I've been writing about personal finance for more than ten years now, since long before the Great Recession. While I've changed my tune on a few topics (Did I really once recommend buying factory-second birth control products?), I've stood steadfast on one issue: I don't give advice about investing. I give advice about living a better life by spending and consuming less.
But since the economy imploded and the value of most peoples' 401k's have dropped faster than a cheapskate bending over to pick up loose change on a sidewalk, I've been thinking a lot about the investing side of personal finance. In part, that's because in the New Economy I think the smart money is on investing in things that decrease your cost of living, as opposed to things that you hope will increase your net worth.
If you believe, as I do, that the economic volatility is far from over -- that we may just be seeing the leading edge of fundamental changes in the way we live and the type of economy we've always known -- then maybe it's time to adopt a different perspective when it comes to investing.
In the New Economy, maybe the question should be: How much will this investment save? Not: How much will this investment earn? Maybe it's time to invest more in ourselves, to equip ourselves to live more self-sufficiently, to take stock in ourselves and reap the guaranteed dividends of our own performance, rather than continue to speculate on the hypothetical performance of our stock portfolios. Maybe we'll be better served and happier if we stop fixating on traditional ROI (Return on Investment) and instead focus on a new ROI -- Return on Independence.
In this spirit of financial independence, here are six surefire investments that will save you money and make you more self-sufficient in the New Year:
* Energy efficiency and generation: A recent study by the University of California-Davis claims that world oil supplies will run out 90 years before replacement energy technologies are fully developed, based on the current pace of research and development. You don't need to have a degree in economics to realize that energy -- particularly petroleum-based energy -- is only going to keep getting more expensive as supplies dwindle. From simple things like installing programmable thermostats at home and consolidating errands to save gas whenever you leave your driveway, to more elaborate and costly energy-savings solutions like hybrid vehicles, Energy Star appliances, and solar and geothermal home energy systems, investing in things that reduce energy consumption or help you generate your own energy are almost always smart money moves. In recent years the federal and state governments have even been providing a tank-full of tax incentives to encourage consumers to conserve and generate energy, making the financial proposition that much more attractive.
* Tools: I've always said that when shopping for tools, don't be cheap. You should generally buy the best that you can possibly afford. From power and hand tools to kitchen knives, gardening implements to sewing machines, by buying quality tools your do-it-yourself projects will be easier, more enjoyable, and turn out better. Plus, by making the front-end investment in quality tools, you'll be motivated to take on more projects yourself and save even more. As a longtime DIY'er, I can tell you that with the slump in the construction and home improvement trades, at least in my part of the country I'm seeing some of the lowest prices on tools and building supplies in years. When it comes to tools, it's a buyer's -- and builder's -- market.
* Education/skills: As a teacher friend of mine always says, "Your education is the one thing no one can ever take away from you." Today, with unemployment nearing double digits, skills and knowledge can make the difference between a paycheck and an unemployment line. Whether it's going back to school to pick up some classes to bolster your resume, or just taking some non-credit classes to learn a new skill so that you can do more things for yourself, America's 1,600 community colleges are likely to be where you'll find the best value for your tuition dollars. Since the start of the recession, community college enrollment has increased by almost 10% per year. At community colleges you typically pay only about 10% of what tuition costs at the average four-year college.
* Paying down debt: Perhaps the greatest asset you can have in the New Economy isn't something you own, but rather something you don't own: DEBT. With the uncertain job market and current investment climate, paying off debt -- including aggressively paying down your home mortgage -- is, in my opinion, the smartest investment you can make. And since the start of the recession, smart consumers have been doing just that. We've been borrowing less than in nearly 20 years, and we've raised the personal savings rate to 6% (compare that to China's saving rate, which is estimated at 30 to 40%). Still think it doesn't make financial sense to pay off your home mortgage early? If you've never experienced the peace of mind that comes from sleeping under a roof that you own free and clear, I guess you just can't understand.
* Now that's a growth fund: Here's a prediction that you can take to the bank: Food prices are going to continue to increase. Resolve to start raising more of your own food in 2011 by planting a backyard vegetable garden, tending a plot of your own at a local community garden, or buying a share and pitching in at a local farm through a Community Supported Agriculture program. Don't have space for a veggie garden? Try planting a few easy-to-grow perennial vegetables alongside the petunias in your flowerbed. Or grow some herbs in pots on the windowsill -- they'll not only save you money on cooking spices, but they might lower your medical expenses as well. And invest in planting a few trees around the yard while you're at it; not only will they increase your home's value, but according to the U.S. Department of Energy, planting as few as three strategically placed trees in your yard can reduce your heating and cooling expenses by up to 20%.
* Health/fitness: Regardless of your views on healthcare reform, you can't lose if you start reforming your own health in the New Year. Young people often ask me for financial advice, and I tell them that the single biggest thing they can do to ensure a healthy financial future is to maintain their physical health and stay fit. It's not just a matter of saving big money on future healthcare costs, but most people generate most of their lifetime wealth through their labor, not through investments. In order to work, you obviously need to be healthy. What's more, getting and staying fit doesn't need to cost a lot. Some of the healthiest foods you can eat happen to cost the least -- often under $1 a pound -- if you shop smart. And you can skip the expensive health club membership if you simply start doing more things for yourself, which will save you even more.
There's an old cheapskate saying: The surest way to double your money is to fold it in half and put it back in your wallet. Particularly in this New Economy, investing in things that save you money and make you more self-sufficient is the best way I know to protect your financial future and the future of the planet as well. I wish you a happy, prosperous, and green New Year.
Jeff Yeager is the author of The Cheapskate Next Door and The Ultimate Cheapskate's Road Map to True Riches. His website is www.UltimateCheapskate.com. Connect with Jeff Yeager on Twitter and Facebook.
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