Monday, May 28, 2007

About Weddings

In most cases marriage means spending a lot of money. One sees a good deal of this topic in personal finance blogs. In this post I don’t even want to discuss who must pay for a wedding: newly-weds, their parents and relatives, or a bank that loans money (though I sincerely believe that the last option is a disaster). What I want to understand is why people desire to throw so much money on a wedding?

There is a fixed idea that the ceremony must be big and “proper”. So a bride and a groom draw up an impressive budget, even if they can’t afford it. Then they somehow get the money they need. After months of exhausting preparations, the ceremony takes place. The wedding leaves some pictures to remind about it, and a sense of accomplishment that “we did it right.” Is it really worth all this money? It’s a tradition, I may be told, and it’s unthinkable to dispense with any part of the established ceremony. It’s a dream of many girls to go down the aisle in a splendid white dress, with hundreds of people watching her. Well, I would like to know, is it a really good tradition that is so ruinous for a new family’s finance? That money could be spent in more family-oriented way like on mortgage down payment or house maintenance. It could be put into emergency fund or invested in appreciating assets—something that lasts. And you could still celebrate the wedding, but in a more modest way.

I understand that I am not going to be married in the near future, and if I were, my attitude to weddings could be different. I also understand that marriage deals with psychology, traditions and social rites, and I can’t judge it only from the position of logic and financial sense. But still.

In one of my favorite movies, Mona Lisa Smile, the character of Julia Stiles says: “We're married. We eloped over the weekend. Turned out he was petrified of a big ceremony...” You know, I would have eloped too. It doesn’t seem to be less romantic than a proper wedding.


About a month ago I found €2 in the street. The best thing that could be done with this coin was sell it right away to a bank and do something with the ruble equivalent. However, I decided to wait a little, so that I could get more rubles for two euros. I expected it to increase, because the euro has been gradually rising against ruble for some years.

I don’t know why I even bothered, because the difference would be just miniscule. Still, I waited. Unfortunately, the ratio peaked and started temporary decrease, so this €2 now has less value for me than it had at first.

That proves once again:

1. Trying to play in buy-low-sell-high game when you don’t understand the reason of price changes and the dynamics may be no good.

2. If something is rising in price today, there’s a huge probability of a dip tomorrow.

3. Caring about every cent, eurocent or kopeck is just silly, even if it’s just for fun.

4. Currency market is just not my cup of tea. :)

However, I still hold this coin stubbornly.

Sunday, May 27, 2007

How Much Money Do You Think You Need to Be Considered Rich?

Marshall Middle at How to Make a Million Dollars asks “How much money do you think you need to be considered rich?” I think this question implies that the answer is in other people’s idea of richness. And here comes another question, who are these people?

For every person in this world the expression “to be rich” has a different meaning. For a citizen of some poor African country everyone who lives in developed countries like the USA, Canada or Western Europe is really rich. In some places being rich still means having a certain number of cattle.

In my native country, Russia, one who has $1,000,000 is certainly rich. Such money may give an annual income of $100,000 that allows living in grand style in our country. But that is true only for the majority of Russians. In the circle of odious Russian oligarchs (business magnates) even those with several million dollars are considered close to poor.

In the USA, as I understand properly, having $1,000,000 is just enough to live comfortably in one’s retirement. A little bigger figures mean being well-off. Those with $50,000,000 may be considered rich. Still, I suppose that even they may think themselves to be only well-off and consider billionaires to be really rich.

So it seems that the idea of being rich varies greatly among people and it depends on a country, cultural traditions, environment and socio-economic status. It’s easy to be considered rich by a poor family in Malawi and more difficult among billionaires. The only thing a person can say for sure is what he or she personally thinks about it.

As for me, I think that $100,000 a year can be enough to live very comfortably in my city. Assuming a conservative 5% APY, I guess that $2,000,000 is cool. I may add a couple of millions for luxuries and come up with a final number of four or five million dollars in liquid assets, adjusted for inflation.

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Saturday, May 26, 2007

One Reason Why I Hate Cash, but Love Debit Cards

I prefer debit cards to cash, because debit cards, like cash, don’t get me in debt, but they, unlike cash, don’t make me deal with change.

