Financial Samurai » Guest Posts

Buying Blogs, Selling Blogs: How I Built My Blogging Business

admin — Wed, 21 Jul 2010 09:00:54 +0000

Written by: admin on July 21, 2010.

This is a guest post written by Mike, a financial planner / web entrepreneur who is pursuing his dream of running his online business. You can follow his progress at The Financial Blogger (RSS Feed) and read his other financial blogs at Green Panda Treehouse (RSS Feed) and Intelligent Speculator (RSS Feed).

3 years ago, I was told by many bloggers: “You will never make money blogging. And if you do, $200/month will be your highest peak ever”.

Three year ago, The Financial Blogger was averaging 500 visits per month and I was ecstatic when I made my first deal of $10 for a link.

Three years later, I now run three financial websites, bought 2 of them and flipped a blog within a year. I am now able to work 1 full day per week on my online business (while I still have to keep my “day job” in the meantime). I really like buying and managing finance blogs as I think it is currently one of the best investing opportunities we can find.

When I asked Sam if I could write a guest post for Financial Samurai, he asked me to include more details on how I appraised blogs and how do I decide or not to send $10K over the wire (or more!) simply to buy a “.com”.

Look at Blogs as a Real Estate Investing Opportunity

When I first started my blog, I went into a partnership with one of my friends (who is the co-founder of our company). He has been in the website industry since the 90s, well before the .com bubble. He told me to picture a rental property in order to understand how a website can generate income and how it should be valued. He actually wrote an interesting piece about the difference between real estate investing and website investing recently.

His main point is the following:

When you value a rental property, you will most likely pay between 10 to 15 times the yearly revenue. Therefore, if the property generates about $40,000 in rental income, you will pay between $400,000 to $600,000 to purchase it.

When you value a website, you will most likely pay 18 to 24 times the monthly income. Therefore, your investment return can easily reach 50% the very first year!

While both type of properties will generate monthly income, the first one will be paid over 20 years (if not more) and the latter will take less than 2 years to be reimbursed. So now that I have proven that there is a great investing opportunity, how do you value a website?

A few months ago, we purchased Green Panda Treehouse. This is a great personal finance blog aimed at young college graduates to help them manage their personal finances. Since I am still in my 20s, I thought it would be great to add my financial expertise and write more about topics such as asset allocation for beginners or tips for first home buyers (since I have a banker background). So let’s take this example:

How Did We Value Green Panda Treehouse:

There are several metrics when we are about to purchase a website. So before we even start with the calculations, we are looking at minimum requirements. The site must be:

- At least 1 year old (in order to have valid traffic data and to have it recognized by Google).

- Minimum of 10,000 visits per month (it’s easy to build a blog with 3,000 visits/month, since we are looking to save time, we need a good visitors base).

- Minimum of 50% of visits coming from search engines (we don’t want to have boosted traffic from social media since those readers don’t stay long on your site, don’t click on ads, don’t comment and don’t register to any of your RSS feeds).

- Minimum of 300 RSS readers (just to make sure you have a community following you).

- Must not be a Page Rank 0. PR0 websites means that Google doesn’t like them. While I don’t give very much weight to PR, I just want to make sure it’s not 0 because I don’t want my blogs to be penalized by the search engine.

- Must be under monetized. While I am not the biggest pro in monetization, I like to find blogs that are under monetized according to my knowledge. It gives me confidence that I will be able to get my investment returns faster than 24 months.

Green Panda Treehouse met all those pre-requisites. Therefore, we went ahead and did some calculations. Since the site was big (around 10,000 visit/month) but not huge (over 35,000 visits per month), we were able to apply the 18 to 24 months of income rule. For bigger websites, you certainly have to add a premium for the brand, size of community and future income potential.

How do you assess income?

Before putting a number on a website, I like to look in-depth at the different sources of income. I don’t like blogs that are dependant on just one source of income (commonly Adsense or Text links). This makes the business risk greater than well diversified income sources.

In fact, there are a lot of income sources for a blog and I would like to see all of them (in various proportion) such as:

- Adsense

- Text Link

- Banners

- Affiliates

- Products (ebooks, services, paid newletters, etc.).

The more diversified the sources of income, the more I will be willing to give 24 to 36 months of income (since you can really consider it as a business and not a small sideline).

You can have additional weight if you have been monetizing your blog for several months. If you can show an uptrend for more than 6 months, you can definitely talk about potential future growth. If not, I think the word potential is overrated in the internet world. Everybody talks about “potential” but nobody develops it because “they don’t have the time”… right!

Other particulars

There are a few particulars to look at before buying a website. This is more looking towards what you are looking for and what you want to buy as a blog. You can look at the following points before you start shopping:

Niche Content

Do you want to talk about personal finance in general or a specific aspect such as frugality or investments? Obviously, an investment blog will be worth a lot more because advertisers will pay more to show investing products versus coupons.

Popular posts

I’ve seen some blogs getting 30 to 40% of their traffic from only 2 or 3 articles. You want to make sure that you have several popular articles in Google so you can count on a steady traffic base. If most of your pages viewed depend on 1 or 2 keywords, chances are that most of your income depends on the very same words. Therefore, it adds to the risk.

Restrictions

Some blogs are very personal and related to its author. While this can be the purpose of a blog, there are some blogs where readers are less attached to its author than others. While you want to have a strong community, you don’t want it to be too strong either. A lot of readers may leave if you don’t have the same writing style or train of thought of the previous owner.

Some also consider offering a writer’s position to the previous owner to make sure they keep their readership (We kept Stew who was writing 3 times a week on Gather Little by Little for example). It’s not a bad idea at first since it gives you the time to “break-in” your new readers.

Does buying/selling blogs constitute a good business model?

I personally believe that there is a huge investment opportunity in the blog management business since we are currently in a very inefficient market. Since there are not a lot of buyers and that blog valuation is still complex and a standard method has not yet been determined, there are several gems available for a very small price. Our most recent purchase; Green Panda Treehouse was a perfect example.

On that note, if you ever consider selling your blog or if you have any questions regarding blog valuation, don’t forget to shoot me an email at thefinancialblogger (at) gmail (dot) com!

Other resources:

I’ve written a few other articles about how to value and to buy another blog, you can read them here:

How To Buy A Blog in 3 Easy Steps

How To Buy A Blog Step 2: Assess the value of a Blog

How To Buy A Blog Step 2: Assess the value of a Blog Part 2

How To Buy A Blog Step 3: Finalizing the Transaction and Integrating the community

Also, if you want to learn more about how to buy, build and sell a blog, I suggest you register to my free newsletter where I discuss how I am building my online company one blog at a time!

The Reply Button Is There For A Reason

admin — Fri, 18 Jun 2010 09:00:53 +0000

Written by: admin on June 18, 2010.

The following is a guest post by Hime, one of Financial Samurai’s first readers. Hime is a manager at a strategy consultant firm who likes the violin and going on unplanned adventures. Hope you enjoy!

All right everyone, how many times have you read an email and said to yourself “I don’t feel like replying now I’ll just do it later” only to have that email disappear into the deep abyss and completely forget that you left the sender hanging?

Come on, I know you’ve done that at least once. If you do that more like every third email – CLUNK! That is me hitting you over the head with an oversized rubber hammer as I resist the urge to shake the stubbornness out of you. Think I’m overreacting? Maybe a little but I am trying to save your career and relationships so please pay attention!

DON’T LEARN THE HARD WAY

I’m generally fast and consistent about replying to emails right away (24 hours at the latest), especially to friends, family, clients, and the coworkers that I like…whoops I mean all my coworkers. However one time last year I goofed up big time….

I have a difficult client that is notorious for being very impatient and demanding, often with requests that my firm can’t accommodate due to breach of contract or financial limitations. One day I got a terse email from him complaining about a project my team generated late. He was in denial that the reason the report was late stemmed from his team giving us incomplete data that we had to chase down from them on multiple occasions.

I was so irritated that he was blaming us for their incompetence that I let the email fester in my inbox while I moved on to other things. He didn’t deserve any more of time! Boy was I stupid. What I didn’t realize was that because my client was upset (justified or not), he ended up becoming furious that I ignored his email, and he ended up calling my boss’s boss to chew him out about my insolence. Ouch. All of a sudden I became the idiot for not handling the situation and having to bow my head to the man who signs my paycheck. Whoops!

Even though we all receive 100s of emails a day, it is crucial to actively watch for emails that are addressed to you specifically or to your team. There will be times when a client may be lashing out for something that wasn’t your fault but it’s your responsibility to explain that to him/her in a timely manner whether over the phone or in a non aggressive email reply. Your career will depend on it. Don’t risk losing a client, a friend, or your reputation for being known as the infamous non-responder.

Tips for taking control of your email:

Can’t respond right this minute? Use the Mark as Unread function so you’ll remember to reply later.
Create email rules to automatically sort and route email for you.
Stay organized and develop a system that works for you. My inbox only contains emails that I haven’t addressed. Everything I completed gets filed into a folder.
Create meaningful folders and subfolders. A filing system is only effective when you know where to go to retrieve something.
Prioritize and handle the most urgent emails first. Many programs like Outlook let you assign different color flags for tracking prioritization. You can even assign a category name for each color flag, very useful!
Need to do research before having an answer to a client’s email? Reply right away to the client letting them know you’re investigating the issue and will follow up in a few days.
Watch your total inbox size & empty your trash. A lot of servers will stop sending you new emails if your account has gone over the size limit.
Steer away from arguing, complaining, and snide remarks in emails. Emails leave a permanent trail that you don’t want to sneak out and haunt you later.
We’re all busy but that doesn’t mean you can ignore emails from your friends. Family will probably forgive you for being flaky but friends will hold it against you if you never respond to them.
Check your spam folder regularly. Spam filters aren’t perfect and sometimes important emails can end up in there by mistake!

