May 2007

This is a guest post by Leo @ Zen Habits. More information about Leo and his blog is available towards the end of this post.

Life has a tendency to get complicated. We have more to do, more to keep track of, more possessions, more places to go, more paperwork, more incoming information, more to remember. Over a number of years, all of that can get overwhelming — and expensive.

For myself, simplifying my life in various ways has allowed me to reduce my expenses and increase my savings. With math like that, it won’t be long before simplifying will lead to prosperity.

Now, simplifying doesn’t just apply to finances — although it definitely can do a lot for your finances. But it can be applied to all areas of your life, and by doing so, in most cases, I’ve reduced my spending and increased my happiness and overall wealth.

Before we get into the details, imagine a simplified life for a minute. For me, it has meant reducing the clutter in my home, leaving my house free of visual distractions, free of messes (for the most part), and more visually appealing. It has reduced my stress and made me more calm. But a simplified life is more than just reducing clutter — it is reducing your commitments, so you are not so busy. It’s simplifying your work life, your finances, your routines and systems. Imagine a life where you have less to do during the day, time to spend on yourself and your loved ones, time to focus on what’s really important instead of distractions, to focus on the work that’s truly essential.

This is the type of life I’ve been striving for, and it has reduced my stress, increased my productivity, and improved my overall happiness. But let’s take a look at one of the best side effects of simplifying: how it has improved my finances.

Here are just 10 ways:

• Less maintenance. By reducing your possessions, you reduce the amount of maintenance you need to do on those possessions, saving you both time and money. And if you have a drastically reduced number of possessions, you could simplify even further by moving to a smaller home, as you no longer need all that storage space. A smaller home means lower maintenance costs as well.

• Less wasted time. In your work life, you often have way too much to do. But if you focus on what’s really essential in your professional life — those tasks that really make you money in the long run — you can eliminate much of the non-essential stuff, and use your time more wisely. You can now do more of these money-making tasks (and thus increase your income), or work less. You can apply this principle to the rest of your time as well. Less waste can lead to increased income — it has for me.

• Fewer fees. You can simplify your financial life by reducing the number of bank accounts and credit cards you have, thus reducing the number of fees you potentially have to pay. You can also simplify your bill paying by doing them online, by making them automatic, or by paying your bills as soon as they come in — any of these methods can reduce your late fees as well, if you’ve been having trouble paying bills on time.

• Sell your crap. I save money on books (one of my biggest expenses in the past) by selling my used books or getting credit to buy more used books. Many people make a good side income by selling their stuff on eBay.

• Lower transportation costs. If you simplify the things you need to do — reduce your commitments — and thus reduce the number of places you need to go, you have less driving to do. That’s less gas. In fact, simplify enough, and you can get rid of your car! I haven’t done this yet (though many people have), but I have reduced my transportation costs by commuting in to work from time to time (I’m trying to increase the number of times I do this to 4-5 per week). Or simplify even more, and work from home! Another way to simplify transportation is to have one errands day, instead of doing them throughout the week, and plan out the most efficient route so that you minimize driving.

• Less impulse spending. One thing I’ve found is that as I reduce my possessions (and it’s an ongoing process), I also reduce my needs. I know what’s important to me (and again, this too is a learning process), and I know that much of the junk I used to want to buy is actually junk. I still get the urge to buy on impulse, but that’s reduced. A great way to do that is to monitor your urges, and to keep a 30-day list — whenever you want to buy something, put it on your list, and don’t allow yourself to buy it until 30 days have lapsed. Most times you don’t want to buy it after 30 days.

• Less eating out. I used to eat out a lot. Every day. Spent a ton. Now, by cooking at home, and reducing my need to eat out, I’ve simplified my life and drastically reduced one of my biggest expenses. Cha-ching.

• Cheaper fun. Another big expense was going to the movies (twice a week), going to the mall to hang out (inevitable money drain), or spending on other types of “fun” stuff. Now, I have even more fun, with simplified entertainment. The family and I go to the park, to the beach, play sports outside, play boardgames at home, make up a million fun things to do that don’t cost a ton.

