Wealth does not equal money but we often mess both. We say “make money” instead of “make wealth” and we use the work for money, not for wealth. This is probably the reason why very few people think about do-it-yourself projects as a source of alternative income.

Photo by M J M at Flickr

Why Doing Things Yourself IS Alternative Income

Because when you create or fix things you are adding to your wealth. If you grow vegetables in your garden or fix your car, you are adding to your wealth. Since you are not earning money directly it may be harder to measure your income, but it’s still there.

In fact when you do things yourself you are producing income (wealth) in more direct way than when you work for money. The money is just a medium, so if you earn money you don’t immediately increase your wealth. That happens only after you use the money. Having millions of dollars in your bank account doesn’t make you rich, because you could eventually lose them all in Vegas tomorrow. With do-it-yourself you are building your wealth in the most direct and the least resource-wasting way, because there are no mediums.

Of course, that’s the theory. In practice only few do it yourself projects make sense.

When Doing Thinks Yourself Makes Sense?

It would be crazy if I was advocating to do everything yourself. In fact people in the ancient age have done everything themselves, and you know they didn’t live well at all.

Sure, you could buy books, learn and build your car completely from scratch. The indisputable effect of this would be that you would have a car for free and thus saved the money for purchasing one. But how much time would you have spent building it and what would be the quality of such a car? No doubt, such a do it yourself project does not make sense at all.

Doing things yourself is profitable when you are more effective in producing wealth directly than you are when using money as a medium. In theory, everyone should just do what they are best at and buy other stuff from the people who are best in that. This is the way the modern economy functions and if it was ideal there would be no point in doing things yourself.

In reality there are factors which make do-it-yourself projects a considerable option for earning alternative income:

• People are good in more than one thing. Fortunately we have not turned in the robots that the modern society probably wants us to be. We may be specialized at work, but there are more things that people do great. For example only a very small percentage of people are professional cooks but many of us cook well and like to cook things at home.
• People have different passions. Very often what we work for money is not exactly the thing we are most passionate about. Sometimes we just enjoy doing things but we don’t do them for money. Measuring passion as a factor which makes a do-it-yourself project lucrative is hard but the factor exists.
• The items we buy are overpriced. When you buy stuff from the groceries you pay a lot more than the real cost of the item. You pay profit for the producer, transportation costs, storage costs, reseller profits, advertising, packaging, taxes/vat, insurance and more. For some items, like a computer for example these things are probably too small compared to the tremendous research/innovation/engineering value in the item that you can hardly reproduce yourself. But when you are buying a tomato and its real cost is just 10% of its price, you may think about growing the tomato yourself.

There are several important questions that you must ask yourself before involving into a do it yourself project:

• Do you enjoy or at least not hate the activities required. Emotional benefits and costs are hard to measure, but if you hate woodworking, don’t build a shed yourself.
• Are you good in what is required for your do it yourself project. If you are truly pathetic in something, face the reality and leave it to professionals.
• How much is your time worth and can you use this time to earn money? If for one hour of your time you earn $20 and making a stool yourself will take you 50 hours, it may be a bad idea to make a stool yourself. You’ll find one for much less than $1,000. However such simple equation is valid only if you can and want to earn money with your main activity in the time you could spend for the do it yourself project. Many people work fixed hours for a fixed salary. In such case even a do it yourself project which “pays you” much less than your hourly rate might make sense, because you are saving money and adding wealth.

There are really complex factors to consider when evaluating the use of a do it yourself project. Although all things you do yourself add to your wealth, not all of them will be efficient.

