What Makes a Good Investment?

Spend even a couple minutes reading personal finance books or blogs and you will come across a ton of mentions of 'investments' of all shapes and sizes, and hear all sorts of purchases and activities referred to as investments. So what is an investment, really? And what makes a good investment?

The dictionary definition of invest is:

to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value

So a stock can bean investment. A a rental property. Even buying artwork or antiques counts as an investment. The problem with today's standard financial advice is to invest almost entirely in the category of "appreciation in value" , as opposed to something that actually produces regular income. I have never understood why I would want to own part of a company and not get a share of the profits. Which is what most stock ownership is like today. The buyers are literally only buying because they think (hope) that somebody else will buy that share from them later at a higher price. But they get nothing in the meantime. That is why Dividend investing is much more appealing to me, as is rental properties, and other investments that produce actual income.  

I am just getting started learning the ins and outs of dividend investing, so if you want more info on the subject check out Dividend Mantra, he's got some great info on the subject and always posts the changes to his personal portfolio. 

- The Money Monk

Find the sweet spot with your spending

Some people seem to find joy in the mere act of being frugal. For most of us however, it is a means to an end, and any joy we get out of it is because we know we working towards our specific goals. This isn't to say frugality is painful, just that frugality isn't the goal in and of itself.

So there is always a trade-off with savings vs quality of life, and I have written before that my personal strategy is to save in the areas you don't care as much about so you can spend on the things that really matter to you and that make a difference in your daily quality of life.

An important concept to think about when trying to determine the optimal balance of frugality/quality of life is the concept of diminishing marginal utility. This is a term from economics, where 'utility' is usually used to simply mean the enjoyment or usefulness you get from an item

Diminishing marginal utility is the idea that the enjoyment you get from something is less for each additional unit of whatever that thing is.

An example that is often used is pizza. If you are hungry, a piece of pizza may be just awesome. A second piece of pizza will be great too, but not quite as good as that first piece. A third piece will be ok, but now you are starting to get full and don't really feel like pizza anymore, so the enjoyment from that additional piece is not that much. by the time you eat 5 or 6 pieces you probably won't enjoy it at all.

This concept works with money too. If you are making $0 a month, $500 will make a huge difference. If you are making 10,000 a month, you might not even notice an extra $500.

With almost every area of spending you will find that there is a sweet spot where a little bit more spending make a lot of difference in your quality of life. You may really have to suffer to keep your electric bill at $50, but have an easy time keeping it at $75.

SO try to find that sweet spot where you have to consciously control your spending, but where you aren't finding it mentally difficult to do so. If you do this for every category of spending it will automatically maximize your savings vs quality of life. And that will make the your life of frugality a LOT easier.



-The Money Monk

Storage Auction Tips Part 1 - What to bring with you

One of the ways I make extra money is to buy the contents of storage units at auctions and resell for a profit, usually via eBay, Craigslist, and garage sales.

After doing this several times I have picked up on a couple tips that will make your life a lot easier and limit the hassle involved. For this installment of storage auction tips, I'm going to list several things I recommend bringing with you to make the process easier.

1. Flashlight - Please don't bring a huge pistol-grip floodlight so you can look like the people in 'Storage Wars' You just don't need it. This is the equivalent of wearing sunglasses at a casual home poker game; it just makes you look like a douchebag. The vast majority of the time you can see what is in the unit just fine without using any kind of light at all, but sometimes it is helpful. It that case, any modern LED flashlight with decent output is fine. There is no reason it should be too big to fit in your pocket.

2. Padlocks - If you are lucky enough to win 1 or more units, you usually do not start immediately emptying it. You may have a couple more to auction off, or whatever. It is a good idea to have your own lock to put on there. Many times the facility will put theirs on there for you, but its easier and safest for you to use your own. Doesn't hurt to have a couple extra in your car.

3. Totes and boxes and garbage bags- Don't take it for granted that the items in the units will be bagged or boxed, as many times (maybe even MOST times) there is a lot of loose stuff. If you don't have boxes or containers to put it in you will waste a lot of time and spend a lot of energy moving every little item individually. And there will be trash. Sometimes LOTS of trash so make sure you have a few rolls of garbage bags handy.

4. Push Broom and dustpan - Speaking of trash, it is your responsibility to clean the units you purchase. Make this job easy on yourself by bringing a broom and dustpan.

