Well, its been a very busy night.  After I finally got home from work and had a bite to eat, I had two slow pitch games tonight.  I’m absolutely exhausted.  I also have a welt on one leg and a cut on the other.  You’d never believe the things that happen in such a seemingly slow paced game. 

Anyway, I’m going to try to write a post sometime through the day tomorrow and post it as soon as I can get home, either for lunch or at the end of the day.  I’m just too tired tonight to write a post thats somewhat well thought out and coherent.  Sorry everyone.

I sometimes saw posters that students had pinned up on bulletin boards, trying to sell their textbooks, but I paid little attention.  I wanted to make sure that I had the absolute right book and didn’t want to take any chances.  Often with university texts, although the title is the same, there are many different editions.  The wrong edition can have changes as subtle as page numbering to something as major as adding or deleting entire chapters.

Buying and Selling Used Books

Last year, I made a wonderful discovery.  On Facebook, Kijiji and even the webpage for the university bookstore, there are classifieds where students can buy and sell their texts.  Many students have posted the ISBN numbers in their ads.  The bookstore also quotes this number in their book listings.  Each edition of each book will have a different ISBN number, so as long as that number matches, there is nothing to worry about.   At first, when I looked into it, I saw the initial cost savings (last term I paid $90 to another student for a $130 textbook).  But what I didn’t realize is the possibility of having a textbook for free.  As long as a new edition doesn’t come out, at the beginning of your next term, you can sometimes sell the textbook that you purchased used  for pretty much the same price you paid for it.  Instead of shelling out $100 or more per book, and letting them collect dust, if I buy a textbook from another student for $90, and then resell the book to a third student for $90 dollars during the next term, the book didn’t actually cost me anything.  I am going to try to do this again this term.

Watch Out For Highlighter!

There are a few things to watch out for though.  With the last textbook that I purchased, I was so concerned with making sure that I had the correct book, I didn’t think to check through the inside of the book.  The person I was buying the book from had said there was no highlighting and when I got home and opened it up, it was filled with pink highlighter.  I am still quite annoyed at this, but one thing is for sure, I won’t get taken like that again. 

I spoke of another thing to beware of earlier in the article, making sure that you have the correct version of the correct book.  Apparently book publishers and authors are well aware of the growing market among students for used books, and they are reacting to it.  I read an article that said that the average textbook used to publish a new edition every six or seven years, but now most textbooks publish a new edition every 2-4 years.  Some new editions actually make necessary changes to the books, and others do just enough to call it a new edition. 

Shorter Edition Cycles are Only Good for the Publisher

The purpose in the shorter edition cycles is to force all of the students in the current year to purchase new books.  If a new edition comes out this year, all of the previous editions are worthless and useless.  I will be unable to sell a previous edition.  As students, there really is nothing that we can do about these sorts of things.  This isn’t so much a risk to the used book purchaser, as you would still be stuck with the same worthless copy if you had purchased a new book as well.

I also want to say that I realize that the site looks like a terrible mess right now with the ads all over the place.  I probably shouldn’t have started to switch over the theme so late at night, but I did.  After work  I will get to work on making the site look a little better and a little more organized again.

And for the record, there atually is a proper post for today, you just need to click on previous entries to find it.  I set the posts up so that this would be the first thing that everyone sees when they come to the site today.

Thank you for your patience.

No One Size Fits All Approach 

My purpose in revealing all of that information about my RRSP is to show people that there is no one size fits all approach to investing. I am not telling people you should never have a self directed investment account, nor am I telling you that you should always have a self directed investment account.

Advisors are very helpful creatures. In a market like the current one, where everyone is losing money left right and center, they can hold your hand so to speak, and remind you to stick with your plan. I believe it is very important to make sure you’ve selected a good advisor. When you have that initial consultation, if his first question is how much will you be investing, its a sure sign that their mind is on one of two things - either fees or commissions. Most advisors are very good at what they do, but there are some unscrupulous ones out there and it is up to you to make sure that you’re satisfied with the one that you’re speaking with. If not, there’s no harm in moving on, there are plenty of advisors to choose from.

