How To Do Everything Wrong and Still End Up Financially Independent

How To Do Everything Wrong and Still End Up Financially Independent

Today’s post is from Pauline of InvestmentZen.com. So sit up straight and give her your full attention. HEY. Don’t make me have to take away your phone.

There are so many ways to reach a same goal, and financial independence is one such pursuit where everyone does things their way. But the usual tends to be something like: pay off your mortgage early, keep living frugally, invest the rest, wait a couple of decades for your nest egg to compound, reach a 25x living expenses net worth, done. I did things a bit differently. Like Nelson warned in this post, this is by no means a way to say that will work for you, or that should be the path everyone should follow. Not at all.

I took more risks and it happens to have worked quite well. But it was stressful at times. Here are a few examples.

My first property was a rental

I bought my first property just before graduation with the $25,000 I had saved during college. I had been hustling hard for five years, and found a company to sponsor my MBA, so I graduated with a bit of money in the bank. I wanted to travel the world for a year, and instead of blowing that up in flights and beers on a tropical beach, I decided to invest in property, and travel with the rent money. My contract with my MBA sponsor was ending a month later, and the bank turned me down for a mortgage. So I put all my cash on one tiny studio, in the worst neighborhood of the Parisian suburbs. You know, the ones where cars burn and gangs riot? Yes, one of these.

But with great risk came great returns. The property was yielding 12% annually, and thanks to rental insurance, I was still getting paid when my tenant didn’t feel like paying rent. Then he died, and his widow stayed there for 18 months, protected by a few French laws that say heartless landlords can’t kick back payers if it’s cold, or until the council has found them another place to go not pay rent at. Fun times.

Nevertheless, the decrepit area got an influx of public funds to get better, and after 8 years, I sold for $50,000. The tenant had paid back the property, so technically, that was pure profit.

I took on debt to invest

Annoyed that I couldn’t get a mortgage and enjoy the beauty of leverage when prices doubled in Paris over 10 years, I looked for other ways to get money. I got a few loans and 0% balances on credit cards to invest. My mother and a close friend lent me money. That was a bold and crazy move. But the way I saw it, if the investments went wrong, I could still repay the instalments with my other streams of income. And having to find that money every month was pushing me to make more instead of resting on my laurels. Debt helped me build wealth faster, and everything turned out ok. I was aware of the risk and wouldn’t recommend you do it too, unless you are confident you can repay the loans independently of investment returns.

I turned my main residence into a rental

A few years later, I had saved another $25k for a deposit, and gone back to gainful employment for the sole purpose of getting a mortgage. The bank was much nicer this time, and I bought a three bedroom apartment in a fancy college town South of London. Following the common wisdom, I should have stayed there until my hair turned grey. Six months later, I was renting each room to a student, and quitting my job. What? No job security to pay the mortgage? Thanks to a 2.29% rate and my will to take on the extra hassle of charging three people individually, the property was cash flow positive, and I now consider the rent from the room I used to occupy (a whopping $800, it’s London after all) my maximum housing allowance to live anywhere else in the world. 

I moved to the tropics to live cheaper

Speaking of which, I have been based in Guatemala since 2012. The low cost of living was not the sole trigger, but your hard earned cash goes a long way down South. And while my family is far away, I still make a European salary, so I can travel to my heart’s content. Again for lack of being able to secure a mortgage, I bought a property cash. It started as an emotional decision. I had had bad experiences with landlords and wanted a place where no one would tell me what to do. But I turned the little $50,000 house I originally bought into a $120,000+ guest house that yields over 10% a year. That money alone pays for two staff and all my living expenses. Sure, I am missing on the opportunity to invest these $120k on the markets, but I value living in my own house enough to not care.

I didn’t get my company match. Or a tax free retirement account.

When I worked in the UK, my company offered a retirement account with company match. That was an instant 100% return on investment, plus tax advantages. I politely declined. The hassle of having to wait until age 60 to see the money, fill some UK paperwork I wouldn’t be familiar with four decades later, and having my cash stuck until then was far from appealing. I was confident in my ability to grow my net worth fast and again not afraid of risk. I am financially independent, so I guess that worked out. I have a tiny portion of my money in index funds, but the rest is mostly in alternative investments, such as foreign land, peer to peer lending, and currencies. I need euros when I’m in Europe, dollars in the US and pounds for my UK rental anyway, so even if I predict currency swings inaccurately, I still have a use for the cash.

