Review: The Art of Barter
Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.
A while back, I wrote a post called “Askers, Guessers, and Personal Finance” that proposed that bartering and negotiation are much easier for some people than for others, depending on their personality and the culture in which they were raised. I’m very much in the “guesser” camp, which means that I often have difficulty negotiating with others, asking for things, and bartering.
After that realization, I’ve spent some significant time focusing on improving my willingness to ask for and trade for things, and thus when I spotted The Art of Barter by Karen Hoffman and Shera Dalin on the shelf at my local library, I snatched it right up.
The book basically makes the case for bartering – in other words, offering one good or service in direct exchange for another good or service without cash in the middle – and discusses how exactly to go about it in many different situations. I myself have found bartering to be very useful and often do it with people I know – but will this book offer enough advice for me to attempt it in other situations?
1 | What Barter Can Do for You
The big advantage of bartering is (obviously) saving cash, because you can then conserve your cash resources for the things you can’t acquire through bartering. The authors go on to argue, however, that bartering can also save you time or improve the quality of your time through swapping skills, as well as open the door to building friendships and other long-term relationships because of the intimate nature of bartering. Bartering also teaches patience, which is an absolute necessity for bartering and for successful living in other areas.
2 | The Barter Lurking Around Your House
What do you have to barter with? Your home is filled with things, from the unused stuff in your closet to the space itself. Quite often, I encourage people to clean out their closets and sell off unused stuff when they find themselves in a financially challenging place. Hoffman and Dalin carry it further, suggesting you constantly look at the stuff around you as a source of bartering and lending in order to maximize the value of your time and possessions and energy.
3 | Trading Like a Pro
Where can you go to start bartering? The authors offer a handful of suggestions, but the easiest place to start is online, starting with sites like Craigslist and PaperBackSwap that facilitate bartering over the internet and allow you to do the bartering from home. One key point: use photos and as much (honest) documentation as you can for the things you trade – and expect the same from the people you trade with, so it’s clear exactly what you’re giving and receiving in a trade.
4 | Trading in the Fast Lane
Here, Hoffman and Dalin suggest joining a bartering exchange, something I’m unfamiliar with (aside from some co-ops, there’s nothing like this in my area that I’ve been able to find). The authors discuss many varieties of these, from swap meets to “time banks” (where people essentially trade their skilled time with others). How do you find such things? Start Googling, looking for bartering in your specific area.
5 | The Upsides and Downsides of Barter
The authors discuss some of the downsides of bartering here, and they mostly focus on patience (you’ve got to have it), taxes (you’re going to have to pay them), and some inconvenience (everything you want won’t always be available or convenient). Obviously, the impact of these things vary depending on your specific situation (for example, exchanges usually handle any tax issues for you – and I’ll mention them more below), but the benefits of bartering almost always outweigh the drawbacks.
6 | There’s No Place Like (Someone Else’s) Home
Your home itself is often a great thing to barter. For example, you can barter a stay in your home for a stay in someone else’s home, saving a great deal of money on family vacations. Another example: you can literally swap real estate with other people, saving a great deal on costs if you’re willing to – or need to – move. The convenience of doing this can make up for a bit of inequity in property value, after all.
7 | Barter, Taxes, and You
First, the good news: you don’t have to pay taxes on bartering if the barter was the incidental sale of personal property and the trades are not part of the way you earn an income. This covers most bartering that people will do. However, some people will try to trade items in such a way that they make a profit from it – buy an item for $20, trade it, trade that item, and then sell the item for $60. That’s a net gain of $40, and you are required to pay taxes on that. The chapter outlines how you go about doing that – it’s pretty straightforward.
8 | Charity Expands with Barter
The idea here is that you don’t have to just donate cash to a charity – you can also donate your time, your talents, and specific items that you own that may be of use to the charity. Rather than just writing a check, find out what the charities you care about actually need and see if you can give that, instead. Think of charity on a broader scale, too – are there individual people you can help with your skills and time and energy and possessions?
