My Grandmother’s Advice That’s Still Relevant Today

My grandmother never had a lot of money, but she always managed to have enough to put food on the table and to pay every bill on time.

Here are a few of the things I learnt from her. Not all of them have to do with money, but they’re all drawn from an everyday life of hard work, thrift and “keeping the wolf from the door”!

Save for a “rainy day”

Have an emergency fund. Unexpected things happen. My grandmother couldn’t go running to the bank for an emergency loan or overdraft. Always have something to “tide you over” in the food cupboard and the money pot.

“Make-do”

The most important things every month are our savings and to pay the rent or mortgage. The rest is a luxury. There’s always a new way to spend money, but the secret is in making-do with the things around us which we already have or which don’t cost much.

“Waste not, want not”

“Want” in the sense of not having something that you need. Cook at home, use left-overs, never throw food away, learn basic recipes that are cheap to prepare and filling and nutritious. Don’t throw money away on anything unnecessary.

“Look after the pennies, and the pounds will look after themselves”

It’s all those small expenditures that we might think are nothing that can really add up and make the difference between staying within budget or blowing it out of the water! “A penny saved is a penny earned.”

“Don’t go throwing your money around”

Let’s not go around thinking we’re millionaires and spending as though we were! Let’s not “live a life of luxury” that we can’t afford. Otherwise we’ll never be a millionaire!

“It’s not what you spend, it’s what you don’t spend”

Spending money doesn’t make you rich, even though it might make you feel rich… for a while. It’s all about what you don’t spend!

“While you’re earning, you’re not spending”

Keep yourself busy at work, and you’ll have less time to go out spending money on things in the shops, meals out, etc. Double positive effect on your finances. Many people with partners who don’t work don’t worry so much about the loss of income, but rather the extra expenses from them having so much free time on their hands!

“Never put things on the never-never”

In other words, don’t buy things that you can’t afford to pay for in cash. Never take credit for anything except a mortgage.

“Pay for everything in cash. It’s cheaper!”

Paying interest when you buy something makes it an expensive purchase.

“You have to earn your keep”

Nothing is for free, and free-loading is not allowed. It’s unfair on the rest.

“Everyone has to do their bit”

Everyone in the family has to do what they can, whether it’s helping around the house or bringing in a bit of extra income to put on the table every month add to the family savings account.

“There’s no such thing as a free lunch”

Don’t expect anything for free in this life. You have to work for it!

“Rome wasn’t built in a day.”

It takes patience to acquire the comforts of life. You probably won’t get rich quickly, but if you’re careful, you might just get rich slowly.

“Where there’s a will, there’s a way”

If you really want to achieve something, you’ll find a way to do it. whatever the obstacles.

“If at first you don’t succeed, try, try, try again”

Don’t give up, even if you fail a few times to start with. If you keep trying, you’ll succeed in the end.

“If a thing’s worth doing, it’s worth doing well.”

Don’t waste your time doing things “half-heartedly”.

“Don’t do things by halves.”

If you’re going to do something, give it your all! Otherwise, what’s the point!

“There’s a time and a place for everything.”

Doing the right things at the right times is crucial. This involves prioritising and focusing on one thing at a time.

“A miss is as good as a mile.”

If you narrowly fail, you’ve still failed! Make sure you succeed by working on whatever you’re doing as hard as possible. And never give up!

“Neither a borrower nor a lender be.”

This actually comes from ‘Hamlet’ which my grandmother probably never read, but this quotation was very much in use in her generation. It speaks for itself.

“Lend your money and lose the friend.”

Lending money to other people is fraught with difficulties. It’s better to help them find a job or to give them good, solid financial advice. If a loan comes too easily, your friend could well be in the same or greater difficulties later on and then you’ll never get your money back, which will sour the friendship forever.

“Don’t put all your eggs in one basket.”

Don’t bank everything on one thing! Diversify!

“Pull yourself up by your bootstraps.”

This is the old philosophy of self-help to get ahead in life. Still very valid today.

“You got yourself into it, you get yourself out of it.”

As far as I can tell, this one was my grandmother’s own invention. Don’t expect other people to bail you out of problems of your own making.

“Beware of Greeks bearing gifts.”

If someone gives you something, the chances are they want something (usually a lot more) in return. Beware! Look what happened to Troy!

“In the olden days… ”

My grandmother used to use this phrase when she was telling me how good things were now compared to when she was growing up during and after the First World War. Tough times!

“Having a whale of a time.”