5. Gloves - I recommend leather work gloves AND latex gloves. Work gloves for moving big stuff, and the rubber gloves for sorting through bags of random stuff or dirty clothes or whatever.

6. Water - It can get hot in those units while emptying them out. Stay hydrated. 


You may be able to come up with more things once you attend some, but these are some basic items you probably want to have with you.



-The Money Monk

The Ego Premium

As I have mentioned before, one of the ways I am working to increase my income is by reselling used goods. I get these from a variety of sources, like garage sales, auctions, the trash, whatever. But after doing this for a while one thing that you really start to notice is just how much value these items lose just by being used. I guess I should have said 'price' instead of 'value', and that is sort of my point. Used goods almost always have 100% of the utility or usefulness that they did when they were new, and yet they are significantly cheaper.

Most people sort of understand this on a basic level, but the extent of it isn't going to be clear until you see just how big of a difference there is. And I see it constantly because of my side hustle of reselling used goods. I am shocked almost every time I go into a store, at the prices of stuff. I'll be thinking "Those are HOW much?! I could barely GIVE those away!"

Almost every time the people pay extra for new goods they are doing so for one of 3 reasons:

Laziness, 'icky factor' or ego.

Laziness: People will pay 5.99 for a kitchen utensil that could easily be bought for a quarter at a garage sale or thrift store simply because they just want to buy it now and get it over with. I understand the sentiment, and like i have said before, if it was a one-time thing that extra 5 bucks wouldn't change a whole lot in the long run. But when you are doing that for every purchase, big and small, day in and day out, then the difference is huge. It can be the difference between poverty and financial freedom.

Icky Factor: I suspect this is mostly an ego issue, and wouldn't be a real issue if people were legitimately not worried about other;s opinions (which is the best trait to have). But some people are legitimately grossed out at the idea of using used things, like clothes, utensils, etc. What's stupid is that none of these people would think twice about eating at a restaurant, and using a fork that has been in 10,000 mouths, but they balk at buying a spatula at a garage sale because it has been used by ONE other family. This is just something that you will need to get over if you really want to be able to save big money. The premium for buying stupid plastic crap new is so huge it just doesn't make any sense.

Ego:  This is the big one right here. When you learn to get over worrying about appearing cheap or poor or whatever, the journey to financial independence is almost easy.  For many people it is the hardest aspect of living frugally, and one that many just simply can't overcome. But you HAVE to if you want success. The best solution I can offer you for this is to surround yourself with like-minded people. If you can't do that in real life, then visit forums like at Mr Money Mustache, or ERE. Then you can worry about trying to impress people with how LITTLE you spend. It's a totally difference mindset, and a much better one if you want to retire early!


So buy used if at all possible! Don't pay the ego premium!



-The Money Monk

4 Money Saving Tips for the Bathroom

1. Don't use it!

Don't worry, I'm not suggesting you don't GO to the bathroom, just that you try not to use YOUR bathroom. If you can, try to go at work, if you are still employed, or at the store. I know some people have hang-ups about using public bathrooms, but it saves, water, electricity, Toilet paper, soap/hand sanitizer, etc.

2. Use less 'product'

Most people use WAY too much bathroom products every time. Even the instructions on toothpaste says to use a pea-sized amount. I know the commercials show a huge dollop on the brush, but guess what? They get money when you have to go buy more, so they want to trick you into using it faster! The same goes for shampoo and stuff. many say to use a dime-sized amount. I recently read a thread at the MMM forums extolling the benefits of not using ANY soap or shampoo. Testimonials abounded of how, after an adjustment period, skin and hair was cleaner and healthier than ever.

While that may be a bit much for you, everyone not already concentrating on lowering their use of bathroom products should be able to easily cut their usage in half.

3. Try cold water

Water heaters are one of the biggest energy users in the modern home. If it isn't cold outside, try using cold water. Here in Florida a cold shower can actually be downright refreshing in the summer. Take a cold shower in the middle of the day instead of a hot shower in the morning.

This goes for hand washing and shaving too. You really don't need hot water to wash your hands, and you can try to forgo it with shaving as well.



4. Go in the backyard instead 

Ever hear of a compost pile? Ok, I'm joking about this one. Please don't shit in your backyard.



What are your tips for saving money in the bathroom?



