Saving by Efficient Second Hand Buying

You can use money you saved on your cloths shopping to finance a healthy lunch at your next outdoor activity e.g. (Here: Siebenhütten,  Kreuth, Bavaria)

You can use money you saved on your cloths shopping to finance a healthy lunch at your next outdoor activity e.g. (Here: Siebenhütten, Kreuth, Bavaria)

Frequent readers noticed that I got away from focusing too much on aggressive money accumulation because it became clear to me that obsession about money leads as well to unhappiness as having no money at all.

Having said that I still 100% subscribe to the need of efficient spending.

The concept is easy:

Money can buy you nice things and possibilities but money typically is in short supply, plus we downshifters are not into working long hours to maximize income.

Thus spending money on the right things, as well as spending as little as possible on a give thing we want to buy, are important.

One way to do this is to buy second-hand stuff:

In todays consumption and throw away world, actually the second-hand market is one of the most inefficient markets I know – to the benefit of the buyer!
A book not even read but unpacked typically sells for only 60% of original price. Once read but in perfect condition it drops to 30%.
Electronic articles are incredibly cheap to get once they are half a year old and thus no more “fashionable”.
Toys, bicycles etc. are available at very low prices even if they are still in very good condition.
In general the second-hand market is always in oversupply as most people buy new stuff far too often with a need to get rid of their old gear.

The same holds to a very large degree for second-hand cloths.

Problem here is that second-hand stores are typically stuffed with all kind of crap, quality is extremely diverse and it is difficult and no fun to find good cloths in those shops.

Now Woodpecker by accident came across a very good internet service (Germany only?) to buy used cloths.

I typically do not promote internet shops and like to assure you that I am not connected nor paid by these guys.

The site is called ubup.com.

It offers an amazing choice of cloths that you can sort by quality, size and brand. They still might want to work on their search function a bit, but in general this is much better and more comfortable than eBay etc.

I (and Mrs. Woodpecker) did some test buys and went only for high-end brands (brands that we typically would seldom buy because they are too expensive in the shop) and for the very high quality section (i.e. barely used or unused).

And, voila, we were very positively surprised. Prices even in the barely used section come in around 25%-30% of the shop price, and the things we got were in fantastic condition, no shipping costs plus you can resend for free.

Please feel absolutely free to ignore this post but if you want to try the shop anyway and would like to support this blog a bit without a cost to you, you can use Woodpeckers promotion code.

That way you will get a 10 EUR deduction from your first purchase, and Woodpecker gets a voucher of 10 EUR as well.

The code works anonymously for both parties (tried it already with Mrs. Woodpecker) and would be:

ZX7BWKWY

Simply enter it at the check out page.

Cheers,

Woodpecker

Winter Time is Saving Energy Time

A nice fire in the oven. A good add on to your home heating system.

A nice fire in the oven. A good add on to your home heating system.

After housing, car and food, utilities are quite likely to be one of the biggest budget positions in an average household.

Actually, it is amazing how much some people spend on heating, electricity and water, and how they even think this is normal and inevitable. From my surrounding I know people who spend as much as 130 EUR on electricity and 105 EUR for gas per month for ONE person. And in Money Mustaches Blog, there was once a guy that spent more than 300 USD (=200 EUR) per month on electricity for a family of three, which corresponds to even higher figures in Germany, where the price of electricity is at least twice as high as in the US.

So what do these people to with all that electrical and heating power? Are they trying to add to global warming by heating with the windows open, because they perceive their area of living as too cold? Are they running 3 mega-huge flat-screen TVs 24/7? Is there an extended demand of ice cubes to produce christmas ice sculptures? Are they running a secret laundry service in their basements?

Or, god forbid, are they just wasting energy, because they never put a single thought into efficient energy usage?

Let’s start with understand efficient heating first.

(Electricity use will follow in a separate post.)

To do this it is helpful to learn a bit about the physics of heating to understand saving potentials:

Warmth actually can transmit in three ways:

  • Conduction
    Warmth is transferred by direct contact of two objects. E.g. if you touch a hot plate or if air in your room is cooled by touching the cold glass of the window
  • Convection
    Warmth is carried away by a fluid element. E.g. wind is carrying away the protecting warm air around your body. Or the cool air next to the window sinks to the floor as it is heavier than the warm air inside the room.
  • Radiation
    Warmth is transmitted from a hot object via radiation. E.g. the sun feels warm in the face even in winter, or the fire in a hot stove warms you if you stand in front of it.