• Keeping up with the Joneses - nixed. This is one of the biggest wastes of money, but so many people do it. They want to have a car as nice as their co-workers, or an outfit just as cool, or a computer just as new, or a television with just as many inches. By simplifying, I’ve gotten over that little game, and now I can make things last longer simply because I don’t upgrade every time something new and cool comes out, or every time there’s a new trend. Forget having a luxury car — they’re a huge waste of money and gas guzzlers. The Joneses are idiots anyway (Well, some of them).

• Simple fitness. I used to waste hundreds of dollars a year on a gym, and buy lots of fancy workout gear. Now, I run and bike on the road (who needs exercise machines?) and enjoy nature, for free. I do pushups and crunches at home, and lift a barbell. I also used to spend money on diet food, like Slim Fast or Weight Watchers or Atkins products. Now, I just eat vegetarian, and save a lot of money on meat products as well.

These are just a few ways, but simplifying can reduce your expenses and increase your income — thus fattening your pocketbook — in so many ways. And you don’t need to do it the way I’ve done it — simplifying is an intensely personal thing, and is achieved at different levels and in different areas for every person. But for me, it has not only increased my financial position, but increased my satisfaction with life overall.

About the author: Leo is a father of six kids, a husband, a worker, and a free-lance writer. He currently writes about simple productivity (and related topics) @ Zen Habits. Check out his inspirational post titled “How I Save Money“. To subscribe to Zen Habits, click here.

This guest post is by KMC @ Advanced Personal Finance (while I am still on vacation). More information about KMC and his blog is available towards the end of this post.

When investors talk about diversification, they’re typically referring to diversification of investments for the purpose of reducing risks. But there’s another kind of diversification. It’s called tax diversification and you might be practicing it without knowing it.

Tax diversification is the idea that you should have investments subject to each of the various tax treatments. The idea applies not only to U.S. citizens, but also to those of other countries as well. There are three types of tax treatments for our purposes: tax-deferred, tax-free, and taxable.

The three account types

* Tax-deferred. Tax-deferred accounts are those that grow tax free until they are liquidated, at which time full taxes are due. Examples are the 401(k) and traditional (”deductible”) IRA. You invest pre-tax dollars. The full amount of money goes to work for you, compounding until withdrawn. At the time of liquidation, the entire amount withdrawn is taxed as ordinary income.

* Tax-free. Tax-free accounts use after-tax money to buy investments which then grow without ever being taxed again. Examples are the Roth 401(k) and Roth IRA and municipal bonds. In these types of account, you purchase the investment with your after-tax income. The investment then grows over time. When liquidated, the total account balance is tax-free.

* Taxable. These accounts invest after-tax income. When the investment is liquidated, the earnings are taxed again. An example is a regular brokerage account.

How tax diversification works
In short, you use tax diversification when you split your investable dollars between the three types of accounts. Tax rates and treatments are moving targets. By using tax diversification, you’re hedging. (Click here to read more about hedging)

Why use it?
You simply cannot know what the tax brackets will look like at retirement (unless you’re within a year of retirement, I suppose). Using this technique, you’re spreading the risk of using any one type of account (and also increasing potential returns).

For example, if the bulk of your retirement investments are in a combination of traditional IRA and 401(k), at retirement all of that money is fully taxable. As of today, it’s taxed as ordinary income. If your tax bracket is lower in retirement, you made a shrewd move. If it is instead higher, you lost money by using only the tax-deferred accounts. So whether you think Roths are bad or good, it makes sense to have at least a portion of your retirement savings there.

I personally use this technique in my investments. Currently, I have 8% pre-tax going to my traditional 401(k) and 11% going to a Roth 401(k). We also have a taxable account we fund each month.

