Love Drop: Giving back with style

LoveDrop:

Have you heard of micro-donations? You can get going with as little as $1 a month! It is easy to join and you’ll see, every month, how big a difference many small donations can do for someone.

“If you can’t feed a hundred people, then just feed one.”

-Mother Teresa

A Picture Is Worth A Million Dollars

I thought it would be fun to create a flowchart based on the stuff I put in The Hero with a Million Dollars. They say a picture is worth a thousand words, I think my picture is worth maybe 2-300 words. More importantly for me though, It has been worth many thousands of dollars.

Before we look at the chart, there are a few questions that come up right away when you look at this process:

Q. If I give 10% to charity, pay 10% to debt elimination and fund my 6-month contingency fund with 10% that leaves only 70% to live on.

A. Was that a question?

Q. How can I be expected to live on 70% of my meager salary?

A. It ain’t easy but it can be fun if you look at it the right way. Living frugally and trading down to wealth help us create rituals that serve us. The rewards are delayed somewhat but once the habit is set we swiftly forget about the downside.

Q. No. You don’t get it. I have a mortgage, car payment, student loans, credit card payments…did I mention my mortgage?

A. I get it. I’ve been there. Trading down to wealth takes some time but you can start where you are. You can start to look for a reliable, pre-owned car that makes sense for you. You can start to look at a living arrangement that encourages frugality. This could be buying a smaller house in a nice neighborhood. It could be renting a less costly room or apartment. How many new things do you own that could have been purchased pre-owned for a fraction of the cost?

It is the habit that counts most. You must develop positive money habits. The percentages can be adjusted at first while you are starting out. Try 5% – 5% – 5% [Charity- Debt Elimination - Contingency ]

Q. Can I just skip the charity stuff? I need charity more than I need to give charity.

A. Nope. Lots of reasons but I like this one best: Helping others is a fundamental human need. You send yourself a powerful message when you contribute to the health, happiness, growth or well-being of another. Most of us will work harder, longer and strive to be more effective when we know that others will benefit from our toil. Trust me on this one. It is vital. Also, helping others is being a good human. You want to be a good human, right?

If you can’t feed a hundred people, then feed just one.

-Mother Teresa

Q. What is Asset Allocation? What do I invest in?

A. Asset Allocation in this example is simply the percentage of stock index funds vs. bond index funds. When you are young – (20s & 30s) 70-100% of your investments should be stock-based. As you age, bond funds should start to garner a heftier slice of the pie.

As for what to invest in, I encourage you to read The Elements of Investing by Burton G. Malkiel and Charles D. Ellis. I wrote a short review awhile ago.

I have invested with T. Rowe Price for a long time and while some of their expense ratios are a bit higher than Vanguard and Fidelity, I especially like their Automatic Asset Builder program that allows you to start building a world-class investment portfolio for as little as $50.00 per month. Set it and forget it! Whichever investment house you choose, you can’t go wrong.

Q. I have a secure job, do I need a contingency fund?

A. Yes. See my article Contingency Theories for more info on this important but sometimes overlooked  topic.

This hypothetical Q&A could have happened but did not. I made it up. If you have real Questions, let me know.

Some of you have commented that this site has been quiet for a little while. While I have been working on several projects and closing a few deals, I am eager to provide more regular updates. There are also 2 things I want to mention:

Trent Hamm’s book “The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreamsis a good read, especially if you are young and struggling with your finances. His blog, The Simple Dollar, is a favorite of mine.

My friend (If he will let me call him that) J. Money over at Budgets are Sexy has one of the most open and refreshing sites on personal finance I have seen. There are so many “Do what I say not what I do” blogs out there it is nice to find one that is at once authentic and interesting. I find myself rooting for him and hoping his investments go well. Worth a look!


Here’s the flowchart. Tell me what you think…

How to become wealthy

How to become wealthy

Book Review: The Elements of Investing by Burton Malkiel and Charles D. Ellis

I have to say right off the bat that I am a big fan of Burton Malkiel’s A Random Walk Guide to Investing. I have applied his recommended strategy very successfully in my own portfolio. It was not always that way for me though. When I was forming my investment philosophy I naturally gravitated to the top selling books. I figured the best sellers list was where all the good knowledge was. If I just read the top 3 or 4, I would have everything I needed.

Timing, Value, Hyperactive Vs. Passive, Day Trading Vs. Let it Ride, Secret Formula after Secret Formula. There was no shortage of answers. The only problem was that none of the strategies espoused in these wonderfully marketed books actually worked in a predictable way. I tried a few stock-picking strategies with the little money I had to invest and lost most of it. It turned out that the timing was right for  A Random Walk Down Wall Street to be my eye-opener. Keep in mind that this excellent book was originally written in 1973 and is more of an academic treatise on market efficiency than a what to do with your money guide. At 400 pages it is a daunting read but worth it if you need convincing that trying to beat the street is probably not  for you. A Random Walk Guide to Investing is the cookbook version that has a more pragmatic slant but could still be considered a bit wordy for a nuts and bolts investment guide. That is where The Elements of Investing comes in. The Hardcover is only 176 pages, the dimensions of a trade paperback and typeset with a large, easy to read font. It distills the intelligence of A Random Walk Down Wall Street and A Random Walk Guide to Investing with a few additional years of wisdom and validation.

Malkiel is a proponent of the Efficient-Market Hypothesis. The idea is that markets have in them all the information they need to perform efficiently and an individual investor will not be able to outperform them consistently. This flies in the face of the CNBC money gurus who seem to make their money by helping you lose yours:

“If I had only followed CNBCs advice I’d have a million dollars today…provided I started with 100 million dollars”

-Jon Stewart  – The Daily Show

I read The Elements of Investing in PDF format for this review. It was a few days later at the bookstore that I really had a chance to appreciate one of its greatest assets. Elements is a small, light, easy to read book that is packed with everything you need to make excellent investment decisions. There is little theory, no filler and no unnecessary self-gratifying gibberish that defaces many otherwise good finance books. It’s as if the authors are saying, “it’s the information, stupid” instead of preaching from a high pulpit. These authors indeed do not waste our time with self promotion for they seem to be genuinely interested in providing us sound financial advice.

The book is divided into 5 simple concepts that form the basis of an excellent investment strategy:

1. Save regularly and start early.

2. Take advantage of tax efficient retirement investment vehicles.

3. Diversify broadly: Own the whole market.

4. Rebalance annually to stay within your target asset allocation.

5. Stay the course, ignore market ups and downs. Focus on the long term.

These ideas and strategies are not new. They are the proven strategies we have been told about for years, scattered among the rocks and hidden in plain sight. It is the laser-like focus that this tiny book provides that makes it so valuable. It needs to be on our shelf in a glass case with a little hammer adorned with the words “in case of severe market correction; break glass”. It is in these gut wrenching moments when we need this sort of wisdom.

There are a few minor changes from previous works here as well. There is more of an emphasis on global investments and the author’s share with us some stock-picking stories perhaps to remind us that they too, are human and get caught up in market timing from time to time.

Having Malkiel on your bookshelf and in your portfolio could be the smartest financial move you ever make. It certainly was mine.

The Elements of Investing by Burton Malkiel and Charles D. Ellis is available on Amazon.com

Have you read this book? What did you think?

-WR