Let me repeat once more that these are in no ways recommendations for you to invest. But the next time you think life is about working a day job until you die, maybe have a look at a few alternatives instead.

Why HNZ Group Is A Good Buy

Nelson’s note: Because I am lazier more efficient than you ever thought possible, here’s writing by someone who isn’t me. It’s by Holy Potato, who I think is a criminally underrated Canadian finance blogger. And I’m not just saying that because I’m on his blogroll. He usually blogs at holypotato.net when he isn’t neglecting the site to work on his upcoming book, which is all about teaching regular people how to become boring index investors. 

HNZ Group is hardly a value stock. They haven’t increased the dividend ever so it’s not a dividend growth story either. But it’s a rare bird in the world of public companies: a company with (virtually) no debt on the balance sheet.

This is after making a major acquisition just a few years ago, when then-Canadian Helicopters bought HNZ Group (and kept the name) from a distressed seller in New Zealand. They borrowed about $100M to make it happen, and paid the debt off in a timely fashion.

That makes the balance sheet really strong; though much of it is in the form of aircraft, we can see from sales of comparable craft and their own sales of their used helicopters that the value on the balance sheet is indeed close to the real-life market value. In some years they’ve even recorded a gain after turning over units in the fleet. At about 1.2X book value, this is hardly a drool-worthy play on net asset value or liquidation, even with such a solid balance sheet and the possibility that helicopters can be re-sold at a bit of a premium to carrying value; at a 12X (normalized) P/E it’s also not a screaming buy on earnings or cash flow. But it’s reasonably valued and has some potential.

That potential, in my mind, is fairly hidden: you can’t look at the trends in the income statements and see any kind of growth. They’re not substantially expanding their fleet and aside from dabbling in providing repairs from their services arm, aren’t really expanding into new businesses in a meaningful way. The potential that I see is that balance sheet strength and the discipline in capital management they’ve displayed in paying down the debt from the last acquisition so smartly.

Helicopter exploration and transportation is a cyclical business – some years oil and gas exploration companies are crawling over each other for HNZ’s services at the same time the US military is contracting out transportation work; other years it’s quiet. I can’t say whether this is the nadir of that cycle or not. If this is the bottom in the business cycle then this valuation looks pretty good, actually. I suspect it’s not just yet, but they are well-positioned to weather whatever storms may come. Moreover, and what is exciting me about this one, is that that unlevered balance sheet and patience will set them up to expand suddenly and rapidly when the opportunity presents itself – for instance, if times get tough and a more leveraged competitor goes belly-up.

I have no idea when or if HNZ Group will have a chance to make an acquisition, which way the market cycle will go for helicopter services, or if increasing turmoil in the middle east will once again lead to high-margin civilian contracts. With a 5% dividend, I’m ok with the idea of waiting on this merely adequately valued stock and seeing what future opportunities they can seize from their position of strength in an ever-shifting business.

Disclosure: I am long HNZ.A.

How Your Crazy Personality Will Affect Your Finances

(Hey kids, Nelson here. I’m breaking my no guest posting policy for the day for Eddie, who blogs at Summaticus. No, not that Eddie. A different, better one. If you like the serious parts of Financial Uproar, I’m pretty sure you’ll like Summaticus. His full bio is at the bottom. Take it away, Ed-ster.)

This article is a commentary based on the Forbes article written by Amy Leyishian. I am familiar with the Myers-Briggs test and was intrigued by this article. I have expanded on a few thoughts.

Protectors – also known as the Guardian Temperament (SJs)
Role Variants: ISTJ (Inspector), ESTJ (Supervisor), ISFJ (Protector), ESFJ (Provider)

The world of the Protector revolves around security. Having a secure home, job, and income are critical to the happiness of a Protector and possess a strong work ethic to preserve their place in society. They are very practical and frugal, not wasting money on impulsive purchases. The biggest problem they have with self-gratification is that they do not do it often enough in the present, always saving money for a rainy day. They are unlikely to take chances on risky financial ventures and will likely be invested in conservative securities like GICs and bonds vice emerging market ETFs. A Protector is likely to have a financial plan and would be meticulous in following it. Because of their natural tendencies towards security and rules, they are most often found in business as managers, accountants, and planners.