CONCLUSION

If you can practice all of those tips regularly you’re actively improving your communication! Don’t down play email skills – staying on top of emails and responding in a timely and curtious manner are key skills now equally as important as face to face meetings in our current work environments. A lot of work places don’t record phone conversations but I can guarantee most of them are archiving every email you’ve ever sent! Get active with your email and avoid being known as the person with the black hole inbox!

Readers, how many e-mails do you have total in your inbox? How many of them are unread?

What would you say your average response time is over e-mail?

Is e-mail your preferred way of communication? If not, what is?

Keigu,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

Folllow on Twitter @FinancialSamurai and subscribe to our RSS feed.

Hire A Financial Adviser or Lose Money All By Yourself For Free?

admin — Fri, 14 May 2010 09:00:00 +0000

Written by: admin on May 14, 2010.

The following is a guest post from @NealFrankle of Wealth Pilgrim. Neal is a Certified Financial Planner, a fellow Yakezie member, and all around good guy. Hope you guys enjoy!

During strong markets, anyone can make money. During weak markets, everyone gets hurt. For the most part, all ships rise and fall with the tide, financial adviser or not.

So what’s the point of having an adviser?

(I have my own answer to this question and it may surprise you.)

But before we get to my answer, let’s explore the wild and wonderful world of financial advisers and our clients.

1. Financial Advisers are Salespeople.

I know. I’m a financial adviser. We sell products and ideas. We sell baby….we sell.

In fact, most of our training is in sales, not financial planning and not investment management. If you read “How to Become a Financial Planner” you realize this is true. A financial adviser might have specialized training as a Certified Financial Planner (for example) and that does provide education that helps us plan. But we’re still salesmen. We gotsta make a living and that means most of us are going to sell you something if we can. Show me a financial adviser who has been in the business and survived more than 10 years, and I’ll show you a pretty sharp salesperson.

2. We don’t have a crystal ball.

If you really expect your financial adviser to beat the market year in and year out you should get a job as a stand-up comedian because you’re funny – and not in a good way. If your adviser does great is some years, she’ll do crappy in other years. It’s this risk/reward thing you’ve heard about. (Unfortunately, it is the way the world works.)

3. We have feelings.

If you cut us…do we not bleed? If you tickle us…do we not chuckle?

Yes…. we do.

However, and this is a huge one, if we’re any good, we don’t let our feelings interfere with our work.

This is one difference between us and you that explains why the best of us are worth what you pay us.

I’ve been in this business for over 25 years. Do you want to know how many times smart (I mean super smart) clients call me up with ideas that are super dangerous? How about, “all the time.”

When the market is strong, you get greedy. You want to take more risk and that’s a bad idea. And when I say “bad”, I don’t mean it in the Michael Jackson cool way either. I mean, bad as in…really dumb.

Let’s say you work out a 20 year investment plan that ends up with you sipping Sake on some sandy beach when you retire. You look at a number of 20-year periods and see that the historical worst-case is a loss of 40% for an all-equity portfolio. That’s too steep for you so you select a portfolio with less potential risk – and lower historical worst-case losses.

Everything runs great – until the market takes off. At this point, left to your own devices, you get greedy and put everything into the market. The moment you do that, your risk skyrockets and if things don’t turn out, you might get wiped out.

But if you work with a good financial adviser (and listen to her) this won’t happen. She’ll remind you of your long-term plan and bring you back down to earth. Don’t thank us….it’s our job.

4. We know what works.

I’m speaking here about long-time veterans. We’ve worked with clients for decades and we’ve seen every mistake known to man. We’ve seen what happens when people get greedy or afraid. We’ve seen what happens when people try to predict the future or ignore it. We’ve seen what happens when people don’t force their children to be financially responsible.

Tap into our knowledge and experience. You’ve got one financial life. We’ve been part of hundreds of them. No we’re not any smarter than you are. We’ve just changed more financial spark plugs than you have. We know the right wrench to use.

5. We know what’s good for you.

That’s right. You read it right. We know what’s good for you and you don’t.

How many times have you gone to the dentist for a cleaning only to find out you need a new crown? Me too. It might hurt but you’re better off by knowing the truth and taking care of it…right?

The same thing happens in financial planning. You come into the office thinking everything is “wunderbar”. We stick a financial thermometer up your……I mean…in your mouth……and we tell you what medicine you need to start taking.

We tell you:

Which retirement plan to participate in.

How to protect your beneficiaries.

How often to update your trust and what to look for.

How to balance your portfolio.

How to use Inherited IRAs.

6. We aren’t perfect.

We’re just people. The vast majority of us are honest and want to help you. But a few of us aren’t. You’ll have to use your own judgment to find the right person to work with.

As nice and honest as we are, we make mistakes. We work with a lot of people and we forget things. When we do…don’t get angry. Just remind us and be kind.

Bottom line, being a financial adviser is the best small business idea I could think of. I love being in it. Not because I think I make you more money – although I try to do that as best I can. I’m proud of what I do because I help people get what they want out of life with less risk and less cost.

I charge for what I do and I’m worth it.

Regards,

Neal

5 Money Habits I Learned That Will Never Make Me Rich

admin — Fri, 23 Apr 2010 13:27:35 +0000

Written by: admin on April 23, 2010.

Here’s an insightful post from Allan from The Philippines. He shares with us his story about growing up poor and working his way up. It’s always great to read about international perspectives. Hope you enjoy!

They say we are creatures of habit. This is especially true when it comes to money. When the going gets tough, it is easier to resort to what’s comfortable. When that happens, your own money habits take over. The only question is – will your money habits get you through and make you rich?

Money Habit # 1 – Playing with money

Learning my money habits started when I was still a young kid playing outside the house on a sunny afternoon. The first money habit I learned was playing with money. Yes, literally. But not with actual money. My friends and I would play games betting on carefully folded cigarette packs looking like play money. A red Marlboro is worth PhP 50 (US 1$). A green local brand “Champion” cigarette is PhP 5 (10 cents). A Philip Morris cigarette pack is worth PhP 100 (US $2).

It was all play money then. And it was easy to get. I only need to wait for my father to finish his cigarette pack and I’d be on my way to earning my (play) money for the day. Sometimes, we even played with coins, taking turns and rolling them on the floor like a dice. Playing with money was fun!

Somewhere between playing with other kids and being conscious on what’s cool, I learned that money can buy me things. But since we were poor, I had to make do with my worn out clothes. After some time I’ve already outgrown it so much, I already looked like Winnie the Pooh.

It’s not so much about other kids having better clothes. It was more because I was not able to play outside as much as the other kids. My mother would always remind me to do my house chores. Wanting to go out and play instead, I would reason out “how come the other kids are not doing any chores?” To which my mom lovingly responded,

“Because we are not like them. They can do whatever they want because they are rich. We are poor. ”

That was the first time I realized we were different from other people. We were poor. I began to notice how worn out my clothes and shoes are. I remember even going to school with no shoes on.

That’s one lesson I took to heart. If you don’t have money, you are poor. If you are poor, you need to work to have some money.

Money Habit # 2 – Working for money

Growing up with a family of farmers, I knew how hard my parents worked just to put food on the table. My mom would sometimes ask me to help out in harvesting tobacco leaves at a nearby town. She’d motivate me by paying for every tobacco leaf I was able to harvest. With promise of a paycheck, I willingly agreed to go.

The next day, I woke up early in the morning, went with her to the farm, and started plucking tobacco leaves left and right. After hours of standing under the grueling heat of the sun, I managed to harvest loads of tobacco leaves. That day, I went home enduring an aching back and torn muscles. But I was happy. I was able to help out my mom and it also made me PhP 100 (2 US $) richer. That’s actual money, not a Philip Morris cigarette pack. :)

It was hard work. I was so tired I thought I was going to get sick the next day. Good thing I was able to watch my favorite TV show that night – a Japanese game show called ‘Takeshi’s Castle’. I was able to laugh it off and sleep soundly that night.

One thing was clear from then on. I must first have to work before I can expect to earn money and get paid. If I don’t get paid, I don’t have any money to spend.

Money Habit # 3 – Spending money

After graduating from College, I was fortunate enough to get hired by a multinational IT company as a Mainframe Programmer for a monthly salary of PhP16,000 (about US $320). It was big money for me then, coming out straight from College without any working experience.

When I got my first paycheck, I was so thrilled. I thought it was the best time of my life. Why shouldn’t it be? I had money to buy what I could not afford before. Even if it’s just a new pair of shoes. Even if it’s just occasional dinner out with friends. Even if it’s just a nice shirt or two. After all, the money I earned was finally my “own”. It was liberating.

But not for long. The more I consumed, the more I realized I wanted more. I wanted more money to buy that new mobile phone. So off I went and tried the only way I knew how to make more money then – work hard on my job. As a result, I got promoted almost every year and my paycheck steadily increased. Sooner than later, I realized that even with the higher pay, it seemed like it was still not enough. I was still always short of cash.

That’s when I realized, there’s actually another way to get more money – borrow.

Money Habit # 4 – Borrowing money

Once I started earning quite a bit, I got comfortable spending for stuffs. It got to a point where I bought something even though I didn’t have the money to pay for it. I only had to use my new credit card.

In one day, I bought a new washing machine, a refrigerator, a gas stove and a new pair of shoes all at the same time. Worse, all the balance had to be paid off at the end of the month. I didn’t know there’s a thing called “monthly installments” then so I never bothered to ask. All I cared was showing off, pretending to have a lots of money using my new credit card. Looking back, it was one of the most stupid thing I’ve ever done in my life.

Even if I wanted to, I couldn’t pay ALL of the balance after a month. In the first place, the reason I used the card is because I didn’t have the cash. I tried to pay as much as I can but after months of painfully paying a little bit above the minimum I was getting nowhere near paying the balance off.

To make matters even worse, I got myself in deeper trouble by doing cash advance on my credit card just to have the cash to pay for my rent. I paid the hefty cash advance fee with a sinking feeling in my stomach. I had no choice. I could get thrown out of the apartment if I didn’t pay up. It was a humiliating and painful experience for me. From then on, I bowed not to allow myself to experience the same thing again.