Some Things Are Sacred

If you have read any of my past articles, I tend to mention that some areas of your finances are sacred and you should not mess with them. Your retirement is another area. I believe it is of utmost importance that people be able to lead a comfortable life in retirement and a financial planner will be able to help you create and update a plan to help you lead the life you want in retirement.

Having an advisor is also a good idea if you don’t have the time or inclination to keep yourself up to date on the business world. The markets are very dynamic, and information can become obsolete within days. Personally, I really enjoy sitting down at the computer and reading about the markets. On my days off, I could sit down at the computer, start looking at stock related websites and find that I’ve spent all day there and accomplished nothing else.

There is No Easy Money 

If you’re thinking of opening a self directed investment account, you really should take some time to consider this article. Its easy to sit on the sidelines and say that the stock market is easy money. When real money is involved, you will realize just how challenging it is to actually make money in the stock market. With real money, emotions are very powerful forces.  Especially as a new investor it is often a very good idea to have someone around to offer guidance and to help you develop a plan and stick to it in times when the market is in turmoil. Just remember that when all you hear is bad news and it seems like the stock market is dropping more and more everyday, the stock market is having a sale. You can pick up some great companies at spectacular prices.

Three weeks ago, I had my own little DIY adventure involving the sparkplugs on my motorcycle. I thought how hard can it be? Pull the wires off, unscrew the plug, slip the new one in, tighten it, and on to the next one. The first of four went great. I fired up the bike to make sure everything sounded right, and it did. I thought, “hey, I can do this!” I then tried the second one. The place it goes into was much too deep for my very limited mechanical talents, and when I was satisfied and I thought it was in right, I fired it up and thought something sounded a little off, but it wasn’t too bad. I took it for a spin to test, and blew that sparkplug out of the bike. It cost me $120 to have it fixed by someone who knows what they’re doing, when I seriously doubt it would have even cost half that to have all four of them done. The moral of this adventure is DIY is wonderful, if you know what you’re doing. It can be damned expensive if you don’t.

You Can Save Money 

In favor of do it yourself, you can also save a ton of money if you choose to do something yourself.  Currently the hourly rates that garages are charging are approximately $70-$90.  If you are actually sure of your mechanical talents, you can save yourself a great deal of money by doing some repairs yourself.  You will also find that the parts are much cheaper to buy at a place like Partsource than the price that the shop will charge you.  Those sparkplugs that I previously referred to cost me $1.80 to buy elsewhere, and I was charged $4.95 for the one that the shop installed.  Investing is also another area that you can save a great deal of money if you are confident in your knowledge and fortitude.  Discount brokers are significantly cheaper than full service brokers. 

There seems to be quite a large group of people that are in favor of DIY investing. Do it yourself investing works if you are knowledgeable about investments, and have the time and energy to keep yourself up to date on the events of the stock market and business world. It is also absolutely imperative that you have the fortitude to be able to stick with your plan even when your investments decline in value. If you panic and sell your investment everytime your stock or mutual fund drops $0.25, you’ll end up slowly wittling away your savings with losses and commissions. Probably the greatest stock investor of all time, Warren Buffett has said that you should be able to watch your stock decline by 50% and not sell.  I believe that there is a fine line between panicking everytime your stock loses money and holding onto something and hoping that it will at least return to the price you paid.  No two situations are ever exactly the same, and there are many factors that influence the prices of investments.

I still like to pump my fist in the air as much as the next guy, but I no longer think that all songs that do not fit that description are boring.  As my tastes have evolved, I have been able to go back to some of his earlier albums and find a new appreciation for songs like Strange Days and Apparitions, even though I didn’t like them before.  In listening to his first three albums, Last of the Ghetto Astronauts, Underdogs and Beautiful Midnight, there is a much different sound than you find on his later albums, beginning with The Audio of Being.  The first three albums had a much more raw rock sound.  Not to say that the first three albums weren’t musical, but it seems as though the albums that follow Beautiful Midnight are more musical.  Often, in addition to two guitars, a bass and drums, he has included a broad range of instruments.  This results in a more full sound than you would hear if you simply had stereotypical rock instruments.  I also perceive this drastic change in sound as being around the time that Matthew Good Band broke up and he began his career as a solo artist.  From what I have read of some of the events that led to the destruction of the band, he was restricted to writing a certain type of music and was not allowed much opportunity to experiment with his sound as a member of that band.