9 | Child’s Play: Barter for Kids
Get your children involved with trading as early as possible. In fact, my own children are starting to do this – they’re about to sign up for their own PaperBackSwap account where they’ll trade some of their books that they no longer read for other children’s books that they might read, now or in the future. You can also encourage them to trade with family and friends – just be sure that all guardians and parents are aware of the specifics of the trade so there are no issues later on.
10 | Barter and Your New Small Business
There’s no reason you can’t barter to help your small business. Perhaps you can trade your rent for some services provided by your business, or accept some bartered items in exchange for items your business sells. In the end, the focus should be on maximizing your return at the end of the year – just don’t forget that bartering can be a big part of increasing the value of your business without directly disrupting your cash flow.
11 | Barter as a Career
Bartering as a career? The authors discuss many niche careers for people who are very good at the social nuances of bartering, such as brokering or running a barter exchange. I can definitely see a role for this as a side business – for example, you set up a swap meet where people pay a dollar to get in and you do all the work of getting the space reserved and the tables ready.
12 | Barter to Your Health!
The final chapter discusses the sticky issue of bartering for health care, something that is fairly controversial in the medical community. Should doctors accept a barter for the medical care they provide? I think it’s very much up to the individual doctor and should not ever be expected. Many doctors seem to accept limited amounts of bartering as a form of charitable work.
Is The Art of Barter Worth Reading?
More than anything, The Art of Barter felt like an encouragement to get out there and barter with others rather than a directly useful guide. Many of the topics seemed directed towards people who are constantly out there bartering and trying to make a profit from trading, which is a group that doesn’t really include me.
However, if you’re really into bartering and need a big dollop of good advice – or you’re like me, just getting started and needing a little encouragement, The Art of Barter is a worthwhile and entertaining read.
Continue reading Review: The Art of Barter …
From The Simple Dollar.
Scheduling Chores for Kids
Last week when I shared my schedule, I was asked to share about how I schedule chores for my children. I usually do it based upon age–the youngest gets the simplest chores, while the older ones get the more complicated chores.
Basically, what I did was make a list of all the chores I wanted the kids to learn how to do. This is part of our schooling and we consider this home-ec. They are also learning cooking, budgeting, running a house, and grocery shopping under home-ec as well.
My list of chores looks something like this:
Monday
Dishes washed
laundry completed
dust furniture
Tuesday
Clean the bathroom
Dishes washed
laundry completed
Wednesday
Vacuum floors
Sweep and mop kitchen and bathroom
Dishes washed
Thursday
Wash windows
take out trash
dishes washed
laundry completed
Friday
Tidy whatever needs tidying this day
Each day the kids get assigned chores. Sometimes they work together to complete it and other times they work alone. I try not to do everything in one day because it makes for a long day of cleaning–and everyone pitches in and helps at supper time which makes the evening go so much smoother for me.
The thing to remember is that all those little things that you do to train and raise your children make a world of difference. Don’t give up or give in just because it is getting a little harder. Perseverance and patience will pay off in the end.
Continue reading Scheduling Chores for Kids …
From Econobusters.
48 Things Frugality Has Taught Me
Today, let’s do something a little different. I’m going to list 48 things I’ve learned about myself and the world around me that I only discovered thanks to frugality.
1. I really like sun tea.
2. The patience and effort in teaching yourself something new is incredibly rewarding when you begin to succeed at it (like my piano playing).
3. When you’re sitting around a table with friends, it really doesn’t matter where you’re at.
4. Young children are usually more interested in the free packaging or other freebies than any item you might buy them.
5. A tall glass of pure water is the best first line of defense for many ailments.
6. Going nearly vegetarian when your garden is peaking in productivity is an interesting dietary adventure.
7. You don’t have to go to a dealership to buy a great car.
8. Fixing a toilet isn’t nearly as scary as it sounds.
9. Making a small sample batch of something before you make it in bulk is a really good idea.
10. You disagree with your spouse a lot less if you don’t have a pile of debt stressing you out.
11. YouTube and a pile of old newspapers can entertain a four year old and a two year old for several hours.
12. Real friends keep in touch no matter where your path leads.
13. I used to be ashamed of who I was and bought stuff to cover it up. Then I was ashamed of who I used to be and flaunted my frugality. Now I’m okay with both and I don’t really care at all.