Money Habit # 5 – Saving Money

The next day, I went straight to our company’s cashier and signed-up for an automatic savings program. The program automatically deducts a percentage of my paycheck and transfers it into my savings account.

I started with only 2% of my paycheck enrolled into the savings plan. After 3 months, I increased it to 5%. Another 3 months and I increased it again to 10%. After a year I felt comfortable enough to increase it further to 20%. In my mind, if the money does not reach my hands, I won’t be able to touch it. I won’t be able to spend it.

I was still paying off my debt at this point but the automatic savings plan was a big help on my confidence. It was liberating to know that I had some money saved somewhere, even if I don’t see it.

After years of saving, I was finally able to pay up my credit card debt. I was so scared of debt, I immediately had my credit card cut off the day I paid the whole balance. I felt finally free after a really long long time!

Months of saving through the automatic savings plan was a big help in building my emergency fund for around 6 months worth of expenses.

This proved to be a great thing since a few months after, my sister slipped while walking through our staircase and sustained a head injury. I was shocked. With adrenaline rush kicking in, I managed to bring her up to the hospital. To this day, I still thank God that this happened when I already had a bit of money saved up. I was able to buy the necessary medicine. I was able to pay for the hospital bill. I was able to pay for the operation. More importantly, my sister got well without any complication. I can’t imagine how it would have turned out had this happened while I was still heavily in debt.

Why these 5 habits will never make me rich

Looking back, I certainly have come a long way as a young kid playing with cigarette packs pretending they’re money to now a debt-free IT professional with an emergency fund able to help out his sister in an actual emergency.

In all honesty, I really think these 5 habits alone will never make me rich. I’m still a long long way to go from financial freedom. Saving money is good, but making it grow is another thing. At least it’s a good starting point. I’m eager to learn the money habits of investing and starting on my journey to becoming truly rich. When that happens, I’ll have another 5 money habits to share to you.

About Allan: Even with the insider knowledge of working as a mainframe programmer for a credit card company over the past 7 years, he still got burned with credit card debt. Alan is trying to learn better money habits and sharing them through his Rich Money Habits blog.

The Ripples OF Giving

admin — Wed, 31 Mar 2010 09:00:48 +0000

Written by: admin on March 31, 2010.

The following is a guest post by newcomer Jeremy Johnson, a husband and father of two girls (a 2 1/2 year old and a newborn). He recently created a website dedicated to helping people realize their dreams and ideas, make progress on them, and see them through to completion. You can follow Jeremy on Twitter at @JeremyNJohnson. Enjoy!

Have you ever wondered why some people give thousands or even millions of dollars to charities and other organizations for a good cause? Why do some people spend hours on end selflessly parting with their finances and free time just to help other people? Could it be for the tax breaks alone?

There’s a formula for wealth and happiness that confounds the grumpy and unfulfilled person. It’s not that other people are just lucky and born happy. It is that the ‘lucky’ and ‘born happy’ person has discovered one of life’s most simple, yet lucrative formulas for real wealth and happiness.

You’re probably wondering what the magic formula is by now. What could possibly give you wealth and happiness that overflows your financial and fulfillment coffers? The formula is giving – giving of not only your finances, but of your time and talents, without expectation of reward. Pure and selfless giving well beyond what you could ever expect to receive back is life’s magic formula for real wealth and happiness.

The effect of throwing a stone into any body of water is really fascinating. Even a small stone will hit the water and cause a ‘ripple’, that is it will cause the water around it to cascade outwards creating an area of effect far greater than the size of the stone that initially hit the water. And the bigger the stone used, the greater the ripple effect.

Methods of Giving

Some may have the notion that giving a 10% tithe to a religious institution is important. Or some may believe that giving 10% of your income to a charity is sound practice. These are indeed both great ideas and will provide financial support provided you give your money to institutions that are reputable.

In addition to financial giving, a 10% (or some percentage of your choosing) of your time, abilities, and talents can and should also be given to others. And by giving, I don’t mean with the intent to get paid for it – that doesn’t count! This is simply serving one or more people with the unique gifts and talents you already have.

Financial giving is usually straightforward. You cut a check or hand over a pile of cash to the group or person you want to serve. But giving of your time, abilities, and talents requires the examining of the groups or individuals you wish to serve. It requires examining the unique value you have to offer and then finding the areas in which individuals and groups are challenged.

The Benefits of Giving

The giving of 10% of your time, talents, and abilities to help others where they are most struggling is not normal behavior. Life tends to pull us towards what we can do for our families and ourselves. By giving yourself to a cause greater than who you are, you strengthen others selflessly and increase your ability – and the needs of others at the same time.

If you think that’s crazy, think about reciprocity and karma. Think about affecting a large whole through your gifts and talents. Think about throwing a stone into a pond and from that small stone, a ripple effect moving outward, affecting a larger whole. Think about the wealthiest and most fulfilled people and the large number of people their charities benefit in the world, both financially, and through time and service.

The strengthening of a whole happens when others are made better through your unique gifts. Perhaps your unique gifts create something that saves the time of others, or brings people together in a cohesive group, which adds to the success as a whole. Perhaps your giving prevents someone from going downhill in their life and then that person begins to add value and the ripple affect grows and grows. Your ripple source will continue to bounce and affect others well beyond your initial offering.

Your simple acts of giving enhance those you affect. And by doing so, you are in turn enhanced and exposed – in a good way – as someone of great value. And if you don’t believe there is anything in it for you, think about the course of each life you enhance through your unique talents and gifts – and the people then enhanced by them. It’s often about your gift to the world and the faith that reciprocity will find its way back to you while at the same time not expecting it.

From personal experience, I know that giving of me reaps rewards far greater than had I sat on my can and done nothing or selfishly promoted myself. The rewards of selfless giving include financial and personal growth rewards! I’ve increased in human understanding and intelligence through serving others and learning what helps them. I am a more capable employee at my full time job because of the lessons in life I am learning through giving to others. This allows me to work in a position that pays a higher salary than I would otherwise get had I not learned to focus, solve problems, and learn to serve others.

My Own Personal Experience and Observations

Do you think people like Oprah Winfrey or Anthony Robbins are in the position they are because they got lucky? They touch many lives with their unique gifts and talents. And they spend time giving of themselves on a constant basis. Anthony Robbins and his charities feed countless people during Thanksgiving. Oprah developed a school program for young people.

I spent two years in Ireland in voluntary service (from age 19 – 21), which I paid for. I was not paid directly for my service. Indirectly, I am reaping the benefits of learning to work hard and serve others – even if it is many years after the fact. Who knows what ripples I created when I was a young man there and I do not need any financial reward to know I did wonderful things.

I recently discovered the Yakezie Oda – a like minded group of individuals with websites related to personal finance. I began observing their interaction with each other. From that observation, I noticed a need for a better way to manage the club and the Alexa rankings. I knew I had the technical skill to pull it off and I am so impressed with what I’ve seen from the members of it, that it was a simple matter for me to volunteer my time and energy to create a new, automated page to store their club and Alexa rankings that will ultimately save them time and energy.

What’s in it for me? Nothing – I do it freely. However, I do believe I have genuinely made some real friends in a short amount of time, and you cannot put a price on that at all. I promise any of you reading that if you solve the challenge that someone or a group is having with your unique talent, you will feel a sense of fulfillment, and increase your networking and friendship with those you help. But do it for fulfillment, for bettering and helping others, which in turn will strengthen the whole and not just yourself.

Conclusion

Find your own unique talents, gifts, abilities, and just get to know people. You will find so many ways to give to others, not just financially. Just listen and watch people. You will quickly discover the challenges they are facing. Use your unique talents and gifts to fill in the gaps for the challenges and difficulties of others. If you are really interested in wealth, this is the greatest way to generate it – a high valued solution to a number of people’s problems. Not only is it fulfilling, but it increases your potential as a human being and solves real life problems. You just might find your life’s work while serving someone and have it be a means to provide for you financially for the rest of your life.

Readers, what are your unique talents and gifts? Who are the people that would most benefit from your service? Who are some people in your life that have shared their unique talents with you and made a difference in your life?

Keigu,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamura and subscribe to our RSS or E-mail feed.

Wealth Is An Illusion Of Happiness

admin — Mon, 29 Mar 2010 09:00:50 +0000

Written by: admin on March 29, 2010.

My name is Lyndon and I’m overwhelmed by all the feedback from “The Curse Of Making Too Much Money And Not Pursuing Your Dreams.“ Thank you guys for sharing your thoughts, and thank you Sam for presenting my dilemma in a tasteful manner. It’s only right for me to provide some feedback and give everyone a little more insight.

WEALTH IS AN ILLUSION OF HAPPINESS

One of my happiest memories was studying abroad in Chile for an entire semester. I lived off beans and rice, and slept on a wooden plank bed. At night, sweat would bead up on my forehead until it dripped down across my temple and into my ears. It was that hot. Yet, despite having no money, I was so happy. Life was simple and the greatest pleasure I got was learning from others.

At the time, I told myself that if I could just earn $1,000/month and have my trusty camera, I’d be happy. Well, I lost my way when McKinsey gave me a job offer. Nobody turns down McKinsey, partly because nobody gets into McKinsey. The curiosity of the job compelled me to take it rather than pursue my interests.

I recognize I’ve been blessed with the opportunity to work for a respectable company that may one day allow me to retire comfortably. Yet, I wonder about that semester abroad in Chile all the time. A couple years ago I went down to Chile and revisited the old AC-less dorm room where I used to live. It brought back so many good memories. Afterwards, my friend and I went back to our 4-star hotel, sipped on a Mojito and ate some ceviche.

It was then that I realized that despite living in a much nicer place on 100X the budget, my happiness compass pointed towards the dorm room of the past.

CAVORTING WITH THOSE WHO UNDERSTAND

One of Sam’s lines that hits me most is, “Ironically, it is the sympathy that Lyndon seeks, which makes him only hang out with people of his same socio-economic class. He understands that most of America won’t understand him so he shuns most people.”

