Living with Parents to Save Money and Accelerate Financial Independence

I was watching the video below from the Techlead where he explains why he is moving back in with his parents. Most people think that poor losers live with their parents, but this guy is a millionaire, and he seems to be providing very logical reason why you should live with your parents. 

This video reminds me of me. I personally live in my mother basement even though I am in my thirties and earn a six figure salary. I continue to live in my mother's basement because I couldn't justify any reason to move out even though I can afford to move out. I currently own an investment property, and if I moved into this property, I will not be able to collect rent from the tenant, which will cost me more than if I rent. Rent costs about $1700 per month. Spending this much on rent seems like such a waste. My mother even wants me to live with her and I help out with paying the bills. 

I also don't believe that moving out increases independence. Rather, moving out decreases independence because it reduces your wealth. A reduction in wealth reduces financial independence. 

Nevertheless, I will admit that living in your mother's basement is terrible if you want people to respect you. People look down on me and no one wants to date me. Recently I was dumped by a woman, and although she didn't give me a reason for dumping me, I have a bunch that me living in my mother's basement strongly  influenced her decision. 

However, if I move out because I want others to like me or I want to get a date, I feel like this is no different to buying a Ferrari for the exact reasons. My logical brain tells me that moving out in order to gain respect and love is pure consumerism.

So I have a dilemma in that I would like to be loved,  but at the same time I don't want to be a conformist, I don't want to be a victim of consumerism, and I want to be authentic and true to myself and my values. It feel like such a disappointment that the price of love is conformity.

Message to Dairy Farmers: Make Almond Milk Instead

Dairy farmers in Australia and Britain are complaining about not being paid enough. It turns out that the dairy business is not that profitable.

My advice to any dairy farmers is that they should sell their farm right away and get out of the dairy business. With the proceeds of their sale, they should move into a different business, such as making almond milk.

Making dairy milk involves handling cows, which means artificially inseminating them, feeding them, killing their babies, extracting their milk, and cleaning their feces. The dairy business involves very difficult and costly torturing and slaughtering of cows and all that evil doesn't even pay the bills because dairy milk only sells for $1 per liter.

Almond milk, on the other hand, is easy to make. Just buy almonds, mix it with water, put calcium, emulsifiers, etc in it, and sell it for $2 per liter (or more).

With the rising popularity of the vegan and paleo diets, demand for dairy is only going down. Jump off the leaking ship before it sinks!

Google Trends results for "paleo" (in blue) and "vegan" (in red) as of May 2016

Converting A Restaurant Vegan

I've been reading a BBC article about how many people in Israel are converting to veganism. This article describes how an owner of a pub that serves a significant amount of animal food decided to go vegan, and business has been really good:

Until a few years ago, Nanuchka was just a conventional Georgian pub serving traditional food like khachapuri, a cheesy bread, and khinkali, a meat-stuffed dumpling.

But then Nana Shrier, the flamboyant owner of the venue, where the walls are adorned with erotic art, became a strict vegan - in what is said to be the most vegan country in the world per capita.

She decided to convert her entire restaurant to a meatless and dairy-free establishment despite being advised against it by friends and business colleagues.

Israelis are flocking to it - and business is more successful than ever.

All this made me wonder whether it would be a lucrative business to buy existing restaurants and then veganize them.

Veganism is not only popular in Israel. Interest in the lifestyle seems to be rising in many countries. Google Trends shows that the search term "vegan" and especially "vegan protein" has been rising significantly.

Buying up a restaurant business (or starting one) and veganizing it would not be difficult. For any animal product, there is a vegan alternative. For example, if a restaurant served chicken, simply replace the chicken with vegan chicken. If there is a recipe that uses cheese, replace with vegan cheese. If there a recipe that uses dairy milk, replace it with almond milk.

Given the high quality of vegan meat and dairy alternatives nowadays, most meat eaters will not even notice any difference. Most meat eaters simply eat meat because that's what's available. Those meat eaters who really care that their meat comes from an animal and that it must be e.g. grass-fed, are few in number.

A vegan restaurant that sells mainstream food including vegan meat and dairy should not lose much business to meat eaters. However, the benefit of having a vegan restaurant is that vegans will actively search for your restaurant online.

When being a vegan, it is much easier to go to a dedicated vegan restaurant where you can order anything and know for sure that it is vegan. This saves having to tell the waiter to e.g. replace the chicken with tofu, remove all the cheese, remove all the egg, and usually after all this you end up looking weird and different.

If it is true that veganizing a restaurant will attract many vegans while scaring off few meat eaters, overall vegan restaurants should be a great business. I have always wanted to invest my money ethically, so it may be a good idea to borrow money from the bank to start a vegan restaurant or buy an existing restaurant and veganize it.

 

What to do after you win the lottery

1. Tell no one. If other people know about it, they will be greedy.

2. To prevent the money being spent all at once, divide the money over time with an annuity or invest it and live off the passive income. Don't increase spending or live extravagantly or more than passive income.

3. Don't get into debt.

4. Don't help others too much. Don't bankroll friends and families' crazy business ideas. Say no to anyone who wants a handout or a loan. You need to help yourself first before you give it all to others. No one is to know of your wealth anyway (see rule 1).

5. Don't divorce. If you are single, don't get married.

6. Don't do drugs e.g. cocaine.

7. Don't gamble.

8. Be careful of being sued. Frivolous lawsuits are common. Protect your assets in retirement accounts or family trusts. Talk to a lawyer or accountant.

Ripped Off by PayPal Exchange Rate

I just purchased an eBook online from America. I needed to use American dollars and I had Australian dollars. I decided to use PayPal because I had just installed it on my phone and set up an account. I went through the motions, purchased the book, and then afterwards realized that PayPal charged an exchange rate of 0.90 when a simple Google search revealed the exchange rate to be 0.94. PayPal ripped me off! I will see if I can change PayPal setting so that it charges my credit card in US dollars and supposedly the rate charged by the card is not so bad, but if this turns out to be too hard then I will just uninstall PayPal and in rage will never use it again. Credit card is already quite safe anyway. PayPal charges absolutely outrageous fees. Not only are their foreign exchange rates a rip off but supposedly if you transfer money to a friend who also has PayPal, you must pay a 2.3% fee. What a rip off! Bank transfers are free. If you don't feel comfortable giving away your bank account number (research what happened to Jeremy Clarkson when he gave out his bank account number on TV) then bitcoin fees are less than 1%.