About the author: KMC is a thirty-something family man with a wife, three year old daughter and one on the way. After graduating college with $5,000 in credit card debt and $9,000 in student loans, his new wife finally got him to shape up and get fiscally responsible. He went a little overboard and developed a serious interest in personal finance. He currently writes about the topic at advancedpersonalfinance.com. Check out his post titled “The Reported Rate of Inflation is a Lie“. (Feed link to Advanced Personal Finance)

Money, Matter, and More Musings will be featuring some guest bloggers while I am on vacation for the next few days. This is the first of such guest posts by PT @ Prime Time Money. More information on PT and his blog is available towards the end of this post.

My brother-in-law is graduating from high school this week. Naturally, I reflected back to my own graduation, how glad I was at the time to be finished with high school, and how excited I was for college and the future. I also thought back at how naive I was in regards to my personal finances. So, I thought I would draft a letter to all the young people graduating from high school this spring and provide some practical advice geared towards their personal finances.

Dear High School Graduate,

Congratulations on your accomplishment! You should be proud. Newton D. Baker once said, “The man who graduates today and stops learning tomorrow is uneducated the day after.” With that, I offer you these words of advice for your finances as you continue on your journey of learning.

Save. Save a percentage of every dollar you get, no matter if it’s given or earned. I know. I know. You’ve heard this before, but I promise you, along with getting your advanced degree, this is one of the most important things you can do now to secure your future. You may not be earning much over the next few years, but very little is needed now in order to have a big impact later. It’s true that there is more time to save later, but your saving will never be as effective as it is right now. So, if you haven’t already, begin saving and make it a part of your normal routine.

Understand the Cost of College. I really want you to understand what it will take to pay for college. Most of you will either get scholarships, student loans, or some combination of the two. You may not stop to think about the true cost or to fully understand that student loan debt. Please, do not take on more student loan debt than you actually need. You’ll only end up blowing the extra money on “stuff” and food. Lastly, don’t just sign the loan papers and move on. Sit down with someone who can fully explain the debt you are getting into and help you to visualize your future with this debt. Believe me, fully understanding this transaction will do nothing but cause you to apply for just a few more scholarships or grants.

Be Careful with Credit Cards. Now that you’re a responsible member of adult society, the credit card companies will begin soliciting you. Don’t listen to them or their sales pitches. Seek out trusted advice, understand the ramifications, and get a card (for emergencies) on your terms. When you do use the card, use it with the knowledge that you will pay it off the following month. Never view the card as a way to finance your livelihood, and save the big purchases (car, flat screen TV, etc…) for later in life, when you’ve saved for them.

Find a Mentor. There’s always someone else out there who has been through it. No matter how smart you think you are, you can always learn something from others. Find someone stable and successful that you admire and pick their brain for every financial step you take. You will get ahead much quicker by learning from the mistakes and successes of others than by always trying to do it on your own.

Congratulations again on your success thus far. I wish you the best in your future and finances.

Sincerely,

Prime Time Money

About the author: PT is in his early 30s living in Texas where he’s lucky to be married to a wonderful wife who, by the way, worked her way through college. No kids yet, but they have a house on the way, and a fat cat named Larry. Catch PT lamenting about his high school and college years (and all things personal finance) on his blog, Prime Time Money. He can be reached at ptmoneyblog at gmail dot com. Check out his series of posts titled “10 Things That Bring Success in Personal Finance” (Feed link for Prime Time Money)

Give a moment to this video on credit cards titled “It’s been declined”.

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If you can’t see the video, click here.It’s a tad long at 4 minutes and 22 seconds, but it’s amusing ~ totally worth it. :)Now for some review articles.

• Are we Living Larger or Living Differently? by Lazy @ Lazy Man and Money. Some critical thoughts on (perceived) lifestyle inflation.

In the 1970’s that antenna attached to the roof gave pretty good reception. Today, in my apartment where I can’t attach antenna’s to the roof, I need cable or satellite television to get what people got for free in the 1970’s.

Thankfully, our antenna still gives good (watchable) reception. It doesn’t give a whole lot of channels, but we are happy with what it provides. I have a modified quote here that keeps us going - A man with a few channels knows what to watch, a man with many is always confused.

