Over the last six months or so, I have worked hard to post every day to this blog. I noticed that many of my posts have been meaningful and well written, and many have been thrown together just to keep on schedule.
Starting now, I am going to focus more on quality than quantity. I hope that putting more time into better posts rather than more posts will keep all of the loyal readers around and bring in new readers as well.
I might post every day for a while, or post every couple of days, or even every few days. But you can be sure that each post will be well written and valuable to your lives.
Thanks for your support and I hope you stick around to see the great things we can do. If anyone wants to write a guest post, I am in the market. Just send me an e-mail to eric (at) narrowbridgeadventures.com.
As an investor, I look at the statements of many companies before I make a decision to invest. This week, we will look at our own personal financial statements. This may involve some leg work for each of us, but I think the project will be worthwhile in retrospect. Today, we are going to start at the core of our financial health, the balance sheet.
For those of us who have not taken accounting, here is a quick rundown. Assets on the left, liabilities on the right, shareholder’s equity below liabilities. Assets + Liabilities = Shareholders Equity. For us, equity is synonymous with net worth.
To build my balance sheet, I used my most recent Net Worth IQ entry and made a few adjustments using Excel. For more about NetWorthIQ, see the net worth link on the personal finance arsenal or click here.
After some manipulation, I came up with this Personal Balance Sheet:
Remember that the balance sheet is a snapshot in time. Every time you buy something, cash (asset) goes down or credit (liabilities) goes up. If you buy an asset, such as a car, home, or valuable personal property, your property asset goes up.
Assets as a positive number plus liabilities as a negative number give you your personal equity. If the number is positive, you are in fair financial shape. If you are in the negative, you are in bad shape. Here is a condensed version of my balance sheet that is more comparable to a corporate statement:
Looking at the balance sheet on a short term-long term basis, we can see our immediate liquidity. A common measure of immediate liquidity is the quick ratio, or current assets over current liabilities. My quick ratio (12,768/227) is 56.25. That means I can cover my current assets 56 times with my current liabilities. A quick ratio of 1.0 means you are living literally paycheck to paycheck. A quick ratio below 1.0 means you are dealing with immediate liquidity issues (can’t make payments).
Most companies use within one year as current. I am using within one month as current, as that is more appropriate for a person making regular bill payments. I just made a tuition payment, so my ratio is actually quite a bit lower if I used today’s data. In one month you can undergo a big change.
Working on saving, investing, and cutting credit card debt will dramatically increase your quick ratio. If any of you do this, please post your quick ratio in the comments if you feel comfortable doing so. Keep on the lookout for the Income Statement and Statement of Cash Flows later this week.
Last night I went to a large social event for Jewish grad students and young professionals in my town. It was a lot of fun. I had a good time and met some cool people. I didn’t bust the bank on the bar crawl (only did one drink per bar rather than the two or three many others were). I was not as worried about that as transportation.
Like many cities, Denver has fair public transportation, but not at night. The area of town I was in is not near our light rail, so I was pretty much stuck with either a DD or cab. I tried to plan it out with a friend to leave a car off, take a cab home, and drop off in the morning. It is not a wonderful part of town so neither of us wanted to leave a car.
Fortunately, my roommate was a nice guy and offered to drop us off (using my car, as he does not have one). That covered one way of the possible cab fare. I banked on us meeting someone nice who didn’t mind going 10 minutes out of the way to give us a ride back to my place. I figured, worst comes to worst, we split the $10 or $15 for cab fare home.
Fortunately I made a couple of friends at bar 3 and took a ride home after bar 4. I could have stayed out longer, but the ride got us home at midnight. I don’t mind being home by 12, so it worked out great. I also made hopeful good friends out of it, so it was a good, frugal-ish night out at the bars. Bars can never be totally frugal, but you can work it out right to cut costs by asking for the drink specials and avoiding cabs.
I like do it yourself projects. I have installed new toilets, fixed doors, patched drywall, and a few other odds and ends around the house. Generally, those types of projects are easy enough that I can do a good job without breaking the bank on a professional.
There are other DIY projects that are better left to a professional. I do not trust myself to work on any real pluming or electrical issues. I could flood the house or burn it down. That is not worth the risk.
Finally, there are projects that are cheaper when left to the professionals. Some shops can change your oil for less than you can buy it and do it yourself. I once bought five quarts of oil and a filter for $5 more than Walmart would have charged to do it all for me.
The moral of this story: do your research. DIY is fun, but not always the most economic option. Like everything else in life, do your research before undertaking a project or making a purchase.
One of the local Denver newspapers recently closed. Right after, the Seattle PI went to online only. Is this the end of newspapers?
I don’t think so, I think we are going to see a big reduction though. We might end up with one regional paper around each big city and a few national papers left. I bet the Wall Street Journal, USA Today, New York Times, and Washington Post all make it. The LA Times and Miami-Dade Sun Sentinel are other candidates for survival.
I have been getting the WSJ delivered to my door for about two weeks now. I am getting ten weeks for $20 for class. At that rate, it is worth it, but would I pay full price? No.