Do It Yourself Ideas

Considering the above factors, what kind of do it yourself projects will make sense to you? I can only guess, so I’m leaving for you to choose. Here are some ideas:

• Do it yourself home improvements. This activity is very popular among everyone. Only you know best how you want your home to look like and considering the prices of such services, doing home improvements yourself is worth it very often – especially if you have skilful hands.
• Do it yourself website. For people like me it makes a lot more sense to do a website ourselves rather than paying for it to someone. But if you are not a techie and have no idea what is all about, you’ll need a lot of time to create your small business website yourself and chances are it will suck.
• Do it yourself auto repair. Once again it all depends on your expertise and willing to lie under the car.
• Do it yourself crafts and gifts. Hand-made crafts and gifts are very valuable and an excellent way to add to your wealth. Again, you need skilful hands.
• Growing food yourself. If you have a garden, growing fruits and vegetables is pretty easy thing to do. Your own food is not only an addition to your budget (again thinking wealth, not money) but also a way to be sure in the quality of the food.

There are a lot more things you could do yourself, the question is when it’s economically efficient and when it’s better to just buy or purchase.

The best thing about do it yourself, which makes it better compared to earning alternative income by freelancing is that you are your own customer. The chances to satisfy yourself are better and the risk of not receiving the wealth (think not being paid when freelancing) is smaller.

Another hot month is gone – let’s see what are the must-read posts within the financial blogs during that time.

Trent at The Simple Dollar warns about the problems that addiction causes to personal finance.

The Silicon Valley Blogger suggests how to increase the value of your home.

Along the same lines goes Lazy Man And Money asking Have You Decided To Be Rich?

There is a good guest post on Generation X Finance – The Connection Between Your Brain and Credit Card Debt. No, I am not sending you to my guest post there *grin*

Cap at Stop Buying Crap has published 13 Quick Consumer Tips to be a Rockstar Consumer.

Punny Money is always creative, and sometimes also provocative: Having a second child may be the worst thing you do to your first. Disputes, anyone?

Many finance bloggers write so much about saving and frugality that we are about to forget that A Dollar Saved is Two Dollars Earned but Two Dollars Earned is Twenty Dollars Saved. Thanks to MoneyNing for reminding us.

David at My Two Dollars has an excellent list of the New Study: 10 Best Cities To Live, Work & Play In

My Money Blog calculates the savings you can make if you take roommates. Of the emotional savings or extra costs can’t be calculated so easy.

What Ben from Money Smart Life wrote needs no comments: Stop Whining & Start Making Some Money.

Are you pissed of by bloggers telling you to save money by eating less out? Free Money Finance has a better solution – How to Save Money When Eating Out

If you think about making money with blog, see what The DINKs have to say about that.

The Clever Dude is really clever sometimes (or is he always just like that?) – he saved $1,400 per year with one call to the insurance company.

Patrick at Cash Money Life has good Financial Advice for the High School Graduate.

Finally, Jim from Blueprint For Financial Prosperity has a cool list of 10 Frugal Hobbies

Oh and before I forget – if you want to understand how to be a millionaire, use our investment calculator. If you are a blogger, you can have it on your blog too, because it’s a free WordPress plugin.

In the first investor’s profile – The Silicon Valley Blogger – I got a pretty interesting conversation with the SVB. If you have not read that, better check it out. Now it’s time for the second one.

Pinyo is the cool guy writing one of the most popular blogs about personal finance – Moolanomy. He is 34 years old, married and yet another IT-mate. Besides his blog Pinyo rules the personal finance field with few other projects. To the best of my knowledge the most popular of them is also the freshest one – PF Buzz – a Digg-like personal finance network. If you have a PF related blog, make sure to submit your articles there and get targeted traffic. Unlike on Digg, you have the chance to get your content promoted even if you don’t write about Windows Vista or Paris Hilton.

Now, see what my guest has to say:

The Three Questions Blitz Interview

SI: Did the Internet change your financial situation in the last 10 years and how?

Pinyo: I have to say most definitely. First, the Internet made information more accessible to everyone. The Motley Fool was one of the first financial sites that I fell in love with. The site was both entertaining and educational. Sadly, they made too many changes to the site and I became disenchanted with it. Now, I rarely visit the site anymore.