• Real Life Lessons by Jon @ Young and Rich. This is a must read for budding entrepreneurs. This comes from someone who has been working on a “non-software-based” business - I rarely see such people now-a-days. For most of my friends, the term “entrepreneur” means someone who starts a web-based service.

• Money Tip for College Students: Donate Plasma by Henry @ Binary Dollar. From blood plasma to fast cash.

I used to go to the plasma donating place almost every Friday afternoon. It was a great way to make some fast cash; it only took a little over an hour and they paid $25 every time you donated.

I have known about this for quite a while, but I don’t think I will ever attempt it (unless times are extremely desperate). I might leave my apartment, and start living in a sleeping bag in a school building before I do something like this.

• Eliminate Unused Subscriptions and Memberships to Plug Your Money Leaks by Jeremy @ Generation X Finance. Analyze your subscriptions; are you really watching enough TV channels (for enough time) to justify the hefty cable bill? are you really reading all those magazines piled up below your coffee table?

• Rent Vs. Own: A Look at Our Expenditure Then, and Our Expenditure Now by ISPF @ Grad Money Matters. An interesting comparison between itemized expenses during renting and owing. Man, owning a house is sure expensive ~ mortgage payments are just a part of the total cost.
  

• How to Make Money With John Adams Presidential Dollar Coins by Flexo @ Consumerism Commentary. Watch out for small errors in the coins…you might be able to sell them at a premium. Flexo gets into the details of how to spot an error coin and how to sell it for profit once you have it.

• The American Nightmare: An Illustration Of The Subprime Lending Mess and Borrowing Bust [A FlowChart] by SVB @ The Digerati Life. An interesting flowchart illustrating the subprime lending mess. Observe it carefully…there is no end in sight (literally); the thing just loops around ~ probably portraying reality. The only thing that comes out is the media coverage!

• Net Worth vs. Net Investable Assets by Nickel @ Five Cent Nickel. More thoughts on understanding the concept of *net worth* towards financial independence. See how Nickel figures a way out of this situation:

The main reason for my aversion to net worth calculations is that I’m most interested in charting a course to financial independence and, in my view, financial independence doesn’t involve selling our house or getting rid of our cars.

• Savings Smackdown: Which is Better — Pre-Paying a Mortgage or Saving for Retirement? by FMF @ Free Money Finance. This is one of the age-old debates on how to address the allocation of your money. Some people tend to view such allocation from a psychological perspective rather than a financial perspective. See what FMF has to say about it.

• Life Insurance Questions & Answers by Ben @ Money Smart Life. Ben gets answers for 8 questions about life insurance basics from his insurance company. Of course, you need to do your own research before following an insurance company’s advice - Ben plans on doing just that.

• Ignore The Allure of ‘New’ by Jim @ Blueprint for Financial Prosperity. Jim tries to explain why people gravitate towards *new* things.

The number one reason why someone doesn’t buy something used is because they’re afraid that there is something wrong with it or that it’s otherwise been used roughly.

That does reflect my thoughts about cars - I have been really burnt by my current car in this respect.

• A Simple 3-ETF Portfolio by Sun @ The Sun’s Financial Diary. A simple portfolio = less headache. Sun explains how you can have *enough* diversification by choosing a portfolio containing just 3 ETFs (Exchange Traded Funds).

• Debit, schmebit! by MBH @ Mighty Bargain Hunter. MBH is not convinced by the improving features of debit cards. Read about why he still plans on using his credit cards in spite of the increased convenience and security of debit cards.

Procrastination has been my #3 enemy for a long time (#1 is debt, and #2 is cockroach). It has given me financial scares a few times in the past (click here to read about how I almost missed a scholarship deadline, and how the cost of my brake repairs inflated to insanity) and caused innumerable delays in other trivial things. I have whined and moaned about it on this blog earlier, and have been taking positive steps towards reducing the negative effects of procrastination in everyday life.

