Reflection: People are Lonely Because They Build Walls Instead of Bridges - A Lesson Learned in the Essentials of Networking

I don’t own a Facebook.

But I will after this post.


I like to think of myself as an independent person. I strive to do as many things on my own as I possibly can. I hate depending on others because I’ve always thought that it exposes you to unnecessary risk (if other people don’t come through like they’re supposed to, then your plan is screwed). I also feel morally obligated to return any favors in full. Because I didn’t like the idea of squaring up with people all day, everyday, I felt even more driven to work on my own. As a result, I never socialized much with people that I thought I would never see again. In my mind, I always thought that networking meant going to a bunch of social functions, starting up as much small talk with as many people as you can, and exchanging contact information only to never speak to them again until you decide that you need their help in landing yourself a job. They might end up on your list of people to mass send Christmas cards to, but contact never really extends beyond that.

That was probably the most ridiculously short-sighted inaccurate outlook that I have ever had.

Only recently have I begun to realize the importance of networking. As much as I hate to admit it, it’s hard to get by without knowing people. That applies not only to the work environment, but everywhere else as well. Both of the jobs that I have worked at were made available to me as a result of networking. I got a great deal on my car because of networking. I get five dollar yoga lessons because of networking. Most of the success that I have achieved and most of the things that I have access to now can be attributed directly to the network of people that I know.

I guess I wasn’t as independent as I thought I was.

So instead of being stubborn and continuing to isolate myself from others to maintain independence, I’m going to expand my horizons by turning to others and utilizing the potential help they have to offer.

I originally kept this blog hidden from my friends because I wanted to see how much I could succeed without them. Also, if this blog turned out to be something that was great as an idea but a letdown as an actuality, then I didn’t want to advertise my failure. After a while, this is what I came to realize: any potential that this blog has for success could be multiplied by letting my friends know about it so that they can critique me and provide me with valuable feed back. If this blog is destined for doom, then my friends could point out what I’m doing wrong, or at the very least, let me know that things probably aren’t going to be the way I want them to be. By not making use of the network of people around me, all I was doing was holding myself back.

Sometimes, it’s great to be independent, other times, being prideful about being independent can just get in your way.

So starting today, I’m going to network. However, instead of going out and trying to get as many business cards as I can, I am going to go and actively build relationships with people that I meet. I’m going to follow up with people after our initial contact. If I say, “Hey, maybe we should hang out sometime” I am actually going to call them sometime within the next seven days and invite them out to lunch. If I happen to be in the same area as some of these people, I will go out of my way to pay them a visit (I’ll let them know in advance, of course). The entire point of all this is to elevate these people from the status of “acquaintances” to “friends.”

Here’s another thing that I’m going to do: I’m going to establish stronger relations with the friends that I already have now. Instead of letting all the people that I met during high school just drift away, I’m going to look them up and see how they’re doing. Just because I’m building new contacts doesn’t mean that I have to get rid of old ones.

Instead of worrying about what people owe me or what I owe others, I’m going to give to others first and expect nothing back. Not only am I going to do this with my close circle of friends (which I already do), I’m going to do this with everyone I meet. If I give first, then I free up the feeling that I owe someone something; if I expect nothing back, then I free others of the feeling that I’m just using them for their future prospects. If I receive help from someone, then that’s great; if not, then oh well.

If I call up someone and say Hey, it’s Rags. How are you doing? and they respond with Who the hell is Rags? then I know that I didn’t do a good enough job of building and maintaining relations with that person. (Remember, the point here is to gain friends, not just contacts.)


I'm glad that I'm learning this lesson relatively early rather than later on in life where knowing the right people becomes particularly important. Hopefully, my new outlook on networking will allow not only me to prosper through others, but allow others to prosper through me as well.

Macro Econ Mondays: Unlimited Wants vs. Limited Resources (Part 3)

This is a continuation of last week's Macro Econ Monday Post.

Applications to Society

Society has to face a similar economizing problem, but on a much larger scale. It has to decide whether to allocate more resources to public safety, to manufacturing industries, to the military, health care, and etc. If it does decide to allocate more resources from one area, which area will it take resources away from?

