Investing And Your Future

The post “Practicing Frugality with Finesse” was featured in the College and Finance Blog Carnival. There are quite a few interesting entries on there and I encourage you to check it out!

After the stock meltdown last year, many people associate stocks with high risk, commodities with high risk, whereas cash and government bonds as low risk.

While, in general, cash and bonds are lower risk, they do have risks in themselves. This is the same as a house, which everyone thought was a surefire investment. As we have seen, house values can go down as well.

The risk with stocks is clear. If the economy or company has trouble, the stock price can go down. Some stocks go to zero, even supposedly blue chip companies like GM. One way to reduce this risk is to hold a wide variety of stocks, i.e. diversification. But even last year, if you had a wide variety of stocks, your portfolio was still down around 40%. Yikes!

Thus, people who want less risk think cash is king. In general, this is the case. But remember, cash doesn’t really earn much and it has the potential to be decimated in one way- inflation. While inflation hasn’t been an issue in recent years, it was in the late 70’s and early 80’s. Some believe inflation may prop up again now due to the massive government deficits and money printing by the Fed.

The only way to reduce risk across your entire portfolio is to hold a mix of cash, bonds, stocks, and gold (and other commodities). The percent of which depends on you. During a deflation (like we had in the fall), the cash and government bonds will hold their value, while stocks and many commodities will plummet. During inflation, cash and bonds will get killed while stocks and especially commodities do well. During ‘normal times,’ cash and bonds will hold their value, but stocks will perform the best.

Too bad it just doesn’t seem we will be in normal times anytime soon!

To some people using the word “inexpensive” in place of the word “cheap” is as important as using proper grammar.  For the people that see this as the difference between being classy, and being trashy, the mere sound of the word cheap makes them cringe in embarrassment and shame; and their reaction is no different even when they are hearing it come out of the mouth of a total stranger.  Technically speaking, those people who find this interchangeable use of two very different words undesirable are correct in their judgment.

Frugality is the blending together of quality without wastefulness to make the most delicious combination of consumption.  When it comes to finesse, some people have it, and some people don’t.  It’s almost a character trait that must be seeded within from the very beginning, and constantly reinforced during the personality’s most formative years.  They say money can’t buy class, and it’s true, the same way the lack of money can’t take it away.

Living on a budget is not a shameful or negative way to live, but rather it can be a very rewarding way of getting even more joy and reward out of what you already have; with the added benefit of gratitude and appreciation.

A frugal lifestyle is as easy as consciously deciding what you need, in the order that you need it, and then acquiring the best you can buy.  This may mean that some things have to wait, but some things can wait.  Doing it any other way gives you sense of dissatisfaction that will make everything you have disappointing to you; this cycle breeds negativity.
Becoming economically sound starts with investing your money in places that will yield you the most return for your investment.  Your number one investment should be your health; pay a little extra for healthy foods and spend less on doctor bills and medical remedies that bad eating habits will cause you to require.  If you don’t have an unlimited clothing budget, buy the things that you will get the most use out of; always making sure that they are not so cheap they are going to fade or fall apart after only a few washings.  Take the time to make your home a place you love to be; even if it means decorating it, one room at a time.  Eat out at a nice restaurant, just not every weekend; save it for once a month and really enjoy every second of the food and the atmosphere, and don’t forget to tip well.  Tipping well will be an investment in a good experience next time you eat there.

Whether you were born with these skills or not, now is absolutely the time to practice them.  With a little practice you will never have to sacrifice good taste.  Just remember, one glass of good quality wine will always taste better than a whole bottle of the cheap stuff; and as with everything else, don’t let a drop go to waste.