It’s hard to read, but it’s true. I realize many won’t empathize with me, simply because only a minority of people in America make $300,000 a year. I expect people to throw mud and make fun of the situation while calling me a cry-baby. I realize it is equally ridiculous to try and garner sympathy, hence I don’t try. I keep quiet. I keep to myself because otherwise, you’ll think I’m arrogant when I discuss buying a European automobile, or discuss last night’s symphony.

Yes, most of my friends are all working stiffs who make six figures and lead relatively decent lives. We don’t expect anybody outside of our circle to understand the grueling hours required to make our income. We don’t expect people to understand that ever since we were kids, we were told we better succeed or else. Many of our parents are doctors and lawyers and politicians. Yet, how many people on earth can become successful doctors, lawyers, and politicians? Not many, and that is why the pressure is immense. We are not our parents nor do we live in our parents’ generation!

You’ll have to forgive me, and people like me for seeming callous and insensitive towards others. The truth is, we fear backlash and insensitivity by you, which is why we keep so closed off. In fact, perhaps this is why there are so many congregations of ethnic communities in big cities, the Chinatowns, the Little Italy’s and Harlems, etc. Maybe we all fear a certain type of backlash, and just want to feel safe.

IT JUST CAME

I didn’t ask to make the money I make. Income growth just comes with longevity. Longevity is due to performance, which ultimately means value creation for a company. A person makes $1 million a year because he probably generates $10 million a year in revenue for the firm. There’s nothing really fancy about income.

What I don’t quite understand is if people want to make more money, why not just join an industry that pays well? What not be a banker, lawyer, doctor, consultant, trader, engineer, Internet guru, Brittany Spears, professional athlete, or politician? OK, it’s hard to become successful at one of these professions, but that doesn’t mean you can’t try.

Photography is my passion, but I realize that I’d have a better chance at becoming the President of the United States than making a living doing what I love. Yet, I still long for it, and practice every chance I get. On weekends I scout locations for my next photo shoot. I’ve got a website where I’m actively selling my services. I’ve even planned out my next three vacations to remote locations so I can capture that rare brilliant shot. I won’t stop trying.

THE DECISION

The bonus check hit the bank account the other day and I’ve made up my mind. I cannot leave McKinsey to follow my dreams. Someone in the comments section wrote so aptly, “Once your hobby becomes your job, it stops becoming your hobby!“ I’m afraid that if I become a professional photographer, I’ll begin to hate the entire industry. I’ll start being overly critical about my own work, and scoff at others who’ve been accepted.

I love photography too much to risk not loving it anymore. When Sam wrote about my situation, I was at the darkest stage of the year where I worked for 11 months without knowing what my bonus would be. Now I’m in the brightest stage of the year where I’ve worked for only one month and have the year ahead of me. I’m under no illusion that come March next year, I’ll have a part of me that will wonder whether I made the right choice.

As of right now, I’m happy again because I know what I must do. It’s important I create a realistic exit strategy and live below my means. You’re right. A $4,000/month two bedroom apartment is fixable. I’ll be looking to get a more “reasonable” 1-bedroom $2,500-$3,000/month apartment in Manhattan instead. A spreadsheet is open right now pro-forming my financial life over the next 10 years. All I know is I want to be done by the time I’m 40. Knowing this, means figuring out a financial plan to get there.

THANK YOU ALL for your thoughts. I appreciate every single one of them. THANK YOU Sam for letting me gain more perspective and finding a solution! Wealth is an illusion of happiness, but don’t let me stop you from trying.

For happiness!

Sincerely,

Lyndon

Follow on Twitter @FinancialSamura and subscribe to our RSS or E-mail feed.

The Elegance Of Failure

admin — Wed, 24 Mar 2010 09:00:04 +0000

Written by: admin on March 24, 2010.

The following is a guest post from Neal Frankle at Wealth Pilgrim. Neal is a dedicated father, insightful financial adviser, and honorable Yakezie Challenger who always writes with a breath of fresh air. You can join his 2,500+ followers on Twitter @NealFrankle. Enjoy!

Failure is not only a necessary part of life, it can be a beautiful part of life.

This may sound like crazy talk.

After all, if you are a hardworking person, you work hard because you want to succeed, not fail.

And failure stings.

It hurts.

Man….it hurts.

That pain is real….but despite that temporary pain, those set backs are likely key ingredients to your future success. And the success I’m talking about dwarfs financial or career gains.

Let me explain by telling you about an experience I had several years ago.

BACK IN THE MOTHERLAND

When I was in my 20′s, I started a Masters program at the Hebrew University in Jerusalem. My goal was to study in Hebrew with the local students and complete the degree.

This isn’t such a lofty goal in and of itself, but when you consider that I didn’t speak a word of Hebrew 9 months prior to my enrollment, I think you’ll agree that it was quite a challenge – if not insane.

I studied as hard as I could. I worked night and day using every opportunity I could to improve my language skills.

Sure enough my hard work paid off – sort of.

Within 9 months I passed the entrance exam and was admitted to the Hebrew University’s Masters Program for Political Science. My language level tested out as fluent.

And that’s when my problems started.

While my conversational ability was pretty good, I couldn’t understand a word my professors were saying from day 1. I mean not one meshugunah word.

I doubled my studying and put everything I had into it… but it was no use. I didn’t have the skill or ability to learn as quickly as I was required to.

Within 3 weeks, I dropped out and returned to America.

I felt like a complete failure.

It took me years to let go of that experience.

IN AMERICA WHERE MY BUSINESS GROWS

When I came back, I focused all my energy on starting a business and this time, the universe said “YES”. I was fortunate enough to build a very successful business from ground up.

You could say that the door had to close on my Hebrew Political Science dreams in order for the door to open for my business aspirations.

That’s true of course. But had I just stopped there I would have missed a gift far more valuable.

You see, I felt like a loser when I didn’t make it in Israel because I confused having limited skills (in this case, language skills) with being defective myself. Then I felt like a winner as my business grew.

My emotional peace of mind was completely tied and dependent upon my success or failure.

For me, that’ s no way to live.

The elegance is seeing that your success or failure in an endeavor, doesn’t say anything about you as a person. I have limited skills – we all do. So what?

It doesn’t mean you are flawed as a person.

You can apply this lesson if you have financial stress, problems in your career or trouble at home.

If something doesn’t work out, it’s just the universe’s way of telling you to try something different. It’s not a statement about my value as a human being.

There’s a lot of freedom in that. At least I believe there is.

Understanding this makes it easier for me to be objective about how I spend my time. I have less invested in the outcome. All I have to do is my best and let the result go. And if I do my best, what more can I do? In fact, if I have done my best, what right do I have the right to beat myself up?

Please don’t get me wrong. I still believe it’s important to do the best I can. Put everything I have into it. But when things don’t work out, I don’t want to repeat the mistake I made all those years ago. I hope you feel the same way.

CONCLUSION

Don’t let your outcomes define you. It’s unhelpful and it’s untrue. Failure is elegant because it provides a lesson in self that no other classroom or experience provides. It allows us to value ourselves separate and apart from what we can and can’t do.

Readers, what are some of your life failures? Was there ever a case where you were better off failing, than succeeding? Are you afraid of failure?

Keiju,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamura and subscribe to our RSS or E-mail feed.

Conventional Wisdom Leaves Much to Luck

admin — Fri, 19 Feb 2010 17:00:01 +0000

Written by: admin on February 19, 2010.

Imagine two similar investors, Leslie and Bob.

They each retire with a $500,000 portfolio.
They each withdraw 4% of their portfolio in the first year of retirement, then adjust that amount upward each year to account for inflation (as measured by the Consumer Price Index).
Their portfolios are identical: 60% in Vanguard Total Stock Market Index Fund and 40% in Vanguard Total Bond Market Index Fund, rebalanced at the end of each year.
The only difference is that Leslie retired at the end of 1994, and Bob retired at the end of 1999.

The Result?

10 years into her retirement, Leslie’s portfolio had more than doubled, with an ending value of $1,062,606. (And 5 years after that, it had grown further to $1,105,982.)
10 years into his retirement, Bob’s portfolio was worth only $400,354.

They each followed the rules (more or less) with fairly conservative, low-cost portfolios, rebalanced annually. Yet because of when they retired, their retirements look very different.

Leslie will be (mostly) free from money worries, and she’ll be able to give generously to her children, grandchildren, and charities of choice. In contrast, Bob will have to be careful so as to avoid running out of money.

Why such a difference?

For the first few years of Leslie’s retirement, the stock market was shooting upward. In contrast, Bob’s retirement began with a 3-year bear market. When Leslie liquidated investments to pay for living expenses, she was selling high. Bob was selling low.

By the time the market began to rebound in 2003, Bob had already liquidated a good portion of his portfolio, so he didn’t benefit as much from the bull market as he would have if it had occurred at the beginning of his retirement.

In short, if you follow conventional investing wisdom:

A bull market in the first few years of your retirement puts you on easy street, yet
A bear market in the first few years of your retirement can mean money worries for the rest of your life.

Ways to Protect Yourself

What can you do to avoid finding yourself in Bob’s position during retirement?

1) Most importantly, lower your withdrawal rate. Many experts argue that a 4% withdrawal rate involves taking on very real risk of outliving your money.

2) If you don’t have enough saved to use a withdrawal rate lower than 4%, annuitizing a portion of your portfolio can be help reduce the chance of outliving your money. (On the other hand, it also reduces the amount you’ll end up leaving to your heirs.)

3) Take valuation levels into account when determining your asset allocation. In other words, it was a mistake for Bob to have 60% of his portfolio in stocks at 1999 price levels.

What do you think?

How do you plan to prepare yourself for the possibility of a poorly-timed bear market as you near retirement?