$75,000 is Enough

They say that freedom from poverty is the ability to walk into a public square and feel no shame. I remember on Friday having lunch with friends from work and feeling ashamed because I earned less than they did. They also spoke about how inadequate they felt because they did not earn as much as others, but when these people reminded themselves that I earned less, they suddenly felt better about themselves.
The problem is that there is no objective definition of how much income is enough--until now. According to a Wall Street Journal article that cites a study by Daniel Kahneman, a Nobel prize winning economist, the perfect income is $75,000 per year.

My goal is to earn $75,000 by age 30 and $100,000 by 35. I am currently 27 and earn $60,000, consisting of approximately $55,000 salary and $5,000 investment income. It would be nice if I could get a promotion and earn more, but I am finding that I am just not good enough to get a promotion, which is disappointing. They say you should never give up on yourself, so I will keep trying to get a promotion, but my experience of modern capitalism is that hard work is not always rewarded in the workplace. In my opinion, this is a strong argument as to why you should aim to just have fun in life. If you work really hard and put off leisure, there is a risk that you will throw away your whole youth all for a higher salary that your employer may not even give you. Keeping this in mind, I believe it is essential that you diversify your sources of income. I have come to rely less on work to increase my income, now relying almost exclusively on my investments. My goal to getting $75,000 by 30 and $100,000 by 35 is entirely based on the pessimistic assumption that my employer will give me no promotions and I will remain on the same payscale forever.

Just Default Already!

I'm not exactly sure why the US would default if the debt ceiling were not increased. If the debt ceiling were not increased, the US would not legally be able to borrow but could still pay off interest with revenue from existing taxation. I am assuming of course that the US is not just borrowing money to pay off the interest on money they borrowed earlier.

Regardless, it is clear that the Americans need to both increase taxes and cut spending, especially on useless expenditure. That Republicans are not willing to allow increases in taxes is outrageous. In my opinion, the Democrats should just allow a default to occur and let the American people see just how horrible it will be. Th government can cut spending and not built roads, abandon hospitals, stop paying pensioners, and let banks gouge homeowners and businesses with high interest rates. The Democrats can then blame the Republicans for destroying the economy and in the next election should comfortably win.

Health, Wealth, and Wisdom

How can a person be happy? Different people have different answers to this question, but for this post I would like to talk about myself and my journey in life to find happiness. I believe that for me to be happy I should focus on attaining adequate health, wealth, and wisdom.

Health refers to eating right, exercise adequately, and getting good sleep. It also involves seeing your doctor regularly to get checked, as well as avoiding risky activities like binge drinking or unsafe sex. Wealth refers to making money. Wisdom is knowledge about everything, from knowledge of health to knowledge of a spirtual nature.

Often people go overboard trying to get as much health, wealth, and wisdom as possible, and my casual observation leads me to believe that being obsessive about health, wealth, or wisdom can actually make you unhappy rather than happy. For example, some hypochondriacs read every health scare on the internet and go to the doctor thirty times a week; people obsessed with money earn $100,000 per year but believe it is insufficient because their friends are earning double that, so they work 80 hours per week to try to catch up. This is why I stress the word "adequate." I believe that, when it comes to health and wealth, you if you're doing enough, then you are doing enough.

Another way I find happiness is not to worry too much. Being content with your health and wealth is one way you can stop worrying. Instead of worrying about getting heart disease in the future, go out there and do your thirty-minutes-per-day exercise or start eating healthy food. In other words, get busy doing what you need to do and don't sit around and worry.

Real Estate Spread Betting

Now that the FIFA World Cup 2010 is underway, there are many betting ads, e.g. from Sportsbet. In the recent Germany vs Australia game, if you think that Germany will win you can put your money where your mouth is and bet on Germany to win.

Wouldn't it be a great idea if you can do the same thing with Australian house prices? Gambling company should allow punters to bet on whether they think house prices will go up or down.

As it turns out, house price spread betting already exists in the UK, as I have discovered in an article in the Times Online about spread betting: "So, is it possible to make money out of property without the boring necessity of actually buying a house, paying stamp duty or dealing with oleaginous estate agents? The answer is yes: by betting on the movements of the British housing market. Spread betting, as it is known, has proved fabulously lucrative for players such as Simon Smith, 33, who makes rather a good living by sitting in his office in Leeds working out what is going to happen to house prices — and placing his money accordingly."

According to the Times article, many home owners are using house price spread betting to hedge against a fall in house prices. On the other side of the equation, renters can use house price spread betting to hedge agaisnt a rise in house prices, so there is a market both ways.

Further Googling has revealed that you can engage in house price spread betting on UK house prices via IG Index. I am not sure whether this site allows Australians to sign up. I am also unsure about the taxation implications of spread betting.

Is the Resource Super Profits Tax Unfair?

After the GFC, the Australian Labor Party led by Kevin Rudd stimulated the economy by splashing cash. As a result, the Australian government created debt that needed to be paid off. The opposition Liberal Party criticized Labor for its reckless spending, but in this year's Commonwealth Budget the government announced it plans to be back in surplus soon thanks to a tax on the reosurces sector called the resource super profits tax (RSPT). Any mining projects in Australia will be taxed at 40 per cent above the 10-year bond rate.

The proceeds of this mining tax will be used to fund a reduction in the company tax rate from 30 per cent to 28 per cent. It will also be used to fund a range of other expenditure items, including benefits to small businesses.

Even though companies will get a reduction in company tax rate, the reduction from 30 to 28 per cent is miniscule. Furthermore, companies will be faced with the increased burden of a higher rate of superannuation it has to pay to workers (from 9 per cent to 12 per cent). The government is currently trying to buy favor among miners by giving them a infrastructure fund that will be used for spending on mining exploration and the like. This is horrible! Why would you take money from someone with taxes and then give that money back? Even if you take $100 from someone and then give that person $100 back, this creates a net loss for the economy because of administration burden plus other inefficiencies.

