brass Blog

Hey everyone. I was researching more on money market accounts today and came across a great word for our Lexicon: Reconciliation. You may not hear this word too often in the age of debit cards and eStatements, but it still crops up - and now you’ll know what it is!

According to investopedia.com, reconciliation is an accounting process where two sets of records are compared to make sure the numbers are in agreement. You’re probably familiar with the process - it’s what happens whenever someone balances their checkbook.

So do I reconcile my expenses by hand every month? No… but my girlfriend does for hers. Yes, we’ve casually debated why she reconciles every month - and she makes a good point. Since the majority of my expenditures are through debit card or checks, I’m able to keep pretty good track of my finances through online services offered by my financial institution. Still, my girlfriend has an edge over me because, through her reconciling (matching up everything she’s recorded with her account statement), she can closely track her purchases made with cash. As for me? I can track how much I withdrew from the ATM, but I could be sitting on a horde of loose cash and change - unaccounted for - hidden under my car seat, in the couch or in the laundry pile.

You don’t need to do your tracking by hand though, sites like wesabi.com or mint.com can tell you exactly where your money is going. No matter what method you choose, it’s reassuring to keep tabs your money. Not only will it bring you peace of mind, it will safeguard you from unexpected overdraft fees and send up red flags for possible fraud or identity theft.

– Peter

You’ve tried to make your mortgage situation work, but several months ago your rate reset and now you’ve run your accounts bone dry in trying to fight the good fight. Times are tough, bills are mounting and you’re out of options. With no relief in sight, you think it might be time to file for bankruptcy, but what exactly does it mean to you?

According to the Federal Trade Commission, bankruptcy stays on your record for 10 years and can severely lower your credit score. It can make it hard to take out any new credit, obtain life insurance or even find employment. But, it offers a chance to start over again.

Basically, filing for bankruptcy brings the courts in to sort things out. According to investopia.com, during bankruptcy proceedings, all of a debtor’s assets are tallied and evaluated, then used to repay as much of the outlying debt as possible. Often times, plans are set in place to enforce repayment, and some debt is forgiven.

There are actually several ways to file for bankruptcy:

Chapter 13 involves arranging debt repayment plans. In the case of a mortgage crisis, filing under this would allow you to keep the house by using your future income to set up a repayment plan. This plan usually lasts from three to five years, at the end of which you may be forgiven for some of the remaining debts.

Chapter 11 deals with “reorganization” for a company or individual. This is the type of bankruptcy you hear about most in the news. It’s usually the most expensive process, and large corporations use Chapter 11 to keep from failing. Let’s use Star Wars as an example. Say the Emperor gets a collect call from Darth Vader saying the Death Star just blew up - as portrayed in a hilarious segment on Seth Green’s “Robot Chicken” series.

“Do you have any idea what this is going to do to my credit?” the Emperor yells. Actually — we do. With the loss of such a huge asset, filing for Chapter 11 would likely be in order.

The Empire is still a viable business entity, providing gainful employment to thousands of storm troopers and imperial pilots. It would just take some downsizing, restructuring and budget cuts through Chapter 11 proceedings to get things back according to plan. Maybe, with time and successful glactic domination, the Emperor might be able to establish enough good credit to finance a second Death Star.

Finally, Chapter 7 is where things go completely out of business and all operations stop. So that second Death Star blew up too? Well, looks like it’s game over for the Emperor. With Chapter 7, all assets are liquidated (cashed out) and used to pay off debt.

All joking aside, hopefully none of us will ever have to come face to face the cold reality of bankruptcy. Still, it’s good to know the basics. It’s an option of last resort and it certainly puts your dreams on ice, but bankruptcy exists to pull you through an otherwise hopeless situation.

Life is a never-ending quest to better understand the world around you, be it economics, current events or foreign culture. In today’s globalized business world, the need for understanding and respect of differences has never been more important.

I picked up this mindset from my Dad. He owns and operates an environmental planning and consulting firm in Hawaii which does business throughout Asia and the Pacific Rim. For his work, I saw my Dad adapting and learning not just about business but about culture too. He sharpened his Mandarin Chinese language skills, tried exotic foods like frog and camel while traveling (Mom stopped him from eating scorpion), and even considered planting a betel nut tree in our back yard when doing business in the Solomon Islands (where the red betel nuts are chewed with tobacco).

If there’s one thing I learned watching my Dad’s business relations, it’s the importance of both respecting and understanding different cultures. The biggest cultural concept he’s learned is the Chinese term called guanxi.

Guanxi loosely translates to “connections,” and is a keystone term in Asian business. Building good guanxi entails the exchange of social favors, even something as simple as showing a visiting business person around town. Building good guanxi can take years and even span the length of entire careers.

Some in the U.S. may try to dismiss guanxi as simple schmoozing or a part of the “good ol’ boy” networks, but doing so can be a costly underestimation. Guanxi is a concept that goes back for centuries to the heart of Asian beliefs. I guess you could describe it as networking on steroids. In China, without guanxi there can be no serious business.

I’m just barely scratching the surface of Chinese business culture. Guanxi isn’t unique to China either; it has its own manifestation in Japan, and in Russia it’s sometimes known as blat.

