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Reader Mailbag: Time Conflict

Posted: February 9th, 2012, 7:00am MST 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. Using wedding money wisely
2. Percentage of savings for retirement
3. Asking for wedding money tactfully
4. What to do with savings?
5. Self-employment advice
6. Retirement Roth versus 529
7. Repayment troubles
8. Windfall options
9. Debt snowball or not?
10. Prioritizing reading

What do you do when you have a family commitment on the same day as something you’ve been planning to do with a friend for months? What if the two events are two states away from each other?

My solution right now involves a one-way flight and an extremely tightly booked day after my family commitments are complete. Family comes first, of course, but some creative thinking (and a bit of hyper-rushed travel) can make everything work.

Q1: Using wedding money wisely
I am getting married in June (huge wedding, not our choice!) and we conservatively anticipate receiving about $15,000 in gifts from our family and friends. In the past year, we have moved across the country to be closer to family and have finally in the last 6 months or so settled into our new routine. We bought a home, actually the one that we were renting. The owner wanted to sell and offered us first chance, she gave us owner financing, and counted all of our rent as a down payment. The house is livable but needs significant updates to all of the bathrooms and the kitchen. I found employment, but have significant travel everyday. Because of this, we had to trade in my car and get something more reliable for the winter weather and the route that I drive.

Our debt is as follows:
Student Loan 1: 10,000 @ 8.5%
Student Loan 2: 10,800 @ 6.8%
Student Loan 3: 7500 @ 6.8%
Car Loan: 14,000 @ 4.99%
Mortgage: 143,000 @ 5%

I am the breadwinner, my salary is $43,000. My fiance works part time at a university and is going to school for his master’s degree (free while he is employed there). We live off of my salary and save his. We do have an emergency fund saved up ($1000) and then other money in an online savings account for any other life events (approx 15,000). I pay $1000 a month towards debt (not counting the mortgage), which is the minimum on everything except for the SL at 8.5%. We have lived very frugally for the past 4 years and will probably always do so.

My question is: should we use the wedding money to pay down the loans as much as possible, or should we put that into savings and use it for repairs on the house? I feel guilty using the money to pay down the debt, but I know it’s probably the better choice for now and repair/update the house at a later time. I would love to buy new bedroom furniture (everything we have are hand-me-downs and nothing matches, plus we need a new mattress) and possibly renovate 1 or 2 of the bathrooms. It is MY student loan debt, but I’m also supporting the whole household. My fiance is fine with paying off the loans, but I’m feeling guilty.
- Marjorie

It really depends on how urgent the updates you need to make are. You say the house is livable, but that it needs updates. Is this for the purposes of decor? Or are there really important functions missing?

If it’s mostly decor, I wouldn’t make that a high priority unless you’re looking to sell the place fairly soon. I’d pay off the debt first.

If you’re in a position to sell soon or these repairs will make a significant functional improvement, then I’d go for the home repair.

Q2: Percentage of savings for retirement
We often hear of retirement savings goals such as: if you begin saving for retirement at age 20 you should strive to save 10% of your gross salary, if you begin saving for retirement at age 30 you should strive to save 15% of your gross salary, etc. When you think of the percentage of savings, should this be for a pre-tax account such as a 401K, a 457, or a pension plan or a post-tax account such as a Roth IRA? Or is it a combination of both?
- Kelly

Those numbers are very simplified “rules” for people who just want a quick answer without digging in deeper.

If you want to break down those numbers, my impression is that they assume you’re talking about an equal mix of pre-tax and post-tax savings. I would assume that of any simplified numbers bandied about for retirement.

I would never bank my entire retirement plan on such a number, though. Use some retirement calculators and get a strong sense of what you need for retirement.

Q3: Asking for wedding money tactfully
My fiancee and I have been dating for ~4 years. We both went to college and thanks to incredible parents, both managed to graduate without student debt. We’ve had our small debt struggles with credit cards, but we’ve got our act together for the most part. We currently rent in a not-too-desireable part of town, and as we both have fairly entry-level positions, it’s difficult to save the kind of money necessary to make a down payment on a house in a better area.

Her sister, who herself has been through 2 weddings, reccomended that for our wedding, we should ask for ONLY what we ABSOLUTELY need for our registry and ask for the rest in cash to put towards a home. This struck me as great advice, as in our 4 years together, we’ve accumulated more than we need without registering for things like tortilla warmers or color-coordinated coffee makers. However, I’m stuck trying to figure out how to ask in a classy, tactful way that doesn’t come off as a charity case. Do you have any reccomendations on how one might go about mentioning, on an invitation or otherwise, that this is our gift of choice?
- Pete

There is no real classy, tasteful way to say “give me money.” Not only does saying so imply that you’re expecting a gift, it’s also implying that you’re dictating what type of gift to give.

The best thing you can do is say nothing at all about gifts in the invitation. Set up a simple registry at a common place like Target. Then, tell your innermost circle that you’re hoping for money to help for the down payment. The word will get out to a lot of people.

Then, just be happy with the gifts you receive. After all, people are giving you things. If you don’t like them, return them and use the store credit on essentials, then bank the money you saved on essentials.

Q4: What to do with savings?
What should I do with the money I have in my savings account? I know it is low yield to keep it in a “high yield” savings account, but I am already maxing out my contributions to my IRA. Should I invest it? Where should I invest it if I do?
- Shelley

It depends on how much risk you’re willing to take on and how “locked down” you’re willing to allow that money to be.

Savings accounts don’t offer a great return, but there’s virtually no risk involved and you can take your money out as you please. With other investment options with a better return, you tend to lose one or both of those things.

For example, with stocks in large blue-chip companies, you take on risk in exchange for a higher average return. With a certificate of deposit, you lose the ability to take the money out freely for a somewhat higher return. With real estate, you lose on both counts but have some very nice long-term potential with the money.

The real question to ask yourself is why you’re saving this money. If it’s still more or less an emergency fund, leave it in the savings account.

Q5: Self-employment advice
My husband is about to graduate from grad school and will be self-employed upon graduation. I am wondering if you have any good resources for self-employment, and especially regarding affordable health insurance options for the self-employed. He is currently getting health insurance from his school, and I am on my employer’s policy, but I too would like to make the switch to self-employment (most likely working with my husband) within the next few years, or even being a stay-at home mother if we are able to afford it. We live in an expensive part of the US, and want to watch our expenses as much as possible. Going without insurance is not an option for us–I had a very expensive health situation over the last 5 years that has proven to both of us the need for good insurance. My health issues have recently been resolved, so I do not have any pre-existing conditions anymore. My husband has been healthy since I have known him.
- Catherine

I would start with the National Association for the Self-Employed when looking for options. There are a lot of options out there, and those options vary wildly from state to state.

I explored the options available in Iowa several years ago and we made the decision to stick with my wife’s work insurance for as long as she continues to choose to hold that position. Prior to that, I worked at a job with mediocre health insurance, so we were already using her insurance.

That’s not to say there aren’t good options available for the self-employed – there certainly are. I found the most luck starting with the NASE, though.

Q6: Retirement Roth versus 529
We are hesitant to put money into a 529 fund for our daughter when retirement amount may still not be enough. There are no loans available for retirement, as they say.

A Roth is almost as good as a 529 – except you can’t take the earnings out tax free for college, and it counts as income for the child – so no financial aid can be obtained. The upside is it can be used for school (I will be over 59.5 when daughter enters college) or retirement – whichever is needed more.

Certainly we could look for ways to save and afford to do both 529 and Roth, but I am not sure my family feels that is the way they want to live. We already do live fairly simply, but we could do much more. It might not feel like a positive to them, so I plan to identify areas one by one and see how far I can get them (and truth be told- myself) to agree to change.

Any advice?
- Oswald

You’ve basically summed up the benefits and drawbacks of a 529 versus a Roth for education. It’s flexibility versus better tax benefits.

If you’re asking which is better, you need to sit down and assess what your retirement looks like if you put all of your Roth money towards your child’s education. Assuming you do that, do you like your retirement picture?

If you do, I’d put that money into a 529 instead and then benefit from the taxes. If you don’t like that picture, then I’d try to balance it, probably committing more toward the Roth knowing that it’s more flexible.

Q7: Repayment troubles
I wrote to you last spring about advice regarding student loan repayment and starting a new business. Since then, I’ve moved to Canada, gotten married, and started my business, which I now work on full time. I have a steady client base, and am planning to expand more this year. I make approximately $300-$500/month at the moment.

Thanks to the low cost of living in our city as well as a wedding gift from my parents, we’ve actually been able to save nearly $30,000 in the 7 months we’ve been here. I have started to make payments on my student loan debt (all from law school) of $145,000. However, my husband’s contract may be ending at the end of June. I’m not sure if I should continue making payments on my loans or if we should continue to save for our potential “emergency” (unemployment). If we continue to save and defer the loans (the loans are currently on forbearance/income-based repayment, although I’m still trying to pay down interest), we’ll probably have approximately $35,000 saved by the time his contract ends.

My questions are the following: Should I stop making payments on my loans for now? Should I try to find some sort of part-time job to add to our emergency fund/throw at the loans (keeping in mind that most jobs here require you to be bilingual in French and English, and while I can speak French proficiently, I’m not bilingual)?
- Monica

My big question is whether or not you’re going to stay in the area you’re in when your husband’s contract runs out in June.

You seem to be in Quebec. Does it look likely that you’re going to be leaving Quebec at that time? Is your client base local or is it internet-based?

If you can retain your business through this transition and your business is growing, I’d put all my efforts into building it. You already have a start, after all. If you’re going to lose that base, I’d get a part-time job as soon as I could to get more short-term cash on the table before you leave.

Q8: Windfall options
My wife and I were gifted $15,000 by my grandmother recently and have a couple options. This is half of what we make in a year together so it would be easy to blow it on a bathroom remodel, but instead, I’d like to do something smart. We have only two debts: my wife’s $8,000 student loan and our $132,000 mortgage. The loan could be paid off instantly and the $150 to $200 we pay on that monthly would be freed up and that would be wonderful, but I could also refinance the house. We have a 4.875% rate, but rates are even lower than that at the moment. Our current mortgage payment is $1,004. But even if we only shave $50 off our monthly mortgage payment, that seems like it would add up to a whole lot more saved in the end compared to paying off the student loan, no?
- Charles

The question is would you honestly save that extra $50 a month, or would it end up being spent on something unimportant?

The best thing you can do right now is put yourself into a repayment plan that will take you to debt freedom the fastest. Refinance not into another 30 year, but into a 15 year or something. This would actually raise your payments a bit, but it would get you in a far better position sooner rather than later.

If I were you, I’d pay off the $8,000 debt, then refinance into a shorter term mortgage with a much lower rate. You’ll probably not see much change in your monthly payments for now, but you’ll be free from debt a lot faster.

Q9: Debt snowball or not?
I’m pretty new to your site but I have enjoyed it for the last couple of months. I have a couple of questions for you. My wife and I, along with our 4 young children have recently started on Dave Ramsey’s plan. We are currently on Baby Step 2 (debt snowball). We have approximately $14,000 in CC debt, and about $4,500 in student loans, along with about $4,000 left on our van payment.

I have also been trying to save a little money for different expenses I know we will have at some point (future car, car/home maintenance, etc). This is where my question comes in. Is it wise to do this while going through the debt snowball? Or since I already have the $1,000 EF in place, should I be putting every other possible penny towards the debt?

I mentioned the $4,500 in student loans my wife and I still have. I also have about $40,000 in other student loans but I do not have to currently pay on them because of the income based repayment plan I am on. My wife makes decent money but it is all “under the table”. So they only look at my salary when calculating my monthly payment. I am hoping to get through the debt snowball in about a year, then build up the EF to about $15,000 then try and payoff the $40,000 extra in loans I have. The loans are accruing interest but I am not obligated to pay anything on them unless our household income jumps. My wife plans to go back to teaching in 3 or 4 years so at that point I would have to pay at least something on them. My other question is would you stick with the plan I have in place as far as paying the loans back, or would you lump them in to the debt snowball?
- Andreas

First of all, you need to be very careful with “under the table” income. If the IRS hears of it from anyone – and there are a lot of people out there who quietly report such things – you guys will be in a world of hurt.

That being said, I would lump all of your debts into the debt snowball. If the interest rate on those debts is higher than the ones you’re currently paying, then I would make extra payments toward those student loan debts.

Eventually, you will have to start repaying them, and if you can keep that interest in check now, you’ll be better off for the long haul.

Q10: Prioritizing reading
I know you’re a voracious reader like me and I’m going to guess that you have a long list of books that you want to read like I do. How do you prioritize them? How do you decide what needs to be read next?
- Ivan

I keep a stack of about ten or fifteen books on my bedside table or on the front page of my Kindle. These books are ones that have been on my mind lately that I’m wanting to read. I rotate books in and out of this grouping pretty regularly.

When I finish a book (which happens once or twice a week), I just look through the books that are right there and pick the one that intrigues me at the moment.

That’s really all there is to it. I don’t really prioritize beyond that, but I’m usually happy with what I’m reading.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Use Public Transportation (38/365)

Posted: February 8th, 2012, 1:00pm MST by Trent

When I was in college – and for the first several months of my post-college career – I was an avid user of public transportation. I would ride the bus to work every day like clockwork.

For many semesters, I would catch a bus at about 7:48 AM or so. It deposited me right in front of one of the buildings where I would have a class at 8 AM at between 7:55 and 7:58 AM, giving me just enough time to stroll into the classroom, sit down, and open my notebook just as the professor began talking.

Later on, I would stand outside of that apartment building to catch the 7:37 AM bus, which would deposit me about two blocks from my work at about 7:55 AM or so, causing me to walk in the door about 8 AM. On days where I got an early start, I would catch the 7:07 AM bus (getting me there at 7:30) or even, on occasion, the 6:37 AM bus (getting me there at 7:00).

The best part was that the bus ride enabled me to do things like read a book or listen to NPR or an audiobook on my way to school or work. I did this virtually every morning and evening. I’d just carry a book in my bag and when I got to the bus stop, I’d pull out the book and start reading. When I got on the bus, I’d stick my finger in place just long enough to show the driver my pass, then I’d keep reading until it was time to pull the “stop” cord and get off at my destination.

On my way home, the bus stopped right by a grocery store, so I could stop there and pick up food. The bus ran roughly every fifteen minutes in the afternoon, so I would return to the bus stop and there’d be a bus along pretty quickly to get me if I made such a stop.

It was also far cheaper than driving myself to school/work. I paid about $79 for a six month bus pass that covered all rides, which is less than I would have paid just for the insurance on a car.

Time passed, though, and when I found myself making a good income, I convinced myself I needed a good car, too. I “bought” a truck (I no longer really think of it as “buying” something if you’re carrying a big debt on it) and, soon after, moved to an apartment outside of the range of the bus system.

Suddenly, I was free. I could go to work whenever I wanted! I could come home whenever I wanted! Freedom!

That freedom cost me about $250 a month in car payments, about $40 a month following the vehicle’s maintenance schedule, about $50 a month in gas, about $70 a month for auto insurance, and another $12 a month for parking.

$422 a month, down the tubes. Compare that to the $79 every six months I was paying for that bus pass.

Even if I just bought the vehicle and let it sit there, driving it rarely, I would still have about $335 a month in extra spending. In other words, it would have been cheaper to buy the vehicle, let it sit in the parking lot, and ride the bus to work than it would have been to drive the vehicle to work.

Unless you’re in a very unusual situation, where the cost of public transportation is really high or the price of gas and parking is really low, riding public transportation to work is going to be saving you money over driving to work.

That’s not to say that you must take public transportation every day. Ride it four days a week, then take your car the other day and do all of your lunchtime and after-work errands on the day you take your car. That way, you save money from the public transportation on the days when you’re just commuting, but have the flexibility of the automobile on the other days.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

The Simple Dollar Weekly Roundup: Marriage Advice Edition

Posted: February 8th, 2012, 7:00am MST by Trent

If I had to give someone advice on how to keep a marriage in good shape, here’s what it would be.

Every day, do two things. One, tell your spouse that you love them and tell them something specific about them that you love. Two, spend half an hour doing something that helps them in some way and expect no compliments or comment from it – do it just because you care about that person. This works better if you focus on something that you know will really matter to your partner. For instance, if your partner loathes doing the dishes, just do them without comment once or twice a week.

Do these two things every day and you’ll be surprised how much better your relationship goes.

Money Lessons Learned from Traveling Well For me, money is better spent on experiences than stuff. (@ saving advice)

Can Money Buy Freedom? It can do that only in a limited sense. On some level, you have to choose to be free from the things that worry you. You can be rich and still be depely worried (and controlled by) lots of things. (@ get rich slowly)

Beware the Entrepreneur’s Recoil If you succeed at something, you tend to become more risk-averse and that often leads to undoing what made you succeed in the first place. (@ jonathan fields)

How to Get the Most from Your Gym Membership & Avoid Burning Out I usually have two things that keep me from really hitting a home run at a gym. The first is the soreness that comes from a period of not exercising. It goes away in a few weeks, but it’s hard to get through. The second is injury and convincing myself to return to the routine after recovering from a minor injury. (@ len penzo)

Practice Good Gas Conservation Habits (37/365)

Posted: February 7th, 2012, 1:00pm MST by Trent

One of the fun things about my wife’s car is that it has a constant readout of the miles per gallon on the dashboard. It lets you know what your miles per gallon over the last five minutes is, the mpg of your entire trip, as well as your estimated miles per gallon right at that moment.

The data it produces is really accurate. We’ve measured this ourselves by checking the gas mileage manually by calculating it from the odometer and gas receipts and comparing it to the data in the car.

It’s often a competition between Sarah and myself to see who can get the best gas mileage over a given trip. Not only is it a bit of friendly competition, the reward for it is that we save money over the course of that trip.

For example, I managed to drive an entire three hour car trip while keeping the fuel economy average over 50 miles per gallon. I did this by utilizing lots of little tricks along the way, and doing so saved us several dollars in gas while only eating up a few more minutes of driving.

Sarah, on the other hand, managed to drive about fifteen miles while keeping the fuel economy average over sixty miles per gallon. She was aided by wind, which was blowing strongly in almost the perfect direction for her route, but it was still quite impressive. It added maybe thirty seconds to the drive but saved her about $0.50 in gas.

If this sounds like hypermiling, you’d be right. Although we don’t go to the extreme measures often advocated by hardcore hypermilers, we do try out the techniques.

The real impact of doing it is that several techniques for improving our fuel economy have become completely second nature for our driving. Here are some of those techniques that you can easily translate to your own driving. They might add a minute or two to your drive, but they’ll save you enough money along the way to make up for it.

Stick close to 55 miles per hour on the open road. This seems to be the sweet spot in terms of speed. If you go much faster than 55, your fuel efficiency starts to decrease. If you get much above 65, it decreases rapidly, somewhere in the realm of about 1% fuel efficiency lost for every mile per hour you’re going over 65.

When going through stoplights, accelerate slowly and coast. Rather than accelerating strongly out of a light, racing up to the next light, and then hitting the brakes, instead accelerate slowly out of a light and when you see the light turning red half a block in front of you, let off the accelerator and just coast until you need to stop. This minimizes your gas usage and gets you to the stoplight with plenty of time to spare.

When going down a hill, lay off the brake. Let your car accelerate a bit naturally, then use that extra acceleration to coast for a while when you get to the bottom of the hill.

When going up a hill, lay off the accelerator. Many people hit the accelerator when going up a hill. Don’t do it. Instead, let your speed go down as you’re climbing the hill, then slowly bring it back up when you get to the top. Often, hills link into each other, so you’ll often use the speed from the previous hill to climb the next one or get your speed back from the previous climb when going down the other side of a hill.

Things I don’t recommend that you might see as gas mileage tips include rolling through stop signs and overinflating your tires. The former is simply begging to get into an accident, while the latter tactic makes it very easy to blow out a tire.

Making a few little changes to how you drive can save you a surprising amount of fuel without adding much time at all to your trip. I’ll happily arrive a few minutes later if I’m saving a few bucks in gas.

Following the Time Trail and Downgrading Subscriptions

Posted: February 7th, 2012, 7:00am MST by Trent

In the past few months, we’ve ended our subscription to GameFly, reduced our subscription to Netflix to streaming-only, stopped receiving four magazines, and given away or sold a bunch of items around our household.

At first glance, one might think we were going through some sort of economic crisis. After all, this is the exact same kind of cutting back that I regularly suggest to people who are finding themselves in a financial pinch.

We actually made these decisions based on time, not money.

With each one of those spending cuts we made, we realized that we simply weren’t getting our money’s worth out of the item.

With GameFly, I recognized that my time playing electronic games was actually pretty small, and most of that time was actually spent at my computer. We would get a game in the mail, it would get played an hour or two on the day it arrived, then it would usually sit for a long time and eventually get mailed back.

With Netflix, we had a very similar problem. The disks we’d get in the mail would sit for a month or so until we could find a great evening to watch that film.

With the magazines, we realized that some of our magazines were consistently going unread. We’d end up with a pile of unread magazines, then one day we’d just flip through them, tear out a piece or two that we wanted to read, and toss a pile of magazines.

With the other items around our home, we just got rid of items that we didn’t use.

In each case, we cut our spending on an item that we didn’t use enough to justify the cost.

Over and over again, though, I see people having a challenging time making that justification or, in many cases, never bothering to make that justification at all.

My own original experience with Netflix is a perfect example of this.

About eight years ago, I opened a Netflix account. Sarah and I used it like crazy for several months, then the usage dropped off. It reached a point where we would have a couple of Netflix envelopes on our DVD player for weeks, almost gathering dust. Why didn’t we cancel? We liked the convenience of having the movies available if we did decide to watch them. We ended up keeping the account until our 2006 financial meltdown, and only resubscribed a few years later due to the availability of streaming and a large backlog of children’s movies that our kids wanted to watch.

The natural counterargument that many people have when they hear about such changes is that we’re losing some degree of convenience or joy by making these changes. In fact, we actually have great alternatives to each of these if we were to use that service.

For example, the reason we had GameFly is so that I could try out new video games if I wished. However, at the rate of one per month, it’s actually less expensive to just keep trading games at the local used game store. If I end up keeping a game for two or three months (as would happen), I’m far ahead simply trading games.

With Netflix, if we decide that we want to watch a particular movie that’s not on streaming, we have lots of options to rent that movie, from Redbox to Amazon Instant Video. Considering that we’re looking at most one rental a month, it’s far cheaper to just rent them individually.

The same concept is true for the magazines. If I just bought a weekly magazine at the newsstand once a month when something interested me, it’s still far cheaper than the cost of the subscription.

A subscription can save you money if you use it consistently, but if you’re not using it consistently, you’re better off just buying or renting individual items when the opportunity comes up.

In the end, it’s all about time. If your interests are such that you’re actually devoting a lot of your time to a particular hobby, a subscription service might make it worthwhile for you. If you’re doing it mostly for the convenience of the one time every month or two you actually end up using it, drop the subscription and find another option. Your wallet (and your clutter) will thank you.

Minimize Your Load (36/365)

Posted: February 6th, 2012, 1:00pm MST by Trent

Depending on the specific model, your car loses 1-2% fuel efficiency for every 100 pounds of extra weight in the car. That’s a surprising amount that can really add up.

For example, let’s say you’re matching the extra weight that a friend of mine (who we’ll call Cathy) carries in her car. She consistently carries (mostly) unused car seats in the back seat of your car, plus she hauls around a box of books in the trunk along with a few other excess items. The sum total of that extra load is about 70 pounds.

That means, depending on the model, Cathy is burning an extra 0.7 to 1.4% in gas just due to this extra weight. Let’s say it’s 1%.

If her car gets 20 miles to the gallon with the weight in it and she commutes, putting 20,000 miles on it per year, she’s burning 9.9 extra gallons of gas per year just due to carrying the extra junk.

Say goodbye to $33 or so a year in just fuel costs, Cathy, never mind the additional wear on all of your car’s components.

Even a slight difference of just ten pounds can have a real financial impact. Let’s say you’re driving the same car Cathy is, where you’re getting 20 miles to the gallon and you’re driving 20,000 miles per year. That 0.15% in additional weight is eating up 1.5 gallons in gas per year, costing you about $5 in additional fuel along with slight additional wear on your car.

The message here is clear: get the excess weight out of your car.

How can you do that? Simply make sure that you’re not carrying anything unnecessary in your trunk or your backseat. Evaluate what’s in there and get rid of the things that you don’t need to be carrying back and forth.

I’m constantly amazed at the things people carry in their trunk, from huge assortments of shoes to large gun cases. These things add weight to the car and you pay for that weight directly at the fuel pump and indirectly whenever you get maintenance work done on your car or need a repair done.

There’s only one exception to this rule that I’ve found. If you’re seeing any chance of icy roads, it’s worthwhile to have extra weight in your car because it improves your traction and keeps you safe. I often carry that extra weight in the form of sand bags or rock salt, both of which can help you in a rough winter situation. The extra safety is well worth losing a few percent in fuel efficiency for a season.

Aside from that, you’re only saving money and helping your automobile’s lifespan by reducing the load you’re carrying. If you’re not hauling it around for a purpose, don’t haul it around.

Reader Mailbag: Saint Bernards

Posted: February 6th, 2012, 7:00am MST 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. Vacuum sealed bags
2. Boardgame with new couple friends
3. Investing for house down payment
4. Roth IRA versus Roth 401(k)
5. Hedging bets for retirement
6. Multiple savings “funds”
7. Extra mortgage payment impact
8. Car selling advice
9. Dodgy mortgage lender behavior
10. Going back to school

Sarah and I attended a Super Bowl party yesterday hosted by a couple who have two giant Saint Bernards as pets.

I love the dogs. They’re like children in a very big body. They want to hug you and play with you and they wear themselves out from all the excitement.

Q1: Vacuum sealed bags
I was wondering what your take on vacuum seal bags is. We have 2 freezers and stock way up on meat and frozen vegetables when we catch a really good sale. Especially since we live way out in the boonies with the closest store being 17 miles away. My question is, with the price of the vacuum seal rolls (we make our own bags) how much are really saving by doing this. I do wash, sanitize and re-use the bags until they get too small to use. So, I get 3-5 uses out of each bag depending on what the size of it was to begin with.
- Megan

I used a vacuum sealing system for a while. I found that they merely make it possible to store food in the freezer for just a little while longer than ordinary Ziplocs. Eventually, the freezer burn gets to the vacuum sealed stuff, too.

Dollar for dollar, I’m pretty happy with the gallon freezer Ziploc bags that we use. We get at least a dozen uses out of them (using masking tape for the labeling) and there’s no equipment.

The only disadvantage with freezer Ziplocs is that the food doesn’t stay protected from the freezer burn for quite as long, but if you’re reasonably consistent about eating your frozen goods, it’s not a big deal.

Q2: Boardgame with new couple friends
You’ve probably run into this, so I figure I would ask you. My wife and I play board games and card games with each other quite a lot and we also play with other friends. We’re going to have a couple over soon that’s open to trying some games, but have never played anything other than things like Monopoly when they were kids. Do you have any “go to” games for this situation?
- Shawn

My default games for these situations is either Ticket to Ride or Settlers of Catan. I usually bring them both out and give a one-sentence explanation of each, then let them decide.

However, I throw that out the window if I know there’s a game that will really fit the other interests of the people involved. For example, my wife has a friend who is really into the “zombie apocalypse” subgenre, as is the friend’s husband. We’re already planning on inviting them over to play Last Night on Earth after dinner.

Remember that you never want to overwhelm someone with a game if they’ve never played many games. Some games are just more complicated than others, and when in doubt, go for the one with simpler rules.

Q3: Investing for house down payment
I am 26 and my soon to be fiancee and I want to buy a house in 5 years. We are debt free, already have an adequate emergency fund, and I recently got a raise from 62k/yr to 85k/yr. I had been saving $100/month for the down payment, but that’s not nearly enough and I intend to take the difference in my paychecks and put it all to saving for this goal. I have been using SmartyPig to save for this, but the interest rate of 0.7% is bumming me out. Would you recommend investing in bonds? I know bond duration should be less than my investment time frame, but I’m also concerned about the tax implications (as I’ve never invested in bonds, and only know that they are less tax efficient than stocks). I already max out my Roth IRA contribution in an aggressive portfolio, and I contribute another 5k/yr to a similarly aggressive portfolio at my employer (no match there, sadly). Is there any tax sheltering I can do for my house down payment saving? I know IRAs allow you to withdraw for a first time home purchase, but I’m concerned about losing out on my retirement goals if I do that (plus 5k/yr is not enough to get me where I need to be for this down payment). Am I worrying too much about taxes and should just go for a short- to intermediate-term bond index fund at Vanguard (where my Roth IRA is)?
- Rick

I think you’re worrying far too much about the taxes here.

The real reason people worry about tax sheltering is that they’re trying to minimize their total tax bill taking into account a lot of years. For example, they might want to pay minimal taxes on their investments in a year where they earn a lot of income from other sources, and pay more of the tax load in a year where they earn little income from other sources. Eventually, you do have to pay the income tax on your investments – and it’s only on the gains, anyway. If you invest $100,000 and earn a 2% gain on that investment and find yourself in the 25% tax bracket, you’re talking about only $500 in taxes.

It sounds like you’re looking at a fairly short term period where you’re worrying about this, and it doesn’t sound like you’re expecting significant changes in income during that period. The only real advantage that such tax manipulations might get you is if you think you won’t be prepared to pay such an amount one year, you expect huge changes in how income taxes are assessed, or you think you might see a big income bump. If neither of those is true, you have very, very little to be worrying about.

Q4: Roth IRA versus Roth 401(k)
My employer gives the option to contribute to a regular 401K and/or a Roth 401K. I currently contribute 14% to the Roth 401K, 0% to the regular 401K, with my employer matching the a percentage of the first 6%. My employer matches the first 4% and I currently do not contribute to a Roth IRA. My yearly contribution comes out to about 12,000.

Should I instead be contributing in the Roth 401K up to what my company matches, then maxing out the Roth IRA at 5,000, and then anything leftover going back into the Roth 401K?

The past couple of years I have put any increases in my salary straight to retirement contributions. I should be on pace to be able to max out the Roth 401K and Roth IRA contributions within the next 4 years so it’s more of a short term problem for me.
- Sully

The first thing I’d do is make sure I was milking every single drop of possible employee matching, as the value of that blows away any tax benefits you might get.

Once that’s covered, I would max out the Roth at $5,000 and contribute the rest to the normal account. This diversifies you in both pre- and post-tax retirement savings, which hedges your bets against whatever may come in terms of taxation changes.

You seem to be completely on the right path here. Good work.

Q5: Hedging bets for retirement
My husband (31) makes $120,000 and I (26) make $70,000 per year, so we are well over the income limit to contribute to a Roth IRA. We would like to take advantage of the Roth accounts at least in part to hedge our tax burden in the future. Currently my husband contributes the max in a non-deductible, traditional IRA and I contribute 5% of my income to my Roth 401k. My employer matches that 5% dollar for dollar and has a discretionary extra contribution which has been 10% of my salary per year for a number of years. Since all of my employer’s contributions are pre-tax and we are not eligible for Roth IRA or deductible traditional IRA accounts as it stands now we are only contributing 5% of my income on a Roth basis.

Should we put more money in the Roth 401k or convert some of the money in the traditional IRA to a Roth in order to hedge our tax bets for retirement? Additionally, would it make sense at all to convert the traditional IRA to Roth since we are already using after tax money to fund it, even though it is treated as pre-tax? That seems like we’d be paying taxes twice on the money.
- Kendra

Converting a traditional IRA to a Roth IRA more or less means that you’re paying the income taxes on the money now rather than at retirement age.

By paying now, you’re providing yourself some level of tax-free income in retirement. If you can shoulder that tax hit now, it can be a good idea.

I usually recommend that people do as you suggested and hedge their bets between pre-tax and post-tax (Roth) retirement investments. This way, you’re spreading out your taxes between now and retirement since you don’t know for sure which point will have the higher tax rate.

Q6: Multiple savings “funds”
One thing that I’ve noticed through reading your posts is that you mention you several ‘funds’ that you put money back into. Savings, emergency, appliance replacement, etc. My question is: how do you manage these various funds? Do you have multiple bank accounts, one bank account and a spreadsheet showing the balance on each fund, multiple piggy banks, etc? That’s one of the biggest problems we’ve had when it comes to allocating money to specific funds. No matter what method we try, it takes more time to put money in each one, or maintain the balance in each one.
- Calista

I do use multiple savings accounts for this. I handle all of the transfers automatically from one bank which makes the automatic transfers really easy from their online banking servies.

ING Direct, to name one specific bank, also allows you to open as many savings accounts as you wish under your name and handle them all through one login. You can set up all kinds of transfers using their service – it’s one I’ve used for years.

It really comes down to how convenient your bank’s online services make such tasks. If you have great online services, this type of thing can be really easy.

Q7: Extra mortgage payment impact
I have a $107,895 mortgage that I have 23 years left to pay on (it is a 30 yr mortgage) at 5.5% interest. If I make two extra payments a year (that go to principle only) how quickly can I get it paid off?
- Leona

For starters, I’d highly suggest playing around with a mortgage calculator like this great one at Bankrate.

As for your specific situation, the exact answer depends on when exactly you started paying your mortgage off and exactly how long ago that was. I guesstimated that your original mortgage was for $120,000 and you’re just a little over seven years into the mortgage.

Given that, making two extra payments a year would shave just a bit under six years off the end of your mortgage. For just making 17% in extra payments, you’re shaving about 25% off the length of your mortgage. That’s money ahead, no matter how you slice it.

Q8: Car selling advice
My husband recently bought a new car, and now we’re in the process of getting his old car ready to sell. We’ve checked the Kelly Blue Book value for it, which says in its condition, we should be able to fetch about $3,500 for it in a private sale. Neither one of us has sold a car before, and we’re not sure how to go about doing it. What would be the best places to list it? How should we go about negotiating? Should we start at $3,500, higher or lower? We both find it hard to believe we could sell it for so much just because it has so many miles, but it’s in pretty good condition otherwise. Plus, we have proof for why we would ask that much; it’s not like we pulled a number out of nowhere. We need to get at least $2,000 out of it because our emergency savings recently took a hit when we had a plumbing emergency, and that will get us back to where the savings needs to be at, but is going down all the way to $2,000 ridiculous when supposedly we can get $3,500 for it?
- Tessa

First of all, the Blue Book value of a car is what you should consider a reasonable selling price for the car. It’s not a guarantee or anything at all. In order to sell a car, you have to have a willing buyer for the price.

My suggestion would be to define what you consider to be the minimum amount you’d sell the car for, then add at least 25% of that price to the car without exceeding 10% more than Blue Book value. If you exceed Blue Book value by too much, very few shoppers will bother looking at your car.

Pricing a car fairly high gives you plenty of room for negotiation, and buyers that can negotiate the price of a car down some is more likely to buy it. Just don’t put it so high that you scare away people to begin with.

Q9: Dodgy mortgage lender behavior
A few years ago I fell behind on my mortgage. My mortgage company was “good” enough to restructure the mortgage even though it took almost 2 years to get everything settled with them. The initial lapse was my fault, but it took them 9 months between 2 separate decisions to let me restructure the mortgage. The whole time they’re adding fees. The original loan amount was $169,000. I had paid on it for 2 years when this happened. Now the loan amount is $203,000 and I can’t get any information from them about why this is. I’ve called a number of times over the past 6 months, each time they promise to send me all the information, and I never get it. Is this illegal what they are doing since they can not provide me with the information?
- Mark

If I were you, I’d contact a lawyer.

My initial impression is that you’re dealing with a financial institution that’s struggling in some fashion or another. The current climate of the real estate lending market is a mess, and some companies are not handling it well.

$35,000 is a significant amount of money. A decent lawyer should be able to help you resolve this situation.

Q10: Going back to school
I currently have a student loan of $14,700 at 4.5% fixed interest rate. I have a master’s degree in marine biology and work in my field, but my salary is quite low. I’m playing with the idea of going to nursing school in the fall of 2013, which would give me job security and a better income (very important in my rural area). I love my job, but I want to go in a different direction. Nursing school tuition would be about $11,000 (3 semester program, since I already have a degree), would require increased use of my car, and because it’s an accelerated program, I would not be working. Of course there will be books, and normal living costs as well. I’m wondering if I should save every penny for nursing school, or pay as much of my loan down as possible?

I pay $200/month to my IRA. My minimum student loan payment is $132 (I have no other debt). Right now, I can probably pay about $350 towards that loan monthly. Is it best to pay off this loan, or save for school, and thus decrease the amount of a second student loan that I will need in the future? Should I decrease my IRA contribution and put it towards my loan?
- Erin

If I were in your shoes, I would continue the IRA payments and the minimum student loan payments for now and save as much as I possibly could to have a fat chushon in your savings account for when you start school.

Having that cash in your savings account will make it much easier to make ends meet during this period of reduced income. That’s really the key – you need to make sure you’re still paying your monthly bills. Your best friend is improved cash flow and access to an easy cash reserve, and since the first doesn’t really seem possible, your best bet is to maximize the second.

I would also look into forbearance on that student loan for any period where you return to school. If you can eliminate that monthly payment during your crunch time, all the better.

Use the Manufacturer’s Maintenance Schedule (35/365)

Posted: February 5th, 2012, 1:00pm MST by Trent

Of all the useful specific pieces of information in your car’s manual, the manufacturer’s maintenance schedule is perhaps the most useful. It tells you exactly how often normal maintenance should be performed on your car based on the odometer, and it’s that maintenance that will keep your car on the road without worry for a long time.

I can speak from experience on this topic.

The very first car I owned was a 1985 Buick Skyhawk. It was a rusty old beast that a friend of my parents had basically abandoned. He had driven it practically to death and it needed several repairs to become road worthy, so I invested some significant time and quite a bit of savings into that car.

I loved that car and the sense of freedom that it represented, but I didn’t have a clue about how to keep it running. Once I had the thing working, I pretty much drove it into the ground. When it stopped running once, I took it to a garage where a guy showed me that my fluids were basically sludge.

That got me to regularly replace my oil and transmission fluids, but most of the rest of the maintenance was lost on me.

In college, my wife-to-be Sarah was driving a van when a master timing belt blew out. It turned out that the belt was about 25,000 miles past time for replacement according to the maintenance schedule. This resulted in us spending a night in a very tiny town in the middle of nowhere.

Rather than looking at the schedule, though, I just kept adding things like this to the “checklist” in my head. Whenever I would go to a repair place, they’d just tell me something else to worry about and I’d try to remember it – and usually fail.

It wasn’t until 2006 or so when I really began to recognize that the maintenance schedule in the glove compartment was really useful. It’s just so simple to schedule an appointment every two or three months, get the next line in that schedule filled in (usually, it’s every 5,000 miles on newer cars), and be on your merry way.

It’s also far cheaper, less stressful, and easier on your time management, too. It’s just better to drop maybe $20 or $30 every few months and maybe an extra $100 to $200 a year on maintenance on your vehicle than to watch something blow out a year and a half later, causing you to lose hundreds out of pocket on repairs and likely find yourself in a real pinch in terms of getting to work or getting to other life responsiblities.

With our two newest vehicles, we’ve followed that maintenance schedule in our manual to the letter. Every item has been handled right on time, within a few hundred miles on either side.

Guess what? We’ve had no significant breakdowns of any kind in years. No emergencies, no unexpected smoke from under the hood, no thousand dollar towing and repair bills.

It’s just been regular maintenance and cheap, worry-free driving.

Ten Personal Finance and Career Books You Should Read

Posted: February 5th, 2012, 7:00am MST by Trent

I’ve decided to discontinue the weekly book reviews for the time being. I have reviewed hundreds of personal finance books over the years and, frankly, there aren’t enough new and compelling personal finance books coming out to justify weekly reviews. I’ve read too many books recently that just duplicated stuff said in other books. Instead, I’ll irregularly review interesting new personal finance books on Sunday mornings, and I’ll cap off the series by listing the ten books (of the hundreds I’ve reviewed) that have had the most impact on me.

Each of these ten books contains some powerful ideas that made me rethink some aspect of my finances, my career path, or my other personal choices that impacted these things. Each one of these is a powerful and useful read, and I highly recommend that everyone read most of the books on this list. They’re presented in no particular order after the first one.

Your Money or Your Life by Joe Dominguez and Vicki Robin
This is the personal finance book that turned my life around. It’s as simple as that.

I picked up this book at the library when I was struggling with figuring out what to do next. I had come to the realization that I was in real financial trouble, but as for coming up with a plan and really understanding how money fit into my life, I was lost.

This book isn’t really about how to invest your money or what specifically to do with your dollars. It’s much more about figuring out why you earn money and why you make the choices you make with it. It forces you to think about your finances in a completely different way.

I read this book in mid-2006. Since then, I have paid off almost $300,000 in debt and am currently debt free. It took a massive mental shift for that to happen, and I attribute much of it to this book.

The Total Money Makeover by Dave Ramsey
If there’s one single book I’d suggest for dealing with the challenges of debt, it would be The Total Money Makeover, without a doubt.

It does the things that people seriously in debt most need better than any other book. It provides an incredibly straightforward plan for escaping from the pit of debt and it provides forceful cheerleading to go right alongside that message.

Never Eat Alone by Keith Ferrazzi and Tahl Raz
Never Eat Alone addresses the challenges of building a social network, but it adds two ingredients to the mix that Dale Carnegie and the like are missing.

First, Keith is pretty obviously an introvert, and the book is written from that perspective. There are many elements of this book that may seem obvious to a strong extrovert that aren’t as clear-cut for introverts. This made the book click for me.

Second, a big part of the book is service oriented. If you want to achieve something in life, help others. It’s as simple as that. This is the way I tend to view the world, and it’s a perspective that’s been reinforced over time.

Born to Buy by Juliet Schor
This book, more than any other, really opened my eyes to the impact that marketing has on all of us, starting even before birth and really picking up during infancy. Our brains are just inundated with marketing messages all through life.

If you doubt the power that such messages have, this book is an essential read. I would encourage anyone with a child – or anyone even considering having a child – to pick this one up, read it thoughtfully, and reflect on it deeply, not just in terms of your child but in terms of the impact on your own life.

Confessions of a Public Speaker by Scott Berkun
I consider public speaking to be one of the two most valuable career skills a person can have. If you can present your ideas clearly to others, you’re going to do well.

This is, far and away, the best book I’ve ever read on the art of public speaking. It includes every tactic I’ve ever used successfully in getting myself up there on a stage and includes countless more useful ideas and anecdotes for making that challenging process work.

The Bogleheads’ Guide to Investing by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf
This is the single volume I’d recommend for anyone who wants to know more about investing. It tackles investing from the basics (getting your personal finances under control, because the less you spend, the more you can invest) through to almost every investment topic an ordinary individual investor would want to know about.

What sets this book apart is the consistent ideas and tone. The key idea, really, is inexpensive and simple diversification. You want to be invested in a lot of things so that if one thing collapses, you’re not completely bankrupt, while at the same time you don’t want it to be overly complicated so that you can’t really understand what’s going on.

The “Bogleheads” lay it all out clearly in this book. It can be a challenging read at times, but it’s a consistently worthwhile read and one that will really help you solve your investing problems.

Getting Things Done by David Allen
What’s the other valuable skill, the second career skill I alluded to above? It’s time and information management. You need to be able to utilize your time effectively and know how to tackle the genuinely important things (and toss the rest).

That’s exactly what this book does. It offers up a number of incredibly powerful principles for getting the multitude of things you need to get done in your life finished. It goes beyond that and offers a complete system for using those principles, but honestly, it’s the principles that really make this book.

This book changed how I organized my time in such a drastic fashion that I was able to launch and build The Simple Dollar while working full time at a demanding job and spend a ton of time with my family to boot.

EntreLeadership by Dave Ramsey
For many people, entrepreneurship is the most powerful route there is to financial success and personal fulfillment in life. I’ve read many books on entrepreneurship, from the “idea in your head” stage to the thriving business stage, and none of them work nearly as well as a single guide as this one.

EntreLeadership does just what I describe above. It takes a person from an idea for a business to the point where the business is large enough that delegation needs to happen. It offers tons of ideas and food for thought during that entire process, and does it in a readable and comprehensible manner.

Raising Financially Fit Kids by Joline Godfrey
This is the single best handbook I’ve yet found for taking on the challenge of teaching children about money. It’s also one of the most well-worn books on my shelf, simply because I’m raising three children of different ages.

This book offers real parenting tips for children in each age group, offering up countless ideas for introducing kids to money and giving great suggestions to the common struggles that parents have with their children and money at each age level, from very young children to young adults. I anticipate I’ll be using this book for many years to come.

The Millionaire Next Door by Thomas Stanley and William Danko
The final book on this list works well for one reason alone: it completely debunks the ideas most people have about what it means to be rich.

The guy in the Armani suit with the sportscar is probably broke. The ordinary looking guy in the reliable automobile is probably the millionaire. Why? People who have spending habits that lead them to buy the flashy things rarely are on a path to financial success.

The book backs up insights like these with extensive interviews and research, creating a fascinating and eye-opening study of what wealth actually looks like.

If you read these ten books, you’ll have a much deeper view of your money, your career, and the financial world around you.

Don’t Get an Oil Change Every 3,000 Miles (34/365)

Posted: February 4th, 2012, 1:00pm MST by Trent

Whenever I go get an oil change (often, whenever I find myself with a good coupon to a local oil change service provider), I always notice that little sticker in the corner of my windshield that they affix during the oil change.

Usually, it lists the mileage at which I should get my next oil change (according to them) and often lists the approximate date at which I should reach that mileage.

The only problem is that, without fail, that mileage revolves around getting an oil change every 3,000 miles. An oil change that often just isn’t necessary. It’s akin to getting an annual checkup at the doctor every six months.

Let’s just say I tear that sticker off.

We’ve all heard the mantra of getting your oil changed every 3,000 miles. It gets repeated to us every time there’s an ad for motor oil or oil change services.

That actually might have been true thirty or more years ago, when engines were built very differently than they are today.

However, the reality is that most of today’s car models require oil changes every 5,000 miles, and some models require it even less frequently than that.

The information you need is (again) in the owner’s manual for your car. It tells you the exact number of miles recommended for your car between oil changes. For most modern models, it’s 5,000 miles between a change.

So, how much does that save you?

Let’s look at a 120,000 mile life span for your car. I have a pile of coupons for a Jiffy Lube oil change (including oil) for $29.95, so we’ll use $30 as a base price.

With an oil change every 3,000 miles, you’ll have to change the oil 40 times. That’s a total cost of $1,200 over the car’s lifespan just for oil changes.

With an oil change every 5,000 miles, you’ll have to change the oil only 24 times. That’s a total cost of $720 over the car’s lifespan just for oil changes.

That’s a savings of $480 just by cutting out unnecessary oil changes.

Not only that, oil changes every 5,000 miles put you in line with the rest of the maintenance schedule (also found in your car’s manual) in most modern cars. If you have an oil change every 3,000 miles, you’re going to be very out of whack with that schedule, causing you to either delay other maintenance (risky) or get oil changes even earlier (expensive).

Take a peek at your car’s manual and see what it says about oil changes. You might just find yourself ripping that little sticker off, too.

Ten Pieces of Inspiration #58

Posted: February 4th, 2012, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Mortimer Adler on drudgework
I don’t think it’s necessarily a bad idea to work simply for the money sometimes.

“Work that is pure toil, done solely for the sake of the money it earns, is also sheer drudgery because it is stultifying rather than self improving.” – Mortimer Adler

However, if you’re doing that, your mind should be focused on what’s next. If you go to a job that’s just for a paycheck, then go home and don’t push yourself for something more, you’re just always going to have that same kind of job.

2. Shawn Achor on the secret to better work
The secret? Being happy about what you’re doing.

I find that when I’m enjoying what I’m doing, the work does tend to be more enjoyable and the work product is better.

3. Robert Bly on work and vacation
I tend to think that vacation is work. If you do nothing but work, you’re going to burn out on it.

Many people boast of going years without a vacation. But this is a sign of trouble — not commitment. – Robert Bly

I’m almost certain that a worker who works 48 weeks a year and enjoys 4 weeks of leisure produces more than a worker who works 52 weeks a year.

4. Morning sun
It doesn’t matter the season. I love the sight of the rising sun in the morning.

It comes up at different angles. It comes up on warm days and cool ones. It’s just always there, hanging in the sky.

Thanks to James Jordan for the image.

5. David Allen on keeping ideas in your head
This is the key idea behind how I manage my appointments and other key pieces of information.

First of all, if it’s on your mind, your mind isn’t clear. Anything you consider unfinished in any way must be captured in a trusted system outside your mind, or what I call a collection bucket, that you know you’ll come back to regularly and sort through. – David Allen

I get them out of my head. If I leave them in my head, I will almost always forget about it. If I write it down in a consistent place, all I have to remember is to regularly check that place.

6. What Should I Read Next?
This site actually does a really good job of suggesting another book to read based on the last one you’ve read.

I typed in several of my favorite books just to test it out and, each time, I found a list of results full of books I’d read and liked mixed with books that, upon researching them, looked really interesting.

Try it out. You might just find something great to read.

7. Thoreau on industriousness
It’s not enough just to work hard. You’ve got to work smart, too.

It is not enough to be industrious; so are the ants. What are you industrious about? – Henry David Thoreau

If you’re not working toward something for yourself, you’re working solely for the cash and you’ll probably never make significantly more than what you’re making now.

8. Blue sky
A blue sky doesn’t reveal a season. It could be cold. It could be warm.

All it does is draw you outside into the fresh air.

Thanks to Kevin Dooley for the picture.

9. Thomas Jefferson on meeting your fate
You’re far better off pushing forward to an answer (whether you like that answer or not) than you are just dithering.

If I am to succeed, the sooner I know it, the less uneasiness I shall have to go through. If I am to meet with a disappointment, the sooner I know it, the more of life I shall have to wear it off: and if I do meet with one, I hope in God, and verily believe; it will be the last. – Thomas Jefferson

Simply waiting means no resolution. Simply waiting means you’re not moving on with your life.

10. Ella Fitzgerald sings “Mack the Knife” and seems to forget the words
She’s an amazing singer, but what makes this amazing is that she seems to lose track of the words about halfway through the song, so she ad-libs by beboping and making up words.

Most people would just lock up in this situation. Ella is a master performer, so she just keeps going and still makes a very enjoyable performance that puts a smile on your face.

Buy the Cheap Gas (33/365)

Posted: February 3rd, 2012, 1:00pm MST by Trent

I’ve turned the regular fluctuation of gas prices at the gas station fairly near our home (the one mentioned yesterday) into a game of sorts with my oldest son.

Simply put, we’ve started tracking the data.

We watch for the price of gas on that sign each time we drive by it, then we mention whether it has gone up or down recently.

We remember the record prices we’ve seen (sadly, he’s so young that the lowest price he can ever remember is $2.97 a gallon – I remember my parents getting almost hysterical when prices inched vaguely near a dollar a gallon),

We also talk about whether or not the price is low enough right now to stop in and fill up.

We’ve even started tracking and recording this data a bit.

We do the same thing when we see gas stations in other towns, comparing them to the prices at home.

It’s a fun little economics game, but it has some real value, too. I’m cluing him in on many of the things he needs to know in order to maximize his value at the gas pump when he’s old enough.

If you can save $0.10 per gallon of gas, filling up a typical sixteen gallon tank saves you $1.60. Do that consistently and you’re talking about a significant difference in your annual fuel bill.

So, how do you shave off that $0.10? There are a few things you can do to make sure that you’re putting the least expensive fuel option into your tank.

For starters, know what your car needs. Very few cars need the premium fuel or can even utilize it to any degree of effectiveness. Take a peek in your car manual (see, there it is again – your manual is really useful) and see what type of gas is suggested. Most modern cars simply suggest using 87 octane gasoline, which is the “cheap” stuff at the pump in many states. Choose the gas type that’s cheapest at your pump that meets the minimum suggestion from the manual.

Never drive significantly out of your way to get cheaper gas. My rule of thumb is that I have to be saving at least a dollar in my tank for every mile out of my way that I drive. Since my vehicle has a sixteen gallon tank, I’m looking for a savings of at least $0.07 a gallon for every mile out of my way that I drive. Why? Even in perfect traffic, that’s still two miles (one each way) of driving in town, which will take at least five minutes with the risk of significantly more time, plus the gas you use to make that extra jaunt, just to save $1. You’re quickly getting below a rate of $10 per hour in savings.

Don’t be brand loyal until you’re familiar with the prices in your area. For the most part, the gas stations in your area are going to be pretty consistent with each other. If there are one or two stations that are a bit lower, they’re going to consistently be a bit lower. Spend some time studying the prices in your area, particularly along your commute, so that you know what the prices are, and consistently visit the station with the lowest prices.

After a while, you’re going to regularly find yourself using a single station or two, so get a rewards credit card associated with that station. Use it only for gas there. Typically, rewards cards associated with gas stations have really nice rewards, but only on gas bought at the stations in that chain. So, don’t use the card for anything but gas, and pay the balance in full each month. This will often get you a very nice price on gasoline.

You should also check your local warehouse club for gas offerings. The local Sam’s Club in our area offers gas prices substantially below other chains if you’re a member. Since we are, we often utilize Sam’s Club for gasoline.

If you’re a commuter, shaving a bit off of the price of a gallon of gas can help a surprising amount over the long haul. It’s one of those little changes you forget about until you find yourself breathing easier with regards to your finances.

Figuring Out What’s Really Important (As a Foundation for Your Decisions)

Posted: February 3rd, 2012, 7:00am MST by Trent

Whenever I spend time thinking about my life, I get caught up in a lot of ideals. I think about writing a great novel. I think about some volunteer projects I’d like to work on. I think about the house I’d like to build and the great travel I’d love to do in the next ten or fifteen years. I think about my own physical fitness and I think about riding in RAGBRAI.

These are wonderful dreams. I enjoy taking little steps toward them because, honestly, I usually enjoy the process.

Yet, when I step back and look at the broader scope of my life, that’s not what’s really important to me.

First and foremost, my family (and I consider my closest friends a part of that) is the single most important thing in my life. Bar none. Secondary to that is learning new things and, hand in hand with that, sharing what I’ve learned.

Almost every other interest and passion I have in my life is secondary to those things.

I’ll give you some examples to illustrate what I mean. Anyone who has read the site for very long knows that one of my favorite pastimes is playing board games and card games. I love playing games with other people across the table from me.

Yet, when I dig deep into it, it’s not really about the games. I do enjoy them, don’t get me wrong, but what I love about them is that it gets people I care about around a table engaging in a shared experience.

If you asked me what my favorite memories of board gaming are, they revolve around people. I think of playing Old Maid with my children. I think of playing Risk Legacy with my wife and three of my closest friends in the world. I think of sitting in my friend John’s living room, playing Descent with him and another of my closest friends.

Another great example comes from reading. If a friend or family member really enjoys a book, I’ll almost always give it a read. Why? Beyond merely being a good book, it becomes a shared experience with that person.

So let’s bring this home: what does this have to do with personal finance?

Personal finance is all about goals. If you’re not selecting a goal – whether it be freedom from debt, saving for an abundant retirement at age 70, or something else entirely – you’re either already incredibly rich (and you probably got there due to goals) or you’re spinning your wheels. Progressing toward a better and more secure financial state is something that pretty much every reader of The Simple Dollar shares.

However, goals are useless if you don’t feel completely motivated to move forward with them. You might desire a change in your life, but unless you’ve reached a point where that change feels vital to your future existence, it’s not going to happen. If you’re not getting out of bed with the feeling that today you’re going to move toward that goal, you’re probably not going to move toward that goal.

So, what is it that’s truly important to you? There is no right or wrong answer. It’s a matter of simply figuring out what’s truly important to you.

Here’s an example. I have a friend who dreams of being a sports announcer. He talks about it a fair amount. However, he also has a wife and a child at home. Recently, he told me that he thinks his sports announcing dreams are going to go on hold for a while. I asked him why, and he told me that chasing that dream requires a level of time and commitment that he can’t give to it right now. He had realized that his family was more important to him and he was sticking with the things that motivated him deeply every single day.

Does that mean that he’s abandoning the dream? Not entirely. Instead, he’s finding new ways to channel that passion that’s more in line with the rest of his family. He’s gotten involved with youth sports, assisting with the production of videos and other materials for other parents. This allows him to follow his passion while also being involved with his children. In fact, he’s starting a small video production company as a side business, where he creates professional videos highlighting a team and sells them for a reasonable fee. Several youth sports leagues are going to partner with him, so all he has to do is hire a few people to film the games, then edit them at home. He can film his own child’s games himself and involve the family in the production process at home.

Spending time with his family is the most important thing to him. Because of this activity, he’s spending time with them, earning some money on the side, and showing his children an entrepreneurial spirit along the way.

I can tell a very similar story about The Simple Dollar. My motivation to change my financial habits came from my oldest son. My motivation to write about it was many-fold: I enjoyed writing (value #2), I wanted to share some ideas with my friends and family (value #1), and I hoped to earn some money on the side to make our financial journey better (value #1), plus I would be able to involve my wife and my children in the process (value #1).

My dreams of making a living from writing didn’t start happening until I oriented them around what truly mattered to me. The same thing is true of my sports announcing friend.

So, what’s important to you? I think the easiest way to identify those core things that are important to you is to evaluate what you actually do over a long period of time. I’d focus on activities outside of the workplace, because we all need to earn a living, unless you’re already doing a job that’s key to what you value.

What do you spend your spare time on? I spend mine with my family and close friends as much as I can, and when I’m alone, I read and learn things. I bridge the two by finding ways to express what I’ve learned. This is what I enjoy doing.

My personal finance success came entirely from those things. My family inspired me to make changes with my money. My desire to read and learn educated me on how to do it. My desire to share what I learned launched The Simple Dollar.

You can follow a similar path with what you value the most. The key thing is to always remember that, no matter what your goals are, a solid personal finance foundation makes it all much, much easier to achieve.

Air Up All of Your Tires (32/365)

Posted: February 2nd, 2012, 1:00pm MST by Trent

Every weekday, I drive my daughter to preschool. It’s a nice routine, one that gives me a chance to spend some time with her. I make breakfast for her, make sure she’s adequately dressed for the weather, brush her beautiful long hair, and then we’re off to her preschool.

Along the path from home to preschool is a gas station. That station has the lowest gas prices within about a ten mile radius, so it’s the one I tend to use regularly.

Right next to the gas station is a free air pump, which I use about once a month or so. After I fill up, I drive over to the air pump, pull out my air gauge, check the pressure in each tire, and fill it up to the maximum recommended pressure as suggested in my car’s manual (see – there’s that car manual mentioned again).

Quite often, I’ll stop there before dropping off my daughter. She’ll get out of the vehicle with me, talk to me while I’m airing up the tires (she doesn’t quite have the finger strength to actually air them up, though we’ve tried), and often she’ll help me pull the air tube around to the proper position so that I can air up each tire.

It’s a bit of father-daughter bonding, sure, but it’s also saving me some money and subtly teaching her about a really valuable tip for auto maintenance.

I actually learned about this tip the hard way, too.

I used to just get my oil changed at a full-service oil change place that would air up your tires for you each time. I always felt that was good enough.

In 2006, though, I started getting really into measuring my vehicle’s fuel economy and figuring out ways to reduce it. I got my oil changed on a very hot day late in that summer, and by early December I was due for another oil change.

On a very cold morning, one where I intended to actually get my oil changed and my tires inflated that evening after work, I started to pull out of my driveway when one of my tires went “pop.”

This caused me to spend most of an hour getting the spare tire on, which meant I was a bit late for work.

That evening, when I stopped by the oil change place, they noted that the spare tire was on the vehicle. They noted that the air pressure on all of my tires was almost dangerously low. They also looked at the other tire that was sitting in the back and told me that it was fine and that likely it had been pushed off by bumping into a curb or something.

That’s one way that airing up your tires can save you money and time, but that’s just one.

The biggest reason to do it is that adequately aired tires save on your gas mileage. It’s pretty clear-cut, actually.

Every psi that any one of your tires is below the recommended maximum costs you 1/8% of your fuel efficiency. So, if all of your tires are 4 psi below the recommended maximum, your fuel efficiency goes down 2%. If they’re 6 below, you lose 3%.

Let’s say your tires are running 6 psi below the maximum. That’s a 3% reduction in your fuel efficiency. Your 25 mpg car goes down to 24.25. Over just 1,000 miles, that means your car is using 1.2 gallons more in fuel than if you had maximized your tires’ air pressure. That’s $4 gone, right there.

If it takes you 5 minutes to air up your tires, that simple move is saving you money at a rate of $48 per hour of effort. That’s well worth it.

All you need is to keep a tire gauge in your glove compartment and know what the maximum PSI is for your automobile (it’s in your manual). Fill your tires up with air once every month or two – it’ll just take you five minutes. Doing so will keep your tires at the maximum recommended pressure, maximize your fuel efficiency, and keep your tires on the rims (although that only happens if you neglect it for too long).

Reader Mailbag: Super Bowl Celebration

Posted: February 2nd, 2012, 7:00am MST 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. Repeatedly failing to achieve goals
2. Handling bill collectors
3. Rethinking mortgage payoff goal
4. Handling extra cash
5. Paying taxes at year end
6. Online business and credit cards
7. Buying home for parents
8. Heroes
9. Repair or replace used car?
10. Using emergency fund during schooling

What does our version of a Super Bowl party look like?

It’s a potluck dinner. The game is on in the background, but largely ignored. People sit around and play board and card games.

This year, my parents are actually going to babysit our children so we can do these things without children (meaning less distraction and less concern about child-unfriendly topics of conversation).

Q1: Repeatedly failing to achieve goals
All the time, I set these powerful goals for myself. I’m really inspired to get out there and start taking action on them. Then, about two weeks later, the fire just dies out and I stop making any progress on the things I want. I’ll sulk on it for a while, then set new goals and start off like gangbusters again, only to fail again. How do I break out of this cycle?
- Leon

First thing: stop making multiple goals. Focus instead on just nailing one goal at a time.

Second thing: stop making sweeping life changes to achieve your goals. Instead, focus on one manageable thing that will move you towards that goal. Work on nothing but that one specific thing for a while until it becomes second nature. Then, move onto the next specific manageable thing.

For example, if you’re trying to lose weight, pay off all of your debts, read a lot more than you were reading, and redo the entire interior of your house, pick one. Say that you pick weight loss. Focus wholly on eating no junk food for a month and replacing it with something healthy, like carrot sticks. Ignore the rest of it. Don’t even think of them as goals.

Q2: Handling bill collectors
I am working part-time (less than 20 hours a week) and currently seeking more gainful employment. I don’t make enough to get by and rely on help from others to pay my bills right now. I’m truly broke (like using coffee filters for toilet paper broke). I have debts that are in collections, and I can’t make payments on them. Is there something specific I need to do in regards to those accounts? Should I call the agencies and tell them there is no way I can make payments right now, or will that just encourage them to begin harassing me again (at the moment they seem to have given up on getting anything out of me)?
- Kevin

I’m not sure using coffee filters as toilet paper is a highly cost-effective solution unless you have a lot of coffee filters bought in bulk and no toilet paper on hand, in which case it’s a financial delay tactic of questionable hygiene.

The honest route is to contact the agencies and tell them that you can’t pay right now. Make it clear that you do not have adequate employment.

At the same time, however, I do encourage you to negotiate with them. Use your employment situation as a tool to play hardball. Tell them that you’re willing to pay a much smaller amount and suggest one. Debt collectors typically buy debts from large companies for pennies on the dollar, so anything they get from you is likely to be a profit.

Q3: Rethinking mortgage payoff goal
Our situation is this: We have ~153k left on our mortgage and we pay $320 extra each month. We also save $500 each month in a fund that we plan to use as a down payment for a new house. Our current house is pretty small. We have a toddler and another baby coming soon, thus the saving for the next down payment. The down payment fund has around 26k in it. In addition to the down payment fund, we have around 40k in cash.

The way I see it we have three options:

1) Continue on as we’ve been doing. Pay the extra $320 on the mortgage each month and save $500 for the next downpayment.
Disadvantage: Much more interest payments because of the longer loan. House not paid off until March of 2028.
Advantage: More liquidity, next down payment is not tied to current house.

2) Stop saving for the next down payment and divert that $500 to the current mortgage, so we’d be paying an extra $820 each month.
Disadvantage: The money isn’t liquid and if/when the value of our home continues to drop, the money is tied up until we can sell the house.
Advantage: Our house would be paid off in October of 2021, by my calculations, with far less interest payments.

3) Stop saving for the next down payment AND empty the next down payment fund to quickly lower our current mortgage down to 127k.
Disadvantage: Money tied up in the house AND we lose the liquidity of the next down payment entirely.
Advantage: The mortgage would be paid off 14 months earlier, August of 2020, with even less interest paid.

One idea in this whole situation is that if the mortgage is paid off, we don’t really need to worry about the next down payment. Once the mortgage is paid off, we can aggressively save for the next house and we would certainly have some equity in our current house, even in spite of the horrible market. What are your thoughts?
- Brian

It depends on whether or not you’re underwater on your current house, which I’m not exactly clear on. Do you still owe more than your home is worth?

If you do, then you’re going to have to get your mortgage down to the break-even point before you do anything else.

If you’re not underwater, then I would make minimum payments on the debt and start stockpiling for the next down payment.

Q4: Handling extra cash
I have a friend who I have sort of “taken under my wing” in terms of finances. He does fine with his money, he just isn’t very organized.

Background: He is single, early 30′s, base pay about $50k. He has no debt, old car, rents an apartment, probably has $30k in a cash cushion, and at least partially funds IRA/401k every year. He may move to another country in a few years, either with his job or to start a different career.

The question: He just received a gross bonus of about $140k, after taxes about $80k. He went ahead and fully funded 2012 401k with that (in his words, $13k to 401k), so that leaves about $65k to work with.

I am meeting him for dinner next week to help brainstorm about what to do with that $65k in his situation. He says he doesn’t want a new car at this point (he can walk to his job, weather-permitting, and I think he just doesn’t care about his car/cars in general).
- Andrew

Your dinner should be focused on what his goals are. What does he intend to do with his life in the future? Does he want to start a small business? Is there potential for marriage in the future? What about home ownership? These goals have different investment paths.

He may also want to consider using it to fund a Roth IRA for the next several years so that his retirement savings get a giant boost. That really depends on what other retirement savings he’s got to this point.

If he doesn’t have a goal, then he should sit on that money. Since he has a cash cushion, I would suggest that he puts most of it somewhere where he can largely forget about it for the time being, something that has some risk but also has some potential for a decent return. I’d probably put it in a very broad stock market index fund.

Q5: Paying taxes at year end
My husband did our taxes this year, and in the end, we owe the federal government money. It’s mostly due the unforeseen consequence of using an education award from my service with AmeriCorps, which pushed us into the next highest bracket. Is there any way for you to outline the process of repayment to the federal government? What are our options? Luckily it’s not an earth-shattering amount, and we’ll be able to cover it, but I am curious if there is a way to set up a payment plan or something like that. How would you avoid a windfall like this in the future, when we so often rely on a tax refund for extra “fun” money (to pay for vacations and incidentals)?
- Kelly

You certainly can set up a payment plan with the IRS. It’s easy to do and they’re pretty good about working with you if you’re clearly trying to pay your taxes.

My rule of thumb is that for every dime you bring in that isn’t already taxed, you should save a nickel of it for your tax bill. I do this with every dollar I bring in.

If you owe less than that (and you most likely will), treat the remaining savings as your tax refund.

Q6: Online business and credit cards
I am a small business owner. I have accepted credit cards for 15+ years, but only process a handful of credit card transactions per month.

My credit card processing company keeps raising their fees, raising their fees, raising their fees…..and lowering their level of service; they will no longer even send me a monthly statement, without charging me a “statement fee.” At this point, due to their fees, if I process NO credit cards, my annual costs are $500+! Add in the transaction fees (3% or more per transaction), and it’s just become outrageous.

I would like to be able to continue accepting credit card payments as a convenience to my clients, but these fees have become unbearable.

Besides Paypal, are you aware of any way to accept credit cards without these high fees?
- Shelley

My immediate suggestion would be to use Google Checkout, which seems to be just what you’re looking for here. It will handle your transactions easily, Google takes a small cut, and you move on with business.

I’ve been using Google Checkout for a while now on a project I’ve helped some other people with and it’s worked great.

Paypal is convenient, but as a seller, I’ve heard a lot of stories about frozen accounts and the like and that makes me fairly nervous. I’m assuming you’re wanting to avoid it for similar reasons.

Q7: Buying home for parents
My boyfriend Jim and I have been together for 4 1/2 years and are planning on marriage in the next couple of years. My question is about Jim’s parents. Their real estate business went bankrupt when the recession hit and they have been having a very difficult time making ends meet. Jim’s father is now underemployed doing factory work and looks for minor home maintenance work on his days off. His mother has been disabled for the last few years due to extremely debilitating arthritis. She cannot work. They’re making it, but barely. Jim has been helping his parents out financially since he started working – roughly the amount of their mortgage payment monthly. I know this is something we will need to do for the remainder of their lives unless we do something like buy them a home.

Jim and I are financially solvent enough to buy their home, due to a large inheritance I received – it would cost us less than 5% of our assets. We would like to keep it in our names, and we would let them live there, free. The reason we hesitate to put it in their name is because we do not want them able to take a loan out on the home. Jim’s father has been irresponsible with money in the past. If we bought their home, it would fix all financial problems they are having, barring catastrophe. They would be able to save for an emergency fund, retirement, have enough money to make ends meet, and have a little something left for themselves to enjoy. It would be a very large increase to their quality of life.

Do you think I should buy their home for them? If I buy it, should there be strings? Would “strings” of “forced savings for retirement/emergency fund” be unreasonable? I tend to think strings are a poor idea because of the way it would affect the relationship between us and his parents. I don’t want them to view us as their landlords. I badly want to turn their situation around, but I want to do it in a way that will allow them to remain self sufficient after we do so, and cause us to not need to intervene in their financial lives on a regular basis.
- Kathryn

If you buy it, I wouldn’t attach any “strings” on their behavior. You’re opening the door wide for future conflict.

If you can easily afford it, buy the home and just let them live there without rent. When they no longer use the home, you can fix it up and sell it, possibly turning a small profit on it.

One thing I would suggest from personal experience, though: make sure you establish who’s responsible for property taxes and insurance. Given the situation, it’s likely you’ll be responsible for it, but be sure you’re aware of that before you jump in.

Q8: Heroes
Who are your heroes? What people inspire you greatly?
- Charlene

Most of the people I think of as “heroes” aren’t famous. There are so many people out there doing things quietly in their community, changing lives in a positive fashion, and they never get lauded with celebrity or fame.

I admire the couple in our community that run the food pantry. They spend quite a lot of time on it, collecting food, keeping the doors open, and making food available to the needy in the community. It’s a constant commitment of time with no real reward. They don’t get fame from it. They barely get any recognition from it. Yet they do it, week after week, month after month, year after year, because people in the community need help.

To me, that’s a hero.

Q9: Repair or replace used car?
My wife and I plan to look for and hopefully purchase a house this spring. We have been pre-approved for a decent amount (~$400K). Although we are looking now, current inventory is lacking and we feel after the new reality season in our area (traditionally the week following SuperBowl Sunday) we should be able to find something we like and can afford. With the market being what it is, we are determined to find a house that we can easily live in for at least a decade.

In the meantime, we currently have two automobiles that eventually need to be replaced. We plan to replace them with newer used cars.

My 1997 Mustang needs $1200 worth of repairs to make it safe to drive. This includes brakes (~$400) and new tires (~$400). It would be a game of Russian Roulette to continue navigating Chicago Winters (read: snow) with my current set of tires. [I actually ended up putting in $400 in repairs to the clutch cable and a few other things the other day.]

My wife’s car, a 2002 Trail Blazer, is in better shape but has worse gas mileage than the Mustang. I currently drive her car 26 miles to work (one direction). Her transmission is starting to fail. Our future perfect world scenario would be to replace the Trail Blazer with an Element and the Mustang with a more fuel efficient car to be determined later, perhaps a hybrid or even an electric car if we have the infrastructure, though we’d likely replace the Mustang first and get an Element.

The question is, do we repair the Mustang or use the $1200 toward purchasing a new used vehicle. As I see it, if we invest the $1200 into the car, we reduce our emergency fund and/or downpayment fund (both separate at the moment). However, if we take on even a small auto loan, the interest rate we get for our house might be slightly higher than we could get otherwise and over the life of the home loan, even a quarter percent higher equates to ~20K extra interest paid.
- Ron

It really depends on the reliability of the Mustang other than the things you’ve mentioned.

Has it reached a point where you can barely go three months without something going wrong with the car? Or is this just a conflux of things that’s fairly unusual for an otherwise reliable car?

If the car can’t get you reliably to work and back, you need a different car. Yes, that might slightly postpone your house plans, but if the alternative is having your boss tell you to take a hike because you can’t consistently get there on time, then you don’t really have a choice.

Q10: Using emergency fund during schooling
I am a LPN in my late 40s who will be returning to school in the Fall pursuing the additional education to become a registered nurse. My children have completed college and are out of the house. My husband and I have a house payment of $850 (for another 4-5 years) but otherwise no debt. We have about 6 months of our monthly income in savings, and I have about $150k in a 401k.

When I return to school for the year, I hope to either quit working altogether or work no more than 20-30 hours per month. (I make $20 per hour). My husband will be changing his withholdings from his check once I stop/reduce working, as we both claim zero dependents and have additional money taken from each of our paychecks. So his checks will increase to some degree when I reduce my hours. I will attend a local community college, so educational costs will likely be $4000 -$5000 for the year, and I intend to pay out of pocket for this.

My question is this, if we are financially strapped during the course of my year of schooling, is it better to take out a student loan (since they are at such a low interest rate for 10 years) or potentially deplete/reduce our saved money? Should our savings be used only for “emergencies” ? or do you feel that is precisely what a “savings” is for? I have considered taking out a student loan and putting it in savings and only using it if we are strapped. If I don’t need it, then I’ll repay it immediately after I finish school and have returned to full-time work. (It isn’t always a quick process to obtain a student loan, which is why I have thought about doing it whether or not I need it initially. If I wait until I need it, it might take too long to obtain the funds needed.)

(By the way, I’ve been “couponing” for about 6 months and have nearly a year’s supply of all toiletries and paper products that we will use during the course of my schooling. I also garden and have a significant supply of frozen and canned produce to help us get through this time.)

I’d appreciate your thoughts and insight. I’m excited, but nervous, to be returning to school. RNs in our area typically make 10-15k more per year than LPNs, so it won’t take long to see a return on my educational costs, but more importantly, there are probably 10 RN job opportunities for every 1 LPN job opportunity, because so many facilities are no longer employing LPNs.
- Linda

Don’t even think for a second about what you might earn after this schooling. Betting on earnings that your future self might make is a route to financial despair.

Instead, look strictly at the difficult year. Make a budget for that year. What is your family income during each month? What are the required bills that are going to have to be paid?

If it doesn’t add up, delay this move for a year or two until you can save enough to make it work. Remember, this does not constitute an emergency, so you should not deplete your emergency fund for it. If you do deplete it and then something goes seriously wrong, you’re going to be in a desperate pickle.

Don’t Buy a Service Contract or an Extended Warranty (31/365)

Posted: February 1st, 2012, 1:00pm MST by Trent

I don’t like high pressure sales situations.

Whenever I find myself in a situation where some cheesy salesperson is trying to give me the hard sell on some product, I find myself walking away. Even more so, I usually find myself getting a negative gut impression of the product being sold, one that’s usually reinforced when I go home and do the research only to find that the product is overpriced or underwhelming.

Case in point: when Sarah and I bought our Prius in 2009, most of the people at the dealership were friendly and hands-off, but there was this one guy who we interacted with that tried to do the hard sell on a service contract.

We were ushered into a small conference room by him where he attempted to do some kind of hard sell on us on a service agreement. It came off like one of those police interrogations on television.

After about a minute, we told him we weren’t interested. I got up to leave and he said, “Now, just hold on a minute…”

I told him, flat out, that I was walking out that door and if I was stopped from doing so, we were leaving the dealership without the car.

That’s how I often react to the hard sell. I just walk out of the room. I don’t trust the “hard sell” and I’m certainly not going to listen to it. If your product is so questionable that you have to resort to the “hard sell,” I’m not interested.

Of course, a big part of the reason I walked out is because, most of the time, that initial offer for a service contract or an extended warranty is way overpriced and does little for you. It’s a questionable product, which is part of the reason why they went for the “hard sell.”

For example, if you’re looking for a service agreement for your car, you’re going to want to make sure that the contract you’re being offered does not merely duplicate things that are already found in the warranty. You’re also going to want to carefully read over the exclusions, because things like “normal wear and tear” make the service contract nearly worthless (as they’ll claim almost everything is “normal wear and tear” and thus excluded from the contract). These two factors alone will eliminate most service contracts you could buy.

If you’re still interested in finding one, shop around. Check with various auto repair shops in your area and ask if they offer service contracts. If they do, ask for a copy and review it carefully. The vast majority of contracts that you find will have exclusions and restrictions that make them a pretty poor value.

What about an extended warranty? These usually just extend the terms of your car’s warranty. However, they’re not a particularly good deal, either, because most of the defects in a car show up before the end of the normal warranty and the warranty often excludes things like “normal wear and tear” (just like that service contract). It’s much like buying an extremely overpriced and very limited insurance policy for service on your car.

In my opinion, your best move is to take the money you would have spent on these things and put it into a savings account. Then, tap that money only when you actually need repairs to the car (repairs that the service contract wouldn’t have covered anyway).

The Simple Dollar Weekly Roundup: Human Edition

Posted: February 1st, 2012, 7:00am MST by Trent

Recently, I found out that one of my favorite writers has cancer. That person will announce it in due time if it turns out to be untreatable, but that’s her (or is it his?) decision.

When you’re a fan of someone’s work and read it faithfully, it’s easy to get caught up in that person’s work. You want a new book. You want a new blog post. You want a new photograph. You want some detail to be corrected. I do this all the time. I can’t tell you how long I’ve pined for the next book in fantasy series that I’ve loved or waited for the next album from the artist I enjoy.

Sometimes, though, the curtain is lifted. There are human beings back there, trying hard to create useful things, handle the feedback they get, and still live some semblance of a normal life. They make mistakes. They have pain and regrets.

For every singer, artist, writer, or other creative person whose work you love, there’s at least one real person back there trying to deal with this complicated mess we call life. They deal with sick children, past regrets, relationships that aren’t going well, and illnesses of their own.

We are all human.

How to Choose a Good Bank as a Freelancer This is a really interesting perspective on choosing a bank, as not every bank account is perfect for everyone. (@ freelance switch)

Finding the Courage to Stay the Course Sticking to a long-term goal can be really hard, especially when you’ve reached a point where there’s a lot of work to do before the next milestone. This is some great advice for sticking to it. (@ dumb little man)

Seven Easy Menu Planning Ideas We do most of these things. These tactics really help with food preparation. (@ living richly on a budget)

Five Free Gifts for Valentine’s Day Don’t sweat over a perfect gift or a box of chocolates or something when a bit of thoughtfulness will do. (@ million ways to save)

Read the Manual (30/365)

Posted: January 31st, 2012, 1:00pm MST by Trent

When my wife and I first got our Prius, we had a very difficult time getting the car to turn on.

Now, this seems like a completely simple issue. Put in the key, right?

Well, our Prius has a button on the dash that says “Power” instead of a key. Unfortunately, if you push that button without having a little keychain in your pocket, it won’t work.

Even stranger, if you push it with that keychain in your pocket and haven’t pressed down on the brake, you’ll just get the auxiliary power.

It took Sarah a while to figure it out. Then, a few days later, I spent more than an hour figuring out how exactly this worked. (It seems simple, but when you’re in the car with no idea how to do it, it’s a bit trickier – trust me.)

How did I figure it out? I read the manual.

Those of us who have owned a car for a while generally feel pretty confident about how the thing works. Put in the key, put it into drive, and go, right? Who needs the manual for that?

In truth, a car manual is loaded with useful things, particularly if you’re new to that model of car. It tells you how exactly each feature works on the car, for starters. After my experience with the Prius, I spent about an hour sitting in our Pilot after we purchased it, trying out all of the features just to see how they worked. Let’s just say I never found myself wondering how the emergency brake or the windshield wipers worked during the moments when I needed them.

The manual tells you lots of little useful facts, like the recommended tire pressure (invaluable for when you air up your tires) and the details of your warranty. It tells you the maintenance schedule (something I’ll talk more about in the next few days), where the tools for changing a flat tire are, and how exactly to turn on your flashers. It describes how to change the oil yourself, how to replace the windshield washing fluid, and how to change the transmission fluid.

Every single one of those things will save you time and money. Often, that time and money will be saved during a key moment when time and money are of the essence. All it takes is some time spent right now reading the manual and trying out the things described in it.

Your car manual is a giant recipe for relieving car-related headaches. Take advantage of it.

Banks Are Not Your Friends

Posted: January 31st, 2012, 7:00am MST by Trent

I believe that banking institutions are more dangerous to our liberties than standing armies. – Thomas Jefferson

Thanks to William Grootonk for the image.

Yesterday, I was stunned to read a news report about how Freddie Mac denied people the ability to refinance, then made investments that earn them more money if people are unable to refinance. “Freddie Mac has invested billions of dollars betting that U.S. homeowners won’t be able to refinance their mortgages at today’s lower rates, according to an investigation by NPR and ProPublica, an independent, nonprofit newsroom. [...] Millions of homeowners wish they could refinance, but their lenders tell them they can’t qualify for today’s low rates because of tight rules. Freddie Mac is one of the gatekeepers with the power to set those rules, and lately, it has been saying no more often to homeowners.”

In other words, the investment arm of the institution is making investments that will profit if people can’t refinance while their lending arm is telling people that they can’t refinance.

They are not your friends.

Do we even need to go into detail about how banks, insurance companies, and lending institutions consistently work against the customer?

Citigroup’s main brokerage subsidiary, its predecessors or its parent company were considered by the SEC to have violated the law against purposeful or negligent fraud of customers under interstate commerce five times: in 2000, 2005, 2006, 2010 and 2011. In each instance, the firm undertook “never to breach the law again”.

Bank of America, which now includes Merrill Lynch, was found by the SEC to have violated security laws some sixteen times and made similar pledges on each occasion.

JPMorganChase, which now includes Bear Stearns, was found by the SEC to have violated security laws some twelve times and made similar pledges on each occasion.

The scorecard for other big financial institutions is: UBS —seven times; Goldman Sachs —three times; Wachovia —three times; AIG —twice. The list goes on.

These businesses are not out to make your financial lives easier. They are out for profit. Sometimes, profit might be in line with what your financial needs are. At other times, the profit of the bank is opposed to what your financial needs are – and profit will win.

These banks are doing exactly what they were designed to do, which was make money for the shareholders. That does not include making money for you unless doing so happens to coincide with making money for the shareholders.

My point is simple. Do not rely on these institutions for your financial future. If you already do, make it a serious focus to reduce your reliance on them.

Every day you’re in debt, you’re handing money to these financial institutions because they loaned you some money in the past. If you put $1,000 on a credit card and wait a year to pay it off, you’re not only paying back the $1,000, you’re giving them $200 more for the privilege. Mortgages are even more painful. A 30 year mortgage for $200,000 at, say, 6% often has several thousand in closing costs right off the bat. Then, over the lifetime of that mortgage, you’ll not only pay back the $200,000, you’ll also pay back $231,676.38 more in interest just for the privilege.

Got a credit card? The terms will likely change on that card on a fairly regular basis as the companies find new ways to earn a profit from you holding that card. Often, that means you’re going to be paying fees on it or high interest rates on it or interest that starts accumulating very quickly or bonus programs that are difficult to use.

Every day, I receive emails from readers that have piles of credit card debt, piles of student loan debt, a big mortgage, car loans, and other forms of consumer debt. Others are thinking of getting deeper into debt because they want that house or that car now.

When you walk in the door of a financial institution, you play by their rules. They do not give you money because they want your dreams to come true. They give you money because they’re going to make far more money from you over the long run.

Your mortgage may be life-changing for you, but it’s just another profit-making revenue stream for your bank. The same goes for your car loan or any other debt you may hold.

What’s the solution, then? Debt freedom. It’s a very simple goal, but it’s a powerful one, and until you achieve it, you’re going to be simply handing money to financial institutions.

What’s the biggest part of debt freedom? Self-control. You don’t need everything, and you certainly don’t need it today. Your life will not be made whole or complete by having a big house or a shiny new car. Focus on having just the things you actually need and stand on your own two feet with them.

The best thing you can do if you want better behavior from the banks is to make yourself far less reliant on them and stand on your own two feet financially.

Focus on Reliability and Fuel Efficiency (29/365)

Posted: January 30th, 2012, 1:00pm MST by Trent

The last two weeks have focused on appliances. Now, we’re going to shift directions and take a deeper look at automobiles.

Let’s take a look at two hypothetical cars.

You’re looking at a class of cars that, according to the data you’ve researched, get to 150,000 miles pretty reliably before significant problems set in. You drive 25,000 miles per year, so you’re hoping to get six years out of the car. Gas costs $3.25 a gallon. We’re going to assume that insurance among the models is equal and that maintenance costs are equal, too.

Let’s call one Model A. Model A costs $25,000. It gets 35 miles to the gallon. Based on the data you’ve seen, Model A is about 10% more reliable than the average car in the class you’re looking at.

The other one, Model B, costs $18,000. It gets 22 miles to the galoon. Based on the data you’ve seen, Model B is about 10% less reliable than the average car in the class you’re looking at.

(I’m using “Model A” and “Model B” because I’m not advocating a particular car make or model here, but simply trying to demonstrate how much of an impact on your wallet that fuel economy and reliability make.)

Both cars will sell for about $1,500 used.

Which one is the better bargain?

The one figure I care about above everything else is the cost per mile while you own this car. Usually, you’d figure things like insurance and maintenance into this cost per mile number, but since we’re assuming they’re equal, we’re only going to worry about the cost of fuel and depreciation.

So, with Model A, you’re going to lose $23,500 due to depreciation. Given that it’s 10% more reliable than the average car of that class, you’re going to get 165,000 miles out of it. You’ll have to put 4,714 gallons of gas in it over that timeframe, totaling a cost of $15,321.43, for a total investment of $38,821.43. Per mile, over those 165,000 miles, you’ll be putting 23.5 cents per mile into the car.

With Model B, you’re going to lose $16,500 due to depreciation. Given that it’s 10% less reliable than the average car of that class, you’re going to get 135,000 miles out of it. You’ll have to put 6,136 gallons of gas in it over that timeframe, making for a fuel cost of $19,943.18, for a total investment of $36,443.18. Per mile, over those 135,000 miles, you’ll be putting 26.9 cents per mile into the car.

To put it simply, reliability and fuel efficiency are worth a lot when buying a car. You would need Model B to cost about $13,000 to compete on cost with the Model A (with a sticker price of $25,000). Yes, reliability and fuel efficiency are making up for about half of the price of the car in this example. The difference is enormous.

Not only that, the more reliable your car is, the greater the time between car purchases. That means less time spent looking at and buying a car and more time spent enjoying life. In the above comparison, Model A is going to last the owner more than a year longer than Model B even though the owner is putting 25,000 miles per year on the car. Not only is Model A cheaper per mile, it’s going to last longer, too.

So, how do you find out about reliability and fuel efficiency numbers? My first destination for such research is Consumer Reports, which usually has solid information on a wide variety of car models in terms of both fuel economy and reliability. Your library likely has several years worth of Consumer Reports car issues. Beyond reliability and fuel economy, I also look seriously at safety information, which Consumer Reports also helps with.

FuelEconomy.gov is a great online resource for fuel economy data. It gives all kinds of details on the fuel economy of various makes and models of automobile.

ReliabilityIndex.com is another tool that can really help you identify which models have a history of reliability and which do not. I use their reliability index as one significant factor when deciding on what car to buy.

All of the luxury features you might want in a car should be completely secondary in your search. Most of those features can be installed later if you decide you can’t live without them, so don’t pay for them at the dealership. Focus instead on getting the best bang for your buck that you can get in terms of fuel efficiency and reliability, and you’ll find yourself happy at the lighter load that car puts on your wallet.

Reader Mailbag: Early Mornings

Posted: January 30th, 2012, 7:00am MST 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. Paying off low interest debt
2. Refinancing question
3. Coaching youth sports
4. Building credit from scratch
5. Buying home without down payment
6. Breakfast question
7. What happened to WaMu?
8. Handling my first large paycheck
9. Collectible toys for kids
10. Retirement fund on low income

About three times a week, one of our children wakes up really early. It’s often due to a bad dream, but sometimes it’s due to a noise in the night or simply stirring to wakefulness.

Usually, the kids come into our bed for a while, but I don’t get any more sleep once they arrive due to their moving around and restlessness, so I’ll get up with them sometimes.

I’m writing this early in the morning. There are Legos all around me. One of our children has fallen back asleep on the carpet.

Welcome to parenthood.

Q1: Paying off low interest debt
Two sentence summary of question: What should I do with my money when I already have a significant amount of money saved and my only debt has a very low interest rate? Is it a bad decision to pay off low interest debt?

I am 30 and married. My wife and I hope to start a family this year. We are both lawyers and we currently make approximately $350k a year (combined). Once we have a child (God willing), my wife will attempt to work part time and we expect our combined income to drop to approximately $250k. We currently rent ($2200 a month) and we are looking to purchase a home in the next 12-18 months. We have $116k in student loan debt ($66k at 2.625%, 36k at 1.63%, 13k at 2.25%). We were fortunate to have low interest rates on this debt. We also owe 11k on one vehicle (.9% financing). So, we owe $1,110 a month for our debts (education and car). We have approximately 350k saved for a house in our ING account and I have 30k in a Vanguard account (investing in index funds). We both max our our 401k contributions.

For the past year, I have been making minimum payments on our debt. For this year, I am thinking about paying off one of my wife’s two remaining loans (the 13k one) in order to free up our cash flow when she no longer works full time.

We currently save $6k a month. Would you continue to make minimum payments on these student loans or would you start to aggressive pay them off. I know that I have a lot of money saved up for a house etc. I just do not know whether I should save more or get out of debt (even though the interest rate on the debt is low).
- Vince

It is never a bad decision to pay off debt, even debt at a low interest rate.

The best way to think about paying off low interest debt is to think of it as an investment that’s guaranteed to return that interest rate through the original length of the debt.

So, let’s say you have a car loan that is at 4.5% and it has three years left to go. If you pay it off now, you’re essentially doing the same thing as buying a three year CD that returns 4.5%, with the advantage that the returns aren’t taxable but with the disadvantage that it’s a bit less liquid than a CD.

Is that a good choice for your money? I think that most of the time, the positives outweigh the negatives.

Q2: Refinancing question
I currently have a mortgage with a rate of 6%, but I have seen rates offered as low as 3.5% to some of my friends when they refinanced. Because I was curious, I called up my current bank and they offered me two options:
1.) 4.25% on a 30 year loan. This would reduce my mortgage by about $60-$80 a month. But, I would lose the $12,000 that I already paid off on the house, which I don’t like.
2.) 4.00% on a 20 year loan. This would save me approximately $35,000 over the life of the loan, although my mortgage payment would go up about $25 a month.

The numbers above include the $3000 I would pay for closing costs and another $3000 I would have to pay off (from a grant i rec’d when I purchased the house). Both these would be wrapped up in the refinancing loan above.

SO, now the big question…should I choose #1, knowing that the extra money would help in paying off my $27,000 in credit card debt (which we are trying to dig out of now) and about $25,000 in student loans. OR, do I choose #2, even though I would like to move within the next 5-7 years (so I don’t know how much of a real savings I would get). My husband and I think #2 may be the better option but it will just take us that much longer to pay off our debt. Our budget is a bit tight at the moment – we have enough to live month to month, but extra spending like presents for Birthdays or Christmas, do put quite a burden on the finances. And, we have no savings or emergency fund to speak of – aside from taking a loan against our 401K.

What do you think?
- Eve

You should look at the results of a detailed mortgage calculator, like the one over at Bankrate.

I don’t know what your balance you’re hoping to get a mortgage on is, but let’s say it’s $200,000. At the seven year mark (the point at which you think you might sell), your balance would be $172,726.96 on the 30 year loan. At that same seven year mark, your balance would be $146,519.38. Simply put, at the seven year mark, you’ll have $26,000 more in equity in your house if you choose the 20 year loan over the 30 year loan now. The point is that taking the shorter-term mortgage will result in a lot more equity in your house in a few years when you choose to sell.

Is that the right choice to make? It’s really hard to tell. I think it depends on other factors such as job stability, the size of your emergency fund, and the career opportunities you have. The more stable you are, the more I’d lean toward the twenty year loan.

Q3: Coaching youth sports
Coaching youth sports seems like something really interesting to me. It’s a way to give back to the community and get myself outside, plus it’s a free form of entertainment. The only thing I’m unsure about is how to get started.
- Marvin

The first step is to contact your town’s parks and recreation department and find out if they have any openings for youth sports.

You’ll find, though, that if you’re not a parent, you’ll probably have significantly more luck serving in other roles, such as a referee. My experience in several communities has been that the coaches in many early youth sports are parents of some of the children involved and the coaches of more advanced youth sports are professionally trained to do so.

Regardless of what role you fill, there are few things better that you can do in the community. It means physical activity, lots of fresh air, and providing great opportunities for kids.

Q4: Building credit from scratch
My brother-in-law has recently turned 18, moved out of his home with his parents, and into a home with a school friend. He is finishing high school, and will graduate in May. At that time, he will be moving closer to us and attending one of the local junior colleges for at least a year. I am trying to give him some budgeting and credit advice but my own path in each of these areas was initially flawed at that age.

My question is this: being that his income is comprised of social security (until he graduates high school), and should have a job within a few weeks, what is the safest and smartest way for him to establish and then build his credit? His initial solution was to open a credit card, but I am afraid the allure of spending will be too much for him to control.
- Jenny

One option is to have him open a credit card, but give the card to you. Then, use that credit card for things like gas only when you’re with him, and have him give you the cash to cover it. This will build his credit without any risk.

Another option is to contact your card issuing company and ask about adding him as an authorized user on your own card. Make sure that such information is reported to the credit agencies and will benefit his credit before you do so.

A final key is to remember that he won’t be listening to a lot of the things that you tell him. The best thing you can do is make sure he knows you’ll be there for him whenever he needs you. While stuff about “credit” and “Equifax” will likely go in one ear and out the other, making it clear that you care and support him as he finds his own path will stick around.

Q5: Buying home without down payment
My husband and I would like to buy a house. This is our dream and we have been trying to buy but unfortunately prices were always too high for the places we wanted to buy. This time around I’ve finally convinced my husband to look in an area which he previously didn’t want to live in (no real reasons) and where prices are a bit more affordable. The houses are around $400,000 for something decent. This is a bit expensive for us, but I think we can do it.

The problem is he wants to put down a 20% deposit, which we don’t have. We only have about $50,000 and we can maybe reach $60,000. So he becomes stubborn and asks me to look for cheaper homes, which is impossible because for $300,000 we would get nothing or a house in a crime infested neighborhood. We have a 3 year old! My thinking is, let’s put down less. 10%. His thinking is let’s put down 20% or we don’t buy the house. Because of his thinking we still don’t own a house.

What do you think? If we both really want a house, how much is really PMI going to be in the long run and is it right to make PMI such an important factor. I understand that it would be nice to have the whole 20%, but if you don’t have it and if you know it would take at least another 5 years to get that money together, what would you do?

I have a toddler and I would like her to have her own backyard, her own home and such… Also, if this makes a difference, I am not planning on being in this new house for more than 4 years, so the PMI wouldn’t be as substantial as it would be in a 20 years home…
- Linda

I don’t think you should get a house at this point. Essentially, if you’re only going to stay in the house for four years, you’re basically going to be renting for that timeframe as you’re not going to build much equity given the current housing market.

That “rent” will include your mortgage principal, your PMI, your property taxes, your homeowners insurance, your lawn care costs, and increased energy bills, at the very least. That’s a lot of money each month for a home that your child will barely remember when they get older.

Rent as cheaply as you can for four years and sock every dime away for a down payment that you can. When you reach the four year mark, then you’ll be in a much better position to buy the house that you’ll be in for the long term.

Q6: Breakfast question
I need a breakfast of some kind in order to get going in the morning. However, most mornings, all I have time for is grabbing something through the drive-thru on the way to work and that adds up quickly (both in the wallet and around the waist). Any suggestions?
- Jill

Plan ahead for that breakfast.

My solution to this problem was to make giant batches of breakfast burritos on the weekend and store them in the freezer. Then, in the mornings as I got ready to go, I’d grab one from the freezer, wrap it in a paper towel, and microwave it. I’d grab this on my way out the door and eat it on my way to work.

The cost per burrito was much lower (helping with the wallet), the ingredients were healthier (helping with the waist), it was pretty tasty, and it actually cut five or ten minutes off of my commute time because I wasn’t stopping at a drive-thru.

Q7: What happened to WaMu?
I’m a college student that’s starting to look around at banks to see which one might be best for me. In reading some old articles, I discovered a bank by the name of WaMu that was very popular and apparently a fierce competitor to ING. However, when I went snooping to their website, I discovered that they were now becoming a part of Chase. Do you know if this has changed much about the experience of using WaMu?
- Mark

WaMu is short for Washington Mutual. Washington Mutual was a bank chain that failed during the banking crisis of 2008. It’s now out of business. JP Morgan Chase wound up with most of the assets and accounts of Washington Mutual.

Most of the features that made WaMu distinct – good rates, a very unique floor plan in the branches, aggressive and quirky marketing – have not really continued under the new ownership. It’s just a part of Chase.

WaMu made a lot of poor business decisions, but it made some good ones, too. More competition is always better for customers, so I’m kind of sad to no longer see WaMu in the mix.

Q8: Handling my first large paycheck
Taking advice from your blog and several others, I’ve recently quit a low-paying job in the education field (about $19K a year, September to June) to take on a position as an office admin assistant (for about $30K a year). I feel good about the move: while I’m not using the degree that put me into such debt, I enjoy office work, I’m good at it, and it both pays better and is far, far closer to home (hour commute compared to fifteen minute commute!). I’m looking forward to no longer living paycheck to paycheck within the next two months, and have a plan in place for getting rid of my debt a bit faster and creating a more solid emergency fund (it’s currently about $1,000).

While I know I’ll still be living on a tight budget for some time, I’m looking forward to having a bit of “breathing room” – no longer living paycheck-to-paycheck, having an emergency fund, etc. Talking with friends has raised what I think is a good question, even though it might not apply to me for several years. I’ve witnessed (and even succumbed to) the “first paycheck” trap: the “hey, look, I’m making a ton more money than I’m used to – that means I can splurge and treat myself to xyz!” Obviously, until I’ve paid down my student loans in the coming years, I won’t be able to fall into this trap, and I’m hoping that after my loans are gone I can begin saving for a house.

But I was wondering: what, if anything, do you consider worth splurging on once you’re comfortably making more money than you’re used to? Assuming debts are paid off, emergency funds are more than adequate, retirement is funded, and you’re already saving towards whatever goals you have in mind, etc. Obviously, the trap of just splurging on instant-gratification items isn’t the way to go, nor is pitching out everything you’ve “made do” with until this point to buy bigger, better, brand-new whatevers. But once you’ve achieved that leeway, what do you think would be worth spending that extra in your paycheck on?
- Ben

If I were you, I would focus your “splurging” on replacing items you already use with very well made and reliable replacements.

There’s not really an exact answer here, as it depends a lot on what you do with your time and the lifestyle choices you make. If you spend a lot of time preparing high-quality meals, for example, you may want to focus on upgrading your kitchen tools slowly. If you have a lot of guests, you may want to slowly upgrade your flatware and dishes.

Don’t buy “new” things – or, if you do, be wary. Instead, slowly upgrade the stuff you actually use to high quality and reliable versions.

Q9: Collectible toys for kids
How do you handle it when your children get into some sort of collectible toy that never seems to end, like Pokemon or Pokemon cards?
- Andy

They buy such things out of their allowance. Because of that, it somewhat limits itself.

My son got heavily into Pokemon cards for a while, as it was heavily spurred by a cousin who gave him several hundred cards and some older kids at school who played with the cards in the cafeteria. He received a few packs as stocking stuffers and bought some more with his allowance, but eventually the fad passed.

This isn’t really a problem if you don’t give into your children and constantly buy them things.

Q10: Retirement fund on low income
I am 24 years old and renting in NYC. I have roughly $11,000 in student loan debt, and only $1000 in an emergency fund. I don’t have any credit card debt because I hate the idea of spending money I don’t have. I am aggressively paying off the loans (5 separate loans, averaging a 5.5% interest rate) paying close to 3x the minimum payment. I hope to have it all paid off in 3 years. Even though I have a masters in social work, the field doesn’t pay too well. Luckily I do LOVE what I do. My job offers a 403b but I am afraid to invest my contribution because I know nothing about investing, however there is a savings account type option. Then I hear all about IRAs and other retirement fund options, which, again, I know little about. I feel like I don’t have too much disposable income to even begin to put towards retirement. I still feel like I’m so young, but I don’t want to struggle to catch up later in life. What type of retirement fund is appropriate for someone who potentially can only contribute $100 or so a month?
- Fred

Your best option is probably a Roth IRA, as you can set it up yourself quite easily, keep control of it yourself, and it’s pretty simple when it comes to taxes.

However, where you save your retirement money is less important than the fact that you’re saving it. You are better off saving $100 a month in a sock drawer for retirement than you are saving $0 a month in the perfect retirement account with the best possible choices.

Just save. That one right decision dominates any small wrong decisions you’re likely to make.

Start an Automatic Appliance Replacement Fund (28/365)

Posted: January 29th, 2012, 1:00pm MST by Trent

Just a few days ago, Connie wrote in:

It’s been a real challenge turning our financial situation around. My husband seems supportive but he’s having a really hard time breaking his old spending habits and with our reduced income it is really a challenge every month.

I finally was able to get about $300 together for an emergency fund and I was really happy with my progress when our hot water heater died. We had to replace it and it not only ate all of our emergency fund but put us a few hundred deeper in debt.

It feels like every time we start to get ahead we end up further behind.

Connie nailed it. One of the most common reasons for the failure of short term financial plans is a key appliance failure. I’ve seen it happen in my own life, when our own hot water heater failed a couple of years ago and our washing machine failed about three years ago.

The appliances in your house are not infinitely reliable. An appliance failure is going to happen in the future.

There’s never a good time for an appliance to fail. It will always cause difficulties that eat up our time and energy and add to our stress level. However, it doesn’t have to add to our financial stress.

Our solution to this challenge is really simple. We simply automatically save $10 a week for appliance replacement.

That $10 a week turns into roughly $525 per year. That’s enough to replace a washing machine or a dryer with an economical model. Over multiple years, that money will grow to enough to replace even major appliances, like a central air conditioning unit or a furnace.

We started this fund after our hot water heater failure depleted a piece of our emergency fund. We’ve put in $10 a week as well as a bit of extra “found money” along the way. It has just shy of $1,000 in it.

What will happen the next time an appliance fails? We just go replace it, then take the money out of that account to cover it. It’s as easy as pie – no financial stress, no mess.

Appliances will fail. It may be an emergency, but it’s not something you don’t know about in advance and can’t plan for. You can plan for this, and it doesn’t take a whole lot of money each week to plan for it.

$10 a week is a few beers or a few morning coffees. It’s one dinner you make yourself instead of getting a pizza.

What does it transform into? It becomes not having to stress out if an appliance fails. It becomes not having a sick feeling in your gut if your washing machine begins to make a bad noise. It becomes not having to go into debt if your air conditioning unit bites the dust.

It becomes freedom, in other words.

Review: The Money Saving Mom’s Budget

Posted: January 29th, 2012, 7:00am MST by Trent

Every Sunday, The Simple Dollar reviews a personal finance or other book of interest. Also available is a complete list of the hundreds of book reviews that have appeared on The Simple Dollar over the years.

I’ve had the blog Money Saving Mom bookmarked for years. In fact, it’s been a permanent mainstay on the list of 25 blogs I recommend that appears on every page of The Simple Dollar. The blog has a nice mix of couponing content paired with other articles on frugal living.

Unsurprisingly, I was glad when I heard that Crystal Paine (the woman behind Money Saving Mom) had written a personal finance book. Her tone is incredibly friendly and down-to-earth, an approach that appeals to many people and is really welcome among the personal finance books you’d find at the library and at the bookstore.

I knew the book was off to the right start as soon as I flipped past the table of contents. Immediately following that is a feature that should appear in most advice-oriented books: a single page summary of the advice within. Here, it’s a series of seven short paragraphs outlining “Money Saving Mom’s 7 Rules for Financial Success”:

1. Set big goals and break them down into bite-sized pieces
2. Streamline your life and cut the clutter
3. Set up a realistic, workable budget
4. Take the cash-only challenge
5. Use coupons
6. Never pay retail
7. Choose contentment

Each one of those is followed by a paragraph discussing that particular tactic, making it a great way to start the book.

If You Don’t Know Where You’re Going, Any Train Will Get You There
There are a lot of paths we can follow from where we’re at right now. We can spend like crazy. We can put all of our money into Zynga stock. We can invest very conservatively. We can pay off debt, or we can accumulate it. We can work hard to build a career, or we can count the minutes until “Schlitz o’clock” every day. The real question is where we want to be down the road. A few paths lead to that destination. Most do not. Knowing your destination will help you pick the right path.

Are the Chaos and Clutter in Your Life Keeping You from Financial Success?
It’s hard to be financially successful if you live a cluttered existence. Chaos and clutter make it hard to find the things you need when you need them. This results in things like late bills, missed opportunities, buying things out of convenience, and other financial mistakes. Over time, this adds up to a significant amount of money – and it also adds up to a pattern of living that makes it difficult to succeed.

Give Yourself an Instant Raise Without Increasing Your Take-Home Pay
How do you pull that off? Basically, Crystal Paine’s idea here is to build a basic budget, following more or less the same template that I described in this article about basic budget building. A budget doesn’t magically make you financially responsible, but going through the process of building a real budget often teaches you exactly how you can cut your spending without really altering your life.

Go Totally Plastic-Free – Temporarily
Paine advocates simply dropping all credit card use for a while – and even dropping debit cards for that time frame. Why? Doing that will force you to use cash, and making yourself use cash is a powerful way for you to get deeply in touch with exactly how your cash flows in and out of your life. When you actually see the dollars leaving instead of just swiping a card, each purchase becomes very tangible and very important. Do that enough and you’ve rebuilt (at least in part) your relationship with money.

Coupons Are Not Just For Junk Food
Paine splits the topic of couponing into two chapters (of the nine in the book), which seems to fit since her blog has a strong couponing focus. This chapter really focuses on the basics of couponing, addressing items such as where to find them (the internet, store flyers, etc.), how to organize them (binders, envelopes, etc.), and how to be selective about the coupons you find and use. Simply put, there are coupons for almost anything if you’re willing to look for them and organize what you find.