Previewing the First Single

On his website, Matthew Good has decided to preview the first single, Last Parade from his upcoming album, Vancouver.  I am not sure exactly when the song was posted but I just started listening to it tonight.  I must say that although it reminds me of some of his other songs, I cannot find a song to compare it to.  It contains what I think of as the Matthew Good Tone which you could find on songs like Avalanche, Weapon, In a World Called Catastrophe and even Alert Status Red.   When I found the album versions of those songs they are entirely different than what I actually heard when I listened to Last Parade.

Although the tone is similar to what he has used in some previous albums, the song itself is as unique as any of his other recordings, and I do not get the impression that he is trying to imitate his past success.  Last Parade stands as a unique and memorable composition, and I have listened to the song repeatedly.  It is a song that is equally enjoyable to sit and listen, or even to have playing in the background.

I won’t even try to discuss the lyrics of the song, as I have never been very good at discerning what the lyrics actually are.  I am equally as bad at reading between the lines to try to understand the message that the artist is trying to convey.

Only 46 Days!

On his blog, Matt Good mentioned that he would preview the first single, I believe until September 6.  Starting on that date, he would preview the entire album.  On October 6, the album would be released for sale.  I am sure about the album release date, but I am not 100% sure about the other dates.  Needless to say, I’m counting the days until the album release, which happens to be 46 days.  I will be purchasing a copy of that record, probably before noon on the 6th.

Even if you’re not a fan of Matt Good, I strongly suggest you go to his website and listen to Last Parade.  I am so sure that you won’t be disappointed, that I will give a full refund to anyone who listens to the preview on matthewgood.org and doesn’t like the song (its free!).

The Three Functions of Money

Money has three functions. Money acts as a medium of exchange, a unit of measure, and a store of value. A medium of exchange allows people to make purchases more efficiently than in a barter system. If I go to the bakery and I want a loaf of bread, if there was no money system, I would have to negotiate with the baker to provide something I have that he wants in exchange for his bread. If I don’t have anything that he wants, then I need to go to a place that provides something he wants and negotiate with them, so I can take their product to the baker and trade it for his bread. The concept of money saves me the trouble of having multiple transactions just for the items I want. Think of the time and energy it would take just to run a few errands.

The unit of measure function of money allows people to post and compare prices. When I go into the bakery, I can see that a loaf of bread costs $2. It allows people to compare prices much more easily than in a strict barter system where trade depends on being able to come up with the item that the other party wants, as well as negotiating skills.

What is a Store of Value?

Money is not the only item that acts as a store of value. Gold, diamonds, even stocks and bonds all act as a store of value. Your labour has a certain price, depending on what you do for a living. We are used to equating that labour with a dollar value, $10 per hour, $50 000 per year, etc. This can also be stated in terms of goods and services. Your labour is worth 5 loaves of bread per hour. Without a store of value, you must consume your earnings immediately, or you will lose them. If you don’t need anything, a store of value allows you to postpone your purchases until a more convenient time. You can put money away for a rainy day, or save up for that I Phone because you know that your money will still be worth something tomorrow.

In most of the world, people are accustomed to money being paper notes and coins. Money can actually be anything that people choose it to be. What is considered to be money is usually set out by the government, but when there are cases of runaway inflation, people often abandon money and resort to barter. In cases where there is no money available, people have chosen other items. Before Confederation, when people were waiting for shipments of money from England to arrive in the new world, people used playing cards as money. There are some African tribes that use circular stones as currency. The larger the stone, the more it is worth.

Another Example of Currency

Not that I’ve ever been to prison, but I have read that cigarettes often become used as a type of money there.  Obviously smoking is an addiction and those that need to satisfy that addiction will go to great lengths to do so.  If you have a supply of cigarettes, and I want them, one way to get them is trade.  As this becomes more widespread, even those that don’t smoke will begin to hoard cigarettes because they know that they can be traded.  Eventually cigarettes actually begin to fulfill the three functions of money.  If I provide you a service, such as fixing your radio, and am willing to accept cigarettes as a form of payment, I am doing that because they are a store of value to me.  I know that I can get something else for them later.  This also fulfills the medium of exchange function of money.  As this miniature prison economy evolves, the prices that others charge for goods and services become known, and that fulfills the unit of measure function of money. 