Being married to a Protector has its benefits and its drawbacks. Because Protectors value security, they are stable and reliable. Having enough money socked away for retirement will not be one of your worries. However, if they are extreme Protectors, they will not spend a dime on things they enjoy in the present, which can be very frustrating for another temperament, most notably a Player (see below). A possible method to circumvent this is to agree on a certain amount of money to save every month or to spend every month. Whatever amount is agreed to be spent can be done so without judgment from the Protector. Bear in mind that not all Protectors will want to save every single penny; it means that security and saving is their default and to which they will naturally gravitate.

Planners – also known as the Idealist Temperament (NTs)
Role Variants: Mastermind (INTJ), Field Marshal (ENTJ), Inventor (ENTP), Architect (INTP)

Planners rely on reason to strategize about their future. Inherently logical, they seek objectivity and suppress emotions when called on to make decisions. Because of their pragmatism and forethought, they are drawn to careers involving systems, such as IT and engineering, as they identify more readily with science and technology.

Planners are the most likely to have financial goals recorded in a coherent document. They would be adept at creating contingencies and incorporating flexibility into their plans to ensure its continued relevancy and feasibility. They would have an emergency fund, but in a smaller amount than a Protector, and have a diversified portfolio of investments. However, there is a tendency to look to far forward and not live in the moment, which would likely cause friction if paired with a Player. To overcome this potential hazard, the article suggests diverting a portion of the income towards long term savings and another to pure indulgences. This appears to be a rational solution to the principal drawback of being a planner.

Pleasers – also known as the Visionary Temperament (NFs)
Role Variants: ENFJ (Teacher), Champion (ENFP), Healer (INFP), Counsellor (INFJ)

Pleasers are among the nicest people in the world. Similar to Planners, they tend to look more in the future but through a more emotional and introspective lens. They tend to focus on what could be rather than what is, as opposed to the cool rationality that is a Planner. Pleasers are on a quest for knowledge and self-improvement, focusing on the journey and of their own potential. They are warm, affectionate people that take a keen interest in others. Because of their Intuitive and Feeling functions, they are drawn to careers that involve people, such as teaching, journalism, counselling, and in religious institutions.

Leyishian suggests that Pleasers can be taken advantage of due to their caring nature. If they are not careful, Pleasers can enable the poor spending habits of others by giving them money without the beneficiary being accountable. This is something to be very aware of if you or a loved one fall into the Pleaser category. Another risk would be for Pleasers to enable and reward themselves through self-indulgent behaviour.

Players – also known as the Artisan Temperament (SPs)
Role Variants: Promoter (ESTP), Performer (ESFP), Crafter (ISTP), Composer (ISFP)

Players are typically the life of the party. They live in the moment and are spontaneous. Because of their tendency to be impulsive, they are “often the ones at the highest financial risk” according to the Forbes article. With the NT function dominating the Planners, the complete opposite of SP of the Player makes long term planning anathema to the Player. They are focused on the here and now and do not care much for future events and abstractions such as retirement. When under control, Players can be your most entertaining friend and somebody that you want to be around. If the SP function is not checked by a dose of logic, then say hello to constant debt and bankruptcy.

Players can be the most inclined towards self-employment and being entrepreneurial. Their fun-loving SP side would generally conflict with a bureaucratic and standardized workplace governed by rules and routine. This can be a powerful catalyst for wealth if they can channel self-indulgent behaviour into a profitable and enjoyable business venture. Their natural optimism and spirit will propel them to success, if only discipline can be honed to keep their venture on track.

What exactly does all this mean?

The Myers-Briggs test is a widely-used method for categorizing human behaviour and temperament. It can provide insight into an individual’s strengths and weaknesses and assist them in developing strategies to encourage the former and mitigate the latter. The Myers-Briggs test can be a useful guide to gain insight into human behaviour. It can also be used by a couple as a common language to explain themselves. For example. A man who is a SP and freely spends money can relate to his calculating and modest wife in terms they both understand.