I assume that a lot of goods in the USA have prices like $x.99, $x.97, etc. So one’s just give $x+1 and gets $0.01 or $0.03. What do you do with these coins? Will you use it in your future purchases or will you just come to a bank, make a pile of coins and say “I want to deposit it, please”?

Things are even more complicated in Russia. Well, Russian currency is ruble and it one ruble divided in 100 kopecks. As of May 2007, $1 is roughly 26 rubles. It means that 1 kopeck (1/26 cent) has ridiculously small value. I can’t think of a thing that costs less than 1 ruble. However we still deal with kopecks and prices like 13.34 rubles. Also 10 rubles note is the smallest note in Russia, and everything between 1 kopeck and 5 rubles is coins.

When I buy something for 13.34 rubles I give 14 rubles and get a heap of coins in change. Coin by coin, my wallet becomes heavier.

It’s even more complicated when the price is something like 40.12 and I give 50 rubles in one note. The person at the cash register doesn’t want to give me 9 rubles and 88 kopecks, so she asks me to give her 12 kopecks so that she could give me 10 rubles in one note. So I start rummaging in my wallet, I find 10 kopecks quite easily but 1 kopeck coin is relatively rare because it’s so small! Then I don’t find 2 kopecks and I get 9.88 in coins and it’s awfully heavy! While I am searching for coins quite a lot of time passes and there’s a line of other customers behind me...

The problem is not only with kopecks. When the price is 65 rubles, it’s usual to give 115 rubles at the cash register and get 50 rubles in one note. Well, I think I just lack mathematical skills to do all these give me X, I’ll give you Y calculations.

Things are much easier with debit cards. I just give a small piece of plastic and I get this small piece of plastic back, all rubles and loathsome kopecks taken automatically from my balance. It might be silly, but I tend to do all my shopping only in stores which take cards. It’s true that I don’t see this money, I don’t hold it, and I may not realize its value due to psychological reasons, but the convenience of dealing with electronic money means too much for me. I’d better take pains to budget in advance and watch my spending.

Friday, May 25, 2007

Summer Is Near

Today I got the May stipend and some money from a job I had in April. I was really satisfied with the sum. The money went immediately to my bank deposit. Today I also put $154 in my mutual funds. I don't want to contribute more for a while.

Now when I think about personal finance I feel a little deflated. Summer is advancing. That's really great in terms of rest, holidays, sun, going out, but it means no interesting stuff about my money. I'm going to spend the entire summer in Hometown at my parents', so I won't earn an income or get stipend for three months and I also won't spend my personal money.

Then there are stocks. I have a little money put aside for investing. But I really think this year a strategy Sell in May and go away is going to be very useful. I won't sell any of my stocks, of course, but I don't intend to buy anything for some time. Things are really complicated in the USA, Russia and other emerging markets. Russian market is having a temporary decrease, while American stock market is up, but it may tumble after climbing up for so long, and it will trigger even a bigger correction in Russia. That's why I won't do anything until things clear up a bit.

So it seems that this summer the finance part of my life will be uninteresting and mindless. Not that I am very happy about this.

Investing Overseas

In an article on MSN Money Jim Jubak talks about investing overseas. Russia is one of the countries he includes in the list of high-risk, high-reward markets. It's so funny, but this is the only country I can easily invest in, because I live there and the majority of the mutual funds available to me deal with Russian stocks. I don't think I have too much choice :)

My Net Worth: Can Be Revised?

In my net worth I include money on bank deposits and money invested in two mutual funds. As of April 2007 it equaled $2,280. But there’s also home equity that I don’t count.

Yes, technically I am a home owner. As I said, many people in the USSR and then in Russia were given apartments. My family got one in 1993 or 1994, I don’t remember exactly, in Hometown. By the way, our apartment has three bedrooms and is in very good location. I say, it was a very generous gift! We got it either from the government or my father’s employer, a large corporation. It wasn’t really ours, but we had a right to claim it as our property. We did it only in the summer of 2006 and I became an owner of one-third of the place – our family consists of three persons and each got an equal share.

So I decided to evaluate the value of my share of the apartment. It was relatively hard because I was well aware about real estate prices in Moscow, but I had no idea about this market in Hometown. Real estate in the capital is awfully pricey. A small one-bedroom apartment far from the center of the city costs way more than $100,000. I guessed that an apartment in Hometown was much cheaper than one in Moscow, probably about $10,000-$30,000.