Another important thing to know is the energy storage capacity of different materials:

  • Air has a low storage capacity (it is not dense nor heavy). This is why you can easily stand 90 degree Celsius hot air, e.g. in a Sauna.
  • Water has a much higher storage capacity (ca. 800 times air, given same volume). This is why you cannot stand 90 degree hot water.
  • Brick, Metal etc. has an even higher storage capacity.

Knowing this, it’s easy to understand how heat is carried away from where it should be, e.g. in your house.
Now you can think about reducing the loss of energy by curbing or improving each of the energy transmission effect as necessary.

Some ideas are:

  • Conduction has to be minimized.
  • This can be done by insulating your house (very important!), by closing the blinds in the night, by wearing an extra pullover, by having a carpet under your feet, using a blanket.
  • Convection has to be minimized if it concerns cold air.
  • If there is a lot of convection in the room, cold air will spread and there will be an uncomfortable draft.
  • A draft will require 3-4 degrees C higher temperature to still feel comfortable! And if some air stays where it is, it is acting as insulation (this is why styofoam works).
  • Stopping convection is thus important and can be done by putting a barrier between cold and warm parts of a fluid (mostly the air), e.g. by having a curtain in front of the window.
  • Closing doors in the house is important!. And of course insulating any gaps in windows, under doors etc.
  • Even growing plants like ivy on your outer walls will help stopping convection of cold air towards your outer wall. This can save up to 10% of energy. Or you use a rough outer surface of the house as it is done in modern homes. The little creeks there will keep air from convection on a microscopic level.
  • Convection of warm air is desired.
  • Thus your radiators should be free, no furniture in front of the etc. The warmth shall circulate into the room, otherwise it will just vanish into the wall behind the radiator and to the outside. Same holds for an oven.
  • An open fireplace is very inefficient. Convection will blow hot air right through the chimney. A metal wood burner (“Schwedenofen”) or a “Kachelofen” is much better, the hot air is slowed down there and will pass its energy to the metal and thus to your room, before leaving to the chimney.
  • Radiation is often underestimated or not understood. Radiation in a room means that apart from warm air around you, you will pick up energy coming directly from radiating warm objects (like an oven, the sun, or even from a wall). If an object is cold it will radiate less and people perceive this as cold radiation (whereas it actually is only a lack in radiation, as there is no such thing as cold radiation). An extreme case is e.g. after sun settles on a crisp winter evening in the mountains – drop in radiation from the surrounding can give you an extreme feeling of coldness there. However, for heating purpose, radiation is very important:
  • If radiation is high, you will feel quite warm even at lower air temperatures. High radiation can be reached by:
    • Sun falling in through a window. The radiation from the sun (not only the light but all of its spectrum) will be reflected around the room and will make you feel comfortable. Thus choosing a house with big (and well insulated) windows towards south-west is VERY helpful to curb heating costs. The sun will heat your home PLUS make you feel more comfortable by the radiation it provides.
    • A metal wood burner or a “Kachelofen”. The very high temperature of this type of oven provides radiation (infra-red radiation in that case) that is reflected throughout the room. Apart from the direct heating effect, this radiation will increase you level of comfort even at low air temperatures. Thus an oven is a good investment. Another plus is that you can make it comfortable in short time, thus you don’t have to heat this room when you are not there.
    • Floor heating. Floor heating provides a lot of positive radiation , but I am no expert here.
  • Low radiation (“cold” radiation) is not desired. Unfortunately it will come from any badly insulated and thus cold object, like a single-glas window (replace this immediately!) or from a badly insulated outer wall. The effect there is opposite to sun or oven: The bad insulation not only wastes energy to the outside, but it also makes you feel more uncomfortable, even at high air temperatures.
  • High energy storage capacity of walls means: If you are ventilating fresh air into your home, do it by opening all windows and doors of your home at once for 5-10 minutes once a day or so (turn heater off). This way, all the air inside will be replaced. But as 95% of the energy in your house is stored in the wall, not much energy will be lost. It will feel quite cold for another 10 minutes inside the room, but then the air gets warmed up by the walls. This way you get a lot of fresh air in by loosing little energy.
  • Venting by tilting the windows is much worse, as it constantly drains energy from the room without a full exchange of used air. And you virtually heat energy out of the window.
  • In the night lower heating by using a heating computer.
  • Use modern burners in your house. As insulation of walls, roof and new windows, this is in most cases an excellent investment that will give you easily 5-10% return p.a. Consequently don’t look on this as one off costs, but as an investment.
  • If you rent, you should negotiate with your landlord and offer him to pay a slightly higher rent if he does the investment. This is a clear win-win situation, especially if energy-saving investments are tax-deductible as in Germany.
  • Definitly change to a cheap supplier of gas. This can easily safe 200-400 EUR p.a. in Germany. But be care-full not to pre-pay nor bind into too long contracts.
  • Ask around at your neighbors to get some wood from their garden works for your burner if you have one.
  • Arrange with local forest owners for pick up of dead wood allowance.

