Diversification

Some of us have more to diversify, and may be less susceptible to risky investments than others.

Diversifying our portfolios allows us to have something left if some of our investments fail, or don't pay off.

Over the years, I've made some money here and there, and have had time to make some mistakes. I started out with a savings account, a checking account, a bit of credit card debt, and a student loan. I wrote some checks that bounced, and I was sometimes late paying the minimum due on my one credit card that had a low line of credit and a high interest rate. My credit wasn't so great.

I changed jobs and started working with a state agency that had a credit union which was affiliated, somehow, with an institution that sold mutual funds. The credit union was a good idea, because they paid interest on my checking account. The mutual funds was a good idea, for me, at the time, because I could afford to buy $50 per month of a mutual fund that historically paid more than what I made off interest with my checking account. It wasn't so risky, because as the mutual fund fluctuated in value, I paid accordingly. And I paid amounts I could afford, that I'd otherwise blow on something I didn't need.

After a couple years investing in more conservative mutual funds, I decided to move that money into one that was less conservative, and start investing in one that was more risky. I felt that if I was gonna be conservative enough to use a mutual fund, I might as well be as risky as possible with it and invest in something global. I also started paying twice as much, since by this time my salary had doubled. I was young, and had lots of working years in front of me. I could afford to lose.

The mistake I may have made was choosing a mutual fund for which I paid a commission of 4.25%. So, every $50/$100 deposit I made was automatically worth $47.875/$95.75. But overall, because of the mutual funds' performances, I still made a hefty profit.

I stopped depositing money into those mutual funds - to avoid paying the commission, but still have two of the three I have deposited money into over the years. I wanted more than they could ever pay: Mutual Funds weren't risky enough for me.

I started buying stocks using an online trading company in 1998. Sort of a mistake, too - but something I learned from. By this time I was making enough money, that I wasn't afraid of risking losing. I've learned more by losing money than in most classroom lectures.

I invested in chunks of $1000 - and I managed to buy a couple IPOs. The worst investment, I eventually sold for $23. On certain days my stock portfolio went up in value over $3000 - and I'd only invested about $17000 in total by that time. Those were the crazy days when NASDAQ was insane. The way I looked at it was the most I could lose on a single investment was $1000. But there seemed to be no limit to how much I could gain.

I stopped looking at it that way in early 2000, when I sold my condo in Chicago and bought a house in San Francisco. Thankfully, I didn't lose too much, since a.) I didn't invest that much (and actually came out ahead in a couple cases), and b.) I had money in other places.

I went back to putting money in the stock market in 2001 after it dropped to a very low point, and have since regained all that was lost, and then some. 2003 was very good, and 2004 was pretty flat, as has been this year.

Now, I'm a little less interested in losing money or gambling. At least until I feel more secure in other areas. I haven't been investing more in stocks, but sometimes sell some I have and buy others with the proceeds. I feel like the allocation I have in the stock market is sufficient. I opened a money market account with my credit union - that I've been a loyal customer of for thirteen years.

Now I deposit rather large chunks of cash into the money market account in addition to contributing extra to the best investment I've made so far: my house.

I feel really good about how I've spread out my money, and all the layers of financial protection I have.

Taking calculated risks, and looking into different investment strategies has worked well for me.

Partnership

If you live alone, consider how much you can save by living with someone else, and splitting the cost. A significant other is ideal. A roommate is the next best thing.

One house payment. One property tax bill. One electric / gas bill. One water bill. One garbage bill. One phone / Internet / cable bill. One set of furnature. Maybe only one car payment / gas tank to fill / car to insure. More than one person needs to eat, but only 1 refrigerator needs to keep the food cold. Only 1 oven needs to be in use to cook dinner. More laundry, but not necessarily twice as many loads to be washed and dried.

Twice the income to pay for it all. More job security. It's less likely that two people will lose their jobs simultaneously, than one person at a time.

Overall, this presents a safety-net along with an increased ability to save / invest money that's left over. Money you might not be able to save, alone. After ten or twenty years, the savings can be substantial.

Carpooling

Transportation, for me, is a big ticket expense. I have to cross the Bay Bridge coming and going to work everyday. I drive 23 miles one way. This must be a big expense for lots of people, because I have to sit in traffic with so many others.

Those crossing the bridge with me have to pay a $3 toll (only going to the city). If I got 23 miles per gallon, which I don't - especially in backed up traffic, a two way trip would use 2 gallons of gas. So, say it costs about $3 / gallon. Therefore, I can expect to pay about $9 per day or $45 / week.

