"Excellent article. Some really great points and advice!"
- Pamela Browne, widow of eminent investment advisor Harry Browne

"As a professional investment advisor who has been in the business for 35 years, I can tell you that the financial advice you provide in this article is the best summary of those truths that I have seen." - David R.


The Trick To Money Is Having Some
By Eolake Stobblehouse
(Apologies to Stuart Wilde for borrowing the title of his book.)
Updated August 2012

I decided to make a comment on an important area: money. What I say is very simple, and very basic. But I wish somebody had told it to me many years ago, my life would have been much easier. But anyway, later I got luckier. In five years I had gone from having a serious debt to having savings that exceed what I once had in debt.

It makes sense that if you should take advice about money from somebody, you should take it from somebody who: a) has been through it himself, and b) is not gaining anything from giving you advice. Not a bank "advisor" (read salesman) who is on office wages and is not allowed to recommend anything but the bank's own services, no matter how overpriced. (Ever wonder why banks own the best corner buildings on any street?)

I have spent some time in the past reading up on various aspects of money, and I feel a lot better about it. And in the end I have discovered that 1: the basics are reasonably simple, and 2: most people don't know them. (I am disappointed that school taught me advanced math, but not how to wash a shirt, how to get along with people, or how to manage money...)

Don't take my word for it, there is a recommended book list below. But here are some of the basics as I see them right now:

0: Money is not wealth
"
Wealth" is the various things we want for whatever reason. Food, clothing, housing, entertainment... (For some people, none of these are important, I guess then wealth is an inner thing.) But the society of specialization makes it necessary to have a medium of exchange which everybody accepts, that is "money". Silver, gold, or promisary notes from banks. If you have enough of that to save it up, the trick is to protect it from waste, theft, inflation... Even banks or whole currencies can fail, so do some studying on that. Use several baskets, and different kinds of eggs too.

1: Live below your means.
Obvious? Maybe, but you have to do it. For some people it's not easy. And it seems it's not even obvious to some people. A very successful friend of mine told me that my way of getting rich (saving) was the "old way" and that he was using the "new way", which apparently was to buy many big houses on credit. This was just before the big credit crunch hit in 2008...
Don't live on credit. If you don't have the money for a thing, you can't afford it yet, so don't buy it. Credit card debt and their huge interest rates is a black hole of needless expense.

2: Save at least 10% of your income.
Set this aside before you use money on anything else. You'll find you can live on the rest. And if you earn good money, save 20% or 30% instead. You don't know how long your good fortune will last, so there's no such thing as "too much savings".
When do you save up extra? When you earn lots of money. Why? Because that's when you can! Don't assume the nice weather continues forever. 

3: Don't use a lot of money on anything you don't really need, or which does not give big returns either financially or spiritually.
This means for example that significant alcohol or tobacco consumption is a dead loss. Or things you buy just for status. Wealth is not defined as the size of your car or house, but rather as how long you could live at your current lifestyle if you lost your income tomorrow...

4: Earn your money on something you like doing.
Your love and interests are the strongest forces you have, and as such they are likely to generate success over a long time. Or at least work with something which is fun. If the boss and colleagues are pleasant, that goes a long way. It's not important if you earn your living on your single strongest interest in life, that one may not even be profitable for many people. But your work should not suck the life out of you, nothing is worth that.

5: Prioritize your time.
Example: get rid of the TV if it wastes your time. (You'll feel better too.) Work effectively, and study things for future income and for expanding your perspective on life.
Say no to things which waste your resources or time. Treating yourself as well as you'd treat good friend is not "being selfish".

6: The money you don't need right now, put in the best savings account you can find.
Some of the best are online, not in your local bank. There are web sites for shopping around. Spread it around several banks, perhaps even in at least two countries.

7: The money you won't need for many years, put in Index Funds and gold.
Many independent studies show that index funds (index trackers) (due in part to low charges/fees) do significantly better than both bonds and savings accounts and most mutual funds, over any long period of time you want to choose in history. Real estate can do well, but might not, and takes a lot more attention. Take note that even index funds can crash for a while. (See update below)

8: Occasionally, give something back to the world.
We don't live in a vacuum.
Personally, instead of (only) giving to the cause celebre of the day, I like to give to "building" causes rather than "repairing" causes. Especially education. And I often give to friends and small causes that I know personally, so I can see that it does some good.