14. You feel pretty good when you’ve fixed a hot water heater problem by yourself without having to call a repairperson.
15. Every time I let go of something I used to like, I have more room for the things I enjoy now.
16. Our local library has more groups going on that I could possibly be involved with.
17. When you’re spending time with people you really care about – and who really care about you – it doesn’t matter what you’re actually doing.
18. Most generics are just as good as the name brands; they’re like getting a $1 off coupon because the label looks funny.
19. Preparing something new in the kitchen and actually pulling it off makes our family dinner incredibly enjoyable.
20. You don’t have to worry about the important stuff if you don’t waste time and money on stuff that isn’t really important to you.
21. Our city’s parks and recreation department has more fun stuff going on than our family has time to participate in.
22. Netflix streaming (at $9 a month) combined with free over-the-air digital television provides better television viewing options than a $50 monthly cable bill.
23. Changing your own oil isn’t nearly as scary as it sounds.
24. Life is a lot less stressful when you don’t really care what the people at the grocery store think of you.
25. The flavor of fresh vegetables and herbs from the garden blows away anything you can buy at the store.
26. You don’t need all of the latest and greatest equipment to really enjoy a hobby.
27. A nap is the best free vacation.
28. Vinegar is a spectacular fabric softener replacement.
29. Haggling can be a lot of fun.
30. It’s a lot easier to focus on earning more money and doing something spectacular if you’re not scared to death of the financial apocalypse from losing your job.
31. I like putting beans in a lot of different kinds of food.
32. Being thrifty isn’t bad for the economy – it’s just a different kind of consumption. Money saved and invested helps the economy as much as money spent.
33. Making your own gifts for other people can be incredibly rewarding, both for you and for the recipient.
34. Saying or thinking “I absolutely won’t…” usually costs you money.
35. Getting rid of stuff you don’t use can be painful, but it feels exhilirating once you’ve started doing it.
36. It’s far better to own one thing that works than ten things that only “kind of” work.
37. The fun stuff you enjoy doing isn’t tinged with guilt when you’re not buried in debt while doing that fun thing.
38. Cloth diapering isn’t as scary as it sounds.
39. Sharing a good money-saving tip or two is almost always a good way to start a conversation with a neighbor.
40. The less activities you jam into a vacation, the more enjoyable and relaxing it usually is.
41. The more you talk to children about money and wise money decisions, the more they emulate those decisions with the money they have.
42. If you have the storage space, you’re almost always better off buying in bulk.
43. You are never too old to run through a cold sprinkler on a hot day.
44. Used paperbacks and books from the library are just as fun to read as new books from the bookstore.
45. Taking out your old thermostat and putting in a new one isn’t as scary as it sounds.
46. A bit of patience on any purchase almost always saves you a mint.
47. Time is far, far more valuable than money.
48. Most of the things that genuinely make me feel good – exercising, playing with my kids, holding my wife – don’t cost anything at all.
What has frugality taught you?
Continue reading 48 Things Frugality Has Taught Me …
From The Simple Dollar.
“Do Overs” & “Did Rights”!
I’m traveling and didn’t have the opportunity for any Weekend Wonders this week. However, I thought I’d initiate some discussion with this topic instead. I’d love to hear your thoughts!
I recently read this post from Ginger, a regular Molly reader (and commenter!) blogging at Clark Chatter and thought, “What a Great Idea for a Readers Helping Readers post”. Here are some financial decisions I would “do over” if I could.
-In my early years I ate out a LOT! Huge waste of money.
-I also used to buy clothing at Maurice’s and Macy’s and such. Not necessarily on sale. Honestly, I don’t think I looked much better then than I do now.
