How to Invest in Oil


 

Space CapsuleDespite my efforts to keep my work and blog worlds separate, word is starting to get around the office that I know a little something about investing.  Actually some people had found out already just because of hallway conversations.  I actually gave a seminar on investing to one interested group at their request. Now that some are finding out about my investing book,  I’m starting to get more questions.

I’m glad to help.  I stated the blog as a hobby with the goal of maybe generating some side income from it, but really it has become somewhat of a ministry.  I’m finding that a lot of people want to learn how to handle money better and to invest.  We have Dave Ramsey in our area and a lot of people are fans, but he kind of leaves off when you get out of debt and doesn’t say too much about what to do next.  And what if you never got into debt to begin with?  What if you’re one of those weird people who went through college without loans.

Today a friend asked my how to invest in oil.  I told him to buy an Oil ETF.  I then explained that an ETF, or “Exchange Traded Fund,” is a relatively new invention that allows you to buy stocks in specific sectors of the market.  They trade like a stock, meaning you call up your broker or fire up your ETrade account and put in a buy order.  

You buy them from another individual, which means that people buying or selling them won’t affect the fund because there is no need for the fund manager to buy or sell shares inside the fund just because someone trades the ETF.  This is an issue for traditional mutual funds that must buy shares when a person sends money into the fund and sell shares to raise cash when people want their money back out of the fund.  (That drives up costs for everyone, which is why some fund managers limit how often you can sell shares then buy them back again.)

The price of shares of ETFs will generally go up when the shares of the stocks they own go up.  This is because when you buy shares of an ETF, you own a percentage of those shares that the ETF has invested into.  You also will receive your share of dividends the stocks within the ETF pay out (some ETFs invested in things like bank stocks or utilities pay good dividends).  If the ETF were ever dissolved, you would receive your portion of the cash.

The very first ETF was created by the Standard & Poor company, the Standard and Poors Depositior Receipts (SPDRs), pronounced “Spiders”, that owned shares of the companies in the S&P 500.  From there they created SPDRs on the small caps and mid cap stock indices.  Then they created an ETF on the Dow Jones Industrial Average, DIA (called “Diamonds.”)  Then things really got interesting when fund companies started to create ETFs on specific industries, like retailers, industrials, high-tech companies, and, yes, oil companies.  

Some ETFs that specialize in oil companies include:

1.  SPDR S&P Oil & Gas Exploration & Production ETF (XOP):

2. iShares Dow Jones US Oil & Gas Exploration & Production ETF (IEO)

and 3. PowerShares Dynamic Energy Exploration and Production (PXE)

So while you can invest in oil companies, should you?  My friend’s reasoning was that because oil prices have fallen so far, they really can’t fall much further so it was a good time to invest.  I’ve found, however, that it is really difficult to time the market.  Oil prices may fall and then just stay down for years.  Just ask gold investors who bought in during the boom of the 1980’s.  They needed to hold on until about 2010 before they got their investment back, and then they were still actually a little underwater because of inflation.  They had also missed out on years’ worth of returns that they could have gotten if they had just invested in common stocks.  They missed out on the miraculous bull market of the 1980’s that it took the Clinton administration eight years to kill with higher taxes!

I do think that ETFs are a great alternative to investing in mutual funds.  For example, if you have an IRA in a standard brokerage account instead of with a mutual fund company, you can buy ETFs just like any other stocks.  They are dirt cheap.  Vanguard even has an ETF corresponding to each of their index funds, so you can pick up an S&P 500 ETF, and REIT ETF, a small cap ETF, and so on.  That is a great way to diversify your portfolio and keep your costs low.

Got an investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

The Countdown to Freedom Continues, Balance: $600


cropped-smallivy_1x1.jpg

This week I sent in another $300 to my investment account, continuing what I’m calling the Countdown to Freedom.  This is where I’m saving a few hundred dollars each month.  When I get enough, I’ll start to invest.  Eventually, it should grow enough to reach financial freedom (where I can make enough from the returns from  the investments to replace my income.)  This is similar to blogs where people are paying down their debt, but in this case I’m going the other way and growing wealth.  In actuality I’ve already made this journey, but thought people might like to see how it is done to inspire them to make the same journey.  You’re invited (and encouraged) to do same and let everyone know how you’re doing.

