September 29, 2007, 7:00 am

Financial Ramblings

by: The Financial Blogger    Category: Financial Rambling

Another week has passed by and it is time for some more ramblings! At first, I was a bit reluctant to add another post to my weekly routine. I thought that 6 posts a week could be a little bit too much. However, after a few weeks, I can say that it is not too bad. In fact, it allows me to bring a lot of small points that are not big enough to make out for a full post. So here are my thoughts for this weekend:

Apples are for frugals


Last week, we went to pick up apples with my family and friends. That day was simply amazing. My little boy was running around everywhere. He played in the park, fed the goats and sheeps, got on to a tractor and a horse ride. It was simply magic the whole day.

apples for frugals

 

We spent most of the day there; we had breakfast, desert and a ton of apples for a small $50 for the four of us. It might be over for the apple seasons, but you can surely find other seasonal activities that don’t cost much (Halloween would be the next one coming in my mind at the moment). These moments spent with your family are priceless.

Canadian Dollar at par

Whoa, I still remember when, not so long ago, we used to receive a little bit more than fifty cents US for our worthless loony. However, it seems that the loony became a big fat bird as we are now over the US dollar for a week now. I do not think it will stop there. Our economy (especially Western Canada) is flourishing while the US is struggling with the Irak War and the subprime lender crisis. The world is striving for our resources and I do not think it will slow down for a while. Canadians, it is time for us to cross the border and buying cars in the States. You could save easily 10% on most cars!

The Financial Blogger Stats

It really showed that I stayed home for six weeks as my blog took a big jump. From 1,639 visits in July, the number of visits went up over 3,600 in September and there is still two more days left. At this pace, I should reach 6,000 monthly visits by the end of the year. Therefore, the monetization of this The Financial Blogger is imminent. However, I will not trade my blog to a Nascar with banners everywhere. I am well aware that my readers is the bulk of this blog and I surely don’t want to piss you off. But as many blogger says, getting money from your writing is a great source of motivation!

Before that, I am presently working on a new design with one of my friend. When I started this blog, I basically took the first template I saw and got writing. I have now established my needs and Blain from stocktradingtogo.com really helped me out with his review of The Financial Blogger to improve my design. Those suggestions and my personal ideas will take effect shortly. I am very excited about this project!

Carnival picks

It was a pretty busy week in term of carnivals. In fact, four posts from last week were featured somewhere. The Financial Blogger is making is way throughout the blogosphere!

So Blunt Money hosted the Carnival of Personal Finance, The Virtual Handshake Blog hosted the Carnival of The Capitalists, Money and values took care of presenting the Festival of Frugality and finally, The Widow’s quest hosted her how to solve money worries blog carnival. Here’s is my top 3:

#3 : The Latte Facto: Starbucks is Evil by Mr. Cheap Stuff. In the line of thoughts than The Frugal Reflex, Mr. Cheap Stuff (not Mr. Cheap from Four Pillars) explain a theory based on the fact that you should quite your unncessary spending (such as smoking, drinking and having your morning latte) in order to save more money and change your financial future. I really liked is double down technique where you can buy whatever you want, but you have to put the same amount aside at the same time.

 

#2 The Cancer of Short-Term Thinking by the Trusted Advisor. He basically explain all the reasons why our economy will slow down and why there is a potential recession; because we are stupid enough to not think long term!

 

#1 A Quick Financial Awareness Wake-up Call at the tao of making money. Golbguru writes down a pretty usefull list that we all should print and make the check up once in a while. It is good to read about financial advices but if you don’t include them in your life, it is useless.

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September 28, 2007, 7:00 am

The Chinese Definition of Risk

by: The Financial Blogger    Category: Miscellaneous

Chineese Risk

Have you ever seen this image? In Chinese, the word “risk” is represented by two symbols. One means danger and the other one means opportunity. While many North Americans tend to see only the danger in any risk, I am part the ones who look at the opportunity, maybe too much actually!

As I had previously written on this blog, I think that the risk of something is only a possibility. In fact, what matters the most is your aversion to risk and not the risk itself. And this could change from time to time as your financial situation evolves over time. When you got nothing but bad luck in life, you will probably become more risk averse than somebody else. The danger part of the risk will always be there, but it represents the worst case scenario. The other side of the coin is the opportunity.

Risk incurs rewards. This is one of the first statements you learn in finance. Wherever you may find risk, you must find a proper (potential) reward linked to it. If not, it’s not worth it. So my perception of risk would go more like this: “Will I be sufficiently rewarded for the risk I am taking?”. You can also ask yourself what is the worst case scenario versus the best case scenario and compare both of them.

I previously wrote about how I lost 4K at the age of 23 (it was 50% of my investment portfolio at that time). However, while the worst case scenario was to loose that 4K, the best one was showing a potential reward was about 100K. In fact, I had my eyes on to mining company. I decided to put all my money on a single stock as I had received “good information”. While my investment dropped by 50%, the other company (blue pearl mining back then) went from 1$ to 15$ in a few months before the name was changed for Thompson Creek Metals (TCM-T on TSX). The opportunity was much greater than the danger according to my opinion even if I ended losing money.