Following this basic steps, most households will have significant saving potential to their heating costs.
You can easily save a couple of hundred bucks each year here and save the environment as a plus!

At Woodpeckers, our current heating energy consumption is as follows:

  • 10.500 kWh of gas per year (last five years avarage) plus around two cubic meter of wood for the metal wood burner. This is for a 150 sqm home, built early 90s, 4 persons, heating done with gas, two days homeoffice of Mr. Woodpecker as well as Mrs. Woodpecker.
  • Gas provided by Maingau Energy. Switch to them saved around 200 EUR p.a. in Woodpeckers case.

Cheers,

Woodpecker

 

Thinking about Money – Important but Unhealthy?

Maastricht - a beautiful little dutch city and home to the Treaty of Maastricht, leading to the unification of Europe. Good place to not think about money.

Maastricht – a beautiful little dutch city and home to the Treaty of Maastricht, leading to the unification of Europe. Good place to not think about money.

Yesterday, Woodpecker was coming back from a business trip to the beautiful country of Netherlands.

On the way back – due to bad connections – I had a very long cap-drive plus a long wait at the airport. (Including a police control of our cap on the Autobahn…did we look that much like weed smokers coming back from a happy trip to liberal dutch cities?!)

I was accompanied by a colleague working in a London office and we had a good extended chat on life, work and everything while driving and waiting.

Anyway, I observed that this lady had a really bad habit: Continue reading

Dhoo! Cars!

Why do we pay so much to end up here?!

Why do we pay so much to end up here?!

Dhoo!
Cars!

Unfortunately, if you have a family and you like travelling and outdoor activities, it is difficult to live without one, no matter how heavily you use your bike or public transport.

In Woodpecker’s case, we drive a Ford Mondeo station wagon, main criterium was a big rear trunk, limited costs, low fuel consumption.

To be honest, the car is great, but we could have done much more frugal. Unfortunately we bought the car three years ago, and that was before seriously entering the downshifting path.

I mean there is plenty of stuff around on frugal car choice and frugal driving, so I won’t go into detail here.

But let me highlight two issues from my own painful experience:

1) It goes without saying tha you must never ever buy a new car! But also never buy a “Jahreswagen” (a one year old car)

In Germany, “Jahreswagen” are heavily advertised as a reasonable compromise between enjoying an almost new and up-to-date car, that will run reliable and without hassles for many years to come, and the avoidance of the ridiculous high costs of a brand new car.

I owned a high variety of damn old junkers myself before:
First one was “Amadeus”, a nine-year old Ford Focus (a very economical car at low price in my view). However, the 3rd gear of the car was broken, so you had to switch from 2nd directly to 4th. And at startup, typically only three out of four cylinders were working with the 4th powering up sooner or later, dependent on the weather. In one word: It was a mess, but a lovely mess, like a living creature with bad moods, varying state of health and all – it was my first car!Another pearl was a 13-year-old, 60 PS Nissan Sunny, that I bought for 500 EUR only to drive it 3 more years. It was – often loaded with 4 grown up guys plus mountaineering equipment – reliably the slowest car among everyone on any mountain pass in the Alps.And same for Mrs. Woodpecker
So this time, now having a salary at disposal I would never have imagined normal 15 years ago – we decided: “No more bloody junk-cars, no more breakdowns on highways or during holidays. We want something that works!”

So we were taken in by the “Jahreswagen” idea: A car for about 19.000 EUR, half the price of a new one, yet only one year old! Great!

And what we would save now that we don’t have to do the repairs anymore! After all, each of the old cars before costed at least 1.000 bucks per year for repairs.