Unlike the individual, society is not bound by income, but by economic resources, which could fall into one of four categories:

Land

Land refers to the physical location itself. It also refers to all the natural resources that comes with land, such as oil, water and trees.

Labor

Labor refers to the physical and mental work put into the production of a product or a service. Clerks, assembly line workers, and CEOs are laborers (I'll explain this one in a moment).

Capital

In economics, capital refers to all the products that are used to make other products or services. Things like office buildings, computer software, and pencils are all considered capital because they could be used to help produce another product or service. The difference between a capital good and a consumer good is that a consumer good could immediately satisfy an individual's want where as the capital good satisfies an individual's want by aiding in the process of producing a consumer good.

Human capital falls under this category as well. Human capital refers to nonphysical things that people can invest in themselves to aid in production. Things like experience and education would fall under human capital.

Note: In economics, the term capital does not refer to money; it only refers to things that can help produce other products or services. Physical money itself does not aid in producing anything. It can however, be used to buy capital, which then goes on to produce things.

Entrepreneurial Ability

Entrepreneurial ability refers to someone who has the capabilities of putting together land, labor, and capital to create a good or service. The entrepreneur is the person who is behind all the great products and services that are available to us today. He or she is the person who decides how a business venture will unfold. The final thing that separates entrepreneurs from the rest of the crowd is that entrepreneurs bear risk.

What separates a regular laborer (such as a CEO) from an entrepreneur is risk. This is why entrepreneurs fall into their own category. Short of being fired, CEOs bear no risk. Regardless of how well a company does, a CEO will always be paid. In fact, many of them still get paid when they get fired. Just take a look at all those bank executives that got huge bonuses when they left. An entrepreneur on the other hand, has no guaranteed return on his investment. An entrepreneur could pump thousands upon thousands of dollars into an idea only to be left with nothing at the end of the day.

Simplifying Assumptions

In order to have an easier time understanding the concept of the productions possibilities curve, we're going to have a few simplifying assumptions.

Full Employment
This economy is making full use of all the resources available to it.
Fixed Resources
None of this economy's resources are going to increase or decrease.
Fixed Technology
The methods that are used to produce goods and services are not going to change.
Fixed Time Frame
The graph is only going to apply to a certain time period and that time period only.
Two Goods
We're only going to be looking at two goods, in this case, a consumption good (something that satisfies our immediate wants) and capital good (something that helps us produce something that satisfies our immediate wants).

Graphical Analysis

Let's pretend that the economy in Ragsville only has the ability to produce computers and Tickle-Me-Elmo toys. Based on their resources, they would be able to produce at one of these possibilities:

That table is known as a productions possibilities table.

If we graphed it, it would look something like this:

 

This graph is known as a productions possibilities graph/productions possibilities frontier/productions possibilities curve. (Pick your poison; they all refer to the same thing.)

There are several things that I would like you to notice here.

1) Just like the budget line, the amount of goods we could produce are restricted by the resources we have. If we're producing at one of the alternatives, then in order to produce more of one product, we have to produce less of the other.

2) The other thing I want you to notice are the amounts that need to be traded off for each successive unit produced. Unlike the budget line that we looked at, the cost for each successive item does not remain constant. In order to produce our first computer (moving from possibility A to possibility B), we only have to give up one toy. However, if we want to produce a second computer (B to C), we have to give up an additional two toys. If we want to produce a third computer (C to D), we have to give up an additional three toys. If we want to produce a fourth computer (D to E), we have to give up four more toys, leaving us with four computers and zero toys. If we take a look at the cost of computers per toys (moving from E to A), we'd realize that the cost increases for each successive toy we produce. (From E to D, 1 toy = 1/4 of a computer; D to C, 1 toy = 1/3 of a computer; C to B, 1 toy = 1/2 of a computer; B to A, 1 toy = 1 computer) This increase in trade offs is known as the law of increasing opportunity cost. In short, the law of increasing opportunity cost states that more and more must be given up for every successive unit that is produced. The law of increasing opportunity cost can be explained by the fact that not all resources are suitable to alternative uses. For example, some workers are better at building Tickle-Me-Elmos than they are at building computers. Some workers are better at building computers than they are at building Tickle-Me-Elmos. As we shift resources from producing one item to the other, we're going to move the resources that are the most adaptable first, resulting in a lower cost (if we're moving from A to B, then we're going to take all the workers who are terrible at producing toys and have them produce computers instead). However, at some point, we're going to run out of highly adaptable resources to shift and we're going to have to shift over less adaptable resources, resulting in a higher cost.