My questions to Mike and to others: Even though Bob retired in 1999 at close to the top of the market, he’s selling at levels much higher than Leslie. Hence, how can Bob have so much less after 10 years? Doesn’t Leslie also start to hemorrhage a lot of money in the bear market as well since she hasn’t withdrawn everything out of the market?

Is it rational to expect that someone who retires would not sell a much greater amount and put the proceeds into stable investments with guaranteed returns?

About the Author: Mike Piper is the author of Investing Made Simple. He also blogs at The Oblivious Investor, where he writes about such thrilling topics as Roth IRA withdrawal rules.

Marketing Or Manipulation?

admin — Thu, 18 Feb 2010 09:00:37 +0000

Written by: admin on February 18, 2010.

This is a guest post by the Lean Life Coach who writes at Eliminate the Muda! [mooda] about how to improve life and personal finance through the application of proven business management techniques that originated with great Americans such as Henry Ford and Benjamin Franklin.

Fighting to Survive

Would you gargle with a floor cleaner?

Originally invented in 1879 as a surgical antiseptic, Listerine was later diluted and sold as a floor cleaner. The Lambert Pharmacal Company, maker of Listerine, was not a wild success, selling a little more than $100,000 per year of their concoction. In 1921 Jordan Wheat Lambert initiated a new marketing campaign advertising Listerine as a cure for “cronic halitosis.” In less than 7 years annual revenue exploded to $8 million.

Just as a small side note, “Cronic Halitosis” was a fake medical term! No doubt, a few of us have an occasional issue with bad breath, but it was not considered a major societal issue until this groundbreaking marketing plan. Not only did the Lambert Pharmacal Company create a new product they even created a new medical term that is commonly accepted to this day.

The objective of any business, big or small, is not only to make a profit but also grow. Doing so requires a focused approach towards obtaining and more importantly retaining a customer base. This of course requires marketing and advertising.

Years ago a company would develop a single marketing campaign and blast it to the world at large; “Buy our widgets.” A successful campaign might be profitable for decades while a failed effort could doom a company.

How Far Will They Go?

Companies are always looking for an edge to increase their market share and profit margins. To find this edge, businesses spend millions analyzing everything consumers do and think. Over time corporate America has learned that not all buyers are the same. They began dividing their markets into select demographic groups, casting several wide nets, each with more targeted bait. McDonald’s Big Mac Combo for adults and Happy Meals for kids is a great example of this. Both meals contain hamburgers, fries and a drink while each is presented to their targeted consumer in a completely different way. For you and I, it is about value and good edible food for a reasonable price. For our kids it is about toys and fun.

However, even within a given demographic each customer’s tendency to purchase may be triggered by different cues. With modern technology, scientific and psychological research business is learning to focus on ever smaller slices of the population. Thanks to Google, you and I can view the same website on our computers but we will be served completely different advertisements based on our previous surfing history. A variety of approaches can be easily tested until the most effective message can be identified. Depending on the market they are in or the products that they sell, the methods a company employs to market and sell their wares vary widely.

The range of strategies to encourage customers to spend is really quite amazing. Some of the more interesting things include techniques such as aroma therapy. Disney, for example, pumps the smell of popcorn into the area around the park entrance. Some hotels and car dealerships have done the same, with their own custom brand aromas, to encourage customers to be in a more relaxed mood. Could it be the smell that draws the Financial Samurai back to the BMW dealer so often?

Companies test market colors of their stores and product packaging. Ever wonder why so many fast food restaurants and grocery stores feature orange in their color scheme? Orange makes you hungry!

Unless you have been living under a rock, surely you have noticed that most prices end with .99? While the effectiveness has been debated since this approach began in the late 1800’s, the sheer volume of practitioners indicates a strong belief in the studies that revealed that you will perceive an item as more affordable if it is priced at $19.99 vs. $20.00.

Marketing does not end with advertisements and commercials. When face to face with a salesman, they will use variety of methods called “closing techniques” to increase the likelihood that you will buy. They increase urgency; “the sale is only good till 6:00.” They will not give you a chance to say no by using an either/or close; “would you like me to delivery it or should I package to go?” They will play on your emotions; “certainly you want to provide the safest transportation for your children, buy this car and you’ll have it.”

Fighting Back

Welcome to the world of capitalism, this is business and these techniques have been developed over decades. Some call it marketing and merchandising while others see it as manipulation.

Consumers have expressed disgust when company’s unnecessarily bundle products to force them into purchasing more than they need (think cable). We have all felt “taken” by a slick salesman that convinced us to buy something we didn’t really want or need. The nickel and dime games from some company’s have also caused much chagrin (what, we have to buy a plane ticket for our luggage now?)

Businesses have been developing these and many other techniques over decades and will continue to develop new, more targeted and more sophisticated strategies to separate you from your money. As they say, “the best defense is a good offense. ” Learning about how companies market their products and why these strategies work will help you evade their traps.

Readers, as a consumer, have you ever felt a company took advantage of you? What pricing or marketing techniques anger you most? It may not feel good to be “played” but do we not have a society of caveat emptor or should company’s behavior be regulated?

The Lean Life Coach will be launching a new series on Eliminate The Muda! that explores popular sales and marketing techniques and how to combat them. Please take a look at his blog and subscribe to his RSS feed for more.

Chaos Is an Inspiration For Change, But Don’t Wait

admin — Thu, 21 Jan 2010 10:00:11 +0000

Written by: admin on January 21, 2010.

This is a guest article by one of the community’s most well regarded bloggers, Flexo from Consumerism Commentary. Flexo is currently on a ten-day, ten-venue tour. You can follow him on Twitter @Flexo. Please enjoy and share your thoughts!

Three of my friends experienced difficulties in their lives around the same time, about ten years ago. I’ll call them Alex, Brian, and Chris. Each had their own problems to deal with, but they chose to ignore their difficulties and search for easy answers that focused on short-term solutions rather than long-term success. Before long, their lives erupted in chaos. That chaos helped them make positive changes, but the outcomes would have been predictable to anyone paying attention.

Alex worked for a non-profit organization since the day he graduated college. It was a great job and he loved his work. He could have chosen any career with his wide variety of talents and his strong aptitude. Alex had the potential to earn signficiantly more money than he would while working for that organization, but he knew since high school he wanted to move his life in this direction. Living with this job was difficult, however.

Alex chose to remain in an apartment near his friends so he commuted three hours total every day. For his meager salary, he worked 80 hours a week including weekends. Even if he wanted to earn extra income on the side, he had no time because his life was completely consumed by his job. And it continued to affect him financially, unable to afford rent, food, and basic necessities.

After a late night at the office, Alex returned to his apartment and found all of his belongings removed from the bedroom and piled in the living room. He hadn’t paid his rent for a few months, nor did he communicate his problems, so the unofficial landlord kicked him out.

Brian had an entry-level job with a major fiancial firm. He had opportunities to advance far within this company. He, like Alex, could have chosen any career but he saw potential in the financial industry. Within six months he was promoted and within another six months he was promoted again.

Everything was progressing as planned — even his co-workers wondered how soon he’d become the CEO — until Brian’s carpool group dissolved. I’m not sure about the details, but I knew he was never someone others would describe as a “morning person.” Maybe it was the idea that no one would be picking him up in the morning, but from this point he rarely made it to work on time.

After Brian’s boss was promoted he began reporting to a new supervisor, one who was less permissive of a flexible starting time. Before long, the company was “rightsized,” and he was one of the first employees eliminated within his division.

Chris was a teacher, but that’s irrelevant to this story. After graduation, he continued dating his college girlfriend although they moved to different states. She never wanted to drive to visit him, so Chris traveled hundreds of miles by car to spend every other weekend with her at her home. This routine continued for over a year.

Their relationship wasn’t progressing, however, and although they were still together, they were growing apart. Chris met a young woman, someone available and living close, and he began seeing her as well. Chris’s best friend Dale eventually let the college girlfriend in on the secret, and that was the end of that relationship.

All of these situations ended in chaos, but none of these outcomes were unpredictable. They only occurred because Alex, Brian and Chris all ignored their responsibilities and continued doing what was easy until their lack of action backfired. That’s a perfect explanation of chaos: a natural disorder that follows patterns, that increases in complexity due to non-action, and that could be predicted if the variables remain simple enough.

The causes and effects are clear. Don’t pay rent, lose your apartment. Don’t show up on time, get fired. Cheat on your girlfriend, get dumped. All of these outcomes could have been avoided by taking action to improve the situation through better decision-making.

CONCLUSION

Chaos is good inspiration. These results inspired our three actors to change their lives. Alex found a new, more stable job, and now uses his free time to explore the pursuits he once treasured through his vocation. That may not be the right approach for everyone, but it works for Alex because he has satisfied the need to afford his necessities and more while still finding an outlet for his creativity.

Brian now owns his own business and sets his own rules. If he doesn’t want to work before 10:00 am, he doesn’t have to. He probably should have pursued this path from the beginning rather than waiting to be fired. Because he waited for someone to make the decision for him, he missed out on several years during which he could have been building his business.

Chris needed some time alone to contemplate his choices. He spent many months by himself before he was ready to form or rebuild relationships with friends and new acquaintances. When he returned, he seemed like a new person. After I was confident he was ready to respect relationships I introduced him to the woman he eventually married.

Everything has worked out well so far, and perhaps this might not be the case if Alex, Brian and Chris had not faced their sets of challenges. If they saw and didn’t ignore the signs of impending chaos, they might have made necessary changes sooner. These three can’t get back the years of their lives they wasted and the money they didn’t earn while moving in the wrong direction. When life is as short as it is, every day should be a step in the right direction. That’s accomplished by making decisions and having an effect on your own life rather than avoiding change and waiting for chaos to take over.

Readers, what type of chaos have you experienced that has affected the way you lead your life? Why do you think we let chaos exist in our lives? Thanks for sharing this post with us Flexo!

You Are Already Wealthy, Stop Complaining!

admin — Wed, 13 Jan 2010 09:00:15 +0000

Written by: admin on January 13, 2010.