Money is quite simply, a man made creation. It serves a purpose, and you should use it as you need to, but it should never be your primary focus. It should also never be the way that you evaluate yourself or others. It is the main method that we use to acquire the necessities of life - food, shelter and clean water, but we should never lose sight of the fact that there may be a day when humans resort to other means to acquire their necessities.

Before I get started explaining why banks fail, I want to explain a few definitions first. A reserve is the amount of money that a bank keeps on hand to ensure that they have enough money to meet withdrawal requests from its customers. What is left over is then loaned to other customers who would like to borrow money. A reserve ratio is the percentage of reserves to outstanding loans. For example, if a bank has a target reserve ratio of 3%, that means if you deposit $100 into the bank, they will try to keep $3 around in case you want some money back, and they will try to loan out $97 to people who would like to borrow.

Our Banking System Works Fine…Most of the Time

That system works fine most of the time. You keep most of your money in the bank and occasionally take out money for groceries, gas, etc. You put your money in the bank and trust that it will be there when you want it. Because most banks have so many customers with so many funds deposited and the bank earns so much money, you could walk up to the teller, demand all of your money and the bank wouldn’t even notice. When the bank makes loans to people, it trusts that a significant number of people will not ask for their money back at the same time.

As I said before, this system does work very well under most circumstances, but under some situations, it works very poorly. In the current economic climate of fear, people defaulting on loans and banks foreclosing on houses, it doesn’t work nearly as well. When it seems like all you hear in the news is negative news about anything financial, it really doesn’t take much to start a run on a bank (when many people ask for all of their money). This is essentially the same situation that destroyed Bear Stearns. Once it happens at one bank, there are others that are sure to follow, “if  that bank is bad, mine must be too!” This scenario repeats itself.

Deposit Insurance is Boring But Important

To try to prevent these events from happening, most governments have put in place deposit insurance, but most people are ignorant of how it works. It is the panic that comes from that ignorance that usually causes the fall of banks. When every Tom, Dick and Harry runs to the bank to get their $300 out because they’re afraid the bank can’t afford to give it back, chances are their own fear will turn it into a self-fulfilling prophecy.

In the US, the FDIC guarantees individual deposits of up to $100,000 at each institution. In Canada, the CDIC guarantees individual deposits of up to $100,000 at each institution. The main purpose of this post is not to explain the workings of deposit insurance, but if your deposits at a single bank are less than that amount, even if the bank is insolvent, the government will refund your deposit.

My Savings Are Protected

I commented on another blog and mentioned the old women that you occasionally hear of (maybe its just an urban myth) that keep all of their money between the mattresses on their bed because they don’t trust banks. Growing up, that always sounded ridiculous to me. I thought banks were perfectly safe. With a little bit of knowledge, I now understand that banks aren’t perfectly safe, but I don’t feel that they are unsafe enough to withdraw my money.  I understand that my savings are protected, even if my bank fails.

I have realized lately that there are a bunch of different kinds of tired.  I won’t bore you by trying to list them all, but I will contrast the two that are most important to the point that I am trying to make.  The first kind of tired is what happens when you do nothing all day long.  I don’t know why I find doing nothing so tiring, but I have had this discussion with others that actually do agree with me.  I also find that if I do nothing for too many days, I tend to lose motivation and I actually start to feel down. 

1.  Doing Something Good for Yourself Feels Good

Another kind of tired is what happens after physical exertion.  As long as you don’t overdo it, it actually feels pretty good.  Sometimes it can be hard to motivate myself to get out and get the exercise that I need.  That is actually the hardest part.  Once I get going, I tend to gain momentum and before I realize it, I am done.  Doing something that I know is good for myself actually feels quite good.

Although it was very tiring to play in the heat tonight, it was a lot of fun.  I feel much better than I would have if I had just stayed home and done nothing.  The same usually goes for going to the gym, biking places and walking the dogs.  It can be hard to motivate myself to get moving, but it feels good once I’m done. 

