Poor Richard’s Modern Almanack

This has been going around, and I had to post it. It’s like a lot of the books you can still find on Amazon, touting the bust. But look at some of the positive reviews from early on–absolutely stunning. It’s the definition of ‘irrational exuberance.’ Here’s a quote from one reviewer, who claims that ’starter’ homes will go for $5 million in 15 years: “Everybody who doesn’t buy now will be priced out forever.”

The role that fear played is interesting.

I recently read about the ‘Crossover Point’ in You Money Or Your Life, by Joe Dominguez and Vicki Robin. I love this concept! It will help free you from your daily blog. I’ve had a whiff of financial freedom by paying down my credit cards, and I think I may just be addicted.

Ah, financial independence, that holiest of grails. Right up there with passive income.

The Crossover Point has two parts:

1. Minimize and stabilize your expenses.
2. Invest capital.

Minimizing expenses is somewhat self-explanatory-the less you spend, the more you have. A penny saved is a penny earned, as the gentleman says.

Investing capital is somewhat different. The authors make a distinction between savings and capital. Savings is money sheltered in a bank account (or kept under the mattress). Capital, they say, is money that is put to work-invested in dividend yielding vehicles that give you monthly investment income. The example given is government bonds, which yield 6% (APY) annually. Keep contributing to your investments on a regular basis to help them grow.

The formula for your monthly investment income would be:

($ total invested x APY*)/12       =        monthly investment income

Here’s the magic: over time, your monthly income from investment will surpass the sum of your expenses. The secret is compound interest, perhaps the most powerful force in the universe. This gives you freedom from your job. You can take on work that you like for extra money. You could do nothing. You could volunteer your time for a cause. Imagine what this can do to your outlook!

The whole point is to Crossover!

Check an in-depth review about this book at The Simple Dollar.

*percentage is expressed as a decimal: 6% = .06

I‘ve just paid off another credit card! It feels great. I will have no credit card debt in less than 4 months. I now only have one credit card carrying a balance.

Looking back on my records, I’ve reduced my debt by $16,000 since last August, when I started actually keeping track of my net worth. I have 67% less consumer debt. I’m that much less beholden to my job, that much freer to walk away if things get unbearable (luckily I like my job). It feels great. I’m not out from under my burden yet, but it’s feeling lighter.

I’ve realized that this freedom came through discipline, and through an accumulation of minor changes over time. Kaizen. I had some false starts, and they always came when I got too ambitious, and bit off more than I could chew. I tried to allocate every cent toward getting rid of debt, and that just ended up bottling everything up. Eventually it would start to feel hopeless and I would crack, and go buy some useless crap. Boom, just like Sisyphus, I’d be back under my burden.

What worked? Focusing on small changes. One month I’d focus on saving money on groceries, using coupons, buying from the 99 Cent Store, and plain-old being careful, and eventually I shaved more than $30 per month from the grocery bill. I’d then leave the groceries on autopilot. Next, I’d cancel any recurring payments I could–magazine subscriptions, Netflix, etc. I reasoned that someone as deep in consumer debt as I hadn’t earned these luxuries.

I was careful to leave myself some fun things, though. Lunch with friends every other week, for instance, or a trip to the bookstore with a $20 budget. (I’ve since learned some great ways to save on books, beginning with the obvious visit to amazon.com.)

To pay off my credit card debt, I did a debt snowball. Some debt-snowballers advise that you choose the card with the highest interest rate, since this will save the most money. I knew I needed a psychological boost, though, so I chose the most easily defeated debt–the lowest balance.

I continued paying the minimum on other cards while aggressively paying down the card with the lowest balance. By the time it was paid off, I had gotten used to a large chunk of cash going to that payment. So I simply took that amount and added it to the monthly payment of the next-lowest balance. Lather, rinse, repeat.

The cool thing is that in four months, when I’ve paid all my cards, I’ll have almost $1000 per month that I’m not used to seeing! The weird thing is that I’ve gotten so used to being a non-consumer, I won’t be celebrating by spending $1000 dollars on something. I’ll probably take my girlfriend out for a night on the town, and then invest the rest in our future.

There are rumblings of alternative energy innovation all over, and northern Los Angeles County is certainly doing its share. I’ve written twice about alternative energy before, once on a waste-to-fuel ethanol facility, and a second time on the hazards of an alt-energy bubble.

Now I have a chance to mention another facility that was recently approved. This one, a form of solar energy, is another promising alternative energy innovation. It’s known as solar-thermal, and this particular project was proposed by eSolar, an offshoot of the Idealab.

Solar thermal works well in flat desert areas, and it consists of a series of mirrors on the ground, known as heliostats, that reflect sunlight upward, focusing the energy on a tower. The resulting heat is used to produce steam, which then powers a traditional steam turbine.

From a planning standpoint, this is an excellent design–the projects can be sited on agricultural land, and zoning permits are needed only for the height of the tower. Every thing else–heliostats, equipment sheds, etc–are approved administratively. The equipment is modular and scalable: 40 acres is the basic size for one tower, 160 acres is optimal with 13 towers. 160 acres will produce 33 Megawatts.