The great thing about this definition is that you can work on both sides of the meaning of risk to increase your yield. While improving your knowledge in what you would like to invest in (rental properties, stock market, start-ups, etc), you can reduce the danger accordingly. At the same time, you can increase your chance to get a hold of a great opportunity.

Practice is the key to manage risk. Find something you really like to invest in. It could be anything, it does not really matter. As long as you are really interested in the subject, you’ll be able to find enough energy and time to improve your knowledge and practice your art. Because managing risk is an art. Warren Buffet, Bill Gates and Madonna have something in common; they are dominant artists in their field. They learned to manage the danger included into each risk and to transform anything into a great opportunity.

The dual nature of risk makes it malleable. If you are constantly thinking about the market crashing, that you will not have enough money to retire or that you will never succeed creating your own company, you will only find the danger in risk. The human being is a very powerful creature; it has the ability to materialize its thoughts. So if you think about all the opportunity out there, you just have to pick one and go for it. Do you really think that Sergei Bryn and Larry Page thought about being crashed by Yahoo! when they created Google? They kept the danger aside and took the opportunity they were given.

Risk is everywhere and in everything. That also means that there are opportunities that lie behind each of your thoughts.

 

 

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September 27, 2007, 7:00 am

The Frugal Reflex

by: The Financial Blogger    Category: Frugal

frugal

 

I establish an interesting theory about being frugal. I constantly wonder why several people have the incredible ability to save money wherever they go whatever they do. They always manage to save a few bucks here and there. Therefore, they have more money in their pockets; not me!

Most of the time, I am on the other opposite. I buy stuff wherever I go and it’s not necessarily deals! This is where I determined that these people must have developed what I called The Frugal Reflex.

It is an ability that you will gain throughout your life. Some people will never acquire this reflex and their wallet will suffer desperately. I think that for the frugal of us, every time that they are about to buy something, the Frugal Reflex kicks in and make ask themselves a ton of questions: “Do I really need it right now? Can’t I buy the same thing cheaper elsewhere? What are my needs? Can I find a cheaper substitute? What is the best way to get what I need?”.

These questions are not 100% purchase proof but you will still take the time to think about it. Most of the things we buy are the result of an impulsion. If you have the Frugal Reflex, you will avoid your a part of your emotions and make a more rational purchase. In fact, emotional purchases are the biggest source of wasted money. “I really want it, it’s so cool! Is it that cool or I am just being manipulate by some marketing genius here?”.

How to build The Frugal Reflex

Being frugal is not the easiest thing to do. It’s like quitting smoking or drinking. Spending is another addiction. If you don’t take much money with you when you go out, chances are that you will not spend much money. What about credit card? There is only one rule to use credit cards correctly: you can buy whatever you want with your credit card, as long as you pay it off at the end of the month. If you follow this simple rule, you will definitely start asking yourself some questions and save some money!

Another way to develop the Frugal Reflex is to establish a budget. You have to know your numbers by heart. In fact, if you are keeping track of all your expenses for your budget, you will get the Frugal Reflex every time you are about to spend money on something. Even better, it will probably force you to find creative way to not spend money in order to stick to your budget.

Determining goals in term of money saved is another way to build a stronger Frugal Relex. If you try to save $1,000 within the next six month, you will try to save money a little bit every day. So days after days, you will strengthen up your ability to save money. I’ll come back later on with another post on this method as I am trying it right now. I love to be my blog’s guinea pig!

The Frugal Reflex is all about self control. Control your soul, control your mind and control your body. These are the key to live a better life (with more money in your pockets!).

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September 26, 2007, 7:00 am

Update on my $1,500 project

by: The Financial Blogger    Category: Project $1500

Being Frugal

 

I am looking for ways to generate a positive monthly cash flow of $1,500 so my wife could quit working and take care of our two children. I wrote about 6 ways to increase my cash flow and I will now be trying to make the link between the theory and the reality.

 

I taught I would start with the easiest way according to me; cutting down on the fix payments.

Negotiating my insurance premiums

We all have many types of insurances. Renegotiating your policies for a lower premium could be an easy way to increase your monthly cash flow. I already have a term life insurance policy and I do not expect to perform any modification in regards to the amount of the policy. Our insurance policy covers our need if anything bad would happen to my wife or myself. Therefore, there is nothing much to save on this part!