However, when I searched on the Internet I figured out that a three-bedroom apartment with similar location in Hometown costs more than $60,000. Wow.

That makes me an owner of $20,000 in home equity and boosts my net worth up to $22,280+. However, I’m not going to include home value in my net worth:

1. I still don’t treat it as my apartment, or even my share of our apartment. This apartment is a gift from an enterprise or the government and my parents who included me in the list of owners. I don’t want to lay hands on it for a very, very long time. For me it’s a place where my parents live and don’t want to claim any part of it. In my life as an adult I intend to rent and then buy my own apartment.

2. Including it will make tracking the growth of my net worth very inconvenient. Compared to home value my cash and stocks look so meager. Their growth will be made invisible on a chart.

3. It is so hard to evaluate home value. Even $60,000 figure is rough. I also can’t track its price changes. So it makes home value some inexact constant figure that may be dropped for now.

So I’ll stay with my tiny $2,280.

My Life and Money: Résumé.

As of May 2007, I am 19-year-old, who turns 20 in summer. I lived in another city, which I will call Hometown, till I was 17. Hometown is the capital of a region (=state) in the south of Russia. Then I entered a university in Moscow and now I live and study in the capital of Russia. I’m currently a third-year.

I don’t have a job and my parents support me financially. I also get a stipend. At first my stipend was about $14 a month and now it’s $34 a month. Well, it’s not that much, but I could still eat about 10-15 times in the student dining hall on that money! However, I never spent this free “student money” on something insignificant, but rather let it add up. I didn’t touch it at all since 2005 and it sort of became my emergency fund. I used to be rather frugal so I usually didn’t spend all the money I got from my parents. I also saved everything I got from occasional jobs.

By the end of last year (2006) I had saved about $1,000. That’s when I made up my mind and decided to begin investing. I chose a mutual fund and put about $384 in it. It was such a new experience! I didn’t know anybody who invested in stocks or mutual funds and I had nobody to teach me. So I had to learn everything myself. It meant reading relevant books and magazines, surfing web-pages, BBS and internet groups on finance. I chose another mutual fund a bit later. I have been investing in these two funds till now. I try to spend less than I get and I save the entire stipend I get. So far I managed to save $650 in cash and $1600 in stocks.

Financial Side of Education in My Country

1. Where we study and how much we pay (or get).

For a long time education in Russia (formerly USSR) was completely free of charge. Colleges also used to pay stipend to students who got good grades (A’s and B’s). My parents tell me they were paid enough money to go home on holidays on plane.

Now about half of students in Russia pay for tuition, and the other half don’t. Those who don’t and get good grades still get the stipend monthly, but nowadays it’s relatively small. One can hardly have ten big meals in student cafeteria with that money. The students who pay for their education are charged somewhere between $1000-8000 a year in Moscow. In other parts of Russia the sum may be a little smaller, I guess.

It seems that the majority of high school graduates choose a college in their hometown. Consequently a lot of college students stay with their parents and their lifestyle doesn’t change much. However, a fraction of prospective students choose colleges in other places, mostly Moscow and Saint-Petersburg. There are also people from small towns and villages who either go to Moscow or Saint-Petersburg (the capitals) or to the capital of their region (state). All in all, there are students who move to another city and live in dormitories or rent, but they are in the minority, I guess.

Those who live in a student residence are charged with a little money. It may be $100-300 a year for a room in a dormitory, meals are not included. It must be a good deal, especially for Moscow, where it’s not easy to find a room to rent for less than $400-500 a month.

2. Students’ money.

Those who live with their family continue their lifestyle of a high school student. They get their pocket money that is spent on entertainment, clothes and eating out. But those who start to live on their own in another city are more finance-savvy and that’s quite natural. They get some money from their parents and they have to spend this fixed amount on everything: food, transport, entertainment, etc. That teaches them to budget and control their spending.

In Russia most students are not eligible for credit cards, because they are too young and don’t have a consistent income. I don’t think I ever heard anybody seriously complaining about this, though. The students should probably be happy about this because this restriction keeps them from having consumer debt.

An average Russian student is constantly whining that he lacks money. He or she eagerly awaits parents’ money or a monthly stipend. It’s practically impossible to use credit, so a lot of students have to work part-time.