I am all for fair tax, but this strikes me as unfair. Based on what I have learned in university, the best kind of taxation is one that is difficult to avoid and is broad-based. A tax like the goods and services tax (GST) is an example of a good tax because just about everyone pays it when they purchase a product (ignoring, of course, the exemptions in current GST law on certain food). A flat income tax is good. Land tax is also excellent. A poll tax is probably the best kind of tax, although historically poll taxes are very unpopular.

However, the RSPT is not broad. Rather, it is very narrowly focused on the mining sector. The mining sector is hit by this massive tax on super profits while banks do not pay a super profit tax. The Labor government argues that these non-renewable resources belong to the people and hence the people must get their fair share back. This is all well and good, but if the principle of taxation is to tax those that use natural resources, why aren't farmers slugged with a super profits tax for their exploitation of the land? Why aren't home owners slugged with taxes for using their land they live on? Rather we see massive tax exemptions given to home owners and farmers.

The RSPT is also very worrying in that it creates an atmosphere of uncertainty. If the Australian government can just implement massive taxes on a whim, who is to say the mining sector will be the only victim? You may not think the mining tax affects you maybe because you are heavily invested in banking shares rather than mining shares. But given that Rudd has shown that he is willing to slug a massive tax on anyone who is successful, who is to say he won't start applying a tax on banks next? If a gunman enters a room and shoots the person right next to you, you would be scared because this gunman is clearly has murderous intend and just as he has shot and killed your friend he could easily shoot you. Likewise, Kevin Rudd is a like a gunman, shooting sectors of the economy with taxes. You may be lucky now but who is say that in the future he might not slug a tax on you or your investments? Think you can run away from the tax by putting your money into gold? He might put a tax on that. He might do anything. The extreme would be some kind of tax on men because they earn more than women. The idea of a man tax has actually been suggested by some people.

I am not anti-tax. I think tax is essentially because government needs money to provide essentials to the public. But why can't the government just reform the tax system by levying a simple and fair land tax or a simple and fair income tax? These various exemptions and deductions that exist in current taxation legislation do nothing but divide citizens.

Economics is Useless

I recently had lunch with a work friend. During this lunch he asked me what my career plan was. I told him that my plan was to just stick with the job I have. I wouldn't say I love my job, but it's reasonable. My friend and I both work in public finance. He told me that he is keen on going to university to do a masters and then working specifically in health and education, areas he is interested in.

Personally, I am not really interested in going back to university because I feel like I have been in university for a long time. I spent a lot of time in university studying economics. Many people have the impression that you do in your carrer what you study in university. For physicians, lawyers, and accountants, this may be the case, but even though I studied economics in university, I find I do not use what I learned in university in my career very much. In fact, most people who study economics, I find, do not use economics much in their career other than those who work in economic forecasting or economic consultancies like Access Economics. The reality is that there really is not much job opportunities for economists, and studying economics is not really a good career move. I studied it because it was an interesting discipline. Furthermore, many work colleagues who have studied economics are keen on moving to other areas. I know one colleague who works in the public sector who is keen in studying graduate medicine because she believes that economics is a dubious science (it's called the dismal science for a reason). Economics can hardly be called a science in the same way that physics is a science. In physics, almost everything can be proven with a laboratory experiment. In economics, it's very difficult to do laboratory experiments, so economists resort to econometrics to prove things. Having studied it for a long time at university, I find econometrics to be highly questionable. It's not uncommon to see one economist using econometrics to prove one thing and then a month later find another economist using econometrics to prove the exact opposite. Economics has transitioned from an honest science into a tool of propaganda. If politicians want to implement some policy, they usually pay off some professional economist to produce some report filled with mathematics and statistics to provide ammunition in favour of the argument. Economists will only be useful so long as the public is duped or amazed by their impressive numbers and formulae.

It's easy to understand how a physician, an engineer, a lawyer, an accountant, or even a prostitute is useful in the labor market. Not so for economists.

This is why I am thinking about a career change. I need to ask myself what is it that I have a passion for. One thing I am passionate about is investing. I would love to be a financial adviser. Useful professionals like physicians and lawyers actually fix people's problems. If someone is sick, they see a physician and the physician helps fix the disease. If someone has a legal problem then they see a lawyer. But nobody has "economic problems." However, people do have problems with personal finance, e.g. where do I put my money, how do I minimize tax, how do I buy shares, and so forth. In order to fix these problems you do not go to an economist! Rather, you see a financial adviser who probably has a background in accounting or tax law. I would like to see myself in a role where I can actually help people and be useful.

Why Debt is Bad

"The rich rule over the poor, and the borrower is slave to the lender." Proverbs 22:7

Whenever I exercise, I like to listen to podcasts, and one podcast I love to listen to is The Survival Podcast (TSP). TSP teaches about survivalism, but don't think this guy is a psycho right-wing racist who is accumulating guns and ammo to prepare for a war with the government. He (Jack Spirko) gives very useful and practical advice to teach us all how to live our lives and to increase our chances of survival if times get tough--or even if they don't!

One tenet TSP hammers home is that debt is bad. In Episode 193 - Debt Elimination is Survivalism 101, Jack explains how you cannot expect to be focused on survival and have the shadow of debt hanging over your shoulder. In Episode 438 - What Debt Freedom Means, Jack gets more personal, giving us a story about how he struggled with debt fifteen years ago--how the debt start out small but eventually grew like a cancer. He made a stand to fight the debt and how he is free of debt, and as an old man he is appealing to the younger generation to stay away from something that had a profoundly negative impact on his life. Both these podcasts are very insightful and it's incredible to see the sinister side of debt exposed by one of its victims, especially now in Australian during a period in time when many people seem to be so desperate to buy a home that they are throwing themselves at the banks because they want more and more debt to fund their dream homes.

