Chronic Murmuring

Quicken 2004

I'm currently reading a book on financial planning by one of my professor's, Dwight Lee. The title of the book is Getting Rich in America - 8 Simple Rules for Building a Fortune and a Satisfying Life and so far, it really has me pumped up. All I keep thinking about is our household savings. It's got me utterly fixated.

This is all started because during the semester, I did an exercise for the principles of macro class I teach in which I showed the kids the differences in the long run generated by changes in a person's savings rate. I placed, side by side, two people with equal incomes of $40,000. The first person (person A) saved 5% of his income which he then invested in mutual funds that earned on average 8% per annum. He did this each year, with the income generated by that 8% contributing to the next year's income, of which 5% was then saved and placed into the mutual fund. And so on. Person A will enter retirement (35 years later) with an accumulated savings of just over $77,000.

Person B earns the same labor market wage as Person A - $40,000. Person B saves 20% of their income at each period. Like Person A, she invests at each period that 20% into a mutual fund which earns, on average, 8% return. Each period, her income increases by an amount equal to the return on her investment of the previous year. From this, she saves 20% of that accumulated income, which contributes to her stock of savings, which then earns an 8% return. When Person B enters retirement 35 years later, she will have an accumulated savings of more than $385,000 - roughly fives times as much as Person A.

I actually went through, year by year, for each of these people with pen and paper. I wanted to actually see the changes take place. It's really remarkable how changes in savings rate can have such an effect on one's stock of wealth in the longrun. Upon seeing that little exercise during the semester, I decided to finally read Lee's book, which he had given me earlier in the semester. I first read Dave Ramsey's book, Financial Peace, then Lee's. I prefer Lee's to Ramsey's, but each has its own strengths. But, they also are more or less the same book. There's a lot of overlap between them, and the general gist of each can be summed up by the following advice: resist temptation to buy stuff, save, don't use credit cards, only borrow to purchase goods when the good's value will increase (such as houses), did I mention save?, invest in mutual funds, etc. Lee's has a distinctively more economic flair to it since he and the co-author are both economists. He goes more deeply into things like the financial returns associated with an education, and extends economic analysis to even things like why staying married can make you a millionaire. Lee's book is interesting in that sense to me, but it's also very readable. In other words, it's not jargon-filled. It's very approachable, as Lee and McKenzie have non-economists in mind as their primary audience.

Anyhow, I use Quicken 2000 to manage our finances, which is fine. My one complaint with it is that I cannot get my financial institution to send me my statement in a form that Quicken can read. I cannot, even though my financial institution provides me with a quicken file which contains my monthly statement. So, I'm forced to input the data into Quicken every so often, which I would really rather not do. I saw, though, that Quicken is rolling out its new Quicken 2004 Deluxe which has as one of its many new options automatic data entry. The financial institution's data can be retrieved automatically by Quicken 2004 which is then automatically inputted into Quicken. It's also just got a bunch of new bells and whistles. It's also $50.

So, I'm writing this to merely note how easy it would be for me to justify spending the $50 on this financial machine since it would make using Quicken so much more easy for me. I want it so badly. Why didn't I ask Santa for Quicken 2004? Oh well. I need to sit on it. I need to keep trying to use Quicken 2000 like I've been doing, because I think it really is sufficient for my needs. After all, all I really use it for is budgeting. We really don't have many assets to keep track of. We're just trying to build up our savings after cleaning it out to buy this house. But the primary use of the program for us at this point is to monitor cash flows, try to keep track of where money is going and coming, and hopefully to impose some discipline on us as we watch our expenditures and catagorize them.

Still. I want it.

Posted by scott at December 28, 2003 05:26 PM | TrackBack