Harry Chen Thinks Aloud

Do people always say yes to free money no matter how small it is? The ultimatum game is designed to answer this question. Economists often believe that any financial gain, however small, is worth having. Psychologists, on the other hand, disagree with this presumption. So who is right?

Dr. Terence Burnham of Harvard University recently gathered a group of students of microeconomists and ask them to play a modified version of the ultimatum game. A theory that this study tries to prove is that people often reject free money in order to prevent their competitors from getting ahead. This rejectionist strategy is not irrational, but differently rational.

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Many home owners pay close attention to property values, but not too many pay attention to property taxes. This can be dangerous. The New York Times reports that property taxes has grown two to three times faster than personal income from 2000 to 2004, and many home owners are running into financial troubles despite tremendous property value increases.

Here is a real life testimony from a N.J. resident:

“In 1997, my taxes were $2,600; now they’re $8,000,” said Dan Mackey, 42, a credit manager who lives in Somerset, N.J. “My salary certainly hasn’t’t tripled in the last nine years, and I don’t know anyone’s that has.”

There are couple different ways to think about this problem.

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After reading my blog post that advocates cost does matter in long-term mutual fund investments, Gabriel asks how he can apply this low expense principle in managing his 401K account. Let me try to answer his question with the ideas that guide my 401K account management.

The general idea: to keep you 401K investment cost low, your first need to identify the types of expenses that you’re paying to mutual fund managers or your 401K management company. Because different companies offer employees with different 401K plan, the strategy that I’m about to describe may or may not be applicable to everyone.

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If you are not convinced that keeping investment costs low is important, check out a real-life example. In 2005, the investments of Judge Alito were revealed to the public. Based on this MarketWatch article, I did a research on the expense ratio of different funds that he owns. Surprisingly, all funds that he owns have really low expense ratios. Alito has a net worth of about $1.72 million.

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INGDirect has increased the variable Annual Percentage Yield (APY) on the Orange Savings Account from 4.00% to 4.15%. This is an excellent rate comparing to the APY at the Bank of America, which is only 0.50%.

If you have some cash saved and it’s not getting the best interest rate from your current bank, give Orange Account a try. I love it. In addition, if you don’t plan on using this money in a short-term, consider putting it in a CD Ladder.

Why should we invest? For example, why is it such a good idea to buy a house, or put away money for retirement savings? The simple answer is that in order to secure our financial future, we must learn how to make money from money. For example, use the money that we’ve saved from paychecks to make more money. This is the basic of investment.
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Down the street, the cheapest gas at my local gas station is $3.07 per gallon. This is expensive comparing to $1.50 per gallon that I was paying few year backs. Given the ongoing geopolitical uncertainty in many oil production countries, I don’t expect the price of gasoline is going to fall anytime soon.

Meanwhile, I ask myself what can I do to reduce my spending on gasoline? And, what can I do as a consumer to help to drive the down the high gas price?
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The best way to make money is not to lose money. Two things that everyone can do to not lose money — keep healthy yourself and your credit history.

As the health care cost increases, keeping yourself healthy is an effective way to save money. Even if you have health insurance, keeping yourself healthy is still important. Taking a sick day off will cause you to lose productivity, and will cause you extra gas to drive from home to the doctor’s office. Not needing to see doctors means you can save those co-pay money for something else (such as few more cups of Starbucks coffee). BTW, your health is worth $84,000.

In the US, how good the credit history of a person is usually more valuable than how much saving the person has in the bank. It pays to check your credit history every year. Details on building healthy credit history can be found here.