The following is a guest post by long time reader and entrepreneur, Investor Junkie! IJ writes about how we should stop our complaining, and realize we are wealthier than the large majority of the world.

If you live in the United States, you are wealthy beyond what most others dream of. Your salary is 99% higher than of the world population. Visit areas like India, and Africa, and you’ll see what real poverty looks like. If you moved there, you could live like a king! Don’t believe me? Visit Global Rich List and plug in your yearly salary.

So what exactly does it mean to be wealthy anyways? It’s all relative to the environment you live in. What might be considered below the poverty level in the USA ($22,050 for a family of four), might be considered well off when living in say Uganda. According to the Global Rich List even at the US poverty level, you still make more money than 89% of the world.

If you look at the Wikipedia chart, you will see the USA has the most wealth compared to any other country (including Japan). No other country comes close to the USA. So while you may not feel wealthy comparative to what you see in the media, you still are better off than 99% of the world population. In terms of average income, the USA is only 13^thin the world, but we still have more stored wealth than any other country.

Stop complaining that you can’t afford that new Lexus you lust for. Many people around the world don’t even own a car! They get from place to place by bicycle. It’s true you may not live like a rock star, famous actor, or business titan, but you live better than most.

Most people in the United States have:

Enough food to feed themselves daily
A dry, heated and enclosed shelter
Enough clothing to wear for one week
Reasonably affordable health care and this is before ObamaCare
Even if you can’t afford health care, you still will be treated by Medicaid
What was once considered luxury items only 10 – 20 years ago, most people own multiple luxury items

How many “poor” people in the United States have items like a TV, computer or a cell phone? These luxury items most people in our country now have and are commonplace. It’s not so bad being poor. One time in history flying the friendly skies was considered only available for the elite few. Today, because air flight is so common, it’s one step above bus travel. This once luxury item is now available to most of the population, and with capitalism, at a low price.

With all of this talk about comparing yourself to the world, I’m not saying you shouldn’t strive to better yourself. Instead, be thankful for what you have, compared to the world population.

MORE, MORE, MORE

It’s part of human nature to want more, and unfortunately in some circles it is frowned upon. It is known as the evil G word, greed. Gordon Gekko said it best:

“The point is, ladies and gentleman, that greed — for lack of a better word — is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms — greed for life, for money, for love, knowledge — has marked the upward surge of mankind.”

You see greed will always exist regardless of the “ism”. If you live under Socialism, Communism, and especially Capitalism – greed is still there. The thing is with Capitalism, despite its flaws, still appears to be the best economic system to work with human nature.

Milton Friedman said it best:

“What kind of society isn’t structured on greed? The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system”

So why are we better off than 99% of the world population? Why are we economically better off? The only logical conclusion is because of capitalism and the free market system we have. Even with our recent setbacks questioning capitalism, no better system exists. Capitalism is still the best method to raise people out of poverty.

CONCLUSION

Be thankful you live in a society that allows you to exploit greed. In the process, you not only improve your living conditions, but also helped your neighbors in the process. That’s the magic of capitalism. History has shown the United States has raised its living standards to be better than 99% of the world population. We have capitalism and free markets to blame for our success. It has been shown, the more freedom people have in society the more wealth is created. The USA may have creeping Socialism, but we still have much more freedom than many other countries.

If you want to decrease your living standards, continue to approve the path the US government is heading towards. As history has shown, more government intervention and less free market solutions will lead to a overall poorer nation.

Readers, do you agree with Investor Junkie’s view that we are already wealthy? If everybody is a millionaire, are we wealthy or just average? Why is it so difficult to realize how good we have it in America?

Investor Junkie - His blog discusses all things related to investing and being an entrepreneur. It’s about making money work for you by passive and active investments; stocks, bonds, real estate, businesses, and other investments. You can follow him via Twitter @InvestorJunkie.

Creating A Masterpiece By Failing Forward

admin — Wed, 30 Dec 2009 09:00:26 +0000

Written by: admin on December 30, 2009.

David by Michelangelo

Here’s a guest post from Ryan at Planting Dollars. I was intrigued by one of his comments of “failing forward” (not falling forward) and asked him if he’d be interested in writing a guest post about the topic. Please enjoy and visit his site afterwards. He has my envy of living in Hawaii and pursuing his dream of being a shark photographer! Best, Sam

Have you ever noticed that some of the most successful people in the world seem to just naturally fit in their role? It’s as if they’ve been perfectly sculpted to be the best actor, businessman, or even blogger.

I have a secret to tell you… It’s because of their previous experiences… The one’s you didn’t see before they became wildly and unbelievably successful. These people are actually the biggest failures in the world! But shhhhh, I didn’t tell you that…

Don’t believe me? I want you to try something… The next time you talk to a successful person simply ask them this question:

“What failures have you experienced on your journey towards being where you are today?”

They’ll probably talk your ear off for hours and you’ll begin to realize this: They’ve just swung the bat of life a few more times and eventually hit one out of the park.

SCULPTING A MASTERPIECE

Think of your failures as the strike of chisel. Each chisel strike adds a little more depth and a hint of uniqueness to the block of marble your live started as. Each new experience and failure is a lesson in life that teaches you something. Now, if you decide to not take risks, to be complacent, avoid new experiences, and ideas your life will not change much. You’ll still be just a hunk of un-sculpted marble waiting, just waiting, for someone to come along and call you a masterpiece.

But if you take risks and fail, and fail you will, you’ll be chiseled into greater and greater detail until finally, you’ve become a masterpiece. A masterpiece that you’ve made yourself. Through failing forward.

WHAT’S THE BEST WAY TO CREATE THIS MASTERPIECE?

Dive In! Just Jump! Feet first, eyes wide open!

If there’s something you’re curious about, simply try it. You’re going to suck at it, I guarantee it. In fact, you’re going to look like an absolute moron, but you know what? Who cares? You’re still alive so just laugh about it, get up, brush yourself off, send me an email about how horrible it was then go try again. You should be excited to fail forward because you’ll be learning new things, constantly growing, and becoming step by step closer to your very own version of success! How is that not exciting?

THERE’S FAILING, AND THEN THERE’S FAILING FORWARD

There’s a big difference here. Einstein said it best when he said:

“Insanity is doing the same thing over and over again and expecting different results.”

If you’re not constantly failing forward, you’re probably not aware you’re failing at all. Be honest with yourself, see the signs, take a step back, and swallow your pride. If you’re not happy, if you’re not growing, if you’re not trying new things, you’re probably failing. Once you’ve realized you’ve failed there’s only one question you need to ask yourself to fail forward:

“Why did I fail?”

Was it because you didn’t try hard enough, was it because the other person was better prepared, was it because you were going in the wrong direction, was it because you’re overweight and frankly, she doesn’t dig fat guys? It could be any number of reasons, but ask this question to yourself, and more importantly, ask it from other people who’ve seen you fail. They’ll often give you priceless feedback that you can learn from.

PUTTING MY MONEY WHERE MY MOUTH IS: A COUPLE EXAMPLES

A One Way Ticket to Hawaii from Wisconsin: That’s what I bought two months ago when I took a risk and decided to follow my passion of scuba diving. I rolled the dice of chance to follow a dream without regrets. Turns out I didn’t have anything to be scared of. I snorkel in my free time, still work off my debt, and landed a job in a field I enjoy M-F, 40 hours a week. Meanwhile back home they’re getting snowed on! I think this might not even be a failure, but if it was… It would’ve been me failing forward…

This guest blog post. I’ve never written a guest blog post before. Especially not for a blog ranked in the Alexa top 100,000. This is intimidating and odds are, it’ll fail. But here I am, jumping, throwing my self out there so you can tell me how crappy this article is, but yet how I can improve it (hint hint… comments much appreciated). However, tomorrow I’ll know that I did something completely new, something that’s scary, and something that made me grow.

CONCLUSION

I challenge you to do the same, to leap, to jump, to try something new. Once you’ve failed, realize that by doing so you’ve just become a little bit more chiseled and one step closer to becoming your very own masterpiece.

Ryan is a recent college graduate who blogs about personal finance, financial freedom, nomadic living, and following your passions. One of my favorite articles of his is “How To Live In Honolulu for Less Than $1,000 A Month”!

Readers, how have you “failed forward”, and what have you learned from the experience?

I tried to teach my wife how to surf yesterday and failed forward. She told me to leave her alone when I tried giving her a push a couple times when the waves came. I was annoyed she didn’t want my help, because the iddy biddy waves weren’t big enough for her to catch on her own. However, I knew she’d figure this out eventually, so I left her alone, not wanting to fight. Besides, I think she was nervous, wanted to acclimate on her own, and felt bad “wasting” my time.

When I returned 20 minutes later, she was exhausted and realized she needed some help. On one of the very last attempts, I gave her a push, and she stood up for a good 20 yards! Success! Sometimes she’s stubborn when it comes to learning new things as many of us are. I feel that each time she pushes me away and fails, she realizes that I’m only trying to help. This is my small story of failing forward towards better communication and understanding as a couple. What’s yours? Sam

Domain Name Investing 101: Online Real Estate as an Asset Class

admin — Wed, 02 Dec 2009 09:00:34 +0000

Written by: admin on December 2, 2009.

I’m always searching for new ways to make money and regular reader, Joel (aka CreditCardChaser) provides some very unique insights on a new asset class, domain names! I remember back in 2000, Korea.com was sold for $5 million bucks to the government and I thought gosh dang! After reading this article, hopefully we’ll all have our own success in something so potentially lucrative. Enjoy! Sam-urai

Chances are that when you read the term “domain name investing” you immediately have the following questions pop up:

Umm [insert embarrassed pause here], what exactly is a domain name anyway? Do you mean like a website? (No)
What in the world is domain name investing and why should I care?
How would I go about investing in domain names in the first place?

My goals for this article are to show you that: A) Domain names have inherent value B) Domain names can potentially be a great asset class to invest in and C) Give you some practical guidance on how the domain name investing process works.

