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The Simple Dollar

• 

  Ten Big Mistakes #9: Bad Influences

  Posted: July 29th, 2010, 2:00pm MDT by Trent

  Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

  I surrounded myself with friends who constantly encouraged poor financial choices.

  Most of my social circle during my early professional years consisted of people who placed a great deal of social worth on consumption. Respect and friendship were doled out based on the elecronics you owned, the clothes you wore, the golf clubs you had, the places you ate at, and so on.

  If you showed up to a social event with a new cell phone or a new driver, the gang would gather around you with high-fives and looks of awe and respect and envy for the items you had.

  On the flip side, if you had an old cell phone or didn’t wear great clothes or used old golf clubs or hadn’t eaten at the best restaurants, you were gradually excluded from the conversation and, eventually, excluded from the social events as well.

  I made a valiant effort for a few years to run with this crowd. I dressed wonderfully. Sarah and I ate at tons of nice restaurants. I had the latest gadgets, including piles of video games. I went out with the gang a few nights a week. The list went on and on.

  It was just a giant game of oneupsmanship. Rather than building real relationships based on the realities of our lives, everyone just talked about stuff – and who had the best stuff. Why talk about long term goals when you could brag about your new golf club? Why discuss how to get ahead at work when we could trash talk someone for wearing slightly worn clothing?

  In order to stick with this crowd, though, a person had to spend – and keep spending. Every single person in that group was living beyond their personal means. I suspect that some of them had parental help, but I’d be willing to bet all of us had some level of credit card debt.

  What happened to this social circle when I finally got some sense about personal finance and realized I was driving my future into the ground? Almost universally, I was dropped from the group. They laughed at the idea of making a meal at home when you could be dropping $100 for a plate at a steakhouse. They stared at my beat-up cell phone. Soon, they stopped calling and inviting me to do anything with them.

  Yeah, it hurt. What I realized from the experience, though, is that these people weren’t my friends. They cared about stuff, not about me. They only wanted people around them to reinforce the over-the-top spending decisions they were making.

  Think about it this way. It’s a lot easier to spend $3,000 on a handbag if you have a circle of friends that talk reverently about said handbag and will ooh and ahh over it if you buy it, compared to, say, a circle of friends that wonders why on earth you would spend $3,000 on a handbag.

  My current circle of friends is much, much different. We get together for regular potluck dinners. We play board games around the kitchen table. We have conversations about life goals and about ways we can maximize our bucks and our time. We share clipped coupons with each other. We laugh together and goof off together.

  In short, it’s an environment that supports a healthy flavor of personal finance management. We don’t socially reward over-the-top consumption. Instead, we socially reward insightful discussion, good humor, and good life choices.

  Having such a circle makes it so much easier to be in financial control. There is no social expectation of spending. Instead, there is a social expectation of rational use of money and time, of investing for the future and thinking about the future, of exploring the handful of hobbies that are actually important to each of us.

  My biggest mistake was not investing the time to find a social circle that matched these values to begin with. Instead, I simply started hanging out with the first people that I had even the smallest interest overlap with and I wound up adopting that group’s values for a while rather than seeking out others that may have matched my own.

  How can you avoid this trap?

  First, don’t believe you have to change who you are or what you value just to match what your social circle wants. If you’re buying things or doing things that mostly only serve to impress your social circle, it’s a great sign that you’re perhaps not in the right circle of people.

  Second, seek new friendships in the right way. Let your own true values and interests lead you to these people. Engage in groups that match the things you want to do – don’t engage in activities just because that’s where you think people are. The bar/club scene come to mind – I’ve met so many people who basically can’t stand going there, but they continue to do so simply out of a desire for social interaction. Broaden your horizons and start seeking people based on what you value, not based on what you think they value.

  Finally, don’t hide who you are. This doesn’t mean you have to hang out all of your dirty laundry, but it does mean that you shouldn’t have to hide some significant aspect of what you value or who you are. If you’re in a group that won’t like you because of some aspect of who you are, it’s time to find a different group. If you’re in a group that won’t respect you because you’re goal oriented or in charge of your finances, then it’s time to find new friends.

  
  

  
• 

  Reader Mailbag: Travel Thoughts

  Posted: July 29th, 2010, 8:00am MDT by Trent

  What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
  1. A pile of problems
  2. Financially helping a boyfriend
  3. Vinegar and water for cleaning
  4. What debt comes first?
  5. Subsistence farming
  6. How much term insurance?
  7. Thoughts on iPad
  8. Entrepreneurship gone bad
  9. Cell phones gone wild
  10. Powdered homemade laundry detergent

  Taking a five day trip, followed by a two day break, followed by a six day trip, all with three children under the age of five, is not a good idea. I officially need a vacation from vacation.

  I’m having severe financial troubles and have no clue as to how to proceed. I’m 48 and unable to work due to disability (but I have been denied several times for disability benefits). My husband, who is 43, has been unemployed for a year and a half. He was working at California Closets in the shop previous to that. We have been living on his unemployment check ($1600 per month) and now that has ended. We’ve moved in with my parents and have applied for food stamps. It simply can’t get much worse than this. Oh but yes it can. We have about $10,000 in credit card debt and $2500 in medical bills. (I know, I know…. stupid!!!) We had been keeping up with these payments when he was receiving unemployment but now cannot pay them and are accruing late fees. We can’t even file for bankruptcy because we did that 4 years ago when our business of 10 years (retail bookstore/gift shop) failed. I’m mad at myself for letting things get this bad and I feel helpless and stupid that I’ve made so many poor financial decisions in the past. If you were in my situation, what steps would you take. What should I do?
  - Kim

  The absolute first thing you need to do is to figure out what work you’re capable of doing. If you’re being denied disability benefits, clearly there is an opinion out there that you are capable of some level of work. Seek out employment services that can help you with this, because it can sometimes be difficult to make a good self-assessment in a situation like yours.

  You also need to remember that the debts you have now have no collateral, so not paying them for a while won’t result in repossession of anything. It will result in further damaged credit and a good deal of harassment, however.

  You’ve got a rough road ahead, at least in the short term. Patience will be your best friend here.

  I bought a house last year with my boyfriend of 3 years. 1 month after closing he was laid off from work. Unemployment insurance gave him enough to pay bills/mortgage. He did not want to share any financial information with me, and I knew he had debts. I offered to help out with budgeting and his general financial well being and he was against it.

  We also had a very tough year personally, family-wise. He never budgeted or practiced being frugal before we met, and continued this after we started living together. It is 1 year later and he just got a job that pays very little. I calculated he can pay the mortgage with little left over for bills (his half). Then there is no money for food, paying off debt ect.

  He is continuing to look for a better job. He finally let me in on his finances. He has 7K in CC debt, with ridiculous interest rates. I am having him do a balance transfer on a 0% CC (if he gets approved), or a lower interest CC. Also there is about $600 in other debt (doctors, things that aren’t financed). He had said he never thought about all the fees, and money he was giving away with his spending, and bad CC’s rates. He has 1K in savings and a 401K from a previous job. He has cut his spending, created a budget, understands this is a problem, and we are on the same page now, but much damage has been done. He has no money coming in to pay his debts.

  I work in a creative field and am lucky to have a comfortable income. Last year I got a significant raise and have been saving a lot, I did not make much money previously. Also I am frugal, coupon cutter, and am upset that my boyfriend did not care about his finances. What should I do? We are not married, and the mortgage/bills need to be paid. How long am I suppose to cover him? He thought we would be married by now, but being laid off sort of paused our lives. Not being able to get married is upsetting to him, making him feel like a failure. I feel I am in a tough situation. Our families act like we are married, but we do not combine finances. I also do not want to be the sole provider. I can afford the total mortgage on my own, does that mean we should keep the house? I did not plan for this at all. I have 2 thoughts: #1-I work hard for my income and do not want to carry him. #2- I get upset that all these fees, interest charges, could be money for saving to have a child, so if I don’t help him out, it would effect me in the long run.
  - CM

  How long are you supposed to cover him? The answer to that question is the same as another: how long do you think this relationship is going to last?

  Your last paragraph seems to hint at some very serious trust issues in your relationship, as well as some incompatible values. If you can’t get those things on the same page, your relationship is not going to be one for the long term, and you’re better off moving on now.

  If you are thinking this is going to be a very long-term relationship, then his debts are effectively your debts, because they steer what you’re going to be doing in the future.

  If you’re sticking around out of some kind of obligation to take care of him, you shouldn’t. He’s an adult and can make his own choices in life.

  You need to answer for yourself whether this is a relationship that is going to last. If it is not, move on.

  What proportions are best for floor cleaning w/ vinegar & water? thanks for your advice….using this will be so much better than the expensive Swiffer products & other harsh, harmful & costly products.
  - Donna

  I usually use equal amounts of water and vinegar, and use full-strength vinegar on tough stains. I do this on both hardwood and linoleum surfaces and I haven’t seen a problem yet.

  Considering the huge jugs of vinegar you can get for just a little bit of pocket change, this is a pretty cost-effective way to get the floor clean. You don’t need too much of the liquid as long as you have a good mop to work with.

  Actually, that brings up another good point – the better your mop is, the easier the cleaning is, regardless of what cleaner you’re using. I trust the recommendations in this article over at Real Simple.

  I am 25, recently married (2 months ago), my wife is 26. I currently work in web development making $44,000 per year (about $2600 per month after tax). My wife is a high school english teacher and unfortunately was part of budget cuts this past school year and is now unemployed. She is collecting unemployment now until we can find her a new job (it may not even be this fall given the job market) So she will be collecting unemployment at about $1860 per month.

  We currently have the following debt:
  Mortgage: $276,000 (bought house last year at 5%)
  Car Loan: $7,000 (at 5.9%)
  Car Loan: $3,200 (at 5.2%)
  Student Loans: $11,000 (about $184 per month)
  No other debts. We have about $14,000 in retirement savings, and another $27,000 in high yield savings accounts (at 1.3%). I try to sock away $1,000+ per month into those savings from our monthly income.

  My question is what should I do with the money? I’ve contemplated knocking off the car loans to get them done with, but don’t want to reduce our savings too much to do it. What’s your take on the situation?
  - Erik

  The first thing I would do is make sure you can make ends meet with your current income level, and also with the income level that you’d have if your wife’s unemployment runs out. If you’re not going to be able to make ends meet easily in those situations, I wouldn’t use up the emergency fund too much.

  If you do decide that paying off debts is a good move – and it certainly might be, because it will improve your monthly cash flow and your long term net worth if you don’t have to dip into debt in the future – I would pay off the lowest balance one first, because that will provide the most direct benefit to your monthly cash flow.

  I’d also encourage your wife to take on any work that would bolster her resume, even if it’s unpaid. Things like working at educational-based summer camps, getting involved with America Reads/America Counts, or anything along those lines can be a real boon. The more experience she gets teaching children and the more things she gets on her resume, the more likely it will be she can find a teaching job down the road.

  I am a 20 year old girl living in an apartment in Raleigh NC with my boyfriend. I work part-time as a nanny to pay the bills and he works part-time at a moving company so we have a very modest income and no savings. We have a shared dream of some day, hopefully sooner than later, moving into a moderately sized house on a large area of land where we can grow our own vegetables in a greenhouse and raise a family and perhaps even adopt a few more dogs and some chickens. The problem is is that I have no idea where to start. I’ve been a city girl all of my life and because I am not going to college and I am underemployed, home ownership is still a distant dream. Do you have any tips for me as far as how to become a subsistence farmer with little experience and no money?
  - Melissa

  Trying out subsistence farming with little experience and no money is pretty much begging for absolute failure.

  If you want to learn the ins and outs of small scale farming – and you’re only working part-time – get a part time job for a small-scale farm. Tell them your story and that you’re willing to work hard in order to learn how it all works as something of an apprentice.

  I can tell you from experience that if you want to grow lots of fruits and vegetables or raise animals, nothing trumps experience. The more experience you have, the easier it will be to start things on your own without a long series of outright failures.

  I work at a relatively stable job and my employer offers a life insurance policy of 6X times my annual salary for just $8.23 per 2 weeks. I plan to purchase this policy as the premium is so low for such huge coverage. However, I fear that this policy would lapse if I get laid off. And so, I wish to purchase term insurance from a 3rd party such as Metlife or such Insurance companies.

  So, I am wondering if I should reduce the coverage of my employer-sponsored life insurance policy to 3X times my annual salary and get the other 3X times my annual salary from a 3rd party insurer.

  Can you offer any thoughts or opinion on this matter? It would really help me.
  - Indrajeet

  That plan makes quite a bit of sense. In essence, you’re spreading out the risk.

  Obviously, the plan offered by your workplace is less expensive than virtually any other life insurance you’ll probably find. It comes with a risk, though – if you lose your job, you lose the insurance. Splitting the policies in this way spreads out the risk.

  My only suggestion would be to keep a careful eye on your employment status and get an additional policy if you lose your job.

  I’m starting a four-year PhD course in September. I’ve just finished my undergraduate course (graduating with a First) and in total I’ve read over 550 papers (and that’s just the ones I kept track of in my EndNote library!). At the moment I print out most papers that I read, carry them around, read them, highlight bits and make brief notes on them, and then put them in a big pile. I’ve been wanting for a while to make this (a) easier, (b) more environmentally friendly (although I do recycle all of the paper afterwards) and (c) reduce my hugely high printing costs.

  After asking around on various internet forums it seeems that a tablet computer would be a good bet, and most people seem to suggest the iPad. Leaving aside the issue of whether the iPad is the best device to purchase, the question is: should I buy one?

  I’ve tried to crunch the numbers. Assuming I read around 200 papers a year, and using a rough length of 20 pages per paper it will cost me around £100 a year for paper and printing costs.

  The price of the iPad in the UK (including academic discount) is £429. Working on the price saving above for one year leaves £329, or if I carry it through for all four years of my PhD then that only leaves £29! That’s ignoring the other uses of the iPad – both those related to academia (such as proof-reading coursework) and non-academic.

  If I only count one year’s savings then the price that’s left (£329) is just under one hour’s work a week for a year (based upon my PhD stipend and the hours I’m meant to do) – which seems very reasonable.

  However, this is a substantial financial outlay at the moment, especially as I’m getting married next year (projected to cost around £3000) and then setting up home with my new wife.

  What do you think? It’s not necessarily your place to advise I know, but I was trying to apply some of the principles I’ve learnt from your blog, but still don’t know what to do!
  - Robin

  Before you worry at all about what to buy, make sure that you really understand your need first.

  From what I understand here, you’re struggling with the ongoing cost of printing out research papers for your studies. Based on my own experience, you’re probably annotating them in some fashion. You also need the papers to be very portable.

  A tablet computer does solve most of those concerns. However, don’t just limit yourself to the iPad. There are a lot of other tablet computers out there (like these). A netbook may also be a great solution for what you’re trying to do.

  The real danger I see here – and it’s one that I’m guilty of myself – is seeing a particular gadget or other item and imagining in your head all of the problems that it could solve in your life. The problem with that kind of thinking is that often, you’re not solving real problems, just imagined ones.

  Your best bet is to always go through your life and just look for things that pop up again and again that could be done in a better way. If you think to yourself every night that your bed is uncomfortable, a mattress might be a good buy. On the other hand, watching a mattress ad and thinking to yourself, “That looks comfortable… I’d better buy one,” is not a good personal finance solution.

  For me, at least, I’ve had an ongoing list of features I’d like to see in a tablet computer, a list I’ve kept for years. These are all things I do all the time that would be massively simplified with a tablet. As the apps from the iTunes Store get more and more robust, I’m beginning to believe that the iPad actually is that device.

  In December 2007 I bought a franchise. It was in an area that was a passion for my wife and I while fulling a dream of entrepreneurship. Unfortunately the economy decided to poop on my dreams. Essentially we opened our doors for business in November 1st 2008, and closed them Oct 28th 2009. We filed bankruptcy and our house was lost in foreclosure. That was all settled in February, all except for one small detail. WE have an $80,000 SBA loan held against an investment property that my in-laws own. I could have let that mortgage go and saved our own home in the process but chose to keep the debt and do what I feel morally obligated to do. My in-laws would have had to either pay that debt or lose the rental.

  Fortunately I still have my day job (they allowed me to go part time while starting the business) and it has kept us afloat. We lived with my in-laws for about 6 months until my family’s sanity was just about gone… Now we are currently renting very close to my office at a pretty good price for the area, $925, any lower and the places get much less safe and with a 4 and 2 yr old, that’s not something I will risk for $150-200. My wife has just gotten a job at my work and so the kids are hitting daycare.

  Hear’s the breakdown. Between us we will be making about 75-80K a year (without any bonuses). $1108 a month for SBA, $925 for rent, $330 for my wife’s car and $1200 (OMG) for daycare. I think we went to every daycare possible within 15 miles…

  I sold my car, and got a cheap motorcycle to have something to drive. We don’t have cable or home phones and the only extra we have is internet (got a great promo deal after pestering Comcast for a couple of weeks…). I am building my e-fund, albeit slowly, but this extra $80K SBA loan is killing us. There are no other debts and I just want to be done with it so I can move on, pick up the little, tiny, demolished pieces of my dreams put them in a box of mementos and stick it in the attic. Oh wait I rent and apartment now… Stick it in the storage unit then.

  How can I deal with such a LARGE debt?
  - Aaron

  To put it simply, you deal with it slowly but surely.

  Paying off this debt is all about cash flow, period. The less you spend in a given month, the more you have to contribute to that debt.

  Right now, you have a handful of major expenses eating up your cash flow. $925 a month for rent? You’re significantly delaying the payoff date of your loan by moving out of your in-law’s house. $1,200 a month for child care? Given the other opportunities your wife would have to save money as a stay-at-home mom (for example, babysitting during the day, preparing home-cooked meals, etc.), is that really saving you money?

  What about that $330 a month car payment? Do you need a car that requires $330 a month? Wouldn’t a low-end used car get the job done and let you channel $250-300 more per month into that loan?

  If you’re reacting to these comments with defensiveness, you’re thinking about this the wrong way. Paying off a giant debt means making hard choices, ones that sometimes make us uncomfortable. Yet, the debt is also making you pretty uncomfortable, too. You have to answer some hard questions about what’s best for your entire family.

  Potential entrepreneurs: Aaron is the face of exactly why it’s so important to have all of your ducks in a row before you jump into business ownership. The more debt you take out at the start, the bigger the risk is, and Aaron’s story shows loud and clear how painful the downside can be.

  I recently visited the Verizon store with my husband (a minor stuff hoarder and chronic upgrader) We were replacing the 2nd phone he ruined due to water. (fishing and then walking in the rain). Before we were married, I was fine with dial up internet, one home phone and no TV. Now we have Verizon FIOS bundle with HD, sports and outdoor TV, internet, land line phone and 2 cell phones. Anyway, back at the Verizon store, he wanted a droid because it takes pictures you can send to your email and it is new cool technology. (I suggested he just take our camera with him and he rolled his eyes) With quite a bit of effort, I was able to pull out all the costs from the salesman. It is an extra $10/month just to have the droid, another $30/month to have internet service and it costs to send the photos or text. I went from spending $30/month on all this a few years ago to $250/month with growing costs on all this technology that just makes my life more complicated. I love my husband and want him to be happy and am fine with having these things now. We can afford it but deep down, I have difficulty with my feeling that we are being blindsided and ripped off.
  - Laura

  You’re not being blindsided or ripped off. It sounds like you have two top-of-the-line phones with unlimited data plans and unlimited texting. Those are all going to cost you – and those are all unnecessary services.

  It sounds like your husband has a gadget addiction and, even more worrisome, he doesn’t take care of the gadgets he already has. You’re being blindsided and ripped off, but it’s not by Verizon. It’s by an addiction to gadgets.

  You have a choice to make. You can either just sign off on all of this stuff or you can have a sit-down with your husband and make some hard choices together. It’s up to you.

  Trust me, though: gadget escalation gets more and more and more expensive. There really is no limit to it except for what you impose on yourself.

  Curious if you have ever tried the powdered versions of the homemade laundry soap. I love the homemade soap concept (especially having a 5 month at home, so we need perfume and dye free soaps) but the idea of storing 5 gallons seems like a headache. Seems like I could store a pretty big supply of powdered detergent in a small Tupperware. Any experience on this?
  - Jeff

  You can certainly make powdered soap, but it takes a bit longer to make.

  Just use my homemade laundry detergent recipe. Just use the three solid ingredients:

  1 cup washing soda (I use Arm & Hammer)
  1/2 cup borax (I use 20 Mule Team)
  1 bar soap (I use whatever’s cheap, in this case Pure & Natural)

  Grate that bar of soap with your finest grater until it’s basically powder, then put it in a large quart jar along with the other ingredients. Shake the jar thoroughly – for two or three minutes – until everything’s evenly distributed. Keep a lid on the jar and put it in your laundry room.

  When you’re about to do a load, use two tablespoons of the powdered detergent. Start filling the machine with water, add the detergent, wait a moment, then start adding the clothes. You’ll be good to go!

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  

Frugal Dad

• 

  Weekly Roundup: New Series Announcement

  Posted: July 29th, 2010, 3:00am MDT by Frugal Dad

  Next week I’m kicking off a week-long series here at Frugal Dad called “Beyond the Emergency Fund: Preparing Your Household for All Types of Emergencies.” I’ve had two experiences in the last week that tested our emergency preparedness here in the Frugal household. Last week, our street had a serious water leak that resulted in us losing water overnight. Naturally, none of us had showered yet, and there were dirty clothes and dishes to be washed. It was a bit of an inconvenience, but imagine if we had been without water for days or weeks?

  Last Friday night, we lost our central air conditioning for nearly 72 hours. Daytime temperatures reached 100 degrees with a heat index approaching 110 degrees. Both emergencies served as a wake up call for me to become better prepared to handle household emergencies. And that preparation goes beyond 12 months of expenses in an emergency fund (though that’s a great start!). I’ll be writing more next week about ways to prepare, and over the weekend, I plan to try to get out and take some pictures of things we’ve put into practice around our house.

  One more announcement – I have a very special guest post scheduled for tomorrow (Friday) morning.

  The Frugal Roundup

  14 Famous Man Rooms. I wonder if I will make this list one day? Do think my office will qualify me? (@The Art of Manliness)

  Save Money On Razor Blades. A great way to save some money for both men and women. (@Lazy Man and Money)

  6 Ways To Save Money At The Movies. Head out and catch a movie this weekend but be sure to use these tips. (@The Digerati Life)

  Starting a Kitchen Garden. Here’s an interesting gardening idea. (@Five Cent Nickel)

  Best of the Rest

  • What’s Better For Taxes: A Roth IRA or a 401(k)?
  • Easily Save More Than $500 Before Christmas
  • What to Let Go to Get to Know Wealth
  • Of Cell Phones, Cable TV and High-Speed Internet
  • What the Financial Reform Bill Means to You

  Support Our Sponsors

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  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Ten Big Mistakes #8: Credit Card as Emergency Fund

  Posted: July 28th, 2010, 2:00pm MDT by Trent

  Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

  I treated my credit card as my emergency fund.

  In late 2004, the brakes failed (in a nearly catastrophic fashion) on my 1997 Ford F150. For whatever reason, the brake cylinders chose to collapse as I was attempting to stop at a stoplight. I nearly caused a very large accident, but I managed to get stopped after swerving into another lane and running a red light.

  The repair bill was pretty significant – about $300 more than I currently had in my checking account. I remember standing there flipping through the four or five credit cards I had at the time, trying to figure out which one had enough available credit to cover that bill.

  Personal finance 101 would have kept me out of this situation, but I didn’t have enough sense to have planned a bit for this brake problem. Instead, I believed that having some credit available on a credit card was just as good as an emergency fund.

  That’s just horrible, horrible planning. Here’s why.

  Let’s say, on average, I have a major emergency that costs $1,000 once a year in my life. A car breaks down. A job is lost. A family member is ill and you need a plane ticket. There are countless emergencies that can happen in life, so I’m just using that $1,000 once a year emergency as an example.

  If you sock away $20 a week into a savings account earning 1% interest, you’ll have that $1,000 once a year when you need it. The brakes aren’t a concern, nor is that emergency flight you have to take. Plus, you’ll earn a small amount of interest on that money – $5 to $10.

  If you just spend that $20 a week on something unnecessary – and that’s what you will spend it on, because almost everyone has $20 worth of fat in their weekly budget – when the emergency comes, you’re putting that $1,000 on a credit card. At that point, you’re now making $80 a month payments on that credit card instead of socking it away. Even worse, you’re paying 20% interest or so on that credit card, meaning that over the course of the year, you’ll have to make two or three extra $80 payments just to cover the interest. And while you’re making those $80 payments, you’re not socking away $20 a week for the next emergency, so when that next one hits, you repeat the cycle. You’re giving away $200 a year to the credit card companies and forgoing some savings account interest as well.

  We’re not even talking about the extra risks of relying on credit cards. What happens if the emergency hits and you’ve already got a hefty balance on your cards? What if the bank lowers your credit limit and then suddenly your transmission falls apart?

  None of these risks – and countless others – apply if you simply have a cash emergency fund.0

  My first mistake was not having a cash emergency fund, of course. This put me up for all kinds of risks, ones that came to a head with my own financial meltdown in early 2006 when I could no longer pay my bills.

  The second mistake, tied directly into this mess, was carrying a balance on my credit cards. Credit cards are a great tool, but they’re really only useful if you don’t carry a balance forward from month to month on them. If you start carrying a balance, you’re going to pay dearly for that balance in the form of very, very high interest rates.

  Add the two together and you’re running on pure borrowed time, hoping that you don’t ever have more than one or two emergencies at once. Because when that happens, you’re going to find yourself in a bad place, with damaged credit, banks harassing you for their money, and a big helping of added stress in your life.

  How can you avoid this trap?

  The answers are really found in the mistakes I mentioned above.

  First, don’t carry a credit card balance. I think credit cards are a fine tool to have if you can use them responsibly, and responsible credit card use means never carrying a balance. How do you do that? Never put anything on that card that you don’t have the money in your checking or savings account to cover.

  Second, start building a cash emergency fund. The easiest way to do that is to set up an automatic savings plan. Open a savings account at a particular bank of your choice, then set up an automatic transfer from your checking account to that savings account. $20 a week is a healthy place to start because after a year, you’ll have $1,040 in your account (plus some more thanks to interest). Use that cash when something unexpected gobsmacks you.

  The biggest thing, though, is to recognize that emergencies happen – and they happen more often than most people think. Our minds do a fantastic job of making our crazy disorderly lives seem pleasant and ordered. The biggest crisis in the world seems like nothing more than a speed bump after a little bit of time. Allowing yourself to be comforted by this and thus using that comfort as a reason not to build an emergency fund is one of the biggest personal finance mistakes that people make.

  
  

  
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  The Simple Dollar Weekly Roundup: Memorizing Poetry Edition

  Posted: July 28th, 2010, 8:00am MDT by Trent

  All through my life, I’ve spent time memorizing various poems. The Road Not Taken by Robert Frost. anyone lived in a pretty how town by e. e. cummings. Pioneers! O Pioneers! by Walt Whitman (probably my favorite).

  I like the way the sounds roll off the tongue and paint pictures. I like reciting them (or pieces of them) to my children. I like the flavor of the words.

  How to Adopt an Attitude of Gratitude Lately, I’ve been focused on seeing the good in every situation. There are many situations where it’s easy, but if you look deeply, there is good in every situation. (@ dumb little man)

  Wants that Morph Into Needs This is lifestyle inflation and it’s one of the most dangerous opponents people have to building a sustainable free life. (@ personal finance advice)

  See The Impact When You Donate To Charity I think the big reason that many people struggle with charitable giving is that it feels like a “give and see nothing in return” exchange. I don’t think there’s anything wrong with wanting to see what your money is going for. (@ christianpf)

  I’m So Judgmental. I Want to Conquer This! Any Suggestions? Everyone has their own path. You can’t fairly judge others by the path you’re on. It’s like comparing a track sprinter’s times to that of a cross-country skiier. (@ happiness project)

  It’s So Easy to Talk About Lunch I love this. If you want someone to talk, give them something very easy to talk about. Seth suggests talking about what to have for lunch, because everyone has an opinion. (@ seth godin)

  Ask Unclutterer: Encouraging kids to help out at home My technique is to do it in very small timed batches. Our kitchen clock has a countdown timer, so we’ll designate a very specific task – “Pick up the Lincoln logs!” – with a very specific time frame – “Can we get it done in five minutes!?” – and then set the timer. The immediate focus and the short term really helps our kids (ages four and two) to take care of their stuff. (@ unclutterer)

  
  

  
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  Gifts and Choices

  Posted: July 27th, 2010, 2:00pm MDT by Trent

  Recently, I came across (via jason kottke) a brilliant commencement speech given at Princeton by Jeff Bezos, CEO and founder of Amazon. The main focus of Bezos’ speech was the difference between gifts and choices. Here’s an excerpt:

  What I want to talk to you about today is the difference between gifts and choices. Cleverness is a gift, kindness is a choice. Gifts are easy — they’re given after all. Choices can be hard. You can seduce yourself with your gifts if you’re not careful, and if you do, it’ll probably be to the detriment of your choices.

  He goes on, near the end, to illustrate the idea a bit more directly:

  How will you use your gifts? What choices will you make?
  Will inertia be your guide, or will you follow your passions?
  Will you follow dogma, or will you be original?
  Will you choose a life of ease, or a life of service and adventure?
  Will you wilt under criticism, or will you follow your convictions?
  Will you bluff it out when you’re wrong, or will you apologize?
  Will you guard your heart against rejection, or will you act when you fall in love?
  Will you play it safe, or will you be a little bit swashbuckling?
  When it’s tough, will you give up, or will you be relentless?
  Will you be a cynic, or will you be a builder?
  Will you be clever at the expense of others, or will you be kind?

  When I was in college, I took a course on the theory of programming languages – fairly arcane computer science stuff. For some reason, I just got the material. It just really, really clicked in my mind.

  At the end of the semester on the day of the final, there were two people (myself and one other student) in the class who had cinched an A regardless of our performance on the final, which was obviously a relief. I vaguely knew the other student, so after the final was over, I caught up with him just to somewhat debrief on the class with someone else who really got it.

  What I came to find out is that the other student with an A had put an absurd amount of work into the class. He had studied and studied. He had stayed up late working on every project. He told me, quite sincerely, that he had invested more time in that class alone than he had in all of his other classes combined that semester.

  My ability to get an A in that class was a gift. His ability to get an A in that class was a choice.

  Every single person out there has gifts. Some of us are very gifted with the ability to make friends easily. Other people have an innate understanding of a particular topic. My mother and my grandmother and my uncle all share a gift for sketching, a gift I simply do not have. They could (and still can, in my mother’s case) sit down with a pencil and a sheet of paper and make an amazing sketch of almost anything you can name. My mother virtually never does this, but on the few times I’ve seen her do it, I’ve been blown away at the quality of what she can produce.

  Every single person out there has a life full of choices. You’re choosing what to do with every moment of your life, whether it’s work or practicing the piano or watching The Real Housewives of Duluth, MN.

  Quite often, a series of choices can make up for the lack of a gift possessed by another. The story above about the student in my computer science class is a perfect example of this. I find it’s true in my own life, too.

  I have always had a very difficult time being social with people I don’t know very well. It is only through a conscious choice to continually work on my social skills that I have been able to engage successfully with groups of new people and build quite a few great positive relationships in my community. By no means am I a social master, but for a very introverted guy like myself, the ability to walk into a community event, greet and be greeted by several people, and usually have one long conversation or two before I ever reach my seat is a sign that a series of conscious choices can make up for a missing gift.

  However, the real home runs occur when a person knows their gifts and makes choices to accentuate that gift.

  All you have to do is look at the truth of how the top people in any field have reached that point. Yes, they’re resting on some natural gifts, but those gifts are virtually always cultivated by countless hours of practice and other hard choices. Kobe Bryant didn’t wake up one morning being the best basketball player in the world. He has natural gifts, no doubt, but he constantly makes very difficult choices in terms of his practice regimen, his diet, and other areas of his life. The result? Five rings, a pile of awards, a ticket to the Hall of Fame, and more money than he can count.

  In other words, people pay money to see the results of gifts matched with choices. The real message here is that gifts are certainly a help, but it is choices that really take you places.

  That’s why I’m a firm believer that people should follow their passions. A passion means that you’ll constantly be making those hard choices that build something exceptional. Like that student in my class who stayed up all night working on theory of programming language projects, the results of chasing a passion are usually very strong.

  Combine them with a few gifts and you have something amazing. Something people will pay money for.

  It’s Tuesday afternoon. What choices will you make today to build that amazing future? Will you choose to spend less money? Will you choose to stay up all night getting that project you’re working on just perfect? Will you go home tonight, pull that canvas out of the closet, and put some paint on it?

  The choice is yours.

  
  

  
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  Ten Big Mistakes #7: Stuff Without the Time to Enjoy It

  Posted: July 27th, 2010, 8:00am MDT by Trent

  Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

  I bought many expensive (and inexpensive) items without adequate time to enjoy them.

  One of the most cathartic things I did in the immediate aftermath of the choice to turn my financial life around was to simply go through our apartment in order to collect stuff to sell in order to give a big initial boost to our debt repayment.

  What shocked me wasn’t so much the amount of accumulated stuff, but the amount of stuff that I owned that I had invested virtually no time or energy in. Piles of unplayed video games, some still in shrink wrap. Mountains of nearly-new paperbacks, many with just some sunlight exposure, most of them unread or barely-started. Piles of CDs listened to maybe once or twice. Multiple sets of golf clubs – and piles of golf balls. A large trading card collection and a large vintage baseball card collection, neither of which had been touched in years. A closet full of nearly-new clothes. Pieces of computer hardware uninstalled.

  Simply put, there were tons of things that I had purchased and barely used. Why? I had so many things that I could be using that I didn’t have nearly enough time for them all.

  Obviously, my situation is a bit extreme, but over the last few years, I’ve been repeatedly shocked to find how many of my friends and family members have done similar things on a much smaller scale. Unused exercise equipment. Unused DVDs. Barely-worn clothes jammed in the back of an overstuffed closet. Video game consoles played for about five hours and then stuck into a closet. One friend had a never-used Dyson vacuum cleaner in the closet that had been sitting there for more than a year.

  These experiences reveal several very vital personal finance mistakes.

  First, I used shopping as a substitute for actual entertainment and other experiences. Instead of enjoying the things I already had, I devoted time and energy into the acquisition of more things. A much more worthwhile use of that energy would have simply been directed towards enjoying the already-acquired items.

  Second, those purchased items, left unused, are an incredible waste of an investment. As soon as most of the items were purchased, they became much less valuable, passing from “new” to “used” in terms of resale value. They then sat around for a long time, doing nothing more than taking up space, not even repaying some of their value in terms of the entertainment or joy they could provide. Even if I had just mindlessly bought a new game when I defeated the previous one or bought a new book when I finished the one I was on or bought a new CD when I had listened to the one I previously purchased a few times or bought a new DVD when I watched the last one I bought, I would have been in much better financial shape. This doesn’t even touch on the fact that I would have been even better off wisely using rental strategies and other techniques to still get all the enjoyment I would ever want with even less financial investment.

  Finally, the clutter of unused stuff takes up time, space, and energy. How do you keep 500 DVDs organized? It’s much, much easier to keep ten organized. It takes less time and space. It takes less maintenance to dust them and keep them clean and presentable. The same is true for everything else in your home. The more you have of something, the more time it takes to maintain it – and the more it costs to maintain it, too.

  What can you do to avoid this trap?

  The first step is to get your shopping habits under control. Eliminate the purchases you’re making that don’t directly address needs. If you’re buying something that you’re not going to go home and use immediately, reconsider the purchase. Consider instituting a “one in, one out” policy for your non-essential items. In other words, if you buy something new, you have to swap out or sell something old to make room for it.

  The second step is to seek out less expensive sources for the things that you do actually buy that fulfill needs and direct wants. If you’re a movie fanatic that buys four DVDs a week, subscribe to Netflix instead. If you’re an avid reader, hit the library to get your new release fix. If you’re a gamer, join GameFly. If you like music, use services like Pandora. Join community groups that focus on your particular hobby. Look for online groups that seek out bargains in your area of interest.

  The next step? Thoroughly use items you acquire before you move on to another one. If you pick up a book, read it (or at least give it a fair shot) before getting another one. Even better, get rid of the items that you won’t pick up again. Make your collections consist of the ones that you truly love and intend to revisit with some frequency in the future.

  Doing this for the things you accumulate will make a tremendous difference in your financial state as well as the space, time, and energy you have to devote solely to maintain your stuff.

  
  

  
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  Ten Big Mistakes #6: Children Have Huge Financial Ramifications

  Posted: July 26th, 2010, 2:00pm MDT by Trent

  Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

  I had a child without understanding the financial consequences of it.

  When I was in college, one of my closest friends was a young woman whose parents had conceived her at pretty much the last possible moment from a biological standpoint. While she had a great relationship with her parents, I couldn’t help but see that she would be facing end-of-life issues with them at a much earlier point than I would be. Her parents wouldn’t be able to be involved grandparents. They wouldn’t be around to provide support to her during her early stages of adulthood and she’d be faced with helping them through their final years before she even had her own life completely in order.

  Sarah and I decided, based on our experience with this friend, to have our children when we were young and to be completely finished with children by age thirty five.

  We stuck with this plan, too. Eighteen months after getting married, Sarah was pregnant. Nine months later, we’re holding a baby boy. One that, unfortunately, we were completely unprepared for in a lot of ways.

  First of all, our spending was completely out of control at that point. We spent $500 on a crib for the baby. We purchased almost every item you could imagine on the runup to his arrival, including lots of things that we never used. Huge piles of receiving blankets. Bottle warmers. Countless other frivolous things.

  The real disaster, though, was our inability to forecast the big increase in weekly expenses. Daycare was a sledgehammer, adding $200 a week to our expenses. Add in diapers, some formula for supplementation, the cost of washing clothes and the cost of buying new clothes every few months or so as he outgrew them, and we found ourselves quickly in the hurt locker.

  This situation was made even worse by the fact that we didn’t fully adjust our spending to account for this. Naturally, we ate at home more and we went out less, but even with those savings, we didn’t make up for the financial bomb that having a baby dropped on us.

  Why did this happen? We simply didn’t think ahead. At the time of our decision to have a baby, we simply didn’t have the financial maturity to make it work. Rather than seeing the future arrival of our baby as a motivation for getting our financial house in order, we looked at it as merely another excuse to spend money on stuff we really didn’t need.

  Children are more than that. Children deserve more than that. They come into the world helpless, reliant on your good judgment and ability to ensure that they’re safe and well cared for. If you’re caught up in other things and unwilling to put forth the effort to make your life stable, you’re not only putting your situation at risk, you’re putting that child’s situation at risk as well.

  It was, in the end, my child that pushed me to begin my financial turnaround. I only wish I had made that revelation a year or two earlier.

  What can you do to avoid this trap?

  The first – and most obvious – choice is to think seriously about having children – and ask yourself seriously if now is the right time to have them. The choice to have children is not an easy one and shouldn’t be taken lightly, nor is the decision of when to have children. Spend some time seriously thinking about the costs – in terms of money, energy, time, and other factors – and whether or not the costs truly are outweighed by the benefits in your situation.

  Second, plan ahead for children – and start that planning now if you think there is any chance of having them in a reasonable future timeframe. The sooner you begin to get your own financial house in order, the easier the arrival of children later in your life will be. Get an emergency fund started. Pay down your debts with a particular focus on maximizing your monthly cash flow (meaning pay off the smallest debts first). Invest your energy in building a sustainable career.

  Third, use realistic, low-cost solutions for your child. Buy their clothes from consignment shops and Goodwill stores (that’s where we shop now for our children’s clothes for our four year old, two year old, and baby). Use cloth diapers. Buy a reasonable crib for the baby to sleep in. If at all possible, breastfeed and pump instead of relying on formula.

  
  

  
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  Reader Mailbag: Local Flavor

  Posted: July 26th, 2010, 8:00am MDT by Trent

  What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
  1. Investing for five year goals
  2. Music career crossroads
  3. The price of fame
  4. First steps with no credit
  5. Buying a foreclosed home
  6. Which retirement option is best?
  7. Pet allergies and family
  8. Budgeting and saving
  9. Roll over or pocket?
  10. Planning for a big change

  I love the local flavor of an area that I’ve never been to before, even in the United States. The word choices. The accent. The local culture. The food. The selection at the grocery store. It’s all similar, but just a bit different, like a different spice hidden in a familiar dish.

  My husband and I bought (what we think) is a starter home last year and we think that we’ll want to sell it in 5-7 years since the public school system isn’t great in the area (no kids yet, but trying to think ahead). Anyway, in case we sell the house for around the same price we bought it, I am thinking of ways to make our money work for us in the next 5ish years to help us with a potential larger down payment. I have about $7,000 in a couple of stocks (Johnson & Johnson and Schlumberger) and have about $3,000 in cash that I would like to put in a Vanguard account (and then plan on adding to it monthly). Since most of this is based on speculation and the future, it is tough to plan. All I know is I want to make this $9,000-$10,000 work to its full potential in the next 5-7 years and was wondering what your thoughts were on the matter.
  - Krissy

  Well, you have a choice. You can either take on a considerable amount of risk and put it into stocks with the potential of a good return (and the potential of returning nothing at all or losing some) or you can put it into something conservative and lock down a small return.

  That’s really the investment choice we’re all faced with. There is no “best” answer. It depends on our goals and our needs and our personal risk tolerance.

  The longer your timeframe, the better the stock market option is because it gives you more time to make up for the inevitable bad years (like 2008). Five to seven years is just about the perfect time to go through one bear market and one bull market, and depending on how strong the bull is and how strong the bear is, it could be a net gain or a break even or a net loss. If you can invest for longer – fifteen years or longer – you can ride multiple bears and multiple bulls and, over the history of the stock market, the average bull gains more than the average bear loses. It’s just that you can’t bet on that from individual bears and individual bulls.

  If I were you, I’d probably put the money someplace conservative and focus on squeezing a few more dollars from my standard of living.

  I am twenty four years old, and I just got married back in October 2009. I am by trade what you would call a “Professional Musician” or “Hired Gun” or “Artist”. I’m a drummer, and song writer. This is all I have done since I was a kid. I have had a record deal, had a national release, and some radio success. The difficulty with being a musician, outside the realm of it being a “hobby”, is that work comes then it goes, and success is not solely based in being good or even great, it comes through connections and who-you-know. Not to mention that living in a town like Nashville where there are a lot of other people doing the exact same things, it makes it even more difficult to get in the door, EVEN if you a extremely talented! My wife has been unemployed for almost a year, but is furiously looking for a new job. I have been playing music and working as a server at a restaurant since my wife and I married, but our lack of income is constantly frustrating! The problem is that if I go get a great paying job or go to school to get a better paying job and then an awesome tour comes up, I have to quit. My heart and all my passion surround playing music, but it ain’t paying the bills? We live off a budget, have some emergency savings, and are paying off the remaining 4,000 in debt we have. Do you have any suggestions?
  - Caleb

  You’re asking about a field that I know little about aside from some friends that have dabbled in the alternative music scene. I asked them what they knew and they gave me a few things to pass along to you.

  First, they suggest that you tour, tour, tour. Play as many live shows as you possibly can, even if they’re free. When you’re there, make sure you have t-shirts and copies of your album and bumper stickers to sell to the people that are there. Gigs build a reputation and keep income coming in, so get as many as you possibly can.

  Second, if you’re a drummer, seek out at least a singer and a guitarist you can partner with so that you’re in this together. You’re in Nashville – it shouldn’t be too hard to find others who are trying to find a break. Even if you eventually go your separate ways, you’ll have built a resume. Tour with these people and split the proceeds from the t-shirts and albums and bumper stickers among you.

  Third, make sure you do have some sort of album recorded so that you can sell it at your shows, even if it’s recorded in your basement using a laptop and a couple cheap microphones. Learn how to use GarageBand (that was their suggestion for software). Give away some tracks online. Do some online promotion, too, like with a Facebook fan page for your band.

  They seem to largely think that if your love is music, then you should be focused on that, especially if you’ve seen some degree of success with it already. Just live as lean as possible for now and see where it goes.

  The thing that bothers me most is when I see famous people complaining about how hard their life is when they have everything they could ever want.
  - Kathy

  What you’ve got to keep in mind is that there is no life without problems. There is virtually no one who does not want something different.

  People who have financial wealth have often traded other kinds of riches to acquire it. Perhaps they didn’t build a great relationship with their family. Maybe they broke off their friendships with a lot of people to get where they’re at. Maybe they had to abandon a dream. Maybe they had to work in a field that made them feel empty inside. Perhaps their career path led them to fame that they didn’t really expect which restricts their freedom to just walk down the street when they want to.

  No one on this earth has the perfect life. They may have elements of their life that you wish you had in your life, but I’m willing to bet there are elements of their life that you would absolutely not want in your own. I would imagine they feel the same way about you.

  It could be that the richest person in your neighborhood looks at a poor but close-knit family and thinks to himself that he would trade all of his riches for that. Meanwhile, the close-knit family looks at the rich man’s big house and the shiny car and thinks to themselves that they would give anything for that.

  Everyone has riches in different ways and we all sometimes wish we had more in some areas of our life.

  I’m a 27yr old married guy with a 6yr old daughter and another on the way any day now. I’ve never borrowed any money from anybody in my life – not a loan, not a credit card, not a pay day cash advance, nothing. I love it this way – my friends and family have paid thousands upon thousands of dollars over the years in interest payments, while my wife and I have lived relatively debt-free. The problem is, I’m a credit ghost. I’ve tried to get some low-limit credit cards or loans to start to raise my credit score, but no one will approve someone my age who has never had a spot of credit in their life. Apparently, being a 27yr old with no credit raises all kinds of flags in banking computer systems due to the high statistical probability of my being a faked identity trying to pull some kind of scam. I even had to bring my ID, Social Security Card, and Birth Certificate to the bank just to be added to my wife’s 15yr old pre-existing checking account! I want to try and build my credit up a bit because I’m interested in buying a house around my 30th birthday. Do you have any suggestions about what I can do to get started down that path?
  - Brad

  The first place I would start is at my local credit union. Go there, explain your situation, and see what options they have available for you.

  Local credit unions typically do manual underwriting for the credit packages they offer. That means they usually interview the person they’re considering loaning to and figure out who they actually are rather than just relying on a credit history.

  Large banks rarely (if ever) do this. They typically run a person’s credit report and if they find a 27 year old with nothing, they don’t offer them credit (especially right now, where banks are being pretty careful).

  Head down there. You’ll probably want to take similar identification with you, as well as some proof of employment and a copy of your previous tax return.

  My girlfriend and I were talking about saving our money for about a year or so to be able to put a down payment on a house. Over the weekend a friend of ours said she saw people cleaning out a house in the same development as hers so she went online and found that the house is foreclosed and now bank owned. My question is, is buying a house that’s been foreclosed any different than buying a house that has not been? What makes this appealing is that the price on the website says its only $46k. Is this how much it would cost us to own it or does this amount mean something different? We are in the process of acquiring more information but I would like to know if this is worthwhile to pursue. If this is the price and assuming the house isn’t a complete disaster, would buying this house be a recommended course of action? Another bit of information is that our friend bought her house about a year ago for about $128k, to give you an idea of how much houses are worth in this development.
  - Andrew

  The absolute first thing you need to do is search the public records and find out if there is a lien against this home. Call your county’s recorder for starters to see what you need to do.

  You also need to find out how foreclosure sales work in your state, because the procedure varies from state to state. Google will help to give you an idea of the process. If you actually decide to go for it, you may want to seek a bit of professional assistance if you’ve never done it before.

  You’ll also want to inspect the property carefully. Sometimes, previous tenants in foreclosed homes will do things like strip out all of the wiring and all of the piping and practically gut the house, leaving the buyer with a ton of work. You’ll absolutely want a careful home inspection before you buy.

  You may want to seek out a real estate agent who is familar with foreclosures if this is a new experience for you.

  I am 26 years old and have no debt besides my mortgage. I work for a state agency. There is a retirement plan automatically set up for me through SERS, the School Employees Retirement System. On top of this, I contribute 6% of my income to a Deferred Compensation Plan, a 457(b), which is a retirement plan for state employees in Washington. I have been at my job for a little over a year and have contributed around $3600. I have an additional retirement account from an old employer (Simple IRA) that has around $2200 in it. Is it better for me to let the Simple IRA sit (I am not allowed to contribute to it on my own because it is employer sponsored), or roll it over into a Roth IRA? Also, would it be better for me to have a Roth rather than a 457(b)?
  - Stacy

  My belief is that for almost everyone, a Roth IRA is a better choice than any other retirement vehicle. It’s only topped by retirement plans that offer employee matching (because that’s free money).

  Why do I love Roth IRAs so much? I love them because you don’t have to pay taxes on any gains you earn in that account. Since, at the same time, I believe income tax rates are going to go way up, that’s a very good thing. I’d rather pay the income taxes now when they’re low (since Roth IRAs have after-tax money in them) than pay the income taxes later when they’ll be higher (and possibly much higher).

  If I were you, I’d roll it over to a Roth IRA if you’re allowed to. Also, I would contribute to your 457(b) up to whatever amount the employer will match and, if I wanted to save more, I would put the rest in the Roth IRA.

  My husband and I have two cats that I dearly love and have had about for over 5 years. We rescued one from the pound and another from a friend that couldn’t keep the cat.

  My sister’s and her husband lived in the same city when we got the cats and we knew at the time my brother-in-law was allergic but it wasn’t a big issue since we always went to their place to visit.

  Now 5 years later my young niece is about 4 years old and is also allergic to cats and my sister and her family has moved over 2 hours away.

  The problem is my sister wants to come visit with her family with us. She has asked us to find other homes for the cats but I don’t think that’s easily possible since the cats are not declawed and have a tendancy to shred/ruin furniture… I feel guilty and pulled in both ways. We have promised to not get any more pets in the future but I know our cats could live another 10 years.
  - Karen

  We were in this exact situation several years ago. We took in a stray kitten (it was a six or seven week old that had been abandoned in a park) and the cat left behind by an elderly neighbor who went to a retirement home, only to find out later that my dad was so allergic to the cat dander that he couldn’t visit us any more.

  Our solution was, basically, to patiently search for a good home for both of the cats. It took us multiple years to find homes for them (and in one case, it was pretty much a relative being nice to us), but we did.

  Reasons like this are why I’m often hesitant to take in a pet at all, even though I enjoy their companionship. I know there are pet allergies among my friends and family.

  My suggestion is to just be patient, but also be diligent in your search for a good home for the cats.

  I have a question about contributing to student loan payments vs. saving for retirement. I’m a 22-year old graduate student working towards a masters degree in ocean sciences, and between teaching and labwork, my month stipend is ~$1400 (after taxes). I have $8000 in student loans (down from $13000, yay!), which is my only debt. I also have an emergency fund of $2000, which would cover 2 months of living expenses. Last fall I opened a Vanguard Roth IRA account, which currently is at ~$1350. My monthly expenses are:
  Rent: $600 (for southern CA, this is actually ridiculously cheap)
  Food $100
  Household (toilet paper, shampoo, dish soap, etc): $20
  Phone: $25
  Discretionary: $60
  Tithing: $50
  Irregular expenses (textbooks, conference fees, etc): $50 (leftovers go into travel fund, and when I have ~$600, I can buy a ticket to visit home (Alaska))
  Total: $905

  This leaves about $500 for either paying off student loans or contributing to my Roth IRA. Currently, I’m putting $450/month towards student loans, and $50 towards the IRA. This is mostly because I really want to travel for a few years after finishing school, which can’t be done with student loans hanging over my head. However, I also know that contributing to retirement savings when you’re young will pay off more in the long run, so I’m wondering whether I shouldn’t reduce student loan payments and increase the IRA contributions? (because I’m in school, the loans are in deferment, and most are subsidized, so required payments and interest accumulation aren’t really issues). Such a change would probably mean that I could not reach my goal of paying off the student loans by the time I graduate (ideally in one and half years), and so I would need to work for a year or so before setting off to travel. But I have the travel bug really, really bad, and I don’t want to do this… (The travel itself won’t be very expensive; I’m looking at au-pairing, WWOOF-ing, and participating in working holiday programs.) It also might be difficult to find a decent job if employers knew I was only planning on staying for a year. So I was basically wondering what you think? Also, if you have any suggestions about my monthly budget, that would be cool too.
  - Shiloh

  Your monthly budget looks fine. I also think your goal of traveling for a while after college is fine, too.

  Your student loan load is not bone-crushing in the least. However, it will require $100 or so a month in payments (my back-of-the-envelope calculation) after you graduate, and possibly more if you take out more loans.

  Since student loans typically have a pretty low interest rate, if I were you, I’d probably just make sure that I had enough in cash savings to cover my loan payments during my travel period, then focus on retirement savings. In forty years, you’ll be incredibly glad that you made that move, because the $5,000 you put in now will grow to quite a lot – and if you take it out at retirement time, you won’t owe a drop of income tax on it. It’ll reduce your retirement savings burden later in your life, in other words, by far more than you’re actually saving now.

  My husband and I are in our late 30s. He began a new job in Febrary 2009. A few months later, we found out that our daughter has a serious medical condition requiring many medications and occasional hospitalizations. My husband has a 401(k) and an ESOP account from his old job. The 401(k) has about $70,000 and the ESOP is worth around $25,000 (we also have several other IRAs, totalling around $20,000-$30,000, plus a 401(k) from his current job). In July 2010, his shares from the ESOP will be “cashed out” by his former employer. We had planned to rollover this amount into an IRA.

  However, we have been paying thousands of dollars in medical expenses over the last year. This year we have upped the amount in his FSA, but unfortunately we weren’t able to take advantage of that last year since my daughter’s diagnosis happened during the year. We now have a bill of $7000 to pay. We will be getting a large tax return (we are in the process of upping his withholdings so this won’t happen again), and almost all of that will be going towards the bill. We don’t have much savings since we have had to use it to pay for doctor, hospital and prescriptions copays. I wouldn’t say we are living paycheck to paycheck, but we don’t have a lot to set aside each money after our living and medical expenses. Plus, we have our some larger bills coming up in the second half of the year – car insurance, life insurance and property tax.

  My question is: instead of rolling over the full amount of the ESOP, should we take some as cash and put it into our savings? I know we’ll have to pay income tax on it, plus some type of penalty, but it sounds like a good idea to me for the piece of mind of having something in savings.
  - Natalie

  OK, first, I’ll unravel the acronyms for readers who might not know what Natalie is talking about.

  ESOP refers to Employee Stock Ownership Plan. There are a lot of varieties of this, but they basically boil down to a employer-run plan that shares some amount of stock with the employees of that company.

  FSA refers to Flexible Spending Account. It’s a tax-advantaged account for people to use with certain expenses that have tax implications, like health spending. Health FSAs are the most common kind.

  My biggest question would be whether or not Natalie and family have a firm grip on any future medical expenses for their daughter. I also am not sure if they have any cash savings right now.

  If it’s a bleak scenario (more expenses and no cash savings), then I would use this opportunity to quickly build some, even though the penalties will be harsh. The alternatives – taking out debt for future medical expenses and whatever unknowns life throws at you – are just too harsh.

  Given your comments, I think the “bleak scenario” is probably the right one, given your mention of upcoming bills. I would lean towards paying the taxes (and any penalties, if there are any) and beefing up your savings for the expenses heading your way. You know there are a lot of bills coming – get through this now and focus on retirement savings when the storm is through.

  I currently make about $98,000 at a job I hate. Every time I come into the office the project I work on has some sort of drama and chaos going on which I get pulled into immediately. Without all the details, I know this situation is no good for me. My goal is to leave and work my businesses full time. But, like many I do fear not being able to cover my bills. In addition, even though I am working on living a simple life, I still want to be able to travel with my partner and our kids. We have 4 young children (2 living with us). My partner makes just $18K a year and has not been successful in finding a better job despite her even having more education that me. Clearly, we can’t pay the bills on her salary alone as our $1800 mortgage would take her two months to pay.

  I will rent out my basement again (which is an apartment, which is one of the reaons I purchased the house 3 years ago) for cheap in exchange for the tenant taking care of the maintenance (don’t want to be bothered with minor details) for $695 (usually rents for $895). I also do some freelance writing in which I can bring in about $600-$800 a month. My car lease is up this month, so I am loosing a car payment and insurance of about $600!. I have a mortgage (1800/mo), credit card debt of about $15K and student loan debt. My goal is to quit at the end of April. By that time I will have just under $6K in an emergency fund and about $14K in a 401K.

  Long story short is I can’t stomach my job any longer, my blood pressure has never been high until I began working on this project. The only thing about it is the job is 5 minutes from my house, I can find another job but not this close. I live in the DC area and traffic is a nightmare and spending 3 hours in traffic a day is not a lifestyle I want any longer.

  So, I want to strike out on my own fairly soon. But there are a lot of factors keeping me slave to this job. My business is a traveling lingerie boutique for real size women. When I sell, the sales are really great. I am signed up for a few shows so I my goal is to make a great deal over the next few months. But this is sales and I know some months may be high and some may be low. Even when it’s high I hope I can cover my expenses and have a little left over to enjoy. Further, it’s not possible to keep this job and do all the things that I really want to do and with the conditions I work under, I want to walk out the door right now.

  Yes, I have a plan. I am paying off some things and making home repairs. In addition, we are getting any medical and dental work that we need done now before I quit. I plan to get a high deductible plan with HSA but I won’t be able to add my partner to my plan like I have her on my current insurance. So she will be uninsured. I hope that my sales cover all my expenses when I quit. I also working to ensure that I work on my business not in it. I think with age I am becoming more risk adverse (I am 30), and making the leap for me isn’t difficult. I just really don’t want my family to go without. Any suggestions?
  - Tammy

  I think you need to address what your family would actually “go without” if you made this decision? Would they go without food or anything genuinely important? Or is it just a matter of not being able to go on a big trip this summer or next?

  If it’s the latter, the value of having a mother that’s not completely stressed out all the time more than makes up for it. Plus, you’ll suddenly have tons of time and energy to devote to making your business work for you.

  You have a plan in place. If it’s not going to pull anything truly important – food, school, shelter, clothing – away from your children, go for it. They’ll gain a mother with energy and spark again.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  

Frugal Dad

• 

  Preparing for a Heat Wave

  Posted: July 26th, 2010, 7:25am MDT by Frugal Dad

  Today’s post is a few hours late thanks to a household emergency. Over the weekend our home’s central air conditioner died. It happened late Friday night. By early morning Saturday it was 86 degrees inside our house. Opening windows would have done little good as Saturday’s temperatures were expected to near 100 degrees with high humidity. In fact, it was so bad there was a Heat Advisory issued for the entire weekend.

  It quickly became apparent we would not be able to occupy the house during the heat of the day, and may not be able to occupy it at all – who can sleep in a muggy 90-degree house!

  For all I’ve considered regarding preparedness, I suddenly realized I was ill-prepared to handle a loss of cooling. We have propane and other heat sources to specifically serve as a backup for loss of heat in the winter, but nothing to prepare for loss of cooling in the summer.

  We considered the idea of staying in a hotel for a couple days, but worried about our dog being home alone in the heat. After contacting a number of air conditioning repair company’s emergency lines, I learned they only had skeleton crews on staff, and they had many calls ahead of us. It would likely be Monday before anyone could get to our problem unit. If they did manage to get to us, it would cost an arm and a leg (don’t these things always seem to happen on the weekend!).

  I’ve performed a few AC repairs over the years. There was the time I had to unclog the air conditioner drain line, and I did manage to install a programmable themostat, but this was beyond my level of expertise as all the standard troubleshooting failed to resolve the problem.

  For the cost of a couple nights at a hotel, I bought a window air conditioning unit to place in our master bedroom window – a place where we could all congregate in the heat of the day. They are easy enough to install and take down that I can store it and only install if we have problems with our central air conditioning unit. And since I only needed to cool a single room, there was no need to spend many hundreds of dollars on a much larger window unit.

  Of course, this plan only works in the event it is just your central air conditioning unit that died, not that you’ve lost power to your home. Actually, this is a more likely scenario considering the strain a dangerous heat wave can put on power grids. The next step in ultimate preparation would be to have a generator available powerful enough to run your AC, or to install a whole-house standby generator that would automatically kick on in the event you lose power.

  Backup power sources are expensive (permanent, whole-house backup generators can run a few thousand dollars, while portable units are a little cheaper, but often don’t produce enough wattage to operate everything in your home). Even higher on the price range you can find solar power generators, which might be worth a look considering other types of generators require some type of fuel to operate (gasoline for smaller units and propane for large, standby models). Depending on the emergency, getting additional fuel could be a challenge.

  The Home Depot website offers an interactive tool to give you an idea what size generator you might need depending on the number of appliances and electronics you’d like to run in a power outage.

  If you live a cooler climate, or at least a less humid climate, you can probably get by for a couple days without air conditioning by visiting a library or catching a matinee in the middle of the day and using a window fan to draw in cooler air in the evenings and early morning. Others might get by with misting fans, or by setting up a homemade air conditioner (running a fan over an open cooler filled with ice).

  However, if you live in a hot, humid climate zone, occupying a house with no air conditioning can be downright dangerous. This is particularly true for the very young and the very old, as kids and the elderly are more susceptible to heat exhaustion.

  This experience over the weekend is really part of a larger theme – how to prepare for “alternative” emergencies. By alternative, I mean outside of your everyday financial emergency like a costly hospital stay or expensive car repairs.

  How can we better prepare for other types of emergencies? How can we diversify our emergency “fund” by investing in other forms of emergency preparedness? It’s something I plan to write more about in the next day or two, but for now I’m off to get back in front of that air conditioner!

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Review: Stop Getting Ripped Off

  Posted: July 25th, 2010, 2:00pm MDT by Trent

  Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

  A long while back, I reviewed Bob Sullivan’s excellent book on consumer issues, Gotcha Capitalism. In that book, Bob focused mainly on how companies try to “sneak” surprise fees and costs into their products.

  I took away a lot of good material from that book, but what I also took away is that Bob Sullivan is a really good writer about consumer issues. His MSNBC blog, The Red Tape Chronicles, is similarly well written. Thus, when I saw that he had written a follow-up book, again focused on consumer issues, I had to pick it up.

  Stop Getting Ripped Off focuses on the same types of issues that Gotcha Capitalism did, but instead of focusing on the specific “rip-offs,” Sullivan instead looks at some of the reasons of why these ripoffs are even possible. Why are we even in a position to be taken advantage of to begin with?

  Let’s dig in and see what he has to say.

  Part I | Why Consumers Get Screwed
  I covered a bit of what Sullivan has to say in this section in my earlier article on money and basic math. To put it bluntly, Sullivan’s argument here (and I think he’s spot-on in some ways) is that companies get away with giving customers raw deals because they have a pretty good profile of many of the foibles and flaws of their customers.

  For example, many customers are math-phobic and afraid to or don’t know how to figure out for themselves if it’s really a good deal or not. The companies also deeply understand behavioral economics and psychology and have a pretty good grip on how people react in certain situations – and try to create those situations to get a gut reaction that’s good for their business. Sullivan also looks at the “Stuart Smalley effect” – in other words, people just accept some degree of being ripped off because they don’t think it’s really that big of a deal. Another painful element is that quite often people are willing to believe in things that simply are too good to be true.

  What causes companies to take advantage of such things? Greed. A lack of regulations or laws preventing it.

  What can we do to fight back? Get good at basic math skills. Focus on the numbers above all else and don’t worry about the ads or the sales techniques. In other words, keep our eyes on the ball.

  Part II | Stop Getting Ripped Off – One Deal at a Time
  In this section, Bob covers a wide range of specific areas where the principles he talks about in the first section are at work: checking accounts, credit cards, car buying, home buying, cell phones, cable and satellite television, student loans, insurance, and even workplace compensation.

  For each of those topics, he works through how companies use the tactics from Part I to give you a worse deal. For example, he talks about how no-fee checking accounts stick tons of potential fees on the account, then make it very easy for people to overdraft and make other such mistakes by giving them a debit card and not encouraging people to manage their own register. The bank makes their money back and more on the average customer who, because they’re not strong on math, overdrafts their account or bounces a check. The penalties are strong but not enormous, so many people just shrug it off due to the “Stuart Smalley effect” from the previous chapter.

  Bob applies similar logic to each of the areas mentioned above and offers a few solutions for each. So, for example, he recommends not using your checking account for every purchase and instead focus on trying to use cash as much as possible. You should also try to pay all of your bills in one batch after payday so you clearly know what you have to spend on your bills and what you have left.

  Part III | How to Pitfall-Proof Your Finanaces, Past, Present, and Future
  This is the section of the book that I feel sets Stop Getting Ripped Off apart from Sullivan’s earlier book. Here, he sets the foundation for how to protect yourself from such things over the long term with a five step plan that takes a person from paycheck to paycheck to a secure financial future.

  His first step is to build a small emergency fund and start a bit of retirement savings. In truth, he almost has a zero-th step – you’ve got to cut your spending, period. If you’re spending what you earn, you will never, ever get ahead and you will always be very prone to anything at all going wrong in your life. The first move to make when you do that is to just start socking away cash in a savings account so that when an emergency happens, you can deal with it. Any emergency fund is better than no emergency fund, but if you can start getting a month or two of living expenses built up, you’ll be much more secure.

  His second step is to save for retirement and, with the remaining money, start paying down debt. He suggests just making sure you’re in your 401(k) (or equivalent) plan at work and that you’re getting whatever money your employer offers as a match – and if they don’t offer such a thing, opening your own Roth IRA (I have mine through Vanguard). He also strongly encourages coming up with a debt repayment plan.

  His third step is to keep rolling on your plans: an emergency fund, retirement, and debt repayment. You should shoot to build an emergency fund that will sustain you for six months, with about six weeks of it in cash and the rest in a broad stock market index fund. He also recommends building your retirement savings with strongly conservative investments – don’t put it at risk with stuff like international stocks.

  His fourth step is to start saving for major purchases, like cars and so on, once you’re debt free. You do not want to just continue a debt cycle, especially when you’ve eliminated all of that debt and have a huge monthly cash flow. This is also the perfect time to start investing for yourself with the aim of eventually living off the income from those investments.

  His final step is to not escalate your lifestyle. When you get a raise, don’t start buying stuff – instead, channel that raise into your wealth building. Keep saving for your big purchases.

  I’d say I’m basically in the fourth step. I’m saving for everything I buy in the future and I’m nearly debt-free (just my mortgage at this point).

  Is Stop Getting Ripped Off Worth Reading?
  If you’re earning a good income, but you often feel like you’re just being nickel-and-dimed to death and you’re struggling to get anywhere, Stop Getting Ripped Off will be an absolute home run of a read for you.

  Sullivan’s advice, though, seems to assume a fairly good income to begin with, so if you’re struggling to earn much more than minimum wage, this might not be the book for you.

  The strength of this book is how Sullivan transitions escaping from the nickel-and-diming to a lifetime of financial security. It really is a journey, and Sullivan captures that very well in this book.

  
  

  
• 

  The Simple Dollar Reading Guide: Prison Made of Plastic

  Posted: July 25th, 2010, 8:00am MDT by Trent

  Every Sunday morning for the next few months, I’m going to “riff” on a chapter from my book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams by reflecting on particular pieces of it that I’ve had further reflections on or particularly excite me, including some elements that were removed from the final draft. You can find out more about the book by reading some of the life-changing experiences the book has given readers or reading the Amazon reviews.

  The book opens with a chapter on debt repayment. In my original draft, this chapter was in the middle of the book and the book actually started with the second chapter, What’s Missing?, which focuses on the fact that we all have problems in our lives and that success comes not from laying blame on those problems but from accomplishing what we can in spite of those difficulties.

  Why talk about debt first, then? The real reason is that overwhelming debt is incredibly scary. It’s the most challenging and frightful topic I discuss in the book. My book is largely optimistic and forward-looking – debt, on the other hand, causes people to feel fear and hopelessness. I know – I’ve been there. I open the book with this little anecdote from my own life:

  I began to quickly realize that the pile of bills I just received not only wouldn’t be covered by the current balance of my checking account, but that my next paycheck would not cover them either – and that was if I spent absolutely nothing on food, gasoline, or anything else. I sat there completely stunned for a moment; then I got up and went into my son’s room, closed the door behind me, and sat down in the rocking chair across from his crib. He was so tiny lying there, less than six months old, and sleeping so peacefully there without a worry in the world. As I watched him lie there, gently breathing, emotions poured through me. Guilt. Shame. Embarrassment. Pain. I was failing this wonderful little boy, this child who had already brought incalculable joy into my life. He relied on me for everything, and because of my poor decision-making and my selfishness, I was letting him down.

  That’s an incredibly hard thing to write even in your own journal, let alone in a book that hundreds of thousands of people will read, a book that has copies sitting in most of the bookstores in the United States right now.

  Long time readers will recognize that I’m essentially retelling the story I talked about in an earlier post, The Longest Night (in fact, my first draft largely was a quote of that post).

  When I’ve discussed debt repayment in the past, I’ve usually stated that the first step of the process is to come up with a debt repayment plan and sell off items that you’re not actively using in order to start funding that plan and get the creditors off your immediate back.