3) The limits at which this economy can produce are bound by the production possibilities curve. Just like the budget line, the PPC has an attainable area and an unattainable area. If all five assumptions that we went over earlier are true, then Ragsville has the ability to produce at any point on the curve, but no where beyond it.

Changes in Assumption

What happens if we change one of the assumptions we set earlier you ask? Well, let's examine each case.

Change in Employment
If Ragsville decided not to use all of its resources fully (whether it be land, labor, capital, or entrepreneurial ability), then it would produce at one of the points inside the curve, in the attainable area. The curve itself would remain where it is, but the point at which the economy operates would lie somewhere inside the curve. This is because although Ragsville may not be fully utilizing its resources, it has the potential to use those resources. For example, if Ragsville has a population of 100 people, but only 80 of those people are employed, then they have the potential to employ 20 more people to increase their production. It is important to note that in this case, only the number of resources used has changed, the number of resources available stays the same.

Change in Number of Resources and Change in Technology
If we drop the assumption that the number of resources and the technology stays the same, then we would no longer be moving on a single point on the curve, but rather we would be moving the entire graph. A decrease in resources or a downgrade in technology would cause all the numbers to fall and the entire graph to shift left because we are now able to produce less. If there is an increase in resources or an upgrade in technology would cause all the numbers to rise because we would now be able to produce more, as illustrated by the example below. The reason an increase in either resources or technology would cause a shift in the graph is because with more resources or better production methods, we have the potential to produce more of either one or both items.



Graph:

Change in Time Frame
A change in time frame would usually result in a outward shift of the production possibilities curve. How far the curve gets shifted out is dependent on what kind of goods the economy has been producing. If the economy has been more focused on producing consumer goods (Tickle-Me-Elmo toys) then the graph wouldn't shift as far out as an economy who has been more focused on producing capital goods (Computers). An economy who is more focused on producing capital goods now will have the ability to produce more consumer goods in the future (because capital goods aid in the production of consumer goods).



With that being said, we can conclude this section of macro economics. I realized that as I was typing this out, this was a lot more long winded than it needed to be. In the future, I'll try to be more concise when covering these subjects.

Rag's Budget for February 2010

What kind of hypocrite would I be if I raved and ranted about the great wonders of making a budget without actually having a budget myself?

Step 1 - Get Motivated [Complete]

My hours at work have been cut do to budget set backs, so I'm going to have far less money coming in than I expected. I also need to start saving up for the explosion in tuition and book fees due to me transferring to a 4-year university next year (provided that I get accepted).

Step 2 - Look at the Numbers [Complete]
and
Step 3 - Look for Ways to Cut Spending [Complete]

Organizing budget by: Expenses

Auto Expenses - $185
$100 to repay Mom for car
$70 for gas
$15 for oil change

Food and Drinks - $150

Miscellaneous Spending - $50

Total budget allocation: $385

Step 4 - Utilize a System to Keep Track of Spending [Complete]

Since I dislike carrying cash on me, I'll be using Quicken to note where all my money is going.

Step 5 - Review and Revise the Numbers at the End of the Budget Period [Pending]

I still have to file my taxes for the year of 2009. Since neither of my workplaces withholds any money for me, I still have to pay my taxes in full. I'm expecting this to take a giant chunk out of my net worth, but since I don't know exactly how much I have to pay nor can I control how much I have to pay, I'm not going to include this into my budget. I will also be starting a new semester at PCC in February, so I have book fees to account for. However, I don't know the prices of the books I'll be needing to buy, so I didn't incorporate that into my budget either. Other than that, I don't foresee any problems with being able to stick to my budget. We'll see how things go 28 days from now.

Rag's Five Easy Steps to Creating Your First Budget

In any personal finance related that you read, you will undoubtedly encounter at least one article spouting about the importance of a budget. This post happens to be that article for my blog.