 

As AC/DC says, it “ain’t no fun waiting ’round to be a millionaire.”  Combined with the $300 I invested last month, I now have $600 in my freedom fund.  Still, that is $600 more than I had a couple of months ago.  When I get to about $3000 I should be able to either invest it in a mutual fund or find an individual stock to buy.  That will be early next summer.

I’m hoping that others out there are making the same journey.  If you are, please leave a comment and let other know how you are doing.  What are you doing to find the money in your budget?  How far have you come?  How do you think it will change your life to be financially independent?  Let us know!

Your investing questions are wanted. Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Important Personal Finance Steps to Take When Starting a Job


OLYMPUS DIGITAL CAMERALast night a friend invited me over to talk to his 23 year-old son about 401k investing.  He had recently started his first career-type job and was unsure what to do when faced with the packet from human resources.  With the help of his father he had initially enrolled in one of the target retirement funds, which is not a bad idea when you’re still learning and trying to get your bearings.  The issue, however, is that you can give up some return by being over-invested in income securities (bonds) when you’re too young with many of those funds.  You can do a little better by selecting funds yourself with just a little bit of knowledge.  Some things we discussed are:

1.  The most important thing is to get started while you’re young.  Every dollar you invest when you’re in your early twenties will be worth about $130 when you retire.  Every dollar you invest at 30 will only be worth $60 at retirement.  A dollar invested at 40 will only be worth $16 at retirement, and dollars invested in your fifties may be worth $2-$4 at retirement.  This means that if you can put away $10,000 during your first year of work, you’ve created $1,300,000 for yourself at retirement.  Do the same when you’re 40 and you may have $160,000.  Big difference.

2.  Your first goal should be an emergency fund.  People build expenses and obligations – like car payments – until they consume all of their available income.  This means that when something happens like your car breaks down, out comes the credit card and you have very little extra income to pay down the balance.  Do this a couple of times and you’ll soon find yourself struggling just to make the interest payment each month.  Put away $10,000 in cash into a money market fund as soon as you can and only use it for emergencies.  When you need to dip into it, make it your top priority to replace it.

3.  Try to put 10-15% away among your 401k, IRA, and other retirement accounts, even if you have a company match.  He had a fantastic 2-for-1 match from the company, so he decided to only put 5% away.  With the company match he was certainly saving plenty for retirement.  The issue with relying on the company math, however, was that (again) you tend to spend any extra income that you have and add obligations, leaving you with little free cash flow.  This means that it is really difficult to put away more later if your company should stop providing the match.  It is better to invest more yourself and then take the company match as gravy in the top.  If you end up at 45 with way more money than you need, like you pass $1 M in your 401K and still twenty years to retirement, you can always cut back on contributions then and use the extra money to help pay for your kids’ college tuitions.

4.  Use raises and bonuses to increase your investments.  You may find it hard to put 10% away right when you start, or you may already be trapped because you started to invest too little and now don’t want to cut lifestyle to raise cash.  One strategy is to use raises to increase your investments.  For example, if you get a 3% raise, increase your 401k investment by 1% a year and spend the rest.  That way you don’t miss the money.  You can also use bonuses to make extra contributions into your IRA.

5.  Avoid bonds while you’re young.  It is true that bonds (and other fixed income securities) will help smooth out the ride because the dividend/interest payments will help support the price of bonds and dividend paying stocks during market swoons.  Still, over long periods of time, growth stocks will return a few percentage points per year more than bonds and mature stocks.  I would therefore stay away from bonds until I was at least in my mid-forties, and maybe even fifties.  Of course, this all depends on your personal ability to withstand volatility.  I would also start raising cash as I approached retirement rather than expecting to rely on income from bonds and stocks only.

6.  Over periods of ten years or more, returns of 10-15% can be expected.  While there  are many ups and downs over short periods of time, like a few years, if you hold a basket of stocks for ten to fifteen years, you should expect returns in the traditional range of ten to fifteen percent, meaning you money will double about every five or six years.  So if you invest a lump sum the first year, in fifteen years you should have about eight times that amount.  Don’t expect to necessarily have twice what you started with after six years, however.  You may have more or less since there will be great years and bad years.