-I would refuse “gifts that keep on taking”. We were once given a horse that ended up being a larger burden than we were ready to bear. That “free” puppy can easily cost you $500 in the first year when you consider neutering, shots, food, boarding when on vacation and potentially destroyed property.
And here are some financial decisions I feel that I did right the first time.
-Forgo the large wedding. An intimate gathering with friends and family holds the same meaning and doesn’t leave you starting out your future together in debt.
-Buy a fixer-upper. This is NOT for the faint-of-heart or impatient, but has proven to be a valuable investment for us. I repeat, patience is key if you go this route. (Do-it-yourself skills are helpful as well!)
-Live in a small town. Recreation and eating out is limited by the fact that there’s just nowhere to go! No ordering in a quick pizza, snagging a Starbucks on the way home or running to the movie. Yes, we can easily drive the 20 miles (and often do), but not nearly so much as when I lived in a larger town.
-Yard sales. I’ve saved a FORTUNE by visiting yard sales. No need to say more.
-Learn to determine the difference between “wants” and “needs”. This ties closely with learning to stay out of stores. If I don’t see it, I don’t want it.
-Use the library! You can find everything DVDs, novels, movies, cookbooks, craft books, educational texts and so much more!
-Develop like-minded friends. It’s easier to cultivate an attitude of contentment when you’re surrounded by people who share your values. Similarly, it’s easy to feel you “need” something that all of your friends have. Choose friends, both in real life and online, that will encourage you in your quest toward frugality and financial independence.
What about you? What do you wish you’d done differently and what do you think you did right? I’d love to hear!
Continue reading “Do Overs” & “Did Rights”! …
From Econobusters.
Some Thoughts on DINKs (Dual Income, No Kids)
A couple weeks ago, I posted some links to a discussion concerning whether it was smart or selfish to not have children, as well as a response to that issue.
Since then, the whole matter has stuck in my head. Is it smart or selfish to have children? Several readers have emailed me their thoughts on the subject as well.
In the end, I don’t think you can strictly say whether it’s smart or selfish to have children or not without deeply knowing the people you’re talking about.
First of all, children are expensive. An average child born today will take up somewhere on the order of $300,000 in expenses before they are fully independent (though, honestly, some of that is offset by behavioral choices made by parents). They also require a lot of time, emotional giving, and patience.
Some people – and I would put myself in that camp – deeply want to be parents. It’s a personal goal in their lives. They spend a lot of time focusing on how to be good parents. They genuinely strive to produce good children, not only for the benefit of society, but because it’s a personal drive within the parent.
For me, the price of being a parent is one I’m willing to pay, because being a parent is something I’m intrinsically driven to do. My deepest personal values tell me that being intimately involved with the crafting of the future people of this world – directly, in the case of my children, and indirectly, in the case of many of their peers – is one of the most valuable things I have to do in life. I can equip them with the basic tools they need to achieve things beyond my imagination.
Other people don’t have that drive. Their motivations and goals and aspirations lie elsewhere – in career paths, personal endeavors, or other areas. Without that drive, they tend to see the costs – which are easily calculable – in front of the benefits, which are much less direct at first glance.
I think that many people are on the fence about where they stand. They see the positive experience that some parents have and want that in their life, but they’re also taken aback by the problems and difficulties and social implications of parenting.
My belief is that if you don’t wish to have children, don’t have children. If you think that children are more trouble than they’re worth, you probably should not have children.
I also believe that if you feel driven to have a child, you should do everything you can to prepare to be the best parent you can be. This means spending the time to really figure out who you are, how to control your emotions, how to teach, and most importantly, how to be patient.
The world needs both parents and non-parents. There is a lot of societal value in a wide range of skills, abilities, and thoughts. I absolutely feel that being a parent is a noble choice, but that does not imply that DINKs are not making a noble choice. They’re making a different one in line with their values, goals, and talents.