Sounds good?
…but isn’t. Because a “Jahreswagen” comes with its own very high running costs:

  • First, there is depreciation. OMG, the car lost about 2.200 EUR per year initially. Obviously, depreciation slows down later, but at second and third year, it is still that massive! No, I don’t want my Nissan Sunny back, but there depreciation was around 200 EUR p.a.
  • Second, for a car that new, you basically need “Vollkasko”-Insurance (comprehensive insurance, LDW). Obviously, for a car as big as the Mondeo, this is pricy. The best online rate I got (HUK24 insurance) was around 600 EUR p.a. (Cancelled it by now and reduced it to mandatory cover)
  • Third, and I really hate me for having overseen that point: The new car needs all this bloody regular service, otherwise your guarantees will void and resale value will decrease sharply. And this services are a genuine rip-off, at least here in Germany. The Mondeo “needs” one EVERY year, some around 350 EUR (the “small” one), and every second year around 600 EUR (the “big” one). No idea why this has to be that expensive, but I guess this is a cross-financing of a relatively cheap sales price.
  • And: Repairs, parts, oil, tires, tax, everything will be much more expensive for a big and more upscale car.

So let’s make a quick and rough comparison:

  Nissan Sunny “the Junker”, 13 years old, 60 PS, normal fuel Ford Mondeo “the luxury family carrier”, 1 year old, 130 PS, gasoline Ford Mondeo “the compromise”, 4-5 years old, 130 PS, normal fuel*
Pro No one would ever steal this car. Space for everybody plus tons of luggage or equipment. Lot of nice extras. Perfect family/holiday car. Same as to the “luxury version”.
Con Uncomfortability taken to a new level!Not really suitable for more than two persons. You start to care about really stupid things, like “this guy  nudged my car when parking in” You might find someone elses peanuts under the seats.
Depreciation p.a. 200 EUR 2.200 EUR 1.100 EUR
Repair costs p.a. 1.000 EUR 0 EUR 500 EUR
Tax 100 EUR 260 EUR 120 EUR
Insurance 200 EUR 600 EUR 300 EUR
Service+Oil 50 EUR 450 EUR 200 EUR
Fuel 20.000 km 1.8000 EUR 1.750 EUR 1.900 EUR
Opportunity Cost for Bound Capital (5%) 30 EUR 950 EUR 600 EUR
Annoyance Level Very high Low Still low
Total 3.380 EUR 6.210 EUR 4.720 EUR
*Gasoline in Germany is only interesting if you drive >20.000 km per year, as it’s price is lower than normal fuel, but the tax on gasoline cars and car price itself is higher. Woodpeckers come in around this mileage, problem is we do almost 1/3 of this during travels outside of Germany – and guess what, gasoline is NOT cheaper there.

Phew: Today we pay around 6.200 EUR annually for our luxury car!

This is competing heavily with our also luxurious travel budget for rank two in family spending (behind housing).

It is 520 EUR per month.
Hm. The compromise solution would be 390 EUR per month, a saving of 130 EUR. Being a family of four with many travel and outdoor interests, I would go for this one next time as a trade-off between low annoyance level and reasonable price. Invest a bit of the saved money in a general reconditioning of the car, and it will occur to you pretty new anyway.
Apart from that, I am not unhappy with the Mondeo, at least in Germany one of the more undervalued cars and no “sexiness price markup”. Also service, repairs, parts etc. can even be much higher for stupid “sexy” cars like BMW, Audi, Mercedes.

However, as a single, as a student or somebody seldom using his car or with no need for huge luggage, I’d move much further in the direction of the “Nissan Sunny Junker Solution”. Not quite to the Nissan mayhap, but given the saving: Who knows?!

2) Repairs / Spare parts / Service

Some days ago, coming back from a grilling events with the university sailing club (these mad guys grilled a whole saw for 4 hours): When parking I hit a little stilt that squeezed in the front fender. Half of the bump I was able to push out again with my bare hands.
With what was left of the bump I went to the local authorized Ford Garage, not expecting a great offer, but just trying anyway.

What did I get:
“Well, we can’t do much here. We strongly recommend to change the whole front fender. Including working time, this comes in at around 700 EUR”

What?! Do I have something with my ears, or did I hear right?!
700 EUR? For a small bump, half of which I corrected without the use of ANY tool?!
And if they say 700 EUR, effectively it’s going to by 800 EUR + tax, thus 1000 EUR are a likely outcome!!

Wait a minute, for 1.000 EUR I bought a whole car more than once in the past.

I dare say:

All major authorised car company garages are gangsters!

There is absolutely no attitude there to find a good and frugal solution for the client. The only goal seems to be: Replace and throw away as much stuff as somehow possible.
This is a nightmare for every sane person, from a financial as well as from an ecological perspective!

In that respect, the car industry now resembles most other consumption good industries:

Things are touchy, and if they break, throw them away!
Do not attempt to repair anything or even fix it in a provisional way.
Just buy new! It’s so great!

[/rant mode off]

Needless to sa, that we downshifters have to refuse and fight this trend decisively!