  What I really neglect to say in those articles is something I cover intensely in the book: if the people in your life that you’re financially responsible for aren’t also on board with this plan, you’re wasting your time. To put it simply, if you can’t get your partner on board, the absolute first step you need to undertake is fixing your relationship with those people, because such a relationship based on divergent goals and behaviors isn’t working.

  I was extremely lucky to find that Sarah was a more-than-willing partner in getting our financial lives straightened out. I originally wrote a description of how exactly we came to be on the same page that was excised from the book in later drafts, but I’ll share it with you here.

  For us, this meeting of the minds was quite straightforward. We set aside an afternoon and simply went through all of our finances together. We talked about our dreams and our goals. We looked at our full debt situation seriously – nothing hidden or secretive – and we came to some very strong conclusions about what we needed to do with our money in the future. Our only real difference of opinion was how far to take our cost-cutting measures and over the following months we worked through those on a case-by-case basis.

  The key to success wasn’t in that first meeting, though it did lay the groundwork. Our success was built on discussing and revisiting and refining all of this over time. We talked about what didn’t work just as much as we talked about what did work.

  Another key was recognizing that we are both flawed people who make mistakes. Neither one of us is going to be perfect and a mistake isn’t a reason to argue or disrespect each other.

  Much of the rest of the chapter focuses on what I would describe as the “nuts and bolts” of debt reduction: coming up with a debt repayment plan, reducing interest rates, and snowflaking are covered, among other topics. This is the type of basic personal finance stuff that shows up in almost every personal finance book. Why? It’s vital information to those struggling to overcome debt.

  Yet, the idea that this book somehow focuses heavily on debt repayment strategies is basically false. In fact, debt repayment is scarcely mentioned again in the book. It’s merely one tool among many for building the life that you want.

  
  

  
• 

  Getting Things Done: Where To Go Next

  Posted: July 24th, 2010, 2:00pm MDT by Trent

  After reading through my recent series on Getting Things Done, Calvin took action and then had a few questions:

  I picked up the book, read it twice, and set aside a weekend to get started. It really works! I feel like I’m getting so much done now that it’s crazy.

  I guess my question now is what comes next? If I’ve learned anything over the past couple of years it’s that everything in life is a journey and there is no end point. Where did you go after discovering Getting Things Done in terms of your time management?

  I thought long and hard over the last couple of weeks about Calvin’s email. What comes next after you get GTD and have started to incorporate the ideas into your life?

  My first big realization was that Getting Things Done is somewhat akin to getting a set of really good tools. In itself, Getting Things Done doesn’t solve any of the problems in your life, just like a pile of tools won’t create a armoire or fix a bicycle. What it does do, however, is give you the tools to really start that journey. That journey is going to be quite different for everyone because we all have different circumstances, dreams, and goals. A woodworker is going to use a hammer differently than a homemaker will, for example, but it’s a valuable tool for both of them.

  I tried to isolate some of the key ideas and directions I went in after really understanding Getting Things Done for the first time. Here are what I consider to be five of the most important ones, things that everyone can take up for further reading and ideas.

  Simplifying everything
  One of my biggest realizations came about when I began to see how full my calendar was every day and how many things were constantly filling my inbox. The sheer deluge of stuff was often overwhelming, leaving me with only small amounts of time on the periphery of each day for personal growth and other such concerns.

  To put it simply, I had too much to do and too many things going on.

  My solution was to simply pare back on the less important things in my life. This not only meant involvement in fewer activites, but it also meant paring down my possessions as well, because the more possessions you have, the more maintenance and upkeep is required, from dusting to keeping up maintenance schedules.

  What really mattered to me? My family. Reading and learning new things. Building a writing career. Some avenues of community service. Once you get beyond that, everything else is pretty secondary.

  So I started trimming back on those things. I chopped some social events from my schedule. I sold some of the items that I had built up but scarcely had time to use. I stepped back from some community responsibilities. I started buying less stuff and reusing more things. These choices left me more time for the things that mattered most to me.

  Key Reading on Simplification
  For me, the most valuable book I read in terms of thinking about how to simplify my own life was Voluntary Simplicity by Duane Elgin, which I reviewed in detail a few months ago.

  The entire point of the book is that you don’t have to overconsume in areas that are not important in the larger scope of your life. It forced me to think of the impact of each of my choices in terms of time investment, environmental impact, social impact on those directly around me and those not directly around me, political impact, and so on. What I often found is that our actions have many, many costs that often fly directly in the face of what we profess to hold most dear. From my review:

  For me, this was one of the most thought-provoking books I’ve read in the past five years or so. It made me think deeply about a lot of the assumptions I’ve had in my own life and made me question many of my personal choices. It actually helped me move forward in my personal finance progress because I started to question things at a deeper level than I had before. Why am I actually earning this money anyway? What impact does this choice have on others, and how does it echo back to me? Something as simple as buying a gallon of gas has an impact on many levels, an impact that bounces back in many different ways (not just environmentally, but economically and politically and socially). The same goes for buying a disposable diaper and tossing it in the trash when it’s used up.

  That idea has constantly led me to strive for simplicity in almost every aspect of my life, from food cooked at home with fewer ingredients to a personal calendar that’s not quite as overstuffed as before. Every choice you make has costs, often far beyond your initial reaction to the choice.

  Learning how to critically review and revise my life progress and plans
  Initially, I struggled quite a lot with the idea of a “review.” I understood that I needed to look for holes in my system of keeping everything organized. What caused me difficulty was some of the higher levels of reflection. The connection between enormous lifetime goals, which felt very vague, and my activities for the coming week, which felt very tangible and real, was a difficult connection for me to make.

  I soon began to realize that a big part of this challenge was figuring out who exactly I was and what I truly most wanted out of my life as a whole. It’s very easy to claim something like “I want to be a good father” as a life goal, but what exactly does that mean? And, perhaps more importantly, how does something like that begin to reflect in shorter-term goals, all the way down to next actions.

  It is that bridge between the next action and the lifelong goal that is really key to living the life that you want. It is well worth devoting a couple hours per week to working out the specifics of that connection, including specific goals with shorter terms and next actions you can take to move you in that direction.

  It’s not easy – or at least it wasn’t for me. The ability to state a goal, refine a goal, break it down into smaller goals, break those down into smaller actions, and keep up with all of it is a truly key part of an organized life, but it’s not a part that comes naturally to me in any way.

  Key Reading on Self-Reflection and Evaluation
  David Allen’s less-heralded follow-up to GTD is Making It All Work, which focuses almost entirely on the items I talked about above (I reviewed Making It All Work in 2009). In fact, Allen might as well have called the book GTD Philosophy and Techniques for Introspection, because that’s the focus – and it also explains why it’s less-heralded than its predecessor.

  I like to think of the two books as addressing the same problems on different levels. Getting Things Done is like a toolbox. It gives you everything you need to sculpt your life in the way that you want, but there are no real ideas or thought exercises on how exactly to shape that big chunk of clay that is your life. Making It All Work is more like an art instructor or a well-written book on art technique and philosophy that takes you from having a bunch of tools and a big pile of clay to having a sculpted life, from the rough formations you make out of the clay to the finest detail work.

  Once you’ve really mastered the basic GTD tools, I’d argue that Making It All Work is a more useful read because it focuses on what you can really do with those tools.

  Getting my money under control
  Setting and reaching such personal goals is a powerful step towards personal freedom, but if you don’t have financial resources to achieve those goals, they don’t really matter. Thus, hand in hand with the idea that you’re getting your time and your priorities in order is a need to get your money in order.

  How is that important? Take, for example, my lifelong goal of being a writer. You don’t just wake up one morning and decide to become a writer if you have a bevy of personal responsibilities on the table (like children, for example). You’ve got to develop a plan, and one major component of that plan is financial stability.

  Obviously, this element was the genesis of The Simple Dollar. It was my journey in getting my financial house in order that started this site, but even then, the genesis of my change was a realization that I needed a strong financial backbone to be able to achieve the things I really wanted in life. That meant making some hard choices.

  Key Reading on Money Management
  The single most vital book I’ve ever read on personal finance covers these issues almost perfectly. Your Money or Your Life by Joe Dominguez and Vicki Robin is an absolute home run of a book, one of the ten books that changed my life (along with GTD).

  What’s in this book that sets it apart from the rest? Rather than focusing on the mechanics of investing or the principles of saving money, Your Money or Your Life focuses instead on the deep connection between your financial health and your life choices. To put it simply, the more money you spend, the more restricted your personal choices become. A huge mortgage makes it much more difficult to quit your job and do something different. Life routines that result in a constant outflow of money keep you from taking the leap into something you deeply value.

  This general theme – personal finance not as an endpoint but as a means to an end of building the kind of life you want to live – is something that my book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams, focuses on.

  Developing and improving specific skills
  The inevitable result of reading and following GTD and continuing along on the journey presented in that book and the ones above is that you begin to realize that many of the goals you desire for yourself – the elements of the life that you dream of having in the future – rely upon building specific skills along the way.

  One of my lifelong dreams has been to play the piano. My vision of the future has a piano in our home and includes my own ability (and, hopefully, my children as well) to sit down at that piano and play a song.

  That kind of goal isn’t reached without acquiring skills. The beautiful part of GTD is that it streamlines your time and information management to the point that you have room in your life for such skill acquisition and the ability to manage it through to the point where you’ve acquired the skills that you want – or that you need – to build the future that you dream of.

  The first step, of course, is identifying those skills, which is exactly where Making It All Work and thinking about long-term goal setting comes into play.

  Key Reading on Skills
  What comes next after you’ve identified skills that you need to acquire? Further reading on that specific skill. Lessons. Education.

  Online communities are invaluable in this process. Seek out an online community that’s strong in a particular area and simply ask what these experts did to acquire their skill – and what they would suggest to an unskilled newcomer. People are almost always thrilled to help someone who admits that they’re a novice and treats them like an expert.

  Another good one-stop reading on skill acquisition is Scott Young’s article on learning a skill in three months. While the timeframe of many skill acquisition goals will be longer than that, the principles still hold for virtually anything you’ll teach yourself.

  Getting philosophical
  The final element of thought that GTD inspired within me is to simply address the big question of why I’m on this earth to begin with. What is my purpose in life?

  When you start following that path, you quickly get into spirituality and philosophy, areas that address that subject deeply and seriously. This is really a very open-ended path, but I would suggest, more than anything else, reading opposing viewpoints and sticking to things that are fairly classic in that they’ve survived some degree of a test of time. In other words, avoid brand new commentaries and philosophies, at least at first, because you don’t have enough background to really judge them. Stick with the classics, in other words.

  Philosophy and theology do not have to be dry, either. I find that focusing on how the things I read really apply to me and to the world I see around me really brings these elements to life. I also find great value in reading things that contradict what I think or, alternately, two books that present very different viewpoints.

  Where does all of this lead? For me, it just leads to a deeper understanding of why I’m here and where I’m going with my life.

  Key Reading on Philosophy
  The first book I would start with would be Bertrand Russell’s History of Western Philosophy. Read it with an eye of looking at your own life and experiences in the world. Keep track of the specific things that intrigue you, excite you, and make you think away from the book. Follow those areas.

  I wound up following a theological path that, at one time, had me considering seminary or some form of religious study. I’m not sure that’s exactly the place I’m at right now. However, I will say that this line of thinking has convinced me that one of the core values of my life is helping others, and I think that’s a big part of where my motivation for The Simple Dollar comes from. Yes, reading philosophy led me here.

  Where will it lead you?

  
  

  
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  The Simple Dollar Time Machine: July 24, 2010

  Posted: July 24th, 2010, 8:00am MDT by Trent

  Many newer readers of The Simple Dollar haven’t been exposed to the hundreds of great articles in the archives of the site, so this is a weekly series that highlights the five best posts from one year ago this week, two years ago this week, and three years ago this week. I call it … the Time Machine.

  One Year Ago (July 18 – July 24, 2009)
  Ten Unusual Ways to Improve Your Appearance of Confidence That Really Work I often use these tactics in social situations where I don’t really have my bearings. They really, really help me.

  Over-Saving for Retirement? Yes, you can over-save for retirement. It’s an unusual situation, especially considering that many people under-save for retirement.

  To Close or To Not Close a Paid-Off Credit Card? The answer isn’t as immediate and straightforward as you might think it is.

  Resetting the Scale Lifestyle inflation can be an incredibly expensive problem if you let it get out of control. The best solution is simple: reset the scale.

  The Cost of Free There is no such thing as a free lunch. Someone is paying for it somewhere. It might be you (in a way you don’t even see).

  Two Years Ago (July 18 – July 24, 2008)
  Nine Ways the Status Quo Bias Is Costing You Money – And How to Turn That Ship Around We have a strong human tendency to keep things the same. The problem is that tendency often costs us a ton of money.

  Lifestyle Choices as a Hedge Against Inflation If you’re stressed out about inflation’s possibilities, the best thing you can do is become as self-sufficient as possible so that the rise of inflation doesn’t hurt as badly.

  Why I’m Not Panicking – And You Shouldn’t, Either I wrote this early in the ‘08 financial meltdown and I still stick by it. Panic does nothing good.

  Shared Dreams: How My Wife and I Got on the Same Financial Page The key? Constant conversation. Honesty. Not being afraid to criticize each other – and harshly, at times. Understanding that we’re both human.

  Reflections on Abandoning the 9 to 5, Four Months In I really should update this post sometime in the near future. Some of this stuff holds, but two years in, my perspectives have changed.

  Three Years Ago (July 18 – July 24, 2007)
  Dealing With Those Piles Of Old Baseball Cards In Your Closet Unfortunately, there’s about a 90% chance of those cards not being worth the cardboard they’re printed on.

  How To Set Up Multiple Savings Account Funds Within ING This is exactly how I save for different specific goals. I just set up a new account for each one.

  Going Into Debt To Invest Money? This is almost always a terrible idea unless you’re getting debt at such a low interest rate that you can put it away risk free and make a profit.

  Does Tiredness Make You More Susceptible To Unnecessary Spending? Yes. In other words, get a good night’s sleep before you make buying decisions.

  Renting to Get Richer? It’s certainly possible. It depends heavily on the specifics of your local housing market.

  If you’d like to browse through more of the archives, visit the chronology, where all posts are listed in chronological order.

  Ten Ways to Get More out of The Simple DollarUpdated!
  This is kind of a FAQ for new readers and is posted each week along with the Time Machine. Here are ten great ways for new readers to dig deeper into The Simple Dollar.

  1. Subscribe by email or RSS. Visiting The Simple Dollar’s website is great, but for many people, it’s more convenient to receive the articles in another form. It’s easy to join 60,000 other subscribers and get The Simple Dollar’s content by email or in your RSS feeder (if you’re unfamiliar with RSS, check out Google Reader.

  2. Comment. Each article on The Simple Dollar has lively discussion. Just click on the green square in the upper right of each article on the website and join in!

  3. Become a fan of The Simple Dollar on Facebook. I put up questions and other materials about once every week or two on Facebook (so you won’t be flooded with Simple Dollar updates). Join in the conversation with other Simple Dollar fans and occasionally get some interesting freebies, too.

  4. Follow me on Twitter. I post interesting articles, quotes, follow-up material, commentary, and other material on Twitter. Follow me! If you’re unfamiliar with Twitter, it’s essentially an open discussion forum for people to share ideas and thoughts with other like-minded folks – you just choose the people you want to listen to and their ideas and thoughts are all delivered to you on a single page.

  5. Read my story of financial meltdown and recovery. The Simple Dollar isn’t based on what I’ve read in books or learned in school. I’ve made a lifetime of financial mistakes – The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

  6. Download my free 49 page e-book. Everything You Ever Really Needed to Know About Personal Finance On Just One Page is completely free. It summarizes all of the key lessons I’ve learned along the way about personal finance in one tidy package – in fact, all of the main principles can be found right on the cover.

  7. Dig through “31 Days to Fix Your Finances.” 31 Days to Fix Your Finances is an article series that outlines how you can get a grip on your finances over the course of a month.

  8. Send me your questions and suggestions. Send me an email and let me know what you’re thinking, what you’d like to see, and any questions you might have. I try to respond to as many emails as possible and I read them all. I may even use your question in a future article!

  9. Become a “Friend of The Simple Dollar.” If you find the stuff on The Simple Dollar valuable and are willing to spend five minutes or so a month to help me out with small things, please consider signing up to be a “Friend of The Simple Dollar”.

  10. Email a great article you find to a friend. Find an article that you think your friend would love? At the bottom of each article, you’ll find a link that says “Email this” – just click on that, type in your friend’s address, and send it right along to them!

  
  

  
• 

  Summer Meal Series #8: Chicken, Broccoli, and Mozzarella Calzones

  Posted: July 23rd, 2010, 2:00pm MDT by Trent

  This summer, I’m going to be posting a series of fifteen low-cost, tasty, and easy-to-prepare meals that are literally straight from my own kitchen.

  Homemade pizza is a big hit at our house (here’s a picture-filled post about our homemade pizzas). We all love our every-other-week-or-so homemade pizzas where we often experiment with ingredients and enjoy from-scratch crusts.

  The problem with pizza, though, is that it’s not very portable. It doesn’t make the best picnic food (unless, I suppose, you order from Pizza Hut and take it to the park with you, but then you lose control over the ingredients and the cost).

  Our family’s solution is to sometimes make calzones instead of pizzas. For us, a calzone is essentially an inside-out pizza – we just take the ingredients of a pizza we want to make, wrap it in pizza dough, and bake it. It comes out much like a sandwich, which is very portable, indeed.

  This time, we made enormous calzones! (You don’t have to make them this big, of course.)

  

  My intent was to show us eating these at the park, but the weather unfortunately didn’t cooperate at the last minute. We served the calzones with apple slices.

  We ended up making six calzones that were approximately that size (two of them were somewhat smaller, about 60-70% of that size). I was only able to eat roughly half of that calzone for dinner. My wife, who is currently breastfeeding and who hadn’t eaten since a very small lunch, ate about 3/4 of one and gave up. Our children split the smallest one and that was about all they could handle.

  In other words, this batch of calzones I’m about to describe fed two adults and two children for dinner, two adults and two children for lunch, and two adults for lunch again. Ten meals, in other words. Calzones are great meals to make in larger batches because they’re very good when reheated.

  So how did we make them? The first step, of course, is to make the dough.

  If you wish, you can always buy pre-made dough at the store. However, making your own homemade pizza dough is so easy, you shouldn’t waste the money on it – homemade dough tastes better, costs a pittance, and is healthier, too, because you don’t have the oils and extra ingredients and preservatives that large food manufacturers toss into the dough.

  Here’s how I make the dough:

  

  Four ingredients, plus some water.

  4 1/2 cups flour
  1/4 cup extra virgin olive oil
  2 teaspoons yeast
  1 teaspoon salt
  1 3/4 to 2 cups water (depending on air moisture in your area)

  Heat up the water until it feels warm to the touch, then mix in the yeast, stir, and let it sit for fifteen minutes. Meanwhile, mix the flour and salt together in a bowl. Add the liquid to the solid and mix them thoroughly with your hands (or with a mixer) until it’s all consistent. Then put the dough ball in a bowl, cover it, and put it in a warm place for two hours or so to let it rise (or, if you’re doing it in advance, freeze the dough ball or let it rise in the refrigerator for about 24 hours).

  That’s it. Here’s my dough ball.

  

  It hasn’t risen much – it will roughly double in size before I need to use it.

  Next, we mix the stuffing. You really can use pretty much anything you can imagine as a calzone stuffing. Here, we’re using cooked broccoli (about a pound), 3 cups shredded mozzarella (we grated ours, you can see the cheese grater in the picture below on the right), 2 cups shredded chicken, and about 1/2 cup pesto.

  

  We actually have much more shredded chicken than we’ll actually use – about two cups’ extra. If you want to get a good amount, you’ll just want to cook one large breast and shred it. We cooked three medium breasts and shredded it all. Why? The breasts were on sale and shredded chicken breast goes good with tons of different recipes and in salads, too.

  What happens next is complicated. Take those four ingredients, put them in a bowl, and mix them together. Your mixture is done.

  

  I then took our big ball of freshly-risen dough and split it into six pieces, with two of them being a bit smaller than the others (for a variety of calzone sizes).

  

  After flouring down the table, I got to work. I took one of the dough balls and rolled it out on the table until it was pretty thin and wasn’t rolling well any more. The circle was about the diameter of a fork (or a bit more) and between 1/4″ and 1/8″ thick (half a centimeter or so).

  

  It does not have to be anywhere near a perfect circle. Just get it something that roughly approximates a circle and you’re good.

  Next, just take a healthy spoonful of the mixture and put it on one half of the rolled-out dough, leaving a good lip around the edge of it. I also sprinkled a bit more cheese on top.

  

  I put just a bit of water around the entire lip of the calzone, then folded it over to create a pouch with the stuffing inside of it. I then pressed down on the edges of the calzone so that the wet dough would stick together (and spread out a bit), then I rolled up that edge. This keeps the contents from spilling out in the oven.

  

  Like I said, the ingredients above made six of these. Once they were done, I took two baking sheets, put about a teaspoon of olive oil on each one, and spread the oil all over the sheets (to prevent the calzones from sticking). I put the calzones on the sheets…

  

  … made a few diagonal slices on top of each one, brushed the tops with a bit of olive oil, then stuck them in the oven at 450 F (230 C) for 18 minutes, rotating the pans halfway through.

  And you have calzones!

  

  Our total cost for materials for this recipe was $9.30, with roughly a third coming from the chicken alone and most of the rest from the pesto and the cheese. The broccoli cost about $1 and everything else was fractions of a dollar.

  This recipe made ten delicious meals for my family, which averaged out to $0.93 per meal. That’s a great price for a delicious calzone!

  Not only that, this meal is really, really flexible. You can pretty much put in any ingredients that you wish. You can put in all of the traditional pizza ingredients. You can put in nothing but vegetables. You can put in whatever produce is on sale at the grocery store. It almost all works.

  Unsurprisingly, this is another big hit at our house, since it’s essentially an inside-out pizza. Everyone loved it and all leftovers were happily consumed.

  
  

  
• 

  Ten Big Mistakes #5: Worrying About What Others Think

  Posted: July 23rd, 2010, 8:00am MDT by Trent

  Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

  I focused entirely too much on what other people thought of me.

  Throughout my teen years and adult life, I bought many, many things with an eye almost exclusively on what others thought of me. My clothes. My education and career choices. My gadgets. My housing. My automobile. My golf clubs. My meals.

  I believed that somehow I could create a more positive image of me through others by buying things or doing things that they approved of. If I lived in the right home, I thought others might think of me as successful or as a family-oriented person. If I owned the right gadgets, people might see me as tech savvy and affluent. If I spend money in front of people from my home town, they might see me as some sort of great success.

  All of it was a gigantic waste of money.

  The only people that put any stock in such frivolous things are the people that know you only in the most tenuous of fashions because that’s all they know about you. If you’re going to build any sort of relationship with someone, it’s going to be based on who you are, not what kind of stuff you own. If there are people out there who genuinely believe things like, “I won’t be friends with someone who doesn’t have a $3,000 golf club or a $750,000 home,” then their values are so warped and misplaced that you will never be able to please them. Don’t bother.

  That’s not to say it isn’t worthwhile to think about others, but most people make up their mind about you based on other things. Are you kind to others? Do you engage them politely? Do you listen to what they say? Are you clean and not offensive to others? If you want to build a strong social network, those are the things to focus on, and those things don’t require an outlay of money.

  This isn’t a call to ultra-frugality, either. Spend money on what you value, not what other people value. I buy automobiles based on reliability and gas mileage and safety, not how they look in our driveway or whether the neighbor will be impressed. If I want to build an actual relationship with my neighbor, I’ll go over there and say hello, not buy a car to impress. If I don’t want to build a relationship with my neighbor, why would I possibly care at all what he or she thinks of my car? Now, if I really got a lot of very personal value out of a luxury car purchase, I might choose to purchase one, but that’s not where my values lie. Neither side of that decision has anything to do with my neighbor.

  “But what about your reputation?” Most of the things that can be said about you that can really hurt you or build a positive reputation about you are based on the actions you take, not on the stuff you own. You can own all of the nice cars and homes and boats you want, but if you hit your spouse, people won’t like you. You can live in a shack, but if you spend countless hours building a great community softball league (and keep yourself clean and somewhat presentable), people will love you. You can own a BMW and wear a $3,000 suit, but if you’re rude to your neighbors, they’ll help you build a bad reputation. You can drive a used Toyota and wear $2 Goodwill pants, but if you’re willing to lend a hand to help your neighbor re-shingle their roof, they’ll speak positively about you in the community.

  What can you do to avoid this trap?

  To put it simply, don’t waste a single, solitary dime on a purchase meant to impress others. Such purchases don’t pay off because they don’t improve who you are. Focus instead on building you into a great, friendly, happy person – and most of the methods of doing that don’t cost a dime.

  Instead, spend your energies actually building real relationships with people. Instead of spending two hours picking the “perfect” handbag to drive the other women crazy with envy or spending three hours at the golf store trying to pick out the driver that will let you dominate the boys, spend that time helping out a neighbor, connecting deeply with someone important to you, or working on some project that will make your life less stressful or improve your life quality (which will make further interactions much easier and much more positive).

  Stuff doesn’t make a person.

  
  

  
• 

  Ten Big Mistakes #4: Blaming Others for Challenges

  Posted: July 22nd, 2010, 2:00pm MDT by Trent

  Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

  I blamed others for the challenges in my life.

  If you want to find scapegoats in your life, almost everyone can find a lot of them.

  I was born with legal blindness in my right eye, deafness in my left ear, and a nonfunctional thyroid. I spent much of my childhood with various sorts of surgeries, surgical recoveries, and illnesses, leading me to less cultural and social exposure than I might have otherwise had. I spent much of that illness time reading, so I skated through most of secondary school without learning any study habits, which made college rather challenging at times. I chose not to follow my dream career path in order to earn more money.

  All of these things would be extremely easy to change into an excuse for not doing the best that I could do. For example: My childhood doctors exacerbated my health problems. My parents didn’t expose me to any sort of culture. My advisors in high school pointed me down a career path I should not have followed. My teachers didn’t teach me any study skills. My bosses created a work situation that I was unhappy with and ate up my time and energy so that I couldn’t follow my dreams or ideas.

  Guess what? In every single case above, I was the key to solving the problem.

  I spent an awful lot of time in my life blaming others for the fact that my good life wasn’t better than it already was. All that did was give me an easy excuse to not work my tail off to overcome the obstacles in front of me.

  Take my medical conditions, for example. My lack of hearing in my left ear is the result of having a completely destroyed inner ear – there’s literally no bone structure in there. Sometimes, in social situations, I simply cannot hear people sitting on my left. For the longest time, I would dole out blame for that – it’s their fault for not talking louder, it’s my doctor’s fault for not diagnosing my ear problems.

  All those excuses are is a crutch to excuse me from solving the problem myself.

  Today, if I want to participate in a conversation, I make a point to try to sit on the left side of that person. If I can’t hear what’s being said, I don’t blame the other person for speaking softly – I ask them to repeat it. If it’s in a noisy room, I apologize and simply say, “I’m sorry I can’t hear you. My hearing isn’t so good. Could we go over here where it’s quieter? I’m interested in hearing what you’re saying.” Guess what? Almost everyone I’ve ever met will happily accomodate these things.

  Even more important, it’s not their responsibility to know that I can’t hear them. It’s my responsibility to make sure that I can hear them.

  Let’s look at my teachers, for another example. In high school, I rarely had to put forth any effort at all. When I reached college and faced some of the more difficult classes, I was in trouble. I had no real idea how to study.

  At that time, rather than simply saying, “I’ve got to learn how to study,” I would mostly just say things like, “No one ever taught me how to study.” I’d beg for grades and try to make an excuse out of my situation. Sometimes it would work – usually, it did not. I struggled mightily during my second and third years in college, permanently damaging my collegiate GPA. During my final years in college, especially my final one, I actually learned how to study and made dean’s list with a very difficult courseload. Yet, I still wanted to blame others for my poor GPA. It must have been the fault of my teachers.

  Over and over again, my willingness to blame others for the challenges in my life delayed creating solutions to those problems. That blaming enabled me to keep on making the same mistakes as before and keep on repeating the actions that led to the things I was unhappy about to begin with.

  What can you do to avoid this trap?

  Here’s the real truth of the matter. No matter how unfair the situation, you are the solution. Using the cause of the problem as an excuse not to solve the problem doesn’t cut it. In fact, it usually just prolongs the problem and makes it worse.

  Whenever things are not going the way you want in your life, ask yourself what you can do to make the situation better or change the context of the situation so that the problem isn’t as devastating. If you’re overweight, don’t blame the food companies and keep eating unhealthy stuff. Take action to toss out the unhealthy stuff and replace it with vegetables and fruits.

  Whenever you hear yourself blaming someone or something else for a problem, stop. Blaming others for your problems is an incredibly pernicious habit. Yes, there are bad things in life. There are bad things in everyone’s life. The people that succeed are the people that don’t waste their time looking for someone or something to blame, but instead look to themselves for a solution to the problem.

  
  

  
• 

  Reader Mailbag: Lemon Sour

  Posted: July 22nd, 2010, 8:00am MDT by Trent

  What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
  1. Handling house sale proceeds
  2. Helping a declining parent
  3. Chasing a dream
  4. Moving forward with bad policy
  5. Spending choices on children
  6. Cashing out stock options
  7. Who is Trent politically?
  8. Soda
  9. Handling a small windfall
  10. Creepy emails

  Remember my complaint about soda about a month ago? It turns out that there was a labeling error. Apparently some bottles that contained “lemon soda” were mislabeled “lemon sour.” I’ve yet to receive a written response from the company, which may contain vouchers or some similar material. I’ll keep you posted.

  After following your thoughts and advice, I am proud to say that I have eliminated my personal debt. My partner has made great strides in her debt, and now has about $50,000 worth of debt (car loan, consolidation loan, and credit cards).

  We bought our first house to flip last November (’09) and our mortgage balance is $77,000. We received an offer of $220,000, giving us an approximately $80,000 profit after expenses, taxes, etc. I am writing to you to ask for your thoughts on the two options we are considering:

  1. Pay off all of my partner’s debt, leaving us both with no debt whatsoever, and take the $30,000 as a down payment on our next investment property.

  2. Roll the $80,000 into two properties, using $40,000 as a down payments (20 and 20) and the rest for repairs, etc.

  Some other background: our emergency savings level is low (i.e. less than $10,000), I am self employed, she has a reasonably secure job. We have a very substantial sum in untouchable retirement accounts. We both enjoy investing in real estate and both sets of our parents are successful real estate investors.

  It’s a nice problem to have but we really are not sure where to go with this. Thanks for your reply and help.
  - Kate

  I’m not entirely sure I agree wholly with either idea.

  The big question I would have is whether or not you have a cash emergency fund sitting there so that if something bad happens, you’re able to just deal with it. If you don’t, then go for the first option.

  Now, another key question: how high interest is that debt she has? It seems like it would be fairly high interest. If it’s above even a few percent, I would put paying off that debt as a higher priority than flipping properties.

  I like option one much better, with the caveat of an emergency fund.

  I’m my mother’s health care proxy and executor of her estate. I finally was able to nail her feet to the ground and talk about what her wishes were, but also what her estate entails. Right now she is 56 years old, with an ok paying job. I figure she makes about $40,000 a year, give or take, and has health care through her job. My dad is passed, so it is just her. She told me she has about $20,000 in cash, about $5,000 (yeah, that’s five thousand) split between three retirement accounts, and her house. She has a small home improvement loan on the house, I believe it is $10,000. The house is not in good condition. Looking at other real estate in her area, I am guessing that it would sell for $70-$90k. That is it.

  What am I suppose to do about her retirement? While talking she mentioned that her monthly SS, when she reaches age to collect it, would not cover her current monthly bills. Her bills right now are probably the lowest that she will ever see them since once she retires she will have to get on medicare and buy supplemental insurance or pay out of pocket for her meds. I have this feeling in the back of my mind that we (my husband and I) are going to have to take her in, as she will not be able to afford the taxes on the house and will have to sell it, and then she will not have enough money to live on her own once she loses the house. My husband does not want her to move in with us, and while I don’t want it to happen either, I just cannot imagine what else she is going to do. We don’t own a house yet, only rent, and we have a toddler at this point – hoping for more. We are debt free, have our emergency fund, and are actively saving for a house. I am of the frame of mind that we should be looking for one that has an extra room as I see my mom moving in with us within the next few years.

  Do you know of anything that I can do to help my mother not have to move in with us? Taking on an extra job or doing more is beyond her. Do you think it is wise to plan that she is going to be moving in with us? How can I convince my husband of this, if it does indeed come to pass – which I give a much higher possibility to, after talking to her.
  - Susan

  This is the tough spot that parents put their children in if they don’t adequately save for retirement. I see people in my own life following this path – and what’s going to happen in fifteen or twenty years is that they’re going to become burdens on their children whether they want to be or not. Save for retirement, folks, so this doesn’t happen to you.

  Right now, your mother needs to budget starkly regardless of what she winds up doing. She needs to shore up every dime she can for retirement coming down the road, period.

  Most likely, one of two things will happen anyway. Either she’ll keep working until she starts sliding downhill with her health (in which case, you’ll probably have to jump in to care for her) or she’ll retire before that and need a place to live.

  It really, really depends on your mother’s character. Is she going to continually hint that she should take care of you? Or will she have a stiff upper lip and attempt to find her own solutions (low income housing, etc.)? If it’s the former, you’re going to have to make a tough call.

  I’m a 25 year old IT consultant living in Chicago. I’m a computer science graduate, and I have a job where I make great money, live frugally (as much as you can in a high-cost city), save heavily and invest smart (automated, low-cost index funds). I’ve maxed out my Roth IRA for the last 3 years since being in the work force, and have maxed out my Simple IRA contributions last year and this year. I’ve already got about $50k in retirement accounts, and about $25k in more liquid savings. So, financially, I’m doing very well, and I’d like to thank you for getting me off on the right foot.

  However, I’m not very happy in my job. I work for a small company, and have given more and more responsibility since beginning a year and a half ago. I’m now in the position that I thought I always wanted, but I’ve realized that it’s draining, both physically, mentally, and emotionally. I’ve been thinking about moving to a different position in my field, at another company. Something less technical and more people-oriented, as I’ve realized since being in the workforce that my skills really lie in bridging the gap between very technical, nerdy people and the non-technical crowd.

  But, before I change jobs, I really want to travel. I’m a motorcycle and outdoor enthusiast, and want to travel the world on my bike. My current plan is to slim down my possessions (which I’ve already started doing), pack the items I want to keep into a deliverable storage box, pack the motorcycle up and hit the road for 6 months to a year. I don’t want to have a specific plan or route in place, but rather places and people that i want to see instead (Canada, west coast of the US, Mexico, and down to Panama). I have enough money saved that I can live on the road for a year and a half, which wouldn’t include temporary jobs I could pick up along the way or volunteer opportunities that would pay for housing and food like WWOOF [www.wwoof.org).]

  I’ve started preparing myself for this trip by taking motorcycle mechanic courses, stripping my bike down to the frame and putting it back together, taking Spanish courses, and reading anything and everything that I can about living on the road. I’ve also been taking my motorcycle for extended weekend camping trips and getting my gear & supplies figured out before I leave for good.

  My question for you and your readers is this — am I crazy for doing this? My close friends and family are concerned about my safety and the impact this could have on my career, whereas I think that it will give me enough experiences to be a much better person and employee in the future.
  - Stephen

  You are absolutely not crazy for doing this. If this is a dream you have and you have the financial ability to do this for a while without any other life responsibilities, go for it.

  It sounds like you know what you need to do to prepare so I’ll trust your preparations for the trip.

  As for whether you’ll regret it later, my guess is that you won’t. This is the type of thing that will cause you to grow as a person. It will lead you down a completely different path in life.

  What do you think you’ll regret more in twenty years: not doing this motorcycle journey or not working at an IT job that you hate? If you have the financial means right now to choose either path, the choice is probably pretty clear.

  I’m 28, my husband is 33 and we’re expecting our first child. I’m trying to figure out how to invest our money, so would like your input on this.

  No CC or student debt, car paid off in full, mortgage of $189K that is being rented out (almost breaking even, we only have to pay $150 each month and that includes property manager for the out of state property). Renting for $800 from my parents. I make $39K and my husband makes $40K. We’ve got $33K in savings, contribute fully to an IRA for each of us, are going to start contributing 6% into my husband’s 401K at his new job (his matches 3% if they put in 6% and my company doesn’t have 401K) and I have a term life insurance policy. A couple of years ago his parents got us into a Northwestern Mutual Adjust CompLife Policy for him that we now pay $500/month into (we’ve been doing this for almost 2 years, so have pumped almost $12K into this. If we cashed it out we’d only get $4K).

  I now understand the AdjustCompLife Policy a little more than I did when we signed up, and I’m under the impression that this isn’t a good idea for people our age. My dad and his stockbroker agree that we might want to change this, especially since the guaranteed APY is only 2%. The estimated APY is like 4.5% (obviously the life insurance guy told us it’s because of historically low rates, and that the rates should go up). My dad and his stockbroker want us to get my husband a term life policy like me and to invest the rest of the money into a mutual fund instead, especially since $600 is a hefty amount to have tied up in an “investment retirement” type of account that is in addition to our IRA’s and 401K. I’m leaning toward this (I like that it forces us to save, but it isn’t liquid so if we need it we’re out of luck. We can “borrow” from our account at 5.8% interest rate or take the cash settlement out), possibly leaving what we have invested so that it can compound but stop payments and take that $500 and invest elsewhere. What do you think? And if you would invest elsewhere, where? mutual funds?

  Also, what do we do with the $33K in savings? It’s in a savings account – really really small APR – but it is our emergency fund. Is there a better way to keep it liquid but in a higher investment?
  - Kris

  I would get out of that policy. You shouldn’t be putting $500 a month into a policy that’s only returning 2%. Replace it with a term policy (because you’re going to be parents), take what you get from cashing the policy in, and invest it.

  Where should you invest it? In that mortgage, if nothing else. That’s going to be earning you a lot more than 2%.

  I have more to say on where you could invest it, but Kris had a second question that focused more generally on parenting issues.

  As an addendum, the biggest thing we are saving for is private school tuition for our unborn child. We’re approximating $20K per year for tuition alone, not including if we have another one. We’d stop at two kids, which would be $40K per year. Private school is not an option for us – we need to figure out how to save for that. We managed to save $20K last year, which would be tuition for one, but two? Yikes.

  What other advice do you have for impending parenthood?
  - Kris

  Something else to consider: why not just keep the money from the insurance as cash in a savings account and then sock it away in your child’s 529 when he/she is born, as a great way to start the child’s college savings? That way, you’d have a heads-up on the private school expenses right away, if that’s the route you’re choosing.

  I’m not sure what you mean by saying that private school is not an option for you – I’m guessing you meant that public is not an option. I would suggest that you research that very carefully before you make a $20,000 a year decision. Depending on the region of the country where you live, the gap between educational results in public and private schools isn’t very large at all (virtually nil in some areas). Public school quality varies incredibly from state to state and municipality to municipality in the United States. There are many public schools that are far better than private schools (particularly some magnet and charter schools). Of course, you may be making that choice for religious or cultural reasons, which is a different story entirely.

  The best thing you can do for your child is encourage them to have a strong work ethic and give them enough of a mix of independence and guidance so that they have a sense that they can do anything for themselves. They’ll make something of themselves if they have that.

  My fiance has some stock options with his company that we will likely be cashing out soon, in two installments. The first, which we’ll have in a couple of months, will be about $250k (about $150k in pocket after the cost of the stocks and taxes). The second installment is a bit of a mystery at the moment, and could range from $162k to $480k (and we won’t really know where on that spectrum it will be for probably a year, maybe longer). I have $100k in student loans, as well as a $20k car loan, and about $10k in credit card debt. He has about $6k in credit cards, $37k on his two cars, and a $170k mortgage. Altogether we’ve got about $343k in debt (YIKES!). Our household income is around $200k, and our savings is virtually nonexistent ($16k in his 401k but that’s about it). We’re youngish (late twenties, early thirties).

  My question is, keeping in mind that we’re not sure what the total amount will end up being, what’s the smartest thing to do with that money? I think we should put it all towards debts, and invest whatever is left over from the second payment, if any, as part of our retirement fund/nest egg. Being debt free would put about $4500 extra in our pockets each month, most of which would go straight into savings. My fiance thinks we should pay off just the credit card debt and one or two of the cars, and then invest everything else, with the intention of paying off our debt in 10 years with the interest we accrue on the investments.
  - Stacy

  I agree with your plan. If you don’t have any burning goals in the near-term future, shoot for complete debt freedom.

  The reason is simple: cash flow. With no debt, you don’t have the payments hanging around your neck. If one of you lost your job, you wouldn’t have to make bone-crushing choices. If one of you chose a different career path, it wouldn’t be devastating to your life. If you had a child and one of you decided to be a stay at home parent, you wouldn’t be gripped by debt.

  Investing that money (probably in stocks) wouldn’t help your monthly cash flow and would put that balance at risk in whatever investment you chose. If you chose a very low risk one (like cash or bonds), it’d earn a much lower rate than it would if you paid off debts.

  Get rid of the debt. Enjoy the freedom.

  I know you don’t like to talk about politics, but I can’t figure out for the life of me where you stand politically.
  - Carmen

  I don’t care much for national politics. Rather than solving problems, both sides are mostly focused on grabbing pork for their constituencies and blaming everyone else for everything in a nonstop rush to re-election. You can’t even try to do something different because the tide is completely against you. Raise an issue no one wants to talk about (because it might scare some voters) and you get ignored with the idea never getting out of committee. Points are scored and ratings are grabbed not by making good points, but in painting the “other guy” as some sort of demon. Until there is serious electoral reform and very strong term limits, this will never change, and good luck to the politician who stands up for term limits in Congress.

  I vastly prefer local politics, where people actually sit down and discuss things. Real problems are solved. Roads are built. Schools are built. Fire and police protection is organized and provided.

  I care about solving people’s problems. I care about respecting other viewpoints than my own. I care about spending serious time thinking about the best way to solve a given problem. I don’t care for having to be in lockstep with someone’s philosophy. I don’t care for insulting people you don’t agree with when they’re merely trying to solve problems in a different way than you are.

  Those things only happen on a local – and sometimes a state – stage these days. That’s where my heart lies. Sometimes I like solutions that would brand me a “conservative.” Sometimes I like solutions that would brand me a “liberal.” To be honest, I could care less about either one of those labels as long as people are sitting down together and honestly trying to solve people’s problems and are willing to listen to one another.

  What are your thoughts on Soda? I know that in addition to personal finance you are also a fan of eating well, and healthy. I was wondering if you own or have considered a Sodastream type device to make your own carbonated beverages? The cost justification seems like it could work out over a period of time. I am wondering if it is worth the initial investment or if I should forgo this type of device altogether. Your insight is greatly appreciated.
  - Del

  I enjoy an occasional soda – and sometimes use it as an ingredient in a mixed drink. I don’t drink it daily or even weekly, however.

  I think if you drink a significant amount of soda, you might be able to save money with a SodaStream type of machine. The best way to do that is with a simple cost analysis – what would the annual cost of each option be based on your soda habits? Will you continue that habit in the future?

  There is potential there to save money. There’s also potential in saving money by simply drinking less soda and keeping it in the “treat” area rather than the “major expense” area.

  My husband and I bought our first house back in 2009 and recently received our $8,000 check, which has been sitting in savings while we debate what the wisest way is to spend it. We’re both fairly conservative with our money so our first instinct is to use it to either pay off his student loans (~$16K at 8%) or pay off my car loan ($12K at 5%). We’re leaning towards paying my car loan because it wouldn’t take as long to pay it off entirely and, despite having a lower interest rate, it’s the higher monthly payment (I believe this would be the snowball method). However the other consideration is we really only have a couple thousand in savings, which is less than the emergency 6 month supply everyone advises. Is it better to pay off debt then build up savings, or should we keep it in savings and just pay our loans as normal? Is there a wiser course of action we haven’t considered? We both work very good jobs and otherwise have a modest amount more income than needed to cover our needs, so we’re hoping to knock down our debt quickly and build savings before working towards more fun goals of improving the new house.
  - Amanda

  I usually encourage people to have about two months’ worth of living expenses in savings for every dependent in their household. I’m assuming you don’t have kids, so I would keep four months’ worth of living expenses (your family’s take home minus whatever you save each month) in a savings account.

  Compared to the importance of having that, your interest rates are fairly low. I would put the priority on the emergency fund. I know that it can be tempting to put it towards debt rather than having it sit there, but it’s that very moment when you use it for something else that you find you really need it.

  As for which debt to pay off first, you’re really fine going either way. There are good reasons for paying off each of them first, so go with the one that feels right to you.

  You’ve said that you’ve received some really creepy emails in the past. What’s the creepiest thing ever sent to you by a reader?
  - Carl

  Photoshopped pictures of my children and my wife take the cake.

  I have also received a very sincere invitation for an affair from a woman that I believe lived pretty close to where I do. I didn’t follow up, so I don’t know specifically.

  I receive all sorts of crazy on a daily basis, though. Those are the ones that stand out in my mind.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  

Frugal Dad

• 

  Weekly Roundup: Support Our Sponsors Edition

  Posted: July 22nd, 2010, 3:00am MDT by Frugal Dad

  I’ll be including a new feature in the weekly roundups called “Support Our Sponsors.” Just a short blurb about our current banner advertisers, whose financial support helps pay my expenses here at Frugal Dad and keep things running.

  Every now and then I get an email from a reader asking how they can support Frugal Dad. I don’t currently sell any material (working on creating a couple products – more on that soon), and I don’t lock down content to paying subscribers, so the best way you can help is by supporting those who support me.

  The Frugal Roundup

  Cooking Around the Campfire: 9 Easy and Delicious Foil Packet Recipes. We don’t get a chance to build many campfires, but we’ll definitely give these a try on the grill. (@The Art of Manliness)

  Effects of the Recession on America’s Personal Finances: How Long Will They Last? History tells me that most positive effects of the recession (Americans’ increased savings rate, lower credit card balances, etc.) will be long forgotten in a matter of a few short years. (@My Dollar Plan)

  How to Recover From a Lost Wallet. I really hope that you don’t lose you wallet, but following these tips can help ensure that you recover from it fast. (@Bargaineering)

  My Teenage Son, His Cell Phone, and the Bill For $1,055.20. My kids remind me daily that nearly all their friends have a cell phone, but they don’t. This article reinforces my desire to keep it that way for a little while longer. (@Len Penzo)

  Best of the Rest

  • 11 Smart Ways to Help Get Out of Debt
  • 44 Priceless Moments Money Can’t Buy
  • The Authentic Self: Becoming the Real You
  • 30 Ways to Save Money on a Cruise
  • Wealth and Intelligence
  • Developing Multiple Streams of Income
  • How Much House Can You Afford?
  • Practice Contentment to Save Cash

  Support Our Sponsors

  The Daily Middle. The Daily Middle is a group dedicated to helping those in the middle class cope with the coming financial crisis. And when they say “cope with,” they mean not just surviving the storm, but hopefully even prospering during it.

  Monitor Bank Rates. MonitorBankRates.com offers a free rate search and compare service offering the latest best rates on products ranging from certificate of deposits, savings accounts, checking accounts, credit cards, mortgages and insurance.

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Ten Big Mistakes #3: Lifestyle Funded by Credit Cards

  Posted: July 21st, 2010, 2:00pm MDT by Trent

  Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

  I spent more than I earned and made up for the difference with credit cards.

  It started in college. The bookstore offered a discount on textbooks if you signed up for a card. I signed up. Later, I used that card to buy video games, starting with The Ocarina of Time.

  When I graduated from college, I had a small amount of credit card debt – nothing unmanageable.

  Next came our honeymoon, a year later. I financed most of our honeymoon to London, Edinburgh, and Inverness on a credit card, nearly reaching the credit limit on that card.

  When we returned, we furnished our new apartment with a new card. I bought some golf clubs and a bunch of electronics. I began to settle into a routine of buying books every week.

  I remember buying a $500 crib for my son on credit in late 2005, going home, and attempting to pay bills. There was less than $500 in my checking account then and I really didn’t think anything of it until later on. I just kept rolling on.

  The end result? By April 2006, I had accumulated around $20,000 in credit card debt. The monthly payments on that debt were actually higher than our rent. When you add car payments and student loan payments on top of that (as well as all the regular bills), we simply did not have enough money to continue to make ends meet.

  The tricky part about this mistake is that it was actually just a series of small mistakes that I didn’t bother to fix. Every time I used credit to pay for something I couldn’t afford, I could have just said no. Every time I went through with buying something unnecessary, I could have been more frugal in other areas of my life and just paid for that indiscretion.

  I didn’t do either one. Instead, I kept buying things that I couldn’t really afford. As the debt built up, I found that I could actually afford less and less because of the growing monthly bills, but it didn’t keep me from racking up more debt.

  Why did I buy? There was a mix of things going on. Poor impulse control. Career-related anxieties. Lots of stress. All of these things were solvable on their own and buying things I couldn’t afford was merely a short-term salve for them. It was easy to forget that pain if I could go home and read a new book or play a new game for a while.

  What can you do to avoid this trap?

  The solution is simple: never, ever put a balance on a credit card that you can’t already afford to pay at the end of the month. The moment you do that is the moment you’re financing a lifestyle that’s beyond your means.

  If you’re already in a situation where you’ve built up a large deal of consumer debt, start getting rid of it now. Yes, this means you’ll have to live quite a bit below your means for a while. The first place to start is by selling off all of the stuff in your closets and on your shelves that you never look at or use. If you have a CD or a DVD or a video game or another item that you’ve not looked at in more than a year, sell it. Use that money to hammer the debt. When you’ve done that, focus on minimizing your monthly spending – here are 100 such tactics – and roll the money you’re saving into a debt repayment plan.

  Finally, deal with the other problems of your life head-on. Start wiping away the stress and the concerns. Focus on fixing broken relationships and moving on from ones that can’t be repaired. Deal directly with the things that are bothering you. Seek professional help if you cannot. Eliminate the stress and clear your mind to make better decisions with the resources you have.

  Just remember that you can do this – and don’t beat yourself up over every mistake. Success isn’t perfect and it doesn’t come in an afternoon.

  
  

  
• 

  The Simple Dollar Weekly Roundup: Rainy Days Edition

  Posted: July 21st, 2010, 8:00am MDT by Trent

  It’s raining outside. My children want to go to the park.

  That means it’s time to come up with an indoor solution. That means, of course, that it’s time for an elaborate blanket-and-chairs fort in the living room.

  Live Within My Means? How? It’s not too hard to live within your means if you just follow one rule: spend less than you earn. The hard decisions of what to cut are up to you. (@ studenomics)

  With perspective, it’s normal to feel an emotional attachment to your possessions For me, perspective was the real key to this. I’ve reached a point where, if I have too much stuff, I recognize that I don’t have the time to adequately spend with any of it. That’s a problem – it takes up money and space and gives me no positive value in return. I focus on keeping my stuff down to the items I have time for and actually bring positive value into my life. (@ unclutterer)

  Future Proofing Your Passion The message here is that the way to keep your passion alive is to keep your life simple so your passion isn’t strangled by the life clutter. Good message. (@ 43 folders)

  Cheap Wedding Ideas On A Small Budget My wife’s family has something of a tradition of having all of the closer family members (siblings, parents, and often aunts and uncles) pitching in to help with catering, decorating, and so on so that the wedding can be done at a low cost. I think this is a brilliant idea. (@ the digerati life)

  Worth More Than Money: Taking A Detour on the Road to Riches Everyone’s path to where they want to be is different. (@ get rich slowly)

  Are Your Financial Habits Just Bad? I think this article hints at the real truth: bad financial habits often arise from a life that’s got other concerns – too many activities balanced with exhaustion, for example. (@ wise bread)

  What To Do With a Pile of Change? I liked that the answers here didn’t just immediately revolve around the typical responses of what to do with a small windfall. (@ frugal dad)

  The Clean-Slate Guide to Simplicity I think that sometimes a clean slate is the best solution to fixing the problems in your life. (@ zen habits)

  
  

  
• 

  Some Thoughts on Inexpensive Vacations

  Posted: July 20th, 2010, 2:00pm MDT by Trent

  This past weekend, my family and I travelled to Chicago to visit one of my first cousins and her two children. We stayed at their house and enjoyed a few activities in the Chicagoland area.

  I had originally planned on doing a Chicago-themed follow up to last year’s article, Frugal Vacation Notes: Great Free Things to Do in the Dallas/Fort Worth Area. However, as the long weekend rolled on, I realized that several other things popped into mind that were worth noting rather than just pointing out free or inexpensive things to do in the city.

  Instead, here are six useful things I learned about an inexpensive and still very enjoyable vacation over the last several days.

  It’s all about the people.
  Most of the enjoyment you experience on a vacation will be generated by other people, regardless of whether you’re traveling in a large group or by yourself. It is those human interactions, whether with people you know and love exploring a new environment or with people you’ve newly met, that add the spice and enjoyment to almost anything you do while on vacation.

  It is out of recognition of this that we often schedule our vacations so that we can visit friends and family that are spread across the United States and elsewhere. Yes, it’s enjoyable to see and experience things on our own, but the opportunity to see and experience those things with people you love and care about – as well as the people you just happen to meet during the trip – adds something incomparable to the trip.

  Try scheduling vacations where you travel to visit others, even staying in their home. Similarly, offer your home to people you know who are traveling to your area. Doing this not only saves money on lodging, but adds some great additional flavor to your vacation.

  Don’t overload your days.
  It’s easy, when visiting an area, to come up with an enormous list of things to do and schedule each day tightly with tons of activities. Avoid that temptation at all costs.

  Instead, try to underschedule days, giving activities plenty of time and room. This allows you to spend extra time at a museum if you wish, or enjoy extra innings at a particularly exciting baseball game without throwing your scheduling way off pace. This also saves you money because you’re not investing in the cost of extra activities and travel to get to them.

  You can have a list of “floating” activities that you can get to if you happen to have time on one of the days. We usually schedule one or, at most, two events per day, giving them each plenty of overrun time. If it turns out that an event ends quickly or isn’t appealing, we have a few ideas already floating around to fill in the rest of the day.

  Keep the “peak-end rule” in mind.
  Whenever a person thinks about a significant event in their life, they usually first remember the “peak” event that occurred and generally reflect on the event based on how it ended. For example, my immediate memories of the trip to Chicago center on the day I took my son to his first major league baseball game (and the harrowing trip away from the ballpark) as well as the wonderful steak dinner at my cousin’s home the final night.

  What’s amazing is that this same “peak-end rule” works with almost every vacation I’ve ever taken. Sure, I can remember more things about each vacation if I stop to think, but my first reaction to each vacation usually involves a single peak experience and a sense of how it ended. I could make a long list of these, actually.

  Keep those principles in mind when you plan your vacation. Don’t try to fill every day with the best possible activities – you won’t savor or remember them. Instead, make sure you have a “peak” experience – the biggest and best thing you want to do – and a good “end” experience, meaning you close out the vacation with something very pleasant and memorable.

  Most of your best memories will come from unplanned things.
  My strongest single memory from almost every vacation I’ve ever had was from something completely unplanned – sticking my feet in some frigid water with my sister-in-law in Victoria BC, walking with Sarah along a desert path to look for petroglyphs in Arizona, climbing a tall hill overlooking the city in Edinburgh, and, this last time, getting lost on foot in Chicago and meeting some interesting people while doing it.

  This is yet another reason not to overplan your vacations. Allow some time to simply wander in interesting areas to see what you find. Don’t use your GPS to find a specific location and just drive there – use it to just browse what’s nearby.

  What you find is often far more interesting than the hyper-planned stuff.

  Make one meal a day special.
  In the past, I’ve vacationed with people who desire to eat exquisite meals three times a day. What I found was that at the end of the vacation, I had just gained a bunch of weight and I didn’t remember most of the meals we’ve eaten.

  If you love a great meal on your vacation, that’s wonderful. Just don’t overstuff your days with them. Have one great meal a day, then eat healthy minimalist meals at other times during the day when you’re hungry. This will not only help you to feel better when you’re on vacation, but will allow you to more deeply enjoy the great meals you do have instead of merely having them be the ordinary thing.

  On our vacation, we simply ate many meals at my cousin’s home, aiding her in preparation and some ingredient buying.

  Take a backpack wherever you go.
  Water bottles. Granola bars. Raisins. Sunscreen. We never left our cousin’s home without a backpack containing these items. Often, the pack included sandwiches and a GPS unit as well.

  Why have these items? The biggest reason is that they simply save money, keeping you from hitting a vending machine or something similar to sate your thirst or hunger while out and about. It’s also convenient, as you can just sit on a bench and pull a sandwich and a bottle of water out of your pack at lunch time instead of having to locate a restaurant or some other service to provide you expensive items.

  This left us more time for exploring interesting things and more money was left over after the trip was finished.

  
  

  
• 

  Ten Big Mistakes #2: Career Choices Based Solely on Earnings

  Posted: July 20th, 2010, 8:00am MDT by Trent

  Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

  I chose a career path for the money instead of one that matched my passions and skills.

  During my high school years, I felt fairly certain what I wanted to do with my life. I wanted to be writer, preferably a science fiction writer. I was absolutely enamored with the novels of Kim Stanley Robinson, Robert Heinlein, Philip K. Dick, Samuel Delany, and countless others who made a life out of meshing scientific progress with imagination. I dreamed of going to college, majoring in English literature, and minoring in mathematics and another science or two.

  My high school English teacher encouraged this dream. Virtually everyone else looked at me as though I walked out of the insane asylum. They pointed to the low average income of an English teacher. They told me that was a waste of a perfectly good mind.

  In short, I was convinced by everyone around me that the measure of a person’s worth and intelligence was how much they managed to earn.

  By the time I actually went to college, I settled on a life sciences major, which led me to at least some lucrative opportunities. As time went on, I added computer science as well because I showed a knack for computer programming.

  In short, because of the incessant drumbeat I heard for money, I chose an educational and career path that I knew directed me away from my passions. I did have some degree of talent, especially in the computer science classrooms, but I wouldn’t spend my odd hours writing code. I would spend my odd hours reading and writing, both fiction and non-fiction.

  I did get a good-paying job out of college, but as that job became more and more consuming, I felt my life dreams of writing slipping further and further away. I slid into something of a personal malaise because I wasn’t chasing my big dreams any more. I tried very hard to put a bandage on that with material things.

  Putting a bandage of material things on top of a personal wound doesn’t help in the long run.

  What I wound up doing is spending an awful lot of my free time for years channeling my energy into what I felt was fruitless writing because the act of writing felt good to me. I’d share my writings, watch them fail, and become convinced that by my career choice – seeking the better paying job – I’d lost my chance to follow my real dream. That’d just make the malaise – and the spending – worse.

  The long term effects of this showed up in my career and in my finances. I began to feel very burnt out on my actual career. At the same time, I would try to cure this feeling of failure and burning out by buying stuff that I didn’t really need or didn’t have time to really enjoy. This brought me deeper and deeper into credit card debt and deeper and deeper into a sense that I couldn’t escape.

  The solutions were right in front of me, but I didn’t see them.

  First of all, I could have just majored in what I wanted to in college. Yes, this might have meant foregoing income, but it would have also meant following my passions and dreams instead of walking away from them. Alternately, I could have double-majored in a way that allowed me to follow my dream and still follow a lucrative path, too, if the dream didn’t work out.

  Later, I could have focused on actually trying to launch writing as a side career instead of just writing aimlessly and somehow stumbling onto the success of The Simple Dollar. I started The Simple Dollar not as some sort of aim of finding a new career, but because I loved to write and I knew I was going through the same financial issues that a lot of people my age were going through. My target audience at first was, quite literally, my friends who were also struggling financially. I stumbled into this, period, and it took me many years of wandering for it to happen. Putting some aim into that dream would have made all the difference.

  I didn’t do either of these. The only reason I’m writing for a living right now is pure, simple luck, albeit luck that had a place to sprout because I actually was attempting to write in some fashion.

  The real lesson here is that happiness doesn’t come from money. As long as your basic needs are met, additional money does not bring happiness. It brings some material luxuries, but it also usually brings additional problems, too. The only way additional money helps is if you use it wisely, enabling you to … well, frankly, chase those dreams and passions you have.

  What can you do to avoid this trap?

  If you have a dream so strong that you stay up all night involved with it, give chase to that dream. Passion like that makes up for a lot of ground in other areas, because so many people out there are just clocking their nine-to-five with little real passion at all. A lot of people get by on skill or on the fact that their job mostly just needs a warm body that can follow instructions. The people that succeed, though, are the ones that mix passion with a little natural talent – but the passion and the time are the biggest elements (just ask Malcolm Gladwell). This doesn’t necessarily mean you have to throw ambitions for a high-income career away – double major and balance the two, or get a degree in a profitable area, live lean for a while, then go back to school to focus on the less-profitable passion. Or, better yet, just try to get your foot in the door without the degree (if you can). Money will come to you because passion is one of the few things worth paying for in life.

  If you’re already in a career that’s taking you away from your passion, spend your free time chasing that passion with all your… passsion! Toss off as many of your extra activities as you can and focus your energies in your free time on making a go of that passion. It might require taking classes or it might require just “woodshedding” for a while (in other words, practicing a skill you love until you’ve acquired a high degree of proficiency). Don’t abandon that dream just because the circumstances of your life aren’t helping you with it. Instead, create a flowerbed upon which it can grow, a flowerbed created out of the excess time and energy in your life when you’re not working at that job.

  
  

  

Frugal Dad

• 

  Saving America’s Middle Class – The Return of Frugality

  Posted: July 20th, 2010, 3:00am MDT by Frugal Dad

  The following guest post is from M.W Larsson, co-founder of TheDailyMiddle.com, an excellent source for middle class survival news and information.

  There was a time – and it wasn’t all that long ago – when a Middle Class lifestyle wasn’t just obtainable; it was downright easy to be a member. Really, all you needed was an “average” job, and you were in – a home, a nice car, occasional dinner out, color TV, an annual vacation, and a pension for when you got older.

  Obviously, those days are gone, so I don’t want to wax poetically about nostalgia and why can’t we bring them back, etc. But I do want to point out the two reasons those days have left us, and I’d like to expand on one of those reasons:

  • The most obvious reason for the end of the “one average job’s paycheck can raise a family” is that the economy changed. Expenses outpaced wages, and many of those jobs (manufacturing, etc) are gone. And they won’t come back. Forget relying on the government and waiting for “good times” to come back – they aren’t.

  • The second reason, however, is one that doesn’t get as much play, because it’s personal, and it “hurts” a little. And that reason is simply this: WE’VE changed, and we want more, because there is more. Many families cannot “make it” on their salary not because food and shelter cost too much – it’s because of all the other stuff.

  I’d like to expand on this last point somewhat, and discuss how a return to frugality can help.

  To start, what really changed in terms of what we buy and what’s available? Well, the answer is, everything changed. There’s so much more available to us now, and more importantly, many “more” things that are an almost expected part of everyday life (cellphones for the entire family, anyone? There’s something a 1970’s era family never had to pay for.)

  We want the food and shelter and automobiles that people used to have, but we also want a flatscreen TV in every room, cellphones for all, birthday parties for kids that run into the hundreds and even thousands, satellite radio, DVD’s (every child I know has a personal DVD collection of Disney and Pixar films), and more. Plus, we want more space – the average house is far bigger than one just thirty years ago. The “great room” is now part of our vocabulary.

  We’ve added and added to our lives, at a pace that far exceeds salaries. This is why “the credit card bill” is a monthly staple. We want more life than we can afford. And it’s why many people find themselves in trouble.

  I mentioned earlier that this “hurts”, and it’s why this reason doesn’t get much press. Nobody wants their kid to be the only one without a cellphone. Or without Toy Story 1, 2, and soon even 3 on DVD. Or without cable TV (on a flatscreen). I’ve personally known parents who stressed about paying the heating bill turn around and buy their son a new Xbox that same week! This sort of thing happens more than you think. And it’s insane.

  Here are a few stats:

  • One in nine families can’t make the minimum payment on their credit cards.
  • One in eight mortgages is in default or foreclosure.
  • One in eight Americans is on food stamps.
  • More than 120,000 families are filing for bankruptcy every month.

  *(source: Elizabeth Warren’s, “America Without a Middle Class.”)

  OK, how do we fix this?

  I co-founded and run a website called The Daily Middle (www.thedailymiddle.com), where we explore the global economy and how it specifically relates to the middle class (typically individuals or couples making between $40,000 and $120,000 per year) here in the U.S.

  The Daily Middle relies on those experts who saw this “Greater Depression” scenario starting to play itself out years ago – experts like Peter Schiff, Jim Rogers, Dr. Marc Faber, Gerald Celente, Ron Paul, David Walker and Nouriel Roubini.

  In my research, I run across articles, videos, stats and quotes all day long. And my advice in this case can be summed up with following two quotes I find particularly meaningful:

  “One does not accumulate, but eliminate.  It is not daily increase but daily decrease.  The height of cultivation always runs towards simplicity.” – Bruce Lee

  “It was hardly an exaggeration to say that the American standard of living was bought on the installment plan.” - Historian Daniel Boorstin

  You see where I am going here, right? For many families, fixing their economic situation can be as simple as saying “no”. Right now, the average American family’s net worth (adjusted for real inflation) is at 1970 levels. Take a look at a family in 1970 and see what their expenses were – it may sound drastic, but that’s kind of where you need to be if you want the same economic lifestyle. Ok, pay the internet bill, but does everyone in the family really need a cellphone? Or cable TV? Do gifts have to be charged? These are all places to start – and yes, living frugally means sacrifice and a change of mindset.

  Now, for those of you who are waiting for some Government magic, let me dispel that right now:

  • The official National Debt has just surpassed $13 Trillion (not including the massive debts of Freddie Mac and Fannie Mae which are backed up by the Federal Government, estimated at $6.3 Trillion.)

  • Our Unfunded Liabilities (Social Security/Medicaid/Medicare) are approximately $60 Trillion

  • Our National Debt is now growing 3 ½ times faster than decades ago

  • We are the world’s largest debtor nation with a National Debt that is 14 times larger and 89% of GDP (not including Fannie/Freddie debts and unfunded liabilities.)

  We are in deep, deep trouble, and if you think “things are going to turn around,” you are mistaken.

  To me, there’s really only one solution, and that’s to live below your means and return to frugality. If it requires giving up a few things that others are paying on credit for, so be it. If it requires cutting coupons, buying off-brand merchandise, well, that’s what it takes. If it requires a combination of both, fine. But being frugal and living below your means does not just help you today – it will allow you to weather almost any economic storm.

  But being frugal isn’t always easy. It takes a good, objective look at “everything” you are spending money on, and it requires hard choices to be made. It’s not just cutting out a latte every day. It might mean your child doesn’t text his or her friends, because the “pay as you go” cell phone is for emergencies only. And that’s OK.

  We hope you will join us at The Daily Middle for our “daily dose of reality” to keep your feet firmly planted on the road back to frugality.

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Ten Big Mistakes #1: Student Loans as Lifestyle Support

  Posted: July 19th, 2010, 2:00pm MDT by Trent

  Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

  I financed an unnecesary lifestyle in college with extra student loans.

  My first few years in college were supported by a collection of scholarships that covered my tuition, room, and board. However, it was up to me to come up with the means of supporting myself over my final two years in school. As is the case for a lot of college students, that meant student loans.

  Up to the start of that first “loan year,” I was very conservative with my money in college (for the most part). I had lived in the dorms most of the time and also spent a year living in an apartment with several other people, which reduced the rent for each of us down to a pittance.

  So, when it came time to take out student loans for that first year, I took the advice of my financial aid adviser and did the calculations to see how much money I would need to live for that coming year. The number I came up with was pleasantly small and so I felt confident that I would be able to survive on the tiny living stipend I expected from my loan.

  What surprised me was that one could easily take out a much larger stipend than I could ever possibly need. The financial aid office allowed me to apply for a loan that gave me a living stipend somewhere around five times what I actually needed to live on, which escalated the total of my student loan for that year by more than $10,000.

  I thought about all the stuff I had done without over my years in college. I’d lived in some awful places. I’d held back on buying a lot of things that I wanted. And here, I thought, the college was practically giving me a bunch of money to do with what I pleased. I could have that stuff – I didn’t need to live hand-to-mouth any more.

  So I took it all. I took out the maximum possible loan both years, adding somewhere around $25,000 to my total student loan bill.

  The consequences of that were painful. My repayment period was ten years and the interest rate on the debt was around 7%, so my extra money alone caused me to have an extra $300 month payment every single month for the next ten years.

  When you’re freshly out of college with your first post-college job (meaning that it’s fairly low salary) and considering marriage, an extra $300 per month out of your monthly cash flow quite simply hurts.

  The long-term effects of this debt were painful. That unnecessary $300 a month coming out of my take-home pay meant that I was trying to do all of the things I wanted to do with even less money to work with. I was left with a choice of living fairly lean or to make a financial mistake that would compound this one, take out more debt to continue an expensive lifestyle (and I’ll discuss this mistake later on).

  I really was offered two great solutions to fix this problem – and I failed to take on either of them.

  First, I could have kept my spending within what I was used to in college. I could have taken out a much smaller living stipend when I was there and gotten by doing all of my shopping at Goodwill and Fareway. This would have worked just fine, as it took care of all of my actual needs as a college student.