-The Money Monk

Thinking outside the box

At one point during college I took a basic psychology class, and during one of the rare moments that I was actually awake, the teacher explained the term 'functional fixedness'.  This is simply when a person is unable to envision a use for something beyond what it was expressly designed to do. Because of this people end up buying all sorts of stuff that basically doesn't accomplish anything that they can't already do with the things they have. The result is more money spent on useless crap which fills your house and separates you from financial independence.

The example the professor gave is somebody needing to tighten a flathead screw, and spending half an hour looking for a screwdriver, when they could have used any number of things to tighten the screw; a penny, a butter knife, other tools like a putty knife/chisel, an old credit card maybe, etc.

Now I recommend having a decent set of tools, but you get the point. How much money is unnecessarily spent to accomplish things that you can do with the items you already have?

Another example of this principle is when people buy things that are needlessly specific in their use Or feel like they have to use it for what it is labeled and nothing else. For instance, next time you are in the store, check the prices on antibacterial hand soap for washing your hands. Now check the prices of antibacterial dish soap. Hmmm. Who says you can't use dish soap to wash your hands?

This can be applied to any number of things. Why buy a dedicated potholder? all it is is a mitten, or many times even a square piece of cloth. Just use a small towel, washcloth, even a sock. Why buy a letter opener when you can use ANYTHING else. Do you really need a special scoop for your dog food, or can you use an empty vegetable can?

Each one of these examples may only represent a small savings, but consider that most people, instead of improvising, make purchases in these situations, day after day for their entire lives. That adds up to some serious coin.




-The Money Monk

EXPOSED - The Money Monk's Spending for February 2012

Well here it is, all my dirty laundry laid bare for all to see. This month was slightly atypical for a couple reasons, which I will get into later. But without further ado, here is the month's spending:



FEBRUARY 2012 SPENDING:




Housing: 410
Utilities: 110
  - 80 electricity, gas, water
  - 30 internet
Phone: 90 (phone + text + data)
Food: 220.2
 - Groceries: 150.8
 - Restaurants: 69.4
Gas: 169.28
Crossfit Gym: 195
Gifts: 271.44
Misc: 170.88
 - entertainment: 17.00
 - projects, home improvement: 19.46
 - Totally unnecessary stuff for myself: 74.63 (comics, motorcycle helmet, pants)
 - other: 59.79

TOTAL Spending: 1636.8 

A couple notes: I am counting expenses as they happen, so that's why you don't see some things like car insurance. I pay less than monthly, so it will show up in the month I pay it. This method will cause more variance for the individual months, but there is less chance for error, it's easier, and after the year is done the total will be the same.

The gifts bill is unusually high due to a Valentines day error. I thought the outrageous price of the nice meal I was buying was for a couple, when that was actually the price for each person. Doubly outrageous! OUCH!

Gas bill is high due to having to travel 280 miles round trip once a month for my National Guard obligation. So it is a recurring cost for now, but not due to my general lifestyle. So that accounts for about 50-60 of the gas bill.

I am obviously unhappy with the gifts bill being so high, but that is definitely atypical so I am not too worried about a repeat of that. Luckily I had some atypical income boosts as well to offset it. Other than that, I want to get my food below $200 next month, and get that Misc down as well.


FEBRUARY 2012 INCOME:

Paycheck: 1008.73
Paycheck: 1008.74
Army Drill pay: 607.88
Birthday Gift Cash: 300
Home Escrow refund: 359.42
Online earnings and junk sales: 161.94


TOTAL INCOME: 3446.71

TOTAL SAVINGS: 1809.91
SAVINGS RATE: 52.5%

Relatives were generous for my birthday, and drill pay was for a day longer than usual this month. To top it off I got a refund of an overpayment into my mortgage escrow account.
Overall I managed a 52.5% savings rate, which is inline with my goal for the year. Which is good, but my earnings were unusually high this month, so even without the high gift bill I will have to cut some spending to stay above a 50% savings rate, or increase income somehow.  The obvious big one is my $195 dollar Crossfit gym bill. But it is important to me, so for the time being I am leaving that be. Although it is good to know that if push came to shove I could instantly drop $200 off my monthly spending.

Needless to say I failed miserably on my goal to only eat out twice over the month. I think it was more like 8 or 10 times. Instead I am going to go with a more realistic target of once a week for next month, and an overall food bill of under $200, and Misc under $125.


Well there it is. On to the next month of (semi)frugal living and saving for retirement.





-The Money Monk