Cruising San Juans - While our Investments Work


CYou have the choice - work for your money, or have it work for you. It is not as easy a choice as it sounds, since you would be bucking your culture, your genes, and perhaps, your own human nature. But, for most all, it can be done. Here's how we do it.


C"So how do you do it,?" folks ask. "I mean finanacially. How can you afford to live on a boat and continue cruising along? You guys were teachers, right? We read your section on Details, and you said there were basically three ways one might do it financially."

C1. "The first was to have a rich uncle. Did you have one?"

C"Nope," El said with a sigh. "That would have been nice."

C2. "OK - do you work for your money?"

C"Well, we did when we were teaching, but we both retired early, and haven't worked for money since then. And," El said with a smile, "you know what teachers make and what happens to your pension when you quit early."

C3. "So, that only leaves the last choice -- Letting your money work for you. But where did the money come from in the first place?"

C"First we worked for our money, and then, our money worked for us. But, we had to learn how to do that - how to invest our earnings. Bill's Dad 'taught' us how to do that. Only a few years after we were married, when we were 26 years old, his folks were transferred and sold their house. A short time later, they were visiting us. Dad said, 'Kids, we have extra money from the house sale. We're going to give you $10,000 to do whatever you want. A year from today, you'll give us back the $10,000.If you make money with it, it's yours; if you lose money, you still return the $10K.'

CThat was a fortune in those days (more than our annual income) and Bill and I were kids. What to do with $10K? Well, we decided to invest it, whatever 'invest' meant. So we read books on investing and a week later we had the money 'invested.' Oh, the mistakes we made in that year - we quickly learned that investing is partly about understanding finances, but mostly about understanding yourself.

CBill spent lunch hours in the brokers office watching ticker tape displays. We spent evenings plotting stocks. We learned about our reaction to greed -- and to fear. We got some good advice from a friend --"Don't ever invest in anything you have to feed or fix." A year later, we gave back $10K to the folks and had some spare change left over for ourselves -- enough to keep on investing.

CWhat does this (investing) have to do with living aboard a boat? For us, and perhaps many others, everything!"


Basic Economic Ideas - It's All About Choice

CMost Americans know little about basic economics - the very stuff that so affects their lives. Almost half of High School graduates flunked a simple test of practical economics last year. Many Americans are deeply in debt and don't seem to have their financial future figured. So, let's review some ideas.

The Difference Between Needs and Wants

CWe walked the Appalachian Trail, from Georgia to Maine for six and a half months, and carried everything we needed in our backpacks. Our combined packs weighed less than fifty pounds. Everything we carried, we needed, and nothing extra. For instance, we didn't carry forks -- a spoon does it all, and a fork can't.

COur needs were few: food, shelter, clothing. We carried that on our backs. Now, living aboard our 22-foot boat is a luxury. It is our shelter, and we don't have to tote the clothing or food. In fact, all your needs are few, also.

CWe know from experience, that everything else is a 'want' - and, for comfort or convenience, most of us have satisfied some of those wants. It seems to us, that the wants of most 21st Century Americans are almost endless. But all of us, even Bill and Melinda Gates, have finite resources, so we all are forced to make choices about which wants to fulfill.

CFood can range from simple pasta and water (like we carried on the trail) or every meal can by out at an exclusive restaurant with filet mignon and Dom Perignon.


Are These Hand-Dug, Home-Cooked Clams a Need or a Want?

CShelter can be our simple tent or a $10 million mansion. All our clothing can only be 'twos' - wear one and the other is in the wash, and all can fit in a small stuff sack. We have traveled around the world (literally) with a small carry-on pack. Or, you can have 50 pairs of shoes.

CThe important recognition is that all spending involves choices. If you have a high car (or boat) payment, or large mortgage bill every month, you made the choice. Credit card debt means you made choices beyond your means. One of the first economic rules is to take responsibility for your choices. You are not a victim of circumstances - you made those decisions (good, bad, or ugly) and are in control of future choices.

