Separated at Birth: Investing, Saving, Trading and Gambling

While some people may get investing, saving, trading and gambling confused with each other, there are some distinctions that separate these not too distant cousins.

Most of the confusion revolves around the fact that most people never really consider the objective for participating in each of these activities.

Investing
According to Wordnet, investing is defined as

laying out money or capital in an enterprise with the expectation of profit.

When compared to saving, trading and gambling, investing is distinct because when a person or enterprise invests, there is a reasonable expectation of profit.  Additionally, while more similar to saving and trading all investing activities have an inherent amount of risk.  However, the likelihood of the investor losing all of their money or capital is minimal, because money or capital is allocated to assets which usually have an intrinsic value.

Saving
Saving is the activity of protecting something from loss or danger.  When it comes to finance the “something” that your are protecting from loss is your hard earned money.

In simple terms, saving is delayed spending.  Most often, saving money is done in anticipation of future purchases and/or unforeseen expenses.

Saving is distinct from investing because there is no expectation of profit from your savings.  However, in today’s advanced financial markets, institutions reward individuals for saving by offering the ability to earn interest on their savings while knowing that their funds are insured against loss by the Federal Deposit Insurance Corporation (FDIC).

Saving is far from trading and no where near gambling.

Trading
Trading is defined by Wikipedia as

the buying and selling of financial instruments such as stocks, bonds, and derivatives.

Trading like investing comes with the expectation of profit, however the two are distinct in that traders 1) usually specialize exclusively in financial instruments and 2) have a shorter time horizon for realizing their expected profit.  In a sense a trader can be viewed as a short term investor.

One major distinction between investing and trading is the use of gearing or leverage when purchasing the various financial instruments.  Leverage allows the trader to use other institution’s monies and capital to buy financial instruments and as a result it multiplies the trader’s gains and losses.  Therefore, the trader must use proper risk and money management in order to decrease the probability of losing all trading capital due to the leverage’s multiplying effect.

Trading is closely related to investing, is not very related to saving and is a gamble.  In my personal opinion, trading is a gamble only because of the potential to lose all trading monies if risk and money is not properly managed.  The same amount of risk is not found when investing due to the minimal amount of leverage used on average.  Additionally, the minimal reliance on chance and the uncertainty separate it from gambling.

(Note from the Devil’s Advocate:  Individuals who play poker for a living are gambling, but it is somewhat biased to consider it a gamble if these individuals can consistently withdraw profit over several years.  Also, several professional gambler’s have stricter risk and money management rules than some of the traders and investors I know.)

Gambling
Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods.

Due to the heavy dependence on chance and uncertain outcomes, gambling cannot be considered a viable means of investing, saving or trading.

Now that we have gone through four topics that have caused many heated discussions over the years, hopefully you are better prepared to discuss these topics at the next outing you attend.  If not, you can always just tell the other person that they know nothing about anything and put your fingers in your ears.

Also, share this with someone you think would like the information and share it ten times with someone you think would hate it.

(Image Source: Flickr user Juju Inspired)

The Hard Working Dollar Weekly Roundup 08/09/09 – 08/15/09

This past week was a pretty slow one as far as posts, news and capital markets go.  My view is that despite the fact that summer is about  a month from being over, people are getting more into the fall mindset.

The following articles were published last week (oldest posts first):

1. 5 Ways To Save Money In This Economy
   Over the last year, lots of people have said that saving money in this economy is difficult, if not impossible. However, there are several small things you can do to make it easier for you to save.
2. Hard Working Deals 08/11/09
   Hard Working Deals: A collection of product and travel deals from around the web.
   Highlights:
   DSW.com – $10 off $49 Purchase or Free Shipping
   Home Depot – Clearance Sale: 20% to 50% off Select Items
   $499 — Ireland: 6 nights in B&Bs & castle with air
3. Cutbacks in the Kitchen
   As times have gotten tougher over the last year Americans have been spending less and less on groceries.
4. Subscribe To This Blog
   By subscribing to this web log dedicated to personal finance, investing, trading and frugality you will be provided with daily and weekly content updates that will help your money work harder.

