Recently, I was leafing through my copy of Michael Mihalik’s excellent personal finance book Debt Is Slavery (one of the very few I’ve actually kept).

I was working through something of a problem in my mind, one that I wasn’t quite sure how it fit in the context of good personal finance management. When I think back to the happiest time in my life, I think about the honeymoon I spent with my wife - the most expensive two weeks of my life.

My wife and I went to England and Scotland for our honeymoon in the summer of 2003. For a week, we stayed in a hotel with a nice room overlooking Hyde Park in central London, about half a block from the Royal Albert Hall and just a short walk from Westminster Abbey and Buckingham Palace. Later, we spent a few days in Manchester, followed by a few days in Inverness, along with stops in Bath and a few other random places around the country.

I don’t even want to speculate how much the entire trip cost, but I can say without a doubt that it was the most expensive trip of my life. It was also the most memorable two weeks of my life. I remember so much of it with a warm, loving glow - even the pictures seem to possess a certain magic.

On the surface, this would seem to be an argument against much of what I talk about on The Simple Dollar. From my own experience, the most expensive period in my life was also the happiest.

But as I flipped through Debt Is Slavery, the answer to my problem slapped me right in the face on page 39:

When was the best time of your life?

I would guess it’s something like:
+ The idyllic two weeks at summer camp when you were a child.
+ The two month backpacking trip across Europe.
+ The trip to Mazatlan for spring break.
+ The winter you spent at Sun Valley as a ski instructor.
+ The family road trip across the United States when you were 12.

What’s common about those experiences?

+ You had the freedom to do whatever you wanted.
+ You had few, if any, obligations.
+ You were footloose and fancy-free.
+ You weren’t burdened down with STUFF.

The answer to my very problem was right there in front of me. My honeymoon wasn’t a great memorable time because we spent it in such a fancy place. It was memorable because we spent it together, doing whatever we felt like doing, with only a couple of suitcases to worry about.

We were a continent away from any worries in our lives. This was following a period in which I had worked eighty hour weeks trying to create a product that had just gone live a month or two before our wedding. While we were in England, there were no middle of the night calls. There were no emergency tasks that had to be done.

There was just me, my wife, and a lot of simple and enjoyable things.

Looking back now, I realize that the location could have been almost anywhere and it still would have been the best two weeks of my life. We could have just thrown two changes of clothes into the back of our car and driven away from the wedding and it would have been the best two weeks of our lives.

When you consider it took us almost four years to pay off that trip, I somewhat wish we had just taken the simpler trip. We would have still had the freedom, togetherness, and lack of obligations, but without having to come home to that huge bill.

Great memories don’t come from expensive trips or meticulous planning. They come from spending time with little obligation other than to enjoy yourself.

One of the most fascinating aspects of the internet (for me) is how it allows people with similar perspectives and ideas to eventually find each other and congregate to share ideas, thoughts, concerns, and worries.

Take The Simple Dollar, for example. It seems to have become something of a “home” for people who are discovering (or rediscovering) the need for and the methods for managing their money. Often (and this is based on the emails I’ve received), The Simple Dollar (and the comments section) gives them the opportunity to speak out about this experience for the first time - and to find others that are going through the same thing.

I am incredibly glad that I’ve been able to find such a group of people. Many of you are going through the same things that I am, with some variations. Perhaps you’re at an earlier stage of digging out of debt - or maybe you’re already in good financial shape and are just looking for further tips. Perhaps you’re super frugal and find washing Ziploc bags to be a good tactic - or maybe you’re just happy with the money you save writing a grocery list.

What we all have in common is that we all recognize that financial recovery can be a struggle, we all like to share ideas about it, and, perhaps most of all, we don’t have many outlets for this interest in our day to day lives. Perhaps we’re the only person in our social circle with a frugal streak, or maybe it’s that we came from a family where money is not a topic that’s spoken about. In either case, we can find a place to connect with others who feel like we do: the frugal people.

Not the Sort of Person Who… Philip actually provides an interesting counterpoint to what I wrote above. (@ wisebread)

Eleven (Nearly) Effortless Ways to Save Money Each Month I love tips like these - minimal work up front, but a long tail of financial benefit. (@ frugal dad)

Obama’s 401(k) Plan Is a Double-Edged Sword I didn’t really want to comment on this plan until I heard more specifics, but several readers have asked about it. I feel roughly the same way as this article writer does. (@ moolanomy)

My Family Financial History (As Told by My Mother) People don’t acquire their behavior without effort or input along the way. I’ve often written about how my parents (and grandparents) have influenced my personal finance worldview, and here’s another angle on that whole idea. (@ get rich slowly)

Ink Recycling Programs Change, But You Can Still Benefit I’ve been recycling ink cartridges for years in various fashions. The only “problem” I ever had was when I attempted to refill a cartridge myself, which was disastrous. Anyway, this article has some good tips on how to recycle cartridges and save money. (@ smart spending)

A few days ago, I had a long email exchange with a friend of mine, who seemed genuinely surprised that I had walked away from my previous career and committed to writing The Simple Dollar (and similar things) full time.