2.  It Takes Your Mind Off Your Problems

I don’t see a point in wasting anyones time talking about typical reasons for exercise.  We’ve all heard all of them before.  I am trying to use examples from my life, and the difference that exercsie makes to me.  Another example of a benefit of exercise is a reduction in stress.  Studies have shown that it reduces your overall stress level, but it also provides a bit of a break from whatever your current worries are.  If you challenge yourself, you actually need to focus on whatever you happen to be doing, whether it be using the treadmill, lifting weights or trying not to get yourself thrown out on the way to second base.  I’m not a very fast runner, but when I am on my way to a base or trying to hit, there is nothing else in my mind.  My course selections have been costing me some sleep lately because of some problems, but those things didn’t even enter my mind from the time that I arrived at the ball diamond until after I got home.

3.  People Can’t Solve Problems Angry

I also find that when I am upset about something, going to the gym wears me out enough that I am usually tired and happy by the time that I leave and I’ve given up being angry.  I understand this, and there have been times when I have taken advantage of it.  I have gone out of my way to go to the gym so I calm down and clear my mind.  Sometimes to find a resolution to your problems, it just takes a clear mind.  I have seen many, many examples of people being unable to solve problems angry, but as soon as they calm down, the answer jumps out at them. 

There are many advantages to exercise and keeping busy.  Everyone needs to find their own motivation to improve their health, and knowing what drives you can help you improve your happiness, health and overall lifestyle.  Some of the more common motivating factors include longevity and having more time to spend with friends, health and enjoying your life more, or even just the happiness that can be derived from knowing that you are taking care of yourself.

What is Compound Interest?

Interest is what you get paid for having your money in the bank. Compound interest is what happens when the interest in your bank account begins earning interest. For example, you have $1,000 in your bank account, which pays you 10% interest, paid annually. At the end of one year, you would have approximately $1,100 in your account. You have earned $100 in interest for keeping your thousand dollars in the bank. Where compound interest starts to kick in is at the end of your second year. Because you have $1,100 earning interest now (your old $1,000 plus the $100 you earned in interest for the first year) your account balance will be $1,210 at the end of the second year. In the second year, your $1,000 earned you another $100, plus your interest from the first year earned you 10% as well. In the second year, your total interest payment is $110. The thing about compound interest that I think is so incredible is the fact that money that I did not even have to work for is earning money for me. In that example, I probably had to work for the thousand dollars, but the interest that I earned is basically free money. Well, its not really free. I gave up the use of my thousand dollars so that it could earn me interest instead of all of the other things that I could have done with it, but it didn’t take any of my own time to get that extra money.

Having seen what happens with that money in a two year example, what do you think would happen if we left that money alone for 10 years? 20 years? 50 years? You would see the true power of compound interest. The longer the time period that money is allowed to compound, the more it will grow into.

Start Now!

At this point, I could get into all sorts of examples of compound interest, but I am sure that most people have heard them before. If you haven’t, type compound interest into google, and I am sure you will come up with more examples than you can shake a stick at. The point that I am trying to make with all of this, is to take advantage of the power of compound interest. Start now! I’ve heard and made most of the excuses myself.

There’s always a way to spend the money you have. There’s always an excuse to start later. All of my payments are due in the first three days of the month. Some people like to have their payments spread out, but it feels a little disorganized that way. I know that I have ‘x’ dollars that I need to have in my account, so at any time through the month, I can look and see how much money I need to earn to get to ‘x’. Included in those payments at the beginning of the month is my transfer from my chequing account to my ING account. Its set up to occur every month, and I know the money has to be there. The transfer to my ING account occurs at the same time as all of my other bills, and to tell you the truth, it feels kind of the same as the cable bill or the rent cheque. Because it is set up to occur automatically, there’s no “We’ll see how much is left after we buy groceries”. Truthfully, that deposit takes more priority than the groceries. It sounds unusual to say, but there is always enough for groceries and I still have a little extra left.

The best time to take advantage of compound interest is now. If you wait until tomorrow, you reduce the earning power of your money, and you’re only costing yourself. If you haven’t already set up an automatic transfer to pay yourself first, it is the easiest simplest and most risk free way to improve your financial situation.