9: Occasionally, invest in something fun.
One can go overboard with frugality: why die with millions in the bank, a frown, and an ulcer?

The first goal for many would be to become debt free.
The second goal is to have reserves for one year of your current life-style without income. (Known as f**k-U money, because of what you can say to a bad job.)
For some people, the third goal is the point where the returns from your investments, or just your savings, are bigger than your expenses for your projected life. At that point you will never again have to work with anything that does not interest you. But this point may not be realistic to reach for some. And many people may simply not be interested in becoming capitalists. It does take a lot of work and knowledge, and is never risk-free. Instead you may just opt for a secure and over-sized pensions savings. Although if you work with something fun, you might never want to retire, and why should you.

I have now rounded off a couple of years of occasionally studying personal economy, how to get money and how to handle them. I was occasionally afraid of becoming a money-motivated person, but the study was necessary for the simple reason that they don't teach these essential subjects in school. (I sometimes think this is because the big financial institutions (as well as the short term economic health of the system) depends on spending and an indebted population, in the crazy debt-based economy of today.)

One thing I have learned is that beyond the basics outlined above (and even those you can find plenty of controversy about), nobody agrees on anything. Just when I thought I had something pinned down, in the next book I read they would say the opposite. What does this mean? It means that you are on your own, basically. You have to study and decide for yourself what is true.

Furthermore, if you hope to do really well with money, you have to keep at it. You have to know a lot, and you have to know what is going on all the time. Just one example: it has become clear to me that while one might do well investing in individual stocks, it takes a hell of a lot of knowledge and work to do so. And even the experts regularly make huge mistakes. (70% of managed mutual funds do worse than the overall market!) (Which is why index funds is a good option, they follow the market and have very low fees.)

Honestly, I had hoped to get to a point where I could do well investing without a lot of continued study and worry. But I have not found that point, and I don't think I will. And since 1) I don't have nerves of steel and 2) I really am not all that interested in money, I have decided it is not really worth it for me.

The attention I have to put on it has to come from somewhere. And I would rather put that attention on where I like to have it: on production, and on art, philosophy and spirituality/metaphysics. And on communication and fun. I suspect even economically this will pay off better for me, not to mention spiritually and emotionally.

One should have an idea whether one is interested in investing or in speculating. Much of what's called "investing" is actually speculation, including the stock market often. The difference is as much in the purpose as in the type. Speculating, even with the best research, has a marked component of gambling, one takes a risk in the hope of a gain. Investing is interested in minimum risk (which can be hard to evaluate) and with putting one's money to good use in the world. It is long-term, usually. But even a "minimal risk" also has some element of gambling.

Even the best solution I have found in investing, index funds, would take my attention. Because when the market as a whole goes down, I would lose money. And while historically it has paid off on an average, there has been periods where it took many, many years for the money to even come out even. (The 1930s and the 1970s.) It has also been pointed out that modern economic growth only happened in the last few hundred years, and may be a freak period in longer historic terms.

So I decided that "investing" as such is just not worth it for me, except if I have a little "wild money" and a clear Buying Opportunity offers itself (a market is temporarily under-valued, for example by fear). So I have pulled out and just gone to the best savings accounts I could find. (And it pays to shop around.) And it might not hurt to diversify here also, even though these are supposedly 100% safe. Banks do go under sometimes. Use a couple of different institutions, and get some precious metals too, in bullion, not paper. Gold went up dramatically in the seventies, slanted down from 1980 until the millennium, then started gaining again. This might be seen as a "defensive investment", or insurance in other words, something to have if for instance a currency collapses or during a high-inflation period. Study it.

I recommend coins like Krugerands or Brittanias rather than bars or rare coins. They are the easiest to value and therefore to sell. (And in Britain today, coins like Brittanias and Sovereigns are sales-tax-free because they are "coin of the realm".)

By the way, get the bullion in your own possession, in a safe place. Don't trust bullion banks who say that they actually store the gold for you, there are stories that they operate just like banks, that the "gold" they take money for on paper is maybe 100 times more than the physical gold they actually hold. The legality of this is a very grey area, but guess who can buy the best lawyers?