Beyond the Basics: Advanced Couponing Techniques
From there, Paine goes on to look at how to find a good store to use the coupons you’ve found at (does the store have double couponing? Does it have a customer rewards program?) and how to stack coupons to maximize your savings by finding store coupons, manufacturer coupons, and store sales all on the same item at once. I tend to find that the effort in seeking out such options isn’t worth it, but it’s well worth just keeping your eyes open for these types of bargains.

Twenty-Five Ways to Lower Your Grocery Bill Without Clipping Coupons
Don’t be married to your brands. Don’t be married to your store. Buy things in bulk. Make simple meals at home. Freeze meals that you make. Make your own household cleaners. The ideas in this chapter are great basic frugality tips that anyone can use to save money at home. They just simply work.

Going Out on the Town Without Going Broke
What you’re really looking at here is “bang for the buck.” For example, if you want to go out to eat with your family, try to look for restaurants that offer a “kids eat free” night. If you’re going out with just your partner or spouse, use programs like Restaurant.com to find steep discounts on a meal eaten out. Look for free or heavily discounted cultural events in your area, like family days or free days at local museums or free concerts in the park. There are a lot of things to do out and about that are quite fun but aren’t expensive if you’re willing to look for them.

Embrace Today
A lot of these tactics are filed away by people for “someday.” If you do that, then you’re just committing yourself to more and more of your life devoted to struggling with debt, tied to your job, and feeling that you’re never going to get ahead in life. Today is the day to start living life with more sensibility when it comes to your money.

Is The Money Saving Mom’s Budget Worth Reading?
The Money Saving Mom’s Budget is an absolutely spot-on introductory book to cutting your spending. It focuses much more on the “spend less” part of the equation than the “earn more” part, but that’s often the part of the equation that people find the most success with when they hit that realization that something needs to change in their life.

The title alone somewhat restricts the readership – I probably wouldn’t give a single guy a book called “The Money Saving Mom’s Budget,” after all. However, this would be the first book I’d give to a mother who is just starting to think about making financial changes – a realization that often comes to parents after having a child.

Great book, Crystal.

Check out additional reviews and notes of The Money Saving Mom’s Budget on Amazon.com.

Invest in a Deep Freezer (27/365)

Posted: January 28th, 2012, 1:00pm MST by Trent

One of the most critical appliances in our home when I was growing up was our chest deep freezer.

We kept it in the attached garage, just a few steps out of the garage door that opened onto the kitchen. That freezer would store bag after bag of frozen fish caught by my father, lots of venison and beef that my family would trade for (or, in the case of venison, occasionally hunt for as a food source), frozen vegetables, and countless other food items.

It was pretty much a daily routine to retrieve something out of the freezer in the morning to thaw for the evening’s dinner. Whether it was fish, vegetables, or meat, our meals were often acquired when they were cheap and thawed when we needed them.

My wife, Sarah, had a very similar experience growing up. Their deep freezer resided in their basement and contained the key ingredients of most of their meals.

In both cases, our families were not rich. They had to find creative ways to stretch a dollar. Given that food is a big part of any family’s budget, stockpiling food is definitely a strategy worth investigating. A deep freezer makes it easy to stockpile freezable food (in other words, most food) and keep it from going bad.

In other words, the presence of a large home freezer makes it possible to capitalize on discounts on perishable foods.

It was unsurprising, then, that one of our first purchases when we owned a home of our own was our deep freezer, which, like the freezer at my parents’ house, resides right out in our attached garaged, near the garage door. It’s always got some food in it, and at times it has quite a lot of food in it. It all depends on the opportunity – and when opportunity strikes, we’re able to hit it hard.

I’ll give you an example of this. Recently, a local grocery store had a sale on bags of flash-frozen vegetables. I don’t remember the exact price, but it was very low, something on the order of $0.79 per bag or something, limited to ten per customer. Given that a bag of flash-frozen vegetables is often a key side dish for our family’s dinner as well as our lunches the following day, that’s an attractive sale for us.

If our only freezing capacity was the freezer atop our refrigerator, we would have had to stop at four or five bags. Simple space issues would have kept us from capitalizing. Instead, Sarah went to the store and bought the maximun number of bags, then I went to that same store and bought the maximum number of bags.

Another example: a friend of ours offered to sell us a quarter of a cow, processed and packaged, at cost a few years ago. This meant that our cost per pound for the meat was about 40% or so of what we would have to pay for it in the store, but we would be receiving a lot of it. On the order of 150 pounds of meat.

Thankfully, we had our deep freezer, so we were able to make it all fit. We were able to knock 60% or so off of approximately 150 pounds of beef. Not only did we enjoy it ourselves, we also traded packages with friends, family, and neighbors.

I can go on and on with these examples: fresh food from our garden (or from the gardens of friends), quadruple batches of casserole, frozen breakfast burritos, frozen vegetable stock – it’s an endless list. In each case, we’re taking advantage of the economy of scale by producing a lot of something (reducing the cost per item) and then saving the rest for later.

The only drawback of this plan is the cost of a deep freezer. You can get one for $300-500 or so, and the annual energy cost varies, but is usually somewhere around $50 a year. To break even, you’re going to need to be saving about $60-70 a year on your food costs.

For our family, we can sometimes save that much in a month due to our deep freezer. Between the flash-frozen vegetables bought at a discount, the frozen casseroles prepared ahead of time, the breakfast burritos made at an incredibly cheap rate per burrito, the produce from our garden socked away for later, and countless other little things, the deep freezer saves us money almost every single day. It’s a key element of our family’s food frugality.

Ten Pieces of Inspiration #57

Posted: January 28th, 2012, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Rodin on what’s worth doing
Everything is worth doing if you approach it right.

“Nothing is a waste of time if you use the experience wisely.” – Auguste Rodin

The challenge always is figuring out ways to actually use the experience wisely. If you view the world from this perspective, life itself is a constant path toward self-improvement.

2. Gayle Tzemach Lemmon on female entrepreneurship
I have sent this video to a lot of people this week.

No one should ever be afraid to show the world what they can do.

3. Dale Carnegie on perseverance
The number one ingredient for succeeding at anything is simply sticking with it. That’s where the vast majority of people who try something fail.

“Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no help at all.” – Dale Carnegie

The Simple Dollar would have never succeeded if I did not stick with blogging for years and years, through thick and thin.

4. The Yellow Flowers (1902) by Henri Matisse
I love how impressionist paintings are much like a faded memory. To me, they elicit something much deeper than a photograph.

It feels like the closest I’ll ever get to seeing the world through another’s eyes.

5. Criss Jami on passions
If you want to channel something you’re passionate about into something that can carry your whole life, the recipe is pretty simple.

“Persistence. Perfection. Patience. Power. Prioritize your passion. It keeps you sane.” – Criss Jami

It takes a lot of time, a willingness to constantly improve, and a lot of focus. It brings joy, too.

6. CodeAcademy
Ever wanted to learn about computer programming? This is probably the best tool I’ve ever seen for learning about it completely from scratch, even if you know very little about computers.

I’d love to see the same approaches used for learning about other topics, too. The ideas they have for learning going on at CodeAcademy have wider applications than just code, I think.

7. Nelson Mandela on going home again
When I was younger, I used to wonder what had changed in my home town.

“There is nothing like returning to a place that remains unchanged to find the ways in which you yourself have altered.” – Nelson Mandela

Now, I know that most of the change was me.

8. Mass Ascension
One thing I want to visit someday is a hot air balloon festival, like this one.

There is something deeply appealing to me about hot air balloons. I can’t put my finger quite on what it is, but whenever I see one, I want to stop and watch it.

9. Brian Goldman on experts and fallibility
Goldman focuses mostly on doctors, but this is true of everyone that you listen to and value their opinion. Humans are fallible. They make mistakes. That does not mean they’re evil or out to get you.

This is why multiple sources are always a good idea for anything you want to know. Generally, people aren’t trying to give you bad information, but humans are fallible and imperfect.

10. C.S. Lewis on childishness
This past week, I got an email from a reader chiding me for reading and writing fantasy and science fiction, calling them childish. This was my response, a simple quote from C.S. Lewis.

“Critics who treat ‘adult’ as a term of approval, instead of as a merely descriptive term, cannot be adult themselves. To be concerned about being grown up, to admire the grown up because it is grown up, to blush at the suspicion of being childish; these things are the marks of childhood and adolescence. And in childhood and adolescence they are, in moderation, healthy symptoms. Young things ought to want to grow. But to carry on into middle life or even into early manhood this concern about being adult is a mark of really arrested development. When I was ten, I read fairy tales in secret and would have been ashamed if I had been found doing so. Now that I am fifty I read them openly. When I became a man I put away childish things, including the fear of childishness and the desire to be very grown up.” – C.S. Lewis

Set Your Refrigerator to the Warmest Setting (26/365)

Posted: January 27th, 2012, 1:00pm MST by Trent

Let’s cut straight to the chase. The sweet spot for any refrigerator is between 39 and 40 F. This is the temperature at which bacterial growth is inhibited but the difference between your refrigerator and the ambient temperature outside of your refrigerator is minimized.

In other words, keeping your refrigerator’s internal temperature at about 39 F will keep your food safe while minimizing your energy costs.

Simple, right? Well, not quite so simple.

Your refrigerator is one of the biggest power guzzlers in your house. Over the course of a year, a modern refrigerator sucks down about 350 kWh of energy. That adds up to about $50. With a few simple one-time changes taking just a few minutes, though, you can cut that by about 20%, saving you $10 a year for as long as you own the fridge.

First of all, most refrigerators have a terrible internal dial that doesn’t indicate actual temperatures. I loathe this design “feature.” It doesn’t tell you a thing about the actual internal temperature of your fridge. It merely compares it to other settings.

The simple solution? Get an inexpensive thermometer and stick it in your fridge. You can get a small digital thermometer at your local hardware store for a pittance. Just tape it somewhere to the inside of your refrigerator. I just rolled up a bit of duct tape and stuck it to the back of one for placement inside of the refrigerator.

Then, start playing with that dial. I suggest moving slowly downward, then checking the temperature every day. What you’re looking for is a temperature close to 38.5 or 39, at which point you’re going to want to stop on that setting for a while. For most refrigerators, this temperature coincides with the lowest setting or one of the lowest settings.

It’s important to remember that the temperature isn’t an exact thing. A refrigerator works just like your home. It tries to keep the temperature within a degree or so of the ideal temperature. This is why you should stop adjusting the temperature dial for a while if you observe a temperature around 38.5 or 39 degrees, as this may be a “low” temperature, a “high” temperature, or an average one. Do some observations over time and see what the average is.

I would shoot for an average of around 38.8 to 39 F, so that the “high” temperature doesn’t break 40 F very often.

Also, pay attention to where the fan is in your refrigerator. The air coming in there is going to be cold air, so the items near it are going to be colder than items elsewhere in the refrigerator. We generally keep items that we worry the most about spoiling close to the fan (items such as milk and eggs) and other items further away. I placed the temperature gauge on the other side of the refrigerator interior from the fan to try to get more of an ambient temperature. Also, never block the fan. Always make sure the fan can blow cold air into the interior of your refrigerator. If you block it, you’ll have one frozen item and a bunch of warm items in your fridge.

If your refrigerator is really full with items, lower the temperature a bit. Lots of items means poor air flow inside of your refrigerator, which is the key to keeping things cool. Lowering the temperature means you’re going to be using a bit more energy, but all of your items are cold. We do this when we’re prepping for a party or something similar.

What about the freezer? You want your freezer to be low enough so that temperature variation does not allow anything to melt in the freezer. I suggest keeping the freezer at a temperature around 5 F – and a bit lower than that if your freezer is jam-packed with stuff, blocking the air flow. You can check this with a thermometer taped to the side away from the fan, just like with the refrigerator.

Another useful tactic is to thaw frozen foods in the fridge instead of on the counter. As frozen foods thaw, they cool the air around them. This is a good thing in a refrigerator that you want to keep cool internally. It’s a bad thing most of the time outside of the refrigerator, as it’s not going to provide a significant enough effect to keep your air conditioner from running any significant amount and it’s going to work in a small way against your furnace.

Once the temperature is set correctly on your refrigerator and freezer, and you’re using the device sensibly (not blocking the air flow, thawing foods in the refrigerator, etc.), your refrigerator is going to use less energy. It’s also not going to have to work as hard, extending its lifespan. Both of these save you money, as your monthly energy bill is reduced and the time until your next refrigerator replacement is extended.

What’s Next After Debt Freedom?

Posted: January 27th, 2012, 7:00am MST by Trent

Thanks to Forest Wander for the picture.

Every new beginning comes from some other beginning’s end – Seneca

As I write this, Sarah and I are completely debt free.

We have no mortgage. We have no car loans. We have no student loans. We have no credit card balances. We have no consumer loans of any other type. We have a healthy emergency fund that will keep us from falling back into debt very easily. We have a healthy amount of savings for our next car and for our next appliance replacement or two. We’re saving for retirement, for our children’s college education, and for our dream home. We both have steady incomes for the time being, incomes that exceed our monthly expenses.

Our monthly bills right now, taken as a whole, are lower than they’ve been at any point in our married lives.

So, what’s next?

It’s a question that Sarah and I have been struggling with for the last few weeks. What is our next step?

Up to this point, there’s been a clearly-defined path to follow. Build up an emergency fund. Get rid of your high interest debt. Build up a bigger emergency fund. Start saving for retirement and for your children’s education. Pay off your lower interest debt. In most cases, own – meaning without any debt – your living quarters, whether it’s a home or a condo or something else.

It’s a long and difficult journey. It took us almost a decade to follow that path, and that’s with us living rather frugally and me working a lot of hours, both at my full-time job, on The Simple Dollar, and on countless freelancing gigs over the last several years (Sarah made this route possible with her spectacular efforts with household concerns.)

In a lot of ways, it required us to change who we are. I don’t have the motivation any more to spend money in the way I did a decade ago. It’s not something I even want to return to, and Sarah feels almost exactly the same way.

Now, though, there’s no clear path for us to follow. We’ve reached the point in our financial journey where th advice begins to diverge heavily.

Some people say that when you have a good foundation, you should “live a little” and do things like travel or own a nice car. Others suggest investing aggressively so you can move towards a life where you no longer have to work for a living. Some point toward entrepreneurship. Others simply say to keep things nice and steady until opportunity knocks.

As different as those paths seem, there are a few fundamental things they all agree on.

First, you need a goal. Without a goal, you’re going to simply spin in place and, as the saying goes, the devil finds work for idle hands to do. The multitude of ideas above are all goals, they’re just different ones that require a different path to get there.

Second, you need communication. Sarah and I have no interest in going down different roads at this point. We’ve travelled this far together and we want to keep going together, wherever that path may lead. However, left to our own devices, we would have somewhat different visions for that path. Without communication and discussion – a great deal of it, actually – we could easily find ourselves going in different directions at this point.

The fundamental question is whether I want to be setting my goals or our goals. I’d far rather set our goals, even if that doesn’t mean having things perfectly my way. We agree on a lot of things, and the value of resolving the other parts together is much greater than what we would get out of addressing them separately and drifting apart.

So, what do we want? What’s next for us?

We’re establishing a list of things for the future that we both agree on. This is in addition to our dream home. We both want to travel a significant amount with our children when they’re older and can appreciate it and grow from it. We both want to increase our giving to charity. We both want to retire as early as we can so we can focus our energy on charitable work.

These are the things we want from our lives. They’re simple things. They are what makes us happy.

We’re not going to move until we can build our dream home out of pocket. We are not going to return to indebtedness again. If that means slow progress toward the house we want to someday build, so be it. Debt introduced an incredible amount of stress to our lives, and there’s no material thing that’s worth bringing that back into our lives.

The same holds true for any of our other plans. We’re not going to do anything that leads us anywhere close to debt ever again for any non-essential reason.

We have a home.

We have what we need.

We have no debts.

Most importantly, we have each other.

Everything else will follow.

Don’t Install Your Refrigerator Next to Your Dishwasher (25/365)

Posted: January 26th, 2012, 1:00pm MST by Trent

Your dishwasher gets hot. Your dishwasher also gets moist, meaning it’s harder to cool down the air around it. Your refrigerator gets cold. So does your freezer.

Why would you put a device that gets hot next to a device that gets cold? No insulation is perfect, after all, so they would both be using energy to fight the effects of the appliance next door.

So many elements of frugality and personal finance come down to paying attention to the details. This is one of those little detail things that so many people will overlook, but over time it just continually costs you money.

When we moved into our current home, one of the things that annoyed me about it was the relatively small kitchen. It wasn’t much larger than the kitchen in our small apartment, having only a small counter that the other did not have.

Even worse, the refrigerator was installed next to the dishwasher, and the only way to fix it would involve an extensive reworking of our kitchen, as the cabinets are all formed around slots for the appliances.

There’s no doubt that energy is lost in this process. The dishwasher, while running a cycle, puts off a tremendous amount of heat, some of which you can feel on the side of the refrigerator. I often hear the refrigerator kicking on just a minute or two after starting a dishwasher load due to the rise in internal temperature of the refrigerator. It’s actively costing us money.

So, what can we do about this? At the moment, not much. Other than the side-by-side appliance issue, our kitchen is laid out fairly well for its size. Although we’ve looked at alternate arrangements, none of them have provided enough value to be worth the cost of rearranging things.

One short-term fix we’ve done is to insert a piece of thin insulation between the two appliances. There was just enough room for a small piece of insulation to fit between the two, so we purchased a piece of heat-resistant insulation. While this isn’t a perfect fix, it does reduce the heat directly transferred between the two devices.

We also try to make an effort to keep the refrigerator door closed while the dishwasher is running. Opening the refrigerator door while the dishwasher is running causes the cool and dry air to rush out and the warm, damp air to move in, making it that much harder for the refrigerator to do its job.

However, we do plan to build a new house in the future. When we do that, we’ll make sure to avoid having a “hot” appliance next to a “cold” one. In fact, in our latest design sketches (a fun project that Sarah and I work on sometimes in the evenings is doing sketches on the computer of what our dream house would be like), the refrigerator and dishwasher are pretty far apart, with a large counterspace between the refrigerator and the sink and the dishwasher on the other side of the sink.

Another thing to watch out for: avoid having your refrigerator or freezer next to an air vent, particularly if you live in northern climates. During the winter, your air vent will be blowing out hot air, which you don’t want blowing directly onto your refrigerator. This is something else to consider when designing or re-designing a kitchen, as it’s all about the energy efficiency.

Will this save you a lot of money or a little? It’s really hard to measure, as it depends on the modes you’re running in your refrigerator and dishwasher, the amount of insulation between the two, and countless other factors. However, I’d have to be oblivious to not hear our refrigerator kicking on and running almost contiunously when our dishwasher is running. If a simple kitchen design decision will make a real difference in how much your refrigerator is running, it’s well worth keeping in mind as a principle.

Reader Mailbag: Unfinished Business

Posted: January 26th, 2012, 7:00am MST 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. Strange credit card fee
2. Handling sudden income increase
3. Great job, next financial move?
4. Children’s movies
5. Keeping papers
6. Determining ownership percentages
7. Taking control
8. Stuck in a condo?
9. 529 plans and multiple children
10. Saving old magazines

On my desk, I keep a stack of papers that reflect “important but not urgent” tasks I need to get taken care of, like submitting an invoice for some work done or cancelling a subscription we’re no longer using.

About once a week, I take a few hours and clear out that “important but not urgent” stack. The day I do that usually ends up being one of the best days of the week because I feel as if I’ve accomplished a lot.

Q1: Strange credit card fee
I have Mastercard credit card linked to American Airlines miles rewards. I’ve had this card for about 15 years, and over the years the available credit limit has gone up to $54,000. We never used up even remotely that much, and currently the card has $2,000 on it which will be paid off by summer if not before. It’s a 0% transfer sum, so no interest is being paid on this amount presently. We have not charged anything to this card in over a year.

Anyway, this months’ statement is the second where I noticed a small fee added to it, 50 cents. It is not a late charge or anything related to a purchase (since there hasn’t been one made). I wonder if this is an “inactive” fee, meaning that they aren’t making money off of us since we are not buying anything and therefore aren’t paying any interest, and the card company needs to get some money out of us and thus is charging this kind of fee. I wouldn’t be surprised if this is one of the card companies work-around to get additional money out of people who pay their bills on time…

I am annoyed by this fee, of course, but am reluctant to cancel the card (we really don’t use it, and once the current amount is paid off, it’ll basically just be laying there in its file.) It is my oldest credit card and with the high available credit limit, it is good to have on my credit report, right? I do pay an annual fee of $50 because it’s a mileage reward card….

I know I can call the card company and complain about this extra fee, but I was wondering if other readers/people have the same fee appearing on their statements. My only other credit cards are a corporate AMEX credit card that I use once or twice a year and pay off promptly and a Discover card that is paid off every month and only has very few dollars charged to it every month (gas). Both these cards are relatively new, less than 3 years and the available credit limits are less than $10,000.
- Bill

You should call your credit card issuer and ask them what the fee is for. It’s hard to tell what it’s for, though an “inactivity fee” is probably a good guess.

However, if the card is often inactive, I’m not sure I would want to pay a $50 annual fee for the card. I would only pay it if I were clearly getting more than $50 worth of value from this card beyond the cards I could get for free.

If it is an “inactivity fee,” I’d assess whether or not you’re going to need spectacular credit in the next couple of years. Do you have a car loan or a mortgage coming up? If not, cancel the card. If you do, hold off until the big purchase is finished, then cancel the card.

Q2: Handling sudden income increase
I have something of an unusual question, particularly during these times. After college, as well as several years of alternating unemployment and minimum-wage jobs, (we’re both 27) my fiancee and I are now both employed in extremely well paying (six figures each) positions for the foreseeable future. We are incredibly lucky to be in this position, especially in the current economic climate and given our lack of debts (we both attended college on full scholarships, and each bought our cars used for cash). We’re already setting aside enough for our 401ks to max them out by the end of the year, and have been fortunate enough to give sizable amounts to several charities we favor. The only problem is… what else should we do? Besides filling up an emergency fund, should extra money just go into a savings account? Should we look at CDs and IRAs?

Most of all, are there any books you would recommend that are more tailored to our situation? Personal finance seems split between getting out of debt and playing the stock market, neither of which really apply to us; since we don’t really have problems with overspending, I feel like we’re sort of left adrift. Adrift and extremely extremely lucky and fortunate, but adrift nonetheless. Thanks for any help you might be able to offer.
- Ron

You need to sit down together and assess your goals. Do you want to buy a house? Do you want to have any children? Where do you guys want to be in five years? In ten years?

Your plan for the extra money should follow the answers to those questions. If you’re saving for a short-term goal (less than, say, five years), I would just keep all of the money in cash or in CDs, as the volatility of other investments probably isn’t worth it.

For a book to read, I’d suggest The Bogleheads’ Guide to Investing, which is my favorite book on investing I’ve ever read.

Q3: Great job, next financial move?
At 25 I landed my dream job. Its fun flexible and has a great six figure salary. When I finished school in May of 2011, I racked up a few thousand dollars in credit card debt to bridge me over to my first paycheck, which came in September. As of January this year, I’ve paid off all credit card debt and have 54,000 left on my student loans (at 6.7% and 7.6% interest) and about 1,000 in emergency funds. I’m still living like a poor college student and am planning to pay all my student loans by January 2013. I haven’t been able to invest in a 401(k) because my employer only offers it after you’ve been with the company for 6 months. Because I only worked several months last year, I am in a smaller tax bracket than I will be in 2012. I’d like to invest some money in an IRA or Roth IRA before I file my taxes for 2011. Basically, I’d like to take full advantage of being in a lower tax bracket while I can (for instance, next year I won’t be able to claim up to 2,500 plaid toward student loan interest) and was wondering if I should divert money I’m intending to pay toward my student loans to open an IRA or Roth IRA and which type one would would be the wisest choice for my 2011 income.
- Lana

If you qualify for a Roth IRA based on your income, I’d choose a Roth IRA. I think it’s a good idea to diversify your retirement money in both pre- and post-tax retirement accounts since no one knows what the future will hold.

As to whether you shoud divert loan repayment money into a Roth, it’s really an apples-and-oranges decision. There are good arguments to be made both ways on it.

If I were in your shoes, I’d probably fund the Roth fully before making extra payments on the student loans. The big reason is that, if push came to shove, I could always withdraw the contributions from the Roth at a later date if I so chose.

Q4: Children’s movies
What movies do you let your children watch on your “movie nights”?
- Alex

If it says “Pixar” on the label, we’re generally okay with it. Many of our family movie nights involve Pixar films.

We also often watch Studio Ghibli films, but we’re a bit selective on those as some can have scenes that might frighten really young children (like the fate of the parents at the start of Spirited Away).

These two categories give us about 25 movies to choose from, so we just rotate them. We also have a few additional Disney movies in the mix.

The thing to remember is that movie night with my family isn’t about the move so much as it is about the whole family cuddling up under blankets together, laughing together, and enjoying time together.

Q5: Keeping papers
I’ve got a well controlled financial situation, but I’m overwhelmed by the paperwork. I get statements from multiple bank accounts, investment accounts, 401ks, etc. I get bills for the utilities and my credit card and such. I’ve got my tax returns. Some of these “papers” are actually digital, but most of them are paper still. I’m planning to get a house in the next year, and I imagine there will be a ton of paper involved with that as well.

How long do I need to be hanging on to the various paper and digital copies of all of this paper work? Do you have a preferred method for handling the onslaught of papers?
- Alan

If you’re just keeping paper copies, I’d keep most of them for seven years. I would keep tax returns and other truly key documents forever.

However, I think the best solution is to just make digital archives of everything. Scan all of the paperwork onto your computer using a document scanner. Then, just keep them forever on backed-up hard drives and other formats.

This can take up some serious hard drive space, but then you have an archive of all of your documents. It takes some time, but I think it’s really worth it.

Q6: Determining ownership percentages
My fiance and I are getting married next fall. We will most likely be purchasing a home before we get married. I currently make about 70k per year and she makes about 26k per year. We will be looking to purchase a home in Southern California in the price range of 365k-400k. I will have roughly 80k saved for a down payment/closing costs and my fiance will have roughly 8-10k saved for the down payment/closing costs. She is currently working on paying off 8k of student loans. My question is, what is a fair way to determine percentages of home ownership with the varying amounts of money that we have available for a home purchase and considering our difference in annual income?
- Mike

I would be extremely wary about taking on a mortgage that’s more than double your combined salaries, even with low interest rates. Such a situation is practically begging for Murphy’s Law to take effect.

I don’t think there is one fair way to determine ownership percentages in this situation. It has far more to do with your relationship than anyone else’s ideas of fairness.

My wife and I have had income inequality since the day we were married, but as far as we’re both concerned, everything is a 50/50 split. We’re in this together for the long haul and we’re constantly helping each other in terms of emotional support and other assistance, so it just makes sense to have a 50/50 split.

Q7: Taking control
I recently turned eighteen and my parents are slowly turning over control of my finances to me. However, I have no idea what to do or where to start! Do you have any suggestions for getting started on the right track to ensure financial stability in the future?
- Shawn

I would start with a basic personal finance book. I’m not sure exactly what experiences you’re going through right now, but I would guess that college is either a current experience or one that’s in the near future for you.

If that’s the case, I’d probably suggest Please Send Money by Dara Duguay. It’s a great “getting started” personal finance book.

On the other hand, the book that had the single greatest impact on my thinking with regards to my money was Your Money or Your Life by Joe Dominguez and Vicki Robin.

I feel both are well worth reading in your situation.

Q8: Stuck in a condo?
When housing values started to slide we started making larger principle payments on our condo to stay above water. Eventually the value was going down so quickly we couldn’t keep up. We borrowed $340,000 in 2004 and the current value of our condo is around $200,000 on a good day. We still owe $250,000. Two years ago we stopped putting money toward paying down the principle and started living even more frugally and managed to save up $100,000. The plan was to pay down the principle and refinance into a loan that allows us to rent out the condo then save a down payment to purchase a house. This is due to our family doubling in size since our condo purchase. Now that we have saved up the $100,000 and lived so lean to make it there the idea of throwing it away for a place we have grown out of anyway is pretty painful. Short Sale or Foreclosure don’t seem to be options since we can afford our payments. What other choice do we have?
- Randall

Sadly, your options are fairly limited.

You can just hand your keys to the bank, which will severely damage your credit and make it difficult to borrow anything for the house you want for quite a while.

You can keep living where you’re at and keep saving until you can simply pay off the condo. If you do this, I’d start making extra payments on the condo mortgage rather than sticking the money into savings. Then, you could save for a down payment for a house while trying to sell the condo.

You can also just pay down your condo right now so that you’re at a break-even point on it, then start focusing on your next house immediately.

I don’t know which is the right choice. The second one is probably the safest and most conservative option, which is what I’d go with because that’s how I usually react to such situations.

Q9: 529 plans and multiple children
We have two kids but only 1 529 account setup. Should we increase the contribution to that one account or open another one for the 2nd child? I am not sure if it matters or quite frankly if two kids can even share one account – but I know I didn’t find the answer easily on the web page for the Iowa 529 plan.
- Espen

You would simply open up a new 529 account with your second child as beneficiary.

With many college savings plans, you’d basically manage them together, as they’d appear under the same login name online and they’d send paperwork together. This is exactly how Iowa’s plan works.

I have three seperate 529 plans, one for each of my children. They’re easy to manage together.

Q10: Saving old magazines
I have this tendency to save old magazines, particularly cooking magazines and project magazines. The problem is that my closet is starting to get full of them. How do I get rid of this clutter without losing that information?
- Jill

I have this exact same problem with food and project magazines. They tend to really build up over time!

What I do is once a year or so, I go through the magazines and look for things I’m actually going to use. In a food magazine, for example, there might be five or ten recipes I actually want to save. I actually cut out the pages, scan them onto my computer, then throw all of it away.

It takes some time, but I have this wonderful archive of pages on my computer to browse through. I give the files sensible names so I can easily find them again.

Make Your Own Dishwashing Detergent (24/365)

Posted: January 25th, 2012, 1:00pm MST by Trent

The reason that my photography intern and I decided to use virtually the same exact picture for this entry as entry #18 in this series (outlining powdered laundry detergent) is because the two recipes are very similar.

Just simply mix together one cup of borax and one cup of baking soda or washing soda in a tub. If you wish, you can add a small bit of OxyClean to the batch or a small bit of store-purchased dishwashing detergent – you need one or the other to act as the active detergent ingredient if you’re washing any dishes that are fairly dirty. All you need is a tablespoon or two of this stuff (depending on the size of your dishwasher) to get things fairly clean.

If you want to replace the “finishing” liquid (Jet Dry, for example), just use a tablespoon of vinegar. There’s no smell – just shine on your dishes.

There’s a theme worth noticing here. Between the two recipes, we’re using borax, baking soda, washing soda, OxyClean, a bar of soap, and vinegar. I also keep some club soda These ingredients together manage to clean laundry thoroughly and clean dishes thoroughly.

If you carry that thought out to its logical conclusion, these ingredients can pretty much clean anything in your home thoroughly.

For example, when I’m cleaning windows, I fill up a spray bottle with one part vinegar to two parts water, with perhaps a tiny amount of another cleaning agent (whether it’s dish soap, borax, or something else). I stir it thoroughly, then head to the windows.

If I’m washing dishes by hand, I make a bit of paste out of borax, washing soda, and water, then just use a tiny amount of this on a sponge to clean almost any dish I have.

If I’m facing a carpet stain, I put some baking soda on the spot (a teaspoon or two), spread it thoroughly into the spot, then pour a couple teaspoons of vinegar on top. There’s a fair amount of foam, which I then scrub into the spot.

If there’s a dark stain on clothing and I see it immediately, I put some club soda on it.

If I have any acne (I often did in my twenties, but haven’t had any in a while), I make a paste out of baking soda and water and put it right on the spot before I go to bed.

Heck, if I want to whiten my teeth at home, I brush with baking soda and then use a bit of vinegar while brushing. If my stomach feels out of whack, I usually put a bit of baking soda in a glass of water and drink it (I usually burp like a madman for a while, but my stomach feels better).

I could keep listing things, but the truth is that most home cleaning tasks and even other simple things can be handled with some combination of the ingredients listed above.

The best part? Those ingredients are cheap. I can get a giant bag of baking soda or a jug of vinegar at my local warehouse club for a very low price. Even things like borax and washing soda are pretty inexpensive at my local Fareway.

Why use a product with a brand name and an expensive price on it when homemade mixtures like these will do the job?

The Simple Dollar Weekly Roundup: Youth Activities Edition

Posted: January 25th, 2012, 7:00am MST by Trent

Sometimes, I wonder what the line is between an appropriate amount of youth activities and too many activities is.

My older children have tumbling/gymnastics one night a week, ice skating one night a week, soccer two nights a week when the weather is appropriate, and they both want to join tae kwon do which is one or two nights a week.

What’s too much? I don’t think there is an answer. The only “rule” we have to this point is that we only sacrifice one family dinner a week to activities, though I know that will slip in the future.

Get Your Financial Life on One Page (FLOP) I have something like this saved in an Excel spreadsheet. It’s just a single view of my financial situation that I’m happy with. (@ christian pf)

Do You Have the Courage to Be Wealthy? Being wealthy means making sacrifices to get there and often struggling with new issues when you arrive. (@ watson inc.)

The Calculus of Convenience Convenience certainly does have a value. The challenge is that many people (in my experience) greatly overestimate that value. (@ get rich slowly)

The Habits That Crush Us For me, the crushing habits are ones that eat up unnecessary time. I am “crushed” when I find myself without enough time to do something I want to do with my family or with my friends. (@ zen habits)

It’s completely up to you Some interesting thoughts on having too many choices to really analyze. My solution is to usually cut away big chunks of my options very quickly using rules I’ve thought about in advance. (@ seth godin)

Use the Short Cycle (23/365)

Posted: January 24th, 2012, 1:00pm MST by Trent

Our dishwasher has an abundance of cycles and options. With just a few buttons, we can choose a light cycle, a normal cycle, a heavy cycle, a steam cycle, and a few other options that, frankly, I’ve never even tried out. Our washing machine is much the same way.

Honestly, though, I just use the light cycle for virtually everything that I wash, from pots and pans to plates and cups, from underwear and shirts to pants and socks.

Why just use the lightest cycle? For starters, most of the things we wash really aren’t all that soiled. Our plates usually look clean or have maybe a bit of sauce or dressing on them. Our bowls maybe have a bit of milk residue from cereal or a bit of juice left behind from chili. Many of our shirts and pants look quite clean and are washed mostly out of knowledge of the skin cells and other detritus hidden within that even a basic cleansing will largely remove.

Yes, sometimes we have items that are more soiled than that. Those items are usually treated individually. Exceptionally dirty dishes are usually washed by hand or left to soak in hot, soapy water.

Stained items of clothing are pre-treated to make the stain easy to remove. Soiled clothes are often washed outside with the hose over the garden (so that the extra water just waters the garden) before they ever come inside.

The big reason that we do the shorter cycles, though, is that light cycles use less energy and less water than heavier cycles. They generally have a significantly shorter running cycle, which means that less energy and less water is used during those cycles.

Exact numbers depend heavily on the model, of course, but the lightest cycle on our dishwasher runs in about 40% of the time of the longest cycle, for example.

How much money does that really add up to? It depends heavily on the actual model you’re using, the water temperature choices you make when running a load (the colder, the better), and your actual rates for water and electricity.

Based on my own estimations from the models we use, running a short load compared to a long load in the washing machine saves us about $0.12 and about twenty minutes, and we save about $0.25 and almost an hour running the short load in the dishwasher. If you assume a load a day, that adds up to $43.80 a year for the washing machine and $91.25 a year on the dishwasher – and that doesn’t even include the time savings!

Do the items still get clean? As far as I can determine, they get just as clean as longer cycles when looking at ordinary laundry and dishes. They smell fine, look clean, and pass muster when touching them as well.

This saves us both time and money, as any good frugality tip should. If our loads run in less time, use less water, and use less energy, our bills go down and our time invested in washing dishes and clothes goes down as well. That’s a double win, because it means more money in the pocket and less time in the laundry room or at the sink.

Telling Your Story

Posted: January 24th, 2012, 7:00am MST by Trent

I think that instinct, that storytelling instinct, rescued me most of my life. – Armistead Maupin

Image courtesy of PhotoSteve.

As many of you know, I’m spending a lot of my spare time lately working on a pair of novels. It’s been a challenging experience – but an enjoyable one.

For me, one of the biggest parts of writing fiction is understanding who the characters are. In order to write something interesting about a character, I need to know to at least some level of depth who these people are.

One thing that I’ve come to realize is that it’s very difficult to write a truly evil character or a truly good character. Characters tend to operate based on the morals and values they themselves hold and the idea of “good” and “evil” has far more to do with the reader than it does with the characters themselves.

In the same way, the characters I create – and this holds true for every person I’ve met, too – has an “ideal” of how they would like to act in a given situation and a “reality” for how they usually act. The “ideal” path is usually what they see as the best way to act, whereas the “reality” is how they would normally act in that situation.

For example, a person might see it as an ideal to give food to the homeless people that they meet, because they believe in the idea that everyone deserves to have some sustenance in their belly. However, the reality of doing that is a lot harder when you’re trying to make your way to work and pass twenty homeless people. Can you bring them all food? Sure, you can, but it eventually becomes an obstacle to the other things that the person needs to do in life.

Reality eventually (and often) trumps the ideal, in other words.

Yet, the people we respect and remember are the people who managed to achieve their ideal with some regularity. When I think back to some of the people in my life that really made an impact on me, they’re people that went above and beyond the call of duty to help me. I remember an uncle who would always make an effort to make me laugh. I remember an academic advisor who made lots of phone calls to help me find a summer internship. I remember a friend who pretty much helped me through every step of my early career.

In each case, the “regular” thing would have been easy. I’m sure my uncle was sometimes in a down mood, but he found ways to tell me a joke and make me laugh even when he was in a hospital bed. I’m sure my academic advisor had an army of students to help, but he spent a lot of time helping me find great opportunities. I’m sure my friend could have simply not given the job notices and other opportunities a second thought, but he made the effort to bring them to my attention.

It is their consistent ability to go beyond what was “regular” and strive for something more that set them apart.

Over the years, I’ve interacted with lots and lots of people. I don’t remember the vast majority of those interactions. The ones that stick are the ones where someone did something exceptional.

That distinction between the “regular” and the “ideal” is what makes for the memorable people in my life and it makes for interesting characters in my writing.

It also makes for a powerful guideline for my own life.

Most of the things we do in our lives are going to be of the “regular” variety. Think of the example of the person whose ideal is feeding the homeless – if they stuck to that ideal, they’d never make it to work. We’re going to do the “regular” thing most of the time.

The question is when do we choose to go for something better than the regular thing? When do we go from living our ordinary lives to doing something more?

Here’s another way to think of it. When your life is over and someone describes you by saying “that person was a really good…”, what is the word that’s going to come next in that sentence?

Whatever it is, that should be your ideal and that should be the thing where you try to avoid taking the regular route. Cut corners elsewhere. Do this one thing in an exceptional fashion.

When I’m writing a story, I don’t really want to focus on the boring parts of a person’s life. I want to write about the “ideals” that the person achieved. What happened when that person did something that went beyond what their ordinary life called for? It might be something as simple as giving away a meal each day to a person in need. It might be being the person that just says, “Don’t worry about it; I’ll take care of it.” It might be leading a group. It might be turning on all of your teaching skills to really reach a group of students.

Quite often, though, you’ll find that doing that one thing really well requires resources and money. That’s where personal finance comes in. Good personal finance skills are often one of the underpinings of achieving that “ideal.” Doing the right thing with your money is often just as important an “ideal” as other things you might be doing because it makes those other ideals possible. Other skills often help, too, such as strong communication skills and organization skills and self-control.

Going for the ideal means taking control of what you’re doing. It means doing something powerful and positive that you know, in your gut, that you’re capable of. It means changing the world, sometimes in a big way, but often in a small one – but, in the end, is there really any difference between the two?

It’s your story. Make it a good one.

Only Wash Full Loads of Dishes or Clothes (22/365)

Posted: January 23rd, 2012, 1:00pm MST by Trent

This seems like common sense at first glance. If you run your dishwasher, your washing machine, or your dryer with only half a load of clothes or dishes, you’re losing out in terms of efficiency.

Even if you run the machine with small load settings, the machine is still using most of the water and most of the energy of a full load.

Let’s look at some actual numbers. A typical household can save 3,400 gallons of water a year by running full laundry loads instead of half loads, according to the U.S. Department of Energy. Given a national average of $1.50 per 1,000 gallons of water, that’s an annual savings of $5.15 from just the water in the washing machine over the course of a year.

What about energy costs? Numbers vary, but the sources I’ve seen seem to estimate that a small load of clothes (say, half a load) will use somewhere between 60% and 75% of the energy of a large load of clothes.

In other words, a single large load saves you about 25% to 50% of the energy of two small loads. In terms of dollars and cents, depending on your washing machine, the annual savings can easily add up to $10 or more.

Similar principles apply with dishwashers. A single full load uses more water and more energy than a half load, but a full load uses far less energy and water than two half loads.

So, why would you ever not run a full load?

Perhaps you have a specific garment that you wish to wear. If that’s the case, hand-washing a single item is quicker and far more efficient than running a load of laundry. Just simply wash the item in a sink with a bit of detergent. Soak it in water with a bit of detergent, then wring it out and repeat a few times. Rinse it, then hang the garment up to air dry it and you’re done.

What if you’re single and don’t have that many clothes? This was a challenge I had when I was single. For a time in college, I had just over a load’s worth of clothes. I would literally wear my last set of clean clothes on a Saturday while doing my laundry. The solution is pretty simple: develop a clear laundry routine where you wear your last set of clean clothes while doing your laundry.

Sometimes, you have a small set of garments that have specific washing instructions. Again, if it’s a single item (or two or three items), wash by hand. If you’ve got a small load of these items, add items to the load that can easily wash with those specific instructions (like t-shirts, which clean well in almost anything).

Similar principles apply with dishes. If they’re special items, wash them by hand. Otherwise, fill up your dishwasher (as much as you can) before running it. It’s that simple.

Running a full load saves you time and money. It’s just a matter of choosing to do it.

Reader Mailbag: Sleeping Toddler

Posted: January 23rd, 2012, 7:00am MST 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 advice
2. Good advice for college student
3. International mortgage question
4. Favors as gifts
5. Allowance strategies
6. Life insurance for children
7. Buying local
8. Retirement savings challenges
9. State retirement plans
10. Podcasts

I’m typing this while holding a sleeping one year old on my shoulder. He’s been up most of the night with some sort of intestinal illness and has only slept in fits and starts.

Sleep deprivation and worry are fundamental parts of being a parent.

Q1: Investing advice
My husband and I have a 14 month old son. We have 15k that we would like to put towards his college education but unfortuantely we just aren’t sure how to go about investing the money.

My husband and I are great savers, but really know little about investment even when it comes to our own money. We have some money in a mutual fund and the rest in a money market. Do you have a good book that you suggest reading for financial advise, really just a good overview of the options for investment?
- Shanda

If I were you, I would look at the 529 plans offered by various states – you don’t necessarily have to be the resident of a state to use their 529 plan, though they do offer some additional state income tax benefits if you’re a resident of that state. For example, the plan in Iowa is run by Vanguard and I’ve been incredibly happy with it.

If you invest money in a 529, then take all of it out for educational purposes, you don’t have to pay taxes on any of the money – even the money you earned on the investments. It’s all tax-free if you use it for education.

Beyond that, one book I would definitely read if I were in your shoes is Debt-Free U by Zac Bissonnette. It’s a great look at how to save for college and some clever ways to reduce costs there.

Q2: Good advice for college student
My daughter is 20 years old and a sophomore in college. I pay all of her college expenses (tuition, books and living expenses). She has a part time job and is paying for her incidental expenses (gas, coffee, iTunes, moves, etc.) I have taught her a great deal about personal finance and have been a good example by living well, saving money and keeping out of debt. I talk quite a bit with her about finances and using money smartly. However, I am wondering if you could recommend a good baseline book for her to read about overall finance strategy.
- Margie

The book Please Send Money by Dara Duguay is pretty much the perfect book for the situation you describe. It addresses the college stage of financial maturity, as students grow toward financial and personal independence.

Even with that book in her hands, she’s not going to magically begin understanding her financial situation unless she wants to, and that’s a decision that’s internal to her. You can’t make someone care about their finances.

The best thing you can do is what you’re doing – making the information available. It’s up to her to take the next step.

Q3: International mortgage question
I’m currently planning to invest in a house in a different country. I won’t be able to take any loan in that country as I don’t work there. I want to know if there is any way I can take a house loan here to buy a house in a foreign country. By the way, I’m not a US citizen.
- Ama

It is very rare for a bank to take out a loan using a house in another nation as collateral. The only banks that might consider doing it are large multinationals that operate both in the United States and in the nation you’re hoping to buy the house in.

If the bank does not do business in the nation that you’re buying the house in, the risk the bank takes on in offering the mortgage is incredibly high – likely far outside the realm that any bank would take on.

If you’re going to look further into this, start with the huge banks like J.P. Morgan Chase or Bank of America that might be operating in that nation or have close relationships with banks in that nation.

Q4: Favors as gifts
For our baby shower, our friends and family all gave us certificates for a night of babysitting. We have a pile of about twenty of them from various people. The problem is that now I feel sort of guilty using them. We’ve just left them in an envelope.

Should I feel guilty about using them? Should I expect that people would feel guilty if I gave similar things as gifts?
- Annie

You shouldn’t feel guilty at all about using these certificates. They were a gift to you, likely from people who understand how important an occasional night out without children is to new parents, and they likely want to fulfill that certificate.

If someone gives you a gift, there’s an intent that you will use that gift. If they didn’t want you to have that night of free babysitting, they would have given you bags of diapers for your baby shower or something similar.

Use the certificates and enjoy some date nights with your husband.

Q5: Allowance strategies
We are talking about starting allowances with our two children, ages 9 and 5. I would just like to read your ideas and strategies, then compare them to ours. We would just like a second opinion, if it’s not too much trouble. Thanks so much!
- Mel

We start allowances at age four and plan to discontinue them at age sixteen. The allowances are not tied to any particular household task, but the amount given isn’t very large. The amount given is equal to fifty cents times the age of the child.

We use a Money Savvy Pig for our allowances. The children are required to put one quarter in each of the slots and then are free to put the rest of the quarters wherever they see fit.

The entire point of an allowance for us is to get our children talking about money and also to provide a method by which they can make spending decisions themselves instead of just directly asking Mom and Dad for everything.

Q6: Life insurance for children
What is your take on life insurance for kids? I would assume that someone taking life insurance on their children isn’t in it for the financial long haul.
- Charlie

The only reason I can see for having a life insurance policy for your child is if you’re unsure if you could afford the costs of a child funeral upon their death or if you’re purchasing some sort of whole life policy for your child that extends into adulthood.

I’m not particularly a fan of such whole life policies. They tend to really only pay off if you find that your child has some condition not obvious when they’re young that causes them to become uninsurable later in life, which is a reasonably rare occurrence.

Currently, we have very small whole life policies for our children for this exact reason. The amount is very small – just enough to cover funeral costs. Most of the money we’re investing in our children is going into college savings.

Q7: Buying local
I really love the main street in my town, but most of the shops sell things for much higher prices than I could pay online. How can I justify paying $50 for a pair of shoes when I can get them for $25 online?
- Emily

The reason is so you can have the opportunity to stroll down the main street of your town and not see boarded-up windows and shabby businesses that are barely surviving.

A thriving main street in a town is an indication that the citizens of the town value having such a main street and are willing to pay somewhat higher prices there than they could find online. That is a town I would want to live in. It’s one of the things I admire about towns that have thriving main streets and town squares.

The cost of keeping a physical location open in an average town simply drives up the prices in that store because online retailers don’t have to worry about a traditional storefront. They just have to keep the servers up and they can ship out items from a tightly-packed warehouse.

If you value having that main street, be a patron of the stores there. If you would rather save $25 on your shoes, order them online and accept that the main street you profess to value is likely soon to be a thing of the past unless everyone else in the community steps up to support something that you supposedly value but don’t actually bother investing in. You can’t have it both ways.

Q8: Retirement savings challenges
I am 27 years old and have been working for two and a half years. My current income is $52,000 (pre-tax), take-home pay is about $3000 per month. I only have student loan debt from medical school: $47,587 at 4.25% and $135,179 at 6.625%. My parents generously paid for my undergraduate education, and although they don’t expect repayment, my hope is to assist with my brother’s college tuition. My fixed expenses each month are rent ($750) and student loan repayment ($500); I also spend about $300 per month on groceries, gas, utilities and laundry. The remainder goes into savings. I currently have $6500 in an emergency fund, $10,000 in a traditional IRA and $27,000 in a catch-all savings account at 0.9%. I signed up for my work’s 401(k) this year and will start contributing 15%, but do not get matching from my employer. I plan to get married (budget $15,000, split between me and my fiance) and buy a house in the next five years. I have guaranteed employment for the next three and a half years, but will be making less than $65,000 a year. I am hopeful that once I am done with my training in four years, I will be making $150,000+. I still feel like I am not saving enough. How much should I be saving? What should I do with the money in my savings account that is earmarked for retirement (about $10,000)?
- Ron

I think you’re saving well given your current financial reality.

You need to ignore what you think you might be making in the future and focus on what you’re making now. Relying on your future self for income or anything else is almost always a mistake because when we visualize the future, we tend to rarely visualize what will actually happen. Instead, we usually visualize something better than what will actually happen.

Making financial moves now that relies on you earning a truckload of money later on puts a greater burden on your future self. It adds stress and pressure to your future that doesn’t need to be there.

Q9: State retirement plans
I was wondering what you thought about the following retirement plans that are available to me as a fairly new State of Connecticut employee. I started working for the state in August of 2011, and I need to choose a plan by February 28 of this year.

As a bit of background, I am 37 and married with two children. My husband is self-employed, and contributes 10% of his income to a retirement savings account. I have a very small retirement account with Fidelity, left over from my last job (around $20,000), which I haven’t rolled over or cashed out yet. My plan was to just keep it in Fidelity if I choose one of the SERS plans below, or roll it over into ING, which is the State’s ARP funds management company.

I plan on working for the State of Connecticut for the rest of my career, so I’m leaning toward option 1 or 2 (but which one?), and contributing an additional 10% of my income to my own IRA each year. In the old days, I know you were supposed to take a pension if you had the chance, but with budgets and politics as they are these days, I’m not so sure. After seeing my Fidelity account shrink with the market, though, I’m not sure if the Alternate Retirement Program would be any better.

Here are the three plans from which I must choose:

1. State Employees Retirement System (SERS), Tier III – This is a defined benefit plan qualified under section 401(a) of the Internal Revenue Code. The employee contribution to this plan is 2% of your salary and contributions are made on a pre-tax basis. Should you meet the requirements for receipt of a retirement benefit under this plan, the benefit you receive will be calculated based on a formula which uses the number of years you participated in the plan and the average of your five highest years’ salary. Under the Tier III plan, retirement credit may be granted for some prior employment service, including military service and municipal employment. Restrictions apply. See the SERS Tier III Summary Plan Description for more details.

2. State Employees Retirement System (SERS), Hybrid Plan – This is a defined benefit plan with a “cash out” option qualified under section 401(a) of the Internal Revenue Code. The employee contribution to this plan is 5% of your salary and contributions are made on a pre-tax basis. At the time of retirement you will have the option of receiving a retirement benefit calculated based on a formula which uses the number of years you participated in the plan and the average of your five highest years’ salary or in lieu of such benefit a one-time lump sum payment with a five percent employer match and four percent interest. Under the Hybrid Plan, retirement credit may be granted for some prior employment service, including military service and municipal employment. Restrictions apply. See the SERS Hybrid Plan Summary Plan Description for more details.

3. Alternate Retirement Program (ARP) – This is a defined contribution plan qualified under section 401(a) of the Internal Revenue Code. An ARP member’s benefit is based upon their contributions to the plan and investment earnings. The employee contribution to the plan is 5% of your salary and is made on a pre-tax basis; the State of Connecticut contributes an amount equal to 8% of your salary. Plan contributions are invested at the direction of the member in investment funds available under the plan. ING is the State’s administrator for ARP. Information on ARP is available at www.CTdcp.com.
- Jan

I tend to be very hesitant to trust pension plans that are run by the government – actually, I don’t trust pension plans of any type. Governments and businesses will often start pillaging their pension plans if they need cash to stay afloat, no matter the promises they’ve made.

If I were you, I’d choose the plan that allowed you the most independence possible from the state, which sounds very much like the third option. I did some reading on the plan and it sounds as though your money is held in an independent account managed by ING.

If I were you, I’d also start up my own Roth IRA, which enables you to save money for your retirement completely independently of your job.

Q10: Podcasts
What’s your current list of podcasts you listen to? I know you change your rotation regularly (as do I) and I’m always looking for new ones to listen to.
- Evan

I listen mostly to NPR programs – Marketplace, Fresh Air (I pick and choose episodes), This American Life, Wait, Wait – Don’t Tell Me, and Radiolab.

Aside from that, I listen to The BS Report with Bill Simmons (which mostly covers sports and pop culture) and The Dice Tower (which covers board games).

That, along with some music, is what I listen to in a given week.

Turn on the Oven Light While Cooking (21/365)

Posted: January 22nd, 2012, 1:00pm MST by Trent

Several months ago, I was curious about how much heat was lost when I opened up the oven to inspect a dish cooking in there. I put an oven thermometer in the oven, waited until the dish I was cooking was almost finished (a casserole cooking at 400 F), then opened the oven door for about ten seconds to inspect it.

During those ten seconds, the thermometer dropped almost 20 degrees. When I closed the door, the temperature slowly returned to 400 F, but during that period, the oven had to put in some extra work to return that heat.

How much? It’s really difficult to exactly calculate that without a meter running specifically for the oven. My best estimate, using a lot of math and thermodynamics, is that you lose about $0.02 worth of energy every time you open the oven door.

My solution? I turn on the oven light when I’m cooking anything in the oven. That way, I just lean over and check what I’m cooking without opening the oven door. The light bulb uses less than a cent of energy per hour of use, so the cost is virtually nil if I flip it on, inspect the food, and flip it off.

It’s the little things – but there are some bigger tricks when it comes to energy use and your oven.

First, unless you’re desperately pinched for time, don’t start preheating the oven until the food is in there. If your recipe says “Preheat the oven to 400 F” and then later says “Bake for 30 minutes,” don’t preheat the oven at all.

Instead, put your food in the oven, then set the temperature to 400 F. Then, add about half of the preheat time to the cooking time.

Why? When you open a preheated oven to put in your dish, it’s no different than opening the oven to check the food near the end of the cooking time. You lose that $0.02. Also, the energy used when preheating the oven isn’t actually being used for anything at all, so that’s also lost energy. Most of the time, when I’m making a meal, a few minutes on the baking time makes little or no difference, so I might as well save that energy.

Another valuable oven tactic is to multitask by using multiple racks. If I’m cooking a meal on one rack, I might as well throw in a loaf of bread or something else that can also cook while the oven is running. The extra energy used to cook the second (or third) item is much lower than the energy you’d lose by heating the oven a second time (think about the heat coming off your oven on cooldown – that’s money wasted, so why do it multiple times?).

Another simple tactic is to use glass, ceramic, or earthenware baking dishes rather than metal ones. These hold heat much better than metal pans. If I’m using such pans, I know I can drop the cooking temperature by 20 or 25 degrees or shave some total time off of the cooking just because of the more efficient use of heat.

You should also keep your oven clean, so the hot air in your oven is actually cooking your food instead of the burnt materials in your oven. You don’t have to do this every time you use it, but a regular cleaning simply makes your oven run more efficiently every time you use it.

A final tip: turn off the oven when the food is nearly done. If you leave the door closed, the oven will lose heat very slowly, allowing your food to continue cooking. I usually try to turn off the oven when there’s five or so minutes left in the cooking time. The dish almost always finishes perfectly.

These tips, taken as a whole, can significantly reduce the time your oven

Review: Savvy Saving

Posted: January 22nd, 2012, 7:00am MST by Trent

I find couponing blogs like Stockpiling Moms to be fascinating places. Most of the time, they’re devoted intensely towards one thing: listing a huge assortment of coupons and discounts.

While they can be incredibly useful, such sites often miss out on presenting a larger picture of how such coupons and discounts fit into one’s personal finances. After all, even if you’re using a coupon, you’re still usually spending some money, you’re spending time and energy getting the items, you’re giving up space storing the items, and then there’s the issue of whether or not you even need the item or not. All of these are relevant concerns when you’re thinking about buying an item and I often find them at least as important as the latest deals at CVS.

That larger picture is the focus of Savvy Saving, written by the two people behind Stockpiling Moms, Melissa Jennings and Shelley King. The book focuses on being a guide to putting couponing and deal-finding to proper use as a component of a frugal lifestyle.

Stockpiling 101
The authors use the term “stockpiling” to describe a process that I’ve often heard called “extreme couponing.” In other words, the opening chapter lays out the techniques needed to wring every nickel from coupons, store flyers, unadvertised deals, and so on. One of the biggest keys for them is tossing brand and store loyalty out the window. While I can largely agree with them on store loyalty, I’ve learned the hard way that completely ignoring the brand of garbage bag you’re buying can often end in complete disaster with trash all over your kitchen because of the flimsy cheap garbage bag you just got a great “deal” on. Use store and brand loyalty with some sense about how you’re actually going to use the products you purchase.

Collecting Coupons
For Jennings and King, one key part of all of this is collecting the coupons and, perhaps just as importantly, staying ahead of them. This means keeping them organized in some fashion (they discuss several options), keeping the old ones weeded out, and incorporating new ones on a regular basis. The authors seem to advocate a weekly couponing routine, where you extract new coupons from flyers and the internet, integrate them into your organizing system, and get rid of old coupons.

Shopping Strategies
Avoid couponing with your children. Avoid shopping alone at night, because you’re often distracted by the need for focus when shopping, traversing the parking lot, and so on. Remember that when you’re using a pile of coupons, you waited in line and have the right to use those coupons. If the cashier gives you a problem, ask to speak to a customer service rep or a manager.

Storage
The more organized you are about how you store stuff, the less time you’ll have to spend finding the items you need and the fewer items you’ll have to toss out because they went to waste. The authors describe a detailed cataloguing system so that you can easily find items based on when you’re going to use them, such as a “breakfast” list that says what the item is, where it’s located, and when it will expire. This is the type of thing that requires a lot of up-front work but is well worth it when you’re actually using it in the heat of the moment.

Monthly Menu Planning
The authors advocate planning meals by the month, which is a great idea if a lot of your meals rely on frozen items (such as flash-frozen vegetables and frozen meats) and packaged items. It’s very difficult to do this kind of meal planning with fresh items, however. One solution is to leave a few spots in the monthly meal plan empty, with the assumption that you’ll plug in meals that use lots of fresh vegetables. Another solution is to prepare lots of meals in advance using fresh items, then freeze them and use those frozen meals as part of a future month’s meal plan.

Drugstores
One big part of the authors’ couponing routine is to utilize the coupons, flyers, and reward programs at the major drugstore chains – Rite Aid, Walgreen’s, and CVS. By being patient and stacking these offers together, you can often get health and beauty products for free. While this can certainly be a great system, my experience with it has been that it takes a lot of work, you have to accumulate a lot of toiletries in order to stay ahead, and you often wind up with items that aren’t as good as others. If you’re willing to accept the drawbacks, then drugstores can be well worth the effort.

Budget
This is an extremely brief how-to on creating a family budget, not too dissimilar to my own Budgeting 101 plan. The key thing to always keep in mind with a budget is that it’s supposed to help you identify where you’re spending too much in areas where you can control it and make reasonable changes.

Dining Out
Eating out can be a part of a family’s budget – and it’s a budget element that can be easily couponed. The authors discuss many options for cutting down on the cost of eating out, from using things like Groupon and Restaurants.com to simply planning on eating out on “kids eat free” nights at local restaurants. If planned well, eating out does not have to be a particularly costly option if only done once in a while.

Healthy Couponing
One of the challenges of couponing is that many of the coupons are for items that aren’t exactly healthy. A huge discount on Oreos isn’t exactly a bargain in the overall scheme of things. The easiest way to live healthy while couponing is to simply ignore and avoid coupons for items that aren’t healthy. You don’t need Doritos in your home, so why coupon for them? This is right in line with the type of coupon “filtering” that I advocate, where you don’t just go for the biggest bargains but apply some common sense to the situation.

Living “Naturally” Frugal
Hand in hand with healthy couponing is sticking to a tactic of more “natural” living by doing things like avoiding paper plates and cups (sticking with actual dishes instead) and buying clothes from consignment shops and secondhand stores instead of always buying new. Reducing, reusing, and recycling is a natural money saver and it works well as part of one’s money-saving repertoire.

Stockpiling for the Holidays
The authors suggest doing what I consider to be a post-holiday tradition. Buy all of your wrapping paper and Christmas decorations a few days after Christmas and keep it all in a particular place until next year’s holidays roll around. This way, you can catch the huge post-Christmas deals on such items in a sensible way. I also use things like reversed brown paper bags as gift wrapping.

What to Do with Your Savings
If you’re saving all of this money, what are you going to do with it? The biggest mistake you can make is allow the saved money to inflate your lifestyle in other areas. Instead, keep track of what you’re saving and use that extra money to directly pay off debts or save for something big and vital like a house down payment.

Is Savvy Saving Worth Reading?
The advice in this book is fantastic stuff if you’re looking to learn how to really integrate couponing and bulk buying into your financial situation. It can save you a lot of money and this is a really approachable and thorough guide to doing just that.

The only complaint I have – and this is more of a complaint about ultra-couponing in general – is that it assumes that all garbage bags and toothpaste and flour and other items are created equal. That’s just simply not the case. I’ve found time and time again that when I score the lowest price with coupons on an item regardless of brand, I often wind up with odd-smelling deodorant that doesn’t keep me dry when I exercise or trash bags that rip out of the bottom if they’re even close to full. The inconvenience of an awful product costs me far more than I ever save buying a good one.

I use these strategies, but I restrict them strongly by what’s recommended in publications like Consumer Reports and by some common sense.

Check out additional reviews and notes of Savvy Saving on Amazon.com.

Don’t Use the Stove when the Microwave Will Do (20/365)

Posted: January 21st, 2012, 1:00pm MST by Trent

Let’s get this out of the way right off the bat. For the specific task microwaves excel at, they’re much more efficient than stove tops and ovens. The basic stats on energy use prove this to be the case.

However, the savings are relatively small. Per comparable use (one hour in the oven versus fifteen minutes on the stovetop or in the microwave), you’re saving on the order of 1 to 1.5 kW by using the microwave – a savings of about $0.20 per hour of stovetop use, in other words.

In truth, though, the savings are bigger than that. Let’s dig in a little deeper.

The one task that microwaves really excel at is bringing water to a boil. They can do this much faster than virtually anything else in your home (except for perhaps a magnetic induction stove top, which is an incredibly expensive investment).

I can bring a few cups of water to boil in our microwave in about two minutes. On our stovetop, it takes about eight to ten minutes to bring a similar amount to a boil. That’s a savings of six to eight minutes in the middle of meal preparation, which can make a quick meal really fast and a slower meal faster. It can get our family to the dinner table earlier and allows us to have more quality family time after supper. That’s a real value for us.

Simply put, for every cup boiled in the microwave, it takes me about four minutes less time to do it than on the stovetop. It also saves approximately $0.03 doing it that way.

This simple step is something that saves both time and money. Let’s say I’m going to boil some pasta on the stovetop. I get out a large microwave-safe bowl, fill it with a significant amount of water, and microwave it. The time to bring it to a boil or near-boil in the microwave is far lower than on the stovetop, so I’m actually boiling my pasta much faster by bringing the water to boil in the microwave. I’m also saving $0.05 or so by doing it this way.

The same idea is true in almost any recipe that requires a hot or boiling liquid. It’s far more efficient to simply get cold water out of a tap or cold liquid from the refrigerator and boil it in the microwave than to use the stove top or oven.

Typically, I don’t fully cook things in the microwave. Because they excel so well at one specific thing – raising liquids to a boil – they’re often poor at other things, such as properly cooking a dish of food.

Thus, my usual technique is to bring the liquid to a boil in the microwave, then just transfer it to whatever I’m cooking in on the stove top or the oven.

It’s a simple little thing, really. It’s never going to make you rich, but it does save a few cents. More importantly, it saves something else – a bit of time. Simple changes that save both time and money are valuable ones.

Ten Pieces of Inspiration #56

Posted: January 21st, 2012, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Sittin’ on the Dock of the Bay by Otis Redding
A few days ago, I overheard Otis Redding singing from the speakers of a car near me, and just as suddenly, it dissolved into a rap. It actually made me go home and listen to a bunch of my Otis Redding tracks, including this most famous one.

His voice gives me goosebumps, like a beautiful whisper from the past.

2. Hanging the Laundry out to Dry (1875) by Berthe Morisot
I love glimpses of the past that shows people doing things that people still do today.

Morisot has a wonderful touch here, capturing the essence and flow of what’s happening below.

3. Xobni
I’ve been using this tool in my personal email account and, I’ve got to say, I’m inpressed. It’s made it really convenient to keep track of people I contact regularly – in other words, the key people in my life. Xobni automatically syncs up your emails from people with their postings on social networks and also grabs all of their contact information without you having to do a thing.

It’s not perfect, but it works so well – and is so effortless in what it does do – that I’m incredibly glad to have found it.

4. Adam Osborne on mistakes
Adam Osborne spells out why I’d rather hire a “B” student or a “C” student with an interesting and varied resume than an “A” student with nothing but a perfect GPA.

“The most valuable thing you can make is a mistake – you can’t learn anything from being perfect.” – Adam Osborne

Failure makes people better.

5. Bill Cosby on success and pleasing people
This quote really resonated with me recently.

“I don’t know the key to success, but the key to failure is trying to please everybody.” – Bill Cosby

It doesn’t matter what you do. If you do something with any degree of success, you are never going to be able to please everyone. Instead, decide who you are going to please and focus on them wholeheartedly and don’t spend much time worrying about the rest.

6. Rory Sutherland on sweating the small stuff
Companies and people and organizations that succeed are ones that are still connected to what actually matters to everyday people. If you don’t have any connection to the life of Joe Average, how can you expect to have job security or everything else?

It’s an interesting way to look at the entire world.

7. Richard Carlson on mindfulness
I wish everyone in the world did this more often.

“The next time you find yourself in an argument, rather than defend your position, see if you can see the other point of view first.” – Richard Carlson

I’m often frustrated by discussions that are little more than insults tossed around and criticism that doesn’t consider the positives of what’s presented. Both are useless, and yet both get attention.

8. First Ferris wheel at the 1893 World’s Fair
One of the topics in history that I find fascinating are world’s fairs, particularly the 1893 one in Chicago that saw the public debut of electricity, the incandescent light bulb, and the Ferris wheel. This is just a wonderful shot of the Ferris wheel above the fairgrounds.

I would have loved to have seen this.

9. The Scientist by Coldplay
This is for a reader going through a rough time. You’re a greater person than you think.

10. Brian Tracy on success
If you want to succeed, find ways to help others and don’t worry about what’s in it for you. If you come at it from a “me first” approach, you’ll never succeed.

“Successful people are always looking for opportunities to help others. Unsuccessful people are asking, What’s in it for me?” – Brian Tracy

Don’t worry about what’s in it for you if you want to find success.

Air-Dry Your Clothes Instead of Using the Dryer (19/365)

Posted: January 20th, 2012, 1:00pm MST by Trent

On any given day, if you were to wander into our laundry room, you’d find damp clothing hung up, laid out, or somehow exposed to the relatively warm and relatively dry air in there. They tend to dry out perfectly in a day or so, enabling us to just fold them up and take them upstairs without even having spent a single penny on drying.

This works particularly well in the winter months, when the air in our home is naturally dry because of the furnace. The air seems to simply wick the moisture out of our clothing, leaving them dry in a surprisingly brief amount of time.

A clothing rack is certainly one option for doing this, as depicted above. You can make a clothing rack out of almost anything that provides really good air flow over most of the item. I’ve seen people use anything from treadmills to garden tools (in a bucket with the handle sticking out) as clothing racks in the past.

The most highly efficient way, though, is with a clothes line. Simply stretch a sufficiently strong line or piece of string between two points, grab some clothes pins, and hang up your clothes. It only takes a few minutes to hang them up and take them down and you can fit a lot of clothes onto a single line.

You can stretch a line across a spare room in your house. We’ve stretched lines across our guest bedroom and across our laundry room for the purposes of drying clothes. This can be quite convenient as you can just take down the line any time you’re not using it, so you’ll have a clothesline on a typical weeknight, but it can quickly vanish if you’re going to have guests.

However, my ideal clothesline is an outdoor one. One of my biggest regrets concerning our current home is that there’s no good place to put a clothesline where it catches adequate air flow without dominating the open space of our yard. A clothesline is one of the first things we intend to install when we eventually buy our house in the country.

An outdoor clothesline lets you capture the power of the wind to dry your clothes. The wind billows through, gently drying your clothes and making them smell fresh in a way that a dryer just can’t quite recapture.

How much does this actually save? Mr. Electricity reports that if you run 7.5 dryer loads per week and have a $0.15 per kWh rate from your electric company, you’ll save just shy of $200 per year by air-drying your clothes. Given how quickly I can hang up and take down clothes (remember, there’s no loading or unloading of the dryer if you do it this way), it’s worth it for me to do this most of the time.

From my experience, dryers are a convenience in time-pinched situations. We tend to use our dryer when we need to get a lot of laundry done quickly (usually in conjunction with rack or line drying) or when we need a specific item dried quickly. It’s a convenient tool, but it’s one where the costs can add up if we use it all the time.

Most of the time, we have the spare drying time and the spare space to hang our clothes to air dry, and it takes so little time to actually lay out or hang up the clothes that it’s well worth it.

It’s just another small step toward living cheap.

Overcoming the Power of Branding and Brand Preferences

Posted: January 20th, 2012, 7:00am MST by Trent

“Having preferences means having weaknesses.” – Magnus Carlsen, currently the number one rated chess player in the world

Thanks to Adria Richards for the picture

Over the years, Sarah and I have relied on Cascade Complete to get our dishes clean. We’d tried a lot of different dishwashing detergents, particularly when we were first living in apartments where a dishwasher was available, and we just found that Cascade Complete got our dishes cleaner. We didn’t have to re-run loads. We didn’t have to pre-wash dishes. We didn’t have to worry about overloading. It just got the job done consistently – something we couldn’t say about other dishwashing detergents.

Because of this, we just adopted a routine of buying Cascade Complete whenever we needed dishwashing detergent. We’d recognize the logo on the store shelf, find the best bargain on it we could, stack a coupon on top of that (usually), and head to the checkout.

Some time in 2010 – I think it may have been in the spring – I noticed that our dishes weren’t getting very clean. They looked sort of dingy and they often would still have caked-on food or smudges on the glasses (with little kids, smudged glasses are a very common phenomenon).

After doing a bit of studying, I learned that Cascade Complete had removed the phosphates from their dishwashing detergent, making it much less effective and putting it almost exactly on par with other phosphate-free dishwashing detergents that cost substantially less to buy.

Simply put, we haven’t used Cascade Complete in a year and a half. We either use a generic brand or a homemade mix. The brand on the bottle means little, after all – it’s what’s inside that washes your dishes.

* * *

Companies work very hard to associate brands with certain things in our minds. Apple. Nike. Sony. Olive Garden. Each of those things – and countless others – causes us to picture certain things in our minds and often causes us to have certain assumptions about the products that carry those brand names on them.

For us, Cascade Complete was synonymous with “clean dishes,” but that eventually proved not to be the case. Not because they changed the brand, but because they changed what was inside the box.

The label on the outside of the box doesn’t mean you’re going to always get the same thing inside the box.

What does that mean for us? Don’t become attached to brands. The particular item that is on top of the heap right now might not necessarily be on top of the heap next year if a particular item changes its contents or a competitor produces a better product.

The product you once started buying because it was the best bang for the buck quite likely isn’t the best bang for the buck any more.

I can easily recall a similar experience with a Sony Walkman during my childhood. When I was about eight, I had a secondhand one that was industrial strength. I used it for about six years until it was dropped into a lake. I wouldn’t be surprised if someone were to dive into that lake and find a fully-functioning Sony Walkman.

I bought a replacement, expecting a similar durable product. It worked for about three months, then it started eating and shredding tapes. I attempted to turn it in under the warranty and just wound up battling Sony’s customer service until it wasn’t worth it any more.

The Sony name and the Walkman name meant very little. The product inside is what mattered.

* * *

My solution to all of this is to just completely abandon any meaning when it comes to brand names. All they’re useful for is making it easy to identify a certain item on the store shelf.

What I do instead is constantly watch for product reviews. I read publications like Consumer Reports and The Consumerist pretty faithfully and I simply watch for what their comparative studies suggest is the current best “bang for the buck.” I stick with that for a while until an updated comparison comes out.

When I’m about to buy a more expensive product, I research it thoroughly, but the brand name doesn’t mean a whole lot. If it’s an electronic item, for instance, it’s likely that it was made out of many of the same components in the same Chinese factory no matter what name is on the box. If it’s a dishwashing detergent, the vast majority of the materials in the box are exactly the same. The small differences between the items have little to do with the name on the outside of the box.

All I care about are features and price. Those things matter far more than the name on the package.

I’m striving to apply the same philosophy to everything I see. Does it matter what car someone else bought? Not really. They just decided that it had the right set of features for them. I might not value those same features, but then again, I’m not the person spending the money. If I see someone driving a Jaguar, for example, all I can really conclude is that they have a different set of features that they care about in a car than I do.

I’m not defined by the brands that I buy, nor is anyone else. They’re just stickers on the outside of an item that will ideally make my life a bit easier or more enjoyable. Nothing more, nothing less.

Make Your Own Powdered Laundry Detergent (18/365)

Posted: January 19th, 2012, 1:00pm MST by Trent

I’m often stunned at the high price of laundry detergent. If you’re buying Tide, for example, even if you buy the jumbo pack in multiples, you’re still paying over $0.30 per load. Even generic detergents rarely cost much below $0.15 per load.

That’s why I prefer to make my own detergent. I can easily get the cost down to $0.05 per load, meaning I’m saving at least a dime with every load of laundry I make.

All I do is take a bar of ordinary soap and a box grater, then grate that bar of soap down into a fine powder, about a cup of it. To that, I add one cup of washing soda, half a cup of borax, and half a cup of an oxygen cleaner, such as OxiClean, which serves as the surfactant in the detergent. I mix this thoroughly in a Ziploc container, then toss in a tablespoon for measuring. Some people like to also add half a cup of baking soda, but I’ve never felt it necessary to get my clothes clean.

When I do a load of laundry, I just scoop two tablespoons of my mix into the washing machine and I’m good to go. This stuff works great – it gets my clothes clean and fresh every time.

So, what does this cost? A single batch of this detergent is enough for 24 loads. To make it, I need one bar of soap, which I can get for $0.30; a cup of washing soda, which I can get for $0.32; a half cup of borax, which I can get for $0.24; and half a cup of OxiClean, which I can get for $0.41. That adds up to a cost of $0.05 per load.

I’ve been extremely happy with this detergent. I’ve used it on all types of clothes – whites, reds, coloreds – and all levels of dirtiness without any problems. I haven’t noticed any significant dinginess over a large number of loads, either.

Making a batch of this powdered detergent doesn’t take a whole lot of time, either. Most of the time is spent grating the soap, which is something you can easily do while watching a television program or something like that. After that, you just put the ingredients in a container, shake it thoroughly, and you’re ready to go.

We’ll often make this in quadruple batches. We’ll just grate four bars of soap at once, add four cups of washing soda, two cups of borax, and two cups of OxiClean to the container, and shake it thoroughly. I’ll usually just add a little bit of each ingredient, shake it, and then add a little bit more of each ingredient, repeating the cycle, in order to make sure it’s well-mixed.

How much does this really save? In our house, we do an average of a load of laundry a day – that’s the end result of having two adults and three messy young children at home. If we’re comparing to generics, then I’m saving approximately $0.10 per load. Over the course of a year, that’s $36.50.

If we’re comparing to, say, Tide, we’re saving about $0.27 per load. Over the course of a year, that’s $98.55.

Simply put, we’re saving a hundred dollar bill a year by doing this. To me, that’s well worth the effort of mixing up some powder for about five minutes once every three months or so.

Give it a shot. Make yourself a batch of this at home using the ingredients described above and see if it works for you. If you like it, you’re going to save some significant money over time. Even if you don’t, the ingredients (borax, washing soda, OxiClean) can easily be used for other cleaning projects around your home.

Reader Mailbag: Back Pain Blues

Posted: January 19th, 2012, 7:00am MST 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. Puzzling through hourly pay rate
2. Career path concerns
3. Working with children
4. Speed reading
5. Getting less sleep
6. Netbook or tablet?
7. Risk Legacy and evolving games
8. Saving for multiple goals
9. Paying someone to prepare taxes
10. Setting microgoals

Two days ago, we had our first significant snowfall of the winter. The amount of snow on our driveway was right around the minimum amount we usually need for us to break out the snowblower.

In order to make sure that our children could make it to one of their activities on time, I had to get the driveway cleared as fast as possible.

I chose the shovel. I got it done in time, but I found myself coughing a great deal (due to the very cold winter air and a touch of the cold I already had) and found myself with a sore back as well.

As I type this, I’m thanking Advil for the help.

Q1: Puzzling through hourly pay rate
I am about to accept a new job and I am working on the hourly pay rate that you discuss. I have in detail created a Pro/Con chart about this opportunity and the Pro’s do out weigh the Cons, but the largest Con is commute time. I will be increasing my commute by 15 miles each way (30-40 minutes depending on traffic). In your original calculation I am to include that drive time and gas in my hourly calculation. However, I have decided to attempt to learn a new language during that travel time. Would you still add this time for travel even though I am partaking in a personal development project? What if it is to help my career?
- Andy

You should still include the travel time. Although you’re finding a use for that commute time, you’re still stuck in your car. You’re still having to divert a significant portion of your attention to the traffic around you.

On the other hand, if you were learning the language in a focused environment for an hour each day, you would pick up on the language much more deeply and thoroughly.

There’s certainly some value in using your time in the car to learn things, but if it had an equal value to non-car time, would you choose to drive around in order to listen to your language-learning CDs?

Q2: Career path concerns
My situation:
I’m living in Germany and studying for my BA in Social Science (class of 2013)
I have two subsidized loans one beeing 5800$ and the second 3500$ both will only kick in if I earn more than 30,000$/year after taxes.
I got 12000$ on the hand which is great, but I when reading the mentioned article I asked myself what will I have after I graduate.

Do I want to work as a scientist in social science, I dont, I never planned too, I had median grades but can maintain an A-Average at the moment. Still I dont have collected skills that are transferable to a degree mentioned in your article. I have no idea what my dream should or could be and the only thing I can relate to is the wish for financial independence for a foreseeable future.

I am thinking about taking up a job that would pay me 10000/year as a computer guide at the university so that I will save more to pay off my loans and maybe save up for a small apartment.

Any ideas how to change my worries about me beeing stuck with a formal but no-use education? I mean I really enjoy my time at the university but its more like readying a book you like about personal finance or philosophy it educates you but its nothing that will really help me at the job market… at least thats what I am afraid of.
- Ben

If I were you, I would spend my remaining time in college trying to figure out what exactly I wanted to do with my life. Clearly, you’re not enthusiastic about the field you’re studying for. What are you enthusiastic about?

College is the perfect time to figure this out. The restraints you have on your life are likely never going to be this light again.

Take advantage of it. Sit in on classes related to anything that might be of interest to you. Join some campus organizations. Try new things and see what clicks with you.

At the very least, attempt to supplement your degree with extra projects and jobs that will appear to be a good complement to potential employees.

Q3: Working with children
How do you get work done with children at home? I’ve been trying to transition to staying at home to work, but with my children at home I get almost nothing done. I don’t mind this, but I’m trying to find a way to stay professionally productive while still being a good mom.
- Erin

On days when I need to get work done and have children at home with me, I tend to try to get them involved in focused projects. I then set a timer for them that they can clearly see and tell them that I want to see what they’ve come up with in that timeframe.

For example, I’ll get out a giant bucket of Legos and ask them to build me the coolest castle they can build. I’ll set a timer for thirty minutes and then tell them I want to see what they’ve come up with when the timer runs out.

I usually make a big deal out of the project. We’ll take pictures with it, talk about it, and so on. Then we’ll have a snack, use the bathroom, and then I’ll come up with another project – say, a big art project where they need to draw a picture of something.

This works really well for my four year old daughter and my six year old son. For my one year old, I usually just contain him in a small spot with some toys for short sessions and he largely occupies himself.

Q4: Speed reading
[Recently] you talked about your reading skills. You said…“I can read pretty quickly, allowing me to go through more books than I would if I didn’t practice so much.” Is there any proven way, book or method for increasing reading speed that you can recommend? Is it just practice?
- Jeff

I’ve been reading on the order of 100 books a year for most of my life. I actually still have my reading list from sixth grade, where the teacher had all of the students keep one, and it numbers at about 100 or so. That pace has been more or less constant ever since.

The best way to become a good reader is to read. The more you read, the stronger your reading skill becomes and the faster you can absorb written material.

I find that reading challenging stuff tends to improve me the most as a reader. I’ll get a nonfiction book on a complex topic that I don’t understand well, and that forces me to read more slowly and absorb more of what I’m reading just to make it through.

Jeff had a follow-up question.

Q5: Getting less sleep
This seems like an offbeat subject but I have several relatives who can THRIVE on only 4 – 5 hours sleep. I need 8. Think of the productivity increase if I could gain 3 to 4 hours a day! Is there any way to learn to sleep less but still be productive or do you have to be born with it? How can dome people exist on 4-5 hours and others need 7-8 or more? I have never heard anyone address this and thought if anyone would know you would!
- Jeff

I think there are a lot of elements that make up the amount of sleep that a person needs. Genetics is certainly one of them, as is stress level, the amount of interruption of one’s sleep, and the comfort of one’s sleeping environment.

I can be productive with things that don’t require a lot of thinking on four or five hours of sleep. However, whenever I do thinking-intensive tasks with that little sleep, I perceive the results as good, but I later discover that they’re pretty poor.

Sleeping for three more hours than someone else, but being able to be thoughtfully productive during your waking hours, is well worth it. Don’t mess with what your body needs.

Q6: Netbook or tablet?
I have a laptop and until recently I had a netbook. I used the netbook for most of my day to day computing needs at home to save ware and tear on my laptop which is much more expensive.

I have been looking around for a replacement but the market seems to have went much more in the direction of tablet computers. As far as I can tell the tablets generally are more expensive, seem to be less powerful, have less memory and are simply an unnecessary gadget that is popular at the moment. Everyone around me is recommending a tablet but what I see and my intuition is saying to go with a netbook again.

Would you have any thoughts?
- Chris

I find that tablets tend to have more appeal for people whose typical computer tasks involve mostly mouse work with only brief bits of typing. That’s because the finger is a more intuitive pointing device than the mouse. It’s just more natural.

The more typing you do, the less appeal a tablet has. Even when you find ways to couple a tablet with a keyboard (many tablets allow you to use a wireless keyboard with them), it’s still not as good as the setup with an entry-level laptop.

If that describes you, get an entry-level laptop or netbook. It’s probably the best solution for you.

In either case, the processing power on both a decent tablet and a lower-end laptop today drastically exceeds what’s needed for what most people do on their computers. Web surfing and emailing do not require extensive computer power.

Q7: Risk Legacy and evolving games
I took your advice and picked up Risk Legacy to play with my brothers and sisters over Christmas. It was a blast and we had so much fun that we’ve gotten together twice in January to play it. Thanks for the idea! It was well worth the money to have all of us sitting around a table talking and spending time together again.

I was wondering if there were other games like it that “evolve” as you play them, with permanent changes to the game.
- Eric

Not that I’ve seen. However, I think that Risk Legacy is an awesome game experience. It has become an absolute staple for my gaming group, even overcoming a strong aversion to Risk. Five people are probably going to get 30-40 hours of entertainment out of that box, and at the end there’s a unique memento of those 30-40 hours spent. That’s pretty cool.

You also hit upon the big reason why I love board games so much. It gets people around a table doing social things. Whenever I get together with friends and we just watch a movie or something, the room is quiet and there’s very little interaction. I can do the same thing when I’m by myself.

Social gatherings are meant to be social. Board games are inherently social.

Q8: Saving for multiple goals
In one of your recent posts in the 365 days section you talked about having money automatically transfered into savings accounts for different things you are saving for. I have a regular checking, a short term savings and a long term growth account (the PNC Virtuall Wallet is AMAZING by the way and makes this all very streamlined). But you talked about an account saving for a car, and I know I should have an emergency fund, but I’m not really sure how to set all this up.

What do your account setups look like? Do you save for more than one thing in the same account or have a separate account for every savings goal? And where do you put money for things like a new dish washer or other larger item that might break before you get around to proactively replacing it? Does this come from your emergency fund?
- Paul

I use ING Direct for most of my specific savings goals. ING Direct allows a person to set up as many savings accounts as they’d like (I’ve never hit a limit, anyway). You can have automatic savings plans tied to each one of them.

Thus, I’ll have a savings account that’s tied to saving for a car, another tied to saving for a new dishwasher, another that’s just an emergency fund, and so on.

I usually try to start saving for things as soon as I get an inkling that they’re going to need replacing soon. Most of the time, failures of things like cars and appliances provide some hint beforehand. I usually try to rely on those hints.

Q9: Paying someone to prepare taxes
I was wondering what you think of paying someone to prepare your taxes? In the past 30 years, my husband and I have always had someone prepare our taxes at a cost of $175.00 I keep all the tax forms in a file folder and sort through it before I bring it to the preparer. We also just have the basic write offs such as our mortgage and donations. Nothing ever really adds up to being able to write anything off because we make too much and don’t donate enough. Plus we’re healthy, so we don’t have any medical expenses.

My question is how are the tax preparation people that you see on commercials all the time? Right now they have a new program that you can work on your taxes from home and they have an instant question/help line available if you have any questions? Also what about Turbo Tax? I saw it advertised for $45.00 at Sam’s Club and was wondering if that’s the way to go.
- Susan

I use TurboTax for my own taxes. It does the job really well and hasn’t failed me yet.

Most of the time, when I’ve observed what a tax preparer does, they’re generally using TurboTax or a TurboTax-like computer program to prepare your taxes for you. They just take the numbers from the documents you’ve given them, put them into a program, and out pops your forms.

I’d rather just do that myself. I’d try out TurboTax if I were you.

Q10: Setting microgoals
You’ve mentioned many times that you set “microgoals” for yourself. Could you elaborate on what exactly that means? What’s the difference between that and a short-term goal?
- Ellen

I usually set “microgoals” on a weekly basis. Typically, I’ll think about a goal that I want to complete for the week – usually some task that will take me a few hours that’s outside my normal routine – over the weekend.

On Monday, I’ll set my “microgoal” (or pair of them) for the week. I’ll figure out how to fit them into my week and have a plan for making them happen.

Usually, I strive to complete them by Friday afternoon, but sometimes goals run over into the weekend. If I find that I can’t complete one for the week, I spend some time trying to figure out why I didn’t get it done.

Clean Out Your Dryer Lint (17/365)

Posted: January 18th, 2012, 1:00pm MST by Trent

This seems like such a simple thing. Most of us do this as a matter of course whenever we dry a load of laundry in our dryer.

Forgetting to do it, however, adds up to a significant cost. Not only does it make your dryer run less efficiently (depending on the level of lint and your specific type of dryer, it can reduce the efficiency by 75%), it also forces your dryer to work harder and can contribute to a shorter lifespan for your dryer.

As Brittany’s photograph clearly illustrates, one key step to making sure that your dryer is free of lint is cleaning out your lint trap. Whenever you’re about to run a load of clothes, simply remove the lint from the lint trap with your fingers and toss it in the trash.

However, that’s just one step in the process. There are additional steps you can take which will maximize the airflow into and out of your dryer, making it run more efficiently. A more efficient dryer is a dryer that costs less to run per load and has a longer lifespan, saving you money both now and later.

First, make sure the external opening for your dryer vent is clear. If you don’t know where your dryer vent is, spend some time tracing the vent that goes out of the back of your dryer. One method is to simply inspect the outside of your house, particularly on a very cold day, when the dryer is running. At my home, if the temperature is below freezing, there is obvious steam coming out of the dryer vent.

Cleaning it is easy. Just lift up whatever is guarding the trap and remove any lint or debris that is filling the exit. Ours tends to fill with debris about every six months or so and it makes our dryer run much less efficiently.

Next, once a year or so, clean out your dryer vent completely. This is a straightforward process, but it does take a bit of time and requires you to move your dryer. eHow has a great step-by-step guide for the process.

Many people tend to do this only when they install (or have someone install) a new dryer – and they’re often shocked as to the incredible level of lint and other materials that have built up in the vent. Quite often, that material has caused the person’s dryer to work much harder than it otherwise would have, bringing on a dryer replacement much sooner than would otherwise have been needed and also using more energy per load, adding to the usage cost of the dryer.

A final tip: occasionally wash your lint filter. That’s right, pull out that lint filter wash it with soap and water.

Why does that make a difference? As Snopes explains it, “[j]ust removing the lint from the lint filter isn’t always enough – the fine mesh of most dryer filters can be clogged in ways that aren’t obvious at a casual glance.” A quick scrube and rinse in warm soapy water will do the trick.

We try to wash our lint filter once every three months or so. Honestly, we’d probably do it more often if the lint filter wasn’t on the other end of the house from our primary sink for washing dishes.

What will all of this accomplish? For one, it will make your dryer run efficiently. While it’s hard to find exact data on this, simple observation bears this to be true. If our vents are clogged, it can take twice as long or longer to dry a load of clothes. More efficiency when the dryer is running means more savings for you.

For another, it will extend the life of your dryer. The heating element will receive less stress, as will the fan. The less stress you put on these key components, the longer they will last.

Simply removing lint from your dryer’s exhaust system is a double win. You save now by using less electricity per load, reducing your electric bill, and you save later by not having to replace your dryer as often.

The Simple Dollar Weekly Roundup: Warm Blanket Edition

Posted: January 18th, 2012, 7:00am MST by Trent

During the day, when my kids are at school and my wife is out of the house at work, I turn the furnace off and the house gets rather cool.

When that happens, I often just wrap myself up in a warm blanket as I work. It’s a big, comfortable thing that’s just cozy to sit in.

In fact, I’m wrapped in it as I type this.

The Purpose of Money Money is a medium of exchange, nothing more. Someone gives you money for your time, your energy, or your things. You give someone else money in exchange for their time, their energy, or their things. Good personal finance is all about maximizing those exchanges. (@ matt about money)

Consumer Is King, Believe It or Not. Act Like One. This is a great response to getting a lemon product. (@ one cent at a time)

A Place of My Own This is a really surprising post. I’m not sure what else to say, but I felt I should link to it. (@ get rich slowly)

Economic Lessons from “Farmville” For me, the real lesson of Farmville is the microtransactions. I’m amazed at how many people will pay a few bucks to get a little bit ahead at this game. (@ free money finance)

The first thing you do when you sit down at the computer “Let me guess: check the incoming. Check email or traffic stats or messages from your boss. Check the tweets you follow or the FB status of friends. You’ve just surrendered not only a block of time but your freshest, best chance to start something new.” Indeed. (@ seth godin)

Use Cold Water for Most Clothes Washing (16/365)

Posted: January 17th, 2012, 1:00pm MST by Trent

It’s simple. If you use hot water at home to wash your clothes, heating the water is the single largest expense of running a load of laundry.

I base this on the numbers calculated by Mr. Electricity on the cost of washing machines, using a set of rather rigorous data.

If you wash on hot and rinse on warm, you’re going to use an average of 4.5 kWh per load, which at a cost of $0.15 per kWh will cost you $0.68.

On the other hand, if you wash on cold and rinse on cold, you’re going to use an average of 0.3 kWh per load, which at a cost of $0.15 per kWh will cost you $0.04.

The numbers are clear: if you wash on hot, you’re dumping water down the drain.

Of course, there are a lot of counter-arguments for this.

The chief argument for using hot water is that hot water is the best route for getting your clothes as clean as possible. The high temperature of the water is most likely to kill bacteria and also to cause more movement of the water, causing more soiling and germs to be removed from the clothes.

However, hot water also does the most damage to clothes, causing them to shrink, wrinkle, and fade more than other temperatures. I would only use hot water if the clothes are seriously soiled for some reason. For example, I’ll use hot water for a load of cloth diapers or, in my own recent experience, towels that were used to clean up a bathroom in which a four year old girl attempted to flush most of a roll of toilet paper at once.

Most of the time, our clothes simply aren’t dirty enough to warrant the rough treatment that a hot water washing would give them.

What about warm water? It’s the middle of the road choice. I tend to use it on our children’s clothes, as they tend to accumulate food stains and warm water removes them well. I’ll also use it on any adult clothes that became sweaty or particularly soiled due to the day’s activities.

If you’re interested, washing your clothes on warm and rinsing on warm will cost you $0.53 per load, and washing your clothes on warm and rinsing on cold will cost you $0.29 per load.

Still, most of my clothes are washed in cold water. Most days, my non-workout clothes never get very dirty at all. They accumulate a bit of dried skin flakes (as everyone’s clothes do), but so does the carpet in a house and I don’t bathe the carpet in hot water to remove those flakes. Cold water easily removes such particulate matter and the soap leaves the clothes quite clean.

Another factor: cold water washing is also the gentlest choice for your clothes, extending their life. There’s less garment wear on a cold water washing as well as fewer wrinkles (meaning less ironing) and less shrinkage. All of these factors extend the life of your garments, meaning you don’t have to go clothes shopping as often, saving yourself even more money.

What about the rinse cycle? I can’t see a good reason to rinse your clothes in warm water. Your clothes are already clean at that point – the rinse merely removes any excess soap that still happens to be in there. Using cold water instead of warm for the rinse cycle will save you $0.15 per load.

I advocate using cold/cold for washing and rinsing most non-soiled clothing. When clothing is moderately soiled (with sweat or food, for example), I’ll use warm/cold for a load. I use hot water only for things like cloth diapers or items that have come in extensive contact with bodily fluids.

Assuming that our household runs an average of one load a day, one warm load a week, and one hot load every three weeks (which is about our average), rinsing everything on cold, we would spend $34.06 in energy costs per year. On the other hand, if we ran our daily load with a hot wash and a warm rinse, we would spend $248.20 in energy costs per year. Running mostly cold washes with all cold rinses saves us $214 per year. That’s a savings worth writing home about.

In God We Trust: Your Money and a Higher Power

Posted: January 17th, 2012, 7:00am MST by Trent

Image courtesy Kevin Dooley.

“Whenever a man makes haste, God too hastens with him.” – Aeschylus

A few days ago, I had a long conversation with an old friend, who I’ll call “Randall.” Randall is in a deep financial, personal, and professional crisis. Instead of tackling the challenge head-on, Randall seems to be in something of a holding pattern. He’s just drawing his unemployment, putting off some personal responsibilities, and spending a lot of his time goofing off on the internet.

I asked him why he’s not searching for a job or addressing some of his other concerns and he told me, “God will provide. I just have to be patient.”

Personal faith in God can be a powerful thing. I’ve witnessed how such a faith has helped guide people to some incredible positive changes in their lives. I’ve seen how a community of people guided by their faith can keep a food pantry running. I’ve seen people of faith making sure that children have a wonderful meal and a nice gift at Christmastime, and I’ve witnessed countless other positive results from personal faith.

One key factor that unites all of these good things, however, is taking action. The tools may have been provided by a higher power, but without a person standing up and saying, “I’m going to keep this food pantry open” or “I’m going to make sure that Johnny and Jenny have a nice Christmas this year,” none of these things would have happened.

Were they called by a higher power to do these things? Was it their own conscience? In the end, it doesn’t really matter. We can’t know what caused them to do it, but what we can see is that they did these things. Because of someone’s actions, the food pantry is open and Johnny has presents under the Christmas tree this year.

This translates directly into one’s own life. At any given point in your life, you can choose to wait for opportunity to come along or you can make opportunity come to you. You can sit back, draw an unemployment check, and wait for a great job to fall on your lap. On the other hand, you could spend your time trying to build a side business, training yourself for a new job, or actively pounding the pavement for new work.

If you’re struggling with debt, you can just keep spending like you always are and believe that money will fall into your lap, or you can make the active decision to cut your spending, get things into better shape, and lead a life with opportunities that are free of the pressure of debt.

If you’re waiting for God to provide the tools you need to change something in your life, you should know that those tools have likely already been provided to you. You have free will. You have the power to choose how to spend your time and energy. You have a community around you that’s willing to help you. You have a creative and thoughtful mind, one that’s capable of processing information and translating it to your own life (if that weren’t true, you wouldn’t be reading this).

God has blessed me with a lot of gifts in my life. I’m incredibly lucky to have what I have. In fact, I’m incredibly lucky to be able to get up in the morning and breathe a breath of fresh air. I don’t expect God to also drop a pile of cash or an undeserved contract for some great opportunity right onto my lap. It’s up to me to take all of the gifts that I have and get to work if I want something better for my life or for the world around me.

By “gifts,” I don’t mean money. I don’t mean the right to a steady income. I mean things like relationships with people who care about me, the ability to write quickly, the ability to absorb ideas relatively quickly, and the opportunity to live in a place where it’s possible to build a strong future for yourself and your family. Those are gifts, too, and they’re powerful ones.

On our currency, I see the phrase, “In God We Trust.” I suppose one can take that to mean a lot of things. My take on it has been that it doesn’t say “In the government we trust” or “In America we trust.” Instead, it speaks to something more personal and individual.

If we want to live the American dream of financial independence, we shouldn’t expect that others will simply hand it to us. Instead, we should look around us for the gifts we’ve been provided – whether those gifts are equal to the gifts of others or not – and the opportunities that others have provided for all to use, then focus on using those gifts to achieve what we want from life and what we choose to share with others. Money itself is nothing more than a way to exchange those gifts.

Keep that in mind the next time you read the phrase “In God we trust” on your currency.

Shop Patiently (15/365)

Posted: January 16th, 2012, 1:00pm MST by Trent

When we were first considering a move into our current home, my wife and I made a list of things that we wanted to have in our home that we just didn’t have room for in our small apartment. One of the big items on that list was a deep freezer.

We wanted one primarily because we often had offers of buying shares of venison or beef, where entire animals had been processed at a meat locker and the person was hoping to get back some of their investment by selling a quarter of the meat. Per pound, this was an incredible deal, but you would often have to deal with thirty or forty pounds (or more – sometimes much more) of wrapped and processed meat.

We also wanted to take advantage of specific sales at the grocery store. For example, if a store has a sale on flash-frozen vegetables, we’ll often stock up on them.

As we moved into our current home, we had money set aside for buying a deep freezer, an amount based on the prices we could easily find at the time. We knew some of the specific models we wanted that had a good “bang for the buck,” and we had the cash in hand. Time to buy, right?

Wrong.

The thing was that we didn’t immediately need that deep freezer. Yes, we wanted one and it was clear that over the long run such a freezer would save us money, but we weren’t pinned up against the wall with regards to the purchase.

This distinction between want and need is a key one. It is incredibly easy for people to decide that something useful that they merely want is actually more of a need – something that they have to go out and purchase right away. I see it all the time with people in my social circle, and I even see it uncomfortably often in myself.

Holding back on those “wants that seem kind of like needs” is essential for saving money.

What are you holding back for? The sale. There are many ways where you can find that item that you’re looking for at a much lower price than what you’ll see at your local department store or appliance store.

All we did is sit on this idea of buying a deep freezer for about two months. We watched the ads from the local hardware and appliance stores, waiting for a great price on one of the models we wanted. Eventually, we found it on sale at about a 35% discount, saving us quite a bit of money.

Even better, during that period, a friend of ours came up with a used deep freezer that he offered to give to us. We were strongly considering taking the item, even though we were a bit concerned about the fan motor in it, but we went for the discounted one instead.

We didn’t lose anything by waiting, but we gained about the third of the cost of our deep freezer.

This type of story repeats itself time and time again when you’re making any major purchase. The price you find today is likely to be easily topped if you exhibit a little bit of patience, and considering that the items that you’d do this with aren’t really essential to your day-to-day life, there’s no real drawback to waiting.

What kind of threshold should you have for pulling the trigger? For me, I usually try to wait for a price that’s at least 20% lower than the lowest regular price I found when I was initially searching for the item.

How long should you wait? This is really up to you. What I typically do is wait until I notice a continuous stream of possible uses for the item I was considering buying. Whenever I notice a use, I bump my threshold for buying closer to the lowest regular price until it becomes clear that the item is nearly a “need” in terms of how we live our lives, then I’ll just go for the lowest-priced version I can find.

Patience is the key, and patience pays off time and time again.

Reader Mailbag: Friendship

Posted: January 16th, 2012, 7:00am MST 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. Housing challenges
2. Employer matched IRAs?
3. Paying ahead on credit cards
4. Bus pass math
5. Selling a small business
6. Negotiating a promotion
7. Finding a community group
8. Thrift stores in Des Moines
9. PMI or student loan debt?
10. Pocket change

There are so many times that I’m grateful for the friends and the family that I have. They support me in so many ways, both subtle and obvious.

I don’t know how to express it without sounding mushy other than through my own actions: I try to be a good friend in return. I don’t backstab people or try to hurt them. I try to help them when I can. I try to be an entertaining and fun person to hang out with.

In other words, I try to be the friend or family member that I wish that I had.

Q1: Housing challenges
My wife and I currently live in condo that we have a mortgage on. We purchased 4 years ago, rate is 5%. We purchased for $140,000 and have about $135,000 remaining on the mortgage. When we purchased the condo we took the $7,500 housing grant that we have to pay back over a 15 year time period or when you sell the house. The stipulation is if you do not make a profit then you don’t have to pay this back. We have already paid back $1,000 of this. The purchase price is adjusted for any improvements or commissions you have paid in the process. We put in more than $10,000 of improvements so if we were to sell for anything over $143,500 we wouldn’t have to pay back any of the remaining grant. We could also choose to rent, which is what I would do if we didn’t take out the grant, but if we were to do this we would have to pay the remaining balance of the grant back at that time since it is no longer our primary residence. This was the $7,500 home buyer credit, not the $8,000 that you don’t have to repay and can rent after 3 years.

So our current situation, my wife and I are both 27 have no debt (no credit card, no student loans) besides our mortgage and 2 car loans. Car 1 – 1 year remaining $250/month, Car 2 – 2 year remaining $350/month. We make a combined $115,000/year. We currently put about $1,000 a month in retirement (+ company match) and have a combined $40,000 currently saved in our retirement. We also have $10,000 in our savings for a future down payment on our house. We are expecting our first baby in February and at that time my wife will take off 12 weeks of work, she will get 50% pay during this time. I am going to lower my retirement to just the company match during this time period to make sure we have enough money, although I think we should be fine and and will increase the retirement once she goes back to work. We will be incurring day-care costs once she goes back to work of roughly $800 per month.

Here is our dilemma. We have our condo currently listed at $144,000 however we may only be able to get $135K or even less for it, which after commissions would barely break even on our mortgage and could possibly even take a little loss. We want to continue to save and build our savings account up to around $15K before we buy our new place. For us to do this we can’t really afford to lose that much when we go sell. The condo we are living at will probably be too small once the baby gets to about a year old so we are looking at houses in our area at around $200-$250K, (I realize we wouldn’t have 20% down but this is what we are wanting for now). We also want to take advantage of the lower interest rates that are currently in affect right now (I personally believe they will be low until 2013).

Looking back I now realize we should have probably just rented 4 years ago but hindsight is 20/20. Anyway, I guess our options are stay in the condo until we can get a buyer that is willing to give us a decent offer, take a loss on our condo and not have as much to put in a downpayment, or pay out the remaining grant and rent out the condo ourselves until the market turns around in our area (this would also lower our down payment).

It is frustrating because I feel like we are responsible with our money and didn’t necessarily do anything incorrect yet we may end up losing money on this decision to buy our first place, however I realize this is just the times we are living in and going forward I will think more indepth of our decisions. Any advice would be greatly appreciated.
- Kevin

You didn’t do anything particularly wrong. You were simply caught by the collapsing bubble of the housing market.

If I were in your shoes, what I’d do is investigate rent prices in your area compared to the mortgage payments you’re making on your home. If you can find housing that suits you that’s significantly less than the interest on your mortgage payments, you’re going to be money ahead getting out of that condo and then channeling the money you’ll save each month into your down payment fund for the house you really want.

Once you’ve resolved your condo, I would sit on that savings for as long as you can. Build it and wait until your life changes in such a way that a house of your own is really necessary. You’re going to be in far better shape for the long haul if you have a small apartment for several years now before you buy a home than if you tried to swing into one quickly.

Q2: Employer-matched IRAs?
I have an employer retirement plan with Vanguard that allows me to automatically direct a portion of my paycheck to both Roth and traditional IRAs which they will match to an extent. I also have a separate Roth IRA I set up with extra job money in college that I’d like to add money to. My question is, do I need to count the contributions to the employer sponsored accounts towards my $5000/yr limit on IRA contributions?
- Charlie

I tried to find the specifics for the plan you described, but after thorough searching of the Vanguard site and a few emails to people at Vanguard, I found nothing that seems to match up with what you’re saying here. I’ll admit that I’ve read about thousands of retirement plans and I’ve never heard of employers directly contributing to the Roth IRAs of their employees.

The people to ask about this is Vanguard themselves. They would be able to give you a straightforward answer based on how exactly this IRA matching plan is set up

Contact them with your specific plan information and make sure that you understand the taxes and contribution limit issues before you make any major moves.

Q3: Paying ahead on credit cards
In the questions section people mention often that they pay off the credit card monthly. Do you know people who ‘pay on’ or ‘pay up’ the credit card? DH and I do most of our payments with debit card, but when we need the credit card, we discuss it beforehand, then send the money from our account to the credit card, then pay with the credit card. We have about 150 euro positive on the credit card as a cushion; the credit card company gives us about the same interest as the savings account. I was just wondering if we are the only ones to use the card ‘proactively’.
- Stephen

You absolutely can keep a positive balance on a credit card. The drawback to that is that you’re not able to earn anything from that positive balance. Instead, the credit card company is.

Let’s say you had that 150 euros in a bank account instead of sitting as an extra balance on that credit card. Over the course of a year, that 150 euros would generate 1.5 euros straight into your pocket. If it sits on a credit card, you don’t earn a dime.

Perhaps that relatively small loss is worth it for the peace of mind it gives you, and if that’s the case, stick with it. It’s certainly not hurting anything by doing this.

Q4: Bus pass math
I usually take the bus to work. It costs $1.20 for a round trip fare and it’s about two miles each way from work. Since I have a very old car I had somewhat decided that it would be cheaper for me to drive to work rather than catch the bus each day.