Domain Name Definition

OK, let’s just get this out of the way to clear the air because I would venture that if we were talking in person then right about now would be the time where the nerd (me) would ask the question, “You know what a domain name is, right?” and there would be that very quick answer of, “Yes, of course – who doesn’t?” followed by that awkward please-don’t-call-my-bluff pregnant pause that nerds like me often receive when talking about “nerdy” tech stuff (but we often overlook of course because we are either too socially inept to catch on or we are just too enthused with talking about whatever nerdy stuff we happen to be talking about :) ). So whether you know exactly what a domain name is or you just have a very fuzzy understanding of what a domain name is let’s just pretend that you instead responded to my question with, “Umm, I am not exactly sure what a domain name is – I think I know but maybe you better just make sure we are on the same page…” I’m glad you asked: :)

According to Wikipedia: “A domain name is an identification label that defines a realm of administrative autonomy, authority, or control in the Internet, based on the Domain Name System (DNS).”

According to my recent FAQ “What is a domain name?“: “A domain name is used to make it easy for people to find web pages on the Internet. The Domain Name System converts domain names (such as Google.com or MSN.com or our domain name of DomainSuperstar.com) into IP Addresses (numbers in the format of 11.222.33.44 or something similar) so that when someone wants to visit a particular web site they do not have to remember a long string of numbers but rather just type in an easy to remember name.”

Practically speaking, FinancialSamurai.com is the domain name for this website. It is important to make the distinction between the words, code, files, databases, images, etc. that make up the Financial Samurai website and the location/address of the Financial Samurai website which is the domain name FinancialSamurai.com. One can own a domain name without having a website but if one has a website and the website is online for the world to see then the website owner must have a domain name (or use the domain name of a 3rd party – for example, some bloggers have blogs on the wordpress.com or blogspot.com domain name that end up as a subdomain that look something like joelscoolblog.wordpress.com or joelscoolblog.blogspot.com).

Why Invest in Domain Names?

Just like Financial Samurai very astutely preaches the benefits of crafting a comprehensive strategy for your investments it is also important to sometimes consider alternative asset classes outside of the typical stocks and bonds.

Here are some reasons why I own approximately 1,000 domain names and why they very well might be an asset class that you should consider paying attention to as a component of your diversified investment portfolio:

Uniqueness – Every single domain name is unique and therefore has inherent value. For example, there is only one and can only ever be one FinancialSamurai.com, Cars.com, Hotels.com, etc. Since each domain name is unique then there is great opportunity for value creation because unlike the tulip bubble of the 17th century where tulip prices deviated wildly in excess of the actual quite equally low inherent value of the tulip bulbs themselves each domain name has vastly different intrinsic values. I could go into great detail on this but I think that we could all agree (Financial Samurai included) that the domain names Cars.com and Hotels.com have a much much much greater intrinsic value than the domain name FinancialSamurai.com or CreditCardChaser.com).
Cost - Registering a domain name is cheap – very cheap. The cost of domain name registration is around $7 to $10 annually. Of course, buying a domain name from a 3rd party could cost any amount of money that you and the other party agree on but the actual ongoing required annual registration fees are very small. (Tip: The term “hand registering” refers to finding a domain name that no one else is currently paying the registration fees for and grabbing that domain name for yourself by paying the registration fees to a domain name registrar like a GoDaddy although the term “buying domain names” can be used to describe the hand registration process OR the process of buying a domain name from a 3rd party either through a private seller or through a domain name auction – typically buying a domain name from a 3rd party is handled either through an escrow service like Escrow.com or directly though the domain name auction aftermarket and its as simple as making payment and then transferring the domain name from the sellers account at their registrar to your your account at your registrar).
Internet - The Internet is a large and growing market. If you think of domain names as the online real estate of the Internet then as the Internet continues to grow in popularity and become more and more a part of our daily lives then domain names as the online real estate of the Internet will continue to increase in value as well.
Utility – Just like certain asset classes like orange juice futures or soy beans or pork bellies all are real asset classes with real tangible utility I believe that domain names have real tangible utility as well. While you can drink orange juice and eat soy beans and eat pork bellies (hopefully cooked first as eating raw soybeans is toxic and eating raw pork bellies just..well..gross :) ) you cannot eat or drink domain names but there are different outside factors that influence what we can do with domain names.For example, type in traffic contributes to the foundational utility of a domain name (type in traffic is traffic that comes from people typing a domain name directly into their URL bar and arriving at the domain name as opposed to using a search engine or clicking on a link or using a bookmark. What is really cool is that a significant portion of Internet users will type a name directly into their URL bar without even knowing what the site is or if it even exists because the perception is that if one wants information on “hotels” then what better domain to go visit then hotels.com or if one wants information on “cars” then then cars.com etc.One example of a domain name from my domain name portfolio that gets type in traffic is the generic keyword domain CaliforniaCarInsurance.com so when people are looking for information on finding “California car insurance” then a significant number of web users will simply type in the URL CaliforniaCarInsurance.com – whether they have ever been to the site before or not) as does the aforementioned uniqueness as does keywords in the domain name and ease of branding (you definitely remembered the “Financial Samurai” brand a little easier than “John Smith’s Finance Blog” that you read last week right? Or was it “Joe Smith’s Finance Blog”? :) ) as does these other 25 criteria that go into choosing a good domain name.
Strategies – There are many strategies for creating wealth with a domain name. You can A) Buy a domain name for X price and hope to flip it for X+ price (either a short term flip or a long term flip – think “daytrading” vs. “buy and hold” as the stock investment analogy or B) Buy a domain name and develop it by building a website on it that will make you money (my personal favorite strategy) C) Buy a domain name and just “park” the domain name so that it just shows advertisements on the domain name that make you money when people type in your domain name (again this illustrates the value of type in traffic) and click on your ads or any other number of domain name investing strategies.

How to Invest in Domain Names

Learning how to make money as a domainer (a domainer is someone who buys and sells domain names or invests in domain names and monetizes domain names) is not something that can be covered comprehensively in a paragraph or two let alone an article or two but a few quick things to keep in mind is that you should stick with niches that you know and that you should really do your homework before making any big purchases.
- Show quoted text -

If you have specialized knowledge about football or knitting or IRA’s then you like have an advantage over others without your specialized knowledge when it comes to spotting valuable domain names in that niche.

Sure, it only costs $7 – $10 to hand register a domain name but before you ever decide to make any kind of sizable monetary investment into a domain name then you should do your homework by first reading things like the 25 rules for choosing a good domain name so that you can understand some of the criteria for evaluating what makes a domain name valuable and even more importantly learn some of the mistakes to avoid (such as registering domain names with trademarked terms in them – a big no no).

Domain name investing is not for everyone but if I can tell you from personal experience that investing in domain names is a potentially very profitable and rewarding experience and if you have somewhat of a nerdy streak like me then it can also be quite a bit of fun!

What questions do you have about domain name investing?

BONUS #1: 10 of the Most Expensive Domain Names Ever Sold (I could be missing a few)

Sex.com $14,000,000
Fund.com $9,999,950
Porn.com $9,500,000
Business.com $7,500,000
Diamonds.com $7,500,000
Beer.com $7,000,000
AsSeenOnTV.com $5,100,000
Korea.com $5,000,000
Casino.com $5,500,000
Toys.com $5,100,000

BONUS #2: 10 Highest Reported Domain Sales of 2009 (Source: DN Journal)

Toys.com $5,100,000
Candy.com $3,000,000 (+ revenue share)
Fly.com $1,760,000
Auction.com $1,700,000
Ticket.com $1,525,000
Call.com $1,100,000
Webcam.com $1,020,000
Server.com $770,000
Luck.com $675,000
Exterminator.com $600,000 / Christian.com $600,000 (tie)

Thanks! – Joel

About the Author: Joel is a CFP® and a web entrepreneur that loves domain names, the Internet, building websites, and all things geeky and Internet related. Some of his recent projects include building consumer websites for finding credit cards, comparing car insurance, and shopping for home insurance rates.

Everything Is Relative Superstar – Being Happy With What You Have

admin — Fri, 20 Nov 2009 08:00:41 +0000

Written by: admin on November 20, 2009.

Molly & Will in Supastar

Last week was pretty busy. I traveled to three cities and saw 10 different clients with one of my senior colleagues, Jim. Jim, aka Superstar, is 45 years old, has his PhD in Economics, and could probably retire now if he wants to.

Jim is a great speaker who engages his clients with insightful anecdotes. At 5 foot 5 inches tall, Jim stands more confidently than his stature would suggest. With a staff of 30 people serving his every wishes, Jim never has to worry about not getting his way. He’s a meticulous man with particular demands, which leads us to our little adventure.

MR. CHAIRMAN

It was the second to last meeting of the trip, and we were both quite tired. However, this meeting was the most important. We were seeing the biggest person at the biggest client and we had to make a good first impression.

The Chairman is an elderly gentleman with a gracious smile and a warm handshake. We exchange salutations and sit in his well-worn office noticing the iconic pictures of him with famous industry leaders. I could have sworn there was even a picture of him shaking hands with Nixon.

Efficiently, Mr. Chairman asks us to state our case. Jim starts off and says, “In my 15 years covering country X, I have never been so bearish than I am right now.” Not a bad starting line, but as the observer, I noticed Mr. Chairman look away a little with a smile. Here Jim is, telling our client how negative he is on a particular country based on Jim’s career history, when the client’s own career history is longer than Jim’s lifetime!

The meeting went well in the end, and Jim and I had a post-meeting chuckle. I mentioned to Jim about his “15 year career” quip and he realized that Mr. Chairman must have thought he was just a kid, given our client’s 50 year career. Jim promised to calibrate his intro differently next time.

YOSHINOYA’S

At this point we’re starving and Jim asks me what’s for lunch. I mentioned we ordered sandwiches for our next meeting so not to worry. Jim responds to me, “Sandwiches again? I’ve been on the road for the past two weeks, and I just can’t eat another rubber chicken sandwich!”

