About a week ago my wife and I had four young guys from church over for dinner. It was just a normal Thursday evening and nothing really extravagant. Interestingly enough though, the conversation eventually turned towards finances and investing, which just happen to be two of my favorite topics. These guys were all between the ages of 19 and 21 and had a never-ending slew of questions that I did my best to answer.

Many of the questions were specific about how this and that worked, but I did want to give them one piece of advice that I had been given. Now, I’m not all that much older than them since I’m just turning 27 in March, but I’ve put this advice into action and it has done wonders for us so far. This advice is in the from of a quote, even though I don’t know who originally said it:

“I’d rather live for a few years like most people won’t, to live the rest of my life like most people can’t.”

It’s very simple and doesn’t give you any specifics of how to accomplish things, but it’s been a great foundation for many of the decisions that I’ve made and am making. This quote is the reason that I give, save, and invest over 70% of my income. It’s the reason that I don’t have cable or satellite TV for example. Since hearing this advice, I’ve made tremendous progress that I probably wouldn’t have thought possible before. It’s also not a huge secret which is why I wanted to share it with all of you. There’s also probably many other ways to say the same thing, but it really is the best piece of advice I’ve heard so far.

In the world of personal finance, investing is only one aspect. It is, however, an aspect that I talk about frequently and am very passionate about. There is a lot for one to learn about investing and it’s something that will be a life long pursuit as far as I’m concerned. There is one thing though that you should understand right from the beginning. What exactly is an investment?

I’m sure I’m not the only one who has heard the term thrown around quite a bit. I’ve also heard it used to describe a very large array of things. So, in order to figure things out, let’s take a look at some definitions.

A Few Definitions

Investopedia defines an investment as:

An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price

Wikipedia doesn’t really have a succinct definition, but it is very similar to the above definition from Investopedia. It also makes a distinction between the economic and the finance sense.

Many of you may also have heard the definition of an investment given by Robert Kiyosaki, the author of the book Rich Dad, Poor Dad. He basically says that an investment puts money in your pocket, and anything that takes money out of your pocket isn’t an investment.

What Do I Think About It?

I see valid points in both of these definitions. I’m not going to say that all investments “put money in your pocket” or at least not right away, but I do strongly agree that anything that takes money away from you without a promise/hope of a return is not an investment.

Many people will argue about whether certain things are investments, the most controversial probably being one’s own personal residence. I see valid points for both sides of the issue, but I tend to disagree that your home is an investment. I have, however, turned my own house later into a rental property officially making it an investment.

Mostly, I take issue with what I consider to be the improper use of the word investment to describe consumer goods. I’ve heard people repeatedly tell me that it’s alright to buy such and such because it’s “an investment.” When I bought my washer and dryer, I had a friend tell me that they were an investment. I don’t really see how this could be the case, but I wasn’t going to go off in a rant about it.

My point with all of this is that I see too many people justifying their consumer purchases by making themselves believe that they’re investments. I hate to rain on anyone’s parade, but furniture is not an investment. Neither is a new big screen TV or a fancy stand mixer. I don’t have a problem with people buying these things, as long as they understand that they’re buying a consumer item and not an investment.

I’m not going to give you a be all end all definition and description of what an investment is, but I do think that you should give it some serious consideration and thought for yourself. You’re going to want to understand for yourself what an investment really is so that you’ll know one when you see it. You don’t want to have to take someone else’s word for it, when determining if you’re going to invest.

It’s hard for me to believe it, but Fiscal Musings went live exactly one year ago today. Back then I wanted a place where I could share things that I’ve learned about personal finances and investing. I also knew that there was so much more to learn, and I figured that I could increase my own knowledge through this site. I actually never thought that this site would be where it is today, but it’s been a great ride so far, and I’m looking forward to another year.

A Brief History of the Site

I started this blog as a free site with Blogger. The site design was fairly simplistic since I had never had a website before. After a while I decided that the site deserved it’s own domain name, even though I still had it hosted for free with Blogger. I continued to publish articles on a fairly regular basis, but I was never quite content with the site’s overall layout. I didn’t have the flexibility that I had seen on so many other sites that used Wordpress. So a little while ago I finally took the plunge and purchased my own web-hosting from Bluehost.com and began using the Wordpress platform. This brings us to the current layout that you now see. Through all these changes though, the content has been consistent and will continue to be so.

Some of the Favorite Posts

1. An Interesting Perspective: This is an article that shares a perspective I heard from an older gentleman at work. Too often we get caught up with our own thoughts, and it’s great to see things from another’s point of view.

2. Answering a Reader’s Question: As the title says, a reader emailed me a question about what investments to pick in an IRA. This is my response. Also, if you’ve got a question or would just like my take on a subject feel free to contact me.

3. Developing a Wealthy Mindset: A lot of what we talk about doesn’t really matter too much if we don’t ever change our mindset towards our finances.

Looking Ahead

I’m looking forward to another year here at Fiscal Musings. As many of you know, I’m going back to school in the fall to get my MBA, so I’ll be able to share many of the experiences I’ll have and much of what I’ll be learning. I enjoy writing for this blog, and I hope you enjoy reading it just as much. As always, let me know of any suggestions you may have as well as any questions. And while you’re here, go ahead and subscribe to the feed so you don’t miss anything else.

