Skip to content

Posts from the ‘Personal Finance’ Category


Education: It Can’t Be Taken Away

Hey guys,

I’m starting a new job in a little over a week.  During my layoff, I spent my time learning how to make iPhone apps.  See here and here for the shameless plugs.  Alas, there isn’t as much money in iOS development as you’d think.  Don’t get me wrong, they both sell pretty well.  They just don’t sell well enough for me to live on at the moment.  But that’s cool.

My new job is doing iOS app development for a small local business.  I got the job because I taught myself how to make iOS apps.  That, and I brought two apps to market on my own.  I know stuff that is pretty valuable to know these days.

If you want to get ahead, it’s important to know stuff.  What you need to know varies according to your circumstances.  Being able to execute on that knowledge is important, too.  Just not as important as having the knowledge.  A job can be lost.  Tools can be stolen.  Equipment can fall apart.  Knowledge of how to do something can’t be taken away.  As long as you know how to do something, everything else can be worked out.

I used to drive tour buses for a living.  Admittedly, it wasn’t much of a living.  It was work, though.  And it was work that couldn’t be done by just anybody (CDL licenses are not that easy to come by.)  To this day, if everything else fell apart and I had to start from square one, I can make a living driving a bus.

Years later, I finished my degree and now I know how to write software.  I may have turned in my company computer when I was laid off last December, but I didn’t have to turn in my education and experience with it.  I was able to leverage my education and experience into some modest side income and a new job.

While having a formal education will tilt the numbers in your favor, you don’t necessarily need one to live a satisfying life.  There’s all kinds of ways to learn stuff.  Especially these days.  As long as you’re acquiring knowledge on a regular basis, you can’t help but succeed.


Change is Hard

Letter to my Struggling Baby Business (via unicornfree)

Although this is not strictly about personal finance, the general theme is applicable to anyone going through a major change.  Be it personal finance, healthier living, or starting a business.


Securities Investing: Keep it Simple

I’ve recently been looking at my stock portfolio.  I’m going to be back to work soon and I want to get a jump on what I want to buy when my full income kicks back in.  I’ve also been paying attention to the personal finance blogosphere again.  Nothing much has changed.  People who are talking about stock investing are really just talking about gambling or they’re talking gibberish.  So I thought I’d share a few details about my portfolio.

I started my portfolio around April 2010.  I spread $5,000 over six different stocks and have been making regular buys up until my layoff last December.  As of yesterday (Feb 24, 2012) I am approximately 13.5% up with an approximate 7.4% annualized rate of return on 10 individual stocks.  In an insanely volatile year for the market, I still managed to make a few bucks.  How did I do it?

I kept it simple.  I don’t get into options trading.  I don’t do forex trading.  I don’t do arbitrage.  I don’t do derivatives.  I don’t day trade.  I don’t speculate.  I don’t do any of the things that are really just gambling on the market.  I keep my risks low by being a strict value investor.

As a value investor, I follow the axiom of “Buy great companies at attractive prices.”  Of course, the trick is figuring out what a great company is and then what an attractive price is.

Figuring out the greatness of a company generally has a qualitative and quantitative component.  The quantitative component is the answer to the question, “Does the company make money consistently?”  The qualitative component is whether the company has an enduring competitive advantage.  When both of these components are affirmative, you’ve found a great company.

That leaves the question of what an attractive price is.  First, you need to find the intrinsic value of the company.  Once you’ve figured that out, you can figure out what discount you are comfortable with.  I generally require at least a 30% discount against intrinsic value.

In my opinion, this is the minimum amount of research you need to do when selecting individual securities.  If you aren’t willing to do this, you should just stick to index funds.

If you are willing to do that kind of research, take a look at the books listed in the Amazon affiliate box to your right.  Those are the foundational books I built my investment strategies around.

Thanks for reading.


How to Use (and not use) Your Time

Seen on facebook:

Has offically hit 1 million gold in Skyrim!!!!

For those of you not interested in what young men do with their time, Skyrim is a giant video game.  As a comic book geek, I must sometimes sit through rambling descriptions of just how awesome this game is.  Apparently it’s really expansive and involved and the graphics are “amazing.”

Skyrim was released to much ado around the middle of November 2011.  During that time, I was working on my Wrestling Scorecard iPhone app, ultimately released at the end of January 2012.

While my friend above was making millions in the Skyrim adventuring business, I have sold a modest number of units for my app.  And I didn’t have to spend hours plugged into a video game to do it.

Therein lies the secret to financial stability.


Paranoia is not an Investment Strategy

Warren Buffett:  Why Stocks Beat Gold and Bonds

Over on Y-Combinator, the gold bugs and liberterian survivalists are going bugnuts about anyone, even a seasoned investor like Warren Buffett, daring to say that gold is not the best investment opportunity since sliced bread.