Check out brass’s November 2007 cover story on Sumaya Kazi and visit her site, theculturalconnect.com, to discover how one young person is breaking through cultural stereotypes so we can start sharing our values and cultural perspectives. The world is too small to approach business from a single cultural perspective. You have to be on your toes and ready to learn. Who knows–you just might enrich your own life along the way. Now that’s real world stuff.

– Peter

Hey everybody. It’s time for another edition of our Financial Lexicon, the post where you find out about important-sounding money terms and what they mean. Today’s term is diversification.

Ever heard someone say “don’t put all your eggs in one basket?” Diversification is a term that means pretty much the same thing when used in correlation with your investment portfolio – it’s a strategy used to help lower your investment risk.

If you diversify, you won’t have all your investments in one place and your portfolio will be more likely to survive an economic slowdown or even the failure of an investment, such as a major company. This is important when you’re planning for your financial future.

One easy way to diversify is to buy into mutual funds, which are by their nature already diversified. You can also diversify by managing your own portfolio with a hand-picked selection of stocks and other investments. You can also diversify by investing money not only in the stock market, but in real estate or even your own company.

- Jens

Hey everybody. It’s time for another edition of our financial lexicon, the post where you find out about weird money terms and what they mean. Today’s term is amortize, or amortization.

Amortize comes from a Latin word that means “to kill”. That’s what amortization does; it slowly kills your debt from a loan with regular payments that pay down your principle debt and interest. So when your loan is amortized, it’s been split up in payments over the length of the term.

Loan payments are planned out with an amortization schedule, which is how you plan to pay off both your principal debt and your interest. If you want to see how an amortization schedule works, check out this calculator.

So now that you know what amortization is, get out there, understand how your loan payments work, and make a plan to kill your debt before it gets you. For other helpful hints about how to fight debt, check out Destination Debt Free: Mapping your way out of debt.

It’s been a while since we’ve added an entry in our financial lexicon, so here’s one for the b section: buyback.

Basically, a buyback is the repurchasing of shares on the market by the company offering them. About.com has a simple sketch model of how a buyback might look.

Companies may buy back shares for a variety of reasons. Often times, the value of the shares of said company see an increase in value if some or most of the shares are removed from the market (supply-and-demand sort of thing), so a buyback can be a way of boosting share values for current investors or spurring more interest in the company.

Buybacks can (by limiting the amount of shares on the market) also regulate shareholders whom may be inching in on a controlling stake in the company.

A company may buy back shares by proffering a “tender offer” to shareholders (an offer from the company to return some or all of their shares to the company for a price usually reflecting market value), or the company may simply buy the shares from the market just like you or I (if I wasn’t a recovering poor collegian) would do.

Got buybacks down? Good. Now go out there and start a business so you can put it into practice (once you go public of course).

-Jennie

Welcome back. This is another installment of our surprisingly exciting hit series where I define an investment or money word I have come across in my daily dealings here at brass.

This week, we’ll be looking at expense ratios, as I saw on iwillteachyoutoberich.com.

I discovered that an expense ratio is the operating cost, given as a percentage, of a particular mutual fund. An “operating cost” is basically the money it takes to maintain the fund (like overhead for running a business). The operating costs are taken out of the fund’s assets, thereby lowering the return to the investors in the fund.

In short, higher expense ratios does not mean higher returns — you’ll definitely want to know how high those ratios are before you invest in a fund, because they cut into your profits.

Questions? Answers? Let us know what you think about expense ratios or what your experience with them has shown you. Until next week…

- Jeremy

Since studying money and personal finance wasn’t my first pursuit before working at brass, every now and then I come across a word that has me scouring the dictionary. We figure everyone else has the same problem (and pre-brass I know I was a lot less likely to head for the dictionary), so we thought we’d make it easier for you. We’ll share some of the lesser-known money/investment terms, seeing as how we’ve already done the work. About once a month, we will include a term in our blog much like the one I came across while browsing my Google Reader the other day. An article from thestreet.com was covering six investments they recommend adding to your investment portfolio. The six investments included two stocks, two mutual funds, and two ETFs. I was doing okay until I hit the acronym. So what is an ETF?

First off, don’t confuse EFT with ETF. Electronic Funds Transfer (EFT) involves things like direct deposit or overdraft protection, while Exchange-Traded Funds (ETF), as you might have guessed, is an investing vehicle.

Basically, ETFs are groups of stocks and bonds, which trade like stocks (the value of the shares fluctuate daily), according to Investopedia’s definition and The Motley Fool. Rather than having shares in one single company (like regular stock), ETFs are shares of an entire exchange, so you’ve got built-in diversity of companies within one industry (so if one tanks, you won’t lose everything). If you are interested in investing via ETFs, they must be purchased through a broker, so talk to your investment broker (if you have one) or an investment advisor before you unload your latest lottery winnings into one. I myself am still learning about them, so feel free to leave a note if you’ve already got some in your portfolio or if you learn anything interesting.

That’s about it for this blog, but keep your eyes here for further investment/money terms you might want to know more about.

Happy trading.