511.org and Craigslist are 2 popular Bay Area sites that have sections for people interested in carpooling. Craigslist is more expansive, you can go there and navigate to other metropolitan areas. Out of 7 months working here, I've carpooled probably about 3 to 4 of them with 2 to 4 persons. When there are 3 or more, we don't have to pay toll. The 2 non-drivers pay $2 each to the driver - which means that if I don't drive, I pay $2. If there are 2 people participating, we can't take the carpool lane, and we have to pay toll. On those days, the passenger pays the driver $3 to cover the toll - which is still about a third what it would otherwise cost.

If my math's right, carpooling for 30 weeks vs. driving myself would save me about $1000 and about 4,600 miles on my car, if I drive 1/3 the time. That's all on top of being eligible to use the carpool lane.

There are some downsides to carpooling. But like putting money into your retirement account, there's a point where you have to balance how comfortable you are with giving up a certain amount of independence to be more financially secure.

Retirement Planning

I notice a lot of people, younger than me, like to plan for their retirement. I think it's great to start planning early, because we all know the government's not likely to take responsibility for us when we're old.

I've had a retirement plan since I was 25. The company I worked for put my money into a pension plan, which I rolled over into a 401(k) plan after leaving that company at 28. When I was 28, all I heard was stories about how you need to start young because that way, when you retire, you'll have loads of money you never paid tax on, waiting for you. They'd show charts comparing someone who started at 16 with someone who waited till he was 50. Oh my! I waited till I was 25!

I can't say whether or not the amount I've deposited into my 401(k) or IRA accounts over the years has been enough or too little. But I can say that the older I get, the more I feel like retirement plans are most useful for those of us who will fail in life. Something just doesn't seem natural to spend your life saving money, and maxing out on your 401(k) so that if and when you get really old, you can suddenly become a millionaire. What are you supposed to do with a million dollars when you turn 69 1/2? How much do you supposed to withdraw per year? The only way that would make sense to me is if I had been a millionaire all along.

The older I get, the more it sounds like banks are taking small amounts of money (lots for you and me) from a massive number of working class people. Then they loan it back to us in the form of credit cards, mortgages, and other types of loans - charging us interest. And penalizing those of us who decide to interfere with their plan by withdrawing some of it before retirment age. I know, I must sound like a conspiracy theorist, again.

Nevertheless, it does bother me to know there are so many twenty-somethings who make barely enough to get by, loading down their 401(k) plans - because they've been brainwashed into thinking one day they'll get rich off of it. How's it invested? Most of us don't really think too much about that sort of thing. They even classify investments with terms like 'Growth' and 'Income'. Sounds good. Mine have been invested in more 'Growth' stocks, for example. So, out of every paycheck, a chunk of my money makes Microsoft's value go up just a really small amount - so someone rich can sell and make a profit - not when I'm an old millionaire, but right now!

It seems like most of the advise about financial planning comes from banks. Of course banks think it's a good idea for you to give them money you can't use till you're seventy years old. And it's especially good if you start doing it early - because they get to keep it for longer - and there seems to be a greater chance you'll never live to see it: It's less likely that a 25 year old will live to be 70 than it is for a 69 year old... Also, they keep moving the target up, so that the 25 year old won't get to claim any of that money he lent the government for decades, until he's in his 80s. Why should any of us live long enough to enjoy some of what we've saved up?

I'm not saying 401(k) plans are a bad thing. Most people probably don't think about retirement at all, and they should. Those plans are especially beneficial when your company matches your contributions, which none of mine ever have, and when the market is performing well, which it hasn't been. They also knock off a chunk of what you will otherwise spend on taxes - which means they work better for those in higher tax brackets. But you know what? Sometimes you can do more with $9,800 you can use for anything you want, today than $14,000 Uncle Sam can use for anything he wants over the next forty years.

When you plan your retirement, keep a little money on hand to invest in some of the things you believe in - and that you, not the government, can decide when it's best to liquidate. When you listen to one of the 'experts' on planning for your retirement - keep in mind most of them are working for banks.

Quality and Value

Look for quality and value when you shop. All of us have different spending habits - but sometimes, it's easy to identify a better value. If you need a toaster, go online and research toasters. People from all over give honest reviews. If someone says that they bought toaster brand 'x', because it was cheap - but unfortunately it got just as hot on the outside as it did on the inside, brand 'y' that cost just $5 more, might have been a better value.