Choices Are Easy When Money Is Scarce

CThroughout our workiing life, we saved ten percent of every paycheck -- it came out automatically, to prevent temptation. We attempted living within a budget, in those early years, and discovered (with little children), when we added up our anticipated expenses and balanced them against income we would always be in the red. So we did Zero Sum Budgeting. We took out our ten percent, and everything else went into our checking account. We didn't use credit cards and always paid cash for our purchases. When the checking account went to zero, we could buy nothing else for the rest of the month. This way, we never exceeded our budget, our spending was limited, and our savings assured. There were some 'end of the month beans' or spaghetti. We lived like we did when we were in grad school, and we still do.

Like the Good Ol' Days - A Card Game in the Dorm With Good Friends - Just Plain Fun

CThe same is true when goods are scarce. According to supply and demand, when there is scarce supply and high demand, prices go up -- and this limits choices -- so don't follow the herd of sheep with your demands.

CFolks who ignore the reality of the scarcity of money or goods, sustain their spending habits by abusing their credit cards, home equity loans, or perhaps other reckless borrowing. If they haven't learned to restrain their expenses or the purchase of popular and scarce high-priced goods, they will have fewer choices in the future. They will always be working or end up old and broke.

Opportunity Cost

C"Opportunity cost," very simply, means that with every choice we give up something else. This is one of the most important economic concepts for us all to understand. It means that every time we spend a dollar, we not only lose that dollar but the earnings that dollar could bring to us if invested instead. So, with every dollar spent, you spend other choices and you spend your future!

CA young high school friend was saving his earnings to go to college. One day, I saw him in a new car. Yep, he spent his college savings. The average college grad earns 70% more over a lifetime than a high school graduate. He spent his future, and all the choices that go with it.

CBefore you spend, consider the opportunity cost.

CUnderstanding that our choices have opportunity costs, and examining what those costs are, should help us make better decisions.

Happiness And The Hedonic Treadmill

CWhat does it take to make a person happy? This is a subject long-studied by psychologists. Most have concluded that happiness for most people is a relatively constant state. Regardless of how good things get, we'll always have about the same level of happiness. This baseline appears to be at least partly genetic.

Happiness, on a Boat

CThere are few things that we can do to raise or lower our baseline happiness. Marriage often does and pets may. Perhaps a boat will help. Money does not add much to happiness. Lottery winners are the perfect example: within a year, they usually return to their former happiness level. Those injured or impaired by health, often quickly return to their level of happiness despite their loss of function.

CThe hedonic treadmill compares our pursuit of happiness to running on a treadmill. It means that we quickly take improved circumstances for granted, and we believe we have to keep working just to stay at the same level of happiness. When we purchase a nice 22-foot boat, this may make us happy for a little while, but we soon take our situation for granted. Our expectations continue to rise: if only we had a 25-foot boat or maybe a 27-footer.or maybe a big house looking at the water. Should those expectations be satisfied, again we'd adjust and quickly want more. Soon we seem to be on a treadmill acquiring more and more!


The Hedonic Treadmill: 25-Footer on Left, 19-Footer on Right; Home Sweet Home on Right

CCIt is important to understand that happiness is not found in our wallets or purses. Sure, we need a mininum to cover necessities, but then separating the needs from the wants becomes essential. We are gentically programmed to want more, and need to be contrarian - and resist those genes and the actions of everyone around us.

CIf we can be contrarian, and be satisfied and happy without excess spending, we have a great advantage over others in our culture - we can invest those extra dollars and let our unspent money work for us -- and get off that hedonic treadmill.

CAnd all that spending by others keeps the stock market and economy going up, to the advantage of our savings.

A Few More Ideas

COK, we promise ourselves that we will use a new criteria for every expenditure -- is this a need or a want? And we will do our best to spend only for needs. This is our choice.

CWe save what we don't choose to spend on needs, and live in an environment of financial scarcity. We simply increase the percentage of income going into savings until this scarcity is achieved. We choose to use zero sum budgeting and end up every month spending our last dollar -- and choose to have absolutely no debt (except for something that might increase in value, like a home). Goodbye credit cards (except for convenience - no carry-over debt), no loans, no interest paid to anyone. Choices are easy when there is no money in your wallet.