Even this took a little bit of courage: what if the stocks I didn't buy go up? That is a missed opportunity. There is just no way one can be certain. One has to make a choice. And my choice personally is to make as much money as I can without working more than I like, and live well beneath my means, and put my surplus in the best savings account I can, and forget about it, and concentrate on my work and my life. And also, while I have no scruples being a capitalist (making money from money), I still consider it more interesting to make money from actual production and value, so that is where I will put my attention.

When people tell you that you should expect double-digit returns on your investments, don't believe them. Anytime you get above maybe five percent (and that's before inflation), you get into risky waters. If you like risk, that's fine, but you must be aware that you're taking it on.

And never invest more than you can afford to lose, even if it seems like a "sure bet". Some of my friends have lost their shirt this way, even some I thought were the most careful people in the world.

One must realize that the economy can't grow ten percent per year  (after inflation). If it does, there's some kind of bubble. Why? Because money is based on real products, and the overall system of factories, transport methods, workers, education, etc, just can't grow that fast.

In other words, unless you're a gambler, you'll just have to face that a couple percent per year above inflation is all you are likely to get. Those "the miracle of compound interest" calculations based on ten percent are BS. After a while I just settled down knowing that.

Update early 2010: this article was first created around 2006, and at that time it was easy to find a savings account giving good returns, and inflation was low. If that had continued, I'd be happy as a saver still. But now I'm a little uncomfortable, because since the 2008 credit crunch and subsequent events, there's no interest to be had, and money printing has exploded, which may lead to high inflation. So of course careful savers are being punished for the crises that irresponsible loaners/lenders created. I still haven't found a secure way to even keep up with high inflation if it occurs though. (Except get a bit into precious metals.)

Don't feel obligated to give or lend your money to anybody. Yes, it is a pleasure to help and it has healing power to reach out to others, but only if it is voluntary.

Unless one inherits great wealth, these are issues one simply has to deal with somehow. And how one does it is a personal choice.

In Harry Browne's book Fail-safe Investing, I found a refinement to the worry-free savings principle I favor. Harry recommends four different kinds of investment in four equal parts, where each part responds differently to different economical climates, and the end result is an evened-out steady growth, and very rarely any loss. If one is worried about the stability of currencies, banks, and governments, that book is recommended, as is perhaps The Alpha Strategy, though parts of that one only applies to high-inflation times/areas.

Update 2012:
I was asked: None of the people recommending gold mention the possibility of a gold bubble. The price has been pushed high by speculation, rather than any intrinsic value. There is a massive supply compared to actual demand for industrial or jewellery.

Well, this is all true. And gold *could* certainly drop in value again. But I think that it will only do so if the global economy corrects and grows more and more sound pretty rapidly, and that seems, sadly, very unlikely.

Some people may buy gold as speculation. This would have been very smart in the years just after the millennium. Now, I think it's a 50/50 chance.
BUT: another view is to get a 10-20% portfolio of gold as *insurance*. If the economy goes up, gold will fall, but probably not fast. Then your other assets will go up. If the economy goes down, other assets will go down, and gold will go up. It's a strong balancing factor.

It's true it has no intrinsic value, but paper money has even less so! They have only trust in banks and government. With gold, the trust is based not just on a government, but also on the metal itself, which has almost always, almost anywhere, been good, solid money. Gold has been high and low (around the millennium it was quite low, but it took two decades to get there), but it has never been zero, or anywhere near.
If I was put in a time machine and had no idea in which country or in what time I would arrive, I'd bring some gold Sovereigns! (Quarter ounce British coins, they say it's the most well-known in the world.)

A few coins in a bank box is something you may keep always and give to your heirs, which would be great, but it is also a last-ditch hedge against collapses of banks, governments, and paper money, something which has happened many times even in living memory.

Have fun, and godspeed.

Eolake Stobblehouse


Recommended reading:

The Trick To Money Is Having Some

Fail-safe investing

The Alpha Strategy

The Millionaire Next Door

7 Strategies for Wealth and Happiness

Busting loose from the Money Game

The Soul of Money

Your money or Your Life


"A wise man should have money in his head, but not in his heart." -- Jonathan Swift

"The best way to realize the pleasure of feeling rich is to live in a smaller house than your means would entitle you to have." -- Edward Clarke



"Knowledge is the food of the spirit, and beauty is the drink." - Eolake Stobblehouse

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If you would be wealthy, think of saving as well as getting. -- Benjamin Franklin


O Gold! I still prefer thee unto paper, Which makes bank credit like a bark of vapour. --
Lord Byron