Spirko claims that the cost of debt is not just the money (that is, the interest). Debt wastes money but it also wastes time and life. I would add that the cost of debt is definitely not just the money (although debt on, say, a standard home loan can be massive) but debt also comes at the cost of freedom. When you take out a loan, you lose not only money that you must pay back to the bank but you also force your future self to work, which reduces how much freedom you have. Quite literally, as the bible explains, debt is slavery. The people with mortgages, credit card debt, and car loans work like slaves. The banks and their shareholders are the slaveowners.

Mortgage debt in Australia is even worse than mortgage debt in America because in Australia banks have the right to sieze all others assets if you are unable to pay your mortgage. If you default on your home loan, the banks can sieze not only your house but your car, your savings, and all your belongings--and you're broke. In America if you cannot pay your home loan you can walk away and all your other belongings are safe. This means that in Australia those in debt have it tougher. They must focus on paying the mortgage and not consider anything else.

The Good Side of Debt

I'm not saying that you should never ever go into debt at all. I do believe that there are some times when debt is a good idea. I think that you should go into debt if you really need to go into debt. For example, if you are starving and you need to borrow money to buy food, then it's probably a good idea to go into debt. If you are living with your parents and your parents are sexually abusing you and you don't like it, you may go into debt to buy a home for yourself.

There are times when debt can be profitable. For example, if you borrow $100 and use that $100 to buy an asset that appreciated by 10 per cent to $110 and you pay back the bank $105, you make a $5 profit. You can use the borrowings to buy stocks, property, or even to start your own business. It is possible to make debt profitable. However, it is difficult. If there is such an asset that is guaranteed to go up in value more than the cost of borrowing, you can be certain the banks would rather buy that asset themselves rather then hand you the money to buy the asset. By handing you the money to buy that asset, the banks have determined that that asset is too risky for them to hold, so they give you to the money and you bear all the risk.

If you have great skill, you can borrow money to start your own business and make a lot of money, but this is highly risky. If you borrow thousands of dollars and your business fails, you not only have the disappointment of a failed business but also the stress of debt that still remains even after your business fails.

Don't think that debt is costless, that you can just borrow and there will be no consequence to your borrowings. By going into debt you are making a bold prediction about the future. When you borrow money to invest in shares, you are predicting that shares will go up in value. When you borrow money to start your own business, you are predicting your business will be profitable. You may be right, but you are more likely to be wrong. You need to be either very lucky or you need to work very hard.

The bible says that borrowers are slaves and lenders are slave owners. A bank's primary function is to coordinate the interests of borrowers and lenders. Hence the bank's primary function is to bring together slaves and slaveowners. The bank is a slave market. Instead of whips and chains used to inflict pain and limit freedom, instead the threat of default and seizure of assets are used to instill fear.

Budget Your Savings, Not Your Spending

There are many personal finance tips out there, and one that seems to be popular is that you should keep track of where every penny goes. I have tried this (read Spending Rate Falling). For about a month I kept track of every cent I spent. I kept it using a spreadsheet in Google and produced nice looking graphs.

The result is that I figured out that I spend about $600 per month. That is very nice to know, but did I really need to track where all my cents went?

Keeping track of my spending was difficult. It's not practical to carry around a notebook everywhere you go, so in order to track my spending I used my mobile phone camera to take pictures of things I purchased. If there was no price tag I could take a picture of, I made a voice recording in my mobile phone. In the voice recording I detailed when I purchased the item, what the item is, how much it costs, etc. About once a week or more I went through my mobile phone and entered all this data into the Google spreadsheet. It was a lot of work!

I have now stopped tracking my spending. The reason why is because it is so tedious. It is good to be able to figure out how much you spend, but there is an easier way to do this. Quite simply, you follow this formula:

Savings or Investments = Income - Spending

In other words, how much you save or invest is equal to how much money you get in the form of income subtract how much you spend. If we rearrange this formula, we get the following:

Spending = Income - Savings or Investments

In other words, in order to figure out how much you spend, take your income and then subtract your investments or savings. This is much easier because your income (I'm talking about take-home pay here, which is how much actually goes into your bank account every fortnight) is usually fixed and it's easy to figure out what your income is. Investments or savings is also easy to figure out for me because I usually buy shares in increments of thousands of dollars. That is, I buy shares thousands of dollars at a time. Therefore, when I invest I do it not very regularly and it's easy and simple to keep track of.

I spend money on a lot of small things, for example, coffee, mints, and restaurant meals. When I buy non-investment goods, I tend to buy cheap things very frequently. However, when I buy investments, I tend to buy expensive things infrequently. It therefore made sense to ignore spending and focus instead on savings.

Giving Money to Bums

Whenever I walk around in the city I always see bums sitting on the pavement. I feel sorry for many of these people, especially if they are young, female, and shivering--but many colleagues warn me not to give any money to these bums because, apparently, the money is likely to be spent on illicit drugs or alcohol rather than food.

I currently use my credit card to regularly give the humanitarian organization World Vision a regular amount every month. The hope is that a humanitarian organization like World Vision will use the money to provide for the poor useful things like food, water, and shelter rather than alcohol or cocaine. World Vision Australia is audited by PricewaterhouseCoopers (PwC), the same external audit organization that audits Victorian Government entities to make sure they are in compliance with public sector regulatory requirements. World Vision also has an internal compliance team.

I have a lot of faith in large organizations. I have a lot of faith in government and trusted corporations like Google, AAMI, Commonwealth Bank, and so forth. It's not that I am naive. I am sure there are elements of corruption in any large bureaucracy, but I also think that the incentives are there for shareholders, voters, and clients to establish frameworks to hold agents accountable for what they do. In corporations, executives are accountable to the board of directors and to shareholders. In government, the bureaucracy is accountable to the legislature, which is accountable to the voting public. In many prosperous countries there are checks and balances or institutions that put a limit on fraud and ensure things work. Even though I have no idea what is in the food I eat, I trust that government regulations ensure there is nothing harmful or poisoning in my food. Even though there is no guarantee the judiciary will continue to fair and impartial, I trust that contracts will be honored and anyone who breaks the contract will be punished under the law. Even though I know little about climate science, I trust mainstream scientists when they say climate change is a worry.