To put it simply, I think it’s smart to follow your nature and inner drive – whether that leads you to be a parent or not – and it’s selfish to ignore that drive and push yourself in a different direction. If you’re born to be a caregiver, it’s smart to become one and selfish to push away that nurturing side. Similarly, if you’re born without that ability, it’s selfish to try to force yourself into it, but quite smart to seek out and follow your other talents.
The worst thing that either side can do is insult the other and believe that their side of the coin is the only worthy side. We need both parents and non-parents in society – without both, we would see the end of the human race.
Just remember, you don’t have to be in either group. If you listen to your heart of hearts, though, it will eventually guide you to where you should be. Just remember that society needs the caregivers and it also needs those who walk alone and blaze a different path.
Continue reading Some Thoughts on DINKs (Dual Income, No Kids) …
From The Simple Dollar.
Five Challenges of Buying Used – and How to Overcome Them
I revel in used stuff.
I use PaperBackSwap almost religiously. I love shopping at thrift stores and consignment shops. I look forward to yard sales and make a day out of “community yard sale day.”
Undeniably, though, there are drawbacks. Sure, you get a nice financial bargain, but no purchase is a perfect one. Whenever I talk about my love of buying things used, I hear from people about the problems of buying used – and some of the same topics come up time and time again.
Used stuff smells funny or isn’t clean
Used books can sometimes smell musty. Used clothes sometimes don’t seem perfectly clean. The same goes with used dishes and countless other items. The amazing thing, though, is that things can actually be cleaned really easily.
Take those used clothes home and give them a washing before you wear them. Take used dishes home with you and scrub them. It doesn’t take that long and isn’t that hard – really!
If an item smells musty, it’s probably got a high moisture content and a touch of mold. Sit it in front of a running fan for a while, then put it in a box with a dish of baking soda for a few days. The musty smell will be gone.
It takes too much time to buy used stuff
Compared to just running down to Wal-Mart and picking up whatever $3 shirts they have freshly imported from China, buying used does take more time than buying new. However, if you normally invest at least some time in the purchase of an item, it’s not particularly more time effective to go to a “name” retailer than it is to buy used.
The key is patience. It’s not a matter of taking too much time to find what you want when shopping used. It’s more a matter of convenience. If you expect that you’re going to go out for a day of shopping and come home with two outfits, period, then you’re missing the point of buying used.
The point of buying used is to slowly make a list of the stuff you need. “I sure could replace that lawnmower … and I do need some new shirts … and maybe I could use a few cheap books, too.” That’s the attitude to take when you’re shopping used.
I feel cheap buying used stuff
The good old cult of the new rears its ugly head again and again. The idea that something “new” is inherently better than something “used” is often wrong, particularly when you consider that the “used” item is for sale at a lower price than the new item.
I view it a bit differently. For me, a good used item often has most of its lifetime left, but you’re only paying a fraction of the cost for it. Used books. Used shirts. Used pants. Used dishes. Used Kitchen Aid stand mixers. Most of the time, when you find these items used, most of their useful life is ahead of them.
I have a used stand mixer in my kitchen that would have cost $600 if I had purchased it new. Many (possibly most – I’d have to count) of the shirts in my closet, the ones I don’t mind wearing to any event, were purchased used.
The idea that we need new, new, new is planted in our heads by marketers who have a product to sell, so they make new look as sexy as possible and used look as unsexy as possible. In truth, used merely means you’re finding a new home for something great.
Used stores and sales simply don’t have the specific item I need
If you’re shopping for something highly specific, you’re likely going to have to pay for that specificity. Specificity has a price. If you must have a blue striped shirt made with at least 80% cotton, you’re going to have to search more and likely have to pay more than if you simply need a new dress shirt for work.
This is particularly true when buying used. If you go to a used sale with a highly specific item in mind, you’re likely going to be disappointed. The more general your desire, the more likely you are to find success.
So instead of looking for a very specific shirt, simply go in with the mindset that you simply need a shirt that fits. Instead of looking for a specific kind of dish, go in with a general idea of dishes you might buy. You’re much more likely to find just what you need if you’re a little less specific in your desires.