I truly enjoyed many aspects of my previous job. That job gave me some seriously stressful moments, but it also gave me a ton of room for exploration and personal growth, and the challenges were always diverse and interesting and the people I worked with were spectacular - I still talk to many of them.

Yet I walked away from it. Why?

On the surface, it’s easy to just point at my family and say that they were the reason I made this difficult choice. Undoubtedly, the ability to spend more time with my children played into that decision. During the period of time when I was maintaining The Simple Dollar and working full time at my previous job, I felt like I had very little time at all to spare.

But after several months, I’ve come to believe my reason for changing gears was something else entirely.

Ever since I was a very little boy, I’ve dreamed about being a writer. I loved the idea of putting words down on paper - constructing sentences and paragraphs and chapters - and having it mean something. My dearest dream for many, many years was to write a “Great American Novel” - one that genuinely touched the lives of many of the people that read it.

I spent much of my late childhood and early adulthood digging deep into those “books that changed the world” - titles like Uncle Tom’s Cabin by Harriet Beecher Stowe and The Jungle by Upton Sinclair.

But, after some flailing attempts at getting stories published and a few bouts of serious disillusionment, I came to accept that this dream of writing something profound was not going to happen. I chose a different career path - one that latched on to some of my other talents - and went with it.

All along the way, though, I kept feeling like there was something big missing from everything I was doing. I could never put my finger on it, but I could sense it at times. I’d feel it when I’d help out a friend. I’d feel it when I had an opportunity to explain something and then see that brightening in the other person’s face as they understood it.

Eventually, I came to believe that there was something I was supposed to be doing with my life. I just didn’t know what it was yet.

This is the important part of the story, I think. Whenever I have a conversation with friends or with readers, I often find that people have an innate sense that there is some purpose they have in life, but often they haven’t quite figured out what that purpose is yet. And they’re flailing. They’re following a path that they think they should be following, but often it’s not the path that leads them towards what they know they should be doing.

Eventually, this sense led me to trying many different things in my life. I started volunteering more, and now I serve on a community group that keeps me very busy with volunteer work. I had children, and they provide a constant opportunity for me to teach and interact.

And I turned back to writing. The internet provided me with plenty of opportunity to work on my writing, and I tried several different things over the years - contributing articles to a fledgling competitor to Wikipedia, starting a few different blogs, selling a few pieces of writing, and other things.

Eventually, the pieces fell together with The Simple Dollar. I’m compelled almost every day to write a hefty dose of words, for starters. More importantly, though, the words help people. I’m not merely writing for the sake of tossing out words - the words are sticking somewhere.

I don’t know if The Simple Dollar is what my “mission” in life is, but in many ways it feels far closer than anything else I’ve ever done in my life. I would have never found it, either, if I had given up the search and been content with my career path. I’m not done searching, either - there are new directions and new ideas and new things that I feel compelled to try.

I do know this much: I feel called to communicate and connect with people via writing, to use that writing to share what I’ve learned and encourage others to grow in what they know. I also believe that everyone has some sort of calling within them - some people find it, some people spend their life searching for it, and others simply give up the search and stay content with their lot in life.

Here’s another profound thought: I think that many people who have given up the search for what they’re meant to do are hurt by it, and they cover up that hurt through buying things. An upper middle class lifestyle offers enough material comfort to cover up for many, many little internal challenges, after all.

What can you take out of this story? Don’t give up on your dreams. If there’s something inside of you that pokes at you regularly, telling you that you should be doing something different in your life, don’t ignore it. Explore it. Use your spare time to find what that little voice is telling you and chase it hard. Don’t let your own doubts or the doubts of the people around you hold you back.

Let me know if I’m way out in left field with this one. Do you sometimes feel a sense within you that you have a mission in life, too? Have you found that mission? Or am I just drawing conclusions without warrant? Let the discussion flow in the comments.

“Eric” writes in with a question/suggestion:

We all want to attack our debt, but can we be “gazelle intense” for the next 10 years (or more, depending on your income)?? Even if we could, is that a life really even worth living? If not, then what progressive, yet normalized, steps can we take so that we feel we are making a difference in our battle, yet still allowing ourselves a normal life (and not feeling guilty for it!)?