In my opinion, based on nothing but my layman’s observation, the money has long been taken out of gold.  The growth rate of prices are more a reflection of political paranoia than any rational valuation.  Political opinioneers working at the behest of their paid sponsors have been whipping this paranoia up for years.  After all, who do you think is supplying the product that the gold bugs and libertarian survivalists have been buying?

If you’re buying gold because you think the price’s growth rate will be sustainable, I’ll just say that timing the market is a fools game.

If you’re buying gold because you think society is on the brink of collapse, cash out some gold to get therapy.  And it probably wouldn’t hurt to stop listening to people who are sponsored by gold companies.


The Fix Is Not In

Hey guys, how’s it goin’?

I was goofing off and read this article on Huffington Post about High Speed Transactions. It’s a scare piece about how computers are being used to take advantage of marginal fluctuations in the market. These computers can execute thousands of trades per second. Ultimately, they only affect the day traders and other investors who operate in the sub-penny margins.

As I’ve mentioned before, I sometimes make the mistake of reading the comments for these kinds of stories. Every time I’ve done it, I’ve immediately regretted it. This time was no different. The comments were filled with categorical statements about how the small investor is screwed because the playing field isn’t level, the computers are taking over, the Wall Street fat cats have bought all of the politicians, et cetera and so on. Although I can’t prove it, I suspect if you combine the portfolios of all these malcontent commenters you’d be able to buy something at the local dollar store.  They’re more interested in grinding axes than participating in an actual discussion, or *gasp* learn something.

As a small investor, I call bullish*t. Contrary to what the know-nothings over at HuffPo have to say, investing is not the bastard sibling of a slot machine. If that were true, there wouldn’t be nearly as many wealthy investors as there are. Sure, there is an element of risk when you invest. Unlike a slot machine, that risk can be greatly reduced if you do your research and take a little bit of care in your decision making.  It doesn’t matter what the High Frequencey Trading computers are up to or which fat cat owns which politician, as long as you are doing your research and putting thought into your investment decisions you’ll do fine.

Until next time, keep on saving!


Nothing to Fear but Fear Itself

Hey guys, how’s it goin’?

When I was growing up, I had to endure the daily proclamation that my mom was going to get laid off any day now.  For as long as I can remember, her entire existence was permeated with the fear of not being able to take care of her kids.  That fear made home life edgy, to say the least.  According to her, the wheels were always in danger of coming off at the next unexpected expense.  An accident left her unable to stand for more than hour at a time and forced her into an early retirement.  When she passed away, she had less than $500.  She lived her entire life either not knowing or not bothering to build up more than a nominal amount in savings.

That’s one of the many reasons personal finance is a very important subject to me.  After many years, I was able to drag myself out from under the fear that drove me to make all manner of poor financial decisions.  Part of turning my financial situation around was resolving to not be put in a position where I would have to deal with the kind of fear I grew up with.  It’s one of the main drivers behind going back to school for my degree.  Today I make a good salary in a high-demand industry that is about as close to recession proof as it gets.  On the off chance I lose my job tomorrow, I have enough savings to pay my bills for six months.  I’m building a portfolio that I hope will allow me to retire while I’m still young enough to enjoy it.  I’m hardly financially bulletproof but I can handle some adversity without going into a tailspin and losing everything.

And yet, I still occasionally feel it.  I feel the anxiety of not having a job tomorrow.  I feel what’s best described as preemptive despair that tomorrow is the day when the wheels finally come off.  The only real way to deal with this feeling is make sure I’ve done everything I can to handle a financial catastrophe.  If I didn’t have a sizable emergency fund, I’d be in much worse psychological shape.

If you or someone you know is like my mom, the only real way to handle the fear of financial catastrophe is to do the kinds of things I’ve done.  Build and emergency fund.  Pay down debt.  Stay out of debt.  Plan for the future.  That fear may never go away, but a little preparation will keep it from owning you.

Until next time, keep on saving!


Don’t Give the Bastards More Than You Have To

Hey guys, how’s it goin’?

I’m expecting my car insurance bill soon.  Even though I paid off my car and I can drop my policy to just liability, I decided to keep paying for the full package.  Maybe not the most frugal thing to do, but it’s better to have it and not need it than need it and not have it.  I spend a lot of time on the road, so there’s lots of opportunities for something to go sideways.  What I refuse to do is give the insurance company one penny more than I have to.

Back in the bad old days, I was forced (by my own financial ineptness) to pay my insurance bill on the payment plan.  Six months of coverage for five monthly payments.  Insurance companies being what they are, it wasn’t enough to charge out the nose for their product, they had to add a $5 monthly surcharge for the privilege of paying on time every month.  What a bunch of sweethearts, eh?