Where the math has thrown me is with the bus passes. You can get a bus pass for a month of unlimited riding for $20 and an annual pass for $175. Do you think that this is now cheaper than driving my car to work?
- Larry

Let’s assume you work five days a week and you work forty eight weeks out of the year. That would mean that paying each day, you’d pay $288 in bus fare. The monthly pass is a bit cheaper than your monthly bus fare, and the annual pass is a tremendous savings.

The real question is how much it costs you to commute every day in that car. You can use an online calculator to estimate this. As you can see, the calculation gets complicated really quickly. After playing around with the numbers, I estimated that in your situation, you’d probably be spending about $0.37 per mile driving your car to work, taking into account all of the factors mentioned there.

In other words, you’re still spending more driving to work each day than you would be just paying for the bus out of pocket at that rate. If you buy the annual pass, it falls even more in favor of the bus.

To get that $0.37, I assumed quite a few things, such as not paying toll, that you’re going to keep up your license and registration and insurance whether you drive it to work or not, and that it’s depreciating very slowly because the car is already very old (I estimated a nickel a mile).

Q5: Selling a small business
I am a software developer, I have traditionally worked as a regular W2 employee but I have recently been doing some freelance side work. I am really unhappy at my current day job and I am leaving as soon as I find the right opportunity. I am very lucky in that respect because the market for my skills is really on fire right now.

An opportunity has come up to work on a very exciting project as a 1099 contractor. I have two things I am trying to work out about this opportunity. First, I am trying to figure out how to compare an hourly rate between a W2 job and a 1099 job. I am paid hourly even at my current W2 job (I get no benefits), and I was offered the same hourly rate for the 1099 job. I know that even at the same rate the 1099 offer is worth less in total because I will have to pay the self employment tax, but I cannot figure out exactly how much less. My understanding is that as a 1099 contractor, I will have to pay an additional 7.65% tax, however I can also deduct half of that tax from my income, which makes the calculation more difficult. I get even more confused when I factor in tax-deductible retirement contributions because as a 1099 contractor, it seems like my tax-deductible contributions are worth approximately 7.65% more because I would not being the SE tax on them. I looked at some online calculators, but I could not tell if they took into account the 50% tax deduction. What I really want is a formula that tells me how much an hourly rate under W2 status is worth under 1099 status.

I have a second, unrelated but interesting question about the same 1099 job. I have an LLC which I try to use for my freelance jobs, and every resource I find says that as an independent contractor, I should use the LLC for all my contracts. With this new opportunity, they asked me to sign the contractor agreement personally, rather than through my LLC. Their reasoning was that my LLC has no assets and is worth nothing (which is true), so I basically have nothing on the line when I sign the contract. They are also concerned that potential future investors would be scared off if they can’t guarantee that the company’s intellectual property (the software I would work on) was not protected by a strong contract, and my contract under the LLC would not provide any real protection to the company’s assets. I offered to purchase professional liability insurance for my LLC, but they still want me to sign personally.

I am not really too concerned about having to sign personally, but I cannot find anyone who has ever encountered this problem before. Do you have any insight? Are they being unreasonable by asking me to put my personal assets on the line, or am I being unreasonable by trying to hide behind what essentially is a shell company?
- Charlie

Their reasoning is correct when it comes to the contract, and it’s also the reason why you’d prefer to sign the contract through the LLC rather than personally. The LLC limits your risk and increases their risk.

I don’t think they’re being unreasonable to request this given the current market. I’m assuming that your field does have some level of competition with a lot of people seeking work. If that’s the case, then the power is more in the hands of the employer and they’re able to make such requests.

If you’re wanting to stick to your guns on the LLC issue, you’ve got to be willing to accept that the company may just find someone else for the position. That’s part of the risk of sticking to your guns here.

If I were you, I’d sit down and do a risk assessment. What is your real risk from signing on the dotted line yourself? What is the worst possible outcome? You may wish to contact a lawyer for assistance in reading through the contract you’re being offered.

Q6: Negotiating a promotion
My responsibilities at work have changed significantly over the past year. I have taken on not only more areas of responsibility, but also higher-level responsibilities such as strategic planning. My boss agrees that I deserve a promotion. Today I received a copy of my new job description, which spells out all the things I have been doing plus what else I’ll be expected to do in my new position. Unfortunately, the position title wasn’t the one I was hoping for. I believe I should be promoted to the manager level, but the job description says “junior manager.” My question is, what is the best way to negotiate for the position and pay I think I deserve?

Here’s what I’m thinking to do:
1. Be straightforward and tell my boss that I was hoping for a manager position, and invite her to explain her reasoning for only promoting me to junior manager. I would then try to counter her reasons with concrete examples from my performance this year and my potential for future growth. (My main weakness is that I have relatively low experience and am slightly underqualified; my counterargument is that my instincts have been spot-on so far, and my ability to think through problems has helped me perform well despite my lack of experience.)
2. If that doesn’t work, I will point out that my responsibilities are on par with what other managers are doing, plus I have been assigned to lead those managers on several team projects despite currently being the lowest-ranking member of the team. Thus, I should be promoted to the manager level if I am expected to do manager-level work.
3. If that doesn’t work, I will ask what steps I would need to take to get a full promotion and when we can meet again to discuss my performance. I will try to get a concrete timeline from my boss. If it is within a year, then I will accept the position and work my butt off to get that full promotion. If it is more than a year or if she refuses to specify the steps or set a timeline, then I will accept the position and work my butt off while keeping my eye open for opportunities at other companies.

What do you think? Is this a good plan for negotiation?

One more thing: I have found an interesting job listing at another company. It is in the same field with the same responsibilities, but with 15% more pay, a full manager title, and the possibility of working from home. These are big incentives, but I have not applied yet. I’m rather torn. I enjoy working for my current employer, I am getting a promotion (just not the one I hoped for), and I don’t know if I can get this other job (I would be more confident with 1 more year of experience under my belt). I don’t have pressing financial obligations that are forcing me to search for higher-paying work. In short, it would be safer to stay with my current employer and work toward a full promotion. On the other hand, I am young, hungry, and ambitious, and that job listing is dangling a lot of carrots.

Should I apply for this position? What if I requested an informational interview instead?
- Sandra

If I were you, I’d stick with the third option. I’d go in there, simply state that I would like to have a certain title, and ask what I would need to do over the next six months to achieve that title.

You already have your answer to the first option, and honestly, the answer to the third option is basically what you stated in the second one. If you talk about a gameplan to get you the title you want and you’re already doing the work for that title, then it’s going to be easy. Plus, sticking to the third option makes it appear as though you’re hungry and an up-and-comer, not someone who demands a reward.

As for the other job, there’s no reason not to feel out other opportunities, particularly if you feel like you’re hitting a glass ceiling at your current job.

Q7: Finding a community group
You talk a lot about finding groups in the community to join and participate in and find people that are potential friends. But how do you even go about finding such groups? I don’t even really know where to start.
- Angie

The best place to start is on the website of the community you live in and on the websites of surrounding communities. Look for their parks and recreation departments, their libraries, and their community calendars. Many communities also maintain a list of community groups of interest.

If you’re looking for opportunities, these resources will likely give you more than you could ever want.

If you have difficulty finding these opportunities, simply go to city hall and ask for assistance in locating such resources in your town. They’ll be glad to help you out.

Q8: Thrift stores in Des Moines
I’m going to be in Des Moines in a couple of weeks for business. Can you recommend any good thrift stores in the area? Thanks!!
- Annie

In the Des Moines area, I’ve had success with three thrift stores in particular.

The Goodwill at 1982 Grand Avenue in West Des Moines usually has a pretty interesting selection of stuff. I’ve had quite a few interesting finds in there, including some clothes that fit me well and some vintage video games.

Once Upon a Child is a great place if you’re a parent looking for items for your children. I’ve found some great clothes and a few toys there at awesome prices.

The best place I’ve found for used larger items in the Des Moines area is Changing Places Consignment. They mostly carry used furniture, lamps, prints, bookcases, and the like. If you’re driving a larger vehicle through the area, this is a place well worth stopping at.

Q9: PMI or student loan debt?
I am having a hard time trying to understand what interest rate is higher, my current student loan interest rates, which are pretty clear – 6.55%, 7.65%, and 6.8%. Or my FHA loan, which is locked in at 4%, but I am also paying PMI. I want to know if I should be making my additional monthly payments to my home loan so that I can remove the PMI by reaching 20% in equity or if I should pay down my loans? What makes more sense? My husband and I owe about $90,000 in student loan debt and our home loan is $220,000. We put down only 3.5% when we purchased in December.
- Richard

Unless it is an egregious amount, the PMI on your loan is likely not boosting the interest rate on your home loan to the point where it compares to the other loans. My experience has been that PMI amounts to an increase of roughly one percentage point in one’s annual rate.

For example, on our original mortgage, we had a 5.875% rate, but when you added in the PMI, our rate went to 6.601%.

My suggestion to you would be to call your lender and ask about the effective rate of your loan including the PMI. My speculation is that it will be somewhere close to 5%. Use that rate when comparing all of your loans.

Q10: Pocket change
What exactly do you do with your pocket change? I don’t accumulate much of it and it mostly just seems to take up space. I’m never really sure what to do with it.
- Ed

I keep all of my pocket change (and loose dollar bills) in a jar on my bedside table.

About once every year or two, I take the contents of that jar down to my local bank, fish out the dollar bills, and have them count the change using their change-sorting equipment. That money is then just deposited into my checking account.

I’m lucky in that my bank accepts change and counts it without skipping a beat. This is apparently a feature that many banks don’t offer. If you don’t have a bank available to you that offers this service, there are change-counting services such as Coinstar, but they take a large fee off of the top.

I’d probably try to seek out a bank that accepts loose change.

Consider Last Year’s Models (14/365)

Posted: January 15th, 2012, 1:00pm MST by Trent

A few weeks ago, I found myself at a local department store looking at microwave ovens.

While I was browsing the ovens on sale there, I couldn’t help but notice a few things.

For starters, there were quite a few display models of microwave ovens right there at eye level. They had various features – wattage, size, and so forth – and had various prices on them, as you might expect.

What was particularly worth noticing is that down by my feet, there were a few additional models. They were kind of jammed in there, without nearly the space devoted to them as the models on top. They also had fairly low prices on them.

Ordinarily, I might have ignored these models, writing them off as being generics or poor models simply because of how they were displayed. Instead, I took a closer look at them.

It turns out that they were more or less identical to the models that were on sale above. The same brands. The same features. Much lower prices.

I went home and did a bit of research, only to find that these models that seemed perfectly fine had merely been replaced by newer models. What had changed? In most cases, very little had changed. The styling of the microwaves changed a bit. In a few cases, there might be a few new programming modes.

Very rarely were there any real functional changes when one model replaced another. Mostly, the changes were in the form of non-essential features.

Why, exactly, would you want to pay double the price for a couple non-essential features on a microwave oven? Simply put, you wouldn’t.

This phenomenon is true with many products you purchase. Why buy a current model year car when you can buy the previous model year for significantly less money? Why buy the shiniest, newest music player when the previous model does the task wonderfully (and for much less money)?

There’s only one caveat to this, and we covered it in an earlier post in this series: do the research. It’s always worthwhile to find out what exactly changed between the models. A surprising amount of the time, virtually nothing has changed, but every once in a while, you’ll find a model that made genuine changes (for better or worse) to key features of the item. Being aware of such changes is worth the bit of time it takes to type the two model numbers into Google to figure out what really changed here.

If you keep your eyes open for older models, you can often save significant money without losing a single feature that you care about. That’s simply a financial win for anyone.

Review: Brandwashed

Posted: January 15th, 2012, 7:00am MST by Trent

One element of personal finance that has always fascinated me is the psychology of why we buy things. The push and pull between clever marketing and branding and the desire to not completely empty my wallet is a struggle I’ve dealt with throughout my life and witnessed countless others struggling with as well.

It’s also a topic that I’ve read quite a bit about, particularly concerning marketing to children.

The challenge with this topic is that the sophistication of the techniques used tends to grow over time. Yes, many of the principles remain the same, but the implementations change. Technology is a big factor in that, but so is the wider acceptance of marketing toward progressively younger children. The internet is a big factor, but so is the use of surveillance in tracking what you do.

Martin Lindstrom’s book focuses on all of these factors, creating a pretty clear picture of how powerfully marketing can reach into our day to day lives, particularly those who think they’re immune to or above the reach of marketing. That marketing shapes what we buy, how we buy it, and how much we buy and spend.

Buy Buy Baby
Lindstrom opens with a look at the huge rush toward marketing to very young children. Many of the basic ideas we have about living are formed in the first five years of life, so marketers are now targeting the very young in order to set many of their ideas and buying preferences that will stick with them throughout life. There are several effective ways of doing this, but perhaps the most interesting is marketing to parents by making kid-oriented versions of the things we buy as adults (like kid-targeted yogurts and the like) and also doing things like making kid-friendly apps on electronic devices such as the iPhone.

Peddling Panic and Paranoia
Anti-bacterial soaps and other such products sell well because marketers have created the impression that germs are everywhere and can harm you, when in fact the evidence shows that using a lot of antibacterial products actually makes you more susceptible to illnesses because your body hasn’t built up resistances. Fear sells this product, and fear is a powerful salesperson. A similar logic applies in the produce aisle, where companies focus far more on the appearance of freshness than that of actual freshness, because vegetables and fruits that don’t appear perfectly fresh might make you ill or have other ill effects. Never mind whether or not they’re actually fresh, of course.

I Can’t Quit You
Companies have become much more sophisticated at encouraging cravings and consistently brand loyal behavior. The most powerful tool at their disposal is the microreward. If you engage in a behavior repeatedly, you receive some small reward for your effort, often one of negligible cost for the manufacturer but perhaps of great reward for you. A new crop type in Farmville, for example, or the instant taste of new information from a smartphone. These microrewards can be incredibly addictive and can keep you using a product over a long period of time. Such microrewards are often paired with micropayments – $0.99 for a new app, $8.99 for a monthly subscription fee, and so forth.

Buy It, Get Laid
It’s not simply about being attractive to the opposite sex any more. Instead, it’s often about associating the product with someone who is attractive to the opposite sex. Sometimes, it’s an Adonis-type figure – someone who is obviously attractive and of your gender simply using a product. At other times, someone who is seemingly normal – or, in some cases, of a socially awkward class – using a product and suddenly becoming very attractive. It’s progressed beyond just showing someone attractive holding a product and pitching it. It’s now a clever method of aspirational roleplaying for the viewer, as they want to visualize themselves as the person on the screen who is incredibly attractive to the opposite gender. Sometimes, it’s not even someone who is attractive – instead, it’s what that gender thinks is attractive to the opposite sex.

Under Pressure
Whenever you see someone you identify as a peer doing something, there’s a subtle pressure for you to do the same. It’s a pressure that often manifests itself on a subconscious level so that you are scarcely even aware you’re doing it. Buying habits are just one example of this (and it’s one big reason I encourage people to find frugal friends). What your friends buy and use rubs off on you, and it’s the reason that established brands are often very entrenched and hard to knock down without a huge amount of effort with the other techniques described in this book.

Oh, Sweet Memories
The sweet smell of nostalgia is a powerful one. Marketers constantly try to tap into our happiest memories, particularly from our childhood, and utilize those good feelings to convince us to buy (or at least associate those feelings with their product). Why do marketers so often repackage their products the way that they looked twenty or thirty years ago? It will often be enough to generate warm memories in a shopper’s mind, and that’s often enough to get the product into the cart. This is the end result of all of that effort marketing to young children – they set the hook of nostalgia then, and then pull the line when you’re older and have disposable income.

Marketers’ Royal Flush
Celebrities are marketed just like products. They’re marketed so that you’ll want to pay attention to what they’re doing, so that you’ll watch their movies and television shows and attend their concerts and so forth. They hire public relations firms to promote them just like a company would promote a product, and if they’re well-promoted, they can charge people for their films, their books, their albums, and so forth. In the end, famous people make more money if they’re promoted well, the products that famous people associate themselves with make more money, and everyone wins except for the average consumer.

Hope in a Jar
Whenever a trend exists, companies will hop on board to associate their products with it. When breast cancer awareness was a large trend a few years ago, products couldn’t wait to have that pink ribbon on the label so that buyers could feel like they were making a difference when it came to breast cancer. When the economic downturn happened and people became more concerned about simplicity, “simple” versions of products began popping up all over the place. Buzzwords like “wellness” and “natural” are all over the place, which is just a way to sell more or less the same old product by connecting it to the “new” way of thinking.

Every Breath You Take, They’ll Be Watching You
Technology has played a huge role in all of this. The internet, through services like Twitter and Facebook and Google, makes it very easy to identify cultural trends and demographic groups and market directly to them. If you search for something on Google, you’ll find ads related to whatever you’re searching. If you “like” something on Facebook, you’ve given marketers a clue as to what you like, making it easy for them to tailor their marketing straight toward you, tempting you in conjunction with the things you already like.

I’ll Have What Mrs. Morgenson Is Having
All of these tactics are amplified through the world around us. You might be wise to all of these tricks, but many of the people in your social network are not, and they’re often prone to speaking candidly in ways that amount to repeating the marketing material they’ve been given. This is true regarding everything from product reviews to political opinions. The people you’re closest to are the best marketing tools because you implicitly trust them.

Is Brandwashed Worth Reading?
While the book is light on solutions, Brandwashed does a very powerful job of revealing how deep the rabbit hole goes when it comes to marketing products, information, and people to us in the digital age. It’s a story I’ve read before, but the specific implementations change every time I hear the story, and it’s those specific changes that provide the real eye-opener and bring the message back home again.

For me, Brandwashed is the current standard-bearer I would point to when encouraging people to read a book on how pervasive and powerful marketing is, and I think everyone should read such a book at some point in their life.

Check out additional reviews and notes of Brandwashed on Amazon.com.

Look for the EnergyStar Logo (13/365)

Posted: January 14th, 2012, 1:00pm MST by Trent

When you’re trying to determine which product to buy, one valuable calculation to make is the total cost of ownership of the item.

For example, if you’re buying a washing machine, it’s worthwhile to also include in the calculation the total cost of the energy you’ll use during the lifespan of the washing machine (as well as the water used).

Why is this important? Let’s say you’re going to buy a washing machine. You’re going to do about 7 loads of laundry a week, taking half an hour a load, and you anticipate using the machine for ten years. This is a pretty reasonable washing machine assumption for a family

You look at washers and see that one uses about 0.1 kWh of electricity (and thus sports an EnergyStar logo), while another uses 0.45 kWh of electricity. This seems like a small difference, but it really adds up.

Let’s say that electricity averages $0.15 per kWh nationwide.

So, how much are you going to use your washing machine? With the numbers quoted above, you’re going to use that machine for 1,820 hours over its lifetime.

The more energy efficient machine uses 182 kWh of electricity over its lifetime, costing you $27.50 in electricity. The less efficient machine uses 819 kWh of electricity, costing you $122.85.

There’s a nearly $100 difference in the total cost of ownership of these two washers. What’s amazing is that this is a relatively undramatic example.

For instance, if you compare a baseline water heater to an energy-efficient one, you’ll see savings easily approaching $300 in efficiency over the lifetime of an electric water heater and a savings of $500 over the lifetime of a gas water heater.

The challenge here, of course, is finding all of the numbers you’ll need to calculate these things. This can often be a significant job, particularly for those who are challenged by calculations.

If that fits your description, a great starting point is to simply look for the familiar Energy Star logo on the energy-using item you’re buying. An Energy Star logo simply means that the product has voluntarily conformed to a set of energy-efficiency guidelines set by the EPA and Department of Energy. These guidelines are usually reasonably stringent but not unattainable, meaning you’ll find some products that carry the logo alongside others that do not. (Yes, there is some criticism of the Energy Star program as there would be with any such program, but it has teeth, too.)

From my own evaluation of the numbers, I’ve found that devices that don’t bother to carry the EnergyStar logo tend to not worry too much about energy efficiency at all and have quite poor energy use numbers. In other words, there seems to be an energy efficiency gap just outside the limits of the standard where no products are made, meaning products either make the Energy Star standards or don’t even come close.

Almost always, the Energy Star logo is worth it, especially when you’re comparing otherwise similar models at the same price (which you can often see on store shelves). It’s also even worth paying a bit more for on heavy energy use items, like air conditioners and water heaters.

It will save you money in the long run – and your future self will appreciate the lowered electricity bills.

Ten Pieces of Inspiration #55

Posted: January 14th, 2012, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Simon Sinek on how great leaders inspire action
How do you inspire others to take action in their own lives? It’s something I’ve actually thought about a lot over the years.

He uses a lot of examples – Martin Luther King, Apple, the Wright brothers – and actually has a very interesting explanation for what separates them. Really insightful.

2. Henry van Dyke on time
Time might be constant, but how we perceive it changes all the time.

“Time is too slow for those who wait, too swift for those who fear, too long for those who grieve, too short for those who rejoice, but for those who love time is eternity.” – Henry Van Dyke

For me, the best times are when time flies by so fast that I can’t conceive of where it went.

3. Claude Monet’s Poppy Field, Argenteuil (1875)
For me, the best landscapes are the ones that make me wish I could be there. Even better are landscapes that make me see something normal through the eyes of someone else.

Monet manages to do it again and again and again.

4. Abraham Maslow on growth and safety
I don’t necessarily think that either choice is a bad one, but they do lead in somewhat opposing directions.

“You will either step forward into growth or you will step back into safety.” – Abraham Maslow

I find that this is true regarding everything from life choices and money to politics and the economy.

5. Pinterest
Every once in a while, you stumble upon a website that leaves you wandering there for hours. Pinterest did this for me recently.

It’s essentially a collective pinboard, where people pin things that are of interest to them. You can see a ton of these things at once on any page there.

I came across three different projects to work on with my kids while browsing around there, in just a little bit.

6. Thieves by She & Him
She & Him is probably my favorite new musical act of the past several years.

On a recent road trip, we listened to nothing but She & Him for hours. I just can’t get enough.

7. Tim Tebow
I know in the sports press, there’s been a lot of attention paid to Tim Tebow, his faith, his “lucky” play, and so on. Honestly, I don’t really care what football team he plays for or what religion he follows.

I have respect for a person who takes their money and fame and does things like this. That’s what we should all aspire to do with what we have.

8. Child luminography
This simple picture inspired about three hours of fun for my children this week. After showing it to them, we tried things where we took long exposures in a dark room while the children waved around lights.

None of our pictures turned out quite as nicely as this one, but does it really matter when you get to spend that time together?

Thanks to Jozef Turoci for the image.

9. Winston Churchill on success and failure
Nothing teaches you more than failure. The key is to tolerate it while keeping your head up.

“Success consists of going from failure to failure without loss of enthusiasm.” – Winston Churchill

That’s sometimes very hard to do.

10. Pause
Countless people have given their lives to pave the way for the life we now enjoy.

May they never be forgotten.

Thanks to Kevin Dooley for the image.

Reliability Is the Most Important Feature (12/365)

Posted: January 13th, 2012, 1:00pm MST by Trent

Far and away, reliability is the most important feature when buying a product you’re actually going to depend on regularly in your life. From washing machines to televisions, from kitchen knives to media players, reliability is an incredibly valuable feature. To be honest, I put reliability first with almost everything that I buy.

The catch is that reliability is boring. It’s not a gee-whiz feature. It doesn’t walk your dog or make you an omelet for breakfast. It doesn’t manage your music library or allow you to watch content from seventeen different streaming services.

It just sits there and keeps working, day after day.

It means far fewer trips to the repairman. Every single time you have to have an item repaired, you start off by finding yourself in a situation where you’re doing without an item. This itself can cause a hassle, often causing you to spend time, energy, and money just to make do without the item.

It means far fewer repair costs. You also have to invest time and energy into the repairs themselves. It takes time to take an item in for repair or to contact someone to come to your house to repair the item. It takes money to pay for the repair service.

It means a longer product cycle. If the product is highly reliable, you’re not going to be replacing it for a long time. It will last longer than other products, which means that you have many more years before you need to replace it than with less reliable products.

Each of these things saves you money, time, and effort, and they’re all thanks to the most important element, reliability.

I’ll give you an example from my own kitchen. I’ve mentioned before that I’m slowly replacing all of my kitchenware with enameled cast iron pots from a reliable manufacturer (Le Creuset) and cast iron skillets from Lodge.

These items cost more than the pots and pans I used to buy, which were mostly Teflon-coated low-end pots and pans from the local department store.

Let’s say that I would spend $25 on a six quart pot from the local store versus $200 (!) for an enameled cast iron 5.5 quart pot from Le Creuset. The six quart pot comes with a three year warranty, while the enameled cast iron pot comes with a 101 year warranty.

I’ve owned two of the low-end pots over the years. With one of them, the handle snapped off at about the six year mark, and with the other, the coating began to come off at about the five year mark.

So, I had to buy two of those pots over an 11 year period. That cost me $50 in pots alone. The unreliability of the pots caused two meals to be ruined, easily $10 per meal. There’s also the time and energy lost to the two failed meals (cleaning up the mess and preparing something else – an hour each, let’s say), plus the time invested in buying new pots, plus a small amount of money spent buying the new pots. Let’s say $65 and two and a half hours lost over eleven years.

With the enameled cast iron, if it manages to fail within 101 years, I just call the manufacturer, read off the number on the bottom, and it’s replaced quickly. Because it’s made so well, it’s likely not going to have a catastrophic failure. So, assuming I paid for a 100 year lifetme for the pot, that’s $2 per year. Over 11 years, I will have essentially incurred a cost of just $22 (and no hours lost) on that enameled pot.

By paying more for reliability, I’m actually saving a lot of money over time.

You can go through countless different items in your home and repeat this type of calculation. You’ll find that, time and time again, reliability saves you significant money, even if it means a bigger sticker price up front. Reliability is boring, but it’s a money saver over and over again.

Changing Dreams

Posted: January 13th, 2012, 7:00am MST by Trent

Claymont Mansion, near Charles Town, WV. Photo courtesy of Troy Tolley.

The universe is change; our life is what our thoughts make it. – Marcus Aurelius Antoninus

When I was younger, I spent a lot of time visiting my aunt and uncle, who lived within walking distance of our house. My aunt was always a barrel of fun. She would play endless games of Trivial Pursuit and Monopoly with me, always had some sort of curiosity to show me when I would visit, and would lend me her encyclopedias when I was curious about a topic.

One project I fondly remember working on her with was the “blueprints” for my dream home. It covered eight sheets of paper, with each sheet representing a floor. Yes, the house was seven stories tall. It featured an elevator to help take people from floor to floor, as I wanted it to be handicap-accessible.

It featured somewhere around sixteen bedrooms, a library that would have been somewhere around 2,000 square feet in size, and countless other features. It had a six lane bowling alley in the basement. All told, the house would have measured around 28,000 square feet of floor space, as each floor would have taken up about 3,500 square feet and there were eight floors.

This was my dream house. It had everything I could imagine that I would ever want in it. Who could want anything else?

* * *

Over the past few years, Sarah and I have been sketching out our actual dream home. It’s actually surprisingly small, maybe only a few hundred square feet bigger than our current home. The bedrooms are slightly larger, and there’s an additional bedroom so each of our children can have their own room. There’s a small office for writing. The kitchen is perhaps slightly bigger. There’s one less bathroom and the family room and living room are essentially merged into one.

We’ve discussed a few other optional things, such as a game room/library, but every time we think about an addition, we find ourselves thinking about the time we’d have to spend maintaining that extra space and the time we’d have to work paying for the extra heating and cooling, and we find ourselves realizing that we’ve already designed the house we want.

What’s far more important to us is location. We want to live in a rural area surrounded by trees, but with enough open space for our children (and eventual grandchildren) to have space to play in. We’d like to have a small barn or a large shed for storage of garden implements, a snowblower, and other such items. We want to live relatively near our family and closest friends.

* * *

Dreams change. Goals change. People change. The ideas we hold onto in our childhood transform into the dreams of our teenage years. Those blossom, too, into the ideals of early adulthood, and again shift as we approach middle age. I fully expect my dreams to shift again as my life continues forward.

How do you plan for these ever-shifting dreams? If the big elements of our lives are so open to change and transition, how can we ever really plan for anything?

One major step a person can take is to keep their plans and preparations for their goals as multi-purpose as possible, particularly in the early stages. If you’ve started moving toward a goal only to find out that, as you grow older, that goal no longer has appeal, it’s useful to find that your preparation actually has use in other areas.

How do you make that happen? Minimizing your financial obligations is one part of that. A solid financial foundation makes almost any goal easier to achieve. If you don’t have any debts, your monthly bills are going to be much lower than those of a person with debts. Lower monthly bills means that you need less income in order to survive, which means you’re going to be more able to jump on board the opportunities that come along.

Hand in hand with minimizing obligations comes maximizing cash on hand. This means saving up your nickels and dimes, whether in a savings account or in other forms of investing. As always, the more resources you have to draw on, the easier it is to achieve your goal, whatever it might happen to be at the time.

You should also stock yourself up with a wide variety of transferable skills. Transferable skills are ones that people find themselves using over and over in life, no matter what the situation. They range from things like public speaking and written and verbal communication skills to abilities like plumbing and carpentry. The more skills you have like these, the easier it will be to achieve anything in life.

Another key asset is a large and diverse social network that you keep in contact with. By “in contact,” I don’t mean just friending on Facebook and then ignoring. I mean actually connecting with them on a regular basis by asking them how they’re doing and what they’re up to. Even better, when you have an opportunity to help someone out, just do it. That kind of goodwill is invaluable when you’re working towards a goal – and you might just find that the unexpected people are the ones with the keys to the kingdom when you refine your goals later in life.

* * *

The dreams you had as a child have changed as you’ve grown into adulthood (at least, they have for almost all of us). Those dreams are likely going to change again as you move through your life.

Just because your dreams change doesn’t mean that dreams are unreachable targets or that it’s a waste of time to prepare for them. It simply means that you should spend your time building a firm and solid foundation of finances, relationships, and skills so that when the right chance comes along, you’re able to jump on board and live out your dreams.

Do the Research (11/365)

Posted: January 12th, 2012, 1:02pm MST by Trent

A friend of mine told me that for every $100 he spends on buying an item, he devotes an hour of research to the purchase before making a move.

That seems like a good rule of thumb. In fact, I’d go even further: for every $100 I spend on an item over the item’s lifetime, I try to devote an hour to researching the purchase before making a move.

What do I mean by that? Take a car, for example. Yes, we have the initial sticker price of the car, but how long do you intend to drive that car? How much gas will that take? How much maintenance will be needed to keep it on the road? Those are additional costs, and they should be an important part of the research you do.

If I buy a new computer, I might spend $500 on it (hypothetically). However, it’s going to suck energy right out of the wall and inflate my electric bill, so my total cost of owning that computer is significantly higher than $500 over the lifetime of that computer.

Research pays off. Almost always, research will lead you to the option that will provide you with the most bang for your buck. Whether it’s the most fuel-efficient and reliable car or the computer with the most horsepower for your dollar, time spent learning exactly what you’re buying and how to milk all the value you can out of that purchase pays for itself over the lifetime of the item.

What exactly do I mean by “do the research”? Here’s the process I go through for almost every significant item I buy.

What exactly am I buying? For starters, I don’t buy something unless I can clearly state what exactly I want it to do. What tasks must that item be able to take on to make it worth one’s money and time?

Let’s say I’m looking for a new kitchen knife. What do I care about with that knife? I want it to be able to chop vegetables easily. I want it to hold an edge for a while after I hone it. I want it to be able to maintain a sharp edge (with regular maintenance, of course) for a very long time, because I don’t want to have to go through the process of buying another one because the first one was junk.

This, in itself, involves research. To understand what features you want in a knife, you need to have a basic understanding of how a knife works, what knives are made of, and so forth. Reading and personal experience are both part of this. This is deeply connected to the idea that one should buy a low-end item first, become familiar with its use, and then replace it with an item appropriate to their needs. In other words, start with a cheap knife, learn how to use it, learn what you actually don’t like about it and could be improved, then use that as a basis to buy the right knife for you (assuming you use it enough, of course).

What items out there match the features I’m looking for? Once you know clearly what you’re looking for, you can start looking for items that match it.

I usually rely on several different sources for these types of answers. A few key magazines, such as Consumer Reports and Cook’s Illustrated, provide solid and unbiased reviews of products that I often use as a baseline for what I want to buy. Another key element of this type of research is my own social network, as I’ll send out emails or Facebook requests asking for their recommendations or suggestions. There are a small handful of bloggers that I trust as well. I also use the raw data provided by the manufacturer to figure out things like energy use.

Usually, this means a trip to the library and, often, a trip to a few stores, simply to understand the products I’m comparing and the features that they offer.

Where can I find the item(s) I want at the right price? I generally prefer to buy things when my back isn’t against the wall so that I have time to evaluate lots of different buying options. For example, after shopping for months for the right price on the right vehicle, I actually bought my car off of Craigslist.

The moral of the story? Don’t be afraid to hunt far and wide for the right price on the item that you want. Don’t wait until you have to make a purchase. Instead, start the process now on items that you know you’ll have to purchase down the road.

Research pays off, every single time. You’ll know it when you find the perfect price on an item that you know has the right balance of features for your needs.

Reader Mailbag: Sickness and Timing

Posted: January 12th, 2012, 7:00am MST 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. Helping partner build credit score
2. Rechargeable batteries
3. Job and heavy course load
4. Renting a mailbox
5. Reading time
6. Thrift clothes for tall folks
7. To sell or not?
8. Car search in new location
9. Sell now or later?
10. How do you find bargains?

On Monday at about noon, my stomach took a giant lurch. I quickly began feeling tired and mentally out of it. By Monday evening, I barely wanted to leave my bed. I spent most of Tuesday crawling back and forth between the bathroom and my bed.

As I write this Wednesday evening, I’ve lost about twelve pounds, I still hurt all over, and I’ve realized how important it can be to have posts written in advance. I spent most of my “advance” posts over the Christmas holidays, which mean that when I got sick, I didn’t have more than two or three posts written ahead.

This is one of the realities of writing for a constant deadline. Sometimes, you just get sick. Sometimes, your kids get sick. You’ve got to be able to plan for it and deal with it.

Q1: Helping partner build credit score
My boyfriend is 29 years old and has never had any significant financial accounts in his name. He’s had savings and checking accounts with two different banks over the years (currently at my Credit Union), but no credit cards and his credit report does not show any reports (either positive or negative) from his previous bank or any utility companies. In fact, it has very little on it at all other than his previous addresses and an old debt from a medical bill that is paid and just hasn’t fallen off the report yet. We tried using Credit Karma and they said he had too little credit history to even give him a credit score. He recently applied for a credit card (the Chase Amazon card) and was turned down because he had no credit history.

I plan to sell my house (I own it and he lives with me and pays half of the bills) in the near future and we will be moving to a neighboring town, where we will rent for a few years and eventually may want to buy a house together. I have very good credit and could easily get approved for an apartment or mortgage on my own, but if we go in on something together we don’t want his lack of credit history to hurt our chances of being approved. What should he do to start building a credit history? Would a “starter card” with a yearly fee be the only way to go? It doesn’t seem like he’ll be eligible for any decent cards. He’s extremely conservative financially, we’ve lived together for several years and I trust him with money. Could I put some of the utilities in his name? Would that even affect his score?
- Annie

There are a lot of things you can do in this situation.

For one, you could get a card yourself and add your boyfriend as a user on that card. Check with your credit card company to make sure that authorized users you add to your cards have the credit reported to the credit bureaus.

You could also get him his own secured card. This wouldn’t have a yearly fee, but it would require you to pay money up front as a security deposit on the card. Most large banks have such an offering.

Don’t worry about the interest rates on such cards. He shouldn’t be using it for many purchases (though using it for a few is a good thing) and he should be paying off the balance in full each month. If he does that, then there’s no reason to worry about the interest rate because he won’t be paying any interest.

Q2: Rechargeable batteries
I have been thinking lately about getting some rechargeable batteries and wondered if you have posted anything about the cost comparison between getting some decent rechargeable batteries and just buying the standard type. I guess just the standard sizes are what I’m most concerned about (AA, AAA, C, D, and 9volt). I have also been concerned about how well they would perform if you don’t use them frequently (I.e. Flashlights that you only use periodically during power outages etc.)
- Greg

I am a big fan of eneloop batteries, made by Sanyo. I have had good experiences with them over and over again.

Most of the time, rechargeable batteries for “C” and “D” size come in the form of an adapter, which looks like a “C” or a “D” battery, but just contains two or three “AA” or “AAA” batteries. There are eneloop adapters for both of these sizes.

I do not have any experience with 9 volt rechargeables. The only items in our home that use a 9 volt is our smoke detectors, and I don’t use rechargeables in those.

Q3: Job and heavy course load
Right now I’m 19 and a sophomore at a college studying mechanical engineering. It’s a rigorous college, but I like it and I’m doing pretty well. The only part I don’t like is the undue financial strain it’s putting on my parents. We’re not a rich family. My dad’s getting up there in years and being a firefighter is starting to take a toll on him. My mom is self employed in property management, and while it brings in some money it’s sometimes not enough, especially now as she’s trying to refinance her buildings.

I want to get a job. Right now I have some scholarships helping me out but it still comes down to about $12,000 a year for college, not including living expenses, food, etc. I feel guilty every time I get money from my mom and I know that they could be using it to help elsewhere, as my little brother still has to get through college. Every time I try to bring the subject up, my parents tell me it’s not a good idea, and that school is my job until I graduate and I must concentrate on that.

What do you think I should do? My average course load is between 17 and 19 hours for the next two years, and I also have a position as a service coordinator for the local chapter of Alpha Phi Omega service fraternity. Is it worth it for me to get a job to help with the cost of school?
- Sam

During my fourth semester in college, I took on a 19 credit course load and worked an 18 hour a week job and another 12 hour a week job. It was a complete disaster. I didn’t do either of the jobs well and I had my worst academic semester of my entire college career. I was stressed out constantly and exhausted by the end of it.

If I were in your shoes, with a similar courseload to what I had and a job as a service coordinator, I would not add additional responsibilities to the pile. I’d stick with what I have, use student loans to finance the experience, and try to create fantastic results for both the classwork and the service positions. (A reminder: an “A” alone isn’t necessarily the best result from a class. You’ll get much more value out of building relationships with classmates and with the professor and teaching assistants along with the good grade.)

If you come out of college with a solid GPA, a lot of professional contacts, and an interesting resume with a variety of activities and accomplishments, you’ll be primed to get a good job. That is the focus here above all else.

Q4: Renting a mailbox
I started blogging myself in August and ocassionally have readers or sponsors send me packages in the mail. This looks like it might increase a bit in the coming months, but practically we’re looking at two to four parcels a month, average. I feel a bit uneasy about always giving out my home address to people, many of whom I only know online and only a little at that. I would feel more comfortable with a PO Box, but am concerned about the cost.

The local post office rents their smallest size box for $13 per 6 months, which is quite reasonable, but it is significantly out of my way and annoying. I had a PO box there a few years ago and hated going there to see if there was anything I wanted, and the junk mail piled up so that it filled up fast and I usually had to wait in line to get a pile of my mail–most of it circulars that I would toss.

I’ve called around to most of the private mailbox rental stores in my area and the best price I could find is about $10/mo, which is significantly more, but they do have an email service to let me know when something comes and it is directly on my way to work. It is a local shop and I know the people who own it, and like supporting local businesses.

My question is, is it worth it to spend the extra to get a convenient mailbox (that’s $120 per year!!!) or should I go with the annoying but cheap option? Or not sweat giving out my home address for a few packages a month? I’m trying to save money and pay down my debt, not spend more. Am I making too much out of this? I would appreciate your perspective.
- Hannah

For me, it would really depend on the volume of mail I was receiving. If I was making a trip to pick up a package once a month, the trip out of my way to the post office would be worth it.

On the other hand, if this is a daily or a thrice-weekly occurrence, I would go for the more convenient pick-up option, even if it were more expensive.

Let’s say, for example, that the more convenient pick-up saves you ten minutes per package. If you’re receiving one package a month, that’s two hours (120 minutes) of time over the course of the year. The box is costing you $94 more than the post office, so you’re spending $47 per hour of time saved.

Now, let’s say you’re receiving packages three times a week. That’s 26 hours (1,560 minutes) saved by having a more convenient pickup spot. That breaks down to $3.61 spent per hour saved over the course of a year.

For me, the cutoff for something like this would be between $5 and $10 an hour, depending on environmental factors and other concerns. So, for me, if the packages were coming in much more frequently than weekly, I’d rent the more expensive and more convenient box.

Q5: Reading time
How do you find the time to read so many books? I find that a typical book takes me eight or ten hours to read. Where do you find the time for it?
- Angie

I make it an effort to set aside one hour each weekday for reading related to The Simple Dollar. I shut off all distractions and read a personal finance or a time management book.

Also, every single day, I set aside at least an hour devoted to reading for my own enjoyment or growth in other areas. I often exceed this because I’ll take a book with me whenever I go out and about, so I’ll get in fifteen minutes at the doctor’s office or something like that. Usually, this hour is in the evening when other households might be watching television or something.

This adds up over time. On top of that, because I’m such a practiced reader, I can read pretty quickly, allowing me to go through more books than I would if I didn’t practice so much.

That’s really all there is to it.

Q6: Thrift clothes for tall folks
I have been selling clothes on Ebay for about two years. I make about $500.00 per month and am looking for a way to earn more. In your article today you mentioned that tall clothing for men are scarce or hard to find, so that led me to wonder if that’s a niche I should research. If you don’t mind, my question is: how much do you pay in the thrift stores for shirts, tshirts, pants, shorts etc for tall men? This would also help me decide if buying these items for resale would be worth it.
- Alvin

Finding good tall clothes at thrift stores is completely luck-based, but when I do find them, they’re not usually premium priced over anything else. They’re usually hung on racks alongside non-tall items.

The question for you would be whether or not the additional time you spend seeking out good tall clothes that you could likely eBay at a small premium is worth it.

My perspective is that it probably wouldn’t be worth it if you were just hunting for tall clothes. However, if you use thrift stores as a general resource, identifying both tall and regular items that are sell-able, I think you could turn a reasonable profit. You’re essentially acting as a clothes filter in that situation.

Q7: To sell or not?
My fiance and I are living together in a house in Toronto, Canada, which we bought one year ago. We bought it for $415,000, which for our neighbourhood, is a great price. I absolutely love our community – very warm, supportive, good shops etc, and good schools (for the children we’re planning to have in the next 2 years). I’m 30, he’s 32. We have a great relationship (lots of love, and good teamwork), and I’m so excited for our life together. There are two issues for me: current stress based on our present situation, and difficulty knowing what to do for future planning.

Currently: My fiance has no debt (aside from our shared mortgage; $1800 per month, variable rate… a good one, just can’t remember the number at the moment). My fiance makes a good salary (80,000) and has started some investments for our future. Me, on the other hand, I don’t have a good track record for being smart with money, but I’m working hard to change that now in my life. I have a large student debt (40,000 interest at prime through my father’s line of credit, and a personal line of credit 12,000 interest at prime). In addition, my employment has been unstable (a difficult market at the moment for Social Workers) so I’ve been building a Private Practice (which I love, and wish to grow!). Luckily I have a small client base, and I’m working right now on increasing this through an Online Counselling service. I’ve also been working odd jobs part-time for extra income, but most of the money goes towards paying my debt payments, and not towards our life (which causes me frustration). And to top if off, we’re getting married in April … luckily with financial help from our parents… but we’ll have to cover a large chunk ourselves (10,000). I’m not sure there’s any more solutions, per se, for this current situation other than continuing to work hard and communicate with my fiance about finances. What do you think?

WIth regard to the future: as I mentioned, I love our home and our neighbourhood… and I don’t want to move anytime soon. I know from our friend’s experiences that house-hunting in this area is very difficult, and we’d never be able to find another home with these perks for this price. There were lots of strange factors that led to our home purchase, which I won’t go into now… but it was unique, and not likely to happen again. However, my fiance wonders if we should sell our home in the near future and use profits to pay down some of the debt (which I admit, is huge and weighs on us). If it were just me, I’d say sure… but given we want to start a family, I feel being in a good neighbourhood is more important. But I don’t want to push for staying here if there are reasons I’m not seeing which could damage our future financial situation. Finally, when we do have children, I will not be eligible for social assistance because of my unstable employment, therefore we’ll only have one income (and maybe some extra from my private work, if I can afford the time). If you have any insights or advice, I’d appreciate it.
- Claire

The thing you need to keep in mind is that working to pay off your debts is working toward your shared life. Every hour you spend paying down those debts is an hour that will eventually improve your situation. It reduces that debt load and also brings forward the date that you’ll be able to be rid of all of them.

I am worried that you are living a bit beyond your means. The debt load you have is pretty high, you’re working at a job that seems to be relatively low income, and you’re spending more than $10,000 on a wedding.

If you’re feeling like your debts are insurmountable, which seems to be the reason you wrote this, part of it might be your lifestyle level. There are ways to reduce your lifestyle level without selling your home, particularly if it is somewhere you want to live long term.

Q8: Car search in new location
At the end of October, we moved about 150 miles away from our then current home to pursue a new job in a new market that offered significantly more opportunities then where we were. Along with it came a 50% raise (and minimal increases in living expenses) – plus my old job (that I quit to move) is still paying me to consult. In a lot of ways, I have more money than I’ve ever had in my life and projects that were on hold (new bed for the kids, clothes, etc) due to money are finally getting fulfilled.

However, being 150 miles from “home” has presented its own difficulties. We find ourselves driving back to visit family and friends every couple weeks (especially during the holidays). However, because everyone we knew was within 20 miles of us, our car was never purchased with all the miles we’re putting on it in mind. Plus, it’s not all that comfortable for long trips, and lacks adequate trunk space for packing for overnight trips.

So here is the basis of my question(s): how do we even start the car searching process? I want decent gas mileage and decent leg room in the cabin and would like something we can fit more than a few blankets and a suitcase into. Since it will also be my wife’s primary vehicle, reliability is a must as well. I have to admit, I’m overwhelmed just looking at the options and not sure where to start.

The other half of my question is: We had to take out a small loan (4,000) to move here – knowing we would be able to pay it off quickly. I have the money to pay off the loan, plus some savings, plus some extra money in my checking account, which would give me about 10,000 to pay on a vehicle (if I didn’t pay off the loan). Would it be better to pay cash for the vehicle and make payments on the loan, or better to take out a small loan for the vehicle and pay off the moving loan? I have no idea what interest is on a car loan (have never had one), but the moving loan is at 11%. Otherwise, the only other debt we carry is school loans which are currently in deferment.
- Fred

Your best move would be to pay off the loan, buy a lower-end vehicle that you can afford to pay for with cash, and then start saving right now to replace it. That way, you avoid debt, which is just money lost to the bank, and you also avoid depreciation on a higher-end car.

As for your specific car choice, we find ourselves in a similar boat. All of our extended family lives about four hours away from us, so we often find ourselves on road trips to visit people. That’s a long car ride, particularly with three kids.

What we’ve found is that the two most important factors on the trip are reliability and fuel efficiency, assuming that we have minimum space for our legs and our belongings. Most of the time, we make that trip in our Prius, which gets great gas mileage and is very reliable. It has enough leg room for me, too (I’m 6′ 6″).

I’d suggest just going to the lot and focusing on fuel efficient cars that you fit comfortably into. Test drive a few to get an idea of what you like in terms of comfort, then shop around for the best deal on some of the models that fit your needs.

Q9: Sell now or later?
I am potentially facing the issue of selling my condo at a loss or renting it out at a loss. I have applied for a job within my current organization in another city roughly 1.5 hours away so commuting for me would not be an answer. The city I would be moving to is a lower cost of living area but my salary would also drop approximately $5000.00. I figure I will be bringing home $1450 ($200.00 less) every two weeks after taxes and pre-tax items. I have lived in my condo for 5 years, but I just refinanced in April to a 20 year mortgage with a 4.875% interest rate.

If I would sell today I think I would break even on what I owe on the mortgage $140,000; however, to pay realtors, closing costs etc. I think I would have to bring $8,000 to $12,000 to the closing table. I have that amount but I would be left with little or no emergency fund. If I try to rent the condo I would probably get $1100-1125 per month in rent. My known costs would be the mortgage of $1048, condo fees of $335 and payment to someone to manage the place of $125. I would be short approximately $485.00 per month. I believe I can make up the $485.00 by changing some lifestyle habits, not paying extra principle on the mortgage and cutting back on saving for a new car which I will not need in the next 4-5 years.

The big kicker is if I took this job it would probably only be for 5 to 7 years and I would likely move back to where I live now and move back into the condo if I keep it. Strictly on the basis of money would you sell at a large loss now or have the losses over a few years? I don’t expect rents to go up that much because of the size of the condo, the lack of a dishwasher (I can’t add one) and the laundry is down the hall. Also as an FYI the condo is not underwater but I have lost approximately $75,000 (all equity from the sale of a previous property I put in at closing) in value since my purchase.

In the new job I would be doing what I actually want to be doing in my career right now. I would be away from a lot of the bureaucratic issues I am facing right now and I would get out of a job situation that I am not a 100% happy in. The job is in a city I use to live in. I have friends there, a church family that I miss and I will be closer to my immediate family. I miss the sense of community I use to feel in that city. There is a lack of that in the metropolitan area I live in right now.
- Connie

The decision of whether to sell would hinge on a lot of factors that you haven’t really specified here.

How likely is it that you’ll move back there in five to seven years? Are there other opportunities besides the career path you’re on that would cause you to move back there? How is the market for rentals in that area? Are there a lot of rentals sitting unoccupied or are they in high demand? How much of a shortfall would there be on the mortgage payment if you rented out the property (after taxes and after management fees, assuming you go that way)?

The less likely I was to return to the area, the more I’d lean toward selling. The more likely I was to rent it, particularly at a price that would pay most of or all of my mortgage, the more I’d lean toward keeping it.

This is one of those situations where there is no strict right or wrong answer because we can’t see the future. We don’t know where our path leads. All we can do is give it our best guess and move forward from there.

Q10: How do you find bargains?
What I’ve never really been able to understand about frugality is how people find all of these amazing bargains. Let’s say I need a new kitchen knife. I do some research and find some potential knives that I might by. Then, I go on amazon and a few other sites and find prices and then I do the same thing in local stores. Usually, I just buy the lowest priced one I find, but I never seem to find these amazing discounts people seem to find. How do they do it?
- Darla

When you hear about a big discount, it’s often on an item that the person wasn’t necessarily planning on buying. They just happened to find that bargain, had enough sense to see it for the bargain that it was, and had the resources to pounce on it.

It gets much trickier when you’re looking for a discount on a very specific item. The more narrow the item you’re looking for, the harder it is to find a big bargain in that specific area.

What I often do is wait. If there’s an item I would like to replace but I can hold off for a while, I sit on it and look for a bargain for as long as I can.

Sometimes, it pays off. For example, I mentioned how I waited around for the right price on a blender. Our old blender had a broken lid (which meant that it would splatter if you used it) and a motor that had a very loud whine to it that started after my son dropped it on the floor. However, it was still usable, so we kept using it. I started watching a variety of places very carefully for a discount on a really good reliable blender that wouldn’t easily break and might survive a bump and would also blend anything we threw in there (our old one was dodgy at times when it came to blending perfectly), but I knew I could just go buy a $30 replacement for it at Target if we needed to switch it.

What happened? After some waiting, I found a wonderful new blender on sale at a local food store that was going out of business and had marked it way down – something like 70% off the sticker price. About a day after that, I found an even better price on Craigslist for a similar blender.

People find bargains through a mix of serendipity and patience. You can’t wake up one morning and expect to find a huge discount on the specific item you want.

Automate Your Savings (10/365)

Posted: January 11th, 2012, 1:00pm MST by Trent

Whenever I find myself with extra cash in my pocket, I’m often tempted to spend it. I usually look at that cash as having already been accounted for, so there’s really nothing bad about spending it on something fun, right?

When those thoughts pop into my head, I know exactly what I need to do. I just go empty that spare change into the spare change jug on my dresser. That jug contains a mix of coins and dollar bills that have found their way into my pockets.

In a way, the same exact thing is true with my checking account. If I look at my checking account balance and it’s quite high, I can sometimes feel tempted to spend money on things that I don’t really need.

The solution for my checking account is really not all that different than the solution for my pocket change. I have a plan for that money, a plan that’s so incredibly simple that it becomes trivial to follow it.

I simply pay all of my bills automatically out of my checking account. Online banking makes this a snap. I just have every bill I possibly can – and that’s most of them – set up to pay automatically near their due date each month.

This serves several purposes.

First, I don’t really have to think about it. Once it’s all set up, there’s not really anything to do. Your bank just automatically does it for you. Your bills are paid without even having to lift a finger.

Second, it adds just a bit of concern about excess spending from my checking account. This, for me, is a very good thing. I know that when I look at my checking account balance there are going to be further withdrawals from the account automatically. It’s similar to the sense that I get when I know there are outstanding checks, except that I don’t actually have to write the checks.

I’m encouraged by this to not spend frivolously from my checking account and instead make better choices about how to spend my money, because the consequences of going ahead and spending – potential overdrafts, potential missed bills – are worrisome. I’m simply more careful about my checking account.

Third, I’m never late for bills. If everything is paid automatically and set to arrive before the bill’s due date, then I know I won’t be late for bills. I don’t have to check due dates. I don’t have to remember to make sure that a certain bill is paid. It just happens.

Fourth, it saves me time in the process of paying bills. I don’t have to sit down with a checkbook and a calculator every two or three weeks to pay a pile of bills. They’re just paid. I check my online banking perhaps once a week as part of my normal web surfing, taking perhaps a minute or two, and that’s it.

Finally, it enables me to reach savings goals. This is really the clincher for me. If I’m saving for a goal (and I’m usually saving for two or three of them), I can automatically have the money routed away from my checking account into my savings account (or accounts). The amount would be whatever it would take for me to reach my goal in the desired timeframe.

So, let’s say I’m saving so that I have $10,000 to buy a car in four years. That takes 48 months, or 204 weeks, to achieve. I might decide to have $50 taken out of my checking account every week for the car, or $200 every month. This could all be done automatically so I never have to think about it. Then, at the end of the four years, I have the $10,000 I need to buy myself a nice car without going into debt for it.

Automation is the key to all of this. It saves time, it keeps you psychologically from sinking into a spending routine, and it helps you achieve your savings goals. Automating your finances as much as possible is an essential tool for personal finance success.

The Simple Dollar Weekly Roundup: Election Returns Edition

Posted: January 11th, 2012, 7:00am MST by Trent

Whenever there’s a significant vote or election, I find myself tuning into the results the evening after the vote. I’ll visit tons of websites, looking for the latest results and different perspectives on what they mean.

The funny thing is that it’s usually impossible to really say what the impact of a vote really is until a long while after the vote.

So, why do I tune in? I guess I just like politics from a “fan’s” perspective. It often seems to me like a complicated high-stakes game.

What If I Lost My Career? Envision, then Act This is spectacular advice for people facing a rocky path in their career. At some point, you have to consider restarting your career, and this is really good food for thought if you’re in that situation. (@ free money finance)

Career Fairs, Part One and Part Two Career fairs can be completely useless or incredibly valuable for a potential job seeker. It all depends on the preparation you put into it and how seriously you approach it. I’ll be the first to admit that I didn’t approach career fairs with enough seriousness when in college. (@ penny pinching professional)

Unfinished Business I think that anyone who has a successful career or is running a successful small business is going to eventually face the “black hole inbox” where there’s simply more stuff there to do than there’s time and energy to do it. If you’re doing something of value, people are going to want your attention and effort. I think this is some great advice on dealing with it. (@ unclutterer)

“How Can I Stop Being Overwhelmed by Big Projects?” My solution is to not take on too many of them and focus as intensely as I can at the next step in the project. (@ happiness project)

Clearing Your Life for a New Year This is a good process to do regularly, not just when a new year occurs. (@ zen habits)

Talk About Your Money, Especially with Your Partner (9/365)

Posted: January 10th, 2012, 1:00pm MST by Trent

For the first two years of our marriage, Sarah and I barely spoke to each other about money. We’d touch base with each other just enough to make sure the bills were paid, and that’s about all.

“Honey, did you drop off the rent check?” “I took care of the bills for this month.” “Do you have your wallet handy to cover the bill?”

Comments like these were the extent of our communication about money. We just trusted that the other person had their money under control and never really bothered to investigate it further.

We never had a plan for the future. We never had a joint checking account. We never had a cohesive idea of what our retirement might look like.

Is it really any surprise that our finances bottomed out?

One of the first things Sarah and I did once we really began to grasp our situation was to sit down and have a long chat about our money and our future. What did we want out of our lives? Were we ever going to buy a house? Were we ever going to retire? Were we ever going to dig out of our debt hole?

It was from that initial conversation – and many more that followed it – that a cohesive plan for our finances came together. We came up with a plan that suited us for buying a house (do everything we could to save for a down payment until a second child forced our hand and forced us out of our tiny apartment). We came up with a joint plan for retirement.

We started talking about other life goals in a much more concrete fashion, too. We planned carefully for a second and, later, a third child. We agreed that I should devote a significant amount of spare time to writing (although The Simple Dollar took us completely by surprise).

In short, we constructed the scaffolding of the life we have built together. All it took was a conversation about money to get things going.

What did it take to get the ball started? It took one of us (me) to simply get the ball rolling. The biggest key was that I assigned no blame for the situation we were in. Any blame that was out there, I placed directly on my own shoulders, even if I felt it was a shared blame. If you start out a discussion like this with accusations, you’re not going to get very far.

Another key element was to stick with numbers. When we talked about money, we didn’t say things like “I think we can afford it.” We got out our checking account balance and our bills and started calculating to see if we really could afford it.

The final essential element was honesty. I had not really revealed the extent of our credit card debt to Sarah, as I had been “taking care” of that bill for a year. When it was all laid out there, she was upset for a while, but then it became clear to both of us that if we have all of the cards out there on the table and are being fully honest, we can actually solve this problem together.

There’s another key element to all of this. Money talks aren’t just useful with your partner. There is a lot of benefit to talking financial issues over with trusted friends, close family members, and other people around you. You don’t ever have to reveal your full financial picture, but talking about the challenges of debt reduction, great frugality ideas, and other such issues can be a great way to not only learn new ideas, but to relieve the burden of dealing with such issues through conversation.

I have quite a few people that I talk to about various aspects of our financial life. I have a small business friend who often discusses taxes and tax opportunities with me. I often trade frugality tips with various friends and family members. I have another friend with which I’ve discussed retirement planning many times. All of these people have proven invaluable in getting my finances in better shape. Each of them started very tentatively (mostly because I was uncomfortable talking about it), but each grew into a valuable series of conversations for all parties involved.

If you’re dealing with money challenges, don’t bottle them up inside of you. Conversation about them lets you relieve some stress, plus it often opens the road to solutions to those problems. That’s a double win.

Finances, Opportunity, and the Path of a Little Girl

Posted: January 10th, 2012, 7:00am MST by Trent

“I think the girl who is able to earn her own living and pay her own way should be as happy as anybody on earth.” – Susan B. Anthony

Today, I’m going to talk about my daughter.

In many regards, she’s a pretty typical four year old girl – at least judging by her peers. She likes to play dress-up – in fact, we have a dress-up tub in our basement just for her. Her favorite place on our property is the sandbox, and the part about winter that she hates is that she really can’t play in that sandbox. She loves to sing and dance, and we can rarely drive more than two minutes without her bursting into song in the back seat. Her favorite toys are building blocks, from which she can build giant towers and crazy sculptures. She seems to believe that a day isn’t complete without an art project, preferably one that involves paper and glue and markers and pens and clay.

Of our three children, she’s often the one I have the hardest time relating to. I grew up in a household that held nothing but boys. All I have is brothers, and all of their friends and most of my friends growing up were boys. The only children close to my age that lived near us were boys. I’m used to the “boy” experience and I understand how boys respond to most situations. The behavior of my oldest child and my youngest child – both boys – makes sense to me based on my own experiences.

My daughter is a bit of a different story. I find myself often watching how she acts more than the other two simply because she often reacts and does things in ways that I don’t expect. She’s a beautiful enigma to me at many times.

After her fourth birthday, we started giving her an allowance, just like her older brother. They both use Money Savvy Pigs and divide up the small weekly allowance (paid in quarters) among the slots.

My oldest son has always taken the “invest” slot in the bank for granted. He puts the minimum amount of quarters into that slot and, although he occasionally asks about it, he actually focuses more on the “save” and “donate” slots. He’s not much of an impulse spender, as he’s already been able to save up for a few very expensive items, and he’s proud to be saving his nickels and dimes for Jump for Joel.

My daughter, on the other hand, was immediately curious about that “invest” slot. What will we do with that money? Will we spend it? What does “I-N-V-E-S-T” mean?

I told her that the money in that slot was for saving for things when she was much older, like college or a car or something like that. We talked a little bit about how many quarters would be in that slot by the time she was sixteen.

Then, I set the hook. “You know, the money in that slot has the power to grow on its own.”

Her eyes lit up. I explained that we could take that money to a bank and put it in a savings account, and for every four quarters she left in there for a while, the bank would give her a penny. I mentioned that there were other things you can invest in where you might even earn more than that, but you might also lose some money, too.

She was fascinated. She wanted to start “invess-TING” right now. Right now.

Before I had a daughter, I didn’t know what to expect. Now I do. This girl is a thoughtful, intelligent, quick-witted, vibrant person who deserves every chance in the world to take it all by storm. She has all the ability in the world and a skill set that is different from but at least equal to that of her siblings.

When I hear that there is still a pay discrepancy between genders, I shudder. She’s growing the passion and skills needed to take on practically any job thrown before her, so why should she not receive equal pay?

When I see that an opportunity discrepancy still exists (whether in fact or in perception), I shake my head. She’s incredibly capable of taking on impressive challenges, even at her young age. Why shouldn’t she get that opportunity as she reaches adulthood?

One of the personal goals that Sarah and I have for our children is to ensure that they can follow any educational path after high school that they wish and they won’t be limited by money or economic opportunity. Part of achieving that goal is to make sure that they have every skill and every piece of knowledge that we can give to them as they grow up. I want every single one of them to swing for the fences, and the biggest thing I hope for is that they’re each judged by and are given opportunities by the level of their skills and the content of their character, not by their gender.

How do we do that? We have well-funded 529s for each of them. We spend a lot of time engaging with them on educational endeavors – a trip to the Science Center of Iowa is a family event, for example, and we’re constantly doing writing activities and math activities and science experiments together as a family. In contrast to a lot of what we see around us, we’re encouraging our children to take control of tasks and projects and assert their independence. For example, our six year old can find his clothes, take a shower, get himself dressed, brush his teeth, pack his backpack, and get out to the bus stop in the morning (I’m around to converse with him, but he does this himself).

This little girl (and her two siblings) deserves every opportunity in the world, and it’s our job to make sure they have every tool we can give them to grab ahold of those opportunities and run wild with them. Doing that is a financial commitment and a time commitment and an energy and patience commitment, but it’s one that has giant rewards: independently functioning and thinking adults who can make a positive impact in the world.

That, to me, is “invess-TING” at its finest.

Keep Track of Your Progress (8/365)

Posted: January 9th, 2012, 1:00pm MST by Trent

One of the best personal finance tasks I ever took on was building a personal net worth calculator.

It was a simple little thing (in fact, I wrote a tutorial on how to build one in any spreadsheet program you have, very little knowledge required). All it did was add up all of my assets, add up all of my debts, then subtract my debts from my assets, leaving me my net worth.

The spreadsheet simply consisted of a list of all of our significant assets – our retirement accounts, our checking accounts, our savings accounts, our vehicles, our home – and their approximate values. It would also include each of our debts – credit cards, car loans, mortgages, and so on – and their current balances.

All I had to do was enter the new balances and values for each of these things at the start of the month, and the spreadsheet would automatically calculate my total assets, my total debts, my new net worth, and how each of these numbers compared to the previous month and to the previous year.

For years, I did this diligently every single month. It almost became a ritual for me. I’d open up that spreadsheet, gather up all of my information, and then either revel or despair in the results.

It was an enlightening and valuable experience.

Why was this so worthwhile for me?

First of all, the whole process gave me an incredible amount of motivation. Each month, I felt strongly motivated to make sure that my net worth went up. It was a very simple way to check whether or not I was truly living by the “spend less than you earn” mantra. If my net worth went up, then I was spending less than I earned. When that happened, it felt good. It felt like I was making good decisions in my life.

The change in net worth became a big driving factor in my day-to-day decisions. I would often use that number as a motivator to make lots of little choices throughout the month. I would choose not to stop at the bookstore, for example, because I would tell myself that it would hurt my progress with that number.

Perhaps just as important, the numbers would clearly tell me if I wasn’t following a good financial path. If I didn’t see an increase like I expected, or if I saw a net worth decline, I knew I had to shape things up.

Numbers don’t lie. If your net worth goes up over a given period, particularly if you don’t have a large amount of money invested, then you were making good financial choices during that period. If it goes down, then you were perhaps making poor financial choices during that period. At the very least, a decline means that you need to look into the reasons for that decline and likely make some changes.

Avoiding the numbers is a mistake. If you choose to trust your instincts or your gut feelings when it comes to your finances, you’re almost always going to find yourself bitten by those instincts. It’s incredibly easy to overlook and forget about little things along the way. When you rely on the numbers, the little things don’t just disappear on you.

Eventually, I reached the point where the ups and downs in my retirement savings and my children’s college savings were having more of an impact on my net worth than any of my personal choices, so the routine became less important. Over the years, though, the process instilled in me a great deal of accountability about the power of the little decisions I make every day.

If you’re struggling to get your finances in order, start making yourself accountable. A simple net worth calculator is a great place to start.

Reader Mailbag: Winter Wonderland?

Posted: January 9th, 2012, 7:00am MST 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. Trading cars before a move
2. Handling an old retirement account
3. State income tax after leaving
4. Student loan repayment plan
5. Unexpected job offer
6. Job change and unfinished mortgage
7. Reconnecting
8. 401(k) loan for debt?
9. Which insurance policies?
10. Best books of 2011

Yesterday, my wife and I took a long walk in the park with our kids. The grass was green and there were people jogging and riding their bikes.

We stopped at the playground and played for an hour. Several other kids joined them at various points.

This is mid-January in Iowa, remember.

Q1: Trading cars before a move
In May 2011, I bought a 2008 Certified GMC Acadia for $28,5000. Currently we are paying 2.5% APR loan, a very comfortable $400 monthly payment, and owe $16,000. The problem is my husband just received news we are moving to Italy. Italy has small roads, lots of mopeds, and tiny parking spots. A SUV that has a lot of blind spots is not ideal when it comes to driving in traffic, mountain areas, or parallel parking in the city. Not to mention the likelihood of accidents and the high cost of repairs in not good. I also have a child and back issues. So considering all of this I am thinking about trade-in my GMC Acadia for a BMW X3 or something similar. My car is on only worth around $23,000. A total depreciation of $5,500 in 8 months. We do not have time to private sell, only about a month til we ship the vehicle. Am I making a huge mistake trading in the car? Can I ask the finance company to finance the other car, and will the dealership trade in a more expensive car for a cheaper one?
- Kelsey

I agree that large SUV is really not a good choice in that environment. If I were in your situation, I would probably sell the Acadia.

Your challenge, of course, is the short time frame. If I were you, I would list the vehicle on Craigslist immediately for something approaching the list value of the car. We purchased our car on Craigslist and were able to go from listing to completed purchase in about two weeks, so you do have time for that.

If that doesn’t work for you, your best option is probably to trade in the car. You’re much more likely to get some value approximating the trade-in value in the United States rather than in Europe, so I would trade in the car for something smaller before I left. If you downgrade enough, you should be able to make the trade-in work without incurring a big lump sum expense.

Q2: Handling an old retirement account
My husband had a retirement account for his post-doc that ended in march. It was in a TIAA-CREF account. We are no longer making contributions to it and am wondering what to do with it. We will be leaving the country in 2012 and will be working in a different economic structure, therefore, we don’t know our future regarding coming back to the states or staying out. I think the balance last we checked was around $8000. We also have a state fund with maybe $300 or something in it. I honestly have no idea how these things work and the money is sitting. What would you advise us to do?

Our finances are simple: $1800 monthly income, about $1200-$1300 expenses, $6000 in student loan debt at 1.65%. no other debt/expenses.
- Monica

I would leave the money for the time being. When you reach an appropriate retirement age, you can withdraw it as normal income in the United States.

The other option would be to empty it out right now, but you’re going to take a tax penalty for doing so. From what you’ve described, there really isn’t any sort of rollover option that would provide you any real benefit.

I would just leave the money there and consider it a start on your retirement. You’ll be able to get the money out of it wherever you’re at.

Monica had a follow-up question.

Q3: State income tax after leaving
Leaving the country, we are required to pay income taxes. I’m aware of the $92000 income limit on federal tax exclusion on foreign income. Virginia (where we live, we rent) requires tax on all income, regardless. This is what I know. However, we will be leaving and probably will forward mail to my parents (who live in VA). Would you happen to know how this works? We don’t own property and won’t rent so technically we aren’t residents anymore. Does that mean we still need to pay VA taxes?
- Monica

In order to maintain U.S. citizenship, you have to continue to file federal income taxes each year, and you’ll have the income tax exclusion you mentioned.

However, it is often very difficult to get rid of your “tax domicile” status in states once you move abroad. You will need to remove all evidence of your residence in the state, including voter registration, addresses, your driver’s license, and so on.

If I were you, I would consult a Virginia tax attorney to help with this process. The cost of it will be more than made up by the taxes you’ll save by doing this correctly.

Q4: Student loan repayment plan
I’m a 25 year old college graduate that took out $29,500 in student loans (no credit card debt). In 28 months of repayment, I’ve gotten my outstanding balance down to $17,925. I’m fortunate enough to be able to afford my payments and even have some money left over to eat and have fun, but I want to start paying down this debt aggressively, and I’d like some help gaming the system. I’ve been running some numbers, but I’d appreciate getting them double checked by someone who knows a bit more than I do about the subject.

Now for the numbers (rounded to the nearest $5):
$3,545 @ 4%
$9,790 @ 4.538% (weighted average)
$3,180 @ 6.55%
$1,410 @ 2.625%

My current minimum payments are $277.53 and I’ve decided I can pay an additional $300 every month (which I’ve been applying to the loan with the highest interest rate). No matter what my minimum payment becomes, I’m going to continue paying $577.53 per month and applying the excess to principle.

The last three loans I listed are serviced by the same company and I’m eligible for an income contingent loan repayment option that would cut my total minimum payment to $173.40 (and possibly extend the repayment term up to 25 years).This seems to be the best option to me because what I didn’t tell you is that I’m planning on applying to graduate school in fall 2012 and will (hopefully) begin school again before my loans are fully repaid (in which case the lower monthly payment will be really helpful). Or should I consider consolidating all my loans and just pay that down aggressively.

Lastly, is there any way I could get in trouble for what I’m trying to do? I can’t imagine that I would, but I don’t want to get blind-sided by something I can’t imagine.
- Lily

You should not consolidate your loans into a loan with a higher interest rate than any of the loans you consolidated. So, for example, unless the consolidation offer is less than or equal to 2.625%, I wouldn’t consolidate that bottom loan.

The reason for this is that the higher your interest rate, the more you’re going to pay over time to that financial institution in pure interest. You want to do what you can to minimize that interest.

If you’re not sure you’re going to be able to cover the payments in graduate school, save that additional $300 a month for now and use it to have a healthy emergency fund.

No, you’re not going to get in trouble for any sort of consolidation that you do.

Q5: Unexpected job offer
I have been at my current job for 6 months and I love it, but the pay is not great but I knew that going in and is enough to support my family especially when my wife finishes nursing school.

Recently though I have been approached by 2 separate companies about working on the private side in the same field for considerably more money. These jobs would require a few more hours and less flexibility. I was not searching for the jobs and had no idea before hand that they were available. They both would have me doing almost the exactly the same things in the same area.

If the money was not a good bit better I would not consider them because I am happy but that kind of pay increase would make a difference. MY main hesitation is I have only been here 6 months and don’t want to burn bridges because the new jobs would interact highly with the people I work with now.

Should I pursue these offers or stay? I would hate to leave and regret it if there is something I do not like. I would also hate to stay and wonder what if.
- Annie

You never have to burn bridges when you leave one position for an obviously better position. If you’re open and candid about your reasons for changing positions, virtually all rational people will understand. If you leave in a way that makes the transition easy for your previous employer, that’s even better.

That doesn’t answer the question of whether the grass is greener on the other side of the fence, though. If you have enough to support your family, is the additional money worth the risk of having a worse job environment?

I can’t answer that question for you, but if I were in your shoes, I would lean toward sticking with the good thing.

Q6: Job change and unfinished mortgage
I’m soon to begin the final semester of my Master’s degree program in Public Administration. With this goal nearly accomplished, I (along with my wife) am facing a difficult decision in looking for a new job. I am interested in entering the field of city management upon graduation. Initially, this change is likely to force us to move to a smaller, more rural community. We currently live in a suburb of the Twin Cities metro area. While I’m not so concerned about the culture change, I do worry about the housing situation in potentially having to continue paying the mortgage for our current property while also either renting or purchasing a home in a new area. Is there any advice you can give on making such a transition given the current housing market? Would we be wise to try to find renters for our current home or put it on the market as soon as we know where and when we may be moving?
- Ron

I would put it on the market now, actually. List it for the price you would like to get, then gradually lower it as your expected moving date nears.

If you get it sold for the price you want, just move into an apartment for the remainder of your stay in the Twin Cities. It will have been worth it because of the extra money made from the sale and the fewer months spent paying interest on your mortgage.

Also, the longer it’s on the market, the more likely you are to simply find a buyer, which can be difficult in the current housing market.

Q7: Reconnecting
Is there really value in reconnecting with people you haven’t seen in a long time? I recently got an email from someone I used to work with but haven’t seen in ten years. She’s coming through town in a few weeks and wants to know if we can have lunch somewhere. I’m trying to figure out if this is even worth my time for my career. Any thoughts?
- Lindsay

If you have no interest in seeing this person beyond a questionable amount of career improvement, it’s probably not worth the time. You’d be better off spending your lunch shoring up a connection you actually value than this one.

Having said that, there is value in maintaining professional connections, even ones that don’t seem to be specifically beneficial to you at the moment.

I’d ask myself if there was something better I could genuinely do for my career during that lunch than meeting with the old contact. If there is, I’d do that. If not, I’d meet that person for lunch.

Q8: 401(k) loan for debt?
I hope you have time to answer this question. Here’s the info: I have some credit card debt. $2500 on one card with 10% interest and $2000 on another card with 8.9% interest.

I am considering taking a loan from my 401K of $2500 to pay off the one credit card. Then I would concentrate on the other one, making $500 payments per month to pay it off.

The 401K loan would be for 6 months. The interest would be $67 and the fee to take out the loan would be $100. The payments would be automatically deducted from my paycheck.

I have $1400 in a savings account and approximately $100,000 in my 401K and IRA.

Part of me thinks I should take the money out of savings, pay down the smaller amount and keep paying monthly until it’s paid off and then focus on paying the other one and NOT take the loan.
- Elizabeth

I would not take out the loan. 401(k) loans work okay if everything goes perfectly, but even in that case, you’re still borrowing money to pay off other borrowed money. You’re not really getting ahead.

If it doesn’t go perfectly, the drawbacks can be pretty bad. The interest you paid already is lost. The loan is taxed as normal income, plus there’s a 10% penalty that you have to pay to the IRS. That’s far worse than the small amount of interest you’re saving.

If I were you, I would keep at least $1,000 in savings, use the extra $400 to pay down the loans, and just focus your energy on wiping them out through small steps and good choices.

Q9: Which insurance policies?
I have recently (November 2011) transitioned from a full-time position to three part-time (online) positions in order to allow me more flexibility (while I complete my doctoral dissertation). My wife is stay-at-home mother to our (almost) six children. We expect to remain in this situation for up to 6 months. Each of the current income streams are considered part-time employment (W2; not 1099). None come with benefits.

I’m comfortable with not contributing to any retirement plan during this short-term situation (particularly since its a 40% pay-cut for the short term). My concerns and inquiry relate to insurance coverage.

We currently have health insurance in the form of a HSA account with a HDHP. That was/is separate from my employer. We lose vision/dental coverage and I’m comfortable with that for the short-term. Life insurance plan (both the base employer-provided plan and the additional rider) are gone (at least I assume they are). Disability insurance plan is gone. I do have a liability policy that was/is separate from my employer but it specifically notes that it is secondary to the policy previously provided by my employer.

During these next 6 months, what sorts of policies should I be getting?
- Robbie

If you have six children, you absolutely need life insurance coverage. You need a term policy that will take care of those six kids in the event that something happens to you. This is without question. Get this now and don’t relinquish it even after you’re employed.

The other plans are more or less connected to the actual state of your finances at the moment. I’m not clear as to whether you’re going to be struggling to keep your head above water during this period or if you’re spending far less than you earn. If you’re cutting it close, the one I’d consider most strongly would be the disability plan.

The biggest thing you need to be concerned about is making sure those kids are protected if something disastrous happens to you. Life insurance is the 800 pound gorilla here.

Q10: Best books of 2011
Over the past few years, you’ve often made a top ten list of the books you’ve read from the previous year. Did I miss it or did you make one for 2011?
- Charlie

I did make such a list for 2011, but I posted the list over at my other blog that focuses on my other writing endeavors and non-personal finance stuff.

Anyway, here’s the list. It’s the ten books I read that were actually published in 2011 that I have a desire to read again at some point. Pretty simple, huh?

Steve Jobs by Walter Isaacson
1Q84 by Haruki Murakami
Moonwalking with Einstein by Joshua Foer
REAMDE by Neal Stephenson
Ready Player One by Ernest Cline
The Information by James Gleick
These Guys Have All the Fun by James Andrew Miller and Tom Shales
A Dance with Dragons by George R. R. Martin
Blue Nights by Joan Didion
In the Plex by Steven Levy

Master the Thirty Day Rule, Too (7/365)

Posted: January 8th, 2012, 1:00pm MST by Trent

Yesterday, we talked about the ten second rule, which you can use to protect yourself against impulse buys that are well within the limits of your pocket money. We’re talking about things like a pack of gum, an inexpensive board game, or something like that.

As I know all too well, though, many of the purchases we make are much larger than that one. I’ll give you an example: our blender.

We use our blender for a lot of things: making smoothies, beating eggs, making pesto, and so on. A while back, one of our beautiful children did something incomprehensible to the blender (as children sometimes do), rendering it very difficult to use. You could still use it, but you had to hold something over the top of it while also holding the entire machine firmly in place.

Our initial instinct was to just rush right out and replace the blender with a similar model. It did a decent job, though it would often leave big chunks in the blender and had other little design issues that we didn’t like. It would also take forever to blend certain things.

Instead, we made the decision to buy a better blender.

Now, we could have easily still ran to the store and bought a better blender, but the decision to buy a better one meant that the cost of the blender likely jumped up into the “more than pocket money” category. We weren’t going to just buy a $20 blender.

Instead, we gave it a month. During that month, we researched a lot of blenders. We did some evaluations of what features we actually needed and which ones were superfluous. We settled on a few models and did a ton of price comparisons.

In the end, we wound up with a top-notch blender for far less than we ever expected to pay for it (meaning we did not pay anything close to Amazon’s price for that blender).

That month did a lot of things for us.

We had time to figure out if this was something we really wanted to do. Did we really need a nicer blender? Could we just use a simple replacement for the one we already had? Did we need one at all? These questions are often enough to talk you out of an unnecessary purchase. Try doing this with, say, an iPod Touch, and you’ll find yourself not spending $200 or so on a portable music player.

Obviously, this question didn’t fill all of our thoughts for the month, but it was something that we thought about.

We had time to actually identify the specific item we were looking for. We identified all of the specific features we wanted as well as features we deemed unnecessary. We were able to research a lot of models using tools like Consumer Reports and, eventually, we were able to whittle our choices down to a handful.

We had time to carefully shop for the right item. Instead of just charging ahead once we had an item in mind, we spent some time shopping around for that item – and waiting for the right price. We set up some notifications for prices on the items we were interested in and looked at a lot of different options.

Eventually, the blender we picked up popped up with a large discount, so we pounced.

Give yourself thirty days to go through this process. Most of the time, you’ll talk yourself right out of the purchase, which is a good thing. Even when you don’t, your research and price investigation will often lead you toward getting the best item at a very nice price, rather than just getting whatever item happens to be at your local department store.

You should also set a price threshold for the thirty day rule. What do you consider to be the line between an impulse purchase out of your pocket money and a more significant purchase? For me, it’s usually between $20 and $40, depending on how much of my alloted “pocket money” for the month that I’ve spent. It’s going to be different for each person depending on their income level, behavior level, and other factors.

Review: EntreLeadership

Posted: January 8th, 2012, 7:00am MST by Trent

I’ve written about 250 book reviews on The Simple Dollar since I started the site in late 2006. Along the way, I’ve found a few books that I just immediately recommend for certain topics. My general personal finance recommendation is Joe Dominguez and Vicki Robin’s Your Money or Your Life. My regular debt management recommendation is Dave Ramsey’s The Total Money Makeover. For investing, I usually recommend Larimore, Lindauer, and LeBoeuf’s The Bogleheads’ Guide to Investing. Time management? I’ll point to David Allen’s Getting Things Done.

Throughout all of those books, though, I’ve never really found a single book I could recommend about entrepreneurship. There’s not been one book that really talks about the process of taking an idea you have in your head, investing your spare time and effort into it, and building it into something sustainable that can earn you significant money over time. The closest book I’ve found to that goal is Michael Masterson’s Ready, Fire, Aim, which does a very good job covering the topic, but feels incredibly rushed in places.

That’s why I felt pretty optimistic about reading Dave Ramsey’s latest, EntreLeadership. Ramsey is very good at hammering home the basic ideas you’ll need on a topic and pairing it with enough motivation to get you to go out there and try it yourself.

EntreLeadership Defined
In order to be successful, an entrepreneur has to be a leader. Even at the very start, when a business is nothing more than a side gig or the germ of an idea, it will never get started if you don’t step up to the plate and say that things need to happen. Even then, you’ll have to communicate with people and likely delegate some of the tasks that have to be done. Without some leadership skills, it will never happen. Entrepreneurship and leadership are intrinsically connected, and the principles of leadership help even the nascent entrepreneur.

Start with a Dream, End with a Goal
A lot of us have dreams of what we’d like to do with our lives. I’ve made no secret of my dream to be a writer. Others dream of other things. The difference between a dreamer and an entrepreneur is whether or not they can convert that dream into a goal, particularly a goal with a plan to get there. A dream is a fun indulgence, but it doesn’t come true if you don’t set it as your destination and focus on how exactly to achieve it.

Flavor Your Day with Steak Sauce
A big key of entrepreneurship is good time management. In order to have the time each day you’re going to need to make your business work, you’ve got to have a great grip on your time. Ramsey advocates using to-do lists, but also reflecting on Covey’s four quadrants (important and urgent, not important and urgent, important and not urgent, and not important and not urgent), where, obviously, important should always trump urgent.

“Spineless Leader” Is an Oxymoron
The best thing you can do as a leader is to make decisions quickly based on the information you have and be able to explain why you made those decisions. “Leaders” who don’t make decisions tend to lead organizations that fall apart. Leaders who make decisions without basing them on information tend to make horrible decisions. Leaders who make decisions based on information but can’t explain them tend to sow mistrust with their team.

No Magic, No Mystery
This chapter is most of the key ideas of a “business 101″ class wrapped up into a single chapter. Ramsey covers the life cycle of a product (introduction, growth, peak, decline) and how to start over again. There’s also a deep look at marketing a product, with basic ideas such as scarcity and appeal covered in the discussion. Almost any business you get into will involve some level of marketing, so it’s important to understand the basics of it.

Don’t Flop Whoppers
Here, Ramsey discusses the process of turning a detailed idea or a small side business into a larger entity. There are two keys to this, in Ramsey’s eyes: passion and calling. Passion is something that gets you excited to get out of bed in the morning. You can’t wait to get started on the activities at hand. Calling is what you want to achieve in your life. I’m passionate about writing, but my calling is using my words to change people’s lives.

Business Is Easy… Until People Get Involved
One of the biggest challenges in growing a business beyond a solo gig is the people. I can speak to this from experience: it was dealing with employees (interviewing, training, cleaning up their mistakes, etc.) that was the single worst experience of running The Simple Dollar, in my eyes. Ramsey offers a lot of good material that covers the entire life cycle of an employee, from the hiring process to maintaining good work to letting go of problematic employees.

Death of a Salesman
The best thing a good salesman can do is to focus on the customer and come up with solutions for that customer in mind. Sometimes, that means doing things that aren’t directly beneficial for your business, such as helping with things that are outside of your business or suggesting products and services that you don’t sell. If a customer walks away from you happy with the exchange and in a better place because of it, you’ve succeeded in your goal.

Financial Peace for Business
Businesses need to manage their finances well and, yes, be frugal. Owning a business isn’t a ticket to spending like a madman. Here, Dave takes the personal finance advice from Financial Peace Revisited and applies the advice to small business management. It actually works quite well, because the basic principles of personal finance – spend less than you earn, avoid debt, etc. – work very well for small businesses.

The Map to the Party
When a business grows into a multi-person outfit, the key to success is communication. The more people feel that they’re able to communicate and that their ideas are of value, the more they actually do communicate, the more involved they are, and the better decisions you can make for the business as a whole. Good communication feeds on itself, as does bad, so the best thing a leader can do is be candid and open.

People Matter Most
The people in your business matter more than anything else. If you can’t do right by them, you can’t do right by the rest of your business, and if you can’t do right by that, your business will eventually fall apart. Treat the people who work for you well. Respect what they need and work with it. Listen to what they’re telling you and don’t brush it off. The more you do that, the more they’ll respect you (if they’re good people that you want working for your business).

Caught in the Act
One key way to build your business is to make sure your business is recognized, particularly when you’re doing good things. Little steps, such as your email signature or your stationery, makes a difference. Mentions in the media also help. The more little pieces of positive recognition you have floating around out there, the more likely it is you’re going to draw in a random customer off the street.

Three Things Successful People Never Skip
Contracts, collections, and vendors. Dealing with each of these is the kind of detail work that can drive a person mad, but it’s the details of these things that can make or break a small business. Being detail-oriented in these areas almost always pays off.

Show Me the Money!
Be generous to the people that cause you to win. There are a lot of ways to do this – bonuses, higher salary, and so forth. Keep in mind, however, that the reason to do this is to reward the people that are showing good performance – and good performance is demonstrated in the form of happy customers.

Mastering “the Rope”
At some point, you eventually have to start delegating decisions to others as your business grows. The key to that is to make sure you’re surrounded by people you trust who you know will make decisions that are good for the business as a whole, people who share your perspective on how the business should be run. Your immediate team should consist of these people.

Is EntreLeadership Worth Reading?
This is the best single book on entrepreneurship that I’ve yet read.

Most of my problem with other entrepreneurship books is that they give short shrift to the early growth of a business, when it grows from an idea to a side business to perhaps a full time solo endeavor or one with one or two employees. They skip this part and move on to the point where a business has a handful of employees.

While that latter part is important to understand, so is the infancy of the business. It’s often that infancy that makes or breaks potential entrepreneurs, and Ramsey spends a good half of the book talking about issues at that level before moving on to growth issues.

Ramsey maintains the friendly tone that has worked well for him in personal finance books, and it works well here with entrepreneurship. There’s just the right level of detail in the information, mixed with great anecdotes.

If you’ve ever thought about launching your own business, this is a great book to start with.

Check out additional reviews and notes of EntreLeadership on Amazon.com.

Master the Ten Second Rule (6/365)

Posted: January 7th, 2012, 1:00pm MST by Trent

I’ve been going to the same barbershop most of the time for the last fifteen years or so. We grew up in the same area, so it’s rather fun to catch up with him on things that are happening in our hometown area.

He’s a good barber, so he’s also pretty busy. He also operates almost entirely on walk-in business, so when you show up, you get on a list and have to wait for about thirty minutes or so.

When I go there to get my hair cut, I’ll often wander around the small shops nearby – and there happens to be a shop that sells board games about four doors down. Board gaming is one of my biggest hobbies, so I’ll often walk in there to browse the shelves.

That’s when I have to be careful.

When I’m in that store, there’s a lot of temptation for me to pick up and buy a new board game. I’ll think about playing it with my wife and with my friends and recall the many great experiences we’ve had around the table. I’ll think about playing it with my sons and my daughter in the future.

I’ll be sorely tempted to just buy the game. After all, I can afford the sticker price. Why not just buy it and make those dreams a reality?

That line of thinking leads to a lot of unnecessary spending. It rides the emotional wave of impulse buying right to the conclusion, where you’ve got an item you bought open in your home and you’re realizing that maybe buying it wasn’t the best idea. With those board games, for example, I often realize that we have quite a few games that we love playing already on our shelves.

My first line of defense against these types of impulsive purchases – the ones where I know I could afford the unnecessary item – is the ten second rule, which I’ve talked about before.

Whenever I’m considering making a purchase of any kind, I simply stop for ten seconds and ask myself whether this is really a worthwhile purchase. Do I actually need this item? Does it cause any sort of fulfillment in my life that isn’t already achieved by the things I currently own? Could I not put the cost of this item to better use?

I don’t watch the clock on this or anything – I just do it for roughly ten seconds or so.

At the end of those ten seconds, if I’m still convinced that making this purchase is the best idea, then I’ll go ahead and buy it without guilt or remorse.

However, I’ve come to find that the ten second rule frees me from making a lot of unnecessary purchases. By facing the doubts I have about the purchase before I make it, I often end up making the right decision rather than a decision that I’ll regret.

Doesn’t this eliminate spontaneity? Sure, it does. However, the only time I really want spontaneity that results in me spending money is when I’m with other people, and when I’m engaging in a social event, I make up my mind how much I’m going to spend on that event before I go. Spontaneity when I’m by myself is mostly just an excuse to spend money on things I don’t really need.

If you’re having trouble keeping control over your impulse spending, try practicing the ten second rule. Whenever you’re tempted, stop for ten seconds and ask yourself whether you’ll regret this purchase in the morning. If you find yourself putting the item back, you’ll end up feeling good about yourself and you’ll still have that money in your pocket.

Ten Pieces of Inspiration #54

Posted: January 7th, 2012, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

Recently, I was working on a project that coupled frugality tips with black and white public domain photographs. In order to find ones for the project, I spent a lot of time digging through The Commons, which is a collection of the world’s public photography archives. Along the way, I found a lot of wonderful pictures of all kinds, so I thought I’d share this week’s “pieces of inspiration” sharing ten of my favorites with you.

1. U.S. Troops Surrounded by Holiday Mail During WWII (c. 1944)
Regardless of how you feel about particular wars, the individual people on the ground are doing something incredibly courageous and quite threatening to their lives. I have a friend currently serving in Afghanistan. He made a very courageous choice to do that and regardless of whether I agree with it, I respect it and hope he makes it home in good shape.

I’d like to believe that every military mailroom looks like this around the holidays when we have soldiers putting their lives at risk.

2. Mailing Letters (c. 1880)
Recently, my six year old has taken strongly to getting the mail for us and putting mail in the mailbox. The mailbox is higher than his head, so he reaches up to pull out items, sight unseen.

One element of this picture that I found interesting is how the mailbox works. The boy appears to be dropping mail in the top of the mailbox, and there’s not a door on the front of it.

3. A Man from the Umingmaktormiut Tribe (1924)
I often feel like this during the worst parts of winter.

The thing that struck me is even though this man is obviously very cold and has been through a pretty intense weather experience, he looks pretty happy about the state of things.

4. World’s Columbian Exposition: Electricity Building, Chicago, United States, 1893.
One of the things I’d love to have been able to see is the 1893 World’s Fair in Chicago where electricity was publicly demonstrated for the first time. Stories say that the electricity building was illuminated by incandescent lights, the only building in the city lit up like that. It stood out like a beacon in the night.

I’ve read several books and seen many photos of this fair. It’s one of those moment I would have loved to have seen.

5. Farmer and sons walking in the face of a dust storm. Cimarron County, Oklahoma (1936)
I’ve never seen the great soil storms of the Dust Bowl captured so starkly before. The reason everything looks so washed out in this picture is because the air itself is just loaded with dry dust, swept off the ground by vicious winds.

This seems like another world.

6. Hotchkiss Field, Halloween (1959)
What I find noteworthy here is that the costumes almost entirely look homemade. They’re refashioned dresses, masks made from plaster at home, costumes that were hand-sewn.

Today, most of the costumes I see were purchased a few days before Halloween at the local department store. Plastic masks of well-marketed characters. There’s just something missing.

7. Two girls standing outside Desnick’s Drug Store, Minneapolis (1946)
There’s just something so Americana about this picture. It’s just two girls standing in front of a pharmacy just after World War II, but there’s something about it that seems to capture the essence of the pastoral America.

I love going to small towns that still have a thriving Main Street. There’s just something wonderful about them.

8. Man surveys his vegetable garden in the Narrabeen flood (1927)
I was a witness to the Mississippi River floods of 1993 and 2008. A flood can do an incredible amount of damage, turning enormous amounts of human endeavor into a soggy mess in an instant. In some ways, a flood is a particularly devastating disaster because there is an incredible amount of cleanup work that needs to happen before you can even begin to rebuild.

There was something incredibly familiar in this man and his child, surveying the damage of the flood in an area where he had personally invested a lot of time and passion.

9. Gold minehead and seven miners, Gulgong (c. 1871-1875)
I have this strange fascination with people who would pick up their lives and dive wholeheartedly into gold rushes in the 19th century.

Their entrepreneurial spirit was amazing, but often they would enter into a beautiful area by the thousands and lay waste to it. It’s a fascinating mix of traits I deeply respect and results that trouble me.

10. Toddler playing with a hose in a garden (c. 1912)
The thing that I love about all of these old photographs is the commonality of human experience.

I can’t tell you the number of times I’ve seen my own children do something like this, only to end in a mess just a few moments later.

Record Every Penny You Spend in a Month (5/365)

Posted: January 6th, 2012, 1:00pm MST by Trent

One of the most generic personal finance suggestions is to “create a budget.” The advice usually revolves around setting aside money from your paycheck for all of your known expenses, then making smarter choices with what’s left over.

Here’s the problem with that suggestion: a lot of people who are in financial trouble have no idea where their money is going from month to month.

I’m speaking both from my own experience and from the mountains of emails I’ve received from readers who are struggling to get control of their own finances. Between impulse buys, credit card purchases, debit card purchases, purchases made with pocket money, and so on, it can be extremely difficult for a person without at least some exposure to personal finance to understand where their money goes.

Without knowing where your money goes, a budget is useless. It’s nothing more than a guess about the reality of your financial situation.

The first step, then, in creating a budget and getting your financial life under control is to understand as completely as you can where every dime of your money is going.

I suggest doing this for a period of at least one month. This allows you to get through one billing cycle on your utilities and your debts. While it does not cover irregular bills (like insurance), it can at least provide the foundation for regular monthly budgets.

So, how do you get started?

What I did is I designated a shoebox in which to collect receipts for every dime I paid out for a given month. If I bought gas, I saved the receipt and put it in the box. If I bought groceries, I did the same. The same goes for all of my silly incidental expenses.

If I paid cash for something and didn’t receive a receipt for it, I would write down that expense on a piece of paper and toss that paper into the box.

My regular bills also went into the box after I paid them. If I paid the bill online, I would write down the bill name and the amount on a piece of scrap paper and toss it into the box, much like my cash expenses.

At the end of the month, I would also take my bank and credit card statements and use those as a basis for comparison to make sure I didn’t miss anything, like an automated payment that I forgot about.

What do you do with all of this information? Simple. You take all of it out and sort it into groups that make sense for you. For example, you might have a group for essential bills (like electricity and rent or your mortgage payment), a group for non-essential bills like Netflix, a group for groceries, a group for eating out, a group for entertainment and hobby expenses, and a group for everything else.

Then, go through each of these groups and total up the receipts in that group.

Once you have those totals, you can spend some time asking yourself whether that spending level needs to stay in place (for example, with essential regular bills) or it can be cut a little bit (as with entertainment expenses or eating out).

What do you have after you’ve done that? A budget. That’s the end result of all of this work: a budget that actually matches how you spend your money and provides realistic guidance for your financial future.

Finding Good Information for Your Situation

Posted: January 6th, 2012, 7:00am MST by Trent

One of the biggest challenges I have when writing articles for The Simple Dollar is finding a balance of usefulness and audience.

What do I mean by that? Well, if I tried to write a personal finance article that would reach out to everyone who read it, it would be completely devoid of content. There’s no personal finance information that’s applicable to everyone in the entire world who might be reading this article.

On the other hand, if I write a personal finance article that’s just about my specific situation in incredible detail, it’s incredibly useful – but only to me. The more I dig into my own specific situation, the less applicable the entire thing becomes to anyone but me.

Instead, what I try to do is find a happy medium. I try to base the article on a few assumptions that I think a significant portion of my readers have and give advice based on those assumptions. Obviously, I can’t match every reader with every article – that’s an impossibility. What I can do is focus on areas that I know from my own life – like personal finance planning for parents, time management, building a career, escaping from debt, handling money issues and relationships, and so on – that match up with the information that others need.

So, how is that idea useful to you?

First of all, in order to find useful personal finance advice – here or anywhere else – you’ve got to discard some of what you read. Some of it is simply not going to be applicable to you because of the assumptions made by the person giving the advice. If you’re a retiree looking for frugality tips and you come across an article outlining ways to save money on a college campus, you’re probably not going to find too much that’s useful in that article. At the same time, for frugal college students, that article is very useful.

So, what can you do? Don’t be afraid to skip an article that doesn’t apply to you. Don’t be afraid to skip specific tips that don’t apply to you, either. Skip them, or better yet, pass them on to someone who might actually find value in that information.

Second, know how to identify what’s useful to you. Read the article – particularly the first paragraph – and ask yourself who exactly the article is being written for. If you’re still unsure, you can get clues from the rest of the website as well as the previous writings of the author of that article.

Also, use more than one source for your information. No writer is going to know everything – and that, most definitely, includes me. Writers are writing from different perspectives, have different sources for their own facts, and have different ideas about what’s important and what isn’t. Sometimes, writers are also flat-out wrong – and that certainly includes me, too.

There is no excuse for not getting multiple sources of input on any topic that you plan on investing your time and money into. Don’t base your retirement planning solely on The Simple Dollar or anything else. Major personal finance choices need to have some time spent understanding those options, and the best way to do that is to read multiple sources of advice on those topics.

Where do you go for this advice? Obviously, I hope that The Simple Dollar is one source, but I also hope that it’s far from the only source. Read other websites. Even better, read some books. Your local library is a giant treasure trove of great personal finance information.

There’s one final tactic, and it’s a big one. Always ask yourself if the person giving you the advice has a conflict of interest. I am very hesitant, for example, to trust advice given to me by a mutual fund company when it comes to buying mutual funds because they have a conflict of interest there. They make money by selling me mutual funds, not necessarily by giving good advice. I’m similarly hesitant to get my information about insurance from an insurance salesman.

You can’t always know whether someone has a conflict of interest when giving you information, but you can protect against it by eliminating the obvious ones and also by using multiple sources of information, as suggested above.

If you follow these tactics, you’re bound to find the information you need for your situation, validated by multiple sources. That’s the kind of rock-solid information upon which you can make personal finance decisions, career decisions, and other life decisions.

Good luck.

Calculate How Much You Really Make (4/365)

Posted: January 5th, 2012, 1:00pm MST by Trent

One of the most painful realizations I had when I started getting my financial life in order was that my job didn’t really earn me as much money as it seemed.

My salary at the time of this realization was about $40,000 a year, so let’s use that as a baseline.

Now, on the surface, that’s really good money. If I worked 40 hours a week for 50 weeks a year, I would be earning $20 an hour, right?

Well, that’s not entirely true.

First of all, we have taxes. Federal income taxes, state income taxes, and FICA taxes. Federal taxes would eat about 11% of my paycheck, state taxes would eat about 4% or so, and FICA would eat about 2%.

Second, I had to pay for my commute. This was about ten miles each way, and it was the primary reason I owned a vehicle. So, let’s tack on top of that a monthly car payment of about $200, about $40 a month in gas, about $30 a month (prorated) in maintenance expenses, and about $40 a month in insurance, just to keep that car on the road.

I also had to wear a nicer wardrobe. I spent $200 a year to make sure I dressed appropriately for meetings, conferences, and the like – and that’s a low-end estimation.

There were at least two meals eaten out a week, costing $10 each. There was travel about three times a year where many of the expenses would be challenged, meaning each of those trips set me back about $100 out of pocket.

Not only that, there were a lot of times where I would put in extra unbilled hours to meet a deadline. I easily averaged 50 hours a week there.

Plus, there’s the time spent traveling – another 50 hours spent places where I didn’t want to be per trip. There’s the time spent commuting – about 40 minutes per day. There were also work-related meals and other activities to attend, eating down another four hours per month.

When you start running the math on this, the equation starts to change.

After receiving my $40,000 salary, I’d pay out $6,400 in taxes each year. I’d pay out $3,720 in commuting costs each year. I’d pay out $200 in wardrobe costs each year. I’d pay out $1,000 in extra meals each year. I’d pay out $300 in extra travel expenses each year.

Suddenly, my $40,000 salary became $28,380, just like that.

Now, I’d work 40 hours a week, totaling 2,000 hours per year, right? On top of that, I’d add ten hours of unbilled work a week (over 50 weeks), three hours of commute a week (over 50 weeks), 150 extra travel hours a year, and 48 extra hours of activities a year. This would bring my total up to 2,848 hours, or an average of 57 hours a week spent devoted to my job.

My job is suddenly paying me less than $10 an hour.

Of course, there were other job benefits that had some significant value, but frankly, I wasn’t actually using them. My wife and I sat down and compared the health insurance offerings at our two jobs and her insurance was far better than my own, so we used her insurance. I had no use for their life insurance option, either, and their retirement plan wasn’t particularly strong. These things do have value when you’re comparing jobs in this way, but only if you’re using them.

Amazingly, I was actually earning more money that I could keep with my part-time job as an undergraduate. I earned $12 an hour. There was no travel costs, no wardrobe costs, no extra activities, no unpaid work (I kept a diligent timesheet), no commute (I worked really close to where I lived). I would be left with more than $10 per hour working at this job.

On a per-hour basis, my part-time job in college was more lucrative than my first “good” job after college. It was also certainly less stressful and far less intrusive on my time.

One of my closest friends at the time made $7.50 an hour working at the night shift at a local gas station right after college. The gas station was just down the block from his apartment, and he’d spend most of his time there reading or practicing his sketching, as he’d have a customer maybe once every fifteen minutes. He didn’t have a car and on the rare occasions where he needed to go somewhere, he would just take the bus for a quarter or two.

It often seemed that he had more money to spare than I did. At the time, I thought it was just an illusion, but when you start running the numbers this way, it’s not entirely surprising, particularly if he was paying lower rent and lower utilities than I was.

It was realizations like this one that convinced me to make a scary career leap and start working on my writing full time. Doing that meant that I no longer had a commute (saving on car maintenance and fuel and time), nor any wardrobe costs, nor any eating out costs. My time spent on work was actually spent on work. There was no more travel – I’ve only been tempted to travel related to it once, and that one time was cancelled due to a family illness.

On the surface, my salary dropped through the floor when I made this move, but when I started running the numbers like this, I began to realize that my hourly income really wasn’t going down that much.

Whenever you’re thinking about your next job or your next career move, you need to think through these kinds of things. Often, a job that looks like it earns you great pay or is a great opportunity really isn’t either, and a job that seems like you won’t be earning much actually leaves you with a lot of money in your pocket. When you take into account things like stress and schedule flexibility, sometimes the “low-end” job is just the job for you, particularly if you’re simply working to earn a paycheck and are focusing your energies on making a side business or another opportunity get off the ground.

Reader Mailbag: Word Processing Middle Ground

Posted: January 5th, 2012, 7:00am MST 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. Mess of debt and taxes
2. Renting out a room
3. Settling on retirement philosophy
4. Long games
5. Hotel disappointment
6. Future state retirement benefits
7. Lacking the “spark” for change
8. Taxes and online work
9. Renting for long road trip
10. Caucus thoughts

When I’m writing, sometimes I write in Microsoft Word and other times I write in a normal text editor. There are things about both that I do not like – Word often interferes too much, and the text editor interferes too little.

I’ve tried lots of writing programs over the years and they all fall on one side or the other of that fine line I’m always looking for. There are some online text editors that are very close, but there are a lot of things I write that I don’t feel good saving online.

One day, I’ll find the perfect program. Until then, I’ll just switch back and forth between the two options I have now, depending on my task.

Q1: Mess of debt and taxes
I’m a 29 year old woman. I was in a relationship for a number of years with someone who was horrible with finances. There are a few issues regarding some financial decisions that I made that will result in my tax bill being quite large. The first thing was, I let my desire to make him happy overshadow my common sense and acquired a large amount of credit card debt in my name. I broke things off and he, of course, left me high and dry to handle the large credit card bills alone. I just didn’t make enough money to pay off all of the debt on my own.

There were quite a few credit cards, so I made the decision to stop making payments to the larger cards and paid off the smaller balance cards one by one. Then I reached settlement agreements with the few larger cards. I’m going to have to pay taxes on the forgiven amount, around $17,500 in total, which is the first item that will affect my tax bill.

The second issue is I bought a house, ugh, if only I could go back. Anyway, I ended up doing a short sale and roughly $10K was forgiven by the lender. Also, I got the $8K tax credit and didn’t live in the house for 3 years, so I believe I will be required to pay that back as well. The last piece of the puzzle was a 401K loan. I took it out for the down payment on the house, because I thought my job was secure (I had worked for the same company for 7 years). Then in October my company decided that they no longer wanted me to work remotely and asked me to move back to San Diego, I live in Milwaukee. I respectfully declined, since the reason I moved was to reduce my living expenses and to be closer to family.

No longer working for the company meant I either had to pay back the 401K loan, which I didn’t have the savings to do after dealing with all of the credit card debt and the expenses associated with keeping my house and property in shape while I was trying to sell it. I transferred my 401K into a Fidelity account, the loan was paid back but I’ll still have to pay taxes on the $13K that I still owed on the loan.

In summary, I have to pay taxes on the $17,500 in credit card debt that was forgiven, the $10K that was forgiven by the mortgage lender, the $8K tax credit and the $13K 401K loan. Obviously, this is not a pretty picture but it’s the last financial hurdle leftover from my previous poor financial choices. I’m planning to hire a tax accountant to help me make sure I get every possible deduction, but I know it’s still going to be a hefty bill. I’m still unemployed, so paying it back won’t really be possible currently but I’m hopeful I’ll get a new job before I file my taxes.