I will err for frugality in this case. I can see all WSJ headlines and read lots and lots of business news for free. Google News and Google Finance all give me the business news I care about and want to read. I don’t see a big value in paying hundreds of dollars per year for the Journal. I do enjoy it, but not for the full cost.
Do any of you get the Journal? Have you given up paper subscriptions and moved to online only news? Please tell in the comments.
We are having a snow day here in Denver. Everyone left work around 10:00am to work at home. I got a wake up call from school at 6:07am letting me know classes are canceled. That kind of ruins the coolness of a snow day.
What do snow days have to do with personal finance? I am still working on that. I am sure there is something. Being on salary and able to work at home, I do not lose out on hourly income at work. For some that could be a factor.
I have started writing my personal finance e-Book. I am very excited about how it is coming along. While it is still in the works, I will tell you all what it is about. Are you ready. Drum roll please…
The book is about the Personal Finance Arsenal that I regularly refer to on this blog. It is a much more in depth look at tools to help you manage your financial world. The book is designed to make your life easier and save you a little money while you are at it.
I will be giving away a few free “advance copies” to readers for feedback. I will let you all know when I get to that point. Until then, are there any tools that you think I have missed? Take a look at the personal finance arsenal posts and let me know in the comments. I will give you credit in the book if I include something at your suggestion. (There are many tools included in the book that have not yet been written about on the blog, so you will have to trust me on that part.)
Who says you can’t learn any good financial lessons from South Park? One of my favorite episodes of all time is the episode “Gnomes”. You can see the whole episode for free here.
I am sure you are thinking: “Eric, that is the most ridiculous thing I have ever read! How is that a good financial lesson?”
The whole episode revolves around South Park locals trying to keep a “Harbucks” coffee shop from opening across from the local guy. The kids agree at first, but are eventually taught about corporations by the Underpants Gnomes and decide otherwise.
The gnomes teach us everything we really need to do well in business. You need a good idea and you need an end goal. Figuring out how to make money from it is the challenge you will face. Identity a need in society and go at it. Eventually you will figure out a way to make profit. People will always pay you if you can make their lives better or easier.
A good example of this type of logic is Twitter. Phase one: Open a silly website that lets you type 140 character messages. Phase three: Profit. They are still working out phase two, but I am sure it will work. Even I am a member after all (@IsraelSituation).
I am always on the lookout for a business opportunity. One of these days I will strike it rich. I know of at least one reader who has his own business. I am sure there are many more out there who do too. I bet it all started with an idea, a phase one. The goal: PROFIT!
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Arbitrage is executing a deal to take advantage of a difference in a buy price and sale price in a short time period. Currency arbitrage is a popular way to make money fast on a small margin. People look for opportunities in the stock markets, bond markets, commodity markets, and currency markets to make money. People usually put in millions of dollars to gain a small margin with very little risk.
I don’t have millions of dollars, but I have found a different way to make a little extra money. I call it E-Baytrage. I have played this fun game on Craigslist and enjoyed a modest profit.
Here is how it works: First, find a great deal on a product. A good place to find deals is SlickDeals.net or the Amazon Gold Box. Look for a product that is selling super cheap but has a high demand. I have successfully re-sold digital cameras, for example, but have not bought a computer or TV that has a higher capital investment and less liquidity.
So say you see a deal on a digital camera for $39.99 on Slick Deals. Look for what that exact camera costs on other websites. Cruise to Best Buy, Amazon, Google Shopping, and other sites to find the average price. If the average price is higher than $39.99, you have an opportunity for arbitrage. I only buy in if the spread is well over $10. It is not worth the time if you are only going to make $2, but it is worth it to make $25.
Once you have the product in hand, put a listing on Craigslist. Be sure to include a picture and tell how good of a deal you are offering. There are many guides online to Craigslist sales. Wait until you get a bite. You might have to do a little price negotiation, so include a little extra fluff on your listing price.
Remember to be safe. Meet at a public place like a coffee shop. I met someone at a Chipotle near my house when I sold a camera a few months ago. Take cash only on delivery. Do not give out your personal e-mail (CL gives you a temporary forwarding e-mail for the listing for free) or home address. Give out your phone number with extreme caution.
If you have a truck, you can buy and sell furnitue on Craigslist for arbitrage opportunities as well. Cruise the “free” section on weekends and pickup people’s desks, dressers, tables, and couches. Do a little cleaning and re-list it for a fair price. I got two encyclopedias that I intended to re-sell but decided to keep for myself.
Let me know if you have any questions in the comments.
Update: Reader (and friend) Jacob pointed out a drawback of arbitrage that I did not mention in the article. When you buy into something, you bear all risks of a decrease in liquidity (ability to sell) or value. You could get stuck with a foreign currency or, in this case, camera that you can not sell. You risk the entire value of the investment, but hopefully come out on top. Most arbitrage specialists use expensive computer programs to help them take advantage of the situation. I would not recommend it unless you have a few million you can lose.
If you are looking for a fun, competitive way to get involved in the stock market with no risk, you might want to try out a stock market game. There are many out there, but my personal favorite is Investopedia.
This can be a great method to try out new investing strategies. While you do not get the real gains from good picks, you do not risk the losses of a bad decision.
