Savings vs. Investments vs. Speculations - Definitions

Most people talk about savings and investments, but very few people (outside of the dark corners of economics & finance) actually stop to think about the differences.  Understanding the differences will be important for some of my upcoming posts on the subject.

If you spend less than you earn, most people would consider that savings.  It usually is, but not always.  If that difference is sitting in the bank, I would call it savings.  If you immediately put it into the stock market or bonds, then I would call it an investment (or even a speculation).

Savings

Savings is money you have set aside that you are not willing to lose.  Safety is your highest priority here, and you are willing to give up high returns in exchange (have you looked at what your bank account is paying lately?).  Typical places for savings would be bank accounts, CDs, mattresses, etc.

Investments

Investments are putting your money towards productive businesses with the expectation of higher returns than you get on your savings.  In exchange, you undertake some risk that you might lose some (or all) of your investment - hopefully just temporarily, but perhaps permanently.  Investing in stocks and bonds through a 401k, mutual funds, or even individual stocks where you are looking at longer-term business prospects would all be examples of investing.

Speculations

Speculations are generally riskier than investments in that you are usually taking more risk in order to get a quick or larger return.  Gambling is certainly an example of speculation, but not all speculations are gambling.  These are usually "hot stock picks" or short term guesses as to which way prices will move.  Speculations are typically short-term and not focused on the business itself, but just the price of the stock, option, etc.

When looking at your overall financial picture, it is important to understand which category above your various monies fall into.  Always start with savings, move on to investments from there if you want, and even dabble in speculations once you have plenty of savings and investments.  Many people should only ever have savings, and only a small percentage should ever be speculating (although many more cannot resist the temptation to dabble in speculations - ask me how I know!).  Even if you are very financially savvy and have all three, the majority should be in savings and investments.

2015 AMSOIL Update

If I get 7 posts in the next few days or weeks, that gets my average to a post a year for the past 7 years, which is much better than ZERO posts for 7 years :)

I got a call the other day from Sam about my AMSOIL business.  Since my last post on AMSOIL was in fact over EIGHT YEARS AGO, an update is certainly in order.

The Bad News

As many times as I have intended to, I have not become any more active with my AMSOIL business.  I read the monthly magazine to keep up on new products and potential customers.  I also keep in touch with the business accounts I have that sell AMSOIL.  I do have a couple of great ideas to grow the business both short-term and long-term but thus far they have remained only that - ideas.

I also helped a downline dealer work an AMSOIL corporate booth in Kansas City a few months ago.  Although it was certainly not as productive as previous events (where the dealers pay to have a booth), it was good experience for us both and got me thinking more about the business again.

The Good News

Despite my lack of effort in the business, my income has remained remarkably stable, mainly due to my business accounts (mechanics and service stations) and downline dealers.  Average monthly income has stayed in the $200-300 range.  If I would bother to increase my group sales 50%, my income would likely increase 100-200%, but as I mentioned in the previous post, I have so far lacked the motivation to do so.

AMSOIL remains a great company with great products, constantly innovating to improve the range of product offerings.  The fact that my income has not dropped over 8 years of neglect is a testament to the quality and "stickiness" of the AMSOIL product line.  Compare that to my NuSkin/Pharmanex business (now mostly purchases for myself, wife, and father-in-law), where 90%+ of customer sales and profits have disappeared over the same time frame, and you can see why I much prefer AMSOIL's model in network marketing / MLM for generating true passive income.  See - I don't completely hate passive income!

I'm baaaack...and a passive income hater :)

Sorry for the 7 year hiatus.  If anyone was ever following this blog, I bet they aren't after 7 years!  I can't believe it has been so long...time flies when you are having fun, I guess - and as you get older...  I don't have a good excuse (are any excuses really "good"?); I have simply been distracted by other things.

Obviously some things have changed for me over the past 7 years, but many of the most important things remain constant (church, wife, family).

I suppose the biggest reason that I stopped writing so much was a waning enthusiasm for purely passive income.  "Heresy!" you say.  Well, hear me out:

Why my enthusiasm for passive income has waned

1)  Lack of motivation for more money

First, my wife and I have a very comfortable income, and I lack the motivation to become really wealthy.  If we had more income - passive or active - it would not change our way of life significantly.  (Although we might take more unpaid vacation if our work allowed it.)  I enjoy saving & investing, so additional funds would largely go there and to the church. These are all worthy activities but not enough to cause me to lust after additional income.

2)  Active income is better than I thought

Second, active income provides more flexibility down the road. Mark Ford (aka Michael Masterson) talks about this a fair amount after his two attempts at retirement.  Passive income can be lost - interest rates dropping kill your income from the bank, you lose network marketing customers and dealers as they pursue the "next big thing," etc, etc.  Actively working for income keeps your skills sharp (and improving) in a particular field, which is useful if you want to do part-time consulting or if you need to find work to provide additional income for whatever reason.

3)  Working is better than I thought

Finally - and probably most importantly - I now believe that "work" is a significant component of a healthy life.  I think the typical American ideal of retirement - stop working and hit the golf course or simply laze about - is very unhealthy.  Work provides social interaction, purpose (if you are doing it right!), and mind & body benefits (again, if you are doing it right!).  Work can be unpaid; a lot of retirees I know do a lot of volunteering, which can provide all of the benefits mentioned above.  But I think even volunteer work should take advantage of the specifics skills and talents people have - my experience is that many organizations just use volunteers for "busy work."