  Later, I could have kept my post-graduation spending in check and paid down that student loan debt. Again, this would not have impacted taking care of my needs or even many of my wants – after all, I did have a good full-time job. I could have easily become more picky about my clothes and my food and bought many other things that clearly fall under “want” instead of “need.”

  In both cases, I chose to spend that money with reckless abandon, which eventually brought me to the brink of financial ruin.

  What can you do to avoid this trap?

  If you’re a student, take out the minimum amount you’ll possibly need on your student loans. Don’t be afraid to shop for clothes at Goodwill or buy your groceries at the low-end grocery store. Get your entertainment fix by participating in on-campus events and community events. Focus on the relationships you build, not the specific things you do or the stuff you accumulate.

  If you’re out of school, focus on debt freedom as a very early goal in your life. Cash flow is so important with regards to achieving your goals and having a big monthly debt payment just clogs up opportunities. Pay it down as quickly as you can, even if it means delaying some of your goals. Your ability to easily achieve those goals will be amped up incredibly high through freedom from debt.

  
  

  
• 

  Reader Mailbag: Abraham Lincoln

  Posted: July 19th, 2010, 8:00am MDT by Trent

  What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
  1. What is a callable CD?
  2. Frugal laptop questions
  3. Reducing budgeting stress
  4. Adequate insurance for single folks
  5. Minimizing post-college debt
  6. Rent or sell old house?
  7. Retirement calculations
  8. Drawing the line
  9. Splitting the rent
  10. Netflix streaming movie recommendations

  Abraham Lincoln once said, “Most folks are about as happy as they make up their minds to be.” I agree deeply with that sentiment. It’s all about what you choose to focus on in life – the bad or the good.

  I am wondering if you can explain what a “callable CD” is. Merrill Lynch has begun offering a “15 year callable CD” at 4.50% interest; I tried doing some research online but what I could find was in such business-ese (a language I don’t really speak) that I couldn’t figure it out. I don’t see bank interest rates approaching almost 5% for a long time, if ever again, so would not have a problem tying up my money for that long, if only I knew exactly what I would be getting myself into. Can you explain?
  - Lisa

  A callable CD is basically no different than a regular CD except for one key thing: the bank can close the CD at any time. So, in six months, they might decide that paying out 4.50% annually to you is paying too much, so they just close the CD, paying you what you’ve earned and dropping all of it into a savings account.

  On the other hand, if you close the CD, you’re going to be facing the usual fairly steep penalties for early closure, which usually means forfeiting a decent chunk of your earnings.

  If interest rates were to stay this low forever, this would be a great deal. If they rebound in a year and return to 2007 levels, this will be a much less positive move. Still, it’s a 4.5% return guaranteed, so it isn’t too bad no matter what happens.

  Do you mind telling me what model laptop your using for the frugal laptop. I know its a Dell Inspiron but I wanted to know the model because I’m interested in purchasing one from craigslist or ebay as a secondary laptop. Also how as it worked for you up till this point?
  - Marvin

  The frugal laptop was a Dell Inspiron E1505. It worked very well for several years. The only problem I had with it until near the end of its lifespan was that the battery stopped holding charge – a $40 replacement battery took care of that.

  After about four and a half years or so of heavy use, though, the machine began to experience hardware problems that I was unable to diagnose. A friend attempted to fix it, but reported to me that the costs to repair it (unless I did it all myself) weren’t worth it compared to just getting a new laptop.

  Still, during its lifespan (aside from a nine month idle period), it got a ton of use.

  How can I reduce the stress I feel from budgeting all my money around, and feeling like I have none left? Or perhaps you have a suggestion for a better way to manage my money or how I should be saving/spending!
  - Chris

  I actually find budgeting – or at least how I do things – to be stress reducing on the whole.

  My technique is pretty simple. Almost everything I do for budgeting is automatic with my bank. I have most of my bills set up to be paid automatically. I have automatic transfers set up that move money into various savings pots. I also have an automatic transfer set up into an account that I can safely spend freely from.

  Most of the time, I don’t have to worry about any of it. It just works. I build up savings, have a bit of money to spend as I please, and move on with life. It’s pretty low stress.

  If you’re still stressing out over it, spend some time focusing on your goals. Why are you budgeting so fiercely so as to cause yourself stress? What is the big dream you’re aiming for?

  I’m 28, single, no kids, rent, only debt is a $4,000 car loan which will be paid off by the end of the year. I have about 20K invested for retirement and a small emergency fund. I earn 50K/year. I have full coverage insurance on my car, renter’s insurance, and health/dental/optical insurance through work. My employer covers some insurance for me: Life = 50K and Disability (Short & Long Term) = 60% of salary.

  As long as I’m working for this company is it necessary for me to carry any additional insurance? I feel pretty well covered.
  - Abby

  If you’re single, without kids, healthy, working for that employer, and young, that’s adequate insurance.

  The reason to buy additional insurance is if you see any sign of any of those factors changing. If you’re going to get married, you’ll need more insurance. If you’re going to have kids, you’ll need more. If you get older, you may want to up the disability insurance. If you change jobs, you may end up needing to get your own policy. If you suspect an illness, you may want to ramp things up.

  You’re better off being proactive here. If you see any of those changes happening, supplement that insurance sooner rather than later.

  I am a soon-to-be-20 Spanish major and religion minor who will be a sophomore in the fall at a private college. My family’s finances are such that I qualify only for an Unsubsidized Stafford Loan, which I am paying the interest on during college. I try to pursue scholarships, but since I can’t demonstrate “financial need,” I often do not get them. I do have about $21k in scholarship, but tuition is $32k, necessitating loans.

  Here’s what I have for assets. My savings account currently has approximately $2600 in it, while checking has nearly $300. I have a minimum wage full-time “temp” job this summer (so no benefits), and I do not currently pay any expenses such as gas, food, etc because I share a ride with someone and I pack my lunch. I do not have a car or any other physical assets. I expect to earn approximately $3700 gross this summer- since I will be earning minimum wage ($7.25/hr) for 40/hrs a week for 13 weeks. Of course, after taxes that will be a much smaller amount. I file a tax return in two states since I live in one and work in another.

  My current financial strategy is “Don’t spend money; put it all in the bank.” This is all well and good, but the interest rate is so low at my bank that I only make about 50 cents per interest period. I know that investing while I am young is a good idea, and so I’d like some advice on what to invest in. I am currently thinking of putting some of my funds into a Roth IRA for later in life, but I’d also like to invest in the short-term to help pay off my student loans/prevent having to take out as large of a loan. My loan for last year is $5000, and I expect the loan for the rest of college to be approximately the same amount per year, so I will have about $20,000 in loans to pay off. I plan to get married to my boyfriend right after college, and I want to bring as minimal an amount of debt into the marriage as possible. We want to start off in a good place.
  - Anna

  Your “filing taxes in two states” set off an alarm bell. Are you taking a credit for taxes paid to the nonresident state on your resident state taxes so you’re not double taxed? Here’s some more info on that.

  Aside from that, I think you’re doing exactly what you should be doing right now: building up your cash reserves while keeping your expenses low. When you get married right after college, you’re going to be hitching your life’s financial plans to someone else and the best way to make sure that gets off on the right foot and you stay secure is by having a good liquid reserve.

  You absolutely need to talk with your boyfriend about how you’re going to manage money together when you’re married and make sure you’re on the same path when it comes to money.

  We will be moving to Virginia, and wonder what to do about our house. We bought it in 2005 for $258,000, and realtors are suggesting that we could expect to get about $140,000 for it now. Our mortgage is $97,000, so we could sell it for that and still come away with cash in hand. However, it’s crushing to think that we put $150,000 down, and have lost so much of that.

  We could rent it, but only clear about $750 from rental after paying a management company. (We will be far away, so paying 15% to a management company seems wiser than saving a bit and dealing with who knows what from a distance.) We’d need to put another $400/month or so into the house, not including money for things like repairs and upkeep.

  My new employer has a place we can rent for $700/month, so we could swing the extra amount to put into the rental. If we decide to buy in the new town, we have a $50,000 gift from a deceased relative that we could use. In terms of making the cash flow/down payment happen, we can go either way.

  Our concern is long term. What would you suggest? Better off to rent it, put in the extra money, and deal with the hassle? Or sell it, take the hit, and be done with it?
  - Charity

  So, you’d make $750 a month from the house if you rented it, but you’d have to put $400 a month back in (I’m assuming taxes) and that doesn’t include repairs and upkeep? What about the remaining mortgage payments? This doesn’t spell a big money winner here.

  If I were you, I’d sell that house, pay off the mortgage, and sock the difference away somewhere else, whether it’s in the bank or some investment or into a down payment on another house.

  You can’t let the loss of value of your home distort your choices now. That loss is water under the bridge – you can’t do anything about it now. You have to make the best choice based on your current situation.

  My primary-breadwinner husband (age 32) and I are expecting a baby in Dec. and re-evaluating his disability insurance policies. Currently, he has three policies: one through work, and two individual policies. On the last policy, there is a “rider” for a service called Retire Guard. According to their website, they will make 401k contributions on his behalf should he become totally disabled. My husband pays about $26/month for just over $1200/month coverage. They say that they will make the contributions on your behalf into a trust in your name, and they offer you some different investment options. They do not actually put that money into your 401k. The Retire Guard option is with a policy through Mass Mutual, which I know is a reputable insurance company. Can you offer some guidelines for disability insurance? I don’t understand the total/partial disability, “riders”, or how to calculate how much you need.
  - Leigh Ann

  From what I was able to learn about RetireGuard, it sounds like they just put money into a trust for you instead of directly into your 401(k), likely because they can’t directly contribute to your 401(k).

  Riders are simply modifcations to the basic policy. For example, some policies have a COLA rider what adjusts your benefits based on increases in cost of living. Riders usually affect the amount you pay and then affect the benefits you get.

  Total disability refers to the inability of a person to perform the functions of their job. Partial disability refers to the inability of a person to perform some of the functions of their job, but are able to perform others.

  As for how much you need, this worksheet from SmartMoney is the best tool I’ve seen.

  You’ve mentioned before that there are aspects of your life that you don’t discuss on The Simple Dollar. How do you decide where to draw that line?
  - Emma

  In terms of my own thoughts and issues that only directly impact me, I’m pretty open. My only restrictions are on elements about my own life that, if revealed, would inherently affect the lives of others I know and care about.

  When you extend the same issue to my immediate family, though, things get less clear. I do mention them, obviously, because they’re important in my life, but this is not their blog. Sarah and I have had many discussions on what exactly is the limit of what should be discussed on The Simple Dollar about specific aspects of our family. It’s mostly a matter of protecting the privacy of someone who is a non-public figure while also recognizing that the domain of what I talk about does inherently involve them at times.

  When you start looking at people I’m connected to less directly, things get much vaguer. I have no interest in “outing” people in my extended family or my friends on The Simple Dollar without their explicit permission. When I do talk about them, I usually “blur” some aspects of their identity to protect their privacy (altering names and relationships in insignificant but privacy-protecting ways), sometimes with their help and sometimes just based on my own judgment.

  Basically, I want to talk about financial and career and life issues here. I don’t want to destroy reputations or hurt feelings or reveal personal data.

  Me and my girlfriend of 2.5 years are moving in to our first apartment together since we graduate from college in less than a week. We are both really excited and are in the right mindset. I have a job at a local corporation making a hefty salary, more than some of my peers. She will be attending graduate school in the fall and so cannot get a job directly related to her major just yet, so she landed one at a local department store for $8.25/hr. Our apartment is pretty nice, one of the more expensive ones around here. We liked the quality, convenience, and space it provided and it fit within our budget.

  My question is: I will be making much more than her per month and while I can see how splitting rent and utilities 50/50 makes sense given there are two people living in one apartment, I am wondering if there is a better option to take into account the difference in income. I plugged her income into my budget sheet and while she’ll be able to afford everything, there is a little less padding than I would have liked. She’s been searching for a job for the past couple months so asking her to find one that pays more probably isn’t something she can do easily (or will want to). She is fine with paying 50% but in my mind that doesn’t seem fair. I was thinking of some sort of method that would split the rent so that our ratio is the same as our income ratio. However, she felt that that was a little unfair or that she’d feel like she “owed” me money.

  Another idea I had was to use the same ratio method but to give some extra padding, perhaps making it more like 60% me, 40% her. Or, perhaps it would be fine if we only lowered her rent to 40% bi-monthly. Some variation that weighed our income into the equation.

  I was just wondering if you’ve had any experience with this or know of a common method people use to account for differences in income that is fair for everyone involved.
  - Kam

  If there is a deep inequality, you might want to consider paying portions of your monthly bills in proportion with your monthly take-home checks.

  So, let’s say your girlfriend takes home $1,000 a month and you take home $3,000 a month. That means you’d pay 3/4 or 75% of the bills. If your girlfriend suddenly started making $2,000 a month, you’d shift the percentages with you now paying just 3/5 or 60% of the bills.

  That would be my recommendation to you two, but there may be some pride at stake here. If your girlfriend doesn’t like that arrangement and wants to pay her half, she may be operating on a sense of personal pride. If that’s the case, go along with whatever arrangement works for her. The above is just a suggestion.

  OK, I signed up for Netflix mostly so we could use the streaming service for free on my Wii. We were renting about $15 worth of movies each month, so this is actually a money saver.

  Got any suggestions for good movies to add to my streaming queue? I’ve liked the movies you’ve mentioned in the past.
  - Kevin

  There’s more great stuff to stream than I could possibly recount. Here are some things worth looking at that I’ve enjoyed.

  Man on Wire. Moon. Jesus Camp. Firefly. Arrested Development. Lost. Hoop Dreams.

  The piece that’s got me intrigued right now is that all of Ken Burns’ documentaries are available (save Baseball). They’re pretty much all great – Civil War got all of the press, but I learned more about the world and enjoyed other entries much more (like Huey Long). Here’s a full list.

  If you can’t find something in those to watch, I’m not sure I can help. However, I do think it makes a pretty good case for considering ditching cable or satellite television.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  

Frugal Dad

• 

  Children of the Recession: How to Insulate Kids From Financial Fears

  Posted: July 19th, 2010, 3:00am MDT by Frugal Dad

  With unemployment and foreclosure numbers climbing, chances are high that you have friends or family members affected by this recession. When a close friend or family member loses their home, or their job (or both), it is frightening on several levels. You begin to wonder if the same could happen to you. This fear of economic uncertainty causes anxiety in many children, too.

  

  My parents divorced when I was very young, and I don’t have many specific memories of them arguing, except over money. Unfortunately, that’s a common memory for many kids, especially when economic times are tough. While it is impossible to shield kids from all that goes on around them, I happen to believe money worries are one of those things we should not share with kids. There are a number of ways to do that – some very specific, and some more subtle.

  Don’t Fight About Money in Front of Kids

  This one seems the most obvious. When it comes to transferring anxiety over money to your children, there is no faster way than to fight over it with your partner. Asking couples not to argue over money at all is a little unrealistic, so when differences arise, at least try to do it in private and out of earshot of your kids.

  Spenders and savers are bound to clash, but when they fight in front of kids they give kids something to worry about beyond Mom and Dad fighting. Will we run out of money? Is Dad losing his job? Will we have to move? Will we have money for food? Even if parents are unsure about the answers themselves, they owe it to their kids to exude confidence when it comes to money. If things really do get bad, emphasize that no matter what, you’ll all be together and that home is where you make it – wherever that may be.

  Avoid Language Like “We Can’t Afford That” or “We’re Poor”

  This is one I’ve had to relearn myself. When kids ask to buy things, and money is tight, I try to rationalize with them instead of simply saying, “we can’t afford it.” Tell kids that instead of spending money on toys this week, you need to focus on buying some basic things like food and gasoline for the car. Ask them to come along to the grocery store to help pick out a few favorites. If you simply say you can’t afford something, kids will begin to wonder what else you can’t afford, and this could cause worry.

  I will not allow anyone in our house to use the word “poor” when describing our economic situation – even when times were pretty lean in our own household. We might have been broke, but we certainly weren’t poor. It’s more than semantics. The word poor seems to connote inferiority, or having some unfortunate circumstance. We suffered from neither. We simply spent more money than we earned and had to live on far less to turn things around. We may have been stupid, but we weren’t poor!

  Now, let’s shift away from things not to do around kids, and focus on some positive things to teach kids to help them with their own financial futures.

  Start Teaching Kids About Money

  When I was growing up, money was taboo. Parents would no more rather talk about money with their children than their love life. While this is still true to an extent, I think most of us have recognized that kids need to be more aware about the potential financial pitfalls out there than we were.

  Start giving kids an allowance to budget their savings, spending and giving. Help them open a savings account and begin to teach the mechanics of a bank account – completing deposit slips, balancing a checkbook and explaining how compound interest works.

  As kids get older introduce them to increasingly more complicated topics like investing, borrowing money, insurance, etc. By the time they are teenagers they should have a good grasp on Personal Finance 101 topics to better prepare them for life.

  Encourage Saving Over Spending

  As adults, we know it is prudent to put back a sizable emergency fund of several months (I actually recommend a full year) of basic, household expenses. Because kids are not responsible for everyday expenses, it is hard to get this message across to them. Instead of focusing on saving money for emergencies, teach kids to save money for opportunities.

  Here is a very subtle example. Saturday night I took my son to Toys R Us. He had accumulated allowance money, along with a birthday gift card or two. I helped him find a few things in his price range, and naturally, he wanted it all, which would have wiped out his savings.

  I gently reminded him of events coming up where he might like to have some money, and explained if he spent all his money today he would get no more until he received his next allowance. He came to the conclusion on his own that saving some back for a future opportunity was a good idea. He put back all but one toy and we left with cash in hand – I was a proud frugal dad!

  Foster Entrepreneurialism in Your Kids

  My parents and grandparents were probably a lot like yours – they worked 40-50 hours a week, punched a clock and recharged over the weekends. After doing this for several decades they were given a cheap retirement gift, maybe a small pension, and a retirement send-off. Well, times have changed.

  The recession has underscored the importance of developing an entrepreneurial streak at a young age. Chances are very slim that your child will graduate college, pick one job and stay there for 40 years. More likely, there will be many jobs with many employers, and many periods of being “between jobs” in their lifetime. Wouldn’t it be great if they developed a “side hustle” to get them through those periods of unemployment, or to supplement their full-time income all along?

  Perhaps you enjoy building things and have turned your one-time hobby into a side hustle building decks and fences on the weekends. Get your kids involved in the process as they grow older, and perhaps you can pass along a valuable trade. Even if they become accountants or fire fighters, having the knowledge and experience of a trade to fall back on could be incredibly valuable to them over a lifetime.

  The point is not to stifle your kids ideas by forcing them into some ideal career path you have selected for them. Allow them to cultivate their own ideas. Over the next few decades, personal branding, and the branding of individual ideas will likely be hotter than any particular industry. Think about it – iPhone apps may be the next lemonade stand!

  In a way, social media, and new media, have greatly expanded the opportunities for kids to create new products, explore new ideas and push new content into the mainstream. It’s never been a better time to have an entrepreneurial mindset, and fostering that in your children at an early age is invaluable.

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Review: Power of 2

  Posted: July 18th, 2010, 2:00pm MDT by Trent

  Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

  One of the most powerful things you can do in the path towards building the career you want, the social connections you want, and the financial path you want is simply work on improving your ability to build and sustain relationships with other people. Time and time again, people who have a connection with you are there to help you along on your path, from job opportunities to social engagements and from romantic possibilities to solving home improvement problems.

  That’s the entire focus of this book, Power of 2 by Rodd Wagner and Gale Muller. Subtitled How to Make the Most of Your Partnerships at Work and in Life, the book focuses intensely on how individual positive interpersonal relationships can help you achieve everything you want in life while also helping that other person to succeed, too.

  It’s a theme that I strongly believe in, mostly because I’ve witnessed it in my own life. Interpersonal relationships led me to my marriage, my children, and every job I’ve ever held.

  Let’s dig in.

  One | Complementary Strengths
  People often tend to gravitate towards people that are similar to them in skill level, ambition, career choice, and so forth. A much better strategy is to mix oxygen and acetylene – in other words, mix it up with people that have skills that complement your own, not replicate them. Wagner and Muller name many, many successful pairings made up of people with complementary skills, from John Stockton and Karl Malone to Warren Buffett and Charlie Munger.

  Two | A Common Mission
  Those pairings aren’t just mixings of opposites, though. Successful pairings usually work because both members have a common mission, even if their skill sets are complementary. Stockton and Malone wanted to be successful basketball players, but a scorer can’t score without someone passing him the ball, and a passer can’t pass without someone to pass the ball to. Munger and Buffett both dreamed of being great investors, but Munger was an intense skeptic and Buffett was an intense enthusiast. In both cases, the respective traits brought to the table complement each other, but it’s the common goal that made the pairing really work.

  Three | Fairness
  One of the key elements of a working relationship between two people is fairness – a realization that both members are needed for success. The rewards of such a relationship must be split in an equitable way, as should be the work in such a relationship. Many, many relationships run aground when one person does an outsized portion of the work as compared to the amount of credit given for that work. The best way to solve this is to clearly communicate about outcomes that are important to either person. In other words, if an outcome is important to you, speak up. You also have to be constantly willing to appreciate that you’re both bringing skills and work to the table and that you both deserve some proportionate amount of the reward.

  Four | Trust
  Another element of a successful professional or personal relationship is trust. Can you trust that the other person in the relationship is acting in an appropriate fashion? Without that trust, a relationship can’t function successfully because both of the members are unable to completely rely on the other to hold up their end of the bargain. The interesting conclusion drawn by the authors is that the degree to which you succeed in forming trusting relationships is more a matter of how much you trust the other people, not how much they trust you. In other words, unless you know of a reason not to extend trust, you’re usually better off extending it, because the rewards almost always outweight the risks.

  Five | Acceptance
  Everyone has flaws and preferences and comfort zones. In personal life – and especially in professional life – you’re going to regularly interact with people who don’t match your preferences and don’t match your comfort zone, either. One big avenue to success is to become more accepting of people who aren’t a perfect match for you. Accept their differences and focus on the strengths that those people bring to the table.

  Six | Forgiveness
  Inevitably, your partner is going to make a mistake (as will you). No one is perfect and no relationship is perfect. You have to forgive the mistakes of others if you expect them to forgive your mistakes. Rather than getting bent out of shape at a mistake, look calmly for a solution for the short-term problem, then look for long-term solutions so that the same mistake does not happen again. On top of that, forgive the person for their mistakes and imperfections.

  Seven | Communicating
  If you see a problem or have a concern, you have to communicate that concern or the other person in the relationship may never even be aware of it. At the same time, you need to communicate that concern in a way that does not cause further problems. In other words, control your emotions and strive to share your thoughts as eloquently and gracefully as you can. Bring up potential solutions that can help alleviate the problem. Most importantly, listen to the response – and listening doesn’t mean standing there formulating your next point while waiting for the other person to finish flapping their gums. You have to incorporate your partner’s ideas and perspectives into any solution that you come up with; otherwise, it’s not a functional relationship.

  Eight | Unselfishness
  When it comes down to brass tacks, you have to be willing to put the needs of the relationship ahead of your own individual needs at times if you want to succeed. The authors retell the wonderful story of Ernest Shackleton and Frank Wild, which I’ve quoted from Shackleford’s Wikipedia entry:

  Their return journey to McMurdo Sound was a race against starvation, on half-rations for much of the way. At one point Shackleton gave his one biscuit allotted for the day to the ailing Frank Wild, who wrote in his diary: “All the money that was ever minted would not have bought that biscuit and the remembrance of that sacrifice will never leave me”. They arrived at Hut Point just in time to catch the ship.

  Undoubtedly, Shackleton wanted that biscuit. He was half-starving. However, he stepped back and realized that in order to succeed, he had to have a functional team around him. That meant helping his partner, who was further along the path to starvation than he was. He gave him his biscuit, and that helped the men to succeed.

  In other words, if you have something extra to give of yourself that you don’t need that others on the team do need, don’t hold back on it out of a sense of greed. Recognize that it’s just another thing you can do to ensure that the relationship succeeds in whatever it is you’re moving towards.

  In Closing: Looking Within
  What’s the conclusion from all of this? To put it simply, a relationship has a much greater chance for success if you look at yourself as the key to that success. You cannot control the choices and motivations of your partner, but you can control your own. Look inside and seek the best answers you can find.

  Is Power of 2 Worth Reading?
  This book, in very eloquent language and through dozens of wonderful anecdotes and examples, spells out clearly what many of the key elements are for making a relationship succeed. I feel this is a worthwhile read for virtually everyone, as almost everyone who reads it will find some value in its pages.

  I particularly recommend Power of 2 to the loners out there who have a lot of difficulty working in teams or building relationships with others.

  Success often comes about from relationships, and the time you invest understanding how those relationsips work and how you can improve your ways of handling relationships is valuable time, indeed. Power of 2 fits right into that statement.

  
  

  
• 

  O Pioneers

  Posted: July 18th, 2010, 8:00am MDT by Trent

  Come my tan-faced children,
  Follow well in order, get your weapons ready,
  Have you your pistols? have you your sharp-edged axes?
  Pioneers! O pioneers!

  Our adult lives are a long journey, and as with all journies, those who prepare adequately for that journey will see the most success.

  The preparations you make when you are a child will serve you the longest, but they are also the most expected ones.

  The preparations that really set you apart are the choices made when you become an adult. Do you choose to prepare for the journey ahead by spending recklessly, becoming tethered to debt and to a job? Or do you choose to prepare by spending less than you earn, saving the difference for the challenges and opportunities that lie ahead?

  Do you have your tools for success? Or do you have your burdens for failure?

  For we cannot tarry here,
  We must march my darlings, we must bear the brunt of danger,
  We the youthful sinewy races, all the rest on us depend,
  Pioneers! O pioneers!

  This journey will happen. You will march forward in your life. Many of you will end up taking on responsibility on this road – responsibility for ailing parents, responsibility for children, responsibility for subordinates, responsibility for the tasks you’re paid to accomplish, responsibility for the upkeep of your dwelling … and of yourself, your health, and your mind.

  Again, it comes back to preparation. Did you prepare in advance for these responsibilities? When the responsibilities fall on you, are you making the right choices to live up to them?

  The choices are hard and the traps are many. But part of adulthood is that others depend on you. You are in the prime of your life and that means that others look to you for leadership and for help and for assistance. Your spouse. Your children. Your parents. Your coworkers. Your employees. Your friends.

  Are you ready for that? Every day is an opportunity to prepare – and to see the rewards of that preparation.

  An emergency fund.

  A set of short term and long term goals.

  A savings plan for retirement – and for college – and for the major purchases in your life, like homes and automobiles.

  O you youths, Western youths,
  So impatient, full of action, full of manly pride and friendship,
  Plain I see you Western youths, see you tramping with the foremost,
  Pioneers! O pioneers!

  The truth is that many of us don’t prepare adequately. We charge forward into the wilderness of adult life without our figurative sharp-edged axes.

  I certainly did. I discovered that the responsiblities of adulthood are very rarely trampled. Without that preparation and without that diligence, the responsibilities of being an adult often curl around your feet like vines, holding you in a place you might very well not want to be.

  We charge off impatient and full of action. We’re already carrying the burden of student loans. We buy a home and take on a mortgage. We buy a car and take on a car loan. We furnish that home and our lives and we wind up with credit card debt. And the vines curl around our feet.

  Instead of focusing on trampling forward through these vines, take the time to slash through them.

  Pay off your debts and save for those big expenses.

  Spend less than you earn, and put a clear but strict cap on your nonessential spending.

  Don’t let those things that trip you up and tie you down hold you in place. Slash through and keep walking forward.

  Have the elder races halted?
  Do they droop and end their lesson, wearied over there beyond the seas?
  We take up the task eternal, and the burden and the lesson,
  Pioneers! O pioneers!

  Many of us find ourselves taking on the burdens of the previous generation as they move on to new ones. At my age, I’m taking on the burdens of parenthood as my parents set their burdens aside. I’m taking on the burdens of being a leader in my community as others retire, step back, and pass on.

  Humanity is constantly building a road to the future, and every day people walk off that job, leaving behind their tools and materials. We step in to those roles and take on those jobs and do our part to build that road.

  We are adults. No one pays our bills for us. No one does our work for us. No one budgets for us. No one sets goals for us.

  It is up to us to take on these responsibilities and do it ourselves.

  All the past we leave behind,
  We debouch upon a newer mightier world, varied world,
  Fresh and strong the world we seize, world of labor and the march,
  Pioneers! O pioneers!

  We don’t have to follow the paths of the past, either.

  We don’t have to strive to have a lifetime job at the same company. We can be self-employed. We can jump from job to job and career to career until we find the right match.

  We don’t have to own a home immediately after college. We don’t have to have a car when there’s a bus stop just down the street. We don’t have to get married and have children right away.

  We build our own path to the future, as long as we have the tools to do it.

  Till with sound of trumpet,
  Far, far off the daybreak call–hark! how loud and clear I hear it wind,
  Swift! to the head of the army!–swift! spring to your places,
  Pioneers! O pioneers!
  - Walt Whitman, Pioneers! O Pioneers!

  
  

  
• 

  Eleven Effective Ways to Reduce Your Laundry Costs

  Posted: July 17th, 2010, 2:00pm MDT by Trent

  We currently have five people living at our home. Let’s say, hypothetically, we all change clothes twice a day (it’s often more than that due to the nonstop accidents, spills, and other things that go on in such a household). That’s ten outfits’ worth of clothes to wash each and every day. We also cloth diaper our youngest child, so that piles on an extra burden of laundry.

  Needless to say, our washer seems to run all the time. Every time the washer runs, a little money goes straight down the tubes. Because it runs so often, it’s always useful to find little ways to reduce that cost per load. Here are eleven tactics we’ve found that work for us.

  Make your own detergent. We often make our own laundry detergent (here’s how we do it with pictures and I also made a video of how I made a later batch). According to our calculations, it reduced the cost of detergent per load from $0.20 to about $0.02 – an $0.18 saving per load. Considering we average multiple loads daily, that savings adds up pretty quick. The best part is this detergent has no perfumes or other such allergens in it.

  Use vinegar as your softener. We basically don’t buy fabric softener unless we literally find a sale that makes it virtually free (or at least less than a jumbo jug of vinegar). Yes, a cap full of vinegar in the softener spot does the trick. Not only that, it also helps greatly with any lingering odor that might be in the washing machine or in the clothes themselves.

  Wash only (very) full loads. With the exception of the cloth diapers (which we wash separately and which we don’t have enough of to fill an entire load), we strive to have very full loads of laundry. Yes, we mix together colored and whites from all family members, washing a little boy’s t-shirt together with my jeans, for example. A very full load means less water used and less energy used per item of clothing.

  Dry your clothes by hanging them. If you can, hang your clothes to dry instead of sucking down energy in the dryer. An average dryer run eats about $0.25 worth of electricity. Hanging them up accomplishes the same thing for free. We would hang up an awful lot of our clothes if we had a great place to put a clothesline – unfortunately, our only location that works for a clothesline would sit right in the middle of the space where our children (and the neighbor’s children) usually play in the yard. Thus, for now, most of our hanging takes the form of a temporary line hung up in our basement sometimes (it helps when we’re doing a bunch of loads of laundry at once, as clothes wash faster than they dry).

  Wash your clothes in cold water. Hot water has to be heated and you’re paying for that service. Unless your clothes are exceptionally dirty, cold water does the trick just fine. The only time I run anything besides cold/cold on our washing machine is if I see caked-on stuff on a kid’s shirt or something.

  Use the shortest cycle. Our washer, like many out there, offers a ton of options for the wash. I choose the shortest one, again, unless the clothes are awfully dirty. This saves wear and tear on the clothes (reducing replacement costs) and also reduces energy use and some water use.

  Be diligent about removing dryer lint. We empty the lint trap on the dryer before every single load. It is simply part of the required routine. If you don’t do this, you reduce the warm air flow around the clothes, increasing the time the dryer has to run to get your clothes to the same level of dryness. That’s energy used, and that’s money lost.

  Remove obstructions from the external dryer vent. You should also know where your dryer vent goes. It empties out somewhere on the outside of your building or home. Look for the external vent and make sure it’s not obstructed. Lift up the vent and make sure there’s no lint or anything else built up inside that vent. Again, you’re trying to improve the air flow, because that external vent blows out very moist air (the moisture that’s being removed from the clothes). If it can’t get out, that very moist air stays in with your clothes, increasing drying time and increasing your expenses.

  Shake out clothes before you put them in the dryer. As you take clothes from the washer to the dryer, shake them out completely. This is basic science – you’re increasing the surface area of the clothes so that more warm air comes in contact with the clothes in the dryer, making them dry faster, reducing the time and the amount of energy used when your dryer is running. Money is energy – shaking out your clothes saves both.

  Pull clothes out of the dryer before they’re completely dry. This is particularly true if you intend to iron the item, because you already want the clothes to be a little damp before you bust out the iron. This, again, means the dryer runs less, which is a win for your pocket book.

  Save for your own washer and dryer. If you’re in a situation where you’re using a coin-operated laundry machine, you will save significantly over the long run if you get your own washer and dryer hooked up. The cost per load when you own your own washer and dryer is far, far less than it is at a coin-operated laundry facility. Yes, the washer and dryer can be major expenses, but the savings are tremendous over even the course of a year or two.

  
  

  
• 

  The Simple Dollar Time Machine: July 17, 2010

  Posted: July 17th, 2010, 8:00am MDT by Trent

  Many newer readers of The Simple Dollar haven’t been exposed to the hundreds of great articles in the archives of the site, so this is a weekly series that highlights the five best posts from one year ago this week, two years ago this week, and three years ago this week. I call it … the Time Machine.

  One Year Ago (July 11 – July 17, 2009)
  Nine Ways I Use Google Calendar to Keep My Money Straight Since I wrote this post, Google Calendar has become one of the single most essential tools in my life. I almost completely rely on my calendar.

  Rule #5: Talk About Money (and Be Honest). So many financial issues could easily be resolved with a little bit of serious, honest conversation.

  Frugality’s Sacred Cows There are no absolute rules to follow when you’re trying to maximize every dollar. Some things seem to consistently work – but nothing always works. You’re rewarded for having an agile mind.

  How Low Can You Go? Cheesy Corkscrews with Crunchy Bacon Topping This is one of my favorite food posts – mostly because it ends in unmitigated disaster.

  How Much Is Your Time Worth? Thoughts on Speeding Speeding isn’t really worth it unless you argue that you’re essentially never going to get pulled over for speeding – ever.

  Two Years Ago (July 11 – July 17, 2008)
  Is Money All There Is? Why Chasing the Big Dollars Isn’t the Answer for Everyone I decided long ago that it’s not the answer for me. I don’t want to be a millionaire tomorrow.

  Ten Tip-Offs That You’re Getting Bogus Financial Information – And Five Antidotes Pay attention to the details. If they won’t reveal them, it’s probably bogus. (And that’s just one of them.)

  100 Things to Do During a Money Free Weekend We do “money free weekends” all the time at home. It’s usually a family weekend at home and usually involves walking to the park and doing things along those lines.

  Preparing a Budget? Ten Tips for Making That Budget Successful The real key to a successful budget is time and careful thought. That trumps everything else.

  Making Expensive Hobbies More Financially Manageable You have to break down what you really love about the hobby. Isolate that moment that brings you joy. Often, you’ll find that you’re overpaying for that moment.

  Three Years Ago (July 11 – July 17, 2007)
  Ten Financial Bulls: Moving From Desperation To Financial Enlightenment Using A Zen Parable I really enjoyed putting together this post. It allowed me to draw on a passion of mine (religious exploration) and connect it to financial advantage.

  The Ten Biggest Money Mistakes I’ve Made Since My Financial Meltdown This just scratches the surface of my mistakes.

  Why I Lean Towards Repaying Debts Above All – And Why You Might Not Feel The Same I think there’s a case for investing instead of repaying debts, but as time goes on, I move more and more towards telling people to simply repay their debts first and foremost.

  Procrastination, Money, And Me Procrastination used to be a major problem in my life. Over the years, I’ve come up with many ways to fix it.

  Fighting Despair And Keeping Focus On Being Debt Free You’ve got to focus on the real goals. Being debt free can be ho-hum, but what does that mean in your life? Will you be able to move? Will you be able to switch jobs? Think of it in terms of your life.

  If you’d like to browse through more of the archives, visit the chronology, where all posts are listed in chronological order.

  Ten Ways to Get More out of The Simple DollarUpdated!
  This is kind of a FAQ for new readers and is posted each week along with the Time Machine. Here are ten great ways for new readers to dig deeper into The Simple Dollar.

  1. Subscribe by email or RSS. Visiting The Simple Dollar’s website is great, but for many people, it’s more convenient to receive the articles in another form. It’s easy to join 60,000 other subscribers and get The Simple Dollar’s content by email or in your RSS feeder (if you’re unfamiliar with RSS, check out Google Reader.

  2. Comment. Each article on The Simple Dollar has lively discussion. Just click on the green square in the upper right of each article on the website and join in!

  3. Become a fan of The Simple Dollar on Facebook. I put up questions and other materials about once every week or two on Facebook (so you won’t be flooded with Simple Dollar updates). Join in the conversation with other Simple Dollar fans and occasionally get some interesting freebies, too.

  4. Follow me on Twitter. I post interesting articles, quotes, follow-up material, commentary, and other material on Twitter. Follow me! If you’re unfamiliar with Twitter, it’s essentially an open discussion forum for people to share ideas and thoughts with other like-minded folks – you just choose the people you want to listen to and their ideas and thoughts are all delivered to you on a single page.

  5. Read my story of financial meltdown and recovery. The Simple Dollar isn’t based on what I’ve read in books or learned in school. I’ve made a lifetime of financial mistakes – The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

  6. Download my free 49 page e-book. Everything You Ever Really Needed to Know About Personal Finance On Just One Page is completely free. It summarizes all of the key lessons I’ve learned along the way about personal finance in one tidy package – in fact, all of the main principles can be found right on the cover.

  7. Dig through “31 Days to Fix Your Finances.” 31 Days to Fix Your Finances is an article series that outlines how you can get a grip on your finances over the course of a month.

  8. Send me your questions and suggestions. Send me an email and let me know what you’re thinking, what you’d like to see, and any questions you might have. I try to respond to as many emails as possible and I read them all. I may even use your question in a future article!

  9. Become a “Friend of The Simple Dollar.” If you find the stuff on The Simple Dollar valuable and are willing to spend five minutes or so a month to help me out with small things, please consider signing up to be a “Friend of The Simple Dollar”.

  10. Email a great article you find to a friend. Find an article that you think your friend would love? At the bottom of each article, you’ll find a link that says “Email this” – just click on that, type in your friend’s address, and send it right along to them!

  
  

  
• 

  Summer Meal Series #7: Tuna, Vegetable, and Cheese Stuffed Manicotti

  Posted: July 16th, 2010, 2:00pm MDT by Trent

  This summer, I’m going to be posting a series of fifteen low-cost, tasty, and easy-to-prepare meals that are literally straight from my own kitchen.

  I love tuna. It’s a wonderfully light fish with a distinctive flavor that works well in summer meals. It’s also a component of a tuna noodle casserole that my mother used to make that remains one of my comfort foods.

  Sarah and I wanted to build on that “comfort” tuna noodle casserole, making it a bit healthier and a bit lighter. After riffing on some recipes from various cookbooks, we came up with tuna-stuffed manicotti with a cheese sauce, served with a spinach salad and a really simple fruity side dish that goes great with a summer meal (which I’ll mention at the end):

  

  This meal used what looks like a small mountain of ingredients, but they actually came together pretty well:

  

  Here’s what we used:

  16 manicotti shells
  2/3 cup finely chopped green pepper (about a bell pepper’s worth)
  1/2 cup finely chopped onion (about a third or so of a medium onion)
  5 tablespoons butter or margarine
  4 eggs, beaten
  2 cups cottage cheese
  3/4 cup Parmesan cheese (I usually like to grate this myself, but we didn’t have a chunk of Parmesan on hand)
  1 teaspoon marjoram
  2 cups cooked vegetables (peas, carrots, broccoli, cauliflower – any of those will work)
  2 small cans of tuna (about 12 ounces total)
  3 tablespoons flour
  1/4 teaspoon salt
  2 cups milk
  1 1/2 cups shredded cheese (your choice – we used American because of how well it melts)

  Our total cost for all of these ingredients was $9.62. Our end product served the four of us for dinner and for lunch the next day, bringing the cost per meal down to $1.20.

  The first step is to cook the manicotti according to package directions, leaving you with some big pasta tubes to stuff. While that’s boiling, put two tablespoons of butter or margarine in a skillet over medium heat until it’s melted, then cook the green pepper and onion until it’s a little tender (but not brown).

  

  Next, get out a big bowl and mix together the eggs, cottage cheese, half of the Parmesan cheese, marjoram, the peppers and onions, the tuna, and the vegetables you choose to use (we used peas).

  Stir this up until it’s consistent. It’ll be moist but not watery.

  

  Then, just stuff the manicotti shells with this mixture and lay them in a lightly greased 9″ by 13″ pan. You’ll have plenty to fill up each manicotti tube.

  When we finished stuffing, our pan looked like this:

  

  Now, for the cheese sauce on top.

  We just melted three tablespoons of butter or margarine over medium heat, then mixed in the flour, salt, and a dash of pepper until it became thick and almost doughy. We then poured in all of the milk and stirred it until it was evenly thick, like a thick soup. We then added the cheese and kept stirring the sauce until it was all melted, looking something like this:

  

  Once it’s melted, we just poured it over the manicotti, sprinkled the remaining Parmesan on top, covered the pan with aluminum foil, and stuck it in the oven for about 40 minutes at 350 F (180 C).

  Our pan looked wonderful when we pulled it out of the oven:

  

  We chose to serve it with a spinach salad and with a simple frozen fruit salad on the side. The fruit salad was really easy – we just mixed together some miscellaneous fruits we had laying around (quartered grapes, coconut, and some celery were the key ones) along with some peach-flavored yogurt. We poured this mixture into cupcake shells and froze them, popping them out just before the meal. It was a wonderful summery side.

  

  Our family loved this. My four year old son actually ate more manicotti than I did (he ate one and a half pieces to my single one). When we pulled it out again to have for leftovers the next day, the kids actually started cheering (and I did, too – it was delicious).

  This is just all-around a wonderful dish – it’s priced right, is quite flavorful, and is easy to make (you can do all of it the night before, stick it in the fridge, and just bake it the next day if you want).

  
  

  
• 

  Getting Things Done: Five Key Things

  Posted: July 16th, 2010, 8:00am MDT by Trent

  This is the final entry in a fourteen part series discussing the time management classic Getting Things Done by David Allen. New entries in this series will appear on Tuesday afternoons and Friday mornings through July 16.

  Before I start digging in to what I think are the five key take-home messages from this book, I’ll link back to the thirteen previous entries, in order, for people who want to read them in order.

  1. A New Practice for a New Reality
  2. The Five Stages of Mastering Workflow
  3. The Five Phases of Project Planning
  4. Setting Up the Time, Space, and Tools
  5. Corraling Your Stuff
  6. Getting “In” to Empty
  7. Setting Up the Right Buckets
  8. Keeping Your System Functional
  9. Making the Best Action Choices
  10. Getting Projects Under Control
  11. The Power of the Collection Habit
  12. The Power of the Next-Action Decision
  13. The Power of Outcome Focusing

  Here are the five key messages (from my perspective, anyway) contained in Getting Things Done.

  Get stuff out of your head and on paper (or in a reliable digital form).
  We all daydream. We’re in the middle of doing something when a thought pops into our head – something we need to do, something we wish we were doing, etc. We think about it for a moment and suddenly, our focus on the task at hand is broken. It takes us time to get back on track on what we’re doing, plus we’re trying to remember that thing that we just thought about.

  This is hugely counterproductive. It keeps us from doing the task at hand well, even if it’s just a short task or a “mindless” task. Your mind drifts when you’re writing an email and you forget an important detail, requiring additional communication and more work for you. Your mind drifts when you’re washing dishes and you cut yourself, requiring time to take care of the wound. Your mind drifts when you’re “focusing” on one task at work and you suddenly find yourself taking 50% longer to do it.

  The big solution to this is to get “in the zone” with whatever task you’re doing, but that’s often hard to do. The single best way I’ve found to get myself in the zone with whatever task I’m working on is to simply get everything out of my head in advance and have it in a trusted system – and if something pops into my head mid-task, I can just jot it down quickly, knowing I’ll deal with it later. Daydreaming and mind-wandering almost disappear if you get all of that stuff out of your head and somewhere secure. Read the fifth entry in this series for more focus on corraling all of your stuff and thoughts.

  When being productive, your focus should be exclusively on the next action.
  We all have tons of things going on in our lives. Some of them are simple – “call the repairman about the dishwasher” or “be at the recital at 7 PM.” Others are quite complicated and nebulous – “improve my relationship with my mother” or “get a better career going.”

  However, the basic principle for making all of these things happen is the same: focus on the very next action you can take to move it forward. No matter how big or how small of a project you’re looking at, it can’t move forward without you taking a single step.

  That single step is the key. If there’s something you genuinely wish to accomplish, focus not on the enormity of the goal and the seeming complexities it holds (at least, not right now). Focus instead on the very next thing you need to do to achieve that goal. Nothing else matters right now. The twelfth entry riffs on this idea.

  Processing the stuff that comes out of your head and into your life is a daily practice.
  My inbox sits on a corner of the desk I use for almost everything. Into that inbox goes all kinds of stuff – currently, I see some mail, a poster I need to hang up in our children’s room, two magazines, a couple of receipts, and about five handwritten notes. That’s good. That means I’m collecting this stuff as soon as it appears in my mind or in front of my eyes.

  There’s still a problem, though. In my rush to get things done, it can be easy to just let stuff pile up in your inbox. The problem with that is before you know it, you’re right back to where you started, with random thoughts penetrating your focus and slowing you down.

  The key is to deal with the stuff you collect in its entirety every single day. Deal with it properly, too (as I discuss in the next point). Dealing with this stuff regularly means that all of your stuff – ideas, things, and so on – find their way to where they’re supposed to be – your filing cabinet, your trash can, your calendar, your to-do list, and so on. That way, when you need to know what appointments you have (for example), you only need to look at your calendar. You don’t need to rack your brain. The sixth deals with this.

  Have coherent, known places to put all of your stuff.
  Hand-in-hand with the processing is the idea of having rational places to put stuff.

  You’ve got to have a calendar that stores all of the things you need to do at a certain time or date. You also need to have a “next action” list that tells you what stuff you need to get done. You also need a trash can and an attitude that’s not afraid to trash stuff. I think those three pieces are absolutely essential.

  Beyond that, there’s some flexibility. I usually keep a master list and a series of folders for all of my larger ongoing projects. The list just lists all of the projects, and each project has a folder for specific ideas related to it. I also have a filing cabinet in which everything I think I should keep gets tossed. I don’t do anything complicated to file – I just give each folder a name and alphabetize them A-Z with the folders that start with numbers coming after them.

  The seventh entry gives you all kinds of ideas and details about having the right places to put stuff.

  A regular (preferably weekly) review is essential, where you reflect on things more broadly.
  Each weekend, on whichever day of the two Sarah is on nap duty with the kids, I spend an hour or two reviewing my life.

  Am I moving forward on all of my projects? How are they each doing? Are these projects in line with what I really want to be doing with my life? Did anything fall through the cracks this week? What does my calendar look like for the coming week? Is absolutely everything in my inbox processed?

  These thoughts and tasks not only keep the day-to-day system running, but they also go a long way towards ensuring that I’m doing things that are in line with the big things I want in life and that the big things I’m shooting for are in line with what I want out of life now. That kind of reflection helps me to constantly connect the little stuff to my big dreams, which is key for keeping everything moving forward. You can read more about this in the eighth section of the discussion.

  In closing, reading Getting Things Done and implementing the strategies has made a tremendous difference in my life. I would have never launched The Simple Dollar – or been able to sustain it – without the techniques in this book. If you have dreams – or simply have a hard time handling what’s on your plate right now – Getting Things Done might very well be the most useful book you’ve ever read. If you got even a glimmer of a good idea from this series, check out the full book – and don’t worry about Allen’s focus on business topics. The ideas he presents work in every context of life, from the stay-at-home parent to the self-employed to the programmer sitting in his or her cubicle.

  
  

  
• 

  Putting the Simple Back In

  Posted: July 15th, 2010, 2:00pm MDT by Trent

  Making the simple complicated is commonplace; making the complicated simple, awesomely simple, that’s creativity.
  - Charles Mingus

  One of the biggest challenges I have in my life is balancing the simple and the complex. I tend to oscillate back and forth between the two.

  What usually happens is that I’ll have a period that’s simple for a while. I’ll have ample free time, even after spending a significant amount of time with my children. My finances are in good shape. Everything is good.

  Because everything is flowing along so well, I get a desire to seek out new challenges. I’ll take on a few new things in my life – committee responsiblities, a work-related project, a new book, an increased social calendar, and so on.

  And then things get more difficult.

  I’ll start finding that I have less and less time to enjoy the things that most matter to me in life. I’ll be worn out in the evenings and have much less initiative to take care of things that need to be done. I’m less focused on my day to day choices and I become a lot more prone to spending extra money that I don’t need to spend. I feel more stress and less happiness.

  My response is to start tossing stuff. I’ll schedule fewer social activities. I’ll not renew my commitment to a civic project that I’ve worked on for a while. I’ll put that partially finished manuscript somewhere else for a while (yes, I have two partially completed books that are just sitting there waiting to be finished). I’ll get back in control of my finances and revitalize my commitment to keeping organized.

  Then, suddenly, I feel better again.

  Here’s the amazing part: I would not do it any other way.

  Why? My life improves when it is simple, but without adding complexity to it sometimes, I can’t discover new things in life and I can’t really keep in touch with what’s most important to me.

  To me, a truly great simple life keeps you constantly in touch with what’s most important to you without drowning you in the things that are less important to you. The catch, of course, is that if you don’t expose yourself to new complexities sometimes, your life becomes a boring routine.

  This “boring routine” is one of the things many people criticize and complain about when it comes to living simple or living cheap. They strip their lives of a lot of relatively unimportant things (a good move), but they don’t bother to continue to grow from there.

  A simple life does not have to be a boring life.

  A truly engaging and life-affirming simple life is one that constantly takes on new challenges and activities, but doesn’t object to tossing out some along the way, even things that have been with us for a long time but reflect a phase in our life that’s past.

  A truly great simple life doesn’t try to “have it all,” but tries to have as much as we want of the things that really matter to us, above all else.

  A simple life doesn’t waste time, money, energy, or resources on less important things when more important things are neglected and unused.

  In the end, a simple life is one in which a person has spent a lot of time reflecting on what genuinely matters in that person’s life and what does not, and then doesn’t waste that life on the things that don’t matter.

  And, with that, I’m going to go put on an old cowboy hat and a poncho and play “Jedi knights” with my son and daughter with lightsabers we made ourselves out of rolled-up newspaper. It might not be important and meaningful to anyone else in the world, but it’s important and meaningful to me (and probably to them, too). Why don’t you go do something that truly means something to you, too – and toss some of that less important stuff out on the curb while you’re at it?

  
  

  
• 

  Reader Mailbag: How Many Questions?

  Posted: July 15th, 2010, 8:00am MDT by Trent

  What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
  1. Replacing cable
  2. Do-it-yourself wills
  3. My no-generic items
  4. Money goals after retirement
  5. Tipping tip
  6. Frugality and building relationships
  7. 401(k), Social Security, and taxes
  8. Selling a used car
  9. Freezing baby food
  10. Which card to pay off?

  In case you are wondering, I get somewhere between 150 and 200 questions a week for the reader mailbags that I do. I can realistically only answer 20-25 of them.

  When I get a question, I usually read it. If it’s someone going through something life-altering or very urgent, I’ll answer directly to them immediately. If not, I file it away in a folder. When I get ready to assemble a reader mailbag, I go through that folder and decide for each mail that I read whether a question makes for good mailbag fodder. If it does, I put it in the mailbag column I’m writing. If it doesn’t, I archive it. I usually do not get through everything in the mailbag before the column is full, so I leave the rest for next time.

  Sometimes, I’ll pull out a question, start answering it, and find that it goes on for several paragraphs. I usually spin these off into their own posts.

  If I don’t get to a question you asked, I apologize. It’s simply a matter of numbers. I could almost do nothing but reader mailbag posts at this point and still not answer them all. I usually just pick the ones that I like for some reason or that I think will provide an interesting answer.

  I noticed you talked about possibly going “Cable-free” in your most recent entry. I agree! I use Netflix to get a movie fix, but there is also a great program called “PlayOn”. It works with the PS3/Xbox 360. It lets you stream Hulu, CBS, and a few other types of programs straight to your TV through the PS3. A little application gets installed on your PC, and then streams to the PS3. Check it out, I think you can get a free 2 week trial, too, before you buy. When I bought it, I think it was $30. One-time fee, no subscription. However, I have heard rumors of possibly free content on Hulu turning into paid content, so I don’t know how that would effect this program.
  - Josh

  The current generation of home video consoles – particularly the PS3 and the Xbox 360 – do a really good job of streaming media to your television for a very low cost. Netflix, for example, offers a streaming service with every subscription, even the $9 a month one (which gets you one disc at a time and unlimited streaming). If you have one of those consoles, it lets you access a good chunk of Netflix’s library while sitting at home – you just choose the item you want and you’re watching it within a minute or two.

  There are several options out there for streaming other kinds of media to your PS3 or other console, too, like Hulu.

  A friend of mine recently bought a Playstation 3 because of these arguments. He has no intent of playing games with it. He’s using it to watch Netflix ($8.95 a month) and Hulu (free) on his television at his convenience, as well as watch DVDs and Blu-Ray discs. Considering he’s doing this at the same time as getting rid of his cable box (that had a DVD player in it, since he doesn’t own one), he estimates his break-even point will be in about five months and he’s not going to miss any programming that he actually cares about. Sounds like a good move to me.

  Is there a simple, frugal way to do a will for yourself? I have a few assets, no spouse or children. I would want my estate to go to my sibling,
  - Mary

  You can certainly write a will yourself. All you essentially have to do is list your assets, name your beneficiaries (your sibling), name your executor, and have two witnesses sign it in front of a notary. The difficulty with this is that if anyone chose to challenge this will, the witnesses would have to testify to your state of mind, and lawyers are creative folks who will find a reason to challenge if someone is paying them to find it.

  I don’t think in your case you have too much to worry about, but you might want to consider using a service like LegalZoom as a compromise. They’ll help you set one up for a pretty reasonable price.

  I know you have experimented in finding ways to save money – making food at home and making your own laundry detergent for example. A few weeks ago I recall you saying you hadn’t found a way to make a cheap shampoo so this created a question for me – What are some of the items you do not buy used or make or refuse to use the generic of? I know some people find it gross to wear shoes from the thrift store but I find that they can be a good buy for nice shoes. I personally love soda so while I am cutting it out if I’m going to buy a drink its going to be a big name brand.
  - Katharine

  I won’t buy generic garbage bags. I’ve had too many disasters with garbage spilling all over the floor due to cheap bags.

  I am very picky about dairy-based food items. I won’t buy them if I can’t clearly see that they don’t have rBGH or other added growth hormones in them. I’ll often choose organic milk because of this.

  I strongly prefer local produce when in season, to the point where I’ll happily pay more for something grown locally that morning rather than something grown far away a week ago.

  If I’m buying pure luxury items, I don’t skimp. For example, I figure if I’ve decided to have a good beer, I’m not going to go cheap and get something awful. I’m going to get something tasty.

  I think that largely covers it, at least in terms of the examples I can think of.

  Everyone agrees that during our working years it makes sense always to try to spend less than what’s coming in. But what happens after retirement? My wife and I have small pensions, I have Social Security (she may start collecting in two years, or may wait), and we both have saved money in various retirement vehicles. The usual advice I’ve seen is to take out no more than 4% of savings each year. But that’s with the goal of preserving principal, as I understand it. We could live comfortably now taking no more than that (though we expect our medical expenses to increase as we get older). We do not have heirs we need to provide for. The causes and family we care about we’d rather help now while we’re living.

  Our question is: How do we set money goals now? A lifetime of frugality means we don’t want to throw away the money we’ve slowly acquired, but we also don’t want just to sit on it. There aren’t a lot of material things we need and don’t have. We could travel more, we could go to more concerts and theater, we could buy art, but we don’t feel stongly impelled to do so. We’re lucky to be happy with the things we have!
  - Michael

  If you’re happy with what you have, don’t spend it. Hold on to it, make sure that you’re both sustained through any lifespan that you might have, and then give a large gift to a charity in your estate.

  Now, that doesn’t mean you can’t help a charity now. For example, some charities can borrow against such pledges for improvements now without taking a dime from you or can move forward with projects based solely on pledges. Other charities offer charitable annuities, where you give them some lump sum of money and they give you payments for the rest of your life. I know, for example, that Consumer Union (the makers of Consumer Reports) do this.

  My concern would honestly be that you have enough money to splurge on stuff for the sake of splurging now, only to find one of you alone in fifteen years without enough money to make ends meet. I don’t think that’s a fate either one of you want. I’d consider an option that allows you to give while you’re alive without abandoning your security.

  I live on Long Island, NY and when out eating with friends, we just double the sales tax on the bill. Our sales is 8.625% and that would bring the tip to 17.25% which is great since we usually tip between 15 and 20%. If the service was lousy, go back to the 10% rule!
  - Barbara

  That’s a good strategy in a locale that has a good interest rate, so I thought I’d share it.

  One thing I’ve seen recently is that some restaurants are starting to add a 15%, 18%, and 20% calculation to the receipt to aid in tipping. I am actually strongly in favor of that as it makes such calculations much easier.

  I usually give the low one – 15% – for bad service (unless something degrading happened). I give the high end for great service.

  I became frugal months ago, I like it and I feel I’m doing the right thing.

  But people doesn’t see it this way, they see it as something bad, when people know I’m frugal they start to dislike me.

  I don’t care about people’s opinion, but you always suggest building relationship with other people, everything goes smoothly until they know I’m frugal, then they start to have this bad image about me.
  - Al

  I don’t think there’s a need to bring up one’s frugality in an environment where you are establishing a relationship with someone unless it’s a “frugalites anonymous” meeting.

  I’ve often heard that you should avoid talking about money, politics, sex, and religion when you’re first getting to know someone because those issues are sensitive and rife with disagreements. Frugality would fall under the money category.

  You can certainly talk about some of the techniques that you use for things in life, but you don’t need to lead with them. Just focus on other areas of conversation and if you feel uncomfortable talking about something, lay low during that part of the conversation.

  I have a question about my 401K that I wonder if you have any experience with. I currently contribute 17% of my check each week. That means I max out the yearly $16,500 contribution sometime in September every year. I also meet the Social Security tax limit at about the same time. This means for about the last 10 weeks of the year my weekly pay check is about $400 per week higher. However, I have been wondering if I would be better off tax-wise reducing my weekly percentage to have a smaller amount taken out year round. Or does it all equal out when my yearly federal taxes are done?
  - Danielle

  I don’t believe it would make any difference at all in terms of the total taxes you pay. However, it might result in a situation where your employer is not withholding adequate amounts from your paycheck over the course of the year, but most employers usually strive to withhold enough to ensure their employees get a refund at the end of the year, so your result would likely just be a change in the size of your refund (or the amount you pay in) versus the size of your checks throughout the year.

  Another difference it would make is in terms of equaling out your paycheck over the course of the year. Depending on how you budget, that could be important, too.

  I don’t think it’s something to stress out about in any case. The amounts we’re talking about are very small in terms of your annual income.

  I have an older British sports car that I’m no longer interested in. I would like to sell it, and use the money to help replace my older everyday vehicle.

  I know this is silly, but for some reason I dread the whole selling process. I ran an ad on craigslist, and I got a bunch of tire kickers that I really didn’t want to deal with. The result is that I’m now procrastinating in my efforts to sell the car, which doesn’t solve my problem.

  The car is in decent shape and running order, but it is also old, so it has flaws that would be normal for a 35 year old car. I also keep thinking of small improvements that could be made to the car, and these become excuses to not proceed with the sale.

  I’ve thought about trading this car in, but I’m assuming most dealers don’t want to buy an older car, and they also won’t give me even a fair price for it.

  I believe this car is worth $7-8K, but I’m willing to take less to sell the car, so I’m not being stubborn about the price. I did turn down a sight unseen offer of $5K.

  This all leads to my question for you: Do you have an recommendations/advice/strategies for selling a used car?
  - Jay

  The biggest thing you need to do is to determine the price that you minimally expect to get for the car. You seem to expect more than $5,000 but you’re willing to take less than $7,000.

  My suggestion would be to figure out what you want to get out of it, add on about 15%, then list the car widely. If it doesn’t sell for what you want, keep trying.

  I would also make sure that you’re not overvaluing the car. What is the car’s blue book value? Use KBB and get a good estimate.

  We are expecting our third child this December and I am already starting to get the nesting urge! I consider myself pretty hand in the kitchen and cook all of our meals at home. I am not, however, confident in my freezing abilities and I would love to begin thinking about preparing some frozen meals for the cold winter months when I’m A) too pregnant and exhausted to cook or B) have just given birth!! I am looking for information such as: what containers work best for freezing, how long do frozen meals last, what recipes work well for freezing, can you freeze contents that you put in the crock pot, etc. I guess I’d love to see kind of a “Freezing 101″ post!!
  - Carrie

  I have indeed frozen baby food in the past and it does work. My intent is to have a more detailed post about this when our youngest gets old enough for baby food (probably this winter), but for now, here are a few tips that address your specific points.

  You can freeze stuff in about anything. We’ve used baby jars and ice cube trays in the past and both have worked just fine – just make sure you label stuff. The frozen food usually works well for about three months, from our experience. You can freeze about anything that would be all right for a baby to eat – just avoid the potential allergy foods. We’ve frozen stuff prepared in a crock pot before without any problem, as crock pot food is usually cooked at least as well as other foods.

  The real key is to just make sure it’s pureed to a point that your baby can eat it. The younger the child, the more smooth and water-like it needs to be. Don’t hesitate to add water to any puree you make.

  Good luck! Look for a better guide this winter!

  I have just transferred a cc debt ($4800) to a new card with 0 interest for 18 months. I have another cc with about 4k on it with 16% interest. I have $300 a month to put toward these 2 debts. How should I divide the amount between the two?
  - Henry

  The first thing I would do is figure out what happens when that balance transfer expires. The big question is what happens if you haven’t paid back all of the transferred balance. Are you responsible for all of the back interest or not? You may have to call them to find out if you can’t get this information from the documentation.

  If you will get dinged for that back interest, compare that interest rate to your 16% card. Which rate is higher? Pay down the higher debt.

  If you won’t get dinged, pay down the 16% card first.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  

Frugal Dad

• 

  Weekly Roundup: Designer Sunglasses Worth It?

  Posted: July 15th, 2010, 3:00am MDT by Frugal Dad

  I suspect you knew my answer before reading this one. Clearly, I do not think designer sunglasses are worth the price. In fact, I normally buy fairly cheap sunglasses because, given my history with sunglasses, they have a high likelihood of being sat on, dropped from my head or otherwise crushed before the end of summer. At least when this happens I only feel bad about being out $15 instead of $200 (or more).

  I know there are other considerations such as UV protection, prescription lenses, etc, but I have to believe cheap sunglasses do just as good a job. What side of the sunglasses argument do you fall: cheapo shades or designer all the way?

  The Frugal Roundup

  Warren Buffett:  “This Economy is Coming Back.” I sure hope Buffett is right! I’m still not sold on the idea the worst is behind us, but as more companies report positive earnings you have to think eventually that has to translate to more employment. (via The Daily Crux)

  How to Prepare For and Rock a Behavioral Job Interview. Here is a great post if you are looking for a job or just changing careers. Many companies (and hiring managers) are starting to go this route for interviews. (@The Art of Manliness)

  Buying a New Car May Actually Be Cheaper Than a Used Car. Jeremy takes a look at one of the more heated debates in personal finance. (@Gen X Finance)

  True Trick to Save Money on Appliances. Most appliances operate much more efficiently when cleaned. This is especially true of things like air conditioners (change those dirty filters) and refrigerators. (@Budgeting in the Fun Stuff)

  Cheap Wedding Ideas On a Small Budget. I guess it’s about halfway through wedding season, but this would be a great post for someone planning one within the next year or two. (@The Digerati Life)

  Worth More Than Money: Taking a Detour on the Road to Riches. Sometimes you may need to push pause on your financial recovery to do what’s important. (@Get Rich Slowly)

  Best of the Rest

  • How We Underestimate Our Financial Strength
  • 5 Ways to Encourage Your Child to Embrace the Spirit of Enterprise
  • 5 Steps to Overcoming Financial Setbacks
  • Tips on Buying a Laptop
  • Everyday Conveniences for Cheaper
  • How Your Credit Score Impacts Interest Rates
  • Learning the Hard Way and Being Ready to Learn

  Yet another shameless plug for the Frugal Dad Facebook Fan page. Sorry, but we are just 20 fans away from 1,000! Will you help me spread the word?

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  The Obligations of Wealth

  Posted: July 14th, 2010, 2:00pm MDT by Trent

  Connie writes in (I edited her question a bit to protect privacy):

  I recently married a business owner who had a net worth of around $10 million before we got married. He has lived in the same medium-sized town all of his life and has kept many of the same friends since his school years. Lately, though, he has noticed that a lot of them seem resentful of him. I asked a few of my friends about this and they said that the feeling in the community was that he was being wasteful and ungiving with his money. I don’t feel that’s the case at all. He gives substantially to our church and to several charities. It is hurting him to watch some of his friendships fall apart because of this greed. Do you have any thoughts about this?

  I certainly do.

  First of all, I think there is some inherent distrust of the rich in the mainstream of American society. People assume that if you have accumulated money, then you are either using it in some unworthy way or you’re a miser, both of which are negative stereotypes. Many wealthy people solve this by either being extremely public with their giving (Andrew Carnegie, Bill Gates, people who donate to universities to get their name on the door), being extremely quiet about their wealth (John Madden, for example), or just not caring what other people think (every ostentatious display of wealth you can imagine).

  A big part of that is that for many people, having $10 million is an enviable position to be in. There is, flat out, going to be a lot of envy of your position. People imagine all of the things they could do with that kind of wealth – both selfish and charitable – and they feel some sort of resentment towards others who don’t do the same (even if, often, it’s not what they would actually do with their wealth). “This person doesn’t share my values,” they think, or they feel simple jealousy.

  Obviously, at some point, your husband has done something to not conceal his wealth. Maybe you live in a very high-end house. Maybe you drive expensive cars. Whatever it was, it made clear to your friends that you had significant money. Because of that, what you’re now seeing is a mixture of envy and jealousy and opinions on what your husband is doing.

  Yes, it’s not nice. But at the same time, it’s human nature. No one is immune to jealousy or envy. Your husband’s success has made him a target for this.

  Another thing to consider: has money changed your husband from the kind of person that he used to be? It could very well be that the wealth in his life has altered his values, his political beliefs, his ways of interacting with people, and so on. I’m not saying that they have, I’m merely saying that it’s something to think about. A good source to look at here is old friends that have been there for the long haul – ask them what they think.

  So what can he do from here? He has several options.

  He can just ignore it and go on with his life. This falls into the “just not caring what other people think” category. He can continue to do exactly what he’s doing now and decide that the friends who are falling into the jealousy trap aren’t contributing positively to his life (because, honestly, if they’re making him feel guilty about the things he’s worked hard for in his life, they’re not being good friends at the moment).

  He can make a very public display of charitable giving. He could give a chunk of his wealth to some sort of civic charity, like sponsoring a building for the Boys and Girls Club or something like that, and do it in a public way. Alternately, he could just make an effort to just donate as he’s donating now, but make it more public. This will smoothe some matters, but this still won’t make everyone happy – there will be people jealous of the reception he gets for his giving, too.

  He can temper his public displays of wealth a bit. Whatever he’s done to make people think that he’s rich, he can just pull back on a bit. If it’s the car, get a less flashy car next time. If it’s the house… well, there’s probably not much he can do there. He can dress a bit more in time with how everyone else dresses if clothing is the problem. If you’re wearing a large ring, you can save it for special occasions. (I don’t know what triggered the response, so I’m guessing in the dark here.)

  He can focus on actually shoring up the individual friendships that matter to him. Instead of fretting about this privately, he can instead focus on the friends that are actually closest to them. Have him sit down with them and talk through this stuff. It can sometimes be hard for males to do this kind of thing, but if it’s deeply bothering him, he should do it.

  He can re-evaluate what he values and how he treats others. This works best if you come to the conclusion that, yes, wealth has changed you in some not-so-positive ways. Introspection and a serious focus on improving yourself can go a long way.

  If I were you, I’d probably use some combination of these tactics. I don’t think he should bend over his life for these folks, but I think there’s something to be said for not making ostentatious presentations of your wealth. Similarly, I think there’s real value in always shoring up the relationships that deeply matter to you – and sometimes accepting that other relationships have moved on.