Anyway, one of the first things I did when I started getting my finances together was arrange to get off the payment plan and pay up front for each six-month period.  Fifty bucks a year may not seem like much, less than a dollar a week.  It doesn’t seem like much now, but back when I was getting started, that five bucks each month was appreciated.  That five bucks went straight into my savings and helped put me on the road to financial stability.

You’re going to spend a lot of money on insurance over the course of your life.  It’s the cost of living life.  But there’s no point in paying one cent more than you have to.  It may be a little scary to think of paying out a few hundred bucks on one bill every six months, but if you include it into your monthly bill account you’ll be just fine.

This goes for any bills that offer a payment plan.  If they charge you for the service, you’re better off just saving for it and paying it all at once.  You can put the extra money to better use.

If this post has been helpful to you or you know someone who could use it, pass it on.  Follow us on Twitter, fan us on Facebook, sign up for the RSS feed.  Thanks.

Until next time, keep on saving!


The Rule of Seventy-Two and You

Hey guys, how’s it goin’?

When a person is just starting out with investing, they may be wondering if the risk is worth it.  After all, they can get a high-interest (relatively) bank account at some online bank like ING Direct or a CD at their bank.  Sure, their money may not make the same returns, but it’s a lot safer.  If they have no risk tolerance, they will want to put their money in the most risk-averse vehicles and call it a life.  Of course, as the saying goes, “No guts, no glory.”

For the sake of argument, let’s look at the difference between the returns on no-risk instruments and more traditional, risky investments.  Let’s start by taking a look at something called the Rule of 72.  The Rule of 72 is a way to approximate how many years it will take to double your money.  It’s a simple formula:  72/(rate*100).

Let’s take a look at just how much you’re missing by staying in a low interest vehicle.

  • Scenario 1:  My portfolio is making an annualized return of 10.43%.  Using the Rule of 72, it will take 6.9 years to double my money. 72/(0.1043*100) = ~6.9
  • Scenario 2: I take my current portfolio and invest it into a 1 year cd at a rate of 3.25%.  Using the Rule of 72, it will take 22 years to double my money.  72/(0.325*100) = ~22
  • Scenario 3:  I take my current portfolio and put it into an ING Direct savings account at a rate of 1%.  Using the rule of 72, it will take 72 years to double my money.  72/(.01*100)  = ~72.

While I would like to live forever, I obviously won’t.  At 72 years, the best I can hope for is to leave my money to someone else to enjoy.  Even at 22 years, that leaves me with little time to enjoy the fruits of my labor.  While I may not be able to live high on the hog in twenty years with a 6.9 year doubling period, that’s still a pretty good chunk of change to help pay for things when I’m old.

If you want to be even marginally financially independent, saving is not enough.  You still need to save a significant amount every year, but you also need to find ways to make that money work for you and maximize returns.  For most people, that means investing.

If you found this post useful or know someone who can benefit from it, go ahead and pass it on.  Follow me on twitter, fan me on Facebook, sign up for the RSS feed.  Thanks.

Until next time, keep on saving!


Personal Finance Milestones, Part II

Hey guys, how’s it goin’?

Last post, I talked about dealing with long-term financial goals by creating short-term milestones.  Today, I’m going to go through an example of creating a schedule of milestones.

I have about six and a half years left on my student loan payments.  I took out slightly more than $30,000 in student loans to finish my CS degree.  After three and a half years of repayment, I’ve chipped the loans down to $21,650.  I’ve made a great deal of progress, but I don’t need to tell you that a lot of things can change in six and half years.  You can lose your job, you can get really sick, you can get divorced, any number of things can happen to throw your life into a downward spiral.  One of the best ways to manage these kinds of events is to make sure you don’t have a lot of financial obligations. To reduce risk, I want to pay it off early.  Where do I start?

  1. Make a goal. First, I need to decide on a reasonable time frame.  While I make a good wage, I don’t make nearly enough to pay the debt off outright.  I put a sizable hunk of my income into retirement and other investing.  I also have to consider the money it costs to live a reasonable lifestyle.  While I could put every spare cent into paying off my debt at the cost of the small luxuries that help keep me sane, that’s not much of a life.  After everything has been factored in, four years is a reasonable time frame for paying off this debt.
  2. Make a plan. To pay off my student loans in four years, I need to find my minimum payment.  A good mortgage calculator can do this, but I prefer to do the math myself (with Excel. Thank you, Mr. Chou.)  To pay off the loans in four years (48 payments), I need to make a minimum payment of $451.00 per month.
  3. Write it down. Now I have a preliminary milestone, “Pay $451.00 per month toward my student loans.”

Now I have a set of monthly milestones.  Are they sufficient to stay on track?  Yes.  If I set up automatic payments and make sure the money is always in my bill account I won’t have to worry about it again.  Are these good milestones?  Not really.