Having a budget is important to attaining your financial goals.

There are several reasons as to why you would create a budget.Perhaps you want to start saving money for something big, maybe you want to get out of debt, or even more importantly, you want to stay out of debt. Budgeting doesn’t necessarily mean that you have to cut spending. Some people are already living below their means; budgeting just provides the numbers for them to look at to ensure that they don’t accidentally overspend.


Well, without further ado, here are Rag's Five Steps to Creating Your First Budget

Step 1 - Get Motivated

This is probably the most important step. Getting yourself motivated will help you stick to your budget. There’s no point in creating a budget if you aren’t going to follow it. I have a couple of friends that are a couple thousand dollars in debt and can never seem to get out of it. They aren’t stuck in debt because they don’t make enough money, they’re stuck in debt because they aren’t willing to control their spending. They just love to buy stuff.

So before you continue reading on, decide right now if you are ready and willing to take the necessary actions that come with budgeting. If you’re not ready or willing, bookmark this page so that when you finally do decide to set yourself on a budget, you’ll know where to start.

Step 2 - Look at the Numbers

In order to create a budget, it’s important to know where your money comes from and where it goes. You’re going to have to know how much money you make and how much money you spend. In my opinion, the easiest way to keep track of these numbers is to use a money management program. I personally use Quicken to track all my transactions, I also have a friend who has successfully used Microsoft Excel to keep track of his transactions. Although I myself have never used it, I heard that Mint is a nice free way to keep track of your spending. Regardless of whatever method of tracking you choose,keep track of where all your money is for the next month or so to get an idea of how much you earn and spend.

Once you got all of your numbers in place, decide which set of numbers you want to budget to: your income or your expenses. If you decide to budget according to income, then look at what you earn every month and organize your life so that you spend less than that amount. If you budget according to expenses, then look at how much you spend every month and organize your life so that you don’t spend more than you're supposed to.

Note: Most people budget according to each month, but just because everyone else does that doesn't mean you have to. You can set your budget period to as long or as short as you'd like.

Step 3 - Look for Ways to Cut Spending

If your situation allows it, I suggest that your start with cutting the small expenses every month and work your way up to the big ones. Doing so will allow you to get used to the habit of budgeting without throwing your life into shock from making so many big changes at once. If you normally spend $2000 every month and you suddenly decide that you’re going to cut it down to $500, chances are, your life is going to suck and you’re not going to like working with a budget which might cause you to drop it. However, if you start by making small changes and allow yourself time to adjust to a slightly different lifestyle every month, you’ll have a much easier time working with a budget. If your normally spend $2000 a month but set your budget to 1900 a month, you might find that it isn’t too hard to change. Once you get used to 1900, you can aim for 1800. Once you get used to 1800, 1700 wont seem so hard, so on and so forth.

Step 4 - Utilize a System to Keep Track of Spending

Just because you looked at the numbers in step two doesn't mean that you're done with the numbers forever. You can use the budgeting managing software for this step, or you can use a bit more of a hands on approach. One method that I see is extremely popular is the envelope system. Here's how it works:

1. Get a couple envelopes
2. On the outside of each envelope, label which expense the envelope is for (entertainment, food, utilities, etc.)
3. Insert the budgeted amount of money into each envelope
4. If you run out of money in one envelope, you're allowed to transfer money from one envelope into another (taking money out of the food envelope and placing it into the entertainment envelope) but you are not allowed to refill any of the envelopes, not until your budget period is over
5. Once you've run out of money in each envelope, you're spending is done until the start of the next budget period
6. At the start of your next budget period, refill the envelopes and repeat

The idea here is that you'll be more conscientious about your spending since you're being forced to look at the amount of cash you have left each and every time you spend. However, if you really despise using cash, you can set up a similar system using a debit card/checking account. If you don't like the budget management software or the envelope system, you can go about creating your own system as well. Be creative. The important thing here is being able to see how much you’ve spent and the remaining amount of money you have to spend.