  For those of you who don’t have a lot of money, put yourself in this man’s shoes for a moment. Yes, it would be wonderful to be financially secure for life, but what would you do if that security meant that many of the people you’ve had relationships with most of your life no longer were close to you? What price does wealth have? What’s the best way forward? I don’t think the answer is exactly the same for everyone, but spending a moment in someone else’s shoes can make for some surprising insight.

  
  

  
• 

  The Simple Dollar Weekly Roundup: Dealing With Stress Edition

  Posted: July 14th, 2010, 8:00am MDT by Trent

  How do I deal with stress? My best way of dealing with stress is to be active, not to be passive. I’ve found that every time I respond to stress in my life by just sitting around or doing nothing, it just makes the stress worse. I’m almost always better off doing something physically or mentally active or directly attacking the source of the stress.

  How to Dry Fresh Herbs We have a ton of herbs this year, as our perennial herbs went berserk and attempted to take over our entire garden. Thus, this type of advice will have us sitting pretty with oregano and a few others for a long while. (@ bargaineering)

  How to Get Your Spouse On Your Financial Team For us, the real key for getting on the same financial page is to simply talk it out. In fact, my mother says that Sarah and I tend to talk things “to death.” It works for us. (@ consumerism commentary)

  Best Freelance Advice Ever If you’ve ever considered self-employment or freelancing, the advice in the comments on this article could be utterly invaluable. I bobbed my head in agreement with many of them. (@ freelance switch)

  Earning more money: Finding the right idea While I don’t think the ideas here are 100% perfect (I think some of the stuff he is against works very well for certain paths – it just doesn’t work for every path), I do think working through the ideas here can really help anyone who is struggling for ways to earn more. (@ i will teach you to be rich)

  13 Pay-What-You-Want Restaurants This idea works only if the customer is willing to name a fair price for what they get. I know many people who would go there, order food, and pay a cent or nothing at all. I think non-profit restaurants will work, but I think it will require minimum prices. (@ coupon sherpa)

  See an online job scammer at work As time goes on, I’m finding myself trusting unmoderated sources less and less and people that I trust more and more. (@ red tape chronicles)

  5 Strategies for a Happy Marriage: Secrets every bride and groom should know A happy and successful marriage will be one of the best financial moves you ever make. An unsuccessful marriage can end in complete financial disaster. Better do it right, I think. (@ pick the brain)

  
  

  

Frugal Dad

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  The Secret to Getting Out of Debt: Forget Snowballs and Interest Rates

  Posted: July 14th, 2010, 3:00am MDT by Frugal Dad

  I was in debt for nearly ten years, and for ten years I tried every debt elimination method known to mankind. I was like the overweight person who has tried every diet, but years later finds themselves more overweight than when they started.

  The last two years of my personal journey to debt freedom something finally clicked. It didn’t matter how I ordered my debts, how many half payments I made, how many times I transferred balances from card to card chasing a lower rate, or how many times I consolidated my credit card balances. The only thing that was going to get me out of debt was boosting my income.

  The 70-Hour Workweek

  If you don’t do something radical to improve your income, you will be in debt forever. I hate to break that news to those still in debt who spend their nights creating elaborate repayment plans while dropping Netflix memberships to create an extra $15 to throw towards a $37,000 credit card balance. That’s like trying to dip out the ocean with a teaspoon. You obviously need a much bigger spoon.

  So how does one go about increasing their income – particularly those already busting their butt 50 hours a week in a full-time job, trying to be a devoted spouse, a parent to their kids and run a household? The answer:  more work.

  For a short period of time you need to find more work. Easier said than done, particularly in an economy where unemployment is high and even part-time jobs are scarce. I started my final push to debt freedom in December 2007, so I understand just how bad timing can be. But you can’t use the broader economy as your excuse to staying in debt, limiting your opportunities and stifling your dreams of financial independence.

  Exactly what am I saying here? I’m saying you need to work another 20-30 hours a week earning money for the sole purpose of repaying debt. I don’t care what you do (as long as it is legal), but maximize those 20-30 hours to earn as much as possible.

  Part-time retail work at minimum wage may not be the answer. Starting your own business may require capital – something you probably don’t have much of if you are in debt. At great risk of sounding like a back-of-the-magazine ad, I highly recommend considering a low-cost opportunity you can do from home. Maybe something related to your full-time gig that doesn’t conflict with your full-time gig.

  If you are a teacher, consider tutoring at night and on the weekends. If you are a programmer, consider doing some freelance work. If you like doing yard work, offer to mow lawns for friends and neighbors. And no matter what you decide, start a blog and write about it – landscaping, programming, child care, pet sitting, delivering pizza – all interesting topics that you can develop into an interesting blog if you put your personal touch on it.

  I was interested in finance and frugality. I used to work in the financial industry. I also enjoyed writing. It only seemed natural to declare my side hustle writing about finances (after mowing lawns and part-time work wasn’t yielding enough money to make significant dents in our debts).

  Idle Hands are Useless at Paying Off Debt

  So that’s not quite how the saying goes, but comparing debt to the devil’s workshop was a stretch (then again, maybe not). The point is that while you are sleeping in, watching television, or “just relaxing,” you are essentially wasting time that could be spent developing a second income stream to pay off debt.

  I know you work hard, and you have a family, and you deserve a break. You can rest after you are debt free. For now, you need to work.

  After starting Frugal Dad, I made a goal to get up every morning at 4:30am to answer emails, comment on other blogs, write new content, research and do anything else I could do to help build my blog before heading off to my full-time job. Those three hours each weekday morning were some of the most productive times of my life. I was completely focused on my mission.

  On lunch breaks, I carried a memo pad and pen and brainstormed ideas for topics. At night, after the kids were in bed, I set things up for the next day, reviewed daily statistics, etc. On the weekend, I carved out a few hours dedicated to trying to get ahead for the next week. I banked a couple posts, cleared my inbox and read 20 other blogs in the personal finance niche to stay current.

  It wasn’t easy. My first month blogging I earned $33.88 – that’s only a fraction more than a dollar a day. But I pushed ahead. In six months, I had earned a total of $4,600 (after taxes) to go towards debt repayment. Now I was getting somewhere.

  I stayed at it for two more years from that point, and my family just recently celebrated debt freedom. I can’t say it was easy. There were a couple times I wanted to quit. There were many setbacks. There were more than a couple times we were tested with a medical emergency, or something breaking, but we just refused to stop until we got back to zero.

  Snowballs, Interest Rates and Spending are Still Important

  The order you pay back your debts with the money you earn from your 70-hour workweek is still important. And of course, if you don’t reduce, or at least hold firm, your spending, you will simply spend all this new money and remain in debt (I like to describe this as running faster on the treadmill while someone increases the speed – you’ll sweat a lot harder, but get nowhere).

  There are risks associated with working a 70-hour workweek. It puts a strain on your physical health. Relationships may be strained as well. Your social aptitude will suffer. You won’t have a clue who won American Idol, that Lost is finally over, or who’s playing in the Superbowl. It’s alright; you can catch up later.

  Despite the risks, the rewards are 100% worth the effort. Since paying off our credit card and school debts, my wife and I have felt more freedom to enjoy life than any point in our 12-year marriage.

  We were able to buy our first home (and now we’ll work to pay off our mortgage early, though not quite as hard). We own our cars free and clear. We have an emergency fund for the first time in our lives. We are beginning to learn about investing and savings products that we could never afford. And most importantly, we have options.

  Debt has a way of trapping you – in bad jobs, in bad relationships, in bad locations. It’s a suffocating financial cancer that eats away at your future dollars, and your current enjoyment. It adds immeasurable risk to your life. It is not to be ignored for another moment.

  You simply cannot win, financially, while you keep debt around. Draw a line in the sand today – no more new debt…ever. Make a plan to boost your income. Make a plan to reduce your expenses. Throw every single extra dollar that comes into your life towards that debt. You aren’t throwing it away, you are investing it in your financial future.

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Getting Things Done: The Power of Outcome Focusing

  Posted: July 13th, 2010, 2:00pm MDT by Trent

  This is the thirteenth entry in a fourteen part series discussing the time management classic Getting Things Done by David Allen. New entries in this series will appear on Tuesday afternoons and Friday mornings through July 16.

  It is easy to set big, audacious goals for ourselves like “spend more time with our kids” or “get our finances in the right order.” The big problem, though, is that such goals often seem enormous and vague. What can you really do to make these things happen?

  Allen touches on this on page 250:

  “Create a way to regularly spend more time with my daughter” is as specific a project as any, and equally demanding of a next action to be determined. Having the vague, gnawing sense that you “should” do something about your relationship with your daughter, and not actually doing anything, can be a killer. I often work with clients who are willing to acknowledge the real things in their lives at this level as “incompletes” – to write them down, define real projects about them, and ensure that next actions are decided on – until the finish line is crossed. That is real productivity, perhaps in its most awesome manifestation.

  The solution to such a big, vague project is to focus on a very small handful of things.

  First, what’s the outcome you want from this? Do you want a better relationship with your children? Do you want to have a grip on the money that’s going in and out of your accounts? You need to spend some time imagining what you want at the end of any idea for life change that you have. The more specific you are, the better.

  Next, what’s the next step you can personally take to get there? If you want a better relationship with your children, the first step is to push away from your desk and spend some time with them – and then start doing that regularly. If you want to get a grip on your finances, the first thing you need to do is select a software package to help you figure this out. You need an action step that you can actually do that will start moving this initiative forward.

  That really covers it. Just execute that next step, then ask yourself “what comes next?” again and again until you’re there.

  What if you have no idea what you want? Allen addresses that on page 251:

  As an experte in whole-brain learning and good friend of mine, Steven Snyder, put it: “There are only two problems in life: (1) you know what you want, and you don’t know how to get it; and/or (2) you don’t know what you want.” If that’s true (and I think that it is) then there are only two solutions:

  - Make it up
  - Make it happen

  In other words, if you don’t know what you want, it’s time for some soul-searching. A person without a goal is a person idling and not growing. Even if the things you want are mundane, they’re still goals. You can still focus on them, achieve them, and grow as a person.

  On the other hand, if you know what you want and can’t figure out how to get there, start breaking that big thing you want down into smaller bites. Focus on nothing more than the absolute next step you ned to take to get there – something so small you can accomplish it in an hour.

  Both of these things might require some help from others during the thought process – and that’s not only okay, that’s encouraged. Others can almost always offer very good help when it comes to figuring out such significant things in our lives.

  There’s another interesting problem, too: on our way to achieving any big goal, an awful lot of steps are pretty mundane.

  In order to be a great basketball player, you have to spend hours in a gym making shot after shot. You have to run all the time to keep yourself in pristine shape. The end product – being great at a sport you care about – seems wonderful, but the work to get there can be really mundane.

  In order to be a great parent, you have to spend a lot of time with your children, not just hovering over them or trying to be their friend, but encouraging their problem-solving skills and their independence. You have to change diapers and deal with disciplinary issues over and over again. The end product – a child who is self-motivated to maximize their own potential – is a great target, but the work to get there is mundane.

  To accomplish something big like this, you have to revel in the mundane. You have to know and appreciate how those endless free throws or those infinite diapers or those countless time-out sessions are pushing you towards your goal. Allen riffs on this on page 252:

  My clients often wonder how I can sit with them in their offices, often for hours on end, as they empty the drawers of their desks and painstakingly go through the minutiae of stuff tha they have let accumulate in their minds and their physical space. Aside from the common embarrassment they feel about the volume of their irresponsibly dealt-with details, they assume I should be bored to tears. Quite the contrary.

  Allen’s big goal is to be a good time management consultant. One of the mundane details of doing this is that he has to sit in people’s offices while they do their collection brainstorm for the first time and sift through mountains of junk on their desks. The thing is, though, that the mundane step here, if executed well, brings him closer to his goal. By focusing on that mundane detail and looking for ways to do it as well as possible, he inches towards something enormous.

  One of my big goals is to be a writer that positively affects people’s lives. In order to get there, I have to do a ton of mundane work, from dealing with correspondence to doing interviews to reading contracts. Sometimes, I want to blow it off. Other times, though, I recognize that really nailing this little step helps me build to my dreams. I focus in on that task and get a great deal of personal joy from doing it right.

  That’s the power of outcome focusing.

  On Friday, I’ll share the five biggest ideas to take away from Getting Things Done.

  
  

  
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  It Doesn’t Matter What Your Position Is Right Now, You Can Do Better

  Posted: July 13th, 2010, 8:00am MDT by Trent

  An obviously upset Sam writes in:

  You think your world is all rainbows and puppies. Guess what? Karma will eventually bite you in the [rear]. Seven months ago I got fired from my job for no fault of my own the company was going under. Now I cant pay my bills and Im going to lose my house. Your life isnt a real life.

  In 2006, I did not have enough money to pay my bills even though I was working at a great job and everything seemed (on the surface) to be great in my life. My dreams of being a writer were quickly disappearing, as were my dreams of ever being able to adequately take care of my child. I reached a point where I had fleeting thoughts of whether I could kill myself for the insurance money to put my son and my wife on a better track and give them a life that I felt like I was incapable of helping them with.

  Guess what? I got out of that situation. It wasn’t easy. I had to face a ton of my own flaws along the way, most of which are still a difficult part of my own life.

  The biggest thing I learned is that no one is perfect, and every single person is in a situation that they can improve. Period. There are no exceptions to this. No one is living the best life they could be living. Why? Because, again, no one is perfect.

  I’m certainly not perfect. I spend too much money on books and games. I have a hard time resisting a delicious well-prepared meal. I spend far too long on important decisions, to the point that I lose opportunities because of it. I get very down on myself and my own abilities all the time (truly, thank goodness Sarah is there to help me with this). I talk myself into purchases that I shouldn’t make. I lose track of routines that I really, really tell myself that I want to establish. I regularly find excuses to avoid social interactions that I should engage in simply because they make me uncomfortable.

  I know very well that I can improve in each of those areas if I put my time, focus, and heart into it. I can cut my entertainment spending (and I’ve been doing pretty well at this as of late). I can eat better. I can be more decisive. I can focus on the good things that I do and not my failings. I can avoid making unnecessary purchases. I can convince myself to do that daily walk. I can go to that dinner party and interact with people.

  What does this have to do with karma and me being “lucky,” though?

  First of all, the best method to keep karma at bay is to constantly try to improve yourself and your own situation. Look at the areas where you don’t do well and strive to improve them.

  Here’s a good exercise: imagine where you’d be if you suddenly lost your job. Would you be able to pay your bills for the next few months? If not, then you’ve identified a weakness, one you can solve by saving some money each week.

  Here’s another one: imagine someone might offer you a great job in two weeks. Would you be presentable enough for them to take interest in you? What skills would you be able to say that you had? Would you have a great resume on hand to give them? If you answered poorly to any of these questions, then you have a personal weakness, one you can work on. Make that resume. Keep yourself presentable and sociable. Make a good resume and keep copies with you wherever you go.

  The truth of the matter is that bad karma happens to all of us sometimes, but the truly devastating effects of that bad karma are often directly connected to our own choices. If we’re flying high and don’t prepare for the inevitable fall, things will hurt when we fall from that pedestal. If we’ve already fallen and aren’t preparing ourselves to rise again, we’ll stay down for the long count.

  It is about us. It is about what we choose. It is about overcoming our individual flaws – and we all have them, and we all have different ones – and making the best of what we have.

  No one does this perfectly because no one is perfect. One thing we can all do, though, is strive to improve ourselves and our situation no matter what that situation currently happens to be.

  Don’t spend a second worrying about what or how someone else is doing. You can’t control that. What you can control (at least to some extent) is your own situation. Take charge of every element that you can and walk forward with it.

  What can you do, right now, to start improving your situation? That’s the only question that matters.

  
  

  
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  When Partners Don’t Cooperate With Setting Goals

  Posted: July 12th, 2010, 2:00pm MDT by Trent

  Yesterday, I posted an article about setting goals with your partner. In the comments, Brittany left a wonderful question that I felt deserved a post all its own:

  What if you have your shared goals, but one partner doesn’t have the financial gumption to see it through? I’m not married, not even engaged, but I’m in a relationship that looks like it might be heading for the long term. But my partner is awful with money and even worse with savings. We have a few shared long/medium-term goals (and one is a life goal of his, so I’m positive it’s not my goal I’m just calling “ours”), but my partner isn’t making any progress towards the goal. He’s far more likely to make a bunch of little frivolous purchases now (”Eh, it’s just $10… its just $20… I’ll save when I have a reasonable amount to save.”)

  Normally I try not to push the “gospel of frugality” on anyone, just live my example and take satisfaction from people’s faces and questions when I get to say things like, “Yeah, I know my car (a PT cruiser) is a bit silly-looking, but I paid cash for it when I was still working for minimum wage, so…” But I also don’t have a vested interest in others’ financial futures.

  Everything else in the relationship is great, but I can’t see myself becoming financially involved with someone who doesn’t share my financial views (even though this seems like a silly reason to break things off). How do others handle their partners not being on the same financial page as them?

  First of all, I would move forward very slow in this relationship. Clearly, the values you have and the values your boyfriend has are in signficant conflict – and if you’re seeing this that early in the relationship, you need to move forward slowly and not jump into anything. I would also, for a very long time, keep your finances as separate as possible.

  Value conflicts are the core of virtually every relationship problem out there. Value conflicts are actually resolvable, but they require a willingness by both partners to work through that value conflict, compromise on a solution, and work together to make sure the solution holds.

  It sounds as though your partner is not interested in or engaged in long term goals or puts a much higher priority on his own goals than any shared ones you have. That’s in direct conflict with where you’re standing – it sounds like you’re goal-oriented (at least to some significant degree) and are also willing to compromise on the goals you’re both working for.

  The only way to resolve this, then, is to simply do what I mentioned above: work through the value conflict, compromise on a solution, and work together to keep that solution in place.

  The first part is working through the value conflict. A big part of that is trying to make sure you both understand what each of you value, and how you each act is a very big part of that understanding. By his actions, he seems to put value on short-term rewards for himself.

  You can’t really be judgmental here. We all think our values are the best way of doing things or else they wouldn’t be our values (the DINK post from last week is an example of that). The trick is to recognize that not everyone shares our values – and no one likely shares your exact set of values.

  Discussions like this are usually painful because when someone you care about says that they don’t share your values, it often feels judgmental no matter how you word it. You have to make it clear that you want to understand what he values and you want him to understand what you value, no judgments or anything.

  This requires the ability and willingness to communicate. If you can’t get to this point in the process, then there’s a communication breakdown in a way that will make this relationship very difficult going forward. It will likely require one of you subjugating what you value to the other one, and that’s an unhealthy relationship that either ends up in therapy, an explosion, or with someone in misery for a long time.

  The only way relationships work is through compromise – you agree to certain arrangements that allow you both some freedom to retain your values but also respects the values of your partner.

  My wife and I compromise on a lot of things. For example, Sarah likes the television series Bones – and I can’t stand it. Sometimes, when I go downstairs after putting the kids to bed, she’s watching an episode of it. Our compromise is that I can just go read a book or something if she’s in the middle of an episode.

  However, if I’m doing something similarly engaging that she’s not interested in – say, playing an online game with some friends or something like that – she’ll do the same. She’ll go read a book or something like that.

  She doesn’t demand that I stop playing so we can watch Bones. I don’t demand that she stop watching Bones so we can do something more interesting together. We compromise.

  Here’s another example that’s money related. Sarah is very, very conservative with investment choices. She does not like her retirement savings to be at risk, even if that means earning less. She would far rather put away more for retirement now and have it be at less risk than put away a little less now and have to take on risk to reach her retirement goals.

  I feel differently. I don’t mind some investment risk if the term is really long. Since I’m in my early thirties and don’t intend to touch any of that money for at least thirty years, I have no objection to putting a hefty portion of my retirement into stocks – even foreign stock indexes.

  Our compromise? It’s a simple one, actually. She handles her retirement accounts as if I didn’t exist and she was solely responsible for her own retirement. I handle my retirement accounts as if she didn’t exist and I was solely responsible for my own retirement. She has her money in some pretty conservative stuff. I have a target 2045 retirement fund (2045 is a bit past when I actually expect to retire). Add the two together and we have a mix – the majority of the money is pretty conservative (all of hers and a slice of mine) and some of it is in high-risk high-gain areas.

  In none of these cases are Sarah and I getting exactly what we individually want. What we do have, though, is respect for what we value and some ability to express that value.

  That’s exactly what you guys need to strive for if you want to make this work: respect for what you each value and some ability to express that value. That’s compromise.

  So, if you’re a long-term planner and he’s a short-term person who aims to live life fully now, one thing you might want to consider is a “free” account – an amount of money set aside each week/month that he can do whatever he wants with. Perhaps you can even have a small account like this for yourself, if you wish.

  That account, though, is the limit of what you can spend frivolously. The money beyond that is set aside for the long-term goals that you guys share.

  If your partner rejects such a conversation or any such attempt at a compromise, your relationship is not on a good foundation. If you’re willing to accept his values and bend on yours, then he should be willing to do the same. If he won’t, then he’s requiring you to subjugate your values to what he wants – and as I said above, that won’t end well.

  Where can you start? Sit down and talk about this. Try to really figure out what he values. Suggest a good compromise that allows you to keep some significant degree of what you both value. Keep your end of the bargain and live up to the compromise – and see if he’s doing the same. If he’s not, then I would back away slowly from the relationship.

  
  

  
• 

  Reader Mailbag: Notes and Some Questions on the “Getting Things Done” Series

  Posted: July 12th, 2010, 8:00am MDT by Trent

  What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
  1. GTD and privacy
  2. Planning for a long trip
  3. GTD and prioritizing
  4. Overcoming jaded partner’s money attitudes
  5. GTD and daily routines
  6. Hopping into an IPO
  7. Reporting a tiny income
  8. Stagnant savings
  9. GTD and “books to read”
  10. Student loans and house savings

  It’s strange – there haven’t been many comments on the posts, but I’ve had more reader comments and questions directly emailed to me about the Getting Things Done series than almost anything else I’ve ever done on The Simple Dollar.

  This further mystifies me, because I have a hard time figuring out what ways to tell if a post is a hit or not. I usually rely on comments, but quite often the number of comments have little to do with whether the post actually provides valuable information or entertains readers.

  In the end, sometimes I just have to guess what you’d like. In truth, that starts by just thinking about what I’d like to read. I very rarely post something that I wouldn’t enjoy as a reader.

  So, today, I’m including a few of the better questions I’ve received over the course of the GTD series, along with plenty of non-GTD questions, too.

  I´d like to ask you about GTD and what you do to keep your privacy, since you have your life, your wants and to-dos on one inbox, someone can see when entering your office or home, or when some friend ask you to see your cool new phone with your tasks in there.

  Also on this issue, how do you keep your spouse/girlfriend from seeing your task/project about her surprise party or to buy some gift for her? Because I keep this out of GTD so she doesn’t see it but since it’s out of GTD I tend to forgot and would like to know how you deal with it? And since your series is finishing I thought that’s a good thing to talk on the GTD series.
  - Marcio

  I generally don’t keep what I would call private information in my inbox. Virtually everything in there is pretty mundane – I guess if snoops want to know about my desire to read Reality Hunger, they can know.

  If you do have a lot of personal information in your inbox and it worries you, keep your inbox offline and in a locked drawer in your desk.

  As for such surprises, I usually handle all of that in my calendar. I have most important birthdays in my calendar, as well as reminders two weeks in advance of really important birthdays. I don’t think it would spoil a surprise for my wife if she knew I was thinking of her birthday two weeks out (in fact, she’d probably be happy to know it). If I’m doing something complicated that requires secret planning, I just keep those plans in a project folder put in a private space where she’d never look.

  I’m transferring from a nearby state college to a private college in the fall. I will be graduating in either two or three years after that, depending on how some of my credits transfer. I paid very little in tuition at the state school, and only had to take out a loan for $1500 with 6.8% interest. I paid the loan down to $700 over the last year, even though I don’t have to pay anything until after I graduate (though the interest still accumulates). At the school I am transferring to, I’ll owe almost $3000 on a subsidized loan (the government pays the interest until I graduate) and and another loan for $1000 at 6.8% (not subsidized). I’ll also have to pay another $4000, but it looks like my uncle is going to contribute the $4000 so all I’ll have left are the loans.

  I have $5000 in a savings account earning between 1-2% interest, which I accumulated entirely from working two jobs last summer. I’m planning on traveling to Europe for a year or so the fall after I graduate, and will be doing so very cheaply (by couchsurfing, WWOOFing, and the like), and want to have $15,000 saved for the trip.

  My question is what I should do about paying off the loans vs. saving for the trip. I haven’t touched the $5000 since I deposited it, and like having that money there as both an emergency fund and assurance that I’ll be able to take the trip. But I can’t help but feel that it makes more sense to pay off the loans, or at least the two I’m paying interest on. However, I’m nervous that if I put that money toward my loans, I’m going to have a hard time rebuilding to $15,000 plus paying off the other loans I’ll likely acquire within the next 2-3 years. I really don’t want to put off the trip any longer, it’s one of those things that has to be done before I actually settle down or I’ll never end up going. I’m hoping you’ll have some insight and the kick in the butt I’ll need to do the financially sound thing.
  - Sarah

  You don’t have what I would ever call life-stifling student loans. The $1,000 at 6.8% is a little high, but even that one isn’t bad at all. Your total debt (just shy of $5,000) is an amount you can pay off in a year when you start your professional career.

  If you were in a truly bad student loan debt situation, I’d encourage you to rethink your Europe trip plans. But those aren’t bad student loans.

  Focus on saving for the trip. Make the minimum payments on the debt. Enjoy this opportunity in your life. Come back refreshed and ready to take on the world.

  Thank you for writing your series on GTD.
  I have a dilemma that perhaps you and your readers can help with.
  Here’s the scenario:
  It’s 6pm. I’m not yet done with the task I’ve been working on but it’s my usual time to go home. I have 3 choices. Part of me wants to stay and keep working cause I know I’ll feel better when it’s done.
  Part of me wants to go home and tackle my next actions list there.
  Part of me wants to go to the gym.
  How to pick which of these 3 to do?
  - Julia

  Allen spells out how to decide between such choices on page 92 of the book:

  1 | Context
  2 | Time available
  3 | Energy available
  4 | Priority

  You’re currently at your desk with your supplies out, which means that the context of the current situation suggests that you finish the task.

  I’m assuming that you have a healthy workplace, of course. If you have a draconian workspace with inflexible hours and a boss that is going to essentially punish you for stepping up to get things done, context really doesn’t matter. In that case, context doesn’t really matter and you move down to the next criteria – time available. If you don’t have anything scheduled for that evening, that criteria goes out the door and you move on to energy available.

  Do you have the energy to go to the gym? If you do, I’d go to the gym. If you don’t, I’d go home and do household chores.

  So, here’s how I’d do it. If you have a good workplace and a job you value, stick around and finish the task. If you’re in a worse position professionally, go to the gym if you have the energy for it. If you don’t, go home and handle what chores you have energy left to do.

  Several years ago, his parents filed for bankruptcy – his dad lost his job, though found another briefly, but they also had a few years of back taxes and poor spending habits. During that time, my boyfriend would sometimes even pay for groceries and Christmas gifts from money he earned. Though he was skeptical, his parents encouraged him to go to college, telling him that he will be able to get by with jobs and loans, and if anything bad happened they would be there to support him. He’s been struggling financially for years, but it has finally hit him hard now. This is the third time he’s been unable to pay rent (He has been able to make payments in the past, they were just late). He offered to pay what he has now, a little less than half, and the landlord is generously okay with that for now. This only leaves him with $66.

  In addition, he recently found out he doesn’t have a job anymore, as the test prep courses he was scheduled to teach were canceled due to low demand. Both parents are unemployed: his father has been for a while but has been attending school as well as getting by on odd jobs. His mother recently lost her job and is considering going to school so she can get by on loans. She often had to borrow money from him for necessary medications and other expenses she couldn’t afford at the time. So, they are both in no way able to support him. (He also has a teenaged sister living with his mother).

  He’s been living off loans and what jobs he can get teaching and tutoring but those are meager. He has thousands in debt; some is credit card debt but most are student loans. He has thought about dropping out and finding a full time job, but that would also mean he would have to start paying those student loans, and he would need to find a well paying job quickly on just a high school diploma. Every now and then he gets slapped with something unexpected, such as a parking ticket. He also needs a new tire and new brakes. As you can imagine, he has no safety net.

  Understandably, he is very jaded and very depressed, which makes it even harder. It is difficult for him to focus on school (as well as even get courses that he needs to graduate). I almost forgot to mention, he hardly has any extra expenses- just rent, food, utilities, etc. I think I covered everything. It seems like there isn’t anything he can do- he’s completely trapped.
  - Ellen

  First of all, sitting at home being jaded and depressed will absolutely not solve these problems. That is usually the worst possible response a person can make to a difficult situation. Everyone faces challenges in their lives – those that allow themselves to be jaded because of them tend to succeed much less often than those who do the best they can to overcome whatever hand life has dealt them.

  The first thing he should do is go seek steady employment, even if he views the job as “beneath” him. There are lots of jobs out there if people are willing to work them, but in a world where almost every high school graduate goes on to college and then expects a college job with a college degree, a lot of jobs are seen as being “beneath” people. I see this all the time from people who write to me complaining about their unemployment in a career path where the entry-level wage is $30,000 a year. They’ve not looked outside of this path for work.

  He shouldn’t be afraid to look for minimum wage work. It will get him out of the house, interacting with people and earning some money with his time. Yes, the job might be boring or he might see it as demeaning or something like that. Here’s the thing: it’s not demeaning. It’s an opportunity to turn the ship around. When you’ve fallen to the ground, you don’t jump back on the ladder several rungs up. You grab on to the bottom rung and start climbing again, looking for every chance you have to pull yourself up.

  He should take that money and stick it in a savings account and continue to live as cheaply as he can. Then, the next time when one of these emergencies hits, he can just handle it without blinking an eye. The first time a car failure or something like that happens and you can just handle it, the world seems a lot more manageable.

  Just take it a step at a time.

  How much detail do you put into your calendar and your to-do list? Do you list everything that you intend to do in a day, like taking a shower?
  - Mark

  I don’t include established habits – like bathing – on my calendar or my to-do list. These things are just part of my morning routine and come naturally without even really thinking about them.

  What I do add is a reminder of any routines that I’m trying to build. For example, if I’m attempting to establish a habit of a daily three mile walk, I make sure this is constantly on my to-do list (and marked as important).

  If something reaches the point where I’m just doing it anyway, then I eventually delete it from my to-do list.

  Currently my only form of investing in the stock market is through a moderately aggressive 401k at work, and my wife similarly is investing in a 403b. Neither of us know much about the specific make-up of these allocations. I know very little about actually buying a specific stock through a brokerage, and I only keep up with news on the stock market as much as the mainstream news covers it. However, a company that I have been a customer of for about 8 years, and which I believe in very strongly, is about to go public. My wife and I have always thrown out the idea of buying stock in the company when it became available, and now that time is here. We could potentially feel comfortable investing $1000 to $3000 of our current savings into this company as a long-term investment and still leave us with over 3 months expenses in our emergency fund. We have alot of student loan debt, and although we arent paying it off aggressively, we do make our payments and contribute a bit extra here and there.

  The question is not necessarily should we do this, although that could be up for debate. However, any advice or resources a beginner in this kind of investing could turn to? Aside from this strong inclination towards a certain company, I don’t think we’d ever feel inclined to gamble in the stock market, and I know little about the logistics of actually buying a stock. We’re not considering this in order to make a quick gain (I realize those type of expectations are foolish), but in reality would be in with this company for the long haul.
  - Nick

  Oh, come on, Nick! You’ve got to tell us what this IPO is! (I’m kidding. A little.)

  If I were you, I wouldn’t really view this as an investment per se, because the risk involved in investing in an IPO is pretty stiff. However, if you truly believe in the company and have the discretionary income to invest, I encourage you to go for it.

  In 2002, I knew a few people working at Google and was absolutely convinced that I should invest in their IPO, but I convinced myself (right or wrong) that I didn’t have the adequate funds to do it. I still regret it.

  If you can swing an investment without upsetting the ship – and it certainly sounds like you can – give it a shot.

  I am working in the US from last 3 years on a work visa and have a stock trading account with Scottrade with a portfolio of few stocks. I also get quarterly dividends on some of the stocks I own.

  I wanted to check on how the US IRS Tax rules apply on these dividends once my work assignment completes and I return to my home country? In that scenario, I will have no income to report in the US but will have some dividend income (approx 500-600 USD per year) thru the stock portfolio i have with scottrade. Does that qualify me to report and pay the taxes in the US as my income in US would be way below the tax bracket where income taxes are applicable.
  - Sandeep

  You are required to report it. You almost assuredly won’t have to pay any taxes on it.

  Dividends are taxed as ordinary income. If you file a return on this income (which you should), your standard deduction will be significantly larger than the $500-600 a year you’re earning in dividends. End result? No taxes.

  Yes, you should report that income to the IRS. No, you won’t have to pay taxes on it.

  My mother and father are retired and they are selling their home. They will be walking away with a nice chunk of money which I have referred to as their NEST EGG. My mother is 63 and my dad will be 65. They are not huge money gurus and don’t really have any plans for the potential $250K-$300K they could walk away with from the selling of the house.

  What should they do about reinvesting this money? I would love to see this money work for them and live off the interest.
  I would hate to see it sit stagnant in a savings account and get taken away little by little by Uncle Sam.

  Do you have any advice/suggestions?
  - Alex

  For starters, it’s not going to be taken away little by little by Uncle Sam. Let’s say they have $250,000 in a savings account that earns 1% interest. That means they’ll be taking in $2,500 in interest each year. They will only be taxed on that interest earned. Depending on their tax bracket, Uncle Sam would take somewhere around 15% of it. In the end, they’d still earn about $2,100 a year from that money after taxes and the balance wouldn’t be touched.

  If you want better returns than that, you’re going to have to take on some risk in some form or another. They could use that money to buy a very long term treasury note that would return about 3% on their money – $7,500 a year. The risk there is that the rates on treasury notes will probably go up in the next five years or so, so one option would be to wait with the money in savings for a few years and hop in later on.

  Another option is to put it in a riskier investment, like a stock index fund at a brokerage. What happens there is that you’re at the mercy of the stock market. If the stock market has a good year, it will probably make about 15% a year and sometimes more. If it has a bad year, it could lose 15%. If it has a disastrous year (like 2008), it could lose 40%. Over the very, very long term, Warren Buffett has publicly estimated that a person should average out to about 7% a year going forward, but that’s a prediction (albeit one from one of the best investors on earth). The problem is, though, that some of those years are going to be +18% and others are going to be -18%.

  You could also mix the investments. If you put half of it in savings earning 1% and the other half in the stock market, a good stock market year would earn you 9% overall and a bad stock market year would send you down 10%.

  The problem with the risk is if your parents are relying on this money to support them. If they are and the money’s in the stock market, a swoon at the wrong time would be devastating. If they at least have a healthy Social Security check coming in, then they can feel at least a bit better about it.

  You mentioned that whenever you have a book you want to read, you make a note of it and toss it in your inbox, then you keep a list of them? How does that work? I don’t get it.
  - Erica

  I do keep a list of books I want to read, films I want to watch, and games I want to play.

  My “films I want to watch” list is actually my Netflix queue. If I see a note about a film, I just add it to our queue (we’re thinking strongly of going cable-free and are seeing if Netflix streaming and 1 disc at a time for $9 a month works for us).

  For my books and games, I usually just add them to my Amazon wish list (with a comment if I wish) and/or to my library queue. In the past, I kept these in a Word document. The advantage of using a wish list is that if a family member is stymied as to a gift to get me, my wish list usually has a giant bundle of things on it.

  I am 24, two years out of college, and have pretty good job security making $52.5K per year. Including rent, car payments, student loans, and everything else, my monthly fixed expenses are about $1570. I put gas, food, and weekend expenses on my credit card, and pay it off each month. That ends up being around $700 or so per month. I end up saving around $500 per month after all expenses, including my 6% 401k contribution which is the max my company matches.

  Now, here is the issue: my loans. I have a little over $50K in student loans, and about $11K in car loans. Half of the student loans are at 2.8% interest, while the other half is at 6.5%. My car loan is at 5.74%. I would like to have enough money to put a down payment on a house in the next five or so years. So, should I continue making the minimum payments on my loans and putting that $500/month into a savings account for a house, or should I use it to put a little extra into my loan payments? Right now I am just putting that money into a savings account. Basically, what should I be doing different in order to better prepare myself for the future?
  - Kevin

  The interest rates on your loans are low enough that if you’re considering buying a home in the next five years, you’re better off just making the minimum payments on your loans and saving for a down payment.

  Here’s why. As the money sits in your savings account, it’s earning about 1% return. Then, when you go to make that down payment, you’re reducing the amount of your mortgage by some significant amount, which means that the money you invest at that time will essentially earn a return for you equal to your mortgage interest rate. The absolute lowest amount you’ll likely get for a mortgage rate is 3.75% (on a 15 year) – and in five years, I’ll almost guarantee it’ll be more than that, probably significantly more. If you don’t have the 20% down, you’re likely going to be taking on an extra loan at a higher rate or paying PMI, which means an interest rate higher than your base rate because you didn’t save.

  In other words, you’re better off saving for that down payment now and paying minimum on those loans. Even if your plans do change, it’s still not an enormous loss if you choose to channel that saved money into debts later on.

  Obviously, the best choice in terms of maximizing every dollar would be to live in the cheapest apartment possible, pay down your debts ASAP in order of interest rate, and then start saving, but that plan may exceed your time frame depending on what else is going on in your life.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  

Frugal Dad

• 

  What To Do With a Pile of Change?

  Posted: July 12th, 2010, 3:00am MDT by Frugal Dad

  Today’s Ask the Readers post comes from Andy, a recent college graduate who managed to pay off student loans before graduating in May. Here’s his question excerpted from our email exchange:

  I’ve already established a Roth IRA this summer and am now looking into some other things for passive income generation. One thing that keeps popping up in my head is my “piggy bank.” Although it is actually in the shape of a giant Coca-Cola bottle, it was something I got for a birthday when I was a toddler, and throughout my childhood I would put any spare change into it. At some point I got smart and took out all of the quarters, so it’s just pennies, nickels, and dimes.

  When I started driving and finding use of change (the dreaded $5.08 or similar “hate to break a dollar for that” tab at Taco Bell!), my deposit rate decreased rapidly. And through college, I somewhat forgot about it since I was away. Now I’m home, on the verge of moving to a new state for graduate school, and I’m remembering how I always wanted to do something grand with my saved up change. I do not have an official count, but the last time I counted it was around $130 and that was probably prior to getting a car and a job (because without either, what else does a kid have to do but count his life-size Coke-bottle full of change?). My estimation is it is probably nearer to $170 now.

  So my question for you is do you have any ideas that could be an adventurous way to spend my savings, something that would be a cool story to tell my kids one day, so something other than “Yeah, I put the money into my first couch” or “I used it for my first month’s rent.” I am open to investing it, though it isn’t a huge sum of money. I’ve been sitting on this money for 20 years, so I’m also not opposed to letting it sit somewhere (earning interest or some kind of dividend, though) for long-term. That might make the story even more interesting for my future kids if it turned into a larger quantity than anticipated.

  Andy, first of all, congratulations on your recent debt-free graduation! Paying off student loans is a tall order, and doing it before graduating is practically unheard of–way to go!

  Your question of what to do with the Coca Cola bottle full of change is certainly an interesting one. In some ways, it would be easier to answer your question had you asked me how to spend/invest $1,000. I realize it is only $170, but that $170 represents a lot of childhood dreams rattling around in a big bottle. What would your seven-year old self tell the current you to do with the money?

  I’ll brainstorm a few ideas here, and then I’ll turn it over to Frugal Dad readers and ask for their input. They’re a creative bunch, and will no doubt provide some inspiration.

  Ideas for Andy: Spending $170 from a Lifetime Collection of Change

  1. Open a brokerage account and buy 3 shares of The Coca-Cola Company stock (KO). This one occurred to me as you described the change saved in a “life-size Coca-Cola bottle.” KO recently closed at $52.40, which should allow you to buy three shares plus a commission. KO’s yield hovers around 3.3%, which means your investment will pay dividends for years to come, and if reinvested, could one day grow to a handsome sum. (Full disclosure – I own KO stock and have a mild addiction to their soft drinks)
  2. Buy a cheap round-trip plane ticket to a city you’d like to visit. For $170, you can often find a cheap flight special at a travel site like Orbitz (here’s a link to their flights for less than $200). If you live close to a departing city, consider a short drive and fly somewhere you’ve always wanted to visit. Now that would be a cool story to the kids one day!
  3. Open a Smarty Pig savings account. Smarty Pig is now offering one of the highest interest rates around, 2.15% APY at the time of this writing.
  4. Invest in yourself. With $170, you could probably hire a personal trainer for a few sessions, get your teeth whitened, get a new haircut to boost your confidence, or buy a new coat and tie for a future interview session. Now, I don’t know you personally, so I don’t know if any of these apply, but you get the idea.
  5. Give it away. You could very easily find a local shelter to donate money, food, blankets, or any combination of items. I also like what Secret Santa used to do – make giving even more personal. Call your church or local family services office and ask if they know of a family you could “sponsor” with a week of groceries, gas in their tank and a little extra spending money. If you prefer to wait until the holidays, your $170 could go a long way towards giving a family in need a nice Christmas.

  Whatever you decide to do, my best advice is to make it as personal and memorable as possible. After you finish graduate school and start your career, you will have many more “$170 opportunities,” but I guarantee you none will be as memorable as this one. Make it count, and best of luck with graduate studies.

  Frugal Dad readers, what other ideas to you have for Andy?

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Review: The Smartest Retirement Book You’ll Ever Read

  Posted: July 11th, 2010, 2:00pm MDT by Trent

  Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

  Daniel Solin’s series of The Smartest X Book You’ll Ever Read have turned me off for their title alone, and thus, to this point, I’ve not read them. The title set off a big “questionable investment planning” warning light inside my mind and, with a lot of other options to choose from, I just kept passing on books in this series.

  As is often the case, though, a long-time reader emailed me and strongly encouraged me to give this specific book a shot, mostly because he felt it addressed retirement savings from new angles that he hadn’t considered before.

  I do enjoy reading personal finance books, particularly ones that add new ideas to familiar topics, so I headed out to my local library and picked this one up. I do have to say that it did include some ideas and angles on retirement savings that were certainly intriguing and provided food for thought.

  Let’s dig in.

  One | Rethink Retirement Investing
  Right off the bat, Solin makes the vital point that if you don’t protect your portfolio against inflation, you’re going to run out of money much sooner than you would like. Inflation is a force that constantly pushes against your retirement savings, making every dollar you save today worth less when you retire. This is a particular problem for conservative investors who would like to keep their money low risk and “safe” – they won’t lose money, but they’ll often earn at a rate lower than inflation, which means the real value of their money is actually decreasing over time. The best solution, then, is to balance the two – keep a healthy portion of your money in stable things (like cash or CDs or savings accounts or treasury notes), but put some of it into other things with more growth potential that can keep your overall portfolio ahead of inflation.

  Two | Stocks Made Simple
  Individual investors shouldn’t invest in individual stocks (unless it’s just for fun) because the risk is just too great. You don’t want to bet your retirement on one company lest it turn out to be the next Enron. Instead, you want to mix it up: invest in broad-based index funds, some of them with lower risk and some of them with higher risk. So, for example, your overall portfolio might be 1/3 in cash or treasury notes, 1/3 in a total stock index, and 1/3 in an international total stock index. The key is to buy index funds for your investments – they spread out your risk while also keeping the fees very low. (I do this myself – I have my money with Vanguard.) Obviously, as you move closer to retirement, you’re going to want less of your money at risk, so over time you’ll migrate more and more to cash and treasury notes and less and less in stocks. One easy way to do that is to just buy “target retirement funds” which automatically handle that transition for you (again, making sure that these “target retirement funds” are made up of low cost index funds).

  Three | Bonds Made Simple
  Bonds are a great way to get solid returns in your portfolio with relatively low risk. Solin recommends that most investors should have at least some of their retirement money in a broadly diversified, low-cost bond index fund. It’s important to remember, though, that bonds aren’t riskless. They have less risk than stocks, but they’re not entirely free of risk. Solin also suggests that investors worried about inflation should not buy TIPS (Treasury Inflation-Protected Securities) because they’re very volatile and they earn very poorly in times of low inflation (like right now, for example).

  Four | Cash Made Simple
  You should never keep cash in a bank that doesn’t have FDIC insurance, and you should make sure that your cash savings never exceeds the FDIC insurance cap (currently $250,000). Solin encourages searching around for banks if you’re just looking for a place to sock away your cash savings (I suggest using BankRate).

  Five | Annuities Made Simple
  Solin is a big fan of immediate annuities – annuities in which you give a cash sum to an investment house and receive payments for the rest of your life from them. He argues that they greatly reduce the risk of outliving your money, even if the returns aren’t stellar. Another option is a charitable annuity, where you give a lump sum to a charity and they issue you payments for the rest of your life – this ensures that your annuity lump sum winds up in the hands of a charity you care about instead of a business. If you do get an annuity, though, Solin recommends a fixed rate annuity, not a variable rate one – they carry too much risk. Your annuity should have a fixed rate, period.

  Six | Mining Your Money
  Do not trust historical returns when you’re trying to figure out how much you can safely withdraw from your retirement each year. Instead, you should simply focus on withdrawing as little as you can get away with each year. Solin suggests aiming to withdraw between 2% and 4% of the total each year – I think that’s a great target (he offers some more math-intensive guidelines as well). He also offers a few exceptions to that “2-4%” rule that involve market timing, a subject that I don’t agree with him on (I don’t think market timing is usually a good move).

  Seven | Simple Steps to Stretch Your Money
  When you start taking withdrawals, withdraw from your taxed accounts first (like any ordinary savings or investment accounts), then deferred retirement savings accounts (like a 401(k)), then Roth IRAs last. Why? The longer money stays in a tax-deferred account, the longer it has to grow in value without Uncle Sam feeding off of it. If you have a 401(k), Solin recommends rolling it over into an IRA if you can because this gives you more control and the ability to utilize lower-cost investments. He also thinks converting your IRA to a Roth IRA (and everyone with an IRA can do this in 2010) is a good move for almost everyone, but particularly high income earners.

  Eight | Social Security and Pensions: Critical Choices
  If there is any possible way to delay taking Social Security, do it. If you can wait until you’re older, you’ll get higher payments for life. It can also adversely affect the quality of life of a spouse that survives you. Also, don’t bank everything on a pension because, as we’ve seen recently, companies sometimes aren’t 100% reliable in paying out the pensions they’ve promised. If you do have a pension, avoid taking the lump sum option (if you have it) and take monthly payments instead.

  Nine | Is Sixty-Five the New Fifty?
  People are living longer lives and staying healthy much longer. What this means, to put it simply, is that if you retire at the traditional retirement age, you’re going to have to cover many more years than the generations before you had to cover for themselves. The solution, of course, is a simple one: work longer. Turn your early “retirement” years into a continuation of your career or the crest of a second one. Don’t rely on age discrimination laws to help you, either – everyone is responsible for keeping their skills up and building their own paths.

  Ten | Financial Lifelines for Desperate Times
  What if you’re running out of money? A reverse mortgage (meaning you give your home’s deed to someone else and in exchange you receive regular payments) is an option, but it should be your absolute last one. Why? They’re expensive – they’re loaded down with tons of fees and you’ll get nothing close to what your home is actually worth out of it. Instead, seek other options. The AARP is a spectacular resource for the elderly, as are local churches and civic organizations.

  Eleven | Care Costs
  One of the major costs a person often has in retirement is medical care. Before you even consider retirement, you’ve got to know what your medical care options are when you retire. Is there any continuing coverage from your current job? Can you make ends meet with Medicare? Do you need long term care insurance? Solin spends quite a few pages on long term care insurance and basically argues that the lower your net worth is at retirement, the better an idea long term care insurance is (because if you have more money, you can pay for more care out of pocket).

  Twelve | The State of Your Estate
  Everyone needs a will, but a will has severe limitations that can hurt you if you’ve spent a lifetime building wealth. A better option for people with a high net worth that wish to pass on their money is to set up a living trust, assign their assets to that trust, and receive payments from that trust until they pass away, at which point their instructions for further management of the trust (i.e., who gets the money) is followed. Also, older couples are very well served by having prenupital agreements that specify that some assets get left to children when one member of the marriage dies.

  Thirteen | Wolves in Sheep’s Clothing
  If you need financial advice, be careful – there are a lot of sharks in the water. Avoid people who are offering you free things (like lunch) to listen to their pitch. Instead, seek out assistance on your own terms. Look for financial advisors who are fee-based, can explain things clearly, and aren’t seeking to constantly beat the market (such people often wind up way over their heads and you’re left holding the bag).

  The book closes with a large handful of appendices and additional documentation for many of the points made in the book.

  Is The Smartest Retirement Book You’ll Ever Read Worth Reading?
  I think The Smartest Retirement Book You’ll Ever Read is a very strong retirement book for high income earners – the people who aren’t having to make hard decisions about whether to save for retirement or accomplish other life goals. It pretty much assumes you’re going to be socking away plenty and that your questions revolve around where to put it.

  If you’re in that group, The Smartest Retirement Book You’ll Ever Read is a very worthwhile read. Solin keeps an eye on the real world (inflation, business failure, etc.) and explains the logic behind every move he recommends in a very clear and straightforward fashion.

  If you’re really hitting your income stride and are looking for some sound advice on what investments to put your retirement money in, The Smartest Retirement Book You’ll Ever Read is a pretty strong choice for a good read, in my opinion.

  
  

  
• 

  Setting Goals with Your Partner

  Posted: July 11th, 2010, 8:00am MDT by Trent

  As I’ve said many times on here, my wife and I have a small handful of major goals that we share going forward in our lives.

  We both want to eventually live in the country with some wooded area and a small barn.

  We both want to focus on raising our children as well as we possibly can.

  We both want to achieve complete debt freedom (we currently just owe on our mortgage) to give us even more career and personal flexibility in the future.

  Here’s the interesting part: these goals do not reflect everything I want to do in life, nor do they reflect everything Sarah wants to do in life.

  Instead, they’re the goals we share together and because we both share them, there’s a lot more power and mutual motivation and mutual benefit in achieving those goals.

  How did we get there from each having our own goals? Here’s the process we went through – and are still going through.

  We each sketched a picture of what we wanted our future to look like. What did I want my life to look like in five or ten or twenty years? I spent some time really thinking about that question. I made a list of some of the things I wanted to happen in my life over those timeframes. I had career dreams and family dreams and personal goals I wanted to achieve.

  We compared our pictures of the future. What we found is that some of our goals overlapped, some of them did not, and some of them were personal goals that affected our partner in various ways.

  So, for example, we both had a dream of living in the country with woods and a small barn. I had a dream of building a fully self-sustaining farm there (with wind power, geothermal heating, and so forth), but Sarah didn’t share that vision as strongly: “It’d be cool, I guess, but is it really worth the cost?” I also had career goals that impacted Sarah a little bit (because of the time and energy investment), but not too much.

  We agreed to focus on the larger goals we both shared. I listed those above. Those goals are not a list of the goals I came up with – if I listed all of the things I wanted myself, the list would be longer and have a much different flavor.

  However, a big lifelong goal that your partner is not on board with is not only much more difficult to achieve, pushing hard for that goal can put problems in your relationship. On the other hand, sharing a goal and both working towards that same goal encourages an environment of mutual support. Focus in on the goals you both deeply share – and you identify those by coming up with your own list of goals on your own, then sharing and comparing them.

  Our next step was to settle on a small handful of key goals that we both shared. For us, this was very easy. We had three very obvious key goals that we each individually wanted – a house in the country, complete debt freedom, and strong parenting.

  If you find that you’re coming up with a lot of shared goals, that’s a good thing. I recommend settling on just a few – the ones that are most deeply important to both of you.

  If you find that you’re not able to come up with shared goals, I would suggest spending more time together and focusing on building your relationship with each others. Not having shared goals is a sign of being on diverging paths in life – and that means if you take your relationship seriously, it needs some work, whether you can see that on the surface or not.

  Once you’ve figured out those shared goals, work together to keep them front and center. Remind each other regularly of the goals you share and the little steps you’re both taking to make it happen. If you’re not both engaged with a goal and working towards it, it’s hard to do it alone. You’ve got to be together, and if it’s a goal you both share, reinforcing each other and helping each other should come somewhat naturally.

  A final tip: revisit your goals on occasion. We talk about ours all the time. Usually, it’s motivational. Sometimes, we refine the goals a bit – for example, we’ve been thinking about the location we’d like to move to. The key thing, though, is that we talk about it together, cement our bonds to each other, and motivate each other to move forward.

  It’s a lot easier to reach for something great if you’re doing it together.

  
  

  
• 

  Money and Basic Math: Some Thoughts and Six Quick Tips

  Posted: July 10th, 2010, 2:00pm MDT by Trent

  Lately, I’ve been reading the very enjoyable book Stop Getting Ripped Off by Bob Sullivan of The Red Tape Chronicles (a full review will come in a week or two).

  The first section of the book discusses at length how people are often stymied at personal finance due to basic math skills. Here’s a quote, from page 7, discussing a simple math problem that involved pulling two numbers off of a list, adding them together, and figuring out what a 10% tip would be:

  If you answered this question correctly, consider yourself part of an elite group, because when the U.S. Department of Education asked U.S. adults to answer it as part of a nationwide study, 42% answered correctly. Less than half of American adults were able to pick two numbers from a list, add them, then perform the most basic of all percentage calculations – simply moving the decimal point one column to the left to calculate 10 percent.

  You might be surprised by this abysmal performance. But then, if you think about your last dinner with a group of friends, perhaps you won’t be. Remember that dreaded moment when the bill came, and the splitting began? Cell phones and calculators were whipped out. Shrugs swept around the table. Finally, most of you gave up and threw down $20 bills or credit cards.

  Sullivan goes on to point out that a dollop of very basic math can keep people out of a lot of financial trouble.

  I know from my own experience that many people out there are extremely math-phobic. When they see numbers, they shut down.

  Why is this? Some of it is in brain chemistry, I’m sure. Some people simply don’t do well in terms of numbers. On the other hand, I also believe that some of the problem comes from our educational system. I have always enjoyed math, but I had at least one elementary school teacher who was so abysmal at teaching the ideas that I just read the book on my own and asked my father for help. Many of my classmates, later on, who were confused by math recalled being baffled in this teacher’s class and always feeling lost thereafter.

  The solution isn’t to just yell at everyone to learn math. Yes, it would be great if we were all very good at such basic math, but the dream doesn’t match the reality.

  Instead, I think one solution is to simply have a repertoire of very basic math techniques that help in many situations.

  I’m going to point out six of them that I’ve collected over the years, intending to use them in a post like this. If one (or all) of these seem obvious or too easy to you, congratulations – you’re pretty good at math. But each one of these situations has stymied someone I know at least once, so there are certainly a lot of people who could use some tactics like these to help them out.

  Please, if you have more simple tactics like these, leave them in the comments.

  Figuring out a 10% tip
  This is the easiest tip of all and is exactly as described above. If you see a dollar amount with a decimal in it, slide the decimal point one place to the left and drop the right number.

  So, if you have a bill for $83.47, just slide the decimal one place to the left – $8.347 – and drop the right number – $8.34. There you go.

  Figuring out a 20% tip
  Many people want to tip more than that, so here’s how to get a 20% tip. Use the 10% tip trick, then double the numbers starting on the left.

  So, if your bill is $34.28, use the 10% trick to turn it to $3.428 and then $3.42, then double each number. 3 becomes 6, 4 becomes 8, and 2 becomes 4. That leaves you $6.84 for your tip.

  What if the number doubles into something in the ten spot? Double them all as before, then add on the ones going back the other way. So, let’s say you have a bill that’s $87.65. 10% of that is $8.76. 8 becomes 16, 7 becomes 14, 6 becomes 12. The easiest thing to do – since you don’t have to worry about preciseness, is to just get the first number right. $16 is the first number, and since the second number has a 1 on the front, make it $17. That’s pretty much all you need to worry about – don’t sweat the exact change on a tip.

  In fact, for most efforts, this kind of approximation works just fine.

  Figuring out which debt to pay first
  This one is pretty easy, too. Just call each place holding a debt and ask what the interest rate is and what the balance is, then list them in order according to one or the other.

  That’s it. There’s no worrying about it. Listing them by interest rate (biggest first) is very slightly faster for paying off everything, but listing them by balance (smallest first) will allow you to pay off individual debts quicker.

  Figuring out how to split a bill evenly
  The best solution is to, of course, ask for separate checks for everyone. If that doesn’t work, you’re usually stuck spltting up the bill evenly. Here’s how you do it.

  Everyone should pay an equal amount on the bill with at least one person paying cash. Then request change in small bills and when the change comes, split the change as evenly among all the payers.

  So, let’s say the bill is $55.82 and there are five of you. Everyone chips in either $15 or $20 and requests change in small bills. When the money comes back, figure out a tip from that – if you’re paying 20%, use the 20% tip trick above and pay $11. If everyone chipped in $15, you would have $8 and some change in single bills to split among you. Give $1 to the two people who bought the most expensive stuff and $2 to the other three who bought less expensive stuff. Walk away, happy.

  Figuring out which size is a better deal
  The key is to use the price per unit measurement. Go to the store and study the price per pound or price per ounce on the shelf sticker – most stores have it. Make sure the two units are the same. If they are, whichever one has the lowest price per unit is the best deal (assuming you can use it all before it goes bad).

  Just ignore the sticker price. What matters really is the price per use of it, and if you can pay less per use, you come out on top.

  Figuring out if you can afford a house payment or rent
  All you really need to know here is your annual income and the 10% trick and the 20% trick. Take your annual income, use the 10% tip trick on it, then use the 20% tip trick on that, then compare that to your rent or monthly payment. If your amount is higher, you’re probably safe to rent or buy. If it’s not, then you should avoid it.

  This is actually really sound – it comes up very close to the 28% of your monthly income that has been recommended for years for people to use to determine if they can afford to rent. All this trick does is make the math a bit easier.

  Here’s an example. Let’s say you made $40,000 a year and wanted to rent an apartment that cost $1,400 a month. Can you swing it? The 10% rule on your income takes it down to $4,000, then the 20% rule on that takes you to $800. You probably shouldn’t be swinging it on your own. However, if you have a roommate to split it fifty-fifty with, your monthly rent is only $700 a month, which is less than the $800 you calculated. That would be a much safer move.

  This little trick would have saved an awful lot of people from signing bad mortgages in the last decade.

  Does anyone have any other similar simple tricks for helping with “life math”?

  
  

  
• 

  The Simple Dollar Time Machine: July 10, 2010

  Posted: July 10th, 2010, 8:00am MDT by Trent

  Many newer readers of The Simple Dollar haven’t been exposed to the hundreds of great articles in the archives of the site, so this is a weekly series that highlights the five best posts from one year ago this week, two years ago this week, and three years ago this week. I call it … the Time Machine.

  One Year Ago (July 4 – July 10, 2009)
  How Low Can You Go? Dal, Chilean Style This is one of my favorite recipe posts I’ve ever done on The Simple Dollar. This is just simply a recipe I enjoyed very, very much.

  Can You Actually Earn Reasonable Money from Mechanical Turk? You can if you already have a certain skill set, like the ability to churn out content very quickly. Of course, that skill set can often be used to make better money in other contexts.

  Billy Mays, Michael Jackson, Your Heart, and Your Bottom Dollar Take care of yourself. Your life is your most valuable asset.

  Seven Ways I Use Evernote to Improve My Finances I use Evernote as a tool in many, many different situations and contexts. It’s most valuable to me as a tool for recording my thoughts and ideas.

  The Total Money Makeover: Money Myths – The (Non)Secrets of the Rich The Total Money Makeover is the best book I’ve read strictly on the topic of paying down debt. Ramsey mixes evangelist, cheerleader, and advisor very, very well in this book.

  Two Years Ago (July 4 – July 10, 2008)
  The Difference Between a Job and a Career A job is something you do just to earn money in the short term. A career is something you build that will earn you money in the short and long term, regardless of the specific job.

  Seven Websites That Saved Me Money in the Last Week I still use these websites (and others) to save money all the time. The internet has connected frugal people like nothing else.

  A By-The-Numbers Look at Why Saving Is More Important Than Perfect Investment Choices If you save $100 a month, it doesn’t matter how good your investment choices are – upgrading your savings to $125 a month will annihilate any gains you might otherwise make. (That doesn’t mean you shouldn’t do both, of course.)

  The First Steps Away from Paycheck-to-Paycheck Living Paycheck-to-paycheck living is a dangerous place to be. It means you’re just a few steps away from financial apocalypse if you lose a job or suffer some other serious crisis.

  A Look at the Startup Cost – And Why It’s Usually Good to Go Cheap at First I find it’s always the best bet to spend very little up front on a piece of equipment or an article of clothing if at all possible. If it turns out to not work well or not fit your interests or passions, you’ve not invested much. If you’re really into it, you can upgrade the item later on – after all, you don’t have much invested.

  Three Years Ago (July 4 – July 10, 2007)
  Ten Frugal Tips For A Great Grilling Experience Summer here means grilling – and lots of it. Here are some tactics I use to make it really go well.

  The Gray Area Between Want And Need There are few things that are absolutely “needs” in life. Successfully separating them from “wants” is a key to personal finance success.

  Treat It As A Bill: How I Made A Commitment To Saving Work For Me Automatic savings is one of the best things ever created. It simply allows you to save money and build up an account balance without really thinking about it at all.

  What To Do If You Disagree With The Simple Dollar – Or Any Other Financial Guru Don’t just assume that someone has all the answers. Find out answers on your own. Read more than one source for anything you want to know about.

  One Thing You Can Do Today That Will Put You In Better Financial Shape Tomorrow It’s really simple, but we fail to do it all the time.

  If you’d like to browse through more of the archives, visit the chronology, where all posts are listed in chronological order.

  Ten Ways to Get More out of The Simple DollarUpdated!
  This is kind of a FAQ for new readers and is posted each week along with the Time Machine. Here are ten great ways for new readers to dig deeper into The Simple Dollar.

  1. Subscribe by email or RSS. Visiting The Simple Dollar’s website is great, but for many people, it’s more convenient to receive the articles in another form. It’s easy to join 60,000 other subscribers and get The Simple Dollar’s content by email or in your RSS feeder (if you’re unfamiliar with RSS, check out Google Reader.

  2. Comment. Each article on The Simple Dollar has lively discussion. Just click on the green square in the upper right of each article on the website and join in!

  3. Become a fan of The Simple Dollar on Facebook. I put up questions and other materials about once every week or two on Facebook (so you won’t be flooded with Simple Dollar updates). Join in the conversation with other Simple Dollar fans and occasionally get some interesting freebies, too.

  4. Follow me on Twitter. I post interesting articles, quotes, follow-up material, commentary, and other material on Twitter. Follow me! If you’re unfamiliar with Twitter, it’s essentially an open discussion forum for people to share ideas and thoughts with other like-minded folks – you just choose the people you want to listen to and their ideas and thoughts are all delivered to you on a single page.

  5. Read my story of financial meltdown and recovery. The Simple Dollar isn’t based on what I’ve read in books or learned in school. I’ve made a lifetime of financial mistakes – The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

  6. Download my free 49 page e-book. Everything You Ever Really Needed to Know About Personal Finance On Just One Page is completely free. It summarizes all of the key lessons I’ve learned along the way about personal finance in one tidy package – in fact, all of the main principles can be found right on the cover.

  7. Dig through “31 Days to Fix Your Finances.” 31 Days to Fix Your Finances is an article series that outlines how you can get a grip on your finances over the course of a month.

  8. Send me your questions and suggestions. Send me an email and let me know what you’re thinking, what you’d like to see, and any questions you might have. I try to respond to as many emails as possible and I read them all. I may even use your question in a future article!

  9. Become a “Friend of The Simple Dollar.” If you find the stuff on The Simple Dollar valuable and are willing to spend five minutes or so a month to help me out with small things, please consider signing up to be a “Friend of The Simple Dollar”.

  10. Email a great article you find to a friend. Find an article that you think your friend would love? At the bottom of each article, you’ll find a link that says “Email this” – just click on that, type in your friend’s address, and send it right along to them!

  
  

  
• 

  Summer Meal Series #6: Simple Homemade Pasta and Pizza Sauce

  Posted: July 9th, 2010, 2:00pm MDT by Trent

  This summer, I’m going to be posting a series of fifteen low-cost, tasty, and easy-to-prepare meals that are literally straight from my own kitchen.

  Today’s meal looks like a simple pasta…

  

  … and it is, except that we do something a little different than most people seem to these days.

  You see, we’re pretty picky about our sauce. We have found a few store-bought pasta sauces that we like, but they’re often $5 a jar or more. That’s a lot of money to pay if you have pasta with any regularity.

  Our solution, of course, is to simply make the sauce ourselves.

  This solves several concerns all at once. It gives us complete control over the ingredients for health and flavor concerns, but perhaps more importantly, it reduces the cost of a meal’s worth of sauce down to approximately the same cost as the absolute cheapest pasta sauce on the shelves.

  In short, we can make pasta sauce at home that’s tastier and more appealing to us than any canned sauce we’ve found – even the $5-10 sauces – for less than $1 per jar (about $1.80 or so if you include lean ground beef in it, as we do).

  The trick, of course, is that we make several batches of it at once and freeze all but one of them. In this example, we’re making five “jars” of sauce with a set of ingredients that’s just shy of $5.

  

  A few notes on the ingredients, before I list them.

  The ground beef is entirely optional in this recipe. If you want a meat sauce, use it. If you don’t, don’t use it. We used about 2.5 lbs. of ground beef in this recipe, averaging out to about 8 ounces of it per “batch,” or about 2 ounces per dinner plate for our family. I’d recommend using 2.5 pounds.

  Second, we used canned diced tomatoes and sauce because, frankly, the fresh tomatoes aren’t quite here yet in Iowa. In about a month, we would be using fresh tomatoes for all of this, but the tomatoes currently in the store are still what I would consider ridiculously expensive. If you want to use all fresh ingredients, wait until tomatoes are in peak season and use fresh tomatoes for all of it. The price will be very reasonable and the flavor will be sublime.

  Here’s our ingredient list.

  4 medium onions, chopped
  2 cloves garlic, minced
  2 28 ounce cans diced tomatoes
  1 28 ounce can tomato sauce
  1 tablespoon basil
  1 tablespoon oregano
  2 teaspoons salt
  1 teaspoon sugar
  1/4 teaspoon pepper
  2.5 to 3 lbs. ground beef or ground pork (optional – if you don’t wish to use it, you can certainly add more vegetables)
  2 4 ounce cans mushrooms (very optional – we didn’t use them)

  You can, of course, add any other vegetables and spices you like. Chopped peppers are a good addition, for example.

  

  First, we chop up the onions. We use an ulu knife (a gift) for this. It’s a special type of knife with a rounded blade that makes chopping vegetables quite easy. You basically grab the knife by the handle and rock it back and forth on the board – it chops vegetables quite well.

  We also chopped up the basil and oregano:

  

  We used fresh herbs in this. If you don’t have access to fresh herbs, dried basil and oregano work just fine. We just happen to have oregano all over the place this year (oregano sometimes just goes crazy in an herb garden), so we might as well use it.

  Then, cook the meat, onion, and garlic together in a big pot until the meat is browned (or until the onion is browned a bit and really flavorful if you’re not using meat).

  

  It’s cooking!

  Once the meat/onions are ready, drain them, then add the rest of the ingredients (except for the mushrooms, if you’re using them). Stir it well, then let it simmer for 45 minutes.

  If you have mushrooms you want to add, add them after thirty minutes of simmering.

  Here’s the sauce after most of the simmering is finished.

  

  Once it’s done simmering, just split it into five equal batches and freeze four of them.

  We happened to have a bunch of leftover Ziploc quart freezer bags, which are perfect for this. Here are our bags, about ready to go into the freezer:

  

  These freeze up really well. If we want to have a pasta meal – or a homemade pizza – that night, we just pull a bag out in the morning and stick it in the refrigerator. By evening, it’s ready to be warmed up to the desired temperature and still tastes great if used within six months or so.

  As for the meal itself?

  

  It was delicious. We had bread on the side with it (and some yoghurt after the meal) and it went over very well. We had a small amount of sauce left over, so we also made a lunch that consisted of the remaining sauce and a bit of the remaining pasta.

  What did the sauce cost? Here’s our cost on the ingredients.

  4 medium onions, chopped – $1.60
  2 cloves garlic, minced – $0.50
  2 28 ounce cans diced tomatoes – $2.38
  1 28 ounce can tomato sauce – $1.19
  1 tablespoon basil – $0.05 (from dried, estimated)
  1 tablespoon oregano – $0.05 (from dried, estimated)
  2 teaspoons salt – $0.02
  1 teaspoon sugar – $0.02
  1/4 teaspoon pepper – $0.01
  2.5 to 3 lbs. ground beef or ground pork (optional) – $4.23

  With the meat included, it totaled $10.05, so when you split it into five batches, each sauce batch cost $2.01. Very good for hearty sauce with meat.