All in all, I think Russian students are in such conditions, which are very healthy for their finance. Practically everyone graduates debt-free because student loans are not wide-spread and credit cards are not available for those under 21. Not many are aware how lucky they are. Some can be often heard complaining that stipends are too small and must be increased :).

Thursday, May 17, 2007

High Rates Everywhere

When I read American personal finance blogs, one thing is constantly in my mind – we, Russians, have such high rates everywhere! I mean credit and loans interest, but also inflation and even bank deposit interest rates and stock market revenue.

I will give here some figures.

1. Inflation.

It might seem monstrous to somebody who is used to 3% inflation, but the official inflation in my country was 9% in 2006. It is even considered to be good, because this is the first year when it’s a one-digit number. As far as I remember – and I stopped being financially naïve not so long ago – inflation used to be a low-teens percentage. I did a search about previous figures on the Internet and that’s what I found:

2006 – 9%

2005 – 10.9%

2004 – 11.7%

2003 – 12%


2000 – 20%


1995 – 130%

Wow! We surely have made a long way from over a hundred to a single digit! It is also anticipated that the 2007 figure will be less than 9%.

2. “Federal funds” rate.

A number which corresponds to Federal funds rate in the USA currently equals 10.5% in Russia. Let’s have a look at its history:

2006 – 10.5%


2000 – 45% (ouch...)


1995 – 200% (I never knew this...)

3. Bank deposit.

Bank deposit interest rates usually tend to be a little smaller than “Fed rate”. I compared the current offers of three banks, which are among the biggest and most respectable. On average they give about 8% in interest if savings are kept in rubles and maybe 5-6% if in dollars or euros. The numbers depends on the amount of money put and the deposit period. And well, I distinctly remember 10%+ rates not so long ago.

4. Credit.

Oh, credit is such an expensive thing! The rates gradually decrease but are still soaring.

The most expensive is the money that is borrowed stuff like cell phones, TVs and computers. The rate here can easily go up to 20, 30 and 40%+.

Mortgage usually has a rate in low-teens. I’m not sure I have seen the offers with less than 10% rate.

Student loans are surprisingly expensive, no less than 10%. They are not very popular here. People either get an education for free or their families pay it without using credit.

It seems that auto loans are the cheapest. I’ve seen manageable figures like 3-6%.

5. Stock market.

That’s where high rates are something wonderful and very enjoyable. In 2005 Russian stock market revenue was up to 70% and about 50-60% in 2006. Looking back to 1995... Well, it’s amazing, it’s hundreds %. Why didn’t I have enough money, brains, guts and years to start investing then? :)

I can see a distinct trend here. Nineties were a wild period with enormous figures everywhere. From then the rates have been gradually and steadily declining. I think in the end Russian finance system will reach the state of mostly single-digit rates. It’s interesting to notice that people are very used to these huge numbers. Even financial advisers in personal finance magazines are blinded by them. Very often I see 20 and 30-year financial plans in these magazines where inflation is assumed to be somewhere around 10% and prospective investment 20% and more – such an optimistic hope! But the whole situation is changing and it’s more likely that all these rate figures will be much smaller in 20 or 30 years.

Wednesday, May 16, 2007

Personal Finance in Russia

Are Russian people financially literate? I wouldn't say so. In fact I can divide Russian people in two categories. The majority of people handle their money rather poorly, they don't invest and they don't think much about retirement. But there are people (very few) who have a significant amount of money. They may be heads of corporations, top-managers or running their own businesses. Those are very well aware about money. It's them who buy stocks, bonds and gold, consult with financial advisers and have their personal finance in order.
I think I belong to neither of groups. I don't have so much money as a person from the second group does, but I am a little more financially literate than a person from the first one. May be I am from that tiny group of people, who have a little money and know the basics of personal finance. I believe my group will grow in future and replace the first one. I see that there are already such magazines on sale like Home finance, Personal budget and Family budget. More and more people learn about controlling their money, saving and investing.

All in all, our personal finance sphere is in a transitional period. People who used to rely on government now start controlling their money on their own.

So, how do things go in my country?