My question is about whether you think I should use the money I rolled over into a Fidelity account to pay off as much of my tax bill as I can. I only have about $13K, so it would wipe out all of my retirement savings and I’d still owe more. Obviously, I won’t use the money in my 401K if I’m still unemployed, but assuming I’m employed and I’m able to get some savings together would you recommend I use my 401K money to pay down my tax bill? Or should I just set up a payment plan and not touch my 401K? I recently began a new relationship with someone who makes much smarter financial decisions, luckily, and I want to take care of my financial issues sooner rather than later so they don’t hinder the progress of our relationship (he’s aware of my pending tax issues and the past poor financial choices I made). I just want to make a smart decision in handling this last issue and would like some advice. What do you think I should do?
- Monica

If I were you, I would set up a payment plan as soon as possible so that you’re not paying anything late. The EFTPS program actually makes this pretty easy. You can get started with EFTPS here.

Believe it or not, even though they have a bad reputation, the IRS is often willing to work with taxpayers if they’re also willing to play ball.

It sounds like you’re trying to make this right and being proactive about it. You’ll be fine.

Q2: Renting out a room
I bought my home 2.5 years ago and have rented a room to a friend for most of that time. I anticipate that my friend/roommate may want her boyfriend to move in with her sometime soon. I’m not opposed to this as it would be another person to split bills with and he is a nice guy. What might be an appropriate way to think about how to charge them? The current deal is $500/m plus 1/2 utilities (up to about $120 per person in winter or summer, more like $60 per person the rest of the year). He would be living with her in the room she’s in now, so not really taking up more space in the house but it doesn’t feel right to have him live there for the same rent that just she pays. On the other hand double the rent to $1000 plus 2/3 of utilities seems overly harsh. What should I consider when trying to find a fair middle ground here?
- Jill

I am always uncomfortable with situations where there’s money and friendship involved, particularly when one person is the lender (you, here, in essence) and another the borrower (your friend, in essence). You always have to tread carefully in these situations.

If I were you, I would not double the rent. Are they going to be using any more real estate than they were using when it was just her? How much more? I’d think about that and raise the rent proportionately, if at all. You may also want to think about property taxes and such – if they’ve gone up a little, a slight bump in rent might be appropriate.

If you do raise the rent, I’d explain exactly why in very clear terms. If you’re clear about why you’re raising it, particularly when there’s now an additional renter in the equation, you should be fine.

As for the utilities, I think equal shares among all of you is fair. All of you are going to be using energy, heating, cooling and so forth. Those bills will go up.

Q3: Settling on retirement philosophy
I am having somewhat of a philosophical crisis with regard to saving for retirement in general as well as the specifics involved with being overseas.

First the general: In reading many of your mailbags, you often praise the tax-advantaged instruments (either tax-deferred or those with reduced or no tax on withdrawal) for retirement savings while at the same time pointing out the inherent problem with trying to guess future tax rates, future income and other conditions which would affect the choice. Also complicated the thought process are the various options for actually investing the retirement money: funds, bank accounts, pension plans incl. annuities etc. I was feeling confident with my choice but I feel like the fees are too high to justify the continued investment in front-load mutual funds, not to mention the fact that active funds rarely beat the market. Finding ETFs for retirement funding is next to impossible here. Maybe the correct path would be retirement insurance/pension plan, but they may be too conservative.

The path I am on now is investing in a fund-based “Riester-Rente”, which to summarize is a grant-aided annuity plan. The grant essentially acts as an alternate tax deferment mechanism, but is otherwise similar to a traditional IRA in most respects. The major problem, though, is that if one is not taxed in Germany during retirement, any grants and additional tax deductions provided must be paid back. Since I can’t even guarantee that my family will be in Germany much longer than another 5 years or so (gotta go where the work is ;-) ), I cannot see investing 30 years into a tax deferred instrument only to lose that significant advantage in the end. The other issue is that the invested capital is simply lost if I were to die after retirement, similar to many annuities in the US.

I think, in the end, the major problem is information. I try to approach things empirically and I think this may not be an empirical question, but rather an emotional question about motivation. I am just unsure of the correct way to go. What is the correct general philosophy when planning for the future?
- Carl

I agree with you that the major problem is information, both in the sense that we have imperfect information concerning the world around us and no information concerning what unexpected events will happen in the future.

For my own retirement, I’m hedging my bets. I have money both in pre-tax investments (401(k)s and the like) and post-tax investments (Roth IRAs).

We don’t know what the future holds, so I think that diversity is the best option. If you have retirement money in both pre- and post-tax investments, you’re doing the right thing, in my opinion.

Q4: Long games
Over Christmas break, one of my brothers brought home a board game called Twilight Imperium. We usually play a few games of Risk over break, but he told us that Twilight Imperium was way better. And he was right. It was awesome.

The only thing is that the games took about six or seven hours to play. Most of the time, I don’t have that much time to put aside for a game like that.

Have you played Twilight Imperium or any other game that long? How do you find time for it?
- Luke

I’m in a weekly gaming group that meets at the house of a close friend of mine. He has a spare table in one room of his home that he allows us to leave games on during idle weeks.

Thus, if we were to meet at 6:30 or 7 (which is our usual meeting time) and play Twilight Imperium (for example) for four hours, we could just leave the game on the table and return to it next week, finishing it up.

You could do this in your own home if you have an extra table to spare for a while. Set up a game, play it for a while, and leave it. Once upon a time, my roommate and I would do this with a chess board, leaving an ongoing game in the living room all the time and making moves after giving them sufficient thought.

Q5: Hotel disappointment
The recent new years eve my wife and I went to Disney World at the request of our son. I searched out a room online based on price, location, and reviews. When we got there the room turned out to be less than we had hoped for but served the purpose. We definitely would not recommend it to any of our friends. If we go again I will probably spend the $ and stay at one of Disney’s “value” resorts unless you or your readers have a better suggestion?
- Andrew

Any time you stay in a hotel without having actually visited it first, you’re taking your chances. A hotel might be beautiful in January, be sold in February, and be sort of run down by May if the new owners aren’t committed to it.

I generally give lower value to hotel reviews that are older than about three to six months. There is ownership turnover, staff turnover, and countless other things that can change a hotel’s standards and conditions in that timeframe.

How do you protect yourself against it? We usually chase price, but there have been times where we’ve either just refused to stay at a place or deeply regretted it.

Q6: Future state retirement benefits
I’m vested in the Florida Retirement System (FRS) for government employees. I no longer live in Florida, and am not contributing to the system or earning additional benefits.

I’m entitled to a small monthly pension. I intended to wait until age 62 before collecting it. At my current age (57), I could claim early retirement and receive a reduced pension. (The benefit amount is reduced 5% for each year my age at retirement is under normal retirement age, which is 62. Retiring at age 57 would reduce the benefit by 25% [5% multiplied by 5 years].)

I’m self-employed and don’t need the money for current living expenses. I’m in good health. However, FRS is not completely funded, and its website warns that the legislature may reduce future benefits.

I’ve asked friends in Florida (FRS retirees) whether they think this is likely to happen. One says she doesn’t believe so; the other urged me to file for retirement benefits now to lock them in. I’ve done some searching online but don’t have a good sense of the political climate in Florida.
- Marjorie

If I were you, I’d ask about the statements on that website in more detail. Their phrasing makes it unclear whether or not they would just deny new beneficiaries or they would cut benefits from applicants or both. I would clarify the possibilities of what they could do and then make a decision based on that.

One thing I’ve learned about government is that, if they think they can get away with it and be re-elected, they’ll tap any source of money they can find for their pork projects. I have found it best to never rely on something that is promised to me as a benefit by the government. If I get that benefit, great – it’s a wonderful perk. I plan as though it’s not happening, though.

You’re lucky enough to be in a situation where it won’t break you one way or another, but an awful lot of people aren’t that lucky. My advice is that if you’re older and reliant on such government services, live lean and get yourself in a situation so that you’re as independent from the money as you can be through savings. If you’re younger, fund your retirement.

Q7: Lacking the “spark” for change
I enjoyed your article this week on the motivation to improve one’s situation. In the article, you take the perspective of an individual who is attempting to help or motivate a third party. My question comes at this issue from the point of view of the individual being motivated.

Personally, I feel that I lack the ‘spark’ that you speak of, to instigate lasting change and yet there are changes that I wish to make in my life. I am seeking that spark.

How would you recommend capturing this energy for someone that does not come by it naturally, but wants to make changes?
- Nate

I think there’s a difference between something you’d really like to do and something that’s a life-changing situation.

I struggle with this myself. There are a lot of things that I’d love to be able to do with my life, but when the rubber hits the road, I can see clear separation between the goals that are just ones I’d like to do and the ones that I feel are really central to my life.

The ones that are life-changing don’t come along nearly as often as the others. I usually find that they burst into my life when I finally hit some sort of “bottom” related to that thing, where life grabs me by the chest and demands that I make a change.

Keep doing things and living life. Eventually, the important things will reveal themselves.

Q8: Taxes and online work
I’m trying to pay off my credit card debt and save a large chunk of money this year. I feel like I’ve cut all I realistically can at this point, so I’ve been searching online for ways to make extra money – even an extra $100-200 per month would help out immensely. I’ve come across options like MTurk and usability testing like usertesting.com which seem like they can provide the possibility for some additional income. My question is not around these two examples specifically, but online endeavors like this in general in relation to taxes. Most places put the burden on you to file your taxes, and I’m wondering if you think there is a specific threshold where it actually makes sense to invest the time into these things to make the extra money, or if the tax part of it is not worth the potential of a few extra bucks?
- Jeff

The tax part of it is pretty simple, especially if you use something like TurboTax. You usually enter one line on one form, your total taxes go up by some percentage of what you earned from the endeavor, and you either get a bit smaller refund or have to pay in a bit more.

The challenge with endeavors like MTurk is to recognize that you’re going to – at best – earn minimum wage for the time you invest. The advantage is that you can do it irregularly. You can do it during commercial breaks or when you have insomnia or when you’re using the restroom.

In some situations, I think things like MTurk can be a real help to people who need some extra income very quickly.

Q9: Renting for long road trip
Trent, just read a piece you wrote about renting a car for a long road trip a couple of years back. I liked the math, but how did you convince a rental car company to let you make that long trip? I am planning a trip from Missouri to Florida, where the car will set in a lot for a week while we take a cruise.
- Andy

It was fairly expensive, but the advantage was that it enabled us to take only one vehicle on the trip, whereas without the rental we would have had to take two vehicles. Once we did the math on the gas, maintenance, and wear on two cars, the single rental became the better option.

There really wasn’t much convincing with regards to the long-distance drive and the rental agency. They said “sure” and tacked on another fee.

In your situation, I would run the numbers and see if a flight wouldn’t be a comparable option. In our situation, we had a group of seven uf us traveling from Iowa to Texas, so flights from Des Moines to Dallas for seven would have been cost prohibitive. For two or even three people, the equation may be different.

Q10: Caucus thoughts
You’ve mentioned a few times that you attend the caucuses in Iowa. What is that experience even like? I know that the candidates campaign in Iowa for a long time before the caucus. What are your thoughts on that whole process?
- Will

It depends on whether you’re attending a Republican caucus or a Democratic caucus in Iowa. I’ve attended both.

With a Republican caucus, it’s pretty straightforward. All of the attendees sit in the same room. They announce the candidates, then volunteers are able to speak for five minutes on behalf of each candidate. After that, there’s just a ballot vote, followed by a very open counting of the ballots.

With a Democratic caucus, things are different – and much more entertaining. At a Democratic event, there are no chairs. Instead, everyone stands around while a representative from each candidate gets to speak for a few minutes. After that, you simply go stand beside the representative of your preferred candidate. Then, they dissolve all groups that have less than 15% of the people in the room and those people have to pick another candidate. During this process, there’s usually a lot of politicking and pleading and the room can get quite loud.

The process is really fun, though it does usually feel like the culmination of several months of craziness. If you’re registered for a party that is having a contested caucus, you’re absolutely inundated with political mailers, robo-calls, push polls, and other such things. That’s been our experience, anyway.

Spend Less Than You Earn (3/365)

Posted: January 4th, 2012, 1:00pm MST by Trent

If there is a single mantra of The Simple Dollar, it’s this one.

Spend less than you earn.

There’s a reason that it’s my first rule of personal finance.

If you can spend less than you earn consistently over various time frames (less this week, less this month, less this year all at the same time), you’re going to be in great financial shape.

Spend less…
It all starts with spending. Do you have your spending under control?

Spending less than you earn means one thing above all else: being in control of yourself.

Are you able to control yourself when there’s a temptation in front of you? Are you able to control yourself when a friend begs you to go out shopping and spending money you don’t really have? Are you able to control your desire to go on an expensive trip when you don’t have your financial house in order? Are you able to control your feelings of want when you see that nice shiny new car at the dealership with all of those great features?

Most importantly, are you able to control these feelings consistently? Can you do it over and over and over again?

Spending less is about self-control, nothing more, nothing less.

Of course, that’s not to say there aren’t tactics that can’t help you down that path.

Start by channeling your excess money into a small emergency fund. Set a goal of having $1,000 in your savings account and get there as fast as you can. Move money from your checking account into your savings with each and every good decision you make. That emergency fund will be there for you when things like a car breakdown or a job loss happens.

After that, get rid of the credit cards. Cutting them up is a pretty good first step to help ensure self-control. Make minimum payments on all of your debts, then try to make a double or triple payment on the debt that has the highest interest rate. Repeat that, month after month, and you’ll see your debts shrinking instead of growing.

If you can achieve those two steps, you’re going to be well on your way down the path to financial success. You will be debt free and be making far more than you bring in per month. Saving for retirement will be easy, as will saving for a house down payment.

Of course, there is another side to all of this.

… than you earn
When people hear the phrase “spend less than you earn,” the focus is almost always on the “reduce spending” side of the equation.

Equally important is the “increase earning” side of the equation. If you make more money and leave your spending unchanged, you’ll immediately move from living paycheck to paycheck to spending less than you earn. If you are struggling financially and can’t seem to find a way to get a grip on your situation, the best move is to find a burst of short-term income.

One easy first step is to clean out your closet and sell off the unwanted stuff. Sell your unwanted DVDs and Blurays on eBay. Have a giant yard sale. Take all of your still-in-good-shape clothes to a local consignment shop. Get rid of all of those old collections that you no longer look at. This will generate some short term cash that you can quickly apply to an emergency fund or to your highest interest debt, as described above.

Another step is to earn a bit of extra money when you’re idle. If you’re sitting on the couch watching television, fire up a computer and do things like Mechanical Turk to earn a few dollars. Put that money straight toward your debts. You can also try something more ambitious, like starting a small side business or even working a part-time job. Apply all of that money toward improving your financial situation.

The thing to remember is that self-control is the factor that underlines all of this. For any of this to work, you have to be willing to sometimes say no to temptations and to let go to some of the non-essential luxuries. If you’re not willing to do that, then you’re not going to turn your financial life around.

Spend less than you earn. It’s so hard, yet so simple.

The Simple Dollar Weekly Roundup: Freedom Edition

Posted: January 4th, 2012, 7:00am MST by Trent

A few days ago, a technical problem with The Simple Dollar cropped up involving the front page not refreshing for some users of the site. A reader emailed me about it.

A few months ago, I would have then spent several hours reading documentation and trying to figure out what was wrong. There would have been a decent chance that I would have broken the site in the process. I would have been stressed out, lost the chance to write multiple posts, and walked away wishing I could be doing something else with my time.

Now? I shot an email to my technical contact at Cut Media. They did some stuff. It seems to have been fixed. It took me about two minutes, without stress about breaking the site or anything else.

This is why I made the choice that I did to join forces with Cut Media. They’re good at handling the things that I’m bad at and don’t enjoy. I might not have the financial options I had before, but I have a lot more freedom and a lot less stress.

Terry Gilliam on Ideas, Unlearning, and Avoiding Debt Terry Gilliam is a former member of the Monty Python comedy troupe (he usually did the animation work) and moved on to directing films. I really enjoyed this interview from him about finances and creative careers. (@ the 99 percent)

I’m Investing 100% of my 2012 Income One member of this couple is investing her entire 2012 salary into building a small business with multiple employees. That’s a pretty strong move. (@ afford anything)

College Kids Need Skills, Not Good Grades The problem, of course, is finding ways to evaluate skill sets. Theoretically, that’s what classes are supposed to do, but my experience has been that many of the “A” students in classes aren’t the ones I would want as employees. (@ thousandaire)

The chance of a lifetime The current economic conditions aren’t bad. They’re the chance of a lifetime. (@ seth godin)

Realize That You’re Not Alone on This Journey (2/365)

Posted: January 3rd, 2012, 1:00pm MST by Trent

When I first reached my financial bottom, I felt desperately alone. I wrote about the pain of that financial bottom a while ago:

In short, even though my mind kept searching for a way out, another saving grace, part of me began to realize that there was no way out this time. I began to feel completely sick to my stomach and disgusted with myself, so I walked back home. My wife was there on the couch, flipping through a magazine, and my son was in his room taking a nap.

I 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 laying there, less than six months old, and he was sleeping so peacefully there without a worry in the world.

At first, I envied him. I wanted so badly to be in a situation without responsibility, to have my life in a place where I could just lie there in innocent sleep, without a worry troubling me.

But as I watched him lay there, gently breathing, another set of emotions began to take over. Guilt. Shame. Embarrassment. Pain. I was failing this wonderful little boy, this child who had already brought incalculable joy into my life. He looked to me and relied on me for everything, and because of my poor decision making and my selfishness, I was throwing it all away.

I closed my eyes and imagined the future I wanted for him, and then watched it dissolve into the future that he would have if I didn’t change things immediately. And I cried, almost uncontrollably.

I had my son that I loved so much. I had my wife, too. In the end, though, I felt alone. I felt like I had let everyone down because of my own inability to handle my money. I alone knew how bad the financial situation really was, and I alone knew that it was largely my own fault.

The thing was, I wasn’t alone. I’ve never really been alone.

For one, there’s God. I’m not going to enter into a debate about what that means, whether it’s really a spiritual force or just my subconscious talking, but I know that when I spend time meditating and praying, I find answers to the questions I seek, or at least directions to those answers. There’s something there, something I have always been able to rely on, and whether it’s a deity or my subconscious or something else, it’s a real thing that has consistently been able to guide me.

My wife, Sarah, has been by my side as either my steady girlfriend, my fiancee, or my wife for the last sixteen years. I can talk to her about anything going on in my life and get a sensible, steady, reliable answer.

I have three children that bury me in hugs every time they see me. Their good cheer is a constant mood lifter and their requests for help make me realize that I am of value to the people around me.

My parents have been around since the day I was born. Both of them have offered me help in almost every way I could ask for throughout my life.

My extended family is constantly supportive and willing to offer advice and assistance to me whenever I ask.

I have a circle of friends who provide constant good humor, companionship, and help, no matter what I’m going through in life.

I participate in several online communities, full of people who are always willing to share advice and encouragement.

I am not alone on this journey – or any other journey that I have in my life.

You are not alone, either. Your sources of strength may be very different than mine, but you are never alone unless you willfully choose to be. There are always people who are concerned about you and want to help you. There are always people who will step up to the plate alongside you and walk with you on any journey that you may take.

Often, all you have to do is ask, and that’s often the hardest part.

The one thing to keep in mind is this: almost everyone respects and wants to help someone who is trying to make a positive change in their life, particularly when they already care about that person. If someone in your life doesn’t do that, then that means they only valued you for the negative trait you’re leaving behind, and that’s not a good foundation for a relationship.

You are not alone.

Avoiding Lifestyle Inflation

Posted: January 3rd, 2012, 7:00am MST by Trent

I can still remember how it felt to get my first real paycheck at my first real job after college. It came in the mail, and I stood by the mailbox at my old apartment building ripping open the envelope as soon as I realized what it was and holding that check in my hand. It was more money than I had ever seen at once in my life.

I splurged with it – and with the next check, too. I felt like I was celebrating actually becoming an adult with a real job and a real career path.

Before long, though, I had established a pattern of normalcy that involved spending quite a bit of money. The ramen noodles I had eaten in college were no longer good enough for me. Eating the $3 special at the Chinese restaurant near where I lived no longer satisfied my desires. Used video games from three years ago were quickly replaced by the newest releases. My old shirts, accumulated over the years of college, quickly vanished and were replaced by crisp new clothes.

I was making good money. I had to live like it, right?

I established a pattern of spending enough so that I was living paycheck to paycheck. I was buying far more stuff than I actually needed, but it was all necessary for the standard of living that I had adopted.

Then my student loans went off of forbearance.

Then I needed to buy a vehicle and car payments began.

Then my wife and I had a first child and the costs of diapers, formula, and child care began.

The problem was that my lifestyle had inflated beyond what my paycheck left me with after these expenses, and it led us almost into disaster.

It was a long and difficult path to recovery from this situation, but I know now that it would have been far better off had I never allowed my lifestyle to inflate in the first place.

Over the past several years, we trimmed our lifestyle down so much that there has often been temptation to enjoy some degree of lifestyle inflation once again. For the most part, we’ve avoided that temptation. Here’s how we’ve done it.

We’re conscious of lifestyle inflation. It’s a phenomenon we’re aware of and one that we talk about regularly. We watch for examples of where our regular spending has gone up and we talk those examples to death, usually finding that we’re better off keeping our spending low.

We stick with the things we enjoy. If we have fun going on a family walk in the park, why do we need to suddenly be taking our kids to FunLand and drop $20 or buy them a bunch of stuff to play with at home? If we enjoy our home-cooked meals around the dinner table made with simple and tasty ingredients, why do we need to start going out all the time and dropping $50 per meal? If we love playing an old familiar board game with our friends after a potluck dinner, why do we need to add expensive options to our social schedule? If the eight year old car we bought off of Craigslist serves our needs quite well, why buy a new one?

We splurge with enjoyable activities, not things. I mean this with all seriousness: my biggest splurge nowadays is a free uninterrupted hour or two of reading or playing a game. If I find that my daily tasks are done and I have an hour to crack open a novel or play a game of League of Legends or something, I really feel like it’s a splurge. Time is truly the valuable commodity in my life.

Beyond that, when we do open up our wallets, it’s usually for a special activity, usually our summer vacation. I enjoy going to Gencon each summer, my wife often visits her family in Seattle, and we usually take a family trip, too. Those are our biggest annual splurges.

We keep a lot of options on the table. One thing I’ve found is that once you start inflating your lifestyle, you stop really looking at certain options. Usually, free and inexpensive things are immediately off the table because, after all, you’re above that, right?

When we’re looking for something to do, we don’t start with movie listings or expensive events. We look at things like our local community calendar or the parks and recreation schedule. We look around our house at the multitude of things to do at home, from board games and art projects to books and home improvement tasks. There are more cheap and free things to do than we ever have time to get done, so why spend a lot of money on expensive things?

We maintain friendships with people who have similar values. Our closest friends have (more or less) the same values on lifestyle inflation that we do. All of us make a solid income, but our social events together are usually potluck dinners with board games afterward.

Most of the rest of our social circle consists of people that we’ve come to know thanks to free activities through our local parks and recreation department, mostly parents of children of similar age as our own.

We also live in a neighborhood where most of the people seem to have roughly the same standard of living that we do. Yeah, a few people have nice cars, but of the families nearest us, I can quickly see a pair of used vans and an ancient compact car. None of the houses are particularly nicer than ours, either.

Simply put, we don’t have the social pressure to engage in lifestyle inflation, and we’re happy to keep it that way.

A lot of our income is automatically transferred away before it reaches our hands. We pay almost all of our bills automatically. Beyond that, we also transfer away money for each child’s college savings plan, savings accounts for many of our future goals, and accounts for irregular bills like property taxes. We simply don’t leave behind enough for us to inflate our lifestyles very much.

Avoid lifestyle inflation. You’ll be happy you did.

Take Little Steps, Not Big Ones (1/365)

Posted: January 2nd, 2012, 1:00pm MST by Trent

The little boy you see in the picture above is my youngest son. He just learned to walk a few months ago, and all of his steps are little steps.

It takes him a lot of time to accomplish many things you or I would consider simple. He often takes a whole minute to crawl up a single flight of stairs. Holding his hand and walking somewhere means I’m going to be taking three or four times longer, just because he’s taking little steps.

Even given the slowness, there’s still a very valuable thing with those little steps. That little one year old boy has learned that if you take your steps too fast and too big, you fall right on your face.

Most of the time, his steps are small and reserved, but he knows that he’ll eventually get to his destination.

Every once in a while, though, he’ll get excited and start taking big steps. He’ll run across the floor, trip over his own feet, and fall flat on his face. He’ll then emit an ear-splitting yowl and Mom or Dad will come running to the rescue. He doesn’t make it to his destination and, even worse, his nose (or his chin or his elbow or his knee) now hurts like the Dickens.

Here’s the thing: when we’re trying out a new behavior that isn’t familiar to us, we’re all like that little boy. The movements we need to make to reach our destination aren’t ones that we’re familiar with.

Just like that boy, we see a big shiny thing off in the distance and we can’t wait to get there. For him, it might be a big beach ball (we have one that he plays with all the time). For us, it might be debt freedom, some level of financial security, a thin waistline, a promotion, or any number of other things.

But just like that boy, we’re not naturally familiar with the steps it takes to get there. If we’re in debt, that means that frugality and money management aren’t natural moves for us. If we’re overweight, that means that a healthy diet and adequate exercise aren’t part of our normal routine.

Also just like that little boy, if we try to run using those unfamiliar steps, we’re going to fall right on our faces. Our hyper-aggressive focus on frugality will cause us to bounce back with giant spending splurges. Our super-strict diet will result in an entire pork roast for supper with a whole Sara Lee poundcake as a chaser (okay, maybe a bit of an exaggeration there, but you get the idea).

One step at a time. One continuous, lasting change at a time.

Don’t jump into ultra-frugality. Instead, look for some ways to change your spending that don’t alter your daily routines (like air-sealing your home) and focus on making one significant permanent change to your behavior that saves you money (like unhooking that cable box for good).

The same goes for health changes. Make some changes that don’t alter your daily behavior (like getting rid of unhealthy snacks at home) and make one significant permanent change to your behavior (like giving up fast food).

You can repeat this same exact phenomenon for any change you’re trying to make in your life. Little steps will always get you there. Big steps often leave you in a worse pickle than where you started.

Reader Mailbag: Backdating

Posted: January 2nd, 2012, 7:00am MST 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 in light of default
2. Debt eradication
3. Loans or emergency fund?
4. Repetitive questions
5. What’s next on my path?
6. Time for a financial advisor?
7. Polite hygiene advice
8. Wedding and financial planning
9. What are readers like?
10. 2012 predictions

How long does it take for you to stop dating checks and other documents with the previous year after the calendar flips?

I’ll admit that it will probably take me most of January to get used to writing 2012.

Q1: Investing in light of default
I have a small IRA, with half in a mutual fund, which has topped out, and the other half in two stocks which are near to bottoming out, from a lag factor associated with recession and reinvestment.

I anticipate a currency devaluation as an effect of renegotiation or default on national debt limits. Would overseas money markets be a safe place to stash funds from the sale of the mutual while I wait for it to drop so I can repurchase it? If you believe that our debt problems will negatively impact overseas money markets, what is an alternate spot, exclusive of index funds, which will drop as the market does?
- Monica

I don’t think I would trust overseas money markets more than domestic ones, as I think a lot of economies are facing some sort of currency devaluation due to the ongoing economic conditions.

I also wouldn’t bank my entire plan on market timing, particularly when you’re making moves based on a sense of a fund having “topped out” or “bottoming out.” If I were you and I moved forward with this plan, I’d set some thresholds on when to buy back in. For example, you might want to say that you’ll buy back in after three months if either the value of the fund is down, say, 15% or it matches the value you sold it at.

Don’t worry about what the absolute top of the market is or what the bottom is – worry about making money for yourself.

Q2: Debt eradication
I’m a 22-year old student who will graduate with a B.A. in December. I took out some federal and private loans to pay for school. I saved for the past year and paid off the private loans while in school. I’ll be left with $16,000 at 6.8% when I graduate. I have no other debt and a 3-month emergency fund ($6,000). I plan to make payments well over the minimum to pay this balance off in 2 years or less.

Is this a good thing? The more I research credit and credit scores, it seems that a relatively low-balance loan isn’t a bad thing to keep around for ten, even fifteen years. However, having a positive net worth is my #1 priority. Should I be making aggressive payments or simply using that money to pad my retirement and savings while keeping the loan around? While paying the loan aggressively I’ll still be contributing 15% of my net income to an IRA. I have one credit card with a $500 limit; never carried a balance. I pay bills on time every month. I currently rent. A house isn’t on my to-do list, and I’ll buy a car outright if I get one in the future. Is it enough to build my credit without a credit card balance, mortgage, car payment, and (soon) no student loan?
- Belinda

I don’t think the value of having a 6.8% student loan (in terms of your credit score) is worth the financial cost of having to pay 6.8% interest on the balance every year. If it’s within your means without causing other financial troubles, I would pay it off sooner rather than later.

Given that you do have a continuing line of credit in the form of your credit card, your credit report won’t go completely empty after you pay off the student loan. I would consider using the card regularly (and paying off the balance) and being open to moderate raises in your credit limit.

You’re doing very well. Keep along your current path and you’ll continue to do very well.

Q3: Loans or emergency fund?
I’ll graduate from grad school this May with $25,500 in federal subsidized loans (spouse and I also still have $27k combined undergrad debt at 5.3%). I haven’t technically needed these loans for the last year of school but because they’re subsidized I’ve been storing the money in a rewards checking account earning about 3%. It will be around 12,000 total in November when the subsidization ends and 6.8% interest kicks in. This is the extent of our short-term savings/emergency fund right now (my spouse and I are also saving for retirement). So, since we are looking to save for life’s big things in the next few years (car, family, and house, probably in that order), and we don’t have a defined emergency fund amount, I wonder how much of that 12k should we pay back immediately? We’re currently steadily employed though I’m seeking new full-time work in my desired field instead of my current part-time job. We have roughly $1000 extra/month to put to good use on student loan repayment and savings (we’re a pretty frugal couple), but I’m not sure what the best combination would be. We have to pay minimum $400/mo on our student loans. Is it best to pay more on student loans and postpone more emergency/car/baby/home savings? Is it best to pay back the entire $12k “savings” (which is really borrowed money) and start our “real” savings from scratch? I’m lost and confused and would be interested in your and your readers’ opinions.
- Danika

If I were you, I would establish a new emergency fund and fund it with enough money to provide three months or so of living expenses for you and your partner. I would then use the remainder to pay off your highest loan and then use the subsequent $1,000 per month toward minimum payments and whatever loan has the highest interest rate.

I would count that 6.8% loan as already having that rate and make “payments” on that debt to a savings account. Then, when the subsidization ends, I’d pay the entire balance of that savings account to that 6.8% loan.

In terms of balancing emergency protection and a path toward debt freedom, I think this is a very good plan.

Q4: Repetitive questions
I’ve noticed that there are a lot of consistent shall we say themes in your reader mailbag questions. Student loans come up a lot for example and so does retirement. Why repeat so much?
- Shaun

The reason these stories show up so often is because they’re the type of concerns that cause people to really start thinking about their finances and because they are so common among people. A lot of people leave college with student loans and they worry about paying them off.

I use a lot of these types of questions because there are a lot of variations in the story and because it’s a genuine concern that a lot of people out there have.

I try to choose questions that reflect the whole of the questions that I receive. I do often pick out specific interesting ones, but I also see from my email inbox that I get a LOT of questions about student loans, so I cover those questions.

Q5: What’s next on my path?
I’m now fortunate to be in a position where I’m (finally) earning a great wage at a company I have no intention of leaving anytime soon, living in a city (NYC) that I love, and living well below my means.

It’s been drilled into me for years that paying off your credit card(s) and building a healthy emergency fund are the first foundation steps to a healthy financial life. I’ve accomplished both (finally!), and have $0 credit card debt (only one credit card), and $11,000 in savings. I still have outstanding student loans, which I’m paying back and contributing more than the minimum on each month – these are at a very low interest rate, and the total repayment each month comes to $350. Paying off one would save me about half of that amount as the payments are pretty much equal between the loans.

I’m also putting $12,000/year into a 401(k), and am planning on continuing to contribute $1,000/mo into my savings account for the next 9 months – until it reaches $20,000. Since I live in NYC, I plan on renting for quite a few more years and I’m planning ahead for when I’ll want to move (moving into a new apartment here typically costs $4-5,000 upfront in costs for my price range – first month’s rent, last month’s rent, possibly a broker’s fee and a security deposit). 6 months of my bills (if I were laid off) comes to about $15,000, and that’s my emergency fund savings goal since I don’t have close family in the area and wouldn’t want to have to move due to prolonged unemployment. The $20,000 goal for this year assumes that I’ll want to move within the next year, which is a possibility (but not set in stone).

I’m not in a hurry to change my plans right now as I still have a bit of time left to contribute to my savings account, but I’d like to have some solid steps in place when I get there.

So – what comes next? It seems like after the savings account, credit card and retirement account are all healthy (or being contributed to healthily), that any number of options open up. I don’t get an employer match on my 401(k), so it’s 100% my own money in there, and I’d like to max it out for a few years, due to not being able to contribute anything in my younger 20′s (4 years of working w/o the spare $$ to contribute). But, I’ll still have a good amount of money that I’m now putting into savings left over after maxing out my 401(k), and I want to make sure I’m investing it wisely, if that’s even the right first step after this.

Are there any recommended steps after this point, or does it depend on the individual and their goals?
- Jill

It really comes down to goal-setting more than anything else.

Simply put, there is no general right way to invest. There are only good ways to invest to help you reach a specific goal. If you don’t know what you’re saving for, you’re probably going to save in an inopportune manner.

Let’s say, for example, that you decide to start investing in stocks because you heard they have a great return, not because you had any goals in mind. Let’s say you make this decision in January 2008. In December 2008, you decide to buy a house because you got pregnant and you decided you needed a house for that child. Your money has now lost 40% of its value.

You would have been far better off in a savings account had you incorporated the idea of buying a house in the next one or two years into your plan.

Spend some time thinking about where you want your life to be in five years or ten years. Where are you headed? Your investment choices should really follow that.

Jill also had a follow-up question.

Q6: Time for a financial advisor?
At what point does a financial advisor become wise? I’ve never had the need of one before, but is there a certain point that someone should start thinking about consulting with one, if only to make sure they’re on the right track and not missing anything they should be doing?
- Jill

I’m of the belief that given all of the amazing tools available to individuals online, most people don’t need a financial advisor. You would have to have a lot of money in the bank in order for the benefits that an advisor can provide to make up for the amount you’d be paying this person for advice.

For most people, particularly those without a ton of money in the bank, doing it yourself is a much better option.

What’s the dividing line? I think some of it comes down to your gut, but if you’ve got enough money that a percent or two of it is a significant amount of money itself, that’s when I’d get an advisor.

Q7: Polite hygiene advice
How do I politely tell a coworker that they have really bad breath? It’s bad enough that it’s distracting in the workplace. I don’t know how to properly approach it.
- Anna

Unless the relationship with that person is poisonous, I’d quietly bring it up with that person directly. There’s a very good chance that the person does not know this and the vast majority of the time that person will be very glad to have that advice as it helps their career chances.

If you have a bad relationship with this person, then you might want to consider going to their supervisor. I wouldn’t register it as a complaint, but instead encourage that supervisor to have a chat with the employee about it.

The purpose of all of this is to improve the office environment on the whole. Candor without negativity or snark is almost always a good way to go.

Q8: Wedding and financial planning
I am 28 and currently in the process of saving for a house with my fiance who is 25. We both currently work at the same company where I am a full time employee, and he started this year as an intern working 30 hours a week. We are looking to buy a house next year after we come up with the necessary 20% down payment for up to a $200k house. So our goal is to have $40k + closing costs saved by early next year.

When it comes time to purchase, unfortunately the mortgage will be in my name alone since he has bad credit; whereas mine should be immaculate by the time next year rolls around. I have no debt, and pay off my credit card balance every month. He has about $5.2k in subsidized student loans that are currently in deferment until he graduates at the end of 2012. All his other delinquent accounts have been more or less settled.

Right now we have $11k saved in our emergency fund and have $9.7k in the down payment fund. I’ve set the ambitious, but attainable goal to set aside at least $2.5k a month. We would be projected to have saved just about $30k by the end of the year. My mother has offered to additionally gift me $10k which I can use as my “new” emergency fund if I have to dip into my current one.

I earn just under $50k a year, and he is set to make $25-$27k depending on if he works the full 30 hours a week. So our net income is about $4.5k-$5k a month depending how many business days there are in a month. My company matches 75% of my 401k contribution up to 7% of my annual salary which I am currently taking full advantage of, but since he’s not a full time employee, he does not get the same benefit.

Right now all his income (lesser $200/month into another account that will be for when the student loan comes due) goes straight into the down payment fund, and we live off about half of my gross salary. We have a few things in the pipeline that would be advantageous for us to have a house by first quarter of next year. Our wedding is slated for the end of May 2012, and our goal is to have the wedding reception at home with just family and a few friends. This would be about 30 people at most, and the total wedding costing less than $2000 (I hope).

Should I set up a Roth IRA for him and myself now? I had planned on waiting until we purchased the house. But the best contribution for retirement is time, right? Starting a Roth IRA would set back the time frame of when we would purchase our house.

We likely will have additional expenses such as furnishing and/or appliances for the house. Should I use my emergency fund to buy appliances? Should I save for longer, so that when we close, we can pay for furnishings in full? Or should I live using our existing, aged pieces until we save up enough to buy those new furnishings later? My mattress is over 10 years old and is due for replacing.
- Jean

You’re currently contributing about 12% of your salary to your 401(k) including match, which is a very good number given your age. I don’t think you need additional retirement savings when you have other such pressing financial goals. It might be worthwhile for your husband to have one, which could just be routed from the money he’s contributing to the down payment fund. $500 a month would get him past the annual Roth cap. Given his salary, I would probably shoot for about $200 a month, giving him about 10% of his salary toward retirement.

When we bought a house, we used a lot of the furnishings we had at our apartment at first. Supplement that with whatever low-end furniture you need to fill out, then slowly begin replacing it as you need to. This is exactly what we did and we were quite happy about it.

If your mattress needs replacing, replace it, particularly if it’s interfering with your sleep in any way.

Q9: What are readers like?
Do you ever get visual images of your readers or add in more details in your mind than what they give you in their emails?
- Connie

I imagine details about readers all the time.

I usually do that so that I can see them as a person rather than as a dry question. I try to imagine the best picture I can of the person asking the question so that I want to help them.

Sometimes, that can backfire because I’ll put more positive details with the person than there really should be. Most of the time, though, I find that if you make an effort to look at a person’s best side, they’ll step up the plate.

Q10: 2012 predictions
What do you think 2012 holds in store for our world? Got any big 2012 predictions?
- Kenny

I think Barack Obama will win re-election, not because he’s done a stellar job, but because he’s done a “good enough” job compared to what the competition is. I think we will see a significant third party impact in this election, too, because the Republican party’s coalition of social conservatives and fiscal conservatives is becoming more and more frayed.

I think the American economy will show continued signs of rebounding and will look comparatively stronger (economically) than Europe throughout the year.

I think that December 21, 2012 will pass without any significance other than perhaps a few reactionary people overreacting to a quirk in the Mayan calendar.

Review: Confessions of a Public Speaker

Posted: January 1st, 2012, 1:00pm MST by Trent

Unless you’re intentionally sticking with purely entry-level jobs or greatly restricting your career choices, you’re going to eventually find yourself in a position where you have to publicly present your ideas. It might just be to a room of peers, it might be to a large crowd, or it might even be to a large television audience, but in any of those events, you’re going to be practicing the art of public speaking.

I’ll be straight with you. The best way to become a good public speaker is to practice at it, but practicing at it involves a lot more than standing in front of a mirror and looking at yourself while you’re talking. There are a lot of little pieces that need to come together for effective public speaking.

Scott Berkun has been a public speaker for a long time. It was actually his talk on the myths of innovation that convinced me to find out more about him, and it was the strength of his public speaking style that convinced me to give Confessions of a Public Speaker a read.

It was well worth it. Confessions of a Public Speaker is probably the best book I’ve ever read on the art of public speaking. It balances the entertaining and anecdotal nature of such a book perfectly with hard-hitting and useful advice on getting up in front of a crowd and sharing your ideas.

I can’t see you naked
The trick to a good presentation is to realize that the audience mostly just wants for the presentation to be over so they can do other things – maybe get back to their work, maybe network with other people, maybe goof off. Because of that, they’re mostly not going to notice the small mistakes you make, so don’t worry about them. What about the big mistakes? Just try to roll onwards from them, preferably using them as a launching pad. For example, if you make a blunder, say, “You think that was bad? …” then share an anecdote that ties you to the audience and (hopefully) helps you to get back on track.

The attack of the butterflies
The best way to relieve nervousness before a talk is to practice it enough beforehand so that it feels natural and to eliminate little things that can make you nervous beforehand. Do things like getting a good night’s sleep the night before a talk, eating a healthy meal a couple hours beforehand, chatting with people in the audience before a talk (so that they seem friendly and not oppositional), and getting there in plenty of time so that you don’t have to rush and little hiccups become easier to deal with.

$30,000 an hour
What’s a justifiable amount for a public speaker to earn? Berkun breaks down a $30,000 speaking fee and really lays out how it’s not all that unreasonable for a 60 minute speech. It requires two days to create the presentation, the stress of speaking for that long, the time to travel there and handle the logistics of getting from your home to the venue and back home, and the career effort it took to reach a point where you can command a nice speaking fee. He makes a great case for why good public speakers ought to earn a lot.

How to work a tough room
The best defense against a tough room is on-site preparation. Get to the room as early as possible and get a feel for how you’ll sound in there. If there are other speakers, watch them and see how the crowd reacts to them. Are they an easy crowd or a tough crowd? If you’re the first speaker, encourage people to sit near the front, not spread out throughout the room (this way, you have a smaller area to focus on with your gaze and attention). The more you know the room and the crowd, the better off you are.

Do not eat the microphone
There are four key parts to assembling any good presentation. Take a strong position in the title of the presentation. Think carefully about your audience. Make your specific points as concise as possible. Know the counterarguments from an intelligent audience and address them. If you do these things, you’re going to have a presentation that grabs their attention and makes your case as well as possible. A good way to start is to simply list the five key points to making whatever case you want to make, honing those key points down, then making sure you’re able to handle the inevitable counterarguments.

The science of not boring people
The shorter your presentation and the faster the pace of it, the less likely you are to bore people and the more likely you are to make them leave with a positive impression of your message. Presentations that go on too long or dwell too long on specific points are often easily forgotten, which completely undoes the entire point of your presentation. Make it snappy.

Lessons from my 15 minutes of fame
My favorite point from this chapter is that memorization and teleprompters are evil for the vast, vast majority of speakers. If you have your speech memorized or are just reading it, you’re almost always not sounding genuine or human. Focus on knowing your points cold and delivering them naturally without reading a single thing. This sounds much more conversational and much more interesting to the person receiving the message.

The things people say
The best way to improve on your presentation is feedback, but feedback isn’t as easy as you might think it is. Having someone just watch your presentation and critique it doesn’t really help. A much better tactic is to ask people how your presentation compares to other ones, as it’s much easier for people to compare and contrast two things (plus it feels less insulting when pointing out your flaws). Another great tactic is to simply videotape your own presentations, then watch the tape and see what’s wrong with the presentation.

The clutch is your friend
If you’re not connecting what you’re talking about to the lives of the people you’re presenting it to, they’re not going to be very interested. How is this relevant to their lives? Another key: you can’t just tell them it’s relevant. You’ve got to show them. Doing something is the most powerful way to learn, and you’ve got to get as close to having the audience do something as you can in the format of your presentation.

Confessions
The remainder of the book is almost like a blog. It addresses a bunch of very specific points about presenting, such as choosing the right pointer (this one) and how to properly put a wireless microphone on (clip it to your neck, then hide the cable inside your outer shirt). There’s just a bunch of good little tips here.

Is Confessions of a Public Speaker Worth Reading?
If you are on a career path that is going to involve making presentations in public at any point, Confessions of a Public Speaker is going to be well worth reading. It’s the best single volume on public speaking I’ve yet read.

The only complaint is that there’s not a whole lot on actually creating slides and building a presentation. Thankfully, a book I reviewed earlier, Presentation Zen, does that wonderfully. These two are great complements to each other.

Check out additional reviews and notes of Confessions of a Public Speaker on Amazon.com.

Introducing “365 Ways to Live Cheap Revisited”

Posted: January 1st, 2012, 7:00am MST by Trent

In 2008, I published a book entitled 365 Ways to Live Cheap. The book itself is pretty straightforward. It’s a collection of 365 specific tactics for saving money. The experience writing the book was an interesting process, however.

I had the genesis of the idea not too long after I started The Simple Dollar. I had originally been thinking of using the “365 Ways to Live Cheap” idea as a yearlong series of posts in 2008 and so I started on the project in early 2007, compiling a list of tactics and researching each one a little.

I kept this as a folder on my computer desktop for two years, as the project moved from a post series to a long book to a much shorter book. I tossed in little facts, some anecdotes, and other materials for each entry.

When the book actually came together, I condensed most of the material I had accumulated down to a paragraph or two for each entry on the list – and the rest of the material just sat there, unused.

Flash forward to late 2010. I started looking through those folders of material and began to realize that there was a lot of good stuff there. I considered making an “expanded” version of the original book, but eventually I decided that it might be more fun if I just revisited each entry in a new series of posts on The Simple Dollar made up of all of this unused material.

I won’t be reprinting the material in 365 Ways to Live Cheap as I view that as a wonderful concise handbook on frugality tactics. Instead, I’m just going to use each of those entries as a starting point and riff on each topic, using the material I had saved for the book and my own thoughts over the years since writing the original book.

Each remaining day in 2012, there will be a new post discussing one of the entries from 365 Ways to Live Cheap. I’ll label them with an “(X/365)” after the post title. Consider it a year of frugality basics.

I think you’ll find the journey enjoyable.

Oh, and there’s one more thing…

Mentorship and Photography
Several years ago, I started to mentor a young woman named Brittany who’s passionate about photography. She grew up in a rural background much like my own. Like me, she’s the first in her family to go to college. I’ve known her and her family for a very long time.

All along, she’s harbored a real dream of having her own photography business, and she’s been taking active steps to make it happen. She’s taken some significant training in photography while majoring in business in college.

Time and time again over the last several years, she’s come to me for advice on what the next step should be, and she’s constantly impressed me with her diligence and work ethic toward her goals. Right now, for instance, she’s knocking down good grades in college while keeping a part-time job and spending time establishing her photography business and growing her skills. She’s building a foundation for the rest of her life in a very smart way.

I have consistently been impressed with the life choices and the professional choices she has made. She’s far more entrepreneurial and has a harder work ethic than I ever had at her age.

I’m also a big believer in doing everything I can to give opportunities to people who are working to create a better future for themselves, which is exactly what she’s doing.

So, this past fall, I made Brittany an offer. She became an intern for The Simple Dollar with a very specific mission. I wanted her to take a single photograph for each of the entries in 365 Ways to Live Cheap and allow me to use them on The Simple Dollar.

Each entry in the post series this year will feature an image from Brittany Lynne Photography (her budding business) that matches the content of that particular “way to live cheap.” Hopefully, these images will visually illustrate the beauty of frugality in everyday life.

Naturally, she’s still at a point where she’s learning about photography and production techniques and growing in her skill set with every image. I don’t expect the images in this project to look like the finished product of a truly great professional photographer with years of experience.

Instead, what I see in these images (of what I’ve seen so far) is a young woman with a bright future taking advantage of an opportunity. I see her learning and growing with every click. I see someone who’s hungry for a chance.

That, to me, is beautiful in and of itself, and I think it perfectly complements the “do it yourself and improve yourself” nature of 365 Ways to Live Cheap.

How I Switched to Long Term Thinking

Posted: December 31st, 2011, 1:00pm MST by Trent

Over the past five or six years since my financial turnaround started, the single most significant change that has happened to how I view the world is a switch to what I call “long term thinking.” Simply put, I evaluate most of my life choices primarily through a long-term lens.

In other words, when I look at things like how I spend my money, how I spend my time, who I choose to interact with, and so on, I’m often not thinking as much about immediate pleasure but how my choices will impact my life in, say, five years.

Let me give you a few examples of what I’m talking about.

Most mornings, my children wake me up and I’m pretty groggy at first. After a minute or two of swimming up out of a sleep state and into a basic comprehension of the world around me, I’m faced with a choice. I could either shamble along in a half-awake state, mumbling incoherently at my children, or I can will myself to be energetic and help them get ready in the morning. The former is far more pleasing in the short term, but I often find myself jumping up and down several times and splashing my face with cold water so I can get going immediately and get right on the task of making sure the kids are dressed, talking to them about their day, and making sure they have a great breakfast on the table. That little bit of discomfort each morning will lead to more well-balanced children in several years.

I stop by a local boardgaming night and try out a new game that I really enjoy. The store has it on sale for $40. I’m faced with a choice. If I buy it, I’ll probably play it a few times with my friends. If I don’t buy it, it won’t prevent me from spending an evening playing games with my friends. So, the upside of buying this isn’t a new social event. It’s just more stuff on my shelf. On the other hand, another $40 in my bank account means an easier road to financial freedom.

Buying a cup of coffee from Starbucks in the morning might give me a quick jolt of energy. Of course, if I do that, then I become just a bit more used to having that jolt in the morning, making me more reliant on coffee instead of a glass of water in the morning. A consistent diet of Starbucks isn’t really a good thing for my long term health, either. Not drinking that cup of Starbucks leads to a trend of less spending on morning coffee and better health. I’ll leave it as a rare treat.

This is a hard switch to make. Our immediate wants and desires scream with urgency next to longer-term concerns, and it is incredibly easy to just let the short-term thinking rule the day. I used several tactics to start making the transition (and I’ll be the first to admit that I’m not 100% at thinknig this way).

I spent time thinking about my common decisions away from the moment where I made those decisions. Thinking about things in the heat of the moment often leads a person to make the short-term beneficial decision rather than the long-term beneficial decision.

Thus, I started spending some time each day thinking about the decisions I made that day, particularly ones I would often see myself repeating. Outside of the moment, I’d look at the short term benefits of my options as well as the long term benefits and I’d decide independently what the best long-term choice was.

I spent time figuring out exactly what I wanted from my future. I often mention drawing a five year sketch of your life and a ten year sketch and maybe even a twenty year sketch. What I mean by that is simply laying out what things you’d like to have in your life at that point. Obviously, those things won’t perfectly come to pass, as life often hands us unexpected things.

The reason for doing this is to figure out what things you can control to make those dreams come true. I can control the money I spend. I can control the food I eat. I can control the time I spend. I can control what I read and what I learn. What choices can I make in those contexts that lead to the five year sketch of the life I want?

I spent less time with people who would tempt me to make short-term decisions. People who constantly encourage you to buy things you don’t need are ones that will cause you to constantly sacrifice your future for your present. I spent a lot of years hanging out with people who did just that and it led me almost into the poorhouse.

My current circle of friends are almost all rather frugal. We have potluck dinners for our social engagements and usually wind up playing board games. We trade a lot of tips on saving money and sometimes clip coupons for each other and send each other deals. We take pride in our good financial moves – buying land is far valued over buying a new car, for example. These are friends that will encourage you to think for the long term.

I set up situations where the beneficial short term choice and the beneficial long term choice were the same choice. An easy example of this is throwing out all of the unhealthy snacks in your house so that you can only choose among healthy ones, but you can do the same thing with lots of different aspects of your life.

For example, you can choose a commute that doesn’t take you by temptations to spend money or eat unhealthily. You can delete distracting computer games from your computer. You can unplug the internet router for a while, making it much more difficult to get online (and instead easier to get other things done). If you make the path of least resistance one that helps your long term future, you’re setting up a great life.

I accepted some short-term choices as splurges. Splurges turned from just spending money into making choices for the short term. So, for example, playing a computer game is often a splurge for me. It’s fun in the short term, but has virtually no positive impact in the long term.

The key is that I recognize that it’s a splurge. It’s something that I know isn’t the best choice, but it’s okay to do every once in a while. It’s part of the spice of life, and I savor those splurges.

Good luck!

Ten Pieces of Inspiration #53

Posted: December 31st, 2011, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Me and Grandma
Over the holidays, I was going through some old photographs and I came across this one of me and my great grandmother, taken a few days before Christmas 1998.

She was very old and frail at that point, but still stubbornly independent, quick-witted, and insistent on living on her own. For Christmas that year, we brought her several boxes of prepared and easy-to-prepare food items and other things that would make her continued independent living easier.

There are a handful of people in my life that I have missed greatly since they’ve passed away. She’s very high on that list.

2. Bon Iver’s Beth/Rest
This is my favorite new song of 2011.

There’s just something about it that hits me right here in the chest.

3. Mark Twain on reading
I believe one of the best gifts I can give to my children is the gift of the joy of reading.

“A person who won’t read has no advantage over one who can’t read.” – Mark Twain

Reading is about the acquisition of knowledge, the growth of one’s morals and values, and the enjoyment of a vast literary heritage. There are few things more valuable to do with one’s time.

4. Priceonomics
Ever wondered how much you should be paying for an item? This site simply aggregates data from all over the internet so that all you have to do is type in the name of an item and it gives you a rough estimate of what you should pay for it.

This is one of those things where there’s the kernel of something great and you can just see the potential for this to turn into an essential tool.

5. A happy toddler
I love browsing old public domain photographs. Every once in a while, one pops up that makes me feel more human.

The above picture was taken in approximately 1900. The look of impishness on the boy’s face reminded me greatly of the looks that my one year old son often gives me when he’s toddling around the house and has come up with some idea that will surely cause a mess. Some things never really change.

6. Thoreau on finishing things
The difference between people who succeed and those who fail is the ability to consistently finish, particularly at the important things.

“All endeavor calls for the ability to tramp the last mile, shape the last plan, endure the last hours toil. The fight to the finish spirit is the one… characteristic we must posses if we are to face the future as finishers.” – Henry David Thoreau

Do we want to get things done or leave things half-undone?

7. Billie Holiday singing It Had to Be You
Billie Holiday is one of my favorite singers ever. She just grabs those notes and turns them into something magical.

I hope there’s an afterlife so that I can someday sit down and listen to and watch this amazing woman sing.

8. Wozniak on goals and success
Over and over again, I find the people who succeed at things aren’t the people looking for the financial success. They’re just looking to do something well because they love it, and when they achieve that good thing, the world beats a path to their door.

“My goal wasn’t to make a ton of money. It was to build good computers.” – Steve Wozniak

There are variations on this quote in every field. I find it is even true for me.

9. Charlie Chaplin’s speech in The Great Dictator (1936)
A friend of mine passed this along to me recently, asking me to watch it and think about it.

Regardless of how you feel about the idea behind it, it’s powerfully delivered and thought-provoking.

10. Condolence by Dorothy Parker
Funerals bother me a great deal. I’m troubled by how people often show up and act incredibly distraught about someone that they didn’t have time for when they were alive. I often wonder what the people who passed on would think about all of it.

They hurried here, as soon as you had died,
Their faces damp with haste and sympathy,
And pressed my hand in theirs, and smoothed my knee,
And clicked their tongues, and watched me, mournful-eyed.
Gently they told me of that Other Side-
How, even then, you waited there for me,
And what ecstatic meeting ours would be.
Moved by the lovely tale, they broke, and cried.

And when I smiled, they told me I was brave,
And they rejoiced that I was comforted,
And left to tell of all the help they gave.
But I had smiled to think how you, the dead,
So curiously preoccupied and grave,
Would laugh, could you have heard the things they said.

I hope that when my time comes, people tell a lot of good jokes and funny, happy stories about things I did.

2012 Resolution #4 – Create a Lasting Item for My Children and My Wife

Posted: December 30th, 2011, 1:00pm MST by Trent

For the rest of this week, I’m going to discuss the goals I’m setting for 2012 and the plans I have for achieving them.

When I think back to some of the people in my life that have passed away that I greatly miss, one of the things that really bothers me is that I don’t have some memento of their life that lets me have at least a sense of the person that they were. All I have are memories, a few old home movies, and lots of photographs.

The one exception to this is my great grandmother, who spent a significant amount of time during the last few years of her life writing something of an autobiography. I had the opportunity to read most of it once and, in the near future, I’m hoping to be able to have a copy of it of my own and read it again. It’s just a way to touch the thoughts of a person that I loved very much that I’ll not be able to see again in this life.

This, of course, brings me to thoughts of the people I love the most: my wife and my children. What will they have to know me by if something were to happen to me?

I’m not foolish enough to think that I’m infallible. I’ve protected their financial future with a sensible life insurance policy and an estate plan.

What I’d like to do is, in some way, protect their emotional future as well. What would I want to leave for them as people if something were to happen to me?

For my children, there’s simply a lot of life advice that I want to impart on them as they grow older, become adults, and face their careers and lives. I’d like them to know about their ancestry and I’d also like for them to be able to know something of the person that I was, what I held dear, and what I felt about them.

For my wife, the mission is a bit different. She already knows most of the things that I would leave for my children. What I would want to leave for her is a different gift: the knowledge that I loved her very much and that I want her to move on and have new experiences and a new life after I leave, whatever those may be. I think a lot about the scrapbook that Ellie created for Walt in the movie Up that recollects their lives shared together and ends with an admonition that Walt creates his own adventures.

This is challenging work, but it’s also valuable work. It’s something I can give to my children when they become adults even if I’m completely fine. It’s something I can continue to update throughout our marital life and leave for Sarah.

My goal in 2012 is simple: I want to create a journal/scrapbook for each of my children and for my wife that collects together the things mentioned above. I want them to have these items if something were to happen to me in the near future, and I want to give them to my children as they reach adulthood. As for my wife’s book, I’ll leave it for her to find it when the time is right.

For the most part, these will take the form of handwritten journals. I communicate so much through the written word that this seems natural to me. Although the material covered in the journals for my children will be similar, I’m going to write them each individually and I hope that they do vary some.

As for my wife’s memento, I hope to just recollect everything that’s happened in our lives together to this point and add to it regularly, with a note on the last page reminding her that I love her and that I want her to have a beautiful life, whatever that may be.

If a time comes in their life where they yearn to reach out and touch me in some way after I’m gone, perhaps I will have left behind something that can fulfill them at that moment when they need it.

Judging by the Extremes

Posted: December 30th, 2011, 7:00am MST by Trent

A couple days ago, I watched a program on TLC called Extreme Cheapskates, which featured people doing things like using reusable toilet paper and cooking goat’s heads in order to save money.

It was pretty obvious after just a few minutes of watching that the point of the show was to make frugality look ridiculous by choosing to profile tactics that violate other social customs and norms. In some cases, the people were aware of it, but in others, they seemed completely oblivious that they were doing things that others would see as … well, “extreme.”

While watching it, I received a couple emails from readers who were also watching it. One in particular stood out at me:

Is this really the kind of thing you do at home? Some of this stuff is just sick. Some things are worth a dollar or two more.

Simply put, the outcome of this show was to paint a socially uncomfortable face on the idea of frugality. By highlighting people who take frugality to an extreme, they manage to cast a negative glow over anyone who proudly practices frugality.

Here’s the thing, though. This type of negative highlighting happens all the time with all kinds of things.

Focusing on the practices of the Hutaree and the Christian patriot movement casts a false negative light onto Christians, most of whom are wonderful people who try to live their day-to-day life in a positive fashion.

Focusing on the practices of a few large banks that received TARP money and also have consumer unfriendly practices casts a false negative light on all banks and credit unions, most of which do really great work for people.

Focusing on groups like al Qaeda casts a false negative light on Muslims, most of whom are wonderful people who also try to live their day-to-day life in a positive fashion.

The list goes on and on. When you define a large group by the actions of a small, extreme element of that group, you’re almost always making a mistake.

This brings us back to frugality and Extreme Cheapskates. Frugality is not the extreme actions represented on this show.

What you’re actually seeing when you watch Extreme Cheapskates are people who have a overall value set that’s significantly different than yours. It’s the same thing you see in the extreme cases mentioned above.

It does not mean that the larger group these people claim to represent shares their values.

I consider myself frugal. I even consider myself a cheapskate in terms of things that just affect me. I make my own laundry detergent. We make a lot of the Christmas gifts we give away. I drive a used car I bought off of Craigslist. We save leftover vegetable scraps to make vegetable stock, then compost the leftover scraps from that.

At the same time, I don’t do things that are rude to others or unhygenic or dangerous to my health.

Frugality isn’t about squeezing every penny out of everything. It’s about maximizing the value of the things you’re doing, and “value” doesn’t always strictly mean money. Money often plays a significant part in it, but so does time and so does health and so does the relationships you have with the people you care about.

Frugality simply means that you take the time to figure out those relative values for yourself. Have you actually thought about the relative value proposition of buying generic laundry detergent versus making your own versus buying Tide? If you have and you’ve come to a conclusion on the issue, you’re probably frugal. You’ve thought about what you value – money, time, hygiene, relationships. You’ve obtained information on the issue. You’ve come up with a conclusion based on the information that balances what you specifically value.

That’s actually what these “extreme cheapskates” are also doing, but their values likely differ significantly from yours. That doesn’t mean that being frugal or being a cheapskate is weird. It just means that the “extreme cheapskate” puts an extremely high value on the “money” part of the value equation (or an uncomfortably low value on the “hygiene” part or some other part of the equation).

It also means that when you see a list of frugal tactics, you’re seeing tips that represent different levels of value on things like hygiene and time and food quality (and so on), and that you need to filter those lists based on how you value things like hygiene and time and food quality.

Be frugal and smart and live by the things that hold value in your life. Do that and you’ll always win.

2012 Resolution #3 – Perform 200 Hours of Community Service

Posted: December 29th, 2011, 1:00pm MST by Trent

For the rest of this week, I’m going to discuss the goals I’m setting for 2012 and the plans I have for achieving them.

Every single time I engage in some form of community service, I feel extremely happy about what I’ve done. I feel like I’ve caused some sort of positive change in my community and made someone else’s life better.

The problem is that it’s incredibly easy for me to put aside some of the things I could do related to community service and instead do other things. I could head over to the food pantry… or I could make chop all of the vegetables for a great ratatouille. I could pack up the children and help remove snow for elderly people… or I could go inside, make some hot chocolate, and watch The Incredibles with my kids.

Although the “right” choice here is very fulfilling, it’s often hard to do in the face of temptation.

This year, I’m simply striving to make the “right” choice more of a routine.

What areas am I focusing on?

I hope to spend some time helping a couple local food pantries with odds and ends that need done, such as restocking shelves and preparing bags.

In the winter, I’m going to pack up a shovel and do some volunteer snow removal where it’s needed.

In the spring and summer and fall, I’m going to do some volunteer work for the local parks and recreation department.

There are also a couple local charity groups that have some computer needs that I can help fulfill, so that their normal workflow can go much more smoothly.

What I’m essentially committing to is about four hours per week – on average – of such volunteer work, with a couple weeks for travel and the like.

I’ll be keeping track of this time in a spreadsheet, just so that I know I’m keeping pace with this goal. If our winter turns snowy, it’s likely that I’ll get significantly ahead earlier in the year. This does provide some breathing room for periods in the summer when there are reduced opportunities and different time constraints.

Why do this? Volunteer work makes a better community, and a better community makes a better life for those who live in it. It also leaves me feeling better about myself every time I do it. That’s reason enough for me.

Reader Mailbag: A Day for Gaming

Posted: December 29th, 2011, 7:00am MST 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. Conflicting messages on spending money
2. Career options in conflict
3. Extreme cutbacks
4. Sports salaries
5. Confusing tax code
6. Saving on a fixed income
7. Best book of 2011
8. Getting started with blogging
9. Getting off the treadmill
10. New Years party hosting

Because our close group of friends mostly has this week off of work, we planned a day where we would get together and just play board games all day long, sharing lunch and dinner.

That day is today. I have some friends to laugh, think, and play with.

Q1: Conflicting messages on spending money
We are encouraged to spend money because spending helps our economy. Then again, we are also told to spend wisely. How can these two viewpoints/ideas be reconciled? Is it possible to believe and act on both of these concepts?
- Megan

Those two viewpoints are coming from two different groups with different goals.

It is obviously good for retail businesses and commercial product manufacturers if you go out there and buy as much as possible. The more you spend in this way, the more jobs are created in the retail and manufacturing industries. On a national scale, the best thing you can do is spend.

On the other hand, on a personal scale, the best thing you can do is save. Spending with reckless abandon does not help your personal finance situation. People who recommend saving are generally more concerned with this end of the economic scale.

Which is right? They both make good points. The solution, I think, is balance. Spend with some sense, but don’t be completely tight-fisted in every aspect of life. Be discretionary and spend less than you earn, but don’t avoid all splurges. Support businesses that make good products and have good business practices. That way, everyone wins.

Q2: Career options in conflict
I am an educator currently at a university 45 minutes away, instructing first year physics students in a laboratory setting two days a week. With the other 3 days I try to substitute teach at local school as much as possible. One of those schools is literally a 1 minute drive from my apartment and will have an opening in February covering for a teacher whose course load is grade 11 and 12 physics along with an upper level math course. Those courses would be my dream to teach if I were to get the position.

Timing is the real issue. The 2nd semester for the university starts in January and they need to know if I will be continuing on very soon and I can not do both the university work and the high school one.

My conflict is this: do I NOT take the university course and HOPE that I get the position at the high school?

I really enjoy the university work and subbing since it allows for a lot of freedom in the evenings but is less pay and more commuting (and more temptation to eat out on the way in). The high school classroom would be wonderful too and would allow for a meatier paycheck, but would involve much more time in the evenings planning and marking.

Do you have any advice or questions that I should be asking myself?
- Ron

A bird in the hand is worth two in the bush. Take the job that’s available to you now, then cross the bridge of other options when you get there.

The worst case scenario if you take the university job is that in February the other job becomes available. In that case, what are your options? Is there any reason you couldn’t walk away from the university job for a better opportunity?

Unless there’s some sort of clause preventing this, I would suggest taking the university job and seeing what happens next.

Q3: Extreme cutbacks
Currently I am working on my 2012 budget. I am very fortunate to be the mother of five children (ages ranging from 3 to 12), I hold a pretty good job for which I am sometimes frustrated but always grateful, but unfortunately, my husband’s business has not made any money over the past three years and has cost a little. Yet, I have made ends meet, saved some and several years before we had paid off all mortgage debt.

This year we need to save for a major improvement to the land where our home is located. We need to put in major revetment to protect the property from further erosion. The project will cost $150,000. Currently, I make pre-tax $75,000. Total expenses have been about $55,000. I track EVERY penny. Expenses include about $5,000 in business costs and $5,000 in work to the house that my husband does each year (our house was a serious fixer-upper, and we’ve worked on it for 15 years).

This year to accelerate savings I have created a budget, but it means we must really cut back on all expenses…including gas and food. The projected budget brings spending down to $40,500 — allowing me to save more for the revetment and also still put money into my ROTH.

I have strange feelings about this budget. It will require real sacrifice, and we already live frugally. We do not eat out, go to movies, take a vacation…we do have indulgences like a sailboat that was given to us that costs $1500 a year for a mooring, but that is our summer fun for the family. I admit that I have spent too much on clothing for work in the past, but not outside the realm of moderate – just not frugal.

Entering this new phase of finance feels like starting a really strict diet…I wonder if it’s realistic, or if I’m setting myself up for failure. The budget would require me bringing food from $688 a month to $625 — which might not sound like much, but I already make most food from scratch — and it’s not like I’ve been buying any expensive items. Also, it will require monitoring fuel for the van carefully…an item that sometimes I cannot control.

Anyway, how realistic is cutting back so extremely, and do you have any recommendations for keeping these goals and remaining positive even when it seems insurmountable.
- Shannon

Without seeing your budget, it’s hard to know whether it’s realistic or not.

However, if your gut is telling you it’s too tight and you already carefully watch the numbers, your budget is probably too tight. A person’s gut feeling is often right in matters like this.

So, what do you do from here? I’d suggest looking seriously at solutions you might not have considered before, like selling the property or selling another asset that you have with significant value.

Q4: Sports salaries
Do you think professional athletes and entertainers are over paid?
- Lucien

They’re paid exactly what the market will bear for them.

Think about it this way. If you knew that your boss would pay you $10 million for your job, would you not accept that $10 million? Very few people would turn down that level of income.

So, should the owners be paying that much? Well, they make more money if they put a competitive and entertaining team on the field. They do this by hiring skilled players that people want to watch. People want to see Chris Paul throw an alley oop pass to Blake Griffin. They don’t want to see Joe from the YMCA. If the owner hires entertaining players, more people attend the games of his team and more people buy their products (like shirts and posters and jerseys and trading cards…).

In the end, it comes back to the fans. As long as they buy tickets, shirts, jerseys, and other materials at the prices charged for them, the athletes will be highly paid.

Q5: Confusing tax code
Why on earth is simply paying your income tax so confusing? Every time I try to read an IRS document, I just get confused. I pay someone else to do my taxes for me and it’s ridiculous that I should have to do that.
- Shawn

I agree with you wholeheartedly.

What we have now is a tax system that’s a compromise between a lot of different interests. You have some who want to make the tax burden lower on huge numbers of lower income people. You also have some who want to minimize the taxes on the rich people who will (in theory) invest their money.

Give these people lots of years to compromise and negotiate and insert clauses to help their groups and you get the tax code as it is right now.

Does it need a reboot? Yes. Do enough people in Congress and in the executive branch have enough courage to make that reboot happen?

You make the call.

Q6: Saving on a fixed income
At the age 30 I became severely disabled with a mental illness and had to go on Social Security disability. Since then I have tried to work several times part time unsuccessfully. Now I am trying to save money just to get a car because, since then, I have developed back problems which make it impossible due to the pain to ride a bus which would have been a good way to save money.

So, saving $400 a month is half of what I live on which is $800 per month. In addition, I am trying to save for an emergency fund. I have been able to save the money for the car and the emergency fund due to ending my eating out, cutting out my cable, finding the best price possible for my car insurance, but retirement savings seems impossible. Is there any alternative for people like me who find themselves on a limited budget at such an early age?
- Ron

Set goals. Recognize that it’s going to take a long time to get there. Celebrate the little victories as you approach your goals.

There’s really not much else you can do. You have to figure out what’s really the most important thing for your life situation and work diligently toward whatever that goal is.

Each person’s life is going to be different, with different needs and different values. The best thing you can do is figure out what you most want and focus on that like a laser beam.

Q7: Best books of 2011
What was your favorite book of 2011? No cheating – just name one!
- Linda

That’s a tough one and it depends on what you’re asking.

My favorite book published in 2011 is Moonwalking with Einstein by Joshua Foer. It’s a great book about the realities of memory and how to improve your own memory, backed by great anecdotes and science.

My favorite book I read in 2011 was A Way of Kings by Brandon Sanderson. It’s the most enjoyment I’ve had from reading a fantasy novel in a very long time.

Q8: Getting started with blogging
My question is how you built such a robust following on The Simple Dollar. Was it largely through the guest posting model advocated by sites like “Blog Tyrant?” Or did it happen more organically through the quality of your writing and posting frequency? The “romantic” part of me would prefer for the second option to occur, but I fully realize that some more active promotion is probably necessary to get my blog to the level I want it to be. I promote it among my friends on facebook, but beyond that, I’m a little unclear on how to approach fellow bloggers regarding guest posting and whatnot, especially in a field (“self-improvement” or “lifestyle design”) that is dominated by a few big names like Tim Ferriss and Chris Guillebeau. Is it better to start as a commenter and work up a repoire that way? Or is cold e-mailing people okay, too? It’s a lot of the little personal interactions on the internet that I could really use some help with.
- D. J.

I did very little guest posting in the early days of The Simple Dollar.

My early success, I think, was due to writing some articles that were heavily linked on some very popular blogs. I did that with some degree of intent, of course. I looked at the popular blogs I read and asked myself what kinds of things they linked to and what kinds of links I clicked through on, then thought of post ideas accordingly, wrote them, posted them, and submitted them.

At this point, you might want to shoot for Twitter mentions from those guys to get the ball started, but you’re going to find that popular bloggers are BURIED in material like this. You reach a point where you absolutely have to filter what you look at and do because if you didn’t do that, you would never, ever get anything done. Keep that in mind and make it very easy for them to see what you’ve done.

I think the sustained success has come from having a large backlog of posts. There are a LOT of terms you can type into Google and find pages from The Simple Dollar as a result. I’ve made a conscious effort all the way along to try to write in an approachable fashion.

So, get the attention (and a link from) big names and write lots of good posts.

Q9: Getting off the treadmill
I am 27 years old living with his mom, lots of experience in different fields but nothing to back it up (jack of all trades, no specialty). I did a mistake 3 years ago (realizing this now) getting a 15 000$ loan for a nice Cadillac & to cover my credit card. I now have 8 000$ left on this debt paying 330$/month, but with interests i am really giving about 230-250$ towards the actual amount.

Seems my monthly bankroll is tied up in car paiments (330$) + insurance (75$), high speed internet (60$), cellphone (70$), a bad smoking habit (160$ more or less), newly acquired Gun hobby.

Any suggestions to help me get out of this never ending loophole? I want to move out and move on with my life without always paying bills and feeling stuck!
- Alan

Get rid of the smoking habit and the gun hobby?

Right there, you have two expensive things that are gobbling down significant chunks of your money. If you want to escape from your never-ending loophole, you have to look for things that aren’t necessary that are gobbling up your resources.

Quit smoking. Enjoy the guns you have. You’ll find yourself with a couple hundred more a month. Apply them to extra payments on your car loan and you’ll get rid of that payment in half the time. At that point, you’ll have almost six hundred more a month than you have now.

Q10: New Years party hosting
I’m hosting a New Years party this year and I’m kind of unsure what to serve to people. What’s appropriate to serve at a New Years party without spending a ton of money?
- Jean

It depends on the type of party you’re having. Finger foods are usually appropriate – at our New Years parties, we tend to serve plenty of finger foods. One way to get started is just to ask some of the people what kinds of finger foods they like and choose frugally from those options.

As for drinks, you really don’t need to splurge. A bottle of bubbly or two is appropriate for the turning of the year. Guests often bring bottles to such parties, though.

There’s nothing wrong with asking some of the guests to bring something simple, either. A simple request to bring a bottle of wine or a simple snack food is completely appropriate and trims costs for you.

2012 Resolution #2: Finish a Novel and Write Another One

Posted: December 28th, 2011, 1:00pm MST by Trent

For the rest of this week, I’m going to discuss the goals I’m setting for 2012 and the plans I have for achieving them.

A few weeks ago, I mentioned that I had made some changes to how The Simple Dollar is managed in an effort to free up time for other writing projects that I’ve wanted to take on. For me, first and foremost among these projects is the fantasy novel I’ve long talked about writing here on The Simple Dollar.

Why haven’t I written it yet? Time, mostly. The ideas behind the novel float around in my head all the time, but turning those ideas into actual written prose is a time-consuming process.

Right now, the novel exists as a fairly detailed plot outline that I keep tinkering with, several character sketches, and one chapter that I’m not even sure will be in the final novel. It might actually be a prelude. Although the novel is self-contained, it could easily develop into a series.

I also have several ideas for a second novel that I’d love to write, one with a more modern setting.

2012 is the year that I’m going to write them both.

Obviously, the first step is to simply get first drafts finished of both of the novels. That in itself will take some time, particularly for the second one.

I intend to first draft the first one, then move on to making character sketches and a plot outline for the second, then moving back to the first for later drafts. This way, I give them both some time to breathe.

I have several test readers and a freelance editor lined up. This will help me polish these things up a bit beyond what I could do myself.

After that, I’m going to publish them. I’ve decided already to go the self-publishing route regarding these novels, and I’m going to be discussing them and promoting them at TrentHamm.com and on my personal Twitter, though neither is really up and going quite yet.

The exact plans for publishing are still up in the air at this point, but I will likely publish a Kindle version first and eventually do a print version. I am considering a Kickstarter campaign for it as well.

Such issues are secondary, however, to the primary goal. I intend to write two novels this year. That’s pretty clear cut. I’ll worry about selling them when that bridge comes.

The Simple Dollar Weekly Roundup: Resolutions Edition

Posted: December 28th, 2011, 7:00am MST by Trent

Over the last few weeks, I spent a lot of time thinking about resolutions. During that process, I did a lot of digging for articles on resolutions and goals from people whose thoughts I greatly value. Here are some of the useful articles I found in that search.

Solving problems Leaning away from problems rarely pays off. (@ seth godin)

Getting Out of Debt: Make That New Year’s Resolution Work These tactics are geared towards financial resolutions, but they really work for almost any goal you throw at them. (@ consumerism commentary)

Keeping new year’s resolutions from NPR’s Science Friday This post summarizes a great episode of NPR’s Science Friday that discusses the psychology behind resolutions. (@ unclutterer)

Should You Have GOALS or RESOLUTIONS? The words often mean similar things, but can have very different connotations that put you in different mindsets. (@ happiness project)

Resolve This! “Resolutions are about want, but they are useless without will and action.” Indeed. (@ jonathan fields)

2012 Resolution #1: Get Fit the Right Way

Posted: December 27th, 2011, 1:00pm MST by Trent

For the rest of this week, I’m going to discuss the goals I’m setting for 2012 and the plans I have for achieving them.

A few months ago, when I was feeling particularly frustrated about the failings of my fitness goals, I scheduled an appointment with a personal trainer.

I really do not like the idea of a “coach” to motivate my workouts or anything like that. I’ve had such coaches in the past, and I usually find myself getting angry at the coach in the middle of a workout and quitting. I do far better on my own, as I can always push myself to go a little bit farther or do one more rep. With a coach demanding it, I get irritated because I feel like they have no idea how I’m feeling and they’re just making things up, so I quit on them. I’m motivated internally, not externally, in other words.

My challenge really is coming up with a plan that works for me. Once I have that, I feel confident I can follow it.

When I met with this personal trainer, I was pretty clear that I wanted to set up a plan for myself to follow, which he understood. He then asked me point blank what my goal with all of this was.

I thought about it and I realized that the biggest thing I wanted was to be a good parent and eventually be a good grandparent. I wanted to be able to be fit enough to engage in lots of activities with both my children and with my eventual grandchildren, and I wanted to live as long as possible.

From there, he offered up a lot of recommendations.

First, he said my primary goal should be losing some of my excess weight.

As for my diet, he said that my current diet (vegetarian with occasional fish) was pretty solid but that I should work on portion control. He mostly suggested that I never take seconds during meals and a few other similar tactics.

Where he got down to business was with the exercise. He suggested that simply doing cardio – which was my main method of exercise – wouldn’t lead to long term weight loss and my avoidance of other forms of exercise was responsible for my back injury due to weak back muscles. Larger muscles lead to a higher metabolism and would then lead to weight loss if I didn’t give into eating large portions.

He gave me several books to read and offered up a simple suggestion. He said that I should spend fifteen minutes to half an hour each day exercising, but that each day of the week should focus on a different type of exercise. I should spend only a couple days a week doing cardiovascular exercise and the rest of the days should focus on different muscle groups. If I get injured, then I just avoid using those muscle groups.

The best part is that virtually all of the exercises are ones that I can do at home, with only a few weights required.

Since I have a plan, the key step is to codify a goal.

I want to lose 52 pounds in 2012. That’s a pound a week, or a calorie deficit of 500 per day. My trainer says that’s a very reasonable goal if I stick to a schedule of fifteen minutes of fairly intense exercise a day and portion control with my diet. If I get injured, I just avoid that muscle group for a while.

Will it work? Stay tuned to find out!

The Motivation to Improve One’s Situation

Posted: December 27th, 2011, 7:00am MST by Trent

One of the most common issues that I get asked about is how someone can convince someone else that they care about to care more about their finances and life situation. My answer to them, for the most part, is that they can’t make someone care about something they don’t care about. You can convince someone to put on a good show for a while, but without some internal motivation, it’s hard to create any lasting change in life.

I have a friend that I’ve known since I was very young. He’s got two children, a wife, and a felony on his record for a mistake he committed over a decade ago when he was young and stupid. He’s quiet and unassuming and can be an incredibly hard worker when you get him focused on a task – he can work me under the table.

Recently, he lost his job. He had worked for several years at a pretty good factory job, but he lost it when an uncontrolled event caused him to miss his alarm and show up late at a key time.

His family lives in a modest apartment that they should be able to keep, but they’re also facing some debt.

Right now, he just seems kind of lost. I think he’s just content to draw his unemployment insurance and let the next few months just go by.

From my perspective, this is an opportunity for him. Why not get the foundation in place for a lawn care business or something similar in the area? Why not simply look for any service that the community needs and start fulfilling it? I have many friends that have simply done that – they’ve just started fulfilling a need that they’ve heard about. Why not go out there and throw an application at any job available?

The ingredient that’s missing is the motivation to improve his situation.

I’m honest enough to recognize that he’s simply lacking that key ingredient. He’s got the basic things that he wants out of life – a roof over his head and enough food to keep his belly full – and he doesn’t have the fire to do what it takes to build more than that.

You can’t start a fire without a spark.

On the flip side of that coin is someone I’m going to talk about in detail on The Simple Dollar in a week or two. She’s a young woman who has come from a background pretty similar to mine – a small town and a family that didn’t earn a whole lot of money as she was growing up.

Right now, she’s a full time college student, working a part-time job to minimize her college bills, and trying to jump-start a small business at the same time. Sometimes I wonder when she sleeps.

She wants to build something big for her life – or at least something more than what she has now. She has passions and dreams and plans and is willing to chase them.

She has the spark. Will the fire follow it? The possibility is there, at least.

That spark is the difference between these two stories. It comes from within. It comes from a desire to change yourself. It comes form having dreams and actually putting forth action to chase those dreams.

The spark is pretty obvious if you spend much time around a person. It’s egither there or it’s not. Are they setting goals for themselves? Are they actively taking on real challenges in their life? Or are they just walking through life with whatever is handed to them?

When you see a spark, nourish it. Offer all the advice in the world. Offer any assistance you can give. I don’t encourage giving friends or family loans, but I do encourage gifts and grants.

If you don’t see a spark, there’s not much you can do. The support you give won’t bring about change. It will merely continue the behavior you already see. Give love and care, but recognize that pressure for change won’t bring it about and support for change won’t change a thing unless they’re making the change already by themselves.

You can’t create that spark. They either have it or they don’t, and it’s usually pretty clear from watching how they act. The best thing you can do for both yourself and for them is to react to the path they choose.

Reviewing My 2011 Resolutions

Posted: December 26th, 2011, 1:00pm MST by Trent

At the end of each year, I try to set a few goals for the coming year, with varying degrees of success. Let’s look at the three goals I set for 2011 and see if there are any lessons learned that I can apply to my goals for the coming year.

Get Fit
My biggest opponent in this regard was two unexpected injuries that were unrelated to my fitness.

For the first month of the year, everything was quite successful.

In February, I slipped and fell on a patch of ice and caused some severe internal bruising and tearing. I was in pain doing much of anything for about three weeks, during which my fitness schedule completely fell apart.

I started from scratch again at this point and by early summer I felt good about the state of things. Then, in July, I went on a trip to Seattle with my family. On the last few days of the trip, we stayed in a cabin with a really low ceiling where the only way I could get around inside the cabin was to severely stoop. On the last morning of our cabin stay, my back popped, leaving me in almost constant pain for about a month. The worst part was that while I was recovering, walking for more than a minute or so left my right leg numb.

After that, I never really got my fitness plan back on track.

What went wrong? I don’t think my fitness plan accounted for the possibility of such things going wrong. When I was unable to do certain types of exercise, I would simply give up on the idea entirely.

What can I improve on? Flexibility. When I set a goal, it needs to have a path leading to that goal that’s as flexible as possible.

Play Music
For the first few months of this year, this goal went really well. I took weekly piano lessons and practiced when I could.

My biggest challenge was that I couldn’t practice at home. We did not have a conducive keyboard setup for practicing. My wife largely felt that this was a frivolous endeavor and we constantly struggled with discussions about whether we should invest the money into a piano or a good keyboard setup.

Later in the year, this problem was made worse by a string of childhood illnesses that required me to miss a series of lessons, leaving me feeling lost and not making much progress on my playing.

Eventually, these two issues came to a head and I chose to end my piano lessons.

What went wrong? Lack of a proper environment. I didn’t have a place to practice that didn’t involve going somewhere else. On top of that, I began to realize that my children took priority over my piano playing.

What can I improve on? I shouldn’t choose a goal that’s significantly incompatible with my home environment or requires a significant purchase to make possible.

Read 100 Unread Books
This is the goal I hit out of the park. I read 100 new books this year – 103 at last count, to be exact. My list didn’t quite match the list from this post, but I read a little more than half of the books listed in that post.

What went right? I simply attacked this goal with relish. One of the big advantages was getting a Kindle as a gift, to which I was able to add electronic versions of about twenty books on the list for free that were very convenient to take with me anywhere.

Final Thoughts
Life is unpredictable. The goals that you think have a clear path to success sometimes have obstacles that you don’t see at first glance, and sometimes those obstacles prove insurmountable.

The best thing you can do with any goal is to give it some careful thought in advance. Think about your plan carefully and look for potential problems – and solutions to those problems. The more care you put in up front, the more likely you are to see success as things unfold.

I hope that principle is reflected as I discuss my 2012 goals throughout this week.

Reader Mailbag: Post-Christmas Thoughts

Posted: December 26th, 2011, 7:00am MST 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. Adding another credit card user
2. Re-selling debt
3. Figuring out life insurance
4. What makes people negative?
5. Babies and emergency funds
6. Paying for pet medical expenses
7. Unwanted gifts
8. Handling pet cleanup
9. Planning for after graduation
10. Favorite Christmas gift

I’m actually finishing up this reader mailbag late on Christmas Day, after the rest of the family has collapsed in a heap of exhaustion.

There are few things more fun than watching a pile of grandparents, parents, and children all huddled together in a room, sharing memories and gifts and excitement and laughs.

Forget the presents. The best part of today was the people.

Q1: Adding another credit card user
I was thinking of adding my partner of 2 years as an authorized user on my credit card (low limit) to use for gas and household expenses – all budgeted items. The reservation I have is that she just recently walked away from her house (after 3 years of nonpayment and a dismissed bankruptcy). She is unemployed due to a medical condition but is covered under COBRA. Her debts are 4-5+ years old and are considered uncollectable. My credit is outstanding and my only debt is the mortgage. Anyway, do you have an idea of what it would do to the interest rate, credit report, etc for her and myself?
- Veronica

It shouldn’t affect your credit report at all, except perhaps an indirect effect.

As for the impact it will have on your card, it has more to do with the policies of the specific bank you’re working with than anything else. Generally, my experience has been that an authorized user doesn’t impact the interest rate or the credit limit of the card at all, though there are certainly quite a few anecdotal cases out there about limit reductions and the like.

This is where the indirect effect might happen. If your credit limit lowers, this will have a small negative impact on your credit score, but it shouldn’t be enough to drastically impact the loans you might get or other things.

Generally, adding someone as an authorized user has little impact on the main cardholder and a positive impact on the credit of the new authorized user, assuming the new authorized user uses the card responsibly.

Q2: Re-selling debt
I have an old credit card account which was charged-off years ago. I recently found out the debt was sold to another debt collection agency with a “new” charged-off date of 2009. Is it fair practice for creditors to keep re-selling old debt just to remain within the 7 year limitation before the debt must drop from my credit report? If not, what should I do?
- Fred

That’s generally not an acceptable policy. However, actually tracking this down and fixing it is next to impossible. Neither agency involved has any interest in changing this for you – it’s not good business for either of them – and trying to sue them to make them change it will probably cost you more than it’s worth.

Companies that buy and pursue old debts are generally not the most fun businesses to work with. They’re in a business of pursuing debts from people who don’t pay their debts. They’re debt collectors. They’re going to turn what screws they can to get their money.

The best way to get rid of this permanently is to negotiate with the company that holds it. Make them a low offer to pay it off and have it removed from your report. This is the best permanent solution to the problem.

Q3: Figuring out life insurance
I’m 25 years old and make a nice salary but I am really very very tight budgeted. My wife is in college and watches our daughter all day. I want to get life insurance but I’m not sure which one is good for me. I could get 30 year term for a 700 dollars a year. Or i could get universal for $4360 a year. The perk with the universal is that it is like a savings account where after 20 years I’ll have money in the account to use towards my childrens wedding or college. Plus I’m paying for private schooling which is a whole diffrent ball game. Should I get universal and be tight with my money or should I get term and free up my now funds but not have the same security in the future.
- Andy

You should get a term policy, then open up a 529 college savings plan for your daughter. That’s the plan I would follow.

If you lock yourself into a more expensive policy and then lose your job, you have a good chance of losing that policy. If you have a term policy and are contributing to a 529 and lose your job, you can cut contributions to your 529 and not lose your insurance.

Besides that, most of the numbers I’ve seen comparing a universal policy to a term policy and an investment shows that the term and investment combo tends to win out both in the short run and (usually) the long run.

Q4: What makes people negative?
I’ve been dreading my family’s Christmas celebration this year because it’s always so negative. Everyone just sits around and ridicules people that aren’t there, famous people, and when the drinks start flowing they often ridicule each other in a very hurtful way. I don’t enjoy it at all. Why do people do this?
- Emily

Everyone channels their feelings and emotions toward the world in a different way. This is definitely a negative channeling of emotions, but it’s how some people vent.

I generally prefer to vent in a positive way. When I’m frustrated, I work it out alone. Sometimes, I work it out through my writing – some of the characters in the fiction I write are truly deplorable people.

When I’m around others, I try to see the positive in each situation. (The only thing I tend to be sarcastic about is politics, actually.) I find that the more effort I put into channeling my feelings into something positive, the more positive I generally feel about my life and the things around me. Positivity breeds positivity and negativity breeds negativity.

Q5: Babies and emergency funds
We are expecting our first child any day now. We have been very good at budgeting very well so far. We’ve budgeted for or been given all the furniture, clothes, diapers, etc. that we will need, at least for the first 6 months or so. We’ve been good about not over buying everything the baby industry claims you “need.” We have also budgeted for all the medical expenses that we will need to pay for. However, there is still a number of last minute things popping up that we just didn’t realize we would need to pay for. Part of this is probably part of being new parents and not knowing what to expect. Do you think it will be easier to budget better for subsequent children? Is it ok to use our emergency fund to pay for those purchases we didn’t budget for?
- Lauren

It will be much easier to budget better for your subsequent children. The biggest reason is that you’ll already have an awful lot of things on hand, and the second reason is that you’ll actually know what you need through experience rather than the advice of others.

Each parenting experience is different. Some parents find certain things very useful, while others find them useless. It has a lot to do with the house you live in, your neuroses about hygiene, and other such factors.

As for the emergency fund, this pretty much falls under the umbrella of what I would use it for. I would just focus on replenishing that fund as quickly as possible after you tap it.

Q6: Paying for pet medical expenses
We have a 4 year old dog that we love to death and that we consider part of our family. She is going through some health issues and the vet thinks that she may have an auto-immune disease that is very difficult and costly to treat.

We have already decided that we will pursue the treatment (we are not putting her down). The biopsy procedure along cost me $1200 and the treatment (steroids) are expensive and could last for 6 weeks (or for the rest of her life in 25% of the cases).

I charged the $1200 to a no interest credit card (for about a year) and I have $1700 in savings. I am wondering if I should use my savings to pay the credit card and try to pay the treatment out of pocket or if I should keep my savings and hopefully build more until my no interest period is up? My husband is unemployed (has been for a year), but I make enough for us to survive on my pay. The minimum payment on the card is only about $20 a month.
- Monica

It really depends on how much the steroid treaments are going to cost you and whether they’re permanent.

If I were in your shoes, I would probably leave this amount on the zero interest credit card for as long as I possibly could and see what happens with the steroids. If they’re needed permanently, then I’d spend some time focusing on reworking your budget so that you can afford these as a normal monthly expense. This might be a difficult shift and you might find emergencies during that period very painful, which is why I’d keep that emergency fund intact for now.

I’m going to assume that no cost is too expensive for this dog. Given that’s the case, there’s a good chance that this experience is going to push you into debt. If the steroids are a permanent thing, work with your doctor (and with comparison shopping online) to find the best possible price on the maintenance medication. Also, your husband shouldn’t be afraid to seek employment below his station. There are lots of jobs to be found out there if you’re willing to work them.

Q7: Unwanted gifts
What exactly do you do with an unwanted Christmas gift? I’m never sure what to do when someone hands me something weird.
- Ernie

When I open anything, I try to be polite and thankful about it, whether it’s something awesome (making it easy) or something awful (making it hard).

I don’t feel bad about re-gifting if the gift is really appropriate for someone else I know. I view it as simply passing along a good idea.

If it’s something that I don’t want and I can’t regift it, I’ll hold onto it for a while and eventually take it to Goodwill.

Q8: Handling pet cleanup
I have two pugs, and no yard. Both dogs are walked three times a day and each will do their business 2-3 times per day, so I’m using up to 6 bags per day and that gets expensive. Currently, I purchase the generic “Bags on Board” bags, but I cringe at the thought of paying so much for something that I’m just going to toss. I’m wondering if you have any ideas for a more frugal disposal of dog waste. Grocery bags/bread bags are not an option – I don’t buy that many groceries and I already reuse these bags as trash bags. I don’t take the paper, so I don’t have those types of bags either. It needs to be something that I can bring with me on our walks. Do you have any suggestions?
- Jeff

A friend of mine used to use a Dirt Devil type device with a hose attachment for this purpose. She had a small dog and this worked great for her.

Another friend of mine would carry a cloth bag and used a rubber glove to pick the waste up and put it in the bag. She’d then clean the bag at home (I think she had several of them and would just keep them in a bin in the garage and wash them all together).

You could also use the rubber gloves with something like a Rubbermaid container that you use just for this purpose.

Q9: Planning for after graduation
I will graduate in May with my bachelors degree and want to start getting together a plan for financial stability.

After graduation I’m hoping to move to Washington D.C. where I know I’ll probably have to intern for a while to get a full-time position. It’s very likely that these internships won’t pay anything so I’m starting to save up now. At the moment I have about $1,000 saved and anticipate a tax refund of $2,000 will go toward the fund as well. I save about $50 a week. As it stands now, my boyfriend will be moving with me and we anticipate that he will be able to find a full-time position to help support us. But of course we know that you can never bank on getting hired right away.

I will have about $30,000 in loans (all federal but both subsidized and unsubsidized) and no credit card debt (because I don’t have a credit card). A few questions-

1. Should I get a credit card? I’m afraid that if I get one I will start spending more than I’m earning with the mindset of “oh well I’ll pay it back.” I just really don’t want to fall into that trap especially when I know money is going to be tight.

2. How much should I plan on saving up if I anticipate interning until around January?

3. As to student loans- have you ever published a guide for students graduating college on steps to take to start out on the right foot with repaying student loans? What can I do now to prepare for repayment?
- Shawn

Effective credit card use is about willpower. If you doubt your willpower, I’d either not get one or get one and put the card somewhere where you’ll never use it (just to build a bit of credit). If you don’t think you can do it responsibly, don’t do it.

Housing in D.C. is insanely expensive. You need to start looking at housing opportunities right now. If you’re lucky, your internship will help you with this. If not, with your current savings, you’re either going to be building up debt or living in a car or living in a large group apartment.

The best thing you can do right now for repayment is simply to minimize the amount of debt you take out. The less debt you’re in when you graduate, the better. The next most important step is to make your choices toward securing good employment.

Q10: Favorite Christmas gift
What was your favorite gift that you received this year for Christmas?
- Elaine

I received an Arduino.

If you’re confused as to what I’m talking about, it’s a programmable microcontroller.

If you still have no idea what I’m talking about, think of it as a small piece of equipment that you can program with your computer to independently do simple tasks. For example, my first project with it (which I started earlier), was to make an electronic set of dice where all you have to do is touch a button and a dice face lights up, showing a random number between one and six. I hope to eventually build a Christmas light controller that takes the audio from a radio station of my choice and converts it into light patterns on the lights.

Merry Christmas!

Posted: December 25th, 2011, 7:00am MST by Trent

Merry Christmas from my family to yours. Whether you’re celebrating Christmas today, celebrating another winter holiday with your family, or find this simply to be another day on your calendar, the best of wishes to you. Regular updating will resume tomorrow.

In the meantime, I’d like to again share with you a poem that I shared a few weeks ago in the “Pieces of Inspiration” post. It’s by one of my favorite poets, Dorothy Parker. The flowing words and perspective twist of this poem just makes it wonderful to me. Few things charm me more than seeing a well-known story through a different set of eyes.

The Maid-Servant at the Inn
Dorothy Parker

“It’s queer,” she said; “I see the light
As plain as I beheld it then,
All silver-like and calm and bright-
We’ve not had stars like that again!

“And she was such a gentle thing
To birth a baby in the cold.
The barn was dark and frightening-
This new one’s better than the old.

“I mind my eyes were full of tears,
For I was young, and quick distressed,
But she was less than me in years
That held a son against her breast.

“I never saw a sweeter child-
The little one, the darling one!-
I mind I told her, when he smiled
You’d know he was his mother’s son.

“It’s queer that I should see them so-
The time they came to Bethlehem
Was more than thirty years ago;
I’ve prayed that all is well with them.”

Dealing with Holiday Leftovers

Posted: December 24th, 2011, 1:00pm MST by Trent

If your family holidays are anything like mine, you’re left with piles of remnants: torn-up wrapping paper, empty boxes, and extra food litter the house.

It might be tempting to throw it all away, but there’s a lot of value in those leftover items. Here are some of the things I’ve done with leftover Christmas items.

Wrapping Paper
1. I shred it and use it as packing material when I ship things or when I give gifts in the future.

2. I shred it and mix those shreds with paraffin to make some fantastic firestarters. The easiest way to do it is to take an old egg carton, put a few shreds of wrapping paper in each slot, and pour some heated paraffin on top. Then, tear the egg carton into individual egg-shaped slots (with the egg carton still attached to the paraffin) and you have yourself a dozen fantastic firestarters. This is a great use for camping.

3. I take large pieces of untorn used paper and turn them into a collage, which I then use for future gifts. A collage pattern on a gift looks really distinctive and interesting.

4. I take pieces of untorn used paper and cut shapes out of them, which I then attach to brown paper for future gift wrappings.

5. I take pieces of untorn paper and use it to teach my children basic origami, like a fortune teller or a dove or a jumping frog.

6. I shred it and use it for paper maiche projects. For example, we made a paper maiche Great Saiyaman helmet for our oldest son that he wears all the time (and which provided a centerpiece of his Halloween costume this year).

7. I take small pieces of it and use it to cut out snowflakes. Often, I’ll just fold them up so that they’re ready to cut, then store those folded pieces until next November for the following year’s Christmas decorations.

Empty Boxes
8. I reuse cardboard boxes over and over and over again. I just break them down so that they store flat in our garage, then use them whenever I have the need.

9. I convert leftover cardboard boxes into a dollhouse for my daughter. This gives her full ability to decorate the thing as she sees fit.

10. I cut cardboard boxes into strips and save them for campfire starters. This is particularly good for boxes that have been mangled enough that they’re not good for other uses.

11. I cut the cardboard into rectangles and use it for backing on framed photographs. Some frames come with the cardboard, but for those who do not, cardboard can be essential in preventing photos from slipping.

12. I convert larger boxes into “pet houses.” This can be a perfect way to enclose a dog’s sleeping area or give a cat a place to hide and play. Again, you can decorate them to your heart’s content.

13. I cut cardboard into tiny pieces and use it for garden mulch. It does a great job of minimizing weeds and then slowly decomposing into the soil.

14. I cut cardboard boxes into flats and use them for organizing smaller items in my closet, like CDs and DVDs. This makes it easy to see the exact contents without the items spilling everywhere. Just trim the box down to the height of the items you want to store.

15. If you still have leftover paper and cardboard, get creative with the reuse. I’d contact a daycare center or orphanage or even an elementary school in your area and see if they have any need for it, for craft projects and the like. Contact an animal shelter and see if they have any need for it as liners or bedding material. These options are far better than simply recycling them in your recycling bin.

Leftover Food
16. I just freeze as many of the basic ingredients as I can. Items like leftover turkey meat, leftover vegetables, and so on are perfect components for soups and stews and casseroles when you pull them out of the freezer.

17. I convert them into alternative dishes in the next few days. Leftover ham, for example, might become a ham-and-bean soup. Leftover sweet potatoes might become sweet potato pancakes.

18. I package it up and give it to holiday party guests to take home with them as something of a final gift. I’ll get a bunch of inexpensive containers that I don’t need back and allow them to have a meal at home.

19. I’ll prepare meals for shut-ins that I know and take the food to them. Several years ago, we lived near an elderly shut-in that we often took meals to and it was a very rewarding experience.

20. I use leftover vegetables and vegetable scraps to make vegetable stock and leftover meats and meat scraps to make meat stock. All you do is put the materials you want to make stock out of into a crock pot, fill it with water until there’s about three or four inches above the top of the food, then turn it on low and let it sit all day. Strain the liquid and save it – it’s a great starter for all kinds of dishes.

Don’t let holiday waste fill up your bins. Put that stuff to better use and save yourself a few dimes, too.

Ten Pieces of Inspiration #52

Posted: December 24th, 2011, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Little brown packages tied up with string…
… these are a few of my favorite things.

I absolutely love presents wrapped in brown paper and decorated in a handmade fashion. I find them far more appealing than presents wrapped in ordinary paper, though it takes a lot more work to do it well.

Thanks to Gillian Maniscalco for the wonderful example of homemade gift wrapping.

2. Elizabeth Hardwick on the best gift
This is the single best thing my parents did for me, I think. They instilled a love of reading in me. They read all the time in front of me and constantly encouraged me to read.

“The greatest gift is the passion for reading. It is cheap, it consoles, it distracts, it excites, it gives you knowledge of the world and experience of a wide kind. It is a moral illumination.” –Elizabeth Hardwick

If there is one thing I can imbue on my children, it’s a love of reading and learning. If they have that, they’ll have one of the best tools they can have in life.

3. Daniel Goldstein on the battle between your present and future self
I view a person’s future self as being incredibly unreliable. Countless things can happen to make your future self not as reliable as you’d expect. A car accident. A disease. A damaged relationship.

The best thing we can do for this is to constantly make choices to make our future selves better. That’s the theme of this talk, which really hammers it home.

4. John Wesley on earning, saving, and giving
One of the big debates that I often have with my wife and some of my extended family is the balance between earning money and charity. Should a person give even if they don’t have much, or should they focus on maximizing their income and give more later?

“Make all you can, save all you can, give all you can.” – John Wesley

I’m of the opinion that if you have the capacity to earn a lot, you should focus on that and invest in that if needed. If being a little less charitable this year and investing in something means you can give a lot more in the future, that’s a good move.

It’s a really interesting philosophical question.

5. Vivaldi’s Four Seasons (Winter), performed by I Musici
This is a wonderful version of a wonderful piece.

I often mention that I close my eyes to some musical pieces and just let the music flow over me. This is definitely one of those pieces.

6. Sydney Smith on the best gift
What can you do to make someone happy today?

“Try to make at least one person happy every day, and then in ten years you may have made three thousand, six hundred and fifty persons happy, or brightened a small town by your contribution to the fund of general enjoyment.” – Sydney Smith

I consider this a powerful call to arms in my daily life.

7. Winter Wonderland
I’d love to have a white Christmas this year. It doesn’t look like we’re going to have it here, but one can dream.

Great picture, Stasha Bella.

8. Schemer
This is going to be an absolutely wonderful tool – it’s in beta testing right now.

Schemer is a Google-made tool that allows you to find things to do. You simply type in things you’re interested in and it gives you suggestions on where and how to do it in your area. There are also tons of lists of suggestions for things to do in your area (or anywhere).

After just playing around with it for a few minutes, I found a ton of interesting ideas for things to do – and it’s only going to improve.

9. Ring Out, Wild Bells by G. K. Chesterton
I love this poem. It really captures this time of the year – the chill in the air and the sentiment of the days.

Ring out, wild bells, to the wild sky,
The flying cloud, the frosty light;
The year is dying in the night;
Ring out, wild bells, and let him die.

Ring out the old, ring in the new,
Ring, happy bells, across the snow:
The year is going, let him go;
Ring out the false, ring in the true.

Ring out the grief that saps the mind,
For those that here we see no more,
Ring out the feud of rich and poor,
Ring in redress to all mankind.

Ring out a slowly dying cause,
And ancient forms of party strife;
Ring in the nobler modes of life,
With sweeter manners, purer laws.

Ring out the want, the care the sin,
The faithless coldness of the times;
Ring out, ring out my mournful rhymes,
But ring the fuller minstrel in.

Ring out false pride in place and blood,
The civic slander and the spite;
Ring in the love of truth and right,
Ring in the common love of good.

Ring out old shapes of foul disease,
Ring out the narrowing lust of gold;
Ring out the thousand wars of old,
Ring in the thousand years of peace.

Ring in the valiant man and free,
The larger heart, the kindlier hand;
Ring out the darkness of the land,
Ring in the Christ that is to be.

10. Linus and Lucy
I can’t think of an instrumental that makes me smile more and gets me in a great mood for this time of the year than this one.

When I was growing up, watching the Charlie Brown Christmas special was an annual tradition. I think it’s carried forward for me in at least one way.

How to Find Good Stuff at Goodwill (and Other Secondhand Stores)

Posted: December 23rd, 2011, 1:00pm MST by Trent

I’ve mentioned quite often that I tend to shop at Goodwill/consignment shops/secondhand stores for various items. Whenever I mention this, I tend to get a bunch of responses along the lines of this message from Tessa:

How do you find anything good at Goodwill? Whenever I go into one, all I find is a lot of junk. I can’t believe you find anything good there.

There are a few basic tactics that you should use if you’re shopping at Goodwill.

First, visit Goodwills that are located in upscale areas. Don’t visit the Goodwill in the poor part of town or even the medium income part of town. Look for the Goodwill stores and secondhand shops that are located as close as possible to the rich part of town.

What happens is that people in the rich part of town often have more money than sense, so they’ll often get rid of very nice clothes having only worn them a time or two – and they do the same thing with other items. I’ve been in Goodwill stores in the peripheries of rich neighborhoods that have had far higher quality stuff than almost anywhere I shop at. I’ve filled up my book collections, my video game libraries, and, yes, my wardrobe thanks to such visits.

I’ll give you an example. Once, I stopped into the Goodwill store at Washington and Racine in Chicago and walked out with about fifteen video games and about ten new shirts. The store was nicer than many Wal-Marts and Targets I’ve been in and the quality of the merchandise and prices were fantastic.

Second, be picky. If you go into a Goodwill that seems to mostly be full of junk, you don’t have to buy that junk. Walk out and put that one on your “avoid in the future” list.

However, having said that, there are a lot of gems to be found, particularly in areas of income disparity. A college town is a perfect example of this. A college town often has a wide variety of incomes and perceptions of money, which means that their Goodwill stores tend to include a lot of cheap stuff and a fair amount of good stuff.

You often have to dig for those gems, though. What I often do is look for examples of high-quality things, even if I’m not particularly interested in buying them. If I see some high-quality items, even if they’re not perfect for me, I know that there are some diamonds hidden in the piles here.

So, how does that really work? I’m often willing to try a Goodwill that’s in a decent neighborhood that I’ve never been to before.

The first thing I do when I go in the door is look for items that I know really well. I’ll look at their men’s shirts or their smaller youth clothes or their books.