Back to the topic of giving money to bums--talk about being sidetracked!--I have recently wondered about the merits of handing over cash to bums on the street. As much as I trust World Vision, I do think that charity, like investments, should be diversified, not only to diversify away corruption risk but also to spread the money around in the interest of fairness.

More Jobs, Less Cash Handouts

I am a believer that the best way to help the poor is to give them a job. While the trend nowadays is for people to be cynical and pessimistic in the topic of charity, I am an optimist because I think much progress has been made and the world is getting better and better. I believe that the world is a much better place now mainly because of the rise of India and China, countries with massive labor markets that are liberalising their labor markets to give the poor access to employment. If countries in Africa were to liberalise their labor markets and essential copy China's emphasis on exploiting cheap labor, I think Africans will experience a massive escape from poverty. I think the opportunity is there because wages in China and India are starting to rise and multinationals searching for cheap labor may have to look elsewhere--perhaps Africa--for cheap labor to make shoes, t-shirts, and other essentials we buy. The problem with many African governments lies in the governments there. I am hoping that one day there will be stablility and harmony in Africa so that multinationals will feel comfortable hiring labor.

Worker Benefits Destroys Jobs

In developed countries like Australia, it is surprising to see bums on the streets. Many might wonder why these people don't simply get jobs and start working like normal people do. The answer may be that government regulations give workers benefits like minimum wages and holidays. It is brillant for workers that the government force employers to give holidays (annual leave) and sick leave, maternity leave, superannuation, and so forth, but employers are not happy. These benefits for workers make it less profitable for employers to hire workers, and if workers are costing employers money, they will have to compensate by hiring fewer people. Why would BHP Billiton hire a bum who may only give $10 per day of value when that bum may cost, say, $50 per day in minimum wages, sick leave, superannuation benefits, and so forth? In my opinion, in an ideal world, there should be no minimum wage, no superannuation, no sick leave, no holidays, no maternity leave, and perhaps the government should subsidize companies who hire workers rather than punish them by imposing payroll tax. I am aware these policies will never materialize because of political reality.

Begging as Working

If I hand a bum on the streets some cash, I can help the poor because I am effectively giving this bum a job. Because this is a cash transaction done without government oversight, I effectively pay this bum a low wage for the job of sitting around in the cold. Because there is no government oversight, there is no superannuation I have to pay him, there is no sick leave or holidays.

The Problem of the Rich Bum

There are some objections. One objection to giving money to bums is that the bum may not be poor. The bum you see on the streets may be a bum during the day but when it's night he goes home to his mansion to sleep on a bed only to wake up the next day and start begging again. The risk of giving money to a rich bum is greatest if the payoff from being a bum is high and the costs are low. The cost of being a bum includes being cold and suffering from shame. Some people have no shame so the only creditable pain from being a bum is from the cold. Therefore, it is safer to give money to a bum who is shivering and looks like he is cold. This is because a rich bum would rather stay at home where he has ducted heating rather than shiver in the cold. An authentic bum is so despearate he is willing to work for money, so a way you can filter out rich bums is to subject them to pain. By subjecting themselves to pain, they signal to others that they are authentic bums rather than rich bums. If you see a shivering and cold bum on the streets, he or she is likely to be authentic. If the bum is wearing lots of clothing, it pays to test the bum. For example, talk to the bum and say, "I will give feed you dinner tonight if you take off most of your clothes and walk with me to the restaurant." If the bum is rich, he won't bother taking off his clothes and shivering while he walks to get his next meal. If he is an authentic bum, he will agree to do this.

Rich bums may exist because the payoff from being a bum may be high. If people only give bums $1 a day, you can be fairly certain that only poor people will beg for a living because no rich person in his right mind would work for $1 a day when he could do something else and earn more. However, some bums may be so effective at begging that they may earn, say, $200 per day. This is a major problem. Even if you subject a bum to pain to test the bum (e.g. make the bum walk to the nearest restaurant with little clothing) the pain may be worth it if he is being paid $200 per day for it. One potential solution is to give bums perishable food rather than money. If you see a bum but don't have any food on you, ask the bum to follow you to a cafe where you will buy the bum some cheap and perishable food or beverage. The problem with this is that it can be a lot of effort on behalf of the donor. Not many people have time to walk a bum to a cafe and buy her food.

A quick technique for testing to see if you are giving money to a rich bum from an authentic bum is to offer to buy her clothing off her. Especially on a cold day, clothes are necessary to protect you from the elements. If a bum is willing to give up his clothes for a small amount of money and thereby be subject to pain from coldness, he is likely to be an authentic bum. When you see a bum, you can say, "That jacket you're wearing looks nice. I will buy it from you for one dollar." If you are talking to a rich bum, she won't accept the offer because her comfort is more important than the money. If you are talking to an authentic bum, she will likely accept the offer because she needs that money so badly for food that she is prepared to subject herself to pain from coldness. A bum will always have clothes you can buy. He the bum is naked, he probably deserves your money anyway. You can buy not only the jacket but also shoes, gloves, and socks.

Make Bums Work for Pay

Many people think bums deserve to be bums because they don't want to work. This is unfair because minimum wage laws and other government interventions do not give an incentive for businesses to employ cheap labor.

However, I don't think you should give money to a bum who just sits around. You must subject them to tests so that they work for their pay. Below are some ideas:

- offer to buy their clothes (socks, shoes, jacket, etc) for a low cost so that they suffer pain from coldness

- get bums to do a certain number of pushups before you give them money (you can usually infer willingness to pay by looking at how much the bum sweats)

- give a bum a free copy of the bible and tell her to read, e.g. the Book of Genesis, and then the next time you see her you ask her some questions about Genesis to ensure she has learned it, and then do the same thing for Exodus, Leviticus, etc until the bum has studied the whole bible.