However, I do have a car insurance that came up for renewal in September. When the customer representative called me to renew my policy, I asked him how I could decrease my premium. There are many factors that kick in the calculation of your premium. To name a few, we find your age, sex, marital status, driving tickets, if you ever had any car accidents and your beacon score. I am already over the magic bar of 25, I am married with kids, I did not have much driving tickets since last year, no accident and I already have a great beacon score. Hum… it looks like I can’t do much on this side either…

But wait, the insurance deductible is another factor, the guy says. Well, I have been insured for the past 10 years and I never collect anything for my car. I decided to increase my deductible from $500 to $1,000. To my opinion, even if my car repair would go up to 2K, I would still not declare it. From many friends I know, the insurance company increased their premium significantly the year after their accident. Therefore, I decided it was worth it. I was able to save $18/month by increasing my insurance deductible. Unfortunately, I was not able to save on my house insurance premium as no modifications could be made.

Power saving

You already know that, I am not big on frugality. However, I am still able to make smart sacrifices. I moved into my house a year ago, back in November. I had a monthly plan of $199 per month for my electricity bill. I did very small modifications in my house since then. The first thing I did was to install electronic thermostats in every room. I paid about $250 for the whole kit and received a rebate of $50 bucks from our power company (it was link to some kind of promotion). We didn’t heat much during last winter (Mind you, I live in Quebec, Great Country of Cold Winter!). In fact, our thermostats were working a couple of hours in the morning and when we used to come back to work.

Each time a regular light broke, I replaced it by a more energy efficient one. Finally, I decided to turn off our AC system as much as I could. I just received my new monthly plan for the upcoming year; $189 a month. Another $10 bucks saved.

While it is not the end of the world, I still managed to create $28 per month at my first attempt. I have to find another $1,472 and I will be good to go! I’ll be working more on being frugal and find better ways to cut down my expenses on a steady base. However, I still have to wait a few months to see my other tricks works. Stay tuned for more updates!

 

 

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However, I do have a car insurance that came up for renewal in September. When the customer representative called me to renew my policy, I asked him how I could decrease my premium.

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September 25, 2007, 7:00 am

There are no needs for an emergency fund

by: The Financial Blogger    Category: Financial Cliché

 

You are being a good man; you decided that you will take care of your personal finance. The very first thing you realize is that you require help to manage your investments, debts, insurance, budget and so on. Then, you decide that having a personal planner or a financial advisor would be a great help to create wealth. I can guarantee that they will talk to you about creating an emergency fund.

emergency

While I am definitely not convinced that you need a financial consultant to create wealth, I am even less convinced that an emergency fund is something useful! It is definitely a financial cliché.

What is an emergency fund anyway?

Here’s a definition of an emergency fund: it is a highly liquid part of your assets invested in non-risky investments in case you need money to cover for a job loss or unexpected expenses. This money should remain dormant unless a financial catastrophe strikes your wallet.

This money is a waste of potential return

Obviously, if you invest in a low risk financial product, you are wasting your potential return. As an emergency fund requires to be available on the spot, most funds are deposited into a money market account or a savings account. In both case, you can rarely expect more than 4,5%. Therefore, this money could have been used to pay off debts that may bear a superior interest rate or you would have simply invested this money into something that is more profitable. Since higher return is often meaning higher risk, it defeats the purpose of an emergency fund. The goal when you invest your money into an emergency fund is primary to protect your capital. On the other side, if you are 30, you could loose a good 30 years of good returns.

There are alternatives

My favourite alternative is the line of credit. In fact, this financial product doesn’t cost a penny if you don’t use it. You can withdraw money from your line of credit at any time, so it is very liquid and the available limit is stable. Having a 20K flex line would be the best alternative to having an emergency fund. In fact, it is more convenient as you don’t have to put money aside to build a reasonable fund. The money is available 24/7 upon the opening of the account.

Another solution is to build equity in your property. Banks will more likely lend money if they have collateral. Therefore, if you can give your property as collateral and refinance your mortgage, you will be able to access enough money to survive for three to six months.

What is the difference between borrowing or having liquidity

This is where it gets interesting. Normally, an emergency fund is used to cover for regular expenses for a period of three to six months. Let’s say than an individual’s monthly expenses are 5K and that he would be able to borrow this money at 10%. If he takes off the full amount (30K for six months) on the very first day, he will have to pay $250 per month in interest until he can pay back the full amount. This would be the real cost of borrowing money instead of keeping 30K into a savings account. However, you have to figure out how much time it will take to actually gather this sum of money and how much could you earn from it if you would have invested in the market.

I think it is a small risk to take when you think about how much you could earn on the market over time. If you invest money already, you probably have a part of it invested in low risk investment. Why don’t you use this money if anything bad happen? Worst comes to worst, you will still have your line of credit to cover for the unexpected.

 

 

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The investors are much interested to buy to let mortgages for the enhancement of the maximum range of the profitability. The credit card companies are introducing the different kinds of cards for the customers with different interest charges. The social welfare organizers are very much interested to run debt help programs for the welfare of the debtors. The organizers are trying to find out better debt solution in order to escape the worst conditions of bankruptcy of the victimizers. The home mortgage loan is issued on the guaranteed security of the real property of home of the borrowers. The insurance agents of different companies offer the insurance quotes and leads for the potential customers. You may get start your own work at home by availing the different golden opportunities of internet marketers.

 

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