I’ve not written much the last month for the reason I haven’t much interesting ideas to share. I don’t like posting just for the sake of it and regardless the loss of traffic, I prefer not to do it. With so many personal finance bloggers however, there are enough who had interesting things to say in October, so here are they selected for you. Who said that I don’t value your time?

Jim at Blueprint for Financial Prosperity has compiled a cool list of 50 Financial Skills Every Person Needs To Know.

Patrick at Cash Money Life just wrote a killer post about Applying National Security Measures to Your Personal Finances.

Jaime at Paid Twice asks an interesting question: Is The Economy Affecting Your Mentality?

Pinyo at Moolanomy gives 7 Ideas To Turbo Charge Your Career Today.

Yet another excellent list: Cap at Stop Buying Crap offers 10 Simple Ways to Feel Rich Without Materialistic Means.

Jacques at The Digerati Life looks for the positive and shows How To Run A Small Business In Time Of Crisis.

Here is another interesting guide, this time from Trent at The Simple Dollar: How to Plan Ahead for Next Week’s Meals (And Save Significant Money): A Step-By-Step Guide.

There are not much entries this time. If you have published something great and it’s not here, I’d like to hear!

Do you feel screwed? If you have invested in stocks or real estate for years, you sure do. I know I do. We draw plans for the future and believe that by being disciplined, spending less than we earn and investing carefully we’ll be able to be financially free some day. Last few months it seems there is not much hope for that, doesn’t it?

Photo by
Close to Spectacular at Flickr

It could mean that we are wrong in general

It could mean that investing is a big fat lie spread over and over again by people who manage everything – you know that some manage to make a lot of cash even from recession. Maybe the “live frugally and invest wisely” mantra is just plain wrong.

It seems that I am not the only one who thinks that. People just want to do their work and receive something in exchange. But instead of that we must all become financial experts and follow the market news every day just so we don’t lose all our savings due to inflation.

Or we could be investing in the wrong things?

I think there lies the answer. Most people are trying to speculate the markets by investing in various financial instruments instead of investing in value. Forgetting that money is just an abstraction which represents wealth people are looking for investments that will bring them money in the future. Now this causes recession because apparently a lot of the money earned in the world turn out to be “fake” – i.e. not aligned to real wealth. A great example of what happens when money and wealth and not synchronized. Even more spectacular example can be seen right now in Zimbabwe with the hyperinflation.

But I don’t think that investing is a lie, we just do it wrong. If you want to get it right, you need to get back to the roots and answer the question what exactly is the point to invest? For me investing means to put aside part of the wealth I generate now (and get money in exchange for) and use it in the future when I may be unable/unwilling to work and produce more wealth. I don’t expect multiplication of this wealth (except if I have invested in automated income systems), but at least I hope it to remain on the same level. I try to look at investing this way instead of a way to “earn money”.

The problem however is that we can’t directly store the wealth we have now for 50 years later. You can’t store 20kg of rice or ham for such long time (even if you could, storage would cost you a lot) and you definitely can’t store a ticket for cinema or a journey booking for 50 years. Instead of that we can store money or financial instruments, which unfortunately change their abstract value all the time and are hardly predictable.

The “right” investing is in value

I.e. instead of trying to find out which commodity will raise its price next year you should, ideally, invest in things that will have value 20, 30 or 50 years later. Of course that reduces your chances for big fast profits, but we are talking about investing and not trading.

What investing could be that? Probably some of the following:

• Stocks of companies with good future. Of course stocks will always remain risky but if you look at companies which are fundamentally valuable, you’ll see they survive the crisis. See GOOG for example (they are also losing in 2008 but their loss is too little compared to most). Such stocks will not make you easy profits but at least will protect your wealth.
• Real estate that you use. If you have bought your home 5 years ago without mortgage loan you wouldn’t really care that the prices are falling today. You are having a home – you have bought it at a time when you had the money. A home for personal use will always remain one of the best investments you can make – provided that you have the money to buy it cash though.
• Business. If you have a business the global financial collapses will have negative effect on it – that’s almost granted. But if your business is based on providing what people want, you’ll survive and be back on the ride when the recession is over.
• Investing in yourself. Do not spend your wealth in financial instruments if there is room to use it for self improvement. That’s the single, best and evergreen asset you can obtain.

Speculative investing might be dead or dying right now, but investing in real wealth will always be actual. If you can avoid following fashion trends and can distinguish what is really valuable, you should be able to survive even the worst financial crisis.

Don’t get me wrong, I respect Seth a lot. In fact he’s one of the very few bloggers almost never make me feel bored. But sometimes advice like this one comes a bit too much to me. It’s not only Seth of course. How many blogs advice you to work or study every minute? Techniques for speed reading, speed eating, speed sex, speed working, speed living… give me a break.