I look for items that fit me or that will fit my children, of course, but I also simply look for quality items of any kind. If I can find good items with some consistency while looking around, then I know the store is worthwhile even if I don’t specifically find items that match my needs.

So, with men’s shirts, I’ll look for items that look like they’re reasonably close to new, not faded, and are well constructed. I don’t necessarily expect to find a treasure trove in my size (like I did at that Chicago Goodwill several years ago), but I’m much more likely to stick with it if I’m finding some indication of quality items.

If I don’t find anything that seems of reasonable quality, or if I only find maybe one item in forty or fifty that looks worthwhile, I leave the store and often don’t look back.

The trick is to investigate lots of Goodwill stores, consignment shops, and secondhand stores in your area with these tactics. You should fully expect that some of them are going to be of poor quality and not worth visiting again.

However, if you’re like me, you’ll eventually find a series of stores that you’re happy to visit time and time again because the prices are excellent and you often find incredible discounts on nearly-new stuff. Such discoveries are well worth the time invested in finding them.

A Moment of Serendipity

Posted: December 23rd, 2011, 7:00am MST by Trent

Lately, there have been lots of stories of people blessed with opportunity using that newfound wealth to help others.

A Minnesota farmer gave most of his estate to his hometown, totaling about $3 million.

A person in Ohio paid off $8,800 in WalMart layway accounts anonymously.

Another “Secret Santa” in North Carolina made a similar move, paying off layway accounts there.

These types of things are great. When someone does this, they take something they have in abundance and use it to give a fresh opportunity to someone else.

As I’m sure most of you do, I’d like to think that many of the people who have been given this opportunity are going to take advantage of it. Instead of struggling to pay off that layaway bill, they can start hammering away at a credit card or maybe put some money away to pay for a future car repair. However, the reality is that some of the recipients of such serendipitous gifts will simply look for another way to get themselves into financial trouble.

This brings us back to the heart of the story.

Let’s say you were the recipient of such a boon. Thinking about it from a distance, you’re probably quite sure you would use that benefit for something worthwhile, like eliminating a little bit of debt or buffing up an emergency fund.

But would you do that? Would you be tempted to use that serendipity for something fun instead? Think about the little boons that life hands you all the time.

If you find a five dollar bill at the gas station (which I actually did a few days ago), what do you do with it? Do you pocket it and use it when you’re buying essential groceries, or do you take it inside and get yourself a Big Gulp and a slice of pizza?

If you find several dollars in change spread across your dirty jeans (which I did several days ago), do you do something fun with it or do you sock it away for something big?

I used to be very bad at this. I would spend “serendipity money” quite easily on whatever trivial thing I wanted at the moment.

Eventually, though, I began to realize that those little trivial things of the moment didn’t really make my life one little bit better.

So, instead, I started a “serendipity jar.” Whenever I find some money like that, whether it’s a quarter on the street, a $5 bill at the gas station, or $3.79 in change in my dirty jeans, it all goes in that jar.

When that jar is full, I take it to the bank and deposit it into my checking account, then go on with life as normal, except that my checking account has a couple hundred more dollars in it.

That extra hundred or two feels pretty good. It feels like freedom, and it often makes some problem in my life go away. It buys a new tire when one blows out or pays for a child’s costume for a dance recital without having to tap my actual emergency fund at all.

That, to me, is what serendipity is all about. Rather than providing a perk that’s forgotten in fifteen minutes, it smooths out what could be a worrisome bump in the road of life.

When serendipity finds you, don’t think of fulfilling whatever immediate desire you have. Instead, think of making your life better. Do something useful with it.

FedEx Delivery and Your Career

Posted: December 22nd, 2011, 1:00pm MST by Trent

If you’ve been watching the news the past few days, you’ve probably seen the infamous video of the FedEx deliveryman who just tosses a computer monitor delivery over a fence. Here’s the video if you haven’t seen it:

As I write this, FedEx has said that they’ve merely “disciplined” the driver, but I wouldn’t be surprised to find out that he didn’t have a job come January.

So why am I mentioning this on here?

I want you to step back for a moment and put yourself in this guy’s shoes. Right now, it’s Christmas, so his working conditions are pretty miserable at the moment.

He has a ton of packages deliver and a lot of pressure from his boss to make the deliveries as fast as possible – and probably personal reasons to get done quickly, too.

He has a computer monitor, strolls up to a front door of a gated house that looks pretty nice – probably in a nicer neighborhood than he can afford to live in.

He’s likely not allowed to leave the package unoccupied on the front step, so the only option is to put it over this rather tall fence.

He could try climbing up to put it over the top, but that would take him a few minutes – putting him behind schedule and probably facing the wrath of his boss and perhaps his family – and perhaps he’s afraid of heights.

He’s frustrated, he’s tired, and he just doesn’t want to deal with it, so he makes a bad call.

That one bad call has probably cost him his job and has also made him the target of a viral video and a lot of sarcasm.

I’m not justifying the behavior of the guy in the video. He obviously could have handled the situation much better than he did.

Instead, I want you to take a second and imagine one of your worst days at work. Your boss is making tons of demands on you, you’re swamped with work, you’ve got a lot of personal worries, and it looks like you’re never going to leave.

In the stress of the moment, you make a bad call.

Most of us never have that moment broadcast all over the internet. In fact, most of us are never caught when we make that bad call.

Could you have handled that situation better?

I can certainly think of my own situations like this, where I’ve simply thrown away piles of paperwork rather than dealing with them and other boneheaded moves.

Those are the moments that I do not want myself to be judged on.

I would far rather be judged by my best moments, or at least be seen as someone who can handle a challenging situation. When people judge you in this way, it can only be a benefit for your career, not a job loss.

The challenge is that, for most of us, the camera isn’t running at work.

My suggestion? If you want to establish a career reputation that will win you raises and promotions, act as if the camera is always running.

Now, imagine that FedEx video if it showed the guy carefully climbing the fence, then gently lowering the box on the other side, then ringing the doorbell. It might have never went viral, but it just might have been sent to the people at FedEx and helped out his career a little bit. I know I’ve certainly reported good work on my behalf to companies in the past.

When you’re stressed out at work and thinking about cutting corners, imagine that there’s a camera running, watching what you do next. Do you want to make a video of you looking foolish? Or do you want to make a video you’d be happy to have sent to your boss? Can you overcome the stress of the moment and do things right?

Make the best choice and your career will thank you.

Reader Mailbag: Lack of Snow

Posted: December 22nd, 2011, 7:00am MST 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. Credit card limits
2. Pest control option
3. Returning to work
4. Watching football without television
5. Hint of identity theft
6. Daytime heating and cooling
7. Value of a Kindle?
8. First budgeting steps
9. My budget
10. Movie night

It’s mid-December and we’ve had barely a dusting of snow. This is in complete contrast to the last few winters, when I had already run the snowblower several times.

I went back and looked through my journals and it looks like winters are really on a seven year cycle. We happen to be on the “mild” end of that cycle, which should include next winter as well.

My journals noted that the winter of 1997 and 1998 were bad ones, 2003 and 2004 were bad ones, and 2010 and 2011 were bad ones. In between them were mild winters, so we may be in for a pretty mild one.

Q1: Credit card limits
I have three credit cards at the moment. Two with balances that I am paying down as quickly as I can and one without a balance that I use occasionally for things I will pay off immediately. Recently two of my cards’ limits were increased. I am wondering if that affects me negatively at all. Should I call them and ask to have it lowered? (Both went from around $5,000 to $7,000). I know at one point in the past I had a huge limit of $18,000 on a card with no balance and I was almost denied a car refinance because of the potential to go into debt there. At that time I lowered the limit to $5,000. What do you think?
- Emily

This is a prime example of where credit scores and credit reports can be really confusing.

Normally, an increase in your credit limit is good for your credit score. It improves your debt-to-credit ratio, which makes up a big component of how your score is calculated.

However, some lenders do manual underwriting, where they just pull your credit report and do their own analysis of it, not relying on credit scores. In those situations, one thing they often look for is a comparison of your total credit limit to your salary, and if you have a lot of potential room to borrow and a relatively low salary, that will look bad to them.

What’s the solution? I’d probably keep my total credit limit to somewhere between 25% and 50% of my income.

Q2: Pest control options
I am constantly trying to cut back some of the expenses that we have so that we live within our means. We have a Pest control company come and inspect our house once every 3 months for pest and termite. They spray the outside of the house and lawn at each visit(to kill roaches and fire ants). They do spot treatment inside the house if there are any pests. This costs me about $85 every 3 months A few months back they inspected the attic and found some rat poop.They set up traps and caught a couple of rats.. The sealing of the house and setting up the rat traps cost me $500! Now this is one expense I am trying to cut out. Also I am concerned about the health impact of all the spraying they do out of the house and inside the house. Will you be able to suggest how I could prevent pests in my house without employing a pest control company. I am hoping to save some money and also eliminate use of harmful chemicals from our lives.
- Leon

There are lots of home remedies for getting rid of pests. The problem with them is that they generally don’t work as well as the stronger methods that pest removal services use.

If you have consistent problems with pests, you should probably keep hiring an expert to deal with them. However, if you’ve gone a period without any pest problems, you can certainly look into methods for preventing the types of pests you have.

For example, if you’re having a roach problem, boric acid and catnip are common solutions to send them scurrying away. Orange oil is often a good measure against ants. For rats, the best solution is what they did – trapping and sealing holes.

Q3: Returning to work
My husband and I live very frugally, but the cost of living in our area is quite high. It’s a rural area, but rent is $1100/month (cheap for around here), food is expensive (we live in Alaska), and electricity is even more expensive. So all of my pay (just under $2000/month) goes toward living, with maybe a few hundred dollars into savings every couple of months. We rarely drive, and the vehicle we do have (an old truck, in great condition but very fuel inefficient) is on long-term loan from my in-laws so we don’t pay anything other than fuel.

We have a decent emergency fund built up (just under $10,000) and my husband has about $35,000 in student loans. We also have about $35,000 in investments, which are making more in interest than the student loans are so we’ve decided to keep that money invested.

After being unemployed for most of the last year (minus 3 1/2 months during the summer–most of that money went to savings or paying off some medical bills), my husband has decided to go to graduate school and will be taking some classes in the spring. I work for the university so we won’t have to take out more loans. Additionally, he’s also been promised a part-time student job at $10.50/hour.

So here’s my quandary: what should we do with the extra money? We have quite a few goals. I’m investing the maximum amount to my retirement fund (I get a 50% match), but since I’m the only one with retirement savings I feel like it’s not enough for our future goals. (We’re in our mid-to-late 20s.) We would also like to buy a house sometime soon, since we like our area and want to stay here long-term. (After pricing it out, a mortgage would be comparable to our rent, although utilities are included in the rent so we’d have to figure those into the price.) We’d also like to start a family in the next year or two, and we love to travel so we’d like to go to Europe again in the next few years. Finally, I’d like to save up some money and buy a vehicle of our own. I know my in-laws have loaned us this truck in the best spirit and with no hard feelings (when we give it back, it will mostly be sitting in their driveway as a backup vehicle since the selling price wouldn’t be worth their time and effort) but I feel like I’m taking advantage of their generosity. Additionally, when we do drive it costs us a lot to fill up the tank. (We’ve got it down to about one tank each month at about $80-90 to fill it up.)

When we start getting the extra money, would it be best to split up our savings into different goals accounts? After all is said and done, we’d be saving around $800/month, probably a little more during the summer. Should we keep our investments as a sort of backup retirement savings and focus on our other goals? Or would it be best to open a RothIRA and fully fund that during the year, keeping the investments for a down payment on a house? Or should we plan to wait on buying a house until after my husband has completed graduate school? Should we fund our goals in any order, or just put a little bit of money toward each of them all at once? I’m certain that we’ll be making much more money within the next 2-4 years.
- Monica

The one statement that causes me worry is the last one. “I’m certain that we’ll be making much more money within the next 2-4 years.”

It is always a mistake to make personal finance moves based on what you think your future self will be doing. Your future self is incredibly unreliable. Careers change, health changes, personal circumstances change.

What would your life look like if your current income level remained the same for the next ten years? I would plan for that, and then treat any raise in income as a big bonus.

Q4: Watching football without television
I’m on board with your idea of eliminating cable except for one thing: football. I love watching football on Sundays and Mondays (and Thursdays) and I’d hate to lose that. Any ideas?
- Shane

I like watching football, too, but I almost never watch it on television any more.

What I usually do is use something like ESPN.com. I’ll watch the “gamecast” of a game and participate in the messageboard discussions while the game is going on. Plus, I have easy access to statistics for my fantasy football team.

If you’re willing to pay some for it, NFL.com offers some pretty good streaming packages. I have a friend who uses this – the only thing he watches on television is football.

There isn’t a legal way to watch football online for free, though. Yet. I wouldn’t be surprised to see an ad-supported NFL stream in the future online.

Q5: Hints of identity theft
I recently received a bill in the mail for $69 from a scooter store in Dallas, TX. I do not have and have never had a scooter, live in NY, was not in Dallas on the date specified. I have visited TX twice a year for the past 5 years to see my son, although not Dallas.On the bill, my address was slightly off, the street name had an extra e at the end and my PO Box was not listed, but everything else was my info. I called the store and they said they would take my name off the account, but that was the name and address given to them by a customer. I am very careful with all my info, shred all mail, check my one credit card each month ( paid off in full every month) and credit report. Since someone is obviously using my name and address, is there anything else I could be doing? This has kept me awake nights, thank you very much for your input.
- Cindy

My immediate suspicion is that someone connected to your son somehow got your address and tried to use it. I’m not saying that your son did it at all, but that someone your son knows got your address and somehow managed to use it at that store.

If I were you, I’d start keeping a close watch on my credit report. You can do that for free through the federal government at annualcreditreport.com. Just examine everything on it and make sure you know where those statements are coming from.

That’s far and away your best defense against some kind of fraud.

Q6: Daytime heating and cooling
We’re first-time homeowners and i also work for a major water heater/HVAC company. Daily, customers ask me for tips on reducing their hydro/gas bill with respect to the water heater which, according to industry estimates, makes up about 60% of the hydro bill (electric water heaters, I mean; I don’t know about natural gas) until the winter when heating costs factor in.

Our hydro bill can easily hit 3-400 in the winter if we had to heat with electricity.

Right now, we have a dual electric/wood furnace which is *highly* efficient. we’ve been burning wood and 4 to 6 pieces a day is enough to keep our house nice and toasty but the hydro bill is still around 200 which is far too much for a couple with 1 child (4-1/2yrs old).

Hydro has a program called “peaksaver” which sends a signal to major appliances such as the AC to turn things down by x% (i think it’s 15) but i’m wondering if it would be worth it to shut the WH off completely during the day – i’m on the phone working all day and there’s only my husband who is off doing his own thing. wouldn’t be difficult to reschedule showers, baths, etc to bef 7am or after 7pm and we already do all our laundry in cold water and wait until after 7pm to dry if we have to use the dryer.

Currently, the rates are as follow:
Mon-Fri 7am-11am and 5pm-7pm = 10.8c/KWh, 11am – 5pm = 9.2c/KWh
Mon-Fri 7pm-7am and all wkend = 6.2c/KWh

The water heater is 3000KW, takes roughly an hour to an hour and a half to fully heat.
- Reg

If you have an opportunity to shut such things off, it’s almost always worth it.

Think about it: doesn’t it make sense that it takes a lot less energy to heat up water once than to keep it hot during the day? Instead of having your heater kick on for, say, ten minutes every hour, it would just run for twenty minutes or so at the end of a much longer period.

Unless the temperature is extreme, for example, I turn off both the heating and cooling in our house during the daytime and just flip it back on for a comfortable evening for our family.

Q7: Value of a Kindle?
I’ve been considering getting one of the $79 Kindles. I read quite a lot and I’m trying to figure out if it would save me money over the long run.
- Shannon

It depends on what you read. If you’re very picky about your books and will only read one or two specific books when choosing a new one to read, you probably won’t save a whole lot of money.

However, if you’re willing to mix it up a lot and try out new authors and patiently wait for and then pounce on sales, you can get a lot of great reading in for not much money.

For example, I keep a close eye on the Kindle Daily Deal and check out books from my library all the time using my Kindle. I don’t always get the book I want to read, but I always have something worthwhile to read.

Q8: First budgeting steps
I’m 25 years old and just started my first job. I’m married and was wondering what do you reccomend i do to start budgeting? Alot of people i talk to have no clue what to do and where to start, are there programs that are better then others. My parents never worried about budgeting and now im stuck. PLEASE HELP!!!!!
- Bill

The first step is to simply keep track of every dime you spend for a while. Every cent that leaves your pocket, whether it’s a bill or a soda at the gas station, needs to be recorded for a whole month.

Once you’ve got enough information, sort all of that spending into groups that make sense to you. Rent, utilities, entertainment, food, and impulse expenses are all good categories, but use what you like.

Total up each of those categories, then figure out which ones you could control a little better (like your entertainment spending or your impulse spending). Then, at the start of the month, just withdraw the cash for those categories you’re trying to cut back on and use only that cash for those expenses until the end of the month.

That’s budgeting in a nutshell.

Q9: My budget
I would love to know what other people’s budgets are, for those with certain lifestyles. For example, my husband and I do not have children but our food budget is still higher than the FDA charts because we eat organic, free-range meats and local. And as a reformed bookworm, I’ve tried hard to curb my spending at Amazon but what do average people spend on books and magazines? I find this information educational and fascinating.
- Camille

Here is a great infographic that depicts the budget of the average American family, both in raw dollars and percentages.

Of course, that’s the average. You’ll probably never find anyone that perfectly matches it.

Having said that, I don’t think our family’s budget is too terribly different than that one.

Q10: Movie night
You’ve mentioned before that your family regularly has a “movie night.” How on earth do you pull that off with three young kids? Doesn’t it just turn into chaos?
- Kim

Our six year old often sits through a full movie, and our four year old will if it’s a movie that really draws her in (like The Princess and the Frog). It’s really our one year old that makes for challenges.

If the one year old is nowhere close to a nap time, we’ll often just choose a shorter program for our “movie night.” We’ll watch an episode of Sesame Street or something like that. If he is napping, we’ll try to get him to nap during a lot of the movie.

Mostly, it’s just an excuse for all of us to cuddle together in the basement.

Five Cheap Shirts or One Good One?

Posted: December 21st, 2011, 1:00pm MST by Trent

As many of you know, I sometimes buy shirts and other items of clothing at Goodwill, thrift stores, and consignment shops. I don’t have too much luck finding tall things (I’m six and a half feet tall), but I do find a lot of clothes for my children and my wife sometimes finds items for her as well.

The reaction that many people ask when they hear this is aren’t you just wearing shabby, worn out clothing? The general perception is that most of the clothes that you find at such places are well worn and won’t look good on a person.

To an extent, that perception is correct. There are a lot of clothes at such stores that I wouldn’t want to wear and that I wouldn’t want my children or wife to wear.

I shop there for two reasons.

One, sometimes I find a gem in the rough. I found the single most beautiful dress my daughter has ever had at a consignment shop for less than $3. I found a pretty-much-new sportjacket for myself at a Goodwill that fits almost like a glove for $5.

Two, these are the perfect places to get “weekend” clothes. These are clothes that you’re happy to wear when you’re out in the garden, mowing the yard, doing housework, or spending a lazy day around the house reading. Old t-shirts, old jeans, whatever – as long as it fits, it works.

These two scenarios make up most of the clothes in my wardrobe. I do, of course, have a selection of nice clothes that I wear outside the home.

Of course, this brings up a second question: why bother at all with nice clothes?

I don’t ever try to be the best-dressed person in the room. That’s a rat race that you never win, and there’s negligible reward for winning that race even some of the time.

On the other hand, I think there’s significant value in not being the worst-dressed person in the room. I won’t wear my old torn-up Chicago Cubs t-shirt when I’m meeting a professional acquaintance, for example.

I usually strive to hit the average – or just below the average – of the level of dress of people I’m with. This is a level that achieves every goal I want in a social situation: it makes the other person feel comfortable, but doesn’t make them feel uncomfortable because I’m way overdressed or underdressed compared to them. If I achieve that, I’m happy.

The thing is, that’s pretty easy to achieve on a low clothing budget. I don’t need very many items of “nice” clothing to pull this off, and most of my other clothes are just comfortable ones for workdays at home. Even when I worked in an office environment, it wasn’t particularly expensive to maintain a level of appropriate dress. I just needed a small number of nice shirts and a variety of pants that worked well with all of the shirts, and mixed and matched them.

So, would I rather spend a certain amount of money on a bunch of cheap shirts or one good one? I don’t think either answer is correct. The cheap shirts are perfect for wearing around the house or doing dirty work in. The one good one won’t be worn very often, but it will last for a very long time.

As with everything, it’s all about maximizing value. You get a lot of value out of an old well-worn shirt at home, but you get more value out of dressing appropriately when in public. Careful shopping can minimize your costs in both regards and not leave you wearing an expensive shirt in the garden or wearing beat-up clothing when you’re out and about.

The Simple Dollar Weekly Roundup: Multi-Christmas Edition

Posted: December 21st, 2011, 7:00am MST by Trent

My family and I often load up the few days before and the week after Christmas with a lot of visits with extended family, either at our home or theirs. This often means some careful choreography.

Part of the challenge is that we like to celebrate a full Christmas day with just the five of us, but actually doing that on Christmas Day doesn’t always work out.

Our solution is that our immediate family celebrates Christmas on a day that’s convenient in relation to the travel. We exchange all of our gifts for each other, play games, and often watch a Christmas movie (or a new movie received as a gift).

This way, if we need to travel on Christmas Day or have a bunch of family over, we still get to enjoy that family Christmas morning, with the children running into our rooms at five in the morning waking us up and so on, at our own house.

For us, that day is tomorrow.

(And, yes, Santa finds our children wherever they’re at on Christmas Day and fills their stockings with goodies.)

Five Ways to Save Money in Your First Job This is a great collection of tactics for any new graduate. (@ humble savers)

25 Ways to Make This the Best Christmas Season Ever We already incorporate a lot of these into our family traditions. (@ pick the brain)

Recovering from Divorce A divorce can be a real mess. Marriage is something to enter into with care, because if you do it without really knowing who you’re marrying, you’ve got a good chance of entering into an unhappy arrangement. (@ get rich slowly)

Are You Celebrating Christmas with Your Kids in January? This reminds me of my mother-in-law’s extended family. They celebrated their extended family Christmas in mid-November, which meant that it was out of the way before Christmas madness. (@ money ning)

The Economics of Christmas Lights I posted this last year, but few articles have made me re-think where I live more than this one. (@ seth godin)

Change for a Dollar

Posted: December 20th, 2011, 1:00pm MST by Trent

Every once in a while, something just appears out of nowhere and strikes the perfect chord in your life.

Yesterday, a friend of mine sent me a link to a short YouTube film, Change for a Dollar. Here’s the video. Please, take the time to watch this.

For me and for a lot of us, December is filled with spending money on things for others. We try so hard to make a wonderful holiday for those we care about.

The thing is, after all of the money is spent and the gifts are opened, the things you’ll remember will be the little things that have almost nothing to do with the gifts.

When I think back to every one of my favorite memories of my life, none of them have anything to do with gifts. They have to do with little things.

I remember the last Christmas I spent with my great grandmother. She was still living independently, but she wasn’t doing so well, so we brought her a whole bunch of easy-to-prepare foods and cooked a meal for her.

I remember sitting around a table a few days after Christmas playing Risk with my dad and some of his friends, the first time I played an “adult” game with the adults.

I remember when my father was unemployed during the winter when I was about six. My mother found a $20 bill in a parking lot at a grocery store, mostly buried in the snow.

The little things matter. They matter more than the big gifts or anything else.

Spend this season – and perhaps 2012 as well – making the little things right. It might alter the big things more than you think.

Does a Basement Greenhouse Really Save Money?

Posted: December 20th, 2011, 7:00am MST by Trent

When I was a child, my father used to grow plants in our basement all year long. I remember going down there in the middle of the winter with several inches of snow outside, only to find tons of tomato and pepper plants thriving under an array of grow lights. I remember how the basement smelled like fresh spring while the rest of the house smelled like… well, a winter home. I remember the deep green color of the vines and how the tomatoes seemed vibrantly red in contrast to the white and grey of winter outside.

Eventually, my father stopped doing this. Part of the reason was that the ceiling in our basement was pretty low and he had to stoop constantly when he was down there working and I think it began to bother his back.

The other reason, though, is that he began to really wonder if it was worth doing it compared to just buying vegetables at the store in the winter.

Lately (particularly as winter has descended upon Iowa), I’ve found myself thinking about those grow lights in the basement and wondering if I couldn’t clear out a spot in our basement for a small winter garden.

The question, of course, is whether this would be worth it. Would I actually be saving money growing my own vegetables in this way?

Grow lights This is where the real cost of the system comes in. Let’s say I decide to grow about 80-100 square feet of vegetables in my basement. This could be covered by an array of small grow lights or a single large grow light. After looking at a lot of options, it seems that the best choice is a single industrial-strength grow light like this one. The problem is that such a light costs around $300 depending on where you buy it. There are lower-cost alternatives, of course, but those have their own problems.

This single light would allow me to convert an 80 square foot room in our basement into a greenhouse, more or less.

Energy use of grow lights The grow light described above uses 1,000 watts of energy. If you ran the grow light 12 hours a day for three months, that’s 1,080 hours of use. The energy cost of this would be about $120 for a season of vegetables.

Pots We’d also need a collection of pots to grow the vegetables in. Thankfully, these can be found pretty cheaply and would be a one-time investment of about $100 or so.

Soil I’m lucky to have access to adequate soil and compost, so the cost here is negligible for me. However, if you’re made to use potting soil, the cost would be rather high for 80 square feet of vegetables.

Seeds The seeds for this project would be relatively inexpensive on the whole, totaling perhaps $3 per growing session (assuming that you’re not using heirlooms, in which case this would be a one-time cost of $4 or $5).

Water The cost of the water would be negligible. We’ll figure a dollar’s worth of water per season.

So, let’s figure up the costs here for ten “seasons” of growing.

One grow light, costing $300.
Ten seasons of electricity, costing $1,200.
Pots, costing $100.
Seeds, costing $30.
Water, costing $10.
(You’ll also need soil if you don’t have access to it.)

The total cost of all of these elements is $1,640, or $164 per season.

There’s also the housing cost of having 80 square feet to devote to such a project, plus the cost of heating and cooling the room (I’d just keep it at our house temperature plus the grow light), which would add some additional cost to the equation.

Using this as a guide for vegetable square footage, I could plant a lot of vegetables in 80 square feet.

Without getting into the complexities of a diverse collection of vegetables, let’s just say I could plant a single tomato plant per square foot and that tomato plant would provide ten pounds of tomatoes. This would mean I would get 800 pounds of tomatoes out of this room every growing season, assuming that because it is indoors, I’ll minimize or eliminate pest or disease problems.

This would give me a cost per pound of tomatoes of about $0.20. Compared to the cost of tomatoes at the store this time of year (about $2.99 a pound), that’s quite a deal.

The problem is that pulling this off is a tremendous amount of work and planning. I would be installing grow lights, hauling tubs of dirt into my basement, planting lots and lots of seeds, and performing all sorts of regular maintenance. I would easily estimate that I would spend 100 hours per growing season cultivating these plants.

There’s also the issue of dealing with that much fresh food coming in at once. Much of it would have to be canned or frozen, adding to the cost and time, or given away to friends, increasing the cost per pound of production but also providing a gift to friends, or perhaps even sold in small amounts if an arrangement could be found.

In the end, this type of gardening can save you some money, but it’s going to be a labor of love along the way. If gardening is something you’re passionate about, you will save money with this effort. I would estimate that you could even approach minimum wage with it for the time invested if you canned all of the excess vegetables along the way.

Still, the question really is whether you find personal value in doing this. If you do, this can certainly be a great project for an extra room in your home.

Personal Finance and Intuition

Posted: December 19th, 2011, 1:00pm MST by Trent

A few weeks ago, I was exchanging emails with a reader (who asked not to be quoted, but said I could paraphrase the conversation). She told me that she makes most of her decisions entirely on instinct and intuition and feels that this is why she often gets into financial trouble.

Frankly, I agree with her conclusion. You can most certainly get into a lot of financial trouble if you operate entirely on intuition, instinct, and impulse.

When you’re shopping, if you make a purchase based on instinct without running the numbers, you’re probably wasting significant money.

When you’re investing, if you rely on a gut feeling for your investment choices, you’re probably going to lose money on that investment compared to what you could have made.

When you’re planning for the future, relying on intuition often means that you find it really difficult to set a goal and follow a plan to get there.

I speak from experience in each of these cases. I’ve found that, time and time again, your gut reaction can lead you down a very dangerous money path. Yes, sometimes it can result in good things, but the number of mediocre and poor things that can result from intuition overshadows this.

What can you do about it, though? It is often too tall of an order to simply tell someone to stop relying on their gut when they make decisions. You can’t completely alter how people think and how they make decisions.

Instead, what you can do is alter the basis upon which they make those decisions.

If you spend some time researching the products you buy in advance until you know about them and know how to evaluate their prices and relative quality, you’ll naturally incorporate that into your shopping decision.

If you spend some time researching various investments and understanding what the various risks and benefits are of different options, you’ll naturally incorporate that information into your investment decisions.

If you spend some time carefully planning for goals and setting up a very clear plan to get there that is obvious and clear to follow along the way, you’ll use that when making all kinds of time and money decisions along the way.

The key is preparation. If there is one real key to success in almost any area, it’s the preparation you put into it. The more you understand the options before you, the more likely it is that you’ll make a good decision when you’re faced with a choice. That decision will probably still be based on intuition, but that intuition is a flower grown from a rich topsoil of knowledge.

When you’re not pressed for a decision, spend some time investigating the decisions you make every day – or the big ones you know you’re going to be making soon.

Look up the products you regularly buy on the internet. Figure out where the least expensive place is to buy them, and compare the products to competitors. That way, you can make a better decision about not only which specific product to buy, but where to buy it.

Read a well-rounded book or two on investing topics, and take the time to actually understand what is being said in them. Take it slow, and look up terms you don’t know on the internet.

Plan out what you want from your future, then think about what you’ll specifically need to do to get there. What can you be doing each and every day to make that future come true?

For me, I find that the more I think about such things and the more I learn, the better my intuition and instinct becomes. They draw on the foundation of knowledge that I have and the time that I’ve invested thinking about these issues.

Simply put, learning and thinking helps your finances.

Reader Mailbag: The Big Christmas Run-Up

Posted: December 19th, 2011, 7:00am MST 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. Retiring at age 50
2. Return to work or not?
3. Handling an inheritance
4. Christmas games
5. Money and relationships
6. Housing predicament
7. Pie options
8. 40/30/30 question
9. Wanting frugal gifts
10. Sleep remedies

The days leading up to Christmas are always filled with excitement and energy. There are tons of little things to remember, checklists to fulfill, items to wrap and prepare, and last-minute emergencies to handle.

I’m actually thankful that Christmas comes just a little bit after the shortest day of the year (December 21). It gives us something to occupy our minds when the days are grey and very short.

Q1: Retiring at age 50
I’m 31 and I have a goal of retiring at 50. Like any other goal, I have a realistic plan to make it happen, and metrics to track my progress.

We’re a family of 5 and our monthly expenses are about $8k/month. I figure when the kids leave the house, it’ll be around $5/month (in today’s dollars).

Our current retirement savings are in the low 6-digits. 401k and Roth IRA, invested in Vanguard’s Target Retirement 2040 Fund. I add about $25k per year, depending on how much I can bring in. The IRA is maxed out, and the 401k is funded well beyond my employer-match level.

My question is what investment strategies/products should I use to “bridge the gap” of about 15 years between when I retire and when I’m able to draw out of my 401k and Roth IRA? (I’m able to draw the principal out of the IRA at any time, right?)
- Cael

Yes, you can withdraw your contributions from your Roth IRA at any time.. That’s certainly one possibility for bridging that gap.

It’s also important to note that you can begin making “retirement” withdrawals from your Roth IRA at age 59 1/2, assuming you’ve had the IRA for five years or more (which you will have). This shortens the “gap” that you’re trying to cross.

If I were you, I’d probably keep saving along the same path that you’re on without changing much at all. If you do reach a point where you think you can make the leap into retirement before a traditional retirement age, then I’d rely on Roth IRA contributions to bridge that gap.

Q2: Return to work or not?
Here’s our situation: our first child, a girl, was born with a rare bone marrow disease. I did not return to my work as an administrative assistant to take her to her many, many doctor appointments. We decided a year and a half ago to try to have a sibling, through in-vitro fertilization, who is a donor match for our daughter in case she needs a transplant (not a likely scenario for her since she’s stable on drug treatments, but certainly a possibility). Insurance did not cover most of it. I am now pregnant and due in April. The enormous medical bills, even with the help of family, have left us with about $12,000 in debt and monthly payments we can’t quite cover on my husband’s salary. It seems like we’re slipping behind, not cutting down the debt. We still allow ourselves very small luxuries (a Christmas present or two, an occasional evening out, even a two-day vacation this Christmas). Do we cut these out entirely, or should I look for work?? I don’t want to leave a small infant with a nanny but hate paying the interest on all this debt. I think the stress of our debt is making me a less fun parent anyway. There is no guarantee I can find a job in this climate, but at least it would help a little towards dragging us out of this mess we’re in. Or should we just try to get by, paying just the interest, on our debt for a year until I consider my son old enough to be left at daycare (much cheaper than a nanny)?
- Ellen

Unless you get a job that pays quite well, you’ll be losing money on a nanny for your child. You’ll have to make substantially more than you’d be paying a full time nanny to make that work.

Most people in your situation – a situation not too different than the one we were in not that long ago – usually wind up using some form of daycare for their child. Our experience with our daycare was overwhelmingly positive, but I would highly recommend spending plenty of time finding the right one before putting your child in.

One way to do this is to set yourself a “deadline” for when you plan to enroll the child, then start shopping for one now. Many of the good daycares have a waiting list to get in, so you’ll probably want to get on some of those lists.

Q3: Handling an inheritance
When my father passed away last year, we found out that he had name me, not my mother, as the beneficiary to his IRA. I have a choice of small annual payments until retirement (I’m 37) or taking out all the money now and assume the tax hit. I know that he worked hard at building up the value of the account so that, if he should pass, my mother and I could pay off the mortgage on the house we own jointly and live in. We currently owe approximately $96,000 and his account, before I get hit with both federal and state taxes, is $105,000. After taxes, we expect what’s left from my father’s retirement account to be less than what we owe and will still have a couple year’s worth of payments left to go.

The house is a split level with no bathroom on the main floor. My mother is 70, and we expect her not to be able to navigate stairs by the end of the next decade (as it is now she gets winded sometimes due to her asthema). Putting on an main floor addition of a master bedroom suite would make the house more comfortable for her. We’ve gotten some rough quotes, and such an addition would be between $70,000 and $100,000. Also, there are some other repairs and improvements which need to be done on the house. For example the roof will need to be replaced within the next 5 years, and some of the insullation needs to be replaced as well.

Here’s my question(s):
Where should I invest this money my father left us?
Should we follow his wishes and put it all into the mortgage, and have only a few more years of payments, as opposed to over 20 years? (this would delay paying for any major repairs and/or additions for quite some time).
Should we pay to have an addition put on and make the house more comfortable and practical for her in the later years of her retirement, and take the risk that the addition could cost more than the money we have in hand? (and still have over 20 years of mortgage payments)
Or should we use the money to take care of those major repairs, and put any remaining money towards the mortgage?

I’ve asked friends, family and co-workers what they would do and the responses are all across the board, each with seemingly good rational.

What would you do if you were me?
- Jill

If your father wanted you to put it into the mortgage and you’re sure of his wishes, you should follow them.

The question for me really is whether or not that was really the spirit or intent of his wishes. He wanted the money put into the mortgage, but why did he want that? What you should do with that money is fulfill the why part of the question, and that will probably take some soul-searching.

My guess, based on your story here and similar stories I’ve heard, would be that he wanted comfort and security for his wife and thought you were the best person to ensure that. If that’s the case, you should do what will make your mother’s life the best down the road. Adding a room like this will likely increase the value of the home significantly, so when you do eventually sell it, you’ll be able to pay off the mortgage and have some left over.

Q4: Christmas games
In past years, our family has had Christmas at my mom and dad’s house. This year, we made a family decision to have me and my wife start hosting Christmas to take some stress off of my parents.

One of our family’s traditions is to play some board and card games in the afternoon on Christmas day. We usually play Monopoly or Risk or bridge. We have a deck of cards, but no other games. I thought it might be fun to have some different games to play with my family instead of these old classics. I know you play a lot of these games. Any suggestions?
- Randall

One interesting option might be to pick up a copy of Risk Legacy. This takes Risk and adds some interesting twists to it in that you actually customize the game as you play it. For the first fifteen games, everyone who plays it is involved with actually modifying the game through small gameplay changes, the naming of continents, and other such things. It’s really fun – my wife and I are playing this with a group of our friends right now. This would take the classic feel of Risk and add a new twist to it.

There are a handful of really great games that I recommend to almost every family: Ticket to Ride, Carcassonne, and Settlers of Catan immediately come to mind.

Honestly, you might want to also just have copies of the classics, too. Games are really about socializing, and well-played games have a lot of nostalgia to them, which is a wonderful socializing spur. You can often get these classics at thrift stores for a dollar or two, though I suggest buying two copies just so you can be sure you have all of the pieces.

Q5: Money and relationships
You always seem to have similar goals to the ones I aspire to in life. And you seem to have found a perfect soul mate for this. I am French and live abroad, though I aspire to come back soon and start a life there, and a family. I am just over 30 now, and really envy people who found a perfect match at 23, have a mortgage and other financial goals together with a spouse, like fixing up a house or investing towards financial freedom. I sometime feel like when I save money or plan financial things it would be so much easier to be a couple.

I own two properties, and they rent nicely. I do freelance writing for a living but have come to a point where I do not need that income to live. My dream is to find someone like minded and be able to dedicate all this freedom to raising children, I am even considering homeschooling, and other activities that would be a real perk to a man who wants to invest in his career, like fixing up the house, optimizing meals, and so forth, so we could easily live on one income and have a happy family.

I have been on relationships before who lasted anything from a few months to a few years but every time I felt like the financial agreement would fail us and ended the relationship. Any advice on that? I read that every relationship success, whether business, family, friends, or love, was based on a sound economic agreement. Yet I have a hard time when I start dating someone putting the finances on the table to see if we are bound to have a future.

It is taboo over here, or when I say I dream of being a housewife and raising my children they look at me like a 50s wannabe wife or like I want to take advantage of their income to live for free (I am very independent, financially from my parents since I am 17, graduated debt free with grants, have about 200K net worth before turning 30, and able to maintain myself without incurring any debt, pay my credit card and loans in full each month and so on). I have thought about turning to church to find a christian man since those values are important, but not being very religious myself I am afraid we would have disagreements on that topic.

What are your thoughts?
- Susan

I don’t think finances need to be on the table at the start of a relationship. However, when a relationship becomes serious enough that both parties are entertaining thoughts of joining their lives together, then finances should be brought up.

Communication is always the key. If you’ve communicated a lot with this other person and you feel your relationship is strong, bring up how you feel and talk it through. That’s always the best approach in a relationship.

As for looking for someone who would respect you in the housewife role, you’re right that a Christian church might be a good place to start. However, if you’re finding that dating someone of a particular religion is going to bring up other problems, you probably shouldn’t seek someone there. Seek out groups that match your values in some ways, then look for individuals in those groups that match your values in other ways. It’s all about the filtering, and it takes time.

Q6: Housing predicament
My wife and I currently live in condo that we have a mortgage on. We purchased 4 years ago, rate is 5%. We purchased for $140,000 and have about $135,000 remaining on the mortgage. When we purchased the condo we took the $7,500 housing grant that we have to pay back over a 15 year time period or when you sell the house. The stipulation is if you do not make a profit then you don’t have to pay this back. We have already paid back $1,000 of this. The purchase price is adjusted for any improvements or commissions you have paid in the process. We put in more than $10,000 of improvements so if we were to sell for anything over $143,500 we wouldn’t have to pay back any of the remaining grant. We could also choose to rent, which is what I would do if we didn’t take out the grant, but if we were to do this we would have to pay the remaining balance of the grant back at that time since it is no longer our primary residence. This was the $7,500 home buyer credit, not the $8,000 that you don’t have to repay and can rent after 3 years.

Here is our delimna. We have our condo currently listed at $144,000 however we may only be able to get $135K or even less for it, which after commissions would barely break even on our mortgage and could possibly even take a little loss. We want to continue to save and build our savings account up to around $15K before we buy our new place. For us to do this we can’t really afford to lose that much when we go sell. The condo we are living at will probably be too small once the baby gets to about a year old so we are looking at houses in our area at around $200-$250K, (I realize we wouldn’t have 20% down but this is what we are wanting for now). We also want to take advantage of the lower interest rates that are currently in affect right now (I personally believe they will be low until 2013).

You didn’t do anything incorrectly other than not prophetically predict what the housing market was going to do. You made a move based on the information you had at the time and you’re largely responsible with your money. Don’t be frustrated with yourself.

If I were in your shoes, I would stay put for the time being and make it work with the child for as long as you possibly can. Sarah and I shared a very tiny apartment with our first child until he was almost 2 and our second was on the verge of arriving. If it weren’t for that second child, we might still be living there.

This will allow you to not only save for the down payment for the house you want to buy, but will also allow you to get more and more above water on your condo. Even if you don’t time the market perfectly, if it begins to rebound, your condo will also go up in value, meaning the rebound won’t hurt you as badly as you might think.

Q7: Pie options
Is it less expensive to make your own pies or to buy them from a good baker? I don’t like to buy some of the cheaper pies because they taste artificial but there are several bakeries around here that make good pies.
- Linda

Sarah and I have made quite a few pies over the years. My experience has been that a truly great homemade pie takes about two hours of work and uses between $10 and $15 in ingredients, assuming you have very little of the ingredients on hand. A simpler homemade pie – one with a pre-made crust – can be done in much less time, but isn’t quite as good.

So, how does that compare to pies that you might purchase? There’s a bakery here that sells pies that are roughly as good as the pies we can make with a pre-made crust for about $15. There’s one bakery that supposedly sells mind-blowing pies (though I’ve never tried them) for about $20.

You’ll save money by making it yourself, but not enough to make it worth the time unless you really enjoy the process of making pies. I actually do if I’m in the right mood.

Q8: 40/30/30 question
I have a question about the 40/30/30 rule you spoke of in November of last year. You say it basically means you should spend 40% of your income on basic bills, 30% on saving for the future and 30% on enjoying life. But how do you do the math? For instance, if I save $16,500 through my 401(k) at work, that’s money that I never see in my bank account, but it is money that’s going towards saving for the future. So do I just take my net bi-weekly pay, annualize it, add $16.5k to the total, divide by 12 months and then use the 40/30/30 formula on that number to figure out my monthly ‘budget’?
- Regina

That’s what I would suggest doing. I would simply ignore taxes entirely. If I used pre-tax money for savings, I’d just count that normally.

It’s important to remember with things like 40/30/30 that they’re just guidelines to get you moving in a healthy direction. They’re not absolute rules that work perfectly in all possible situations. Almost all personal finance advice is just like that – everyone’s specific situation is different.

If you’re putting $16,500 into your 401(k), you’re probably doing really well with your finances. Keep it up.

Q9: Wanting frugal gifts
I was just wondering if you could give some advice, it’s only a small problem, barely a problem really but I thought you might have an idea that I haven’t thought of. With Christmas coming up presents have been a topic of conversation here and there. My mum has always bought one or two big things for me for Christmas and then a few little stocking fillers (I’m an only child so she always goes a little overboard). The stocking fillers always used to be useful things, socks, underwear, occasionally toiletries. I always loved this, I went through a stage of about four years where I didn’t have to buy my own underwear because I always got new ones at Christmas!

Of late though she’s been buying more trinket type things that don’t have any use. It’s not that I mind her buying things like that, it’s more that I feel bad that she’s spending money on something that is just going to get (eventually) thrown out because I have no use for them. I think she’s doing this because I’ve become more frugal over the past few years and she thinks I’m depriving myself, when the truth is I just laugh at the prices they put on things that have (in my mind) no value. Any ideas on how I could suggest to her that I much prefer the socks and undies route? I’ve tried commenting how awesome it was when she was doing the socks and underwear thing but that didn’t work.

As I said, it’s not a huge problem, it’s not that I mind that much getting those sort of things, I know that the thought is there, it’s more that I feel bad that she’s essentially wasting her money.
- Lauren

I think the key is communication, but I wouldn’t do it right in the face of the Christmas season.

Accept whatever you get this year, then have a conversation about this in April or in June or in September. Sit down with your mon and simply say that you actually do not want a lot of those “trinket”-type things. Reinforce it by simply not commenting on or even gently deriding the materialistic things you don’t value outside of the context of gift-giving.

The key is to make sure that you’re not bashing your mother’s gifts. The purpose of this isn’t to hurt her feelings but to make sure she understands what you actually value. Tell her what you value and make it clear to her through your actions.

Q10: Sleep remedies
You almost always seem to have great frugal ideas for life’s problems. My big challenge as of late is insomnia. I often can’t get to sleep until one or two in the morning and when I have to get up at six, I’m exhausted. Do you ever get like this and if you do, how do you deal with it?
- Evan

Whenever I’m having a hard time sleeping, I do two things.

First, I exercise a lot in the morning. Not in the afternoon or evening. The morning. I do something around the house that requires a lot of exertion or I’ll go on a brisk walk or jog for a long while or I’ll go on a bike ride. The key is to really wear myself out in the morning so the endorphins and other responses wear off before bedtime, leaving me with physical exhaustion.

My other tactic is my old standby of warm milk with nutmeg. I just take some milk, heat it until it’s warm (bordering on hot), and sprinkle several dashes of nutmeg on top. This puts me to sleep really well, for some reason.

Review: Your Credit Score

Posted: December 18th, 2011, 1:00pm MST by Trent

I was about to review the third edition of Liz Pulliam Weston’s Your Credit Score several months ago when I found out that a fourth edition was forthcoming, so I waited until this new and updated edition was released to write this review. What I found was that the book remained a detailed and useful resource concerning how credit scores work in America.

Part of the challenge of credit scores is that the exact formulas for calculating them remain trade secrets. At best, companies like Fair Isaac issue guidelines on how to improve your credit score, but they don’t tell you exactly how they’re calculated.

Unsurprisingly, this can result in some serious confusion. Even worse, these scores are used for all kinds of things, from determining how trustworthy you are during a job interview process to determining your rates when you buy insurance.

Weston has written a pretty solid concise guide to understanding and navigating this minefield.

Why Your Credit Score Matters
If your credit score is good, banks will want to do business with you. They’ll provide you good rates on things like mortgages and car loans. If your credit score is bad, banks will pretty much avoid you because, to them, you’re not worth the risk. Even if you don’t really care about such things, it’s important to keep tabs on your credit score because it’s often the first way you find out that your identity has been stolen. People open up lines of credit in your name, use them for purchases, and you’re the one holding the bill – not something you want to have happen to you.

How Credit Scoring Works
Your credit score is calculated based on your credit report, which is a compiled document about you listing all of the sources of credit you have, such as student loans, credit cards, car loans, mortgages, and so on. You can get your credit report from the federal government at annualcreditreport.com. Generally, five factors make up your credit score: your payment history (have you been making payments?), how much you owe (do you owe a lot?), how long you’ve had credit (longer is better), your last application for credit, and how many different types of credit you use, and all of these pieces are obtained from your credit report.

FICO vs. “FAKO” – Competitors to the Leading Score
The primary formula used for calculating a credit score is called FICO (short for Fair-Isaac Corporation) and it’s the general formula that’s used for calculating your credit score. Unfortunately, the FICO formula is a trade secret, meaning we don’t know exactly how it works. Some companies offer alternatives to FICO, but none of them have caught on.

Improving Your Score the Right Way
How do you improve your credit score? First, get your credit report, as mentioned above, and then make sure you know what every entry on that report is and that it’s correct. Next, make sure to pay all of your bills on time, and then pay down your debts. Also, if you’re trying to improve your score and you’re carrying any debt at all, it’s probably not a good idea to close any of your credit cards or lines of credit.

Credit Scoring Myths
The biggest myth that goes around about credit scores is that your score will be helped by closing old credit cards or having your credit limits reduced. This actually can hurt your score if you’re carrying any debt because it alters the “how much you owe” element of your credit score, which is based on a comparison of your actual debt versus your credit limit. The closer you are to your credit limits on the whole, the worse off you are. So, if you have a $2,000 debt on a card with a $2,500 limit and another card with $0 debt with a $2,500 limit, you’re utilizing 40% of your credit limit. Not bad. But if you cancel that $0 debt card, you’re suddenly using 80% of your credit limit – not good.

Coping with a Credit Crisis
Many people tend to retreat into their shell when things get financially bad, but that usually just makes things worse. A much better approach is to handle it head-on. Look for ways to free up some cash by selling off things in your closet. Prioritize your payments so that you’re not going to lose your home or your car. Contact some of your lenders and discuss the crisis you’re going through – some lenders will put your debts into forbearance during a job loss or other such situations. Weston discusses credit counseling (and doesn’t give it much of a thumbs-up) and bankruptcy as final options after you’ve tried everything else.

Rebuilding Your Score after a Credit Disaster
Much like dealing with a bad situation, recovering from it also requires you to be proactive. Check your credit report regularly and make sure it’s correct with regards to your current situation. Resolve the bad spots still left on your report. Also, if you have the opportunity, make sure that you get positive things about yourself added to your report. If you have a line of credit that’s not being reported that’s in good shape, try to get that to appear on your report by contacting the company who is offering that line of credit.

Emergency! Fixing Your Credit Score Fast
It’s difficult to get changes made immediately to your report and your score. If you do try this route, you need proof of what you’re saying or else you’re just wasting both your time and their time. A much more reliable route is to focus on the positive change you can make over a month or two by doing things such as paying off as much of your credit cards as possible (improving your ratio, as described above), using your credit cards very lightly, and trying to get positive things added to your credit report.

Insurance and Your Credit Score
Insurance companies use your credit score as an element of determining how much to charge you for insurance, so one of the best things you can do to improve your insurance rates is to improve your credit score. Of course, that’s not the only factor in determining your insurance rates, as things like your deductible amount also influence how much you pay.

Can Bad Credit Cost You a Job?
Employers often use credit scores to help winnow down applicants for an open position, particularly in a poor job market. If an open position has a deluge of reasonably qualified applicants, employers are going to look for reliable and trustworthy people, and like it or not, credit scores are often used as a quick thumbnail to check how reliable and trustworthy people are.

Keeping Your Score Healthy
Pay your bills. Pay down your debts. Have an emergency fund. Have adequate insurance (for example, life insurance for you and your spouse). These things all go a long way toward ensuring that your credit score is healthy for the long haul.

Is Your Credit Score Worth Reading?
Weston’s book focuses in on credit scores like a laser beam. If you ever had any interest in understanding how credit scores work and how they affect your life in more detail, this is absolutely the book to pick up.

Keep in mind, though, that this book hits a home run with the topic at hand, but doesn’t really address much else in terms of personal finance (outside of issues directly connected to the topic), so if you’re looking for more of a full picture, you might want to pick up a different book and look at this one as a supplement.

Check out additional reviews and notes of Your Credit Score on Amazon.com.

Charity and Your Tax Bill

Posted: December 18th, 2011, 7:00am MST by Trent

Edit: I made a mistake with the standard deduction math and explanation near the end of the original version of this post. I have since corrected it. Thanks to the readers who pointed it out.

Monica writes in:

Last year, I took the advice of my older brother and made several charitable donations during December to help out my taxes for the year. When I filed them, I did get a return, but it wasn’t nearly as big as I expected. Are charitable donations really a big deal or did I do something wrong?

Charitable donations do provide a reduction in your taxes, but it’s not the huge reduction that many people often think they are or expect that they are.

To understand the benefit that charitable donations give to your taxes, first you have to understand how income taxes work. This is something that many people surprisingly misunderstand.

When you earn ordinary income from working at a job, you have to pay income taxes on it. We all know that, of course. What many people don’t quite understand is how the amount you pay is calculated.

Let’s say you are a single person earning $50,000 this year (we’re not going to worry about issues like personal exemptions and other tax issues that would further complicate the issue – we’ll just look at $50,000 in taxable income after such things). To figure out how much taxes you have to pay, you have to look at the income tax rate table. For 2011, it looks like this for single people (there’s a different table for married couples):

For income between $0 and $8,500, you pay 10% in taxes.
For income between $8,500 and $34,500, you pay 15% in taxes.
For income between $34,500 and $83,600, you pay 25% in taxes.
For income between $83,600 and $174,400, you pay 28% in taxes.
For income between $174,400 and $379,150, you pay 33% in taxes.
For income over $379,150, you pay 35% in taxes.

So, as I mentioned, we’re looking at a single person who makes $50,000 a year.

For the first $8,500 of that (the $0 to $8,500 bracket), that person has to pay 10% of the income in taxes. That’s $850 for this bracket (that’s 10% of $8,500).
For the next $26,000 of that (the $8,500 to $34,500 bracket), that person has to pay 15% of the income in taxes. That’s $3,900 for this bracket (15% of $26,000).
For the rest of his pay ($15,500), that person is in the $34,500 to $83,600 bracket, which means that person has to pay 25% of that portion of his income in taxes. That’s $3,875 for this bracket (25% of $15,500).
To figure up the person’s total tax bill, they simply add together those pieces, which totals $8,625. This person will owe $8,625 on their taxes this year.

Now, how can a person lower that amount? The most common way is through deductions. The government gives out standard deductions each year on a person’s taxes. For 2011, that amount is $5,800 for a single person. How that works is that you simply subtract that deduction from the total amount of income the person earned for the year. So, this person’s income for tax purposes is actually $44,200.

So, let’s look at this person’s actual taxes after their standard deduction.

For the first $8,500 of that (the $0 to $8,500 bracket), that person has to pay 10% of the income in taxes. That’s $850 for this bracket (that’s 10% of $8,500).
For the next $26,000 of that (the $8,500 to $34,500 bracket), that person has to pay 15% of the income in taxes. That’s $3,900 for this bracket (15% of $26,000).
For the rest of his pay ($9,700), that person is in the $34,500 to $83,600 bracket, which means that person has to pay 25% of that portion of his income in taxes. That’s $2,425 for this bracket (25% of $9,700).
To figure up the person’s total tax bill, they simply add together those pieces, which totals $7,175. This person will owe $7,175 on their taxes this year.

So, that person’s standard deduction on their taxes actually saved him $1,450. The standard deduction may be $5,800, but it only saved the guy $1,450 because the deduction just reduces his total income for the year in terms of taxes.

Charitable giving works exactly the same way. Every dollar you donate to a registered charity becomes a deduction on your taxes, just like a standard deduction.

Let’s say the person above donates $5,000 to his church (a 10% tithe) and $2,000 to Doctors Without Borders and another $2,000 to L’arche Tahoma Hope. That’s a total of $9,000 in charitable donations.

So, this person makes $50,000 a year. From that, he can either subtract his standard deduction ($5,800) or he can subtract his charitable donations ($9,000). This means that his taxable income – the amount he pays on his federal income taxes – would likely be $41,000. Let’s look at his taxes now.

For the first $8,500 of that (the $0 to $8,500 bracket), that person has to pay 10% of the income in taxes. That’s $850 for this bracket (that’s 10% of $8,500).
For the next $26,000 of that (the $8,500 to $34,500 bracket), that person has to pay 15% of the income in taxes. That’s $3,900 for this bracket (15% of $26,000).
For the rest of his pay ($3,700), that person is in the $34,500 to $83,600 bracket, which means that person has to pay 25% of that portion of his income in taxes. That’s $1,625 for this bracket (25% of $6,500).
To figure up the person’s total tax bill, they simply add together those pieces, which totals $6,375. This person will owe $6,375 on their taxes this year.

In other words, this person’s $9,000 charitable contribution saved them $2,250 on their taxes. That’s because the person was in the 25% tax bracket before the donation and in the 25% tax bracket after the donation, which means that they essentially saved 25% of their donation on their taxes. (Sometimes, a donation will drop you to a lower tax bracket, which is fine.)

However (and this is where the readers pointed out my mistake in the original version of this post), the standard deduction would save the person $1,450. The actual savings – compared to the standard deduction – for this charitable giving is $800. Charitable giving works best as a tax deduction if it’s coupled with other deductions, such as home mortgage interest.

So, charitable donations are a great thing and they do offer some tax savings, but you don’t save $1 for every dollar you donate. Instead, you often reduce your tax bill roughly a quarter or so for every dollar you donate. That’s still a great little bonus.

Hopefully that clears things up for you!

Beginning Frugality with the End in Mind

Posted: December 17th, 2011, 1:00pm MST by Trent

One of the most empowering things I do on a regular basis is to create a detailed sketch of what I want my life to be like in five years or so, and then I repeat this exercise with periods further down the road (ten years and twenty years and then when I’m about 70). I usually do this in detail every few months or so.

I try to create optimistic (but not unrealistically optimistic) pictures of the future. I don’t paint pictures of myself as a rich person or as some sort of perfect citizen. Instead, I focus on where I’d actually like things to be based on where things are now and where they’re heading.

A five year picture, for example, sees three intellectually curious and healthy children. It sees me having written a handful of novels. It sees us living in a more rural area than we live right now. It sees me in a bit better physical shape.

That picture is filled with a lot of details, and it’s in those details that I see what’s actually really important to me. This is the life that I want to lead.

Yet, what I notice when I paint these pictures of the future is that they involve very few things that actually involve spending money.

Intellectually curious and healthy children are in large part a result of invested time, as are the novels and the improved fitness. Moving into the country probably won’t cost us much money on the whole.

Simply put, the things I want out of my life don’t involve spending money. The things I genuinely label as important in my life moving forward aren’t related to spending money.

What they do involve, however, is time (and energy). Time is really the magic ingredient in making these things happen. My children need time. My spouse needs time. My health needs time.

The more money I spend, the more time I have to spend working. I have to have the income to cover what I’m spending, so if I’m spending a lot, I’m going to be spending more and more of my time earning money.

The more time and energy I spend working, the less time and energy I have to spend making that picture come true. The elements of the life I want are realistic and achievable, but only if I have time and energy to devote to them.

So, how do I minimize the time and energy I devote to work? The answer is simple: frugality.

If I simply don’t spend my money on unimportant things, I can afford to take on less demanding work that gives me more space to work on my other life goals. I don’t have that pressurized job at the office – in fact, I left that in 2008.

Spend some time thinking about what your goals are. Create that detailed picture of what you want your life to look like in five years. Ask yourself what you really need to achieve those goals. I’m willing to bet that time and energy are more vital ingredients than money is.

Then, each time you consider spending money on something important, ask yourself if it’s holding you in a place where you don’t have time or energy to pursue your goals in life.

Money isn’t everything.

Ten Pieces of Inspiration #51

Posted: December 17th, 2011, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Sounds of the Winter by Walt Whitman
I love to get all bundled up and go on a walk in the winter.

Sounds of the winter too,
Sunshine upon the mountains–many a distant strain
From cheery railroad train–from nearer field, barn, house,
The whispering air–even the mute crops, garner’d apples, corn,
Children’s and women’s tones–rhythm of many a farmer and of flail,
An old man’s garrulous lips among the rest, Think not we give out yet,
Forth from these snowy hairs we keep up yet the lilt.

The world looks and sounds like a different place in the December season.

2. Vincent van Gogh’s View of Arles (1889)
Good impressionism makes me want to go to the place depicted in the painting and see it through my own eyes, to get my own impression of the place.

I am going to have to visit Arles someday. Thanks to Oliver Kurmis for the image.

3. John Quincy Adams on leadership
What exactly makes a leader? I don’t really think it’s just the person who starts the ball rolling in a movement.

“If your actions inspire others to dream more, learn more, do more and become more, you are a leader.” – John Quincy Adams

Lots of people out there are leaders.

4. Stefon Harris on mistakes
This is a really interesting way to think of mistakes, as merely a part of the song we’re always playing.

Mistakes are a part of the tapestry of life.

5. Charles Caleb Colton on what money won’t buy
I find the things that money cannot buy to be much more valuable than the things money can buy. Time, for instance.

“To cure us of our immoderate love of gain, we should seriously consider how many goods there are that money will not purchase, and these the best; and how many evils there are that money will not remedy, and these the worst.” – Charles Caleb Colton

My children won’t be young forever.

6. Leadership Lessons from Dancing Guy
If you want to get a movement started, a leader is useful, but it’s often the first follower that makes the difference.

This video does a great job of visually illustrating this point.

7. Mary Cassatt’s Mother Combing Her Child’s Hair (1896)
I absolutely love Mary Cassatt’s paintings of moments of parenthood.

I have a four year old daughter. Almost every weekday morning, she winds up sitting on my lap while I brush her hair for the day. Thanks to Cea for the image.

8. Sam Keen on love
If you’re looking for perfection, you won’t find it.

“You come to love not by finding the perfect person, but by learning to see an imperfect person perfectly.” – Sam Keen

I love Sarah because she’s imperfect. Perfection would be dull. Her quirks make her amazing.

9. Rogers Hornsby on baseball and winter
I know the feeling.

“People ask me what I do in winter when there’s no baseball. I’ll tell you what I do. I stare out the window and wait for spring.” – Rogers Hornsby

I can’t wait to start listening to daytime baseball games again. They just make the day flow so much better.

10. Mr. Jones by Counting Crows
I spent most of 1993 and 1994 singing this song to myself. I spent some time trying to learn guitar (and overcome my large hands) to try to play this song.

This is pure nostalgia for me. Hearing this song takes me back to a particular place and time, almost as if by magic.

My Top Tactics for Reducing Online Shopping

Posted: December 16th, 2011, 1:00pm MST by Trent

I find it very easy to buy stuff online without adequate thought. I’ll click a few times and suddenly the item I want is on the way.

I particularly struggle with three sites directly connected to three of my biggest hobbies: Amazon (for books), Cool Stuff Inc. (for board games), and Steam (for computer games – and, yes, Steam sales are particularly my weak spot).

Over the years, I’ve had to build up some defenses against these temptations. I’ve tried lots of different things, but I’ve found that only three of them really work and make a difference in my buying habits.

Delete Passwords and Credit Card Info
Whenever I place an order at one of these sites, one of the first things I do is make sure that my credit card information is not stored at that site. When my browser prompts me to save the password for the site, I always say “no.”

For some people, this might seem like an annoyance. It’s supposed to be. The reason for doing this is to force me to slow down when I’m tempted to make an unnecessary purchase.

Let’s say, for example, that I’ve been reading reviews of some board game and I’ve talked myself into spending some of my extra money on a copy of that game. If I left my password saved and my billing information stored in the online retailer’s site, then I can have that game shipped to my house after a simple search and about six clicks.

On the other hand, if I’ve deleted my password and my billing and shipping information, I have to spend the time to type in my username and password, type in my card number and other information, and type in my billing address and shipping address. This adds up to several minutes of additional typing.

During that time, my mind on some level is rethinking the purchase. “Is it really worth it?” I’ll ask myself. Quite often, I’ll wind up never placing the order at all. This keeps money in my pocket instead of watching it leave for something frivolous.

Keep a “Already Have This” List Nearby
On my computer screen, I have three Post-It notes.

One says “Books to Read:” and lists about five books that I already have on my shelves.

Another says “Games to Play:” and lists about five board games that I already have on my shelves.

The third says “Computer Games to Play:” and lists about five computer games that I’d love to dig into more.

Whenever I’m tempted to buy another one of these items, I just glance at these notes and I realize that I already have more than enough.

Use the Computer Less
My final tactic is to simply use the computer – particularly the internet – less and interact with the real world more. Instead of surfing the web during my idle time, why not read one of those books on my “Books to Read” list or play a board game with my wife? Instead of playing a computer game, why not just go for a nice walk?

The computer is a wonderful source for entertainment, information, and contact, but in the end, those things are just a stepping stone for interacting with the world around you.

Keep these tactics in mind if you find yourself regularly tempted by online shopping. They guide me to better results; hopefully, you’ll find the same.

Fail

Posted: December 16th, 2011, 7:00am MST by Trent

In 2002, I started a blog about dreams and dream science. It eventually failed.

In 2004, I started a blog about sports. It eventually failed.

In 2005, I started a blog about parenting. It eventually failed.

In 2006, I started a blog about personal finance. It succeeded, largely on the lessons learned from the failures.

* * *

Let’s start again.

In 1996, I started dating a girl that seemed interesting to me. It eventually failed.

In early 1997, I started dating a girl that seemed interesting to me. It eventually failed.

Later in 1997, I started dating Sarah. She eventually became my wife.

* * *

Are we seeing a theme yet?

In 1996, I went to college majoring in English. I failed and changed majors.

In 1997, I started majoring in mathematics. I failed and changed majors (though I came close to a minor in this subject).

Later in 1997, I started majoring in the life sciences. I largely felt this was a failure, too, though I did wind up eventually accumulating enough credits for a degree.

In 1999, I started majoring in computer science. I ended up graduating with this as my primary major.

* * *

Let’s try this one more time.

In 1994, I wrote a novel. When I was finished with it, I realized it was trash.

In 1997, I wrote another novel. When I was finished with it, I realized it was trash.

In 2002, I wrote another novel. I tried to get this one published. I accumulated a giant pile of rejection letters and one vague nibble. I eventually decided this novel was trash, too.

In 2005, I wrote another novel. When I was finished with it, I realized it was trash.

In 2008 and 2010, I was able to get personal finance books published.

In 2012, I’m going to give a novel another shot, from a platform of success in a similar area and a history of failure in fiction.

* * *

What do each of these stories have in common? They involve failure. Lots of failure. They involve mistakes, mis-steps, stupid moves, and mediocrity.

Yet, through repeatedly failing, I learned some things. I learned what pieces were bringing on failure as well as what pieces I was doing right.

Every time I’ve failed (at least in adulthood), I’ve tried to figure out why I’ve failed. What things did I do wrong? What things did I not account for?

One thing I did not do is blame others for my failure. That’s an incredibly easy trap to fall into because it lets you off the hook from admitting you did anything wrong. Whenever you fail, you always did something wrong. If nothing else, you relied on someone else too much, someone who let you down!

Often, when you figure out what you did wrong, you have an exact recipe for improving yourself. The mistake you made tells you what you need to do to get it right the next time.

Every single one of us has failed at something – and is going to fail at something. We’re going to overspend. We’re going to make a career mis-step. We’re going to write a novel and have no one ever want to buy it. We’re going to destroy a friendship over something silly.

The question is whether or not we’re going to learn anything from that failure.

An Announcement about the Future of The Simple Dollar

Posted: December 15th, 2011, 1:00pm MST by Trent

Over the past few days, I entered into an agreement to join forces with Cut Media to ensure the long-term future of The Simple Dollar.

What Does This Mean For Readers?
To me, this is the most important question to be asked about this arrangement.

I have signed a long-term agreement with Cut Media with regards to this site. For at minimum the next three years, I will continue writing posts pretty much exactly as I always have. They will appear twice daily (except for holidays), just like they have for the past few years. In terms of content, virtually nothing will change.

Over the next few months, there will be some secondary changes. At some point in the near future, the site will be moved to a different server, which may cause a bit of downtime and might cause a short-term delay in posting. After that, there will likely be a moderate redesign of the website. Aside from that, things should continue pretty much as they always have.

Why Make This Move?
Simply put, at this point, The Simple Dollar is too big for one person to run. There are too many different things going on that need my attention at the same time.

Most people, when they see the site, think first and foremost about the content. That obviously takes time, of course.

What you don’t see is the other things that eat an incredible amount of time and focus.

I read mountains of reader emails.
I deal with thousands of comments.
I have to keep the software that runs The Simple Dollar updated.
I have to regularly tweak the site design, often in really subtle ways.
I have to negotiate and communicate with advertisers.
I have to make sure that the site is up and running and figure out how to fix it when it’s not – and this often requires me to watch The Simple Dollar when I’m on vacation with my family or enjoying a holiday with them.
I’ve also attempted to hire and train assistants to help with this stuff – but none of them have ever worked out and some have actually caused additional problems.

The part about The Simple Dollar I enjoy the most is the writing. I also enjoy contact with readers. Everything else is simply time-consuming gruntwork that I don’t enjoy that takes away time from my family and from things I’d rather be doing (like working on other writing endeavors, such as my long-lamented fantasy novel).

Something had to give, and the end result was my arrangement with Cut Media. They have a large team in place to handle these things.

They will be taking care of the comments, the software that runs The Simple Dollar, the site design, the advertising arrangements, the site’s server(s), and making sure the site is up and running.

Essentially, I’m left with just the pieces that I really enjoy – and I’m being compensated for letting them take on the stuff I don’t want to do.

This is going to be the first Christmas in many years where I’m not stopping several times a day to make sure the site is up. That is an unbelievable relief to me.

What’s Next?
Aside from continuing to write for The Simple Dollar, I’m planning on focusing in 2012 on other projects, which I’ll talk about closer to the new year.

Reader Mailbag: Kickstarter

Posted: December 15th, 2011, 7:00am MST 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. Facebook alienation and human interaction
2. Save or pay debt?
3. Thoughts on inheritance
4. Privacy and blogging
5. Slow student loan repayment?
6. Parenting blogs
7. Loan or no loan?
8. Savings versus complexity
9. A “getting started” checklist
10. Third child

For those of you who don’t know, Kickstarter is a website where people or groups can pitch a project for funding from the public. For example, you might have a game you want to publish, a book you want to distribute, or something else.

The site allows people to ask the public for support of their project. For that support, supporters are usually given some sort of reward: a signed copy of the book, an early release copy of the game, and so on.

Kickstarter has become my (no longer so) secret passion of 2011. I love the entrepreneurial spirit. I love the great ideas people come up with. It’s just fun for me to browse the projects and watch human ingenuity and creativity at work.

Q1: Facebook alienation and human interaction
Earlier this morning I was reading an article on the New York Times (source: [www.nytimes.com] ) about people who refuse to use facebook. Their reason is that in this modern day and age, they feel its actually driving a wedge between their closest friends and themselves. Where once they would call one another, now they shoot a quick message on facebook. Instead of calling to announce something, they would just post an open message announcing it. After giving it some thought, I actually agree with them a lot. I know you frequently write about the value of friendships and relationships, so what are your thoughts? Do you think that social media like facebook helps, or hurts our relationships with other people over time?
- Dale

From my perspective, Facebook is roughly as personal as a phone call. With a phone call, I can’t see the person and I can’t share an experience with the person. Quite often, I find myself leaving a voice mail, which means the conversation isn’t synchronous. Phone calls do have the voice element to them, but as with Facebook, you’re still chopping away big pieces of communication when you can’t see someone.

Both Facebook and phone calls are trumped by face-to-face interaction, though. With that, you get the full experience: you can see the person, you can hear the person, you can share ideas, and you can share experiences.

For me, the sole purpose of Facebook and phone calls is to lead in some way to face-to-face interactions. It’s nothing more and nothing less than that.

Q2: Save or pay debt?
I live in Costa Rica in central America, I’ve always lived here and probably will always live here so there’s no going back to usa to live or retire.

I’m married and have two kids a 3 and a 9 year old, our currency is the costa rican colon, and the exchange rate is approx. 510 colones to a dollar.

My financial situation is this. (All the money I’ve translated into dollars for ease of explanation, but we use colones.)

My salary is 4000 dollars per month take home pay this is after taxes and retirement (a pension plan), my wife brings about 2100 dollars a month after taxes and retirement, our living expenses including mortgage and car payment, school for the kids, food, entertainment etc is about 2500 dollars/month.

My savings are about 36000 dollars in cash, my debt is 33000 left on my home with a loan at 14% (the rate is high because is in colones not in dollars) with 14 years to go, mortgage is about 500 dollars a month, also a car loan of 28000 dollars at 6% (this is actually in dollars, I know our rates are insanely high) with 8 years to go and a monthly payment of 455 dollars including insurance. I have no cc debt or any other debt.

I am able to continue saving about 1800 dollars a month, I know that there might be a chance (50%)my income will go down to about my expense limit in early 2014, this means I’m going to be able to cover my expenses but not save, only about 200 dollars a month.

Also education for my kids is not very expensive here, Medical school for instance can be about 20000 dollars for the whole career, I’m also saving about 100 dollars a month toward college for my kids.

My question is this. Should I:
(1) continue to save $1800 every month (I can get about 8% in a CD, our stock market its not good)
(2) pay down my house (which I don’t intend on living for the rest of my life as it is, I want to either buy a new one or completely remodel mine in a period of 3-5 years, my house has about 100% equity which means that’s worth double what my original loan was)
(3) Pay down my car loan (In Costa Rica the cars depreciate not as bad as in the usa but pretty rapidly)
(4) A combination of the above, and if so in what %
(5) Or something else
- Ron

If I were you, I’d follow a very simple plan.

First, I’d set aside about $1,000 for an emergency fund. This would help you in the event of a personal crisis or other such issue.

Next, I would take the rest of your savings and apply it to eliminating debts that are above the 8% you can get in a CD. I would start with that 14% mortgage. I would just eliminate the whole thing with your savings.

If you have all of your debts eliminated that have an interest rate higher than the CDs available to you, then I would return to a focus on savings. As long as you’re getting a return that’s higher than the interest rate on your debt, keep saving. If your debt interest rate is higher, pay off debt.

This will get you into the best financial shape for the future, I think.

Q3: Thoughts on inheritance
I was just wondering…how much of the the economy and growth in the U.S. depends on inheritance (in your opinion)? People dying, other people getting their money/house, adding value to it, then passing it along when they die? And I don’t mean millions of dollars in inheritance–even smaller sums like a few thousand dollars. I feel that I hear an inordinate amount of stories from people who are only able to have a down payment for a house or fund their child’s education due to an “unexpected” inheritance from a late family member. Is that really how money works from a bird’s eye view?
- Jessica

I think that receiving an inheritance from a parent or grandparent that passes away is a fairly common thing, and that people who receive such windfalls often put it towards a major purchase, such as a house down payment.

I think the entire process of parenting, from the birth of the child to the death of the parent, is a transfer of wealth and other resources from the parent to the child. Obviously, there are things that an adult child can give back, particularly late in the life of the parent, but the largest transfer is from the older to the younger.

That’s always been the case, I think. Since the earliest civilizations, resources have been kept within families. Farms, homes, and other assets were passed from parent to child and on down through the generations. What you see with such inheritances is just the modern version of that.

Q4: Privacy and blogging
You mentioned that you shut down your popular parenting blog due to “privacy invasion issues.” Can you tell me about some of those issues — specifically, what advice do you have for other bloggers who are trying to maintain a balance between being open/transparent and protecting their privacy?
- Ellen

In 2005, I started a parenting blog as I prepared for the birth of my first son. I continued it after his birth for a while, into early 2006, when I made the decision to take it down. There were a few personal threats made toward me and my child that went beyond what I consider normal internet “trolling.”

My suggestion to new bloggers is twofold. First, never post anything on your blog that you would not be perfectly comfortable with a stranger knowing about you. Hand in hand with that is to be extremely careful about what you post regarding people besides yourself. I often edit specific details of people I know and specific situations in order to protect the privacy of people I care about. The Simple Dollar isn’t about invading the privacy of people.

Second, get a thick skin. If you start writing about yourself and gain any degree of popularity, people are going to come out of the woodwork to say negative things about you, often unbelievably negative things. People can and will try to hit you where it hurts. Most of the time, they’ll use a curtain of anonymity to do it. My advice is to just ignore most of, if not all of it. There are sometimes valuable things that are said in there, but if it’s truly a valid concern, it will become apparent in other ways.

Q5: Slow student loan repayment?
My fiance is moving from San Francisco to New York in a month to begin grad school. I had hoped to move with her but I don’t want to change companies and my ability to move with my current employer is in doubt. As a result, I will be moving back in with my parents for perhaps as long as two years when she will graduate and move back to SF. At that point we would get our own apartment again.

I was planning on saving a good chunk of money to help pay down her debt, or save enough to reduce the amount she would have to borrow in her second year. At the very least I was thinking I would be able to pay a big chunk of her debt (15 to 20K) right as she exits school. I was explaining this to a friend recently who said I should research because I may be able to write off loan interest.

My question is two parts; 1) Is my friend’s assumption true and is there upside to paying off debt slower? and 2) Is it better to not spend that money on paying down debt so we can use it toward a down payment on a small 4 to 6 unit apartment building (my dream) or our first house (more realistic). I’d expect we might look to buy a home in as soon as 4 to 5 years.
- Leo

If I were you, I’d hold onto the cash until you’re ready to buy a home together. One big reason is that you’re entering what is going to be a challenging period for your relationship.

Long distance relationships are very difficult to maintain – I’m speaking from experience here – and you don’t want to have invested a lot of money into paying off your partner’s loans only to find that your relationship has not survived.

If you do find yourself together after this period, then I’d sit down and figure out what your shared goals are and what your realistic job opportunities are. These will provide you the clues you need to decide what to do next.

Q6: Parenting blogs
Question for you – do you have any parenting blogs that you read on a regular basis? I’m a new parent, and now and ex-pat, and am looking for a few to keep me motivated in that part of my life.
- Kristy

I had a lot of parenting blogs that I used to read that slowly went defunct over time. It’s very hard to keep the fuel behind a focused blog over a long period of time.

The one blog I’ve enjoyed for a very long time that’s still going strong is Parent Hacks, which I occasionally link to in my weekly roundup. I find useful tips there all the time and I often find myself searching through the archives for ideas.

I don’t read most of the “big” parenting blogs that people often mention.

Q7: Loan or no loan?
I am going to school for my MBA (Master’s of Business Administration). My work has a policy to where they will pay for my schooling, but I have not heard a definate answer one way or another. The VP has approved it but the President has not, and until the President approves it, I may or may not get reimbursed for it. My dad has offered to pay for school until work pays me back, if they do so. If not, then i’ll owe my dad for the tuition. My dad is about to retire in the next few years, so I feel bad taking a loan him, especially since if work does not pay for school, it’ll take me a couple years to pay my dad back. My question is this: should I take my dad up on his offer or go ahead and take out a student loan to cover the remainder of my MBA? Oh and a few other things, my dad “gifted” me first semester’s tuition already. I don’t have a whole lot of credit either. I am working on that with my first credit card this year. A secured card. I have zero debt. Would a student loan boost my credit? is it worth the risk, if work doesn’t pay for school? Or should I take the “safer” route and take out a loan from my dad?
- Ed

First of all, I wouldn’t borrow money from your father who is on the verge of retirement. I’m sure that he’s quite willing to loan you the money, but this is a time where you need to stand on your own two feet and not inject a lender-borrower relationship into your relationship with him.

That being said, if I were you, I’d probably directly ask the company president about the situation before I do anything else. If he denies it, then you’re working for a company that doesn’t stand by their word and I would start looking elsewhere for work, because they’re likely to change their mind about other things, too.

If you’re forced to take a student loan, that’s not necessarily a bad outcome. Student loans do help your credit. They can just feel like an albatross around your neck after you graduate and get your first post-graduation job.

Q8: Savings versus complexity
Over time I’ve picked up specific credit cards that offer a 5% discount at specific locations, two airline cards, and three general cash back card (1% on everything plus 5% on rotating categories). In total I have 10 total cards and charge roughly ~$1000/month combined on the cards. So over the course of a month I can “save” between $10 and $50, but I add a lot of complexity to having to pay multiple cards at the end of the month and I worry that any “savings” that I get will be eaten up by the first mistake I make when I miss making a payment. The additional time isn’t major (maybe 15 minutes a month to pay the bills online) but how do I put a cost on the mental energy that that keeping track of this requires. I have a spreadsheet where I record all of my spending (and have for the past 3 years, a marketer’s dream) so I know what needs to be paid every month, but that doesn’t stop me from worrying that a mistake will still be made. I really think that I need to find a way to look at this issue just beyond any potential financial savings, any advice or suggestions?
- Martha

If this is causing you significant stress – and it seems to be – then it’s not worth the $10 or $20 a month that you’re saving due to this plan.

If I were you, I’d simply decide on the one card that seems to rack up the most rewards for you based on how you spend, then just use that one card for everything. I would then close most of the other cards, keeping only the card I’ve had for the longest (to help with credit history).

For me, playing such games has never been worth the time or the concern about mistakes made.

Q9: A “getting started” checklist
I’m about to graduate with a bachelor’s and go to law school. I’m also about to get married. Up until this point my parents have been so supportive and generous even to a fault. As a consequence I haven’t thought too much about money or done much about it. Considering I’m going to be really on my own soon I was wondering if you could offer a concrete checklist for people who are just starting out. I think this would be helpful for a lot of people.
- Jim

One could write a “checklist” a mile long in this case because there are so many variations and contingencies in the type of situation that you describe here.

If I were you, I’d hit the library and check out a few books targeting your position in life. Two books that immediately come to mind are Automatic Wealth for Grads by Michael Masterson and Smart Couples Finish Rich by David Bach.

On top of those, I’d also read Your Money or Your Life by Joe Dominguez and Vicki Robin. It’s the book that changed my life in terms of my finances.

Q10: Third child
I read a few of your articles and found them very interesting! we are also trying to pay off debt AND decide about a 3rd child. I notice you decided to stop at 2 but then changed your mind? What did it?
- Jessie

Sarah and I had long ago decided to have all of our children relatively close together in age so that they would feel roughly like peers as they grew older – or at least have a sibling or two that they could consider a peer.

Sarah had a very close relationship with her sisters, particularly one that was born less than two years after her. I had a more distant relationship with my siblings, mostly because the closest one to me in age was nine years older than me. We wanted a dynamic more like the one she had with her siblings.

As time passed after our second child, we just kept talking about this subject more and more, and we basically decided that if we were going to actually ever have another child, we were either going to do it now or never do it. I think the immediacy of it convinced us to just go for it.

Saving Pennies or Dollars? Reliable Items

Posted: December 14th, 2011, 1:00pm MST by Trent

Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Marie writes in: My grandfather was not a wealthy man, but he always told me to buy the best quality I could afford, it will last longer. When I was in my early 20′s I purchased a professional hair dryer for about $250.00. This was in the mid 90′s. So that’s about $20 a year so far. I feel like I am already ahead considering a $20 hairdryer never worked for a year. What products are worth spending money on…and I find when possible buying industrial or professional grade products last longer.

Marie makes a great point, albeit one that’s hard to quantify exactly. I’ll try to dig into it with a few examples, but suffice it to say, it’s really only worth paying significantly more for reliability if you use the item all the time. Of course, if you’re rarely using the item, why buy it to begin with?

Take my kitchen knives, for example. Sarah and I received a good (but not great) kitchen knife set as a wedding gift in 2003. The primary knife I used from that set was the chef’s knife. After about two years of steady use (steady meaning roughly every other day), the chef’s knife was nearly unusable. I could get it moderately sharp immediately after a sharpening, but the blade would lose what little edge it had by the time I was finished chopping a single carrot. The end result was that I was burning significant time sharpening and honing this poor knife, not to mention the extra time spent actually chopping the food plus the mangled food that resulted from this.

I then invested in a single high-end chef’s knife, an $80 Global knife. I still use it every other day, but now I hone it perhaps once a month and haven’t sharpened it in three years. I’d estimate this knife saves me five minutes over the other knife every single day.

Here’s the thing: most people would simply shrug their shoulders at five minutes compared to the $80 cost of a knife. However, over the course of three years, five minutes every other day adds up to 2,738 minutes. That’s about forty five and a half hours I saved not having to deal with the knife. That means my cost per hour saved by that knife is about $1.75.

Now, let’s say I only used a chef’s knife once a month, but I still saved five minutes each use from a better knife. Over three years, that’s 36 uses, which at five minutes each adds up to three hours. My cost per hour in this case is about $27.

Clearly, in the first case, the knife was worth it, but in the second case… not so much. The difference between the two is one thing and one thing alone: frequency of use.

So, take Marie’s case. Let’s say she uses her hair dryer daily. She finds that after 350 daily uses, her $20 cheap hair dryers fail. On the other hand, her industrial dryer has withstood 7,000 daily uses (roughly) and is still going. For her, the industrial dryer is worth it.

Now, let’s look at me. I dry my hair maybe once a month. My hair is short and most of the time, a vigorous towel drying and a comb gets me where I want to be.

For me to burn out a $20 hair dryer, I would have to use it 350 times, as per Marie’s estimation. If I use it once a month, that means I would have to use the dryer for 28 years before it would reach that 350 use level.

For me to reach Marie’s use level on an industrial hair dryer, I would have to use that hair dryer, at my current pace, for 583 years.

Simply put, it’s not cost efficient for me to buy an industrial hair dryer. It probably is for Marie, but it’s not for me. What’s the difference? Frequency of use.

It is absolutely worth your while to own a quality, reliable version of an item you use every day (or close to that). You’ll save a lot of dollars (and/or a lot of time) over the long run in such cases. However, when you start looking at less frequent usage, the math is going to start working against you.

The Simple Dollar Weekly Roundup: Sick Daughter Edition

Posted: December 14th, 2011, 7:00am MST by Trent

My daughter got incredibly ill on Monday evening. She was completely lethargic and was losing liquid as fast as we could give it to her. We were considering taking her to the emergency room.

Tuesday morning, she’s completely fine. She spends the entire day jumping on Dad’s lap and singing songs and jumping on Dad’s lap and playing dress-up and jumping on Dad’s lap and doing puzzles.

Her resilience is beautiful.

Survival of the Fittest in the Workplace and Myths about Fairness I’m a believer that you should always view yourself as a freelancer at work. You should give value to the organization you work for, but you shouldn’t be controlled by them, either. (@ squirrelers)

Quashing the Self-Improvement Urge My counter-argument to this interesting argument is that if you don’t focus on improving, you will eventually be replaced by someone who will. If you’ve reached a place of security and comfort, then that’s no big deal, but a lot of people aren’t in that place. For me, I enjoy getting better at a skill, which is icing on top of the cake. (@ zen habits)

Avoiding Competitive Shopping for Fun and Profit Even if you got a bigger deal than the other person, you still spent money for something. Businesses don’t exist if they’re losing money on such transactions. (@ get rich slowly)

“I Am Here” Sometimes, those are the most valuable three words you can say. (@ seth godin)

Fast Food, Convenience, and Money

Posted: December 13th, 2011, 1:00pm MST by Trent

Jane Black recently wrote a fascinating article for The Atlantic entitled “Fast Food’s Dirty Little Secret: It’s the Middle Class Buying Burgers“:

For years the conventional wisdom has been that fast food is poor people’s food; that, thanks to government subsidies that ensure cheap calories, the drive-through is where people who can’t afford the “good” stuff — organic, grass-fed, etc. — go to feed their families on a budget. Why else would anyone eat that stuff?

But a new study to be published in the Journal for Population Health Management reveals the dirty little secret of the American middle class: It’s not cash-strapped Americans who are devouring the most Big Macs and Whoppers, it’s us! According to the study, a household earning $60,000 a year eats the most fast food, and one bringing in $80,000 is actually more likely to have it their way than one with $30,000. Suddenly, last year’s news from the Centers for Disease Control makes sense: Nearly half of obese adults in this country are not poor but middle-class, earning at least $77,000 for a family of four.

Why?

What actually drives families to the drive-through are two simple truths. First, it’s convenient. Fast-food hours accommodate odd shifts and offer playrooms to appease screaming children and give moms a break. And, after years of calculated expansion, the restaurants are everywhere we are — in office buildings, department stores, rest stops, schools, Walmarts, airports, even hospitals — which makes fast food America’s default dining-out option. Second, people like the way fast food tastes. No matter how often or how loudly food crusaders preach about the nasty and ecologically disastrous bits that end up in those burgers, fast food’s carefully calibrated mix of salt and fat is hard for many to resist.

To put it simply, people don’t roll up to McDonalds and order a double cheeseburger off of the dollar menu because it’s cheap. They do it because it’s convenient and because it is engineered to taste good.

It’s not even cheap, either. As Mark Bittman points out:

In fact it isn’t cheaper to eat highly processed food: a typical order for a family of four — for example, two Big Macs, a cheeseburger, six chicken McNuggets, two medium and two small fries, and two medium and two small sodas — costs, at the McDonald’s a hundred steps from where I write, about $28.

I can make a much better meal than that at home for far less than $28.

So, what’s the point of all of this. The point is that convenience is often the driving factor for people when they make spending choices. They will spend more money and sacrifice other factors such as healthiness in order to maximize convenience.

This is actually a completely understandable thing. If you’re trying to manage a busy career, start a side business, have community responsibilities, and have a spouse and children at home (a situation that sounds awfully familiar to me), convenience can be an enormously important factor. If there’s a way to shave some time out of a daily routine, that usually directly translates into a bit more sleep or a bit more quality time with their family or a bit of simple leisure time.

That’s why I believe that one of the best frugality tactics is to heavily incorporate convenience into your frugal methods. Two examples:

One thing Sarah and I often do is make meals in advance. We’ll either freeze them so that they can easily be pulled out and tossed in the oven, or we’ll package them up in such a way that they can just be tossed into a pot (preferably a crock pot) and cooked with minimal effort. We’ll often assemble a bunch of meals for the next week or two on a weekend afternoon. We’ll do similar things with convenience foods like frozen burritos, too.

I often like to use premeasured soap for washing dishes and laundry. It’s actually really convenient to do this. All you need is a squirt bottle that emits a significant volume per squirt. Then, just figure out how many squirts you need for a load using the actual measurements recommended on the package. So, for example, if it takes two squirts to fill up your laundry detergent cup, then you can just use two quick squirts into the washing machine. This saves money in a very subtle but very real way: we tend to drastically overuse laundry detergent, so a squirter helps out with that problem and causes less detergent to be used per load.

I could go on with many, many examples of this: programmable thermostats, online banking, seasoning packets, and so on.

The key thing to remember is that in the midst of a busy day, convenience will usually trump frugality. If you know that in advance and can make it so that the convenient choice on that busy day is also the frugal choice, you’re going to see some significant savings over time.

Saving Pennies or Dollars? Canning Beans

Posted: December 13th, 2011, 7:00am MST by Trent

Erin writes in: I have a question for your “Saving Pennies or Dollars?” series. It’s about dried beans, like pinto, great northern. Would it be worth the time to buy dried beans and can them myself, or am I better off just buying the cans at the store when they are on sale. I have a pressure canner and a simple recipe for canning my own beans.

First of all, it’s pretty easy to find canned beans at the store for $1.50 per can or even a bit less than that. Canned beans are not a particularly expensive item.

Having said that, you can easily find dried beans for $1.40 per pound or less.

So, how much does that equate to? Beans approximately double in weight during the cooking process due to the absorbed water. A 15 ounce can of cooked beans, in other words, equates to about 7.5 ounces of dried beans. Thus, the cost of an equivalent amount of dry beans is about $0.65. You’ll save about $0.85 per can cooking them yourself, in other words.

However, that accounts for just the cost of the beans. If you wish to can them, there is significant cost to the canning process – a pressure cooker (for non-acidic items), a large pot (for water-bathing acidic items), jars, lids, and rings are all required to make this work, and these items all eat into the $0.85 per can you’re saving by canning yourself.

Lids can vary greatly in cost. If you want reusable plastic lids, you’ll be spending about a dollar each to get started, but you can reuse them a few dozen times before dings begin to make them not work, bringing the cost down to $0.03 per use. Other lid options have a lower initial cost, but are one-time use.

Jars and rings often come together for approximately $1 apiece in twelve packs. Again, you’re going to reuse these things many times, so the cost quickly goes down into the range of $0.05 (given my own history of breaking jars, 20 uses seems like a reasonable number).

A pressure cooker is going to be your big cash outlay. You can get a decent pressure cooker for about $40, which should last you a long time. Let’s say you use it 100 times with 6 jars each, though. That’s still a cost of about $0.07 per jar for the canner.

These costs quickly knock down the savings you get from canning. In fact, it’s going to take several batches of canning for you to reach a point where you’re breaking even on the supplies compared to buying cans of the food in the store.

If you notice, the cost per jar for each of the items above assumes a lot of uses, so if you’re only canning a few times a year, it’s probably not cost effective to do it.

From my own experience, I find that the time invested per jar canned across a lot of different things is about eight minutes. In other words, if I’m canning six jars of something, the time to actually can the items versus just making the items and putting them in the refrigerator is about forty five minutes or so.

Now, if I’m saving $0.65 per jar (the $0.85 in savings from using my own beans minus the $0.20 in costs for canning) and it’s taking me eight minutes per jar, I’m saving about $4.88 per hour of canning. Frankly, it’s not worth it at that price for me just as a savings method. There is savings there, but not enough to make up for the lost time.

However, the food quality is a factor, too. I’d far rather eat a food item I canned myself than a canned food item from the store. The quality of garden-fresh salsa I made myself and canned versus a jar of salsa from the store is huge, for example. The same is true for almost anything else – including beans.

So, are you doing this to save big money? No. You’re saving a little, but not a lot. You’re doing this because you’re turning out high-quality food for your pantry and saving a little bit of money, too. For me, that adds up to a worthwhile deal.

The Indirect Connection

Posted: December 12th, 2011, 1:00pm MST by Trent

A few months ago, a friend of mine bought a used car to replace his worn-out beast from the mid-1980s. I was impressed when he told me he had paid cash for it. I was even more impressed when he told me how he bought this used car.

His method was simple. He didn’t go to a dealership or shop on the internet for his car. Instead, all he did was stick with the same local car repair service for the work done on his used car. When it began to really fail, he simply asked the guy who ran the repair service if he knew of any reliable used cars for a good price. The guy did and he was happy to help a good customer get connected to the person selling that car. A few days later, the replacement car was his at a very nice price.

In other words, rather than asking for a direct discount (which would have cut into the car repairman’s bottom line), he asked for an indirect discount, which didn’t affect the car repairman’s bottom line at all. Because of that, the repairman was much more willing to help a regular customer.

What makes for such an “indirect” discount? Simply ask for help in a field related to but not the same one as the field the expert is in.

I’ll give you an example. One of my winter projects has been to paint a bunch of pieces for a board game that my wife and my friends and I play regularly. The pieces that came with the game were gray and bland and I thought it would be fun to learn how to jazz them up with some color.

I didn’t know anyone who was familiar with how to do this, so I stopped by the hobby shop in my town that seemed to be the closest to this field. It’s a shop that I’ve purchased items in before, so I knew the staff there.

I simply asked them if they knew anyone who was into painting miniatures that might be willing to help out a beginner.

It turns out that one of the people working at the shop did this as a side hobby. He proceeded to go out to his vehicle, get a box of painting stuff, come back inside, and give me a half hour tutorial on the spot for painting figurines. At the end, he gave me a couple bottles of paint and a brush to get me started, as well as a printed page of URLs for the web resources he uses in that hobby.

All I had to do was ask for indirect help.

Whenever we’re stuck with a need of some kind, we tend to first think of the direct sources to fulfill that need. If we need a new car, we think of a car dealership. If we need a new computer, we think of an electronics store.

Quite often, though, we’re better off asking for indirect help through the sources that we’ve already built a relationship with. If you need to replace that used car with a bit newer one, why not start by asking the repairman that you already trust? If you need to replace that computer, why not start by asking the guy who fixes your computer for you?

With indirect help, you might not immediately get the solution you need. After all, you’re asking for help outside of their area of expertise.

However, you might also find an unexpected amount of help from someone who doesn’t have a profit-making interest in your arrangement. They just want to keep you happy and continue to build the relationship they have built with you, and if they happen to have access to great opportunities that they can share with you, it’s something that results in a win for both of you.

Never be afraid to ask. The worst thing that can happen is “no,” which is pretty much the same result that you have if you never ask at all.

Reader Mailbag: Hand in Glove

Posted: December 12th, 2011, 7:00am MST 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 in a taxable account
2. Pushy mother of child’s friend
3. Buying furniture
4. Going back to school
5. The burden of care
6. Idle computer energy drain
7. Consaidering a job change
8. Low interest debt?
9. Secret Santa difficulty
10. Road trip music

Sometimes, when you see someone you once spent a lot of time with but haven’t seen in a while, the interactions can be awkward.

At other times, you’ll fit together like nothing ever changed.

I’ve experienced both in the last few days.

Q1: Investing in a taxable account
I match my employers contribution of 5% in my 401k (started last year I’m currently 29). I’m planning to open a Roth IRA with Vanguard on my 30th birthday. I have a checking account with Charles Schwab which includes a brokerage account the question is what kind of funds do I invest in? My 401k has an asset allocation of 30/70 Pimco Total Return Bond Fund/Spartan 500 index fund, for the Roth I was thinking of using a target fund, but I’m clueless as to how to use the Schwab brokerage account, I was interested in something that would give me passive income. I’m 29 with a 401k, Schwab brokerage account, and soon to be established Vanguard Roth IRA and I’m earning about $30k/year, less than $180 in debt, and maybe $7k in precious metals, my emergency fund is less than $300 but I’m working on it. What do you say? I started late but am I on track? I’m tired of spending I want to be a saver. Again what do I invest in a taxable account? Thanks
- Ron

The first thing I’d do is figure out what my goals are. Why are you saving? Do you want an early retirement? Do you want a well-off retirement? Do you want a nice home in ten years?

Investing without a goal in mind is like spending four years at a university without a major. You’ll have accumulated a lot, but you won’t necessarily be ready to take the next step.

I’d suggest figuring out your goals before you do anything else. A taxable investment account may be a big part of achieving those goals, but it’s not a goal in and of itself.

Q2: Pushy mother of child’s friend
I left my job earlier this year to stay at home with my two daughters. I left a well paying career because of stress and in order to spend more time with my girls. I’ve taken on a number of volunteer roles as well as enrolled in a co-op preschool with my youngest daughter which takes up two days of my week. Suffice it to say that I’m busy during the week. My older daughter has a friend at school who really likes to come over and spend time at our house so much so that she routinely asks if she can come over after school. This bothers me because I’ve always believed that you wait to be asked over to someone’s house.

Recently, the friend’s mother has started asking me to watch her daughter for several hours at a time sometimes multiple times a week. She is in college and has recently broken up with her fiancee who helped with her childcare. She also waits to ask me until an hour or so before school lets out. This has really started to bother me on multiple levels. She has never offered to pay me or even watch my children in return. I don’t mind helping out but it doesn’t seem fair that she asks me so often. I also don’t like being put on the spot at the last minute. So I started not answering the phone when she calls or making up excuses about why I can’t watch her daughter. However, I feel bad about it. She is in a tough spot right now. I’ve tried to explain to her that I don’t mind helping but I need advance notice but that doesn’t seem to do anything. I’m starting to feel rather resentful. So what should I do? I quit my job for a less stressful life not so I can be the on-call, unpaid babysitter for other people. Do you ever find yourself in a similar situation since you do not have a normal 9am to 5pm job?
- Carla

The mother is taking advantage of the situation, no doubt about it. The solution is for you to simply put your foot down and say that you’re not available to babysit at her convenience.

One thing worth noting, though, is the impact this is all having on the young friend of your daughter’s. She’s clearly got to be aware that her mother is going through a hard time right now and may be looking for some steadiness in her life, something you might be providing for her.

If I were you, I’d help out some, but I would not do it at the drop of a hat. That’s the role of a paid babysitter, which you’re not.

Q3: Buying furniture
My husband and I recently moved into a 3-bedroom house, which we are renting. We have very little furniture – a mattress, a hutch, a couple bookshelves – because we recently finished an extended travel sabbatical, and we gave away all our old furniture before we left. We are in our mid-30′s, have no debt, and no kids (though we hope to start a family in the next year or two). One well-behaved dog. Our 401Ks and IRAs are funded, and our emergency fund is stocked. We plan to eventually buy a home, probably in the next five years, but haven’t chosen exactly where we want to settle down yet (the 20%+ deposit is already in the bank) and we live in an area where the housing costs are very high. We are allergic to debt, and prefer to spend our money on experiences over material things…which leads to our dilemma: spending money on furniture.

Our challenge right now is figuring out our strategy for furnishing the place. Do we buy a few quality pieces that we plan to keep for our future home (sofa, dining table, dresser, end tables) and furnish the rest with inexpensive and/or “disposable” furniture? Or do we furnish the whole place as inexpensively as possible, saving our cash for when we do buy a home? Since you live in a house that is not your long-term dream home and have children, I’m interested to hear your thoughts on acquiring furniture.
- Anne

Our method for this was to furnish our entire home as cheaply as possible, then start upgrading pieces as they wore out or opportunity struck us with higher quality pieces.

For example, our original dining room table was an ancient and well-worn hand-me-down from my great grandmother. One of the legs was a bit wobbly and when it reached a very bad state, we replaced it with a much more long-term dining room table.

I can tell a very similar story about our couches, our chairs, and so forth. Of our first batch, many came from Goodwill or were hand-me-downs. Over time, we replaced them with much better versions, but not all at once.

Q4: Going back to school
I am a 25 (soon to be 26) year old who graduated from my undergrad about 2 years ago. I originally went with the intent to get a degree in education and along the way became involved with a residence life organization (a group of students who work with college students who live in the residence halls on campus) and decided to look for graduate assistantships that would pay for graduate schooling while I worked with residence life and college students. I dropped my education major and graduated with Spanish and English majors.

I received a graduate assistantship in another state (I am originally from the Midwest) and decided to go work out East and enjoyed my time working with the college students. However because of the heavy workload, homesickness and an unwavering feeling that I should be working with different students I decided to leave after one year. Following that decision, I decided to move back to my home-state and take a year off and figure things out.

During that year I decided that I wanted to go back to school to get that education degree but more specifically for Special Education. There have been numerous instances that have pointed me in the direction of working with students that have disabilities. This upcoming year I will be attending graduate school for Special Education. I have started to pay off (very slowly) student loans that I acquired while I was taking my undergraduate degree. I guess I am wondering (since I know that Special Education won’t make money) what the best way about getting funding is. Or if you think this is a wise decision financially? I guess any direction would be greatly appreciated.
- Emily

You can’t make your career choice based on finance alone unless you want your career to be mired in unhappiness. A career that you solely get into for the money will either lead you to a life you don’t like or to a wasted degree.

If you’ve figured out what you want to do, then I would go for that degree. Go for it with relish, get every valuable bit of education and experience you can, and put yourself in the best position you can to get the job you want.

As for funding it, your best route would be to start seeking out scholarships and aid specifically for that area. There tends to be aid available for people who want to take on educational and career paths such as these. Start with the education department at your institution and also check with the financial aid office.

Q5: The burden of care
If everyone takes steps to prevent health care facilities from “taking all their money” then who is supposed to pay for all of that very expensive care? Are you and I supposed to help bear the burden of someone’s care (should he need it) while his children benefit from his [...] windfall? I have a parent who is in Assisted Living which costs almost $4000 per month. Because my parents were frugal there was money in the bank as well as a home that will be sold to pay for my Mother’s care for as long as possible. This is her money—not mine – not an inheritance for the Grandchildren. If she did not have these resources she would be (and will be if she outlives her money) receiving Medicaid and living in a Nursing Home although she does not need to be in a Nursing Home – she just needs some help with daily living. My family was not wealthy—they scrimped and saved all their lives and I am sure paid their fair share of taxes to help take care of those people who somehow made sure their children would inherit their money..

Have you considered this aspect of people trying to “hide” or gift that money so that healthcare facilities don’t “get it”? Who IS supposed to pay those (underpaid) medical professionals who care for us when we are old and infirm – especially if we do not or cannot move our parents into our own homes and care for them ourselves?

I could not live with myself if I knew I had all of my Mother’s money while she was forced to live in a Nursing Home when she could no longer live alone but did not need 24 hour nursing care. And Medicaid will NOT pay for Assisted Living – only Nursing Homes.
- Rhonda

It really doesn’t bother me too much, to be honest. If a person has accumulated significant wealth in their life, then they’ve had to pay taxes during that accumulation, likely at a higher rate than people with less wealth. They’ve often paid a lot of taxes over the course of their life.

That money they’ve accumulated is their after-tax money and they should feel free to spend it as they wish. If they choose to spend it by gifting it to family members, then rely on a lower level of senior care as is made available through government programs, that’s their choice. If they want to hang onto that money and have a higher level of care, that’s also their choice.

There’s also the case that you’d be punishing the frugal. If someone can blow every dime they’ve earned throughout their life and then the state takes care of them at the end, but someone who carefully saved throughout their life has to pay for that care out of pocket, the situation is encouraging people to just blow their money.

Q6: Idle computer energy drain
I have become very intent on saving electricity where ever I am able to. Several blogs have told me that saving electricity by unpluging or switching off devices with a constant power draw, such as laptop and phone charger, can save me a few dollars from my power bill every month. All of my devices are on one power strip, but it is a pain to switch it off every time I am not using it (under the desk, hard to get to, etc etc). Am I really saving a significant amount of money by doing this? Or am I crawling under the desk for nothing?
- Craig

It will save you a few dollars every month, but just a few dollars. Is it worth it for you to climb under that desk several times a month to save $2 or $3 or $4? I can’t really answer that for you.

For me, it would be worth it to rewire things so that such a switch is easily available without a lot of effort. What I did with my main computer setup is get a power strip with a “master” plug-in where if the device on the “master” plug-in isn’t drawing electricity, then nothing else on the strip gets any power. I plugged my main computer into the “master” and devices like the monitor and the printer and the USB hub into the other slots.

If the only option is to crawl under the desk repeatedly for $3 a month, it wouldn’t be worth it for me. I would probably look for other solutions to the problem, though.

Q7: Considering a job change
I am in an interesting position right now as a full-time graduate student. I cut back on my hours at my loan servicing job to go to school full-time this fall. (Library Science) I absolutely love my program and being a student again, but I’m struggling because I am very unhappy with my current job. I’ve been at the same job for three years due to the bad economy and the safety net of a job with health insurance. To be perfectly honest, this job also helped me decide to return to school after I realized how unhappy I was working there!

I seem to run into the same problem every few months. I’ll tell myself I need to count my blessings because I have a job with insurance and can go to school full-time. Having this job takes off some of the financial stress as a student, and I’m able to volunteer to gain experience in my graduate field of study. But then I run into a stressful period or become upset with something that happened at work and I find myself dreading the next work day. I’m very frustrated with some aspects of my job that are beyond my control, but it mainly boils down to some business practices emphasizing quantity over quality and the lack of opportunities to advance in my current position. It’s strange because I consistently receive good reviews from my managers but I just hate the job itself. I don’t find very much personal satisfaction with my work, and I don’t like working for a large corporation.

I feel terribly guilty complaining about my job when so many people do not have jobs or health insurance. I also feel that since I repeat this same cycle every few months, I should try to address these feelings and at least think about finding a different job. But I just don’t know if it is smart to try and find something else now that I am a student.

Do you have any advice for me on how I can improve my attitude? Or is it really just a better idea to try and find a different part-time job that will be more tolerable?
- Louise

In your situation, this job is a blessing, but I think you’re looking at it from the wrong perspective. This job is a paycheck. It’s nothing more and nothing less. It is not furthering your career ambitions. It is merely making your path to the degree you want much more comfortable.