Eric’s question, at its core, is: how can a person turn short term intensity (the kind that helps us polish off a week-long or a month-long goal) into long term intensity (the kind that will help us get rid of an enormous goal)?

For me, at least, the transition was fairly straightforward. When I first began my financial turnaround, my goals were very short term. I was primarily focused on reading as many personal finance books as I could stand, cutting all my spending, and trying to at least reach a point where I could pay my bills. Beyond that, at least at first, I had no goals.

Over the first few months, though, I realized that if I stuck with such short-term goals, I would eventually just wind up back where I started. So I began to look at things in a different fashion. My goal was no longer the simple “get my financial footing” - it was “get myself in a position where my own small weaknesses won’t cause a grand failure in my life.”

I’m still working on it.

Here are seven tactics to help you with your own transition from short-term intensity to long-term intensity.

Think beyond your immediate crisis It’s easy to get caught up in the fact that you don’t have enough money to pay your bills right now. Obviously, you do need to solve the short term problem, but the short term problem is usually just a symptom of a bigger problem. Often, that bigger problem is pretty straightforward - you’re living beyond your means - but correcting it can be a real challenge.

Place your goals in a personally important context As I’ve mentioned before, my infant son was the inspiration for my turnaround. I knew that if I didn’t make better financial choices over the long haul, I would merely be ensuring that he missed out on tons of great opportunities as he grew up. I didn’t want to ever have to tell him that we couldn’t afford to pay for his instrument for band or that he couldn’t go on an educational trip because we had wasted the money.

Since then, I try to put every financial move I make - every purchase, every bill paid, everything - in the context of my children. Is this a good move for them? I’m responsible for their well-being in every way.

Other angles that may work for you: personal beliefs (such as faith), a personal cause that you find important, a desire for true independence, or another person in your life that makes you strive for great things.

Focus on making behavior changes rather than focusing on results While it’s tempting to just throw everything at the wall to fix the short term problem, doing that rarely results in long-term intensity about change. It’s similar to the reason why a person who diets and exercises carefully for two weeks and sees a twelve pound change on the scale often celebrates with unhealthy foods - they’re too focused on immediate actions that produce short term results but fail over the long term.

While it’s fine to do things that help you reach your short term goal (like selling old video games or DVDs, for example), don’t let those actions be the center of your plans. Instead, look for changes you can institute in your own behavior and focus on changing those behaviors. For example, if you drive by a coffee shop every day and you’re always tempted to stop in, instead of just saying “I’m not going to stop there today,” say “I’m not going to stop there any more.” Seek long-term changes in your behavior that will allow you to keep moving towards your goals.

Set a big, long-term goal - then break it down into smaller pieces It’s easy to set a short-term goal and reach it. “I want to catch up on all of my bills.” “I want to get rid of this credit card debt.” Those are both great short-term goals, ones that you can likely reach in a few months with some intense focus.

But what is your big goal? Is it to retire early? Is it to buy that nice house in the country you’ve always dreamed of? Whatever it is, spend some time piecing it out. Figure out in detail what you need to do to get there. Come up with all of the things you need to do to reach that goal, and break those steps down into tiny pieces - “pay off this bill, then pay off that bill,” and so on. Set monthly goals for how much you need to save.

In short, use that big goal as a big vision, but break it down into little pieces that are tangible for you. Then apply that short-term intensity to each goal.

Use a coach, a mentor, or a buddy Once you’ve got your long-term goals in place, seek out someone who can help motivate you every step of the way. It may be a buddy - someone who is going through the same steps you are - or it may be more of a mentor or a coach - someone who can cheerlead you through the process and offer advice along the way.

Either way, having someone else invested in your success provides additional motivation to you just by their presence. The addition of the factor of cheerleading and encouragement provided by that person just adds to the mix.

Become an example to others As you begin to turn things around (in anything that you do), people will notice. At first, the people noticing will be the people in your inner circle - your family and closest friends. Later, even people you don’t know well will begin to notice changes. You’re less tense about things. You seem more focused on the things you need to do. You’re smarter about how you spend your money. Sometimes, in ways you don’t even expect, you’ll become an inspiration to others. “If she can do it, I can do it,” they’ll think.

The positive changes you make for yourself aren’t just positive for you. They can be positive for everyone around you. Eventually, you’ll begin to see it in little ways - and the idea that your actions are helping others in such a subtle fashion can become a nice additional motivator to stay intense.

Share If you begin to really achieve success, you might find it helpful to actually share your success with others. Perhaps you can volunteer to be involved with a help session in the community, or maybe you can just offer advice to your circle of friends. Maybe you’ll find enough initiative within yourself to actually start something new to share your experience, as I did with The Simple Dollar.