I've looked for values and good quality for almost as long as I've been old enough to buy my own things. I've slipped up a few times, and it reminded me to pay more attention.

I'm not an economist, and I know there must be thousands of reasons some items cost more or less than other items that seem to serve similar purposes.

For certain things, it still seems like you get what you pay for. This seems to apply mostly when you're comparing items that haven't been imported - because some things can't be made somewhere else, or it's not cost effective to ship them.

If you buy over-the-counter medicine, sometimes the cheaper ones have the same active ingredients as the ones that cost a lot. I don't know why people would buy the more expensive brands. That doesn't make any sense to me. But people must be buying them, since they're on the shelves. Same with shampoo. You go to the store and there are three-thousand types. About a third of them do exactly the same thing, but the cheapest one cost way less than the most expensive one.

Some of us aren't as careful as others. Don't spend a lot of money on something you know you can't take care of. Some things that are high quality are easily broken, and you're just gonna break it. Ask someone else what time it is. Don't buy expensive wine glasses if you're always knocking over your glass of wine. Don't buy expensive sun glasses if you're always sitting on them.

It's your hard-earned money that you've already had taxes taken out of. When you go out and spend it on something you need, pay attention!

Work Smart

Call me a conspiracy theorist. But those who work hardest aren't the ones most handsomely rewarded.

I've worked at 15 companies since I was 16 years old - that's over a 22 year period. I haven't worked consistently throughout the past 22 years. My duration at any given job has ranged from 5 1/2 weeks to 3 years 2 months. The mean has been 1.3 years per company. The mode has been 6 months. For the most part, I left because I found something I thought would be better.

The companies have ranged from being ultra-conservative to anything goes. The sizes (#employees) have ranged from 9 to thousands. 2 of these companies had unions.

There's always been a balance-of-power. Employers give stuff to their employees when they think they may need to. They also take away, when they think they don't need to, or shouldn't have to. If they take away too much from too many, then they lose productive employees - which costs them in other ways. If they give us too much, we get lazy, and start expecting too much.

When your boss improves your standard of living, it's because he recognizes your value, to a certain degree. It's your job to determine whether or not it's enough of a degree. There's no other sure measure. It's nice to make friends at work, but remember those friends are used by your employer to measure your performance against. To believe otherwise is naive.

It may sound strange to some, but at some point I realized I was too driven, and worked too hard. My perception was that the harder I worked, the more I would be recognized. If I wasn't recognized, I'd get bent out of shape and, eventually, quit.

I've always had a decent work ethic. I like to think I still do. But I worked at companies with smart people who weren't used to working so many hours, and had lots of social activities at home. Their paychecks were bigger than mine was. Being capable of working hard is more valuable than actually working hard. To not be viewed by my coworkers as a sycophant, I slowed down my pace. Life improved.

To have worked at the same company 30 years without calling in sick once, is no more spectacular than having the longest toenails in the world. It's just sad. People who do that sort of thing lose out. Anyone who tells them they should be proud of themselves is either as misguided, or a bald-faced liar!

Step Up

If you feel so-so about where you are in life, make a goal to move up a level.

Some of us start off with fewer resources than others. I started off with relatively few. I think I started weighing my options about the time I understood what poor meant. I grew up in an environment that neither encouraged nor rewarded poor people. The place I grew up, in the seventies, seemed to have a special way of making us feel ashamed of ourselves for being poor.

It's easy to take risks when you have little to lose. I had nothing to lose. I felt I deserved better. I joined the Navy. Perfect decision? No. Good decision? Under the circumstances, it was one of the best decisions I've ever made in my life.

Unfortunately, I ask too many questions. Certain organizations just don't ever seem to pan out for people like me. Fortunately, the question "Can I do better?" has come up quite often. And the answer's always been "Yes".

If you're not satisfied with your current station in life, challenge yourself to find a more rewarding alternative.

Think Big

It's important to pay attention to detail. For example, I've been using online bill payment for quite awhile now. It cost me $5.95 per month, which was about the cost of stamps. The reason I chose online bill payment was its convenience. I also hate the taste of glue on envelopes. A couple months ago, my credit union started offering their own version of online bill payment.