Compare it to the other part-time options you have, such as working at Burger King or being a checkout person at your local Target. The compensation would most assuredly be less, you would be without insurance, and you’d probably have many of the same complaints.

Go there, do your work, and conserve your energy and thoughts for your Library Science degree and your career after that. Ignore the politics of the job and other factors. Just do the work, but keep your focus on what your passions are.

Q8: Low interest debt?
I work full time and go to college part time. I have to work in order to pay for school. I am faithful in saving for my tuition every semester, as well as saving for retirement and putting towards an emergency fund. Since I am 27 years old, I know that now is the time to save for retirement in order to take advantage of compounding interest. This is my question: Since my income is not high and I qualify for financial aid, should I just use the financial aid (at a low interest) to pay for school – even though I have the money saved up for it. Furthermore, I would use the saved money to max out my Roth IRA for the year. I think of this because I feel I will be able to pay back my loans when I graduate while taking advantage of about 2 more years of compound interest. On the other hand, I am nervous about having a student debt. What do you think?
- Mike

I would avoid going into debt, even with relatively low rates. Having that debt after you graduate will restrict your options and your career mobility by raising your monthly required bills. This is not something you want to have freshly out of college.

My single biggest financial regret in my life is taking out more student loans than I needed. Student loans became an albatross around my neck for the last decade.

If I were you, I wouldn’t sweat the retirement savings at this point. If you get out of college with a degree and without debts, you’ll be far ahead of the financial game anyway.

Q9: Secret Santa difficulty
At my office, we have a “Secret Santa” exchange each year. Rather than drawing names, everyone puts a $20 gift into a box, then everyone draws a gift out of the box.

This seems like a waste of money to me and I don’t want to participate in it this year. How exactly can I get out of this tactfully?
- Megan

It depends greatly on the culture of your office environment. At many offices, such a gift exchange is just a way to have a social encounter with coworkers, often a lengthy one. The gifts are secondary – the reason for doing it is coworker relationships. If this is a job you value, that kind of relationship building is well worth the $20.

This is also a great opportunity for “regifting.” If you have an item around your home that’s unused that you could easily put into the exchange, do so.

Of course, there are other offices where this is just something people do very casually, without much social interaction or a big deal made of it. If that’s the case, just simply bow out with the person running it. Talk to them privately and just say that Christmas means something different to you.

Q10: Road trip music
Like you and Sarah, my wife and I go on lengthy road trips when we visit family. Along the way, we listen to music. However, my wife and I have very different tastes in music. I like Muse, she likes Adele. I like Tool, she likes Norah Jones.

To put it frankly, I’m not a big fan of “her” music, nor she mine. How do you guys handle music selection on your road trips?

I know this isn’t a typical “reader mailbag” question, but it’s something that we’ve bickered about off and on over the years.
- Andrew

Sarah and I do have different tastes in music, and this causes occasional difficulties on road trips. We have two solutions.

First, we often listen to podcasts. While we don’t like the same music, we do have other interests in common, such as current events. I’ll just get a bunch of podcasts on current events and other shared interests before we go and we listen to those.

Another thing we do is seek out artists that we both like. The way we do that is that we both occasionally build eclectic lists of stuff we each like, then we listen to these together and the other person listens for things that they like. Through this, we’ve built at least one good-sized list of stuff we both like.

Review: The Power of Full Engagement

Posted: December 11th, 2011, 1:00pm MST by Trent

As many long-time readers of The Simple Dollar know, I’m quite focused on time management practices. Without good time management skills, I would have never been able to get The Simple Dollar off the ground.

One particular facet of time management was always a challenge for me, though. I would always find that I was more productive on some days than others and at some times of the day as opposed to others. I also began to realize that there were other factors tied heavily to my productivity: the amount of sleep I got the last few nights, whether I forgot to take medications, and so on.

Eventually, I began to realize that energy management was in a lot of ways as important as time management, and that’s exactly the philosophy described in this book, The Power of Full Engagement by Jim Loehr and Tony Schwartz.

Fully Engaged: Energy, Not Time, Is Our Most Precious Resource
The basic premise of the book is that people are most productive when they go through periods of high stress followed by periods of renewal. This is in contrast to the typical idea of time management in which everything is approached like a marathon with a consistent level of stress throughout. The problem with that route is that it doesn’t account for your natural fluctuations in energy. It eventually leads to “burnout” or significant disengagement (you’re just collecting a paycheck).

The Disengaged Life of Roger B.
Roger B. is a person who spends so much of his time responding to external stimuli (the incessant demands of his job, a busy family, community responsibilities) that he’s essentially burnt out on everything and isn’t giving good performance in any area of his life. This is mostly because he never takes time for himself to genuinely relax and figure out what he wants out of life. I’ll admit that pieces of the story sounded incredibly familiar to me.

The Pulse of High Performance: Balancing Stress and Recovery
The key idea in this book is that best way to really perform well in any area of your life is to stress that area hard, then follow that period with a respite that’s free from stress. That doesn’t mean being on call or just having low stress. It means time to recover and rethink. It means a genuine period of rest and reflection and regrowth without a continuation of the stress. A great sports champion doesn’t play nonstop. Why should a great writer or a great employee?

Physical Energy: Fueling the Fire
The authors start off by looking at physical energy, heavily looking at physical fitness as a way to build up physical energy. They recommend that people train by working very hard for periods, followed by periods of almost no work at all. Stress your body nearly to the point of breaking, let it rest and recover, then repeat. This will make your body stronger.

Emotional Energy: Transforming Threat into Challenge
A similar theme – stress, rejuvenation, repeat – pops up again here when looking at emotional energy. Rather than facing a steady ongoing level of emotional stress, you should look at that consistent threat as a challenge and tackle it head on. Yes, this will cause a great deal of stress at once, but resolving that issue will reduce your stress over the long term.

Mental Energy: Appropriate Focus and Realistic Optimism
You can’t just focus mentally on one thing all of the time. You also can’t focus entirely on what others insist that you focus on. You have to spend at least some of your time doing what you want to do, unwinding from the tightness that you’ve built up. Without that unwinding, you’re unable to keep the things you need to focus on in your life in perspective and you’re unable to determine what’s realistic regarding them.

Spiritual Energy: He Who Has a Way to Live
Here, the authors argue that much of the ongoing stress in our lives comes from living in a way that isn’t in accordance to the values we have, whatever they may be. Often, living in accordance to those values means occasional peaks of stress (when doing something that’s hard) followed by a sense of peace and ease of living because those values guide you. You aren’t doing things that are wrong to you, making life easier to handle.

Defining Purpose: The Rules of Engagement
So, how do you really get started on this? The authors say that the foundation of all of this is purpose. Why are you here? What do you want to do with your life? What’s the destination? On top of that are your values, which guide you to that purpose. You move toward that purpose by simply taking on challenges in your life head-on, then taking genuine breaks where you turn off that cell phone.

Face the Truth: How Are You Managing Your Energy Now?
It’s often hard to face the real challenges in our life. We tend to take shortcuts that work well in the short term, but fail us in the long term. We keep up a wall at work. We take a pessimistic, snarky attitude about things. The list goes on and on. However, if we take that short-term heat head on and face the truth of our situation, we can move onto a path that actually makes life easier.

Taking Action: The Power of Positive Rituals
How do you keep going on this path? The authors suggest positive rituals. All of us have a morning ritual where we go through certain actions automatically each day. If you want to move toward the big goals in your life, you need to add to your daily rituals. Make going for a walk each day “normal.” Make working on your novel a bit each day “normal.”

Is The Power of Full Engagement Worth Reading?
I felt that The Power of Full Engagement offered up a powerful perspective on managing one’s time and energy. The idea of bearing down on particular things then alternating them with a rest period is a powerful one. The book also does a great job of walking through the ramifications of that perspective in different dimensions of life.

If you’re finding it difficult to achieve the things you want to achieve in life, The Power of Full Engagement is well worth a read. I found lots of food for thought in those pages, which is the most I can really ask for from a book.

Check out additional reviews and notes of The Power of Full Engagement on Amazon.com.

Savings Account as Investment

Posted: December 11th, 2011, 7:00am MST by Trent

Quite often, I’ll get emails from readers saying that they’re looking to invest their money and that the money they want to invest is currently sitting in a savings account. What these readers often overlook is that the money in their savings account is already invested.

An investment simply means that you’ve put aside a resource for future use with the hopes of gaining a return on that money. A person can invest in anything from baseball cards and stamps to real estate and stock investments.

I usually look at three big factors when thinking about an investment.

Rate of return How much of a return on my money can I reasonably expect with this investment? For example, over the long term, a reasonable rate of return to expect from a broad stock market investment is 7%. If you invest in a savings account, a reasonable rate of return is about 1% right now.

Risk How likely is it that I’m going to get the return I expect with this investment? With stocks, there’s a significant amount of risk, particularly over the short term. If you bought heavily into stocks in early 2008, you probably lost 40% of your money. On the other hand, if you put your money in a savings account in any year, you had a small positive return, just like clockwork.

Liquidity How easy is it for me to get my money out? Savings accounts are incredibly liquid – all you have to do is visit an ATM. Stocks are a bit less liquid, but you can usually sell them quite easily through your broker. Other things, like real estate or CDs, are not very liquid, as you incur losses for cashing out a CD early and real estate sales require a buyer before you can get your money out.

As you can see, a savings account registers on all of these factors. A savings account is a highly liquid, very low risk investment with a low expected rate of return.

You can make similar statements about a lot of investments. An index fund of all American stocks is a highly liquid, moderately risky investment with a medium expected rate of return. Vintage baseball cards are a fairly illiquid, moderately risky investment with a medium expected rate of return (based on my experience). A CD is a fairly illiquid, very low risk investment with a fairly low expected rate of return.

The question then becomes how do you decide where to put your money? Again, I use a few simple rules of thumb to compare the investment types.

The sooner I need the money, the less risk I’m willing to accept. If I’m saving for retirement, I’m fine with significant risk. If I’m saving for a car I intend to buy in six years, I’m fine with some risk. If I’m saving for an air conditioner repair in five months, I don’t want much risk at all.

If I’m going to possibly need the money quickly, I need it to be pretty liquid. In other words, I would not put my emergency fund into real estate or collectibles, nor would I put it all into a certificate of deposit. These investments have their place (a long-term goal), but they’re certainly not for everything.

If I absolutely must hit a certain dollar amount at a certain time, I’ll lower my risk and focus on raising contributions. For example, if I have to have $100,000 to pay off my ARM in four years, I’m not going to want to put that money in a risky investment where the balance can unexpectedly slip away from me. I’d rather put it in something with a lower rate of return with much lower risk and focus on increasing the amount I can save.

Rate of return rarely plays a role in these decisions. I generally focus on liquidity and risk first and foremost, and when I have those figured out based on why I’m investing, I try to find the best rate of return for that amount of risk and liquidity.

Thus, quite often, savings accounts are my preferred investment vehicle.

Wrapping Paper Alternatives

Posted: December 10th, 2011, 1:00pm MST by Trent

One common theme in the emails I get this time of year is the cost of wrapping paper. Many people find it difficult to swallow that they’re investing $15 to $20 into paper that’s simply there to cover a box and will be torn to shreds on Christmas morning – and, frankly, I don’t blame them. For us, that means supplies for multiple homemade gifts or even a moderately priced store-purchased gift for someone. I don’t know about you, but I’d rather give a gift than give some shredded paper.

So, what can we do about it? Here are some options to consider. I have used all of these at various points.

Plain brown paper This is an old standby, of course. It creates a classic look for packages (“little brown packages tied up with string…”). You can easily jazz it up a bit with a stamp and some ink, covering the paper with little red candy canes or other festive shapes.

How can I get this inexpensively? The easiest way is to just request paper bags at the grocery store. Most grocery stores will bag your groceries in brown paper bags upon request. Then, when you’re home, save the bags. When you’re ready to wrap, just cut off the bottom of the bag, cut a single slice through the side of the bag, then flip it over so that the bag labeling is on the inside of the package.

Newspaper When I was growing up, many of my relatives would give gifts wrapped in the comic pages from the Sunday newspaper. They’d just save them throughout the year and use them as their gift wrapping for all gifts. I actually thought it was incredibly cool at the time, especially since the relatives that did it usually gave interesting gifts. When I was in college, one friend of mine would wrap all of his gifts in old issues of The Onion that he’d get from his parents.

How can I get this inexpensively? There are lots of ways to get free or discounted newspapers. For instance, one local gas station will give away old newspapers if someone is willing to take them, so I would often get the Sunday paper for free there early on Monday morning (for the coupon flyers, if nothing else). You can also keep an eye on recycling bins or else pick up copies of the local free newspaper.

Themed magazines A few years back, I started saving old magazine covers for a project. I simply asked some friends if I could have their old unwanted magazines and saved the covers from them.

When it came time to wrap gifts, I took covers from magazines associated with the gift itself and used it for the wrapping paper. For books, I used things like The New Yorker or The Atlantic. For CDs, I used covers of Rolling Stone. For an article of clothing that I gave to a female, I used a fashion magazine (I think it was W). For a piece of sporting equipment, I used Sports Illustrated.

How can I get this inexpensively? Tell your friends that you’re working on a project and you’d love to have any old magazines they have laying around. You’ll be surprised how many magazines come out of the woodwork if you ask. Then, just save the covers from them throughout the year and try to associate them with some of the gifts you’re giving.

Children’s drawings If you happen to have an excess of children’s art, this can make a perfect wrapping paper for gifts for the child’s grandparents or doting aunts or uncles. I can certainly say that we have an excess of children’s art around our home.

How can I get this inexpensively? If you have a child in preschool or elementary school, chances are you’re going to wind up with more art than you know what to do with. Just save some of the more charming pieces (that you’re willing to part with) and use them to wrap gifts.

Plan ahead If none of these really appeal to you, the best way to inexpensively wrap gifts is to simply plan ahead – way ahead. Just after Christmas, wrapping paper is usually on deep discount at department stores, so that’s the best time to buy yourself an abundance of the stuff.

How can I get this inexpensively? Take a bit of time to buy some paper between Christmas and New Years and stow it away in a closet for next year. Problem solved.

Ten Pieces of Inspiration #50

Posted: December 10th, 2011, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

Sarah and I spent a lot of time assembling Christmas gifts this week, so our mind was on the spirit of the season.

1. ifttt
Have you ever taken pictures with your camera and wished they would automatically show up on Flickr and Facebook? Ever wanted an email sent to you with a note if someone posts something new on their blog? ifttt does all of that.

This really is a pretty cool tool, and it’s easy to set up, too. I’ve been playing with it all week.

2. Emerson on sticking to principles
The best way to feel good about accomplishing anything is to know that you did it by sticking to your guns.

“Nothing can bring you peace but yourself. Nothing can bring you peace but the triumph of principles.” – Ralph Waldo Emerson

To me, this is one of the big keys of personal finance. There is a lot of internal reward from having the willpower to stick to a goal and make it happen.

3. Sir Ken Robinson on how schools stifle creativity
As many of you know, my wife is a schoolteacher. She also feels that by teaching to a standardized test, the teachers are stifling the creativity of their students. They stuff the students’ minds with facts, but they don’t work on creatively using those facts.

What’s the solution? I’m actually opposed to standardized testing as I don’t think it relates to the quality of the students graduating. What does? I don’t think there is a way to objectively measure the quality of students. You can measure how many facts they’ve absorbed, but you can’t measure how they can put them to creative use.

4. Digital: A Love Story
This is an amazing little game that tells a beautiful story. It’s set in 1988 (with 1988-appropriate computer graphics), but …

It’s just one of those things that’s worth taking some time to experience. It’s just a great story told in a clever way.

5. John D. Rockefeller on charity
While I don’t completely agree with this quote, it has caused me to think quite a lot over the years about charitable giving.

Charity is injurious unless it helps the recipient to become independent of it. – John D. Rockefeller

There are some charities worth giving to that do not have this as a goal because independence is not a realistic goal for those they help, such as developmentally disabled adults. However, if a charity is helping people who are able to help themselves, I think it’s vital that they try to get those people on a path of independence. Food for thought, as any good inspirational piece should be.

6. Dorothy Parker’s The Maid-Servant at the Inn
Dorothy Parker is one of my favorite poets. I’ve always loved her wordplay, and I absolutely love this poem about the nativity. The perspective and word choice and rhythm are just amazing.

“It’s queer,” she said; “I see the light
As plain as I beheld it then,
All silver-like and calm and bright-
We’ve not had stars like that again!

“And she was such a gentle thing
To birth a baby in the cold.
The barn was dark and frightening-
This new one’s better than the old.

“I mind my eyes were full of tears,
For I was young, and quick distressed,
But she was less than me in years
That held a son against her breast.

“I never saw a sweeter child-
The little one, the darling one!-
I mind I told her, when he smiled
You’d know he was his mother’s son.

“It’s queer that I should see them so-
The time they came to Bethlehem
Was more than thirty years ago;
I’ve prayed that all is well with them.”

7. John Stuart Mill on desire and happiness
The one thing I’ve learned about desires is that as soon as you sate one, two more pop up to replace it. The wants grow within you.

“I have learned to seek my happiness by limiting my desires, rather than in attempting to satisfy them.” – John Stuart Mill

It’s far better to seek happiness and pleasure in other things.

8. Advent candles
One of our traditions is to light candles on our table centerpiece during the four weeks leading up to Christmas. I took several pictures of our lit candles, but none were nearly as beatiful as this image by Per Ola Wiberg:

It’s a nice, soothing reminder that the season isn’t about presents.

9. Sophocles on preparation
No matter how well planned out we think the future is, chance often destroys those plans.

“Fear? What has a man to do with fear? Chance rules our lives, and the future is all unknown.” – Sophocles, Oedipus Rex

The best way to prepare is to improve yourself and keep some cash on hand. The more you focus on these things, the better you’ll be able to deal with whatever life hands you.

10. Frank Sinatra singing Let It Snow
This is one of my favorite winter songs.

I have a ton of respect for Frank Sinatra as a singer. He’s so good at phrasing and making the words he’s singing absolutely clear while staying in tune and adding immense character to the song. I wish I could sing even a tenth as well as he does.

The Soup Kitchen

Posted: December 9th, 2011, 1:00pm MST by Trent

From about mid-October to roughly the end of March, we have some form of soup for dinner two or three times a week. It’s incredibly easy to make, has infinite variations, and is really inexpensive. What’s not to love about it?

Here’s exactly how we do it.

The Basic Tools
Obviously, the most basic thing you need to have is a soup pot or two. We often make soup in these 5 1/2 quart enameled cast iron pots, but any pot that ranges from five quarts or so on up will be sufficient for making soup. I highly recommend having a lid.

You’ll also need to have a ladel, as it makes serving the soup into bowls much easier. You’ll also, of course, need bowls and spoons for eating and a spoon for stirring the soup.

That’s really all you need in your kitchen (aside from a stovetop) to make soup pretty much any time you want.

The Basic Ingredients We Always Have on Hand
We keep a steady supply of a few key ingredients on hand at all times for soup making.

Our three most frequent soup ingredients are barley, egg noodles, and dried beans. These form the backbone of many of the soups we make, plus they store quite well in the pantry in their dry form. When we find a sale on these, we stock up every time.

We also keep a few basic seasonings on hand, such as salt and pepper. In addition, we also usually keep some homemade vegetable stock around for the liquid of the soup. We also keep some vegetable boullion around in case we’re out of stock.

If you like beef soups, use beef stock or boullion instead. If you like chicken soups, use chicken stock or boullion instead. Keep whatever it is that you like around.

In addition, we keep a few basic spices around: thyme, sage, and bay leaves, for starters. These work well in most soups.

We also keep oyster crackers around as a condiment for the soup.

This is actually all you need to make a flavorful passable soup at the drop of a hat. Just cook the main ingredient, add some herbs and pepper, and simmer for a while until it smells too good to resist.

Varying Things Up
Of course, you’re going to want to vary this for variety’s sake. How do you do that?

The way we do it is that we simply watch for vegetables that are on sale at our local grocery stores. If potatoes are on sale this week, we use potatoes in a batch of soup. The same goes for almost any vegetable, from turnips to kale to spinach to corn. Whatever’s fresh and inexpensive, we try it and use it.

You can also include meat in your bargain hunting, too. If you find chicken or beef or pork on sale, pick it up and use it as an ingredient. If it sounds good to you, it probably is good.

How do you cook it? The first step is to simply boil your liquid ingredients – water and/or stock. You’ll start with this, then likely add more liquid during the cooking process if the soup gets too thick. Don’t worry about evaporated water – the flavor will just get richer over time.

The easiest way is just to search for your ingredient on Google with the addition “time to boil.” So, if you want to know how long to make soup with, say, turnips in it, you’d search for “time to boil turnips.” You’ll find that turnips take 25-30 minutes to boil.

Then, just make a list of all of your ingredients and how long they take to boil. Add the ingredients in order so that they all finish cooking at the same time. So, for example, if you have beans that take two hours, turnips that take 30 minutes, and potatoes that take 20 minutes, you’d start the beans, let them cook for an hour and a half, add the turnips, and then ten minutes later, add the potatoes.

The exception to this is the meat. If you’re adding meat (I actually also do this with onions and a few other things, too), I suggest cooking it separately until it’s done, then adding it with about ten or fifteen minutes left to go for the soup. Take some of the soup broth you have going, pour it in the pan that you cooked the meat in while the pan is still hot, then pour it back into the soup pot to add some delicious flavor.

It’s incredibly easy, incredibly tasty, and incredibly inexpensive – my kind of meal!

Saving Pennies or Dollars? Space Heaters

Posted: December 9th, 2011, 7:00am MST by Trent

Shaun writes in: This time of year (late fall, early winter), the local hardware stores offer several varieties of space heaters. Is it possible to realize meaningful savings by using one or more space heaters to locally heat parts of your house while keeping the thermostat at a very low setting?

This is absolutely a great way to save money in the winter for the reasons you describe. If you have a space heater and run it in only a room or two, then keep the thermostat in your home quite low, you’ll save a ton on your energy bill.

For example, in my own home, we use this 1,500 watt space heater.

Most of the time during the winter, particularly on weekends, we let the whole house stay cool and keep only the family room warm. When we switch to this mode, we turn the thermostat down to about 45 degrees, which is cool enough that the furnace virtually never turns on.

Then, we all settle into the family room. When we notice it getting cold, I’ll flip on that space heater full blast for a while, using 1,500 watts for about ten minutes until the room is warm. Then I’ll turn it on really low, where it uses about 200 watts, and this – plus our body heat – keeps the room we’re in pretty warm.

So, let’s compare that for a 24 hour day against the use of our furnace.

With normal furnace usage, we’ll leave the house set at about 60 degrees Fahrenheit. We wear long sleeves and pants during the winter, so this feels fine. We have an approximately 25 kW furnace (based on the information I could find on the labeling, which is appropriate for a house of our size in a cold climate), which flips on for about ten minutes per hour, on average (I’ve measured it on cold winter days).

Thus, over the course of a full day, our furnace will run for four hours. With a 25 kW furnace, that’s 100 kWh of usage, or about $12 in energy use.

With a space heater, over that same period, I would run it at 1,500 watts for about 10 minutes, then at 300 watts permanently afterwards. That totals approximately 75 kWh of usage, or about $9 in energy use.

In other words, if we are going to spend most of the day in the family room, we’ll save dollars by turning the furnace very low and just heating the family room with a space heater. (At the end of the day, we’ll often go upstairs and position the space heater between the bedrooms at a fairly low rate and it keeps us quite warm during the night while the rest of the house is cool.)

For us, that savings is about $3 a day, according to my math.

However, the variables for your situation are large. How big is your house? How cold is your climate (generally, furnaces in colder winter climates tend to have higher wattages)?

Perhaps most importantly, how much of a difference is there between the area you want to heat via space heater and the area you want to heat via furnace? If you’re living in a small apartment, for example, or have a house that’s less than 800 square feet or so, you’re probably not saving much at all with a space heater.

The savings kick in if you have a large house and are only heating one room with a space heater and if you live in a climate with a large difference between indoor and outdoor temperature.

Planning a Group Vacation

Posted: December 8th, 2011, 1:00pm MST by Trent

Two summers ago, my wife, my children, my parents and I all traveled to Texas together, in part to visit relatives but also to enjoy the Dallas-Fort Worth area.

Because we took some time to plan the trip in advance and involved everyone going on the trip in the planning, we ended up finding quite a few free and frugal things to do on the trip. We were also able to save money on the trip by only taking one vehicle.

However, there were other elements of the trip that weren’t quite as frugal. Our housing wound up being quite costly, for instance, as did our food bill.

This leads us to this winter. Sarah and I often plan the details of the following summer’s family vacation during the preceding winter so that we have plenty of time to find bargains for the upcoming travels.

We’re essentially planning two vacations for 2012, and both of them are going to be quite frugal. What do they have in common? They’re both group vacations.

Here are some of the things we’re doing to maximize fun and minimize cost on these trips by leveraging the fact that we’re traveling as a group.

We’re going with people with a similar mindset. None of the people we’re choosing to travel with next year are heavy spenders. All of them are frugally-minded people. They’re also people that we feel good about spending a significant amount of time with over a week. We want to have a reasonably-priced vacation and they’re on board with the same idea.

We’re splitting costs, looking for deals, and budgeting in advance. For both of these vacations, we’re essentially budgeting costs as a group, looking for deals as a group, and splitting costs as a group. These moves enable us to look at our situation through a lot of different eyes and the net result is reduced costs.

We’re going to visit places that are within a reasonable driving range. One vacation is within our own state. Another is only two states away. On trips this short, it makes a lot of sense to drive, not just based on money, but actually based on time. Not only that, driving means we can bring more of our own supplies, which makes these other options easier.

We’re going to camp for at least some of the vacation. This drastically reduces our housing costs. For us, it also adds to the flavor of the vacation due to the exposure to the outdoors. We’re also considering renting a cabin for our larger group vacation.

Because we’re camping, we’re also going to make most of our own food instead of eating out. Rather than going out to a restaurant, we’ll prepare a meal in our Dutch oven. We can still have something delicious and memorable without spending a ton of money.

The vacations are based on experiences rather than being a tourist. Some of the big things we intend to do on these trips involve going on hikes and fishing, not going to pricy “tourist-y” places. Because of that, our overall budget for vacation is much lower.

In the end, it’s all about people and experiences. Keep that in mind and you’ll find yourself having a great vacation without a great dent in your pocketbook.

Reader Mailbag: Book Suggestions

Posted: December 8th, 2011, 7:00am MST 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 in tax liens
2. How much for housing?
3. Stuck in a rut
4. Choosing an investment house
5. Turning the economy around
6. Investing for youths
7. Reactivating old card
8. Auto loan credit question
9. Handling an inheritance
10. Philosophy reading list

I get two or three book suggestions from readers a day. Usually, one of them is related to personal finance, while the other one or two could be anything.

I just wanted to give a shout out to three great books readers have recommended to me and I’ve enjoyed in the past year: Where Men Win Glory: The Odyssey of Pat Tillman by Jon Krakauer, The Way of Kings by Brandon Sanderson, and Moonwalking with Einstein by Joshua Foer.

Reading a great book is one of my favorite experiences.

Q1: Investing in tax liens
I have heard a lot about investing in tax liens as a risk free (?!) method to get an 18% or more return on your money or acquire the property. I am interested in seeing an evaluation of investing in tax liens. What do you think about tax liens?
- Roger

Investing in tax liens means that you’re purchasing liens held against a property, usually from the state. This is usually due to unpaid taxes and accrued interest.

It is not a risk-free method of investing. If you don’t know the exact procedures for the process in your state, you can very easily end up losing your deposit or find yourself holding a worthless lien. For example, you often have to pay the full amount within 24 to 72 hours of agreeing to buy a lien and putting down the deposit, and if you fail to do so, you lose the lien.

There are also risks involving the property you’re holding the lien against; you can’t insure it, for example, and if the property has environmental problems, you could be responsible for the cleanup.

Tax lien investing works well for institutions that have the bankroll to handle the risks inherent in such investing. If you don’t have a lot of money and a strong legal understanding of what you’re getting into, they can be dangerous.

Q2: How much for housing?
How do you determine how much you can afford for a mortgage and/or rental payment? For instance, I’ve read that you shouldn’t pay more than 25% of your monthly take-home pay for housing costs. But does this include taxes, insurance, and utilities?

Here is my specific situation. Background info: I have an emergency fund of $7,000, I have no debt, I am 26, female, and I currently rent (living alone), paying $860/month for a one-bedroom apartment. Heat and hot water are included; I pay the electric bill, which averages $22/month.

It has my been my lifelong dream to own a dog, and I finally found a dog-friendly apartment in my city. The rent is $950/month (for a one-bedroom apartment), but no utilities are included. Per the current tenant, the gas bill runs about $160/month in the winter. I would still have to pay electric (about $50, as this apartment does have a washer/dryer).

After contributing 15% of my income to my 401K and Roth IRA, I have about $1300/month to put into savings. If I rented this apartment, that would be a hit of $300/month from that savings, plus the cost of caring for a dog.

My ultimate question is two-fold: First, what percentage of your income should go toward housing costs? Second, am I better off saving the full $1337 for a home? Or going for the rental situation? Am I losing out if I decide to rent?
- Lauren

There are a lot of “rules of thumb” out there regarding how much of your income you should put toward housing. From my perspective, if you’re putting much more than 25% of your income toward your housing, you’re starting to put yourself in a risky situation.

As for renting versus buying, if you’re paying more in interest on your monthly mortgage payment than you would be paying in rent, then I would probably rent.

The easiest way to figure this out is to get a mortgage quote, then run some calculations on it. The housing market is depressed enough right now that I would not look at a home as an investment in the short term.

Q3: Stuck in a rut
I’m unable to leave my home due to health issues, I’ve lost my job, but I have my finances taken care of, that isn’t an issue, nor is housing, etc. Everything is in order.

My issue now is that I’ve lost my way regarding what to do with my life. Everyday is like the movie Groundhog Day for me. I’m on the internet looking at sites or watching a movie, not really doing anything. I write for a local political site from time to time, but do not get paid. It gives me something to do.

Even with the little writing I do, I feel like I’m wasting away. I want to make a contribution to society or at least do something that I feel makes me a better person. I’ve thought about starting my own website, doing more regarding social media, but I don’t know if it’s for me.

I’m in a rut and don’t know what to do. I want to get out of the repeating cycle but don’t know how. Any advice would be welcome. I don’t want to keep looking back and seeing that I’ve done nothing.
- Gary

My suggestion would be to try something new every day.

Try knitting one day. Read a book of philosophy the next. Try a new computer game. Learn how to do acrostic puzzles. Try cooking a challenging recipe. Learn how to write the code to make a website. Learn how to use Photoshop. Learn how to speak French. The list is never-ending.

I’m not entirely sure what your health situation limits you to doing, but if you’re able to use the internet, you’re able to read and write, which opens the doors to a lot of things. Keep trying things until you find something that really excites you, then start hammering away at that thing.

Q4: Choosing an investment house
I am 23, married and my husband & I just graduated from college this past May. I want to go ahead and start saving for retirement ASAP and I have spoken with a friend of mine, who is older and has worked in the financial field for many years. He advised that we open an Roth IRA account (in my name initially) and put in $50/month, increasing that as we are able and eventually open another account in my spouse’s name. So that is the plan, but my question is where should we open this account? He mentioned Vanguard, T. Rowe Price, and Fidelity as well as a few others. Advise would be greatly appreciated! How do I decide where to open this account/what should I take into consideration? We don’t make a lot of money right now; however, I plan to just take that $50 and the money we give to church out before we even consider what to use our income on as if it was never even there in order to be disciplined in saving. I also have a set amount from each pay check that is going towards building an emergency fund that is nearly complete.
- Kelly

I can’t tell you where to invest. Most of the major investment houses have their good points and their bad points.

What I can tell you is what I use and why. I use Vanguard for my personal investment purposes. I chose them because I believe strongly in using index funds for passive investing, which is their strong suit, and their hands-off approach to dealing with investors. I don’t feel like they’re trying to sell me stuff.

What’s a drawback to using them? Many of their funds have a $3,000 minimum before you can start putting funds in. This means if you want to diversify across, say, five funds, you need $15,000 to start with. There are a few ways of getting around this (not starting until you have $3,000 in the bank, for one), but it can be a limitation for many.

Q5: Turning the economy around
Have you noticed people shifting their thoughts about their financial lives in the last 12 months? It seems like a financial turn-around in the U.S. will require more than just money, it will require a change of spending habits and how people think about money. Do you see any evidence that people are changing in those ways?
- Emily

I feel like there’s been some change since I started this site in 2006, but I don’t feel like too much has changed over the past year.

In a nutshell, I think 2008 woke up about 5% of the American public to keeping better care of their money.

The other 95% are still doing pretty much exactly what they were doing before the financial downturn began.

Q6: Investing for youths
Our 10-year-old has saved $500 from his odd jobs around the neighborhood and within our household. He wants to start investing. What would you suggest for him?
- Amber

It depends on whether he’s actually investing for a specific goal or whether this is going to be an experience in learning about investing.

If it’s about learning, I’d get an account at a brokerage and let him manage the money himself. Get him a basic investing book and let him invest it as he chooses. If you’re unsure of things, learn along with him.

If it’s about a specific goal, I’d figure out how far out that goal is and how much risk he’s willing to take on. The closer the goal and the lower the risk, the more likely I’d be to just put it in a savings account (a low-risk investment with a low but guaranteed return). If the goal is long term and some risk is acceptable, I’d do something more high-risk like investing it mostly in stocks.

Q7: Reactivating old card
I just finished paying off my debt management plan (DMP)! I am looking to have one or two credit cards to charge small bills to and pay off each month to boost my credit score. Many of my unused lines of credit were closed when I started my DMP program but there is an inactive account with a small credit limit that it still showing as open on all 3 credit reports. This inactive account was opened in 2003.

Do you think it is better to open a new credit card for my plan or should I call the bank to see if they will reactivate this old account?
- Charlene

It’s likely that the business has closed the account, but failed to notify the credit bureau. It’s probably a net positive for you for it to remain open in this fashion, as it extends the length of your credit history.

If I were you, I’d try to establish credit elsewhere, keep it paid off for a while, then contact this company to get it straightened out.

Once you don’t need the account any more to establish the length of your history (in a few years), you’re better off closing the old account.

Q8: Auto loan credit question
I graduated with my Bachelors in May of 2010 and have been working full-time since making about $50k/year. I currently live at home with my parents but am moving out soon. I had been using my junker car I got when I was 16 until I recently totaled it in a snow storm so now it is time for a new car. I have plenty of cash on hand to pay for the car (about $40k in cash) but because my current types of credit on my credit report are so low and limited (2 student loans, a credit card, and that’s pretty much it, no auto or home loans) that I want to improve by credit score. Types of credit and amount of accounts seems like one of the most glaring negatives on my credit report. I want to upgrade from my previous junker but nothing too crazy (I’m thinking about $15k). I was thinking I would make a large down payment of around $5,000 and get a $10,000 loan at a low percentage like 2.99% through my local credit union and pay it off quickly. Does this sound like a good plan or is there a more ideal plan to build my credit while avoiding the interest and debt? It seems like I have several options in this situation. Should I pay it off immediately or will this not be as good for my credit as paying it off over a few years? Should I just take an auto loan for the full $15k and pay it all off immediately? Should I take out a loan for the full $15k and just make the monthly payments while investing my cash elsewhere (hopefully at a rate higher than 2.99%)? What is the ideal way to handle this?
- Kevin

Assuming your card is in good standing, I don’t actually think your credit is too bad. If you have a large down payment on your car loan in hand, you’re likely going to get a very good rate on your car loan.

Now, as for the question of how much you should put down, if I were you, I’d pay as much as possible down except that I’d keep a thousand or two for an emergency fund.

Having debt means that you’re leashed to a monthly debt payment for the foreseeable future. That means you’re required to keep a job that can cover all of these payments, meaning you’re not free to make many career changes and you’re in complete panic mode in the event of a job loss.

Unless there’s a compelling reason to do otherwise, it’s always best to minimize one’s debt.

Q9: Handling an inheritance
Short back story…

I am in my late 20′s with student loans (about $40k left @ 6%) and a mortgage ($220k left @ 6.5%). My husband and I have worked hard to reign in our spending and have paid off about $25k in credit cards, $30k in car loans, and are saving money for our future in terms of an emergency fund and our retirements. We plan on renting our house out next summer(just enough to cover the mortgage costs) by living in a tiny house on our 6 acre property to further reduce our living costs. I will be leaving my job next month and my husband makes about $60k/year and our living expenses total about $1k without the mortgage.

My question is this:

My great aunt passed away in October after a very long battle with cancer. I have learned I will be inheriting about $500k from her estate after taxes (estate is paying taxes).

I would like advice on how to invest this money in a way that allows me to live off the interest without touching the principal balance for the remainder of my life.

I understand if you cannot offer specific investment advice, but it would be greatly appreciated if you could point me in the right direction on whom I should contact (attorney, financial planner, investment broker, etc.), books to read, and what I should be looking for as I don’t want this money to fall into the wrong hands and would like to maintain as autonomous with it as possible. If you need any further details or information, please let me know.
- Jill

$500,000 is not enough money for you to live on the interest for the rest of your life. You can invest it in a way that will pay you some nice supplementary amount for the rest of your life each year, but it will not be enough to sustain yourself.

For example, Warren Buffett suggests that a 7% annual return is a good estimate of long-term stock market returns. That would mean an annual return of $35,000. While that would provide for a moderate lifestyle today, with inflation, you would not be able to live that lifestyle for long.

You have a lot of options for this money. If I were in your shoes, I would take that $500,000, pay off all my debts, and then buy a diversity of high dividend paying blue chip stocks in very large, stable companies, and I’d just collect the dividend payments.

Q10: Philosophy reading list
I was just wondering what’s on your philosophy reading list.
- John

I’ve actually been trying to read through Boston College’s MA Philosophy reading list. I’ve been reading them in the order listed there in order to try to see how ideas have evolved over time.

So far, it’s been quite enjoyable. I tend to read it in fits and starts, picking up a piece or two here or there, then reading other things for a while.

Mostly, it’s caused me to reflect a lot on how I behave and how other people behave.

Developing Self-Control and Perseverance

Posted: December 7th, 2011, 1:00pm MST by Trent

Laurie writes in:

My main observation though is the constant path of self control and perseverance you seem to follow. I commend you highly for being able to do this. I guess my question is, even though you manage to make it all sound so (sometimes not) simple and using a lot of common sense, how does the everyday person find or learn the right mindset to stay on the straight and narrow so that it becomes more or less second nature? That seems to be a lot of my problem and I’m sure many others. It’s easy to get all gung-ho about an idea and run with it, but how do we stay the course? I’m not so much speaking about getting off track and totally blowing the bank, but how do you manage to keep such a positive attitude about things for so long? Can this kind of mindset be taught do you think?

It’s difficult at best to show young people why they should be looking so far ahead into the future, and those of us older folks know it’s only a matter of time before some kind of event comes along and knocks us off our feet. “How” do we develop that “no matter what” fortitude? Are there any type of books (other than the run-of-the-mill self-help) that could help build a plain ‘n simple better outlook on (financial) life? It seems to me that it’s mostly inherent in a person. You either have it or you don’t. Some have it but don’t know exactly how to direct it, (which is why we look to you and others), and others have none but could surely benefit from some conditioning.

Laurie’s question hits upon a fundamental part of personal finance success – and, frankly, success in a lot of areas. How exactly do you maintain the level of self-control and perseverance needed to succeed in the long term? That question applies to countless areas, from health to money to careers to hobbies.

I think the best way to start is to tell my own story. Give it some time – there is a point.

When I was in college, I was a pretty unfocused person. I could certainly bear down on a specific project for a short period if I needed to, but I could never sustain anything. I got good enough grades to get through, but I would often get A’s in difficult classes that interested me (theory of programming languages and mathematics of biological algorithms come to mind) and C’s in classes I didn’t care about.

After college, I took a job where I was immediately tossed into the deep end of the swimming pool on a very difficult project. I was handed a legacy database system with a poor web interface that had been built piecemeal over several years and essentially told to modify it into something modern so that people using the interface could easily extract data from it. I worked with one other guy whose experience was in databases, and the two of us were essentially given about six months to come up with a highly functional prototype or else hit the road.

I spent those six months (the middle of 2002) focusing intensely on this project. It consumed me. I worked on it night and day. I thought about it when I woke up and when I went to bed. I taught myself a new programming language, the ins and outs of a database system I’d never seen before, and the details of data sets that I had never even heard of before I started the job.

At the end of those six months, I was completely blitzed. I essentially spent the last bit of that year falling back into an unfocused state, mostly due to burnout.

What I noticed at the end of the year, though, was that the big thing I accomplished during the year was the thing I focused on. I didn’t accomplish much of anything outside of those six months.

I spent a lot of the next two years essentially working on my ability to focus on large projects. I wrote a novel. I started a social media site similar to reddit (I eventually closed this down due to lack of users). I started a blog on parenting that became rather popular (I shut it down due to some privacy invasion issues, lessons that I carried forward to The Simple Dollar). I started investing for retirement.

What I found was that focus on a goal takes practice. It’s not something that comes naturally to a lot of people. Yes, some people have a gift for focusing on a specific goal and carrying it home, but it is certainly not something that comes naturally to me.

Why? I think that in the day-to-day lives of many people, long term goals don’t really have a vital place. They get up, they take care of basic life duties, they go to work or to class, and they relax. They don’t feel a real push to focus on a long-term goal.

Then, when they do feel the urgency of such a goal, they’re simply not mentally prepared to take on that kind of long-term planning and focus. They’ve never invested themselves in a project that didn’t pay dividends within a month or two.

I spent the first two decades of my life in that pattern and it was hard to break out of it. I think there were three things that really changed the story for me.

I completed a long term project after sticking with it for a while. For me, it was that software prototype that I mentioned above. Simply sticking with that project for so long with such focus was very hard and the sense that I had actually achieved something so big really stuck with me.

How can you do this? I would just select a large project that you’d like to accomplish, put my nose down, and make it happen. Maybe you’ve always wanted to write a novel. Maybe you’ve always wanted to run a 5K in under 30 minutes. Whatever it is, set that as your goal and then take action every single day to get there. You’re not just doing this to complete the specific goal, but to show yourself that you can carry off something big.

I made a conscious choice to regularly think about my future self. I actually started putting aside time to think about the situation that I would be in a year from now and five years from now. The more I thought about those future versions of myself, the more I wanted to make their lives better. It became easier to convince myself not to go to the bookstore or to work harder on this project if I knew that it would really benefit my future self.

How can you do this? Think in detail about where you’d like your life to be in a year, and then in five years, and then in twenty years. What aspects of your life do you really want to be included?

Then, look at every choice you make today through that filter. Which choice that I make today will make that “future me” have a better life? I can’t even tell you the number of times this very thought has made me focus on a task at hand or choose not to spend money. I just always reflect on that future self.

I hesitate. I find myself doing this all the time. Whenever I’m about to make a decision where I’m going to use a significant amount of time or spend any money, I stop for a bit and simply ask myself if this is really what I want to do. Yes, sometimes I still go ahead with it, but quite often, I stop in my tracks and make a better choice.

This goes hand-in-hand with thinking about my future self, since it’s that picture of the future that I want to have that I use when I hesitate.

How can you do this? Work hard on establishing a habit of hesitation. Whenever you’re about to spend any money or you’re about to spend some time, stop for ten seconds and ask yourself why you’re doing this and what you’re hoping to get out of it. Think about what else you could do with that time or that money.

You won’t always make the “good” decision – no one does – but you’ll start increasing the frequency of making “good” choices.

In the end, it’s all about practice and establishing good habits. The more you do it, the more natural such choices become and the easier it gets to accomplish something great.

The Simple Dollar Weekly Roundup: Struggling to Write Edition

Posted: December 7th, 2011, 7:00am MST by Trent

Whenever there’s a challenge going on in my life, I find it much harder to write. I find my thoughts drifting away from the words and onto other things.

For me, the best solution is to simply spend some time reflecting on that challenge. I put aside feeble attempts to work and focus on that which is bothering me.

If I do that, I tend to find resolution much sooner, and once I find resolution, the words and the focus return.

10 Reasons Your Freelance Career Is Failing I’d advise people who are considering freelance work to read this before making the leap. It’s even more important then because you can shore up these things before you even get started. (@ freelance switch)

Ten Easy to Plan, Cheap, and Fun At-Home Date Ideas When my wife and I have a date night, we usually wind up playing a board game together. It gets us face to face and talking at the table. Board games are a great conversation starter. (@ money help for christians)

Why I Still Read The Tightwad Gazette The Tightwad Gazette was a popular printed newsletter in the 1990s focusing on frugality issues. I actually still leaf through it, too. (@ saving advice)

The economics of Christmas lights Most of the houses in my neighborhood have Christmas lights. It makes for a beautiful sight on a December evening. (@ seth godin)

Remembrance

Posted: December 6th, 2011, 1:00pm MST by Trent

A few days ago, my wife’s aunt passed away.

She was a wonderful woman. She possessed an incredibly positive spirit, even though her life had brought her unbelievable hardship through no fault of her own. She overcame more challenges in her life than anyone else I’ve ever known, and it was a privilege to have known her.

I only ever had the opportunity to know this woman during her final years when her health was in serious decline. She required a mobile ventilator to breathe and was constantly confined to a wheelchair. She would get worn out from even small events. She took an incredible array of medications just to maintain things.

Yet, through it all, she had an amazing positive spirit. She was one of those people that always brought a smile to the table. She managed to always find a kind thing to say about everyone and about every situation.

My fondest memory of her took place a few summers ago. The two of us were watching a parade together. Without fail, she found something positive to say about each of the floats and bands and other parade elements that went by.

As often happens at a parade, the people in the parade would toss candy and other small treats to the crowd. I helped my son and daughter retrieve a few pieces and ate a piece or two myself.

At one point, a float went by tossing out miniature pieces of string cheese – it was a local dairy that was advertising their wares. As this went by, I felt a tug at my shirt. She asked me if I could pick up a piece of string cheese for her. I checked with her nurse, who gave a small nod, so I grabbed a piece that had been tossed out.

I helped her open a piece of the string cheese and got the peeling of it started for her. She took a small bite of it, closed her eyes, and sighed as she chewed on it. She opened her eyes, looked up at me with a smile, and said, “It’s the little things, Trent.”

It is really easy to get caught up in the business in our lives. We have work to do, household tasks to take care of, Christmas presents to wrap. The list goes on and on – at least it does for me.

It is so easy to lose sight of the simple pleasures in life in all of that hustle and bustle. Simple things, like the feeling of my daughter holding my hand as she watches her big brother sing at a Christmas play, or the feeling of a snowflake or two on your tongue, or the noise of the shared laughter of your mother and your toddler-aged child.

For her, these little pleasures meant so much, and that moment with her reminded me of how wonderful the little things really are. They’re worth savoring, and if you can enjoy them, then you don’t need to spend your time and energy and money on chasing ever-bigger pleasures.

It is the little things. I’ll miss her.

A final note: if you are a parent, please vaccinate your children. The medical issues that caused this wonderful woman to have difficult medical issues throughout her adult life and to eventually pass away were issues that could have been prevented had the appropriate vaccine been available just a year or two earlier. I have borne witness to the incredible challenges that she has had to take on because they didn’t have a vaccine, and my wife’s aunt has been an inspiration to me to make sure that my children have received their vaccinations exactly on schedule.

Your “Someday” List Can Change Your Life

Posted: December 6th, 2011, 7:00am MST by Trent

Whenever I think of something I’d love to do if only I had the time, I write it down in a little notebook I have that I call my “someday notebook.” It’s just a long list of projects that I’d love to take on in the future. Here are a few examples from a random page:

Write a novel from scratch in three weeks
Make the game review video series
Reorganize all of the camping equipment
Completely clean out the pantry
Build a microcontroller setup for the outdoor lighting
Paint my boardgame miniatures
Finish my philosophy reading list
Build a microcontroller for automated garden watering

That notebook goes on and on and on like this. I just take the idle thoughts that I think most people have and I simply write them down.

The key thing, though, is what I do with this list.

Whenever I’m tempted to go out and do something expensive, I go look at this list.

Whenever I find myself slipping into spending my time on something idle, I go look at this list.

Whenever I feel anything approaching boredom, I go look at this list.

When I look at the list, I go through it and look for the thing that seems the most exciting at that moment, because that’s the thing that will get me up and accomplishing something.

I get started and then I work at it until something else needs to be accomplished.

What does this do for me? It keeps me from spending unnecessary money. It allows me to constantly feel like I’m moving forward on the things I’d like to be doing. It causes me to develop new skills, build new knowledge, and produce new things.

The only thing I lose in this process is the time I would have spent on the couch channel-surfing between Jersey Shore and reruns of The Big Bang Theory, sitting on the internet debating someone in a forum over something completely unimportant, or spending money on some item or experience that didn’t really matter to me in the long run.

If you want to start changing your life, start a “someday” list. Right now, take out a piece of paper and list ten things you’d like to do someday. They can be little things or big things, whatever comes to mind. Keep that list with you and whenever something new comes to mind, add it. Then, every time you find yourself about to make a money mistake or about to waste some time, look at it, choose something from it, and do it. Piece by piece, you’ll start building yourself a better life.

Saving Pennies or Dollars? Home Photo Printing

Posted: December 5th, 2011, 1:00pm MST by Trent

Chelsea writes in: I’ve always wondered if it’s cheaper to print photos from home, rather than having them developed at a drugstore. Nowadays, most printers have photo capabilities and the quality is pretty stellar for the average consumer, but the convenience of uploading files and just picking them up when they’re done is tempting.

As always with questions like this, there are a lot of variables to consider. I decided to calculate our home cost of 4″ by 6″ prints just to see how expensive they really were.

The printer itself Our current printer is a Canon Pixma MP480, which is currently discontinued. We were able to pick one up new for $69.99 when it was being discontinued. We have used the printer to print well over 1,000 documents at this point without any difficulties and with an anticipation that we’ll be using it for a long time to come, so the cost per page for the printer is quite low. I think it would be reasonable to estimate that the cost of the printer itself per document printed is $0.02.

This is perhaps the hardest factor to truly quantify. It has a lot to do with the reliability of your printer as well as the price you paid for that printer. A low-end printer with good reviews from a reputable brand, preferably bought during a sale, will get you the best price per document printed.

The ink We can get a new color cartridge for our printer for $19.96. We use Canon 211XL color cartridges. I kept track of our last cartridge use to find out how long they lasted. We were able to print 344 documents that were either full color or largely color before the ink began to fade out with that cartridge. This adds up to a cost of $0.06 per picture printed.

My experience has been that, if you have the option to buy the cartridge with more ink, that’s the one you should choose. They generally give you more printing for the penny.

What about refilling your cartridges? I’ve mostly had good experiences with this, but not always. I have had a few experiences where cartridges have completely clogged and another experience where the ink filling process broke the cartridge in a subtle way, resulting in ink all over the insides of my printer. This can save you money, but you’re also looking at a bit of risk.

The paper I can get 200 sheets of blank 4″ by 6″ photo paper for $20.68. That gives us a cost of $0.10 per picture printed.

I’ve found that if you go really low-end when it comes to photo paper, you end up with very dull-looking snapshots. You don’t have to buy the premium paper, but the cheapest paper usually doesn’t hold ink and doesn’t look good. Research your paper brands before you buy. We usually use Kodak glossy paper.

Adding these all up, I can print a 4″ by 6″ at home for $0.18 per print.

The prices for prints from digital sources at various stores varies quite a lot. The least expensive regular price I could easily find for 4″ by 6″ prints was $0.20 a print from Target. Other stores charged substantially more – WalMart, for example, charged $0.28 per 4″ by 6″ print. There are some online services, like CVS Photo, that offer rates as low as $0.19 per print, but you have to wait to get the prints. There’s also the cost of actually going to these places, which is at least somewhat alleviated if you’re making the stop for multiple purchases.

I actually find it far more convenient to print at home. I usually use Picasa to manage all of the documents.

Is it a big savings to print at home? No. It’s clearly in the “pennies, not dollars” camp. However, I find it to be more convenient and pennies do add up over time.

Reader Mailbag: A Day with Mom

Posted: December 5th, 2011, 7:00am MST 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. SmartyPig update
2. Figuring out debt repayment order
3. Buying elderly mom a home
4. NCUSIF insurance
5. Ending naptime
6. Credit card challenges
7. NACA question
8. Splitting regular and Roth 401(k)
9. Paying off student loans quickly
10. Spousal Christmas presents

My mother came to visit recently, so I put aside the time to just spend a day with her. It was really enjoyable to just spend several hours together. We wrapped some Christmas gifts, played a couple of games, went out for a light lunch, and visited a bookstore (neither one of us bought anything, but we browsed for a while).

When I take time out to do things like this, it somehow makes my life seem better even if it makes other aspects of my life that much busier.

Q1: SmartyPig update
My question relates to the interest rate on SmartyPig. I have opened multiple goals with them since seeing your post on them awhile back. But I can’t help but take notice of the several interest rate decreases that have occurred recently. I understand (or I guess) that the economy is driving the interest rates down; I’m just wondering if they’re still the competitive savings resource they once were. Do you still recommend SmartyPig to your readers?
- Jill

Right now, SmartyPig’s interest rate is comparable to a lot of other online savings accounts. Early on, SmartyPig offered a rate that was significantly better than online banks, and that interest rate was a big reason to use SmartyPig.

However, SmartyPig’s appeal isn’t just interest rates. They offer a lot of nice tools for saving for specific goals, like saving for a vacation or for an appliance replacement. Often, they work with the retailer from which you’re buying that item to get you a reduced rate on that item. For example, if you’re saving for a goal that is an item that you can buy on Amazon (say, a MacBook Pro), you can choose to cash out when you reach your goal in the form of an Amazon gift certificate instead of cash, and they’ll add 3% to the face value of that certificate.

I think SmartyPig is a worthwhile tool for saving for specific short-term goals. In fact, I’ve used it myself when saving for a replacement computer.

Q2: Figuring out debt repayment order
I’m a proponent of paying highest interest rate debt first, so as to minimize total amount paid over time. However, lately I’ve been concerned about my three loans. I have one private student loan for ~$47K at a variable 4% (mo. payment: $354) and two fixed federal loans for $2,308 at 5.75% and $2,491 at 6.55% (mo. payment $32.50 each). My snowball is $1,856. With all the negative economy talk, I started getting nervous about a surge in inflation that would cause my variable interest rate to skyrocket, and therefore, really hurt me since the variable but lowest rate has the largest balance. So I was going to ask you if it would make sense to pay off my variable-low-interest-rate-but-high-balance debt first, and then start paying by highest interest rate.I am extremely risk-averse. But after I ran the numbers, this scenario really didn’t pan out. It became quite obvious that only in the event that interest rates soared past my highest rate loan now, would it make sense (of course!) to pay off my biggest balance (which would then be the highest rate) loan first. Does this check out/have I done this right?
- Lauren

The best mathematical way to pay off debts is always to pay debts in the order of interest rate. If the rate of a debt changes so that a new debt is now the highest interest rate debt, then you should switch to the high interest rate debt.

The only alteration I would make to that statement is that if you’re informed in advance of an interest rate change, it makes sense to immediately switch your extra debt payments to whichever debt will have the highest interest rate.

I would not make extra debt payments based on a feeling of what interest rates will look like in the future.

Q3: Buying elderly mom a home
My 75 year old mother is in mediocre health. She’s losing the place she’s living in and needs to move in the new year. She hasn’t one penny of savings, has a beater car and routinely drives to our part of the state twice a month to visit some vulnerable relatives. This is a 2 hour ride each way, but I agree that these relative actually need her.

I will be earning a big chunk of money in the first part of the new year and would like to buy a home for her to live in and as an investment. I’d like to take advantage of the crazy low prices in the suburbs near our home. Here are several questions for you.

1. Would you pay all cash for a house? Pros and Cons (My spouse makes more than enough money to support us, so our life would not be affected by this)
2. Would you make her pay a small portion of her social security toward rent? She currently has to pay half her social security for rent and is barely making it. I’ve always heard it’s a good idea to make people pay a small amount toward what they need. I was thinking 1/4 of her SS.
3. I want to spend about $200K and these homes might not be well insulated, etc. What things would you do to a house to make it as frugal as possible for her. She currently lives in a very old drafty house and her heating bill is killing her.
4. She is know for her very poor decisions. Is it practical to set a list of rules for her? She has completely disregarded the rules her current landlord imposed (a relative) and this is part of why she has to find a new place. I’d like to make her promise she won’t let deadbeat relatives move in. That she can’t have too many animals, etc. Is this too parental?
5. We use a property management company for one other rental we have. Should we do this with her? It costs us 10%, but then she would have them to call for maintenance. It would cost me money, but it may be a great buffer. I’m wary of putting a handyman at her disposal since she might possibly have them put on a new deck or build a turret rather than just have them unclog a drain or fix a sticky door. She has very qualms about doing what she thinks is “necessary” with other people’s money. “But I needed a greenhouse, my plants were dying”. If I do use a management company I might not tell her I bought the house since she might try to do less “quirky” things if she doesn’t think a relative will let her get away with it.
- Sheila

I would be really hesitant to enter into this type of “landlord” situation with a parent for much of the same reasons that I encourage people not to lend money to family and friends. It just adds an element to a valuable relationship that you really don’t want.

When there is something wrong with the house, you will be the person called. Because you’re family as well as the owner of the house, you’ll be expected to fix the problem very quickly and efficiently. Unless you have an exceptional person for a mother, this will hold true whether you have a management company or not.

There’s also the concern that the house that might make for a good investment might not be the same house you’d wnat your mother to live in given her current health situation.

If I were you, I would rent an apartment for her. If her health is slipping, it’s likely that the period of time you would rent would be limited. It would also put the burden of the “landlord” role onto someone else, and it would also allow you to purchase a house solely as an investment.

Q4: NCUSIF insurance
I have a couple questions: I am interested in a local credit union, with a checking account that has 2.51% interest if you have an automatic depost/withdrawal and minimum 12 debit transactions which I already do. What do you think about going with a credit union who is NCUSIF insured, which they claim is equivalent to being FDIC insured.
- Ron

NCUSIF insurance is extremely similar to FDIC insurance. Both are insurance programs on savings and checking/draft accounts backed by the full faith and credit of the United States government. In terms of the end user, they’re pretty much identical, as they both offer $250,000 in insurance against the failure of the financial institution that manages your account.

So, why the difference? Credit unions, in terms of the law, are different entities than banks, with different restrictions and requirements. One could go into a long list of these differences – for example, credit unions are not-for-profit while banks are inherently for-profit, to name just one. Because they work differently, it makes sense that the same insurance policy wouldn’t work for both entities.

From my perspective, your money is going to be just as safe in an NCUSIF-insured credit union as it would be in an FDIC-insured bank.

Q5: Ending naptime
I’m a stay-at-home mom who also runs a small online business. I usually do work needed for this while my daughter (3) is napping. However, lately, she’s been really restless at naptime and requiring lots of attention. My business is suffering. Any suggestions?
- Tessa

If you want to prolong the magic of naptime, the best way to do that is to utterly wear out your child in the morning. Engage in activities that require a lot of energy prior to lunch so that your child feels a strong energy lull after lunch.

Eventually, though, your child is simply going to grow out of naptime – and it sounds like this is happening right now. This is simply going to mean that your daily schedule is going to change. You can no longer bank on naptime as a time to get things done.

For us, our approach was “quiet time.” We continued the same routine as nap time, except that we simply mandated that they lay down and be quiet for a certain period of time. If they were still awake at the end of that period, they were free to get up and usually engage in a solo activity that would allow me to finish whatever task I was working on.

Q6: Credit card challenges
My husband and I live very frugally due to having student loan debt along with other debts (auto, home repair, mortgage) and my husband is getting his undergrad degree while I work full-time. Since we do not have much money left over to save for vacations and the like we tend to put a lot of purchases (including bills) on our Discover Miles credit card and then timely pay the statement balance each month and cash in our Miles for travel expenses. This has worked very well for us and we are hoping to have enough miles for a family trip to Florida next summer (or enough to pay for our gas if we choose to drive). My question is this: would we benefit from a different kind of card, maybe one that gives us a better percentage back on our purchases? Right now we get about 1 mile for $1 spent on most purchases but I always sign up for their special bonus miles when they’re available. We get 3 miles on every $1 spent on travel expenses but we don’t really travel except for maybe 1 or 2 small trips a year. I did notice that now Discover offers us the option to use our Miles toward just about anything, including cash back or paying the balance on the card but if we could benefit from a card where we get a better percentage on every day things like groceries, I would rather have that. I don’t really care about the APR on the card since I always pay the balance but I don’t want to pay a monthly or yearly fee. Any suggestions? Also, it doesn’t need to be Discover, that’s just what we have now; we also have a Visa Amazon card but hardly ever use it since we don’t buy many things on Amazon anymore. Thank you!
- Shannon

There probably is a better card out there for your specific situation. I’m just not sure what that is.

My suggestion to you would be to sit down and really look at where you spend money, then use that as the basis for finding a new card. What retailer sees the largest amount of your transactions? That would be one sure place to start.

The key thing to remember is that rewards are rewards. If you receive “cash back” rewards or discounts, bank those rewards for your travel goals. Don’t just limit yourself to airline miles.

Q7: NACA question
Got a question for you. Have you heard of NACA? [https:]]

My father in law mentioned it to me the other day. He said a friend of his used it, but he didn’t know much about it. Since my wife and I are looking into buying a house in a few years I checked it out. It seems a little fishy to me though. From what I can gather, if you get a mortgage through them, there is a $50 a month membership fee, plus you have to volunteer your time 5 times a year. I don’t have a problem volunteering, its the fee I am worried about. If you do get a mortgage through them, there are no closing costs and things like that.

What do you think? Have you heard anything about this at all? Seems risky to me.
- Deval

Your description of the program from the perspective of a potential borrower sounds pretty accurate based on my experiences.

NACA is a non-profit homeowner advocacy group. They work to get strong mortgage deals for members from large banks and often engage in political activism and protests to get the job done.

They seem to do a solid job of working with homeowners to get them a better interest rate, but through the rules of membership that you suggest above, they tend to at least try to draw people into their political activism. If that’s of interest to you, I’d follow up.

Q8: Splitting regular and Roth 401(k)
The company I work for has just recently added a ROTH 401k option to the existing 401k plan. I can’t contributed to ROTH IRA as I have real income plus “income” that exceeds the ceiling set by the IRS (the fake income is received via a family real estate owning LLC, we’re divesting of excess land and that carries forward to my 1040).

The only debt we have is our house, I put down way more than 20% and its value has held steady. We have a well stocked rainy day fund, plus other non-company investments (mostly mutual funds). We make solid contributions to charity, etc.

Is there a good rule of thumb, or do you have a suggestion, on what allocation I should make between the 401k and ROTH 401k? When I do planning and make financial decisions (like to potentially refi to a 15 year mortgage) I always assume my income won’t grow. But for this scenario I can see it increasing. My assumption is that taxes will rise in the US later, which makes the ROTH 401k a smart place to put a lot of money. However I’m also not totally convinced that ROTH plans won’t have a new tax levied on them in the future. But I also have to assume that if I ever get to retire that I’ll be in a much lower tax bracket than I’m in now.

To keep it simple I was going to split it 50/50, but I am wondering if you see it differently?
- Lenny

There is no “perfect” solution when it comes to splitting money between a regular 401(k) and a Roth 401(k). If your tax rate in retirement is lower than it is now, then a regular 401(k) is better. If the opposite is true, then a Roth 401(k) is better.

No one has any idea what their earnings will be over the years between now and their retirement, nor can they be certain what income tax rates will be in twenty years.

Because of that uncertainty, I think hedging your bets is a great approach. While you’ll probably not stumble upon the “perfect” balance, a 50/50 split will give you a pretty good balance.

Q9: Paying off student loans quickly
I have a question on what you think about living in a cheaper/less ideal situation if it means you can pay off student loans faster, but be less psychologically at ease. Right now the place I’m living is in a great location with reasonable rent, but my housemate isn’t so into cleanliness and it’s not that comfortable, and long story short, I’d like to move somewhere else. But I know the next place I move into will likely be more expensive – I live in a city with a high cost of living, where you’d be hard-pressed to find a studio apartment in good location for less than $1800/month, or a 2 bedroom, 1 housemate situation for less than $800-$1000 (both numbers excluding utilities). I’ve lived in places really far from public transportation, a hostel with with tons of housemates (8 people in a room), places with cheap rent but roaches everywhere…and to me, a good combination of location, considerate housemates, comfort/cleanliness, and piece of mind are important. I think home should be a place to relax and feel at ease, not be on edge or stressed. (The reason location is really important to me is because I ride buses or the subway everywhere.) How much do you think one’s monthly salary should go to rent, is it worth spending an extra $100-$200 per month for a nicer living situation (at the opportunity cost of less money going to student loans)?
- Linda

It’s all about balance, and no one has the same exact balance. If you spend more on having a nicer home now, reducing stress, you’re taking away money from extra debt payments, which means that you’ll have the debt hanging over your head for longer, adding stress.

The mistake that a lot of people make is that they regularly skew that balance toward the present, sacrificing the future. They’d rather have a little more now in exchange for something less later on, believing that something will come up to take care of that future shortfall.

Doing that for something deeply important to you is okay. Doing that regularly is a mistake. The key? Self-analysis. The more time you think about all of your decisions, the more likely you are to make good ones.

I can’t tell you which way to go because I don’t know your values. All I can tell you is to spend some time carefully thinking about this and whether you’re willing to add a lot of time back onto your debt due to the extra payments you won’t be able to make.

Q10: Spousal Christmas presents
My wife and I are working through the issue of whether to get each other Christmas gifts. How do you and your spouse do it?
- Carl

Generally, what we do is set a spending cap for each other. We talk it over beforehand, look at our budget, and set something reasonable.

Then, when we’re figuring out what exactly to get each other, we get the children involved. We allow them to help us select these gifts, which enables the children to feel as though they have a part in this process even though they don’t have a source of income.

This does enable us all to be able to open at least a few gifts on Christmas morning, allowing us to take turns and enjoy not only receiving gifts, but enjoying watching each other open gifts.

This process works well for us. I’d suggest just setting a reasonably low spending limit with your spouse and then sticking to it.

Review: How to Retire Happy, Wild, and Free

Posted: December 4th, 2011, 1:00pm MST by Trent

The vast majority of retirement books I’ve read focus on maximizing every dollar to actually arrive at retirement. They don’t look at the period of retirement itself.

The relative freedom from time constraints that retirement offers opens the door to a lot of things that would otherwise be impossible, and this is where How to Retire Happy, Wild, and Free by Ernie Zelinski comes in. Rather than looking strictly at retirement savings as part of one’s plan for retirement, Zelinski looks deeply at the personal choices made in retirement as part of that plan.

It’s an interesting and fresh perspective on retirement, and Zelinski’s breezy and friendly tone certainly helps push it along.

Thank Heaven for Retirement!
If you do not plan for an active retirement, you’re setting yourself up for a difficult and expensive retirement. If you work until late in life under the pretense that you’re setting yourself up on easy street due to your big pile of savings, you’re going to find that you don’t have a lot of years to enjoy it. Instead, a much better path is to live relatively lean, work toward an early retirement, and plan for a retirement life that’s active and full of adventure.

Retirement: A Time to Become Much More Than You Have Ever Been
A good retirement doesn’t involve sitting around and doing nothing all day. It means applying yourself to something that you’ve always wanted to apply yourself towards but never felt that you could due to the need to have an income-producing job. If this new activity produces income, great! If it doesn’t, it’s still filling your hours with lots of contentment and enjoyment of life, and not filling those hours with idleness or expensive activities.

So Many Worlds, So Much to Do!
Zelinski makes a challenging suggestion for anyone who’s retired. On the first day of retirement, unplug your television set and unsubscribe from cable. This will force you to be more active, which will improve your health. It will also push you to actually take on the big dreams you have rather than putting them off until tomorrow because there’s something good on television.

Take Special Care of Yourself – Because No One Else Will
Some degree of physical activity is an essential part of a healthy retirement. Zelinski recommends a daily walk at a minimum – and preferably more than that. Long walks, bicycle rides, and other activity should be part of your life every single day. This will not only improve your quality of life, but the length of your life as well. If you allow yourself to be sedentary, you’ll gain weight and lose the energy you need to live an active and vibrant life. A walk through your neighborhood or through nature is also a free form of entertainment, something that can’t be said for many other forms of entertainment.

Learning Is for Life
Much like physical activity keeps your body healthy, mental activity keeps your mind healthy. Zelinski recommends a commitment to lifelong learning in which you strive to learn something significant each day. One way to do this is to take a college course in a topic that’s interested you at your local community or public college. As an aside, I had a friend whose grandfather was in college at the same time as him. The grandfather actually wound up being in an assigned project group that I was in and my interactions with him were some of the best experiences of my college years. Going back to college does not mean you’ll be out of place.

Your Wealth Is Where Your Friends Are
A good, reliable friend is something invaluable to have, but you can’t build friendships by sitting at home alone. Seek out community activities related to things you’re interested in, or just get involved with a volunteer activity. Doing these things will essentially force you to meet like-minded people, and there are few better situations from which to build a friendship. A friend is a person who will be there for you when you need them and bring joy into your life when you don’t need them as much, and that’s an invaluable thing to have.

Travel for Fun, Adventure, and More
Retirement travel can actually be really inexpensive since you’re not tied to the traditional idea of the “tourist season.” You can travel to locations on your own schedule, not those of school calendars or professional guidelines. You can also travel like a migrant, meaning you can move slowly, scoop up deals as you go, and do things at your own schedule. This makes it easy to travel almost anywhere surprisingly cheap.

Relocate to Where Retirement Living Is Best
In my opinion, Zelinski’s best single piece of advice comes in this chapter: move to a college town. A large college offers tons of cultural opportunities, speeches, performances, groups, and countless other things to get involved in, most of them for free. The college town that I once lived in was a vibrant place with a lot of older people involved in the college community. You couldn’t go to an event without a lot of older people there, which made it interesting both for me and for them.

Happiness Doesn’t Care How You Get There
Don’t leave this world with songs unsung that you wished you had time to sing. The last thing you want to have in your final years are regrets of things that you could have easily done. Your retirement years are often the time to do those things. Most of the things that people wished they could have done are things that require time, and time is what you have in spades in retirement. Use it.

Is How to Retire Happy, Wild, and Free Worth Reading?
Rather than approaching retirement as merely a savings goal, How to Retire Happy, Wild, and Free looks at retirement as a period to capitalize not so much on the money you’ve saved, but the asset of time.

In other words, saving for retirement isn’t about saving money. It’s really about saving time. The more you put away for retirement, the more time you give yourself to accomplish all of the things you dream about accomplishing, whether it’s writing a novel or learning a musical instrument or camping in every national park.

It’s a great perspective and a useful one, and Zelinski writes about it with an irreverent and breezy tone that makes this a fun book to read, too. This one’s highly recommended to anyone within ten years or so of their retirement, on either side.

Check out additional reviews and notes of How to Retire Happy, Wild, and Free on Amazon.com.

Dressing for Success and Career Goals

Posted: December 4th, 2011, 7:00am MST by Trent

I got a great email recently from Marjorie:

My husband’s father just gave him a huge speech about how he doesn’t dress appropriately for work and how he will never get promoted or “become a manager” dressing the way he does. My husband is a computer programmer who works with a bunch of engineers. He wears dress slacks and polos or button-up shirts everyday to work, while most of his co-workers wear jeans and t-shirts. This confused me, but my husband exaplined to me that what his father is saying that since he doesn’t wear designer clothes and because he doesn’t wear a tie everyday that he will never be promoted. We buy his clothes at JC Penney, but the cheaper brands. I can’t tell the difference between them and the nicer dept. store brands, other than the price. Do you agree with my father-in-laws assessment? What about if my husband wants to advance his career, but has no interest in managing people? I realize he would make more money if he eventually became a manager, but he enjoys his computer programming work, and probably wouldn’t enjoy managing people, and I would never want him to work a job he didn’t enjoy if he didn’t have to.

I think what’s happening here is that your father-in-law is substituting his own goals for his son’s goals and he’s trying to guide his son towards those goals.

Your husband seems to have his own set of career goals. He’d like to advance his career as a programmer, but he has no interest in being in management. Your husband also has familiarity with the culture of the career path that he’s chosen.

I think it’s absolutely vital that people have a set of career goals. They need to have a sense of where they want to go and what they need to do to get there. For those reading this, ask yourself those questions. Where do you want to be with your career in five years? In ten years? In twenty? What do you need to be doing to get there?

Yes, attire can be a part of those goals. The usual advice is to dress in the attire of the position you want to eventually attain. If you want to be in management, dress like management. If you want to be just part of the senior staff, dress like part of the senior staff. I consider that to be pretty good advice.

It sounds like your husband is dressing for the position he wants to attain eventually, which is a senior programmer. He should note what people in his desired position wear and emulate it.

Your father-in-law has his own goals and he probably envisions certain outcomes for his son, for various reasons. For those goals and outcomes, the advice your father-in-law is giving his son is probably good advice. He likely envisions his son eventually moving into management and wants to prepare him to do so.

The challenge here, as it often is, is communication. For this type of disagreement to occur, both people aren’t articulating what their goals are and the paths they see toward those goals.

Your husband can fulfill his part by simply making it clear that his goals do not involve moving into management. He needs to make it clear that he’s dressing for the role he aspires to, and that something he values deeply is a job that he enjoys doing and he’s willing to accept non-executive pay for that position.

If your husband can’t clearly articulate his career goals and his plans for achieving them, he should spend some time thinking about his plan for the future. Can he clearly state where he wants to be in five or ten years? What exactly is he going to do to make sure that happens? The more thought he’s given to this and the more detail he can give, the better.

Your father-in-law should be able to accept that. If he’s not, then your next move is to simply disregard his advice with regards to a career path. If he’s still giving advice that seems to be guiding your husband toward a management role, your husband needs to just nod his head and then follow his own path.

I actually sympathize with your husband. I have little interest or desire to be involved with personnel management, and knowing that about myself has driven many of my choices, both in the past and even today. I don’t want to manage people and it sounds like your husband doesn’t either.

However, it’s important to remember that (likely) your father-in-law cares deeply and desires a successful life without want for his son. Keep that in mind as you address this situation and handle everything with care and without anger or aggression.

Van Gogh’s Tenacity

Posted: December 3rd, 2011, 1:00pm MST by Trent

Self Portrait (1887) by Vincent van Gogh, image courtesy David Flam

Vincent van Gogh spent most of his life destitute. The one woman he loved rejected him. Almost everyone who saw his paintings found very little value in them. He would often trade those very paintings to sympathetic familes in Holland and in France in exchange for a night or two sleeping in their barn and a meal or two (yes, paintings worth tens of millions of dollars today).

In fact, the only reason he had the materials with which to paint at all was due to his brother Theo, who wasn’t exactly well off himself but who always found a way to send his brother a bit of money for more paint supplies.

The letters that Vincent van Gogh shared with his brother make for some stunning reading. They depict a person struggling deeply with self doubt. They depict a man struggling with physical and mental ailments. They also depict a person with passion and drive and a sense that he was doing the right thing, even if the people around him didn’t believe in him.

Why am I mentioning his life story here? I think there are several vital lessons that anyone can take away from it.

Don’t make choices just to please other people. Don’t buy stuff just because other people want you to buy stuff. Don’t spend money just because other people want you to spend money. Let them spend their own money if they want.

Make your own decisions and don’t feel bad about making a different choice than the crowd around you. If you find that your values are deviating from that crowd, don’t be afraid to start seeking new people to spend your time with, or accept that you’re not going to be in sync with your existing crowd on everything and just maximize what you do have in common.

Life is a long haul. The people that succeed are the people that keep going and going and going towards their goal or towards whatever drives them. If you want to find financial success, you need to be willing to accept that it won’t happen tomorrow or the day after that.

For most people’s financial situations, it will take years to find real success. The same is true for career situations, entrepreneurial situations, and even relationship situations. A Band-Aid quick fix solution is rarely the one that will build long term success.

Doubting yourself is normal. Everyone doubts themselves. Even people who seem extremely confident are often just wearing a public face. There will be times where you feel as though you’re not doing the right thing.

When you feel that way, return to the things that caused you to choose this path in the first place. For me, it’s a small handful of personal finance books. For you, it could be anything. Go back to the basics and you’ll begin to feel the confidence and motivation again.

You don’t need lots of material stuff to have a successful life. Yes, van Gogh’s example is an extreme one, but there’s still something to be learned there. He didn’t live a life filled with possessions, yet he lived a life that changed the world. Why do you need a lot of possessions?

Challenge yourself to live with fewer possessions rather than more possessions. Owning things not only drains your money, but it drains your time and spreads out your focus.

Ten Pieces of Inspiration #49

Posted: December 3rd, 2011, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

Whether the date on the calendar says so or not, winter has started where I live. Snow, freezing rain, the whole nine yards. Winter’s on my mind and that’s reflected in these inspirational pieces.

1. Winter Wonderland
I always look forward to the first snowfall of the winter. It’s usually a wet snowfall that clings to everything, creating a beautiful world to explore.

Many thanks to stashabella for this wonderful picture.

2. Snow-Flakes. (Birds Of Passage. Flight The Second) by Henry Wadsworth Longfellow
This beautifully captures the sentiment I often feel when I see snow falling.

Out of the bosom of the Air
Out of the cloud-folds of her garments shaken,
Over the woodlands brown and bare,
Over the harvest-fields forsaken,
Silent, and soft, and slow
Descends the snow.

Even as our cloudy fancies take
Suddenly shape in some divine expression,
Even as the troubled heart doth make
In the white countenance confession
The troubled sky reveals
The grief it feels.

This is the poem of the air,
Slowly in silent syllables recorded;
This is the secret of despair,
Long in its cloudy bosom hoarded,
Now whispered and revealed
To wood and field.

3. Making your own Boxee
I have an old computer. I’d like to be able to stream video from the internet really easily on our main television. If only there were a simple way to do this…

This does exactly that, for free. It takes about half an hour or so to set up. I picked up a wireless “remote” for about $20 that works perfectly with this.

This is just a great solution.

4. Don’t regret regret
We all regret things in our lives and we’re often told to forget them. The truth, though, is that regrets are often valuable things to have, as they can help guide us to greater things in our lives.

This is a great story by Kathryn Schulz, well worth listening to.

5. Winston Churchill on making a living versus making a life
What you do to earn money does not define you unless you choose to let it define you.

“We make a living by what we get, but we make a life by what we give.” – Winston Churchill

You’re defined instead by the person you are and the things you share with others.

6. Napoleon Hill on the right time to do something
Right now is the best time to do whatever it is you’re thinking about doing.

“Don’t wait. The time will never be just right.” – Napoleon Hill

There’s always a reason to put something off. Always. The people who succeed are the ones who do it anyway.

7. Paper snowflakes
One thing that our family does, usually on the first weekend of December, is make a bunch of paper snowflakes that we then use to decorate virtually every window in the house. We each make several in different sizes and, because of their nature, they’re all as unique as real snowflakes.

It’s just a fun way to decorate our house in the spirit of the season.

8. How to make paper snowflakes
I really like this set of instructions for creating your own paper snowflakes. It’s visual, pretty clearly written, and has a lot of images of paper snowflakes to inspire you.

If only all written instructions were put together well…

9. Emerson on today
Today is the only day that really matters.

“One of the illusions of life is that the present hour is not the critical, decisive hour. Write it on your heart that every day is the best day in the year. No man has learned anything rightly, until he knows that every day is Doomsday.” – Ralph Waldo Emerson

If there’s something important you need to do that you keep putting off, today is the day to do it. There is no better day.

10. A Long December by Counting Crows
When I was a teenager, Counting Crows were my favorite band. I still often play them when I’m working and I can sing along to most of their songs.

I can’t even guess how many times I’ve listened to this song.

Some Thoughts on Dinner With My Family

Posted: December 2nd, 2011, 1:00pm MST by Trent

For most of 2011, I’ve been posting a regular series entitled “Dinner With My Family” on Friday afternoons. In those posts, I’ve discussed inexpensive homemade meals that my family has enjoyed for dinner. Some of these meals were also incredibly quick to prepare, and I made an effort to try a variety of meals to appeal to everyone.

I plan on continuing the series on an irregular basis, but doing the series each week has taught me some worthwhile lessons about food, frugality, and time management.

Experimentation has rewards
One of the big reasons for us to start doing this series was that we both enjoy experimenting with our cooking. We love trying new meals and, believe it or not, our food adventurousness has rubbed off on our children as well. I’m amazed when we have friends with children over (or visit them) and their children refuse to eat most of the items on the table. Our children try them with relish.

The biggest reason why I love experimenting is that I am constantly discovering new ingredients. For example, I would have never even thought of getting fresh tarragon, chopping it up, and putting it into scrambled eggs. I tried it on a whim due to a suggestion of how to use tarragon – and I found that it made the eggs wonderful. Now, whenever I can find some fresh tarragon, I make some amazing scrambled eggs.

Try a new vegetable or a new fruit or a new herb or spice or a new type of cheese. You might find something that you really enjoy that you never expected. Even better, you now have something new to look for during food sales as well as a broader repertoire of ingredients you feel good using in your kitchen.

At the same time, there’s always another meal
Of course, the immediate drawback that many people point to with such experimentation is that you might wind up with a meal that you don’t like at all.

My philosophy on that is this: I usually try new ingredients when I can get a good discount on them. That way, if it turns out that I don’t like it, I’m not out very much money. Most of the time, though, I find that I do like this new ingredient. Even during the worst case scenario, where I find the meal inedible, I can always find something else to eat if I’m hungry.

The upside to discovering something new that I like is far greater than the downside of a dollar or two lost and the potential prospect of remaking a single meal.

A regular repertoire of meals is invaluable
We’re a two income family with three children, two of which are in multiple activities. The simple reality of things is that we don’t have the time in the evening that we would often like to have. Quite often, one of the parents is on autopilot when it comes to dinner preparation. We simply want to be able to prepare something easily, something that we know how to do, and something that will please everyone while being reasonably healthy.

When we try new meals, we’re often asking ourselves whether this meal should become part of our regular meal repertoire. However, most nights, particularly during the school year, we just pull a meal from that repertoire and assemble it for dinner.

Adventuresome meals are fun, but they often don’t work in the context of a typical day at our house. The vast majority of the time, we rely on things we know how to make or variations on those themes.

Preparing meals in advance is invaluable, too
Along with that tactic is the incredibly useful tactic of preparing meals in advance. We’ll often prepare a full meal, store it in a sealed container in the freezer, and pull it out the night before or in the morning of a day when we know that dinner plans are going to be tight. Sometimes, we actually just pull out a kit we’ve assembled from the freezer and just add it to the crock pot. Other times, we put out a frozen casserole dish with a note saying “put this in the oven at 350 degrees at 4:30.”

These meals prepared in advance also make being adventurous a bit more difficult, as you don’t want to prepare a quadruple batch of something before you’ve tried it out with the family. Thus, our premade meals are invariably old standbys, like tuna casserole or vegetarian lasagna.

Having these meals on hand makes it possible to get one kid to soccer, another kid to dance, and still have a good meal on the table when everyone converges at home.

Let what you have on hand lead you
People often get stressed out about following recipes and finding a bunch of obscure ingredients. You really don’t have to do that. Just use what you have on hand and you’ll almost always come up with something good.

What really works well is when you have a “framework” recipe, like the flexible casserole recipe or ratatouille. These are recipes where you can basically plug in whatever ingredients you happen to have and make something that works. At least a couple of the “Dinner with My Family” posts resulted from this type of experimentation.

Instead of panicking about what to have, just throw open your cupboard door and try to assemble something. Keep an open mind and you’ll be surprised at what you can come up with.

Let what’s on sale in the grocery flyer lead you, too
We love using fresh ingredients in our meals, but they can often be expensive at the store. So, often, we just buy whatever produce is on sale and use that as the backbone for our meals for the week.

If cabbage is on sale, we’ll make some sort of cabbage rolls or cabbage-based soup. If eggplant is on sale, we’ll make eggplant lasagna. If spinach is on sale, we’ll make a spinach alfredo and have spinach salads with other meals. If bananas are on sale, we’ll eat one bunch and use another to make a loaf or two of banana bread.

Again, many of our “Dinner with My Family” recipes have resulted from just this type of purchase. We buy some vegetables that are on sale and make a dish based on them. It’s cheap, tasty, and fun.

Success in the Margins Isn’t Marginal Success

Posted: December 2nd, 2011, 7:00am MST by Trent

A few months ago, I wrote a post called “Two Paths to Financial Success.” In it, I outlined how there are two distinct ways to succeed financially.

One, which I called “success in the margins,” refers to things like frugality, cutting costs, saving diligently, and so forth. The other, which I called “success in the mainstream,” referred to things like entrepreneurship and career building.

Success in the margins, I pointed out, is a sure way to success, but there is something of a cap to that success. You’re limited in how much you can save by your income and your fundamental living expenses. On the other hand, success in the mainstream doesn’t have a cap, but it is far from a guarantee. Entrepreneurship and career pursuit are risky enterprises that often don’t turn out.

Anyway, a reader recently took me to task for referring to frugality and saving as “success in the margins.” In his words, “There is nothing marginal whatsoever about the money you can save by living sensibly and putting some money into investments. It’s practical, anyone can do it, and the positive results can be repeated over and over again. That’s far from marginal.”

I agree completely with his statement. The reason I named it such was not because it is a marginal method, but because it is inherently capped by your income and lifestyle. Frugality, by its very nature, is about shaving away a little bit from the edges and saving what you’ve trimmed. That money comes about from the margins of your life.

For example, one of the first moves I made when I started my financial recovery is to reboot my work commute. Before the change, I would drive by a coffee shop on my way to work and many days I would be tempted to stop in there, have a cup of coffee, and often follow it with a bagel. On my way home, I would drive by an electronics store and a bookstore, and I would visit both of them a few times a week. Naturally, each week, I found myself spending a lot of unnecessary money.

When I changed my commute, I no longer went by the coffee shop, the electronics store, or the bookstore. I decided that it was just fine if I happened to go to them, but with my new route, I had to make the willful choice to go there. The big sign wasn’t hanging out there along my route tempting me.

So, every once in a while, I’d decide to splurge and go to one of the places, but most of the time, I barely even thought about them on my way home from work.

Those coffee shop and bookstore visits were in the margins of my life. They were things that I did, but they weren’t deeply important to me or to who I was. They just filled up some of my time and attention. I barely noticed when I cut them away.

That, to me, is “success in the margins.”

Frugality does not work if it’s removing something you value more than the money you’re saving. If you’re making yourself miserable to save a few dollars, it’s not worth it.

Quite often, when people think about frugality, they don’t think about the margins. Instead, they think about the things they value deeply. They don’t want to lose that valuable thing, so they just toss aside the idea of cutting back.

Frugality works well in the margins. It works when you’re trying a different kind of dishwashing soap. It works when you cut out a routine shopping trip that’s become boring. It works when you give up on and get rid of the pieces of a hobby that you’re no longer passionate about. It works when you make a bunch of meals ahead of time, buying the ingredients in bulk, so you can store the made-ahead meals in the freezer and always have something convenient to make for supper.

So often, these kinds of changes are really easy to make. You pretty much forget about the change once you’ve started doing it, and the only impact it has is the savings that appear in your checking account.

Success in the margins does not mean marginal success. It means finding success in the areas of your life that don’t deeply matter to you.

Finding Things to Do That Don’t Involve Continually Spending Money

Posted: December 1st, 2011, 1:00pm MST by Trent

A reader writes in: “It seems like so many people who write in are caught up in our consumer-driven society, and I think we all struggle sometimes with having “nothing better to do” than shop. Besides contributing to rampant debt, shopping is like an addiction that satisfies boredom, and leads to fake fulfilment and non-productivity. But it has to be enjoyable – “extreme” anti-consumerism can go too far. We need to talk more about the world of options of hobbies and activities to replace shopping.”

This reader went on to mention several activities that they enjoy, some of which overlap with the ones I mention below.

While I see where this reader is coming from, I don’t fully agree. I think there are a lot of activities that people engage in besides shopping that are regular money drains, such as playing golf, going out to eat, going to coffee shops, going to the movies, and so on.

Whenever an experience requires you to spend money, requires you to spend additional money beyond what you would normally spend, or heavily involves spending money, you should rethink whether or not you want to engage in that activity. Instead, it’s really worth your time to find things you enjoy doing that don’t involve spending money.

It would be easy for me to just start listing outdoor activities. I love spending time outdoors. I love taking walks in parks, playing soccer with my children, coaching youth sports, going swimming at one of the many lakes here in Iowa, going camping… the list goes on and on.

However, if you live in a winter climate like I do, you’re finding yourself stuck with indoor activities right now, so I’m going to name ten things I enjoy doing for little or no cost in the winter. These are all things that I fill my time with indoors, and each of them has little or no cost.

I don’t expect you’ll enjoy all of these. Instead, I suggest reading all of these and trying one or two of them (or more, if you like). Everyone is different and everyone has different passions.

Play a board or card game
First of all, if you associate board games and card games with endless, boring games of Monopoly from your youth, you’re missing out. Monopoly was first published in an early version in 1910. Comparing Monopoly to a modern board game is like comparing a Model T to a Lexus.

Try playing a more modern board game, like Settlers of Catan or Ticket to Ride. Look for a local hobby shop in your area and ask for a demonstration of the game if you don’t have access to a copy, just to see if you enjoy it. Board games can make for a great holiday gift.

If nothing else, a standard $1 deck of playing cards can provide lots and lots of gaming. You can play poker, euchre, pitch, bridge, rummy… the list goes on and on. There are also many, many solitaire games to play.

Read (or re-read) a book
My shelves have quite a few great unread books sitting on them, right next to a big pile of some of the greatest books I’ve ever read. There are few better ways to burn a few hours than to read a great book.

If you don’t have any books available to you, visit your local library. There are thousands upon thousands of books available there for free borrowing.

I could list hundreds of books that I’ve enjoyed over the years. The key, though, is to find something you enjoy, whether it’s something challenging or a complete page-turner.

Thoroughly clean a room in your house
Whenever I thoroughly clean a room in my home, I feel really good. Not just because of the exercise I got from cleaning the room with a good tempo, but from the enjoyment of having an uncluttered and very clean area in my home.

By cleaning, I don’t just mean dusting and vacuuming. I also mean getting rid of items that you don’t want or don’t use any more. A cleaned room generally has far less stuff in it compared to when you started.

This is just a great way to spend an afternoon. It makes your living quarters that much better and it can give you a good workout, too.

Make a great meal using what’s in your pantry
It’s easy to go out to eat… but that’s going to eat up money. It’s also easy to just go to the store and pick up a premade meal… but, again, that’s going to eat up money. Not only that, both of these options don’t help you learn how to prepare food or use up the multitude of things you have in your cupboard.

Making a meal from the items you have on hand can be a bit of a challenge, but it can be very rewarding, too. It gets some of the unused items out of your pantry and results in a delicious meal for you and your family.

Quite often, this ends up being close to a “free” meal because the items you use are things that would have otherwise never been used.

Make some homemade gifts
Homemade gifts are a great way to cut back on your budget while also producing something that the recipient will actually want and value. Instead of throwing your money at a person, you’re throwing some of your time, which often means a lot more.

There are a lot of great homemade gifts you can make, from jars filled with soup mix to original examples of any art that you’re skilled at.

The key is to invest the time to make it well, and to make something that the recipient will value. Do both of those and you’ll create something memorable out of your spare time.

Learn about a topic you’ve always been curious about
Most of us have some degree of curiosity and find ourselves wondering about some topic or another. There are few better ways to spend an idle hour or two than learning more about that topic.

The easiest way to do this is to start at Wikipedia, type in your topic, and start reading. Remember that this is a starting point – if you begin to dig deep into a topic, it’s often a good idea to move on to books on the topic.

I actually do this quite often. Recently, I’ve been learning about specific philosophers, using the entry on Wikipedia as a starting point and moving on to their writings.

Host a potluck dinner
A potluck dinner simply means that you invite friends over and have them each bring a dish. Together, you have a varied and delicious meal.

This is actually a great way to spend an evening socially without spending much money at all. Generally, you’re only in charge of one or two items which you can prepare or buy in bulk. In exchange for that, you get a great meal and an evening with friends.

We host potluck dinners about once a month. They’re always quite fun, and they often end up with a bunch of us sitting around a table playing a game, laughing and joking with each other.

Do volunteer work for a political campaign
If there’s a candidate or cause you believe in, donate your time from home to work for this campaign. There are always tasks that political campaigns would love to have volunteers for.

In the past, volunteers have written letters on behalf of candidates or issues, made phone calls, stuffed envelopes, maintained social media tools, and countless other little tasks that campaigns need fulfilled.

Most of these tasks can be done from home. I know one person who used to stuff envelopes for her preferred candidates. They would drop off reams of papers and envelopes and she’d prepare the documents and mail them for the campaign. She loved doing it.

Make a yearly calendar
This is a project that I do each year. We still rely on a wall calendar, so one afternoon, I’ll sit down and transfer all of the birthdays and other events from the previous year’s calendar to the new one. I’ll also incorporate things from my own personal Google calendar.

It can be quite a task when you fill in birthdays, anniversaries, and other such events. I like to write in reminders of those events a week in advance so that I remember to pick up a card or a gift if needed. I also like to note other important things, like key dates on our children’s academic calendars and the like.

This can take several hours, but a calendar with all of your important dates on it can be a godsend. You’ll find yourself relying on it so much that the time you invested up front will repay itself in a smoother life and better relationships throughout the year.

Get rid of your unwanted stuff
Virtually all of us have unwanted stuff in our home – old stuff filling up the closet, items that we might use “someday” but really won’t, items from abandoned hobbies that might have value.

If you haven’t used an item or really thought about it in a year, it’s probably safe to get rid of it. Once you make that decision, you have several options. You can sell it, you can donate it to Goodwill, or you can simply toss it in the trash.

Even with the options that don’t involve receiving money for the item, you’re still improving your life because you’re decreasing clutter. If you’re making money from it, too, all the better.

There are countless things to do with your time without spending money. The key is to just find things that you enjoy and do them.

Reader Mailbag: Winter Hands

Posted: December 1st, 2011, 7:00am MST 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. Splitting up retirement contributions
2. Surveys at retail shops
3. Investment or debt?
4. Gum as impulse buy
5. Outsized medical bill
6. Breadmaking tip
7. Avoiding Christmas
8. Savings bonds and student loans
9. Mortgage ballon payment difficulty
10. Investing in class

I get what I call “winter hands” when the temperatures during the day drop into the thirties or below. Basically, my fingertips and palms get a bit puffy and raw simply because of the weather. I know I’m not alone in this.

If I don’t nip this in the bud, my hands are in bad shape by February or so, so I splurge on something each December: hand cream. I’ve tried tons of different things, but this is the only thing that does anything to stop my “winter hands.”

Just thought I’d share for the sake of others who find their hands getting raw in the winter.

Q1: Splitting up retirement contributions
Let me start by saying I started at an engineering job coming right out of school 3 years ago, I was used to living on almost nothing as I did in college so I kept it that way when I started my job and put a large chuck of my salary towards retirement. I recently received a promotion and put it all towards my retirement so now I am to the limit of what the government allows you to contribute to a 401k (I put it all towards a Roth 401k if that makes a difference). Also, because of some other circumstances I cannot currently contribute to a Roth IRA.

So my question: Is it smart to put all 16,500 in my company 401k plan or would I be better off only putting only part of it in my company plan and investing part of it myself where I could pick individual stocks etc. My company matches 75 cents of each dollar up to 6% (basically 4%). I am 25 years old and don’t have any future need for the money (until retirement) that i know of and have a good emergency fund already. Thanks for your help!!
- Mark

You should put enough into the 401(k) to get the match, then after that you should contribute to a Roth IRA up to the contribution limit.

Why? Having money in both a 401(k) and a Roth IRA hedges your bets when it comes to taxes in retirement, plus a Roth gives you far more investment freedom (as you get to choose your investment house and your specific investments).

If you still have money to save, go back and contribute more to your 401(k). It should be noted, though, that you’re almost assuredly in splendid shape for retirement, so if you have other life priorities that come up in the future, don’t be afraid to cut back a little on the retirement savings.

Q2: Surveys at retail shops
I have noticed that many of the fast-food restaurants, office supply stores, and other businesses are urging the consumer to go to their website and fill out surveys. Some of them promise the customer a rebate or a coupon or an entry into a drawing for some cash as a reward for doing the survey. What do you think about these surveys? Are they just a means to getting your email address or do they really ever award those cash prizes? Are they worth bothering about? Have you ever heard about anyone actually benefitting from completing these surveys?
- Jennifer

They’re probably not worth the time invested in filling out the survey. Let’s say that the company is giving out one $5,000 gift card a month. During that month, 50,000 people fill out that survey that takes 5 minutes to fill out. You’re essentially burning 5 minutes in exchange for a 1 in 50,000 shot at a $5,000 gift card. There really are better uses of your time.

If you read the fine print of those offers, they usually have a method by which you can contact the company and receive a list of the winners of the survey contest. Such contests are pretty heavily regulated and it would not be worth it for the company to commit fraud.

In the end, I think they’re legit, but they’re just not a good use of one’s time.

Q3: Investment or debt?
A little over a year ago I got married (we’re in our mid-20s) with my wife’s graduate school student loans just coming out of deferment. We have been making the full payments for the past year, and have thrown several thousand extra when we’ve had the chance, like my annual bonus and our tax return. She had been working full-time though quit her job 4 months ago due to the terrible working conditions…14-16 hour days, spending additional time working on the weekends from home, etc. She has since been seeking out new employment, but with obvious obstacles at this time.

Our balances on the 10-year plan are: Stafford $20,470 @ 6.05% ($245 per month) / Stafford $19,804 @ 6.55% ($245 per month) / PLUS $34,800 @ 7.75% ($446 per month) / PLUS $30,900 @ 8.25% ($457 per month)…for a grand total of $1,393 per month. I make $70,000 per year, we completely own our apartment and our monthly expenses for maintenance, utilites and the like are around $1,000. We have $85,000 in cash/savings in the bank and my wife also has $35,000 in stock that she inherited from a relative. I currently contribute 7% – my company matches a full 6% – to my 401k which is worth around $30,000; I also have a small pension worth around $20,000.

I want to use the $35,000 in stock to knock off one of the large PLUS loans. We’re paying over $200 a month in interest per PLUS loan, so at 12 months x 9 more years, it seems like there is a significant amount of real savings to be had by doing this. My wife strongly believes that we’re better off having that stock available in case we ever have a serious need for it, but with how much we already have in the bank, it seems ridiculous to me that we also need the stocks at this time in our life. Is there really any good reason not to use the stock money and get rid of a big chunk of loan? I think we’re better off putting that money towards retirement, starting a 529 for a future child, and getting to enjoy ourselves more (we haven’t taken a real vacation besides visiting family in over 2 years). If you don’t recommend using that stock money, is there anything else you would suggest to help make our loan payment more bearable?
- Sam

I think that your savings (both stock and cash) are outsized when compared to the debts you’re holding.

If I were in your shoes, I would calculate your shared cost of living for four months, keep that much in savings, and put the rest – both saved cash and stocks – toward getting rid of as much of that debt as possible. I’d hit the highest interest debts first (the one above 8%, for starters).

There are almost no emergencies in life that will be helped by having more than four months of living expenses in an emergency fund. If one of those extremely unlikely emergencies did come along, the cost would likely be far more than what you have in the fund right now anyway. You’re better off putting that money to better use. Remember, you’re getting an 8.25% return paying off that largest debt early versus a 1% return in your savings account.

Q4: Gum as impulse buy
I like to keep gum in my car as a breath freshener, as I’m often worried that my breath smells badly. Thus, whenever I’m in the checkout, I tend to pick up a pack of gum. I’m trying to figure out how much this adds up to and whether there’s a cheaper way to go about it.
- Evan

If you chew gum on a daily basis, a bulk purchase is probably the best option for you.

I would figure out which brand you like the best, then buy it at a warehouse club in bulk (or have a friend buy it for you there). That’s probably the least expensive way to get the gum in significant quantities.

Then, just leave a few packs in your car at all times. If you know the gum is in your car, you won’t need to buy it at the checkout. You’ll save money just from the cheaper gum, but don’t be surprised if you’re actually chewing less, too.

Q5: Outsized medical bill
For the past 3 years, my husband and I have been working very hard to be financially responsible. We have paid off 39k in student loan debt (12k to go), put a good down payment on a modest house, drive paid-for cars, taken extra jobs and never incurred any other debt.

Last month my husband ended up in the ER with a partially collapsed lung. A month later it relapsed, and he had to have surgery. We went to our in-network hospital which was supposed to be covered 100% by insurance (except for our 75$ deductible). We tried to asked if the surgeon was in-network and found out he wasn’t, but the doctors assured us that in emergencies our insurance pays 100% of usual and customary. It turns out that there is a very large difference between what our insurance deems usual and customary and what the surgeon billed.

We now owe the surgeon $14,000. There were a few charges the insurance denied that we are appealing, but even if those are approved our bill will still be over $10,000. I was tempted to be mad at the insurance company, but when I looked up the procedure codes on the American Medical Association’s web site, it turns out they have already paid 4-5x the medicare reimbursement rate for these procedures. I feel like we are being extorted by the surgeon. Basically, he could bill ANY amount he wanted!

What kind of recourse do I have? Should I go to the insurance company? The provider? The state health insurance regulator? My employer (self-insured large company)? Do you think I could settle this with the provider for a couple thousand dollars (we have our first child on the way, so we can’t afford to empty our emergency fund)?
- Linda

Your best bet is probably to negotiate with the provider for a settlement.

You can try to appeal through other means, but you’ve likely hit a limit on what your insurance will provide for this. If the insurance is going far above and beyond Medicare, your state health insurance regulator probably won’t be much help, either.

I would suggest trying to negotiate yourself. If you find that you make no headway, you can attempt to use a lawyer to help, but you’ll likely end up with legal fees that exceed the cost.

Q6: Breadmaking tip
I’ve been baking my own bread for the last few months thanks to your extremely helpful blog post. However, I’m having an issue and hope you might be able to help. When I follow your directions to use 1/4 c. milk, I find my dough doesn’t bind together and I need to add more. For example, today I added 3/4 c. of milk. Am I doing something wrong to have to add more liquid?
- Candace

My guess would be that it has to do with the humidity in your kitchen. I’ve noticed that when the air is damp in my area, I don’t need as much liquid for any dough I make. When things are dry, I need significantly more liquid (and the dough tends to dry out more).

Another factor might be your brand and type of flour. Some flours make a dough with relatively little liquid, while other flours require a lot of liquid.

I don’t think you’re doing anything wrong here, as you’re not using what I would consider to be extraordinary amounts of milk. Just remember variations like these can cause things to work out in unexpected ways.

Q7: Avoiding Christmas
Early this year, I hit my financial bottom and since then I have paid off a lot of my debt. I’ve also moved on to a lifestyle where I don’t buy many things that I don’t need and I find this lifestyle really fulfilling.

My family, though, is moving forward with the same consumerist Christmas they’ve always had and it just doesn’t appeal to me at all. I’m trying to avoid it altogether, but it’s pretty tough to do when it’s your family. Any suggestions?
- Nelson

Remember why you’re getting together with them at Christmas. The real reason for the season has nothing to do with the stuff at all. It has to do with the people.

Many people express how they feel about each other during this season through buying gifts. It’s a convenient way to say “I care” to others without having to let your emotional guard down too much.

You can do much the same thing with a handmade gift. Make a soup mix with a handwritten note attached to it. Bake everyone something delicious, like a Dutch letter. These things won’t cost you much in ingredients, but they do require time and are made better with a bit of love for the recipient. That last ingredient is really what it’s all about.

Q8: Savings bonds and student loans
My husband and I have about $74,000 in student loan debt combined ($8,000 from my undergrad and $66,000 from his undergrad.) We make about $75,000 combined and try to save the equivalent of his income every month which is about $2000. We own a home (a duplex) with a mortgage of 76,000, about half of the assessed value and two thirds of the appraised value. We have about $12,000 in an emergency fund. The $2,000/month in saving that we try to pit aside each month first went to buy two new furnaces and water heaters for the house, the we used it to build up our emergency fund, now we are thinking of splitting it and using 3/4 of the money to snowball our student loans and the other 1/4 to build our seam vacation fund. I also have about $3500 in a mutual fund that I have had since I was a kid and pretty much forget about it as its value jump around with the market. We also have about $3,000 combined from Savings Bonds. We would like to start snow balling the student loan debt but also want to start saving about $6000 to fund a european adventure next september before we start trying to have a baby. The interest rates on the student loan’s are $8,001.49 @ 4.00%, $30,490.56 @ 4.88%, $6,144.89 @ 4.19% and $29,659.26 @ 4.86%. We haven’t really done anything with the Savings Bonds before because they had a good interest rate at 4% and we liked the idea of having that money liquid. But now that we have a health emergency fund and realizing that three of our loans are incurring more interest that we are earning on the bonds, do you think we should just go ahead and cash them in to make a dent on the loans, or would the debt be miniscule enough not to really matter? Or alternatively, should we use them to put a big dent (half of our goal) in our European adventure fund?
- Sheila

If I were you, I’d consider the bonds to be part of your emergency fund. I would use them last, meaning I’d zero out the emergency fund before using the bonds, because they’re earning such a nice rate compared to the savings account.

Then, I’d make sure that I had the right amount in an emergency fund. I would try to target four months of living expenses across all of the emergency fund money. I don’t know what your total monthly budget looks like, but it may be that the cash you have right now (the $12,000) is pretty close to that.

Once you know how much four months of living expenses actually is, I’d add together the $12,000 in savings and the $3,000 in bonds, then subtract the living expense estimate from that. I’d then withdraw that calculated amount from the savings account and throw it at the debt. Leave the bonds where they’re at, earning 4%.

Q9: Mortgage balloon payment difficulty
My wife and I purchased a home in 2010. We were able to avoid having to pay PMI each month by putting a 10% down payment and taking out two mortgages, one main mortage that is a 30-year fixed at 4.75% and a second that has 15 year term at a 6% rate but is a balloon payment of $60,000. Yes, you read that correctly. It is a 15-year balloon payment with a maturity date of 15 years, making the lump sum balance due in 2025, which by my math (and if I just pay the amounts due each month would be a total of $20,500).

My question to you is how to appropriately factor for the lump sum balloon payment. The easy answer is to say that we’d be selling the place before then at a price that will cover the balance and no need to worry about it (which was the lender’s line of thinking). We do live in a great location (suburb of D.C.) and comparable properties have retained, if not increased their value since we purchased. However, I come from a more conservative mindset and am looking at this from a long-term standpoint so I want to make the assumption that we will stay at the place for the long-haul (which would make refinancing the balloon payment an option when we become eligible in about 5 years when we’ll have 20% in equity).