Once you begin to share, letting others know of your failures and your successes and how you managed to turn things around, you’ll find that people will listen - and those very people will convince you to continue to be intense about your choices. They’ll ask questions and you’ll want to answer them. They’ll want you to effectively be their “coach” - and that responsibility will push you to excellence, too.

Late last week, a rather amusing story made the rounds in the mainstream media: the humble wooden stick had been inducted into the National Toy Hall of Fame.

Usually such stories are tossed out there into the news to give people a lighthearted moment in between more intense and often downbeat stories, but this story gave me pause. In an age where many of the toys targeted towards children are fairly expensive and seem to only hold their interest for a few minutes, what toys have really stood the test of time?

I spent some time looking at the list of toys in the Toy Hall of Fame, and I was actually rather impressed - and inspired. I didn’t really expect this little investigation to turn into an article for The Simple Dollar, but when I started digging in, I had something of an epiphany: there were a few profound patterns in the toys in the Hall, and those patterns point straight towards good patterns for frugal parenting.

A few of the toys were basically free. You can find a humble wooden stick in the yard. Many items that you buy come with a “free” cardboard box. It’s also fairly easy to make a homemade kite, homemade Play-Doh, or homemade Silly Putty. None of those items - all of them classic toys - require much expenditure at all.

Almost all of the toys were open-ended. There’s not a set way you can play with most of the toys - they don’t have an obvious, specific way to play. Instead, a child must bring some imagination to the table - and when they do that, there’s a huge abundance of replay value in these toys. The stick and the cardboard box are just for starters - crayons, alphabet blocks, Erector sets, LEGOs, Tinkertoys, and several other items on the list fall into that category.

Almost all of the toys are cheap to buy new. Even beyond the free items, most of the toys are very cheap to buy new. I could only identify a small number of items on the entire list of 41 toys that cost more than $10 - many could be purchased for far less than that.

Most of the toys are sturdy - and thus likely to be found at yard sales. Items like alphabet blocks, Etch-A-Sketches, hula hoops, jump ropes, marbles, and skateboards are often easily found at yard sales and are passed down from child to child, generation to generation. Why? They’re sturdy - it’s hard to break them during normal play.

So, what’s the message here? Most of the “great” toys on this list are also frugal toys as well. A child is much likely to get more intellectual growth out of a box of crayons and a big pad of paper than they ever would out of a $20 toy that lights up and makes noises. The noisy toy might get a bit more attention at first, but over the long run, that box of crayons will become well-worn while the noisy toy gathers dust in the corner.

This Christmas, when you go to buy gifts for the children on your Christmas list, think carefully about the Toy Hall of Fame - the toys that are truly timeless. They’re not the ones with the big price tag. They’re not the toy of the moment.

Instead, they’re toys that your parents played with, that you played with, and that my own kids are playing with right now. They’re the ones that children are drawn to over and over again, because they let their imaginations roam instead of just responding to the push of a button.

The best part is, they come with a very low price tag.

Instead of getting your child or your nephew some expensive toy this Christmas, get that child some crayons and an end roll of newspaper to draw on and then spend an hour drawing with that child. If you’re a parent, package one of your gifts in a big cardboard box - likely, your child will have more fun with the box than with the gift.

In short, give a little more imagination and spend a little less money. If you really feel obligated to spend that money, make a donation to the child’s 529 in addition to the gift.

As for us? Our two kids are receiving at least three of the items from the Toy Hall of Fame this Christmas. I can’t think of a better “wish list” to start from.

Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently. A few people have asked questions lately about how to get by on a very low wage, particularly after exiting a higher-paying job. Here are three articles that might help.
Ten Steps to Financial Success for a Minimum Wage Earner
Ted’s Dilemma: Planning for the Future on Minimum Wage
Everything’s So Easy for Pauline: Thoughts on Luck, Fate, Money, and Life

And now for some great reader questions!

I started a Roth IRA with the financial adviser my entire family uses. The thing is that he charges a 100$ fee every year to maintain the account no matter what. Is this the standard or am I just paying for the convenience? What are my options here? Can I move my account? Is it difficult?
- Paul K.

It depends entirely on your agreement with the advisor, but you should be able to roll that Roth IRA into another Roth IRA that you manage yourself. My suggestion would be to contact an investment house that lets you self-manage, explain the situation, and ask for their advice. I use Vanguard for my own Roth IRA and I’m extremely happy with them - they certainly aren’t charging $100 a year. In fact, they charge nothing beyond a small percentage of the investments themselves - 0.2% or so in most index funds.

Situations like this - which pop up with alarming frequency in my email inbox - are the reason I am often loathe to recommend financial advisors to people. There are some good people out there doing financial advising work, but there are a lot of sharks in the water, too. If you’re considering turning to an advisor, only use one that accepts an up-front fee for the work - no commissions at all.