Second, the Internet made stock trading and research more accessible to everyone. I remember the feeling of empowerment I felt after I switched from my old full service brokerage firm to Charles Schwab with online access. For the first time, it was easy to do my research, manage my investment portfolio and make stock trades.

Third, I am a web entrepreneur who earn small income from the Internet. Although this is not a huge amount of money, it certainly makes a difference in my finances.

SI Note: I tried reading The Motley Fool a couple of years ago, but it just seemed to have too much information.
It’s good that he makes income from internet, but knowing how successful his projects are I expected it to be more that “small income”. Hopefully he’s just modest, otherwise it would be a bit discouraging.

SI: Based on your own experience what are the most efficient sources of alternative income available for the regular working people? What works best for you?

Pinyo: I wrote about alternative income quite a bit on my blog. Alternative income is anything that you do to earn income away from your primary job. Personally, I think everyone should try to build alternative income streams. Here are some articles that I recommend:

• Building, Diversifying, and Shifting Your Income Streams
• 7 Key Factors to Build Successful Alternative Income Streams
• 40+ Alternative Income Ideas and Resources
• Six Streams of Income (GP)

For me, web businesses have been the best source of alternative income. It works well for me because of my technology background; however, starting a web site is definitely not the best option for everyone. You should really start with something that you are passionate about and go from there. Be sure to check out my 7 Key Factors to Build Successful Alternative Income Streams article.

SI Note: That’s truly great list of articles, thanks for sharing it!
I like that he says that web site is not the best source of alternative income for everyone. I’m really pissed off by the “make money online” bloggers who don’t stop talking how easy is to make millions online. Instead of blindly following such blogs, discover what works for you just like Moolanomy says.

SI: We all read a lot personal finance tips daily but rare take action. What is your strategy in getting things done? If we take as an example the ideas you share in your blog, do you succeed to put them into action?

I do most of the things I talk about, but they are things that evolved over many many years. There are also things that I know I should be doing, but haven’t got around to it yet — i.e., estate planning. I wish I could do more, but I only have enough time and energy to do so much in a day. So my suggestion is read what you can, then prioritize and do what’s best for you.

SI Note: Doing most of the things is much better than talking and doing nothing (like most people unfortunately do).

I really enjoyed the discussion with Pinyo, there is some real gem in his responses. You can be sure you’ll find even more in his personal finance blog. It’s good idea to subscribe by rss or email so you don’t miss anything.

I had a dispute with people about frugality and business. Most people seemed to think that if you are successful in what you do you should spend a lot of money on items that can demonstrate your success. Many still think that if you want to make a business deal, get a good job or lucrative consulting contract you need to impress the other side with expensive car, cell phone or laptop.

Photo by Roadsidepictures at Flickr

That’s so outdated. It’s not the cell phone that can impress your potential partners anymore (was that ever really working?). It’s Google* that can do it.

Being A Professional Equals Being Known

Do you know what most potential employees, small business customers or joint venture partners do first after meeting you or talking to you? They open the browser and start “googling” your name or brand. If you think that your well written CV and motivation letter will win you a high paying job, chances are you are mistaken. What matters more is if Google knows who are you.

This tendency is getting stronger and stronger with the time and it’s unlikely to change. Some people like Seth Godin go as far as saying that you don’t need a resume at all. While this thesis is debated and in most cases you’ll still need a resume (at least until most HR-s start “getting it”), the CV is losing its importance. Same is valid for your company’s “About us” page and definitely for your car, watch or cell phone. They won’t close the deal no matter how much they impress.

The situation can be worse. While you want Google to know who you are, you may not want it to know any negative things about you – but you have no chance to avoid that. If you have spammed, scammed, provided bad service or done bad work, Google knows that. So do the people who are looking to do business with you. You can’t delete customer’s or partner’s comment from forums, complains on blogs or even your own inadequate online conduct. Whatever is posted online remains there forever for everyone to see. Sounds scary. Google is the new Big Brother.