Historically, the word “procrastination” has been consistently given a negative twist. For example, here is how Wikipedia defines the term:

Procrastination is the deferment or avoidance of an action or task to a later time. For the person procrastinating this may result in stress, a sense of guilt, the loss of productivity, the creation of crisis, and the chagrin of others for not fulfilling one’s responsibilities or commitments.

That sounds pretty ominous, doesn’t it?

Today however, I am in a mood to be a devil’s advocate and will write a few good things about procrastination. Feel free to jump in and discuss your trysts with procrastination and how you it has affected you financially.

Procrastination defeats impulsiveness and saves money

I must have saved thousands of dollars on impulsive purchases by procrastinating till the cost drops (some people prefer to call it “thoughtfully delaying”, but it is in fact plain procrastination). It is especially a money-saver when it comes to electronics - where prices just keep falling with time - a delay in a purchase decision is almost always profitable.

Procrastination filters your “needs”

Procrastination provided me with some valuable time to think over what I was buying, whether I needed it, whether it’s worth the cost, and so on. This sort of follows the impulsive thinking point I mentioned above. Sometimes when we see certain “hot items”, our immediate reaction is “Man, I *need* it”; however, as time goes by (due to procrastination), the need doesn’t remain as strong as it was initially. Many times, you will eventually realize that the *need* was in fact just a *want* and you will stop yourself from making a purchase. With me, this has happened with iPods, laptops, cars, and some other bling-bling.

Here is my normal thought process:

Hot item –> I need it –> Wait, procrastinate first –> Check prices –> More procrastination –> And some more –> Do I really need it? –>Nah, that’s stupid, I don’t really need it –> Saved some bucks.

Procrastination defeats mass hysteria (like Thanksgiving sale)

Most procrastinators will find some excuse to stay out of the crazy lines at the day-after-Thanksgiving sale ( for Canadians, the relevant day is”Boxing day”). They will value their sleep more than the tricky price stickers (and mail-in rebates). Usually, procrastinators (like me) won’t buy stuff in such sales unless they really *need* it - and they have been thinking about buy it for months before the sale.

Procrastination increases productivity

This is questionable (of course), but I have seen that some people work very hard on trivial problems right from the time it is assigned to them. However, most people who procrastinate will do nothing till the deadline is near and then finish the work (with sufficiently high quality) within a few hours. Till the deadline is near, they can spend their valuable time doing productive things like playing DOOM or World of Warcraft, or sending prank emails to their working-hard-on-trivial-problems colleagues.

If procrastination has saved you money, we would love to hear about it.

Anyways, it is probably obvious by now that I desperately need a vacation. Towards that, I will gone from tomorrow till the middle of the next week. However, there are some awesome guest posts lined up to keep you busy, so keep coming back and keep leaving your thoughtful comments.

Image source: www.tumanov.com

One of the things that allow us to live within our means is cheap housing ~ courtesy of small university town (it’s growing larger by the hour, but it’s still small compared to some bigger cities around). I was trying to see how our housing expenses compare to other Americans , but couldn’t find useful data for renters (I was looking for average rent as a percentage of income). However, I got some interesting data on homeowners and their housing costs. According to an article on MSNBC:

Nationwide, homeowners spent nearly 21 percent of their incomes on housing costs last year, up from just under 19 percent in 1999.

Here is a comparison between our costs and the average homeowner’s cost as a fraction of income:

So that looks good for us about now. We have about 89% of our income to spend on other things (like savings and stuff)

The term “housings costs” include mortgage payments, taxes, insurance, and utilities. In our case (we live in a small rental apartment), it includes rent and utilities [the article does not mention whether it's *net* income or *gross* income; I have assumed gross household (me + wife) income in my calculations].

In the report, the state with lowest percentage of income spent on housing is West Virginia…and that’s still 15.4%. Whereas, average homeowners in California top the list by spending 25.4% of their income.