7.  Diversify in large caps, small caps, and international.  Large caps are large companies; small caps are small companies; international stocks are just that, companies in non-US markets.  By putting some money in each of these areas, you will be sure to be in whatever is growing at the time.  I would probably put about 35-45% in large caps, 35-45% in small caps, and 20-25% in international.  I might also put some money (10% or so) into a REIT fund if available.  If there is an emerging growth fund or another high flyer, I might put 5% in, but not more than that.  I would tend to favor small caps because they will do better over longer periods of time, and I might mix some mid caps (medium stocks) in with the small caps just to add a little more diversity.  Fewer mid caps will fail than small caps since they are a little bigger and better able to weather economic storms.  If I wanted less volatility, I’d shift more towards large caps.

8.  Pick funds with the lowest fees.  Use index funds if available.  Really all mutual funds will end up with baskets of stocks that will perform about the same.  This means that the funds that have the lowest fees will win out over time.  Fees are a constant suck on your returns and only make the fund managers wealthy. Look for funds with expenses and fees of less than 0.5%.  If you can find those with fees and expenses under 0.25%, you’re really doing well.  Stay away from those with fees and expenses above 1% unless you have no other choice.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on investment strategies, stock picking, and other matters relevant to the investor. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

The Most Important Things When Selecting from 401K Investment Options


Sparkplug bear1401K investing is actually really, really simple.  The main reason is that you re generally limited to mutual funds, which means you automatically get diversification just by purchasing a fund or two.  Most of the time, poor fund selection will just lower your returns by a couple of percentage points, rather than lead to disaster.  This may cost you a couple hundred thousand dollars or so at retirement, but considering you should have millions in your 401k at that point, such a mistake will not leave you on the streets.

The mistakes that most people make with a 401K aren’t the investments they make.  It is either not putting enough into their 401K (or waiting before starting to contribute) or pulling money out early to do things like pay off credit cards or start a business.  Those are the mistakes that will leave you on the streets during your elder years.  Poor fund selection will just mean the difference between rib- eye and chuck steak.

Still, knowledge is power and knowing how to properly select your 401k will provide you with more money at retirement.  Here are factors to consider, starting with those that are the most important:

1. Minimize cash.  You may think that keeping cash makes you safe, but inflation is eating away at cash positions all of the time.  The money you put into your 401k will be cut in half by the time you’re ready to retire if left in a money market fund.  Plus, even without inflation, you need higher returns or you’ll only be able to save up a couple of hundred thousand dollars by retirement – not enough to last 20 years, especially with healthcare costs.  Put that money into assets such as stocks and bonds ASAP.  Only start shifting into cash when you get close to retirement, and then only for money you’ll need in the next five, or maybe ten years.

2.  You should mainly be in stocks when you’re young.  I would actually say you should only be in stocks when you’re young, but those with less risk tolerance (the thought of seeing your 401k balance decline ever gets you queasy) may want to mix in some fixed income assets like bonds from the start).  Over long periods of time (ten to fifteen years or more), stocks will return four or five percentage points per year more than bonds.  That means your portfolio will double about every five or six years instead of every eight or nine years.  The difference will more than double the amount you end up with at retirement.  The gyrations in portfolio value you see will be higher with all stocks, but you’ll end up with more money in the end if you can accept the volatility.

3.  You should diversify your holdings.  Diversification means buying different kinds of stock (and other assets).  Because different parts of the markets do well at different times, you want to spread your money out to ensure that at least part of your portfolio will be doing well at any given time.  While it may see like this would cause your portfolio to go nowhere (one part would go down when one was going up, cancelling things out), because the natural direction of the market is up (the economy always grows over long periods of time because there are more people and they become more productive and can make more stuff), on average you’ll see an increase even though you’re diversified.  You just don’t want to miss out on a big rally in one sector because you’re concentrated in another. 

Diversifying in equities (stocks) means buying large caps (big companies) and small caps (small companies).  You should also look at holding both domestic (US) and foreign company stocks.  Buying into a small cap, a large cap, and an international fund should meet these requirements.  Note also that large caps tend to be international (Coca-Cola gets its money from all over the world), so you have some country diversification right there.  You can also diversify by buying growth stocks and value stocks through funds that specialize in each investing approach.  Each style will do well during different periods of time.