  Without the meat, it totaled $5.82, so when you split that into five batches, each sauce batch cost $1.16. That’s incredible, considering similar sauces at the store would easily be $5 a batch. We dearly love this stuff and prefer it to any store sauce we’ve tried.

  Over the course of the five batches, if you’re normally buying large jars of gourmet sauce at $5 a jar, you’re saving $3.84 per meal. Over the five batches you made, you’ll save $19.20 – not bad for less than an hour’s work!

  
  

  
• 

  Getting Things Done: The Power of the Next-Action Decision

  Posted: July 9th, 2010, 8:00am MDT by Trent

  This is the twelfth entry in a fourteen part series discussing the time management classic Getting Things Done by David Allen. New entries in this series will appear on Tuesday afternoons and Friday mornings through July 16.

  One key theme in this book is the importance of coming up with a “next-action” list, which is essentially a “to-do” list. What makes the idea stand out in this book is that there’s a clear process needed to assemble that list out of the large clump of things floating around in your head and sitting on your desk that you need to do.

  One big effect of this is that you often wind up with a pretty big pile of stuff, particularly right after you do a “brain dump” and get all of the stuff you’re supposed to do out of your head. Some of that stuff is a straightforward “next action,” but some of it isn’t.

  What do you do with the stuff that isn’t obviously a “next action”? You analyze it and figure out what the next action is in that idea that you have. I really like the example of this that Allen lays out on page 238:

  What’s ironic is that it would likely require only about ten seconds of thinking to figure out what the next action would be for almost everything on your list. But it’s ten seconds of thinking that most people haven’t done about most things on their list.

  For example, a client will have something like “tires” on a list.

  I then ask, “What’s that about?”

  He responds, “Well, I need new tires on my car.”

  “So what’s the next action?”

  At that point the client usually wrinkles up his forehead, ponders for a few moments, and expresses his conclusion: “Well, I need to call a tire store and get some prices.”

  In other words, if there’s some vague thing you need to do, you usually just need to think about it for a moment to figure out what the next action step is. Then, add that next action step to your list.

  Quite often (in fact, almost always), that next action step leads you down a sequence of actions that leads you to complete that vague thing you’ve been putting off.

  For example, in that tire scenario, after calling a few tire stores, the fellow has a list of options in front of him for tires. He can drop that in his inbox if he wants, or he can keep going and set up an appointment to get new tires at the shop he prefers, adding that appointment to his calendar. Once he goes to that appointment, the vague “tires” element on his list – something vague enough that he kept avoiding it – is now completed and it’s one less thing on his mind (and on his “next actions” list).

  I do this all the time. Quite often, my initial collection of some idea or some task – usually jotted down in a pocket notebook – is really vague. It’ll be something like “tires” or “chicken alfredo” or “Rudy Jimenez.” When I retrieve that note later on when I’m processing my inbox, I’ve learned that when I see such a vague note, I should spend a bit of time thinking about it and figuring out what comes next. After that thought, I can add real actions to my next action list, like “Set an appointment to get new tires on the Pilot” or “Buy the ingredients for that bookmarked chicken alfredo recipe” or “Call Rudy Jimenez about the youth baseball league meeting.”

  If I didn’t do that extra second or two of thinking to turn something vague into a clear next action, I would be a much less efficient and less reliable person. That extra second or two turns things that seem vague and difficult into very clear and specific actions that I can do.

  Of course, if you keep carrying this thought process further, you begin to see a different problem. What if you have a vague and amorphous task that seems to get more difficult the more you think about it? Income taxes come to mind – it seems like a simple thing, but if you sit down and start piecing through it, it starts to seem bigger and bigger and bigger.

  Quickly, you reach a point where the task seems overwhelming – and that’s the point at which procrastination often begins. On page 241, Allen touches on this:

  And so a lot of people [fall into this trap]. Because they’re so smart, sensitive, and creative. In my many years of coaching individuals, this pattern has been borne out more times than I can count – usually it’s the brightest and most sophisticated folks who have the most stuck piles, in their offices, homes, and heads.

  In other words, smart, sensitive, and creative people tend to be very good at seeing all of the intricacies of a large problem – and it overwhelms them. Rather than dealing with all of these little elements and details, we put it off.

  This is absolutely the wrong approach. If you have one of these fairly large and seemingly complex tasks in your inbox, your best bet is to spend some time figuring out nothing more than what your next action is to move it forward, then add that to your next action list.

  In other words, just break it down. Don’t get scared by all of the details you see further down the road. Focus on nothing more than the very next thing that you need to actually do to move this thing forward. When that’s complete, move on to the next step. And the next.

  Allen talks about it on page 242:

  There is another solution: intelligently dumbing down your brain by figuring out the next action. You’ll invariably feel a relieving of pressure about anything you have a commitment to change or do, when you decide on the very next physical action required to move it forward. Nothing, essentially, will change in the world. But shifting your focus to something your mind perceives as a doable, completeable task will create a real increase in positive energy, direction, and motivation.

  That’s why getting in the routine of just identifying the next thing you need to do to move something forward and simply doing it is so powerful. It makes your objectives clear. It gives you something specific to actually do instead of procrastinating. It lifts your mood and your attitude.

  To put it simply, it gets things done.

  On Tuesday, we’ll talk about the power of outcome focusing.

  
  

  
• 

  Some Thoughts on DINKs (Dual Income, No Kids)

  Posted: July 8th, 2010, 2:00pm MDT by Trent

  A couple weeks ago, I posted some links to a discussion concerning whether it was smart or selfish to not have children, as well as a response to that issue.

  Since then, the whole matter has stuck in my head. Is it smart or selfish to have children? Several readers have emailed me their thoughts on the subject as well.

  In the end, I don’t think you can strictly say whether it’s smart or selfish to have children or not without deeply knowing the people you’re talking about.

  First of all, children are expensive. An average child born today will take up somewhere on the order of $300,000 in expenses before they are fully independent (though, honestly, some of that is offset by behavioral choices made by parents). They also require a lot of time, emotional giving, and patience.

  Some people – and I would put myself in that camp – deeply want to be parents. It’s a personal goal in their lives. They spend a lot of time focusing on how to be good parents. They genuinely strive to produce good children, not only for the benefit of society, but because it’s a personal drive within the parent.

  For me, the price of being a parent is one I’m willing to pay, because being a parent is something I’m intrinsically driven to do. My deepest personal values tell me that being intimately involved with the crafting of the future people of this world – directly, in the case of my children, and indirectly, in the case of many of their peers – is one of the most valuable things I have to do in life. I can equip them with the basic tools they need to achieve things beyond my imagination.

  Other people don’t have that drive. Their motivations and goals and aspirations lie elsewhere – in career paths, personal endeavors, or other areas. Without that drive, they tend to see the costs – which are easily calculable – in front of the benefits, which are much less direct at first glance.

  I think that many people are on the fence about where they stand. They see the positive experience that some parents have and want that in their life, but they’re also taken aback by the problems and difficulties and social implications of parenting.

  My belief is that if you don’t wish to have children, don’t have children. If you think that children are more trouble than they’re worth, you probably should not have children.

  I also believe that if you feel driven to have a child, you should do everything you can to prepare to be the best parent you can be. This means spending the time to really figure out who you are, how to control your emotions, how to teach, and most importantly, how to be patient.

  The world needs both parents and non-parents. There is a lot of societal value in a wide range of skills, abilities, and thoughts. I absolutely feel that being a parent is a noble choice, but that does not imply that DINKs are not making a noble choice. They’re making a different one in line with their values, goals, and talents.

  To put it simply, I think it’s smart to follow your nature and inner drive – whether that leads you to be a parent or not – and it’s selfish to ignore that drive and push yourself in a different direction. If you’re born to be a caregiver, it’s smart to become one and selfish to push away that nurturing side. Similarly, if you’re born without that ability, it’s selfish to try to force yourself into it, but quite smart to seek out and follow your other talents.

  The worst thing that either side can do is insult the other and believe that their side of the coin is the only worthy side. We need both parents and non-parents in society – without both, we would see the end of the human race.

  Just remember, you don’t have to be in either group. If you listen to your heart of hearts, though, it will eventually guide you to where you should be. Just remember that society needs the caregivers and it also needs those who walk alone and blaze a different path.

  
  

  
• 

  Reader Mailbag: Singing Bedtime Songs

  Posted: July 8th, 2010, 8:00am MDT by Trent

  What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
  1. Borrowing against life insurance
  2. Splitting a property
  3. Bankruptcy and loan modification
  4. Tracking weight loss
  5. How much down payment?
  6. Helping someone drowning in debt
  7. Spousal disharmony and debt repayment
  8. Extra payments or not?
  9. Is Dave Ramsey worth it?
  10. Swimsuits and culture

  One of the traditions we have at bedtime at our house is that I sit and sing a few songs to my children as they go to sleep. I usually let them each choose a song, then I choose a song or two.

  In the past, they would each pick a child’s song – like “The ABC Song” or “Baa Baa Black Sheep,” then I would sing some song I knew, usually an old folk song or a song that was popular fifteen years ago.

  Lately, it’s been fun to watch as my children’s tastes have grown. My son almost always requests one of the old folk songs. My daughter, interestingly, seems to be gravitating to a lot of what I would call the “alternative” hits of the mid-1990s (don’t worry, I’m pretty selective on what songs I choose to sing).

  It’s quite fun. I can’t sing well, but I muddle through with light percussion, and if my children know the song well (as my son does with a few of the folk songs), they’ll sing along, too.

  I recently graduated college and was fortunate enough to land myself a very well-paying job in a location that I like doing what I want (in the IT field). I have not been so lucky (smart) in the past, however, and during my college career accrued about $4500 in credit card debt that I’m working to pay off now. I’ve stuck to using cash and debit only for now and have been going strong at not accruing more debt for a few months, though I can’t admit I’ve been able to pay my cards off as quickly as I hope because I wasn’t earning income for over a month and before that I was still earning just enough to get by.

  As part of my transition from college life to the ‘real world’, my parents have turned everything over to me – including a life insurance policy that they started when I was very young. I have no intention of getting rid of this policy despite the fact that I have free life insurance from my employer for an equal amount. I did however find out that I can take a loan of up to about $6000 from my policy at a 5.5% interest rate. Right now my weighted average of my debts is hovering just shy of 18%..to me, it seems to make sense to take out a loan against the policy and pay off my credit cards, then work on repaying the loan. I already have a plan in place to pay off my debts, but in the meantime it would save me money and would only require one (albeit automatic) payment each month. I also am planning on paying off my cards within four or five months as of right now, but if I can take out a loan at 5.5% it would help me sleep better to build up an emergency fund first and repay the loan at a slightly lower pace until I get a few months of living expenses saved up. What are your thoughts on what I should do with this? Would this have any impact on my credit??
  - Dave

  Really, all you’re talking about here is refinancing. Instead of carrying unsecured debt at 18%, you’re thinking of converting that to secured (by your life insurance policy) debt at 5.5%.

  Reducing $6,000 from 18% to 5.5% would save you $750 over the course of a year. Given the “four or five month” timeframe you’re talking about for becoming debt free, your net savings would be about $200 to $250, depending on how you paid it down.

  I would do this move, but not change a thing about my debt repayment plans once I had a small emergency fund – say, $1,000 or so – in place. Get that small emergency fund, get rid of the debt, and move on down the road. You’re in pretty good shape, after all.

  I live in Brooklyn where what you get for $300k is almost nonexistent (or a shoebox and shoddily made) and have been talking to friends to see what we can get for $600k instead (sometimes small 2-family homes will still go for that but 3-family homes are going for $850-900k still). I’ve only found some stories that it’s been done and some of the agreements made between the homeowners, but not how to go about it (working with getting 2 mortgages finalized at one time, what to look for in a realtor that can handle both, what the timeline should look like). I recall meeting someone who did this with a 3-family house and then the split the property legally into 3 separate units after the sale.

  Do you have any information on it? I know the risks re buying with friends but I do know we’ll both be interested in having a fair agreement contract and working through that stuff. We have about the same amount of money to put in as a down payment ($10k each).
  - Jesse

  It depends on the type of arrangement you’re considering, which isn’t clear from the question.

  If you’re just wanting to buy the house, have everyone live there, and share the mortgage as one unit with the payments “split” among you, that’s a private contract between all involved parties. A lawyer could easily draw this up. However, I really, really would not recommend this because it’s going to be fraught with problems if one of the people involved decides to pull out.

  I think, though, what you’re looking for is a way to effectively turn this one house with one mortgage into three properties with three mortgages. That can be done, but it requires that each of the separate properties have certain elements – their own exit, for one. What exactly is required for this depends on the specific zoning rules in your area and you’d want to talk to a real estate lawyer about it.

  If you can get the property treated as three distinct properties, then it’s likely that a bank would help you refinance the single mortgage into three separate mortgages. However, if this is your long term plan, I would make sure the agreement for all of this is in place before signing anything at all. In other words, the first step is to talk to a property lawyer – and getting the bank involved would be another part of the equation before you even start looking at the property.

  My husband has been disabled for the past ten years. Due to numerous medical bills and loss of income, we were forced to apply for a loan modification with our mortgage lender. I am currently in negotiations with my mortgage lender to modify my mortgage. I was approved for a trial Home Affordable Modification. I have to make adjusted payments for 4 months and then hopefully they will permently adjust my mortgage. My question is: Can I claim bankruptcy during this trial period? Will it effect my loan modification?

  We hired a bankruptcy attorney back in April, he advised us to wait for the loan modification. He also advised us to stop paying our credit cards at that time. I sent the credit card companies a letter advising them that we were filing for bankruptcy and gave them my lawyer’s information. My second question is: How long will credit card companies wait for you to file bankruptcy before they start with legal proceedings?

  So we are in kind of a bind. We do not want to lose the loan modification, and we do not and cannot afford to be sued by the credit card companies. Should we proceed with the bankruptcy or wait for four months until the trial period on the loan modification is over.

  Our attorney says that we should wait and see what happens with the credit card companies. Do you have any thoughts?
  - Brianna

  Borrowes in bankruptcy are not automatically eliminated from the Home Affordable Modification program, so I wouldn’t worry about that.

  What I would worry about is filing bankruptcy proceedings in the middle of this would cause some significant additional effort on behalf of the bankruptcy court, which would increase your legal costs (perhaps significantly).

  I wouldn’t worry too much about the unpaid credit card debt, either. If you’re up to date at the start of all of this, you’re probably just going to be 90-120 days late at the time your modification finishes up.

  The place to look is the contract you agreed to with the credit card company when you opened the card. Most likely, your debt will just be turned over to a collection agency eventually if you don’t pay because, honestly, unless you have a huge amount of debt, it’s not worth it to them.

  If you’re filing bankruptcy, you’re going to have severe credit problems in the short term anyway, so that’s not a concern.

  In the end, I’d trust your lawyer on this one.

  I recently saw a post on your progress for your 2010 goals and saw that one of your goals is to lose 40 pounds. I was wondering if you use any software or systems to track what you are eating, how much you weigh, etc. to keep you motivated and informed as you are improving your diet and losing weight?
  - Jenelle

  I keep track of my weight in Excel. Not only do I keep track of my daily weight, I also have columns that automatically calculate my average weight over the last 10 days and the last 30 days.

  I do this because I’ve learned it’s a bad idea to panic if your daily weight fluctuates a bit, even if it goes up. Food digestion, water retention, and many other things can cause your weight to go up on a day-over-day basis even if you’re eating well and exercising.

  So, my focus is generally on making sure that my longer-term average weight is going down.

  I’m 24, single and currently employed with a salary in the mid $40k’s. I’m living at home and plan to until I buy a house/condo. I have $10,000 in a savings account and another $13,000 in a money market. Most of my income goes into the MM and I’m planning to use it as the downpayment for my house/condo and let the savings become my emergency fund when I am on my own. I’m wondering what you think is a good amount (%) to put down when I do buy something and if I should use a part of the emergency fund for the downpayment. The only other debt I have is $5k in student loans at 4.5% and currently, my fixed expenses (student loan included) are ~$150/month.
  - Nate

  You should be shooting to put 20% down and you shouldn’t deplete your emergency fund to do it because when you move in, there will be lots of things right off the bat that you’ll need to do to fix up the house. I would keep an emergency fund equal to two months’ of expenses after your move, so probably somewhere in the $4,000 range.

  20% seems like a lot, but if you’re earning $40K a year and you have only $150 a month in fixed expenses, you should be able to save a lot each month toward that goal.

  My estimate is that you should be socking away about $1,500 to $2,000 a month, depending on how much you’re spending on other stuff. That will get you to your number surprisingly quickly.

  What would your suggestion be for a good friend who’s going through a divorce, is having a hard time with money, but does everything frugally already? My friend cooks his own meals, even builds his own furniture, drives a small car, doesn’t drink/eat out, etc. I hate seeing credit cards and banks eat up 10-30% interest on his debt and late fees, and his credit situation doesn’t warrant him being approved for better credit card or bank offers. I’m torn with what to do, other than help him pay off his debt to improve his credit history and get him back on track.
  - Matt

  Help him, but not by loaning him money. Instead, do what you can to help him with his burdens as a friend.

  Invite him over for meals. Listen to him when he’s frustrated. Offer solutions if you can find them. Offer him some short term living space if he needs it.

  There are countless small things a friend can do to slightly relieve someone’s financial or emotional burden in their time of need without just lending them money.

  I am working very hard to pay off an auto loan so my husband and I can be 100% debt free. We have money leftover every month, but I always worry about commiting so much money to debt repayment so soon before our next paycheck. What usually happens is that I wait until our next paycheck to pay off any extra toward our loan, and my husband winds up spending our leftover money.

  I hate this. I want to be out from under this. My husband and I have $1,000 in an emergency fund and contribute to this fund monthly. What should I do, bite the bullet and pay it off immediately, or put half in our emergency fund and half toward debt repayment? Any advice would be appreciated!
  - Rachel

  If you’re just looking for a quick fix, the best solution would be to zip off an extra payment as soon as there’s money in the account to spend. In other words, spend it first.

  However, doing that just hides the fact that there’s a real problem crouching underneath the surface here. There are some trust and responsibility issues going on with money in your marriage, and if you don’t nip it in the bud right now, you’re going to end up with much deeper problems.

  Sit down together and have a serious conversation about what your goals are and what your specific tactics will be for reaching those goals. Quite often, things like this happen because people don’t have goals – or they have goals that are out of alignment with one another.

  My husband and I are probably going to buy a house. It’s small, and there’s a chance we’ll only be there 3-4 years, and at most we’ll probably only be there 6-7 years (it’s 2 bedrooms, which if we start a family we’ll likely outgrow). We’re willing to take the buying chance because we’ll be paying much less for the mortgage than equivalent rentals in the area (mortgage plus property taxes will be about $1200 per month, whereas equivalent rentals are around $1500-$1600 per month, and the rent is not a tax write-off), and after a string of bad landlords (including on foreclosed on) we just would really like to own instead of rent.

  My question is this: does it make sense to make extra mortgage payments if we aren’t staying there long term? We have good jobs and save a lot, and after funding our retirement accounts we have about $3,000 a month extra to save. Should we put part of that toward paying off more mortgage? It seems to me the real boon of extra mortgage payments is that you save on interest and reduce the length of the loan, but we won’t be there for the length of the loan, so I don’t really see how we’d benefit from extra payments. Your thoughts?
  - Valerie

  If you get a 5% mortgage, then every drop of extra payment you make is essentially netting you a 5% return on your money for as long as the mortgage exists.

  Here’s what I mean. If you owe $100,000 on your 5% mortgage, you are paying $5,000 a year in interest. If you pay off $10,000 of that 5% mortgage, you now owe $90,000 on that mortgage and will only pay $4,500 a year in interest – a $500 savings per year for your $10,000 investment.

  Now, you’ll probably put your money to better use by ensuring that your retirement plans are taken care of. After that, though, putting your money into something that returns 5% to you like clockwork until you sell the house is a pretty good choice.

  what’s your opinion on Dave Ramsey’s programs? I saw the book review (I read it – borrowed from library) and have seen your arguments/opinions about his ideas toward debt (Snowball, 15%) and some of my friends are doing FPU and/or thinking about it. It got me thinking about it too, but I’m not sure I agree with spending $100 to learn how to manage money when there are a lot of free resources available on the web. Basically — is the program worth it? Have you heard really good or really bad comments about it?

  In general, my spending/financial situation is mediocre. I have a 401k, IRA, and E-fund. I’m not bouncing checks but I’m not paying down debts (CC, school loans, car) with the speed that Dave wants me to. Who really benefits from the course? Dave or the attendee?
  - Meg

  I think Dave Ramsey’s material is just fine. What he provides for people is cheerleading and motivation built on top of a set of very simple but financially sound principles.

  Those principles, as you said, are freely available on the web. What you’re paying for is the cheerleading and motivation, in other words.

  For some people, that cheerleading and motivation is worth it. For other people, particularly people who are good self-starters, that money is better off being channeled into debt repayment.

  Another department where men are able to cheap out over women and then preach like they know something – swimsuits! [...] [I]t’s easy for a man to get cheap decent swimsuits— not so much for women. Once a woman has a good suit that wears well, it will be kept until it either no longer fits (for many reasons) or is falling apart.
  - Jean

  Here’s the thing, though, with items like swimsuits. I go to the beach or the pool in a pair of swim trunks and a t-shirt and I toss of the t-shirt when I want to swim. A pair of swim trunks costs about $2-3 and lasts me for years.

  When someone – male or female – pays more than a few bucks for a swimsuit, they’re not paying for clothing to cover their bodies while swimming. They’re paying for a fashion accessory – a completely nonessential item. $70 spent on a swimsuit that shows off a woman’s figure might be a fun expense, but it’s certainly not required to swimm.

  If you think you must spend that kind of money to have the perfect swimsuit to keep up appearances, you’re spending too much time (read: more than zero) and too much money (read: more than zero) worrying about what other people think of you. Think of it this way: if you were going to a completely private beach to swim, would you need that $70 swimsuit?

  Update Several readers were upset by this response. My point was that if you’re spending more than $3 on a swimsuit because of vanity, it’s wasted money. What came across is that spending more than $3 on a swimsuit is vanity, which is not what I was trying to say at all. Spending more than $3 for a comfortable suit if you value swimming is a very worthwhile expense. I apologize for my ineloquence and my thick head.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  

Frugal Dad

• 

  Weekly Roundup – Smarty Pig Edition

  Posted: July 8th, 2010, 3:00am MDT by Frugal Dad

  After last week’s post about CD laddering, a number of you suggested I check out Smarty Pig, as the rates on their savings account was competitive with the CD rates I had referenced. In fact, in nearly every case, Smarty Pig’s rate (2.15% APY, at the time of this writing) was much higher.

  I deposited the minimum amount there quite a while ago in preparation for a review post (that never happened) here at Frugal Dad, and was initially attracted by their high rate. Upon returning, I was surprised to see it held up in this market of low interest rates. I am also intrigued by the social aspects of the account – being able to provide friends and family with a link to pitch in towards some defined savings goal. Imagine all those heading back to school who would benefit from a “Text Book Fund” where Aunts, Uncles and Grandparents could toss in a few bucks to go towards school expenses.

  Anyone currently a Smarty Pig customer? I’d love to hear from someone using the social savings goal feature there.
  

  The Frugal Roundup

  How to Survive a Job Layoff:  Next Steps? One of the biggest questions those who lose a job face is the dreaded “now what?” This post provides needed information to help prepare the growing number of Americans finding themselves out of work. (@Digerati Life)

  5 Best Websites for Job Seekers. Following right up with a post that should help job seekers get back to work. When out of work, it’s a great idea to make your job finding a job, and these are a good place to start outside of your personal/professional network. (@Brip Blap)

  Reader Question: I’ve Lost a Lot of Money in the Market. Should I Get Out? I moved what little I had in the market to cash some time ago, but am now picking my way through a couple solid dividend stocks that I believe have been beaten down unjustly and getting back in. (@Generation X Finance)

  Making Your Time Less Money Dense. I generally try to maximize my time in the following manner: when working, I try to focus on those things that are most profitable. When at home, I focus on those things that most memorable. In between, I’m focusing on spending both time and money intentionally, on those things that matter most to me. (@The Simple Dollar)

  Freedom from the Day Job. Some interesting thoughts on “work” from Philip Brewer. I’m probably one of those who has been guilty of misusing the word “work” in the past. (@Wise Bread)

  Best of the Rest

  • Financial Goals Mid-Year Update 2010
  • Market Conversation With a Coworker
  • 4 Quick Mid-Year Financial Checkups
  • Teaching Kids About the Value of Money
  • New Bank Overdraft Rules

  It’s been a while since I lobbied you to join me on Facebook, but with a little help, the Frugal Dad fan page could soon reach 1,000 fans. If you happen to be on Facebook, I’d love it if you’d stop by and say hello.

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  The Simple Dollar Is in Bookstores Today… And Here’s Some Free Bonuses for Buyers!

  Posted: July 7th, 2010, 2:00pm MDT by Trent

  My new book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams, is now available in bookstores (I just saw it at a Barnes and Noble in the Des Moines, Iowa area and at the Borders in Ames, Iowa)! You can also buy it right now at Amazon.com or order it from Barnes and Noble.

  I’ve already shared a big collection of reader stories from people who have already read the book and made positive changes in their lives because of it.

  Now I want to add a little bit more value to those people who have already purchased the book – and those who are on the fence about it.

  If you buy the book before July 14, I’ll give you all of the Simple Dollar downloadables… free.

  You’ll get 31 Days to Fix Your Finances, The One Hour Project, Twenty Big Ideas, and Building a Better Blog all for free. Each one of them is like a small book, delivered electronically for you to print and do with what you please.

  Even more, I’ll also send you my upcoming fifth downloadable, tentatively titled The Simple Dollar Cookbook, for free. Like the others, it’s an electronic book, but this one will include dozens of the best recipes from The Simple Dollar with pictures, formatted so that you can easily print out any individual recipe you wish from the book.

  All you have to do is send a picture of your receipt from buying The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams to simpledollarbookdeal@gmail.com before July 14. If you bought it from a web retailer, just forward the email receipt they gave you (you can edit out personal info if you wish).

  So, if you’ve already bought the book, just send along the receipt (if you’ve lost it, just take a picture of yourself holding the book and tell me where you purchased it). If you’ve not picked it up yet, now’s a good time to do so.

  Once I’ve received all of the emails and checked them all, I’ll start sending out the e-books back to the address that sent me the receipt. (This may take a week or two, depending on how many people take me up on this offer.) When the cookbook is released, I’ll email that one separately (I’m hoping to finish it in September after the Summer Meal Series has finished).

  This is mostly just a perk for loyal readers of The Simple Dollar who have picked up the book, too. You guys are awesome.

  
  

  
• 

  The Simple Dollar Weekly Roundup: Link Choice Edition

  Posted: July 7th, 2010, 8:00am MDT by Trent

  A fellow blogger wrote to me asking me how I go about choosing the articles I include in my weekly roundup each week.

  What I basically do is read a lot of blogs and news sites throughout the week (including ones that bloggers send to me) and bookmark articles that made me think. I save these in a folder marked “next week’s roundup.”

  Then, when I go to assemble the roundup, I dig through that folder. There are usually 30 to 40 articles in there. What I usually do is read through that list and look for the ones that still make me react to them. If I don’t remember what the article was about by glancing at the headline, it’s not going to make it. If I remember the article but just shrug my shoulders, it’s not going to make it.

  This usually trims it to ten or so. I then eliminate site duplicates – so I’m not linking to the same site twice in the same week, even if there are two great articles there – and just put up the rest, which usually ends up numbering between about five and about eight articles.

  I usually save one or two articles a week for future roundups so that I can put together a set of interesting links for any weeks when I’m traveling or up to something else.

  And now, here are the articles that made the cut over the past week.

  How to Handle a Telephone Interview I don’t like telephone communication because I can’t see the face of the person I’m talking to, which gives a lot of cues as to what that person is thinking. Thus, these are pretty good tips (from my eyes). (@ freelance switch)

  How to Simplify When You Love Your Stuff The key really is to make sure your stuff is in line with one of your core values in life and to make sure you have time to actually use or value that stuff. (@ zen habits)

  Do You Know Your Daily Salary? Use it to Better Understand Your Money This is very similar in concept to a true hourly wage (your income per hour after you take out all of the expenses required to work there and receive that income, like taxes and clothing and travel and meals eaten out). For me, the true hourly wage was a real shocker and a great way to put my spending in a real context. (@ pt money)

  Are CDs Obsolete? CDs should be evaluated as being roughly equal to savings bonds and savings accounts. If you can get a better interest rate elsewhere, don’t buy a CD. (@ my dollar plan)

  What Should You Buy Used? What Should You Buy New? I agree more or less with this list, but I think each person should think seriously about whether or not an item they use could be purchased used at a much lower price. (@ get rich slowly)

  
  

  
• 

  Getting Things Done: The Power of the Collection Habit

  Posted: July 6th, 2010, 2:00pm MDT by Trent

  This is the eleventh entry in a fourteen part series discussing the time management classic Getting Things Done by David Allen. New entries in this series will appear on Tuesday afternoons and Friday mornings through July 16.

  Allen concludes the book with three short chapters discussing the power of various aspects of the GTD system. This first one focuses on how powerful the collection habit really is.

  As Allen states it on page 225:

  When people with whom you interact notice that without fail you receive, process, and organize in an airtight manner the exchanges and agreements they have with you, they begin to trust you in a unique way. Such is the power of capturing placeholders for anything that is incomplete and unprocessed in your life. It noticeably enhances your mental well-being and improves the quality of your communications and relationships, both personally and professionally.

  In other words, if your system is reliable, you become reliable, and if you become reliable, you’ll become more confident of your abilities, other people will notice your increased reliability, and you’ll become more valuable in everything you do.

  I’ve noticed this phenomenon in my own life. Whenever I am operating my system really efficiently, I seem to do a great job of managing all of the stuff on my plate and others do notice this. I tend to see the results of it in the form of better articles on The Simple Dollar and elsewhere, which attracts readers. I get more notes about how today’s article was really good. I tend to build relationships in my life in a positive manner because I’m on top of the feeding and growth that they need.

  What makes that happen? In the end, it’s simply the fact that I’m collecting everything that’s incomplete in my life and doing something with all of that stuff. Even if the system isn’t going perfectly for a while, I’m still making sure that all of the open-ended things are either being closed or are moving forward.

  That builds trust. That builds self-confidence – and confidence from others. It builds a feeling of control over your life instead of a sense that things are just spinning out of control.

  Those are things that constantly help you throughout your career and personal life, not just in terms of building relationships, but in terms of the quality work that you’re able to produce.

  One interesting part of sitting down and doing a full collection of all of the unfinished stuff in one’s life – and I certainly went through this myself – is all of the negative feelings it generates along the way. From page 226:

  If you’re like most peoplw ho go through the full collection process, you probably felt some form of anxiety. Descriptive terms like “overwhelmed,” “panic,” “frustration,” “fatigue,” and “disgust” tend to come up when I ask seminar participants to describe their emotions in going through a minor version of the procedure. And is there anything you think you’ve procrastinated on in that stack? If so, you have guilt automatically associated with it – “I could have, should have, ought to have (before now) done this.”

  This is normal. Almost every functional adult has a big pile of unfinished stuff hanging around in their life. Even highly organized adults do.

  Where do these negative feelings come from? Allen has a great explanation on page 227:

  But what are all of those things in your in-basket? Aggreements you’ve made with yourself. Your negative feelings are simply the result of breaking those agreements – they’re the symptoms of disintegrated self-trust. If you tell yourself to draft a strategic plan, when you don’t do it, you’ll feel bad. Tell yourself to get organized, and if you fail to, welcome to guilt and frustration. Resolve to spend more time with your kids and don’t – voila! anxious and overwhelmed.

  This sums up so well why dumping everything in your inbox can be a downer, but processing it can be such an incredible positive feeling and release.

  When you put all of that stuff in your inbox, you see all of the agreements you’ve broken with yourself, which is a major downer.

  On the flip side, though, once you have all of those promises sitting there and you actually go through the process of dealing with all of them, it feels incredibly good. Why? You’re finally living up to all of those promises you made for yourself and all of the bad feelings you have associated with yourself and all of those promises are just swept away.

  I find that when I start to get behind, I really get deeply upset with myself when I collect everything together. These moments are probably the most negative ones in my life because I criticize myself harshly when I see such a pile of unfinished stuff.

  Yet, with every item I process, I feel better. Each item I collect and then deal with goes from being a broken promise (a negative) to a fulfilled one (a positive). It also often reaffirms a positive reputation with others, because quite often that fulfilled promise benefits others in some way.

  What usually happens is that it feels so good to start running through these processes that I almost become addicted to it. I burn through my inbox, processing all of it, then I tend to stick to the system furiously for a while, coasting on all of the good feelings.

  In fact, the only time I tend to fall behind with it is during times of extreme crisis or extreme time management situations where I have more things going on than my calendar can hold. It is in those situations that stuff starts slipping through the cracks and the system starts to fall apart.

  A recent example of this was in the second quarter of 2010, where we had our third child, final book edits were due, my father became seriously injured, and my book was released in a period of about seven weeks or so. Add into that a ten day trip right in the middle and I simply found myself slipping behind.

  That’s why going through this book and the whole GTD process starting on June 1 was a huge lift to me. I went through the collection and processing myself as I wrote these pieces and it was a huge personal lift.

  I really can’t recommend this enough. Put aside a day – preferably two, make it a weekend – where you just collect everything you need to get done. That should take about a third to a half of a day. Then, spend the rest of that time processing it. Do the simple things. Come up with plans for the bigger things. Trash the things you really don’t want to deal with.

  It’ll be incredibly cathartic. You’ll come out of that timeframe with a much more positive feeling about your career, your life, and your relationships.

  In fact, I’ll bet you’ll label it as one of the best things you’ve done in your adult life.

  On Friday, we’ll talk about the power of the next action.

  
  

  
• 

  Making Your Time Less Money-Dense

  Posted: July 6th, 2010, 8:00am MDT by Trent

  One of the biggest ways to leak money is to spend your time in money-dense ways. The easiest way to explain it is to just show you a bunch of examples.

  Spending eight hours at Disney World with the requisite food, drink, and souvenir purchases costs about $200. The cost per hour of this event is $25 per hour. This is a very money dense activity.

  Spending eight hours reading a book you checked out from the library costs nothing at all. The cost here is $0 per hour.

  Watching a DVD at home that you borrowed from a friend costs perhaps $0.20 in electricity ($0.08 per hour).

  On the other hand, going out to a movie for two and a half hours costs you $10 for the ticket ($4 per hour) or, if you buy drinks and popcorn, $18 for the trip (about $7.50 per hour).

  You can do this for virtually any activity with which you might spend your leisure time. From shopping for clothes to playing a video game, all such leisure activities have a cost per hour, and the lower you can make that cost per hour, the better off you’ll be.

  But how can you actually use this idea?

  What I did a while back is simply make a giant list of all of my favorite leisure activities. Taking a walk. Playing a board game. Reading a book. Playing a video game. Playing basketball. Playing with my kids. Working in the garden. Going to movies. Going to bookstores. Going to the library. The list was quite long.

  Then, I figured up the approximate cost per hour of engaging in those activities.

  Going to the movies was pretty expensive, as was going to the bookstore (because I rarely leave it without a book in hand). Playing a board game or a video game were usually pretty cheap, as the cost of each is prorated down because of the many times I’ve played each one ($1 per hour or, often, much less than that, and even that’s merely recovering a sunk cost). Other activities, like taking a walk or playing at the rec, were effectively free. Gardening arguably earns a little bit for each hour invested in it.

  What happened was that when I had brainstormed this huge list of activities and actually figured out what they cost per hour, I began to spend more of my time on the lower cost activities (like taking a walk or yard work or reading a book or playing games) and less of my time on the more expensive things for the time invested (like going to movies).

  It wasn’t even a conscious choice, really. Just by raising my awareness of the implicit cost of engaging in various activities I enjoy, I began to migrate towards the ones that drained my wallet at a slower rate.

  Naturally, my entertainment and hobby budgets have dropped over the last year or so at no cost to my enjoyment of life at all. I just simply improved my awareness of the real cost of many of the things I enjoy and started making my choices of how to spend my scant free time from a more enlightened perspective.

  
  

  

Frugal Dad

• 

  Are You Spending Intentionally?

  Posted: July 6th, 2010, 3:00am MDT by Frugal Dad

  Every now and then I read something that aligns so closely with my own philosophy that I literally scream out an approving “YES – that’s it!” upon reading it. That’s exactly what happened a couple weekends ago when I was catching up on a few of my favorite blogs.

  Donna Freedman (MSN Smart Spending fans will recognize that name) submitted a fantastic guest post to Get Rich Slowly, Reader Story: Surviving and Thriving (the title also happens to be the name of Donna’s new blog).

  Donna’s story was inspiring enough, but within the post  I found a brilliant line that perfectly sums up my feelings on living frugally – something I’ve struggled to put into words in the past, but Donna did so eloquently.

  “And it’s not that I don’t ever indulge myself. Frugality means saving where I can so I can spend where I want — on frugal travel, say, or the occasional therapeutic massage. But it’s not about who cuts the most corners. It’s about using money intentionally.”

  Yes, that’s it! Living a frugal lifestyle is about using money intentionally. It is not about using the least amount of money to fund your lifestyle, rather it is about maximizing the money we do have by making its spending a reflection of our values.

  This goes much deeper than my previous attempts to separate the difference between being frugal and being cheap. This goes to the very heart of the frugal spirit. People often ask me how I could be frugal and drive a late-model truck. How could I be frugal and dine out occasionally, or buy organic foods? How could I be frugal and spend money on books when I can get them free at the library?

  While each of these representative items from my budget could be obtained cheaper (cars, food, and books), by increasing my spending in these categories, and lessening it in others, I am intentionally spending money on those things that matter most to me.

  I don’t mean to say cars themselves mean much to me – after all, I’ve driven beaters most of my life. But now that I have a family, I value reliability and safety when it comes to a vehicle predominantly used by my wife and kids.

  I enjoy the occasional splurge of eating out. The kids get a chance to practice their manners away from the usual dinner table at home. My wife and I get a night off from cooking and cleaning. It gives us all a night to look forward to every couple weeks.

  I like books. There are a number of books that I like to keep on my bookshelf for future reference, rather than return to the library, so I buy them (I still like to use Amazon.com for the best prices, so the frugal side of me never totally disappears). I could borrow them from the library for free, or search yard sales looking for a copy, but I don’t.

  Some people like to travel. Others see every new movie that comes to the theater. Some invest heavily on making upgrades inside their home, or to their outside landscaping, or on jewelry for themselves or their significant other.

  The point is that everyone has a different value system, and their spending is a reflection of their personal values. This leaves little room for others to criticize others perceived lack of frugality. Your coworker who espouses frugality in the office, but may be found at the golf course every Saturday morning may brown bag lunch throughout the week to offset his cart fees.

  A friendly contest of “out-frugaling” your neighbor may appear won after you discover she receives a manicure once a week. However, you later find out she dropped her gym membership to keep her monthly budget balanced.

  It’s not fair to judge others value system. The only thing we can control is how intentionally we spend our money. Are you currently spending your hard-earned money on the things that matter to you, or is your paycheck funding credit card interest and bad habits?

  It’s up to you to decide where to spend your money, and the more intentional you are about spending and investing your money, the better.

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Promises, Promises (To Yourself)

  Posted: July 5th, 2010, 2:00pm MDT by Trent

  Connie writes in with a great question whose answer got far too long for the Mailbag:

  My biggest problem with money is that I lie to myself. I keep telling myself everything is going good and at first it is. Then I start slowly falling back into old habits but I keep telling myself everything is good. Eventually, everything is worse than before but I still keep saying everything is good, and then I’ve racked up thousands of dollars on the credit cards again. I don’t know what to do anymore.

  I think that lying to ourselves is something we all do to some extent. Most people tend to believe they’re above average in most categories, which indicates some degree of self-delusion among practically everyone out there.

  A little bit of self-delusion is very good, actually. It gives us self-confidence, something we need to have to overcome difficult situations. We can tell ourselves we can do something just a bit beyond our skill and talent level and thus by pushing ourselves to doing it, we’re able to achieve something that was previously just beyond us.

  Yet, as Connie points out, self-delusion can sometimes be a very, very dangerous thing. It can push us into making some terrible mistakes under the guise of “everything being fine.” It can cause us to undermine our own progress and goals. It can sneak us into ever-greater problems, like an endless sink into debt or obesity or career mediocrity.

  My biggest current problem with self-delusion is with my weight. I’m not gaining any – that’s not the problem – but I often delude myself into thinking I’m doing very well at losing weight when I’m actually treading water or losing it very slowly.

  In the past, however, I’ve been able to battle self-delusion in many different areas: my career, my personal hobbies, and my time management abilities immediately come to mind.

  Here are four techniques I’ve found that really work for cutting through self-delusion.

  Make yourself directly accountable to others
  This is the top strategy I’ve found. You’ve simply got to make yourself accountable to others in your life. Lay out your situation to them. Explain where you’re at and where you’d like to be.

  Most importantly, you’ve got to report regularly to them on how you’re doing with your goal.

  The added pressure of reporting your progress to someone you trust goes a long way towards keeping you on the right path. Plus, a trusted person can often give you feedback, positive support, and assistance at the very times you need it most.

  You can do this face to face. You can do it on Twitter or on a blog or on Facebook. Just do it.

  Keep the reason why you’re doing this front and center all the time
  Why are you trying to save money? Why are you trying to get out of debt? Why are you trying to lose weight? Why are you trying to make whatever change it is in your life that you’re trying to make?

  What you’re looking for here are extrinsic motivations. Are you trying to lose weight and get in better shape for your kids? Are you trying to save up for your dream house?

  Whatever that reason is, put reminders of it everywhere. Use an image editing program and literally put a statement reminding you of your goal on top of a picture of whatever your motivator is. Then print off fifty copies of it and put it everywhere – on your desk, on your rear view mirror, on your bedside table, on your bathroom mirror, wrapped around your credit card, everywhere.

  Use a clearly-defined measurement as your metric for success
  Never, ever trust a general “sentiment” of success. If your idea of success is that it “feels” like you’re doing well, then it becomes very, very easy to delude yourself into a false picture of success.

  Instead, try finding a specific way to track your success in a specific area. Keep track of your net worth every week or month. Track your weight every day.

  It’s really hard to lie to yourself when the number so easily reveals the truth of the matter.

  Drastically change your routine
  Many people tend to fall back into bad habits because they don’t change their overall life routine. They try to quit smoking, for example, but their life routine involves holding something in their hands and going outside regularly for smoke breaks. They try to quit overeating, but their metabolism is wired to constant snacking and overeating. They try to quit overspending, but their life routines constantly put them in places where they overspend.

  One effective way to buck all of this is to go for a radical change of scenery. Make a major life change while traveling, for example. Give up smoking while visiting your sister for two weeks. Give up overeating while on a series of business trips. Give up shopping while picking up another time-consuming hobby.

  When you’re out of your normal environment and context, it becomes much easier to break bad habits and adopt new ones.

  
  

  
• 

  Reader Mailbag: Vacation Monday

  Posted: July 5th, 2010, 8:00am MDT by Trent

  What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
  1. Help an unlucky friend?
  2. Are rent-to-own homes worthwhile?
  3. Maximizing value of college
  4. Post-graduation options for teachers
  5. Secured loan or credit card?
  6. Used swimsuits
  7. Student loan debt priority
  8. Best use of windfall?
  9. Keeping old utility statements
  10. Goals for 2010

  For many Americans, today is a holiday, the third day of a long weekend, where people can relax after staying up late into the night watching fireworks.

  For us, the fireworks were actually watched on the third and the fourth was relaxing. Today? I’m working about a 3/4 day with some time off in the afternoon to have friends over.

  Of course, working today (when no one is around) makes it easier to take several days off later this month to go to Chicago, see a Cubs game, take my children to the Field Museum, and so on.

  I was wondering if you have any advice for the friends of a person who went bankrupt to save the house (medical bills, foreclosure, ongoing health concerns, and $9/hr job) who want to help but are not sure HOW to help?
  - Victoria

  Don’t loan money unless you expect it not to be repaid (in which case, it’s a gift). That’s something that constantly damages relationships and friendships and just simply isn’t worth it.

  The best thing you can do is help this person with day to day life. Invite this person over for meals at your home. Go to his/her home and prepare some meals that they can keep in the freezer. Help them with any tasks they seem to have a hard time keeping up with.

  Just as important, let that person vent at you some. It can be very cathartic to vent. Listen to his/her problems and offer any suggestions you can provide – but focus on the listening part of it.

  In other words, be the best friend you can possibly be.

  My wife and are moving back home and looking for a new house. We are probably going to rent first until we can get a decent down payment saved to purchase a home. My question is about rent to own or land contract type homes – are these a good option? They sound alright on paper, but I have this nagging feeling these types of things don’t work out as planned. What are the major downsides to these deals?
  - Matthew

  Things don’t work out as planned usually when the owner of the home passes away. The house is given to someone else as part of the estate resolution and they often have no reason at all to fulfill the terms of the arrangement, meaning you’re out the money you paid (you essentially just paid rent for the last few years, in other words).

  Your best bet to protect yourself is to have every possible contingency taken care of in the contract. You should specify a date and a price when you can buy the home, how much of your monthly payment goes towards the down payment, and ideally the home itself should be in some sort of trust that will survive the life of the owner of the home without destroying your arrangement.

  If the owner balks at these types of things, I would be extremely wary of signing on the dotted line.

  I don’t know where you were at in your life in college or what you would do in hindsight, but that’s exactly what I would like to know: what tips, suggestions, or ideas would you have for college students in handling their finances (or lack there of), loans, ways to make money on the side, or any other things you wish you would have known back when? If I missed an article where you have already discussed this, my apologies, I haven’t gone through everything on your site, it can be quite daunting sometimes.
  - Kevin

  The best thing a college student can do to put themselves in a good place after college is to live as cheaply as they possibly can. Live cheap without shame. The biggest mistake many college students make – myself included – is to live high on the hog on the back of student loans that offer an excessively large living stipend. You should focus to minimize that stipend.

  Live in an overcrowded apartment so the rent is dirt cheap – after all, you’ll mostly just be sleeping there. Hit every free meal you possibly can on campus. Hit every piece of free entertainment the campus provides for you (and at a large school, there’s a lot of it if you look around for it).

  The next most important thing you can do is to focus your energy as best you can on setting up your post-college life. That doesn’t strictly mean grades. It means building relationships with people in your career path. It means finding experiences that will glow on a resume. It means figuring out who you are and what your true talents and passions are. In other words, don’t waste a dime of that money you’re spending.

  Kevin also had a follow-up question worth addressing…

  On a more personal note, I am going to be a high school teacher. I realize that it is a profession that generally doesn’t make a lot of money, but that is my passion and I believe I can follow basic finance principles such as the ones you have outlined in various articles on your site to achieve my own goals. Even so, with the limited salary I will have starting out, how would I go about managing saving money, being thrifty, and investing early at the same time? I know I am looking quite a bit into the future, but I have a girlfriend(becoming a math teacher) who I will soon be engaged to that has the same desire to start a family not long after we graduate. Understanding that I will be swamped with school loans, buying or renting a house, kids, and other firsts as a new couple, what would our financial priorities be at that point, and how would they gradually change?
  - Kevin

  The first thing I’d do is see whether or not there are opportunities for getting your loans repaid by working in disadvantaged schools. Many states offer loan repayments to teachers willing to teach in disadvantaged districts. See if you can get into such a program and use it hard for the first five years or so.

  Your first focus should be on building a cash emergency fund so that the inevitable disasters don’t completely drown you. Get in a pattern right off the bat of having some of your income siphoned out of your checking account and into other things – your emergency fund at the start and your house savings a bit later. That way, you’re learning how to make ends meet on less than you’re bringing in, which is the best financially healthy habit a person can build.

  As for investing, just focus on retirement investing for now. You’re going to have so many needs over the next five years that any additional “investing” would be pretty short sighted. Just focus on contributing plenty to retirement, spending less than you bring home, and socking away some for the bevy of expenses you’ll have a few years after graduating.

  Which would be better for helping build my husband and I’s credit? My parents gave us some money ($3000) to help my husband and I get a credit history, though we also need to money for some house repairs. Which would be the better option in this case, to use it to get a secured loan or a secured credit card? Thanks!
  - Sarah

  A secured loan means you’re putting down some sort of collateral on the loan. I’m going to assume from this that you’re referring to your house and you’re wondering whether a home equity loan would work better for improving your credit than a secured credit card. Another option would be to buy bonds (or stock) with this money, then use that as collateral for the loan.

  Both options (secured loan or secured credit card) would raise your credit. It really, really depends on your specific situation as to which will improve your credit the most. You should sit down with someone who can look at your credit report and help you figure out which avenue will help.

  The first place I would start is with my local credit union. Pay them a visit and see what sort of secured loan options they have available. If they have good options (meaning you can get such a loan at a reasonable rate, like under 8%), I’d go that route.

  What are your thoughts on buying used swimsuits? Swimsuits are usually pricey, and the other day in a thrift store I saw that they had a whole rack of nice looking swimsuits for about $5 to $7 each. I love the thought of saving all that money, but it just feels gross. Do you know if it’s safe to wear a used swimsuit in terms of disease/medical issues? I did a quick Google search, but only saw hits of people ranting about how gross it is. What are your thoughts?
  - Hayley

  I wouldn’t do it, mostly because undergarments and swimming suits are the items that wear the quickest from reuse and if you’re buying it used, it’s likely experienced some wear already and just won’t last all that long.

  I understand why many people would consider such use unhygenic, but I don’t think that’s really that much of a concern if you clean the item properly. I would likely wash such an item a few times with bleach or other strong cleaners to ensure that it’s completely clean before use.

  That being said, it just wouldn’t be worth it to me. I have two pairs of swim trunks I bought new at early fall sales for about $2 each. I have no reason to own anything else.

  I just graduated this Spring with a Bachelors degree in Business Administration. I got a job making $42,000/year and currently have $11,500 built up in an ING savings account. I’m currently living at home, single, and have no real need for much of an emergency fund and have just about no monthly expenses. I currently have $4,500 in an unsubsidized federal loan at a fixed rate of 6.8% and $802 in interest and $6,700 in a Wells Fargo student loan at a variable 3.25% and $700 in interest . My question is what should I do now? Use almost all of the money I have now to payoff as much as I can? Build an emergency fund first? Just pay off the loan at 6.8% and invest and pay the minimum on the other? Thoughts?
  - Corey

  I think your ING savings is plenty adequate for an emergency fund given your situation.

  There are advantages and disadvantages to the options available to you. I think it’s pretty much the best option to pay off the 6.8% loan as soon as you can. I would probably strip the ING account of all but two months’ of living expenses and get rid of that higher interest loan.

  The advantage of paying off the lower interest loan is cash flow. It would leave you with fewer required bills each month, which makes other lifestyle choices – a job switch, a move across the country, etc. – that much easier. On the other hand, if you’re not planning on doing anything different for a long while, you can probably do better than 3.25% with that money over a longer time scale.

  The real answer depends on what you’ve got going on in your life. Are things about to change? If so, get rid of that second loan.

  Last year I was in a serious car accident which left me with a permanent injury. I am about to settle with the other driver’s insurance company for a sum in the neighborhood of $100k. I currently owe $70k on a home valued at $100k. And I have a child who will be going to college in 2 years. I plan to use a portion of the money to supplement her college savings rather than taking out student loans. But I am also wondering if it would be wise to put a good portion of it towards paying off my mortgage. Owning my house free and clear at the age of 38 sure would be nice. But I’m not sure it’s the best move, given the current housing market. What if I pay off my mortgage and then my home continues to decline in value? Would I be better off investing the money in a diversified stock/mutual fund portfolio? I could really use some advice.
  - Jen

  Are you planning to move anytime soon? If not, don’t waste a second thought on the housing market.

  Another question: are you planning on helping pay for your child’s college education? If you are, don’t put the money you’d use for that into stocks, as they’re very unstable over the short term (less than 10-15 years).

  If I were you, I would pay off the mortgage. As I mentioned above, it’ll definitely help with your monthly cash flow, as you will no longer have that mortgage bill each month. That might be very important depending on how you want to help your child with college.

  You recently wrote about eliminating clutter…I hate clutter and have a follow up question.
  How long do you need to keep paid utility receipts? I have boxes of receipts. For that matter what paid bill receipts should one keep on file if any in this age of digital records? Thanks for your thoughts…I would like to reduce paper clutter in my home!
  - Mary

  I usually keep paper utility statements for a year.

  However, I’ve been moving to electronic statements for a lot of this stuff, and that stuff can essentially be stored forever. If your financial institution allows you to download statements from them, get into a routine of doing that and saving them. Then, if you still have paper statements, don’t worry about keeping them around.

  I look forward to the near future when this is all done electronically, actually.

  Now that we’re halfway through the year, I was wondering if you could give us a progress report on your goals for 2010.
  - Maria

  Resolution #1 was lose 40 pounds. I’m currently down about 14 pounds from the start of the year. I was down about 30 at one point, but I gained some back due to a stressful period at the end of my wife’s pregnancy and during the final edits of my book, taking me close to where I started. My focus is mostly on improving my diet.

  Resolution #2 was to pay cash for a replacement for my truck, which I did in March by buying a 2004 Honda Pilot in cash off of Craigslist. We’re extremely happy with it.

  Resolution #3 was to learn to play the piano. I started taking weekly lessons from a local teacher in January and the lessons have gone really well. I feel like I’m moving along at a steady pace and, more importantly, I think my ability to read the music and hear it in my head has come along greatly. I’m not as adept at the actual playing as I might want to be, but that will come with practice. I can play some simple two and three-chord songs – nothing too spectacular yet. My biggest challenge is finding the time to practice. We don’t own a piano, so I have to leave the house to practice (I sometimes practice on a keyboard, but I don’t like it very well), which doesn’t happen as often as I’d like. I’m thinking of buying an electronic piano at some point in the future, because this really feels like something I want to do for the rest of my life.

  Resolution #4 was reducing my entertainment and hobby spending by 50%, which has been really, really successful. I’ve succeeded at this thanks mostly to lots of trading of books, games, and other things. I’m at about 40% of my pace from 2009.

  So, the only resolution that needs a little extra focus is the weight one, which I think is headed in a good direction. I’d also like to find an electronic piano to really make my piano resolution go into high gear.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  
• 

  Review: The Investor’s Manifesto

  Posted: July 4th, 2010, 2:00pm MDT by Trent

  Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

  The Four Pillars of Investing, an earlier book by William Bernstein, was one of my favorite books I’ve ever read on investment topics. It was intellectually challenging, offered great investment advice, and stuck to reasonably conservative investment plans – in other words, it did not tell you to put all of your money in stocks and/or real estate.

  I wasn’t even aware that Bernstein had a new investment book out, but when I was scanning the personal finance shelves at my local bookstore, the vague tongue-in-cheekness of one book’s full title caught my attention: The Investor’s Mainfesto: Preparing for Prosperity, Armageddon, and Everything in Between. My immediate reaction was that someone else was tired of the constant onslaught of books predicting a financial apocalypse and that actual good financial planning involved preparing for a full range of potential long term outcomes.

  When I saw that the author was William Bernstein, I was immediately intrigued.

  Is it anywhere close to as worthwhile a read as the excellent The Four Pillars of Investing? Or does it just photocopy information available elsewhere? Let’s dig in and find out.

  1 – A Brief History of Financial Time
  Whenever you invest money, you’re investing it in one of two forms: loans (including bonds and savings accounts) and equity (partnership or ownership or stocks). In the eyes of the law, the former has more legal standing and importance than the latter, thus bonds and savings accounts will always have less risk than stocks or business partnerships. When a nation goes through a period of great political upheaval, both loans and equity can significantly drop in value and the possibility exists that neither will recover (though, as said before, loans have more legal protection).

  This is essentially the reason why conservative investments are encouraged during periods of economic turmoil. When economic turmoil happens, the less protected positions (stocks) are often abandoned for the more protected positions (bonds, cash savings, etc.). During prosperity, the reverse happens – people move their money back into the less protected positions because the potential returns are much greater, especially in times of economic growth when companies and partnerships are making lots of money.

  2 – The Nature of the Beast
  You don’t know the day you’re going to need to cash in your portfolio. You also don’t know what’s going to happen next in the stock market or in the broader economy either. If it’s good news in the future, stocks and business partnerships will outgain bonds and other conservative investments. If it’s bad news in the future, bonds and other conservative investments will beat stocks and bonds handily.

  The only way to prepare for the future, then, is to balance the two. “Expected returns” are mostly just best guesses, so your best bet is to simply design your portfolio to minimize the chances of you dying poor. Balance. Don’t time the market or focus on individual stock picks unless you have psychic abilities.

  3 – The Nature of the Portfolio
  Many people go way over the top when it comes to portfolios. It really doesn’t help to be overly complicated with your portfolio, because the fees and effort involved in making a complicated portfolio rarely add up to any sort of significant premium over a simple portfolio.

  Bernstein suggests simply having a domestic total stock market fund, a foreign total stock market fund, and a bond fund as your entire portfolio. You can adjust the percentages as you like, but an equal split is fine, as is a 40 (bond)/30/30 split.

  4 – The Enemy in the Mirror
  Many people fall into the trap of oversimplifying the stock market, which is usually a mistake. There are many, many factors constantly at work in the stock market, from big institutional investors and human error to the general economy and the specific businesses within it. As humans, we tend to oversimplify stuff all the time in order to make the complicated comprehensible.

  Your best move is, almost always, to just stick with large index funds. That way, you’re not trying to make bets on various companies or on various specific aspects of the stock market. You’re instead betting on capitalism as a whole and human ingenuity.

  5 – Muggers and Worse
  The more “complex” an investment product, the more laden with fees and expenses it likely is and the harder a salesman will try to sell it to you. Of course, such “complex” products often end in disaster, too (see 2008).

  If you don’t understand an investment, don’t invest in it. For example, if you can’t explain how a derivative works, don’t buy it and don’t let any of your investment advisors do so, either. Stick with what you know, even if you’re missing out on some salesman-created glowing promise of outsized returns.

  6 – Building Your Portfolio
  It’s okay to lose money in stocks as long as everything is declining. What’s worrisome is when you’re losing money while the rest of the market is holding steady or growing. That’s the danger of not buying broadly – you’re trusting someone else’s judgment of a situation so complex that no one fully understands it.

  Bernstein walks through various portfolios – some complex and some very simple – and talks about the ins and outs of each. To put it bluntly, the simple ones almost always win. Why? They’re not laden with extra fees and they just hold everything very broadly. The complex ones win on occasion, but the broad ones usually win over the long haul.

  7 – The Name of the Game
  The book closes with a very short chapter that essentially says that the real challenge for an individual investor is to decide the percentages. What percentage stocks? What percentage bonds? That’s really the question, because it sums up the true risk we’re willing to take on.

  Is The Investor’s Mainfesto Worth Reading?
  This book is basically a simpler, easier-to-read version of his excellent The Four Pillars of Investing. I would be much more likely to drop a copy of The Investor’s Mainfesto on someone than the other, simply because this one is much more readable and approachable.

  The Four Pillars of Investing is a deeper book, don’t get me wrong, but The Investor’s Mainfesto covers most of the same principles with a lot more straightforwardness and clarity without losing Bernstein’s written eloquence.

  It’s well worth reading, particularly if you’re just starting to think about investing on your own. In fact, it’s one of the best all-around beginning books on investing I’ve ever read.

  
  

  
• 

  Nine Thoughts on Personal Finance from America’s Founding Fathers

  Posted: July 4th, 2010, 8:00am MDT by Trent

  Let’s celebrate the signing of the Declaration of Independence by celebrating some of America’s founding father’s thoughts on personal finance.

  An investment in knowledge always pays the best interest.
  - Benjamin Franklin

  One thing that I feel is never wasted is money and time spent on purposeful education. If you’re genuinely engaged in learning about a topic and growing as a person, the time and money spent learning and growing is among the most valuable you can spend. It increases your body of knowledge, allows you to understand and solve problems of a new variety, and gives you new skills to share with the world (and with potential employers).

  There are two educations. One should teach us how to make a living and the other how to live.
  - John Adams

  At the same time, if you do nothing but learning and do not share it, you’re missing out on the flip side of life. Learning is a lifelong journey, but it’s one taken hand in hand with making our way in the world with the tools we have right now.

  We must make our election between economy and liberty or profusion and servitude.
  - Thomas Jefferson

  In other words, we have a choice between financial independence and financial dependence. If we spend less, we are in control of our own money. We don’t owe others. We have the freedom to change our employment if we so wish. If we spend outside of our means, we are no longer in control of our money. We owe others and we don’t have the freedom to change our employment other than to chase the dollar regardless of how oppressive or soul-sucking the work is. What do you choose?

  We cannot make events. Our business is wisely to improve them.
  - Samuel Adams

  Life happens. Good events happen. Bad events happen. We can’t foresee most of them. The people who achieve their dreams are the ones that hop on board with the good events (and have the resources to do so) and are also able to roll through the bad events. How do you do that? You do that by not spending everything you earn and keeping some of those earnings for yourself, to deal with the bad and take advantage of the good.

  That which we obtain too easily, we esteem too lightly.
  - Thomas Paine

  Often, the most valuable things in our lives are the things that seem like they’re constantly there. Our homes. Our families. Our closest friends. That’s where the real value is. What’s genuinely more important to you: your best friend or whatever material item you dream about owning?

  Associate yourself with men of good quality if you esteem your own reputation. It is better be alone than in bad company.
  - George Washington

  You are impacted over and over again by the people you associate with. Their opinions and attitudes and reputations rub off on you. If you want to fail, surround yourself with negative people with a history of failure. If you want to succeed, surround yourself with people committed to succeeding.

  Commercial shackles are generally unjust, oppressive, and impolitic.
  - James Madison

  Debt is a very painful game to play. The word “shackles” is actually pretty descrpitive, as is the word “oppressive.” You’re stuck when you’re in debt. You can’t make the choices you might want to make in your life – switching jobs, being a stay at home parent, starting your own business. Debt eats those opportunities – and for what?

  In the general course of human nature, A power over a man’s subsistence amounts to a power over his will.
  - Alexander Hamilton

  If you allow yourself to be in a position where you don’t have any money in reserve for yourself, you’re completely at the mercy of the people who pay you. You will jump when they say jump. You’ll work neverending hours and subject yourself to countless unenjoyable events. Why? You’ve given your employers all of the power.

  The greatest ability in business is to get along with others and to influence their actions.
  - John Hancock

  The ability to communicate with others, state your positions, and convince others to go along with you is one that will serve you well for success no matter what path in life you choose.

  
  

  
• 

  Nine Tactics That Work for Starting Food Preparation at Home

  Posted: July 3rd, 2010, 2:00pm MDT by Trent

  Connie writes in:

  I just moved in with my husband-to-be and we’re discovering that we have very different lifestyles in some regards. The biggest challenge has been food. My husband is absolutely convinced that it is actually CHEAPER for us to eat out for every meal than prepare food at home. We have everything we need in our kitchen already to make meals, but I can’t convince him this is a huge financial loss for us.

  Simply sit down with him and issue him a challenge. For one week, he can make all of the meal choices and you’ll eat out together as you normally do. Then, for one week, you’ll make meals at home. At the end of the week, tally up the receipts and see who’s ahead.

  Unless your meals out consist of nothing but food from the dollar menu at a fast food restaurant or your meals at home are lobster and saffron and morels, I’ll virtually guarantee that your meals at home will be less expensive.

  Here are ten tactics I would suggest that you try during this week to maximize the value of the meals at home by minimizing the total work, minimizing the cost, and making it clear that making food at home isn’t the hard chore that many people make it out to be.

  Start with Grocery Flyers
  The best first step to take on this journey is to start with the grocery flyers. Identify some of the lower-cost grocery stores in your area and seek out their weekly specials using their websites. Focus particularly on the fresh produce and meats. Why? These will be the things that you anchor your meals around. Make a list of these items that are on special and start from that.

  Make a Meal Plan Together
  Sit down with your partner and look at the list of ingredients. Brainstorm some main courses that sound tasty utilizing these vegetables and fruits and meats. Keep it simple – don’t go crazy with it. If you want to browse, visit a recipe website like Epicurious and search based on the ingredients you’re looking at, just to see what pops up. From there, sketch out what meals you’d like to have together (and apart) over the next week.

  Stick to Simple Recipes (at First)
  Don’t delve into anything that’ll take more than half an hour of prep time or require more than six or seven ingredients – at first (you’ll get there later on). Keep the recipes simple and appealing to both of you.

  Make a Grocery List
  Once you have a meal plan hashed out, prepare a grocery list from that meal plan. List all of the ingredients for all of the recipes, then start whacking off the things you already have on hand and merge the ingredients that the recipes share (like 2 cups of milk for one recipe and 2 cups of milk for another – just get a large container of milk).

  Shop With Sense
  Once you have that grocery list, head to the store(s), ideally focusing on just one store that has the best prices in your area. If you’re not sure which one that is, do some Google searching and get some pointers. If you’re still not sure, guess – you can always figure out of there are lower cost options later (just be sure to save your receipt for future comparisons). Again, don’t make this overly complicated for the sake of shaving a few more dollars off of it – don’t shop at four different stores at this point. Make it nice and easy.

  Be Logical with Leftovers
  You’re far better off preserving raw ingredients for future meals than preparing too much at a given meal and eating leftovers the next day. Raw ingredients – like a cooked chicken breast instead of a chicken-and-broccoli crepe – allow you the freedom to remix it in a lot of ways. That chicken breast can be diced and scrambled with eggs and cheese, sliced onto a sandwich, cubed into soup, and countless other things.

  Use the Freezer
  If you do make too much of something, freeze it. Give it some time to pass before reintroducing it. Eat it yourself for lunches. Leftovers are a good thing, but if someone is used to simply eating something different at every meal, you should give it some time between the main meal and leftovers. I suggest stocking some of them in clearly marked containers (like freezer Ziplocs) in the freezer. That way, at the end of the week, you can point to how many meals are just sitting waiting to be eaten.

  Stock Your Pantry Carefully
  It’s tempting when you start cooking at home to stock your pantry with every staple under the sun. Don’t fall into that trap. Buy ingredients as you actually need them and just put the excess of those specific purchases in the pantry for now. As your cooking skills and repertoire and adventurous nature grow, you’ll want more and more spices and ingredients, but if you buy all of it at this point, you’re simply putting the cart before the horse.

  Don’t Only Cook at Home
  One great way to make your case is to not eat every meal at home if your partner is not used to it. Go out one or two nights during the week. Remember, the key to lasting personal finance success is compromise, and you can make this entire change much more palatable if you do that right off the bat. Eat out a couple of nights and you’ll still be able to show impressive food savings from the week.

  There are many, many great frugal tactics for minimizing your home food bill, but they really only work in a context where everyone is committed to doing just that. If you’re trying to simply show that you can save money by eating at home and that it’s pretty easy, make it easy. Compromise. Grow into this with your partner. Don’t make it a big, painful cold turkey switch. You can grow into the more challenging tactics later on.

  
  

  
• 

  The Simple Dollar Time Machine: July 3, 2010

  Posted: July 3rd, 2010, 8:00am MDT by Trent

  Many newer readers of The Simple Dollar haven’t been exposed to the hundreds of great articles in the archives of the site, so this is a weekly series that highlights the five best posts from one year ago this week, two years ago this week, and three years ago this week. I call it … the Time Machine.

  One Year Ago (June 27 – July 3, 2009)
  Personal Finance 101: Why Do I Need Credit At All? Credit isn’t itself a bad thing – in fact, it has benefits besides getting yourself into debt. Mishandling of credit, though, can be a very, very bad thing.

  The Best Money Advice, in Ten Words or Less I asked my 5,000 (at the time) Twitter followers to give me their best advice in ten words or less. This was the cream of the crop.

  The Cheap Garbage Bag Dilemma I don’t buy cheap garbage bags. Garbage bags are something that I just don’t skimp on. Here’s why.

  Blending Work and Family: How We Do It Given that I work from home and Sarah’s been off of work quite often with maternity leave and summer breaks, the lines between personal and professional are really blurred in our lives. Here’s how we deal with that blurring.

  Ten Great Ways to Make Powerful Visual Reminders of Your Personal Finance (and Other) Goals Many of our most challenging goals (like changing our spending or eating habits) require constant, powerful reminders to succeed. Here’s how to make those reminders so that you don’t fall off of the wagon over and over again.

  Two Years Ago (June 27 – July 3, 2008)
  No Time for Frugality: Cutting Financial Corners with No Time Investment There are many frugal tactics you can execute without investing even a bit of time. Here are a handful of them.

  A Clever Trick for Automatically Finding Deals You Want at Amazon I use this trick for Christmas shopping and also for keeping my eye out for very specific items that I’d be willing to pick up at a very low price.

  The Minimalist Kitchen: What You Need (and Don’t Need) to Set Up Your First Workable Home Kitchen You really don’t need thousands of dollars worth of stuff to have a killer kitchen. You don’t need much at all, in fact.

  Is Time the Difference Between Big Spenders, Frugal Folks, and Cheapskates? I think it’s at least part of the difference. I think how people use their time is also really important.

  The Net Worth Mentality: The Road Less Traveled If you want a powerful way to track your personal finance progress, net worth is probably the single best number you can use. I use net worth myself, but I don’t use non-liquid assets in counting that number (no cars, no home).