I hereby challenge you do get into good enough shape to ride RAGBRAI (the full week event) in 2009. I, personally, need to lose weight and get into better shape. So, are you up to riding RAGBRAI with me (or other friends who will be riding in 2009)?
- Carlos

I would love to take you up on this, but a week away from my wife and kids just to ride a bicycle is not something that’s high on my priority list.

Instead, my focus is to train to run a good time in a 5K run late next summer. I’m mostly focusing on getting in good cardio shape during the winter using home exercise and then intend to work on the actual running during the spring and summer.

Could you address how folks with disabilities or who suddenly become disabled can mitigate some of the financial issues they may face like long term care, life/disability insurance for those who often get refused, and perhaps resources folks should look to for a little bit of help?
- Nicole

The first place I’d start looking for information would be DisabilityInfo.gov, the federal government’s site on disability issues. This site actually answers many of the questions you raise here in an easy-to-use format.

I would also strongly encourage you to contact the leaders of local churches. These people are usually intimately involved in the charity work of the local community and will be able to point you to resources that you can use locally to help yourself get back on your feet.

At 9 p.m. I am in bed with my youngest reading a story until both he and I are asleep. My alarm signals a new day at 415 a.m. that next morning. There are so many things I would like to learn with regard to finances and other interests, but I cannot seem to find dedicated time during the regular day. My choices are forcing myself to wake-up after I put my son to bed and work “after hours” or I get up at 3 a.m.? Which would you do?
- Chris

My first suggestion would be to delve into audio books for your commute. Audible.com is a great place to start.

Another suggestion would be to turn off the television. Institute a family reading hour in the evenings where everyone is involved with books. While my children are too young to really grasp this, I know many families with older children that do this quite well.

I usually devote an hour of my “work day” to learning new things, and that usually revolves around reading all sorts of things, many that are only tangentially related to personal finance. Perhaps your job enables you to do something like that.

Please suggest a “Simple Dollar” for the folks in their early/mid 60s who are learning what retirement really means, i.e. retirement does NOT equal permanent vacation, thank God I saved/prepared enough to enjoy it, and there are still a lot of questions needing answers, new questions, new answers. Thanks for letting me/us know if you can recommend anybody/thing.
- Michael Bash

I think there is a huge audience for a retirement-age personal finance blog. The only problem is finding someone to write it.

The truth is that most bloggers tend to be young - in their twenties or thirties - and are simply not facing these issues. That’s not to say there are not older bloggers, it’s just that the blogger demographic tends towards Generation Y.

Why is that? I think there is more of a willingness among the young to reveal their flaws openly to others, to tell the truth. I don’t know whether that’s a generational divide or a old versus young thing, but I know I’ve heard from many older readers who seemingly can’t believe I would admit to giant mistakes so freely.

I would love to see an older blogger in his/her fifties or sixties take on the issues of people facing retirement.

Thanks for the freezer recipes. My question is, how long do they last in the freezer? Not too long ago, I threw away some sausage that had in my freezer about a year and a half! (I felt really guilty about it.) I things tend to get lost in there.
- Sally Villarreal

I would not keep a prepared meal in the freezer for more than three months, no matter what the meal is. The texture of the meal would be extremely poor beyond that point.

Given that, it’s okay to freeze most uncooked meats for a year or more. Here are some useful guidelines as to how long to freeze various kinds of meats.

As a rule of thumb, I don’t keep frozen vegetables for longer than six months with the exception of juice or pureed vegetables.

I know that your children as still quite young, but do you have any plans to handle spending on “luxuries” for when they’re in their teenage years? For instance, will you purchase a cellphone for them, and allow them to choose their own clothing? The reason I ask is that my parents were very frugal with things they didn’t deem to be necessities, and this had an impact on my social life. I was constantly “out of the loop” due to not owning a cellphone, and I was frequently teased about my clothes.
- Amanda

My plan is to basically include such services as part of their allowance. If they want more pocket money, they go with the cheap cell phone and the cheaper clothes. If they want less pocket money, they get nicer clothes and the iPhone 7.0.

This allows the kids to make some choices - and to realize that those choices have consequences. You don’t just get the snazzy phone - it has a cost, and that cost will be reflected in limiting their other choices.

I am not in favor of letting kids run rampant with spending. My children will have pretty strong caps, but they’ll have opportunities to earn more - I intend to encourage both of them to be entrepreneurial in their spare time.

You list the books you read all the time, but you never tell us what you actually like. What books have you read in the last year that you’ve ENJOYED the most?
- Fran

The Brief Wondrous Life of Oscar Wao by Junot Diaz is the best book I’ve read this year, bar none. Run, don’t walk, to your local library or bookstore and pick it up. I thoroughly enjoyed it.