How To Raise Your Online Profile

Obviously you will want Google to know about your expertise, your company’s great service or your personal brightness. Being remarkable online helps you stop seeking job, contracts or customers. Instead of that, you get sought from employers, clients or joint-venture partners. Your online profile is far more influential than the size of your office, car or wallet.

If I were you I would work badly to raise my online profile. Here is how?

• Provide good service/products/job. The best way to get recognized as an expert, remarkable or creative is to be an expert, remarkable or creative. If you provide a good job or your business sells great products people will praise you online. Your customers will let each other (and yes, even Google) know how great you are.
• Have a blog I don’t mean “have a personal finance blog” or “have a blog that makes money”. I mean, you need your personal/professional blog, preferably hosted on a domain with your name and showing both your career expertise and personal character. Having your own blog helps those who want to know more about you, about your goals in life and about your style. It gives a human face to you and your company and is a method for very easy and informal communication. If you have a blog, interested customers or employers can easy contact you and can feel connected with you.
  If your blog is hosted on a domain with your name (like johnsmith.com), has your name in the title and as “author” of your post, chances are it will appear first in Google when someone searches for your name. This gives you the amazing power to manipulate your online profile directly. People believe the search engines and think the sites which appear on the first page are a lot more authoritative than the others. Just think what does it mean if your blog can be found there.
• Provide value for free. Giving away advice and knowledge, pictures, services or other goods is an excellent way to gain authority and show expertise and good will. The programmers and writers know this very well – that’s why there are so many open source software and free e-books out there. (I know this by personal experience because I got my first programming projects due to the fact I had open source work to show). It’s best if you can both get paid and gain online authority, but if you are just starting in a business or career that’s much harder to happen.
• Participate in communities Forums and social networks are great way to make buzz around you an your business. If you posts are meaningful and valuable people will remember you, your company and your services. For example if you are a landscape designer, giving great landscape related advice for free on forums and other communities will help your online profile in two ways. The other participants in the community will discover how knowledgeable you are. There is a good chance that you or your company will get direct business from them, because they think if you provide such value for free you must be even better if they pay you.
  A second advantage of participating in popular communities is that they get ranked well in search engines. If you post with your real name or have it in your signature, that’s one more way for Google to find you.
• Write a book I rank this as one of the most effective ways to raise your online profile. Writing a good book is hard and takes a lot of time, knowledge and patience. Publishing it takes a lot more especially if it is not an e-book. It’s not free and easy like publishing a blog post, so there is a lot less crap within the books than withing the blogs online – and a lot less people write books than those who write blogs. That’s why regardless the internet revolution, a good book remains probably the most powerful tool to show your expertise.
  Most books don’t make good money for their authors (if any) directly. But a non-fiction book can drastically increase your chances to get a high paying job, good consulting contracts or more business for your company. If you get your book on Amazon, it will ensure a lot of buzz around you.

The time when you could write fake facts in your resume or “about us” page and make an easy impression are gone. People know how to search online and are not afraid to do it. If you don’t want to stay out of the game, work for your online profile so it can work for you later.

Do you research online for the names of people and companies that you plan to work with?

*I say Google because it’s the most important search engine, but you can put the one that you like most – it’s valid for all of them.

Many times I write about various investment opportunities or about how regular saving can impact your financial life I feel the need to illustrate it. So we came up here with a handy investment calculator which lets you play with the numbers and see the magic of compounding in action.

Have A Personal Finance Or Related Blog? Look Here

I know many other bloggers have similar needs so I won’t keep this work for myself. There is investment calculator WordPress plugin that you can download for free and install on your blog. Its usage is as simple as including one special tag in your blog. It can be embedded in a post or page.

Besides the handy opportunity to illustrate your theories on your blog, the investment calculator will help you have more visitors returning back to it.