1. Retirement.
About 96% of working Russian people don’t think about their retirement at all. It can be easily explained - for many years the government took care about people in their senior age. A fixed amount which didn't vary much from person to person was paid every month to a 60+ man or a 55+ woman. It's called pension. Now we're in the process of reforming the system. An average Russian person is still eligible for a monthly small fixed amount, but he or she can also make contribution in his retirement account. Also the employer pays about 14% and less of an employee's salary (it is paid not from the salary but from the employer’s funds) in his or her retirement account. A person then can choose where to put his retirement money. These 95-96% don’t choose anything and their money stays in a government fund, which, surprisingly enough, can invest this money only in bonds. So in recent years the gain was less than the inflation rate. However, the minority moved their money in private funds that can invest in stocks and enjoyed a good rise, as the Russian market grew significantly.

2. Saving.
It seems to me that Russian people always used to save. The main reason for that was "in case of emergency". However, the case of "paycheck-to-paycheck" is also rather widespread. It also seems that people use credit much more often nowadays and they don’t save that much.

3. Investing.
Sadly enough, people most often use a single financial tool for savings - keeping cash at home. There is even an expression "to keep one's money under a pillow". In nineties the inflation was extreme and it literally destroyed the value of saved money. Maybe that made people start using bank deposits, which can hardly beat inflation but is still much better than "under a pillow". And the majority of people don’t go further. I think there are less than a million or maybe half a million individuals (out of 140 million population) who invest in stocks directly or put their money in mutual funds. People are just not used to it. They also don’t trust such financial tools because many were swindled out of their money in the wild nineties by fake public companies and funds. Now it’s much more regulated and solid and people start investing in stock market, step-by-step. The number of new investors is growing exponentially.

4. Real estate.

In the Soviet time real estate – mostly apartments – wasn’t purchased. It was given to a person after some years in the workforce. If you wanted to buy an apartment – it was rather cheap. Now the situation has changed dramatically. Real estate has risen in price. However, it is still more or less affordable (excluding Moscow). People with good and stabile jobs have a mortgage and they pay it out rather easily.

But Moscow is the most sought-after Russian place. It therefore leads to acute real-estate shortage which in its turn leads to soaring prices. In two years they more than doubled. Now even people with good wages (as wages in Moscow go) have difficulties getting a mortgage. A monthly payment tends to be enormous.

5. Credit.

Credit has become accessible to everybody not long ago. As in many countries before Russia, people got used to it very quickly and now rely on it heavily. They use it to buy a car, a washing machine, a TV, you name it. There are worries that the country gradually comes into the sort of credit frenzy that can lead to troubles. Meanwhile now it’s more or less manageable.

6. Debit and credit cards.

Although the credit is easily available, credit cards are not widespread. Money is most often lent in the form of cash, and monthly payments are paid also in the form of cash to a teller. Of course it leads to lines in the banks. Banks introduce credit cards as a way to loan money. Not so many people use credit cards to make their daily purchases. On the other hand, it prevents them from piling up credit card debts.

Debit cards are much more widespread. I’ve seen somewhere that they constitute more than 90% of all plastic cards in our country. I think it’s because they’ve been somewhat imposed on people. You see, employees used to get their salary in the form of cash at the account, which led to lines and so on. (By the way, we never use checks. I have never seen one in all my life) In the end a lot of companies chose a bank which would issue debit cards for every employee. Now wages go straight on debit cards. However, most people immediately go to an ATM and cash all the money out. It’s rare to use cards to pay for goods like groceries, books and so on. But it’s going to change, I think.

Number One

Well, that's the first post here! I have never had a blog before, so this is going to be new experience for me.
I would like to say a few words about myself and why I decided to run this blog. I'm a Russian girl who goes to a university in Moscow. I've recently got very interested in personal finance. I started to think about saving, spending and - oh! - even investing. It was hard, though, to find people with who I could discuss such matters. It deals with a specific attitude of Russian people to money, I guess, and I hope to post more on this topic in the future. Anyway, surfing on the Internet I found some personal finance blogs and that's where I found what I'd been searching for. Well, the problem is that, first, these blogs are in English and, second, people talk about life and money in the USA. But these blogs still give me a lot of ideas, useful tips and information. It is extremely interesting to compare finance matters here in Russia and in a foreign country and to learn something new.
I decided to join the personal finance blogosphere because I wanted to tell about the way things went in another country. I didn't like being a passive reader and decided to become more involved in pf blogs life.
Everybody is greatly welcomed here! I would be very happy to meet new people, to talk and to share opinions.
Yours, a new pf blogger :)