Used stuff is junk; no one else wants it
Over the years, I’ve taken a lot of high quality items to thrift stores. I’ve taken barely-worn clothes that just didn’t fit but were missing tags and gift receipts. I’ve taken countless gifts such as dinner plates because they were gifted without receipts. I’ve taken piles of barely watched DVDs and barely listened CDs. I’ve taken children’s toys that our kids simply don’t play with – practically new items.
And so do other people.
There’s an awful lot of good stuff at secondhand stores. Yes, there’s some dreadful junk, too. But that’s easy enough to handle – just ignore it and look for stuff you actually want.
I have no interest in 95% of the junk at an average thrift sale. I also have no interest in 95% of the junk at your typical department store. So what’s the difference?
Continue reading Five Challenges of Buying Used – and How to Overcome Them …
From The Simple Dollar.
Why Do I Talk About Frugality?
Adam writes in:
I’m not feeling the vibe from your recent posts about how to save a few pennies washing Ziploc bags. This won’t get me rich.
Getting rich isn’t the point.
One of my favorite people in the world, Rachel, currently works for a non-profit organization in the Seattle area. She works there because the work she does deeply fulfills her and matches what she views as her purpose in life. To put it simply, she values greatly the work she does with developmentally disabled people. She has a set of natural gifts (patience, communication skills, energy) that suit her very well and it’s a type of work that not only allows her to feel like she’s gaining something of very personal value from the work, but that she’s actually having a transformative effect on the lives of the people she works with and their families.
That’s an absolutely fulfilling job, one with personal meaning and value for Rachel as well as providing value to the world.
The only problem? It pays peanuts.
My position is a similar one in some ways. I had a good, secure job with a very nice salary. I walked away from that job – giving up quite a bit of salary – to pursue writing. Writing is an often thankless job with extremely uneven pay, but it’s fulfilling work – for me, at least. I deeply enjoy the time I spend writing and I deeply value how the things I write have positive effects on other people. I also have an insanely flexible schedule, one that allows me all the time I want to spend with my children.
In both of our cases, we walked away from career paths that offered excellent pay for careers that offered much less pay. We did this because the lower-paying jobs reflected our personal values well, matched our skill sets well, offered deep personal fulfillment, and allowed us a sense of professional freedom and enjoyment that we couldn’t find elsewhere.
In exchange for that, we had to give up some material trappings and make some hard choices along the way.
This means not buying every electronic gadget that comes along or every hot newly released book that appears in the bookstore.
It means figuring out how to replace the shower head yourself when it stops working and shopping at thrift stores.
It also means doing things like washing Ziploc freezer bags for reuse or hanging up laundry instead of using the dryer.
To me, that’s a trade I’m happy to make. My life is not defined by owning an iPad or the type of laundry detergent I use. My life is defined by the fact that almost all of the time, I’m engaged in activities that personally fulfill me, whether it be writing or reading a book or holding my wife’s hand or rolling around in the grass with my children.
I don’t have a pile of new releases on my bookshelf or DVD shelf. But I also don’t have a bunch of job stress and I don’t have a sense of being out of touch with my children and I don’t have the worry of a pile of debt or other bills that I have no idea how I’ll pay.
Every time I discover some little, simple new thing to do that saves me a few bucks, I don’t just see some lame frugality tip. I see another brick in that beautiful yellow road leading to an Emerald City where I don’t have to worry about income at all. I see another avenue that keeps me securely in a life that I’m happy with and that fulfills me deeply.
That’s what frugality means to me.
Continue reading Why Do I Talk About Frugality? …
From The Simple Dollar.
Yard Sale Decor
When you decorate with yard sale decor, patience is required. For instance, we really needed some kind of side table next to a chair in the living room, but I didn’t really want an traditional end table. I found a couple of old suitcases I had, put a tray on top and it served the purpose. Still, it was definitely a bit too low. That’s where the patience came in. We just lived with it this way.