The test has also comes under criticism by some academics who question its utility in predicting human behaviour. Others postulate that humans cannot be classified according to sixteen roles. On an everyday level, there are those who take the test and use the results as an excuse for their behaviour, rather than a tool to self-improvement. The human mind is a growing entity; habits can change and behaviour evolves.

Feel free to take the Myers-Briggs test at the link below. Carefully ponder how the results affect your understanding of yourself and your finances. Also think about the limitations of the test and what it cannot explain. Most importantly, think beyond the microcosm of personal finance and reflect on how this new knowledge affects your decision-making skills, career choices, relationships, and happiness.

For more information, consult the following references:

Summaticus – Master Thyself
Truity – Profiles of the Sixteen Personality Types
Truity – The Typefinder Personality Test Cost: $29
Human Metrics – Myers-Briggs Test  Cost: Free

Eddie is a self-employed project manager and consulting engineer in the oil & gas industry in Alberta.  After serving 10 years in the army, he is pursuing an Executive MBA at the University of Calgary.  He holds contrarian views about personal finance and writes about personal strategy, economics, and history at his blog www.summaticus.com.

Can You Please Stop Buying Drinks For Girls

Nelson’s note: Yeah, I know, it’s been a while. I’M NOT SORRY. I promise, a new post from me tomorrow. In the meantime, enjoy a little something something from MD who blogs over at Studenomics

Do you buy drinks for girls? Does it work? Yea, probably not. Now can you stop, please? No more buying drinks for random girls, Mr. Prince Charming.

Nelson wrote about renting women on here before. I pretty much disagree with Nelson’s views on sex because I love it too much (sex that is). It can be with my girlfriend or strangers (when single). Of course, it’s better with someone you care about. But casual sex beats no sex in my opinion. Now before I get carried away, let’s get back to the tie in here with sex and personal finance.

Personal finance is about saving money. Sex is all about spending money. This is why I wanted to write about spending money on drinks for girls every single damn weekend.

Why should you stop buying drinks?

I’ll tell you a story about buying drinks. Actually I’ll tell one story of an occurrence that happens pretty much every single weekend. This story involves my friend and perhaps an urban legend on the streets of Toronto, Pete The Greek.

I met Pete in college a few years. We ended up becoming drinking buddies. The only problem is that I’ve really cut back on my drinking lately. I prefer to go out sober because it allows me to drive home whenever I’m ready to leave and to save tons of money. Pete can’t go out without drinking a ton of booze. That’s cool. He just has this incredibly hilarious habit. Every girl who walks by he stops them with the following game-changing routine:

What’s your name? The girl responds.

What are you drinking? Of course she responds again.

Pete buys her a drink. Girl happily chugs the shot and the slowly plans her exit.

I must admit that it’s funny to watch because I once tracked the money spent on drinks and it was easily over $100. That’s a pretty expensive night out.

Why should you stop buying drinks for girls?

  1. Financial reasons. I wonder how many student credit cards have been maxed out on drinks? If you buy a bunch of drinks for random girls, you can easily blow a $100 in a night. That adds up over time.
  2. It doesn’t work. You bought a complete stranger a drink. What do you think she’s thinking? She obviously knows you’re horny and want to get laid. At the most, she might stick around for a fake conversation. More than likely she’ll chug the shot and walk away. Good job!
  3. Why would you want a drunk? I get the argument for alcohol being your friend when you’re nervous. But why would you want a completely wasted girl? That’s all sorts of trouble. I’ll leave it at that.
Before you think I’m a tightwad, I do buy drinks and give tips. I just don’t believe in buying drinks for random girls.

Is it every okay to buy drinks?

Of course. For friends, your girlfriend, or if a girl has already bought you a drink. There’s nothing inherently wrong with buying drinks. It just makes me cry when I see dudes all drunk buying shots for every half-decent girl who walks by. Imagine how I would feel if I was a frugality blogger?

What’s the point of this article? I want to stop this epidemic before it ruins us all. Stop buying drinks for strangers, gentlemen!

This was a guest post from Martin of Studenomics and Start Freelancing Now. Martin recently published a piece on how to increase your net worth in your 20s.

The Financial “Stigma”

This is a guest post from “Captain Awesome,” which is either the lamest or best pen name of all time. For some reason, he volunteered to write me something. Since I’m lazy, I relished the opportunity to have somebody else do the work around here. Anyway, you should read it. It’s better than the crap I usually write, anyway.

