With the recent run up in both the stock market and the real estate market, it’s now become quite en vogue to call oneself an investor. Those who have sold their home for a profit are calling themselves investors, even when it’s the only piece of real estate they own. Others believe they’re investors because they have seen their 401k balances increase.

My concern is that what many are now calling investing is nothing more than speculating. We frequently hear stories of those that have bought properties in the so-called “hot” markets hoping to flip them for a grand profit. There is also no shortage of hot stock tips. If that’s not enough, you’ve probably at one time or another seen those ads on TV trying to get you to “invest” in gold.

So what separates an investor from a speculator? Benjamin Graham, who could be seen as Warren Buffett’s mentor, has this to say in his book, The Intelligent Investor:

“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

Two words here stick out to me: “thorough analysis”. So many people these days have no idea what they’re invested in much less have done a thorough analysis of these investments. Some will argue that they invest in Mutual Funds because the fund manager does the analysis for them. This can be true, but I still believe that no one cares about your money as much as you do.

Another point Graham makes here is that investments “[promise] the safety of principal and an adequate return.” This probably had something to do with Warren Buffett’s formulation of his Rule #1 of investing: Don’t Lose Money. (Remember that a 75% loss is only offset by a 400% gain.)

Speculation does have its place, but we need to recognize the difference between speculation and investing.

By now you’ve all heard, and experienced first hand that gas prices have gone up. It actually pains me to write about this topic since, quite frankly, I’m sick of hearing about it myself. Ever since I can remember anything about gas prices, they’ve been going up. It’s nothing new really.

While it’s true that gas prices are at record highs, is it really time to cry “Armageddon”? I mean, is it really all that bad? It can’t be all that bad since the demand for gasoline hasn’t really declined at all. People are still driving more or less the same amount as before and quite possibly more.

So just how bad is it? The previous average high was something like $3.07, and recently it’s peaked to around $3.22 or so. Let’s just say (for ease of calculation) that the average price has increased by $0.20. If you’ve got a 20 gallon tank (which is quite large), it now costs you an extra $4 to fill it up. That’s not really enough to keep most people off the road.

There’s also a bigger issue here.

• If an extra $4 (or $20 for that matter) actually puts a great strain on your finances, you’ve got a much larger problem than just rising gas prices.

You need to understand your cash flow and how to increase it. We all have many different expenses, and gas is only one of these expenses. It just so happens that it’s not a “fun” expense like going out to movies and living the restaurant lifestyle.

Anyway, increasing gas prices are nothing new and it’s no secret that they’re going to continue to go up. Your finances shouldn’t be so tight that these increases are going to break you. If this is the case, however, begin now to take steps so that this won’t continue to be the case. There are other options other than to complain about a 20 to 40 cent increase.

I’m looking for the best articles and posts out there right now. If you’ve got your own blog, submit your favorite post. If you don’t have your own blog, let us know of some of the best articles you’ve read.

In order to submit your favorite articles and posts, just leave a comment here with the url to the post. In a later post, I’ll put up links to all submitted sites. This is a great way for you to get a link back to your site with no strings attached.

So go ahead. Give us your best…

If you were to ask most people, they’d probably tell you that their emotions didn’t really have anything to do with their money. I would argue that you’d be surprised at how our emotions influence most all aspects of our financial lives.

Remember back to when you were dating, or if you’re still dating, and think of all the money you spent because you liked someone. Think of all the money you’ve spent on things because you were afraid of what someone might think of you. You might also remember a time when you didn’t buy into a particular investment because you were afraid that you might lose money.

I could continue with more and more scenarios like this, and I’m sure you can think of some yourself. We need to recognize that emotions are a big part of all our decisions, including our financial decisions.

We’re always told that we should leave our emotions out of these types of decisions, and because of this we sometimes think that we always do. This isn’t always true. Recognition of the presence of emotion is really the first step. If you can notice and determine what your emotional reaction is or would be, you’re then more able to take this reaction out of the decision.

Sometimes you have to ultimately rely on your gut feeling, but make sure you can recognize and separate your emotions from your money.

The people in my department at work went out to lunch today because a couple of people are leaving the group and taking other positions. I usually bring my lunch to work because it’s cheaper than having to buy lunch in the cafeteria or some place else.

The place we were going also wasn’t all that cheap. Even the cheapest lunch special was $6.50, and that’s before drinks and a tip.