I changed over to them, not only because it saves me about $2 per month. This way I'm not giving all my credit card numbers to a 3rd party bill paying service, even though I did trust them. Besides, it's just as convenient. The savings after an entire year will cover about a 1/2 tank of gas.

You do yourself more justice by concentrating more on big ticket expenses - think of how it can be used to offset some of your other costs. For example, I was paying about $450 every 6 months for auto insurance. I decided to buy one of 3 cars, so I called my insurance company, and asked for a quote on each make and model.

The car I ended up buying, I was told could be insured for roughly $550 every 6 months. I was pretty pleased that it wouldn't cost much more to insure a brand new car than it cost to insure my hooptie.

A couple weeks later, I was sitting in my brand new car in the garage, and called the insurance company to inform them of the change. The woman I spoke with told me it would cost over $900 per six months. I felt like they were holding me hostage. I had to choice, since I needed the insurance. So, I agreed to their terms.

Then I went through those flyers we all get in the mail, and which I save for times like these. A different insurance company offered the same coverage for about $650. So I switched to them, and cancelled with the original company. So they re-imbursed me (pro-rated) for about 5 1/2 months. Almost 6 months passed. Guess who came crawling back to me with their new and improved $528 / 6 months rate?

I saved over $600 in a year - just on car insurance, and all it cost was a couple phone calls. I've saved about that much on homeowners insurance, as well. And that savings carries forward: If I allowed that insurance company to gouge $900 out of me, it would cost me about $1800 for this year, $1800 for next year, and so on... of AFTER-TAX dollars. That's like free gas and electricity! Well, at least it used to be.

It's nice to save a couple dollars here and there, but don't sweat the small stuff until after you've taken care of some of your biggest expenses.

Employment

To save money, most of us need to make money.

Most of those of us who need to make money, do so by working for someone else.

Corollary: Since it's better to save more money, it's better to work for someone who pays more money.

Don't take that literally - use good judgment! What I mean is that if you love what you do and where you work, it may not be a good idea to take a chance by changing jobs for fifty-cents more per hour.

Are you making as much as you should? I don't mean as much as you want, but as much as you should. If the answer is truly "no", you need to work out a plan to make more money - even if it means changing jobs. You shouldn't allow yourself to be short-changed any more than you expect your employer has allowed himself to be short-changed by his customers. You're a business person just like he is, and should be paid a fair salary.

I've got an interesting story. Once upon a time, I started working as a programmer, and was paid a meager entry-level salary. When I was up for a raise, I was told the same old story: "You've done a fantastic job, we'd like to pay you more... But unfortunately, this is all we could afford". I changed jobs. At the next company, I heard the same thing after about a year. I changed jobs, again: Only 18 months after I started working at the first company, I was paid double that meager salary. I admit, mine is a special case, and it's because of the quickly approaching dot-com boom.

Now, let's fast forward to 2001 - I was paid a decent salary, and had a substantial bit more experience. But guess what happened? Supply and demand shifted. The company I worked for went out of business. I was suddenly not worth as much, anymore. Remember when I told you how important saving money was?

But the moral of the story is supply-and-demand: If you know your value has increased, don't expect your employer to tell you "John, you're much more valuable now than you were a year ago. We just can't find anybody like you. We've looked and looked, and.. we're gonna double your salary, because you're one of a kind." Unfortunately, your employer will acknowledge when your value has decreased. Sometimes, it's key to remind your boss, professionally and diplomatically, that you know your worth.

Do the best you can. Enjoy your job. Understand your value and contribution. But always remember that we work for a paycheck, and the goal is to make the most money in the shortest period of time.

Needs vs. Wants

Things you want, you can get tomorrow - if you concentrate more on the things you need, today.

Let's take a look at some of the things we all need - as they do vary.

We need to eat right and take care of ourselves. Health needs change over time. So, we need food, and some of us may need medicine. Some of us may need to exercise more than others. As you age, your health needs become more expensive.

We need a place to live - whether we rent or own.

If you rent, you need to think about owning. If anyone tells you otherwise, he's full of shit. At a certain point, it should be right to buy. If you wait too long to buy, it will become more difficult. After awhile it becomes impossible. If you don't believe me, find a retiree who never owned his own house, and ask him.

As long as you rent, you're paying someone else's mortgage and/or property tax. If you have one goal in life, it should be to own your home. After a good education, it's the best investment you can possibly make. I've changed my mind about lots of things over the years, but I doubt anybody will ever convince me to change my mind about this.