Webcam Philanthropy

A great idea for World Vision is to allow members to test the recipients of charity to see whether they are genuinely poor. For example, a World Vision employee can walk around in a poor area with a laptop and a bag of cash. The employee asks for a poor person to come along. This poor person is then recorded with a webcam and someone like me, the donor, looks at this poor person via the webcam. I then type in my computer what tests I want the poor person to do, e.g. 10 pushups, run on the spot, and so forth. Then when I think the poor person has done enough work to deserve cash, I can use Paypal to wire the money to World Vision who then give the same amount in cash to the poor person doing the pushups. I will pay the poor person just enough so that he can live, e.g. assume that you need about $1 a day to buy food to live, then that means you should get about 13 cents per hour assuming a person works for eight hours a day.  Therefore, a person should get about 1 cent per five minutes. I will then subject a poor person to five minutes of pushups and then pay him or her 1 cent for this.

This I think is a corruption-free method of giving to the poor. There is perfect signalling because I am getting the poor person to work for his money, therefore separating poor from rich. There is perfect accountability because I can see with my own eyes the poor person working. When I transfer to the money to World Vision, the charity organization must hand that exact same amount of money to the poor person and I must see it on the webcam.

Obviously World Vision needs to make some money from this to pay for the cost of the laptop, webcam, workers, and so forth, so for every $1 that is transferred to World Vision by members, say, 97 cents will go straight to the poor in cash.

This is a brilliant business idea. Anyone is free to establish this idea. If nobody does, I will try to establish it in the future once I feel secure enough to start a business. This business will not make much money. If you take 3 cents of every dollar that a donor gives, that's not much, and competition may drive this profit down even more to say, 1 cent for every dollar given. But this business idea is not designed for profit (it's designed to help the poor), so if I can get the profits from this business to simply cover bare costs (e.g. the cost of the laptop, etc) and thereby make zero profit, that will be good enough.

Problems with Webcam Philanthropy and Solutions to Those Problems

I've thought about this idea some more and there are some problems with it. One problem with this idea of getting World Vision to cover the costs by taking a percentage of whatever is donated is that a particular donor may ask for a poor person to do a lot of work but not pay anything. To discourage this, it is important for World Vision to charge a time-based fee, say a few cents per minute depending on the cost of the laptop, etc. Furthermore, a recipient of the money can decline if he or she wants to. For example, if a donor offers $1 but in return the recipient must do one million pushups, the recipient may deem that to be unreasonable, decline the offer, and the donor will be randomly allocated to another webcam. The donor cannot waste time by not giving anything because he will be paying a variable fee based on time and this fee is used to pay the cost of doing all this. There needs to be bargaining power on both sides for this market to work.

Another problem is if there is coercion. For example, suppose an abusive husband orders his wife to go to a World Vision webcam and do whatever the donor on the othre side of the webcam wants for money. The wife who is a victim of abuse may go to a World Vision webcam and then do 100 pushups for $1 and then when she gets that money she goes back home and gives $1 to the husband. The way to make sure the wife benefits from this money is to give the donor the option to pay in food and to watch via webcam the recipient eat the food. For example, the donor offers to pay $1 worth of rice to the recipient in return that the recipient does 100 pushups. After doing the 100 pushups the donor transfer $1 over to World Vision who in turn give $1 worth of rice to the woman in real time and then the recipient eats the rice then and there while the donar watches her eat the rice. This is useful if the woman has children. You cannot make children work because of child labor laws, so the mother can instead bring these children along and show them via webcam to the donor and the donor can give the mother rice that she eats then and there and gives to the children. The children eat then and there in front of the webcam and the donor can monitor this.

Another problem is that some poor people may be better than others at doing pushups. For example, a pregnant woman cannot do pushups easily. This can easily be fixed by giving the donor the ability to get the recipient to so other easier things like situps, starjumps, or even getting the recipient to sing. The donor can even type some other novel task if he wants to. This ensures accountability and freedom and makes sure the donor can dictate exactly how his own money should be earned.

Webcam Busking

How can this idea be sold to people? You need to take something that is already familiar to them. Busking is a concept that has been around for a long time. According to Wikipedia, busking is "the practice of performing in public places for tips and gratuities." That is esentially what I am advocating, but I want the idea to be carried out online so that more money can go to the poor.

I have Googled "onling busking" and the idea has already been touted by other people, but what other people are suggesting is not good. Most of what I have read online involves a musician recording his own music and then posting it online and asking for donations. This is not good because a rich person can easily make his own music, record this music, upload it online, claim that he is poor, and then ask for money. He only needs to perform once and then he may make millions. What I advocate is donors giving money to performers in real time so that there is accountability. When I log into World Vision's online busking area, I want to be able to be able to browse through many buskers and then watch a busker of my choice via high-definition webcam. While watching I can give money and when I do, in real time that money must drop near the person and the money must be visible to the donor via the webcam. If I drop, say, a $1 coin then I must see that $1 coin dropping. As I said before, giving food may be a better idea. It may also be a better idea if the donor can see the busker eating the food in real time.

When you are browsing to see which busker to watch, I think it would also be a good idea to allow people to see how much a particular busker is getting paid in terms of hourly rate. This will make the whole thing more equitable so that donars can target those buskers who are not paid livable wages. The currency for this will be in dollars (maybe US dollars or maybe even in gold given how much the US dollar has depreciated lately) or in rice. Donors can see how much each performer is paid in dollars per hour or grams of rice per hour.

It would be best if donors can give money via Paypal. They can initially put busker credits into an account and then this account balance goes down as the donor gives money or rice to a performer in real time. I think to get this idea going there should be no fee paid at all. Instead, ask for donations and say that donations will allow new performing rooms to be created. A performing room is simply a room where the poor person performs. It is just a room with a computer and a webcam. A machine that gives out money or rice would need to be made as well. Probably the most expensive part of this is the real estate. Make it so that anyone who donates money to build a performing room gets to name the room. If it's quite expensive to make a room and multiple people donate money to create a room then maybe make it so that the person who contributes the most money names the room but other donors may write their names or put an advertisement on the wall. This I think should encourage many companies to help out so that they can advertise.

Money is Made to be Spent?

I think I am capable of saving 80 per cent of my net pay. That is my target savings rate. One friend of mine criticized me by saying the following: "Money is made to be spent. What is the point of saving money if you're not going to spend it? You get satisfaction from spending money, so by not spending you are denying yourself satisfaction. What if you died tomorrow? You would not get the opportunity to spend and you will have missed out on so much satisifaction."