As with all other goods it is self-evident: you have to find a way to tackle your car more economical, as a tool that delivers transportation and less like a precious ancient chinese vase.

In the end your car is a bloody lump of steel that shall get you from A to B.

It is not your lover nor the face of a luxury celebrity or a football star’s knee that has to be pampered up and down no matter what cost.

Thus I’d advise:

  • Repair only at independent and practical oriented garages (the real car lovers will curse me, I know). Surveys show (at least for Germany) no difference at all in service quality compared to authorized garages while prices are 30-40% lower.
  • Or even much better, do it yourself or by friends in return for help you offer them.
  • Service intervals of one year are stupid. If you are planning to run down the car yourself, most people who are good at cars told me: Do only security relevant stuff, and some wear parts plus frequent oil changing, and brake fluids when needed. You can cut service costs by another half that way.
  • Do you really always need original parts? Even for non-critical, non-security relevant parts?
  • Never ever do one of these stupid holiday checks or whatever. Your car dealer will find something that you have to do “for the sake of security”.
  • You might even consider fixing things while being abroad. I had some fantastic car repairs in Turkey – great service, great fun, and incredibly cheap. I will save the bump in my fender for these guys!

Cheers,
Woodpecker

Saving: Be a Latecomer not an Early Adaptor!

Don't be a donkey by spending your precious money on fashion items! (seen in Barcelona, Spain)

Don’t be a donkey by spending your precious money on fashion items! (seen in Barcelona, Spain)

Finally, a new post on money and saving.

Today we will learn how to safe 1.200 EUR per year.

Hurray!

I mean, much of this topic has been covered already, but there is one more thing people systematically seem to do wrong about consumption:

People always want to have the newest and coolest stuff.

I guess, to some degree this is understandable – man, who does not want to be cool?!

Unfortunately, being cool by buying “sexy” stuff comes at an incredibly high price, a price that is likely to severely slow down your downshifting plans.

So the real question is:

Do you really want to be cool on the price of slaving away in your job an ugly 40 hours/week, 46 weeks/year?!

Or should you try to get your coolness from something else than from new “gadgets”.

But lets look at some background first:

The principle of “inter-temporal competition” is very well-known in economic theory.
Intertemporal competition means, that besides “normal” competition (against other products/companies), each product today is competing against sales of itself in the future. That means, if you try to sell a product (lets say a smart-phone), it normally will get cheaper in the future. As people know that, some tend to wait, decreasing demand today.
On the other hand, each company wants to make profit rather today than tomorrow. This especially holds true in today’s short-lived, impatient business climate, where all people and investors seem to care about is the next business quarter.

So what will companies do to fight intertemporal competition?

They will try to add value to the today purchase of the product by trying to convince you – the consumer – that a purchase today is better than a purchase tomorrow.

How do they convince you to buy at a high price today instead of waiting until tomorrow?

1) Well, one thing is ever-changing technology.
Companies will try to tell you what there offer is so ground-braking that you really have to own it today.

This is what I call the “Weisser Riese” Effect in German, as I came to realize this phenomenon 15 years ago on the example of a washing powder called “weisser Riese” (“white giant”). Advertisement for “weisser riese” went that way: This washing powder is so sophisticated that it creates the most white color for your shirts that is ever possible.
Wow, ok, fantastic, you guys convinced me, I’ll have to buy it !! It’s more costly, but if it is that great…!
But then, one year later, there was a new version of “weisser Riese” out there, with a refined formula, and even much better results. And one year later this thing came in mega-perls, providing still much better results due to what-god-knows great progresses in chemicals. And so on.But, you see the point:If the first product was already perfect, how does it come that they can improve it every year?! Either there was no improvement, or the first product was far from good in the first place.

2) Second method it to creat a fashion.
Telling you that you will be so un-cool if you do not keep up and join in today.

Both 1) + 2) are mostly achieved by the means of advertisement.

This is one major point why you should get rid of your TV.
Because if you like it or not, there is ample evidence that advertisement will affect you on a subconscious level, even if you think you are able to ignore it.

Actually, bullet 2, fashion, is the thing that seems to work best in todays consumption driven world, and in a world where many people lack meaning in their lives, and thus tend to define themselves by appearance, status, the things they wear and own, etc.

Thus, you will see the wheel of fashion spin quicker and quicker, and expanding to product categories that where not as prone to fashion 30 years ago.
Like kitchen tools, furniture, you name it.
With this there also comes a shorter durability of products and less products available featuring an unspectacular or ageless design.