3.  You should minimize fees.  Here’s a little secret the fund companies don’t want you to know:  because they need to buy so many different stocks because of all of the money they need to invest, they will end up just doing as well as the markets over long periods of time.  This means that all of those high paid advisors and huge research departments, let alone the fund managers flying out on corporate jets to have lunch with CEOs of companies to talk about prospects next quarter mean absolutely bupkiss.  Funds with those expenses will do worse than those without because they will both have the same return (market returns) before expenses.   Don’t pay extra when you don’t have to.

The cheapest funds tend to be those that are not actively managed, such as index funds and ETFs.  If your 401K plan has the choice of these, select them instead of the actively managed funds.  If you don’t have a choice, choose the ones with lower fees while still diversifying adequately.  Less than 0.5% is good, less than 0.25% is great.

4.  Lean towards small caps and value.  Because small caps are small, they have more room for growth, which means a larger potential profit over long periods of time.  While you certainly shouldn’t put all of your money in small caps because large caps will do better during certain periods (see the paragraph on diversification), having a slight skew towards small caps will probably increase your return over your working career.  Likewise, in looking at past returns, the value investing approach, where stocks that are considered cheap are selected, has done better than growth investing, where stocks are selected that are growing rapidly.  This is particularly true during periods where stocks are falling since value stocks are already cheap.  You may therefore want to slant a little towards value, but not too much.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on investment strategies, stock picking, and other matters relevant to the investor. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Save for Retirement in Installments


IMG_1836Many people find it difficult to save for retirement.  Common reasons are:

“It’s so far off.  I can’t think about that now.”

“I’ve got too much to take care of now.  I’ll worry about retirement later when I get past these upcoming things.”

“You need to save up millions.  I can never do that.”

Because the amounts that they need to save seem so huge, plus retirement seems so far away, many people save little if anything until they are perhaps in their fifties.  By then it is probably too late to save enough for a safe and comfortable retirement. 

They then plan to work forever, or have their children take care of them, or hope the government will provide for them.  All of these are bad plans.  You may want to work for ever, but you may lose your job and not be able to get another one, or you may become ill and unable to continue working.  Your children may be struggling as much as you are, given that many young adults are enjoying a delayed adolescence and not really starting careers until they are in their thirties.  The government can’t take care of everyone and, mark my words, the social programs will go bankrupt and be phased down to essentially nothing within the next decade or two.

Luckily, retirement is a long way off, which gives you the time you need to save and invest, because you do need a lot of money.  If you start early – like with your first paycheck at 18 or 21 — saving enough for a comfortable retirement isn’t really all that hard.

One way to approach retirement savings, instead of looking at the big sum all at once, is to break what you need down into small, manageable increments.  This is the same thing you do when buying a car – you purchase a big thing over a period of time by paying a little each month.  The nice thing about investing for retirement is that interest is actually on your side, so you don’t need to actually save up all of the money you will need.

So, instead of saying that you’ll need $2 M for retirement to replace an $80,000 income (assuming 4% withdrawal rate on a $2 M portfolio), look at putting away $5000 in a year.  That $5,000 will provide you with $200 per year in income – that’s a monthly grocery bill.  Do that again and you’ll have $400 per year in income, every year, for the rest of your life.  Keep building, adding a little more cash flow at a time.  Once you get started, think about the future income you’ll be generating for each amount you put away for retirement.  It’s like planting blueberry bushes, where it takes time and effort to plant each one, and an individual bush won’t make much difference, especially not right at first, but keep planting bushes and you’ll be harvesting gallons of blueberries each year.  And you’ll be doing that every year for ever, not just once.

Use stock mutual funds to cause your portfolio to grow faster.  If you have $100,000 in a portfolio and it is invested fully in stocks, you’ll make an average of about 12% per year (assuming you’re invested for a period of about 10 years or longer).  That means you’ll be adding about $12,000, or $480 in yearly income, to your account each year for free.  Do that for ten years and you’ve added $4800 in yearly income.  Actually, you’ll be adding even more than that because your money will be compounding – interest begetting interest.  Even Albert Einstein marveled at the power of compound interest.   

As your retirement portfolio grows, use the 4% rule to figure out the income you’ll be able to produce.  Not enough?  Keep adding more.