  Three Years Ago (June 27 – July 3, 2007)
  SmartMoney Magazine’s “7 Money Mistakes” – And The Simple Dollar’s “7 More Money Mistakes” Trust me, there are way more than fourteen money mistakes out there.

  Guilty Money: How Much Do You Have To Spend Frivolously Before You Feel Guilty About It? I really don’t have to spend much at all. I don’t like to spend money frivolously. If I know I’m going to go someplace to spend money freely, I put $X in cash in my pocket and keep my spending in that range. For most purchases, I study them to death before making a move (in contrast to how I used to spend freely).

  Musings On Spending $3 On A Candy Bar It’s amazing how something so small can really connect with something so big.

  How I Made Brown Bag Lunches Work For Me Now that I work from home, I eat leftovers for most of my lunches. When I don’t eat leftovers, I usually make a sandwich out of whatever’s on hand.

  Overspending on Children and How to Fight It My biggest weakness – and my son is learning how to exploit it – is when my children behave really well and do everything I ask, then calmly and quietly ask for a toy or something at the store. Even more painful, if I say “no,” they’re starting to learn to just go “okay” and continue being good and mild-mannered.

  If you’d like to browse through more of the archives, visit the chronology, where all posts are listed in chronological order.

  Ten Ways to Get More out of The Simple DollarUpdated!
  This is kind of a FAQ for new readers and is posted each week along with the Time Machine. Here are ten great ways for new readers to dig deeper into The Simple Dollar.

  1. Subscribe by email or RSS. Visiting The Simple Dollar’s website is great, but for many people, it’s more convenient to receive the articles in another form. It’s easy to join 60,000 other subscribers and get The Simple Dollar’s content by email or in your RSS feeder (if you’re unfamiliar with RSS, check out Google Reader.

  2. Comment. Each article on The Simple Dollar has lively discussion. Just click on the green square in the upper right of each article on the website and join in!

  3. Become a fan of The Simple Dollar on Facebook. I put up questions and other materials about once every week or two on Facebook (so you won’t be flooded with Simple Dollar updates). Join in the conversation with other Simple Dollar fans and occasionally get some interesting freebies, too.

  4. Follow me on Twitter. I post interesting articles, quotes, follow-up material, commentary, and other material on Twitter. Follow me! If you’re unfamiliar with Twitter, it’s essentially an open discussion forum for people to share ideas and thoughts with other like-minded folks – you just choose the people you want to listen to and their ideas and thoughts are all delivered to you on a single page.

  5. Read my story of financial meltdown and recovery. The Simple Dollar isn’t based on what I’ve read in books or learned in school. I’ve made a lifetime of financial mistakes – The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

  6. Download my free 49 page e-book. Everything You Ever Really Needed to Know About Personal Finance On Just One Page is completely free. It summarizes all of the key lessons I’ve learned along the way about personal finance in one tidy package – in fact, all of the main principles can be found right on the cover.

  7. Dig through “31 Days to Fix Your Finances.” 31 Days to Fix Your Finances is an article series that outlines how you can get a grip on your finances over the course of a month.

  8. Send me your questions and suggestions. Send me an email and let me know what you’re thinking, what you’d like to see, and any questions you might have. I try to respond to as many emails as possible and I read them all. I may even use your question in a future article!

  9. Become a “Friend of The Simple Dollar.” If you find the stuff on The Simple Dollar valuable and are willing to spend five minutes or so a month to help me out with small things, please consider signing up to be a “Friend of The Simple Dollar”.

  10. Email a great article you find to a friend. Find an article that you think your friend would love? At the bottom of each article, you’ll find a link that says “Email this” – just click on that, type in your friend’s address, and send it right along to them!

  
  

  
• 

  Summer Meal Series #5: Chicken-Broccoli Crepes

  Posted: July 2nd, 2010, 2:00pm MDT by Trent

  This summer, I’m going to be posting a series of fifteen low-cost, tasty, and easy-to-prepare meals that are literally straight from my own kitchen.

  Hey, look, homemade crepes!

  

  OK, before we get going, it should be noted that this meal is pretty much as easy to prepare as you want it to be – and at almost every turn, we chose the more difficult route.

  Actually, to be more specific, Sarah chose the more difficult route. She did most of the preparation of this recipe and was the one that made most of the difficult choices. I’ll be using the adjective “we” to describe the effort because there was some trade-off here and there, but she did most of the effort for this recipe.

  What difficult choices did we make? Rather than buying a package of crepes at the store, Sarah chose to make the crepes from scratch. Rather than buying a package of pre-shredded Swiss cheese, Sarah chose to buy a chunk of Swiss and shred it herself. In both cases, the result was a tastier and healthier and less expensive meal, but it certainly added to the prep time. Those two things alone more than doubled our prep time, turning a meal that could probably be in the oven in fifteen or twenty minutes into something that involved more than an hour of work.

  So, let’s dig in and see how we got there.

  

  The inspiration and model for this meal came from this cookbook, Low Cost Cooking, that we came across in a yard sale for $0.25 (the cover has a $0.50 sticker on it, but we came late to the sale). Can you guess when it was published by the cover design and heavy use of earth tones? If you guessed “late seventies or early eighties,” you’re a winner! It was published in 1980 and is apparently long out of print.

  Yes, we shop at yard sales and consignment shops for cookbooks. They’re actually great sources for cookbooks. I’d estimate half of our cookbook collection is from such sales.

  Anyway, on to the recipe…

  

  Here are the ingredients for everything including the crepes. One of the advantages of making things like crepes on your own is that you can choose what goes into them – organic milk and farm eggs, in this case.

  I’m going to mark off the making of the crepes in their own section. If you wish, you can simply buy a package of crepes at the grocery store instead of making your own.

  Making Crepes
  Here’s what you need just for the crepes.

  

  1 cup all-purpose flour ($0.15 or so)
  1 1/2 cups milk ($0.30 or so)
  2 eggs ($0.15 or so)
  1/4 teaspoon salt ($0.02 or so)
  1 tablespoon cooking oil ($0.05 or so)

  In other words, you’ll be making about 16 crepes for about $0.65 – or about $0.04 per crepe. If you buy them, they’ll be substantially more than that.

  Making crepes is really easy. Just mix all of the ingredients in a bowl until they form a batter, then heat a small skillet over medium heat with just a drop of oil spread all over the surface of it. Put about two tablespoons of the batter in the middle of the skillet, then lift the skillet and tilt it to spread the batter evenly. Let it cook over medium heat for about a minute or so (or until the top face looks solid instead of liquid), then flip the pan over on top of a paper towel and (maybe, depending on how it cooked) scrape the crepe from the pan with a spatula.

  Voila.

  

  Now just repeat it about fifteen times or so and you have your crepes. You might ruin one or two along the way as you get used to the right heat setting, but don’t sweat it – you’ll have plenty of crepes.

  Now for the filling…

  Making Filling
  Here’s an ingredient list for the filling. Obviously, specific choices vary a lot in price, so I’m just using the prices we paid for this stuff. If you aren’t hitting a sale or are buying premium items, the price per ingredient might be higher.

  1 10 oz. package frozen broccoil ($1.19)
  2 tablespoons margarine or butter (about $0.05)
  2 tablespoons all purpose flour (about $0.02)
  1/4 teaspoon of salt (about $0.02)
  1/4 teaspoon ground nutmeg (about $0.02)
  1 1/2 cups milk (about $0.30)
  3/4 cup shredded Swiss cheese (about 3 oz.) (about $0.60)
  2 cups finely chopped cooked chicken (we used roughly a pound) (about $2.50)
  12-16 crepes

  So, our cost per crepe – assuming we make 16 of them, which we did – is about $0.34 per stuffed crepe. We’ll talk about that again at the end.

  The sauce Melt the margarine/butter in a medium saucepan over medium-low heat, then add the flour, salt, and nutmeg. Stir it a bit to make a nice roux, then add the milk all at once. Cook and stir this until it’s thick and bubbling a bit. Keep cooking and stirring for about another minute, then add the Swiss cheese and keep stirring it until all of the Swiss cheese is melted. Sit the sauce aside.

  

  We like to grate our own cheese, even though it takes a bit longer than buying a bag of pre-grated cheese. You have much more control over what kind of cheese you buy and what ingredients are in it, plus with freshly grated cheese, it’s actually fresh and much more moist (bagged cheese often has corn starch to prevent it from sticking to itself over a long shelf life). Even better – it’s usually cheaper, too.

  The filling First, cook the broccoli according to the directions (you can use fresh if you wish – if you do, just steam it after chopping it into small pieces). You’ll also need to cook the chicken – we cooked up some chicken breasts for this dish, though you may want to use other portions of the chicken.

  

  You can see a bit of spilled crepe batter on the stove top there, as well as one of the finished crepes off to the side. (I think that was the one we sampled as we made the crepes).

  Anyway, once you’ve cooked the broccoli and cooked and chopped the chicken, combine the chicken and broccoli and one cup of the cheese sauce in a big bowl and stir it until it’s consistent.

  

  Then just lay out a crepe with the unbrowned side up, spoon about 1/4 of a cup (or a bit less) of filling into the middle of the crepe, and roll up the crepe and put it in a 13″ by 9″ baking dish. Repeat with all of the crepes that you can fit in there (we fit in about 16):

  

  Then, pour the remaining cheese sauce on top of the crepes. Preheat your oven to 375 F (about 190 C), cover the crepes with foil, and bake for 20 minutes or so.

  Here’s our pan of crepes, freshly pulled from the oven:

  

  … and here’s what my final dinner plate looked like:

  

  The fruit side dish was incredibly simple: we just had some blackberries that we bought in bulk that we washed, put a few in a small dish, and spooned a bit of raspberry yogurt on top. It was a delightful side.

  As I mentioned, each crepe cost somewhere around $0.34 to make. Thus, three crepes would cost about $1 in ingredients – I ate two and was perfectly happy with dinner. Add in the fruit and yogurt and even the small glass of wine and the cost of that meal for me was about $1.

  Yes, it took some time, but you could greatly reduce the time (and add a bit more cost per meal) by simply buying your own crepes.

  Was it tasty? Our usual rule of thumb is that if all four of us – myself, my wife, my four year old son, and my two year old girl – all enjoy the main course, we’ve got a recipe we’ll use again in the future. We all liked it. In fact, the kids each ate two crepes – they requested more crepes instead of more fruit after their plate was empty, a completely unexpected result.

  
  

  
• 

  Getting Things Done: Getting Projects Under Control

  Posted: July 2nd, 2010, 8:00am MDT by Trent

  This is the tenth entry in a fourteen part series discussing the time management classic Getting Things Done by David Allen. New entries in this series will appear on Tuesday afternoons and Friday mornings through July 16.

  One of the biggest difficulties in modern life is dealing with projects. We deal with so many projects in our life, from personal ones like getting an exercise routine in place or planning your wife’s surprise fortieth birthday party to professional ones like starting a blog or writing a killer piece of software.

  Our biggest challenge is that with so many projects going on and filling our mindspace, we often feel like we don’t have time to concentrate on any one project. I know that at various points in my life, I fell into this exact trap. I’d be sitting at work engaging in a project when I’d suddenly be reminded of my plans to teach my son how to read, so I’d wind up wandering mentally for a bit thinking about that project and when I got back to the work at hand, I’d completely lost my flow.

  Obviously, the best way to handle a project you’re working on is just like everything else we’ve talked about in this series. You’ve got to have the pieces of it out of your head, a clear plan for the project in place, and know what the next action step you need to take is so that you can include it on your list of things to do.

  That’s basically the idea behind this chapter. How do you take an idea for a big project and develop it in such a way that it fits in with all of the other projects you’re doing, doesn’t mentally distract you when you’re working on something else, and makes the next step that you need to take with the project very self-evident?

  Fitting the Project In
  For me, the single most effective way to fit a new project into my life is to keep it accessible and make it consistent with the other projects I have going on.

  For every project I’m involved with, a few central things are always true. I keep a master list of ongoing projects and each project has an entry on that list. I have a folder for each project that keeps my ideas for it, any information I have for it, and an outline of what needs to be done to bring the project to completion. I review that project each week until it’s completed or it’s abandoned for some reason (the project isn’t working or my goals have changed).

  The project master list is really, really important. I use this each week to make sure that I’m actually making progress on each of my projects. I go through the entire list and I usually pull out the folder for each one just to keep things in mind.

  Allen touches on this on page 222:

  Just as your “Next Actions” lists need to be up-to-date, so, too, does your “Projects” list. That done, give yourself a block of time, ideally between one and three hours, to handle as much of the “vertical” thinking about each project as you can.

  At the very least, right now or as soon as possible, take those few of your projects that you have the most attention on or interest in right now and do some thinking and collecting and organizing on them, using whatever tools seem most appropriate.

  Focus on each one, one at a time, top to bottom. As you do, ask yourself, “What about this do I want to know, capture, or remember?”

  In other words, you should have a list of all of your projects and you should regularly spend some time going through that list, focusing on each project and adding to it or just making sure you’re moving forward on it.

  Bringing the Project Together
  Whenever I first sit down to think about a project, I set aside at least an hour to get it correct right off the bat.

  I get out a folder. I get out a piece of paper (you can also do this on a computer, but paper works better for me). And I simply start throwing down my ideas for the project.

  Allen spells the importance of writing tools out on page 216:

  Keep good writing tools around all the time so you never have any unconscious resistance to thinking due to not having anything to capture it with.

  This is yet another reason why I always keep a pocket notebook and a pen on me at all times. Not only does it help me write down things I need to do (to get them out of my mind), but it’s also an essential aid for brainstorming projects when I’m just sitting there waiting for something.

  Here are some of the big pieces for turning a vague idea of a project into something workable.

  Have an end goal I usually start with the end goal – what do I want to accomplish with this project? I try to state it in such a way that success for the project is very clear – either this statement is true or it isn’t and the truth of the statement can be very easily identified by looking at data or a final product. This takes some revision.

  Make it specific So, for example, a goal like I want to get in better shape doesn’t fly because it’s really impossible to measure. Instead, try something like I want to lose 25 pounds or I want to run a 5K in 30 minutes.

  Figure out big steps Let’s say you decide on the 5K goal. What do you need to do to get there? Training. Possibly a better diet. Before that training, you may want to visit a doctor. You’ll probably want to do some “dry run” 5Ks, too.

  Break them down until they’re small steps that you could add to your “next action” list So, what does “training” mean? What does that mean in terms of a weekly schedule? Do the research. Figure out what action you need to take. Print off a 5K training plan that meets your needs, like this couch to 5K plan. Each of those training sessions is an individual action you can add to your list. Make a doctor’s appointment and add that appointment to your calendar.

  Make a list of those “next actions.” Now that the brainstorming and collection is over, turn that material into a coherent list of actions you would need to follow in order to reach your goal. That way, as you achieve them, you can cross them off your project list. These don’t have to specifically be next actions, but they need to be close enough that they can be quickly broken down into next actions. So, for example, you might have “week one training” and “week two training” and so on on your project list if you also have materials explaining what “week one training” is.

  Maximizing the Next Step
  The final piece of the equation is to keep translating the next step in each of your projects into something on your “next action” list.

  For me, the key to doing this is a weekly review of all of my projects. Not only do I make sure that there’s an action from each of them on my “next action” list, I also spend a bit of time thinking about each project again. Is it going well? Is it going poorly? Why? Am I still invested in this project? What are the rewards of success? What are the consequences of failure?

  I can’t tell you the number of times I’ve completely thrown out my project plans and done something completely different. Some people might think that the first plans were a waste of time, but almost every time it’s happened, I would have never found a much better plan without coming up with that initial plan and reviewing it regularly and rethinking it over time.

  In the end, this all saves a lot of time. A lot of it. You find yourself moving forward on stuff instead of idling on it. You have more efficient plans because of the time you spent focusing on the project and you’re able to do each step more efficiently because you’re not trying to keep the plan in your head.

  Projects that literally would take me forty hours in the past now takes ten or fifteen total. I’m not exaggerating a bit. All of that extra time enables me to add a lot of other things to my life that I would never possibly have had time for in the past. Quite simply, it was because of this type of planning and thought that I was able to launch and grow The Simple Dollar while also working a full time job (that required some overtime work, too) and being a good father and husband.

  You can’t jump into your dreams if you don’t have things organized.

  Next week, we’ll talk about the power of the collection habit.

  
  

  
• 

  Wesabe Shuts Down: What Are the Alternatives?

  Posted: July 1st, 2010, 2:00pm MDT by Trent

  For those of you unaware of the news, Wesabe, an online personal finance information manager that I quite liked because of their strict security methods, is shutting down on July 31 – at least in terms of their personal finance management tools, as their discussion forums will remain open.

  In the past, I’ve recommended Wesabe as an alternative to Mint for those (like me) who are very concerned about privacy issues and are hesitant to share their account information and personal data with yet another resource.

  So, what alternatives are there to Wesabe? In building this list of personal finance data aggregation tools, I’ve kept three principles in mind.

  First, the tool does not require any personal information from you whatsoever. I’m only interested in tools that maintain strict privacy.

  Second, the tool makes it possible to see all of your personal finance information in one place. This is really the point of this exercise, after all.

  Third, the tool is well-supported enough that you can find assistance for your problems online. In other words, if you’re trying to do something with the program and run into trouble, you can seek help fairly easily.

  Here are the five best tools I’ve found that do this.

  Microsoft Excel is what I use to manage my personal finance data. It’s simply an incredibly powerful spreadsheet program, capable of generating all kinds of views of my data and whatever charts and graphs I can invent. It makes importing the data pretty easy via copying and pasting or importing CSV files.

  There are two big drawbacks to Excel, though. One, to really get the best parts of the software, you have to climb a fairly steep learning curve. Two, it’s costly. There’s no way around it – Excel is expensive. However, there is a ton of support for Excel online – virtually any question you come up with has an answer that can easily be found. Find out more about Excel at [www.microsoft.com] .

  Quicken’s inclusion here might surprise people, since it’s usually known for automatic retrieval of account data. However, if you choose to manually enter the data yourself – or import it from downloaded CSV files from your financial institutions – Quicken can operate quite well without having any of your account information.

  Quicken is easily the most full-featured option when considering just personal finance data, but it’s also costly, as retail versions of Quicken sell for a variety of prices depending on your exact needs. You can find out more at [www.quicken.com] .

  OpenOffice is very similar to Excel in many ways – it’s a full featured spreadsheet program. Even better, it’s absolutely free, as it’s open source software. Of course, that’s not to say it’s an absolutely perfect alternative to Excel, either. There are some bugs in the software that crop up just often enough to drive me crazy and the interface isn’t as slick.

  However, it’s free. This takes away one of the big drawbacks of Excel – the price – and replaces it with a number of smaller ones – a less intuitive interface and some software bugs. I used this for a long time, but eventually migrated back to Excel when bugs frustrated me one time too many. However, one can’t argue with the price and recent reviews have indicated that it’s more stable than in the past. You can find out more at [www.openoffice.org] .

  PearBudget captures many of the features of Quicken in an online service that doesn’t grab your account information, either. In fact, if there’s a successor to the functionality of Wesabe, it’s probably PearBudget.

  It’s important to remember, though, that PearBudget pretty much does what it says. It helps you create a budget and track your spending within that budget. It does not help you track investments or income growth. However, if budget management is what you need, PearBudget is probably the best tool for you. You can use the paid online version at http://www.pearbudget.com or try out a free spreadsheet version at [www.pearbudget.com] .

  An old fashioned ledger seems archaic, but it works. I have a lot of readers that simply use a printed ledger to record every dollar coming in and every dollar going out of their home.

  A paper ledger is really straightforward to use – just write in the expense or source of income, the amount of that expense or income, and carry forward your new balance. It simply works and it maintains as much privacy as you wish. Frugal Dad has a great article on starting a paper household ledger – it really does work.

  What solutions do you use for keeping track of your finances without sharing your account information? (Yes, yes, I know there are a lot of great tools that require account data, but that’s not the focus today.)

  
  

  
• 

  Reader Mailbag: Bad Books

  Posted: July 1st, 2010, 8:00am MDT by Trent

  What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
  1. Planning for future relocation
  2. Growing a blog
  3. First time homebuyer advice
  4. How to grill foiled potatoes
  5. Refinancing a vehicle
  6. Predicting Social Security’s future
  7. Teaching the value of money
  8. HELOC or not?
  9. Just starting out with credit
  10. Pre-tax or after-tax 401(k)?

  As many of you know, I’m a voracious reader who typically reads three books or so a week. Every once in a while, though, I’ll start a book and it’ll just turn into a painful slog. I’m stubborn, so I’ll keep trying to read it, but it’ll just completely turn me off so that I actually avoid reading for a couple of weeks.

  Eventually, I just give up on the book, close the cover, and put it in the “never again” pile. I’m currently just about there with the book I’m currently reading, The Children’s Book by A.S. Byatt. So much potential in the characters and setting. So many, many, many pages of virtually nothing happening.

  Knowing that we plan to relocate — to the burbs — in the next 3 years, mostly for better public schools, how would you go about planning to do it? Would you make the move sooner or later? Would you sell now, pay off debt and rent a place, or, buy something lower priced right away? And, given our debt load, what makes the most sense to tackle first?
  - Karin

  The first thing I would do is take a look at my credit report, which you can get from the federal government for free at AnnualCreditReport.com. Do you have any negative entries on your report? One or two is okay, a lot is problematic.

  If your bad entries are small in number, I would shop around for a mortgage right now because of the ludicrously low interest rates. The traditional advice is to wait until you have a full down payment, but if you do wait that long, there’s a very good chance that interest rates will have risen enough to take away any advantage they might offer. Since I’m unsure where exactly you live, I’m going to guess that you don’t live in one of the overpriced metro areas and that you can find something relatively cost-effective in the suburbs. I usually tell people to not get a mortgage more than double their family’s combined annual income, because anything more than that puts their household income in the hurt locker.

  If you have some credit irregularities, spend some time getting your own financial house in order. Make your payments on time for at least a year – preferably two or three. Focus on paying down your debts, starting with the highest interest one.

  I read on Monday’s q & a section that you have 700,000 visitors a month. I know your blog is just a few years old, so I was wondering if you could share with your newer readers what you did to grow your blog (besides writing good posts frequently). How did people find your blog? I would love to know more.
  - Melissa

  The number one most important thing a new blog can do is write a lot of good content. If you can’t consistently turn out worthwhile articles that people actually want to read, then nothing else is really going to matter.

  The next step is to make sure there are a lot of links out there to your site. One way to do that, especially at first, is to participate in blog carnivals. Start searching for them at BlogCarnival.com and also use Google to seek them out, because many ongoing carnivals do not participate on BlogCarnival. These are easy ways to get links back to your site and to your articles, and also to get your articles read by bloggers who share a common interest and focus with you.

  You should also target blogs that are somewhat more popular than your own by either writing guest posts there (if they accept them) or by writing posts that directly match the topic of that site (which would encourage them to link to you). When you do write such an article – and make sure it’s a good one – contact that site owner. This may or may not get you a link depending on a number of factors (how busy the site operator is, for one), but if nothing else, you’ve written a good article.

  Really, in the end, good content and lots of links are the key to people finding you. To get people to stay and recommend you, you have to consistently write good stuff and make it easy for them to stay in touch by making your site available by RSS feed and by email. If you want lots of readers, you have to make it as easy as you can for them to keep reading.

  I’m a 23 year old guy finishing up my Master’s degree in engineering. I already have a job lined up in the Washington, DC area, and it’s a government job, so my job security is great, and I’ll be making decent money. I’m still considering condos or townhouses, but I really want to buy a house. My financial situation is fairly secure; I’ll be making around 60K a year with my Master’s degree, I have about 10K in savings, and between my parent’s and grandparent’s investments for me, I have around another 40K-50K for the downpayment. Do you have any tips for a first-time homebuyer, like questions I should ask, additional costs I should factor in, or any other general tips?
  - Andy

  Well, you’re going to be buying in the D.C. area, which is notoriously expensive. I usually don’t recommend that anyone get a mortgage for more than two times their annual income because of the crunch that a higher mortgage can put on their monthly cash flow.

  My recommendation would be to sit tight and let your career develop a bit before buying. Work hard and seek to move up in the pay scale and your GS level. Keep saving your money. Keep thinking about what you actually want.

  Eventually, your life will settle and it’ll become clear to you what the best long term choice is – and you’ll be in the right financial position to make it happen. Good luck.

  I read your menu and am interested in how long and at what temperature you cooked the potatoes on the grill wrapped in foil.
  - Kelly

  I usually don’t worry too much about the “perfect” temperature.

  My technique is just to make sure that the potatoes are in small pieces – meaning either baby potatoes or quartered/eighthed whole potatoes – and that they’re most – using ice cubes – before I wrap them in foil and toss them on the grill. Temperature doesn’t matter so much as making sure they’re the right tenderness for you.

  I usually put the wrapped package on the grill right as I begin to preheat it to cook something that takes longer than a minute or two (burgers, vegetables, pork chops, chicken breasts) and the potatoes are ready to go when the main course is finished.

  I have a question regarding refinancing my current truck, a 2006 Chevy Colorado with 85,000 miles in good condition.

  I bought my truck at Carmax in March of 2008 with a total purchase price (including absorption of trade in vehicle debt) of $20,084.63. I put no money down (I know, I was young and dumb!) and financed through Carmax for 60 months at an APR of 8.95%, which brought my monthly payment to $417.68/mo.

  Right now the truck is worth between $8,300 (low KBB trade in value) and $12,900 (high KBB private party sale value). Current payoff amount is $12,214.81 after 28 months of payments (never been late, but always just paid the minimum amount each month.)

  I have heard about refinancing auto loans, but haven’t found a good solid list of pros and cons.

  I have good credit (740) and the only debt I currently have other than my auto loan is $3,000 in CC debt at 0% apr (balance transfer offer) which I am paying down about $400-$500 each month. I also have an emergency fund of $1000 saved up.

  My question is, should I look around to refinance this loan? If so, where is the best place to look? What are the downfalls to refinancing? If I refinance at a lower APR for a 36 month loan, will my payments be lower? How about for a 24 month loan? I know it depends on the APR rate I can get, but maybe a break even analysis is in order to determine if its worth it to refinance? I would do it myself but I barely passed my finance classes in college, thus the reason I stuck with a marketing degree!
  - Kirk

  Your payments will probably be lower if you refinance to a lower interest rate, but refinancing itself will often have additional costs – loan application fees, points, origination fees, and early termination penalties. You’ll also have to pay a lien transfer fee which varies in amount from state to state. If your credit isn’t good, you won’t be able to refinance at all, either.

  In other words, you’ll have to be careful and take your time with this to find a lender who will actually get you a lower rate without any fees tacked on.

  You’ll also want to do this soon before further depreciation sets in, because if the car goes below $7,500 in value, most lenders won’t refinance because it’s not worth the risk.

  My suggestion? Start at your local credit union. See what they have available.

  I finally visited some retirement calculator sites to see what my ideal contributions would look like. I’m 28, currently working at a nonprofit but hoping to go to nursing school in the next year. I’m not worried about having enough for retirement, but do wonder how you feel about the probable end of Social Security as a means for increased retirement income. How do you keep from feeling frustrated that significant amounts of each paycheck are being withheld and likely will never be seen again?
  - Joanna

  In my opinion (merely as someone who reads the Wall Street Journal, The Economist, and BusinessWeek), I do not think that Social Security in its current form will exist when we reach retirement age. The numbers simply aren’t sustainable. As Boomers retire, go on Social Security, and live for another twenty five years, the system is going to empty out because there are fewer people in Generation X and Generation Y to fill the coffers.

  Social Security was not designed to handle people living into their eighties with any regularity. When the system was invented, 65 was older than the average age at which people died.

  One of several things will eventually happen. Either they’ll cut off all people under a certain age from the system, they’ll severely delay the “retirement age,” or they’ll drastically increase the amount of money people have to pay for Social Security. All of those are political nightmares, of course, but when the system approaches bankruptcy in about twenty years (when I’m around 50 and you’re around 48 or so), one of them will have to happen.

  My bet is on the severe delay of “retirement age.” My guess is that Social Security won’t kick in until you’re 80 or 85 by the time we get around to seeing the benefits.

  Thus, for most people who want some semblance of retirement when they’re in their sixties or seventies, I usually encourage them to think of Social Security as a complete non-factor in their planning.

  I’ve read over all your archives about a child’s allowance but can’t find just the right mix for our kid. It’s a unique situation for our “family”. We are each divorced, planning to be married and living together for the most part. Danny was adopted at 8 and is behind in some teachings parents take for granted. He’s 13 now and his mom and I have tried several ways to introduce money but he has no interest in managing it. If he gets money, he asks to go shopping with no clue what he wants. We’ve required savings, giving, spending amounts. That didn’t work. We’ve tried providing allowance and deducting when chores weren’t done. We’ve tried $0 allowance with money tied to each chore and that didn’t work.

  We’ve decided to create a need for money and a need to manage it, then give him $25/month. We’ve made a list of things he’ll have to buy, like batteries for his games, tires for his bike, snacks at the pool, movies with friends and the like. His friends are starting to work and save for things. Danny wonders why they’d waste their summer working when they can watch TV instead. I try to teach him the value of hard work and money, among other things, but he just isn’t getting the money thing. I asked him at 12 how much he thought the average person makes/year. His answer: $3,000,000.

  Any suggestions? I value your advice and wonder which direction you’d go on something like this.
  - Tom

  The problem seems to be that Danny doesn’t equate work with money in any way, shape, or form. The only way to create this connection is to simply stop giving him money for any purpose.

  Put food on his plate and a roof over his head and perhaps minimal clothing, that’s all you should provide. When he wants something, don’t give it to him, no matter how much you’d like to. As long as you keep doing that – and that means everyone involved in his care – he has no reason at all to see the value in working for money. Why work for something when you can just ask for it and have it?

  Yes, he probably won’t like it when he finally puts the pieces together. Yes, it might make home life rough for a while. But if he doesn’t start learning how the world works now, you’re going to have a permanent resident on your hands.

  What do you think, should a person take out a HELOC even if they don’t need it? The lowest interest rate would be 2 percent more then we are paying for our mortgage and it will fluctuate with the prime and with savings interest where it stands even with money markets it would be a loss. Yes our money is in money market funds, CD’s are at a terrible rate and we are waiting for them to improve and I want our savings liquid.

  We had a couple of unexpected major house repairs this last year which we were able to pay for in cash because we had ample savings. Our savings is now about half which is still more then the 6 months of expenses everyone says you need and I will be able to build it back over time, but my other half wants to get a line of credit. We have no other debt other then the house which I am paying enough extra to have it paid off in a little over 6 years, baring any unforeseen issues that might come up. I personally don’t want any credit that is tied to the house, I want the house free and clear ASAP. I also plan on a couple of improvements that we will be able to get a tax credit for that ends this year that will make our house worth more and more energy efficient.
  - Mary Ann

  I don’t know why you would do this. It seems to work against your goal of wanting to own the house free and clear “ASAP.” If you want that, don’t put more debt on your house.

  Yes, it’s tempting to use a HELOC as an emergency fund, but the costs of it are disastrous if you actually have an emergency. By sitting on cash, you’re earning 1-2% on your savings and paying 6% on your mortgage – a difference of about 4%. If you actually have an emergency, you’ll be paying 8% on that HELOC.

  In essence, the only reason you’d empty your emergency fund and have a HELOC is because you’re betting that there won’t be an emergency. It’s that exact moment when Murphy’s Law usually kicks in.

  I’m 18, fresh out of high school, and have a job that pays me far more than my friends make. College is on the way, as soon as I’m made a full-time employee as opposed to a temp.

  I’ve applied for 5 different credit cards, all designed for people with limited credit history, and have been denied for them all. It’s kind of dissappointing actually. I attempted to open an account, and bam, denied due to a lack of credit history. Apply for loans? Denied. Apply for financing for a car as a last resort? Denied.

  I’m confused as to what to do here. I’ve been told to avoid monthly/yearly fees, but it seem’s that these are the only things that will be able to get me started.
  - Matt

  The first thing you need to do is make sure your credit history is clear, because this sounds like it’s not. Take a look at my credit report, which you can get from the federal government for free at AnnualCreditReport.com. Do you see anything that shouldn’t be there? If you do, get rid of it.

  If you’re still having trouble getting a card, there are several options available to you. See if your parents will help you cosign for a credit card. If that’s a nonstarter, consider getting a secured card. A secured card with a $500 limit, for example, means you send them $500 when you open the card, then you use the card as normal. When you cancel the card (assuming you’ve used it normally), you get your deposit back. It’s one way for people with no credit to start building it.

  The credit system in America is deeply flawed, unfortunately, but it can be gamed.

  What’s your opinion of contributing to an after-tax 401k versus a pre-tax 401k? My company offers both options and I’m trying to decide if I should switch to the after-tax option. P.S. I’m 24 so I do have quite some time before I’ll be withdrawing.
  - Sean

  I generally encourage people to save for retirement in after-tax retirement savings vehicles unless their income greatly exceeds what they think they’ll be making in retirement.

  The reason for this is simple: tax rates have nowhere to go but up. Thus, it’s a lot better to pay income tax now than it is to pay income tax later on.

  So, unless you’re making well into the six figures, you’re probably better off with the after-tax account.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  

Frugal Dad

• 

  Weekly Roundup – Hurricane Survival Edition

  Posted: July 1st, 2010, 3:00am MDT by Frugal Dad

  I’ve included a few survival-themed posts in this week’s roundup, and with Hurricane Alex bearing down on the Texas coast, I thought it a good time to quickly remind everyone that the time to prepare is before a disaster. We are far enough inland that we are immune from the worst effects of hurricanes, but we still frequently lose power and are susceptible to flooding rains from both hurricanes and tropical storms.

  This week we picked up a few emergency supplies to add to our household emergency kit. A lantern, two sets of backup batteries, flashlights and a waterBOB®. A waterBOB® is basically a giant bladder that attaches to your bathtub faucet and fills to store drinking water ahead of a natural disaster that might disrupt water services.

  In the coming weeks we plan to pick up a cheap camp stove with a couple propane canisters, and add to our long-term food storage (MREs, dehydrated foods, non-perishables, etc.).

  The Frugal Roundup

  Perfection Doesn’t Exist. Adam has been striving for perfection in every aspect of his life. He’s finally come to realize that perfection doesn’t exist, especially in personal finance. (@Money Relationship)

  The 101 Greatest Survival Flicks of All Time. Here is a great list of movies about survival and overcoming adversity. (@The Survivalist Blog)

  How to Find Low Risk Dividend Stocks. BP is a great reminder that a solid dividend is never a sure thing. Disasters, politics and economic forces can sometimes put a halt to what was otherwise considered a “sure thing” dividend payout. (@The Daily Crux)

  20 Tips That Could Save Your Life. I guess there is a survival theme here….. (@Marc and Angel)

  Let Your Kids Get Dirty! Oh to be a kid again! (@Simple Mom)

  Best of the Rest

  • Beating the Clock
  • How To Get Out of a Car Lease
  • The Problems I See With Prosperity
  • 5 Best Websites For Job Seekers
  • How to Sell Junk For Cash
  • Finding and Working Seasonal Jobs
  • 5 Ways to Get Costco Membership Discounts
  • Convenient Green Ways to Clean

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Energy Savings with a Solar Blanket, Hair Clips, and Curtain Rods

  Posted: June 30th, 2010, 2:00pm MDT by Trent

  Only very rarely do I pass along a guest post, but a reader sent me such a spectacular energy saving do-it-yourself idea (and wonderful writeup about it) that I just had to pass it along. The only change I’ve made to this article is highlighting a few key pieces. This article comes from Allie, a long time reader of The Simple Dollar who likes frugal hacks at least as much as I do.

  I don’t post much but I really wanted to share this energy hack with you. I think it would be a help to many readers.

  I live in Central Florida. Our very old farmhouse faces west, and there’s no longer any trees to shade it. So on any given day from March to September, during the afternoon, the west side of the house (where the ancient windows are) is HOT. Hot as in you can barely touch the glass. I don’t want to use the “fry an egg” cliche but my mom thaws food on the windowsill in record time. A credit card placed there will be floppy in a couple of hours.

  The a/c (necessary for me, an asthmatic, and my elderly mom, to breath in wet-wool-blanket heat) pounds away, sucking money out of my pockets to where I can almost see it flying.

  I investigated solar curtains, solar shades, and they all were priced out of my reach. However, after studying them for a while, I came up with this hack:

  For every window, buy an emergency solar blanket, sold at Walmart and other stores for about $1.99. They come in a box the size of a deck of cards in the camping section. Buy a couple extra for emergencies: they make a great emergency poncho, tent or clean place to lay an injured person. They vary in size, but are about the size of a twin sheet. They are thin and tough, like tissue foil. Gather up some tension curtain rods (I got mine at yard sales but the Dollar Stores carry them and you can buy the small diameter, the foil material weighs nothing) to fit your windows, and some of those inexpensive jaw clips women wear in their hair. Any family with females will have an abundance of these.

  Fit the tension rod inside the window.

  Lay the blanket, which comes compactly folded, over the rod, and unfold until it is the right width to completely cover the glass. I even up the front and back ends for double insulation

  Secure with the clips over the rod – two does it for a 36 inch window. Tweak it until it covers all the glass – I use a bit of tape or small thumbtacks to anchor it.

  Re-arrange your normal window covering over it. You’re done.

  The house will be somewhat darker (although if you use just one layer, it is like window tinting and does let some light through) and the temperature will drop. In my case, I was able to raise the a/c to 76 and maintain an ambient temperature of 73 in the house, which is poorly insulated due to its age, during 90 degree days at 1700-1800 hours, the time when the sun is fiercest. The west side of the house was maybe 75 in front of the large windows and with numerous ceiling and floor fans, quiet pleasant. If you put your hand between the foil and the window, you can feel the intense heat that’s being blocked. The foil remains fairly cool.

  Trent, I did 6 36-in square windows for less than $20.00 total. It might have been a little more if I had had to buy the rods new. Time – less than an hour. But that’s still a bargain. I also stapled neatly cut sheets over our glass window insets… anywhere that afternoon sun blazed in.

  Our bill (scandalously high) showed a $75 reduction during this record heat and best, you no longer feel that you are walking by the Gates of Mordor when you pass a west-facing window.

  In the winter, they are quickly removed and put away – I’ve folded them and used them over and over. I’m not going to say they add a lot of curb appeal, but function bests form here. People in well-insulated houses may be able to get away with a single panel, thus saving more money on the purchase of the blankets.

  I have plans to insulate, of course, replace awnings, plant trees, but survival is taking priority. I will say that we do utilize this intense heat in green ways: the Magic Windowsill Thawer, the world’s fastest and best sun tea, clothes that dry almost instantly on the line, and even with conventional plumbing I can take a warm shower using the cold water tap if I’m fast. The resources are all around us, we just need the tools and thoughts to use them. I look forward to the day when my heat pump and solar panels are installed and the power barons buy energy back from me – that’s my goal.

  Anyway, Trent, if you can present this idea – I didn’t intend an article, I just wanted to pass the idea on – I truly think it would benefit our frugal friends. Sometimes when something works, you just want to share it. Feel free to use this idea as you like. My small gift to you after so many large gifts given to me here at The Simple Dollar.

  A final note: What’s happening here is that the blankets essentially reflect the light that comes into your home. This will work spectacularly well for unused rooms. The best part is that it’s incredibly easy to put up and take down as you wish (even if you just want to use it during some summer daytime hours, for example).

  
  

  
• 

  The Simple Dollar Weekly Roundup: Very Short Hair Edition

  Posted: June 30th, 2010, 8:00am MDT by Trent

  I’ve officially decided to start clippering my hair very short – and doing it at home. I used to do this in college, but since then I’ve had my hair somewhat longer. Does anyone out there have a recommendation as to hair clippers for home use that are economical and foolproof?

  11 Creative Ways to Avoid Becoming a Workaholic For me, the best two things you can do is to have a clear wall between work and personal life and to have a healthy emergency fund so your job isn’t a matter of life and death. (@ zen habits)

  The Rewards of Frugality and Thrift (or, Why We Scrimp and Save) I agree completely. It’s not about not spending. It’s about figuring out what’s actually important to you and focusing your spending only on that. That way, you can have the best of what’s actually important to you. You don’t need everything. (@ get rich slowly)

  The Cure for Creative Blocks? Leave Your Desk. Most of my worthwhile ideas come to me when I’m doing something far away from my desk. The key, of course, is jotting down that idea so that I can pick it up and run with it when I’m actually at my desk. (@ the 99 percent)

  What I Learned from the Prosperity Game Whenever I participate in games like this, I usually discover that the one thing I wish I had more of is time. (@ eventual millionaire)

  DINKs: Smart or Selfish? FYI, a “DINK” refers to a person in a “dual income no kids” relationship. Is that “smart or selfish”? I don’t think it’s particularly either one. I don’t think everyone ought to have children or be required or pressured into doing so. Similarly, I don’t think having kids is a bad choice, either. Different strokes for different folks. (@ dinks finance)

  To DINK or Not to DINK I agree to an extent with this article (that follows up on the one above) that sometimes people make up their minds both for and against children based on false preconceptions. For example, I don’t necessarily agree that you’ll have much more money by not having kids because your spending choices and priorities change drastically when you do have kids. (@ budgets are sexy)

  
  

  

Frugal Dad

• 

  How to Create a CD Ladder

  Posted: June 30th, 2010, 3:00am MDT by Frugal Dad

  The current era of historically low interest rates has been great for borrowers, but it stinks for those who’d rather save their money. I was fortunate to find a local bank that offered a money market account at 2.25% last year, but after a couple extensions, I received notice that “bonus rate” was expiring at the end of this month. The old rate was in the 1.0% APY range.

  I could simply stash my emergency savings with Smarty Pig - currently earning a 2.15% APY – but I prefer to keep a portion of the savings local. So, I’m off to find a way to boost my returns on local savings products.

  

  So now I’m left to find a new home for some of our savings. Keep in mind this money is targeted for emergencies and short term (less than a year or two) goals. With everything else we are investing in dividend stocks and conservative life-cycle mutual funds inside Roth IRAs and my 401k.

  Rather than leaving our money to languish at 1% interest, I would like to find a way to triple the earnings, without too much effort (after all, this isn’t “investing” money). Over the last couple weeks I’ve been investigating CDs.

  I have to first confess, I’ve never owned a CD – mostly because up to this point I have never had enough money to invest in something that is locked up with a penalty for cashing out. Thankfully, that is beginning to change after our family recently reached debt freedom.

  CDs may offer a slightly higher yield than I receive now from my local bank (and most online banks), however the requirement to tie up money for a number of years is not attractive to me. That was until I discovered the concept of CD laddering.

  How to Ladder CDs

  The real beauty of creating a CD ladder is that you don’t have to obligate your entire amount of savings into a 12-month CD to get a positive result. Instead, I recommend starting in the smallest increments you can tolerate and build from there.

  Here’s an example using average rates collected from a number of CD offerings at Ally Bank, ING Direct, MonitorBankRates.com, and my local credit union. (I decided an average for each term would be easier than pinpointing a specific rate that could change before this article is even published). September rates are a wishful guess at what rates might look like by Fall, and were only changed to give you an idea why laddering could be a smart move given the idea rates will rise in the near future.

  July Purchases ($2,000):

  • $500 3-Month CD matures in October 2010 (0.75%)
  • $500 6-month CD matures in January 2011 (1.15%)
  • $500 9-month CD matures in April 2011 (1.15%)
  • $500 12-month CD matures in July 2011 (1.50%)

  August Purchases ($2,000)

  • $500 3-Month CD matures in November 2010 (0.75%)
  • $500 6-month CD matures in February 2011  (1.15%)
  • $500 9-month CD matures in May 2011  (1.15%)
  • $500 12-month CD matures in August 2011 (1.50%)

  September Purchases ($2,000)

  • $500 3-Month CD matures in December 2010 (0.90%)
  • $500 6-month CD matures in March 2011 (1.25%)
  • $500 9-month CD matures in June 2011 (1.50%)
  • $500 12-month CD matures in September 2011 (1.65%)

  *Note, I am using a 3-6-9-12 month maturity schedule to build a 12-month CD ladder. You could use a 6-12-18 month maturity schedule (or greater) to build an 18-month (or longer) ladder. A longer term ladder will earn higher rates, but will take longer to get going and will tie up your money for a longer period up front. It’s up to you to determine how much of your savings you can tie up, and for how long.

  Beginning in October 2010, when our first 3-month CD purchase matures, I will use that original $500 (plus accumulated interest) to purchase a 12-month CD at a higher interest rate. In November, when the second 3-month CD expires, I’ll roll it into a 12-month CD purchase, and so on. In one year, I’ll have a rolling 12-month CD ladder of twelve one-year CDs.

  One advantage of using these shorter terms is that when rates are rising, which I suspect they will be doing slowly over the next year or two, you can quickly take advantage of these new, higher rates without having to wait for a 6-month CD at a lower rate to expire.

  Why Not Purchase 3-5 Year CDs At Higher Interest Rates?

  If you lock into a CD for three or five years, you will miss out on interest rate increases. And this would be bad assuming they increase at a pace faster than the premium received for locking your money in longer.

  It’s a bit of a guessing game – kind of like investing in the stock market. However, because these CDs represent a portion of my emergency fund (just a portion – not the entire thing), and funds for short-term goals, I’d rather have a little money coming back to me month-to-month, just in case.

  Some lenders offer “penalty-free” CDs, which offer a lower interest rate for the option of cashing out without penalty before the CD matures. Personally, I’d probably go with the higher rate if my finances were sound with the understanding in a real emergency, I’d sacrifice a month’s interest as a penalty for accessing the money early.

  Other lenders are offering what’s known as a “step up” CD. The Ally Bank Raise Your Rate CD is one such a product, which offers the ability to step up to a higher interest rate once during the term of the CD. It’s an interesting idea, but the minimum terms are typically longer than my liking.

  CDs laddering seems to be something worth trying, and could be more profitable when interest rates rise again. I will go ahead and get the CD ladder in place now so that I will be ready to take advantage of higher interest rates in the future. If nothing else, I’ll earn a few more dollars on my savings for my troubles.

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Getting Things Done: Making the Best Action Choices

  Posted: June 29th, 2010, 2:00pm MDT by Trent

  This is the ninth entry in a fourteen part series discussing the time management classic Getting Things Done by David Allen. New entries in this series will appear on Tuesday afternoons and Friday mornings through July 16.

  Over the last four articles, we’ve reviewed four of the five major components of getting things done:
  1. Collecting all of the stuff you need to do
  2. Processing that stuff down
  3. Organizing that stuff into appropriate places
  4. Reviewing to make sure you’re keeping things going

  Today, we’re going to focus on the fifth step: actually doing stuff.

  Allen offers up three models for determining how to decide what to do next.

  The Four-Criteria Model
  On page 192, Allen spells out this concept:

  Remember that you make your action choices based on the following four criteria, in order:

  1 | Context
  2 | Time available
  3 | Energy available
  4 | Priority

  You have your day’s to-do list. On that list are some errands, some things to do at your desk, some things to do in the kitchen, and so on. When you look at that list and decide what to do next, you’ll naturally want to do most of the desk things in a group, the errands in a group, and so on. That’s context.

  Within each context, though, you might be boxed in by time. It’s noon, you have an appointment at 2, and you have three hours’ worth of stuff to do in the kitchen. Which tasks get done and which ones do not? That’s time available.

  It’s 8 in the evening and you’re starting to run out of steam. One task involves carrying a bunch of heavy boxes. The other one just involves sitting on a chair as you clean out the fridge. Which one gets done? That’s energy available.

  You’re at your desk. You have plenty of time and all of your tasks require about the same amount of energy. Which of your desk tasks do you do next? That’s all about the priority.

  My method for handling these things usually comes at the start of the day when I assemble my to-do list. As I mentioned before, I maintain a Word document that contains my to-do list, adding to it every time I process my inbox. At the start of each day, I go through that list and organize it by context – errands, work tasks, personal tasks, and household tasks are usually the big four groups. Within each group, I usually list the things I need to do by priority. I then print off that list and, as I accomplish the items throughout the day, I cross them off.

  Whenever I’m in a particular context, I usually just scan the things that need done, recognizing that they’re listed by priority but not necessarily following that priority with any strictness. For example, if I’m running errands, I’ll usually run them based on what things are near each other rather than by how important they all are.

  I just cross things off as the day goes on and at the end of the day, I revise my Word document by deleting all of the completed tasks (and usually adding more that have built up throughout the day, to be done tomorrow).

  The Threefold Model
  Allen lays out this model for work on page 196:

  As I explained earlier, during the course of the workday, at any point in time, you’ll be engaged in one of three types of activities:

  - Doing predefined work
  - Doing work as it shows up
  - Defining your work

  Sometimes, during the day, I follow my to-do list. Sometimes, I’m taking care of impromptu stuff, like unscheduled phone calls and other little emergencies. At other times, I’m reviewing my to-do list or processing my inbox or something like that.

  I find that when I put these three elements into very separate boxes with as little overlap as possible, I find the most success. I unplug the phone to prevent “work as it shows up.” I turn off my email program. I put away my to-do list and ignore my inbox.

  This allows me, along with knowing that all of the stuff I need to remember is safely recorded in my system, to quickly get into a “flow state” at my desk, which is incredibly productive time.

  The Six Level Review Model
  On page 200, Allen touches on the six levels of review:

  The six levels of work as we saw in chapter 2 (pages 51-53) may be thought of in terms of altitude:

  50,000+ feet: Life
  40,000 feet: Three- to five-year visions
  30,000 feet: One- to two-year goals
  20,000 feet: Areas of responsibility
  10,000 feet: Current projects
  Runway: Current actions

  Obviously, each of these levels should be in line with and enhance the levels above it. The current things you’re doing should fulfill current projects. Your current projects should be in line with your areas of responsibility. Your areas of responsibility should build toward your one- to two-year goals. Your goals should be the building blocks of, well, your life as a whole.

  In other words, every action you take should ideally have some impact on the larger vision of your life. Even if you don’t see it directly, it should become clear if you sit back and think about it in terms of these levels of work.

  For me, thinking about my work in this way, particularly during my weekly review, helps me minimize the unnecessary work and maximize the valuable work. The time I spend thinking about each of these levels really helps me figure out what’s actually important in my life and what I can be doing with regards to that.

  I’ll use an example to show how a simple action echoes through every level of my life, connecting my current action to my overall life goals.

  One of my major overall life goals is to be a good father. To me, that means teaching my children how to have self-control and how to be self-reliant (five year visions). This involves teaching them things like how to go to the bathroom themselves, how to be patient and not cry when they want things, how to behave in an appropriate way around others, and so on (two year goals). I’m responsible for encouraging their good behavior in these areas and discouraging their bad behavior (areas of responsibility). One of my current projects is to teach my daughter to listen to instructions instead of just ignoring them when she’s doing something else (current project). When she doesn’t listen, I focus on getting her attention and if she refuses, I penalize her in some simple fashion, such as putting her in the “time out” chair, getting down at her eye level, and talking to her seriously about it (current action).

  So, my immediate action leads (slowly) to an improved ability to follow directions, which helps her grow as a socially functional young person. This is part of self-control and self-reliance, lessons which I view as an essential part of being a good father.

  What I generally find is that the more direct the connection between my current action and a major life goal, the more powerful and genuinely important that action is. The above connection is very straightforward, but sometimes they’re not all that straightforward – or at least not all that impactful. This is how I often prioritize my tasks. Not by urgency – if something is urgent but unimportant, I’ll often blow it off – but by genuine importance to what’s central in my life.

  This is all very much a thought exercise. However, it is this kind of thinking – hand in hand with a trusted system that records all of the stuff you need to do – that creates an efficient and very fulfilling life, both professionally and personally.

  On Thursday, we’ll talk about applying these ideas to getting project planning under control.

  
  

  
• 

  How to Lodge a Consumer Complaint: Spring Grove Soda Pop Inc.

  Posted: June 29th, 2010, 8:00am MDT by Trent

  In the past on The Simple Dollar, I’ve talked about how to lodge a complaint against a company if you’re truly dissatisfied with a product. I’ve always wanted to do a case study of such a complaint, but I’ve never had an experience severe enough to cause me to get involved.

  Until now.

  

  Pictured above on the right is a bottle of Spring Grove Lemon Sour soda, made by the Spring Grove Soda Pop Inc. of Spring Grove, MN. It is a small company which only sells their beverages within a 100 mile radius of Spring Grove, MN.

  Spring Grove Lemon Sour is, without a doubt, my single favorite soda in the world. It has a sublime fizzy taste that mixes the sour of a ripe lemon with just a hint of sweetness. It is the only kind of soda I drink with any consistency. Every three months or so, when we visit family within the Spring Grove Soda distribution area, we stock up, buying several packs to take home with us.

  Over the past weekend, we were driving home from a wedding in Wisconsin when we stopped at an IGA in La Crescent, MN for diaper changes and bathroom breaks. While there, we decided to stock up on the Lemon Sour, but when we found it, the Lemon Sour had drastically changed.

  Let’s see that photo again.

  

  On the right is a bottle of the Lemon Sour I’ve known and loved for years. Notice the white color. On the left is what we purchased in La Crescent, MN a few days ago. Notice the yellow color.

  It wasn’t the color change that was the problem, though. The flavor of the one soda in the world I really enjoyed had completely changed. It went from a sublime fizzy lemony sour flavor with just a hint of sweetness to something that tasted like watered-down Mountain Dew.

  Needless to say, I was extremely unhappy with my purchase. I gave bottles of the “new” Lemon Sour to a few people in the area who had yet to try it and the reaction was universally negative. What happened to a wonderfully distinct local brand?

  I decided this was the perfect opportunity to put everything I had learned about registering consumer complaints to the test.

  Call The Company
  I placed a phone call to their customer support line at (507) 498-3424 (found on the contact us page of their website). I simply stated that I was unhappy with the change in formulation. The kind lady I talked to said I was not the first person to call about this and that they were fully aware of some unhappy customers, which bodes well for some type of resolution.

  Why do this? It’s a direct and immediate way to let the company know what you think of the product. It only takes a few minutes and can be done from virtually anywhere.

  Mail (and/or Fax) a Letter
  I wrote a letter to Spring Grove Soda Pop Inc. Here is the text of that letter.

  Dear sir or madam,

  I have been a long time fan of your Lemon Sour soda beverage. It is the only soda that I happily drink with any regularity and it is a constant part of my pantry. Although I do not live in your distribution area, I visit several times a year and each time pick up multiple cases of Lemon Sour.

  On June 26, 2010, I visited an IGA in La Crescent, MN to purchase an allotment of Lemon Sour to take home with me. I discovered that Lemon Sour had been reformulated. It now had a yellowish color (compared to the original white color). When I tasted it, I was very disappointed. I discovered that the wonderful fizzy sour (with a touch of sweet) flavor I had come to love over the years had been replaced with an overly sweet imitation of Mountain Dew.

  I do understand why you may be selling the new beverage as its sweetness may be more attractive to some soda drinkers. However, I implore you to bring back the original flavor of Lemon Sour. I will not be buying the new formulation. I also have many friends and family members within your distribution area who are also disappointed with the change.

  Perhaps you can continue making the new flavor and distribute it as well under a new name while bringing back the original Lemon Sour flavor and formulation.

  Thank you for your time and consideration.

  If you’d also like to write a letter, their mailing address is:
  Spring Grove Soda Pop, Inc.
  215 2nd Ave NW
  PO Box 337
  Spring Grove, MN 55974

  and their fax number is (507) 498-3424.

  I used some basic style points for writing this letter.

  1. I kept my letter short and concise. There’s no reason to be excessively long. A short letter is much more likely to be read.

  2. I made the facts clear and straightforward. I stated when and where I purchased the new formulation so that if it was merely a test run, that would be clear to the letter recipient.

  3. I suggested a simple resolution. They could continue making the new beverage under a different name (a la New Coke becoming Coke II) and restore the original flavor.

  4. I started out extremely positively, noting how much I’ve enjoyed their product in the past. I am a long time customer and I’ve always been happy with their Lemon Sour flavor.

  5. I remained diplomatic and courteous and left out the sarcasm. They made a business decision that I’m unhappy with. There’s no reason to not be diplomatic about it.

  Why do this? A handwritten letter can provide clear documentation for the company as to the desires of their customer base. Quite often, diplomatic handwritten letters from people who have never written before can get the serious attention of the company in question.

  Start a Facebook Fan Page
  I started a Facebook fan page entitled Bring Back the Original Spring Grove Lemon Sour! and encouraged people I know from that area on Facebook to join the group. I posted basic information about the change and will let people know anything I find out about reverting back to the original formula using that group. If the group picks up a lot of fans, I’ll send a link to the group to the folks at Spring Grove Soda as encouragement for reverting to the old formula.

  One key is to use this type of platform to share methods of contacting the company, such as providing their phone number and their mailing address, to people who might also register a complaint.

  Why do this? It allows a person to collect a list and a count of people who agree with the sentiment as well as distributing methods of giving the company feedback. If this page (with a number of fans attached to it) is sent to the marketing director of a company, raw numbers like this can make a convincing case that a lot of customers care about the product and want to see changes.

  Write About It Publicly
  Well, frankly, you’re reading it. I don’t have access to a much more public place than The Simple Dollar, with hundreds of thousands of readers. I’m almost positive that at least some readers out there have tried Spring Grove Lemon Sour in the past and, hopefully, are also disappointed in the change or are at least aware of it. Such information may encourage them to take action as well.

  Why do this? It spreads the word in an extremely public fashion. While I am lucky enough to have a very public platform to use, almost everyone has access to at least some sort of platform to write publicly about it. Start a blog or write a guest entry for a blog like Consumerist. Use fan messageboards. You can start a Facebook fan page, as I did above, if you have no other platform available to you.

  Will This Really Work?
  My plan is to give it a month or so and see what happens with my various methods of lodging a complaint about this change. Let’s consider this a test case in how to lodge a consumer complaint. In a month, I’ll report back to you with notes on the success and failure of the various tactics tried.

  If you’re upset by the change to Spring Grove Soda, please feel free to use any of the information above to contact Spring Grove Soda and express your unhappiness with this formula alteration. You can copy and paste anything from above, but I encourage you to alter it enough so that it can appear distinctive and reflect your own feelings on the matter.

  
  

  
• 

  Decluttering and Your Money

  Posted: June 28th, 2010, 2:00pm MDT by Trent

  Connie writes in:

  You write a lot about how there’s a deep connection between less clutter and financial success.  I don’t get it at all.  I think the opposite is true because when you clear out a bunch of stuff you would just have the space for a lot more.

  This is an issue I’ve discussed to a certain extent in both of my books.  I think there’s a deep connection between personal finance success and clutter, and there’s no better time than now to break it down.

  What Is Clutter?
  You’ll see many definitions of clutter out there, but the one I typically use is pretty straightforward. Clutter is anything in your life that you have inadequate time to enjoy or inadequate space to store.. 

  When you’re juggling so many relationships that the truly important ones are withering on the vine, you’re experiencing clutter.

  When you jam all of your papers somewhere because you don’t have time or the space to store them, you have clutter.

  When you’re embarrassed to let someone see some part of your home because of the piles of stuff you have jammed in there, that’s clutter.

  When you burn fifteen minutes digging through junk drawers looking for the one thing in there you actually have any need for, that’s clutter.

  When you have shelves jammed full of videos or DVDs or CDs or books or video games or old magazines that you’ve barely touched in months but you keep telling yourself you’ll get around to someday, that’s clutter.

  What Clutter Eats
  Clutter eats time.. The more things you have, the more time you spend maintaining them.  Stuff.  Commitments.  Relationships.  That means less time to enjoy the things that are genuinely important to you.

  Clutter eats space.. The more stuff you have, the more space you need to store it.  That means a bigger apartment or a bigger home or a storage locker.  Those things mean more rent or a bigger mortgage and more time lost to cleaning and maintenance.

  Clutter eats money.. Most stuff has a financial cost.  The more stuff you have, the more hard-earned money you’ve dumped into it (and the less time you have to enjoy each item).

  The Solution
  The solution, of course, is to pare down.  That’s harder than it sounds, because people often have a deep attachment to their stuff.  Here are five tactics that work.

  Use rental services.  If you’re a film buff and accumulate DVDs, join Netflix.  If you do the same with books, join a library.  Video games?  Gamefly.  Music?  Napster.  This allows you to enjoy a library of what you most enjoy for about the cost of one purchase every two months without accumulating stuff.  

  Empty your clutter attractors.. The junk drawers.  The closets.  The garage.  Pull out everything and keep only what you might actually use again.

  Realize that you are not your stuff.. Many people self-define by the stuff they have.  You are not your car.  You are not your house.  You are not your gadgets.  Normal people who like you do so regardless of the stuff you’ve accumulated.

  Move to a “one in, one out” philosophy.. Whenever you acquire a new item, an old one has to go.  This allows you to focus on quality upgrading than accumulating tons of mediocre stuff.

  Date it.. If you don’t touch a non-decorative and non-sentimental item in a year, why are you keeping it?  Once, I started over with our DVD collection, putting them all in a box.  We dated the box one year in the future.  Whenever we wanted to watch a movie from that box, we pulled it out, watched it, and put it on our rack.  After a year, why not just sell the contents of the box?

  The best part of decluttering is that you usually earn some money back from doing it via garage sales or secondhand shops.  Sometimes, decluttering can even open the door to less expensive housing.

  There are many great decluttering tactics.  I highly recommend the Unclutterer blog for countless great ideas for decluttering.

  
  

  
• 

  Reader Mailbag: Impromptu Travel

  Posted: June 28th, 2010, 8:00am MDT by Trent

  What’s inside? Here are five word summaries of the questions answered inside this mailbag. Click on the number to skip straight to that question.

  1. Co-signing with bad credit father
  2. How many people read TSD?
  3. Removing stains from cloth diapers
  4. Percentage for emergency fund
  5. Personal loan for adoption
  6. Gloom, doom, and e-funds
  7. Difficult job search
  8. Frugality, clutter, and hoarding
  9. Regular IRA versus Roth IRA
  10. Which debt to pay first?

  This weekend, we went to a wedding of an old friend in the middle of Wisconsin. On the way back, Sarah says, impromptu, that we should stop for the night and visit family. My work plans involved us going home, of course, so I’m writing this mailbag on the road between wireless hot spots, sitting in the front seat of a cramped Prius.

  My Father is a retired teacher who started in real estate about a year before the current economic crash. He had three houses that he owned and was renting out to tenants. Once the real estate market crashed, he was unable to make a living in real estate and tried to get back into teaching, but hasn’t been able to get much more than temp sub positions.

  Needless to say, he wasn’t able to keep his houses. One has gone into foreclosure already and he’s trying to negotiate with the banks on the last two, but it’s looking like he’s going to loose those as well. He has a motor home that he will be able to live in temporarily if he does loose his homes, so he wont be homeless.

  Recently he asked me if I’d be wiling to co-sign a new mortgage with him. He wants to leave his area (southern California) and move to an area where the housing market is better and prices are cheaper (Arizona). Since his credit is completely obliterated by the foreclosures, he would never be able to buy any time soon. He’s looking for a small, cheap house that he can live the rest of his life in. He would make the downpayment and all mortgage payments, I would simply assume the risk. I’d love to help my dad out, but how would having two mortgages affect my credit? Would co-signing with someone who has lousy credit affect my credit? Is it even necessary to co-sign, would it be better for me to put the mortgage in my name and treat it like my dad is renting from me? If, god forbid, he were to pass away, which would it be better to have the house totally in my name, or be a co-owner? I know you’re not a real-estate expert, but I’m sure you’ve done some research on this, so any advice would be greatly appreciated!
  - Matt

  If you cosign, the impact on your credit will be relatively low unless your father stops paying the bills. Then, if you do not, your credit will be in the hurt locker.

  If he passes away, the same is true – if you’ve signed the mortgage, then it’s now your mortgage. Better keep up the payments! Of course, if you’re not specified as an owner of the house, the only thing you lose by not paying at that point is your credit.

  I am generally extremely hesitant to encourage people to cosign on any loan with family members outside of a parent cosigning a college loan for their children. So often, such arrangements end in fights and broken relationships. It’s just not worth it.

  I believe you mentioned it in the past, but out of curiosity, about how many people follow your site or subscribe to it?
  - Brandon

  I have about 82,000 subscribers. About 28,000 of those get The Simple Dollar by email – the rest get it by their RSS reader (like Google Reader).

  The site gets about 700,000 visitors per month, though that varies a fair amount from month to month.

  In addition to that, I have a lot of additional readers that are hard to quantify because my site’s content is syndicated elsewhere. For example, I get a lot of readers because my site’s content is syndicated at the Christian Science Monitor, as you can see here. Those numbers are extremely difficult to quantify in any reasonable way.

  As a fellow laundry soap maker and cloth diaper user, I’m wondering how you deal with the stains in newborn diapers. I’m wondering if there is an easy method that I hadn’t thought of yet.
  - Christina

  I turned to Sarah, the resident expert on this:

  “It depends on the cloth diaper, but I have the best luck just using a mix of washing soda and Simple Green. I rarely have any trouble with stains when I use the two of them as a mix.

  I use about two teaspoons of Simple Green to 1/4 cup washing soda. Usually, I put the Simple Green in a spray bottle and spray it about 12-14 times right into the washing machine when it’s filled with water, then spread the washing soda evenly on the water surface.

  I usually don’t have any stains at all when I’m done. If I do, I just repeat the Simple Green and washing soda.”

  So there you have it, from our resident cloth diaper washing expert.

  I graduated from college last May (i.e. ‘09), and am lucky enough to have a job, but I still have considerable student loans and am trying to establish a nice emergency fund. In general, I have pretty good control over my finances, but I have a question I would like your advice on. I just received a bonus at work, and recently had a birthday, so I have a little extra cash than I usually do, and am trying to distribute it effectively. About what percentage should I put towards loans and about what percentage should I put towards my emergency fund? When a person has a little extra cash like this, what percent do you recommend on a little splurge? Although I know it must be done, after getting this money, it can be a little depressing putting it all towards debt retirement and a savings account, as I have done in the past.
  - Tim

  If you have no emergency fund, it should probably all go towards your emergency fund. I usually recommend that a person have about two months’ worth of living expenses in their emergency fund if they’re single.

  If you already have that, then I’d focus more on the debts, starting with the highest interest one.

  With splurging, I don’t think it matters too much as long as you’ve thought it out and stick to a consistent policy. My wife and I don’t splurge, per se, but we do often decide on “splurges” together and save towards them and windfalls usually are used to boost that savings to some degree.

  My husband and I racked up some major credit card debt several years back (about 34k). We haven’t used credit cards for nearly 2 years now, and 6 months ago we enrolled in a debt management plan through CCCS to simplify and lower our payments; it’s been tight, but we’re doing it and are determined to follow through and not accumulate any more consumer debt. My husband recently got a better-paying and secure job (I’m employed too & we make about $70k total), and our car will be paid off in about 9 months, so we are on track to improve our situation, save some money, and hopefully pay off our DMP early. We pay a very modest rent, have no cable, use prepaid cell phones and free VOIP home phone, no video games, etc. etc. etc. to keep expenses low.

  That is all background to my bigger question. We have been trying for many years to have children, but are intractably infertile. I am unwilling to undergo hugely expensive IVF treatments with the risk that they might not work, and we have recently decided to move on and pursue adoption–a path we would have chosen much sooner if not for the potentially high costs, bureaucracy, etc. involved.

  We have good friends who suffered from infertility themselves years ago, and took me aside about a year ago to offer to loan us money for infertility treatments or adoption, saying they didn’t want finances to be an obstacle to us having children (they are quite wealthy, and made this offer completely spontaneously). I have been hesitant to take them up on this because a) I don’t want money to distort our friendship, and b) I am hesitant to go further into debt–however long-term and low-interest it may be.

  On the other hand, it will take us years to save the $20-25k needed to pay for an adoption; we would be in our forties by the time we saved enough, and we really want to be parents. The federal adoption tax credit is $13k, so we could quickly pay off a portion of the loan ($13k minus our total tax for the year, so say about $6k??). There are also some adoption grants that I would pursue that might pay $500 to a max of about $10k, but of course there are no guarantees of getting one.

  I understand the major ramifications of both options (waiting & saving vs. accepting a loan); but it would be very helpful to hear your perspective. Subjectively, it feels like not being able to afford an adoption for several more years–after trying to get pregnant for 5 1/2 years already–is our punishment for making stupid financial decisions in the past. Objectively, I feel strongly that debt and finances should be treated as a practical rather than a moral matter; but the issue of having children is such an emotional one that it is very hard for me to be objective here.
  
  - Lynn

  I agree with you about the friendship thing, actually. If the friendship you have with these people is valuable at all, I wouldn’t borrow money from them.

  If it’s an ongoing concern with them, you should sit down with them and simply tell them that you really, truly appreciate their offer to loan you the money, but that you’re declining it because you know the negative impact that loans can have on friendships. One only needs to read The Simple Dollar for a while to know how badly it can end, even when people have the best of intentions.

  Wait. Use your adoption dream as a focus point to encourage your diligent savings. Work together to reach your dreams without disrupting friendships.