These days we’re always hearing about about a weakening economy and fears that we could be heading towards a recession. It also seems that every day there’s a new report that comes out that is supposed to shed some light on the health and state of the economy. I hear about these reports and notice the effects they have on the stock market, but they have always seemed so distant from people’s everyday lives.

Today though, I was having a conversation with my brother and he actually mentioned the wholesale price report that came out today pointing towards rising inflation throughout the broader economy. Apparently, it was at least a little bit of cause for concern for him and his family’s finances. I found this interesting since I had never actually heard anyone express personal concern based on one of these financial reports. People may be concerned about their investments and how they’ll respond to various reports, but that’s generally it.

So it made me start wondering how many people actually pay attention to these reports and let it affect their views of their personal finances. Do you pay attention to financial reports? Or are you possibly lost as to what I’m even talking about…?

I’m pretty sure that I’m not alone in saying that I’ve never ever eaten an oyster before. In fact, I also don’t ever really plan on it. That doesn’t mean that there aren’t those out there that enjoy the occasional oyster. For this reason, the website Be Oyster Aware exists to to inform people about some of the risks of Gulf oysters and the like. Apparently there are certain things that would make one at-risk when eating raw oysters. To me, the problem is easily solved, and that’s to only eat cooked oysters if any at all. But for those of you who eat them raw, check out the website for more information.

So, what does this have to do with personal finance? All I can say is that it’s hard to make progress if you’re ill from eating raw oysters. So here’s a quick bit a awful humor to end with. What did the oyster say when his pearl got stolen?… You’re sand if you do and sand if you don’t.

I often hear people talk about their savings and investments almost interchangeably. I hear about people taking their savings and investing it as well as people who rely on their investments to be there if they need any savings. It may seem trivial to many of you, but I believe that there is or should be an important distinction between the two.

The Purpose of Savings

The primary reason for having some money readily available is in case of an emergency. This is why you’ll hear about emergency funds time and time again from many personal finance bloggers and other financial resources. There are many different opinions about what the size of such a fund should be and how it should be determined, but it’s usually agreed that we should have an emergency fund of some sort.

Savings also provide a sense of financial security and stability. Not only does it keep you from having to constantly worry about your finances, but it also allows you to invest with confidence. You’re able to make more rational decisions when you’re not worried about having to use any of your investments for near term emergencies.

The Purpose of Investments

Investments are a way for you to secure your future and have your money work for you eventually replacing your current forms of income. Investments are meant to provide alternative forms of income or are used to increase your income producing capacity. These are all different purposes than what standard savings are meant for.

A Practical Implementation

Both of these are important aspects of your finances, and one shouldn’t be done without the other. Fortunately, it’s all too simple to make progress in both areas while also keeping them separate. All you need to do is set up two different savings accounts or money market funds into which you can easily transfer funds. Each time you get paid or have some sort of income, just take a percentage of the income and transfer some into each account. The funds in the investment account can then be used for any investments that you want to make.

It’s important to keep these account separated from the beginning. I’ve talked to some people who keep putting money into a savings account and then raid it from time to time in order to invest in various things. Unfortunately, a lot of investments seem to be so good that more money is taken out of savings than what should be. Without an adequate savings buffer, it can then be difficult to weather any investment storms that can come.

Obviously there are many different ways to handle your finances including your savings and investments. This, however, is the best way that I have found so far to handle both savings and investments. It’s simple, straight-forward, and gets the job done. What are your thoughts on the subject? Do you handle things differently?

Having grown up in Texas and gone to college in Utah, I never had to deal with Personal Property Tax until moving to Missouri. And I must say that I’m not a fan of the tax at all (not that I like any tax really). Here’s a quick rundown of how it works:

How It Works

By March 1st you have to return a Personal Property Declaration on which is listed any type of personal property that is deemed taxable. Here in Missouri this includes any vehicles, boats, recreational vehicles, and probably some other things that I’m not aware of. You have to declare anything of this type that you owned on January 1st of that year. You are then taxed at some percentage based on a third of the appraised value. That’s the basic gist of it.

Why I Dislike It

1. First of all, you’re charged an entire year’s worth of taxes based on what you owned on January 31st. I raised this question since I’ll be leaving the state to go back to school in late summer. I was told that there was no pro-ration and that you would owe the entire tax even if you only lived in the state for one day if that day was January 1st. It just seems absurd to me.

2. This tax doesn’t seem to be in place of something else. As you probably know, there are some states who have a sales tax and some who don’t. Some states have property taxes and others don’t (or are at least minimal). Some states have an income tax, and others do not. Well, not only does Missouri have all of these, it also has this personal property tax. You pay sales taxes when you buy a car here, and then you’re subsequently taxed every year thereafter just for owning it. Again, it’s simply absurd.

3. I can sort of understand property taxes on real estate. Real estate generally appreciates over time and as the saying goes concerning land, they aren’t making any more of it. The Personal Property Tax, on the other hand is a tax on items that generally depreciate and they can make any number of them. Unfortunately you have to pay both in Missouri.

These are some of the reasons that I dislike the Personal Property Tax. I’m sure I could think of more if I wanted to dwell on the subject (which I don’t). I’m also sure that there are other absurdities in the tax system in other states. What are some issues that you have with some of the taxes where you’re from?