The Power of Compounding

Just go to the calculator and insert your number to see how your financial situation can change if you invest regularly. See for example what could happen if you can build a portfolio with an achievable annual return of 15% and you invest only $5,000 in it during 25 years.

The current economy crisis made most of us avoid stocks and think mostly about frugality, but don’t forget that the power of compounding always work. Find a way to invest even during the tough times.

Few weeks ago I got am interesting question on my mail. I’m publishing it here with the permission of the author. In fact his situation appeared a bit specific, so what I want to discuss here is only the general question from the first email:

I appreciate your column (blog) and enjoy the honesty. I would just like some advice (not that I would do it ) about a move I am contemplating. I am 37, married and 2 young girls. I have a business and a building that I could sell hypothetically and pay off all my debt (personal and business) and end up with approximately $85,000 USD. I am also considering just selling the business and renting the building to whomever buys the business. I would still be able to pay off the building the business is in and have money left over. But we would still have our house (which has a low monthly mortgage).

I am not qualified to give a real investment advice, but let me just share my opinion. Why do you want to sell the business? Is it not working well? In my opinion a working business is the best investment one could make in life.

Of course it depends on your business nature

If you are kind of self-employed and your business requires you to work all the time, then it might be worthy to consider selling.

I personally wouldn’t care about paying my debt if the business is profitable. I don’t know why everyone is so keen on paying off their debt. Debt is something good if you use the money from it in a way that it produces more money.

This situation reminds me (well not exactly, but kind of) about our (me and my girlfriend) home loan. We are preparing to build a frugal home (you will read about it soon) and need a very small loan. Most of our friends can’t understand why we prefer to get the loan for 25 years when we could easily pay it for 5 or 10. I know for 25 years I am paying higher total to the bank, but how does it matter when what I am paying every month is so much smaller? When you add the inflation, the payments we make to the bank will get lower and lower in real value each year.

So we are not in a hurry to pay loans quickly.

I don’t think selling a business just for the sake to get out of debt is a good idea. Of course it’s completely different question if you have good idea what else to do with the money from the sale. What is your take? Do you think people should get out of debt as soon as possible?

Do you know what is the wholly grail of investing and financial freedom? It’s the thing that everyone is seeking and very few are able to find and obtain. Well, except the owners of few million scam websites which offer you the secrets to it for only $97 (if they can be believed). The wholly grail is automated income of course. Who refuses to make money while lying on the beach? (Not me for sure).

Photo by Dan Pupek at Flickr

Unless you believe the $97-super-secret-wonder-e-books, creating something that brings an automated income is hard. It requires a lot of work, ideas and/or money. Most people never obtain an automated income generator in their life so I can not promise that you’ll do it either. But I have at least some good news – there are no hidden secrets of automated income (not even the ones that you get for 97 bucks). The essential elements of an automated income generator are well known and they are just five.

You Need A System

The key characteristic of any asset that brings automated income is that it is a system that you are not a part of. A system is something that runs on its own and requires (almost) no maintenance. If we get one grocery shop as an example, it is a system. It has key elements like selling, supplying with grocery, accounting etc. If you sell yourself in your shop, or you keep the accounting yourself, or you supply it yourself or even if you plan yourself what to do with the shop each and every month, you are a part of the system. You may own the shop, but you don’t own the system. Such a shop is not an automated income generator.

People often talk about making money online with blogs and websites as an automated income. I’ll also talk about websites because this is what I know best. The web based business can easier be turned into an automated income generator than other business because it runs on software. Each software essentially is a system and once created bug free it runs without any maintenance. The software does not amortize (at least not physically). It can work over and over again literally forever. If you own a site which generates residual income entirely through its software, you have a perfect system and a real automated income generator.

Sounds great but most websites are not real systems. This blog is not a system because I have to write in it if I want it to work. Even if you own a site that makes income directly from its software, you may still be a part of the system – because eventually you work on promoting the site all the time.