Photo by Tim Caynes at Flickr

What’s wrong with you people? Do you really want to turn into robots? If you have studied some basic economics, you know that people in the past have done exactly that – they have been working all the time and had break only to sleep. Only after the technology and economy have grown enough people became able to enjoy such a thing like “spare” time. Now do we want to go back to the middle age again, huh!?

I am very much for working on your personal growth. In fact I believe growing your personality and raising your conscience is – if not the purpose of life – at least one of the most important and most useful things you can do with it. So yes, you should invest in yourself, learn, take care of your health and work towards achieving your goals.

I have a problem with sacrificing all my spare time however. For example we’ve been told to give up TV because it’s dull. I agree TV is dull. But exactly that one hour of stupid reality shows and manipulated news stories while having dinner is what my brain needs to relax from working on hard problems all the day. Another thirty or sixty minutes walking, cooking or having light conversations help me recharge and feel better even if they don’t help me grow directly. No, I am not going to listen to self-motivation e-books or language courses while having dinner, neither I am going to eat processed crap just because I could save the time for preparing dinner to work and use it to make more money.

Instead of ruling your day to the last minute, why don’t you try to think bigger? What are the problems that you want to solve? What are the areas where you want to grow? If you can’t solve your problems during the 8-10 active hours per day, what makes you believe that putting another sixty minutes is going to make the big difference? Most probably it will not.

Let’s say you aren’t making enough money and think to work more to solve that problem. But how much more time can you work? Probably no more than additional 1-2 hours. Even if we consider you don’t lose your productivity because of getting tired and don’t ruin your health, you are going to make only 15%-20% more money this way. But 15%-20% more money don’t solve many problems. On the contrary, very often they just lead to more and bigger issues. Instead of sacrificing your spare time for 20% increased income, you could spend half of that time thinking and trying to radically improve the way you make money.

Working harder gives some results. Working smarter works better. And I don’t think to deprive yourself from all the leisure activities that you enjoy is the way to go – even if some of these activities are not that smart.

I’ve been thinking about moving away from the big city for years and now we are starting some action. We are currently living in a city with around 3 million population which is the biggest in our country. Our plan is to relocate to a small satellite town about 40km away. Why are we doing this and how useful can such move be for you?

Photo by shareski at Flickr

Financial Benefits Of Moving Away

Probably one of the main reasons to consider moving away are the possible financial benefits by it. Most people would agree that living in small town can be cheaper but the idea is quite vague. Let’s try to break down the benefits:

• Lower grocery prices. It’s kind of paradoxical because the small towns don’t have the big hypermarkets, but it’s still true – the food and other grocery prices are lower in the small towns (at least here)
• Lower property prices. No doubt, the cost of the properties is much higher in the big city than in the small towns.
• Lower transportation costs. In the small town everything is on walking or biking distance from you, therefore you don’t have to spend that much of fuel. Of course this benefit will not be there if you have to travel to the big city for work.
• Health benefits. Less stress, less air contamination and less time spent in traffic jams improve your overall health. This of course results in less medical costs.

Making exact calculation of the benefits of moving away is not possible, but before taking such decision you need at least to consider a rough estimation. You can give quite good estimation for the property price, the transportation and food costs you are going to have.

The Costs Of Moving Away

It’s quite possible that the costs of moving away can exceed the benefits for a long time. I know it’s tempting to just go ahead and do it but you need to think very well what is it going to cost you:

• Job. Your options include working in the small town (probably for a lower salary), running your own business, working from home or traveling to work every day. All the options are absolutely viable especially if you remain close to the big city like in our case. Most of them will add to the costs of moving however (lower salary or higher transportation costs for example) so you need to include them in the equation.
• Home. Do you own a home right now or do you pay rent? If you own your home you need to actually make sure that you can sell it at a good price before planning the purchase of your new one. In our case that’s not a problem, because we don’t own our current place.
• The cost of the moving itself. Don’t underestimate them. If you have lived for several years at your current place you probably have a lot of stuff, furniture etc that need to be moved. The longer the distance is, the higher the costs will be.
• Tax and other expenses related to moving.

Once you have the two sides of the equation you are ready to decide. The result does not need to be positive if you are also emotionally attached to moving or staying. It’s just there to help you decide.

An Exit Strategy

Moving away is a big step and like in all big steps something can go wrong. You may get the calculations wrong, you may just forget or not foresee some major cost, or finally you may just not like your new place. So you need an exit strategy – a way to go back. You need enough money or opportunities to revert the change you have made.

In our case we don’t risk much, because we are not changing our work and business neither we are selling a home. But if you do any of these, think what bridges you can leave just so you are safe. Don’t get obsessed by safety though – often the only way to really grow is to cut everything that is behind you.