Now let’s have a look at how this affects your budget.

My claim is, that an average household in Germany (total spending on consumption 2.245 EUR per month, see here), can safe up to 1.000 EUR per year by simply switching to a “late-comer” consumption style, i.e. without buying less, but by consequently buying products that are already a bit out of fashion.

Let me show you some examples I observed over an extended period of time:

  • TV, Toshiba, flat screen, 26”, at time of market entry in March 2012: 400 EUR.One year later: 220 EUR (-40%).
  • Smartphone, Samsung, at time of market entry Feb 2012: 300 EUR.
    Today, 1,5 years later: 130 EUR (-60%).
  • Computer Game, at time of market entry: 40 EUR.
    1 year later: 25 EUR (-35%).
  • New Car, at time of market entry: 24.000 EUR.
    3 years later: New car, same edition, around 20.000 EUR (-15%).
  • Jacket, well-known brand, market entry Autumn 2012: 250 EUR.
    3 months later, winter sale Jan 2013: 150 EUR (-40%).
  • Carver Ski Set, at market entry: 250 EUR.
    1 year later: 199 EUR (-20%).
  • Computer, high-end machine, state of the art, including monitor, at market entry: 2000 EUR.
    1 year later, same specification: 1300 EUR.(-30%)
    2 years later, same specification: 1000 EUR (-50%).
  • Semi-professional Camera, body only, at market entry: 800 EUR.
    3 years later: 600 EUR (-25%).
  • Movie DVD rental, at market entry: 3,50 EUR.
    2 months later: 2,50 EUR (-30%).

And so on.

Now lets look at total average household spending:

  Av. Spending p.month Saving by Late Coming Total Saving p.year.
Cloths 106 EUR -25% 318 EUR
Household Equipment 113 EUR -20% 271 EUR
Vehicle purchase / maintenance (estimate) 150 EUR -10% 180 EUR
Electronics / Telcom 65 EUR -30% 234 EUR
Entertainment, other 200 EUR -10% 240 EUR
Total     1.243 EUR

Voila, there you go:

Potential savings of 1.243 EUR per year!

And that is without having to surrender anything, but just by running a bit behind the herd.
This is what I like: Gains by pure efficiency, without having to giving up on anything!

Plus there are some additional benefits of late coming:

  • The herd will already have found out for you if the product is of high quality or not
  • You have enough time to ponder out if you really need that product at all, or if it was an affect made you belief you need it.
  • Used items will be available by then, opening the possibility to save even more.

The only minus is:

You will not be able to boast around with your new gadget!

But hey, more than 1.200 EUR per year only for boasting?
That’s 12.000 EUR in 10 years, and 72.000 EUR in 60 years!
A small fortune!

Well, not with me…

Decide yourself!

Cheers,

Woodpecker

The library – the most profitable investment in your life!

Libraries are as old as civilization - though the selection of books available at this one might be limited...(seen at Pataya, Turkey)

Libraries are as old as civilization – though the selection of books available at this one might be limited…(seen at Patara, Turkey)

Like conventional families go to the mall shopping to have a good day, at Woodpecker’s we have the habit to visit our local library about once a week.

Boy, this is always good fun and sure for free!

The kids are so keen to go there, it always turns out to be a first class event for them, and an educated one as well! We started the habit about 2 1/2 years ago, when the older boy (he is now 3 1/2 years old) started to consume kids book by the dozen.
Actually these days we source 90% of our media demand from the library, but I am surprised that there are still people who never use it! And I’m in deep regret I didn’t discover it earlier.

At least here in Munich, libraries are spread out all over town, and they have kids corners for all ages, kids film, science books for all ages, board games, movies, music, travel guides, audio books, computer programs, you name it!

You just do a nice excursion there by bike, load in a stack of stuff while the kids happily and with a broad smile screen new books or search for their favorite DVD and you have a good time until your next visit.

A big hit to our Amazon purchases.

Let’s look at an estimate:

Item lend Per visit Per year (30 visits) Cost saved p.a.
Kids books 5 50 (very repetitive) EUR 500
Kids DVDs 3 30 (even more repetitive) EUR 450
Board games 0,2 5 EUR 150
Books for us 3 90 EUR 750
Music CDs 0,5 15 EUR 150
Audio Books 1 30 EUR 450
Movies 1 30 EUR 450
Travel Guides 5 EUR 100
Special Books (Science, Handbooks, coffee-table books 10 EUR 250
Total EUR 3.250
Healthy bike kilometers 6 km 180 km
Cost of 2 library cards EUR -40
Return on Investment 8125% !!