To own an automated income generator you need to own a real system which runs without you. This may mean you need to own machines, software, licenses, patents, buildings and have people who take care for everything.

Your Asset Must Bring Some Real Value To People

This rule is valid for all spheres of business. If you want to make money you must provide real value to people. Of course you can make money by lying and stealing or take it by force, but that rare leads to good long term outcome.

So, if you want to create an automated income generator, you need to provide some real value. If I get back to the websites example, a good programmer can easily create a fully automated system. For example he or she can code a web based website creator for other people to use. He could also write an automated script to spam emails, search engines and directories so his service gets automated promotion. This is a real system owned by the programmer, but it hardly is going to produce automated income. Spamming does not work well as a promotion method because it does not provide real value to the people who are spammed. The website creator probably will not sell well, because there are thousands of them.

However if you own a second home and let it out for rent, you are providing value to those who rent it, because they need a home. By the way your second home is also a system, because it doesn’t really require you to do almost anything. That’s why real estate investing can really bring an automated income (If you wonder why does it usually suck then, it’s because its profit ratio is usually too low).

Your Asset Must Be Unique Or Hard To Duplicate

If you own an automated income generator that everyone can build themselves in 5 minutes, your automated income will stop in 5 days or so. No one will pay you for something that they can do themselves easy and quick. Even if there are people who would pay for it, there will be even more who will do the same thing like you and give it out for lower price.

If you write a good book or e-book you can sell it many times. A good book and a contract with a publishing house is a good system because the book is sold over and over and brings you income. Once written you don’t need to do anything (assuming your publishing house does the promotion). But if writing a good book was easy, everyone would take your idea and write a similar book. Then your automated income would decrease and eventually stop.

You Need Timeless System Not Tied To Specific Events

Let’s talk about websites again. With some creativity or sense of humor you could create very successful blog post or website discussing Barak Obama’s latest speech (whichever it is). If your articles hit the front page of Digg and similar sites, you can eventually make good money by selling advertising. The problems is that Obama’s speech will be interesting topic just for a while. Few days later people will move to the next thing and your income will stop.

On the other hand take the article that you are reading right now. It will be useful one year later, 5 years later and probably even 25 years later. The ideas and concepts shared here are not related to any specific events – they will be valid as long as business exists and works in the way we know now. So if I was making money with this article now, I could make money with the same article 25 years later.

If you create a system solving the traffic jam in Paris today, you can make some good money. But if you create a system generic enough to solve the traffic in Paris in any day, you can have a real automated income generator.

An automated income generator should not depend on actual burning problems of the day. It should solve timeless problems.

You Need To Protect Your System

Finally, your system for automated income must be well protected. If someone steals it, you no longer will be able to use it. What does that mean in practice? If your system is based on software, you need to protect the source code so no one else can reproduce it. Fortunately there is a law protecting authorship all over the world which takes care for that in most cases. But you must protect your business system from easy duplication as there is no law to do it for you.

So, if you dream about receiving automated income, you’ll need to invest plenty of creativity, money, time and hard work. The ideal automated income generator is a system that you own but you are not a part of. This system must provide some real value to the other people – otherwise no one will give you money for what you offer. Your automated income generator must be unique or hard to duplicate, otherwise the market will get over saturated in short time. It has to produce timeless value not related to topical events. Finally, you need to protect your income generator well, so people can’t steal it from you.

All of this may sound like too much of a hassle, but the outcome is well worth it. And if you wonder if such automated income generators exists – yes, they do. The companies whose owners don’t work in them, many intellectual products, some web based businesses, unique properties are all automated income generators. Do you own or plan to develop/obtain one for yourself?

Whatever field I have been working or exploring so far, I have found out that the fastest and most exciting way to learn something – besides breaking the wall with your own head of course – is through exploring how the others are doing in that field. So if we all want to learn more about investing and personal finance, let’s see what the other fellows are doing it. I am starting a new section called “Investor Profiles” where I’ll present you fellow investors, bloggers and all kind of people from the “business”.