Unfortunately, I’ve had minimal time to hit any yard sales this year. However, some neighbors were holding one just down the street and I decided to make a quick stop on my way to town. Yay! I found this.
It was kind of funny, because I just stuck it in the house until I had time to mess with it. Several family members asked who the suitcase was for. (I think they were worried it was for them!) lol
Now my end table is the perfect height. Not only that, I can store stuff inside! 
Good deal for $5.00, right?
For more Works for Me Wednesday tips visit Kristen at We Are That Family!
Continue reading Yard Sale Decor …
From Econobusters.
Daily Worth: Dealing with the kid tantrums on money
Daily Worth - a money site for women – has an article today about kids and money that’s getting a lot of feedback from the readers: I’m spent – Confessions of one tired mom.
A snippet from Amanda’s article:
Here’s my confession. Rather than teach my three-year-old lessons in self-control—lessons in budgeting even—I often buy him things to quiet him, and calm myself.
From gummy candies at the supermarket to Power Rangers, I bet I spend about $30 a week to get him to just STOP THE WHINING. Is indulging him the best way to help him learn patience? No. Is spending a smart way to ease my frustration with him? No, it’s a short-cut and not a cost-effective one, and I’m actively seeking a personal transformation.
Do you spend money to quell your anxiety (or prevent tantrums)—money that you could be saving? Leave your comment, insight or thoughts.
There are already more than 30 comments on the site with a range of opinions and experiences. Here’s what I posted:
Don’t take preschoolers to the store. Little kids don’t have the ability to understand your long-range plans, and you don’t need the aggravation when you say “no.”
I was divorced / single from the time my daughter was 1 until she was almost 5. I was on a very tight budget in those days and could not afford extras.
I did my shopping and banking errands on lunch break, between work and picking her up from sitter, when I could take the daughter to grandma’s, when she was visiting her dad. Therefore I could take the time to coupon and comparison shop — and the girl never knew what was in the store that I didn’t bring home.
Continue reading Daily Worth: Dealing with the kid tantrums on money …
From Monroe on a Budget.
Review: Payback Time
Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.
A few years ago, I read and really enjoyed Phil Town’s first investment book, Rule #1 (you can read my review here). Town actually contacted me after reading my review and offered a few thoughts on my comments on the book and we exchanged a few emails over the years. Thus, when he finished his follow-up book, I was quite happy to give it a read.
Town’s basic ideas are pretty straightforward. He believes ardently in value investing, meaning that you look for good, healthy companies that are selling for much less than they should be when compared to similar companies. That requires a great deal of patience to do. In both this book and his last book, he goes over a straightforward formula for finding those companies and identifying whether they’re on sale or not.
So what makes this book different than the earlier book? Let’s dig in and take a look.
How the Wealthy Use Down to Go Up
Town opens the book by explaining the basic strategy Payback Time is focused on, which he calls “stockpiling.” To put it simply, a person buys stock in an individual company that they deeply believe in for whatever reason, then they just keep buying more and more of it. They then use the dividends from the stock to live off of or they reinvest them into more of the stock. So how does this strategy use “down” to go “up”? If you’re owning this for the long haul – basically forever – you actually hope for a down market so that the price of the stock you’re buying is lower. Price does not indicate value in any way – it’s no different than buying the same item at the store when it’s on sale instead of when it’s not on sale.
Mutual Fund Investing Makes No Sense
Here, Town basically writes off every kind of fund that’s not an index fund as junk and a waste of your money. In short, he defines such funds as being the bastion of the investor who really doesn’t have any idea what they’re doing with their money. Sometimes, that’s acceptable if people recognize that they truly don’t have the time to study such things with any detail. For those people, the only real bet is index funds, which are low cost and usually match the market. You can’t hit home runs with them, but you certainly won’t strike out by buying them.