Step 5 - Review and Revise the Numbers at the End of the Budget Period

Take a look at your numbers at the end of the month (or whenever you scheduled your budget period to end). If you succeeded in staying within your budget, be happy. If you failed to stick to the plan, figure out what went wrong. If your situation changes, make sure that you change your budget along with it. Unfortunately, a budget isn’t something that you can just set and forget; it constantly changes in accordance with your lifestyle. If you decide that you want to save more, then this would be a very good time to figure out where you can do that.


Creating and sticking to a budget is much more easily said than done. However, if you took the first step seriously, then working through each budgeting period shouldn't be too much of a problem for you. Give this five step system a try and see how it goes. I'll begin posting my own plans for a budget here soon to give you all a more in-depth look as to how I'm going to make my way from rags to riches.

Macro Econ Mondays: Unlimited Wants vs. Limited Resources (Part 2)

In last week's Macro Econ Monday post, I gave you a general overview of the economizing problem and how people try to solve it via marginal benefit and marginal cost analysis. This week, we'll take an indepth look at a graphical example of that applies to an individual.


Recall that the economizing problem is that we have unlimited wants but we only have limited resources. In our world, we trade our hard earned money for resources, so an individual's limiting factor is his or her income. We can better understand the economizing problem that people face by visualizing a budget line (also known as a budget constraint). Let's take a look at an example.

Applications to an Individual

Suppose that Susan wants to host a small party tonight. She has set aside a budget of $120 to buy the food for the main course. She gets to the grocery store and narrows down her choices between buying lobster (at $10 per pound) and buying steak (at $20 per pound). With a $120 budget, there are a couple different combinations of choices that she can make, as illustrated by the table below.

(In order to make this problem easier to look at, we are going to make two assumptions. 1) Susan is going to spend her entire budget on lobster, steak, or a combination of lobster and steak; and 2) She is going to make purchases in whole units (no buying half pounds or quarter pounds or whatnot).




If we take all those numbers and graph it, then it's going to look like:

If you take a look at the graph, you will see that there are two sections to it: one marked attainable and one marked unattainable. The area marked attainable (includes the line and all the white space inside of the line) shows all the possible combinations of lobster and steak that Susan can buy. The white area inside the line shows the combinations of purchases that can be made if Susan decided NOT to spend her entire budget, but remember, we're going with the assumption that she WILL spend her entire budget and since Susan is a made up character of mine, that is exactly what she will do.

All of the points to above and to the right of the line are unattainable; these are combinations that are impossible for Susan to buy. She can't buy six lobster and four steaks because that would cost her $140 when she only has $120 to spend.


What are Susan's opportunity costs in this situation? If she wants to buy more lobster, she's going to have to give up some steak. If she wants to buy more steak, she's going to have to give up some lobster. If we look at the numbers, we can see that in order to buy one more pound of steak, Susan has to give up two pounds of lobster, so the opportunity cost of one pound of steak is two pounds of lobster. In contrast, the opportunity cost of one pound of lobster is half a pound of steak.

The idea that this budget line illustrates is that because of limited resources (in this case, income) we all must face opportunity costs and make a choice of what we'll take and what we must forgo. That being said, the option that each individual chooses will vary greatly from one person to another; the amount of steak and lobster you buy will be different from the amount of steak and lobster Susan buys which will be different from the amount of steak and lobster that I buy.


What if Susan doesn't like any of these choices? What if she wants more steak and/or more lobster? The only way to make that happen (assuming that price doesn't change) is for Susan to increase her income, thus causing the budget line to shift to the right, unveiling more combinations of lobster and steak for Susan to buy. Note, however, that regardless of how far the line shifts to the right, Susan will always have an unattainable portion of the graph and thus, will always be forced to make a choice and endure opportunity costs.


Understanding how the economizing problem relates to an individual will help us understand how it relates to society. Next week we'll cover the production possibilities model and how society determines what they should produce.

Was Lost, But Have Found My Way

When I created this blog back in April 2009, I had no real idea of what I was doing; I made this out of an impulsive decision. The creativity train stopped by and I decided to hop on to see where it would take me. I didn't have any plans or end goals in mind, just a big, vague picture with none of the details. I think that was a contributing factor to my lack of posting as the year wore on.

Well no more of that.

I spent the entire day today thinking about what I wanted to do with this blog and this is what I finally settled down with.