What percent of your income do you spend on your housing costs? Do mention whether you rent an apartment or own a home. (assume gross income)

I think it’s obvious that most people who rent will be spending less on housing costs than people who own homes (there will be exceptions, but generally this will be the case).

However, I do have a nagging doubt - when a homeowner makes mortgage payments, he/she has a share in the payment in the form of increasing equity. So, I am not completely convinced that mortgage payments are pure *costs* (although higher mortgage payments do reduce your discretionary income and lower your buying power). This is unlike renting an apartment - the renter does not have any form of share in the rent. I am not sure how this issue can be addressed; any thoughts on this?

Here are some other interesting titbits from the MSNBC article.

• New Jersey had the highest monthly housing costs for homeowners, at $1,938.
• West Virginia had the least expensive monthly costs for homeowners, at $797.
• Hawaii had the highest monthly costs for renters, at $995.
• North Dakota had the lowest monthly costs for renters, at $479.
• Mississippi had the least expensive median home value, at $82,700.
• Among America’s 15 largest cities, San Francisco had the most expensive homes, with a median value of $726,700. Detroit had the least expensive, at $88,300.
• San Diego had the biggest increase in median home values from 2000 to 2005, going from $249,000 to $567,000.

Man, we are pretty close to North Dakota when it comes to renting costs.

I was reading up some articles at CBS News, and came up on this interesting one: Meet “Generation Plastic”. It’s about students who get caught up with credit card debt. Apart from some sad stuff about credit card marketing strategies, there is something else to notice in the article. Read this:

“I had Visa, Visa MasterCard, First Financial Bank, Visa, Gap, Target” says college senior Sara Magee. She was lured at 18 by the promise of a free Frisbee. A dozen credit cards later, she’s working three jobs to pay down $6,000 in charges, fees and interest.

“I didn’t understand interest and what a high APR was — I really just didn’t understand the concept, and it seemed like a good idea — like (I) can’t afford it now, but I will pay it off later,” she says.

This comes from a graduating senior!

I am pretty sure there are a whole lot of students in the same boat - and of course, there must be a whole lot of non-students who know diddly-squat about credit cards, their usage, and related terminology.

When you don’t know what “APR” is, how much it will cost you in interest, what are the consequences of late payments, etc. - and you still keep swiping it around as much as you can; then you are basically the guy in this picture (been there, done that):

Now, blaming credit card companies for high fees, twisted marketing tactics, and unfair billing practices is all meaningful - only AFTER we, on our part, take enough efforts to understand how these things work. The way I see it, most pain and suffering caused by credit cards is initiated due to credit card abuse by the consumer. This pain is then compounded by credit card companies’ tactics.

To solve part of the problem, here is an outrageous suggestion: impose a card-specific, knowledge-based test to determine whether a person is eligible for *using* a credit card. A credit card application won’t go through unless all the questions are answered correctly. Such tests should include simple questions like:

• What does APR stand for?

• What is the grace period on the card for which you are applying?

• What will be your APR if you miss one payment?

…and some moderately challenging questions like these (moderately challenging = something that a monkey will not be able to answer easily):

• What will be the minimum payment due if you carry a balance of $5000 during the statement period?

• At 14% APR, how much would it take for you to pay off $1000 balance on your credit card if you keep making minimum payments?

Feel free to thrown in suggestions for questions that you think should be part of such a test. Sarcastic suggestions are perfectly OK.

This will serve some good purposes like:

• The extra hassle will discourage casual credit card seekers - and it will enforce awareness for those who seriously want to have a card.

• It (the numbers) will make people think twice before applying for a relatively *bad* credit card.

• Even if people cheat on such tests, they will be forced to look up (or ask for) some information - which would still serve the purpose of raising awareness.

Yeah people will whine and moan - but that exactly would be the purpose of such a test - to make them whine and moan before they get their credit cards instead of after using them mindlessly.

For students, there should be a “Credit Cards 101″ course…and they should not be allowed to apply for a card unless they have taken that course. It will be interesting to see how many students just give up on credit cards just because they want to avoid the course.

“You are pre-approved” will have a radically different meaning.