If you browse the blogosphere regularly you probably read a lot of advice on frugality and plenty “green” stuff about keeping the environment. As I’ve read many of those posts I’ve noticed both areas can fit quite well together. You can take care of your wallet by being frugal and making good investments, while at the same time eating and living healthy and finally helping the nature.

Photo by chrisjohnbeckett at Flickr

If you browse the grocery stores, watch TV and read magazines you may think that this sounds too good to be true. “Surprisingly” the organic foods, the “eco” and green stuff you find on the market is a lot more expensive than the “ordinary” things. If you want to take care of the environment and your health, you are supposed to pay more. Of course, do you expect the industry to miss the chance of making money from the “green” wave? Thanks, but no thanks.

If you buy the overpriced green stuff, you are just letting yourself to be fooled by the marketing. You can live healthy, care for the environment and save more/earn more money at the same time and without buying overpriced items.

Transportation

The wave of green ecological and economical transportation devices is just starting. But if you want to buy a “green” car that really works you have to pay a high price. The “middle class” electric car and bikes are almost useless because of the low distance they can travel, the low speed and the long charging time.

The real practical “green” answer is to walk more or ride a bicycle. That’s a great way to save money, keep in a good shape and care about the nature. Then why isn’t everyone riding a bicycle? More often that you would think the obstacles are related to what people would say rather than something else. For most people especially in the US it’s a loss of face not to drive an expensive car. Once again your wallet size, your health and the environment depend on “prestige”. Sounds like a high cost we pay to prestige. But do you really have to pay it or you can live the way you want without worrying about other’s opinion? You could at least try.

If real practical reasons keep you from walking or riding a bicycle to work (like too long distance and so on), at least consider riding a motorcycle. It’s 2-3 times cheaper than driving a car and can be a lot faster in traffic jams.

Food

Trying to save on food? Don’t buy organic foods. They are just the new fashion way for the industry to sell you more overpriced healthy stuff. The positive impact of the organic foods on your health is not proven and for sure won’t be big if you eat lots of junk food along with the organic.

The real way to eat healthy, save money and save the nature is to eat simpler, less processed, less packed local food. It’s cheaper because it has lower transportation costs, it’s healthier because it’s fresher and less processed, and saves the nature due to less energy waste and packaging. Of course you can’t expect the commercial lifestyle magazines to tell you that it’s better to eat potatoes and rice instead of the new super cool organic food XYZ.

Energy

Looks like at least on the “green” energy almost everyone is in agreement. If you can supply your home with solar panels or wind turbine you will help the Earth and will save money long term. Even if the solar panels are too expensive now, buying them is one time payment and the electricity prices are going to increase again and again.

If you need heating you could try installing heat pump in your home and save a lot of energy and harmful emissions to the world. Again, you need to make a larger investment in the beginning but over time it’s going to pay off well (certainly better than the current investments on the stock exchange are doing!).

The key to save money along with taking care for your health and the environment is not to give advantage to any of the three and stay away from blindly following the fashion trends. If you are looking only to save money you are unlikely to eat healthy. If you are obsessed by the idea to eat organic foods, you’ll have to spend a lot more money for that with questionable results. And of course trying to do everything for the nature turns you into excellent prospect of the traders who want to sell you overpriced stuff.

This time my guest is a professional financial adviser. And not only that, he is one of the About.com guides where he writes about financial planning. As you’ll see just below, he really has a lot to share – I’ve got the most detailed responses I’ve received so far.

My guest is also a blogger and you may already know him – that’s Jeremy at Generation X Finance – a frequent guest in my “link love” posts as well.

SI: Have you ever been in bad financial trouble? If yes, what did you do to get out of it?

Jeremy: I was in pretty bad financial trouble just out of college. While still in school, I had established a few businesses. I had a web hosting company, ran a few fairly successful websites, and even went on to become a partner for a retail store. I couldn’t find a job in my field after graduation, so I had figured I’d be better off focusing all of my efforts on my businesses. Well, in order to expand beyond the dorm room and part-time income it was providing, I needed to expand. I started with the web hosting company and invested in more infrastructure (new servers, hired some support staff, etc.) This was the time where anyone could get credit, so going to the bank and asking for 10 or 20 thousand dollars in unsecured debt was easy. Since I didn’t have the cash on hand to do it, that’s what I used.

After some time and revenues not increasing enough to keep up with the added debt, I took on a partner to help. After some improvement and regaining some capital, I decided it was time to let go of that business and sold my remaining share to the partner. For a loss. I recovered some of the debt, but not all of it. Then it was time to focus on the other businesses. Unfortunately, I/we fell into the same traps. Business was starting to pick up, but it wasn’t quite enough to really break out, so we utilized the easy access to credit so that we could put the money into what was needed to take the business to the next level. And after a few years when that didn’t happen, I again was faced with selling off my portion of the businesses. In each case, I was only able to recover a fraction of the debt that was owed.