(Image Source: Flickr user Flow Design Studio)

5 Ways To Save Money In This Economy

Over the last year, lots of people have said that saving money in this economy is difficult, if not impossible.  However, there are several small things you can do to make it easier for you to save.

#5 – Cut back on new purchases

Minimizing new purchases is often times easier said than done.  Especially, when we as a society have been raised to believe that “newer is better”.  However, the majority of new purchases are unplanned wants versus actual needs.  Therefore, by cutting back on new purchases, you not only save money, but also train yourself to distinguish between what you want and what you need.

#4 – Sell your old stuff

This is quite possibly the easiest way to save money.  That is because we all have clothes we haven’t worn in years or things that we haven’t touched in months sitting around our homes taking up space.  Take a second now to visualize your living room and/or bedroom and make a mental note of all the stuff taking up space that could be sold for a few dollars.  Now think about how good it would feel to see the money from these items sitting in a savings account earning more money or being used for a future vacation.  Also, keep in mind that by selling your old stuff, you not only receive money, but also make more room available in your living space.

#3 – Plan meals and outings

While planning meals and outings may sound like a difficult task, it is not as complicated as it seems.  It won’t be necessary to take out a calendar or even write anything down.  Just think of foods you would like to eat in the coming week(s) and things you would like to do on the weekend and make a mental note of them.  This mental planning will help you get a better idea of what you will be spending on food and on entertainment/hobbies.  When it comes to meal planning, it helps when you remember that you haven’t had pizza in a while and may want to have a few slices with friends or family on Wednesday night.  That way, you can go to the grocery store and buy enough pizzas and side items for the meal without spending money on delivery and while knowing that the expense is accounted for.  And when it comes to weekends, if you have an idea of what you would like to do and have planned on spending a certain amount, you won’t be as surprised when weekend related expenses come up.

#2 – Minimize your current bills and financial obligations

This step is one of the more difficult methods of saving money in this economy, simply because most individual’s bills and obligations are not that flexible.  However, if there are any bills or obligations you are in doubt about having, eliminate them if possible.  Also, keep in mind that if you do get rid of a service you like, you can always pick the service back up should you realize that you are better prepared for the expense in the future.  Another suggestion is to call your various service or product providers, and ask them if they have less expense plans or rates.  Granted, 9 out of 10 companies will say “no”  and that they don’t have a less expensive plan, but the one company that says “yes” is worth the time spent.  Plus, the worse they can say is “no”.

#1 – Save money before accounting for personal expenses and bills

This is by far the hardest way for most individuals to save.  That is because it requires people to be more selfish than they usually are.  When saving this way, you will take a portion of whatever money you make or receive and save it prior to paying bills or accounting for personal expenses.  However, while this method is the most selfish, it is the best method of saving because it is built on the principle that as long as you are taken care of, everyone else that you are responsible for and to will be taken care of.  Simply put, if you are not okay and can’t take care of financial emergencies, should they come up because you don’t have any savings, then every other responsibility and obligation won’t be okay either.  Therefore, by saving first you ensure that you will always be at least somewhat prepared for life’s little surprises and as a result can take care of any responsibilities and/or obligations you have accepted.

#0 – Do something NOW to save

I know I am cheating by having a zero, but the most important thing to do in order to save in this economy, is to actually save money in this economy.

Knowledge becomes wisdom only after it has been put to practical use. -Anonymous

(Image Source: Flickr user Juju Inspired)

The Economy As Told By Bugs

This is a great video that depicts a basic explanation of the economy, but all the roles are played by animated bugs.

(Video Source: Viral Skool)

(Image Source: Flickr user Claudio Morlock)

What Recession?: Getting a Job After Graduation

If you haven’t been hiding under a rock for the last year (which was the best place to be), you may have heard that economies around the world are having some difficult times and that this difficulty has drastically affected national and international employment.  As a current or soon to be graduate from undergraduate, graduate or professional school you most likely have some pretty pessimistic views about trying to get a job during the next 2 years.  However, there are some things that you can do today, to make yourself more employable in the future regardless of how the economy is doing.