I understand the urge to just be "done" with work.  I have had that urge.  Sometimes a lot.  Ideally, work is something you enjoy.  No, not every second, but you should generally feel good about the work that you do and enjoy it.  I also understand that many people work in jobs they hate just to make a living.  My question is - why do they hate that job?  If their boss is abusive or coworkers are vindictive, then try and get a new job.  But I think many people hate their jobs just because they are jobs.  If those people worked to do the best possible job they could and worked to make their workplace pleasant for coworkers, customers, etc, then I think their jobs would be much more fulfilling.

I reached this conclusion over time, so I don't expect anyone who looks forward to that day when they "stop working" to agree with me right away.  I still have one pair of grandparents living, and they used to travel a lot when they first retired (and my grandfather downhill skied into his 70s), but for the past decade or so I think most of their time was spent watching TV.  They have declined fairly quickly in this time with a lack of socializing, movement, and purpose.  I don't think they see anything wrong in what they have been doing, but it has been sad for me to watch.

If you are going to retire and simply stop working, please find something else productive to fill your time, therefore adding value to others and keeping your mind and body in shape.

More soon

That's all for now.  I will soon provide updates on AMSOIL and blog monetization - just keep in mind my waning enthusiasm noted above!

Tankless Water Heaters - Advantages and Disadvantages

For those of you interested in the bottom line on tankless water heaters, here it is. The complete story follows this list.

Advantages:

• Definitely saves on natural gas - we use 50-75% less gas. As gas prices have increased, that is worth $14-22 per month.
• You never run out of hot water - if you take showers back-to-back (at the same time does not work so well - see the disadvantages)

Disadvantages (or at least things to consider):

• Installation is very expensive - probably as much as the unit. I recommend having someone local do it all, so you can get service when necessary.
• You can only heat so much water at once - usually 4-5 gpm depending on the temperature of the incoming water. This may be enough to run a shower and something else at the same time, but don't count on it.
• Electric units my require an upgrade to your electrical system (they take a lot of power). Natural gas units require large piping all the way to the unit.
• If you lose electricity, you lose hot water. Even the gas unit requires electricity to run the fan and controls.
• More moving parts means more things to go wrong (and fewer people around to work on them). It has certainly made me appreciate the simple tank water heaters.

The Story

My wife and I live in a 4-plex (all 1-bedroom units) that we own. We are fixing up & living in the bottom two while renting out the top two.

We bought it a little over a year ago, and the water heater was 25-30 years old (gotta love those Rheemglass Fury water heaters). It was also a 40-gallon water heater trying to serve 4 bathrooms while having the additional disadvantage of being seriously corroded by very hard water.

So we decided to take advantage of the tax credits that expired last year to put in a Takagi T-K3 tankless water heater - I figured we should spend about 1/2 as much on water heating, and have "endless" hot water. That is, we could take as many showers as we wanted back-to-back (not at the same time. The previous water heater lasted barely over one shower.

Of course, I searched on the internet for the best price I could find and bought one to install myself. Little did I know what I was getting into...

Installation Location

I had planned to install it in the same place the previous water heater had been - in the middle of the basement, venting into the chimney. After reading the manual (and talking to a plumber), I realized I could not vent it into the chimney unless I lined it or bought a special stainless steel vent to run all the way to the top. Considering this vent material cost about $20/foot, I quickly decided against that.

The plumber informed me that they are best installed on an exterior wall, with the special vent piping running straight up and out. Of course that would require about a 6" hole through the wood at the top of the basement wall. I did not really want to tackle that myself...

Installation Cost

I got a quote from the plumber to install it - $800-$900 including the vent materials. That's more than I paid for the heater!

I ended up spending almost $200 for the vent piping and $100-200 to cut the hole and install the sleeve through the wall. Add in some money for the additional 3/4" black gas piping we had to run, and there is probably $400 in materials. Plus my labor to install.

Definitely more work than I had planned on...

Operation

We had some immediate operational problems that took a long time to resolve. They ended up being my fault (mostly).

Do not install an "excess flow" or "safety" gas valve in the natural gas piping! These valves are designed to stop flow in the case of a hose breaking - when the flow rate gets too high. Guess what - at max burn on the water heater, the flowrate was too high, and the valve shut the gas off. Weeee! Cold water!

Once we resolved that, we dealt with really smelly exhaust (I could smell it on the other side of the house when the water heater was on). It ended up being an easy gas manifold pressure adjustment. Except for the fact that I had to buy an $85 digital manometer to make the adjustment.

After that, we had a continous fan noise. Tech support again walked me through what to do, and I found a piece of packing styrofoam in the fan. Not a huge deal, but annoying.

Most recently, we had a REALLY loud noise periodically (and eventually got an error code). Did I mention that the water heater stopped working late at night when I tenant was trying to shower? Again, weeee - cold water! Turned out this was because of dirty combustion (and incorrect manifold pressures). We still are not sure if it is because of the wrong pressures (and therefore bad combustion) or acidic condensate in the exhaust dripping back into the burner and heat exchanger. I guess we will find out...

Conclusions

Definitely know what you are getting into before switiching to a tankless water heater - I didn't.

If I were doing it all over again, I would get a unit from a local plumber and have him install it, or just get the 50-gallon tank water heater with the best insulation I could find.

It hasn't been bad to work on, but I like hands-on things. I also like now having the knowledge to fix a number of things on my own. At the same time, I like things to work the way they are supposed to.

I will keep you updated on any future issues with the unit. Otherwise, I am just looking forward to enjoying some natural gas savings!