For my grandmother, this meant the simple joys in life like having the family round for a few hours, playing cards or a board game, going for a walk in the park… None of these things really cost anything. No flashy cars or expensive jewelry for her! Sometimes, she would even spoil herself and buy an ice cream!

Scrap the Paper and Go Paperless

The accumulation of documents like bank statements, bills, receipts and more can cause unnecessary stress and paying bills by check can eat up a lot of your precious time. Fortunately, it’s easy to streamline your home office by going paperless and initiate an online bill-paying system. The payoff to this modification is vast. Below are some reasons to go paperless and how to achieve this new lifestyle.

What are the benefits of a paperless lifestyle?

• Be environmentally friendly and reduce the demand for paper and other natural resources. The average American receives 41 pounds of junk mail per year. Almost 50% winds up unopened in the landfill. Fiserv, a financial services technology solutions company, estimates if every American household was paperless, it would reduce solid waste by more than 800,000 tons a year and save approximately 18.5 million trees.

• Deter theft. You don’t have to worry about sensitive information being stolen in your mailbox, home or office. Instead, your statements/invoices will be protected by a username and password and any additional security you have placed on your computer.

• Ability to access your information promptly. Digital files make it easy to audit and search information. An e-based online storage system keeps all your files in a single secure location and allows you to search for sensitive information with the click of your mouse. No more digging through paper files and folders.

• Spend less on paper checks. Paying your bills online can save you approximately $30 per year in the use of paper checks.

How to go paperless at home

Sometimes the undertaking of going paperless can be frustrating. Transitioning requires patience and commitment and your plan must be pertinent to your lifestyle. Review these strategies and choose the ones that work best for you.

• Opt out of junk mail. Reduce the amount of unnecessary mail you receive by opting out of junk mail and catalogs. There are many services that can help you manage the influx of mail.

• Sign up for E-Statements. Sign up to receive electronic bills and bank statements. You can do this on each company’s website. It may take a lot of time to set up your online accounts but you will immediately see a decrease of unwanted mail coming into your home.

• Pay your bills online. Most financial institutions offer online banking and the majority of utility, credit card and cable companies allow customers to view and pay bills online. You may even sign up for automatic bill payment plans for added convenience.

• Start purging and recycling. Once you have stopped receiving junk mail, signed up for e-statements, and your online banking, it is time to organizing your existing paperwork. As you begin this tedious task, keep in mind that it is estimated that we never look at 80% of the papers after seeing them for the first time. So, shred it or toss it. Keep in mind, papers you must keep include bills, tax records, investment information and of course any sentimental papers. This can be a long-term project so don’t get discouraged.

• Digitize your documents. Scan all the documents you need to keep and store them on an external hard drive on your computer for go “to the cloud” for extra security. This process will save space and reduce your clutter.

• Rethink your subscriptions. It might be a good time to cancel most of your subscriptions to help reduce the paper coming into the house. You might be able to get the same news online.

• Rethink your printing and use of unwarranted paper. Think twice before printing anything. Read documents on your tablet or laptop and if you need to share a document, use your email.

As I’ve said before it takes time to go paperless. But if you follow these recommendations it’s a solid plan. You will save time, money and you will reduce your environmental impact. It’s a win-win for everyone so say “Yes” to paperless.

Understanding “Income Purpose” Investing

After 45 years of investing, I’ve come to the conclusion that the equity (or growth purpose) market is a far easier medium for investors to understand than the far safer, and generally less volatile, income purpose securities market. As counter intuitive as this sounds, experience supports the premise.

“Understanding” boils down to the development of reasonable expectations: just how do you expect the market value of your income purpose securities to react to varying market, interest rate, economic, political, atmospheric, and “other” conditions”… and, does it really matter?

Few investors grow to love volatility as I do, but most expect it in the market value of their equity positions. When dealing with “income purpose” securities, however, neither they, their guru/advisors, nor market commentators are comfortable with any downward movement whatsoever.

Not to make excuses for them, but most professional and media folk think in terms of the individual bonds and other debt securities that Wall Street markets to brokerage firms and other large investment entities. Bond traders hate to discount their inventory due to higher interest rates… it’s bad for year end bonuses. But their bond market disaster is the individual investor’s opportunity to buy the same amount of income at a lower price.

Most investors are also more receptive to loss taking advice on income securities than they are with respect to equities… always the effect of a “market value” rather than an “income production” focus… and a well kept Wall Street secret.