The Demon-Haunted World: Science as a Candle in the Dark by Carl Sagan is the best explanation for the necessity of scientific exploration in the modern world. We must ask hard questions - and we should never throw out answers that are backed with evidence simply because we don’t like them.

Watchmen by Alan Moore and Dave Gibbons is the best graphic novel I’ve ever read - and I’ve read a ton of them. If you think it’s a “superhero comic book,” you’re selling it - and yourself - short.

Those are my three picks from my most recent reading.

Why are CDs such a popular investment choice? They don’t return nearly as much as stocks do.
- Billy

CDs are popular because their return is stable. If you buy a long-term CD now, it will return that nice, steady 4% (or so) annually without losing a drop of the balance.

If you invest in stocks, on the other hand, you put your initial balance at risk. For example, if you had bought stocks a year ago, you would have likely lost 40% or so of your holdings, whereas with a CD you’d be up 4%.

The reason people invest in stocks is because over the long haul, the good years tend to outweigh the bad, resulting in a long-term annual growth rate that appears better than CDs. An individual year, though, might be a 2006 - with a 15% return - or a 2008 - with a 35% loss.

The people who buy only CDs are either in it for the short term - less than five years, say - or are highly risk-averse. Most people just use CDs as one element of a wider portfolio, treating them as the “safe” part of their investments.

I’ve tried to cut my own hair, but every time I do so, it looks disastrous. Do you feel that the $20 invested in a good men’s haircut is worthwhile if you’re single and can’t do it well yourself?
- Ed

It depends wholly on your career, actually. If you are in a situation where your appearance is an important part of your job and you can afford it, then a quality haircut is definitely worth the investment.

However, if your job is one with low responsibility and low wages, then $20 a month is an unnecessary expense. A pair of clippers can give you hundreds of haircuts for just that price.

In this case, let your situation guide you.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

Every other Sunday, The Simple Dollar reviews a personal finance book.

Peter Schiff is a huge pessimist about the future of the economy, and because of that, he’s probably the perfect person to write this book.

The Little Book of Bull Moves in Bear Markets is the seventh in a series of “Little Books” (I have reviewed the other six) that each focus on very specific areas of investing, each one discussing an individual investing strategy in detail, but using layman’s terms to make the book accessible to everyone. In each case, the author of the book outlining the strategy is wholly appropriate - for example, the book focusing on using index funds for investing is written by John Bogle, the founder of Vanguard.

This entry focuses on how to invest in a down market, and Peter Schiff is perhaps the best person out there to write it. Schiff is widely known as a person who is quite pessimistic about the future when it comes to the economy and investing and thus has made a pretty big name for himself during the current downturn. In fact, his negative statements about the market have earned him the sarcastic nickname “Dr. Doom.”

Schiff actually does know what he is talking about, though. He’s the head of Euro Pacific Capital, a brokerage firm that focuses mostly on preparing people for an eventual huge economic downturn that he sees coming. What advice does he have to offer? Let’s dig in and see.

A Walk Through The Little Book of Bull Moves in Bear Markets

Chapter 1 - Let’s Do the Time Warp Again
Schiff opens the book by making his case that we’re currently in a very desperate economic situation. Most of this is pretty basic stuff to people who have followed the news over the past three months, but Schiff is pretty strong in his negativity, arguing that the United States is actively destroying its own wealth by spending so much of its money on imported goods. It’s an excellent chapter to read if you’ve not heard Schiff’s arguments in the past - he makes a very strong case for a strong financial downturn over the next several years.

Chapter 2 - Saving Your Assets
Obviously, this begs the question, “How can I protect myself against such an economic mess?” Schiff starts with the answers here, and his first tactic is pretty simple: avoid cash and bonds. Schiff tends to believe that hyperinflation is about to happen and makes a lengthy economic case for it (a pretty interesting contrast to the article I posted this morning talking about deflation), and in that case, he argues that bonds and cash (referring to U.S. dollars) are poor places to keep your money. Instead, his advice is this: if hyperinflation is coming (or has arrived), keep at least some of your money in a money market account made up of non-dollar currencies. He also recommends rare metals.

Chapter 3 - Beware of False Prophets
Interesting, after two chapters of predicting doom, Schiff steps back here and encourages readers not to just blindly accept the words of “prophets” and instead learn for themselves - brilliant advice. He spends much of the chapter deflating the arguments of others, but if you take his main idea of doubting the people predicting the future, then logically you should doubt him as well and do your own follow-up research. This is true for any advice you read - don’t just blindly follow the words of one person who proclaims to know all.