If you ever find yourself thinking about taking the money out to do something else, like start a business or pay of credit cards, do this:  Multiply the amount by 8%, then multiply that amount by 90 minus your current age.  That’s how much money you’re giving up.  For example, if you have $50,000 in a 401K at age 35 and you are about to take it out, your number would be:

$50,000 * 0.08 * (90-35) = $4,000 * 55 = $220,000

So, by withdrawing $50,000 today, not only do you lose the $50,000, but you lose $220,000 in income you could generate during the rest of your life from that money by investing it in mutual funds and withdrawing the income each year, for free.  And that’s without allowing it to compound.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on investment strategies, stock picking, and other matters relevant to the investor. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Living a Financially Sustainable Life


jehericobridgecrossSchadenfreude.  A word coming from the German that means “the delight at the misfortunes of others,” or literally, “harm-joy.”  I don’t quite have schadenfreude in watching the Greek financial crisis, but I’m not all that unhappy to see the whole system crashing down.  I felt the same way during the start of the housing bust.

I know that there are a lot of nice people in Greece who are undergoing a great deal of stress because they are finding it difficult to get their money out of the banks.  I feel for them.  Likewise, there were a lot of great people who lost their jobs or who lost their homes during the housing crash in the US.  I also wish they had not needed to experience the pain they felt.

Unfortunately, sometimes in life there will be economic cycles that build castles in the clouds.  Things are built on thin air and people start to believe they are real and to depend on them.  In Greece people are told that they can retire at 52 and they see others doing so and receiving a big check from the government each month.  They start to believe that they should be able to do so, even that it is their right to retire at 52.  They have built an unsustainable system, however, since someone needs to be producing the food and the housing and the clothing that they are using, along with the wealth contained in the check they receive from the government each month.  If too many people retire early and there are not enough children to take care of the retiring parents, there is not enough wealth being produced to sustain them.  They may be able to borrow money from other countries, but eventually they run out of people from which to borrow.  Now Germans, realizing that the loans will never be paid back, rightly see it as unfair that they need to work to age 67 or 70 to pay for the retirement of a Greek who gets to retire at 52.  The system the starts to collapse.

Likewise, during the housing crisis people were taking out loans that they could not afford to repay to fund a lifestyle well beyond their means.  Eventually they ran out of people from which to borrow and the loans came due.  During the boom there were all sorts of jobs created to provide services to the people who were financing those services with home loans (or selling homes to people taking out loans they couldn’t afford) and home equity loans.  When people stopped being able to borrow money, those jobs all went away.

In a financially unsustainable economy, people are using more than they are producing.  This can last for a while – probably a lot longer than most people would think – but eventually it comes crashing down when reality catches up.  I like to see this happen, even if it usually means a lot of pain for a lot of people,  because it means the economy is moving towards a sustainable state.  That is much more healthy and leads to real prosperity, as opposed to plastic prosperity.  It is like seeing a drug addict finally come clean and get a real job.  There is a lot of pain during the transition, but wise people know that you need to go through some pain sometimes to get to a better place.  Also, some people simply will not change their ways until they hit rock bottom.

Regardless of what others are doing, you can choose a financially sustainable life.  While it may seem like others living on credit are doing better, when things come crashing down you’ll be on firm ground while they will not.  So how do you lead a financially sustainable life?

1.  Live below your means.  If you make $50,000 per year, keep expenses down to $40,000.  Don’t take on expenses that you cannot sustain with your paycheck.

2.  Save for future expenses.  Many people pay off their credit cards every month and never miss a payment, but they don’t save for the new roof, the new car, or big things like college and retirement.  Part of financial sustainability is to save up for the big things too.  Save in a special account for retirement and college.  Put enough into investments to cover home repairs and new vehicles.

3.  Plan and save for disruptions in your income.  People lose jobs and have medical emergencies everyday.  Put away a little from each paycheck until you have enough reserves to weather most financial storms.

4.  Get insured for the unlikely things you cannot sustain.  People die young; get life insurance.  People get cancer; get major medical insurance.  People get injures; get disability insurance.  People experience fires, floods, and tornadoes; get homeowners’ insurance.

Got and investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

When to Hire a Professional


 

MoneyDoesTricks

You would think that people who become millionaires try to save every dime.  After all, one of the surest ways to become wealthy is to invest a portion of your income and save where you can to do so.  One of the interesting insights given in The Millionaire Next Door and The Millionaire Mind, however, is that many people who become millionaires don’t do a lot of work around the home themselves, even while they are becoming millionaires.  They don’t replace the hot water heater, change the oil in their cars, or recarpet the living room.  Instead they hire the work out.