The Silicon Valley Blogger runs one of my favorite blogs about personal finance – The Digerati Life. She (yes, she) is a software engineer (kind of a mate) in the Silicon Valley and combines topics about money and investing together with some geeky stuff.

Of course, I’ll let her speak now:

The Three Questions Blitz Interview

SI: Is there a tipping point in your financial life? Some event or decision which significantly changed your financial situation?

SVB: Yes. This may sound a bit awkward, but I’m being frank when I say that for me, my financial tipping point was when I married my spouse. I couldn’t ask for a better partner, financial or otherwise. We complement each other well, personality-wise, while at the same time, we share the same personal and financial goals, and have similar backgrounds in both family set up and career orientation. So it makes it very easy for us to work together as partners at home or when finance and business are concerned. It’s gestalt. Though we have some occasional arguments about money, our views on our finances are pretty unified and we’ve got our specific roles laid out when we work on our financial matters.

SI: What’s your view on startups? Do you think starting or joining a startup is a good way for ordinary people to build wealth?

SVB: I have a very positive view of startups. I’ve worked in several in fact. I strongly believe that joining a startup is a powerful way to build wealth. Any one startup experience may not pan out for you in a significant way — at least financially — but the professional connections you make can be quite significant, and may help you with your future business or professional endeavors. The skills you build as an employee of a startup are also usually pretty valuable, as you end up learning so much in a short period of time: you’re often given many hats to wear, given the smaller labor force of such companies. If you do end up winning the lottery by way of a startup, then that’s just icing on the cake.

SI Note: Of course I intentionally asked her about startups, as I knew she had an experience with that. My view pretty much matches SVB’s – I believe in startups and startup investing. Joining a startup – or even better starting one – is one of the best ways to develop yourself and and grow personally, professionally and often financially.

SI: Do you prefer to live a simple life and retire early or to work harder and longer but be richer? If you turn back how has this preference changed for you over the time?

Most of us would love to have everything — if we can retire early and still be rich, why not? However, we need to be realistic and face the many tradeoffs that life affords us. Many years ago, if you’d asked me this question, I’d have a different answer: I would have said that my plan is to work as hard as possible for as long as possible for the financial rewards. But over time, and because of age, experience, and the changes, situations, and events both good and bad that have taken place in my life, my priorities have changed significantly and now I will say that I much prefer to retire early and just live simply and happily. In fact, that is what my spouse and I have done (to some degree) in the last few years. We’ve decided to take matters in our own hands and to take charge of our own financial destinies by leaving the corporate world (within two years of each other) to strike it out on our own. We are SO much happier for doing so, and even though we are not as “rich” as we could’ve been if we stayed employed, we have learned to scale back our expenses and to gradually build simpler lives. It is still an ongoing process to live simply and frugally, but we are becoming better at it. Because of these changes, our family life has never been happier and healthier.

SI Note: Boy, I hear myself here. The point of investing and making money in general is not to have expensive cars or boats – at least not for me. To have financial freedom, be your own boss and enjoy your life is much more important. I don’t trade my time for luxury things. Do you?

SVB seems to be a very sane fellow, especially if you read also her blog. If by any chance you have not done that yet, subscribe to her RSS feed or email updates.

If you visit The Digerati Life for the first time, pay special attention to the top posts and my two favorites within them – Should You Quit School Because You’re Brilliant? and How To Furnish Your House On Any Budget, Even For Free.

My guest post has just been published on My Two Dollars blog, so I wish to welcome the fellow readers coming from it.

If you just arrived here, let me shortly introduce you The Shark Investor. This is an investment and personal finance blog with a stronger focus on aggressive investing.