Right now, half of you are already tuning me out because I tried to throw some crazy word in the title. Stigma, you say? I have no clue what that is…let me go Google it. Don’t even try to deny it!

Let me save you some time real quick though.

According to Dictionary.com, a stigma is, “a mark of disgrace or infamy; a stain or reproach, as on one’s reputation.”

It has other definitions, but I really don’t care about those. Take that Science degree! Your general education courses were a waste of my time!

Now that I’ve derailed this discussion far enough; let me try and get this train back on track.

Why is it such a disgrace to discuss one’s finances? You know it, I know it, and just about everyone knows it. Oh, sure, we discuss how we just bought this super nice house or a boat or anything like that. By the way, I totally just bought this super nice house. I know, nice, right?

See what I did there? I indirectly hinted at how much I can afford without directly addressing how much I make or how I budget or what I do with my money. Why did I do it? I mean, aside from the obvious reason of me being just that awesome. The heart of it lies in the status that we think discussing what we can afford brings us. Your coworker shares that he’s taking his family out to the lake on his boat. He isn’t sharing because anyone cares what he does on the weekend, because we don’t. He is sharing because he wants the rest of us to marvel at the fact that he owns a boat and can afford to take it out. In other words, he’s flaunting his disposable income.

So without telling us how much he really makes (he’s actually deep in debt and keeps taking out loans to buy more stuff which he’ll never pay off), he just gives us the whole frat boy nudge about the hot girl he got with last night. I wonder what a sorority girl does? (Ed. note: that link is worth your time)

Anyways, the question is why? Why are we embarrassed to share our financial health in its entirety?

Reason #1: We are stupid.

We don’t want to put ourselves out there, laid bare, for others to scrutinize. After all, the way your peers look at you is all that really matters in life.

Reason #2: We actually are too caring.

We don’t want to make our friends and/or family feel worse about themselves and how much they’re making. So we keep it to ourselves.

Reason #3: It’s easier to pretend.

When I say pretend, I mean we only share part of our financial situation. After all, “I make $135k a year” sounds a hell of a lot better than, “I make $135k a year, but pay 85k a year in loans and various debts.”

So brace yourselves. I’m about to refute all these pathetic reasons. I’m just that good.

Refute #1: You really ARE stupid.

Here’s the real deal of the matter. A few people could actually give you some good advice on how to improve your financial health or offer suggestions on what they’ve done or mistakes they’ve made and how you can avoid those pitfalls. The few who might actually scoff at how deep in the red you might be? Kick them to the curb! Unless they’re your boss. In which case, laugh hardily at whatever joke they make and secretly plot on how you will END HIM.

Refute #2: Caring leads to missing out.

This is really where the disgrace of financial sharing seems to rear its ugly head the most, with your friends and family. We like to make the financial battle a solo quest. But if anyone else has ever played any form of MMORPG, you know you can’t do those raids on your own! Okay, I don’t really play any MMORPG’s, but I figure that’s what’s hip right now and some of you can relate. The point being that a hardship we bear on our own means making the same mistakes that someone else we know made. Heh, silly Uncle Frank and his investments…

Refute #3: We all know the truth and despise you more for it.

If you’re that guy that says he makes “such-and-such” amount…? The truth is that we realize you’re just flaunting it in front of us and that makes you look like a total dirtbag. Anyone who has had to deal with the pain of taxes knows that what your income looks to be is never what you really get. We all pay all these silly deductions like medical and social security and whatever. So we know that even if you’re telling the truth (could be lying) and you really make that make (highly doubt it), you really aren’t seeing it all anyways. There may be a few moments of awe and envy, but those will end and we will just dislike you more for it. Or secretly plan to rob your house. You have insurance, right?

I do believe that things are getting better in regards to the “financial stigma”, but they’ve got a long ways to go. So I’ll make you, the readers here at Financial Uproar, a deal. I’mma make you an offer you can’t refuse. If enough people are interested, I will give a full financial accounting of myself. No social security numbers (I learned after that darn Nigerian prince scammed me), no bank names, no backstory. I won’t weave a tale of woes. I will lay out hard numbers for you to look at. But only if you, the readers, want.

I’m 25 years old and I’m Awesome. Thanks for reading.