The philosophy is that they spend their time doing what they are good at, so that they can increase their income and increase their level of skill,  and leave other things for people who are skilled at those things.  Instead of sending a day replacing a belt on their car, they spend an extra day at work on Saturday, getting more done than they can during the normal week.  Instead of laying linoleum over a few weekends, they hire a flooring company and then spend quality time with their families and some time doing strategic planning for their business.  They know that a professional can do the job faster and (usually) better than they can, and that while the boss won’t care if they do a great job building a deck onto their house, he will care if they do a great job on a report or an important presentation.  Think about it:  Who would you promote – the guy who leaves at noon on Fridays to go home and do some home project or the guy who comes in over the weekend to get more done?

Does this mean the path to financial success is to just hire everything out?  Well, not exactly.  Often sweat equity is a lot easier to come by than cash, especially when you’re just getting started in the business world, so you need to do things yourself.  Also, just because people who are becoming wealthy may hire things out to get more done doesn’t mean that you can hire everything out just so that you can watch a Breaking Bad marathon all weekend. When considering whether to hire things out or do them yourself, consider the following:

1.  Do you have the ability to make more money by working more hours?

Hiring things out to increase your income only works if you have the ability to make more money, or at least advance in your career faster, if you work more.  If you are a wage laborer who gets overtime for working extra hours, it might make sense to spend an extra 10 hours at work instead of putting in 8 hours doing some plumbing at your home.  For example, let’s say you are an hourly worker and make $20 per hour of overtime (after taxes) and it costs $180 to hire a plumber to do a job that would take you 10 hours to do.  You would make $200 by working extra, plus get noticed as a person who is willing to put in extra time, and only spend $180 for the plumber, for a net gain of $20, if you were to hire the job out.  (Note that it doesn’t matter if it only takes the plumber 2 hours to do the job because he has the right tools and the experience – it is how long it would take you to do the job.)

Conversely, if you work on salary and get the same amount regardless of the amount of time you put in, it would be better financially to do the job yourself since you’d still make the same salary even though you worked the extra hours and still need to pay to have the work done.  Still, if you are able to learn skills, make connections, and improve your reputation at work by putting in extra hours, such that you may make more in the future, it may still pay to hire out the work even if your salary is fixed. 

2.  If you run a business, are there useful things that you can do to grow the business by spending more time?

Obviously, more work may not mean more income for small business owners, at least initially.  However, while you may not take home more money immediately by hiring out work around your home, if you can do things that make your business grow and expand, such that you’ll make more money in the future, it may make sense to hire jobs out.  Note that things like doing some strategic planning or figuring out marketing strategies that will bring in more money are worthy activities, while doing busywork or sitting in the office playing solitaire are not.

3.  Is the service provided worth the cost?

Many services are well worth the cost since it would easily cost you at least as much in time and aggravation of you do the tasks yourself.  Others are overpriced or just not worth doing at all.  It is OK to spend some money on luxuries, but don’t pretend that you are really helping your financial situation by using them.

4.  If you’re hiring out to spend time with your family, is it quality time or just an excuse for “me time?”

Hiring out services isn’t all about finances.  Sometimes it means spending a weekend with your kids instead of spending it by yourself cursing as you hang dry wall.  But if you are hiring things out so that you can spend more time on the golf course, maybe you’re just being a little lazy.

5.  Is the job really just a hobby for you?

Some people do things like home renovations or work on cars because they enjoy doing them.  In that case, while it might not be worth your time to build that deck, doing it is its own reward.  Just make sure that your hobbies don’t get in the way of your primary responsibilities as an employee, spouse, and parent.

6. Do you trust others to do an adequate job? 

Sometimes you have no choice but the do the job yourself because others won’t do it well.  It might be impossible to find a place that will be able to change the oil in your car without stripping the plug, so you do the job yourself.  Unfortunately, often it is difficult to find “professionals” who will do a job well, and it is almost impossible to find people who will care as much as you.  If you find them, hold onto them and be sure to give them all the work you can to keep them in business.

What do you think?  What jobs do you do yourself, and what do you leave for the professionals?  Let me know!  Please send me an email at vtsioriginal@yahoo.com or leave a comment.

Follow on Twitter to get news about new articles.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.