Threee Ms Equal No-Risk Investments
There are a lot of traits that a “perfect” business would have, but there is no perfect business in this world – nobody’s perfect, after all. Instead, Town looks for wonderful businesses to invest in, and wonderful businesses are usually characterized by three criteria – they have great meaning to you (meaning you understand the company and fully approve of their business model), they have a big moat (meaning that it’s protected from competition in some key way, making it both durable and profitable), and they have great management (dedicated, passionate, and honest people running the shop). These are the kinds of businesses you should constantly be looking for and investing in.
Payback Time Means “No Fear”
Once you’ve identified businesses you want to invest in, you should wait until the time is right to buy – in other words, when they’re on sale. How do you know? It has little to do with what the overall market is doing. Instead, you want to watch the P/E ratio (price to earnings) of the stock. You can easily get this information online at pretty much any stock investment website. Just wait until that ratio is noticeably lower than usual without any real changes in how the company is performing (this often happens when it’s not being hyped up at all but is just trucking along, doing its business) and buy in. When the P/E ratio is high, don’t buy (and if you have a reason, it might be a time to sell). He goes quite in depth with this formula, but much of the information is very, very similar to his earlier book Rule #1, which I mentioned earlier and liked.
Eight Baby Steps to Wealth
What are the eight steps? Find it, value it, watch it, buy it, own it, stockpile it, sell it, repeat. In other words, look patiently for companies that meet your criteria (and never rush into buying). When you find the right one, buy it. Keep buying it whenever the P/E ratio (and other indicators) tell you to do so. Sit on the stock and collect dividends. When that ratio gets high, sell the stock. Then repeat. It’s pretty straightforward and actually makes a great deal of sense, particularly to a conservative investor like me.
Just the FACs, Ma’am
Here, Town talks about two methods for determining whether or not you should buy more of a stock once you already own some. He spends most of his time focusing on a method that centers on technical analysis (i.e., looking at charts), which is a method I find to be akin to voodoo. Instead, I prefer the other method, which basically means you pick one day a month to evaluate a stock. If it’s below the P/E ratio (or other similar indicator) you bought the stock at originally, you buy. Otherwise, you stick the money into a savings account and wait until a month when it’s low enough to buy.
A Tale of One Family
All of the information in the previous few chapters is combined together into a real-world look at how a family invests. Basically, it’s a series of real-number examples of the ideas from the book, showing how they all work together and click.
Free Money with a Berky
The final chapter (or at least the last one that’s not functionally an epilogue) contains a brilliant idea that Town calls a “Berky” (short for Berkshire Hathaway) that answers the question of how people come up with the money to actually do this kind of investing. It’s actually simple: automatic savings. You should set up a savings account for the sole purpose of investing according to the ideas in this book (or your own principles). Have your bank put some amount automatically into this account each week (or each month). Then, invest solely from that account. This way, even if the investment tanks, it doesn’t affect your day-to-day personal finances – it’s just an exercise in building wealth. This is absolutely the way people should start investing if they’re tempted.
Is Payback Time Worth Reading?
As with many follow-up books, Town takes the content of his very good earlier book, Rule #1, and places it in a broader context. If you want to know more about the investing part of the book, I’d suggest reading the earlier book as well.
One common complaint about Rule #1 that I would anticipate with this book is that people ask where the details are on past results, as Town doesn’t dwell on this for any significant length. My thought is this: past performance is no indication of future results. Much like any other investment strategy book, it’s simply a tool in your arsenal, one you can use in your own investigations to figure out what works. There are lots of investment schemes that have great results for a period in the past but are awful today (that’s why fund managers never have long strings of success). The system that Town espouses is incredibly simple, can be easily tracked over a long period using pretty much any investing website, and is backed by a good idea (value investing). Does it mean it’s the be-all-end-all of investment strategies? No. But it has enough going for it (simplicity, logic, and clarity) that it’s worth at least paying attention to.
All of that being said, I did feel in the end that I learned more (or at least was provoked into more thought) reading Rule #1, but that may have been that the meatiest parts of this book often just rehashed that information. Both books are worthwhile reads, however, and present interesting ideas, which is all I can really ask for in an investment book.
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From The Simple Dollar.