Any other novel preventive measures or suggestions for refinement? (”ban credit cards” is not creative enough)

Some amount of sarcasm is intended (more than a solution to any specific problems) through this post. The aim is to channel our thinking towards how to make (force) people understand credit cards before they start using it foolishly. The qualifying test is just one potential hypothetical measure ~ to be taken with a grain of salt. One can easily fathom the enormous social effort that will be required if such a system were to be practically implemented.

The authors of “On My Own Two Feet: A Modern Girl’s Guide to Personal Finance” have expressed their interest in conducting a Q&A session for folks who have personal finance related questions. The session will be facilitated by Wanda over at Well-Heeled.

So if you have some nagging money doubts for the authors, feel free to head over to this post @ Well-Heeled to ask your questions.

Alternatively, you can leave your questions as comments on this post (or email me at golbguru at gmail dot com) and I will forward it to Wanda.

Last week, a few fellow bloggers shared their investment portfolios as an answer to a money question asked by SVB @ The Digerati Life (part 1 and part 2). Initially, I was reluctant to share my story, but on second thoughts I decided to let the cat out of the bag - just because it was much different than what other bloggers had shared.

Before you continue reading the story, I want to mention what “Under Accumulator of Wealth (UAW)” means. According to “The Millionaire Next Door” by Stanley and Danko:

All too often high-income producing UAWs spend countless hours studying the market - but not the stock market. They can tell you the names of the top auto dealers, but not the top investment advisors. They can tell you how to shop and spend. But they can’t tell you how to invest. They the styles, prices, and availability at various car dealers. But they know little or nothing about the various values of equity market offerings.

Now, read my story in light of these characteristics of UAWs (and in light of the other things I have written on this blog earlier).

My current portfolio will make some investing enthusiasts sick to the gut. Here is how it looks like:

Cash: 98%
Stocks (ETFs): 2%

There are various reasons why it’s that way. The main reason is - I am not very *educated* when it comes to the stock market. Right now, I am in the process of learning more about how and where to invest so that my tax/fees burden is minimized and returns are maximized - but not yet quite there. In my opinion, people like me should not throw money in the stock market unless they know what they are doing (it’s like trying to win at poker without understanding how to play). So, as long as I am not comfortable with other investment options, the portfolio will sort of maintain its status quo. Also - for reasons that I will not elaborate - the cash is earning tax exempt interest at present, so it’s not that bad.

The other thing that has encouraged us to keep more cash is some anticipated uncertainty in our personal lives in near future. We foresee some specific events, in the coming year or two, which may require urgent and drastic financial actions on our part. Stock market presents too much risk (in our personal situation) in this short time span.

Does that sound cautious to you? or does it sound more like procrastination?

I think the UAW description in The Millionaire Next Door really got me. I think I am starting to show all those characteristics - not good; and if that is the case, the story sounds like more procrastination and less *caution*.

The only bright part is that I do have good intentions with investments in future. Towards that, I am trying to learn something new about how to invest sensibly. Progress is slow, but hopefully I will get there. Here is a rough plan:

However, as we reduce the uncertainties in time to come, I am planning for a portfolio that may roughly look like this:

Gold (this might happen very soon): 5%
Cash: 15%
US Stocks (mostly in the form of ETFs): 40%
Foreign Stocks: 30%
Bonds (on experimental basis - I just want to try these things out): 10%

My primary concern would be to get decent after-tax returns with sufficient stability and minimum headache (continuous market research). I don’t think I will be in it to “beat the market” - I just want to be as wealthy as I need to be.

Now, these thoughts are my *current* thoughts - when I am still a graduate student with no real *job*. I am sure my outlook will change after I graduate and start on a real job (possibly with a good salary). For now, I am just happy to have zero student loans and some positive net worth.

Do you think I am headed in the right direction with this?

I am not sure, but perhaps UAWs (like me) make *cautious* excuses to mask procrastination. If you have been (or are) in a similar boat we would like to hear your story.