With the lightening thinking I possess, I figure why not use the 50 minutes we have in between meetings to try out something good. For some reason, California Japanese fast food chain “Yoshinoya” called to me, and we walked across the street. After some Mr. Pibbs sodas, warm salads on plastic plates, and salt bowls with beef, we went to the next meeting.

In we went, and there we saw a spread of the most gourmet sandwiches we had ever seen. We’re talking the best looking BLTs, teriyaki steak subs, and multi-layer Italians. Jim then turns around to me and states, “If I knew you were going to take me to Yoshiwhatever, I would have gladly just passed and eaten here!” We laughed, and I just told him to go stuff his face with more food and stop complaining.

EVERYTHING IS RELATIVE, STOP WANTING MORE

Jim is a powerful and wealthy man at my firm, but compared to our client, Jim happily agrees he’s just the water boy. Having sandwiches for lunch for the 5th time in a row sounds unappealing, but compared to the salt bowls at Yoshinoya’s, those sandwiches sure looked tasty.

We live in the richest country in the world and yet how come there is so much financial dissatisfaction among collective individuals? The reason is the never ending desire to want more. There will always be someone richer than you. Why are you always relating yourself to the youngest VP in your company? Instead, why not just relate downwards, or sideways? Better yet, stop relating.

The key is to just cut things off and be happy with what you have. The pleasure from material things is so impermanent, stop wasting your money on junk. If you cut these desires out, you’ll never worry about spending more than you make. In time, your wealth will surpass your wildest expectations!

Related Posts:

“Controlling The Urge To Splurge”

“The Dumpster of Treasure”

“Survey Says: Get 1,300 On Your SATs and a 3.9 GP & You’re Set For Life!“

Readers, do you think it’s possible to stop making comparisons with people who have more? Is it an insurmountable task to be happy with what we have?

Keigu,

Financial Samurai – “Slicing Through Money’s Mysteries”

Follow us on Twitter @FinancialSamurai and subscribe to our RSS feed.

Why Becoming Debt Free Is Not A Great Idea!

admin — Wed, 21 Oct 2009 08:00:18 +0000

Written by: admin on October 21, 2009.

We Don't Need No Medicine!

I’m pleased to bring you a guest post by faithful reader and commenter, Larry Ludwig (bio below). He writes a thought provoking piece about challenging the norm of becoming debt free. You’ll be smarter after reading this, guaranteed! Enjoy, and as always, feel free to debate away! Rgds, Financial Samurai

You’ve heard the financial gurus like Dave Ramsey perform pasectomies on his show and Suze Orman with her numerous “I have 50k in debt” guests. The gurus all say, debt is bad, credit is evil, and being debt free is nirvana, yada yada yada. While I do think as a whole Americans have too much consumer debt, the goal of being completely debt free is actually a terrible idea. Let me be specific: buying things that depreciate with debt is bad, that big screen TV, new clothing or car. Most of the financial gurus do not make this distinction and make all debt to be “evil”.

I believe Rich Dad/Poor Dad Robert Kiyosaki has said it best, “There is good and bad debt and being debt free is more risky than having good debt.”. Now before you go off on my recommendation of Robert and his questionable background, I believe his statement is sound and correct.

The primary reasons are:
•   Opportunity Cost
•   Asset Allocation
•   Inflation
•   Tax Deductions
•   Arbitrage
•   Leverage

OPPORTUNITY COST
In my case my wife and I just refinanced our house with a 30-year fixed rate at 4.875%. A great rate and will be probably not see rates lower in our lifetime. While we could pay off or accelerate the payments it does not make sense to do so. Why? Our actual mortgage rate after taxes is 3.26%, a very easy rate to beat with investments (especially pre tax) and in addition the average rate of inflation is also 3.26%. With both taxes and inflation are expected to be higher in the future and it’s possible the actual mortgage rate will be even lower. It’s better to take the freed money that would have been tied into the house, and invest in other assets. In today’s environment you still can beat the above-mentioned rate. Another way to look at, with inflation we will primarily paying only principal in real dollars with very little in interest payments. Your primary residence should not be looked at as an investment and if the numbers make sense take mortgage pre-payment dollars into other assets.

ASSET ALLOCATION
Let’s assume you take the financial guru’s advice and either pay off your home mortgage or accelerate payments. You will then have the proverbial “too many eggs in one basket” being your house. Most families that take this advice then cannot afford to build up an emergency savings or put money in pre-tax or after tax investments. You’ll have too much of your dollars tied into one asset. Should pricing go down like we have seen in the past 2 years than you’ve lost real money. If you lost your job it would be much harder to get the equity out of your house to use in an emergency. Pre-payment of your home mortgage should always occur last after any pre-tax deductions (IRA, 401k), or emergency savings. Even then, depending upon your real mortgage rate, it may not make sense to ever pre-pay.

INFLATION
Inflation has been called the “silent tax” and lurks at night eating away at your money. With our fiat currency and monetary policies, inflation is something our government wants to ensure always happens and at all cost. You not only want a ROI (return on investment) but a return OF your investment in real dollars. An example of this is a bank CD generating 4% a year interest, yet inflation is at 5%! While it’s great you have a safe investment, you are loosing %1 of your real money buying power.

Now you say what does savings have to do with borrowing? Everything. In general our government’s monetary policy is punishing savers, while helping debtors every way it can. This has become painfully obvious in the past year. You see this in every news headline and policy our previous and current administration has done. Inflation is especially obvious with people on fix incomes (i.e. retirees). By having low fixed rate loans you are paying with future dollars that are worth less than currently.

The $64k question is what will happen 10 – 20 years in the future? Will we have a Japan style deflation?   Will stagflation of the late 70’s come back again? Will hyperinflation like Zimbabwe occur? There are a number of factors to consider:
•   China and Japan will keep buying our debt? Will they just stop or slowly decrease their purchases since a devaluation of our dollar will hurt their exporting. The latter situation is more than likely
•   Foreign countries that are buying our debt are now only buying short term debt. (less than 10 years). When this debt comes due, this could have massive issues for us.
•   How with our government pay off the existing debt? Based upon interest alone we getting close to 40% of our yearly tax revenue.
•   Will our government stop spending like drunken sailors with debt expected to pass 100% GDP in 2011? Unlike Japan, we do not have a country of savers to fall back upon.
•   Will our government stop creating policies that will hurt small business?
•   We are base currency for other countries, but for how long? If dollars start coming back to the U.S.A what would that do to the value of our currency?
•   For the time being forget about the new health care bill, how will our government be able to fund the existing programs Social (In)Security, Medicare and Medicaid?

While there is no assurance of what the future holds, the question is do you want to ignore the risks, or hedge your bets? I choose the later with some assumption inflation will be higher than what we’ve seen for the past 30 years. Even so since 1914 the average inflation rate has been 3.26% and since 1971 (the year we completely came off the gold standard) it has averaged 4.48%, so always keep these numbers in the back of your head when debt taking on debt AND investing. By taking on low fixed rate debt, this is one simple method to hedge against inflation.

TAX DEDUCTIONS
The Government wants you to be in debt. That’s right, why else would they have tax incentives like “Cash for Clunkers”, first time home purchase, and for businesses deductions on equipment purchases? The only logical reason is they want you to take on debt. This is related to the government’s monetary policy mentioned previously. So if you are in the higher income brackets it makes more sense to use the tax deductions to your advantage. This is especially true on assets that generate income or increase in value over time. It’s also important to note, don’t take on debt just for the tax deduction alone.

ARBITRAGE
Arbitrage is just a fancy term making a profit from the difference in market prices. I just received a credit card offer for 0% interest for one year, with check writing expenses it was 2.99% fixed for one year, much lower than any other of the current credit card rates we have. In the next year it’s expected all credit card transactions are going to go up dramatically. With that said if I take a one-year low interest loan and make 6% in a safe investment I’ll come out ahead with a 3% difference. This example assumes inflation and taxes paid are 0%, not completely realistic but you get the idea. While there is some risk involved (as with any investment) the risk is somewhat low and will take my chances on this type of arbitrage.

Let me also add another form of arbitrage we saw in the previous years with one of our credit cards. We had a 4.99% “fixed” rate credit card that also offered great card rewards. I recently calculated any interest we paid, minus all of the gift cards we received. It turns out the credit card company paid us over $600.00 in the 3 years we used it and this is after any interest payments incurred! So our interest real rate on this credit card was negative. Not a bad deal if you ask me.

LEVERAGE
I’ve seen articles that state rental housing is a poor investment compared to stocks or bonds. They use the typical statement of housing matches inflation or slightly less. While this is true, it does not take into account the use of leverage.

Lets use an example of putting down 20% on a $100,000.00 rental house. We’ll assume over time the house increases in line with inflation, and use 3% a year. So in the first year it increased from $100k to $103k, assuming the property is cash flow positive, the property increased in value 3k without doing anything. With your $20k investment, just increased to $23k or a 13% increase. So with leverage you made more money with the assistance of inflation.

Using leverage while does increases risk, it can be used to your advantage. Too much leverage (like many of the failed banks) can destroy you. So the question becomes how much leverage do you take on? For housing the typical 20% down payment makes sense and should be the bare minimum. For other assets it really depends upon your risk tolerance, asset allocation and long-term goals.

IN SUMMARY
I’m not saying go out to Macy’s and Best Buy max out your credit cards on deprecating assets. I am saying use debt to your advantage. Leverage assets that in the long run increase in value and/or generate passive income, while using cash to purchase deprecating assets. Don’t assume that all debt is “evil”. When using debt and risk management properly, it is one of secrets of becoming wealthy. If used improperly can enslave you for the rest of your life.

Larry Ludwig - Started Empowering Media in 2001, a managed hosting provider offering system administration consulting and web hosting services. He lives in Long Island, NY is married to Jeanne and has two children. His “hobby” is investing and reading personal finance books.

You can reach him via Twitter @lludwig

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