  With all the gloom and doom about the poor economy and how another recession is just around the corner, do you think I should beef up my liquid savings? Possibly pulling back a bit on the retirement investments? I just don’t know what I should be doing these days money wise, other than just saving as much as I can. Sometimes I feel like a hoarder.
  - Laura

  First of all, I think the “doom and gloom” is usually overwrought by “newscasters” and commenters who make a very tidy profit by predicting doom and gloom. People pay attention to negative news and commentary – the ratings prove it time and time again. Rest assured, if it can be spun negatively, someone will be making a buck doing just that.

  If you feel uncomfortable with your emergency fund, add to it. Don’t worry about it, either. It’s essentially a very secure investment with a low annual return – no risk, but no huge reward, either.

  As for reducing retirement savings, I’d use a retirement calculator and see whether or not I was on pace for the retirement I wanted.

  I’m 25 and have been living in the city I live in for 1 year, and the state I live in for about 3 years. I enjoy living in the area and have learned a lot about myself and others while living here. My only problem is that I work in a different city (and state) than I live in, and would like to change this sometime in the future — Its a lot of driving, but it does not really get to me all that much right now. I’ve been trying to apply for as many local jobs as I can, but around here the job market is pretty tight and we dont have much of an employment base outside of government money of various sorts (federal, state). While this has helped the area weather the storm, it is extremely difficult for others like myself to find a job. I’ve been thinking that the best thing I can do to find employment in my area is to get to know as many people in fields that I am interested in as possible. This is difficult, however because I have only lived here a year and am focused on paying down my debt, so I dont really go out that much, and I dont really spent that much time in the city because my commute is long and my job is out of state. I would like to get more involved in the things that are going on in my community, but I just dont know where to start. It seems like you are quite involved in your community (you’ve mentioned it briefly a few times) and I was wondering what all you do in the community, and where you think I should start. I know that a common suggestion is to head to my church and help out around there and network as much as possible, but I’m not really a religious person, so it makes me less inclined to attend church themed gatherings because I feel like they are trying to convince me to do something for them (attend their services) that I’m not positive I want to do. Do you have any suggestions for other quality networking opportunities that will also allow me to help out my city in some way? I’m interested almost everything, and I dont have a problem doing manual labor (such as clean ups) but I usually dont hear about things like that until after the fact.
  - Jeff

  The first person I would talk to is with a pastor at one of the local churches. Simply explain what your situation is and see if they can help. Quite often, pastors aren’t out to “recruit” you – they’re actually out there doing what Jesus says, which is to help the poor and needy. My pastor is one of the best people I’ve ever been around and she’s constantly helping random people in our community, whether they’re church members or not.

  Being involved in the community is great, but it takes a very long time to build up a lot of connections in the community that can help you in such a situation. If you don’t have them built already, it’s pretty hard to just show up at community events and immediately ask for help.

  Your best bet, if you want to start on that route now, is to spend your extra hours doing community volunteer work. Start with your city’s parks and recreation department – they usually have tons of things going on that could be aided by volunteer work. Use that time to start connecting with others around you.

  Lately, I’ve reading quite a lot about getting rid of clutter (in blogs such as Unclutter.com), and I’ve cleaned my room pretty good, throwing away everything I considered useless. And that felt great. My room is much cleaner and much more organized than ever before.
  Now here are my questions:
  a. Do you like to keep your room/house/garage clean and tidy? (I mean, we all love clean, but do you actually do it?)
  b. How could frugality, bulk buying, etc. live in harmony with a clean and uncluttered house?
  - Matthew

  It really goes in phases with us. We have three little kids and the only constant with having three children that age is that something will happen to disrupt your best laid personal plans. It’s pretty much a given. So, there are times when the house looks beautiful and everything is wonderfully organized and there are other times where it looks like a hurricane hit the house.

  Our biggest drawback, really, is laundry. We do a lot of it but we still often fall behind and have to have “laundry days” to catch up.

  Most of our bulk buying is with household goods like toilet paper and diapers. We store the excess in the garage on the shelves, so it’s kind of out of the way. I think if you have a good place to put your bulk purchases, it’s not hard to be organized and be a bulk buyer.

  First, I’ve basically been teaching abroad for several years, which means I don’t get any extra help on saving for retirement. I started an IRA during that time under some misguided information, now at around 17k. I now know that I should have started a Roth IRA because I can’t possibly be making less than I do now. My question now is: should I roll over my IRA into a Roth IRA and incur the $1,200 in taxes (estimated by my IRA holder) for the rollover, or just open a Roth account and quit adding to the IRA? At this time, I do have about 14k in savings at the moment with 20k in student loan debt, so paying out of pocket for the rollover is doable.
  - Ken

  You really should take advantage of the opportunity to roll it over and just pay the taxes.

  When you have a low income, you’re far better off having money in a Roth IRA than a traditional IRA because of the tax advantages. If you save adequately for retirement and anything approaching economic normalcy happens over the next few decades, you’ll pay a higher tax rate in retirement than you do now.

  That means a Roth IRA wins big time. I’d roll it over.

  I just graduated with my Master’s degree, and I have been offered a position with a company in Cambridge, Massachusetts. I have approximately $10,000 in my savings account, and I will be making 44,000/yr plus excellent benefits with my new position. However, I have a few budgeting questions since I will need to begin paying my loans back in November. First, what percentage of my income can I expect as take-home pay?

  I have about $46,000 in school loans, including the current interest. All of these loans with the exception of the oldest and smallest loan have a fixed 6.8% interest rate. My dad also has loans taken out for my schooling. Unfortunately, these are from my first years in school, when I didn’t know enough about the loan process, even though I have always been good with personal budgeting. I believe these loans may be around $25,000 with interest in the double-digits. My dad has already told me that I don’t need to rush to start paying for these loans ahead of those in my name or my regular monthly bills, but the high interest rate and my parents’ tight financial situation, makes me think these loans should be my top priority.

  Anyway, I suppose my question is where should I funnel my extra money at the end of each month and the $10,000 I currently have saved… my dad for the high-interest loans? the loans in my name? an emergency fund? Starting retirement accounts so they have many years to compound? I just don’t know how to figure out what will put my family and I in the best possible financial situation.

  My final question is about consolidating the loans in my name. I know if I consolidate during the grace period, I can get a .6% rate reduction, so I plan on consolidating soon. However, since I have loans with fixed interest rates, the May treasury bill will not affect my rates, correct? I just want to make sure there is no difference between consolidating before or after July 1st for me. Do you know how I can determine if rates are going to increase or decrease in case it could affect the loans in my father’s name?
  - Cara

  The first thing you need is an emergency fund equal to about two months’ worth of living expenses. Make minimum payments on your debts until you have that in the bank.

  The next thing you need to do is sit down and have a serious adult conversation with your father about what the expectations are about the loans. Don’t guess about it. Ask him honestly what he expects in terms of repayment. He might never expect anything. He might expect immediate payment. It’s really hard to tell.

  Your conversation there should tell you what the priority is. If you need to pay him quickly, pay him first. Don’t sink that relationship. If he’s fine with delaying it, focus on the high interest loans.

  Yes, if you have loans with a fixed rate, your loans won’t be affected by the May treasury rates or anything else. Only variable rate loans are affected in this way. It may be that the offered consolidation rate may change, but that’s more of a business decision by whoever’s offering the consolidation. Rates are really low right now, so it’s a good time to consolidate.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  

Frugal Dad

• 

  Should I Walk Away from My Mortgage?

  Posted: June 28th, 2010, 3:00am MDT by Frugal Dad

  For some, the idea of walking away from a mortgage presents quite a moral dilemma. Others feel duty-bound to fulfill their contractual obligation to continue making payments to the lender, regardless of how much (or how little) their home is worth.

  Personally, I believe if one has the ability to pay their debts, any debt, they should pay them. This idea doesn’t stop with mortgages. I don’t like voluntary car repossessions or walking away from credit card debt you legitimately owe and can afford to pay.

  Think about it. When you signed your signature 27 times the day you took on a mortgage, you accepted some risk that the “investment” you were making would hold its value. The lender made the same calculated risk, and even required you to buy private mortgage insurance if your down payment was small to transfer some of that risk away from them.

  Now, there is a difference in someone losing a job, struggling to make their mortgage payment and other obligations, and someone who simply wakes up one morning and decides they are no longer going to pay their bills. Those in the latter category rationalize their decision with sentiments like, “Well, why should I continue to pay for something that is of lesser value than when I bought it?”

  Using that same logic, we’d walk away from new car loans, and even credit card debt, because the things we “financed” are not worth nearly the same value now as when purchased new. Besides the question of ethics, walking away from your mortgage, or any debt, can have serious financial consequences.

  Damage to Your Credit

  If you simply walk away from your mortgage, you credit will take a hit. If your credit is already shot, you may not care. If you are of the opinion, what’s a good credit score good for anyway, then you may not care.

  If you recognize that maintaining a good credit score is a necessary evil in today’s society because insurers, employers and lenders check scores when making offers, you might consider damage to your credit score a negative consequence of walking away from a mortgage.

  Apart from the hit to your FICO score, walking away from your mortgage could also present legal issues. Walking away from any debt means the lender is free to foreclose (or repossess) the item you financed and sell it at whatever value the market brings. For foreclosed properties, that usually means a big discount.

  If the amount the property sells for isn’t enough to clear the debt owed against it, guess who the bank can legally come after? That’s right, you. So “walking away” doesn’t necessarily mean you are off the hook.

  Alternatives to Walking Away from a Mortgage

  Workout payments. If you are legitimately in trouble, for whatever reason, and are unable to make your mortgage payment, attempt to work with the lender. Most mortgage issuers are preparing for a higher rate of foreclosures in the near future, which could mean big losses for them. They’d much rather have customers continue to stay in the home and make payments.

  Short sell. If you do decide to sell, discuss the option of a short sell with your lender. Basically a short sell means selling the property for less than is owed, at a mutually agreed to price amongst buyers, sellers and the current lender. Be sure to negotiate a sale without recourse – meaning the bank cannot come after you for the balance of the loan (as described above).

  Do nothing. If your mortgage is underwater, meaning you owe more on your home than it is worth, but you are able to continue making payments, then the most attractive option may be to do nothing. Stay put. Hope that the economy comes around in the next few years and your value comes back. In time, by continuing to make payments, you will eventually reach a point where your house is no longer underwater.

  The Housing Bubble Lessons Learned

  I lived in rentals growing up because my mom could never afford a down payment on a home. Until just recently, my family leased a house until we were debt free. During that time as a renter, all I ever heard from others was that we were making such a mistake by not buying a home. A home was a fantastic investment. Renting was like throwing money away.

  Well, I wonder how many of those same people still believe that. A home can be a good investment, but mostly it’s just shelter to keep you and yours warm and dry. That’s all it is. And it doesn’t matter if you pay a mortgage company or a landlord to keep that shelter.

  Of course, you may have more freedoms owning real estate, but you have more responsibilities, too. There are pros and cons to virtually every financial decision we make, so do what works best for your situation. Whatever you do, avoid buying real estate until you are on a solid financial foundation and avoid viewing it as a significant investment. After all, we’ve seen how quickly that “investment” in real estate can drop.

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Review: Voluntary Simplicity

  Posted: June 27th, 2010, 2:00pm MDT by Trent

  Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.

  For many of us (myself included), one of the biggest motivations for getting our personal finances in shape is to give us more control over our lives. A big part of financial recovery is simply being mindful of your choices: your spending choices, your choice of possessions, your choice of how you spend your time.

  For me (and for a lot of you, too, based on reader emails and comments), some of the motivation for this kind of mindfulness about life choices goes beyond the merely financial. We’re concerned about continued use of fossil fuels, both as an environmental concern and as a national security concern, so the choice to drive less is doubly or triply motivated when we consider the financial savings, too. The expense of a huge house, both in terms of the financial cost and the materials involved, when many of those rooms will go unused seems silly, so we choose to live in a smaller home both for financial and for more global reasons.

  An awful lot of frugal living is tied to these kinds of global concerns for people. We’re all conserving our money and resources so we can direct them in ways that are more meaningful to us.

  That’s the basic idea behind Voluntary Simplicity by Duane Elgin, a book I’ve mentioned several times on here but never reviewed (until now).

  Why did I choose now to review it? Honestly, I’ve received a lot of emails from people living along the Gulf Coast who are extremely upset with the ongoing environmental disaster there. So many people are simply saying that something needs to change in the world and my response is always that change starts with you.

  I think this book sums up that idea better than any book I’ve ever read. By consciously choosing a simpler life that contains the type of richness that you hold most dear, you can go a long way towards not only preserving your financial resources, but you’re also living a life in line with what’s most important to you and also blazing a trail for others to follow.

  Voluntary Simplicity by Duane Elgin is a book that’s a little off the beaten path of what I usually talk about on The Simple Dollar, but it has had a profound impact on my thinking over the last few years.

  One | Cool Lifestyle for a Hot Planet
  Simplicity does not mean poverty. It does not mean rural living. It does not mean ugly living. It does not mean economic stagnation. Those are images created by marketers who want desperately to create the perspective that in order to live well, you have to have mountains of stuff.

  The idea behind this book, in Elgin’s words, is “a conscious simplicity that represents a deep, graceful, and sophisticated transformation in our ways of living – the work we do, the transportation we use, the homes and neighborhoods in which we live, the food we eat, the clothes we wear, and much more.” In other words, it’s all about reflecting upon every choice we make in life, asking ourselves whether that’s honestly what we want from ourselves and for the world around us, and working to make stronger choices in each of those areas. Often, that comes hand in hand with spending less money and, often, with earning less money to do more fulfilling work, too.

  For me, the biggest benefit to simplicity is time. The less stuff you have, the less time you have to spend cleaning it and maintaining it and feeling obligated to use it. The fewer time commitments you have, the more time you spend applying yourself to things actually important to you.

  Two | Pioneers of Green Living
  “The character of a society is the cumulative result of the countless small actions taken day in and day out, by millions of persons,” says Elgin on page 26. That’s also true on a much smaller scale. Your character is the cumulative result of all of the small actions you take in a given day or over your lifetime. What, exactly, is your character?

  Most of this chapter is filled with individual anecdotes from people attempting to adopt a simpler lifestyle, mostly in an effort to have their time and their efforts and their purchasing decisions fall in line with their personal values (whatever they may be, because they certainly do vary a lot). Take me, for example: I could buy a Brooks Brothers suit, but my most recent clothes came from Goodwill. Why? Well, why not? They’re perfectly good clothes. My son is rocking next to me right now and he’s wearing clothes from a consignment shop. Why? They’re perfectly good clothes.

  Three | Living Voluntarily
  The most interesting part of this chapter (for me) was the difference between involuntary and voluntary simplicity. Take two people riding a bike to work. One person could afford a car and is riding the bike voluntarily – he’s happy with his choice. The other is forced to ride a bike because of economic reality – he loathes his choice. Outwardly, they appear the same, but inwardly they’re in very different places.

  Elgin’s argument is that by voluntarily riding a bike and conserving his economic resources, the voluntary rider is causing a ripple effect that will eventually benefit everyone in some small way. The money he saves in the bank might be invested in a startup business or donated to a charity. In either case, a boost is given to people who really need it and that boost has a positive impact on their lives and, by association, the lives of everyone associated with them. It pays forward and eventually improves the world, often in indirect ways that we never see.

  It takes practice to think this way about every action we take, but the more we do it, the more natural such thinking becomes.

  Four | Living Simply
  The simplest way to think of living simply is to ask yourself whether a choice promotes activity, self-reliance, and involvement or whether that choice promotes passivity and dependence.

  You’re at the store. You can either buy a box of au gratin potatoes costing $2 or you can buy a handful of potatoes and an ounce or two of cheese for $1. Which is the better choice for promoting activity, self-reliance, and involvement and avoiding passivity and dependence? The potatoes and cheese cost less, promoting financial self-reliance. They also promote self-reliance because you’re preparing a dish from scratch instead of opening a box. The boxed food promotes dependence because you’re not learning how to prepare a dish, you’re learning how to follow directions provided by a corporation.

  Our life abounds with choices like this, from our work choices and our social choices to our activity choices and our shopping choices.

  Five | The World at the Tipping Point
  There are a lot of global problems. Poverty. Environmental destruction (one only needs to think of the Gulf oil spill). Peak oil. Overpopulation. Human conflict. What impact can we have?

  The amazing thing is that many seemingly enormous events are often unbalanced by small acts. You and your friends stop buying soda and start to get into better shape. This has an impact on local soda sales, affecting the bottom line of the large soda companies. Others see that you’re avoiding soda and decide themselves to do the same. It shows up as an alarming blip in their sales data, so they start to think of alternative beverages and business models for their sales. They miss quarterly earnings estimates by a cent or two and their stock drops a bit. And so on. And so on.

  When things are at a tipping point, your actions have a much larger impact than you think they do at first glance. Not only do they greatly affect your life directly, but they ripple out throughout the world in many different ways and often have indirect effects on you.

  Six | Deep Simplicity and the Human Journey
  Another powerful aspect of choosing voluntary simplicity is how it affects the human journey of your life. Elgin delves into spirituality here, touching on how voluntary simplicity is prescribed in the Bible as well as other religious works.

  My favorite one was this, from Matthew 6:25: “Therefore I tell you, do not be anxious about your life, what you shall eat or what you shall drink, nor about your body, what you shall put on. Is not life more than food, and the body more than clothing?”

  That sums it up right there. Is life about what we wear, what car we drive, what house we live in, what restaurants we eat at, and what stuff we accumulate? No. It’s about experiences and pleasures. It’s about friendship and relationships and human interaction. It’s about finding those things we’re good at and applying them to the world.

  Seven | Living in a Green World
  What if the unthinkable happens? What if a nuclear bomb exchange occurs? What if we have another few oil disasters like the one in the Gulf, decimating world seafood populations and causing water shortages? What if there’s a disease epidemic killing millions (remember the swine flu? We were lucky, it could have been like a worse version of the Spanish Influenza of 1918 that killed my great-great-aunt.)?

  If you’re engaged in a dependent lifestyle that’s focused entirely on material posssessions, the adjustments in your life will be brutal and you may have difficulty making it through such changes. If you’re already focused on a lifestyle of self-reliance and voluntary simplicity, the road to dramatic change won’t be that painful.

  Is Voluntary Simplicity Worth Reading?
  The natural response to a lot of the content of this book is that it’s all about environmentalism and the like. In fact, a few years ago, I encouraged a reader to pick this up and he wrote back to me a few weeks later ranting about how he was never going to tie himself to a tree like the “hippie” that wrote this book.

  If that’s what you got out of the book, you’re missing the point. The entire point of the book is that you don’t have to overconsume in areas that aren’t important to your life. If you don’t watch television, don’t buy a television or have a cable box. If it’s nice outside, don’t run your air conditioner. If you’re not into clothing, wear clothing until it’s actually worn out – and then even consider mending it. In other words, if it’s not all that important to you, don’t consume.

  For me, this was one of the most thought-provoking books I’ve read in the past five years or so. It made me think deeply about a lot of the assumptions I’ve had in my own life and made me question many of my personal choices. It actually helped me move forward in my personal finance progress because I started to question things at a deeper level than I had before. Why am I actually earning this money anyway? What impact does this choice have on others, and how does it echo back to me? Something as simple as buying a gallon of gas has an impact on many levels, an impact that bounces back in many different ways (not just environmentally, but economically and politically and socially). The same goes for buying a disposable diaper and tossing it in the trash when it’s used up.

  If you’re struggling at all with these kinds of issues, Voluntary Simplicity is an absolute must-read.

  
  

  
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  Paying Down the Mortgage or Investing for the Long Term? What Shall We Do?

  Posted: June 27th, 2010, 8:00am MDT by Trent

  As I mentioned a bit last week, we’re currently debt free except for our mortgage and a student loan with such low interest that it would be financially reckless to pay it back early. The CD in which we were keeping the money to pay for our Prius matured (it was earning a higher percentage return in a CD than we could get on a car loan, so cracking the CD early and paying a penalty just to pay cash seemed like a poor move), so we paid off the full balance of that loan and own both of our vehicles now free and clear (we paid cash for our 2004 Pilot a few months ago).

  Right now, we’re sitting at a decision point. Should we start prepaying significant amounts on our mortgage or should we invest that money elsewhere? I think we’ve come to a decision, but I also thought walking through our decision-making process.

  Our home mortgage sits at about 5.5%. We are looking into refinancing it at 4.75%, but we haven’t yet fully run the numbers to determine if it would actually save us any money or not because of the cost of the refinancing and because of our intent to pay it off quite early. We’re already making payments that amount to about 50% more than what we owe each month.

  Our question currently is simple: should we raise those overpayments to 100% or more or should we be investing that extra money into stocks or something else?

  If we increased our payments to 100% of what we currently owe each month, we would pay off our mortgage in about seven years. If we exceeded that amount, we would be paying for even fewer years than that.

  We view money put into the mortgage as being an investment with a guaranteed return of 5.5%, because that’s the amount of annual interest we’ll save by knocking off some principal. If we pay $1,000 early, it’ll save us $55 in interest this year and about $57 in interest next year and so on.

  On the other hand, we could invest that extra mortgage payment each month into something else. We could put it into a savings account that would earn us 1.5% or 2% or so, but it would be very liquid.

  We could also invest it in the stock market. It would be very liquid there and it would also have the potential to greatly beat the 5.5% we’re making on our home loan.

  Of course, “potential to greatly beat” reveals the hard truth. Stock market investing, particularly in the short term, implies quite a bit of risk. 2008 was incredibly painful, for example, as were 2000 and 2001.

  The truth is that stocks only pay off as an investment over a long timeframe unless you’re banking on some luck.

  So, what’s our timeframe here? Our plan after our mortgage is paid off is to buy a piece of land in the country and build a house on it (and likely a small barn as well).

  If we put the money into our home, we would be completely debt free in five years, buying land a year or two after that, and building a year or two after that. Let’s figure five to ten years is our time frame.

  Is that “long term” in terms of the stock market? Sadly, it’s not. As Warren Buffett so eloquently put it, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” The simple fact is that over a period of time less than ten years, the stock market is notoriously volatile.

  This becomes even more true when you consider that we won’t be investing all of it now and just waiting. Instead, we’d be investing small amounts regularly over the next several years. Large chunks of our investment would be in stocks for only a year or two.

  That’s not the kind of fragile foundation we want for our next home. We’d far rather own our current house free and clear. It’s in a good location, rurally placed with great access to the Des Moines metro area, and similar houses have held their value or even gone up over the last several years. We feel, based on the evidence, that we’ll get out of it at least as much as we put into it when we sell it.

  Thus, our extra money is going into our mortgage for the time being. I altered our automatic monthly mortgage payment to be 125% more than our normal monthly payment and may yet alter it again (I want to watch our monthly cash flow for a while). This leads us to paying off our house in just a few years and pushing us right towards the country home we’ve dreamed of.

  
  

  
• 

  Askers, Guessers, and Personal Finance

  Posted: June 26th, 2010, 2:00pm MDT by Trent

  A while back, I came across a fascinating article at The Guardian discussing askers and guessers:

  This is the “disease to please” – a phrase that doesn’t make grammatical sense, but rhymes, giving it instant pop-psychology cachet. There are certainly profound issues here, of self-esteem, guilt etcetera. But it’s also worth considering whether part of the problem doesn’t originate in a simple misunderstanding between two types of people: Askers and Guessers.

  This terminology comes from a brilliant web posting by Andrea Donderi that’s achieved minor cult status online. We are raised, the theory runs, in one of two cultures. In Ask culture, people grow up believing they can ask for anything – a favour, a pay rise– fully realising the answer may be no. In Guess culture, by contrast, you avoid “putting a request into words unless you’re pretty sure the answer will be yes… A key skill is putting out delicate feelers. If you do this with enough subtlety, you won’t have to make the request directly; you’ll get an offer. Even then, the offer may be genuine or pro forma; it takes yet more skill and delicacy to discern whether you should accept.”

  I’m unquestionably a Guesser by nature. For me, the reason is simple to explain: I naturally don’t like it when people make enormous demands of me out of the blue. I tend to avoid further contact with these people. And, thus, I don’t want to make other people feel that way.

  In the end, I want to be able to help people when they ask, and I do not like it when people merely view that as an easy thing to milk to get whatever they need from life. An extreme example: a neighbor that I’ve helped with small things in the past leans over a fence and says, “I don’t want to cook supper. Will you make it for me?” I feel as though that person is trying to blatantly take advantage of my willingness to help.

  If you flip it to the neighbor’s perspective, it looks like the worst thing that can happen is that I’ll say “no.” But the truth is that the mere presence of such a question makes me tend to like the neighbor less and want to avoid him or her. My perspective is why would that person possibly ask me if he didn’t expect me to go make him dinner, and what kind of person would just expect that out of the blue?

  The real difference is the expectation of the question. An Asker doesn’t expect a “yes” answer when they ask – they figure, “why not throw it out there?” A Guesser does expect a “yes” answer when they ask, so they try to keep their queries polite and reasonable and don’t like it when they’re asked unreasonable things.

  The problem comes about when Askers assume, by default, that they’re talking to Askers and Guessers assume, by default, that they’re talking to Guessers. An Asker will ask for something big, assuming that the person they’re talking to is also an Asker and will simply answer “no” if that’s not cool and think nothing else of it. A Guesser will rarely ask for anything and when they do, they fairly expect a “yes” response because their requests are infrequent and modest and are usually already clear. Guessers can usually ask things of Askers without too much trouble (usually, the answer is “yes” because the requests are minor) but Askers usually have a lot of trouble asking things of Guessers.

  I don’t think there’s anything wrong with being an Asker or a Guesser. I think it’s just a mix of how people are wired and what culture they grew up in. It’s just important to recognize the difference between the two. The article explains it pretty well:

  Neither’s “wrong”, but when an Asker meets a Guesser, unpleasantness results. An Asker won’t think it’s rude to request two weeks in your spare room, but a Guess culture person will hear it as presumptuous and resent the agony involved in saying no. Your boss, asking for a project to be finished early, may be an overdemanding boor – or just an Asker, who’s assuming you might decline. If you’re a Guesser, you’ll hear it as an expectation. This is a spectrum, not a dichotomy, and it explains cross-cultural awkwardnesses, too: Brits and Americans get discombobulated doing business in Japan, because it’s a Guess culture, yet experience Russians as rude, because they’re diehard Askers.

  My policy for diving through this is simple.

  If I’m in a commerce situation or interacting with someone I probably won’t ever meet again, I assume they’re an Asker. In that case, I don’t hesitate to just ask for big things. I’ll haggle on some items. I’ll ask for a big discount. I’ll ask for a “comp” meal at a hotel.

  If I’m in a potential long-term social situation where I’ll have to interact with people in the future, I assume they’re a Guesser. I don’t ask for big things until I know the person very well, unless…

  If I can, I try to identify Askers from the people I know. That way, I understand where they’re coming from.

  So, rewind to my neighbor. When he leans over the fence and asks for dinner, I can realize right off the bat that he’s an Asker and I can tell him “no” quickly if I want without feeling guilty. I also learn that he’s a person I can ask stuff of without hesitation in return.

  In short, act like an Asker in commercial situations, act like a Guesser around people you’ll socially interact with over time, and only act like an Asker around people you know who are also Askers. That way, you avoid destroying any social relationships just as they’re beginning to bloom while also being able to haggle and negotiate with the best of them.

  You’d be surprised how often this all shows up in personal finance. Take wedding registries, for example. Askers don’t hesitate to say something like “give me cash as a wedding gift,” and other Askers consider that completely fine. People who are Guessers consider it rather rude because you’re making a demand of a gift ungiven. The best solution is to just please both sides of the coin – don’t have a registry at all (and just tell your mother, who people will inevitably call, that you just want cash, putting the onus on the gift-givers to ask) or have a registry that allows you to sift through the received gifts and keep what you actually need after the wedding, returning the rest. In other words, I basically assume that the invitation recipient is a Guesser (either they’ll have to ask with no registry or have choices that are easily returnable with a registry) and that an Asker will ask what I want.

  
  

  
• 

  The Simple Dollar Time Machine: June 26, 2010

  Posted: June 26th, 2010, 8:00am MDT by Trent

  Many newer readers of The Simple Dollar haven’t been exposed to the hundreds of great articles in the archives of the site, so this is a weekly series that highlights the five best posts from one year ago this week, two years ago this week, and three years ago this week. I call it … the Time Machine.

  One Year Ago (June 20 – June 26, 2009)
  How Low Can You Go? Moorish-Style Chickpea And Spinach Stew I thoroughly enjoyed this meal – it was one of the best vegetarian dishes I’ve ever tried.

  Some Thoughts on the “Lake Wobegon” Effect People often overestimate their luck, their fortunes, and their skills. You’re better off vastly underestimating it instead.

  Friendships and Financial Responsibility If you find that your friends aren’t matching up well with your growing values, it’s okay to move on. Friendships that were meant to last will last – and those that weren’t meant to last won’t.

  Fifteen Things to Do to Make Jumping into Freelancing/Self-Employment Financially Successful Self-employment can be a wonderful thing, but if you don’t have self-discipline, it’s never going to work.

  When Is a Child Ready for an Allowance? It depends on whether you’re tying it to chores or not (we’re not – we’re giving a small allowance independent of chores). If you’re doing it independently, do it early so that the lessons can be built over a long period of time.

  Two Years Ago (June 20 – June 26, 2008)
  You Can’t Buy Love Don’t even try. What’s going to eventually make love blossom is you. Not your money. Not your stuff.

  Starting a Natural Collection Whenever I re-read this article, I think of my aunt’s amazing collection of geodes, built up carefully over many decades.

  Ceiling Fan Hacks: Save Big on Energy Use Proper ceiling fan use can save you a truckload on your energy bills.

  The Economics of Children’s Birthday Parties I really don’t see the point in spending much on a child’s birthday party. They seem to have as much fun with companionship as they do with tons of expensive entertainments.

  Addiction and Personal Finance An addiction to anything makes personal finance very difficult because that addiction eats up all of your spare time and money.

  Three Years Ago (June 20 – June 26, 2007)
  You Don’t Need Six Figures: The Financial Realities of Living in Iowa I’m a huge fan of living in Iowa. Open skies, open air, low cost of living – it’s wonderful.

  Money, Spirituality, and Charity What can you do with the gifts you have to make the world a better place? It’s a tougher question than you think.

  Predicting the Future: Where Will Tax Brackets Go In Thirty Years? Taxes will be higher in thirty years. I’m extremely confident of that prediction. They really have nowhere to go but up.

  Cook Once, Eat Twice With A Crockpot Clever use of a crockpot can greatly stretch the food you buy into multiple meals, turning a good bargain into a great one.

  Trimming The Fat: Forty Ways To Reduce Your Monthly Required Spending This is one of those nice “checklist” posts, designed to help you curb all of those monthly bills that drain on your savings.

  If you’d like to browse through more of the archives, visit the chronology, where all posts are listed in chronological order.

  Ten Ways to Get More out of The Simple DollarUpdated!
  This is kind of a FAQ for new readers and is posted each week along with the Time Machine. Here are ten great ways for new readers to dig deeper into The Simple Dollar.

  1. Subscribe by email or RSS. Visiting The Simple Dollar’s website is great, but for many people, it’s more convenient to receive the articles in another form. It’s easy to join 60,000 other subscribers and get The Simple Dollar’s content by email or in your RSS feeder (if you’re unfamiliar with RSS, check out Google Reader.

  2. Comment. Each article on The Simple Dollar has lively discussion. Just click on the green square in the upper right of each article on the website and join in!

  3. Become a fan of The Simple Dollar on Facebook. I put up questions and other materials about once every week or two on Facebook (so you won’t be flooded with Simple Dollar updates). Join in the conversation with other Simple Dollar fans and occasionally get some interesting freebies, too.

  4. Follow me on Twitter. I post interesting articles, quotes, follow-up material, commentary, and other material on Twitter. Follow me! If you’re unfamiliar with Twitter, it’s essentially an open discussion forum for people to share ideas and thoughts with other like-minded folks – you just choose the people you want to listen to and their ideas and thoughts are all delivered to you on a single page.

  5. Read my story of financial meltdown and recovery. The Simple Dollar isn’t based on what I’ve read in books or learned in school. I’ve made a lifetime of financial mistakes – The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

  6. Download my free 49 page e-book. Everything You Ever Really Needed to Know About Personal Finance On Just One Page is completely free. It summarizes all of the key lessons I’ve learned along the way about personal finance in one tidy package – in fact, all of the main principles can be found right on the cover.

  7. Dig through “31 Days to Fix Your Finances.” 31 Days to Fix Your Finances is an article series that outlines how you can get a grip on your finances over the course of a month.

  8. Send me your questions and suggestions. Send me an email and let me know what you’re thinking, what you’d like to see, and any questions you might have. I try to respond to as many emails as possible and I read them all. I may even use your question in a future article!

  9. Become a “Friend of The Simple Dollar.” If you find the stuff on The Simple Dollar valuable and are willing to spend five minutes or so a month to help me out with small things, please consider signing up to be a “Friend of The Simple Dollar”.

  10. Email a great article you find to a friend. Find an article that you think your friend would love? At the bottom of each article, you’ll find a link that says “Email this” – just click on that, type in your friend’s address, and send it right along to them!

  
  

  
• 

  Summer Meal Series #4: Grilled Apple Pork Chops, Garlic Baby Potatoes, and Steamed Broccoli

  Posted: June 25th, 2010, 2:00pm MDT by Trent

  This summer, I’m going to be posting a series of fifteen low-cost, tasty, and easy-to-prepare meals that are literally straight from my own kitchen.

  A few days ago, I was going through the produce section of our grocery store when I noticed a great sale on baby potatoes. They’re delicious and easy to prepare in lots of contexts, so I picked them up.

  Then I noticed a sale on broccoli – another sale not mentioned in the flyer – so I picked up a few heads of that for pennies.

  Near the milk and fruit juices, I noticed a sale on premium apple juice – a higher quality kind than I usually buy – for about what I pay for our regular juice, so I snagged that. My kids love apple juice with their breakfast, after all.

  As I walked past the meat counter, I noticed some amazing thick pork chops – and they were also on sale for $1 each, another sale not listed in the flyer.

  In other words, this meal fell together almost out of nowhere.

  

  This meal took about five minutes of prep work, all told. Seriously. Once the chops and potatoes were on the grill and the broccoli was steaming, I just played with the kids, and the time spent getting the meal components to that point was about five minutes.

  Several hours before the meal, I took the chops out and put them in a bowl.

  

  You’ll notice the “Simply Apple” juice in the background. Ordinarily, I’d just use whatever apple juice was 100% juice and on sale that week – and this week, it happened to be “Simply Apple” that was on deep discount.

  Anyway, I poured enough of the apple juice in the bowl to cover the chops…

  

  … and I then flipped the chops around gently in the bowl so that each surface got some exposure to the apple juice. I then covered the bowl and stuck it in the fridge. Total time: about a minute.

  As mealtime approached, I started preheating the grill, then I came inside, spread out a piece of aluminum foil, put some baby potatoes, a few teaspoons of minced garlic, and some ice cubes on top.

  

  The garlic is for flavor – you can put whatever flavorings you want in there. You might want pepper. You might want salt. You might want chives. Whatever floats your boat.

  The ice cubes are essential – in fact, I wish I had added a few more. The ice cubes melt inside the packet and eventually provide a great steaming effect, cooking the potatoes and keeping them moist.

  So, I just wrap up the potatoes – and wrap ‘em again:

  

  This package is ready to be tossed on the grill and cooked. I toss it on immediately, in fact, before the grill is entirely done preheating.

  Now, for the broccoli…

  

  All I have to do is chop the florets off of the stalks, chop up a bit of the stalks as well, and put it all in our vegetable steamer that we received as a wedding gift. Set the timer, walk away, and wait for the ding.

  There are a lot of techniques for steaming vegetables without a steamer. The easiest one I’ve found is to take a large pot, pour some water in it, submerge a plate upside down in the water, sit a bowl of vegetables on top of that plate, then cover the entire thing and boil the water for 10 minutes or so (depending on the vegetables).

  

  That’s it for the prep work. All you have to do now is throw the chops on the grill when it’s done preheating…

  

  You’re going to have some leftover apple juice that had raw pork in it. My suggestion is to simply pour it over the pork chops as soon as you put them on the grill, and don’t hesitate to splash a little, either. It’ll all cook off while the grill lid is closed, creating a great apple smoke that adds pure flavor to the chops.

  In fact, I poured myself another cup of fresh apple juice and poured this over the chops each time I flipped them, again not worrying about spilling a little. It produced some amazing smelling smoke.

  My technique for grilling chops is to wait until the grill is about as hot as you can get it, then throw the chops on one side for about two or three minutes to sear it. Then, I turn the heat down to medium, flip them over, and do most of the rest of the cooking on that side.

  This same technique works in a skillet if you don’t have a grill. Just put some vegetable oil in a skillet, turn the heat up very high, and wait until the oil is just starting to smoke. Toss in the chops, let them sear on one side for about three minutes or so, then turn the heat down to medium and flip them.

  In both cases, trust a meat thermometer to tell you when you’re done. Pork needs to be cooked to 160F (about 75C).

  In any event, my plate looked like this:

  

  The meal was amazingly inexpensive, considering a meal like this at the local barbecue place would easily be $10.

  The chop cost $1. I used approximately $0.10 worth of apple juice on this particular chop. The two potatoes cost about $0.15. The broccoli cost about $0.15 as well. Add in the energy costs and this entire plate was prepared for about $1.50. This was a $6 meal for our family of four.

  Not only that, it tasted fantastic. There was just the perfect little hint of apple in the chops, the potatoes were tender and moist on the inside, and the broccoli was wonderful.

  
  

  
• 

  Getting Things Done: Keeping Your System Functional

  Posted: June 25th, 2010, 8:00am MDT by Trent

  This is the eighth entry in a fourteen part series discussing the time management classic Getting Things Done by David Allen. New entries in this series will appear on Tuesday afternoons and Friday mornings through July 16.

  So far, we’ve talked about three of the five major steps for getting things done: collecting all of the stuff you need to do, processing that stuff down, and organizing by putting all of that stuff into appropriate places. But how do you keep all of this running? Review. It’s the key element to making sure all of this works, in my opinion.

  Allen makes the case for a review right off the bat, on page 181:

  The purpose of this whole method of workflow management is not to let your brain become lax, but rather to enable it to move toward more elegant and productive activity. In order to earn that freedom, however, your brain must engage in some consistent basis with all your commitments and activities. You must be assured that you’re doing what you need to be doing, and that it’s OK to be not doing what you’re not doing. Reviewing the system on a regular basis and keeping it current and functional are prerequisites for that kind of control.

  Here’s the truth of the matter. Our lives are incredibly busy – I can say for certain that my life is absolutely crazy at times. This means that sometimes, no matter how good the system is, things fall through the cracks. If enough things fall through the cracks, then the system ceases to work at all, which is a shame because when the system is pumping on all cylinders, it’s incredible.

  The solution to this is to review things regularly. I do two distinct types of reviews to keep my system running.

  Daily Review
  I usually do this type of review at the start of each day. In the evening (particularly if I find myself in my office for some reason or another – usually due to children who can’t sleep, since my office is next to their bedroom), I’ll sometimes redo some of these pieces as I choose.

  I check my calendar for the day. What do I have going on today? The first thing I look at is my calendar – in fact, Google Calendar is the homepage of my web browser, so I can’t help but see it pretty quickly after starting my work day. I usually set some alarms on my computer as well so that I’m alerted to coming events throughout the day.

  I check my calendar for the next week, too. This sometimes causes me to add some things to my inbox, like a note about an upcoming birthday or anniversary that I need to get a gift or a card for, or a trip that I need to prepare for.

  I fully process my inbox. I go through all of the stuff sitting in my inbox and do something with each item, as described in the “process” section from last week.

  I reprioritize my “next action” list and print off a copy. What am I going to do today? I usually categorize the list with four colors – things I try to do each day, things that need to be done soon, things that are truly important but aren’t vital to do today, and “other.” I usually do them in roughly that order. This is my checklist for the day, and I cross off the items as I do them. The next day, I edit my “next action” list by getting rid of all of the stuff I crossed off from yesterday (except for the “every day” things).

  Weekly Review
  Once a week, I do a more thorough review of my entire system, just to make sure nothing has fallen through the cracks. I usually do this on Saturday or Sunday afternoon, depending on whether Sarah or I is on nap duty. Here’s what that entails.

  I round up anything miscellaneous floating around and get it in my inbox. On page 185, Allen explains this clearly:

  Pull out all miscellaneous scraps of paper, business cards, receipts, and so on that have crept into the crevices of your desk, clothing, and accessories. Put it all into your inbox for processing.

  I don’t process yet, though.

  I brain dump. At the start of the “collect” part of GTD, a person should sit down and toss everything that’s in their mind out onto paper so that it can be dealt with appropriately. I essentially do this each week. I just sit down with a pad of paper and start jotting down the things that are on my mind whether they’re already in the system or not. Yes, a lot of it is redundant, but those things that are repeated are big clues as to the things I need to get done because those are the things bothering me. They’re interfering with my mind flow.

  I process my inbox and note everything that’s repeated. I then go through all of the stuff in my inbox. If I find stuff that’s repeated, I mark it as “important” on my “next actions” document because if it keeps popping up like this, I need to take care of it.

  I file everything that’s unfiled. During the week, if I pull out a file folder, I often don’t file it again. I just toss it in a wire basket on top of my filing cabinet. At the end of the week, I put it all back so I can easily find it all again. If I don’t do this, the filing system begins to fall apart.

  I take a look at each ongoing project and figure out what the next action is. As I mentioned earlier, I keep a folder for each major ongoing project I have in my life. During my weekly review, I go through each of these and figure out what the next action is to carry that project forward. A project can be anything from writing a novel to reorganizing the garage and closets.

  I review my “next actions” list and set some priorities for the coming week. Mostly, this just involves upgrading the urgency of things already on my “next actions” list. Yes, I don’t necessarily empty out my “next actions” list in a given week. In fact, I can’t actually recall the last time it was completely empty.

  I think about how everything I’m doing fits into my larger lifelong goals. I mostly just spend time thinking about where my life is going, what things that I wanted to do “someday” (things often saved on a list, actually) might actually be coming into focus, whether or not the things I’m doing right now are in line with what I want to be doing in my life, and so on.

  Allen riffs on this at the end of the chapter, on pages 189 and 190:

  What are your key goals and objectives in your work? What should you have in place a year or three years from now? How is your career going? Is this the life-style that is most fulfilling to you? Are you doing what you really want or need to do, from a deeper and longer-term perspective?

  [..] As you increase the speed and agility with which you clear the “runway” and “10,000 feet” levels of your life and work, be sure to revisit the other levels you’re engaged in, now and then, to maintain a truly clear head.

  How often you ought to challenge yourself with that type of wide-ranging review is something only you can know. The principle I must affirm at this juncture is this:

  You need to assess your life and work at the appropriate horizons, amking the appropriate decisons, at the appropriated intervals, in order to really come clean.

  Which brings us to the ultimate point and challenge of all of the personal collectiong, processing, organizing, and reviewing methodology: It’s 9:22 AM Wednesday morning – what do you do?

  This, in my opinion, is the key point of this book. The whole reason for having a system like this is to make you more efficient at the little things you have to do (by keeping your mind clear of clutter) and keep it all organized in such a way that you can step back and seriously think about the big picture. It’s impossible to do this if your life is constantly chaotic with you running around putting out fires all the time and collapsing in a heap of exhaustion.

  For me, the best way to do this is to focus on one area of my life each week. I do this by breaking my life down to a number of roles. What roles do I play? I am a writer. I am a friend. I am a father. I am a husband. I am a son. I am a gamer. I am a reader. I am a homeowner.

  I have long term goals and short term goals in each of those areas. How do I want to fill that role? Each week, I focus for a while on one of those roles and just reflect on where I want to be in the future and what I can do now to move in that direction.

  I look for some key actions for the following week that are in line with those big goals. I usually add several things to the least important section of the “next actions” list from the role I focused on, along with one or two more urgent things. For example, if I have the “I am a son” role in mind, I put things like “talk to my parents about their will” and “give my mom a long phone call” as a more important task for the coming week and “think of a great anniversary gift for them” and “plan ahead for a weekend vacation with them late this summer” as lesser things to do.

  Next time, we’ll go through the final piece of the puzzle: doing stuff. How do you prioritize all of that stuff that’s on your “next action” list? How do you keep that in balance with your calendar? We’ll dig into that on Tuesday!

  
  

  

Frugal Dad

• 

  8 Critical Steps Every Family Should Be Taking to Prepare for the Next Financial Crisis

  Posted: June 25th, 2010, 3:00am MDT by Frugal Dad

  It remains to be seen whether or not the worst has passed, or if we are merely enjoying the relative calm during the eye of the latest financial storm. I personally believe we are in for more tough times in the near term.

  A variety of stimulus programs have conspired to create an “artificial demand” that has produced seemingly positive results. However, I believe it only served to delay the inevitable. In fact, I’ll go a step further. I believe it made the inevitable even worse. Would the economy have been worse without the stimulus? Probably. Would we have survived and saved a couple trillion dollars in new debt? Probably. But who knows. I’m not an economist, and I certainly don’t play one on TV.

  In the Frugal household we are hunkering down, financially. The 2008 recession caught us off guard. We were still in debt, had little savings, and were just beginning to deal with what would become a year-long medical and financial crisis with my mom, who suffered an aneurysm and subsequent stroke at 53 years young. She passed away in September of 2009. Fortunately, we were able to ride the storm out, but I made it a goal to be better prepared next time. And next time may be closer than any of us think.

  What if I’m wrong? Well, I hope I am. You can say I told you so. But even if I am wrong about another economic downturn in the next year, at least your family will have improved its finances between now and then.

  #1 Get Your Financial Documents in Order

  The time to organize financial documents is before a crisis hits. Buy a file cabinet to store things like financial statements, and a fire-proof box to store more important documents, such as life insurance policy statements, deeds and titles, etc.

  Action Item: Spend Saturday morning getting organized. Shred all but the last two monthly statements from banks, brokerages and credit cards (unless you need them for tax purposes). Start a “2010 Taxes” file to collect receipts and tax documents for this year. Work up a document with account numbers, rough balances, contact information and save both a digital copy and hard copy in your fire-proof box. Be sure your will and advanced directive for health care is up to date.

  #2 Reduce Your Monthly Bills

  Who wouldn’t like to save money every month? In many cases the only thing stopping us is ourselves. We get complacent. We don’t like change. But in some cases, you must endure changes to save money in the long run.

  Take a look at your recurring monthly expenses and find ways to slash costs. Shop for cheaper car insurance. Ask your cable provider if they offer a basic package. Using just a fraction of your cell phone minutes? Move to a cheaper plan, or consider going pre-paid. Ask your credit card company for a lower interest rate. Even if you strike out at all of these, it doesn’t hurt to ask, and you could easily find ways to shave $50-$100 a month off your regular expenses.

  Action Item: OK, so you spent Saturday morning getting organized. Spend Saturday afternoon shopping for better deals. If you find customer service departments closed for the weekend, make a note and call back Monday morning.

  #3 Save Three Months of “Living Expenses”

  This is essentially a bare-minimum household emergency fund. It won’t last long in a real crisis, but if you have debt, you need to get on with the next step, so avoid saving more than a few months.

  Action item: Open a savings account at a top online bank and save three months worth of housing payments, plus enough for food and lights. That’s it.

  #4 Get Out of Debt

  With a small household emergency fund in place, turn your attention to getting out of debt. Household debt adds considerable risk to a family’s finances. It puts you so close to the edge, financially, that it doesn’t take much to push you over the cliff. Distance yourself from the edge by getting radical in your approach to paying off debt.

  Action Item: Pay off 100% of your household debt, beginning with credit cards and any other unsecured debt. Sell stuff, donate plasma, get two part-time jobs – get radical and get out now! Your family’s financial future depends on it. More on how to get out of debt.

  #5 Pile Up a One-Year Household Safety Net in Cash

  Now that you are debt free, return your focus to emergency savings, but continue to work on items 5-8 concurrently, allocating a bit of your income to each step. How much? Do what you are comfortable with, but make reaching milestone a priority.

  Over the years, I’ve waffled a bit on how much should be in a fully-funded emergency fund. Experts recommend 3-6 months of expenses. Some personal finance bloggers recommend establishing an emergency fund based on the number of dependents, or the number of people working in the household. Both are good ideas.

  However, from this point forward, I’ve decided to offer the following advice to keep things simple: save one year of basic household expenses as an ultimate family safety net. Considering the recent recession (and the chance of a double-dip recession around the corner), the old advice of 3-6 months being sufficient to cover a period of unemployment or serious illness is, frankly, a joke.

  Action Item: Save one year of basic household expenses in a highly-liquid emergency fund. Note, this should only cover basic household expenses. Luxuries such as cable, Netflix, XM radio, and gym memberships should not be included. Things like mortgage payments, food, the power bill, and transportation costs should be included.

  #6 Build a Second Income

  I can think of no greater hedge against unemployment than developing a second income stream. Even if your second income is a fraction of your full-time income, it may be enough to keep your house current and food on the table in a financial crisis. Part time gigs are a fine way to boost cash flow in the near term (a great way to get out of debt, for example), but I encourage you to look for opportunities to cultivate self employment income. Mow yards in your neighborhood. Learn to build fences and decks on the weekends. Start a blog or chase down freelance writing opportunities. Get creative.

  Action Item: Start a side hustle at nights and on the weekends.

  #7 Keep a Modest Stockpile of Food and Household Goods

  I have known some people to fill entire rooms with stockpiles of food, and load up basements and storage buildings or garages with paper products and cleaning supplies. I have known others who have no more than tomorrow night’s dinner scattered about bare refrigerators and pantries. Like everything else, you have to find a balance that works for you.

  We don’t like to shop, and have found that the more often we are in the store the more money we spend. So, we try to keep a small stockpile of food at home and only restock a couple times a month. In a real crisis, we could probably go a month or two without having to leave the house for food. Of course, we’d sure miss fresh fruits and vegetables, so we try to grow a few of those on our own using square foot gardening methods in our backyard.

  Action Item: Clear a few shelves and stock with non-perishable (or long shelf-life) foods like rice, beans, canned vegetables, plus a small surplus of paper and cleaning supplies, toiletries, etc. Keep your freezer well-stocked with a variety of meats purchased on sale.

  #8 Pay Off Your Mortgage Early

  For us, the ultimate in financial freedom begins with having a paid-for home. Imagine not making payments to anyone for living space (well, except the local tax commissioner). No monthly mortgage or rent payments buys two very important things: You can build wealth much faster without house payments, and you can survive on much less income without a mortgage.

  Action Item: Get busy paying off your mortgage early. Contact your mortgage company and ask about making biweekly payments. If they offer a biweekly plan, but charge a fee, pass and simply send in one extra payment a year (the math is virtually the same). If you are in relatively good shape, financially, have plenty of emergency cash saved, and are saving for retirement and kid’s college, consider throwing extra savings at the mortgage each month. Contact your mortgage provider and ask for instructions on making extra principal payments.

  *This article was mentioned in the Carnival of Personal Finance 264th Edition

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Professional Time, Leisure Time, and Wasted Time

  Posted: June 24th, 2010, 2:00pm MDT by Trent

  Most of this article applies to any situation in which someone hires someone else to perform work, whether it’s paying someone to change the oil in their car or hiring a plumber to fix a leaky faucet. On that note, Connie writes in:

  Your schedule seems overstuffed. Have you ever considered hiring an assistant or a housecleaner or something?

  I have, actually. We earn enough right now to be able to afford hiring some additional help to take some of the hours off of my shoulder, whether it’s helping with the grunt work behind the scenes of The Simple Dollar or doing some of the household chores (dusting, vacuuming, etc.).

  We haven’t done it yet, though, for one simple reason. Let’s say, hypothetically, that I hired someone to take care of ten hours of grunt work a week. What would I then do with those extra ten hours in a week?

  For starters, it wouldn’t be ten hours. It would be less than ten hours because of the time invested in managing the person I hired, so let’s be very optimistic and call it eight hours.

  Out of those eight hours, how many of them would I put to active, productive use? Would I spend that extra time with my family? Would I spend it on engaging work projects? Or would I just squander that time, considering I can already get all of the things done that I need to get done (albeit with little time to spare occasionally)?

  I tend to think that I would just squander it.

  It’s important to note here that I think there’s a big difference between leisure time and wasting time. I do get a reasonable amount of leisure time in my life – time spent in an activity that I find enjoyable and have specifically chosen to do. What I have very little of is what I call “wasted” time – time spent in no real activity at all. To me, a good life has a balance of productive time and leisure time with little wasted time in it.

  What’s “leisure time” and what’s “wasted time”? Leisure time usually has a designated purpose: I’m going to play a game with my friends or I’m going to take a nap because I’m tired. Wasted time occurs when you spend time without any real activity at all: staring off into space, channel surfing, and so on.

  I think “wasted time” occurs when you have an inadequate amount of professional (or academic) demands and an inadequate amount of leisure activities you actually wish to be involved in. If you find yourself “wasting time” on a regular basis, then something else is out of balance in your life. Another observation: people with a lot of “wasted time” in their lives tend to be earning far less than they potentially could be.

  The only case where I can see that it is logical to hire someone to work for you is if you have a deep inbalance between your leisure and home needs and your professional needs. For example, if you have more work to do than you can possibly complete while still maintaining a reasonable balance between work and leisure, then you might need to hire someone to help with the work tasks. Alternately, if you are capable of managing your work tasks but are incapable of managing your home tasks without eliminating all leisure time, you might want to consider hiring household help.

  I don’t think I’m in either camp, actually. I think I have a healthy balance of professional and leisure activities in my life. Hiring someone would merely put that balance out of whack, and the likely result of that would be “wasted time.” Thus, I’d pay someone money to permit me to essentially be idle.

  This is why I’m often mystified as to why people sit in a waiting room at Jiffy Lube looking around or flipping through a newspaper or channel surfing while someone changes the oil on their car. They’re essentially exchanging productive time for “wasted time” and paying someone for this “service,” considering that an oil change is fairly easy to do at home. It makes at least some sense to me to drop a vehicle off to get the oil changed and then pick it up later as that’s paying someone to give you more time for professional or leisure activities.

  Getting a grip on your professional time and your leisure time does nothing but pay dividends in your life. It helps you to avoid lots of unnecessary expenses and can often reveal what aspects of your life are in trouble and need repair.

  
  

  
• 

  Reader Mailbag: Pee Wee Baseball Season

  Posted: June 24th, 2010, 8:00am MDT by Trent

  What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
  1. Rent or buy a condo?
  2. Prioritizing limited money for savings
  3. Encouragement for staying at home
  4. Cell phone: pay-as-you-go or not?
  5. Prioritizing debts
  6. Wedding gift registry etiquette
  7. Worried about dad
  8. Tax savings for independent work
  9. Delaying student loan repayment
  10. Choosing a savings account

  Out of the five games scheduled in my son’s three-and-four-year-old tee ball league, four of them have been cancelled due to rain. I haven’t seen him this disappointed since his third birthday, when he invited four kids to his party and they all cancelled due to a flu bug.

  Currently my husband and I are renting a 1-bedroom apartment while we pay down student loan debt and save for a down payment for a house. The problem is this: we are paying about the max we are willing to in rent (which is still the middle-bottom of the scale), but lately, my husband and I have felt unsafe– thugs and their ilk hanging around our complex. If we move to a safer complex, our rent will increase by 20%. All the while, we’re seeing condos for sale for which the mortgage would be 35% less than we are currently paying in rent. So we feel trapped — get out of the unsafe apartment complex and delay buying a house that much longer, or take a risk and buy the condo with close to 0% down but save significantly on rent every month. What should we do?
  - Rachel

  If your monthly payments on the condo are less than the rent on a one bedroom apartment in a bad neighborhood, get the condo.

  In most normal situations, rent is substantially less than the mortgage payments on an equivalent space – and even if they’re close, the cost of homeowners’ insurance and the maintenance costs add up to more. The general advice of “keep renting” is usually predicated on this.

  However, it sounds like you’re in a situation where your monthly condo payments would be significantly lower than your monthly rent. If that’s the case, you should move to the situation that has a lower monthly cost, without question. Even if you have PMI in this case, you can just view it as paying rent.

  In my opinion, if all costs are equal between renting and buying (including maintenance, insurance, commuting costs, and so on), then one should buy, because one will build equity over time with that purchase. However, if you don’t have a down payment and the cost of buying is higher than the total cost of renting, then a person should continue to rent until they have enough down payment to avoid PMI.

  I am married to an up-to-his-eyeballs-in-debt lawyer. However my lawyer is on a government repayment plan where if he does community-service-like work for 10 years, whatever amount is left of debt will be forgiven (the catch is that he has to make full payments throughout those 10 years).

  We’re wondering where we should be putting our extra cash–here’s our story: we live in a very modest home with a very modest mortgage (about $800/mo mortgage (with 5.5% interest), where renting an apartment would cost us around $850 in this area). I’ve started some Roth IRAs for us and have started squirrling away some cash to get a healthy reserve in place. Right now, we have about $10k in savings, with a $88k mortgage and $140k in his law school debt. I have about $10k in student loans at varying percentage rates (from 1.8 to 5.8). Like Jeremy, we are in our late twenties and thinking about kids in the next couple years. My current plan is to work on my 5.8% interest loan and then to let the 1.8 go to full repayment since it’s such a low rate. If you were in our situation, what would you do?

  We have about $300-$400/mo to work with and our 5-year plan is to have our first child and move to a larger home, so should we be maximizing savings? Putting away money for retirement? Paying down our mortgage? Should I even be thinking about his legal debt if it’s scheduled to disappear at the end of 10 years? (monthly payments are about $900)
  - Jean

  How much is your current home worth? Are you underwater in it, or are you in a housing market that is starting to grow again (yes, some housing markets are doing okay)?

  This is actually pretty key, because when you do decide to move to a larger house, the equity you’ve built in your current house will be a big asset for that move. If you can sell that small house for, say, $140,000 and you only owe $88,000 on it, then you’ve got $52,000 towards your next home. On the other hand, if you’re even right now (or underwater a bit), you likely won’t have that much built up.

  If your primary goal is saving for a new home and that goal is within the next five years, you’re going to want to save in a stable place. If I were you, I’d make extra payments on the mortgage by tacking on some extra each month.

  If your husband is fully planning on working in community service for the next decade, I’d not worry about his debt beyond that. Just keep paying it each month with nothing extra. I would also just make minimum payments on both student loans for now.

  As for retirement savings, it really depends on the worth of your current home. The bigger the gap between what you owe on it and what you can get for it, the more I would focus on retirement savings. Remember, you should be shooting for a home equity equal to about 20% of the type of house you hope to buy.

  Both my husband and I are currently working, and we have a small one (a daughter who just turned 6 months)
  that is in daycare full time. Our ultimate goal is to get her out of daycare so I can be at home with her. We want to do this by December.

  I feel we make more than enough money to be able to do this but, all the math I do, is just doesn’t seem to add up for me to be able to stay at home, despite how much we bring in.

  I’ve read a lot of the comments on your articles about staying at home and how people make it work, I guess I just need some encouragement to stay the course.

  I just am at the point where I’m banging my head against a wall, feeling like I am stuck in this cycle; working to afford the expenses and my greatest fear is that we are just stuck in this cycle, and one day I’m going to look up and she’ll be 16 and we missed it all.

  At the same time, I just want to quit my job, and sign up with my husband’s benefits (which will be an additional expense, and also more expensive than my benefits) and see what happens, but I’m afraid that it will be such a huge change in what I’m accustomed to that I will fall into wanting things that I don’t need and possibly putting us into debt.

  We know that our goal (and our values) are for me to be a stay at home mom, but some days it seems almost impossible.

  Any thoughts?
  - Liz

  It takes a lot of discipline to pull this type of thing off.

  If you truly want to be a stay-at-home mom, then you have to make sacrifices to get there. I made a lot of sacrifices to get to where I currently am and it was worth it, but it was hard along the way.

  What can you cut? Look at all of the stuff in your life and ask yourself whether you need it as much as you need to be a stay at home mom. What about your cell phone? Do you need that more than you need to be a stay-at-home mom? Keep in mind that every time you spend money, you’re pushing that dream of yours off a little bit further.

  You absolutely can do this. You just need to keep in mind that, as Dave Ramsey puts it (and it’s one of the best ways of putting it I’ve ever heard), sometimes you have to live like no one else so that you can live like no one else.

  You mentioned once about Pay As You Go phones, but I wondered where these cell plans are as the ones in my local areas do not seem like good deals (25 cents a minute)? My current plan is $35 a month for 500 anytime minutes (with nights and weekends free), but I currently use about 200-250 monthly. What would you recommend in my case to save more than my current plan, if possible?
  - Michael

  You might be using enough minutes so that a pay-as-you-go phone won’t be worth it to you. Such phones only really pay off for very low users (like myself, actually; I don’t like cell phones, but that’s a whole different story).

  Your first step would be to check with your provider and see whether they have a lower minute plan. A 300 minute plan looks like it would fit you – do they have something like $25 for 300 minutes? If they do, see if you can switch to that, because that will likely be the best fit for you. If not, look at competitors.

  If such options aren’t available, you need to sit down and really evaluate your usage. Do all of your minutes happen on only a few days during the month? If so, you might want a pay-by-the-day phone, for example. Are you using the phone at home when you could easily use Skype or a landline?

  Here’s a summary of our remaining debts:

  Primary mortgage = $160K @ 5.25%, $1100/mo payment
  Secondary mortgage = $24K @ 8.625%, $322/mo
  Car loan = $17K @ 4.99%, $540/mo (We refinanced to extract equity to pay down second mortgage in order to qualify for a refi on the primary mortgage)
  Balance transfer credit card = $7K, 0% through next April, used to help pay down second mortgage to save interest, will pay it off in time to avoid interest

  Retirement accounts are at Vanguard, some with our state’s retirement system from when we both used to teach public school, all totalling about $35K. On our IRA’s for this tax year, we’ve contributed $2500 out of $10,000 we possibly could. My 401k will be resuming in July, which I’ll contribute about 6% of my income to get a full match from my employer.

  Here’s my question: I know my priority is to first pay off the balance transfer credit card. But after that, what should be my priority? I almost see that secondary mortgage as like a consumer debt, and the interest rate is a killer, and I’d like to pay that off. However, while three months of an emergency fund is good, I don’t feel that’s adequate either. But sitting on more money in an emergency fund with so little being earned in interest compared to the car loan or secondary mortgage seems like a waste, too. Perhaps I should focus on paying the car off, because that would free up $540/mo and I’d only have to pay $17K back to do that. Should we not contribute the full $10K/yr in our IRAs in order to pay down debt or build up our emergency fund faster?

  There doesn’t seem to be an obvious choice here. Help!
  - Aaron

  Your first debt priority should be that balance transfer, because it will be very painful when the interest resets if you don’t have it paid off. Luckily, we agree on that point.

  After that, my first debt priority would be the secondary mortgage. It’s only a bit bigger than the car loan but the interest rate is much higher.

  If you feel that your current emergency fund is inadequate, then channel some more into that emergency fund first.

  Once that secondary mortgage is gone, I would hit the car loan next, simply for cash flow purposes. The difference between that interest rate and the primary mortgage rate is negligible.

  My girlfriend and I recently got engaged. We are getting married in April next year. We are both from small towns that are close together so there is no way around having a big wedding. We are following lots of tips for saving money on the wedding, but I have a question about gifts. Because the wedding will be big, there should be a lot of gifts. We don’t really want to register for a bunch of junk that we are never going to use. We are going to register for some good quality kitchen and bath stuff, but its not going to be too much. We really want to be able to buy a house soon, so we are saving up for a down payment. Would it be bad etiquette to register for a few things and then ask people to give us cash to go towards a house down payment? Also, do you have any advice on the whole registering and wedding gift getting process in general?
  - Lance

  The important thing to keep in mind with a wedding registry is that it’s merely a list of suggestions for people who aren’t sure what to get you. It’s not a list of stuff that people are required to get you – it’s just a helper.

  Directly requesting cash as a wedding gift will come off as tasteless to a lot of people. You’re better off allowing people the freedom to get you whatever they’d like – using the registry as a “helper,” of course.

  If you want cash, just register at somewhere like Target and put a bunch of easily-returnable items on your list. After you unwrap them, return the ones you don’t really want to Target and get the entire balance on a gift card, then use that gift card to buy groceries and save the equivalent amount of cash for your down payment.

  Here’s my situation. I am a 25 year old high school physics teacher. I’m recently engaged and I just moved to Houston to be closer to my fiance. She’s in medical school currently. Ironically enough, out of the two of us, I’ll be bringing the most debt into this marriage. I have about $15,000 in student loans from college and about $4000 in credit card debt currently. Both of those numbers are way down from what they were once I pulled my head out of my rear about a year ago and busy paying them down.

  I make a decent income for me currently and the credit card debt will be gone a few months. Our plan though is for me to go back to grad school after this next to seek a phd in engineering. These are all things that we’ve been planning and we’re budgeting accordingly.

  However, with Father’s day I started thinking about my dad a bit. He’s a 64 year-old programmer who works from home making about 200K a year. The company he works for just got sold this last year and is now under new management. I’m really scared they are going to try to force him out and I highly doubt he’ll be able to get a comparable job.

  He’s getting older and he has a lot of health problems. Also he hasn’t been financially sound throughout most of his life, so basically if he got fired tomorrow he’d have to declare bankruptcy. Obviously I would do anything for my dad and if this were to happen 8 years later I’d be able to support him. At this point in life though, I just don’t see how I could help at all. Any advice?
  - Bobby

  It doesn’t sound like, in your current situation, there’s much you can do to directly help your father in a financial way. Nor, would I imagine, would he want you to if it were to unbalance you financially.

  They may try to “force out” your father, but he’s making $200,000 a year. He’ll receive maxed-out Social Security benefits. Depending on his exact situation, he may have a pension and he may receive an exit bonus in order to get him out the door. In other words, I don’t think his financial crisis will be immediate.

  If I were you, I’d simply be as supportive as possible during this stage. Call him regularly. Send him emails. Let him know you’re in his corner. Tell him if he wants to talk through what’s going on, you’re there.

  This can be a hard conversation to have at first (depending on the relationship), but it’s well worth it and will be a bigger net positive to your father than going further into debt to “help.”

  I have a few questions that hopefully you can shed some light on since you are self employed. I am 24 and finishing my MS and have been awarded a research contract position at the US EPA. In order for them to process my contract I had to register with DUNS and CCR and am now my own business I think.

  I know I need to save a portion of my income (would 20% of 21.84 per hour be enough?) and pay estimated taxes but am not sure how to execute that.

  I also know that I will be able to deduct many things from my taxes like student loan payments, health insurance payments but are you aware of any other things I am may be able to deduct? Someone told me if I kept track of mileage I may be able to deduct that. I just want to make sure I am keeping track of anything I might need to before I start working. I have been told a CPA would be helpful but I don’t want to spend the money on that if I can easily handle this myself.

  I am also looking into opening a Roth IRA since I have no employer matching, being a contractor. I saw you mentioned a SEP IRA but I don’t know much about that or if I would be eligible.
  - Kristin

  A CPA is much more likely to point out deductions for you and to help you make sure your taxes are correct and your prepayments are done correctly. That’s the value in hiring one.

  The biggest thing you need to know is that you’ll have to file quarterly estimated income taxes at both the state level and the federal level. You’ll want to study up on 1040-ES and your state’s equivalent.

  During the year, you’re better off socking a significant portion of your income away in a savings account for tax payments. I sock away 40% of every dollar I bring home in a savings account strictly for taxes. (I label it 2010, and start a new account each year.) At the end of each quarter, I pull money from that account to make my quarterly payments, then at the end of the year, I pay all of my income taxes from that account. If there’s money left over, I just transfer it straight into my primary savings account.

  With a SEP-IRA, you can only save money that you earn as part of the business. You’ll probably want to contact the HR folks at the EPA to see what retirement options are available to you.

  I was laid off last May from an industry that has little prospect of improving in terms of hiring and never paid well to begin with. Faced with those bleak prospects, I went back to college last fall at the age of 31. I’m taking prerequisite classes at a local community college and hope to gain admission to a master’s degree program in the health field with a very high employment rate.

  My student status makes me eligible to suspend payment on my existing loans which are all consolidated, previously-subsidized Stafford loans that I borrowed for my bachelor’s degree. They are at about 3 percent and I have a little over $4K left on the balance. I am also eligible to take out more unsubsidized Staffords to cover the $2,000/semester cost of attending community college.

  Are cutting out the $125/mo student loan payment to make room in my budget now, and borrowing extra to slow down the depletion of my savings account, both smart financial decisions in the long run?

  I have a health emergency savings account that is keeping me afloat for the duration of my schooling. Yet, my budget is rather tight. The extra $125 would help me slow down the draw-down on my savings by more than 10 percent. (I recently began taking out $1,000 a month for living and school expenses after my unemployment benefits stopped.)

  The only money I have coming in is from sporadic freelance writing jobs and renting out two of my bedrooms but that all goes to the mortgage. I’m also not borrowing for this part of my reschooling; I have another six months of taking pre-requisite classes ahead of me before I can even apply for the master’s degree program I have my eye on. I do plan to borrow for graduate school. The interest rate on the existing loans is around 3 percent and the balance is about $4,000.
  - Jen

  If your choice is between cutting a $125 a month payment on a 3% loan that you can defer or pulling $125 a month off of a credit card that you can’t pay back or from an unsubsidized Stafford loan, the choice is obvious. You should defer the student loan payments.