CUnderstanding the opportunity cost of every financial choice, we do not spend our future. We understand that our geneticallly-determined happiness level has nothing to do with money, and we never got on that Hedonic Treadmill. We will be different than almost every one else around us -- we will be happy and contrarian! Now, a few more concepts:

The Time Value of Money

CThis is easy: the dollar you have in your hand today is worth more than a dollar you're promised sometime in the future. Why?

CFor one thing, the dollar in your hand is real, the future is only a promise. Secondly, inflation erodes the value of money. Thirdly, and most importantly, your dollar could be invested and earn more dollars.

Invest Me!

The Miracle of Compound Interest

CThis is an easy concept also, but almost unbelievable. Our daughter heard about this concept in school, and came home that evening with a proposition. "Hey, Mom, give me a penny tonight. Tomorrow night, double it to two cents and keep doubling every day for a month. Only pennies, Mom - OK?" Fortunately, I knew about compounding money. Do you know how much I would owe her on the thirty-first day? $10.7 million.

CEach day the 'interest' earned the previous day earns more interest, so you start out with little and end up with a bunch. Unfortunately, we can't find investments that double daily. But, we can earn 10% annually over time (and the stockmarket historically has achieved this). At 10%, we double our money every seven years. Saving relatively small amounts of money, over time, can add up to big bucks (and most of that increased money is earned by your money).


CGetting out of bed every morning means we face risks - we all do. Driving to work is more dangerous than living on a boat.

Boating Has Risk - The Swells Are So Big, All You See is the Dinghy and the Antenna

CInvestments also carry risk, but with them we can determine the amount of risk we are willing to accept for the amount of return offered. Everyone has a different tolerance for risk. First of all, understand that inflation is a risk --and has averaged about 3% over the past 90 years. So any return on an investment, if it is to really make money, must first be at least 3%. The best way to combat investment risk is to diversify - don't put all your eggs in one basket, and this increases your odds.

Sunk Cost Fallacy

CA sunk cost is an expense that can't be recovered. The sunk cost fallacy is the irrational idea that if we just 'hang in there' it will 'come back.'

Hanging In There, With a 'Sunk Cost'

CSo we leave the investment in Enron, or we throw good money after bad. If you wouldn't buy that sunk stock today, don't hang on to it. Sell it and get that money working again. Resist the idea that you need to 'break even' - remember the opportunity cost.

Decide to Spend a Little Time Before you Spend Your Money

CA friend recently stated, "I am ready for a new chapter in my life and ideal cruising will be a part of it. Now I just have to figure out how to accomplish it and cut back on my 80+ hour work week." That triggered this thread.

CWell working folks, most of you work at least 40 hours a week (and some 80). How many hours do you devote to investing some of that money you earn? Only a few hours a week might buy you financial freedom.

Spending a Little Time

CWe suggest that one of the easiest ways to invest is by purchasing mutual funds. Fund managers are experts who do the picking of the stocks or bonds within the fund and, with the history of the fund, you can judge how well they choose. Mutual funds have a small fee associated with their ownership, reflected in their daily price. Most mutual funds have a long history so you can determine their risk and return through the years. There are hundreds of funds, but if you concentrate on one fund 'family' you can soon learn their funds and match them to your goals. A newsletter can help by giving you the history of each fund and their suggestions of best funds for different goals. We invest in Fidelity funds and use Eric Kobren's Fidelity Insight to help guide our choices.


CEl and I felt that a little competition would teach each of us more than solo investing. So, we keep a running tally of our percent gain (or loss) -- and remember, El is the aggressive one in life (you really understand yourself when you are managing your money!!) She would race ahead and force me to be more aggressive just to keep in her dust. Then, when the market plunged (which it did the year after we retired), she would be 'forced' to be more conservative with me or she'd be dropping quickly below me. Well, she's beaten me almost every year in our competition and is way ahead cumulatively -- but we're both ahead because of this 'game.'

El's Investments are the Yellow Line

CSo you can work for money, or money can work for you -- it's your choice!



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