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
1: Live below your means.
2: Save at least 10% of your income.
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.
4: Earn your money on something you like doing.
5: Prioritize your time.
6: The money you don't need right now, put in the best
savings account you can find.
7: The money you won't need for many years, put in Index
Funds and gold.
8: Occasionally, give something back to the world.
9: Occasionally, invest in something fun.
The first goal for many would be to become debt free.
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.
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.
Have fun, and godspeed.
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