  Your goal, in the end, is to owe the least amount possible when you get out of school. That means maximizing the low interest loans as much as you can so that you don’t have high interest loans building up your principal while you’re in school.

  If you’re not making ends meet right now, you’re likely racking up consumer debt, which comes at a much higher interest rate than 3%.

  My wife and I have about a 6 month emergency fund in a money market. We’re only getting a whopping .25% interest rate. I’ve taken your advice to try and open up a new higher interest account for this fund but there are so many options – even some in Australia. Could you recommend a few bank options for us? Is it safe to have our money in a bank account from another country?
  - Brian

  There are a lot of good banks out there that blow away a 0.25% rate.

  The two online banks I use are ING Direct and SmartyPig. I use ING Direct for most of my primary banking needs – savings, checking, bill pay, and so forth. The accounts there earn around 1%, but it varies quite a lot.

  I use SmartyPig to save for specific goals. The interest rate there is higher – between 2% and 3% – but you have very limited account access. You can only deposit once a month on a schedule, for example. It works great if you’re saving for a goal piece by piece, though.

  Shop around. I guarantee, though, you’ll get a better rate than 0.25%.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

  
  

  

Frugal Dad

• 

  Weekly Roundup – Adam’s Update Edition

  Posted: June 24th, 2010, 4:00am MDT by Adam

  Hey everyone, it’s Adam! Frugal Dad is feeling a little under the weather so I figured I would give this “Roundup” thing a try. I also wanted to give you a quick look into how things are going for my wife and me.

  Our debt repayments have slowed a tiny bit over the last two months. We had a couple of big out-of-pocket expenses come up. My wife took a college course and her car tires needed replaced. Not that big of a deal thanks to our emergency fund, but it just stinks not being able to be more aggressive with the debt. We’ll get back on it again next month!

  I hope to get back to posting next month as things are starting to get settled into place here at home.

  The Frugal Roundup

  Community Supported Agriculture: One Month Report. Mrs. Micah gives us a quick update on how her CSA project is going. Sounds yummy! (@Finance for Freelance Life)

  Bigger Isn’t Always Better: Remembering to Appreciate What You Already Have. JD shares a great story about a recent stroll he took through town. (@Get Rich Slowly)

  18 Things I Wish Someone Told Me When I Was 18. These tips are great for someone of any age. I am working on a few of them myself! (@Marc and Angel)

  Best of the Rest

  • How to Buy Organic Food and Eat Well For Less Money
  • Choosing Between Higher Education, Loans and Family
  • Borrowing Money From Family

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Eighteen “Best Money Tips” from the Facebook Fans (and My Comments)

  Posted: June 23rd, 2010, 2:00pm MDT by Trent

  Recently, I asked the fans of The Simple Dollar on Facebook what their favorite single money tip was. I got all kinds of responses from all kinds of angles.

  I thought I’d share some of them with you. I went through the list and started just pulling out ones that made me smile and before I knew it, I had eighteen. Here they are!

  (If you’re on Facebook, please become a fan of The Simple Dollar. I put up something about once a week, so it won’t be flooding your pages with updates.)

  Lisa Hayes: My best tip? Stay home!

  Absolutely. For the most part, activities in the home are much less expensive than activities out and about. Watching a movie at home? Much cheaper than a theater. Making a meal at home? Much cheaper than eating out. Having a few drinks with friends? Much cheaper at home than at a club.

  Tammy Ackerson: Signed up for The Grocery Game. Routinely saves me (family of 3) over $100/week on things I’d have bought anyway, and takes less time than sorting through all the sale papers and coupons myself. Requires stockpiling non-perishable foods, paper goods, health and hygiene items to get the most out of it, but after a few months, I started having some weeks where I didn’t have to buy anything but milk and produce.

  I used The Grocery Game for a time, but I never found that it saved me much more than simply knowing the best stores to shop at in the area and planning my meals well. It could be that it just doesn’t serve rural Iowa all that well. However, I do agree that sensible buying in bulk can save you quite a lot of money, as can putting some care into meal planning.

  Kara Ryder-Overman: Just because it’s on sale, doesn’t mean you should buy it

  For me, the most annoying thing in advertisements about sales is when companies talk about how much money you “save.” You don’t save anything by buying more stuff. You’re still throwing away the money you worked so hard for in exchange for some stuff that you probably don’t need.

  Susan Vittitow Mark: One year, my New Year’s resolution was simply “If I can’t pay cash, I don’t need it.”

  An all-cash personal economy works really well for keeping yourself out of debt. I still recommend keeping a credit card and using it for some essential purchases to keep your credit rating high (like owning a gas station card and using it only for gas, then paying off the balance each month), because a high credit rating can help with insurance rates.

  Kristin Cribbs Dunlap: Make friends with compulsive upgraders – from “The Complete Tightwad Gazette”.

  Compulsive upgraders always have stuff they’re giving away. Another tip along these lines: look for yard sales and garage sales in upscale neighborhoods. They’re often selling stuff for $0.50 that I’d love to have in my home.

  Sue Peterson Blyth: Developing our single family home into an intentional community – now housing four families – pays for our mortgage payment and also adds neighbors committed to things like energy conservation, recycling and help with weeding in the garden.

  This takes renting out an extra room in your home to a whole new level! I think this could work very well with the right people, but the wrong people could easily poison the pot.

  leslie beslie: Ask! Ask for a lower insurance rate. Ask for a better cable/deal. Ask for reduced interest. Ask about current sales/promotions. Ask for a raincheck.

  This works great if you’re an extrovert. I’ve been working on an article about this for a while, building on the idea of askers and guessers.

  Daniel Aggeler: Separate your “want list” from your “need list”.

  I think many people are poor at doing this on the fly. Marketing intensifies the urgency of various wants, to the point that they become all-encompassing to people. They think about the thing they want incessantly until the urgency of it becomes almost like a need, especially in some situations where it’s very convenient just to buy the item.

  Sumitra Thomas: Dont spend on champagne when you only can afford beer!

  Both literally and figuratively, of course.

  Stephanie Pope Hedgepeth: Set up an automatic bank transfer from checking account to savings account each pay date.

  Most of our personal finances run on automatic transfers. Our retirement savings is done by automatic transfer. Our long term goal saving is done by automatic transfer. Our emergency fund is built by automatic transfer. Many of our bills are paid automatically.

  Sandra Clark: Don’t drive home past the liquor store when you work at a job that you really don’t like and consistently frustrates you!

  This was perhaps the funniest one. Don’t turn to alcohol to solve your problems, folks!

  Kymberlee Parker-Young: MOST people buy a new(er) car because they WANT one not because they NEED one.

  Most people buy most things because they want them, not because they need them. A nice car doesn’t provide transportation, it provides a sense of owning a nice car.

  Kyrie Moore: cloth diapers i sew myself, built our own diaper sprayer (from online tutorial), i clean everything with just vinegar and/or baking soda, rags instead of paper towels (with kids paper towels go SO fast), AND us and 3 family members go in a whole cow every year for meat… okay that’s a lot more than just 1….

  Making things yourself almost always saves money. My family and I are ardent cloth diaperers. We have a nice garden. We make most of our meals at home, from scratch. Yet we eat really well and diaper rash isn’t a problem – and we don’t spend much, either.

  Hannah Pitts: Don’t buy more house than you can afford!

  I think if you’re more than doubling your combined salary in a mortgage, no matter what the interest rate, you’re setting yourself up for potential trouble down the road.

  Candie Ackerman: Buy used before trying to buy anything new.

  The easiest way to do this is to shop at the used store first. When you go clothes shopping, start at the consignment shop (we’ve been frequenting Duck Worth Wearing in Ames, Iowa for our children’s clothes needs lately, for example) or Goodwill. If you want a video game, hit a used video game shop. The list goes on and on.

  Karen Eck: I shop with forethought and afterthought. Many, many times I pick up an item only to return it to the self .”Do I need it, do I already have one, can I do without, why do I need it, would something I have work just as well in its place. Doing this has saved us alot of money.

  If you’re buying stuff without thinking, you’re not only paying too much for the stuff you’re getting, but you’re also likely picking up a lot of stuff you don’t need and barely want.

  Jennifer Sheets: No recreational shopping!

  To me, “recreational shopping” doesn’t sound like fun at all. Whenever I’m in a store, my mission is usually to get out of there as quickly as possible.

  Susan Jensen: Live within your means. Iif you cannot afford it, do not buy it. Above all, choose to do what’s right, over what’s easy.

  That’s pretty much the best single shot of advice in this whole article.

  
  

  
• 

  The Simple Dollar Weekly Roundup: Interesting Reader Emails Edition

  Posted: June 23rd, 2010, 8:00am MDT by Trent

  Many of the most entertaining emails I receive from readers will never pop up in the reader mailbag. Lengthy personal attacks (including threatening statements about my children and my wife). Offers for intimate “meetups.” Long descriptions of horribly dysfunctional marriages. People begging me to hire them (The Simple Dollar is a one-man shop for now, and if I do hire someone, it won’t be someone flinging a resume at me out of the blue). Dozens of bloggers asking me to link to them – and some enraged emails when I don’t. Countless corporate folks asking me to shill to you on behalf of their product. Conspiracy theorists writing long diatribes about their pet ideas about global hegemony and demanding that I inform my readers of the great danger. My favorite recent one was a person who kept saying I was clearly Aryan and out to oppress her and other people, including a defacement of my picture that she found somewhere online to include anti-Semitic tattoos (I’m tattoo-free, but I admire well-done body art). I’m not exactly sure how The Simple Dollar is an “engine of oppression,” but I’ll take her word for it.

  That’s just a sampling of the joys that come from reading my email every day. (Trust me, most of them aren’t this weird and negative, but there’s more than enough to spice up the mix.)

  Reader uncluttering strategy: Buy back your stuff I really like this strategy because it can reveal some deep connections between whether we’re just attached to something out of routine or whether we actually value it to any significant degree. (@ unclutterer)

  Why Focus on the Numbers? I really like using numbers to express the specifics of a goal. It gives me a metric for success. Of course, it doesn’t mean much if the number itself doesn’t represent something worthwhile. An example: setting a goal of a number of hours of piano practice provides the real accomplishment of becoming a better piano player. Setting a goal of a number of hours of exercise provides the real accomplishment of being in better shape. (@ the art of nonconformity)

  Bigger Isn’t Always Better: Remembering to Appreciate What I Already Have I don’t want a house any larger than the one we’ve currently got. The only thing I wish were different about it is location – I would love to have this house in the country somewhere. (@ get rich slowly)

  Eight Ways to Make Good Use of Your Spare Minutes Online I find that if I go online with two or three specific goals, I usually accomplish them. If I go online just to “browse,” I end up wasting time. Thus, I usually don’t web surf without at least two goals. (@ dumb little man)

  Do Women Still Want to Marry for Money? Some do. Some men want to marry for money, too. I think that financial success is often a sign of a mate that has their act together, at least to an extent. (@ one frugal girl)

  With Rates This Low, Should You be Borrowing to Invest? I agree with his answer. I’d add that it’s all about the risk, and when you take on debt to invest in the stock market, you take on multiple layers of risk. I don’t think that’s a healthy situation for Joe Average who dreams of being an investor. (@ darwin’s finance)

  The Things Money Can’t Buy, and a Few Things It Can Money cannot buy happiness. If you’re unhappy and are telling yourself that happiness would come if you had a little more money, that’s a false promise. Money can only buy you more options. (@ frugal dad)

  
  

  

Frugal Dad

• 

  7 Ways To Find Services After Relocating

  Posted: June 23rd, 2010, 3:00am MDT by Frugal Dad

  About six years ago our family relocated away from the town in which I was born and raised. My mom had already relocated to this new city just a couple years before us and we followed her to get the kids closer to Grandma, which helped a bit since we were not completely unfamiliar with the area. However, we struggled with finding reputable services and were not sure who to ask for recommendations.

  If you ever find yourself considering how to find services in a new town, here are a few ideas:

  1. Angie’s List I resisted this one for a long time, but now wish I had signed up sooner. We are currently looking through reviews of general contractors in town to have a small project completed on our house. The new Angie’s List Health section is great for reading up on reviews of doctors in the area, too.

  2. Coworkers One of the obvious resources to use after relocating for a job is coworkers. Not long after moving, we had some significant car troubles (beyond anything I could fix) and I dreaded finding a reputable auto shop. I asked a team member if he could recommend a decent auto shop and he was happy to recommend one – even offering to give me a lift back to work after I dropped off the car.

  3. Church members Outside of work, fellow church-goers are often the people you will interact with most often. Ask around after Sunday school, or on your way to the parking lot after the service.

  4. Hairdressers I keep my hair short, and in the height of my frugal days used to cut it myself with clippers. Because I could never get my neckline even in the mirror, and because my wife was scared to cut it, I had to find a cheap barber after relocating. After getting to know them, I’ve discovered a great resource for finding recommendations on other services.

  5. Realtor Most real estate agents are well-connected with other businesses. Our Realtor was a great help in providing recommendations on school zones, neighborhoods, etc, and with getting setup with utilities, city services, etc. after moving.

  6. Bank relocation team I used to work for a large bank in my hometown. They offered the services of a “Relocation Team” free to new customers who recently relocated to the area and decided to bank with them. The team distributed a welcome packet complete with information about the area, coupons and fliers from local businesses, and basically served as a help line for those new to the area.

  7. Local magazine publications If you are new to an area, or are just stopping through and would like to find out more about the town, I highly recommend finding a bookstore and asking about any local newspapers, magazines, or trade publications. After moving, I picked up a copy of a magazine in our largest bookstore that featured news and events in the surrounding area. We learned about family-friendly things to do on the weekends, and even found the ads useful in hunting various service-providers.

  You will find that people are generally happy to recommend someone if they received good service, and equally likely to tell you about places to avoid. If you haven’t made friends yet, or want to get a second opinion, consider hitting the Internet and doing your own research.

  Any other resources we could add to this list?

  Post by Frugal Dad

  
  

  
• 

  The Things Money Can’t Buy, and a Few Things It Can

  Posted: June 21st, 2010, 3:00am MDT by Frugal Dad

  “Can’t buy me love.” Who hasn’t heard that before? But there are plenty of things money can’t buy, and even a few things money can “buy.” First, let’s get the negatives out of the way and look at the things money can’t buy.

  

  Money Can’t Buy…

  Love. At least not true love. True love is not for sale, not for any price. It is the deepest of human connections and is invaluable. However, money can be an instrument to show your love for another. You can give money freely to those in need, without expectation of repayment. You can use money to provide shelter for those you love. But if you think you can flash cash and stuff money can buy to find love, you will live a lonely life.

  Happiness. Back when I was broke, I made a connection between my emotions and my spending pattern. I was an emotional shopper. When I was sad, I bought something. When I was happy, I bought something. Hey, at least I was consistent!

  Spending money in an effort to influence our own emotions just doesn’t work because dollar bills are just band-aids. We have to identify the real reasons we are sad and do what we can, within our power, to turn those emotions around. Buying video games does not work. I can tell you from experience.

  Contentment. All the money in the world isn’t enough to satisfy an insatiable appetite for stuff. Have you ever seen those lottery winner documentaries on television? You know, the ones where the auto mechanic wins the lottery and all he ever wanted was to own his own home. So he buys a home…a huge one, and suddenly has an urge to fill that home with 18th century gold statues and other seemingly ridiculous collections.

  On the other hand, if we are content, no amount of money can influence our spending. If we are happy with our current home, why buy a new one? Never been interested in expensive jewlery? Why start hoarding it after a big windfall?

  Respect. I have no more respect for the guy driving a Mercedes than the guy driving an old station wagon. In fact, because I’m wired the way I am, I have more respect for the guy driving that station wagon. This reminds me of a story about my old doctor in the town I used to live in. He had a large practice and I assumed he made very good money (and I’m sure he did). I already respected the guy, but one day my wife and I saw him and his family out and about. They were driving a late model family station wagon–I think it was a Ford.

  Then I began to notice he wore the same clothes I did, shopped at the same stores I did, and basically looked nothing like most doctors I knew. He lived in a modest home, mowed his own grass, changed his own oil, and basically lived a frugal lifestyle. I later learned that he spent his money on travel – doing medical mission work. I sure miss that guy!

  Money Can Buy…

  Options. I spent the better part of my 20s in a dead-end job. Why? Well, for a lot of reasons. My wife and I married young, had our first child young, and because I wasted a good bit of time in college the first go around, I had little in the way of education or professional experience. When I did land a decent-paying job, I certainly had to hang on to it. After all, I was a husband and father, and owner of a small pile of debt from school and years of frivolous spending in those newlywed years.

  Being debt free, and having a solid emergency fund, means you have options. I like to say that my BS-tolerance has gone way down since becoming debt free. If I find a job absolutely untenable, I can find a new one. If we decide we don’t like the town we live in, we can move. I would have loved to have the same freedom ten years ago.

  Peace. It’s been said that there is no softer pillow in the world than having money in the bank. When we were deep in debt, I counted credit card payments instead of sheep. I literally stayed awake at night poring over Excel spreadsheets listing our debts, projecting when we may get out of debt, and imagining what like must feel like without payments.

  Now, I can rest easy, knowing we no longer have credit card debt. Knowing we can tackle a small-to-medium emergency without skipping a beat. Knowing we are saving for our future, and for our children. To borrow a line from my old credit card pals, that my friends, is priceless.

  *This article was featured in the Carnival of Money Stories: Independence Day Edition hosted by Out of Debt Again

  Post by Frugal Dad

  
  

  
• 

  Raising a Frugal Dad: An Open Letter to My Son

  Posted: June 18th, 2010, 3:00am MDT by Frugal Dad

  Dear Son,

  Every year, when Father’s Day rolls around, the media floods the airwaves with statistics reminding us how many bad dads are out there. From deadbeats who don’t support their children, and their children’s mother, to males who abuse the same (son, these are “males,” they do not deserve to be called men).

  Unfortunately, too many good examples of great dads go unreported. The truth is, this land is full of hard-working men providing for their families. An even greater set of men (and women) serve this great country by willingly signing up to defend it and its allies around the world. Your great grandfather is one such man, and many of the lessons I’ll share today I learned from him.

  A Legacy of Frugal Dads

  Your great grandfather, Papa, as you know him, was born in 1925. Most of his formative years were spent in the rural south during the Great Depression. One of nine kids, his mom and dad struggled mightily to keep food in their kids’ bellies and shoes on their feet. In fact, most summers (and occasionally into the winter) they went without shoes.

  Your Papa’s father was a carpenter, as was his older brother – a darn good one, too. The three of them had the opportunity to work together when Papa got older, but before that, Papa earned money for his family selling newspapers and magazines, stuffing bags of meal and flour in a mill, and a variety of other odd jobs. He might have kept a dime or two out for himself each week, but everything else went to his family.

  These were hard times son. Harder than any of us can imagine. Few of us have known such despair, and I hope you never will. As a parent, your greatest fear is losing the ability to provide basic needs for your children. You’ll understand this as you grow older and one day have a family of your own.

  As soon as he was old enough, Papa signed up for the Navy, and quickly joined the Marines as a fighter pilot. He served in Korea and Vietnam, flying both jets and helicopters, and did long tours in the Mediterranean, Japan, and other spots around the world. This meant he had to leave behind his wife and kids for long periods of time, which to him, was tougher than the duty he was sent off to do. He served 29 years in the Marines, and retired in his late forties.

  Despite a tug to continue lucrative work in the private sector, he left the D.C. area and returned home to care for family members, an obligation he continued for nearly 40 years. At 84, you may have noticed it is now he who needs a little help from time to time, and your dad is happy to lend a hand. After all, it was an example set for me at an early age.

  Being a Dad Worth Looking Up To

  Once upon a time, dads were looked up to as an iconic figure – Dad could fix anything, he knew everything, and he always knew what was best. Over the years, for a variety of reasons, this respect for fathers has waned. I blame some of it on a few bad examples, but most of it on the media. As I mentioned in the beginning, the media loves to remind us of the bad examples, and rarely focuses the spotlight on the good ones. And believe me son, there are plenty of good ones out there. Here are two of my favorites.

  “Dad, when we run it feels like my disability disappears.” – Rick Hoyt

  Dick Hoyt, former military man and father to a disabled son, heard these words from his son as he towed him around on his bike, boat, and carried him during runs. And that was all he needed to hear. He and Rick participated in training runs, bikes and swims and competed in triathlons all over the country. Dick Hoyt raised his son Rick to be a productive, independent young man with his own career, despite physical challenges unimaginable to you and me.

  Follow this link if you are unable to view video

  Jim Redmon, father of track star Derek Redmon, didn’t just sit around and watch his son leave his race unfinished in the 1992 Olympics in Barcelona. He quickly made his way to the track to help his son, stricken with a torn hamstring, limp to the finish line in tears. Derek didn’t win that race. In fact, I don’t even remember who won it. What I do remember is the example of this dad being there for his son to lean on. To share in his agony, and provide a steady shoulder to help him through to the finish line – even chasing away track officials trying to stop them.

  Follow this link if you are unable to view video

  Those were two high-profile examples of great dads, but there are millions of other dads anonymously going throughout their days with family as the number one priority. They are working a night shift to save enough to send their kids to college, or help get their family out of debt.

  Maybe money isn’t a problem, but to earn that money they have to stay in a job they don’t particularly like, or work for someone that treats them like dirt.

  When they were younger, they dreamed of another career, but for now are content holding onto the job they have to help their children achieve their dreams.

  They are raising their children alone after an illness or an accident claimed their spouse.

  They are supporting their kids even though things didn’t work out with their kids’ mom.

  Maybe they don’t have a job at all right now, and are living 24 hours a day in worry over their family’s well being. They are pounding the pavement looking for another job, or working part-time, or donating plasma, or doing whatever they can to make ends meet. You see son, a real man swallows his pride, and does what he has to do for his family.

  Becoming a Frugal Dad

  My son, there are so many things left for me to teach you about the real world. Much more than I could write in a single letter. But above all else, remember that no one owes you a thing. You are responsible for taking care of yourself, and one day, your own family.

  You will be tested, by our culture, by our government, by bad examples, and by a lazy streak that attempts to attach itself to all of us at some point in our lives. You must ignore these influences, and remember that your goal is to grow to be as self-reliant as possible.

  Here’s a few things to keep in mind as you grow older:

  • Do not depend on government for your well-being. In an emergency, don’t be too proud to accept help, but do not make it a way of life.

  • Do not depend on banks for financial security. The best credit line available is the one attached to your emergency savings fund. Remember, the borrower is slave to the lender, and you don’t want to be a slave to big banks. Take my word for it!

  • Do not depend on schools to provide 100% of your education. You must self-educate beyond the lessons taught in school. Challenge your educators, and challenge your own thoughts. Read books. Read books contrary to your own opinion, so that you may learn another point of view. Read books on subjects you don’t think you care about and you just may discover your passion.

  • There’s no such thing as get rich quick. Building wealth takes time, and a lot of hard work. If you want to be successful in anything, you must work at it for hours every day – sometimes late into the night, and early in the morning. If you are happy with mediocrity, punch the clock after 8 hours, plop down in front of a television and waste valuable time until you fall asleep. Repeat this process until the weekends when you can do even more of the same.

  • Be skeptical. Don’t believe anything you read, most things you hear, and even a few things you see with your own eyes. Question everything. Nothing in life is black and white.

  • Choose your spouse carefully – it is the most important decision you will ever make. Love has a way of robbing us of our intellect, and in many cases leads to irrational decisions based solely on emotions. Choosing someone to spend the rest of your life with is far too important for that. Look for someone that shares your hopes and dreams. Someone who is ambitious, but not too much. Someone who has the same values and beliefs as you do. Like you’ve heard your dad say before, opposites do attract, but they rarely stay together forever.

  Love,

  Dad

  *This post was selected as an Editor’s Pick in the Carnival of Personal Finance #262: 80s TV Edition, hosted by Personal Finance Journey

  Post by Frugal Dad

  
  

  
• 

  Weekly Roundup – Summer Job Edition

  Posted: June 17th, 2010, 3:00am MDT by Frugal Dad

  A few teenagers out there might have landed summer jobs and by now are full swing into part time employment. It’s a great time to introduce a few money concepts to teens. Help them open a checking and savings account. Introduce them to payroll taxes (always fun learning you don’t actually get to keep your hourly wage times all those hours). Encourage teens to set some long-term savings goals with their summer earnings.

  Parents can also encourage teens to file a tax return and contribute the amount of their teen’s earned income (up to $5,000) in a Roth IRA in their name. Can you imagine dumping a couple thousand into a Roth IRA when you’re 16? Talk about getting a jump on becoming a millionaire!

  The Frugal Roundup

  Restaurants Where Kids Eat Free. Here is a great list of places to take the kiddos for free food. (@Generation X Finance)

  How To Avoid The Personal Development Plateau. This article specifically talks about blogging but it can be translated into any part of personal development. (@Marc and Angel)

  The Dead End of Home Ownership. Steve takes on the age old question about home ownership. He makes some great points which everyone should check out. (@brip blap)

  How to Negotiate For a Used Car. Surprisingly, I know plenty of men who let their wife do all the talking at car dealerships! (@The Art of Manliness)

  Best of the Rest

  • The Root of Our Money Problems
  • Give Yourself a Time and Money Raise
  • Six Things Your Parents Never Taught You About Money
  • I Wish Money Could Buy Happiness
  • How to Have More Me Time
  • 5 Major Credit Card Mistakes and How To Correct Them
  • How to Eat Healthy and Inexpensively
  • How to Attract the Best Tenants
  • Seven Habits of Financially Healthy Couples
  • Know When to Buy What

  Post by Frugal Dad

  
  

  
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  How to Prepare Your House for a Baby

  Posted: June 15th, 2010, 3:00am MDT by Frugal Dad

  The following guest post is from Amber Hunt. Amber is an experienced personal finance writer with a knack for taking complex money issues and making them clear and simple.  By day, she’s a home loan expert at Quicken Loans, America’s #1 online lender, where she specializes in writing about mortgages and helping people refinance.

  Congratulations!  You’re having a baby!  There are probably a million things racing through your mind as you prepare to embark on this huge next step in your life.  If you have started to search the internet for advice and tips you know that there are plenty of lists out there that tell you all of the things you should buy to prepare for the arrival of your bundle of joy.  But how should you prepare your living space?

  

  Here are some important things to think about when you are preparing to add a human addition to your household.

  • Nursery – Measure the room to make sure your purchases and gifts will fit.  If you are painting, look for environmentally safe paint.  Non-VOC (volatile organic compound) paint will reduce exposure to fumes that cause headaches, nausea and respiratory problems.  Be sure to check if the tint is also VOC-free, as many tints are not.

  • Water – In general, local drinking water is safe.  The Environmental Protection Agency (EPA) regulates the public municipal water supply and tests the water frequently, often daily.  However the USEPA does not directly regulate private wells and the safety of tap water depends on the condition of plumbing in the home.  Before you put tap water in your baby’s bottle, make sure you are fully informed about the current water quality in your municipality.

  • Electricity – If you’ve noticed lights or appliances not working but have put off checking out the electrical system in your home, don’t put it off any longer.  If you know what you’re doing, turn off the power and test the electrical wiring. You can also call a professional and have them check things out.  Buy special plugs for electrical outlets and do not draw attention to outlets with decorative covers or nightlights.

  • Stairs – Stairs can cause many injuries, for all ages and sizes.  In addition to using baby gates, ensure carpeting on stairs is secure and that a handrail is attached securely to the wall or floor on all staircases.

  Now that you know what to do to prepare your home you can focus on all the other things that will be occupying your time (and wallet) for the next 18 years.  If you’re interested in leveraging your home to ease the financial impact of having a baby, consider a home refinance.

  If you’re looking to get cash from your home to help pay for your newfound baby expenses you may want to talk to a Home Loan Expert and use a mortgage calculator to see how much you can save.

  Your life is undoubtedly going to soon change, and all the planning in the world cannot prepare you for the best experience of your life!  However, planning does help ease your anxiety, relieve stress and can make the journey more rewarding.  Taking time to manage the little things before the baby arrives can take some weight off your shoulders when that time comes.

  Note from Frugal Dad: Funny how having a baby makes us more aware of safety issues in our home. While we may be willing to live with outdated electrical systems, or a little mold found after buying a fixer-upper, having a baby suddenly makes those issues more pressing. A word of caution here: you can go nuts, financially, trying to prepare your house for a baby. Make things safe and sound, but remain practical.

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Make Each Day Your Masterpiece

  Posted: June 9th, 2010, 2:00pm MDT by Trent

  Those who have followed this blog for a long time know that I don’t have many personal heroes. There are a lot of people who have valuable things to say, but there are very few people who have reached such a trusted level with me that I tend to put extra value on the things they say just because that person said them.

  One of those few people was John Wooden, who passed away this past week (I mentioned it briefly in my reader mailbag on Monday). A few years ago, I wrote about how John Wooden had taught me a lot about personal finance and over the years, I’ve read his books and a big pile of interviews he’d given.

  Of all of the things I’ve taken away from the things he’s said, one stands out above all others.

  Make each day your masterpiece.

  In other words, how would you spend today if it were the one day by which your entire life would be judged?

  This is something I make a genuine effort to keep in mind every single day of my life.

  What would I write if I knew I only had one shot at making a difference in someone’s life?

  How would I spend the next hour with my four year old son if I knew it was the only hour he’d remember from his childhood when he was an adult?

  How would I spend this evening with my wife if it were the last evening we would spend together?

  How would I spend my money today if I knew that today spoke financially for the rest of my days?

  Would I hold my temper? Would I stop being such a slob? Would I set a good example? Would I not worry what the neighbors thought and just run through the sprinkler in my clothes, laughing with my children? Would I make a perfectly delicious, tasty meal and smile at my daughter across the dinner table – or would I just throw a box of Tuna Helper out there?

  Every single day, we’re making an impact on the people around us. The people we love. The people we merely like. The people we will never directly know. Even on ourselves – our future health and happiness and relationships and skills and finances.

  Every single day, we have a chance to really make all of those things shine – or we can buy a sack full of double cheeseburgers and sit in the basement all evening watching Seinfeld reruns.

  Today is really the only day that matters. You can’t make your past self do anything. You can’t make your future self do anything, either. Your only freedom of choice is right now, and thus today is your one chance to paint your masterpiece.

  What are you going to do today to make it your masterpiece?

  
  

  
• 

  The Simple Dollar Weekly Roundup: Playlist Edition

  Posted: June 9th, 2010, 8:00am MDT by Trent

  With all the road trips scheduled this summer, I’ve been thinking about a song collection that both my wife and I would enjoy on the trip. So, we’ve started co-curating one, where we each add 100 songs to a playlist, then we are each allowed to delete anything we don’t like from the list.

  My wife doesn’t like to do this, so I’ve essentially been doing it vocally with her, asking her what she thinks of song X and song Y and she lets me know whether they fit or not.

  The end result? The list is loaded with early-to-mid-90s “alternative” stuff. Soundgarden. Oasis. Pearl Jam. Jeff Buckley. Blind Melon. Collective Soul. Counting Crows. That’s the flavor of almost the entire list.

  Guess our 2010 road trips will be like a road trip into 1995.

  The Absolute Beginner’s Guide To Starting A Small Online Business Just a note: without a lot of hard work up front with no guarantee of compensation at the end, a small online business will never work. If you put in the footwork, though, you can actually build something that thrives. (@ zen habits)

  The Incredible Shrinking Emergency Fund I think this makes sense, given the continuing high unemployment rate and the fact that emergency funds are there for emergencies – like joblessness, for example. (@ get rich slowly)

  Thinking Small without Guilt: Setting Your Minimum Goal Standards The number one reason I fail at my goals is that I set them too high. Don’t try to lose fifty pounds. Try to lose five instead. Don’t try to completely reverse your spending – instead, shoot for saving $50 a month. (@ dumb little man)

  11 things to do (and not do) when you’re burned out For me, the best thing to do when burnout occurs is something completely different than what it was that caused the burnout. (@ white hot truth)

  Money Myth 1: “I Can’t Afford It!” “I can’t afford it!” is much different than “I choose not to buy it!” The former implies that you’re not taking a strong role in increasing your income, while the latter just implies strong spending sense. (@ pick the brain)

  
  

  

Frugal Dad

• 

  Government Backed Loans and First Time Homebuyers

  Posted: June 9th, 2010, 3:00am MDT by Frugal Dad

  The following guest post is by Robert Stretch. Robert works in the marketing department of VA Mortgage Center.com, America’s Number One Dedicated VA lender.VA Mortgage Center.com helped over 500,000 families find their dream homes in conjunction with the VA home loan program in 2009.

  If you’re like most people, buying your first home can be one of the most exciting moments in your life. From deciding which features you’d like in your new place to determining which neighborhood is the right one for you, the house buying process is an exhilarating one full of fun decisions. However, the fun generally stops when it comes to financing. Finding a way to purchase your dream home can be stressful, but getting just the right loan is one of the most important steps you’ll ever take to financial security.

  While traditional loan programs often have high down payment minimums (as much as 20% of the purchase price in most cases, which translates to about $40,000 on a $200,000 purchase) and stringent credit score requirements, a government-sponsored loan program is often a great solution for first time homebuyers.

  While government-backed loan programs don’t lend money directly to consumers, each program works with conventional lenders and provides each lender with a guaranty to reduce the risk of the loan. Essentially, the loan program assumes some of the risk for the loan which makes the lender able to reduce their usually strict lending requirements since the risk of exposure is also reduced.

  FHA Loans

  The Federal Housing Administration manages one such loan program. FHA loans are primarily for first time homebuyers and feature not only lower down payment requirements but also less stringent credit regulations. Buyers who have less than stellar credit can often still qualify for an FHA loan while not sacrificing a good interest rate, which is critical to a low monthly payment.

  FHA loans feature a variety of interest rate plans and have both adjustable and fixed rates, making the program a great one regardless of your financial picture. The program allows a 3% down payment and allows buyers to roll closing costs into the loan.

  VA Loans

  If you’re a veteran or active duty service member who is buying your first home, the VA home loan program is worth close examination. Sponsored by the Department of Veterans Affairs, VA home loans are geared towards ensuring that those who have served our country can afford to purchase a home if at all possible.

  The program features both a zero down payment option (excellent for buyers who haven’t had time to save a down payment) and a small down payment program (perfect for borrowers who need relaxed credit requirements but have saved a bit of money). Veterans and service members may use the VA loan program more than once, making it an excellent option at any stage in life.

  USDA Loans

  Another great government-backed loan program is the one backed by the United States Department of Agriculture. USDA loans are geared towards lower income buyers (borrowers must not exceed 80% of the median income for their particular area) and offer great payment and loan options. The USDA program just may be the only legitimate loan program remaining to civilians which offers a zero down payment option and in fact, borrowers can finance 102% of the property sale price if the home in question needs repairs. These repairs can be completed before or after the sale takes place.

  The USDA program also boasts no need for private mortgage insurance, which is often required on other loans to protect the lender against default. PMI can cost borrowers up to several hundred dollars each month, so not having to pay this fee represents a huge savings to the average borrower.

  Each government program has maximum loan limits to which each borrower must adhere. These limits are generally based on the cost of living in your area and are set at a very reasonable rate to ensure that every buyer, regardless of the area’s cost of living, can still afford a modest home anywhere in the country. For more information on these wonderful alternatives to traditional financing, visit your lender or visit each program’s website at www.fha.gov, www.va.gov or www.usda.gov.

  Post by Frugal Dad

  
  

  

The Simple Dollar

• 

  Getting Things Done: The Five Phases of Project Planning

  Posted: June 8th, 2010, 2:00pm MDT by Trent

  This is the third entry in a fourteen part series discussing the time management classic Getting Things Done by David Allen. New entries in this series will appear on Tuesday afternoons and Friday mornings through July 16.

  Last time, we looked at the five stages of a healthy task and information management workflow (collect, process, organize, review, do). Of course, one of the big revelations is that while this works really well for short, individual, discrete tasks, it doesn’t immediately seem to work all that well for larger multi-step tasks, i.e. projects.

  Without these larger tasks, the whole system is easy. Toss stuff in your inbox, go through them regularly, take care of them, done. The challenge comes about when you have something that can’t simply be done in a session or two – particularly things that require feedback and input from others. How do you handle these?

  The key, of course, is to break down these larger projects into bite-sized pieces that you can take action on right away. In order to do this effectively, Allen argues (on page 56) that we need five elements, which we often already use in a very informal way:

  You’re already familiar with the most brilliant and creative planner in the world: your brain. You yourself are actually a planning machine. You’re planning when you get dressed, eat lunch, go to the store, or simply talk. Although the process may seem somewhat random, a quite complex series of steps in fact has to occur before your brain can make anything happen physically. Your mind goes through five steps to accomplish virtually any task:

  1 | Defining purpose and principles
  2 | Outcome visioning
  3 | Brainstorming
  4 | Organizing
  5 | Identifying next actions

  A great way to demonstrate this process is to look at how I think about preparing supper.

  First, I decide on my purpose and principles. My family needs supper. I have about three hours between now and suppertime.

  Next, I imagine the outcome. I want to cook something fairly healthy but also tasty.

  Then, I brainstorm. What meals might fit that bill? A taco salad. A vegetarian pizza.

  After that, I organize. I look in the refrigerator and the cupboards to identify what ingredients we have on hand, which quickly narrows down the brainstorming. I eventually settle on vegetarian pizza – I’m going to make vegetarian pizza for supper. What steps go into that? First, I make the dough. I then bake the crust, put toppings on it, and bake the pizza.

  Finally, I proceed to the next action: I make the dough. Making pizza dough is a simple enough standalone action that it would be just fine in my inbox.

  Here’s the thing: for simple things like dinner, most of us just shoot through this process without even thinking about it. It’s incredibly automatic for simple tasks like dinner.

  Where people get stymied is when they have to apply the same process to a much bigger project.

  Here’s an example of that. I had a great idea for a huge ebook project a while back. The thing is, every time I would think about it, I would get almost overwhelmed at the sheer size of the project. What’s the general concept of it? What are the specific things that would go into it? How would it be designed and laid out? Where would all of the content come from? How would I distribute or sell it? Every time I sat down and looked at this idea, I was stymied.

  Another, more personal example would be our shed installation project. We have a perfect spot in our backyard for a shed – and having such a place would be very helpful, as it’d be a great spot to store a lot of the larger equipment that eats up space in our garage. How would I build it? Should I build it myself or hire someone to do it? What options are out there? Do we want a small one or a bigger one? How will it affect property values? Again, I’m stymied without some sort of process to work through this stuff.

  That is, until I spent some serious time applying those natural five steps to these ideas.

  Purpose and Principles
  The purpose part of the equation is easy. Why are you doing this? Asking yourself why has a lot of benefits (p. 63):

  It defines success.
  It creates decision-making criteria.
  It aligns resources.
  It motivates.
  It clarifies focus.
  It expands options.

  In other words, it helps you to figure out exactly what you want to do. A clear goal, then, makes it easier to plan everything it takes to get there.

  So, with my ebook project: I’m doing it because I think there’s a great deal of value in the idea. I also would like to eventually reach a point where I’m financially independent from advertisements for income on The Simple Dollar, and a really high-quality ebook would be one way to open that channel.

  What about the shed? My reason for doing that is to increase the property value of our home as well as provide a place to store tools and equipment (like our snowblower, for example).

  The other half of the equation is the principles of the matter. In other words (p. 66):

  A great way to think about what your principles are is to complete this sentence: “I would give others totally free rein to do this as long as they…”

  With the ebook project, my biggest “as long as” would be that the quality of the material produced remains high. With the shed, my biggest “as long as” would be that the cost is kept under control. Of course, each one has a few more minor “as long as” statements attached to them, which is useful to think about and know before continuing.

  Outcome visioning
  From there, you can start adding some attributes to the project that specifies exactly what you want in the end. From page 67:

  In order most productively to access the conscious and unconscious resources available to you, you must have a clear picture in your mind of what success would look, sound, and feel like. [...] This is the “what?” instead of the “why?”

  In other words, you’re focused entirely on what the end product will look like, not what steps are required to get there.

  So, for my ebook project, my end product would be a beautifully designed document that includes a lot of valuable content based around the central theme. It’d be available at a special site created just for it that provides extensive previewing of the content included in the document.

  For the shed, the end result is simple: a shed in the yard. How big? 10′ by 15′, according to my measurements and some additional thought. I’m already sure of the location, but I also know I’d rather build it well rather than cheaply so that it stands for a very long time without leaks or maintenance.

  Brainstorming
  Here’s where the meat of the business can be found. On page 70:

  Once you know what you want to have happen, and why, the “how” mechanism is brought into play. When you identify with some picture in your head that is different than your current reality, you automatically start filling in the gaps, or brainstorming.

  In other words, once you know your goal clearly, you start assembling the steps to get there. Obviously, a full-fledged plan isn’t going to pop right out. Instead, you have to sit down and start breaking down the process.

  There are a lot of ways to do this. Many people use a “mind map,” in which they just write down ideas as they come into their head and connect those ideas together with lines and sometimes additional notes. I tend to write my ideas down in a double-spaced list, just dumping them out as fast as I can, and I connect any related ideas together with a thick line.

  The best part about brainstorming is that it’s easy to utilize other people since you’re just gathering ideas. This is the stage where you look for advice from your social network, from websites, and so on.

  Also, don’t waste your energy judging the relative merits of your ideas right now. Just focus on accumulating ideas and potential steps for how to move from where you’re at now to your goal.

  Organizing
  Once you’re satisfied with your collection of ideas, the next step is transforming that mess into some form of organized plan. On page 75, Allen suggests a simple way for doing that:

  The key steps here are
  + Identify the significant pieces.
  + Sort by (one or more):
  + components
  + sequences
  + priorities
  + Detail to the required degree

  You have this big collection of ideas from your brainstorming session. The first thing to do is to simply go through them and pull out the significant ones. You’re looking for the essential pieces that will take you from here or there. Don’t worry about lots of specifics yet – you just want a good framework to build on. Also, don’t worry about order yet.

  Once you have the key pieces, you’re going to order them. Often, some steps rely on earlier steps to be accomplished, so they should be put into the obvious order. If two things can happen at the same time, you can make up your own mind which one has priority based on your own prerogatives. I like to list these in order with plenty of space between them.

  Finally, add in details until the steps are comfortable for you. For me, “comfortable” means “small enough that they can be done in reasonable chunks, like an hour or two.” If a remaining piece is too big for me to accomplish in that short of a timeframe, I keep breaking it down into smaller details.

  Next Actions
  The final step is really to get started. Most projects have one or two (or several) pieces that you can get started on right away.

  For example, with my ebook project, I can start gathering the written content, gathering the image content, and coming up with basic layout ideas in Adobe InDesign. With the shed project, I can gather lots of options and quotes for the assembly of the shed in preparation for a meeting with my wife to discuss exactly what we want to put up.

  When I’ve got a project rolling, I usually have a few things I’ve added to my “next actions” pile. I’ve also started a folder that contains all of this material for the project, especially the list I made during the “organizing” part of setting up the project. This gives me something to look at each week during my “weekly review” so that I can keep tabs with the progress on that project.

  The basic idea here – and how it fits into the previous chapter’s great workflow – is that whenever you’re faced with something too big to deal with in one swoop, you use this process to break it down. You start a folder for that project, keep that folder, and review it regularly to make sure you’re keeping up with the next actions.

  Next time, we’ll look at chapter four, which focuses on how to get this entire system started in terms of the time, space, and tools needed.

  
  

  
• 

  Delayed Gratification and Children

  Posted: June 8th, 2010, 8:00am MDT by Trent

  The single biggest personal finance lesson that anyone can learn is that of delayed gratification.

  Delayed gratification means that you hold off buying that new cell phone for a while so that you can pay cash for your car in a few years.

  Delayed gratification means that you spend the evening reading a book or learning a new skill instead of merely watching television.

  Delayed gratification means that you immediately save some of your paycheck instead of even giving yourself the possibility of spending it now.

  The more often you practice delayed gratification, the sweeter the gratification becomes later and the more possibilities unfold in your life. Delayed gratification brings financial stability and with it, lower stress. It brings the realization of bigger dreams, too.

  It’s one of the things that I most want to integrate into the lives of my children.

  The question is obvious: how do you possibly teach delayed gratification to a four year old?

  Over the last few years, I’ve been saving little tactics I’ve heard about here and there for just this purpose and, lately, I’ve been putting them to work on Joe. Here are some of the tactics – and how a four year old boy has responded to them.

  The Treat Test
  I often do this with both Joe and his two year old sister at the same time. I sit them both down and say, “Who wants an M&M?” (one of their favorite treats!)

  I then say, “You have a choice. You can either have one M&M now – or you can have two M&Ms in three minutes. Which do you want?”

  (I’ve altered the delay a few times.)

  My daughter always chooses to have one right away, but she’s just two. My son, on the other hand, usually chooses to wait. Sometimes, if the timeframe is too long, he’ll ask for it now, but he’ll usually find something else to do to distract himself until he can have more M&Ms later on.

  Mister Noodle
  I essentially do a variation on the “Mister Noodle” sketch from Sesame Street, in which the children give “Mister Noodle” step-by-step instructions on how to complete a task.

  Together, we come up with some sort of large project that we want to accomplish. For example, we might decide that we want to make a giant birthday card for Mom that includes a rainbow and pictures of all of the family members in it.

  From there, we go through all of the steps we have to go through to complete the project. First, we need to get out the supplies, but we need to get all of the supplies out before we move on. Then, we think about what we’re going to draw – and perhaps even sketch it out lightly in pencil first. Once we have the design, we do all of the painting. Then, if we wish, we add collage elements by looking for the elements we want in old magazines and cutting them out. We then glue on the collage elements. We then leave the card out to dry and put all of the supplies away.

  If we focused entirely on just our goal, Joe would turn out a lower-quality card than if we focused entirely on each step as we went along. If we spend some time now delaying the “gratification” of slapping paint on the card and instead think about what we want in the end, we wind up with a much better card.

  Joe is just now beginning to see the benefits of this type of planning. I’ve seen it pop up in his thinking about other things recently, particularly in terms of buidling projects with the Magna-Tiles.

  focus on the individual steps towards a long term goal

  Visual Savings
  One big thing we’ve done is focus strongly on what we call “visual savings.”

  As I’ve mentioned before, we gave our son a translucent piggy bank for his fourth birthday and instituted a weekly allowance – a small amount of money given to him each week that’s not tied to any specific chore or action. He just receives it as a way of learning money management skills.

  A portion of that allowance is “saved” for a known goal. He’ll identify a toy that he wants. Each week, he saves a portion of his allowance for that toy. Recently, for example, he had been saving for a particular Iron Man toy.

  We identify how much it costs and tell him how much he’ll have to save up for it. He puts his allowance in each week and also sometimes adds some “found money” to it. He watches the money build up. We talk about the toy he’s saving for and how much it will take to reach that goal.

  At first, he was very impatient and would change his goals all the time so that he was saving for a lower-cost toy. In the last few months, though, he’s really started to see the benefits of saving for a better toy. He saved for months for his current Iron Man toy and, for him, the patience really paid off.

  Reward Hard Work Instead of Results
  My son spent most of an hour picking weeds from our front garden over the weekend. He didn’t do a perfect job by any means – he missed some weeds and picked a few flowers in the process.

  But rather than criticizing his results, I just complimented his efforts. “Wow, Joe! You spent a ton of time weeding and now, because of your hard work, the garden looks great!” I then bent down with him to help him finish and simply showed him which ones were flowers and where some of the missed weeds were, not in any sort of a scolding way, but in a “Hey, Joe, check this out!” kind of way.

  The focus is on the effort, not on the results. I fully intend to do the same thing when he’s in school. If I see him studying his school materials, thinking about what he’s learning, and asking questions related to them, then I know he’s learning and that earns the praise. The report card? That’s not nearly as important to me.

  But don’t we want our children to have great results? Of course we do, but great results are a reward unto themselves. Plus, great results are often the endgame of a lot of hard work. If you’ve worked hard, you will get great results as a matter of course. Our focus is in making sure our children learn the value in working hard, not just chase results.

  Working hard builds great things. Chasing results ends up like Wall Street, circa October 2008.

  
  

  
• 

  What to Do When You Can’t Possibly Prepare Enough

  Posted: June 7th, 2010, 2:00pm MDT by Trent

  Ellen writes in with a very difficult story:

  I am a huge fan of yours and have used much of your advice to simplify the money matters in my family, but my family is currently in a crisis that I have never seen discussed on your site.

  In early April, my family was in a severe car accident. We were driving my mother’s van at the time and we were t-boned by a hit & run driver. My children’s car seats protected them from any damage and I walked away with only some muscle strain, but my husband was not so lucky. He had to be transported to a local hospital via ambulance due to a severe flexion neck injury.

  Let me take a minute to review our household’s current standings: My husband works 40-hours a week in a fairly physical job. I work 32-hours a week. We work alternating schedules so that we do not need daycare for our two children. All of our benefits come out of his pay check because he gets a better benefit rate as a full-time employee. We had 6 months worth of savings for living expenses.

  My husband has been out on FMLA ever since and will be until at least early July, when the doctor will decide whether he can return to work or needs to find a new line of work. Our FMLA expires at that point and the hospital that he works for will probably help him find another position, but we are currently unsure what that might be or if he will be able to continue working the convenient hours he is working now.

  In the meantime, because we were the victims of a hit & run, the vehicle insurance is going to pay out to the uninsured motorist limits. And that’s the part that’s difficult. See, since uninsured motorist is a “final pay” settlement, we can’t get any help financially until Aaron is back to work. Normally, under the rights of subrogation, your health care will pay out, then place a lien against the settlement.

  Unfortunately, though we work for a health care provider, our insurance will not pay out. At the 30-day mark of his accident, I had to pay the hospital bill, which wiped out a good bit of savings. Since this bill was to our employer, we could not afford to let it languish. The same is true of the ambulance bill. Also, his doctor bills. I have to pay enough to keep them out of collections (I’ve worked too hard on our credit to let that happen) and enough to keep the office letting him see the doctor.

  We’ve been scraping by, but it’s a close thing. My husband has now exhausted his sick leave, but the lion’s share of the bills are paid. We figured that with his short term disability (which we pay for with our benefits), we would get by. Unfortunately, his short term disability claim has been denied. Since there is no subrogation clause in our short term disability policy, they won’t pay out in the case of 3rd party causation of the time off work. This was not something that even our HR Benefits people were aware of. (Obviously, this is an employer subsidized plan with an outside company, unlike our health insurance.)

  Now, we are a month away from my husband returning to work, and my income is not enough. The catastrophic string of events that are unfolding just keep rolling in at us. I have applied for a credit card (we currently don’t have any, except one very small emergency card) to start putting some living expenses on and I will unashamedly run it up and pay it off when the settlement comes. The only things we have to pay now are rent, gas, food, and our vehicle insurance.

  So, the obvious question is, knowing that I had stocked a huge amount of savings in the past few months and couldn’t really cut any closer to the bone, what did we do wrong? Honestly, if my husband had simply lost his job or quit, we would be in much better financial shape than we are now. What would you have done differently? We thought we did everything right.

  Here’s the thing – you did do everything right. You were more financially prepared for this than the vast majority of Americans are.

  This episode teaches a hard truth: there is no social safety net for when things like this happens. The only safety net we have is the one we build for ourselves.

  What Should Ellen Do?
  Given their situation, the best short-term thing to do is probably to rack up some debt. However, I wouldn’t be sure that a credit card would be the best choice here. If I were you, I would visit a credit union and look at more options than just carrying a balance on a credit card, which will bleed you with interest.

  In some situations (people with great credit, for example), credit unions will extend personal loans which usually carry a much lower interest rate than a credit card. Also, if you have any form of collateral on the loan, you might be able to get a significantly larger loan. None of this is a guarantee, but it is an avenue worth following.

  The painful truth of the matter is that you’re sitting on the lip of a whirlpool. This whirlpool often drags people into a downward spiral towards medical bankruptcy. Sometimes, if things turn out well, you can escape the pool, but you’ve reached a point where most of the events necessary for that are out of your hands. Just keep your spending low, rack up as little debt as possible, and wait.

  Some Thoughts on Preparation
  Ellen’s story is a painful one, but stories like this happen constantly all over the world. People are happily living their normal lives, then they get into an auto accident or find out that they have a serious disease – and their happy normal life is derailed.

  We don’t like to think about these things. It’s much more pleasant to think about a future that is brighter than our current life. In fact, it’s that bright future that often motivates us to work hard – it’s our psychological carrot. We work hard for that great new home. We work hard to make sure our kids can go to a wonderful college. We work hard for that great vacation in a few years.

  The truth is that these things happen to everyone – and we rarely know in advance that they’re going to happen. The less prepared we are, the closer we are to the “whirlpool” that I mentioned above, and that downward spiral often leads to bankruptcy and effectively starting over.

  What can you do to prepare yourself?

  An emergency fund Cash is king. Yes, there are lots of guidelines for how big your emergency fund should be (I use the rule of thumb of two months of family living expenses for each dependent), but giant emergencies like these often eat through that like it’s nothing. As a family, we’ve moved to an “endless” emergency fund. I just contribute to it automatically each month and don’t even look at the balance. I know that there’s plenty there for a crisis of any kind.

  Financial preparedness documents Know every account that you have and have the account information in a place where it can easily be found. Yes, I wrote about financial preparedness documents before, but having one ready is truly vital. Create one, put it in a safe place, and update it regularly.

  Long term care and long term disability insurance What happens if you can no longer work at your current career? What if you need managed care for a long period of time? That’s what these types of insurance are for. Yes, not everyone can afford them, but if you can easily afford them, it’s a good place to put your money. It protects your family not from your death, but from your long-term incapacitance.

  Assets that retain their value A flat panel television doesn’t retain its value. A PSA-certified Babe Ruth baseball card does. A video game console doesn’t retain its value. Gold bullion does. When you’re looking to buy something for personal enjoyment, ask yourself whether it retains value and put some premium on the things that do.

  Transferable skills What happens if you’re no longer physically able to conduct your current career? You’ll have to move on to another one. Do you have any skills that might help you find another one – especially skills that help you with the career you have now? If you don’t, you might want to start working on them. Public speaking, information management skills, time management skills, communication skills – these are all vital in almost every field.

  Remember, the more prepared you are for an accident, the better off you’ll be if/when it happens. Even better, seek out ways to prepare for that situation while improving your current one.

  
  

  
• 

  Reader Mailbag: John Wooden

  Posted: June 7th, 2010, 8:00am MDT by Trent

  This past weekend, one of my heroes passed away. I’ll memorialize him with five of my favorite quotes from him.

  “Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are.”

  “You can’t let praise or criticism get to you. It’s a weakness to get caught up in either one.”

  “If you’re not making mistakes, then you’re not doing anything. I’m positive that a doer makes mistakes.”

  “Do not let what you cannot do interfere with what you can do.”

  and my personal favorite…

  “If you don’t have time to do it right, when will you have time to do it over?”

  I applied for a credit card with a zero % introductory rate in order to transfer the balance of another credit card with a higher rate (14.4%). Now that I have the new card, I noticed the introductory rate is only for 7 months and then the interest rates goes up to over 20%! Plus, the new card doesn’t even have enough available credit to transfer the full amount of the old card. What should I do? I assume I should just keep the old card and plug away at it. (I also plan to call and see if I can get an interest rate reduction.) But what should I do with the new card? Cancel it? I haven’t activated it yet.
  - Kay

  If I were you, I’d transfer an amount that you’re absolutely sure you can pay off in seven months, cut up the card, and never actually use it – just pay off debt with it. Since you’ve already opened the line of credit, it’s not going to make much difference at all in terms of your credit rating.

  So, let’s say your minimum payment on your first card is $80 a month and you’ve been paying $200 a month to pay it down. That means you’re paying $120 a month extra. Transfer $600 to the new card, then each month, make the $80 minimum payment to the old card and a $120 payment to the new one.

  What does that save you? It’ll only save you about $20, but that’s better than nothing, especially if you can use your bank to automate the bill payment.

  Your summer reading list is insane! How do you manage to read so much?
  - Evan

  Three simple things.

  One, I make sure I have a book with me everywhere I go. I usually just keep the book I’m reading near me throughout the day, but I also have a “backup” or two laying around here or there. I have a novel in the car, for example, just for these opportunities.

  Two, when I’m idling for a little bit (like when I’m trying to coax the baby to sleep), I read. I don’t watch television. I don’t surf the internet. I read a book.

  Three, I actually read fairly slowly and at the end of each paragraph, I mentally ask myself if I’m sure what I needed to pick up from that paragraph. I used to read much “faster” before I started doing this, but I was constantly backtracking and I often missed big chunks of what the book was about. In the end, I would get through a book at about the same speed I do now, but I get a lot more out of them now – my enjoyment factor is way, way up.

  I’m a 26 year-old computer developer and am looking for some advice from you and your readers on mid-term savings ideas. I’m going to be taking a 2-year international assignment to China and my wife and I are trying to figure out what to do with some of our mid-range savings. We renovated a house over the past 3 years and are about to sell it and make roughly $30k. We have no debt other than the house. I have a vehicle provided by my employer (and will once I get back also) and we’re probably going to just let our family borrow our other truck while we’re gone so no major changes there. We have worked pretty hard to save up another $25k in my 401(k) and a Roth IRA. We’ve also got another $10k in general savings. With my international assignment I’m expecting to save anywhere from $40-$100k while I’m overseas. We don’t have kids (although we’re planning on it at some point soon) and are kind of thinking we might just try to pay for our next house with mostly cash. My question is what should I do with this amount of money over the next 2-3 years. Savings rates and CDs have such low interest rates and in that short a time-frame, I’m not very confident in the stock market either. I would consider a rental property but we’ll have no good way to manage it while out of the country. Thanks in advance for any suggestions you and your readers may have.
  - Joe

  Keep it in a high-interest savings account, one that you’ll be able to access from over there, and wait. If interest rates start to go up, you might want to rate hop a bit.

  You’re right, though, there’s nothing out there paying good interest without taking on some risk. That’s because the Federal Reserve wants investors to be dumping their money into stocks and things like this that can spur the economy along much more directly. When the economy is humming along, interest rates go up and such stable investments look much better.

  Still, I don’t think it’s worth the risk of putting money in the stock market right now unless you’re okay losing a good portion of it in exchange for a good probability of turning a profit. If you’re banking on that cash, then it’s not a good move.

  I am curious how you budget for periodic charges that happen throughout the year. For instance, once a year, I pay for my car tags. Twice a year my daughter has soccer registration. Once a year we have our furnace serviced. I am thinking of adding up all of the charges for a year, divide the number by 12, and that is how much I need to try and set aside each month. I would like you input about what you do in your situation.
  - Robyn

  That’s exactly how we do it

  Well, almost exactly. I tend to “front load” the year. Think of it this way: divide that amount by 6 or so, then make that payment each month for the first six months of the year.

  Why do it that way? Those extra payments don’t come in evenly throughout the year. Sometimes, they come in bunches, and if they come in bunches early in the year, you don’t have enough saved up.

  Aside from that, you’ve got the right idea.

  I’m an avid reader. and I came across this article today on yahoo. For some reason I immediatly thought of you! I was curious as to what you would think of it. Not just as a way to save money but also as a way to network and meet new people!
  - Ruth

  That’s an extremely good idea. It’s one of those things that demonstrates the power of a local community.

  In the end, it’s just formalizing how a healthy neighborhood works. If I help my neighbor watch his kids a few times for an hour or two, he helps another neighbor mow their grass, and then that neighbor helps me with snowblowing in the winter, we all save money. A time bank just makes it more formal, which makes it easier for people to join.

  I’m all in favor of stuff like this because it simply saves people money.

  What would be your advice to new bloggers when it comes to finding their voice for their blog?
  - Gina

  Write a lot. Nothing else solves issues of writing voice like writing a lot.

  When you do that, pay attention to what people react to. Read the comments. Read the emails readers send to you. You’ll begin to figure out what things you write that readers like – and which things they don’t like. Use those clues to figure out what you should emulate and what you shouldn’t.

  Over time, what will happen is that you’ll find it natural to write in a way that appeals to whatever readers you happen to have collected – and then you’ll find it easy to collect more readers like them.

  My fiance and I are due to be married next February. We’ve consolidated our checking accounts, I’m about to buy a house (a duplex), and I just paid off all of my consumer debt (today! yay!). However, my fiance has a sizeable amount of debt, we both have car loans. I’m currently in re-payment of my student loans while he won’t have to begin payment until he graduates. I plan on going to law school in the fall of 2011.

  We’ve worked out a plan for snowballing our debt payments and figure that we’ll have his consumer debt and both of our cars paid off in a little over two years. All the while, we will be saving (I hope) around $200/month for a rainy day.

  In the meantime, I have roughly $5,000 in savings for emergency situations. I put it into a HSBC online savings account because, at the time, it earned something like 3% or 4% interest, much better than what I was getting at my credit union; also, it was out of reach (sort of) so I wouldn’t touch it unless I really, really needed it.

  Currently, however, I’m only earning about 1% on my savings. I can’t help but feel that I can get a better return on my savings in the meantime. I’ve been thinking about maybe getting savings bonds, or perhaps a CD, but CD interest rates don’t really seem worth it to me. I don’t want to be too risky because I may feasibly need it for – you know – emergencies.

  Any insight you could provide as to where I could invest it would be helpful!
  - Melissa

  As I mentioned above, interest rates are low right now across the board on savings accounts and CDs. There’s just nothing that can be done about it other than sit on cash and wait.

  Why are they so low? The banks have no incentive to make the rates any higher because they can pretty much get as much cash as they need for about 3% interest whenever they like, so they can’t afford to pay out anywhere close to that while also ponying up for FDIC insurance.

  If I were you, I’d just sit on the cash for now. You’re better off having it for emergencies even just earning 1% or so than having it at risk or having it tied up to just earn 2% or so.

  Ha! I loved the “Life’s too short to drive a used car.”

  I concur and have never purchased anything but a new car for the last two decades. I keep them until they start to fall apart though! I don’t finance and always buy a cost effective car that I can pay cash for. I currently drive a 2009 Honda Fit. I love it. I am very good at living within my means and would never drive a status car. But I do have a hefty commute and having reliable transportation is not negotiable for me.
  - Aaron

  You listed two things that new car buyers rarely do.

  One, they rarely keep them until they start to fall apart. Proof? Go to your local dealership and look at how many 2004 to 2008 used cars – perfectly drivable for a lot of miles – are just sitting out there on the lot.

  Two, they rarely pay cash for them. 73% of all new car purchases are financed, according to this article.

  You’re basically buying new because you’re willing to pay extra to get those early reliable miles – the first 80,000 are usually the most trouble-free. That’s worth a premium to many people.

  Aside from that, you’re buying how a typical late model used buyer buys cars, and that’s the way to do it, in my opinion.

  Things are very stable at our house as we at paying down the mortgage and watching our net worth grow. I try to keep up with whats going on financially but I recently had a suprise in the credit card/credit report world. During the last few years its been hard to keep up with what the credit card and banking industry is doing. There is more detail to the backstory but the simple story is that I have a personal credit card that has a $15K credit limit. I only charge a few hundred a month and pay it off but this is my main card. I recently pulled my credit report and noticed that the card had the date and highest usage listed but the credit limit was blank. This made my debt to credit ratio upside down even though its not (600/0 is different than 600/15,000). Talk about skewing my credit score! I assumed this was a reporting error and called the credit card company requesting that they report my credit limit. The customer service representative confirmed that I have a $15K credit limit and that she would put in a note to have my information reported to the credit agencies. The kicker is that a few days later I got a letter in the mail saying that my credit card does not have a credit limit but is actually an open credit access line and an actual value is not reported to the bureaus. Say what?!?! Since when is a national bank credit card (with mastercard logo) with a specified credit limit actually an open access line? What do I do about my credit report that shows 600/0? Luckily I’m not trying to get any loans asap but its very frustrating to see that my should be almost perfect credit report is mud. (the mortgage loan is in my husbands name so it doesn’t show up and just like Cindy today our ‘joint’ credit card doesn’t show up. I recently had another card (my oldest card) with a $18K credit line closed on me by the bank due to inactivity which messed everything up and made me a very grumpy customer). So have you heard about other cards making credit limits actually credit access and not reporting the information? Is there a way around this or something else I can do to beef up my credit report?
  - Patty

  I’ve heard of that, but it’s usually pretty rare and only happens to people with very good credit.

  I wouldn’t worry about it affecting your credit score. Instead of showing up as a credit card, it now looks more like a very small home equity loan to the score calculators. If you don’t have any missed payments or anything, your credit score is probably very good.

  If you really want to check, you certainly can get a peek at your credit score, but with a credit report like that, I wouldn’t worry a bit.

  My family needs an intervention. I’m 24, live on my own in Boston and am doing okay about saving, paying off my student loans ($700+ a month) and adjusting to adult life. I am a marketing writer and make $53,000 annually before taxes. I contribute to 401k, have about $12,000 emergency fund and have great credit. I have no credit card debt. The problem is my dad. He constantly assured us in high school that we would be able to go to the college of our choice – finances would not be a problem, and refused to speak to us about the situation. Even now he won’t talk about it.

  Here is a breakdown of my student loan debt (below). The 2 PLUS loans, I write my dad a check for those loans and he pays the bill each month (In good faith – I can’t even check the loan balances). The website for our lender is very confusing because there are multiple loans (for myself, and my 2 sisters). Should I transfer the loans (for my student debt) under my dad’s name to my name? My dad is facing the possibility of prison sentence this coming fall. I have looked into the liability for PLUS loans and my dad keeps reassuring me that if he dies I will not have debt (he is only 56 years old). I am not sure the liability if he is in prison. I realize it is my education and I am liable for the loans – but I am not sure the best course of action to take financially. I am financially independent of my parents, live on my own, and do not need their assistance.

  I have 2 Plus Loans Under my dad’s name that I pay him each month- and he makes payments to the leader, Nelnet:

  Lender: Road Island Student Loan Authority, Loan Type: Consolidation, Monthly Payment: $294.64, Interest Subsidy: Unsubsidized, Current Principal Balance: $49,710.25, Interest Rate: 4.875 Fixed

  Lender: Road Island Student Loan Authority, Loan Type: PLUS, Monthly Payment: $178.09, Interest Subsidy: Unsubsidized, Current Principal Balance: $13,319.89, Interest Rate: 7.500 Fixed

  I have also have two government loans in my name (Federal Direct and Perkins that total $225 per month that I pay)… the balances remaining are $2000 ($50/month) and $15k ($175/month).

  One sister is in college currently. I am advising her to move home and transfer to a local state school as a commuter student so she is able to work and still graduate with minimal bills. My other sister graduated 1 year ago and has a student balance of about $95k. My Dad told her this week that her payments will be a whopping $1,400 a month (she makes $40k a year in her job, lives with my parents, and has a $250/ monthly car payment, no credit card debt). Should she put her loans under her name? My dad has not been making payments on her PLUS loans so she has a lot of capitalized interest from the last 2-5 years.
  - Anna

  The absolute first thing you should do is check your credit report. Head over to the FTC’s website at http://www.annualcreditreport.com and find out for sure what loans are outstanding and in your name, because it isn’t clear to me which of the above loans you are liable for.

  Any debts that you are responsible for currently repaying should appear on your credit report. If they do not, they’re probably debts that are in your father’s name and thus it is his responsibily to repay them, not yours, unless you choose to take on that debt for some other personal reason.

  If you see a loan on there that you don’t have access to, then you need to seek out that loan and get full control over the maintenance and repayment of that loan. Do not leave such loans in someone else’s hands, no matter how much you trust them. Bad things can happen and you don’t need those bad events to have the secondary effect of wrecking your credit.

  It sounds like – I’m not 100% sure on this – you have a personal arrangement with your father to pay him for the amount he owes each month on a loan he took out, the money from which was used to pay for your education. If that is the case, then your only obligation is the personal one to your father. The ethical and moral thing to do is to continue paying him, but it doesn’t appear that anything involving those loans will affect your credit.

  Your sister is in the same boat. It appears as though she has a personal arrangement to pay your father each month for an amount equal to what he would be paying each month on that loan. With the amounts being discussed, however, you may want to consult a lawyer, because she would be giving him an amount each year that would exceed the gift tax (which means that taxes would have to be paid on that money).

  Situations like this demonstrate why it’s very risky to mix familial and personal relationships and debt. It usually ends up poorly. If I choose to borrow money to pay for a child’s education, I’m going to borrow the money and then I’m going to give that money to my child for their education. There will be no lender-borrower relationship overshadowing our parent-child relationship.

  Do you ever get depressed reading endless stories of people whose lives are in really deep trouble?
  - Ellen

  Not really, because I know that if someone has reached the point where they’re writing a question to me, they’re seeking a better answer for their situation.

  I think society sends some pretty awful messages about money and completely distorts peoples’ senses of entitlement and wants versus needs. However, I already knew that before I started this site.

  If anything, questions like that make me happier, because I see that people are trying to take control of their own situation instead of just blaming others and throwing their money at whatever’s new.

  Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.