I happen to think that my friend is not correct. The sentence I have issues with is the sentence about how you get satisfaction from spending money and so therefore if you don't spend money you deny yourself satisfaction. I find personally that spending does not give me much satisifaction. Saving money, on the other hand, seems to give me a lot of satisfaction. Saving money is a form of insurance because it allows you to be better off in the event of an emergency. An individual can spend money and receive satisfaction by buying income protection insurance. In the event of a job loss, that individual will not starve to death. Alternatively, instead of buying income protection insurance, an individual can save money and in the event of being fired from his job he will have a pool of money leftover to spend on necessities like food, which prevents him from starving to death. Hence saving money or spending money can both give satisfaction. That spending may give you satisifaction does not mean that not spending does not give you satisifaction.

If I died tomorrow, it is not as if I have missed out on an opportunity to achieve a very high level of satisifaction. If I spent all my money now and was broke, I would become fearful because I no longer have a safety net in the event of some unfortunately event. This fear would decrease my satisifaction. Therefore, if I spend all my money now till I was broke, I would become fearful, my satisifaction would go down, and then I would die. If I kept my money and saved it, I would be happy because of the insurance and security this cash gives me and even if I die, I die a happy man.

Overcoming Status Anxiety

I have just watched episode one of Status Anxiety on Youtube. The first 10 minutes of the documentary is below. I have also provided links further below of the rest of the first episode as well as the next two episodes (episode two and episode three).

As the title suggests, the documentary is about how many people are so preoccupied with their status in society. The documentary claims that the average American does not compare himself to people like Bill Gates. Rather, they compare themselves to people like them or near them, e.g. neighbors, friends, relatives, etc. If they are doing better than people like them, they feel successful.

How successful we feel depends on what our expectations are. If we compared ourselves to Bill Gates, we will probably never be satisfied. On the other extreme, if we compare ourselves to the most unfortunate people in the world, e.g. people who live in poverty with disabilities, then the average person can always feel satisfied. Too much satisfaction can lead to gluttony and inaction. There needs to be a nice balance between the two extremes.

I do admit that when I interacting with other people in society, I too feel some status anxiety, and I suspect it's a normal human emotion. When I tell other people that sometimes I feel status anxiety, they tell me things like, "Don't worry what other people think about you." Many other people tend to believe that what others think is trivial, but many people also try hard to look good in the eyes of others, so that seems like a contradiction. Instead of downplaying the magnitude of your own vanity, I think the first step to curing status anxiety is to admit that you feel it and that you are vulnerable to it.

My expectations are fairly low. I think that all you really need in life is about A$100,000. This amount of money should be enough to cover your food and accommodation needs. I get status anxiety when I am around other people. The two areas where I am in contact with others is mainly at work and at home. At work there are those people who earn more than me, and I don't get along too well with them. I merely do what they tell me to do because they are in a more senior position. But I do get along well with people who are paid my salary. These people tend to be just like me, that is, they are in their twenties, recently graduated from university, etc.

Once I am able to save up $100,000 then this should cover my food and rent. I will then be able to live without going to work and without living with my parents. In other words, I will be independent. Being independent and having the freedom to not be around other people means that other people cannot look down upon me. Many people think that by moving away from their parents they are becoming independent. However, many of these people have jobs and because they move away from their parents to buy their own homes, they usually have mortgages they have to pay to the bank, which means that they must keep working to be able to afford these mortgage repayments. Hence by moving away from parents they are not independent but rather they have become dependent on their employment. At their place of employment they are exposed to co-workers who can then give them status anxiety.

Overcoming status anxiety then requires true independence from all social circles. You must have the ability to pull out when you notice that the social environment is giving you anxiety. I don't think that pulling out of all social circles is a good idea because social isolation can lead to other forms of anxiety.



Status Anxiety Part 1 (1 of 5) [Above]
Status Anxiety Part 1 (2 of 5)
Status Anxiety Part 1 (3 of 5)
Status Anxiety Part 1 (4 of 5)
Status Anxiety Part 1 (5 of 5)

Status Anxiety Part 2 (1 of 5)
Status Anxiety Part 2 (2 of 5)
Status Anxiety Part 2 (3 of 5)
Status Anxiety Part 2 (4 of 5)
Status Anxiety Part 2 (5 of 5)

Status Anxiety Part 3 (1 of 6)
Status Anxiety Part 3 (2 of 6)
Status Anxiety Part 3 (3 of 6)
Status Anxiety Part 3 (4 of 6)
Status Anxiety Part 3 (5 of 6)
Status Anxiety Part 3 (6 of 6)

Coveting Mitt Romney

I have been looking at Mitt Romney's photo gallery. I know he and his wife have a combined net worth of over $200 million. That is so much compared to what I have. However, I am only 24 while Mitt is in his 60s now. When he was 24 he had just graduated from university. In fact, when he graduated from Brigham Young University in Utah he went to Harvard to study a combined JD/MBA postgraduate degree.

I must admit I feel envious of Mitt when I look through his family album. I notice he has big mansions, a very nice wife, and lots of cute grandchildren. I'm guessing you need heaps of money to be able to buy all that.

According to Wikipedia, Mitt Romney is "an American businessman and former Governor of Massachusetts. Romney is also a former candidate for the Republican nomination in the 2008 United States presidential election."

Why I Don't Pay Off HECS Upfront

I have been reading Am I Better Off Paying HECS Upfront? and I will give the reasons why I don't pay any HECS upfront.

What is HECS? Only those in Australia would know. HECS is a student loan provided by the Australian Government. The Government subsidizes certain university degrees and gives students an interest-free loan that needs to be paid off only when the student graduates and gets a job. I know someone who, after graduating from university with a science degree, decided to live in a Catholic monastery, and so she wouldn't need to pay off any HECS.

Students can elect to pay off part of their debt while they study instead of having the debt paid off when they work. If they do this they get a discount.