Chapter 4 - Of Babies and Bathwater
Of course, many people are holding a lot of U.S. investments, both in their retirement accounts and in their taxable investment accounts. Schiff’s advice to people holding a lot of American stocks is to move them into producers of basic materials, energy companies, agricultural companies, and oil companies, as well as into conservative foreign companies that pay a good dividend. What should you avoid? Schiff tells people to stay away from any stock that relies on the American consumer - consumable goods should be avoided like the plague.

Chapter 5 - Hot Stuff
Another piece of the investment puzzle when the stock market is in terrible shape is commodities. Schiff argues that basic commodities are a great thing to own when the economy slows because people will still need products, it’s just that complex products will be less popular than basic staples. That points one straight towards commodities - crops, livestock, raw materials, and so on. Schiff says the average investor should look at index funds of commodities as a good way to invest.

Chapter 6 - The Ring in the Bull’s Nose
Here, Schiff addresses rare metals - gold and silver. Schiff argues that these commodities are different because there’s an inherent limited supply of them - they’re rare because there simply isn’t that much of either metal on earth. Thus, they will hold their value always to some extent and are a solid place to put your money to preserve wealth over the long, long term. I think this is largely true, but I also think gold and silver have both bubbled over the last decade and the prices may be on the high side. However, when you buy them, you are getting a rare commodity.

Chapter 7 - Weathering the Storm
Schiff argues that if hyperinflation is coming to the United States, it makes sense to own stable foreign stocks, and here’s why. If the United States is experiencing inflation far worse than the rest of the world, then the dollar will devalue compared to other currencies, so an investment in a foreign company will not only gain in value in terms of the company itself, but it will also gain in terms of the dollar. Schiff gets pretty overzealous here, going so far as to actually shill for his own investing company which handles such foreign investments, but the argument is good if you believe hyperinflation is coming. I actually don’t - I think deflation (as I mentioned this morning) is more possible, but neither one is a likelihood by any means.

Chapter 8 - Favorite Nations
In what nations should you invest? Key things to look for are economies that aren’t completely hinged to the United States (companies and nations with a huge export business to the U.S.) and also internal stability. He lists a bunch of nations with great investing opportunities in the current situation, but seems most infatuated with Australia, arguing that it has most of the upside of the United States but without the rampant overspending and impending collapse. Other nations mentioned include Norway, Switzerland, and Singapore.

Chapter 9 - If You Want to Roll the Dice
If you’re looking to take risks outside the US, Schiff looks towards emerging markets - nations that are just now undergoing an industrial revolution and are pushing their way out of the third world. Given the dynamic nature of such nations, Schiff seems to encourage investors to limit the amount they invest there (keeping it a small portion of their investments) and stick to index funds that buy a wide variety of individual stocks from these emerging markets.

Chapter 10 - To Infinity and Beyond
What areas within the United States might remain strong during this downturn, or might benefit because of it? Schiff points towards several areas. He predicts a rebuilding of basic manufacturing within the United States as well as continued focus on the areas where we export things, such as entertainment. Obviously, as mentioned earlier, companies that produce basic commodities will also remain strong.

Chapter 11 - A Decade of Frugality
Schiff makes a statement here that I wholeheartedly endorse: frugality is the best way to prepare yourself and the best way to survive any downturn. Focus on spending less money on unnecessary purchases. Save and invest when you can, both in your self (through basic skills) and your personal infrastructure (through stockpiling and resourcefulness) as well as in the investments described throughout the rest of this book. Schiff argues that this is a good recipe for businesses to follow, too, since running a business over the next decade in the United States might be dicey.

Chapter 12 - Pack Your Bags
What if you don’t want to live through this downturn? Schiff talks about emigrating here - moving to another country. He points towards nations like Russia, China, India, and Brazil (the so-called BRIC nations) as places where the growth of the 21st century is happening - and that the best thing you can do when you get there is to start your own business. While this is great advice for the heavily entrepreneurial reader, it’s a bit out of the range of most people.

Chapter 13 - The Light at the End of the Tunnel
To close the book, Schiff argues that all this doom and gloom does have a silver lining. Once we get through a rough decade or so of adjustment in terms of lifestyles and economy, we’re likely to come out the other side much leaner and ready to fight for our place in the world - and that can only mean a boom time for America. The path between here and there, though, according to Schiff, is quite dark.

Some Thoughts on The Little Book of Bull Moves in Bear Markets
If nothing else, this book makes for a great basic economics textbook. In terms of relating concepts of economics to real-world personal finance, this is perhaps the best book I’ve ever read.

On the other hand, Schiff pretty clearly has a strong perspective on things. He really believes that an apocalypse is coming (or is practically here), and part of the purpose of this book seems to be that he’s making a case for this apocalypse, leaving the rest of the book to suggest how to deal with this situation.