A return on investment of 8125% on our library cards!
Savings of 3.250 EUR per year by an investment of 40 EUR. That is 32.500 EUR savings over 10 years! (Or still ~10.000 EUR, assuming you’d have bought used books/media instead)

That’s what I call a good performance! I’d wish there would be more deals out there like this one.

But I’d guess the library card will stay the single most best investment in your life!

So go for it today!

Of course there are still a lot of occasions where we buy from Amazon. TV Serials e.g., as there is no TV at Woodpeckers. Or special books/movies/software not available at the library. In this cases we mostly order at Amazon UK which is much cheaper than Amazon Germany and you can actually log in there with your German user name!And later we resell the used stuff in Germany.
Quite often, I even made a profit out of movies or books that way!

Cheers,
Woodpecker

Some Guidelines to successful Investing

Investments returns can help building the bridge to better downshifting. (Galata bridge, Istanbul)

Investment returns can help building the bridge to better downshifting. (Galata bridge, Istanbul)

Obviously, downshifting is much easier if you have a solid financial background and if your savings are working for you in a way as efficient as possible.

I am frequently asked what my investment strategy is, so I will put together some general ideas in this post. I will however not make specific recommendations on markets or products, as in the end everybody is responsible to make their own decisions and bear the consequences.

Disclaimer:
I am not a financial adviser. The ideas presented are my private opinion and no general recommendation. Everyone has to do his/her own research, make his/her own decision and bear the consequences.

Let me start with some first and very important advise:

1) There is no such thing as a golden bullet to become rich in an easy and risk free way by investing in a “magic” product

Sounds obvious? Well, maybe. But after investing in financial markets for over 15 years now, I learned that many people basically are still looking for this magic bullet, and most investors still think it is out there.
Whenever somebody says, “the market went so deep, it cannot go deeper” or “Real estate is a save play, there will always be demand” or “gold was important throughout human history, so buying it is a safe bet”, then actually he is advertising the magic bullet.
Do not believe talks like that. Investment is hard work if you want to beat the market.

In economics there is a saying there is no such thing as a free lunch. That means when something sounds very attractive, there WILL be a risk or hidden caveat attached to it.

A bank pays high interest on your savings? Well, maybe they are in risk of getting insolvent in which case much of your money will be lost.

A stock pays a great dividend? Well maybe they are paying it from their substance, thus neglecting growth or sustainability and despite the high dividend, valuation of that stock will go down, causing losses to you.

I will admit that actually there are a few and quite limited “free lunches” out there from time to time, but it takes a lot of time and knowledge to find those – you’ll not find them in a financial newspaper advertisements. And do not forget that other clever people are out there as well. Thus my second advise:

2) Be humble. Always assume that there is a lot of players out there that are smarter than you.

Whenever you found a great investment, be sceptical. And scrutinize if maybe this is a trap layed out for you by a really smart professional. Always diversify and never bet with too high stakes or with leverage or lended money.

3) Be very sensitive about costs

This is important! Most investors seem to neglect cost when doing their decisions. And I did as well when I started in the stock market.

However, one example shows how important costs are:

Let’s assume you invest 10.000 EUR in an ETF, and returns will be 6% per year.
Now we look at two alternatives, the first has a management cost of 2% per year, the second is a passive product with costs of 0,5% per year.

Guess what the total return is after 20 years?

  Inv. A Inv. B
Capital at Start 10.000 10.000
Return (p.a.) 6% 6%
Cost (p.a.) 2% 0,5%
Capital after 20yrs 21.911 29.177
Return (total in EUR) 11.911 19.177
Return (total in %) 119% 191%
Return (last year in EUR) 876 EUR 1604 EUR

For the first ETF, it is a surplus of 11.911 EUR. Very nice, 119% over 20 years.

But for the second ETF however, it is 19.177 EUR or 191% over 20 years!

That means, the difference in costs almost doubled your future income from that investment in the second case.

And look at the income stream that will be generated after 20 yrs from the both alternatives: The annual income of the low-cost alternative will be almost double the income of the high-cost alternative.

So, always bear costs in mind and ask yourself if high costs are necessary and justified.

4) Don’t overestimate tax-optimization

If you like it or not, you will have to pay taxes on most investment returns. Obviously, everybody would like to avoid that, but be careful: Tax-avoiding strategies often lead to ill decisions. Financial industries are happy to market products that are “tax-efficient” as many customers seem to become blind to the quality of the product as soon as they hear the word “tax saving”. This was shown in many economic studies.