Over the weekend as I was going through the free Sunday paper, I happened to come across a “buy one get one free” coupon for the same place that we were going to be going today. Just as you’d think I cut it out and stuck it in my wallet so I’d have it on me when we went.

As we were walking out to go to lunch today, I mentioned to a couple people that I had this coupon and asked if they were interested. To my surprise, no one really was. I couldn’t believe that no one was interested in getting half off the price of their meal. Since it was a “buy one get one free” coupon, I had to find someone to use it with, and I eventually did.

I’m not really sure whether people really don’t care if they save the money or if they’re afraid they’ll be perceived as cheap. I happen to lean towards the latter. After I gave the waiter the coupon, one guy at the other end of the table actually called down and asked if I was really using a coupon.

My response was yes, and that I’m not too proud (in a light-hearted manner of course). Thinking back on this experience, I wonder how many times people spend more money than they need to because they’re afraid of what others are going to think of them.

Have you ever run into a similar situation? Do you have any suggestions for those who feel this way and don’t want to appear cheap? Let us know.

It’s been said hundreds of times and by many people, but it’s worth repeating because so many people don’t follow the advice.

The pattern used to be that people earned money and then spent money. They would end up with nothing, or zero. Nowadays it’s more common for people to spend money and then earn money. This practice leaves them with less than nothing, or a negative. As you can see, it’s gone from bad to worse.

I’ve talked about this in Living Below Your Means…? and it’s part of how you Increase your Free Cash Flow.

In order to move ahead financially we have to follow a different pattern than the majority.

• 1. Earn
• 2. Save
• 3. Invest
• 4. Spend

It’s very simple and yet the concept eludes so many. Also, many times we get caught up in the specifics of things such as investing and ways to cut costs/spending that we need to be reminded of big picture. This is why this topic can’t be addressed enough.

It’s possible to be actively saving and investing while at the same time getting deeper and deeper in debt. The whole pattern must be followed. Every once in a while, take a step back and review your larger financial situation. Make sure that one area isn’t being sacrificed for another.

Conventional wisdom tells us to save for a down payment when purchasing a home. Twenty percent happens to be the magic number. In today’s world, however, this just isn’t the norm. Between the over-inflated housing prices and America’s scanty savings rates, many are finding that they have to explore other options.

If you’re going to buy a house without putting any money down (or less than 20%), there are two main options. You can get a single loan of up to 100% percent of the purchase price of the home, in which case you’ll be forced to pay Private Mortgage Insurance, or PMI. You could also get a loan for 80% of the purchase price and another piggy back loan for the other 20%.

So which choice is the better choice? Or is one better than the other?

With the first option, you’ve got one loan that’s typically at a competitive interest rate that keeps the payment low. The downside to this option is that the lender will make you pay an insurance premium called Private Mortgage Insurance. The policy insures the lender against a default because they’re lending more than 80% of the value of the home. It has no benefit to you, and is the reason your payment will be higher.

If you choose the second option, you won’t have to pay for PMI. What you’re essentially doing is getting a loan for your 20% down payment and financing the other 80% separately. This would seem like the better option except that the smaller loan, or piggy back loan, is financed at a higher interest rate. This will also serve to raise the payment amount.

As far as your monthly payment is concerned there is no clear winner between these two options. It’s usually a good idea to get a quote for both of these options.

It used to be that only the mortgage interest was tax deductible and you couldn’t deduct your PMI payment. This has changed, however, as of 2007. Now you can also deduct your Private Mortgage Insurance payments. So, it would seem that both are viable options.

I, however, still prefer to go with the 80/20 loan split as long as the monthly payments are comparable. With this option you’re able to lower your monthly payment once you pay off the smaller of the two loans.

If you’ve got a loan with PMI, it’s a more involved process in order to remove it and lower your payment. You’re able to remove your PMI payments once you’ve payed the loan down to 80%, but it doesn’t just automatically get removed usually until the loan is down to 78%. If you believe that you’ve already got 20% equity in your home at some point then you’ll have to go through the process of ordering an appraisal and proving to the lender that you indeed have 20% equity.

While these two options are different in how they work, they provide very similar outcomes. The choice between them is then left up to your personal choice and what will work best for your particular situation. As I stated before, it’s best to get a quote for both scenarios. You can then compare the two options and make an informed decision.

What are your thoughts?