After I was separated from all my business ventures, I tried my best to keep up with all the payments. But being unemployed for a while, and working part-time just to pay rent led to things getting even further out of hand. I got to a point where I was considering bankruptcy and was researching attorneys that could help. But for whatever reason, one day I just said no, and I told myself I wasn’t going to go that route. I had gotten myself into this mess, so I was going to get myself out. It all started with beginning to consolidate some of the debt and to try and get rates reduced. I was able to successfully negotiate some of the interest rates down from 29% to around 9%. In a few cases, I was able to work directly with the bank to convert the revolving credit lines into installment loans at lower rates. It was amazing, just doing some legwork and asking for help enabled me to cut the monthly payments in almost half, and significantly reduce the interest rates, all while converting around 12 separate monthly payments into 3.

Once I finally found employment and began receiving a steady paycheck, I set up direct deposits to come right out of my check and go right to these debt payments so they were paid without even thinking about it. Since money was still tight, I found other ways to make some extra income, from odd jobs, IT consulting, and creating websites. I can honestly say that I hope I never have to go through something like that again, but the things you learn while being faced with a situation like that can’t be learned through books or by a talking head on TV. So, while I regret ever getting into that situation to begin with, I think it provided a valuable lesson and was critical to my success thus far, and will likely prove to be helpful in situations in the future.

SI Note: Quite a story. Maybe the credit crisis is not such a bad thing after all?

SI: Do you dream about early retirement like most people? Do you know what you are going to do with your time if you retire young?

Jeremy: I dream about early retirement every day. It’s not that I dislike my job, because I actually love it and couldn’t see myself doing anything else. But I also love to golf and love to travel. And when you’re bound to a 9 to 5, it’s hard to do much of either. I actually envision my “early” retirement to be more of a pursuit of a dream than an actual retirement. Once I’ve build up the resources, I’d like to retire by building and owning my own golf course and/or resort. I actually have a bit of a background in landscape architecture and golf course design, so it isn’t as farfetched as it sounds. But buying and developing the land for a golf course, and running the business isn’t something you can do without a good deal of capital. And since I learned my lessons about borrowing too much money for business, I want to be in a situation where I don’t have to rely heavily on banks in order to make that dream come true. But then, I could live on, and golf on my very own creation, and that’s what I’d call retirement. And I’d like to have this happen before I have to play from the senior tees!

SI Note: I asked this question because it seems that many people dream about early retirement without having any idea what they are going to do with their time. Lying on the beach is not the answer, but probably doing what you love is.

SI: The situation in the financial markets is pretty bad right now. What’s your forecast for the next few years? Is a big depression coming or everything will be back to normal?

Jeremy: This is a difficult question. From a pure financial market standpoint, things aren’t that bad. Of course, we just saw the largest single day point drop in the Dow ever, and the largest percentage drop since 1987, but as a whole, the markets are still not in terrible shape. From 2003 to 2007, we saw a pretty strong run. The Dow almost doubled from around 7,500 to 14,000 in just 4 years. We’re now sitting around the 11,000 mark just a year off the highs. Considering what we’ve been through in the past 10 years, from a pure market standpoint, things aren’t as bad as they could be. But when you look at the state of the financial sector and real estate, that’s another story. But at the same time, a lot of the real estate crisis is localized, just like the talk of being in a recession. The coasts have been hit, and some major metro areas and speculation areas like Las Vegas are really taking the brunt of this and making all the headlines. But when you begin to look at many places outside of these hot spots, things aren’t nearly as bleak, and in many cases, things are doing quite well.

Of course, it trickles down, and as more banks and investment companies begin to feel the pressures, the negative effects will be more widespread. Is a big depression coming? I don’t think so. I think we’ll continue to see things decline a bit for another year or two as we weigh the effects all of this has on the global economy, but things are much different than they were in the past. The stock market may continue to fall, and home prices may continue to drop, but this is a global economy. We’re also a much larger service economy now than manufacturing was in the past. We will still lose some jobs, we’ll probably have to struggle with inflation, and suffer from real estate woes, but I don’t see any massive meltdown. That is, of course, assuming the government finds a way to assist the ailing financial industry. We clearly don’t have the ability to cope with more major bank failures, and we can’t afford to restrict credit even further. So, I have to preface my comments with the assumption that the government does come to some sort of consensus as to how to address the banks that are in trouble. If they fail to do that, then all bets are off as people are irrational and will begin a self-fulfilling prophecy to create another great depression.

SI Note: So the apocalypse is not coming yet? Sounds encouraging from a finance professional. I definitely hope the US economy starts picking up again soon and the USD raises more against the EUR (that’s entirely selfish hope of an European of course).

So, that’s it. It was pretty long, but really interesting. If you want to read more exciting stuff from Jeremy, don’t forget that Generation X Finance works 24/7 and you can subscribe by email or RSS.