Purpose
-To act as a record of what I have learned and what I have done. I want to have this blog so that sometime down the road when I look back on my life, I can visually see step by step how my knowledge base grew and how my net worth progressed.
-To serve as a place of reference. Writing all of these articles and posting them up means that if I ever forget something, I can just come back here to relearn it instead of having to recompile bits and pieces of knowledege from various sources.
-To expand my writing capabilities and to give my entrepreneurial side a chance to show. This blog is bound by only by the limits of my creativity. I'm going to use the blog as a way to rack up a different type of experience that doesn't relate to working in an office. (10,000 hour rule)
-To act as a shining beacon of light for me, and hopefully others as well, to make their way from rags to riches.

Plan of Action
-I am going to start from a clean slate by emptying my mind of what I know now so that I can rebuild my foundation and record everything here. This means that I am going to attempt to cover as many subjects as I can (money related) regardless of how simple or complex they may be. This will benefit not only myself, but readers who are just entering the world of personal finance and are looking for a direction to go in.

Goals
-As of now, I have no money making goals for this blog; I just want to see how I can learn just from working on it. Any revenue that I happen to generate along the way will be reinvested into the blog.
-Writing and learning from the blog is my primary goal; getting readers is secondary. Of course, I will put forth every effort possible into making this blog known (getting comments from others helps to open up my perspective and provides me with valuable feedback), but I will not be bummed out if my reader count doesn't explode.
-Improve upon it enough so that I can put it down on my resume.


Every successful venture begins with a mission statement. This will serve as mine.

Careerealism: On the 10,000 Hour Rule

Here's yet another interesting article that I found stashed away underneath my mountain of bookmarks. My friend showed it to me a little over a year ago, but I never got around to reading it until now. I certainly wish that I had read it earlier.

This piece is from Careerealism, a blog that is focused on providing career advice.
Read the post here: 10,000 Hour Rule: Why Young Workers Struggle after College (and why some seasoned professionals do too!)


In short, the article essentially states that if you want to be proficient at something, then you're going to have to invest at least 10,000 hours of your time working at whatever you want to be good at. This 10,000 hour rule applies to careers as well. The author gives a little anecdote about how when he was just thirteen years old, his father had him work in an accounting office from that point all the way into the end of his college years. As he entered the workforce, he found that it was easy for him to get along with others and to rise through the ranks. He attributes this not to luck or to talent, but to the experience that he had gained from all the hours that he had logged in working in that accounting office. He then goes on to encourage any professional (not just recent college grads) that want to succeed in their careers to go and start looking for ways they can complete the necessary 10,000 hours.


I am (unfortunately) a math minded person, so I decided to figure out what 10,000 hours really equated to.

10,000 Hours = 416.67 Days = 59.5 Weeks = 1.1 Years

If you devote 8 hours a day, everyday, to your 10,000 hour investment then it would take you 1250 days which translates into roughly three and a half years to complete those hours.

After doing that bit of number crunching, I decided that still I completely agree with what the author says about this "rule." Sure, three and a half years might seem like a long time, but I think that all too often in this fast pace world we are fooled into believing that we only need to spend a minimal amount of time working at something in order to be the best at it. When we take a look at other people's successes, we only see where they ended; we forget to look at where they started from and where all the hard work that was put in. Find a couple people that you believe to be professionals in their area and ask them how long it took them to get where they are. If you know anyone who does martial arts, ask him/her how long it takes to achieve a high rank (e.g. a black belt in Taekwondo or Karate). If you know anyone who you considered to be a skilled musician, ask him/her how long has he/she been playing the instrument and how many hours were put into practicing that instrument. If you know anyone who has a Ph.D., ask him/her how many years he or she spent in college, how many hours were put into late night studying, and how much work was put into the dissertation. I think once you listen to all their grueling stories, you'll find that spending only three and a half years (or 10,000 hours) towards getting better at your career won't seem that bad.


I'm going to try to find as many ways as I possibly can to rack up those 10,000 hours. The sooner I get started, the more experience I'll have. The more experience I have, the better the opportunities that will be presented to me. The better the opportunities, the faster I can make my way from rags to riches.