Buy a house you can afford. There are lots of expenses involved in owning a home. Do some research. Renting should be a temporary solution that gets you on your feet, and eventually allows you to own the place you live in.

Getting Started

Save money.

It's yours. You worked hard for it. Spend it wisely. It sounds so easy, and straightforward - yet just about everyone I know wastes theirs on frivolous items or things they don't need.

I'm not saying to be a miser, or to worship money. In fact, I think it's nice to be a good tipper, and to indulge every once in a while.

I'm saying to shop around, and look for values - because they're everywhere. Don't pay for stuff you'll never use or only use once. Don't pay more for something that cost much less somewhere else.

There are lots of things we can't have too much of. One of those things is certainly money - no matter what anyone, ever tries to tell you. Because things go wrong: the roof needs to be replaced, the car breaks down, you lose your job, the furnace breaks, the price of oil goes up...

You name it, it can go wrong, and money will be very nice to have some of, when that happens.

Ordinary people can't afford brand new luxury cars - but they somehow manage to drive around in them, all the time. Ordinary people can't afford first-class tickets - but you see them flying first class. It looks impressive and all, but after the ride's over, they just have emptier bank accounts, higher credit card debt, and worst of all: regret.

So, shop around for lower cost insurance. Compare prices online. Plan for tax breaks. Carpool. Buy the value size if it won't go bad. Clothes? My shirts don't last much more than several months, simply because washing causes the fabric to deteriorate. Do I buy designer fashion? Hell no!

Train yourself to spend prudently. You might be surprised at how much further your paycheck can go.

Inspiration

You can do it.

How many times have you been told that? I can't count the number of times I've been told how smart I am. I surround myself with people who think I'm one of the smartest people they've ever known.

It's odd, because I'm utterly average. But I somehow find myself associating with quality people - and veering away from losers and lowlifes. Quality people make you feel special. They have enough confidence in themselves to be able to compliment others.

If the important people in your life are telling you you don't have what it takes, you are associating with the wrong people. Make friends who recognize your qualities, and avoid those who point out your weaknesses.

I can't take all the credit for all the financially sound decisions I've made. I have to acknowledge contributions important people in my life have made, by consistently pointing out what I can do.

Educate Yourself

One of the most rewarding things I ever did for myself was go to school, study, and learn.

School isn't just about learning math, science, and art - it's one of the best investments you can ever make - an investment in yourself.

You're never too poor, old, or dumb to go to college. If it means putting your life on hold, put your life on hold. Don't tell yourself Michael Dell and Bill Gates didn't need it: They're not ordinary. Don't tell yourself it's too late. Of course it's better to go when you're young - our minds are more malleable when we're young. Also, it's easier to scrounge around and be a starving college student when we're young. We can work crap jobs when we're young, because we know one day we won't have to do that anymore. College gives you a sense of hope, and light at the end of the tunnel.

The best thing about college is that when you've completed your degree, it's yours, and nothing can un-do it. The economy, the healthcare system, the tax laws... Nothing. It's yours, and the economy might not be fluorishing when you graduate - as it wasn't when I did - but things change, and you still have your college degree.

Don't let anyone tell you it's not important.

You don't know what to major in? I didn't. I chose Electrical Engineering. I chose that major because I knew it would be challenging, and would look good on my resume someday. I've never been an Electrical Engineer. I didn't become an entry level programmer because of my winning personality. I became a programmer because I had a Bachelor of Science in Electrical Engineering.

If there's a golden rule for an ordinary person to be successful - it would be to never stop learning.

Purpose

My goal is to share some of the decisions I have made, and continue to make, that I feel have helped me gain, and continue to gain, a growing degree of financial independence.

Of course not every decision may apply to every person at every step of his or her life. But, overall, my goal is to, within a given context, help average people make decisions that will help them rely more on themselves and less on others. Each of us has different goals, responsibilities, and aspirations.

I encourage you to comment on some of the steps you have taken that you believe have led to successful outcomes. I welcome most posts, but discourage disscussions that involve such things as gambling, speculative investments, and buying lottery tickets - since ordinary people, like us, don't generally tend to gain financial success by being lucky.

I also encourage you to challenge some of the advice I have. Remember, I'm ordinary, and some of my success may have come from good timing, or a good economy, or an upturn in the market. I'm not an economist - I've just made lots of decisions that seemed like common sense, and good judgment, that have taken me relatively far from where I started off.