Thus, this is a great book to read with a strong neutral fact source along the way. Schiff’s advice is great if you believe his case, and this book is certainly educational when it comes to economics, but he’s intentionally shading things to make his case seem very strong (as any good persuasive writer would do). Thus, if you read this and get interested in specifics, read Schiff’s take, but don’t assume that’s the end of the story. Follow up with some unbiased writing on the topic using other resources - Wikipedia is often a good place to start.

Is The Little Book of Bull Moves in Bear Markets Worth Reading?
Schiff is a strong pessimist about the next decade or so in America, and usually I avoid books that predict an extreme environment, whether it’s a positive one (like Millionaire by Thirty) or a negative one (like this book).

The Little Book of Bull Moves in Bear Markets stands above the pack a little bit, though, because Schiff makes it very clear that he’s predicting a strong bear market for a while and explains how he comes to that conclusion. You never doubt where he’s coming from, whereas other predictors often don’t make the basis for their assumptions clear at all.

Even though I don’t agree with Schiff’s assumptions, I did find this book to be an enjoyable, thought-provoking, and useful read. It provided a lot of good ideas on how to invest over a long down market and provided a lot of good, basic economics material that actually ties in well with personal finance. Plus, Schiff doesn’t simply say that investing solves everything - he encourages frugality and building personal skills as well.

Given all of that, I would definitely say that The Little Book of Bull Moves in Bear Markets is a worthwhile read for anyone interested in the topic, though I wouldn’t wholeheartedly accept Schiff’s negative economic view.

Michael writes:

I’ve read several articles recently that claim the United States is headed into a period of deflation, but they made it sound like that was bad news. The way I understand it, deflation means lower prices for everyone. How can that be bad?

Several commentaries from various writers and radio broadcasters are circulating at the moment predicting a “deflationary spiral” for 2009 and beyond. I read about this first in the November 13 issue of The Economist in an article entitled Depressing Times. On the surface, that might seem like a good thing, but when you dig deep, it’s not a good thing at all.

What is deflation? Deflation is the direct opposite of inflation. Deflation occurs when, over time, prices on goods and services go down instead of up. Deflation can occur in just some specific sectors - like cars, for example - or it can strike everything and cause all prices to fall.

Deflation is rather unusual, actually. In developed countries, a constant but relatively low level of inflation is actually the normal state of affairs. That’s why, normally, year after year, we see prices of the ordinary things we buy inch upwards - it’s inflation at work.

Isn’t deflation a good thing for consumers? Over the very short term, it is a good thing. If deflation occurred over a very short time, ended, and prices started to climb again, that’d be great - it’d be like a global 5% off sale everywhere, and that would undoubtedly be a good thing for people who are just worried about putting food on the table and buying Christmas presents for their kids.

Things get problematic, though, if deflation happens over a long period and comes to be viewed as the norm. When that happens, people stop spending money.

Why would deflation cause people to stop spending money? Think about it. Let’s say you were thinking about buying a new car, for example. The current price tag on that model was $20,000. However, you knew that deflation was at work and all prices were falling. Wouldn’t you think to yourself, “You know, I could just wait a year and that car would only cost me $19,000.”

Compare that to a situation with inflation. You see a car there for $19,000, but you know prices are going up. You can reasonably expect that next year the price of that car will be $20,000, so there is some push to buy that car now rather than later.

And that’s the key difference. Inflation encourages people to spend money now - deflation encourages people to choose to spend money later.

If a lot of people choose to spend their money later and not spend their money now, products go unsold. Because there’s no demand, manufacturers slow down production. Factories slow down. People get laid off - and then can’t spend money anyway. Retailers cut costs to try to attract buyers. And the cycle continues.

That sounds nasty. What can I do to protect myself if deflation happens? The best thing you can do is not to assume that deflation will continue forever. Don’t delay purchases with the idea that the price will continue to drop everywhere. Instead, do careful bargain hunting, but pull the trigger when you find the item for a suitably low price.

This is similar to the logic of why it’s a waste of time to obsess over timing the stock market. No one knows for certain when the stock market is at an absolute bottom, so you shouldn’t waste time trying to guess when that bottom is. Instead, take advantage of the fact that prices are down, period, and make smart purchases.

If you’re worried about your investments, the solution, as always, is to diversify. Don’t have all of your retirement money in domestic stocks. Spread it out to international stocks, bonds, cash, real estate, and so on. That way, no matter what happens, you have some stability.

For now, though, don’t worry about it. Keep making sound financial choices. Spend less than you earn and sock away the rest. Practicing good, sound financial behavior in your day-to-day life will provide the basis for weathering any storm.