession (whenever it is coming) will be the ultimate end of us. More accurately, it will probably curb advertising (bad for media outlets) and result in politicians being thrown out of office (bad for the political class). But, in the meantime, spinning the next recession as economic Armageddon helps the media by making people pay attention to them and politicians by allowing for the advance of a political agenda through fear.

The hard truth is that recessions are not pleasant but necessary in modern economies. The good thing is that they compel households to more ideal economic behavior by, consciously or unconsciously, focusing on a “needs vs. wants” analysis on household consumption and communicating to our elected officials how we want our tax dollars spent.

At the end of the day, the people who survive recessions the best are those who can set aside the emotions that come with bad times and focus on the task at hand which, for many households, means reining in debt and repairing household balance sheets.

As for this blog, you will see some resumption of normal activity (“normal” being defined as 1-2 posts a week). Thanks for reading.

There are benefits and challenges when making purchases from large businesses.  Enterprises generally have more selection, and better brand recognition.  Conversely, prices are inflexible and customer service is weak.

The next time you want to make a purchase, there are some reasons to consider buying from a small business.   You can think of yourself as the big fish in the small pond.  Your sale matters more to the small business than to the bigger competitor, and you are usually rewarded for your patronage.

Negotiating a price. There is more opportunity for bargaining on the price.  All you have to do is ask! Believe it or not, this is one of the few times it’s actually better to call sales or support than to email them.  Small companies will be willing to negotiate on price and would rather make a deal in person or over the phone.  With so many deal websites around and the power of social media, small companies don’t want to document any special deals they make with individual customers.

Adding Freebies. Once you have negotiated a price, ask for free shipping or the addition in some less expensive items with the deal.    Small businesses will tend to throw in small incentives to encourage repeat customers.

The Support team. Customer support will be eager to please.  Should you have any questions or if anything goes wrong with your purchase, contact support and if they are setup for success, they will do everything they can to satisfy you.

Voice of the Customer. If you want your opinion to impact change, this is for you.  Your feedback is much more valuable to the small business and you can be sure your voice will be heard.   Whether you are providing it directly to the business or on forums or blogs, potential customers are likely to be impacted by your suggestions.

Breeding competition. Besides supporting an entrepreneur, more dollars spent towards small business gives them the opportunity to better compete against the bigger players.  More competition should bring the price of the same  or similar products in line.

Some research prior to purchase is necessary.  Review the business to be sure they are reputable.   You will likely feel better about the interaction when there is a personal touch.

Readers: What other reasons are there for spending your money at a small business?  What has been your experience interacting with small businesses?

A good friend of mine once advised me to try something new every 5 years. So, after 5 years of blogging on personal finance, I will try my hand at something else. I promise not to make this into the never-ending farewell tour like The Who (who were supposed to retire in 1982).

You’ll see some old friends and guests pop back into the fold during this farewell tour. Hope you enjoy it and thank you for reading.

Winning is easy. Simply post a comment by 5:00 pm (EST) on January 31, 2011.

Good luck.

Mike Holman, half the writing team behind Money Smarts Blog, has opted to adopt the latter in The RESP Book: The Complete Guide to Registered Education Savings Plans for Canadians. I don’t much blame him. Since a RESP is a type of program, rather than a product per se, it is hard for fictional characters to get worked up about how government rules and regulations work.

Despite the inherently dry nature of the topic, Holman manages to hit all the relevant points about a most important program for any household with children; as he points out, under the Canadian Education Savings Grant, the government is basically giving you money to be a contributing member of the program. Thus, it literally pays to understand the program properly.

Another reviewer indicated that much of the information found in the book could be retrieved on a government website. However, if one has tried to navigate any government website, it is pretty apparent that usability was not very high on the list of priorities. This is where the book thrives. It hits all the relevant points quickly and without much wasted build-up. Consider it more of an instruction manual than a book.

The value add of the book is derived from Holman’s background as a long-time financial blogger who understands the “why” questions is as important as the “what” question. Rather than pushing the program for the sake of pushing the program, he addressed honestly at the outset of the book why someone should not contribute to a RESP and places the strategy question first (“what are you goals?”) before the product question.

There are a few minor quibbles with the book. The book should have larger sections headings to break up the 13 chapters for easier navigation. Perhaps having read one too many tax books, there should be an appendix reviewing some of the tax effects of the RESP rules to accompany the account set-up checklist. The material is dense and it is easier to an overall reference page to refer to the rules. But, all in all, these are small details to an otherwise solid work.

I’ll be giving away one copy of The RESP Book. Post a comment by Friday midnight to win. Good luck.