Because HECS works in the background and only affects my earnings if I get a full-time job, then I choose to ignore it and treat it as if it were an additional tax.

I do not pay off HECS upfront because there is no guarantee I will get a full-time job after I graduate. If I paid my debt upfront and then decide to live in a monastery for the rest of my life or if I decide to live in the wilderness or even if I find it too difficult to get a job, then I will have paid off the debt for nothing.

Debt Kid: A Geek in Debt

Link: Debt Kid Blog

Above is a link to Debt Kid's blog. When he was 21-23 (approximately my age) he created $250,000 worth of debt through day trading. I don't know exactly what he was trading but it may have been Forex, and he must have borrowed money to invest. Before I read about Debt Kid I thought I was doing poorly.

It's very hard to know how I stand relative to others because the statistics I look at just don't seem to focus on young people. I know from the ABS (Australian Bureau of Statistics) that the average person in Australia has a net worth of about $400,000. However, the average age is 37, so what does that say about the average net worth of someone in his early twenties?

I feel really sorry for Debt Kid. He seems very honest and open. Whether he was like that all along or whether he became that way because of his losses is something I don't know.

For investments I prefer to use mutual funds and ETFs. A lot of investors talk about buying low and selling high, but my secret is that I only buy and I never sell. I also don't try to figure out whether an asset is "low" or "high." I just buy it regardless. The reason why I do this is because I don't know of any way I can know for sure what the intrinsic value of the asset is. Another important concept is diversification. Don't put all your eggs in one basket. Diversify across countries. Put some money in stocks, some in real estate. Give some money to big companies, some to individuals (see Kiva).

At the moment I have no debt. I do not borrow to invest. An argument can be made that borrowing to invest is a good idea. If the asset appreciates in value, borrowing to invest can amplify the gains from your investment. However, I get anxious over the thought of having a lender breathing down my neck as well as the threat of the asset depreciating rapidly and inducing a margin call. I am an economics student and I have heard fellow students talking about CFDs and other new investments. Based on the advice of ASIC I tend to stay away from these complex investments. I tend to be risk averse and I fear disasters, so I take enormous steps to prevent them. I have only been doing this for the last few years. Before then I was reckless and made mistakes. The mistake were mainly academic mistakes, e.g. choosing the wrong subjects. My risk aversion applies not only to my stock investments but to every part of my life. For example, I check the Euro NCAP rating of my car before buying it and I make sure I buy second hand. Even if I were to get married in the future I'd want to study my partner to make sure everything is going to be okay.

What I've realized is that being afraid can hold you back. Driving is dangerous and so risk aversion tells me to retire as quickly as possible and stay home all day so that I eliminate the risk of being in a traffic accident. I can then engage in low-risk leisure activities in my retirement like watching TV or playing chess. This will be preferable to high-risk leisure such as mountain climbing. You have about a 30 per cent chance of dying if you climb K2 (the second tallest mountain in the world).

Of course, if you're too afraid, is this a life worth living? Is it preferable to be reckless to some degree?

How to Be Thrifty: Lock Up Your Money

I think I'm very good at being thrifty. I invest virtually all the money I earn. I only spend money on bare necessities like car servicing, petrol, and food. It helps that I live with my parents, but I still think I'd do very well if I lived on my own. I want to give some advice to others about how to be thrifty.

Most people love to say that they are thrifty. They tell others that they are thrifty and they tell themselves that they are thrifty. However, they are usually not. One of my friends named Heidi just got married. I was speaking to her about football just for the sake of conversation. She then told me that she didn't take any interest in football because she believes it's a waste of money and that she values her money so much she only wants to spend money on necessities and not spend money on things like football games.

However, Heidi just got married and she planned to have a wedding ceremony soon. I asked her how much she was going to spend on the wedding and she said she was going to spend more than $30,000! I pressed her for details about the wedding and she said that she wanted to release butterflies in the wedding hall to create a nice atmosphere for the guests. I asked her why in the world she would splurge $30,000 on an extravagant wedding ceremony yet refuses to pay $100 for admission to a football stadium. She said, "Some things are important while others are not."

The problem is that the definition of needs and wants can be blurry. Heidi switched from needs versus wants to important stuff versus non-important stuff. The definition of what is important is vague and as such she could easily splurge money on anything and ex-post rationalize by changing in her mind what is important or not important.

If you see a Porsche 911 and buy it on impulse and afterwards say it's a necessity and it's important, then that is clearly a case of your definition of needs and wants being completely useless to the goal of being thrifty.

I save money by locking my money up. In other words, when I earn money, I put it somewhere where I will have difficulty getting it back. In other words, I decrease liquidity. The ultimate way to do this is to put your money into your superannuation account because you cannot touch this money until you are 65. Another way is to have your money automatically put into a savings account and then to destroy any cards you have so that you cannot easily withdraw anything from the ATM, thereby forcing you to go speak to someone in the bank if you want your money back. Another way is to simply put your money into a mutual fund. Withdrawing money from a mutual fund is not extremely difficult but it does require more effort than usual. For example, to withdraw money from my mutual fund I have to print out a form and mail it interstate.

How illiquid you make your money should depend on how much money you're locking away. When I get paid I put about 90 per cent of the money straight into my mutual fund. However, I keep some money in my bank accounts for day-to-day expenses and emergencies. I have two bank accounts. In one I can use a key card to withdraw money from an ATM. I only ever keep $20 in this account because it is highly liquid money that is vulnerable to impulse buying. However, my other bank account doesn't have any card. It is a savings account. I keep about $500 in here. If I run out of money from my main account then I go on the Internet and transfer money from one account to the other. Basically, the more money is in an account, the harder it should be to get.

Once I have withdrawn my money, I follow the same concept with my notes and coins. I keep my notes in my wallet. However, I put my gold coins in my bag and my silver coins in my piggy bank. Using actual cash allows you to see with your own eyes the scarcity of your money. If you had a credit card or a debit card with heaps of money in it, there is a feeling that you are holding infinite wealth in your hands. I like to carry around notes and pay with cash for this reason. I also keep coins in my house for the same reason. I don't usually carry around too many coins because they are heavy.