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Do you trade forex? Do you consider trading forex? Do you consider learning how to trade forex? Don’t do it. I like the profit opportunities that currency trading carries. I like also the risks involved, it wouldn’t be fun otherwise. But I don’t like the idea to trade myself. Where is why:

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1. Trading forex is work

If you want to make your money work for you, trading forex is not an option. You will have to work for your money. Day trading may look exciting for someone who never tried it, but once the initial excitement is gone you’ll realize it’s just a computer based work like any other.

2. Trading forex is too risky

This sounds paradoxical from the keyboard of a high risk investor but I really think forex is too risky. There are thousands of websites offering forex trading strategies. Have you heard for any super-successful one? Sure, some make it for a while, but no strategy guarantees long term success. This is because forex is unpredictable. There is too much probability and too much volatility in it. That’s why you are unlikely to see serious hedge fund to invest in forex ever.

3. Trading forex does not add wealth to the world

If you want to make money, you need to create wealth. What exactly is the wealth that a forex trader creates? What is the value he adds to the world? I can’t think of any.

Forex trading is a zero-sum game. If you make money, this is because someone else is losing it. If the intellectual energy put into currency speculation was put into something else, this could make the world a better place.

4. You don’t grow

I am sure many professional forex traders will be mad to hear this, but seriously, how exactly does day trading helps your personal or professional development? Sure, you’ll learn some strategies, maybe build some self-discipline and… what else?

5. You need money to make money

Let’s imagine after few years of investing your time, money and hard work you finally become a highly successful forex trader who achieves consistent 5% monthly ROI. This is quite unlikely considering that probably 95% of the new forex traders fail miserably, but I know you are smart, so let’s hope it will happen.

Since forex trading is work, like explained in point 1, you will probably do it all the day and will rely entirely on it for your income. So if you want to earn $5,000 monthly you’ll need $100,000 startup capital. Uh.

6. Trading forex is addictive

Just like gambling, day trading is highly addictive activity. Each small success leads you to believe that you can do better and better trades. Each bad trade forces you to trade more so you can make up for the loss.

Gamblers and forex traders often sell or bet their homes to feed their passion and hopes. If you lack self discipline, forex trading is one of the worst professions you could ever take.

7. Day trading is stressful

Do you really want to watch the computer screen all the day, to worry about your open positions when you go out for lunch and to wake up in the night because an important even happens on the other side of the globe and you can not miss the currency fluctuations produced by it? Think seriously about this because this is what the life of a professional forex trader is.

If you dream about lifestyle of freedom and leisure and are picturing yourself with a laptop on the beach, trading forex is most probably not for you. It’s an activity for people who like to live in stress and risk.

8. The forex trading knowledge is useless in other professions

Seriously, do you think the years you spend in studying forex can be useful if one day you decide to do something else? It won’t help you even for similar activity like stock trading because the systems and strategies are completely different.

In most professions whatever you learn during your experience can be extremely useful if you switch to a related (and sometimes totally unrelated) field. This is not the case with forex trading knowledge and experience.

9. There is too much fraud

Not all Forex brokers are as honest as we would like. Every professional trader has heard about big Forex brokers scamming away. See for example how several brokers were shut down in 2007.

When trading Forex you don’t have full control over your money. A dishonest broker can close down and run away or just deny you to withdraw your money.

10. You can have others trade for you at almost no costs

Why trade forex yourself, when you can get professionals trade your money? The managed forex accounts give you access to expert’s knowledge for a share of the profits. You don’t have to pay anything upfront. Isn’t that cool?

Yes, most managed forex account suck in performance and that is because of the reasons given in points 2, 6 and 7. Chances are if you trade yourself you’ll also achieve the same pathetic results but will lose not only money, but time and intellectual power too. Besides that, some managed trading accounts do well and actually make money.

Regardless of anything, I think forex investing is something to be considered. But if you plan to trade yourself, you must be very sure that you want it. The life of the forex trader is not romantic or carefree. At least this is not the life of most forex traders.