The list below describes some important characteristics and concepts involved with investing in income purpose securities. Familiarization with these will aid in the development of valid “performance” expectations. Doing so will also help develop an appreciation of this important (and somehow not too often mentioned) relationship: changing market values (in either direction) rarely have any impact on the income being generated by the security.

Confucius say: keep your eye on the ball, you can’t buy groceries with market value or total return, only income pays the bills… without depleting sacred capital

General attributes of income purpose securities:

They generate a predictable stream of interest, dividend, rent, royalty or other income.
They pay income in specific amounts on specified dates.
Their risk of financial loss varies dependent upon security type, issuer quality, and maturity, BUT, all normal income securities are considered far less risky (financially) than the common stock of their respective issuing entities. State government paper is less risky; federal government issues carry no financial risk at all.
The purpose of the income asset allocation of an investment portfolio is the production of income in an amount large enough to assure: annual growth of income producing capital and annual growth of income production.
High dividend common stocks (utilities, etc.) are not included within the income purpose security definition, although they may be less risky than other equities.
Bonds, loans, and other interest bearing securities are issued by both corporations and government entities and have maturity dates upon which the principal is returned to investors.
Income securities that are guaranteed as to principal and interest, or protected by “safety mechanisms” of any kind always bear a lower yield than otherwise similar securities.
Generally, fluctuations in market value have nothing to do with the financial viability of the security issuer. Most often, they are the result of anticipated changes in the direction of interest rates, or the tax code.
Any form of either market value or total return performance analysis in a predominantly income purpose investment portfolio is counterproductive, at best… particularly when comparisons are made with any form of equity index.
Bonds, mortgages, notes, and other “debt” instruments are generally illiquid securities with wide price “spreads”, and difficult to either sell at “statement” prices or add to from the marketplace.
Income closed end fund portfolios are liquid containers for illiquid securities, thus eliminating the major drawbacks of owning individual bonds, mortgages, loans, etc.
Higher interest rates (lower prices) are good for income investors because they produce higher yields from new (and existing) securities that are available for purchase.
Lower interest rates (higher prices) are good for income investors because they can provide “reasonable” profit taking opportunities on securities already owned.
A reasonable trading profit on an income purpose security is anything in the neighborhood of “one year’s interest in advance”, keeping in mind that three 7s always beat two 10s.

Theoretically, income purpose securities should be the ultimate “buy and hold” security blanket within retirement income portfolios. But if you examine the average retirement portfolio, especially 401k portfolios, you would find a remarkable low “income purpose” asset allocation. This seemingly nonsensical behavior is as much the result of government regulation as Wall Street manipulation. For example:

The Vanguard Retirement Income Fund (VTINX), with nearly $17 billion in assets, is one of the most popular and well respected of all funds in retirement income portfolios, particularly 401ks. The five individual funds inside yield just 1.75% in actual spending money to investors… but they are dirt cheap.
A diversified portfolio of income purpose Closed End Funds (CEFs), with payment histories stretching back more than twenty years, would yield well in excess of 7.00% after somewhat higher expense (that the security owner never actually pays).
CEFs are never found in 401k plans and rarely appear in IRA and other retirement portfolios created by investment professionals; please tell me if you know why.
Confucius say: if you buy cheap, you get what you pay for

The focus of an income purpose portfolio needs to be: the amount of realized, spendable, income produced irrespective of market value fluctuations. The operative investment management objectives need to be: growing both the productive working capital and the spendable “base income” produced by the portfolio.

Wall Street has you believing that lower market values are always bad and that higher prices are always good. This is the conventional wisdom we’ve all had thrust upon us for decades. But price volatility is the very nature of securities markets, the very reality that creates both buying and profit taking opportunities, particularly in income purpose securities.

Higher income purpose security prices mean lower yields, but also increased realized profit potential; lower income purpose security prices mean higher yields and buying opportunities. I see no bad or good; just the opportunity created by either scenario. (The same is true, incidentally, with Investment Grade Value Stocks.)
It is the inherent safety (i.e., lower risk of financial loss) of income purpose securities (and IGVSs) that creates this almost perfect relationship. Price volatility is always good.

“It’s OK, it’s natural, every market value fluctuation is satisfactual” is what I’ve been singing for decades… particularly since the creation of income CEFs. Rarely, even in the three major meltdowns of the past 40 years did any high quality company or government entity default, regardless of tremendous price fluctuations in all securities. Each time, the vast majority of CEF income payments kept rolling in, unscathed by the surrounding chaos.