The balloon payment has a daily interest rate where the amount of interest owed is the daily rate times the days that have passed since last payment. Any amount paid in excess goes towards principal. Our current method is that we pay $100 extra a month to go towards principal, plus I save $350 in an combination of Roth IRA and ING Savings accounts so that by the 2024 date, we will have enough liquid cash to pay the lump-sum payment due. Is this the right approach?. One thought I have is to pay the $350 immediately each month to lower the principal (and thus decrease the overall interest paid throughout the lifetime of the loan) but we currently keep the savings in the Roth & ING account in the event of a financial emergency and need access to that cash (even though we do have a 3 month emergency fund so I don’t know if this is overly conservative). We also keep it in the Roth because then the earnings can grow/compound year over year and I can withdraw the contributions later. Right now we have about $5k in the Roth (contributions that can be deducted) and $1500 in the ‘Balloon Payment’ ING account.

Should I continue to pay an additional $100 in principal every month and save/accrue $350 in savings accounts, or should we just put all of the $450 into the balloon payment each month to reduce our future liability? Our current method will mean we’ll have enough cash to pay off the balloon payment by 2020, making a lump sum payment of $40,000.
- Ronald

If I were in your shoes, I’d probably make sure the Roth was fully funded for the year (meaning that you’re putting in about $420 a month) and then put the rest toward additional principal on the balloon payment. This will maximize the value of your Roth, which will return better for you over the long run than a savings account.

If things go well, your income will go up as time moves forward, which means you can slowly contribute more to the balloon payment. This is the best outcome, of course.

If things do not go well, you can use your Roth contributions when the time for the balloon payment arrives. You’re still in good shape and you’ll retain the Roth earnings.

Q10: Investing in class
I am a high school accounting teacher and want to teach my students about the how the stock market works and how to invest wisely (and cautiously). I thought about having them (with their parents approval, of course) set up an account at Sharebuilders because you can invest for as low as $25 a month. The downside is four dollars each monthly contribution goes towards commissions (almost 20%). Are there any other investment options (with low entry and monthly fees) that I should consider?
- Margie

If I were you, I’d have them all sign up for and play The Stock Market Game or something similar. This is essentially a stock market simulation that enables students to invest virtual money in stocks.

In order to build interest, I would make the thing laden with extra credit for your class. If they manage to beat the S&P 500, they get some bonus points, for example.

At the end of the year, I’d have each student (or team of students) present their investment strategy and how it did to the class.

I wouldn’t mix real money into this. You want to teach them how to do this, not have them start taking on real financial losses. The students that are interested will likely move into some level of investing on their own, and it’s probably a good idea for those not interested to not have actual money involved at this point.

Saving Pennies or Dollars? Hot Tub Usage

Posted: November 30th, 2011, 1:00pm MST by Trent

Nick writes in: We rent a home and are responsible for all utilities. It came with a rather nice 8 person hot tub, currently, we will turn it on (warm it up) only when we plan on using it that evening. In the winter it takes about 8-10 hours to warm up. My question is this, should we leave it warm year-round, or only heat it up when we plan on using it. I think currently we use it 2-3 times a month, if we had it warm all the time, we would probably use it 1-2 times a week. Maybe more during the winter. During the summer it retains heat thanks to the cover and the temperature outside, and during the winter, it will retain the heat for maybe a day at most.

Without running the numbers at all, I can tell you that it’s cheaper to heat the water on occasion rather than keep it constantly hot. Hot water will constantly lose heat to the environment, and the greater the difference between the environment and your hot tub, the greater the heat loss at any given time.

Think about a hot cup of coffee. It’s initially very hot, but it doesn’t take too long for it to cool down to the point where it’s drinkable. However, after that, it doesn’t cool down at a very fast rate at all. It does eventually reach room temperature, but it stays at an acceptable heat for quite a while as you’re drinking it. That’s because the closer the liquid gets to room temperature, the slower the heat loss is.

Since the exact heating and cooling of water in a hot tub varies a great deal depending on the model, the insulation, and other factors, the best I can do is look strictly at the heating of the water.

A hot tub of the size you describe holds about 500 gallons of water. It takes about 8.34 BTUs to raise one gallon of water one degree Fahrenheit. So, if you’re raising that water from 40 F to 100 F (in the winter), you’re using about 250,000 BTUs, which is roughly 75 kWh of energy. A kWh costs about $0.12 from your electric company, so your energy cost for heating that much water in the winter is about $6.25 just to heat it for one use.

Now, your major issue with the hot water is your insulation. How much of it are you losing to the environment? For most hot tubs, the hot tub cover has a much lower R-value than the hot tub itself, so that’s how most of your heat is lost.

In your example, you mention that the heat in the tub is completely lost after a day or so if you’re not running the heating. Just using extreme back-of-the-envelope math, you’d essentially be heating the tub’s water each day during the winter, costing you $6.25 per day to keep it hot all the time. That’s going to add up quite fast.

My suspicion is that either it’s retaining at least some heat for longer than that day or your hot tub cover is a pretty thin one with a low R-value – or, most likely, both. I sent an email out to a friend who owns a hot tub in the southern part of the United States and who keeps a pretty close tab on his energy use and he estimates it costs him about $30 per month to keep his tub hot around the clock, but it would cost about $50 a month with a “typical” cover.

Compare that to $18 a month heating the tub for the three times you’d use it during that month.

You might want to stop by a hot tub dealership just to get an idea as to the R-value of the insulating cover on your tub. You can get a good ballpark estimate just by the feel of the covers they sell.

While the math isn’t exact (again, there are so many variables here and the math gets quite complicated quickly), you can compare the cover you do have with some of the others that they sell. If you see one with an R-value twice as much as the cover you do have, it’ll hold in the heat for roughly twice as long as your current cover.

Is a new cover an investment you want to make? If you really desire to leave your hot tub on all the time in the winter, it probably is at least worth looking into, as you’ll repay that cover’s cost eventually in the money you save.

However, the best approach is to simply turn on the tub in the morning if you plan to use it that evening. If you’re using the tub more than six or seven times a month, you may want to consider running it all the time and investing in a very high R-value cover for the hot tub, particularly if you’re going to live there for a long time or if your landlord will help with the cost of the cover (provided it stays with the house, I’m sure).

The savings for making the right choice here is going to be on the order of $20 a month, so it pays to think this one out.

The Simple Dollar Weekly Roundup: Alternating Nights Edition

Posted: November 30th, 2011, 7:00am MST by Trent

Sarah and I take turns handling the bedtime routine of our three children. One of us will make sure the kids get their teeth brushed and take their vitamins, read them their bedtime stories, sing songs for them, then hang out near their bedroom to handle the inevitable post-bedtime requests.

The other parent essentially has free time. Sometimes, we just relax. Other times, we work on household tasks. Often, I write – in fact, I’m drafting this post while Sarah is handling the bedtime routine.

Finish What You Start I’m far more impressed by someone who does one thing and finishes it than the person who does ten things but never really finishes anything. (@ get rich slowly)

7 Mental Mistakes That Stop You From Living a Life of Freedom and Peace I think we all find ourselves slipping into these traps at some time or another. The key is minimizing, not eliminating. (@ dumb little man)

Shifting Expectations: How to Adapt to New Job Responsibilities My experience has been that the best way to handle shifting responsibilities is communication. If you’re not sure what you should be taking on and what should take priority, talk it over with your boss. Be open about it. (@ the 99 percent)

4 Things That Keep You From Your Goals For me, the biggest thing that holds me back is inertia – the pattern of established habits. If I can make myself break a routine and establish a new one, I usually find success. That’s the really hard part, though. (@ pick the brain)

Putting Off the Important Things

Posted: November 29th, 2011, 1:00pm MST by Trent

One of the biggest challenges when it comes to personal finance is that most of the personal finance tasks a person might do are not urgent. It’s that lack of urgency that often convinces people to indulge in bad personal finance behavior.

Important and Urgent Tasks
What do I mean by not “urgent”? Every task you have before you in your life can be judged by one of two traits. Is it important? Is it urgent? I use these two questions as a constant guide to the things I need to do in my life, as I’ve mentioned before on The Simple Dollar.

For example, getting my children ready for school is both “important” and “urgent,” so it takes top priority at the start of the day. On the other hand, playing a computer game is neither “important” or “urgent,” so it tends to be pretty low on the queue.

The tricky ones are the other two areas. On the one hand, there are tasks that are “urgent” but not “important.” Things like answering the phone tend to fall into this area. Most of the phone calls I receive really aren’t important, but the ringing of the phone makes it urgent.

On the other hand, there are tasks that are “important” but not “urgent.” A lot of personal finance tasks, such as signing up for your 401(k) or starting a savings plan, fall into this category.

“Important but not urgent” tasks are more important to your life than the “urgent but not important” tasks, but the “urgent” ones often get the attention. They’re the squeaky wheels, and the squeaky wheels usually get the grease.

Even worse, we’ll often put aside “important but not urgent” tasks for “neither urgent nor important” tasks. Instead of working on those papers for the 401(k), we’ll go watch The Walking Dead or play a computer game. I’m guilty of this myself, often retreating into a page-turning novel instead of doing something I need to do.

Overcoming These Traps
I use several different techniques to keep myself from falling into these traps.

First, when I settle in for work, I eliminate paths in which “urgent but not important” tasks can interrupt me. Off goes Twitter. Off goes email. Off goes my phone. Off goes Skype. I do not allow these tasks to even have the chance to interrupt me.

Next, I keep a constant “to-do” list of “important but not urgent” things I need to get done. This list is usually fairly long. If the items on it are too big, I break those bigger things down into smaller pieces, record the “big” item elsewhere (I actually use Microsoft OneNote for my bigger projects), and only include the next step on my “to-do” list.

Whenever I have free time, I make sure to always look at that list first and try to find something I want to do. By looking at that list first, I find it much harder to get sucked into something that’s idle fun.

I also minimize the “path of least resistance” to important but not urgent tasks. When I’m consciously thinking about it, I’ll do some of the “prep work” for these things. I’ll get out the paperwork I need. I’ll print out the needed documents and put them in an easy-to-find spot. I’ll use a few minutes of downtime to do a bit of preparatory research.

This way, when I actually get around to that “important but not urgent” tasks, little preparatory things are already out of the way.

A final tactic I use is to set aside time specifically for these tasks – as well as time each week to review things. I try to set aside an hour each day just for these “important but not urgent” tasks, like filing things away, filling out paperwork, filing quarterly taxes, and so forth. In addition, once a week I spend some time reviewing my goals, the tasks I haven’t completed, and so on. This helps me get my plans in place for the following week.

If I nip procrastination in the bud, I don’t fall behind on the “important but not urgent” things that are so key to my future.

The Christmas Spirit All Year Round

Posted: November 29th, 2011, 7:00am MST by Trent

One of the best parts of this time of the year is the handful of days we spend decorating our house for Christmas. All of us are involved in the process, even our littlest one, who struggles with the hand-eye coordination needed to put ornaments on the tree.

My oldest child and I spend hours digging through the crawlspace for that one last box of items that has the tree-topper on it.

Sarah digs out the rolls of wrapping paper picked up just after Christmas the year before and digs into the process of getting items wrapped.

Our four year old dives deeply into making homemade snowflakes and Christmas trees to decorate the windows with.

We pop a bunch of popcorn and string them together for the tree, using a few dried cranberries in the middle to brighten it up with some color.

Our children try to learn the words of Christmas songs and we end up consulting Wikipedia to show them exactly what “wassail” is.

The warmth that makes this time so much fun isn’t that it’s Christmas. Christmas is just a motivator for what makes it so enjoyable.

The real joy of this season comes from the time spent together. It comes from projects that are done with the goal of bringing joy to others and to the whole family.

It’s not about spending money. It’s not about indulging in expensive things. It’s about people and time and memories.

Compared to this, the actual Christmas gift exchanges and presents are really an afterthought. I’d gladly swap anything I’ll receive this year for an afternoon or an evening spent with this kind of family bonding.

A lot of families know exactly what I’m talking about here. It’s part of the “Christmas magic.”

Here’s the really powerful thing, though. It does not have to just be “Christmas magic.”

There’s no reason not to do the same thing all throughout the year. You can do the same type of activities in January (winter decorations), February (valentines), March (springtime), April (Easter), May (gardening), June (summer), July (Independence Day), August (back to school), September (early fall), October (Halloween), and November (Thanksgiving). T

There is always a good reason to spend time together as a family, doing things like making homemade decorations, eating foods you make yourself, engaging in activities together.

It is so easy to fall into a routine of keeping the “special” family moments for the holidays and allowing so much of the rest of the year to focus on other things, things that are often expensive and focused away from the people who matter the most to you.

I say, why bother? There’s never a bad night to go home and make a homemade decoration for your home. There’s never a wrong time of the year to learn how to do something new. There’s always a great opportunity to go home and make a delicious homemade meal.

All you have to do is choose the life you want to live.

Some Thoughts on Careers and Cyber Monday

Posted: November 28th, 2011, 1:00pm MST by Trent

A few days ago, I was chatting with someone who was telling me how he only shopped for Black Friday sales online. He didn’t like to go out to the stores, and I completely agreed with him.

After that, the conversation switched to Cyber Monday, and he told me of the long checklist of websites that he checks on that day. He talked about how the guys in his office spent a lot of the day emailing those deals to each other.

When I heard about that, I grew quiet. It seemed to me that a lot of people were burning their day hunting down a deal or two. The people he had described were in an office, meaning they were at work, and they were emailing lots of deals to each other, meaning they were spending a lot of time online finding those deals and emailing them to each other.

I’m the last person to say that it’s bad and horrible to spend some of your time doing that. If you work in an office environment with an uneven work flow, you’re going to find yourself with pockets of time without anything immediate to do, and it’s up to you to decide how to use that time. A lot of people end up web surfing during that time.

Here’s the thing, though: people who figure out how to use that time more effectively at work are going to build up their career.

Think about it this way. Alan spends Cyber Monday at work surfing the web looking for deals. He finds a $20 bargain on something he was going to buy for his kids for Christmas and a couple $5 or $10 bargains for things for himself. A few work tasks back up, but nothing big. His office is a bit messy and some paperwork needs filed, but it can wait.

Bill spends Cyber Monday at work getting his filing done and handling emails from the long weekend. He gets the things in his inbox done. At the end of the day, he does have a few extra minutes to look for bargains, but he mostly just looks through the emails for the bargains coworkers have sent out. He does some Cyber Monday searching in the evening at home, too.

On Tuesday, a huge project comes down the pipe, one that, if done correctly and with quality, will catch the eye of the boss. Who’s going to be more prepared to just knock that project out of the park, Alan or Bill?

If you want to have job stability and earn raises and promotions, look at your actions from the perspective of your employer. Is the thing you’re doing right now creating a positive value for your employer? If it’s not, why should they continue to employ you?

Here’s the key thing to always remember: employers are always going to want to hang on to people who provide a positive value for their business. Most of the people who are “downsized” are either filling a position that isn’t providing that positive value or aren’t producing enough work in that position to be a positive value for the company.

If you want job stability and raises and promotions, you need to focus on making sure that the company is getting more value out of you than they’re paying you. If you’re not doing that, you might as well start spending your time building a side business or looking for a different job.

If you’re reading this late on Cyber Monday at work, as many of you will be, you have a fundamental choice to make.

You can spend the rest of the day surfing the web, hunting down deals on things you don’t really need, and providing little or no value at work.

On the other hand, you can spend the rest of the day taking care of some unfinished things, providing some real value to your employer.

One route might be more enjoyable, but the other one helps you build a more valuable and more secure long-term future.

Reader Mailbag: Some Homemade Gifts

Posted: November 28th, 2011, 7:00am MST 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. RRSP question
2. Inadequate income for student loans
3. Emergency fund question
4. Taxes or other uses?
5. Sales over the weekend
6. Multiple student loan payments
7. Cars with leg room
8. Good items on credit report
9. Personal finance in the U.S.
10. Overspending family and holiday politeness

As December dawns, Sarah and I are looking over and checking a fairly long Christmas list as usual, filled with siblings and nieces and nephews.

Much like last year, we’re looking for homemade gift options for some of the people. Unlike last year, though, Sarah is back at work full time, limiting the time we have for making such gifts.

What are our solutions? One weekend, we’re planning on making some homemade foods, like salsa. These make great small gifts for siblings and others. We’re also going to assemble a few sentimental gifts for a few people.

Q1: RRSP question
We are a couple in our 50’s and hold $150.000 mortgage (we remortgaged to pay off a debt from our business that we no longer own) and hold no other debts. We have one cell phone, basic cable, 2 car insurances with regular house hold bills. My husband changed careers and we will not see the financial gains for awhile. I bring in $2000.00 a month and that barely covers our monthly bills.( 400.00 short per month) We have had to cash in some of our RRSP’s to exist. I am cashing 5000.00 now and when that runs out I’ll cash another 5000.00. My husband has started into the real-estate business. So the cash is unpredictable and at the beginning there are fees to pay out. My question to you is Should I continue to cash in RRsp’s and put them in different accounts like a tax-free account.
- Linda

For those unaware, RRSP stands for Registered Retirement Savings Plan, which is much like a Roth IRA for Canadians. Essentially, Linda and her husband are withdrawing $5,000 at a time from their RRSP in order to make ends meet.

As for your specific question, you seem to be in a situation that’s going to be financially unstable for a while. Often, when a person starts out in the real estate business, they don’t see a large income at first. It tends to grow as one’s reputation and contacts grow.

You’re essentially robbing your retirement savings to make a go of this business, and it’s really hard to tell if it will pay off in the way that you want it to. It has a lot to do with the state of the real estate market where you live, your husband’s ability to build contacts, and so on. Many real estate people in my area start off doing it part-time until they have a strong network of contacts enabling them to move into the business full time – and some of them are never able to make that transition.

Obviously, if it’s a choice between going under and using your retirement savings, you should use them, but your focus should be on cutting every possible expense for the time being. I’d even cut the basic cable and use over-the-air signals for a while, and spend that extra time you would have been watching television instead building your husband’s business. You have a lot of ways that you can contribute, such as writing notes to contacts and so on. Your future is tied to the success of this business, and it’s in these early days where the sacrifices are needed to build a foundation.

Q2: Inadequate income for student loans
My situation is this: I owe about $120,000 in federal and private (mostly private) loans. I make $44,000/year (but live in NYC with high costs of living, even though I do live in a much cheaper part of town and live *very* minimally). For the past 4 years after graduating I’ve only been paying interest on the private loans and the federal loans have been deferred. I don’t anticipate ever having a career that pays $100k a year etc. and imagine my salary cap as I grow in my job to be around $65,000. Even if I achieve that I do not feel like this is a debt that can ever be realistically re-paid due to things like compound interest etc.

So essentially should I just stop paying (the private loans – I would pay my federal ones as I know the penalties for not doing that are nasty)? I’m currently spending $400+ a month on them and that’s *interest only*. I know that these loans cannot be discharged in bankruptcy (although I do wonder if since I’m in such an extreme position I might be able to rid myself of some of them) – but I almost feel like if I defaulted and they garnished my wages based on the laws of the state I live in that would actually be less of a monthly commitment! I posited this thought to the loan officer who called me one month when I couldn’t make a payment and asked him what to do about it. His response was to try the lottery. Hopefully you have some better advice.
- Roger

That “try the lottery” advice is actually pretty insulting. If I ran such a company, I’d fire that loan officer because he’s doing nothing to help the bottom line of the business he’s working for and is actively damaging relationships with clients.

The first thing you should do is directly contact each of the organizations that hold your student loans and discuss your situation with them. Many student loan programs have need-based deferrments, reduced rates, and loan forgiveness programs for people who are in careers with lower earnings potential. I don’t know exactly what your career is, but I do know that it’s in a fairly low earning path, with means it’s at least reasoable that you’re eligible for something like this. You must make it clear when you contact them that your earnings potential is making you look at defaulting because you simply can’t pay the bills and feed yourself at the same time.

The next thing you should look at is loan consolidation. Do you have any options for consolidation that would reduce your monthly payment load? It sounds like you have multiple public and private loans, so it would stand to reason that you’re a candidate for some form of consolidation, and rates are certainly in your favor right now.

A final important thing to remember: you are far from alone here. Many people struggle with what seems like overwhelming student loans. The lenders have a vested interest in having plans for working with people in your situation.

Q3: Emergency fund question
You’re supposed to have 6 months living expenses in a emergency fund, which for me would be about $9,000. I currently have $1,800 saved with plans to save $100/month or more until I reach that amount. This seems like alot of money for me to just have sitting there ‘in case of emergency,’ even just the smaller amount I have now. I also save regularly for retirement, travel, a current goal (right now a digital SLR camera), etc. I have student loan debt and no other debt (including no mortgage/car payment). I rent and take the bus. I have no children and my husband works full time (ie, is not dependent on me for more than my share of the expenses). Do I really need $9,000 sitting in the bank? How do I decide? Can I invest the money? Where? I’d like to put it in stocks because of the higher returns, but that seems to defeat the purpose of an ‘emergency’ fund if I could lose my investment.
- Chloe

I usually encourage people to have two months of living expenses in the bank for each dependent they claim on their taxes. In your case, you and your husband should have four months of shared living expenses in the bank, which would be somewhere around $6,000, apparently.

The reason for that isn’t just for the small expenses you mention. It’s also to help with things like unexpected job losses, unexpected loss of income due to a major injury or illness, and things like that.

When you live paycheck-to-paycheck, things like a dehabilitating injury or an untimely pink slip can cause financial apocalypse. An emergency fund is protection against that, enabling you to keep living your life while you transition through those hard times. A fund with four months of living expenses means that you can be jobless for at least four months (probably much longer), which can be huge if you’re suddenly fired.

Q4: Taxes or other uses?
I earn about $50,000/yr through my work and a side gig and minimized my withholding last year in order to use the extra cash to get out of debt (I’ve paid off $8000 in credit cards so far) so I’ve paid very little on my 2011 income tax so far. I can contribute to a 403(b) at work, but no matching. I foresee an end of the year surplus of $5000, which I could either use to finish off my credit card debt ($5000 more) or make an extra payment on my mortgage (900) & student loan (300), and contribute to the 403(b) (3800, the rest of the $5000) or give to charity in order to reduce my taxes. Before April of 2012, I will have another $5000 surplus which I could contribute to an IRA for 2011, or save to pay my taxes, or again, finish off my credit card debt.

How would you handle this situation to make the most of my extra money to improve my finances?
- Linda

First and foremost, make absolutely sure that you’re going to be able to cover your tax bills in April. If you find yourself in a situation where you’re facing a big tax bill without the means to pay it, you can be in a world of IRS hurt.

Assuming, though, that you have taxes taken care of, I would put the extra money toward my high interest debt first and foremost, where high interest debt means anything above about 8% interest. In your case, this would be the credit card debt, most likely.

If you’re only giving to charity as a tax reduction, it’s not really a good return on investment. Most people only get about 25% of the amount they donate back in the form of a tax reduction, so if you donate $4,000, it would only cut your tax bill by $1,000. Charity is a great thing, but the tax benefits are really just a perk.

Q5: Sales over the weekend
Did you indulge in any Black Friday sales? Are you going to pick up anything on Cyber Monday?
- Lucy

Sarah and I did a little bit of Black Friday shopping, but only online. There were a few specific Christmas gifts that we looked specifically for at some of the big online sales. We found exactly two of the items we were looking for on discount, so we bought exactly two items. I also spent a total of about $7 on Steam on computer games.

I anticipate similar spending levels today. I’m not planning on buying anything that wasn’t already an intended Christmas gift. I have one item that I’m looking for as a gift for Sarah, but aside from that, we’ll probably just browse a few sites together this evening after the kids are in bed to see if we find anything matching our lists.

It’s not a surprise if you’ve been reading this site for a while that I’m not really into the sake of spending money for the sake of “sales” or “bargains.” If you can get an item you were already intending to buy at a steep discount, that’s great, but it’s a rare occurrence when the things I would already buy match up with Black Friday sales.

Q6: Multiple student loan payments
I’m a 23 year old grad relatively recently graduated out of college. I accumulated about $25,000 in total loans (all subsidized), and payment time has finally kicked in. The total monthly minimum I’m looking at is about $275, with my intention being to reach $400 per month whenever I can.

The thing that I find annoying is dealing with five separate payments coming out at varying times of the month. Do you think it would be prudent, and worth the credit score hit, to consolidate my loans for the sole sake of making one payment? I’d plan to pay the same $300-400 a month, but would just like to worry about making one transaction.

The only downside I see to is that because I use direct deposit from one of the lending house, they’re giving me a 2% interest rate reduction on the two loans I owe them ($11,000, 5.5% interest rate, $100 monthly minimum payment).

How would you advise I approach this?
- Mark

There’s no reason not to investigate what kind of rates you would get with consolidation. You can certainly call around and get some rate quotes before you make such a move.

I’m going to guess that with some shopping around, you can find a rate that’s lower than that 5.5% that might also reward you for direct deposit payments while also providing the easier depositing that you want.

One way to start shopping around is to check out the organizations you already have loans with and see what they offer for consolidation.

Q7: Cars with leg room
We are looking for a new car. My teenage son is almost 6′ 6″ and I was wondering if you know of a sedan or SUV (we are going to be looking for one with good gas mileage), that has a lot of leg room in the back seat. He has his own truck and drives back and forth to college but we still need room for him in our vehicle sometimes.
- Chris

I’ve got a lot of experience in jamming myself into cars that are smaller than my frame will allow. My height is “top-heavy,” which means that I can wear pretty ordinary length pants but my shirts pretty much must be tall shirts. This means that I do okay for leg room in most cars, but my head often bumps the ceiling.

This means that cars like my wife’s Toyota Prius actually works okay for me provided I ride in the passenger or driver seat, but there are many SUVs and vans that are pretty awful to ride in because of my head bumping the ceiling.

Given that body proportions vary so much, my honest suggestion would be to just go test out a lot of vehicles at a large dealership so that you have an idea what works well for him. Once you have some models you’re sure about, use that information to shop around before buying.

Q8: Good items on credit report
I’m 30 years old and just a few months into my first full-time 9-to-5 job (previously I have been doing freelance writing or photography to supplement part-time work while taking care of family responsibilities). I have a bit of a checkered financial history, mostly due to a couple of credit cards being charged off after my house was nearly destroyed in Hurricane Ivan in 2004 and I missed a couple of payments. I’ve worked with the collection agencies that purchased those debts and this month I will be debt-free. Even though I know that if I had ignored the debts, they would nearly all be off my credit report by now, I feel good about having repaid my legitimate debts.

Here’s the problem. My only “in good standing” item on my credit report is a store credit card that I never used, and that has been inactive since the store (Bombay Company) closed a few years ago. I found out today that this item will leave my credit report in June 2013. Because I have avoided opening any new lines of credit, once this is no longer reported I’m worried about how bleak my credit will be.

Now here’s my question. How can I add more “good” items to my credit report? I checked with Orchard Bank and the card I qualified for was a secured card. I’ve never really felt like secured credit cards were a good idea (since I don’t intend to use it) but is it worth opening one just to have another line of credit on my report? Can you suggest any alternatives?
- Bonnie

The only reason to get a secured credit card is to raise your credit score. I truly look at them as though you’re loaning money to a bank at 0% interest in order to raise your credit score. Very rarely will you find a secured card that makes sense for a person to use for actual purchases because the interest rates are usually really high on them and they rarely have any sort of good rewards programs.

Now, is that worth it? If your credit score without that secured card is really low, it probably is. A decent credit score helps with your insurance rates and also helps with the interest rates you’ll get on things like car loans and the like.

You may want to see if you’re eligible for an unsecured card of some form. If you do have a positive history with the one card on your report, it might not quite be as bad as you’re thinking. Use the secured card as a “last resort.”

Q9: Personal finance in the U.S.
I have been a follower of your site on and off for a few years, more of a casual reader than anything purely on the basis that many articles did not apply to me, being from the UK and having no debt to clear. Now however, I am reading every post you make as I am moving very shortly to live in the States. A lot of things are very different; by this I mean the basic way financial intuitions run, the way mortgages work, the way banks and investments work… the ‘basics’ on my financial education here in the UK will not apply. This will be very strange for me – here in the UK I’m very well financially educated, working as a personal tax accountant. So I feel I will not enjoy suddenly floundering! I was wondering if you had any general advice for me, and if there was a particular book or blog or any such that you could recommend to me… sort of an ‘American Finance for Dummies’ but for people who do want a little more than just passing knowledge?
- Delores

In terms of basic principles – pay off your debts, spend less than you earn, etc. – most economies work pretty much the same. In terms of your day-to-day actions, you’re not really going to be doing much differently in the U.S. than in the U.K. A standard Personal Finance for Dummies book written for a U.S. audience will actually answer surprisingly few of the questions you come across. They also tend to focus on the principles.

Honestly, the source I would use the most for this would be Wikipedia. I would start with entries related to the areas that concern you the most, such as income taxes. One good entry to start with would be “Banking in the United States.”

Another good tactic is to simply ask entry-level employees of institutions you intend to use. Bank tellers and the like are often good sources in terms of how things functionally work, which you can then supplement with ideas and theory from other sources.

Q10: Overspending family and holiday politeness
I’m writing for some advice on dealing with my financially irresponsible mother and grandmother. I am 25, living in NYC on my own. All of my school loans (~24K) and credit card debt (~5K) are in my name – I haven’t taken any money from my mom (who raised myself and my 2 brothers alone, with minimal financial help from my father) since I was about 17 years old. I saw what a struggle money caused in my house growing up – it was a main cause of my parents divorce – and I’ve always worked to be as independent and responsible as possible. That, of course, is not without incident so I’m actively paying down a bit of credit card debt that I accrued while in my early 20s and trying finding a job/figuring out the whole ‘financially responsible’ thing. I’ve since managed to make quite a dent in my debt despite my high cost of living. I contribute to a 401K with a 5% employer match and I also maintain a personal savings account.

I’m writing because my mother and grandmother are compulsive over spenders. They are both in a fair amount of credit card debt but they still shop compulsively (nearly every Saturday is spent at the local mall, Kohl’s, Target or flea market, etc.) My grandmother spends so much money that my 85 year old grandfather still works two jobs to make ends meet for the two of them. He also works to lend additional funds to my mother as she is also in debt and has no savings to speak of.

That in and of itself has serious implications for me as I am sure that I will be charged with caring for my mother in retirement as she has nothing. However, I’m wondering if you might be able to advise me on how to politely decline presents and shopping trips with my grandmother and mother. When I visit (usually about twice a year), all they want to do is shop. I’m not a big fan of shopping ingeneral however, when I do purchase things I do so with a “quality over quantity” mindset – I pick out one classic, high quality piece and I save up to buy it. My mother & grandmother just buy anything that is on sale, favoring low quality department stores – usually falling into the trap of “it was on sale, so i bought 3 of them!” My mother even took a part-time job at a local department store for the employee discount.

They don’t seem to have any interest in chatting with me and discussing my life, accomplishments, plans, etc. They want to go to the mall and buy things. This makes me feel incredibly uncomfortable as I know that they are not financially in a position to spend the kind of money that they do. Additionally, it hurts my feelings because I work my butt off to make my life what I want it to be – I’ve worked my way up the corporate ladder quickly and I have a budding romance that is quickly maturing in to something that could very well result in marriage, yet they make no effort to inquire or be a part of my life. I feel that their wanting to shop for me is more for themselves than for me. They push clothes and things on me that are not my style and then guilt trip me when I try to politely decline. They tell me that i have become a snob. I don’t try to deny that or defend myself because I don’t want them to know what I really think about their financial promiscuity – I just let them think that I’ve become a total snob.

With Christmas coming up, I’ve asked all my family members to get my gift cards to Target so I can purchase a television (I haven’t had one for 4 years to save money). My mother is now insisting that she can buy me a TV for Christmas [...] with her employee discount. When I tried to make up excuses why I didn’t want that, she acting like I had just refused her the chance to meet her new grandchild or something ridiculous like that. How do I politely approach this situation without hurting anyone’s feelings but also not accepting gifts that I’m not comfortable accepting?
- Margaret

My reaction would be to just accept the gift and move on with life.

You have to remember that you cannot change the behavior of others. People have to find within themselves cause for change. External forces rarely can do anything at all to cause someone to change, unless it’s to simply trigger something that’s already inside of them.

You’re growing and maturing and finding yourself on a different path than many of your family members. Your values are different at this point. The choice is really up to you: are you willing to set aside some of those values differences to maintain a relationship or not?

In some ways, I’m in the same boat as you. I know that many of my extended family members find our situation confounding. We’re both college educated and earn a good income, but we do things like make homemade Christmas gifts (when other family members just buy all kinds of random things) and buy our vehicles used off of Craigslist. There are values clashes.

At the end of the day, though, I’m okay with that. I know a gift from them is still a gift from the heart, even if it’s not a match for the things that I value. It’s a show of affection and an attempt to maintain a connection.

In your shoes, I would just suggest that you roll with it. Bond with your family where you can, and tread lightly in the areas where you can’t.

Review: How to Have More Than Enough

Posted: November 27th, 2011, 1:00pm MST by Trent

One of the first books I reviewed on The Simple Dollar was Dave Ramsey’s More Than Enough. I found it to be an interesting take on personal finance, as it ties together personal finance and character and personal growth into a single package. While I didn’t think that it was the first book you should read if you were in personal finance panic mode, I did recommend it as a worthwhile read.

A few weeks ago, a reader emailed me and suggested that I read what my reader described as a “companion” to More Than Enough, entitled How to Have More Than Enough. My reader suggested that it was a much better read than the first book.

Store Manager, to Aisle One, Please!
Many people feel unhappy with big aspects of their life, but they also find change to be stressful. The key thing to remember about any change that you take on in your life is that the end goal of it is to put you in a place where you are no longer unhappy with some aspect of your life. For example, choosing to live a life that involves less spending can be really stressful, but the end goal of it is actually a stress-reducer: freedom from debt and financial worry.

Foundation Failure
Why do people get into situations where they’re unhappy with some aspect of their life? Ramsey’s argument is that some basic foundation of their life has failed in some fashion. Ramsey argues that most lives are held up by a series of posts, and when one or more of those posts begin to rot and fall away, the entire structure of our lives begins to fall apart. Thus, the best thing we can do is to constantly shore up those things that we rely on. This chapter focuses a lot on values – the immediate things that we hold true and hold dear in our lives. What are we doing to reinforce those things? Most of the rest of the book focuses on nine more of these “poles” that hold up everyone’s life.

Vision – Binoculars Looking at Your Future
Vision refers to knowing where you want to go in life. This ranges from something as simple as what you want to accomplish this week to what you hope to accomplish over your entire life. If you focus on nothing but today, you’re going to walk in a rut in your life and never get to any of the places you’d like to go someday. The big key is to just start thinking about it and writing it down. What would you like to have people say about you at your funeral? What has your life meant? What can you do to get there?

Unity – A Tangled Rope Is Just Loops
Unity simply means doing things with respect to the people around you. So often, it’s easy to just do what we want and ignore what others need or want. However, if you focus on listening to the needs of others and incorporating those needs into your daily actions and choices, you’re going to find that your entire life flows much better. This goes from things like cleaning out the dishwasher to big things like how to spend a big windfall. The more you listen to the key people in your life and involve them in your major decisions, the easier your life will flow and the more they’ll involve you.

Hope – Fuel for the Explosion!
Is the future awash with possibilities or is it something to dread? If you look at the future as something to avoid and to fear, then you’ll find that your future is indeed a darker place. A much better approach is to look at one’s future as a place for hope and optimism, where the things you want in life are destined to happen. A key part of this equation is to look for the good “what-if”s and chart a path to them, and also look for paths away from the bad “what-if”s.

People Who Need People – Support and Accountability
You need other people in your life. For many people, though, it’s a surprise to learn that others need them in their lives. There are people out there who need you to be at your best. At the same time, those people are often the ones who can be there for you when you need help. It’s a two way street of support and accountability that can constantly push you on to better things if you let it happen.

Intensity – Move the Rock
Many people are willing to give up at the first obstacle. If you come at your goals with a low intensity, it’s going to be very easy to derail you, and any goal that’s worth achieving is going to have some obstacles along the path. Instead of letting those challenges derail you, you’ve got to focus hard on those challenges and overcome them. For example, if you’re watching your weight, instead of eating that delicious piece of pie, you’ve got to have the intensity and content of character to push it aside.

Diligence – That Dirty Little Secret
On the flip side of intensity is diligence – the ability to stick with something through thick and thin. It’s easy to ramp up the intensity in challenging moments, but it is diligence that will get you through the plateaus and the valleys where success seems far off. For example, intensity will get you through Thanksgiving dinner without gaining five pounds, but diligence will keep you from eating 500 calories a day more than you should and slowly gaining weight. It’s a focus for the long term.

Patience Is Power
Hand in hand with diligence is patience. Most goals don’t happen overnight. Many goals don’t happen in a year. In the society we live in today, it’s easy to have a mindset that you need results now and if they don’t immediately happen, something’s wrong. That mindset will keep you from achieving great things because it will cause you to abandon goals before you can possibly achieve them. Patience is an essential key for building a great life.

Contentment
It’s easy to fall into a mindset where you want what others have. It can be a very pernicious mindset to crawl out of, too. The key to success is to simply be happy with the things you have, even when you could have other things if you were willing to sacrifice some of your goals. Without goals, it’s easy to fall into a trap of keeping up with the Joneses and never being truly content with what you have.

Giving – The Great Misunderstanding
When we are scared or when we don’t feel confident about our lives, we tend to clench our fists and hold on to what we have. A big step towards being happy with our lives is a willingness to let go of that tight grip and give of ourselves to others, not just in the form of money, but in the form of time and talent and energy. By doing this, we can begin to see that the bounty of gifts we have is actually more than enough.

Is How to Have More Than Enough Worth Reading?
This book is actually very much like More Than Enough except with some additional workbook elements added in. I compared the two books side by side and found that there really wasn’t very much material at all cut from the original book. Instead, this version mostly just benefits from the direct addition of workbook materials.

If you’re just looking for a book that focuses on character and personal growth and how it relates to personal finance, either How to Have More Than Enough or More Than Enough will suffice. However, I think I would give this one the edge because, due to the workbook elements, it provides just a little bit more push for you to actually start evaluating your life and making positive changes and some more food for thought about living a values-oriented life.

Check out additional reviews and notes of How to Have More Than Enough on Amazon.com.

What’s In It For Them?

Posted: November 27th, 2011, 7:00am MST by Trent

Every time you interact with a business, you’re trading something of value for something of lesser value from them. If that were not the case, then the business could not continue to operate. Businesses cannot make a profit if you’re getting equal or greater value from them.

So, every time you use a product or a service, it’s worthwhile to spend a moment or two asking yourself the simple question that titles this post: what’s in it for them?

Let’s take television, for example. Obviously, television stations make their money by selling ads during the program. Usually, those ads together sell for more than the program costs to air, so the business makes money.

Why do companies pay for ads? Again, they wouldn’t pay for the ads if they didn’t feel they got more value out of them than they’re putting in. They pay for those ads because they’ve shown time and time again that customers buy more of a product if it’s advertised. Advertising, on the whole, makes money for the business.

“Aha, but I don’t watch ads. I’m smart. I use a DVR to fast forward through commercials.” That might have been a good idea a few years back, but the television studios have become much smarter, too. They now insert products all over your television shows. Notice the big Apple logo on that person’s laptop. See how that person is using a smartphone with a huge shining Sprint logo at the bottom? That person is driving a Ford Explorer! These are all advertisements, right inside the program.

“But television doesn’t cost anything!” It does. You pay with your time and attention, and advertisers use that time and attention to increase your recognition of whatever they’re selling. For them, this is a net gain, as they make so much more in sales if they advertise that it makes up for their costs. If they’re advertising, people are buying.

This same type of thought process goes into almost everything that you do and virtually everything you spend money on. There truly is no such thing as a free lunch. I’ll use a few common examples.

With coupons, what’s in it for them? Even with that coupon, the company ends up still making a profit in the long run. Even if they don’t make a profit on that specific sale, they’ve put their logo into your home and it’s going to stick in your mind. If you’ve bought a product once, you’ve got a chance of becoming a repeat customer.

What if I stack that coupon with a store sale? The store is offering that sale to get you in the door so you’ll buy other things, and they’re particularly good at getting people to buy more than they come in the store intending to buy. They’ll do things like put the sale item on the far end of the store or make you have to walk past a lot of advertising displays to get to the item.

With free samples, what’s in it for them? They’re hoping that you’ll buy the item, of course. However, even if you do not, they’re also hoping that the positive feeling that you get from trying the item will associate with whatever it is you’re trying and that this might convince you to become a customer now.

It goes on and on and on.

But I’m a savvy consumer. I never fall for this stuff. For many people, when they’re actively thinking about a purchase, such tactics don’t work. If you’re focusing on what to buy, good with your math, and conscious of what constitutes a good buy, you’ll make a pretty good purchase for your needs.

Often, what they’re hoping is that you’ll be making decisions when you’re tired or not feeling 100% or you have a long list. In those cases, you rely on impulse, and impulse usually isn’t the best tool to use in a shopping situation.

So what can I do? There are several things you can do, actually.

First, avoid shopping when you’re not prepared for it. If you go into a store when you’re tired or hungry or feeling down, you’re much more likely to buy things that you shouldn’t. Our family shops less than once a week for groceries, for example, and we usually do it when we’re wide awake and have a relatively full belly.

Next, justify every single thing that you buy. This is the old “ten second rule.” If you’re going to buy something, ask yourself why you’re buying it. If you can’t come up with a coherent reason, then don’t buy it. It’s important to recognize when you’re buying things because of short-term urges, such as “That looks tasty” or “I’m hungry right now” or “I’m thirsty right now.” Those things often result in very expensive impulse buys.

Most importantly, never make a move without a concrete reason that’s not based on emotion. Advertising, politicians, and other entities trying to gain influence over us try to tap into our emotions. They use cute babies, attractive people, sentimental moments, unrealistically beautiful food – anything to make us have an emotional response. The more time you spend actually looking at real information instead of at advertisements and marketing images, the more likely you are to make good decisions. Learn about what you choose to eat and wear and entertain yourself with so that you’re always making better decisions.

We’re all going to fall prey to these tactics sometimes. The key is to reduce how often that it happens.

The Seven Attributes That Matter

Posted: November 26th, 2011, 1:00pm MST by Trent

A while back, I sat down to make a list of the attributes of the people I consider to be great people. I could give you a long list of them, from Theodore Roosevelt and Mahatma Gandhi to my dad, but the point isn’t so much the list of people but the attributes of those people.

The people I admire are usually people who made something great from auspicious backgrounds or stepped up to the plate during challenging moments or were able to find incredible success in different areas. Some of them were rich and others were poor. Many of them paired traits I admired with traits that I didn’t (like Steve Jobs).

I was trying to figure out what made each of them great. In each case, the list was somewhat different. I would try to think of several traits that would make one person great, then find myself making a different list for another person.

When I was doing this, I found myself looking for patterns. I found no two people had all of the same traits, but I began to find lots of overlap between people. I’d see some of the same traits popping up over and over again.

Eventually, I began to realize that there were seven traits that kept showing up again and again in the people I admired the most. None of them had all of these traits, but they were shared so often among the people I considered that I began to see them as seven attributes that really matter. If you have these attributes inside of you or, even more importantly, are willing to work to improve yourself in these areas, I think you’ll find a path to whatever your dreams may hold.

Lately, these seven traits have become something of a self-improvement checklist of mine. I hope they do for you, too.

Self-Belief
Self-belief simply means that you believe you can accomplish things. When you see a difficult task before you, do you start convincing yourself that you can’t do it or do you start looking for a way to make it happen? Self-belief is, of course, the latter.

Without self-belief, it becomes very hard to take on large challenges in your life. Instead, you’ll avoid the challenges, seeking easier paths which won’t be particularly rewarding.

How can you build self-belief? The easiest way is to show yourself that you can do it. Start challenging yourself with personal projects that aren’t easy (but that are actually achievable). Can you walk 2,000 miles this year? Can you write a novel before the end of March? Set that plan down and focus all your energy on making it happen. The more you achieve, the more your self-belief will grow.

Humility
Of course, it’s easy for self-belief to turn into arrogance, which is a dangerous trait to have. You can easily begin to believe that you are the secret sauce that makes things happen and that you make the world go around.

Sorry, it’s not true.

Humility simply means that you understand that the world doesn’t begin and end with you. Virtually everything in your life is a collaboration. As I type this post, I’m relying on software from Microsoft and Apple and several open source projects. The ideas that flow through my head came through countless sources. The inspiration for this post was other people. I know that I am merely a small part of the reason for the success of this site or this article, and without those tools and things created by others, I wouldn’t be here and there would be no Simple Dollar.

A good way to practice humility is to think about how many people had to be involved to bring you the things you take for granted. Start with the device you’re reading this on. Who made it? Who wrote the software that runs on it? All of those people deserve some credit for making what you’re doing right now happen. You’re actually just a very tiny part of that exchange.

Self-Reliance
Let’s turn this rock over again and look at another facet: self-reliance. Self-reliance simply means that you’re able to come up with solutions to problems with as little direct outside help as possible. A self-reliant person is willing and able to fix their own toilet, grow their own food, and figure out what they’re supposed to do next.

Self-reliance combines well with self-belief. Self-belief means you think you can do anything. Self-reliance means you’re able to start coming up with methods to actually do it without someone guiding you.

How do you improve self-reliance? Start taking on tasks that you think might be difficult. Yes, you might mess them up. Yes, that’s okay. The key is that you’re trying to do things on your own and, more often than not, you’re succeeding at them. Self-reliance becomes something of a snowball rolling down the mountain, where you start to tie achieved tasks together and before you know it, you’re planning large projects on the fly.

Love of Learning
A key part of one’s ability to succeed in any area is knowledge acquisition. Do you know what’s going on in that area? Do you know the people involved? Do you have a thorough base of knowledge upon which you can interact with other people driven to succeed?

Obviously, one can acquire knowledge without enjoying the process, but a love of learning certainly makes the process easier. If you love learning, then the thought of tackling something new in order to understand it in depth sounds exciting. You can’t wait to get started!

My perspective has been that a love of knowledge is often a snowball effect. If you start off just picking one topic you really want to understand and focus on learning more about that topic, you often tend to slowly spread into other topics. Eventually, learning itself becomes a joyful journey.

Adaptability
Situations change. Opportunities appear and disappear. One day you find yourself in a scientific research field, another you find yourself being a writer on financial topics (not that I’m speaking from experience or anything…).

Some people are able to roll with the punches. If the problems and the situations change, then they change their tactics to go along with it. Others just lock down in uncertain and changing situations.

The more adaptable you are to change, the more likely you are to succeed at whatever life throws at you.

Adaptability, of course, draws on self-reliance, but they differ in one key aspect: adaptability sometimes causes you to inherently rely on others. Self-reliance, in a way, is just a key tool for adaptability.

How do you build adaptability? The key is to watch your own behavior. When a situation changes, do you respond by retreating into your shell? If you do, make a very focused effort to come out of that shell and just deal with the new situation. The more you do it, the easier it becomes.

Passion
By passion, I mean that whatever it is that you choose to be doing, you get swept away in it. It consumes your thoughts. It brings you incredible joy when you’re doing it, particularly when you see improvement at it.

When you wake up in the morning, you’re raring to get started on that thing you’re passionate about. When you go to bed, it fills your thoughts until you go to sleep.

Some people are prone to passion. Others are more withdrawn. Yet, time and time again, when I witness someone doing something great, passion is at work.

How can you build passion? The key, really, is just letting go of a sense that you shouldn’t dive in deep. So often, I see people afraid to be passionate because of the cultural constraints around them. They don’t want to be a “nerd.” So often, though, the people who do amazing things are nerds. Their passion drives them to do something special. Let go. Be a nerd.

Detail-Oriented Focus
When you work, do you find yourself focusing hard on the project at hand? Do you often notice details that other people miss? Do you want the details to be right when you care about a project? Can you get so involved with a project that wild horses can barely drag you away?

A person who can answer “yes” to those questions has detail-oriented focus. They have the ability to take something they’re working on and make it great.

Detail-oriented focus can be built by training one’s attention span. Start by eliminating all distractions when you’re working on a project. When you find yourself daydreaming, take a break and do something else for a while, then go back into focus mode. The more you practice this, the better you’ll get at focusing. You’ll eventually be able to reach what I call “the zone,” where time just seems to slip away as I focus on a project.

These seven traits pop up in some combination in every great person that I know. They’ll lead you to success, too.

Ten Pieces of Inspiration #48

Posted: November 26th, 2011, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Kathryn Schulz on being wrong
Being wrong isn’t necessarily a bad thing.

Being wrong is just as important as being right. Being wrong is the ultimate feedback on the things that we’re not doing as well as we ought to be doing, and if we use that appropriately, it can mean far more for improving ourselves than being right.

2. Thomas Edison on serving others
The key to becoming successful is to figure out what others need, then fulfilling that need incredibly well.

“I never perfected an invention that I did not think about in terms of the service it might give others… I find out what the world needs, then I proceed to invent.” – Thomas Edison

If you spend some time thinking about all of the innovations that mankind has seen over its history, almost all of them directly resulted from someone identifying a need or a strong desire and figuring out a way to fulfill it. It’s all about serving others.

3. Mary Cassatt’s Mother About to Wash Her Sleepy Child (1880)
When I saw this picture, I was strongly reminded of moments with my wife where she was about to give one of our infant children a sponge bath just as they were getting quite tired.

It reminds me of how timeless and beautiful many of our human experiences are.

4. John Wooden on character and reputation
If you have good character, reputation follows.

“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.” – John Wooden

If you work hard on yourself to develop a good character, then your reputation will naturally be a good one, too.

5. Take on Me by a-ha
This song gets stuck in my head every time I hear it, but it’s the video that made me spend a large chunk of my teen years dreaming of being a comic book artist. It still makes me want to pick up a pencil and create another world.

I suppose that’s what I do when I write words.

6. William Henry Channing on life
William Henry Channing was a 19th century Unitarian pastor and writer. I stumbled across this quote from him where he describes the life he wants to life.

“To live content with small means; to seek elegance rather than luxury, and refinement rather than fashion; to be worthy, not respectable, and wealthy, not, rich; to listen to stars and birds, babes and sages, with open heart; to study hard; to think quietly, act frankly, talk gently, await occasions, hurry never; in a word, to let the spiritual, unbidden and unconscious, grow up through the common–this is my symphony.” – William Henry Channing

That’s a beautiful way of expressing a beautiful life.

7. League of Legends
A big “thank you” to Simple Dollar reader Dave who got me hooked on this game. It operates on a “freemium” methology, which means that you can play as much as you want for free, but you have to pay for certain extra features.

It’s a fairly complicated game where you play on teams of five trying to conquer all of the area on a map. Each player has different abilities, which means that you have to work together to succeed. It’s quite fun and rather addictive, particularly if you used to play Warcraft II like I did in college. You can’t argue with the price, either.

I’m inspired by it, though, because it’s a clear demonstration that the “freemium” model really can work for something deep and compelling.

8. The road
After our Thanksgiving meal, I went on a long walk along some country roads. At one point, I came to a turnoff that meandered off into nowhere. I wanted badly to take that road and just wander for a long time.

I tried to take some pictures using my cameraphone, but none came close to capturing what it was that I saw, but this picture by Lida Rose hits upon the same theme beautifully.

9. Do Not Go Gentle Into That Good Night by Dylan Thomas
I’ve witnessed a lot of people, as they grow older, seem to give up. I’ve watched the spark of life slowly go out in too many people that I’ve loved.

Do not go gentle into that good night,
Old age should burn and rave at close of day;
Rage, rage against the dying of the light.

Though wise men at their end know dark is right,
Because their words had forked no lightning they
Do not go gentle into that good night.

Good men, the last wave by, crying how bright
Their frail deeds might have danced in a green bay,
Rage, rage against the dying of the light.

Wild men who caught and sang the sun in flight,
And learn, too late, they grieved it on its way,
Do not go gentle into that good night.

Grave men, near death, who see with blinding sight
Blind eyes could blaze like meteors and be gay,
Rage, rage against the dying of the light.

And you, my father, there on that sad height,
Curse, bless, me now with your fierce tears, I pray.
Do not go gentle into that good night.
Rage, rage against the dying of the light.

I’d far rather remember the opinionated and fiercely independent woman that my grandmother was ten years or so before her passing than the ill state she found herself in during her final few years. Wonderful people deserve the dignity of remembering them at their best.

10. Frank Lloyd Wright on simplicity
We often have a tendency to make things more complicated than they need to be, usually to our detriment. We take on busywork and become focused on the needlessly urgent and the nonessential.

“‘Think simple’ as my old master used to say. Reduce the whole of its parts into the simplest terms, getting back to first principle.” – Frank Lloyd Wright

Whenever we discard these things, we reveal the strength and beauty of what we’re really working on. The less we put between ourselves and our actual work, the better off we are.

Some Thoughts on How to Deal with Thanksgiving Leftovers

Posted: November 25th, 2011, 1:00pm MST by Trent

Instead of a “Dinner with My Family” this week, I thought I’d discuss how to deal with the mountain of Thanksgiving leftovers that many families find themselves with today.

Each year, my mother takes charge of preparing a huge family Thanksgiving meal. Each year, there’s a small mountain of leftovers to deal with.

I know that many other families find themselves in the same boat. What do we do with all of these leftovers? This year, I spent some time perusing a pile of old Thanksgiving food magazines, cookbooks, internet sites, and other places looking for good things to do with leftovers from Thanksgiving. Here are some of the ideas I found.

Leftover turkey can easily be cut into small pieces and used as part of a pasta dish three days later or so. Preparing a turkey marinara or a turkey alfredo is easy – just prepare the sauce, add some cubed turkey, and put the sauce over your preferred pasta. The sauce alters the flavor of the turkey so much that it becomes a new meal.

Another approach is to use leftover dark meat and bones to prepare some turkey stock. Take everything that’s left from the turkey and put it all in a crock pot along with any extra leftover vegetables (such as green beans), some pepper, and a small dash of salt. Let it cook on low all day, then filter out all of the leftovers, leaving behind some delicious turkey stock. Freeze the stock, then use it as the base for soups and other things throughout the winter.

My favorite use, though, is to just cube it and save it in small bags. This way, you can quickly pull a bag of the turkey out of the freezer and use it as a salad topping. I did this for multiple Thanksgivings and found that I was always happy to toss some cubed turkey on top of my salads at home.

Leftover mashed potatoes can be used in a lot of ways. My personal favorite is to save them for a few days, then form them into discs and fry them with a bit of vegetable oil, making potato pancakes. If your potatoes are particularly soft, you may want to add just a bit of corn starch to thicken and harden the pancakes so that they don’t fall apart in the pan.

Another use for leftover mashed potatoes is in shepherd’s pie, which can be made a day or two after Thanksgiving and easily frozen for later use. Just fill a 9″ by 13″ pan about half full with leftover vegetables, add some cooked meat that you prefer, pour some appropriate broth on top (about a cup), and then spread the mashed potatoes on top. You can even sprinkle a little cheese on top if you’d like.

One final trick – and this is a great thing to do if you have mashed potatoes that you’re going to freeze – is to incorporate them into a simple biscuit recipe. Just add them in to give your biscuits a special texture and flavor. Biscuits are easy. All you need is 3 cups of flour, 2 tablespoons of baking powder, a teaspoon of salt, a quarter cup of sugar, half a stick of cold butter, a beaten egg, and somewhere between half a cup and a full cup of buttermilk. Combine all of the ingredients until the dough you make is just barely sticky (start with half a cup of buttermilk and add more if it’s just too dry). If you’re using potatoes, just mix in the potatoes with the dough for a bigger batch.

Leftover dressing (or stuffing) can be a bit of a challenge. One technique that seemed interesting was to press as much of it as you can into a square container, squeezing it in there very tightly. Leave it there for a while, then remove the stuffing. You can then slice the stuffing, using it for sandwiches (yes, that would be pretty carb-heavy, but you could also add plenty of other condiments and toppings).

One important thing to note, though, is that stuffing/dressing freezes really well. Usually, we freeze our leftover dressing and then use it in a month or so with another meal when we’re in a pinch. It can make a great side to an otherwise dull meal.

Leftover cranberry sauce simply begs to be used in muffins or scones, particularly if you have the whole-berry kind and not the gelatinized sauce (though that can be used, too). Simply find your favorite muffin or scone recipe and use the cranberries as an ingredient in them. Delicious!

My favorite use, though, is to turn it into barbecue sauce. That’s right – barbecue sauce. Just take a cup and a half of the sauce and put it in the blender with 3/4 cup ketchup; 1/4 cup honey; a tablespoon of cider vinegar; a teaspoon each of Worcestershire sauce, onion powder, and garlic powder; and a pinch of cayenne pepper and ground black pepper. Mix this into a puree, then save it for next summer for a tremendous barbecue sauce.

Leftover turkey gravy can be used much like a stock if you freeze it. You simply water it down and use it as the base for a soup at a later time. It works surprisingly well, as the boiling and the stirring causes the gravy to thin out into a flavorful soup starter.

You can also save the gravy to use as part of a pot pie, or use it as the liquid ingredient in the shepherd’s pie above (though that may be too much Thanksgiving taste right after the meal, so if you do this, I’d freeze the shepherd’s pie to use at a later date).

Hopefully, these tactics will keep you from throwing out perfectly good holiday leftovers this year!

Saving Pennies or Dollars? Used Books

Posted: November 25th, 2011, 7:00am MST by Trent

Connie writes in: I trade books by mail. It costs me about $2 to send out a book via media mail and I have to also spend the materials to wrap it. If I just swap page turners at my local used book store, I can get them at $2.50 a pop if I buy a bunch at once. Am I really saving anything trading by mail?

This sounds like you use PaperBackSwap, a service I love and have been using for years. Much like you, I’ve been curious at times whether or not it’s worth it and I’ve ran the numbers several times. Each time, I’m pretty sure I’ve decided it’s a good deal.

For starters, my estimate of the cost of my supplies is about ten cents. I use a sheet or two of printer paper, a single printed page with black and white ink on it, and some packing tape. Media mail varies by weight, but the typical range for me is $2.41 for a paperback in the mail. So, my total cost for shipping out a book is $2.51.

Now, let’s compare that to the used bookstore. At my local used bookstore, they will take most books in trade for anywhere from $0.25 to $1. They also sell used books at varying prices, anywhere from $1 (for Harlequin romances and the like) to $5 (mostly hardbacks). There’s also sales tax on your purchases, so that tacks on another 7%.

If I were just swapping for Harlequin romances, the local used bookstore would probably be cheaper. I could trade in one for $0.25, buy a new one for $1 (minus the $0.25 credit), and walk out of there having paid about $0.80 for a novel.

However, most of the books I want to read there are on the $3 or $4 shelves. I tend to read a lot of nonfiction, some science fiction and fantasy, and some general fiction, too. I might get $0.50 in trade for the books I bring in, but my net cost is either $2.50 or $3.50 for a book I want to read, plus the sales tax. That means either $2.68 or $3.75 for a new (to me) book after paying the sales tax.

If you add on top of that the fact that I can do PaperBackSwap at home whenever I want and there’s a much more extensive selection there, it starts to become a no-brainer.

In Connie’s case, she’s shipping out books for $2.51 via media mail, or she’s buying them for $2.68 at her local used bookstore. For her, the cost is pretty close, so it really comes down to other values. Would she rather support the local business? Or would she rather enjoy a larger selection online?

As for me, I’ll just keep using PaperBackSwap. It’s a service I’ve used for many years to recycle my read books because it’s convenient and the selection is pretty good.

There’s also another take-home point here. If you’re an avid reader, trading used books is really a bargain. Let’s say I spend eight hours reading a book that I swapped for $2.51. That means I was entertained for a cost of about $0.30 per hour.

While that’s not as cheap as the library, it’s pretty cheap, and there’s no danger of late fees or other such things if you don’t get your book finished or if your son drops a library book behind his bed.

Not only that, if you read something at least a little challenging, you’re growing your mind, too. You’re learning something new and improving your literacy. That’s what I call a real value.

Happy Thanksgiving from The Simple Dollar!

Posted: November 24th, 2011, 7:00am MST by Trent

Today is a day set aside for reflecting on the things most important to us. Many of us (including me) are sharing today with our familes and closest friends.

Here’s hoping that your Thanksgiving is a wonderful one.

The Simple Dollar will return to its regularly scheduled programming tomorrow morning.

Saving Pennies or Dollars? Whole Chickens

Posted: November 23rd, 2011, 1:00pm MST by Trent

Laura writes in: roasting a whole chicken, only costs about a dollar more to buy it cooked at Sam’s Club and mine didn’t taste as good

For starters, part of the problem may have been your technique. I use a default “beer can” technique whenever I roast chickens, in which I insert a tin can or a beer can into the cavity of the chicken. The can is mostly full of some sort of liquid with various herbs and spices, such as garlic and peppercorns. When the chicken is roasting, the entire chicken is balanced on the can.

I do it this way in both the oven and on the grill and it works great in either context. The flavor and moistness of the meat is wonderful when finished.

I’d highly suggest looking for an oven-roasted “beer can” chicken recipe and using it for your next chicken roast. It really does produce a wonderful whole chicken.

Now that we have this issue out of the way, the real question is whether or not the amount saved on buying a whole roasted chicken is worth the additional time. I went to my local Sam’s Club to find prices on roasted chickens. I found whole chickens for sale for $0.89 per pound and pre-roasted chickens for $1.29 per pound. Assuming I buy a four pound bird, I’m saving about $1.60 buying a raw chicken.

So, what about the prep time? I can take a chicken out of the package, insert a can into the cavity, and have the chicken in the oven in about five minutes, according to my own estimate. It would then take roughly an hour for the chicken to roast, which is passive time. I’d then have to stick the tray upon which the chicken baked into the dishwasher, but that time is negligible.

So, if you assume that you have plenty of time to prep your own dinner, roasting your own chicken is the way to go. You’re saving $1.60 (in this example) for about five minutes of work.

However, the key thing to remember is that when you’re buying that whole roasted chicken, you’re basically paying for convenience. There are evenings where busy families simply don’t have an hour to set aside while the food cooks in the oven.

This is the voice of experience here: on evenings where my children have soccer or tumbling class, it can be a juggling act to get a home-cooked meal on the table at any reasonable dinner time.

Lining up a recipe in the oven like this can be a trick, so we often use a slow cooker for meals on these nights. For us, a slow cooker is the best solution to the family time crunch that many families seem to have in the evenings. It enables us to have a lot of flexibility with regards to when we get a meal on the table.

There’s also the health factor. When you prepare food yourself, you have much more control over the ingredients in it. Food sold in stores has a lot of questionable things done to it, from food coloring to imitate freshness to all sorts of artificial things to enhance flavor through chemistry. If I have a choice, I’ll pass on this.

So, if I were doing this, I’d never buy a whole roasted chicken unless it was an emergency. If I had time, I’d enjoy the $1.60 in savings I got from putting five minutes of prep work into the chicken. If I knew I wouldn’t have the time, I’d set up a slow cooker meal. The only time I would consider it is if I had planned to have a lot of time, but something unexpected changing that schedule.

The Simple Dollar Weekly Roundup: Simple Sentences Edition

Posted: November 23rd, 2011, 7:00am MST by Trent

One of the most enjoyable parts of parenting a toddler is watching words and then eventually phrases and sentences start to emerge out of a verbal muck of sounds and noises. One day, your toddler is making nonsense sounds. The next, it seems that they’re making coherent words, and then pretty quickly after that, the kid is saying things like “Dad, throw ball!”

Our youngest is putting words together in new ways every day now and he’s just reveling in this ability to express himself. It’s a joy to watch.

Golden Handcuffs – Why Can’t I Leave My Job? Golden handcuffs are a real problem, particularly for younger professionals who set themselves up in a lifestyle that’s unsustainable without their job. (@ your life, their life)

How to Tell Your Children Santa Is Broke This is really good advice for people who find themselves in a tough situation like this. (@ money q and a)

The Need to Save Money is Life and Death This is an incredibly painful story, but it makes a good point: if you’re not saving, you’re giving into pure magical thinking. (@ free money finance)

Can You Tell Your Spouse They Don’t Make Enough Money? It depends a lot on what you’ve clearly established as the values in your marriage. If you’re both career-oriented people who are shooting for huge incomes so you can live a particular lifestyle, this could be brought up, I would think. If you convinced your spouse to be a stay-at-home parent and aren’t happy with their salary after they return to work after a five year layoff, I’d suggest not bringing it up. (@ dinks finance)

The Unemployment Plan

Posted: November 22nd, 2011, 1:00pm MST by Trent

Craig writes in:

I just found out that I’m being “downsized” at the end of the year. While I have a small emergency fund, I do have a mortgage and a bit of credit card debt. I also have three kids at home. My wife will continue to work, but she has only a part-time job with minimal benefits. I am receiving a pretty good severance package, though.

Rather than panicking, I’m trying to be calm and rational about figuring out what’s next. This made me think of you and The Simple Dollar. If you were in my shoes, what would you do?

Here are the steps I would take in your situation.

Start living cheaper immediately. This means cutting back on or eliminating non-essentials in your life. Cancel your Netflix account. Pare back on your premium movie channels. Start eating at home more. Start brown-bagging your lunch. Just use good old fashioned frugality to your advantage, because you’re at a point where every penny matters more than ever.

Move to minimum payments on all debts. If I’m making any payments larger than the minimum on any of my debts, I’d pare them down to the minimum right now. This might involve adjusting automatic mortgage payments or other such things. I just couldn’t afford those excess payments if I were in this type of situation.

Build up my emergency fund. Every excess dime I earned between now and leaving my job would go into here. Then, during my actual period of unemployment, I would use this account as a supplement to what my spouse was bringing in, if needed. This arrangement would allow me to survive a fairly long period of unemployment without getting into real trouble.

Investigate my COBRA options. If there was a health insurance need, and it sounds like there is, I would look into the COBRA options at work. COBRA is a federal law that allows you to use the health insurance provided by your former employer for a period if you pay for the insurance. If my family needed my insurance, I would strongly consider using COBRA to extend my insurance.

Polish up my resume. I would focus on actual accomplishments over the last five to ten years rather than just a long job history. I’d be better off listing things I’ve achieved and skills that are very clearly marketable than just listing all of the jobs I’d done over the years. Employers don’t care about the irrelevant job I was doing in 1993, so I’d save that line for a description of something I achieved at my most recent job.

Send an individual email to each person I know well in my field. I’d suggest that I might be looking for greener pastures and ask if they know of any relevant positions that might be available. Social connections are the most valuable tool you have for getting your foot in the door at a new job.

Hit the social networking sites, especially LinkedIn and Twitter. I’d use LinkedIn to build up professional connections, starting with the people above that I emailed. I’d use Twitter to dive into professionally-oriented conversations with people in my field. LinkedIn does a great job of shoring up the connections one already has, while Twitter does a great job of starting to build new connections.

Start building a side gig. Even with all of these things, you’re going to have some time to burn. Use it productively. Make an effort to start a side business in an area you’re passionate about, whatever that might be. I know one person who moonlights as a high school sports referee. Another person I know makes art that he sells on Etsy. The key is to start something that will bring you some income now, but more importantly has the possibility to grow into something later.

In other words, this is a time to be busy. Get started now.

The Cost of Maintenance and Defense

Posted: November 22nd, 2011, 7:00am MST by Trent

Based on the title of this post, you might think that I’m delving into politics or the federal budget, but I’m not. Instead, I’ll start off with three little stories about Sarah and our family.

1. When Sarah and I were shopping for a house in 2007, we looked at a lot of them. We went to open houses, we scheduled visits to practically every house for sale within anything close to our price range in the area, and we even looked at houses somewhat outside of the area we wanted to live in.

Anyway, we found this perfect house. We both loved it. We were planning on having three kids and it had these wonderful bedrooms for three children. The master bedroom was just perfect in size and had a shower tall enough for me (I’m six foot five and a half). The basement was unfinished and completely open, as well as having a ceiling plenty tall for me to stand up in. The kitchen was wonderful and had an island and plenty of cupboard space for cooking supplies. It was in an area that wasn’t heavily populated, but we observed a couple houses nearby that had young children living there.

In other words, it was pretty close to exactly our dream house.

The drawback? It was a significant amount more than we were planning to spend – about $60,000 more. Another factor is that the square footage, if we finished the basement, would have been around 4,000 square feet.

My wife had spent time cleaning houses for others and she knew quite well that the time and cost invested in maintaining a home is almost directly proportional to the square footage of it. We also knew that property taxes were also highly related to the livable square footage of the house in that area, thanks to the assessor’s website.

In other words, we’d be spending many hours a week just on household maintenance and cleaning for this house, and our property taxes would end up being pretty high, too. We would be continually paying, with our time and energy and our money, for every square foot that we bought.

With that in mind, we began to re-evaluate the purchase. Did we need these three roomy bedrooms for our children, when at the time we only had one (and another on the way)? Did we really need all of this space in the basement? Could we really afford those property taxes? More importantly, did we want to constantly invest that much time into cleaning and maintaining a house of that size?

We went with a different house, one with less than half the square footage. We may someday own a larger house than this one, but that house was too much house for our lives at the time. Maintenance has a cost.

2. A friend of ours recently installed a home security system. Naturally, the first few weeks with it have been interesting, with forgotten passwords and at least one accidental trigger.

When I asked my friend why he went through with the expense and the annoyance, the reason mostly revolved around all of the expensive stuff they had in their home. They had to protect the beautiful couch, the 60″ flat panel television, the state-of-the-art Alienware laptop, the multiple Macs in the house, and so on.

After hearing that, I quickly realized I wouldn’t want enough valuable stuff that I had to pay for such a security system. If someone breaks into our house thinking they’re going to make off with a jackpot, they’re going to be sorely disappointed by the old computers and so on. They do their job, though, and they keep our life nice and simple.

3. A few weeks ago, I had a conversation with an older fellow who had retired. He asked me how I was saving for retirement and I mentioned my Roth IRA and my older 403(b) account. He then told me that he had saved for retirement without those accounts and that today he lived off the interest.

“In fact, I give most of the interest away. It’s more than I can live on,” he told me.

I told him that such a move was pretty impressive. “Not really,” he said. “If I kept building up money, I’d eventually have a lot in the bank. People would start bugging me all the time for money and I’d have to give more and more to Uncle Sam. I’d probably have to hire an accountant or something. Instead, I can just give money to groups around here that need it and keep myself from having all of those problems.”

He had a pretty good point.

A big challenge of money and time management are the ideas of defense and maintenance. If you own a lot of stuff, you have to invest a lot of your time and at least some of your money into defending it (having a big house, having security for that house, having insurance, paying property taxes, handling people who want some of your money or things, etc.) and into maintenance (taking care of the items, taking care of the place where you keep those items, etc.).

In other words, simple accumulation creates its own problems. The more you have, the more of your time and money and energy goes into protecting and maintaining what you have.

There are a few very easy solutions to this problem.

First, live simply. Don’t accumulate things unless you actually have a real use for them. The more stuff you have, the more you have to work to maintain and protect it and the more you demonstrate to other people that you have money, meaning that they’ll look to you as a potential source for that money.

Second, be giving. You take nothing with you when you leave this world. It’s powerful to save for future goals, but eventually those goals arrive and that means it’s time to spend that money. If you find yourself continuing to accumulate without a goal, look around you at the many people who are in situations where they’re unable to even reach such a point, whether due to physical constraints, intense poverty, or other causes.

Finally, do it yourself. Don’t hand over the management of what you have to someone else. Handle as much of it as you can by yourself without help. The more self-sufficiency you have, the less expense you have and the less time you have to spend managing the people who are supposed to be helping you.

Cut the costs of maintenance and defense. Live simply. Be giving. Do it yourself.

Saving Pennies or Dollars? Light Bulbs

Posted: November 21st, 2011, 1:00pm MST by Trent

Greg writes in: I was thinking of changing my light bulbs to the new energy efficient CFL bulbs. I counted quantity 14 60watt bulbs in my house. For $25 to buy an 18 pack of 60watt equivalent, each bulb uses 13watts. If I estimate that roughly everyday 4 bulbs are turned on for 5 hours. Saving me 188 Watts of power per hour, giving me 940 watts saving a day. Is it worth it?

It absolutely is.

Let’s do a price comparison of normal incandescent bulbs, CFL bulbs, and the new LED bulbs that are starting to emerge onto the scene, using Greg’s scenario.

Greg can buy a 24 pack of 60 watt incandescent bulbs for $11.87, or $0.49 a bulb. He would have to buy twelve bulbs to replace the ones in his home, costing him $5.94 in bulbs. These bulbs have an average lifetime of 1,000 hours, so to cover 10,000 hours of use, it will cost him $54.90 to use incandescent bulbs.

Greg can also buy an 8 pack of 13 watt CFL bulbs for $8.75 (which replace 60 watt incandescents), or $1.09 a bulb. He would have to buy twelve bulbs to replace the ones in his home, costing him $13.08 for a round of bulbs. These bulbs have a stated average lifetime of 8,000 hours, but my experience with CFLs has shown me that you should roughly halve that, so to cover 10,000 hours of use, it will cost him $32.70.

Yes, even without the energy savings, CFLs are cheaper due to the longer lifespan.

Greg could also buy a single 7 watt warm white LED bulb for $14.99 (this replaces a 60 watt incandescent). I’ve used these and they actually do a really good job of matching incandescent light. He would have to buy twelve bulbs to replace the ones in his home, costing him $179.88. These bulbs have a stated average lifetime of 25,000 hours, so to cover 10,000 hours of use, it will cost him $71.95.

So, for 10,000 hours of light out of twelve light sockets, you’ll have to pay $54.90 for 60 watt incandescent bulbs, $32.70 for equivalent CFLs, and $71.95 for equivalent LEDs.

Now, what about energy use?

Over 120,000 hours of use (10,000 hours per socket), a 60 watt incandescent will use 7,200 kWh of energy. At an average price per kilowatt hour nationwide of about $0.12 per kWh, it would cost him $864 over that span.

Over that same timeframe, a 13 watt CFL will use 1,560 kWh of energy. At a price of $0.12 per kWh, it would cost him $187.20 over that span.

Over that timeframe, a 7 watt CFL will use 840 kWh of energy. At a price of $0.12 per kWh, it would cost him $100.80 over that span.

So, what’s the total cost?

For 12 light sockets over 10,000 hours of use per socket, the total cost of using 60 watt incandescent bulbs is $918.90.

For 12 light sockets over 10,000 hours of use per socket, the total cost of using 13 watt CFLs (which produce light similar to the 60 watt incandescents) is $219.90.

For 12 light sockets over 10,000 hours of use per socket, the total cost of using 7 watt LEDs (which produce light similar to the 60 watt incandescents) is $172.75.

Yes, LEDs are the cheapest option now. The startup cost for such bulbs is very high, but their long lifespans and incredibly low energy use end up making up the difference and more.

On the other hand, even though they’re the cheapest initially, the short lifespan and high energy cost of incandescent bulbs make them incredibly expensive over the long haul.

My suggestion? Try a CFL and a good LED like the one I linked to above. Make sure the lighting is up to the standard you want. If it is, you should absolutely jump ship to the one that provides the light you want, even if the bulb costs more. You’ll save dollars, not pennies, over the long run.

Reader Mailbag: A Holiday Week

Posted: November 21st, 2011, 7:00am MST 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. Friendship and money
2. Home sale and mortgage question
3. Multiple savings accounts
4. Used car question
5. Refinancing conundrum
6. Fast elimination of student loans
7. House cleaning system
8. Affordable car payment question
9. Roth IRA for young children
10. Save now or later?

Since most of you will be enjoying family time this Thursday (as will I), there won’t be a Thursday mailbag this week. Instead, the mailbag will return next Monday at its regularly scheduled time.

Q1: Friendship and money
My roommate is a dentist and the exact opposite way with money. She takes care of the cable/Internet bill (while I do the electricity and gas), but never tells me the amount. When she buys something for me (expensive hair gel for instance), she won’t tell me how much it is, but when I pester her, she asks me to “look it up and transfer the money to her bank account.” I don’t want to take advantage of her, so I do that. Would it be too patronizing to start a “retirement fund” for her with the money I owe her? I’m not sure exactly how it would work – likely just open a checking account and then when we stop living together transfer everything to her and beg her to either put it towards her student loans or open a Roth IRA. Or should I just continue to transfer the money each month to her and watch her waste it?
- Jenna

If your roommate is doing things in a way that’s comfortable for her, respond by doing things in a way that’s comfortable to you. Which route feels better to you?

In your case, based on what you’ve said, I’d probably put all that money into an account and quietly hold onto it until the right moment, like when your friend needs a financial boost for something big in their life or something like that.

Clearly, your friend does not think of this as any sort of big deal, so don’t treat it as such. Do your own thing quietly and if an opportunity comes around for payback, jump on board then.

Q2: Home sale and mortgage question
I am currently in the process of selling my home (about $150k left on the mortgage) and am planning on renting for a few years. I have no debt, emergency and car fund and an additional $40k in a high interest savings account. I do not plan on using this savings until after I sell my home and can get a plan together for the equity in the home and $40k savings. In the meantime, what benefit would I have in using the entire $40k to pay down my mortgage (effectively giving me a 4.5% return) until I sell my house? Are there downfalls to this plan?
- Lawrence

If you already have an emergency fund and a car fund, then this is a pretty good method for getting you a short-term 4.5% annual return on your money.

There aren’t really any significant drawbacks to it. It’s basically a way to lock in a better return in the short term for that money than you’re getting in a savings account.

The only problem I can see is that it makes that money pretty illiquid for a short period, but if you still have an emergency fund, that’s not really a significant problem. I’d go for it.

Q3: Multiple savings accounts
First, some background: I’m 26, I have one full-time job, and one part-time job working as an organist for a little church. I’ve made a bit of a mess of my finances to the tune of $6000 of credit card debt, $29,000 in student loans, and $3000 of a car loan. Right now I’m in the process of reading/going through Dave Ramsey’s Total Money Makeover. Currently, I’m on the first step, which is working on saving up an emergency fund. I’ve budgeted for November and December, and I will have it saved by Jan. 1. I understand I’m supposed to put this ‘rainy day fund’ in its own account and not look at it, which is where my question starts.

My savings currently fall into three categories: saving for taxes (because my organist job doesn’t withold anything), my $1000 emergency fund, and saving for various sundry expenses (just $25/week until I have my debt paid off, but I want to have something set aside for car repairs and other expenses that doesn’t come up frequently enough to justify a monthly budget line item). Should I have different savings accounts for these three categories? Right now I’m keeping an Excel spreadsheet of what money I have saved for what purpose all in one savings account, which is a bit of a pain, but I’m not sure if it’d be easier or just ridiculous to have three savings accounts. Should I put my rainy day money in a CD or money market account? Will that make it too difficult to take out cash in case an emergency actually happens? I would greatly appreciate any advice you could give.
- Shawn

There’s really no problem with having three savings accounts. In fact, some banks (like ING Direct, the bank I use) make it quite easy to do so.

A money market account mostly functions like a savings account. They traditionally have had a pretty solid rate of interest, but they’re just as depressed as savings accounts are right now, so you’re not getting a big advantage from using them.

I would not lock your money down in a CD, as this would make your money inaccessible without giving you much of a boost, either.

Q4: Used car question
I have a question regarding automobile purchasing. I was recently involved in an auto accident and my car – originally bought brand new and maintained like a gem by my father – was totaled. I just got back from working overseas and have about 7K in savings. I don’t have a full-time job yet but I have two part-time jobs which I expect will pull in about $1,600/month if I’m lucky (it’s hard to say because one depends on tips) and I have college loans at about $300 a month and some other small bills. I will be getting about $3,500 from the insurance company to replace my car, which was a 1998 Nissan.

My dilemma now is this: I definitely know I can’t afford to lease a new car with a semi-unstable job situation, and I don’t want a new one anyway since there’s always going to be this possibility of some idiot running a stop sign again and ruining it. I can either buy an older make used for around what I’m getting from the insurance company, or I can dip into my savings and get something slightly newer, like a 2003.

What would you suggest? Do I shell out the extra money for a slightly better car and make the dive into my savings, or do I just go with what I have and get an older one? I also have the option of financing a newer one, but as I said, am not sure if I could make the payments every month without feeling squeezed (not to mention that’s extra for interest).
- Rhonda

Your last sentence tells the story. You can’t afford an expensive car right now, so get the best car you can afford with the cash you’ve got.

The key thing to remember is that you’re not going to be in this situation permanently (at least not if you’re willing to work hard for something better). This car you’re buying is to get you through to the point where you’re in a better state, at which point you can move to a more reliable car.

Never buy a car that’s beyond your means once you’ve reached a basic level of reliability with what you’re looking at.

Q5: Refinancing conundrum
My husband and I purchased a house in March 2008 for 200,000 (30 year mortgage, 5.875% interest rate). We currently owe $170,000 on it. We would like to refinance right now, but we need your advice whether this is the best thing for us to do financially right now. We shopped around for rates and the best deal we found is going through a mortgage broker in our town. He is quoting us 3.875% based on high credit scores, which we both have (closing costs would run around $1500). We had 3 different realtors run comparables on our house, and using this as an estimate, the broker believes our house will only appraise for $189,000 (max) right now because of the housing situation in our area. WE are currently paying private mortgage insurance (PMI) since we did not have the 20% down payment when we initially purchased the house. If we refinanced right now, using the 189k appraisal as an example, we’d only have 10% equity in our house, meaning we’d still have to pay for PMI again. Is this worth it? Or should we pay extra on our mortgage each month to effectively give us a lower interest rate?
- Lilith

It depends entirely on how much longer you’d be living in the house.

Let’s run the numbers. Your current payment is about $1,189.08 per month. If you refinanced, your payment would be about $799.40. To make back the closing costs, you’d have to make payments for about four months. Of course, you’ve also tacked on about four extra years of payments onto your mortgage, but if you continued making payments at your original $1,189.08 rate, you’d eliminate all of those extra payments in about eighteen months.

In other words, if you’re going to live in the house for more than two years beyond the refinancing, it’s worthwhile. The PMI is a moot point, of course, but you’re likely to get below that PMI level faster if you refinance and continue making payments of the size of the original mortgage payments.

Q6: Fast elimination of student loans
After three years of temping and waitressing, I just got my first full time job out of graduate school. During those first three years my student loans were in deferment (on account of not being employed full time and the employment I did have was sporadic), but now I’m ready to get rid of them as soon as possible.

Here’s the deal: The total is $43,000. The website where I make my payment shows all my individual loans (amounts ranging from $4,000 to $12,000) and I can chose to pay as much as I like over the minimum payment on each one. Each loan is a Stafford loan at a fixed rate of 6.8% and I have not consolidated. I’m of the mind that I should throw as much money as possible to the smaller loans to get those out of the way, because they will be the easiest to pay off and then I’ll focus on the bigger ones. But, by not paying off the larger balances faster I know I’m racking up interest.

Is there a better way to approach things or some ideas I haven’t thought of? I’ve read some nightmare stories about consolidating and interest that piles on and just won’t quit.
- Betty

If they all have the same fixed rate, it doesn’t matter which order you pay them off in in terms of the overall amount you owe.

Paying off the small ones first does make your minimum monthly payment smaller, which can free your money for other purposes if needed. It gives you flexibility. However, that flexibility can also mean that you end up not contributing as much each month to your debts as you might otherwise be doing, stretching out your loans and causing you to actually owe more than before (because you’re not making extra payments).

Your best bet is to simply say “I’m going to pay $X per month towards my student loans,” where X is some amount greater than the total minimum payments. Always make the extra payment toward the one with the lowest balance. Ignore any changes in minimum payments because of loan payoffs until they’re all gone.

You may also want to investigate refinancing options, as that can potentially help with the interest rates.

Q7: House cleaning system
I would like to know about your system for regular house cleaning (cleaning kitchen countertops, stove, sink, microwave; cleaning bathroom sink, tub/shower, toilet; vacuuming or mopping floors; dusting; changing bedsheets and bathroom towels). How often do you do each of these chores? Do you do them all in one block of time or spread them out over the week? How do you divide them up with your wife (and kids)? How do you keep track of what has been done or needs to be done? Do you ever choose to hire a professional cleaner, and if so, when and why?

I realize that these things will vary from family to family, but I would like to know how you do it as a starting point and because I appreciate your value system.
- Carly

We tend to clean by triage, honestly. Cleaning up in the wake of a six year old, a four year old, and a one year old is a real challenge.

We tend to do most of our cleaning in one block once a week, split across Friday evening and Saturday morning. Aside from that, we just use a triage method for handling disasters.

We’ve considered hiring a professional cleaner, but we’ve honestly never been able to justify the cost to ourselves.

Q8: Affordable car payment question
I’m a first year doctoral student who has already spent a decent number of years living the grad school lifestyle. I have a rather large amount of debt hanging over me right now; my credit card debt is at about $4,000 and my student loans are at about $35,000 (although I won’t have to “worry” about that one until I leave school in 2016). The biggest worry currently, however, is paying for a car with my meager monthly stipend.

I make about $1150 per month from my work as a graduate assistant. My rent is $387 and my utilities usually run that up to about $450. I do qualify for EBT/food stamps and utilize the $200 per month I receive from that. My biggest “non-essential” payment, however, is the $240 I pay for my 2011 Kia Soul. (Add about $60 per month for insurance; thankfully, I do not have to pay for my own gas–yet.)

I’ve made some bad decisions with cars. I was gifted a new car in 2004 but sold it in 2008 when I got a job; I desperately wanted the newest and fastest Ford had to offer, and I paid for that ($275/month, to be exact). I traded this in in 2010 for a Honda lease because I wanted the lower monthly payment and wasn’t too worried about the lack of equity. Because I now live rather far from my parents’ home, however, I had to trade the lease in for my current car in May ’11. I refinanced Kia’s 3.99 rate (60 months) through USAA for 3.65. I added gap coverage for $600 then but just had it refunded when I realized how much that truly was.

Essentially, I’m looking at a payment that is over 25% of my monthly income until just after I graduate. I don’t know if there are other options, especially when decent used cars are still pretty expensive today. I have pursued additional work, but the extra income won’t appear until the spring and will still be few and far between–and about an additional $1k per month (teaching college courses). Any suggestions?
- Ernie

It is almost impossible to turn around a new car. As soon as you drive it off the lot, you’re underwater on that loan unless you had a sizeable down payment. At this point, base don what you described, it sounds like you owe substantially more than it’s worth.

If that’s the case, you’re basically stuck with the car unless you literally just go to the dealership, toss them the keys, and then take a devastating hit on your credit report. You’ve already explored refinancing, so that’s not a further option. You’re really not going to find a much lower rate than you’ve got.

Your best bet? Just sit tight, make it through this, and then drive the car for a long time. Don’t replace it because of the siren song of a new car. You’ve got to resist such temptations or they will haunt your entire life.

Q9: Roth IRA for young children
My wife and I are expecting our first children this year (twins) and I was considering starting a Roth IRA for each child now while they are very young. I was thinking I could contribute something like $10 a paycheck.

Is this legal? Does it make sense? Do more parents do this? Any reasons not to?
- Eric

Roth IRA contributions are limited by the income you earn from working. Thus, unless your children are out there earning a wage, they can’t have a Roth IRA.

If you want to save $10 a check for them, your best approach is to open a 529 college savings plan for them. This type of investment has strong tax benefits for education for them as they grow older. Even if they don’t go to college right after school, the odds are very high that they’ll take on some type of postsecondary education, and the account will be there for them if they do so.

Don’t sweat the exact investment too much. It’s far more important that you start saving now and worry about the investment specifics later. One missed payment can do more damage than an imperfect investment selection.

Q10: Save now or later?
I am currently in my second year in college and I have been saving money from my part-time job at McDonald’s ever since I graduate high school in 2010. I am currently trying to save as much money as I can so when I graduate from college I will have good amount of money to pay off that debt and also help my parent to pay for my little brother’s college tuition. So far, with one and half year of effort, I managed to save up to about $6,000. I took the Federal Subsidized-Loan so I know how much money they will lend to me through-out my four years in school, which will be about $20,000 total.

I will have better chance to get a job right after college if I have some internship experience during my college years (especially with my major, Industrial Design). So right now I am trying hard to get ready to find an internship and hopefully I will find one by next summer. However, my problem is that if I do find an internship, I will have to quit my job. And if I quit my job, I won’t be able to save money anymore and I will not able to make close to $20,000 after I graduate. I would say my internship experience will be much important to me rather than keeping my current job so I know once I found it I will quit my job. Therefore, I am thinking I should start doing some investment with my current money to earn some interest right now. I want to ask you what kind of investment should I look into that is best fit for my age (I am currently 20). My parent told me I should put into CD account and let it roll but with our current economy, I don’t think that is the best option. Also I would like start saving for retirement like you said, but I really don’t know how right now. Could you please give me some suggestion or advices on what’s the best action I should take with my current situation?
- Millie

A CD has traditionally been a great choice for investing in this situation, but we live in strange economic times where CD rates are just terrible. You can barely earn more in a CD today than you can in a savings account, so there’s little motivation to lock up your money in a CD.

If you want to start saving for retirement, your best method is to sign up for a Roth IRA account. I have one, through Vanguard (just type it into Google). You can set it up so that a small amount goes into that account from your checking account automatically each month.

The advantage of a Roth IRA is that if a desperate situation sets in, you can withdraw the amount you contributed to the Roth without penalty.

Review: The Bold Truth About Investing

Posted: November 20th, 2011, 1:00pm MST by Trent

A week or two ago, I was scanning the radio dial while on a road trip, looking for something interesting to listen to, when I stumbled upon a guy talking rather excitedly about investing. It was Adam Bold, and he was hosting a program called The Mutual Fund Show.

While I didn’t necessarily agree with his show on every point, I did agree with him on most things, and I did appreciate the enthusiasm he was bringing to investing. He made it seem incredibly approachable and even fun, while also keeping in mind the fact that it was quite important to your future.

After listening until the station faded out, I decided to see if Adam Bold had a book available to read, and he does. The Bold Truth About Investing is a thin little volume where Bold lays down his ten commandments for building personal wealth.

It is worth keeping in mind as you’re reading that Bold got his start by founding a financial advising firm, The Mutual Fund Store. While encouraging advising is naturally going to be part of his perspective (more so than mind), most of the advice in the book is quite good.

Know Yourself
Some people are aggressive in how they like to invest. Others are conservative. Some people tend to spend what they have. Others can barely stand the thought of their investments not growing. We all have different personalities. The trick is being able to put the elements of our personalities that limit us aside when making investment choices. You have to be able to follow sensible principles when you invest, some of which may override your personality’s default.

Know When to Invest
Bold suggests holding off any investing until you’ve achieved two things: pay off “bad” debt (meaning those with high or variable interest rates) and build a “rainy day”/emergency fund. I completely agree with this perspective. If you’re on a sinking ship right now – which is where you’re at if you have “bad” debt or don’t have an emergency fund – putting money into investments won’t right that ship. Investments help with the future, but they can’t help if things aren’t right today.

Know Your Advisor
This chapter provides some good basic advice for finding a financial advisor. Bold talks about fee-based and commission-based advisors (I’d pretty much insist on a fee-based one if I were ever choosing one) and covers some basic questions to ask advisors. I treaded pretty lightly on this chapter because of the fact that Adam runs his own financial advising shop, so there was at least a little promotion of The Mutual Fund Store here.

Have a Plan
A plan starts with a goal. What do you want to do with your money? Do you want to have a very secure retirement? Do you want to build a house in ten years? Do you want your children to be able to go to college in fifteen years? A goal helps to establish a timeline and also helps to establish how much risk you should take on – without a goal, you’re flying blind. From a goal comes a plan – risk, diversification, updating your investments regularly, and so on.

Be in the Best Funds Possible
By “best funds possible,” Bold does not mean the ones that had huge returns the last few years. He means funds that have a long history of having solid and reliable returns. For me, this usually means index funds, but Bold doesn’t really look at those too much. Instead, he encourages looking at all funds and find ones with a mix of risk level that all have consistency in their returns over the long haul.

Avoid Any Hidden Costs
Here’s where I agree with Bold wholeheartedly. When you buy an investment, know every single fee involved before you buy. What’s the mutual fund’s expense ratio? More importantly, is the fund carrying a load – and if it is, avoid it like the plague. Bold does come out a bit against index funds in this chapter, arguing that although they cost more they tend to have a better return over the long haul. That might be true in some funds, but their year-over-year variability makes them more volatile. I’ll stick with my low cost index funds.

Don’t Buy What You Don’t Understand
If you don’t know what exactly an investment is, don’t invest in it. That’s simple enough. How deep does the knowledge have to go, though? Bold basically encourages people to be wary. If you can’t explain how the investment works in a sentence or two and can’t easily find out what the investment is made of, then you shouldn’t put your money in there. A black box managed by someone else is not something to trust your future to.

Be Proactive About Managing Your Retirement Investments
If you’re not investing for your retirement yet, start now. Start immediately. You need to be on the ball with your retirement, and the earlier you start, the less you’ll have to save (yes, seriously – if you start now, you won’t have to save as much as you would if you started in a few years). If you’re not sure what to do, just use your company’s 401(k) and choose a target retirement fund – you can always change it a bit later on. If you don’t have a 401(k), start a Roth IRA. The key is to start saving now.

Stick to Your Plan
You can’t react emotionally to what the stock market is doing. If you do that, you’re going to make investment mistakes. Markets are going to go up and down. That’s just what they do. When you invest in stocks, part of that investment means enjoying the years when the market is up 15 or 20%, but holding on for dear life during years like 2008 where the market is down 40%. If you jump off when things are flying downwards, all you’re doing is locking in your losses, because when you move to something more conservative, you’re giving up the “bounce” that stocks get when they hit bottom and rebound.

Live Well, For You Cannot Take It With You
When you’ve reached your investing goal, that means it’s time to start spending it. A 401(k) or a Roth IRA is meant to be used when you reach retirement age. It can be scary to see that total start to go down, but if you don’t start spending it, all you’ve done is create a very valuable asset to hand down to your kids.

Is The Bold Truth About Investing Worth Reading?
This is a short book, one that’s clearly written for people who are thinking that they ought to invest but are very nervous and unsure about the prospect. Bold uses very clear and straightforward language when talking about these things. I can easily see this book being exactly what a person might need to get over their nervousness about jumping into investing.

While I don’t agree with Bold on every point – for example, I think most people can manage their investments themselves using online tools and I think that index funds are the best way to go for investing – I agree with him on the vast majority of the principles outlined in this book. This is a great book to read for anyone who is trying to make up their mind about getting started with investing.

Check out additional reviews and notes of The Bold Truth About Investing on Amazon.com.

The Things I’m Thankful For

Posted: November 20th, 2011, 7:00am MST by Trent

Like a lot of you, for me the upcoming week is filled with meals shared with family and friends. Over a seven day stretch, we’re eating at least five planned meals with people we don’t get to see too often.

In all that bustle is a reminder of the people we were, the people we are, and the people we might someday become. It’s just a way of reminding us of all of the things we have to be thankful for this year.

This Sunday before Thanksgiving seemed like a good time to share a few of the things I’m thankful for. I hope that as you read this, you recognize some of the things that you’re thankful for in your own life, and you use it as a reminder this week (and always) of the many wonderful things we have in our lives.

I’m thankful for my family. That’s an easy thing to say, of course, but it’s so true.
I’m thankful for my oldest son’s burgeoning wit.
I’m thankful for my daughter’s smile and artistic capabilities.
I’m thankful for my youngest child’s bubbly personality.
I’m thankful for my wife’s constant support and positive attitude.
I’m thankful for my mother’s frankness and surprising wit.
I’m thankful for my father’s ability to put people at ease at the drop of a hat.
I’m thankful for all of these things and so much more.

I’m thankful that I was born in a society where most of my basic needs are met and with enough health that I can enjoy a productive life.

I’m thankful for the wonderful world we have to share, with its amazing beauty and depth. It’s a gift that we all have to share, regardless of what we each choose to believe. I’m thankful for whatever made this world, though the nature of that entity is beyond my understanding.

I’m thankful that I have people in my life who I can sit down with and bounce any crazy idea off of them that I might have, and we’ll just talk it through without judgments. I have friends like this who rest at every end of the political, religious, and social spectrum. Thank you, John, Ron, Melissa, Heidi, Heather, Rachel, Erin, Vicky, Brit, and many others.

I’m thankful for the people who take the time to read The Simple Dollar, and I hope that they get something of value out of it when they do.

It really is a great life. Thank you.

Boredom Is Our Enemy

Posted: November 19th, 2011, 1:00pm MST by Trent

The other day, a friend of mine put up a Facebook update stating that she was incredibly bored. I wrote back and suggested that she come visit me, as I have more than enough things to do.

I’ve come to believe that boredom is the enemy of a vibrant, enjoyable, and values-based life. As the saying goes, the devil finds work for idle hands to do.

Let’s start out by defining exactly what boredom is. According to Merriam-Webster, boredom is “the state of being weary and restless through lack of interest.”

Lack of interest.

If you don’t have anything interesting around you to do, you’re going to be itching to find something interesting. That’s often a very expensive state to be in.

Often, because that wandering is unchanneled (if it wasn’t, you’d not be bored to begin with), you’ll wind up doing something that’s not a good use of your time. That’s also an expensive state to be in because of the lost opportunity.

Boredom has led me to the bookstore more times than I can count, as well as to electronic stores. It’s also led me to idle away whole afternoons on pointless activities that never really led to anything at all.

I’ve made an effort to completely eliminate boredom from my life – and I’ve mostly succeeded.

That doesn’t mean I don’t have leisure time. I certainly do engage in lots of things that are mostly for my own enjoyment. It also doesn’t mean I don’t have unstructured time. I just always have projects to fill that time.

Here’s what I’ve done to specifically combat boredom in my life.

First, if I ever conceive of a project that I might want to work on, I add it to my “project book.” This book is simply loaded with things that I’d love to work on if I have the time, from painting some of the unpainted pieces in a few of the board games I own to writing a novel I have in my head to building an add-on laundry room off of our kitchen to reading a challenging book I’ve never tried… the list goes on and on and on.

Then, if I ever find myself even approaching boredom, I look at that list immediately. There are so many things on it that I want to do that I always find something that gets me excited in that moment, and off to the races I go.

If nothing on that list excites me, then I assume I need sleep and I go take a nap or go to bed after drinking a big glass of water. Rehydration and adequate sleep are my first responses to getting things back on track if I ever feel out of whack.

Boredom is my enemy. When I see it cropping up, I aim to defeat it quickly. If I let it grow, bad things tend to happen.

Ten Pieces of Inspiration #47

Posted: November 19th, 2011, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Emerson on the core of things
If you’ve been reading these inspiration columns for a while, you know that I hold the writings of Ralph Waldo Emerson in high esteem. There is so much in what he’s written that’s inspired me to become a better, more self-reliant person. This is just another example:

“What lies behind us and what lies before us are small matters compared to what lies within us.” – Ralph Waldo Emerson

The more you work to improve yourself, the better your life will naturally be. This doesn’t just mean working for work’s sake, but actually striving to become something better.

2. Sign Up Genius’s Pot Luck Manager
A while back, I was planning a potluck dinner. I was trying to organize what everyone would bring and I couldn’t help but think that there had to be a better way to do this online.

Unsurprisingly, there is. This tool simply does it. You designate what you want people to bring (appetizers, desserts, side dishes, etc.), put in a list of names and emails, and the tool does everything else. People just visit the form, state what they’re going to bring, and you can see it all on one page. The tool even sends out reminders as the date approaches.

I love tools that just directly solve a problem like this.

3. Meditation by HaPe Gera
This picture simultaneously made me feel relaxed and also made me want to be in that place.

It reminds me so much of early mornings fishing with my father when I was in high school. Those moments were so peaceful.

4. Dreams by Langston Hughes
Without a dream to hold onto, without a goal to move towards, what is there?

Hold fast to dreams
For if dreams die
Life is a broken-winged bird
That cannot fly.
Hold fast to dreams
For when dreams go
Life is a barren field
Frozen with snow.

Part of the beauty of life is to want something yet unclaimed.

5. Vincent van Gogh on things great and small
Whenever something seems overwhelmingly big, it’s worth keeping in mind that even the greatest things are made up of lots of little pieces.

“Great things are done by a series of small things brought together.” – Vincent Van Gogh

It’s the willingness to keep focused and keep bringing all of those little manageable things together that makes great things.

6. Benjamin Wallace on whether happiness has a price tag
Expensive versions of things are often not even comparable to the everyday versions of things. For example, if you try authentic Kobe beef, it’s so rich that it’s more comparable to something like foie gras than actual beef. Chasing something expensive, that “holy grail” that you think will be so great, often turns out to be nothing like you expected.

There’s a pretty fascinating story about wine embedded in there, too.

7. Nolan Bushnell on doing something
Nolan Bushnell founded Atari and played a huge role in jump-starting the video game industry in the United States.

“The critical ingredient is getting off your butt and doing something. It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer.” – Nolan Bushnell

We all have dreams. The person that succeeds is the person that actually does something towards those dreams.

8. Claude Monet’s Morning at Antibes (1888)
At the place where my father and I often fished in the early mornings, one could see a city across the river. When I saw this painting, it reminded me so clearly of those mornings.

The sun is freshly up, that city is stirring, but you’re far enough away to enjoy your own seclusion. Beautiful.

9. Jeff Bezos on reputation
Reputation isn’t about impressing others.

“A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well.” – Jeff Bezos

All you have to do is take on challenges and do your best at them. Do that often enough, and not only do you build your own skills, you build a pretty powerful reputation for yourself, too.

10. The Talking Heads’ Once in a Lifetime
I listened to this song so many times throughout my life that I can’t possibly even give a guess, but I know that the words have struck me in different ways when I was six, when I was fourteen, when I was twenty-two, and now.

How did I get here?

Dinner With My Family #37: Ratatouille Pot Pie

Posted: November 18th, 2011, 1:00pm MST by Trent

Each week, I’ll present a low-cost meal (or a meal that demonstrates a lot of options for cutting costs) that my family eats for dinner and enjoys. Many of the recipes will be vegan or vegetarian, with options to add other ingredients for non-vegetarians.

Our garden is producing a few last-minute things – well, mostly onions at this point. Along with that, we have our ongoing crusade to use up all of the things in our pantry and freezer, including such items as cans of diced tomatoes and premade pizza crust (as I mentioned before, I’d rather make my own crust, but Sarah found an amazing sale on several cans of it and picked them up).

What to do… what to do… how about we mix all of these things together and make something of a ratatouille casserole? Sounds like a plan to me.

What You Need
The nice thing about ratatouille is that you can pretty much use whatever flavorful vegetables you have on hand. In our case, we had a can of tomatoes and an eggplant, as well as some onions and a pepper from the garden. All you need is eight or so cups of your favorite vegetables.

In addition, you’ll need three teaspoons of olive oil, 2 teaspoons of minced garlic, a taspoon of dried basil, a teaspoon of red pepper flakes, a dash of salt, 2 teaspoons of balsamic vinegar, a package of refrigerated pizza dough (or a small batch of homemade dough, which is my own personal preference), and two cups of shredded cheese, preferably mozzarella or a mix with at least some mozzarella in it.

The Night Before (or Early That Day)
Chop up your vegetables! This is always a good thing to do the night before you prepare a homemade meal. Just chop them into small pieces and store them in the refrigerator until you’re ready to use them.

Preparing the Meal
Since this recipe is so quick to put together, the first thing you should do is get your oven preheating to 425 F. After that, put the oil into a large skillet and start adding your vegetables.

Can’t you just smell the onions cooking?

You’ll want to add vegetables in order of firmness, so you’ll add things like onions and pepper first, let them cook for five or so minutes over medium high heat while stirring, then add some softer vegetables like eggplant and garlic, cook for five more minutes while stirring, then add the very soft vegetables like tomatoes and cook for five more minutes. Add your spices with the softest vegetables, so toss in the basil, red pepper flakes, and salt at this point.

Right as you pull the mixture out of the pan, add half of the cheese and mix it thoroughly into the vegetable mix. Then, put the mixture into a 9″ by 13″ casserole.

Sprinkle the remaining cheese on top of the mix, then put the pizza crust on top of the casserole. Cut a few slices in the dough so that the steam has a place to escape, then put it in the oven for 15 minutes.

You end up with a beautiful and tasty casserole. We served it with some fresh applesauce and a few remaining green beans from our garden.

Optional Ingredients
As I mentioned above, you can use pretty much any vegetable in this. Corn, spinach, potatoes, broccoli, cauliflower, Brussels sprouts – you name it and it’ll probably work in this. You can also vary the cheese, using other types in a mix with the mozzarella or on their own. No matter what you do, this pot pie will turn out well.

Saving Pennies or Dollars? Wedding Favors

Posted: November 18th, 2011, 7:00am MST by Trent

Erin writes in: Making our own wedding favors. It’s so expensive to buy them, so I tried making my own, which ended up costing about as much as just buying them would have and was no where worth the effort even if we had saved a ton of money. I wish we would have just skipped them all together, no one would have noticed and we would have saved a bunch of money.

First of all, I don’t think wedding favors are necessary at all. The vast majority of the wedding favors I’ve ever received wound up in a cupboard within a few days of the wedding and were largely forgotten until I found it a few days later. If you’re getting married and are thinking about giving away a “traditional” wedding favor, I’d just skip it. It’s expensive, not particularly personal, and quite forgettable for the guests.

That being said, I have actually been to a few weddings (or heard of a few weddings from friends) where the wedding favor was quite memorable:

+ At one wedding, where the wedding couple were both writers, they gave every adult who attended the wedding copies of each of their latest books, signed by them. These were very inexpensive for the couple (who just requested a bunch of copies from their publisher) and actually useful for many of the guests, who were almost all avid readers.

+ At another wedding, there were place settings for every person they expected at the reception. At each one, there was a custom-made bookmark depicting the couple on one side. This bookmark was inserted inside of a handwritten card from either the bride or the groom thanking that person personally for attending the wedding.

+ My favorite one was a wedding where a wonderful soup was served at the reception. Then, on the tables, were small jars containing the ingredients for that soup along with a note describing how to make it. This wasn’t particularly inexpensive, but it was very thoughtful and it got used.

+ Another wedding I attended had homemade soap given away as a wedding favor. One of the friends of the couple simply made a bunch of homemade soap bars, wrapped them with a custom wrapper that commemorated the wedding, and left them out on the tables at the reception.

Each of these favors succeeded because of several different factors.

They were inexpensive or free. In some of the cases, the items were truly inexpensive. In other cases, a member of the wedding party or a close friend stepped in to help out with a homemade item.

They were something that the guests would actually use outside of the ceremony. In each case, the memorable favors were items that would actually get used. No more knick knacks, no more commemorative salt shakers.

They were often personalized. Most of these items had some personalization to them. They were either made by someone actually involved with the wedding – or sometimes even by the wedding couple – or they were intimately connected to the couple. Many favors have no such connection.

I’ll run the numbers on two examples.

At one wedding I recently attended, the wedding favors consisted of small sacks of chocolate coins. There were perhaps 100 of these bags sitting around with 20 coins in each one. They weren’t particularly memorable or particularly tied to the couple. I was able to find chocolate coins for $0.20 each. At that rate, the bags themselves cost them $400 – I sincerely hope they found a less expensive rate.