  • Is this series of milestones small?  Yes.  But they can be much smaller.
  • Do the milestones have a deadline?  No, not really.  A deadline is usually associated with an actual date.
  • Is the series of milestones specific?  Yes.  But they can be more specific.
  • Do the milestones move me closer to my goal?  No.  The way it’s written now, there’s no indication that these payments will ever end.

Not bad for a first pass at a set of milestones.  They can be greatly improved, though.  What can I do to make them better?

  1. Refine my goal. My student loan total is made up of three different accounts:  $2,575 @ 5% ($43/mo.), $3,415 @ 3% ($86/mo.), and $15,650 @ 4.3% ($232/mo.)  Combined, my minimum payment is $361/mo.  To meet my schedule, I need to pay an extra $90/mo.
  2. Refine my plan. What I want to do is pay off the highest interest rate first, so I’ll assign that extra money to the 5% loan.
  3. Write it down. Now I have a refined payment schedule: $133/mo, $86/mo, and $232/mo.  I also have a new set of milestones.  “Pay $133/mo to Loan 1.  Pay $86/mo to Loan 2.  Pay $232/mo to Loan 3.”

That’s better, but are they good enough?

  • Is this series of milestones small?  Yes.  As opposed to the previous milestones, these are broken out into the individual loans.  Going smaller won’t add value.
  • Do the milestones have a deadline?  Still no deadline beyond the “per month” statement.
  • Is the series of milestones specific?  Yes.  You can’t get much more specific.  Or can you?
  • Do the milestones move me closer to my goal?  No.  There’s still no indication that these payments will ever end.

Looks like another revision is in order.

  1. Refine my goal. I know the overall monthly payment to meet my goal.  I don’t need to do much beyond this.
  2. Refine my plan. What happens when I pay off Loan 1?  To make the goal, I’ll need to push that extra money into one of the other loans.  That needs to be reflected in the milestones.  To do this, I’ll need to put together an amortization schedule in excel.  According to that, I’ll have Loan 1 paid off in 21 payments (02/13), Loan 2 paid off in 30 payments (11/13), and Loan 3 paid off in 48 payments (5/15).
  3. Write it down. With the payment schedule more refined, I now have a new set of milestones.  “Pay off Loan 1 by 2/13.  Pay off Loan 2 by 11/13.  Pay off Loan 3 by 5/15.”

We’ve moved a little bit further down the road.  Are we done?

  • Is this series of milestones small?  No.  By introducing the amortization table, we’ve re-introduced the long-range problem.  Remember, the point of milestones is to create short term goals to accomplish long term goals.
  • Do the milestones have a deadline?  Yes.  Our milestones have deadlines now.  But since the deadlines are so far away, they aren’t much use.
  • Is the series of milestones specific?  No.  We actually can get much more specific.
  • Do the milestones move me closer to my goal?  No.  Even though we’ve introduced the snowballed payment schedule, they still need to be phrased correctly.

One last revision.

  1. Refine my goal. The overall goal is pretty well defined at this point.
  2. Refine my plan. We have a complete plan to accomplish the long term goal.  By creating the amortization schedule, we now have a framework to set up the milestones.  Using the amortization schedule, we can set up a schedule.  For the sake of brevity, I’ll set up a quarterly milestone schedule.
  3. Write it down. Now that I have a quarterly milestone schedule, I need to write it down.  What I don’t want to do is continue saying things like “Pay $133/mo.”  A better phrasing is “Pay Loan 1 down to $2,200 by 8/11.”  Using the amortization schedule, I make a list of balances by quarter until I’ve paid off the loans.  When I’ve paid off one loan, I adjust the schedule moving the money to the next loan, then on to the third loan until it’s all paid off.

It looks like we’re done.  Let’s check.

  • Is this series of milestones small?  Yes.  For brevity, I set them to quarterly milestones.  But with the amortization schedules in hand, I can set them to monthly.
  • Do the milestones have a deadline?  Yes.  By using the amortization schedules, I’ve set up a series of concrete dates.
  • Is the series of milestones specific?  Yes.  By tying the dollar amounts to the schedule, we’ve gotten as specific as we need to be.
  • Do the milestones move me closer to my goal?  Yes.  Now that we’ve phrased them to reflect the amount outstanding rather than the payments, we’re showing progress against the overall goal.

It looks like there is a lot of work up front.  But once you’ve got your milestone schedule set up, you won’t have to do much more with it.  Mostly, just checking them off as they pass.  Another benefit to milestones is flexibility.  If something happens that throws you off schedule, like a month or two of bad spending decisions, you’ll know exactly how to get back on track.

If you found this or any of my other posts useful, or know someone who can make use of it, pass it on.  Like us on Facebook, follow us on Twitter, sign up for the rss feed.  Thanks.

Until next time, keep on saving!