The purpose of the items below is to show potential employers, that 1) you are more than what is on your resume, cover letter, transcript, curriculum vitae, etc., 2) that you are passionate about your field of interest (even if you aren’t) and 3) that it is in your potential employer’s best interests to employ you versus some other individual.  Having said all of that, I present the list.

Increase Your Skill Set:
When increasing your skill set, you have to have the precision of a surgeon and the broadness of a jack of all trades.  This is required, because in today’s interconnected world, learning individual skills usually require learning several related skills.  For example, if you want to be a website administrator, you cannot only learn about the various languages required to design web pages, you have to also learn how to manage and troubleshoot the numerous machines that store the websites.

This specific broadness is also required to know how all the tools work together to achieve final results.  Spend some time online researching what kind of skills and tools people in your field of interest use on a daily basis.  Additionally, find out if there are any standards or best practices that people abide by when working in your field.

Finally, throughout this learning process, keep in mind that the tools that you are learning today, regardless of how useless or tedious they may seem, are in fact making you a better person and are tools that will be added to the personal tool box that you will carry with you all of your life.

Become an Expert:
According to Princeton Wordnet an expert is,

a person with special knowledge or ability who performs skillfully.

Simply put, when becoming an expert you simply display to others that you have knowledge about your field of interest and/or the ability to perform skilfully in your field.  With the advent of technology, becoming an expert is easier than ever.  This is because anyone with access to a computer, can become an expert on the subject of their choosing by publishing their “specialized knowledge” to the Internet via a website, blog, newsletter, or any of a myriad of content sharing means.

So after figuring out what your field of interest is, think about how you would like to display your expertise to the world.  Do you want to give your opinion about news that occurs in your field of interest?  Do you want to write unique articles to help people in your field of interest?  There are countless ways to become an expert, just figure out which way works the best for you and start today.

Network:
There is a poem by John Donne that includes the passage,

No man is an island entire of itself; every man
is a piece of the continent, a part of the main;

At no other point is this statement more true, than when you are trying to find employment.

The book The Perfect Cover Letter states that networking results in “approximately 70% of all professional and managerial jobs found by job seekers”.  While I am not sure that these numbers are accurate, I can personally attest to the fact that I’ve gotten more than a few jobs through networking and personal contacts.

There are various ways to network, but a few of my favorites are to 1) shadow a person in your field for a day, 2) attend industry events, and 3) join an industry organization.  These three methods are my favorites, because they are the most enjoyable and informative and also have a higher return on time spent.

Get Involved in Your Community:
Being involved in your community tells a potential employer two things about a potential employee, 1) that the potential employee cares about improving society and “giving back” and 2) that the potential employee is willing to volunteer their free time to causes they believe in.  Simply put, it shows that you are passionate about something other than just making money and have the potential to put that passion into your work.

Also, regardless of the moral implications of a company’s products and/or services, companies always want their employees to operate with the highest moral standards and be willing to promote a positive image of the company in the community.  Therefore, it is beneficial to yourself, your community, and any potential employers that you exhibit this selflessness prior to your selflessness being called into question.

Sell Yourself:
No, seriously, sell yourself.  This final tip is definitely outside of the box, but in today’s employment environment every little bit helps.

What I mean when I say sell yourself, is literally buy ad space online or offline in locations where potential employers will view them.  These ads should be professional, simple, straight to the point, and inspire the reader to take immediate action.  For example, they could insist that the reader click a link, visit a website, call a number, etc.  Once the individual follows the appropriate action, you are assured that 1) you have their full attention, 2) you can supply them with information that will spur them to contact you about potential employment and 3) should they contact you, they seriously want to hire you.

Hopefully, the above four tips have helped you in some way and have improved your view of seeking employment after graduation.  Also, if this article didn’t help you and you think it might help someone else, share it with them.  And as always, any comments or questions are greatly appreciated.