5) Check the performance of your investments not too frequently

This is about happiness.

Checking too often will make you compare to others (or the market) all the time. Problem is, that comparing to others as well as thinking too much about money are both proven to have a negative effect on happiness. And it leads to hectic decisions, at least in my experience. So I tend to thoroughly choose a strategy, buy stocks, and….wait.
Especially in the first months after a purchase you might not want to look at your stocks at all. If they are flourishing you might get too overconfident, if they are diving you might be tempted to revise your strategy and sell them in an affect.

6) You might prefer real investments (“tangible assets”) over nominal investments.

A nominal investment would be a savings account, or a bond. Both entitles you to a payment by a second party (the bank or the bond issuer) whereas with a “real” investment you actually own something physical, like a part of a company, a patch of land, a piece of gold, you name it.
Real investments are more immune to inflation, less prone to haircuts or insolvency or financial repressions. See this post.

However, price still matters. Never buy an asset blindly just because you are afraid of loosing your cash in one of the many crisis.

7) Buy anti-cyclical

You think modern markets are developed, stable and rational? Far from stupid emotions and stupid behavior?
Well, they are not. I’d even say that modern markets are more prone to irrational herding behavior than 20 years ago, due to the high pace information is traveling with and action can be taken.
Thus markets frequently over- and under-shoot their fair value in highly emotional rushes.
Train yourself to sit on the other side as often as possible.
Everybody is buying real-estate/tech-stocks/old-timers?! Be careful.
Everybody says real estate/stocks/a certain country is doomed!? Consider buying. Don’t buy blindly though, but give it a thought if the market might have overreacted in that particular situation, giving you a chance for a bargain.

However, with anticyclical investments, you need patience and some stamina to withstand initial losses. Judge carefully how much downside you are willing to take (in most cases losses hurt more in reality than you might think beforehand).

8) Have fun in what you are doing

I think this is very important. You hate reading company earnings reports, plugging through balance-sheets and compare different valuation measures? Then better turn away from stock picking as the public information will simply not be sufficient to make a superior pick. I’d stay away from stock picking but rather go for passive (costs!) ETFs (fully stock backed ETFs are real values; note that certificates or options are not!).

You have no idea of different housing qualities, standards, price comparison etc. and have no fun in reading into these things? Then it might be difficult to make a bargain at the real estate market…

9) Learn about the psychology of investment

You think you have yourself fully under control and are taking you decisions in a rational way?
Well, most likely you will not. On top you might not even know where your emotions are steering your decisions.
So it’s a good start to understand common psychological investment traps as outlined e.g. in the two links below:

Presentation on Behavioral Finance

Overview of common behavioral investor mistakes

10) Money is not everything

In any case you have to accept volatility as a part of the game. It is a long and tough way to learn to really cope with e.g. 30% of your wealth being destroyed in a market crash. Be prepared that you will suffer on this way.

But always remember: Life is a game, and so is investing. It is only money!

…and as a good downshifter, you never made your happiness depend solely on money, and you know that money is a means only and never the goal.

OK, so that were general advises, but what now about Woodpeckers strategy?

Well, as said, this is my personal decision, so I do NOT say it fits everybody else’s risk appetite, financial profile etc.For the reasons stated above, Woodpecker strictly sticks to investing in “tangible assets”. I am however not good at evaluating real estate. Plus it is illiquid and difficult to diversify. Thus Woodpecker is invested almost 100% in stocks, and always was. For me it is great to own parts of companies that I belief in, plus the stock market grants decent returns in the long run, about 7% p.a. is the historical mean (Siegel’s constant). And – this is important – I find it quite some fun digging for undervalued stocks and markets.

I do stock picking and am mostly invested in German small caps (companies I know or can understand, plus often so small that they are not covered by institutional investors), a couple of stocks of southern Europe (I think there are some bargains here these days – however be careful, this is a tough and partly dangerous market) and some stocks in UK and eastern Europe. I avoid US stocks, as they are said to be slightly overpriced my many common metrics plus they add currency risk to my portfolio that I don’t like. Sometimes I do buy ETFs or certificates (careful! certificates include counter-party risk) of specific foreign markets where I see potential but have no means to pick individual stocks.

Right.

I’ll say it a third time: Don’t follow anyone blindly (including me), but find your own strategy! But equally important: Start finding your strategy now!

Investment can bring a real boost to your downshifting progress, even if it is humble and careful and passive …

Cheers,

Woodpecker

ps. Excellent Investment Blog and with very good blog-roll: http://valueandopportunity.com/