On the other hand, at the wedding where there were personalized cards and bookmarks, I called a local printer who said that he could print a set of 100 bookmarks and 100 cards for about $60 without much trouble. I’m sure that if you shopped around, you could find an even cheaper price.

Stick with personal, simple, and useful if you’re going to make a wedding favor. It will cost you less and it’ll mean more to the guests.

Some Thoughts on Delayed Gratification

Posted: November 17th, 2011, 1:00pm MST by Trent

Over the past few years, I’ve come to believe that learning to appreciate delayed gratification is one of the best things a person can learn in terms of their psyche and their finances. Here are a few stories illustrating what I mean.

Watching your garden grow This past year, I really got into our garden. I went out pretty much every day to check on it, often pulling a few weeds or doing something else related to it.

In years past, I somewhat viewed this as a chore. This year, though, I began to really notice how the plants were slowly growing each day I went out there. They were a bit bigger. This one had started to blossom. I could finally see some small snap beans. Look, at last there are the beginnings of some squash.

Those little visits became a pleasure themselves as I began to appreciate where my food came from and also anticipate the vegetables that were coming.

Approaching a big goal One of our biggest goals is paying off our house. Sarah and I have been working towards it for the past four years, making extra mortgage payments when it’s been reasonable and keeping careful track of our progress.

Since we’ve been so careful to track this, it’s been a lot of fun watching how our little actions have translated into a snowball effect against our debt. The balance goes down. Our normal monthly payment pays a bigger part of the principal than before. An extra payment knocks our balance down a little more.

Our little moves directly translate into a small part of something big, and it’s a lot of fun to watch the progress as we go along.

Waiting for an item A few months ago, using a gift certificate I received for my birthday, I preordered a board game, Kingdom Builder. It’s a game created by the same person who created Dominion, one of my favorite games I’ve ever played, so I decided to give his new creation a chance.

Anyway, once I preordered that item, around the middle of August or so, I found myself anticipating the item quite a bit. I subscribed to a few forums related to the game. I participated in some discussions about it. I read the rules for the game, as well as some early reviews.

Even more interesting, all this focus on a game that I knew I would be getting in the mail eventually kept me from spending money on other items. I might consider buying something, but then I’d tell myself, “Well, I have this other thing coming in the mail soon, so why buy even more stuff?”

The anticipation became part of the fun. It also became something of a guard against buying other things.

Delayed gratification is the common thread here. When you have something immediately, you get a big burst of excitement and joy, but that quickly fades. If you get used to that burst of gratification, it becomes something of an addiction. You must have a perk now.

If you hold off on that gratification, the anticipation itself becomes fun. You have more time to plan out what exactly you’re going to do. You have more time to savor the options before you.

Most importantly, you have a chance to enjoy the journey. Instant gratification takes that option away from you. At the same time, instant gratification means that you’re going to be spending more, because the joy doesn’t last very long.

Learn to enjoy the anticipation. Your spirit and your wallet will thank you.

Reader Mailbag: Juggling Act

Posted: November 17th, 2011, 7:00am MST 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. Closing a credit card
2. Estate planning and shared accounts
3. Personal finance percentages
4. “Nerdy” hobby
5. FHA loan question
6. Umbrella insurance
7. Caucus season
8. Real estate investing question
9. How long should I stay?
10. Cancellation of Community

Some weeks, it feels like all I manage to get done is juggling several things in the air at once: a child’s project, a family Thanksgiving meal, a holiday visit with extended family, a contract, and all of the other ordinary things that go on in life.

It can be really, really exhausting, but there’s always light at the end of the tunnel.

Q1: Closing a credit card
I have around $5000 in credit card debt, and a little over $13000 in student loans. I own my own vehicle (although I mostly bike) and don’t have plans to buy a home anytime soon (my savings account is mere dollars over non-existent). I don’t think my credit is stellar, but I don’t think it’s horrendous either (although I have been denied a few times for another card). Although I’ve cut up every credit card and plan to move to a cash-only system as soon as I’m free of the credit cards, I’m not sure what closing those credit cards will do to my credit. I made a final payment on one yesterday (yay!!) but I’m not sure when I should close down the account. My question is: should I close it now? I’ve made the decisions to close these cards to avoid further temptation, and to avoid the yearly fees, but I’m not sure WHEN it’s the right time to close. Should I close it today, or should I wait a few months? I won’t be using it, which is the argument for today, but I didn’t know if keeping it open with a $0 balance would do anything positive for my credit score (which could be the argument for waiting a few months). I’ll be paying off the others ones in consecutive months, so I’ll probably want to do the same thing then, too. What do you think?
- Shauna

I wouldn’t close it. Instead, I’d leave the thing completely dormant and live with a cash-only lifestyle. Put the card in your closet and forget about it.

Why? It keeps your credit report current and keeps your credit score up. You’d be surprised how many things check your credit score when determining how to handle you, from your insurance company to your employer. A good credit rating will help you. A dormant rating might not.

You can choose to live a cash-only lifestyle whether you have the card open or not.

Q2: Estate planning and shared accounts
My ex has inherited a few hundred thousand dollars. I don’t know the exact amount, but I’m thinking it’s around $300 K. His health is not all that great and he is concerned about having it all taken away if he has to go into a health care facility. This happened to his dad. He has 2 children from a previous marriage and we have 3 together. He wants to put this money in an account in my name with him as personal agent so that if something happens then I can distribute the money to all his children and it won’t go to a health care facility. As personal agent he would still be able to withdraw but the account would not be in his name. I don’t have a problem with this and he knows he can trust me – I’ve had access to his bank account for many years. My question is – Is there a downside to this for me? Will this affect me negatively in any way, e.g. taxes, etc.?
- Laurie

If he puts that money into a checking account with just your name on it, it constitutes a gift and you’ll have to pay a gift tax on it. I’d avoid that route.

It sounds like the plan is to have a checking account with both of your names on it. This will actually work, but you’ll want to be sure you act in perfect accordance with the terms of his will when the time comes or you could be in legal hot water.

The best route would probably be to set up some sort of trust with this money and have you as an administrator of that trust. This is pretty easy to set up – a lawyer can handle this for you very quickly.

Q3: Personal finance percentages
I’ve read a lot of personal finance resources and they all recommend saving a certain percent of your income (10%, 20% whatever). That makes sense to me. My question is: what is included in those %? Is it just retirement savings? Does it include emergency savings? What about house/car repairs or money to replace a car? My husband and I budget smaller amounts into multiple categories that act as short/medium-term savings accounts, but I’m not sure if those count toward this “savings” benchmark, or if the savings benchmark is only for long-term savings (retirement, kid’s education, etc)? I’m curious how you interpret it.
- Jennie

Generally, it just includes all goal-oriented savings. If you’re putting aside money for a specified purpose, then it’s included in that percentage.

So, an emergency fund would count, retirement savings would count, a house/car repair fund would count… they’d all count.

The reason for doing this is to make sure you’re not regularly spending more than, say, 80% of your income and that the other 20% is going for your future.

Q4: “Nerdy” hobbies
I think it’s awesome that you’re so out and open about having such nerdy hobbies.
- Reggie

My biggest hobbies are reading and playing board and card games. I’m guessing that these are the things you find nerdy?

I really don’t actually care whether other people think my hobbies are “nerdy” or they think they’re “cool.” I generally think anything that someone is passionate about is pretty cool as long as it’s non-destructive.

Besides, you can make virtually any hobby sound rather idiotic. Think about it: ten million people spend their Sundays watching men in tight pants hug and push each other because they can’t agree on where an inflated piece of pig’s skin should be sitting on a field of grass. My wife loves spending hours spreading rotten vegetable scraps all over the ground in one corner of our yard.

It’s all cool. What other people think doesn’t matter one bit as long as you’re enjoying it and it’s not hurting anyone else.

Q5: FHA loan question
I am a first time home buyer and I have saved enough for a 20 percent down payment for a 300k house. Do you see any benefits in me looking into a FHA loan? I hate have to pay extra for PMI and I rather not to pay it. Are there any advantages to a person to look at a FHA loan if he can pay 20%?
- Roger

There’s no real reason for you to have a FHA loan.

The FHA program exists to help people in special situations buy a home. People without down payments fall into that group, as do people who want fixer-uppers.

I don’t think you fall into any of the categories on that link, and since you have a full down payment, I think you’d just be getting an ordinary mortgage from your preferred bank or credit union.

Q6: Umbrella insurance
I am wondering if I need umbrella insurance. I’ve talked to friends and co-workers about it. I can’t find anyone who has it. But I want more perspective. Here are some facts if they help with the assessment: I’m 45. My income just scratches 6 figures. My mortgage is the only debt I have, but I still owe over $300k on it. I have solid home insurance, car insurance, and health insurance through work. I don’t have life insurance, as I’m single and don’t have kids or dependents. My retirement savings: about $110K (yes, I know, I’m aggressively saving more!). Emergency savings: about $5k.
- Lenore

Umbrella insurance is mostly a good idea for people with a significant amount of assets that they might want to protect against things that are beyond the protection of their other insurance policies.

For example, if you had a net worth of $2 million and got into a car accident that was completely due to your negligence and only had a small amount of car insurance, the umbrella policy would step in and supplement the car insurance policy, protecting your net worth.

Unless you have a significant amount of assets to protect beyond the value of your home, umbrella insurance isn’t going to be worth it.

Given your situation, I would consider it much more important to have life insurance than to have umbrella insurance.

Q7: Caucus season
It seems like a person can’t go a day without hearing about the latest polls and politics coming out of Iowa as we run up to the primary and caucus season early next year. As a politically tuned-in person, what’s it like living there?
- Jeff

I get a lot of “robo-calls,” which are basically pre-recorded messages from politicians wanting me to vote on January 3 in the caucus, preferably from their candidate. We get so many of them that Sarah and I joke about them. Similarly, we get a lot of flyers in the mail from various candidates.

There is a lot of access to the presidential candidates if you’re willing to make an effort. There’s usually an opportunity to go meet at least one of the candidates every day somewhere within 100 miles of where I live. There have been a lot of events within five or ten miles of where I live, too.

Honestly, though, it all just becomes noise at a certain point. They’re all using more or less the same tactics that they used four years ago… and eight years ago… and twelve years ago.

Q8: Real estate investing question
My husband and I recently made our last house payment and are officially debt free. We are jumping right back into the fray by buying a duplex . We have done our research and feel comfortable with our decision . The property is in a nice area with a good rental history. My first question is can you recommend any particular reading material on this particular type of investing? We hope to buy another one in a few years with the goal to retire with three units. At that point our children may buy them from us or manage them.

What do you think about this type of investment? I am 48 my husband is 50. We are very active and are “ fixer uppers”. We have remodeled our entire house, so we are able to do a lot of our own minor maintenance. We no longer feel comfortable investing in the stock market and I have cut back on investing in my 401k and am only contributing to the employer match. My husband is doing the same. I want to decrease contributions to our Roth’s as well and divert it to paying off the mortgage principle of the investment property. Do you think this is a wise move? We recently moved the majority of our Roth investments into more conservative funds at the recommendation of our fee –based financial advisor. The return on these investments will be modest, but we will be giving up the tax advantages of the Roth’s. If the tax laws change and we can’t deduct or mortgage interest it would probably more advantageous to pay down the principle of the mortgage ASAP. Am I missing something or do you think we are on the right track?
- Susan

Are you willing to handle many of the issues that come with being a landlord, such as fixing problems and handling tenant issues? I think that’s the real question here.

Some people revel in this. I’ve had friends in the past who deeply enjoyed being landlords. I’ve had other friends who owned property just to end up hiring someone to manage it. I’ve known others who didn’t do their homework and wound up with tenants that stripped every piece of copper from the house in the middle of the night and disappeared, resulting in a long dispute with their insurance company that remained unresolved for years and wound up in court.

If you’re up for this, then I think you’re on the right track. You can get a good return on your money here if you’re willing to handle the issues and the work.

Q9: How long should I stay?
A little about me: I graduated law school in June of 2009 with around $120,000 worth of student loan debt. This was right around the time the world was falling apart and my law firm informed me they didn’t have much work for new associates. I’m pretty much the luckiest person in the world because my law firm didn’t fire me – they “deferred” me for a year. In essence, they gave me about a third of my salary and enough to cover my minimum student loan payments for a year. I threw some of my deferral money at my loans, but most of it was spent traveling the world. I started working as a corporate attorney in October of 2010 and lived very frugally. I got a roommate, got rid of my car, brought my lunch to work, etc and threw every extra penny at my student loans. In October of 2011, I paid off my last student loan and am now completely debt free. (When I’m feeling down, I often remind myself of that little fact and it perks me up most days).

So now I’m 29, single with no children and making around $9,000 a month net with expenses of around $1500. I have my requisite emergency fund and $100k in my 401k (I’ve always been frugal and worked before law school, contributing the max each year). I’m a little afraid to do the math to see how long I should stay at this very lucrative, but soul-sucking job. One year? Two years? 10 years? If I continue to live the way I do, I could build up a very nice bank account and I feel like this would open a lot of doors for me. So, my question – how do you decide how much money is enough? This job makes it very difficult to date. It takes up my whole life. I don’t hate it – I appreciate the knowledge about corporate governance and think it makes me a better citizen and better voter and I like the people, but I don’t think I’m doing anything worthwhile for the world. But, obviously, the money is good and I wonder if now isn’t the time to do it when I have no other obligations.
- Evan

How much money is “enough” depends entirely on what your plan is for after you leave this job.

For example, if you intend to essentially do nothing at all, then you had better have enough to live off of for the rest of your life.

What do you want to do after you leave? You need to sit down and do some soul-searching with that question in mind. When you have a goal in mind and a plan to reach that goal, then knowing how much you need becomes a matter of filling in the blanks.

Q10: Cancellation of Community
I just read that Community was cancelled. Didn’t know if you’d heard. I know it was the only sitcom you watch, so I’m guessing you’d want to know.
- Alan

Obviously, I’m disappointed, as it’s one of the very few shows on television that I enjoyed.

However, the reality is that it just wasn’t getting the ratings. Television runs on ratings. If people aren’t watching, they’re not going to put shows on the air. NBC is a business, and if having Community on the air isn’t making them money, then pulling it is probably the right move.

I think the big problem it had is that the audience for it is people who own and use DVRs. Everyone I know who watches Community regularly would record it and watch it at a later time, fast forwarding through the commercials. It’s hard for a “free” network to make enough money to pay for the episodes that way.

Saving Pennies or Dollars? Farmers Market or Gardening

Posted: November 16th, 2011, 1:00pm MST by Trent

Amy writes in: Is having a garden cheaper than say the farmers market? By the time you count materials, watering, etc. I just don’t know!

The answer depends heavily on how you approach gardening. If gardening for you requires piles of brand new tools, a big tiller, plants that have all been started at a greenhouse for you, and other such expenses, gardening is going to really add up. On the other hand, if you try to use minimal tools and use them until they wear out and keep your own seeds, gardening can be really inexpensive.

I’ll use our own gardening situation. Most of our garden implements were either gifts or were bought at yard sales, adding up to perhaps $10. Most of our plants are grown from seed in potting soil in our house in the late winter, then moved outside once the frost danger is out of the way. We mostly use a hoe for our garden to turn over the soil and mix in our compost, which is our fertilizer source and is made out of table scraps. We use hay out of a field near us for much of our mulch.

This type of gardening doesn’t add up to a whole lot of expense. We just don’t put a whole lot of money into our garden each year.

Now, let’s say we decided next spring that we wanted a garden. We go down to our local home improvement super store, buy a bunch of plants, buy a bunch of gardening tools, buy a small tiller, and stagger out with a pretty big charge on our credit card. We buy Miracle-Gro as our fertilizer and since we bought starts from the local store, we don’t bother saving seeds because the plants are hybridized.

The expense for the vegetables in this scenario is going to be quite high. Even if you spread the cost of all of those implements across several years of gardening, you’re still going to have quite an expense.

I’ll use tomatoes as an example. A single tomato plant will yield 10 to 15 pounds of tomatoes if properly cared for. How much does it cost to get there?

Most sources where I live sell tomato starts in the spring for about $5 each – or even a bit more. My parents can get them for $2-$3 from a person they’ve been buying plants from for years. Alternately, you can buy a packet of non-hybridized tomato seeds for $2-$3 or so, along with a reusable tray ($5-$10), a grow light ($30-$40), and a source of soil, and you can grow them in your own home, reusing the seeds year after year.

You’ll need some gardening implements to plant them – at the very least, a shovel and a hoe. You’ll also need a source of food (compost, which can be free; manure, which can also be free; or a commercial fertilizer, which is easier but can be expensive, on the order of a dollar per plant per year), a fence to protect the plants (we built ours for about $20 per year of use, or maybe $0.25 per plant per year), water (maybe $0.05 per plant), and some insect protection (you can make passable insecticides for pennies, but store-bought ones that work better can also cost you, let’s say, $1 per plant per year).

You’re easily reaching a cost of $10 per tomato plant. Assuming, of course, that your plant doesn’t get attacked by insects or animals and doesn’t die of blight or another illness, you’ll get ten or fifteen pounds of tomatoes out of the plant. That’s actually a pretty solid savings on your tomatoes.

However, to get to that point, you have invested quite a lot of time. You’ve started the plants from seed or bought starts at the store. You’ve cultivated the ground and planted them. You’ve weeded around them. You’ve mulched them. You’ve watered them and fed them. You’ve given them insect protection and disease protection.

Unless you enjoy that time invested, the time invested isn’t going to pay off for you. Yes, you’ll save money with a garden, but the hourly rate you’ll be saving on those plants and vegetables will quickly head toward $1 per hour or so.

If you enjoy gardening – and I do, in reasonable doses – it’s all well worth it and you can certainly save some dollars from gardening. If you don’t enjoy it too much, find something else productive to do with those hours and enjoy the fine produce available at your local farmers market.

The Simple Dollar Weekly Roundup: Haircut Edition

Posted: November 16th, 2011, 7:00am MST by Trent

I love the feel of a simple haircut. I love the sensation of the hair leaving my head. I love running my fingers through my newly-shortened hair. I love the sense of wind blowing through the shortened hair, causing a sensation on my scalp that I haven’t felt in a while.

It’s really the simple things that make life worthwhile.

Should I Get a Prenup? Yes! I think there’s actually a pretty compelling argument for a prenupital agreement as a form of “marital insurance.” It’s similar to the logic of why you would buy car insurance – you don’t intend to wreck your car or have a storm knock a tree onto it, but why not have protection against it in case it happens? (@ thousandaire)

Your Do Over Guide: What Would You Do Differently? I’ve actually had a draft of a post going over this very topic. What would I do differently if I could stick myself into my 18 year old body again. If I could turn the clock back to 1996, what would I do differently? This great post has made my wheels start turning again. (@ watson inc.)

A Sucker Punch of Personal Finance to America Has the economic downturn made America more conscious of personal finances? I think the answer is yes, but I think that there will be a rollback pretty quickly when the economy improves. (@ lazy man and money)

After You’ve Done Your Best… If you’ve built everything in your life around avoiding failure, you’ve probably succeeded at that, but you’ve likely also avoided big successes, too. (@ seth godin)

What to Do with a Wedding Dress? My wife’s dress is still hanging in the closet. I think there’s an emotional tie there that’s pretty deep, not so much as a symbol of the wedding, but as a symbol of the marriage. (@ unclutterer)

Is Your Home an Investment?

Posted: November 15th, 2011, 1:00pm MST by Trent

Monica writes in:

Some personal finance books seem to treat a person’s home as an investment. Others don’t treat it that way at all. I’m confused as to whether I should look at my home as an investment or simply as a living requirement. How do you handle this when you look at things like your net worth or decisions about where to invest your money?

From my perspective, it depends on a number of factors that cross the line between investing and living.

Are you likely to move in the future? If you have external motivations to move, like living near loved ones or chasing a career, then you should look at your house more as an investment and less as a residence. Instead of focusing precisely on where you want to live for a very long time, instead focus on the potential for increased property value.

Is it easy for you to move? The easier it is for you to pick up and move, the more you should view your house as an investment.

What kinds of factors determine this? Are you living near family? Is the house worth substantially more than the rest of your assets? Do you live lightly or do you have a lot of stuff that would have to be moved (which would greatly add to the cost of a move)?

Does your house have significant resale value? If your home is in an area that’s of high value – a nice neighborhood, a well-kept property, access to services and employers – your home will be much more likely to attract buyers than a home that’s in a poor neighborhood, not well maintained, or with poor access to services.

For example, if I were buying a house in an area where I didn’t intend to live for a long period of time, I’d buy a home that was located near places of commerce and near employers. On the other hand, if I were buying a house to live in for a very long time, I would buy a rural home with lots of trees and without easy access to services. In other words, if I’m going to live here for a very long time, I’m going to buy a home according to what I want to live in rather than a home that’s a good investment.

If you view your home primarily as an investment, you’ll do things like follow the prices of homes in your area and look at home improvements from the perspective of improving the home’s value (and avoid improvements that don’t have a good return on investment from the perspective of the selling price).

If you view your home primarily as a place to live for much of the rest of your life, you’ll not worry so much about the local real estate market and you’ll make improvements to improve your livability without worrying what buyers might think of the changes.

Right now, for example, I view our current home as an investment. I’m pretty sure that in ten years, we won’t be living here.

What does that mean in terms of how we view our home? We aren’t making any home improvements that aren’t clearly going to improve the value of the home. For example, I would completely re-arrange the basement (including removing a non-load bearing wall) if we were going to live here for a long time, but I’m pretty sure that such changes might actually reduce the value of the home to other sellers.

Our next home, though, will be a home that we will live in for a long time. That won’t be viewed as an investment.

Instead, we plan to build the home according to the exact specifications that we want, regardless of what the market might want. This might result in some quirky choices, such as a very large family room in the basement with some deep shelves for board games, as well as a dumbwaiter. These might improve the value of the home and they might not, but it frankly does not matter to us. We just want the home we’ve always wanted.

In the end, whether you consider your home to be an investment has more to do with you than it does with anything else. On some level, it is always an investment because of the amount of money you’ve sunk into it, but whether you treat it like an investment is really all about you, your needs, and your situation.

What Makes for a Rich Life?

Posted: November 15th, 2011, 7:00am MST by Trent

One theme you’ll see pop up time and time again in personal finance and personal growth writing is the idea of a “rich life.” Usually, if that idea is expanded on at all, the “rich life” idea tends to involve a few ideas of what the writer thinks everyone should have in their life, like time with their family or a full social calendar.

The idea of what makes a “rich life” seems to be more of a reflection of the writer than anything else.

For example, my idea of a rich life would involve a lot of activities with my family. It would involve some volunteer groups. It would involve a big vegetable garden. It would involve reading some books when I’m alone and playing some board games when I’m with friends. It would involve a bit of travel. It would involve going to concerts, speeches, and cultural events.

Some of this will probably sound appealing to you. Other pieces won’t. The pieces that sound interesting and the pieces that do not will differ from person to person.

There’s one important thing that I want to point out, though. Every element of what I consider a rich life has to do with how I spend my time, not with the things I own.

A rich life for me involves kicking back in a comfortable spot reading something enjoyable and thought-provoking, not owning a bunch of books.

A rich life for me involves spending a day at the park with my family, not having a garage full of things that we might play with someday.

A rich life for me involves spending time in the garden, not having a huge assortment of gardening supplies.

A rich life for me is time that I can spend on these activities, not time spent working so that I can have the money for tons of items related to these activities.

It’s about the time, not the stuff.

One of the things i’ve really enjoyed about becoming a more frugal person is that, over time, the focus of my life has moved from the stuff I have to how I spend my time. I don’t care what car I have, just that I get from point A to point B reliably. I don’t care what shoes I have, as long as my feet don’t hurt. I don’t care how many books I own, as long as I have one to read. The experience comes first.

So, to put it simply, I believe a rich life is one that’s filled with experiences that you value. It doesn’t really even matter what those experiences are. Some people may love cooking, while others find it dull. Some people may deeply enjoy reading a book, while others might pass on it. Some may enjoy spending hours in their garage tinkering, while others find it dull.

Whatever it is that makes you happy while you’re doing it, do it.

Of course, that doesn’t mean you should spend money buying stuff for that activity beyond the minimum needed to do it.

In fact, the opposite is true – the richness of experience comes from having as little as possible in your life that keeps you from the experience. Having thirty tools to take on a job that only needs one actually keeps you from enjoying that activity because you’ve got to work to earn money for the items and you’ve got to spend time maintaining and caring for those items.

A rich life is about spending time on whatever is valuable to you. Living frugally, minimizing your clutter, and being mindful of your money only serves to maximize the time you get to spend on whatever it is that excites you. Frugality and personal finance aren’t boring. They’re simply tools to the kind of life rich with experiences that you want to have.

Saving Pennies or Dollars? Christmas Lights

Posted: November 14th, 2011, 1:00pm MST by Trent

Stephen writes in: with Christmas coming around, what about LED Christmas lights verses regular (incandescent I assume) lights. This is our first Christmas in our new house, so we’ll probably buy some lights soon.

Today, Christmas lights are generally sold in one of two general types: “mini” lights and LED lights. The exact energy use of these different light types varies quite a bit, so I went down to my local Home Depot and looked at a lot of different strands.

My numbers indicated that the average wattage of LED lights is about 0.1 watts per bulb, while the average wattage of “mini” lights is about 0.4 watts per bulb. We’ll assume that for calculation purposes.

So, let’s say you’re going to hang 500 lights from your home, you’re going to have these lights on for 30 evenings during the holiday season, you intend to run them for six hours per evening, and you hope to use the strands for five years. I think these are all reasonable assumptions.

With the LED bulbs, you’ll be using about 0.3 kWh per day to run the bulbs, given the six hour assumption above. That adds up to about 9 kWh per holiday season, or 45 kWh over five years. At an average cost of 0.11 per kWh from your electric company (this is a rough nationwide average), the cost of running the LED bulbs over that five year span is $4.95.

With the “mini” bulbs, you’ll be using about 1.2 kWh per day to run the bulbs, given the six hour assumption above. That adds up to about 36 kWh per holiday season, or 180 kWh over five years. At an average cost of 0.11 per kWh, the cost of running the “mini” bulbs over that five year span is $19.80.

In other words, you’d save about $14.85 over the five year lifetime of those 500 bulbs by using LEDs instead of “mini” bulb strands.

The real question is whether or not you can make up that $14.85 when buying the bulbs. Can you make up $14.85 when buying 500 mini bulbs versus buying 500 LED bulbs?

After examining the prices at a lot of different places, I would say you could save that much or perhaps even a bit more… but only if you’re buying right now at full prices. In November and early December, Christmas lights tend to sell at a very high price.

However, there are tremendous sales on Christmas lights right after Christmas. It’s not uncommon to see 100 bulb strands for $1 during such sales. My wife and I have several strands of LED bulbs in our garage that we bought at such a post-Christmas sale.

So, what should you do? If you’re absolutely convinced that you must buy bulbs for this year, the lowest total cost will probably come from buying “mini” bulbs provided you can find them for $3 per 100 bulb strand less than the LED bulbs. If you can’t, the LED bulbs are going to be the better deal.

If you can possibly wait, though, do so. Buy a big pile of LED bulbs shortly after Christmas during the big bulb sales because you should be able to find strands of those at a very inexpensive price (and probably very close to the price of the “mini” bulbs).

Reader Mailbag: Dress Up

Posted: November 14th, 2011, 7:00am MST 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. Heating and cooling issues
2. Tax problems
3. Student loan debt juggling
4. Daylight Savings Time switch problems
5. Joint accounts with aging parents
6. Potential book selling scam
7. Multilingual children
8. Roth and 403(b) balancing
9. Salsa deal
10. Splurges

My children have a “dress-up tub” in the basement that contains a wide variety of costume clothes we’ve picked up here and there. Most of it is too big for them, but they can get the items on.

They tend to play with the “dress-up tub” a lot during the winter, but scarcely touch it during the summer because they’re outside so often. This weekend, they dumped it out for the first time in quite a while.

It’s almost as if a big session of the kids playing “dress-up” is an unofficial sign of the changing of the seasons.

Q1: Heating and cooling issues
I am having some problems getting my roommates to understand frugality, especially when it comes to the air conditioning/heating unit in our house. I am trying to research how much money it wastes to constantly have the air on, especially when it is only 75 degrees outside. My roommates believe that it costs more money to turn the air on and have it re-cool the house and insist it run constantly. I think that it is cheaper to turn it off when no one is home. What is cheaper?

Also, we have an upstairs and a downstairs and, therefore, two units. Sometimes when I wake up I find the downstairs has been on cool at 75 degrees all night while the upstairs has been on heat at 75 degrees all night. I feel like this cannot be good, but I can’t find any research to back up just how much money we are wasting or why this is bad. Is this a waste of money? Can you help me find some research on these things, so I can explain to them why I am so frustrated?
- Bill

It’s substantially cheaper to turn off the air conditioning and heating when you’re not at home. Why? If you’re constantly cooling or heating your home, you’re keeping the temperature of your house far away from the outside temperature, and basic thermodynamics says you’re going to lose the heat or the cool in your house faster if the temperature outside is far away from the temperature inside your house. That’s why your A/C runs a lot on a very hot day and not very much on a mildly hot day, and your furnace runs like mad on a very cold day.

However, if you don’t run the A/C or heat all day, the house temperature begins to approach the temperature outside, and the closer it gets to that temperature, the slower the rate of change is in the house. What that means is that at the end of the day when you have to use the furnace or A/C to “catch up,” you’re not going to have to run it nearly as long as the total time it would have to run to keep the temperature steady all day. It’s far better to “catch up” ten degrees at the end of the day than to “catch up” two degrees every single half hour.

As for the heat and air conditioning at the same time, that’s just a waste of energy. You’re far better off accepting that the basement and upper floor are going to be a few degrees different and just use one unit to manage the temperature of the house. My suggestion would be to just use the heat to keep the basement a few degrees cooler than you’d like, then not run anything upstairs. If it gets too warm, crack a window up there for a bit, then close it. Running two units is crazy just so you can have the exact same home temperature in the basement and the upper floor.

Q2: Tax problems
My husband and I got caught up in a dispute with our state’s department of revenue where we kept sending them verification that yes, he had paid his income taxes for 2009 on time, but they kept losing track of our paper work or never updated their records. It finally got settled after a year of going back and forth with them but not before they filed a tax lien against my husband. We did not find out about the lien until two months ago when my husband checked his credit report. It was quite a shock to us, and we immediately set about to get it taken off. The problem is that so far, the best we’ve been able to do is get it marked as paid, where in our eyes it should be removed. We’ve been told that even if it’s paid, a lien is horrible for your credit. We’ve been going round and round with the credit reporting companies and can’t seem to get anywhere with them. I want to try a few more things but am not optimistic they will work. I’m starting to wonder if we should get some legal help. My concern, however, is that I know it won’t come cheap and don’t know if it would be worth it. My husband wants to buy a car next year, so he will need his credit in good shape to do that. How do we figure out if it will be worth it? We don’t know my husband’s credit score right now (the lien is by far the worst thing on the report, so it shouldn’t be that bad but for the lien. His only debt is about $5,000 in student loans). Should we find it out and go from there? Thanks for any help!
- Lisa

My guess is that your credit score is still moderately good, but not great. If you’re really concerned, I’d get your credit score checked through a reputable organization. One approach you might take is to go to your local credit union and simply ask them if they have any credit checking services.

Getting something like this removed from your credit report is often more expensive than the benefit you’d get from having it removed.

As I’ve mentioned before, I consider the methods used in the United States to verify credit as completely ludicrous. There are so many situations like this one where one’s credit history does not reflect the reputability of the person, but more accurately reflects the (lack of) credibility of the institution reporting the credit issue.

Q3: Student loan debt juggling
A little background. I am a medical student and my wife is just out of nursing school, making about $80,000 with amazing insurance and a 5% 401k match. Our combined undergraduate debt is about $100,000 as she was solely focused on nursing school which landed her a great job, and I went to an expensive undergraduate school and worked full time as an EMT ($10/hr). No family contributions either way, but they were both well off and thus no aid outside of loans. My tuition now is $44,000 a year and of course I cannot work. There are not many med school scholarships for kids from middle class families, so it is basically all on loans. She is paying off both our undergrad loans and supporting us in every way.

I was recently approached by a company (a legitimate company) that offered to do all our taxes and handle all our repayment, i.e. tell us who to pay when, once residency starts. I don’t know if you are familiar with how it works, but basically I will graduate with $200,000 in medical school debt (plus undergrad that we hope will have a dent after 4 years of her paying it) and work as a resident for 7 years making about $50,000. This is nice because I will be working about 80hr/week and I don’t really have time to focus on the plans and percentages (though it is very significant with those large numbers). The company charges a flat $500/yr, and they help strategize your repayment, specifically focusing on income based repayment (as a resident, married, and wanting kids, that repayment will be close to $0) then after residency, if I took a job with a non-profit hospital, I would have my loans forgiven after 10 total years. They maximize, fill, and file our taxes too. This seems too good to be true, but there is a lot of testimony, and it takes advantage of a system really set up for people who took out $100,000 to get a social work degree and make $30,000 a year and can never repay that debt.

Do you know if there are dangers in taking out the maximal med school loan amount (which I don’t really need, since my wife pays for living expenses) and using that extra money to pay all our private loans (which are not covered by IBR and the 10 year forgiveness). Also, I feel weird saving money in IRA or 401k with all that debt, but this plan seems to encourage taking out the max, saving it, then having it all forgiven. I feel there is a moral dilemma. We currently max out both our IRAs and match the 401k. We also pay 25% of her take home for loan repayment, plus save for a future house. What are your thoughts on these companies that handle repayment strategies and specifically this 10 year forgiveness plan.
- Ron

I’ve heard of a lot of variations on plans like this. What these organizations do is essentially manage all of your money for you and either assign you some living stipend according to their formula or essentially give you a debit card to live off of while the rest of your income goes toward eliminating your debt.

These plans can work well, but you have to remember that they’re in business to make money. They’re not really doing anything that you couldn’t do yourself. You’re basically paying $500 a year for a service that will save you the effort in paying taxes and the effort in running a debt repayment plan.

I’m not clear on whether this forgiveness plan is tied to this company. There are a lot of student loan programs out there that are backed by government at some level that forgive student loans for people who take on high-risk jobs. It seems like this is just a service that is a “front end” to this kind of loan.

Again, it just sounds like you’re paying $5,000 over ten years to simplify your taxes and some of your money management. To me, that’s not worth it. It may be to you, though.

Q4: Daylight Savings Time switch problems
I have a terrible time adjusting to the switches to and from Daylight Savings Time. Do you have any tips that will help me not kill my productivity?
- James

Honestly, I just try to ignore the switch as much as I can. I try to keep my bedtimes and waking times in relation to sunrise and sunset rather than in accordance to the clock. The biggest trick there is just making sure that when the clocks shift, I’m not causing my children to be late for school or anything like that.

For me, it’s the change in day length that really causes difficulty. Day lengths vary about six hours over the course of a year here and during November, December, and January, the short days can get to me.

If you’re really finding the change rough, I suggest starting an exercise routine. Few things are better at improving and maintaining your energy level than regular physical activity.

Q5: Joint accounts with aging parents
I have read mixed reviews on the idea of adult children being added to their parents’ accounts. The issue often mentioned is the gift tax. But, the upside is that it is easier to make payments on behalf of the parent(s) in the event of illness or death.

What do you suggest? Are there any ground rules you would suggest like keeping the account below $13,000 to avoid gift tax issues? Does it need to be listed as an asset for a will since there are other siblings?
- Michelle

Money in that account would be considered part of the parental estate since the parent never relinquished control of it (because they kept their name on the account). Of course, any money you take from that account for your own use is considered a gift for tax purposes.

As long as anything that comes out of that account is clearly for your parents, there’s no issue at all with you being on the account. This is the type of thing that can be dug up in the case of an audit, so I’d take care with this regard.

When your parent passes on, don’t touch the account unless it’s explicitly for any remaining parental expenses. The rest of the money should be handled by the executor of the will.

Q6: Potential book selling scam
I need to buy some fairly expensive graduate school exam prep books online and the seller wants me to pay through PayPal. After we negotiated on the price a little bit, he asked if I could pay through personal check, money order or by direct deposit into his bank account to avoid the 3% PayPal fee. Is there a potential for scamming through giving an unknown seller a personal check/direct deposit/money order?
- Kelly

Well, if you pay using that method, there’s no reason for him to send you the books if he’s going to scam you. Your only way to force him to send anything would be via small claims court.

The reason that services like Amazon Marketplace and eBay work well is that they offer protection against these kinds of scams. Paypal does as well, though it can sometimes have its own issues.

I would never pay someone I didn’t know without using some kind of buyer protection.

Q7: Multilingual children
Do you think there is any benefit to raising your children in a multilingual household? My mother-in-law speaks Punjabi and insists that our children speak it as well. Will this really help our children in any tangible way?
- Andrew

There are some studies that indicate that there are advantages in overall communication skills for children who learn multiple languages during their first few years of life. Not only that, a truly bilingual person tends to have great potential in job markets. I would think that someone who can freely speak both Punjabi and English would have many job opportunities, particularly if packaged with other skills.

That being said, how exactly would you go about teaching your child both languages? Are both you and your spouse bilingual? Do you communicate at home in both languages? If you’re not doing this – or, even worse, if you can’t do this – teaching your child two languages is going to be an extra challenge.

I think if you have the ability to easily teach your child multiple languages during their formative years, by all means do it. However, if doing so is going to add significant stress to your home situation, I’m not sure the benefits overshadow that.

Q8: Roth and 403(b) balancing
I’m 40 years old and finally got around to thinking about retirement savings a few years ago. Better late than never. I have a 403(b) plan to which my employer contributes 5% of my 70K salary. The plan lets me contribute essentially as much of my pre-tax income as I want to–all the way up to 75%. I was contributing 15% for a while but recently dialed it back to 5% so I can more quickly put together the emergency savings fund I’ve decided to create.

My question is about adding a Roth IRA to the mix and how to invest those funds. I have the 403(b) invested in a moderate growth fund through Vanguard but am thinking of changing that to a target retirement date fund. Should I invest the Roth IRA the same way, or is there a reason to invest one instrument more conservatively than the other? I have to admit that I’m pretty skeptical about the stock market and fairly pessimistic about our economy, but I’m willing to tolerate some risk and hope for the best over the long term.

Also, would you suggest that I try to max out my annual IRA contribution if possible, or should I focus instead on the 403(b) and just contribute to the IRA as my cash flow allows? Or somewhere in between?
- Ron

I think target retirement funds are a great way to plan for retirement. If you’re feeling more conservative, there’s no reason not to invest in a target retirement fund that targets a date earlier than your retirement date.

I see no reason why you couldn’t put both your IRA and your 403(b) into a target retirement fund. You could have one target an earlier date and another target a later date.

As for balancing the two, I would make sure I got every drop of matching money from my employer in that 403(b) before looking at a Roth. If you have all of the matching money already and are looking to save more, I’d put everything into a Roth until I maxed it out, and if I had still more, I’d go back to the 403(b).

Q9: Salsa deal
My wife laughed at me when I mentioned the article on salsa. She found a coupon deal and got 10 bottles of Chi-Chi’s brand salsa for free. She is the queen of the deal.
- Joe

Such deals can be found, but how much effort are you putting into deal seeking? Also, how many of those jars will actually be used before their expiration date?

My experience with such deal-hunting has been that there’s a lot of serendipity involved. If you spend a lot of time digging, sometimes you’ll find nothing at all. Other times, you’ll find a great deal like this salsa one.

For me, it’s not worth it to trawl coupon resources for an hour to save $5 on my grocery bill. I’ll do a quick pass to find coupons that match my grocery list, but finding great deals for the sake of finding great deals never pans out for me over the long haul.

Q10: Splurges
What do YOU splurge on?
- Emma

My biggest two splurges are board/card games and books. Those are pretty much the only things I splurge on at this point. I guess I do splurge on very nice gifts for my wife and my parents at appropriate occasions. I used to splurge on video games, but I’ve only bought one game for myself this year, so I think that’s not really a splurge at this point.

Once a year, I go to a gaming convention with a few friends. I usually save up for this over a period of months. I consider that to be something of a splurge.

I really don’t do any impulse buys that I can think of, though. I’m the type of person who will sometimes put “breath freshening gum” on my grocery list, but without an item like that on the list, I won’t buy gum in the checkout aisle.

Review: The Small Budget Gardener

Posted: November 13th, 2011, 1:00pm MST by Trent

Every once in a while, I’ll stumble upon a book that’s basically already covered the ground I had planned on using for a post series in the future. This is one of those books.

Yes, starting in February, I was planning a “how to garden on a tight budget” series. The problem is, after reading this wonderful book by Maureen Gilmer, that post series is pretty much redundant. This book covers all of the ground I intended to cover in that series.

I guess this would lead to the question of why I would write a series about budget gardening. Simply put, a garden is a great way to produce vegetables and fruits and herbs inexpensively for your kitchen, plus it gives you a great outdoors activity to fill the months of spring, summer, and fall. The one catch is that gardening tends to have a large startup budget, one that you might be repaying for quite a while out of the savings on your garden’s produce.

So, how can one reduce the startup costs? At the same time, are there any tricks for reducing the ongoing costs of gardening in the form of things like seeds, fertilizer, and so forth? That’s pretty much exactly what this book covers and it provides a lot of great answers.

Stretch Every Dollar
The book opens with a focus on the absolute essential equipment you need to get a garden up and running. One key section of this chapter that I particularly enjoyed listed about fifteen key garden tools (like a hand trowel, a pointed shovel, a hoe, a small leaf rake, and so on) and identified specifically what you should look for when buying that item. What features does it need to do its job well over a long period of time? The chapter also includes some homebrew recipes for insect repellent (mix four tablespoons liquid dish soap into a gallon of water, then spray on plants), fertilizer (a crazy mix of common household ingredients that I’m going to try soon), and other such items.

From there, the book moves onto how to shop for the initial plants you need, incorporating some great standard frugality tactics into garden supplying. One good suggestion is to just buddy up with other gardeners, so that when you buy a multi-pack of plants (saving money by buying in bulk) you can split them up among the people involved. Another good tactic is to save seeds and cuttings from previous years, but this requires that you start off with non-hybridized seeds (from a Seed Savers catalog, for example).

From here, Gilmer moves onto making good soil. Soil can be expensive if you’re buying bags of topsoil or potting soil, so she suggests making your own. Hunt around for a source of manure (if you know a livestock farmer, cattle manure is fantastic for this). Use alfalfa as a mulch. Better yet, make your own compost (which is something we do) out of your leftover plant scraps. It’s not hard to make really rich soil for your garden at a pittance.

Environmental Cents
The focus of this section is mostly on how to reduce your utility bills using your plants, making them serve double duty (or perhaps triple duty). The first example is the advantage of planting shade trees around your home, effectively keeping the hot sun out in the summer and insulating a bit in the winter. Fast-growing shade trees are plentiful and will let you start reaping that advantage in just a handful of years.

Another method is to choose ornamental plants that are drought-resistant so that you don’t have to actively water them very often. Instead, you can rely on the rainwater in your area to provide plenty of water for them, enabling you to cut down on your water use.

This section also focuses on the value of reusing the things you have on hand. Use large twigs to build lattices and other structures for your vines to grow on (we do this every year for our cucumbers). Use grass clippings and leaves as a resource for the composter or for direct mulching on your garden. Instead of buying large rocks or cement blocks, keep your eye out for flat rocks that would make for beautiful garden decorations.

Gratis – As It Should Be
The final section of this book focuses on how to get free things for your garden, from plant and seed samples to wonderful ideas. One great suggestion is to simply start following good gardening blogs (a couple of my favorites are A Way to Garden and Garden Rant).

However, the real focus of this section is on saving your own seeds and cuttings for the future. In the case of seeds, this requires that you start from non-hybridized plants or seeds of your own, which you can get from a group like Seed Savers. The book provides a great guide on techniques for saving seeds and cuttings. Once you’ve established this as a routine, you can begin trading your excess seeds for new ones, enabling you to try new plants without spending a dime.

Is The Small Budget Gardener Worth Reading?
If you’ve ever liked gardening and would like a few frugal tips, pick up this book. Furthermore, if you’ve ever thought about gardening but been daunted by the startup costs, you must read this book.

It’s colorful, fun, easy to read, and full of wonderful frugal gardening tips. That adds up to a great book to me. Ours is already accumulating dog-eared pages.

Check out additional reviews and notes of The Small Budget Gardener on Amazon.com.

How to Loan Money to Friends and Family

Posted: November 13th, 2011, 7:00am MST by Trent

One of my basic rules of personal finance is never loan money to friends or family. It creates a lender-borrower situation that you just don’t want to mix with friendships and family relationships.

Think about it this way: do you like your mortgage holder? Do you feel warm, friendly feelings about them? That’s the result of a lender-borrower relationship and when you lend money to friends or family, that’s what you add to the equation.

Yet, time after time, I get messages from readers who seem completely convinced that lending money to their friends and family is the right way to go. They’re going to do it, no matter what I suggest, because there is some social reason why they believe it’s the right thing to do.

I absolutely believe loaning money to someone is a horrible idea, but if you’re going to do it, here’s how I would go about that process.

First, assume you’re not going to be paid back. From your eyes, think of the money you’re lending as a gift. A very high portion of personal loans are never repaid and if you expect to be repaid, you’re going to be disappointed and you’re going to start injecting negativity into that relationship. Be aware of that right off the bat and don’t expect to be repaid.

Hand in hand with that assumption is the realization that you should never loan money that you’re going to need in the future. If you’re going to need that money to survive, don’t lend it, period. Only lend money that you could live without – money that would ordinarily go to non-essential items.

When you loan the money, make it clear to the person that you’re not worried about when you’ll be paid back. Make it clear that they can repay you on their own terms, because when you start setting terms, you’re creating a relationship-damaging lender-borrower situation. Let them pay you back when they can.

At the same time, make it clear that you won’t loan to them again until this is paid back. You do not want to become a well of support. A loan is just that – a single shot of money intended to help them right their ship again. You are not a means for them to get by. You are not a method by which they don’t have to start taking responsibility for their actions.

Once you’ve loaned the money, don’t bring it up. In fact, the best thing you can possibly do is just to completely forget that you’ve loaned any money at all. Since you’ve not set any terms on having them pay you back, simply allow them to figure out their situation and come up with a repayment plan. If they don’t, well, you didn’t expect to get the money back anyway.

If they ask for another loan, say “no” unless you’re really willing to give up more money. If you do say “no,” simply point out that you previously told them that you would not loan them more money until the earlier loan was paid back. This is an easy and very clear response, as it puts the onus of trust onto them, not onto you.

As I said at the start of this article, this advice only matters if you’ve decided to loan money anyway, even though I generally consider it to be a really bad idea. If you’re considering loaning money to a friend or family member, please think it over carefully before doing so.

I have made the mistake of lending money to family and friends in the past. Eventually, I had to accept that this money was simply gone. If I had accepted that idea from the start, I wouldn’t have damaged any relationships in the process. Instead, I could have continued to be a part of their process of fixing their life.

Don’t let money get in the way of your friendships or family. Avoid lending money if you can, and if you must, make it as unintrusive as possible.

What Should My Net Worth Be?

Posted: November 12th, 2011, 1:00pm MST by Trent

Earlier today, I was thumbing through the excellent book The Millionaire Next Door, when I came across an interesting discussion about a person’s net worth. The authors, William Stanley and Thomas Danko, offer up a rule of thumb for a person’s net worth:

Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

(A quick refresher: a person’s net worth is the total sum of their assets – their home, their car, their bank accounts – minus their debts.)

So, let’s say you’re thirty years old and you make $35,000 per year. According to this formula, your net worth should be $105,000.

That seems on the surface like it might be a good calculation, but it is loaded with flaws that simply don’t add up.

Take me at age 23. I made $43,000 that year pre-tax. It was my first year out of college, so I was saddled with student loan debts and I hadn’t been earning very much up to that point. According to their formula, my net worth should have been just a hair shy of $100,000. Unsurprisingly, it was negative.

It also creates some unrealistic numbers for people later in life. Let’s say someone is 65 and has been working for minimum wage all of their life, causing them to live paycheck to paycheck all the way through. It’s been a struggle for them, but they’ve been banking on Social Security for retirement and they’ve managed to survive. This year, the person makes $20,000. Stanley and Danko believe that this person’s net worth should be $130,000. That’s just not realistic.

What are some good solutions for this?

First, I’d subtract a minimum living wage out of the equation. If you’re only making minimum wage, it’s not realistic to expect you to start building up a big net worth. All of your money is going to keep your head above water. So, I’d subtract $20,000 a year (at least) off of the salary and probably an additional $5,000 per additional dependent. So, for a family of five, I’d subtract $40,000 off of that salary number.

Second, I’d use an average of the person’s last ten years of income. So, if you look at me at age 23, my average earnings for the previous three or four years was about $8,000, and for the years before that it was essentially $0. This would give me an average of $6,700.

This works very well with the “subtract out the minimum wage” rule for people freshly out of college. My net worth at age 23 would have been -$30,590, which actually wasn’t too far off. With each subsequent year, that net worth starts inching upwards, which is realistic because I would have been paying off that debt.

There’s a third problem, though, once you start making those changes. If you’re looking at someone making a good wage over a long period of time, these revisions undercut how much they should have built up for their net worth. The original rule of thumb works well for people with a healthy income over a consistent period of time.

The solution that I see is to reduce the number that you divide your average income by. This doesn’t have much impact on people who don’t stray too terribly far from the minimum wage as an average income, but it has a pretty big impact on people who consistently earn a healthy wage. I tried fitting various numbers to my own historical financial progress and found that reducing the number from ten to eight seemed to have a very reasonable impact.

So, what does this turn the “rule of thumb” into?

“Take the average of your last ten years of pretax income. Subtract a living wage from that average, meaning $15,000 plus $5,000 more for each dependent (including you) on your taxes. Multiply that by your age, then divide by eight. This will give you a good estimate of what your net worth should be.”

This, of course, isn’t a perfect calculation. No such “rule of thumb” ever is. However, I think it creates a more realistic view of people’s lives. It matches up much more realistically for the situation I found myself in immediately after college, as well as the situation I find myself in now. It also matches up well with the situation my parents are in.

Ten Pieces of Inspiration #46

Posted: November 12th, 2011, 7:00am MST by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

This past week, my oldest two children and I spent some time looking at public domain photos of different points in American history for an art project. Some of them really inspired me, so this week’s entry has quite a few of them.

1. Soldier’s Goodbye and Bobby the Cat (ca. 1939-1945) by Sam Horn
A friend of our family was recently deployed to Afghanistan, and at the same time, our son’s school is engaging in a “thank you” letter writing campaign to veterans of past wars. Because of that, the issue of people going off to war has been on our minds lately. This picture just grabbed us.

A beautiful image of love in a time of war.

2. P. T. Barnum on money’s value
What good is money if you don’t have anything that you otherwise value?

“Money is good for nothing unless you know the value of it by experience.” – P. T. Barnum

All money does is let you align your life with the things that you value. If you’re not doing that, then what value does it have?

3. Child in a swimsuit holding a basket of clams (ca. 1929-1932) by Vern Gorst
When we came across this picture, we started a long discussion about why this young child was working, carrying what looks to be a reasonably heavy basket of clams. This led us to a long conversation about how in some societies young children have to work to help out the family.

We spent some time wondering about this child, particularly whether this child was working or was playing some sort of game with clam shells. What is this child’s world like? One can’t help but wonder.

4. Henry Ford on financial independence
Financial independence is the result of something else.

“If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability.” – Henry Ford

If you work hard to build your knowledge, your experience, and your ability, you’re also building your independence.

5. Schoolchildren line up for free issue of soup and a slice of bread in the Depression (1934) by Sam Hood
Whenever I hear someone complaining about the sorry state of the economy, I think of pictures like this one, depicting people lining up in soup kitchen lines in the 1930s because there was simply no way for them to get food at home. Banks where people had their life savings vanished with all of their money. Unemployment reached 30% – and much higher in some areas. This picture inspired a long conversation with my oldest son about poverty.

This picture inspires me because it reminds me that things can always be far worse than they are. We are all really pretty well off.

6. LooseCubes
There are times when it’s not convenient for me to work at home. When that happens, I try to work at the library, but that doesn’t always work out, either. Coffee shops can work, but if they’ve got a lot of people, those sometimes fail. A few times a year, I just need a cubicle somewhere for the day to just get some stuff done.

That’s exactly what LooseCubes helps with. It can tell you where you can find a desk somewhere to work without interruption. This site really helped during our Seattle trip when I had an emergency to deal with and needed a distraction-free place to work for a while. I left it bookmarked and recently found it again, realizing how useful it can really be for people who are self-employed.

7. Migrant Mother, Nipomo, California (1936) by Dorothea Lange
This picture is famous for a reason. The look on this woman’s face and the situation she found herself in as a post-Dust Bowl migrant with children is a painful one.

My daughter looked at this for a long time and called the woman a “sad mommy” and wanted to know why the children weren’t trying to make her laugh. I gave her a hug and said, “I think they’re just hugging each other.” She put her arms around me and didn’t say anything for a while.

8. Andre Maurois on happiness and the past
Whenever I think about the past too much, I tend to feel melancholy. Similarly, whenever I feel melancholy, I tend to dwell on the past.

“The first recipe of happiness – avoid too lengthy meditations on the past.” – Andre Maurois

Today is a much brighter place than yesterday.

9. Thomas [in car] (ca. 1910 – 1915)
This last picture is a bit lighter in tone than the earlier ones. This led us to talk a lot about how much things change over a hundred years, from the car the man was driving to how he was dressed.

There are so many details that are so different today, yet the situation is also familiar. He’s a person enjoying a bit of freedom.

10. Jessi Arrington on the virtues of thrift stores
This is wonderfully spot on.

Wearing Things Out

Posted: November 11th, 2011, 1:00pm MST by Trent

Dinner with My Family is taking a one week hiatus this week.

On the shelf in my office sits a well-worn copy of the board game Settlers of Catan. By well-worn, I mean well-worn. Fraying edges. Ink starting to wear off of the cards. A few home-brewed replacement pieces. A bit of moisture damage causing some warped pieces.

The game has moved with me at least four times. It’s went to the homes of countless friends. It’s been taken on countless camping trips, including quite a few where we pulled all of the pieces out of the box and put them into bags for easier travel.

In 1998, I paid somewhere around $30 for this game. I would estimate that Sarah and I have each had several hundred hours worth of fun from this game and it’s not completely worn out yet. It still has some miles left to go before it needs replacing.

I’ve gotten much more value out of this well-worn game than from most of the nearly-new items in our home.

When I think about the items I’ve used until they’ve literally worn out, my mind is flooded with memories.

I actually wore out an iPod Touch until the battery only held charge for about fifteen minutes and the screen was so scratched up that it was unusable.

I’ve read about five books so many times that pages were falling apart. That’s why I now own second copies of Your Money or Your Life and Getting Things Done.

We kept using an old crock pot until the heating element stopped functioning in it. Earlier wear included several chips in the ceramic, a broken lid, and a broken leg.

I wore out several CDs during my college years, simply from small scratches accumulated over many, many, many listens and trips in my backpack.

I had a backpack that finally fell to shreds. I’ve done the same with several pairs of shoes and more than a few pairs of socks.

Every time I actually use an item until I’ve worn it out, I feel as though I’ve received incredible value from that item. That item not only saved me a lot of money over the years (or provided so many hours of value for such a little price), but it also became imbued with a lot of memories along the way. My memories and associations with that copy of Settlers are much deeper than the vast majority of other items in my home, for example.

So, what can this tell me about the way I spend money now?

First of all, I think it’s worth it to ask myself whether or not I’m going to completely wear out anything that I buy. I tend to do this really well with some things, such as clothing, but with other things, I tend to not do this as well (board games come to mind, although they take a lot of wear).

Of course, if you do that, how will you ever try anything new? I think the key is that when you realize you’re not going to use something extensively, you should sell it and roll it into something else.

This actually starts to touch on another issue: clutter. The battle here, of course, is against spending money on things you’re not going to use a lot. Clutter is the result of buying things that you don’t use a lot.

You can start by visiting a room in your home and asking yourself which of these items you actually use on a regular basis. If you don’t use them, sell them! Use that money to right your financial ship a bit and to make sure that the things you do have that you use often are sturdy, reliable, and useful versions of that item.

For example, when I’m standing in my kitchen, I’d rather have three or four good knives that I’ll use for years and years than a big ol’ block of knives, most of which I rarely use. Ideally, I’ll keep using and sharpening these knives until they’re unusable. Most important, I know I won’t have to even think about buying a knife for many years and the knives I do have won’t take up much space in my home.

A big de-clutter where you get rid of the things you rarely use is a great weekend project. Set aside things to sell on eBay or at a consignment shop or at a yard sale next spring.

Stick with the things you’ll wear out – and don’t spend your time or money on the things that you won’t.

Saving Pennies or Dollars? Restaurant Discounts

Posted: November 11th, 2011, 7:00am MST by Trent

Charlie writes in: I can pretty consistently get 50% off discounts on meals at neighborhood restaurants. As a single guy, I can’t believe this isn’t a big saver over making the same meal at home.

The direct response I’d make to this question is “What neighborhood restaurants are you getting this kind of discount at?” Without that information, it’s really hard to quantify how much you’re saving at home or at a restaurant.

So, in order to look more carefully at this, I went and looked at the menu of one of the most popular chain restaurants around, Applebees. You can look at their menu here.

If you take the prices of many of these meals, eliminate half of the value, and compare them to the cost of making them at home, the prices are pretty similar. I did some back-of-the-envelope calculations comparing various sandwiches and entrees to my best estimate of what you’d have to invest to make a similar meal at home and the results were similar.

However, the restaurant experience has some additional costs. If you drink anything besides water, you’re going to be paying quite a bit more for that than it would cost you at home. You have the cost of the tip. You have the cost of driving to and from the restaurant (and a mile in your car costs you about $0.50 when you figure in all of the factors). Those are going to be on top of your basic meal cost – and they tip the scale toward eating at home.

The biggest factor that people always mention is time when it comes to eating out. It’s probably quicker to eat out if you’re going through a drive-thru, but if you’re dining at a restaurant, you have to include the time spent getting there, going into the restaurant and to your seat, ordering, waiting for your food, waiting for the waitstaff to handle your ticket after you’re done eating, going out to your vehicle, and driving home. That time really adds up.

Again, it’s very difficult to precisely quantify all of these things because they vary so much from specific situation to specific situation, but even with the 50% discount, I would generally say that the time invested in eating out and eating at home is roughly equal and the cost of dining out is more.

So, why eat out? Simply put, it’s far more relaxing. If I go out to eat by myself (which I do every once in a great while if I’m traveling or have a packed day schedule), I can just sit there and read a book (which is what I usually do) instead of preparing food. If I go out to eat with others, we can just sit there and enjoy each other’s company.

Most of the time, I’d rather prepare food at home as I enjoy the process and it is less expensive. We often turn it into a family activity, where the children are setting the table and Sarah and I are working together to get a meal on the table. Even for meals when I’m at home alone, I’d still rather prepare myself something simple, like scrambled eggs. Not only that, I have control over the ingredients. I get to decide what’s in the food, something I don’t have control over at a restaurant.

The reason to eat at a restaurant is the experience. You get to sit there and enjoy a solitary activity or the company of others while your food is prepared. That comes at a cost, even with a 50% off coupon for the meal. Sometimes, there’s also the factor of eating an exceptional meal, but when you do that, you’re often paying an additional premium.

If you have a chance to get a restaurant discount, great. However, even with a steady supply of coupons, the cost of always eating out doesn’t add up.

A Mindful Life

Posted: November 10th, 2011, 1:00pm MST by Trent

When I first started The Simple Dollar, a little over five years ago, I had just started the process of turning around my finances and I wanted to share that story with my friends.

Before that, I hadn’t really been mindful about my financial choices. I would spend with reckless abandon, fulfilling the things I wanted in the very short term without really reflecting on what it meant not only for the long term, but in terms of other short term desires.

Simply put, I didn’t really think about what I was doing with my money. Sure, I would plan ahead enough to make sure that the next month’s bills were paid, but I wasn’t even all that good at doing that. I spent money without thinking. I was mindless.

That mindlessness ran over into a lot of other aspects of my life. It affected how I spent my time. It affected how I acted toward others. It affected how I handled my career. It affected my physical fitness. It affected my relationship with my wife. It affected my hobbies and interests.

In each case, I would make most of my choices without really thinking about them. I’d say things based on my immediate emotional or intellectual response. I’d spend time on what seemed fun at that exact moment. I avoided doing things that weren’t fun, no matter how much they would pay off for me down the road. I never considered the things I was doing in a scope that was beyond me (and sometimes Sarah, too) and I rarely considered them beyond the next few weeks.

Most of the time, I simply acted on impulse in everything that I did.

Thankfully, I was raised well enough that my impulsive responses weren’t terrible. My parents ground a basic level of politeness into my head, for starters, and I had a decent general sense of what it took to survive from day to day and week to week.

The problem is that acting constantly based on such impulses built very little for the future.

It left my finances in a shambles. It left me losing touch with the career I’d dreamed of since I was a boy (writing). It left me completely unprepared for parenthood. It left me with a life that didn’t really seem to have any long-term values.

The biggest change that I’ve made in my life over the last several years is to simply start thinking about all of the little actions I take.

By that, I don’t mean that I stand there and puzzle over what kind of gum to buy in the checkout line. Instead, I spend quite a lot of time thinking about what caused me to make decisions in the heat of the moment and I try to make sure that those decisions are the best possible ones. Not just for the short term, but for the long term. Not just for my immediate convenience, but for a better overall life. Not for my immediate emotional gratification, but for building relationships over the long haul.

Today, I actually spend a lot of time reflecting on why I make the choices that I do and how I can correct the unconscious rules that guide my impulses. I’ve learned a few things.

If I think about something for a while, I’ll find that I remember those thoughts the next time the situation comes up. For example, if I’ve realized that I’ve been spending too much time lately playing a particular game, the next time I pull up that game, that conscious thought actually pops into my head. It makes me stop for a second, reconsider playing that game, and usually causes me to simply not play it.

If I repeat a new behavior a few times, it eventually becomes natural and I don’t have to think about it. Virtually every time I change one of my routine behaviors in my life, the first several times I’m faced with that choice again, I have to think about it. If I repeat that choice enough times, though, and always make the “better” choice, I start making the “better” choice by default.

This is surprisingly true for almost every aspect of my life. It affects how I spend. It affects the things that I choose to say, how I choose to say them, and when I keep my mouth shut. It affects how I spend my time.

Amazingly, it even affects my enjoyment levels of most things. If I’ve given a particular choice enough thought and convinced myself that one choice truly is better, I immediately feel better when making that choice. The other day, someone commented that I seemed to deeply be enjoying the spinach salad that I had chosen to eat. I realized that I was enjoying it quite a lot, and some of that enjoyment came from simply knowing I’d made a good, health-conscious choice about what to eat.

The key to all of it is to simply spend some time reflecting on the choices you make.

How do you do that? For me, I usually do it in the evenings during the time I write in my journal. I’ve been keeping an (almost) daily journal since 1992. Until the last few years, it had mostly just been a chronicle of my day and whatever thoughts were going on through my head.

Lately, though, I find myself thinking a lot about the choices I made during the day. My entry might briefly touch on the things I did that day, but most of the entry will involve me re-thinking how I handled a discipline situation with my children. I’ll even find myself doing some research because of this where I learn how I could have handled it better.

I’ll go over all kinds of choices during this process. Sometimes, I’ll look at what I ate at a particular meal. I might re-think a conversation I had with Sarah. I might look at a spending decision I made that day. I’ll potentially review something I’ve written that day. I’ll reflect on a particular relationship in my life and what I can do to make it (and all other relationships) better.

My goal is simple. I want every seemingly automatic decision I make during my busy day to be the right decision for building a great life. Finances and spending choices are certainly a part of that, but so is my health, my family, my spirituality, my knowledge of the world, my friendships, my hobbies, my work, and all of the other things that make up my life.

If I could change anything about my life as I’ve lived it thus far, I wish I would have adopted this perspective much sooner. It’s something that I hope to embed in my children as they grow, too.

Reader Mailbag: Focus On, Focus Off

Posted: November 10th, 2011, 7:00am MST 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. Refinance timing question
2. Encouraging better financial choices
3. Old credit card debt
4. Nostalgia battles
5. Self control and financial drought
6. Risk and living off investments
7. Good customer rewards program
8. Banking on Obama’s loan plan
9. Preparing for a baby
10. Thanksgiving traditions

One topic I often write about on The Simple Dollar is focus. While I write sometimes about tactics I use for improving my focus on the task at hand (thus improving my work, thus increasing my income and improving my career), there are still factors I can’t control.

For example, it doesn’t matter how much I try, there are still some periods where focus just doesn’t come to me. I’ve been struggling with this mightily all day today.

There are also times where unexpected events destroy my focus. Last night, our 1 1/2 year old woke up several times in the night, apparently from bad dreams. A poor night of sleep completely destroys my focus.

My take on it? Spend your time worrying about the things you can control (like tactics for improving your focus) and not worrying about the things you can’t (biological and life quirks).

Q1: Refinance timing question
In May of 2008 I purchased a home for $210,000. After closing and 10% down I was left with a mortgage of $192,315 at 6.8%. I could not refinance until 4 years into the mortgage due to a 1st time home buyer program (which will be this upcoming May of 2012). I increased my monthly payments by $375 in April 2010 and that has been applied to the principal which is now down to $177,070. My original goal was to be close to having 20% of the home paid off by the time I was able to refinance. If the house still appraised for $210,000 I would need to owe $168,000. My only other debts are a college loan of $30,000 at 3.5% and approx $4,000 on my wife’s auto loan.

Should I refinance as soon as possible, in May of 2012, with hopes of lowering the interest rate to 4-4.5%. I only plan on staying in the house for another 3-4 years, how much would the closing costs have to be to offset the savings in the interest rate? What’s the difference (or benefit) between a 10, 15 or 30 year mortgage if I don’t plan on staying in the house that long?

My wife was never a big fan of paying extra into the mortgage to lower what we owe on the house. She would have rather opened a new savings account and used that $375 a month in savings for a down payment for the future house. I thought the payments on the mortgage were like saving the 6.8% interest as opposed to only receiving a 1% interest rate in a savings account. Am I right with this assumption or is she right? If the housing market were to continue to go down we would eventually owe that money one way or the other right, so why not pay it down and stay ahead of the market?
- Shane

You’re right in that putting extra money into the mortgage will effectively earn you that interest rate.

However, the big disadvantage that it holds is that money put into your mortgage is really not very liquid at all. You can only recoup it if you sell the house or if you pay off the entire mortgage and have a payment-free period, as a home equity loan essentially undoes the good work you’ve done by paying ahead.

The savings account, while not earning much of an interest rate, is highly liquid. You can easily take it and use it for whatever you need to in life.

My feeling is that once you have a cash emergency fund built up in savings to handle what life may throw at you, you’re better off paying ahead on the mortgage.

Q2: Encouraging better financial choices
I’ve been reading your blog for a while now, and I see a lot of similarities between your family money situation growing up and my own. We were a family of 6 (dad, mom, and 4 kids) with only my dad working. Money was always super tight, and I remember it being a constant struggle to make ends meet.

Now, I’m 27 years old and have “made it” in my family’s eyes. I went to college and earned my BS in accounting and my MBA. I work in the accounting department at a local bank. We have two early-mid 2000 vehicles that are paid off, have no credit card debt, contribute to my 401k and save regularly from each paycheck. Not that we’re rich by any means, however. I make $48k a year (decent money for the Midwest (Indiana), we eat almost all our meals at home, we don’t have cable tv or expensive hobbies. Basically, I like to think we’re making good long-term financial decisions.

The older I get, the more clearly I see the poor financial decisions that my parents have been making my entire life. They struggle and struggle to put food on the table and pay bills, but they’re making a two-day trip (gas, hotel, food) to visit my sister at college (6 hrs away) when she’s going to be home in two weeks for Thanksgiving anyway. Whenever we visit with my parents, most of the conversation topics they bring up are about their money troubles. I think it’s their subtle way of trying to get me to feel sorry for them and give them money (which I will not do). I’ve offered to sit down and go over their finances with them to see where they can do things differently, but they are not interested.

My question to you is how/if you’ve had any success in getting your family to make better financial decisions. Any advice is appreciated.
- Chris

To put it simply, you can lead a horse to water but you can’t make it drink.

A foundation of sensible financial choices can’t be built from the outside. It can only be built from the inside through a person’s desire to improve their situation and the willpower to make the hard calls to make it happen.

When you’re on the outside – as you are – pushing people to make changes they don’t want to make does nothing but cause relationship friction.

Your best approach is to simply be passive about it. Encourage the good behaviors that they mention by speaking positively about them. Drop an applicable tip for saving money every once in a while. Most importantly, prepare your own financial situation so that you can survive whatever they do.

Q3: Old credit card debt
I have had a few credit cards go into collections and 3rd party collection agencies. My question is what is the best way to pay these credit cards? I havent paid on these cards in 4 to 5 years.
- Daniel

The first thing I’d do is get a copy of my credit report from the federal government (using their annual credit report tool). Find out what debts are actually listed there, then track these debts down.

Before you do this, though, a caveat. It is awesome that you’re doing the right thing and paying off your debts. It’s the responsible human thing to do. However, strictly in terms of your credit, seeking out these debts at this point will do far more harm to your credit score than good. After seven years, unpaid debts vanish from your credit history.

I think this policy is completely broken and rewards dishonesty and avoidance of debt past a certain point, but it’s how the credit game works. As for me, I’d still do the right thing and pay it off.

Q4: Nostalgia battles
One thing I can’t help but notice is that everything old is constantly new again. Companies seem to constantly bring out revisions of things that I loved from my childhood and I find that I have a weakness toward them simply because of the fond memories they bring about. How do you fight this?
- Amy

I usually combat this type of sentiment by asking myself, “Why am I buying this?”

Almost always, items that I’m buying because they hit a nostalgic nerve completely fail this test. I usually don’t have a good reason for buying the item. I usually only picked it up because it hit some emotional response to something good that happened in my childhood.

I try to ask that question of everything that I buy.

Q5: Self control and financial drought
A lot of your advice is going to necessarily be for people who have some sort of income, but I don’t, and I haven’t for two years. I’m disabled, and if all goes well I’ll have SSI sometime in the next six months.

My question is this: how do you spend enough after the drought that you don’t spend too much? How can I restrict my spending when I’ve had so little? I have a list of bills to clear and things that absolutely must be bought, but I also want to set aside a little bit so that I’m not tempted to spend a lot. For the last two years I’ve had NO income, no spending money, nothing except food, shelter, and the occasional necessary item gifted. Christmas and gift money went into purchasing things I needed. (Mostly toothpaste, meds, and toiletries. The only treats I’ve had have been comfort foods with my food stamps.) I’m really scared that I won’t be able to control myself when I do have money after this drought! Do you have any advice?
- Veronica

The technique to use here is what is commonly called “paying yourself first.”

Simply put, the second you get a paycheck from SSI, you take it to the bank and put most of it in checking, but some of it straight into a savings account, not to be touched until you absolutely need it. Do this right off the bat, before it even touches your checking account.

Then, forget about that savings account. Only pay attention to it if there’s a very good reason for using it, such as a deep emergency or something like that. Don’t use it to buy anything that isn’t incredibly vital.

In other words, live on less than you make and bank the difference until that rainy day comes along when you’ll need that difference.

Q6: Risk and living off investments
I have 2 questions. I have no debt of any kind. I am also unemployed for 4 months now. Since I had my savings, a decent apartment and received a handsome severance money, I am not only been able to survive but also am earning income around 70% of my last take home salary every month by investing my funds in different asset classes.

This earning is sufficient for my monthly expenses but I won’t be able to save unless I take some business risks to increase my income. I want personal freedom like you but my wife is very upset and is pressing me to find a job. We both are from middle class families and have been taught to take control of our spending habits and finances by our parents. She is of the view that I am walking on a thin string and if there is a drop in income for few months, we have to eat our savings which will deplete our net worth. I like my job and will consider working again if there is an offer, however the jobs are not available even at a lower grade or a lower salary. Being realistic, the best option for me seems to be doing my own thing.

Now my first question: How should I convince my wife that I have to take some risks with our wealth under present situation.

Second question: What’s your view on decrease in net worth due to decline in income.
- Roger

It depends on how much risk you’re already taking on to earn that 70% of your take home.

Quite often, when we’re doing well with our investments, it’s really easy to minimize the risks in our head. We see how the returns keep flowing in and, by simple human nature, we project the same results down the road. This is more or less how the banks got into trouble with the housing market during the last decade.

You need to look carefully at the long term history of what you’re investing in and ask yourself what would happen if 2012 were equal to the worst year in the history of those investments. How bad would your financial situation be then? How much of your life savings would you lose? Are you comfortable with that? Is your wife comfortable with that?

If you can’t make that case, then you’re already into too much risk.

Q7: Good customer rewards program
There’s a new grocery store in our area that operates on a “customer rewards” basis. Basically, you get a card and use it each time you shop. When you rack up a certain dollar amount in receipts over the last twelve months, you get a discount level on your entire purchase. If you get to higher levels, you get a higher discount. Now, without the discount levels, the prices there are just a bit higher than the store I shop at, with prices like $3.09 for the juice my kids like versus $2.99 at my store. However, at higher levels the prices are lower. Is it worth it to shop there?
- Karen

It depends on the specifics of the program. How long does it take to hit these reward levels?

If you can get to a level that causes your prices to be lower in just a month or two of normal shopping, then the long term savings you’ll get from being a customer there will save you money over the long run.

However, if it looks like it will take many months or years for you to reach those levels, it’s probably not worth the switch.

Customer rewards programs tend to help out the high-volume customers much more than the low-volume customers.

Q8: Banking on Obama’s loan plan
After 10 years of college I now have $90k in federal student loans (already consolidated, less than 5% interest rate). I make less than half of that for my annual salary, I have been making payments for almost 5 years now and have no other debt other than my mortgage. My question is should I try to lower my payment and only pay the minimum for the next 15 years and let the rest be forgiven per Obama’s plan? Is there something I’m missing?
- Amber

I would never change my financial planning based on the promises of a politician. I probably wouldn’t even alter my plans if there were a law on the books offering loan forgiveness.

Simply put, I don’t trust such programs. They change constantly depending on the priorities of the leaders in charge at the moment. In six years, we will have a different president and a significantly altered Congress. Will they be in favor of forgiveness?

Assume you’re going to be paying your debt according to the agreement already in place. If something better happens and you can quickly take advantage of it, great. However, don’t alter your plans because of what might be there in fifteen years.

Q9: Preparing for a baby
My wife and I recently learned the terrific news that we’ll be having a baby! It will be our first, so we are learning all that we can. Could you recommend some personal finance resources geared toward this big change? Or could you directly suggest any steps that we should take to prepare?

My wife and I are nearing 30 and make modest salaries. Importantly, we have chosen to live within our means; we recently bought our first house with a large downpayment and have built up an emergency fund that could cover our (current) expenses for six months. We are saving for retirement and so far have been fortunate enough to be able to plan for and fully save for several significant home repairs. Our immediate goal is to have some flexibility regarding my wife’s work schedule; we’d love for her to work her job part-time or even quit so that she can be there full time when our baby is born. A longer term goal is to get our child off to a good start financially by being able to support and develop his/her various interests (sports, hobbies, etc.). I think we have a solid foundation in place but I want to go the extra mile to get our expanded family off to the right start.
- Matt

I think you’ve got everything you need already in place. There’s really no special trick with regards to being financially ready for a baby to come. You’re going to have some extra expenses, particularly right off the bat, but it sounds like you’re completely ready for them.

Instead, I’d mostly focus on what it takes to be a good parent.

I’m going to give you the one piece of advice that I think is the most important thing expectant parents need to hear. This is the big one, right here. When being a parent gets hard, talk to your spouse about it, and when your spouse is talking about the challenges of it, listen. Communicate with each other. There are going to be times when this is hard. There are going to be times when your spouse is frustrated and you’re exhausted. Be willing to tell each other what’s hard and listen when the other one is talking. You’re a team, and a team doesn’t function well if one person is really struggling.

Q10: Thanksgiving traditions
For the first time, my family is going to be speding Thanksgiving at home without visiting other family. My wife and I want to make this very special and start establishing some traditions for our family (we have two kids, 7 and 6). Do you have any thoughts/suggestions?
- Reggie

It really depends on your specific family and what’s important to you guys. I think the best answer I can give is to share our own Thanksgiving traditions.

We usually have a meal on Thanksgiving Day both with my parents and with my wife’s parents. We usually try to fill the day after Thanksgiving with purely family-oriented activities, usually including a movie (this year, I think we’re going to see the Muppet movie). We usually also go to a holiday parade that’s in our area. The Sunday after Thanksgiving, we all participate in decorating the house together for Christmas.

Mostly, though, it’s just spending a lot of time together and enjoying being together. Time together is far more important than formal traditions.

Saving Pennies or Dollars? Dishwasher or Hand Washing

Posted: November 9th, 2011, 1:00pm MST by Trent

Marie writes in: Did you ever do a cost analysis on dishwashers vs. hand washing dishes??? My dishwasher is not functioning properly [I may overstuff the thing] wondered if the old fashioned way is better economically.

This is a really tricky one to quantify, because the real cost in washing dishes comes from the cost of hot water. This is easily the largest cost component of doing a batch of dishes, as one often uses $0.40 or $0.50 of heated water in doing a batch, whether in the dishwasher or in the sink.

There’s also the problem of variability in that some dishwashers use more hot water than others and some people use more hot water than others. It’s very hard to precisely quantify these things for such a comparison.

If you want to minimize hot water use while handwashing dishes, the way to do it is to fill one basin with hot water and soap, then use cold water to rinse your dishes after they’re scrubbed. This generally uses less hot water than the average dishwasher, but even then, it’s hard to quantify exactly how much.

So, to distinguish between the two, we have to largely ignore water.

What costs are we left with, then? For starters, dishwashers run on electricity. This report estimates that a dishwasher unit uses somewhere around 1.5 kWh on average to run a load of dishes, excluding the costs of the incoming water. That’s a cost of about $0.17 or so in the average American home.

There’s also the startup cost of owning a dishwasher. This, of course, relies on the assumption that a kitchen sink is a “default” piece of equipment in a home and a dishwasher is not, which matches my experience growing up (and my first places where I lived after moving out) quite well.

This site estimates the lifespan of a mid-range dishwasher as being approximately 10 years and having a cost of $500. That adds up to $50 per year. This report estimates that an average dishwasher runs 215 loads per year, so you’d have a cost of about $0.46 per load for the cost of the dishwasher.

Since you’re using cleaning supplies in both the sink and the dishwasher, we’ll assume that those are essentially equal, too.

Thus, your total extra cost per dishwasher load of dishes versus doing them by hand is about $0.63. It’s a little bit higher than this if you do dishes by hand by filling up a basin with hot water and using only cold water to rinse the soap from the dishes.

Based on my own experiences doing both, I invest about ten minutes more doing a sink full of dishes by hand than by putting them in the dishwasher. Note that I’m not saying I can wash a sink full of dishes in ten minutes, but that my total time invested in doing a sink full of dishes starting from a big pile of dirty dishes after a meal to clean dishes in the cupboard takes about ten minutes more than it does putting them all in the dishwasher, running it, and unloading it.

Is that enough to make handwashing worthwhile? You’re saving about $3.80 per hour of handwashing dishes versus using a typical dishwasher. That, to me, isn’t enough of a savings, so I’ll usually run the dishwasher and enjoy the extra time with my family or extra time sleeping, which is worth $3.80 per hour for me.

The Simple Dollar Weekly Roundup: Snow Edition

Posted: November 9th, 2011, 7:00am MST by Trent

I woke up this morning to the first snow of the year. Thankfully, it’s going to melt away in the next few hours so I don’t have to pull out the snowblower, but I did get to have some fun teaching my one year old how to throw a snowball at his four year old sister.

7 Ways to Simplify Your Life The one that really works for me at this point in my life is “early to bed and early to rise.” If I get a good night of sleep so that I can rise with the children and still feel fully rested, I tend to have a very productive day. I think the key is simply knowing yourself well enough to know when you’re most productive during a day and rework your day so you can capitalize on that. (@ pick the brain)

Selling Thrift Store Finds for Profit on eBay I have profited several times from thrift store finds, but it was almost exclusively due to trading or due to finding something at a very inexpensive price that worked perfectly as a gift. Thrifting is really worthwhile, but you’ve got to be willing to walk by 999 pieces of junk to find the one gem. (@ minting nickels)

Manging versus Micromanaging Your Money I think that micromanaging can eventually grow into simply having very strong natural behaviors for conserving money. I believe that’s exactly what happened to me over a multi-year period. (@ broke professionals)

What good interview questions are actually trying to discover During the job interviews I’ve had and that I’ve conducted, I’ve felt that it was really valuable to know what traits the person asking the questions is looking for. This is actually a pretty good list. (@ seth’s blog)

That “Someday” Thing

Posted: November 8th, 2011, 1:00pm MST by Trent

Someday, I’d like to finish my fantasy novel, and then follow that up by self-publishing it and promoting it myself starting with an electronic version and perhaps moving to a paper version.

Someday, I’d like to move forward on a long-planned series of video reviews of board games and card games that my friend and I have long discussed making and posting to YouTube.

Someday, I’d like to spend some time doing volunteer work for the two charities I care about, Jump for Joel and L’Arche Tahoma Hope, using what skills I have to increase their community presence and maximize the donations they receive.

Someday, I’d like to travel internationally with my family and show my children that the world is a beautiful and varied place.

Someday.

Pretty much every one of us has a “someday” or two on our list of things we’d love to do. They’re big things that would require a lot of time and planning. They’re things that seem incredibly exciting and compelling to us, but present some tremendous obstacles along the way.

Because those obstacles seem so daunting in our day-to-day lives right now, we simply think about these things as “someday” things. They enter into our daydreams, but we don’t take any real forward action toward them.

My Experience Reaching a “Someday”
Several years ago, my “someday” thing was being able to write full time for a living which would allow me to be at home for my children without travel and with extreme schedule flexibility.

At that time, I had a full time job in a field that was largely completely separate from writing. I had a very technical desk job that required some travel and also required my attention outside of office hours on a very regular basis. I also had a wife and a young child at home.

How did I make that “someday” dream a reality? Simply put, I started sacrificing my evenings and (quite often) my weekends to making that “someday” a reality. Instead of coming home and vegetating in front of a television show or a video game or just curling up with a book, I would spend several hours setting up, writing articles for, and promoting The Simple Dollar.

Simply put, I made that “someday” dream a priority of my free and leisure time and of my free and leisure money.

The amazing part was that once I got the project moving forward and got used to the routine of working on it, the project itself became really rewarding. Because it was something I had wanted to do for so long and it was so intrinsically tied to something I deeply enjoyed as a person (writing), the day-to-day work was incredibly fun even when I had very few readers and was making very little money with it.

The finanical rewards weren’t the real rewards. The process itself and the enjoyment I got from it was the real reward.

Reaching Your “Someday”
This brings us back to your “somedays” and mine. If you want to make these things come true, you have to start looking at your day-to-day time decisions with a discerning eye.

What’s more important to you? That “someday” dream or a new episode of The Big Bang Theory? Getting started on that big project you dream of or napping on the couch? Your big project or yet another shopping trip to the same old stores?

At the start of this month, I made a commitment to start on one of my “someday” projects and carry it forward to a conclusion. This means, for me, giving up some of the things I’d been filling my spare time with lately. It’s been challenging, but it’s been deeply rewarding at the same time.

What “someday” could you get started on starting today? Choose one that’s tied deeply to something you already enjoy doing, something that just channels it into a new direction. Let that “someday” fill your spare time.

Eventually, you may just find yourself on a new path, living your dreams.

Children as Financial Paradox

Posted: November 8th, 2011, 7:00am MST by Trent

Karen writes in:

I have a question I think it would be interesting for you to attempt to tackle. You approach so many decisions with a methodical and disciplined calculus that often leads you to great time and money savers…Can you address what I’ll call ” the children paradox” and maybe provide some insight that I am not seeing.

Children paradox: “Children cost lots of time and money, so maybe on an individual basis we have incentive not to have them. But in the aggregate, we need them (to sustain the species, economy, etc.)”

On a personal basis, I see having children as a money and time drain. At the very least, it will be an alteration in lifestyle. I question the return on investment in going down to one income (for at least some period, up to five years), incurring the cost of child care, inconveniences to lifestyle, increased living expenses, and paying for college. Where is the upside? I don’t see what my incentive is for having children. How is this in my personal best interest?

I have thought about it in terms of national duty, as in perhaps an educated person of means has a duty to help support the country’s population and pass those “striver” genes on to the next generation. I have even thought about it in vainer terms, as in some kind of personal legacy. I have even considered the need for a much older and senile future self to have someone (my offspring) check me into retirement home. I just can’t get on board with my wife, whom I believe just wants to have a child out of evolutionary instinct. She wants the experience of pregnancy and motherhood. I wouldn’t want to deny her anything, but having children seems such a weighty thing to do in order to “have the experience”. It is a huge commitment.

I know you have children that are clearly a priority for you…but how do you reconcile that investment/opportunity cost with others (being able to travel, own your home sooner, etc.)?

I think there are a mix of answers to the questions you’re asking.

For one, I think some number of parents simply fall into parenting. Being a parent isn’t really something they hold as a deep personal value, but when the child arrives, they feel a natural obligation to do the best that they can to care for that child. It’s a big responsibility and one that comes with quite a lot of emotional reward along the way, so it’s not surprising that when some people become parents, they try to do a good job. (Of course, as we all know, there are a good number of parents out there doing a poor job, too.)

Simply put, as long as there are males and females around in sufficient quantities, there will be children around in sufficient quantities. It’s just a natural outcome.

I think what you’re asking, though, is why would people choose to and plan to become parents? Obviously, parenthood is something Sarah and I thought a lot about and made a conscious choice to take on in our lives.

In many ways, it simply comes down to what’s personally important to you. For some, the process of being a parent is an important life goal. I believe that part of what I was put on this earth to do is to raise three productive and capable people who will have a positive impact on the world. The privilege to be a steward to these children as they grow into adults is a privilege I’m very proud to have and that I enjoy very deeply.

Other people have other things that are personally important to them. Some want to see the world. Others want to start a business empire. Still others work to make the lives of others better. Yet others seek to accumulate personal wealth. There are a lot of personal goals that others have that I frankly don’t understand (much as you seem to feel about parenting), but I see such goals as a positive (assuming the passions aren’t destructive to people who don’t choose to be involved in them).

I don’t think it’s a bad thing for some people to not want to be parents and to have other things that are important to them. The key thing is that you’ve found something in your life that is important to you, whatever that may be, and that you’re investing your resources into it because it fulfills you. Without that, life would be a pretty empty place, I would think.

Most of us spend our lives working for those things that are important to us, whether it’s parenting or something else entirely. It’s the motivation to get out of bed in the morning. It’s the motivation to push ourselves a little bit more.

Is choosing to be a parent an economically challenging choice? Of course it is. However, most of the things I listed above are economically challenging choices. If we hadn’t had children, for example, Sarah and I probably would have traveled a great deal more than we have, which would have eaten a lot of the money we “saved” by not having children. Instead of having our oldest son, for example, I might have memories of visiting the Temple Mount (a place Sarah and I have always wanted to visit).

Simply put, people invest their resources (time, money, energy, skills, and so on) into the things that are personally important to them. For me, one thing that’s very important is my children, so I invest my resources into caring for them. For others, children might be of little or no importance, so they choose to invest their resources elsewhere.

The purpose of The Simple Dollar is to look at ways to be more efficient in investing your resources, particularly in areas that are less important to you. For example, no one wants to have a high energy bill, so energy savings is something that all of us can use to reduce the resources we invest in our energy needs and thus raise the resources available for the other things in our lives.

Whenever I see someone doing something they obviously love, I usually think to myself that it’s a pretty awesome thing (I was actually just thinking this the other day when I watched a skilled person making sidewalk art). Most of the time, when you see a parent, you’re seeing someone doing something they love (even if it might be frustrating in the short term, which parenting can often be). Use it as inspiration. If they’re doing something they love, even when it’s challenging, why can’t I?

Saving Pennies or Dollars? Going Below Speed Limit

Posted: November 7th, 2011, 1:00pm MST by Trent

Gayathri writes in: Driving 1mph slower than posted speed limit. Yeah, that’s a myth.

Actually, it’s not a myth. Most cars made in the United States maximize their fuel efficiency at about 55 miles per hour and drop off rapidly above that limit (this is actually from a study – West, B.H., R.N. McGill, J.W. Hodgson, S.S. Sluder, and D.E. Smith, Development and Verification of Light-Duty Modal Emissions and Fuel Consumption Values for Traffic Models, Oak Ridge National Laboratory, Oak Ridge, Tennessee, March 1999).

This means that if you’re tooling along on the interstate at the speed limit of 65 miles per hour and drop that back to 64 miles per hour, you’re actually improving your gas mileage by about 1.5%, according to fueleconomy.gov.

So, let’s work out what that’s really worth.

Let’s say you have a typical car that gets 25 miles per gallon at 55 miles per hour. At 65 miles per hour, it’s going to get roughly 15% worse gas mileage, or 21.25 miles per gallon. If you trim that back to 64 miles per hour, your gas mileage is a bit better – you’ll be getting 21.625 miles per gallon, more or less.

Now, let’s say you’re going on a 400 mile trip on the interstate and that gas is available for $3.25 a gallon.

If you go 65 miles per hour, it will take you 6 hours and 9 minutes to make the trip. You’ll burn through 18.82 gallons of gas, which will cost you $61.17.

If you go 64 miles per hour, it will take you 6 hours and 15 minutes to make the trip, six minutes longer. You’ll burn through 18.5 gallons of gas, which will cost you $60.13.

In short, driving one mile per hour slower will add six minutes to the trip and save you $1.04 in gas. Your savings simply by driving one mile per hour slower is $10.40 per hour. That, of course, is after-tax money.

That figure, as mentioned above, assumes a 25 mile per gallon car, but other mileages have similar savings. It also assumes that you’re slowing down a bit from a speed above 55 miles per hour.

So, should you just go 55 on any road you’re on? I wouldn’t do that. Instead, I’d stick to the posted speed limit and maybe go a mile an hour or two below that in the slower lane on an interstate.

Doing this serves three purposes. One, you’ll put cash in your pocket for the extra time you spent driving. Two, you’ll never get a speeding ticket. Three, you’re sticking more or less with the flow of traffic (going much slower would disrupt that), so you’re not disrupting traffic flow and endangering yourself that way.

The next time I’m rolling along some flat four lane road in southern Iowa, I’ll just set the cruise to a couple of miles per hour below the speed limit and roll along. Sure, I might get there five minutes later, but I know I won’t get pulled over for speeding, I’ve got something entertaining on the radio, and that bit of extra time will put a bit of money straight into my pocket.

Reader Mailbag: Clock Confusion

Posted: November 7th, 2011, 7:00am MST 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. The price of tea
2. Preemptive computer replacement
3. Retirement account confusion
4. Secret Santa thoughts
5. Infrared heaters
6. Investing in I-bonds
7. Children and television
8. Health and weight management insight
9. Goal savings when goal disappears
10. Theo with Cubs

On the Saturday evening before a timeshift, I’m usually quite diligent about going through our home and adjusting all of our clocks one hour or another. Then I go to bed, confident that tomorrow will go smoothly and we won’t miss anything that we’ve planned.

Inevitably, though, I’ll forget a clock somewhere in the house and at some key moment, I’ll look at that clock and assume it’s correct, causing me to miss out on something or another.

Q1: The price of tea
Is it cheaper to buy tea bags or use loose leaf tea? I can buy a box of 100 tea bags at Walmart for $1.00.
- Lisa

It really depends on what you’re buying. If you just want a mildly tea-infused drink and are really only interested in black tea, such discount tea bags are probably perfect for you. You’re going to have a hard time finding bulk black tea sold at such a price.

However, as a general rule of thumb, when you’re comparing identical teas and looking at bags versus loose leaf tea, the loose leaf tea will usually be a bit less expensive.

If you’re happy with the tea that those bags produce for you, then by all means keep buying it.

Q2: Preemptive computer replacement
With Black Friday deals fast approaching, my husband and I are trying to decide whether or not to replace our HP desktop. It’s about 5 years old and for at least a year or two of that we’ve kept it on all the time because it takes so long to boot up (I know this lessens it’s life and we’re trying to remember to shut down now). Besides the usual aging factors, like increased fan noise and the slow boot, it’s doing well. Our concern, however, is that it might not last another year and Black Friday is the best day to get a great deal on a new one.

We’re living on a small graduate stipend and minimal student loans plus a little bit of babysitting income. We use the desktop for movies, etc, since we don’t own a tv, and basic word processing. So we don’t have any particular high power needs, just something that has a monitor large enough to watch movies and that provides me with a computer when I’m home with the kids. In a perfect world, though, I’d love one of the all-in-ones since it’d mean less computer the kids can get to and mess with (the blue power button is a constant temptation to my toddler).

Any thoughts on preemptive replacement? We have the money for a Black Friday deal, but not for a full or typical sale price.
- Jenny

Although you might save a bit of money buying a computer on Black Friday, the honest truth is that entry-level home computers are so inexpensive at this point that the deals on Black Friday don’t blow away the day-to-day prices like they did several years ago. You can buy a very solid home computer for $300 that will meet the needs you describe any day, and over the last couple of years, there haven’t been huge discounts on such home computer units.

That’s not to say it’s a bad idea to replace the one you’ve got, nor is it a bad idea to check and see what’s available on Black Friday. However, if you don’t see anything that’s really exceptional, I wouldn’t buy. Instead, I’d just wait until I actually needed a replacement.

Regardless, you should have some kind of backup plan in place for your key documents. You don’t want to lose them, especially on an aging computer, and having such a backup will make a switch to a new computer that much easier.

Q3: Retirement account confusion
I am 26 years old and am trying to figure out retirement accounts. I am currently investing through my employer’s 401k which is with Wells Fargo. However, they are not currently offering any matching benefits at this time. Is there any reason why I should continue putting money into this account versus starting an IRA with another company like Vanguard or Fidelity? It seems that these offer more options for funds to invest in.
- Josh

I definitely agree with your plan of opening an IRA elsewhere. However, there are still reasons for keeping a regular 401(k).

The biggest reason is that the maximum amount you can contribute to an IRA of either kind (Roth or Traditional) is $5,000 or $6,000, depending on your age. If you’re wanting to contribute more than that to retirement, the 401(k) is most likely your best option.

Aside from that, you may find that there are better investment options in certain classes with the 401(k). It is never a bad thing to have more options available to you.

Q4: Secret Santa thoughts
What are your feelings on “Secret Santa” gift exchanges during the holidays? My office is doing one and my extended family is thinking about it too.
- Ron

The entire purpose of a “secret Santa” gift exchange in an environment like an office is to simply ensure that no one is left out (assuming they choose to participate) and that gifts are more or less equal and anonymized. Without this, it’s pretty easy for gift exchanges to create hurt feelings in an office environment, which can quickly turn poisonous.

That being said, if you’re resorting to such methods to preserve everyone’s feelings, why have an exchange at all?

My solution would be to do something fun with it, such as turning it into a game. I participate in one such exchange that’s done as a “yankee swap,” where everyone takes turns opening an item then has the ability to “swap” that item with one that’s already been opened.

Q5: Infrared heaters
Trent, would dearly love to see you write on the infrared heaters that are getting so popular. I’d love to get one but don’t want to spend the money if they aren’t worth it. I get confused in reading about all of them. Do they really cost a dollar a day to run?
- Millie

Infrared heaters seem popular mostly due to a large deal of advertising for the EdenPURE brand of heaters as well as the “Amish” heater.

These heaters can be inexpensive to run, but they’re really no different from any other space heater. They save money due to the principle of zone heating, in which you lower the overall temperature of your home and then use a space heater only in the room you’re in. This, of course, can be done with any space heater.

In fact, many of the popular “infrared” space heater models get pretty poor reviews from Consumer Reports.

If you want to try this tactic, get a lower cost space heater and use zone heating. That’s how you’ll save money.

Q6: Investing in I-bonds
I am 23, I have been working as an accountant for a Fortune 500 company for 5 months since graduation. I live on half of my after tax income, I have an emergency fund consisting of 8 months of expenses (in a high yield, online savings account), and next year I plan on putting $1,000 to my Roth every other month and a $1,000 the other months to save towards an engagement ring and a down payment on a house. Still will have an extra couple hundred, after taxes/10% contribution to a 401k, that will increase my e-fund and car fund.

I am risk averse and my idea is to put the short-term savings in I-Bonds to obtain a decent yield. Is that a prudent idea or is there somewhere else to put my money? I do not plan on buying a house for awhile because I have location volatility for the next 2-4 years. I have seen many co-workers lose money on homes, I love renting and will rent until I am in a more stable location.
- Will

Right now, I-bonds offer a 3.06% rate. However, to get that rate, you have to lock up the money for at least a year without any sort of option to cash them in. If you cash it in before the five year mark, you sacrifice three months worth of interest.

The reason you get a better rate on I-bonds than on bank CDs or savings accounts is because you are locking down the money very tightly. For the first year, they’re essentially not liquid at all, meaning you can’t tap them even if you wanted to. Even after that, the penalty for tapping them early is pretty stiff until you reach the five year mark. Not only that, the fixed rate on such bonds is really low. You do get some inflation support, but it’s not strong support.

I’d only consider such bonds if you’re planning on cashing them in at exactly the five year mark, as I’m pretty confident that at that point you’ll want to have your money in something else. I’d also make sure that you have plenty of money not locked way in such bonds.

Q7: Children and television
Do you let your children watch television? If so, how do you monitor and control it?
- Shelley

The only television our children are allowed to watch are programs that we’ve pre-recorded on our DVR. This lets us pre-screen the programs so we know what’s being recorded. If it’s not recorded, they don’t get to watch it.

Most of the stuff that’s recorded are PBS children’s programs like Sesame Street, although we record a few other family shows like Max & Ruby.

Our children average about twenty minutes of television a day, usually as a “wind down” before we start our real bedtime routine of teeth brushing and fish feeding and bedtime story reading. It’s usually a half hour program about two out of every three days or so.

Our only television is not in the room where most of the children’s toys are, so when they’re playing, there’s not even a television available to watch. The only television is in a room that’s largely filled with adult things, so it’s not really a room that they go into when they’re looking to have fun.

Q8: Health and weight management insights
I love reading your blog and find it the continuing source of encouragement I need to spur my family on to making better financial choices and making the small choices everyday to be more self-controlled with finances. I am wondering if you follow any blogs that would help me in the same way that the simple dollar has with money but in the area of health/weight management and overall fitness? There’s so many out there I just thought I’d ask for advice from someone who’s writing style and personal philosophies about deeper issues seem to connect well with me.
- Andrew

To be honest, I’ve never really clicked with any blog ever written about health and weight management issues.

I think the big reason is that, unlike personal finance, it’s often hard to demonstrate how something universally works in terms of weight loss and health. Money is an absolute thing – you can count the dollars and cents no matter what. Time management is another absolute thing.

Health and weight loss is not an absolute thing. In college, I had a roommate that was as thin as a rail, yet he ate amazing quantities of unhealthy food. I know people who look and feel best when they eat really carefully and others who look and feel best when they eat whatever they like. I know people who are healthy who are gym rats and others who would never enter a gym. Lots of people tell me that diet is the key, but I find over and over again that my activity and exercise level is the real key for me.

When I read personal finance and personal growth and time management blogs, I can relate and analogize those experiences to my life and use those tactics. When I read health and weight loss blogs, I can appreciate the story, but even the tactics that make sense may or may not work for me. Rather than being a helpful story, it’s just an inspiring one, and because of that I’ve never really found any that have clicked with me.

Q9: Goal savings when goal disappears
I’m interested in your thoughts on what to do with savings it turns out you don’t need for a specified goal. Let’s say I need a new lawn mower. I start saving up and have enough cash on hand to replace it. I then receive a perfectly functional used one from a family member. Should I move some/all of that saved money to apply towards other goals or just leave it there as someday (years out I’m hoping) I’ll need that new mower? I like the idea of having that money set aside in case something happens…but it could be used for something else now. Is the answer just to reprioritize goals, moving some money out of the mower fund for other things, setting a new mower goal date, and continuing to save as before? Perhaps the real question is, how do you save proactively for something that may not have a current goal date?
- Ron

If you have another goal that you’ve thought about, planned for, and are currently saving for, then it’s completely appropriate to take that saved money and apply it to your newer goal. All this is going to do is accelerate you toward something you really want and have planned for.

The reason for having a goal is so you know how to save for it. If the goal is more than ten years out, for example, you should be putting that money into stocks, not into a savings account. If you have a very short term goal, for example, you might want to throw all of your savings toward that goal for the next month or two.

One caveat, though. I’m not clear on whether you have any sort of an emergency fund or not. Everyone should have at least two months’ of living expenses just sitting there in a savings account for emergencies like the one you mention. If you don’t have an emergency fund, this savings should become your emergency fund before anything else.

Q10: Theo with Cubs
You’re a lifelong Cubs fan. How do you feel about the team’s new management?
- Elliott

I’m happy with it. I feel like the new owners of the Cubs (the Ricketts, who bought the Cubs a couple years back) are taking their time and building the team that they want in Chicago. Theo Epstein, more than anyone else in baseball, knows what it’s like to take over a team with a long history of choking in the postseason and build a winner.

For the first time in my lifetime (or at least since I became a more serious fan of baseball), I feel like the Chicago Cubs are taking steps to actually build a long-lasting contending team. They’ve had playoff runs before (1998, 2003, 2008), but each time I felt like they sacrificed the long term in a terrible way for the short term, often destroying the nucleus of something that could have been long-lasting to take a (failed) shot at winning that year. I just don’t think Theo Epstein works that way based on what I saw in Boston.

The only thing that worries me is how much of an impact Larry Lucchino (the Boston Red Sox president) had in Boston in terms of building those teams. How much of the credit does Theo really deserve? From all accounts, Theo deserves a lot of it, but did Lucchino curb some bad impulses and decisions? I guess we’ll find out.

Review: The Finish Rich Workbook

Posted: November 6th, 2011, 1:00pm MST by Trent

I’ll be the first to admit that personal finance workbooks never really clicked for me. I’ve tried reading and using a few of them over the years, but virtually every time, I felt like the forms and blanks within the book were constraining me and didn’t match what I wanted to do. I have always felt much better reading books until I understood the concepts, then doing things myself independently of the books.

Of course, such an attitude is a direct reflection of how my mind works. For other people – including a lot of readers of The Simple Dollar – workbooks are a great way to start going through the thought process of getting one’s finances in order. They do an excellent job of connecting the orderly process of one writer’s personal finance philosophy to a set of step-by-step tools for readers.

This, of course, brings me to David Bach’s Finish Rich Workbook. Bach has written a pile of books over the years, many of which I’ve reviewed (Smart Couples Finish Rich, Smart Women Finish Rich, and Start Late, Finish Rich, for starters) that all espouse the same general personal financie philosophy of cutting back on unnecessary expenditures and channeling that into long term financial goals. Yes, he’s the guy who came up with the much-debated “latte factor.”

Start the Journey to Living and Finishing Rich
The book starts off by checking to see what you know about your finances through a series of checklists. The items on these lists often push you toward expanding your knowledge in specific areas that you don’t have a good grasp of. For example, one entry says “I know whether my income would be protected by disability insurance should I (or my partner) become unable to work. If I have disability insurance, I know the amount of the coverage when the benefits would start, and whether they would be taxable. If I don’t have disability insurance, I know why I don’t.” If you’re unable to check that box, you’ve got a pretty clear conversation and thought starter right there.

Find Your Money
Here, Bach encourages people to essentially make their own net worth calculator by collecting together all of the things that they own (including financial accounts) and all off the debts that they have, then subtracting the debts from the assets. This is a very good thumbnail for seeing how your financial progress is going, particularly if you routinely calculate it and compare it to earlier results.

Create Your Purpose-Focused Financial Plan
I actually quite liked this section. The plan that Bach wants you to create starts off by you figuring out what the five things you value most in the world are, then assembling a goal related to each one that you want to achieve, then building your financial plan based on those five goals. For example, if I value education, I might have a goal of saving for half of my children’s college education, so how would I achieve that? I’d open a 529 (an immediate action), set up an automatic contribution, and watch it build over time.

Find Your Latte Factor
How do you pay for these financial goals? Bach’s solution is to dig through your life and look for ways where you’re spending money needlessly, then trim or eliminate them. The “latte factor,” of course, refers specifically to cutting out an expensive morning coffee, but that just scratches the surface of the idea. For many, this seems un-fun, but I tend to look at this as a challenge of sorts, seeking out things that I can cut without making life less enjoyable.

The Debt-Free Solution
Here, Bach encourages people to move toward a debt free life, which is a great financial goal for anyone to achieve. The plan is essentially a pretty standard debt repayment plan, but Bach does a pretty good job of walking a person through assembling a plan that works for them.

Pay Yourself First
So, you’ve got all of these goals and plans, but how are you going to make it work? One big tactic to use is to pay yourself first, meaning that you allocate money to these goals and plans right off the bat, then strive to make life work with what’s left over. This is a pretty strong strategy, as we often modify our lifestyle choices based on the cash available to us.

Create a Security Plan
Here, Bach delves into insurance issues, looking at things like life insurance, long term care insurance, and so on. These tools are there to make sure that all of your hard work doesn’t go for naught because of an unexpected event. Bach’s advice is largely good but occasionally delves into what I would consider unusual recommendations, so I would use this chapter as a jumping off point, not as a final answer.

Recapture Your Dreams
Here, Bach looks at the ins and outs of specific investments. How do you need to invest if you want a high return (with high risk, of course)? What about if you need a very safe investment that has a steady (but lower) return? Bach walks through savings accounts, bond investments, stock investments, and so on with the goal of matching specific investments to the goals you’ve set in the earlier chapters.

How to Hire a Financial Advisor
My advice is generally to not hire a financial advisor and figure out instead how to do things for yourself, but many people feel better hiring one anyway. This chapter largely serves as a research and interview guide for helping you to find an advisor that works well for you. The key piece of advice here is a home run: never delegate control of your money. Your advisor should never be able to make any financial moves without your explicit permission. Allowing such moves opens you up to be burnt badly.

Keep a FinishRich Journal
Bach’s final advice is to simply keep a journal describing your financial journey. Why do such a thing? Writing a journal entry makes you reflect on the things you’re writing about and helps you think about the journey ahead from where you’re at in a very intimate way. I’ve been an avid journaler of my whole life for many years and I find it very valuable for reflecting on my day just passed and the days ahead.

Is The Finish Rich Workbook Worth Reading?
This is a book that’s very strong in terms of holding your hand and walking you through each step, but it’s a little light on the depth of specific issues at times. If you’re looking for something that will help you get started, this is perfect. If you’re looking for something to answer all of your questions that you’ve ever had, this book will be a little light.

I would absolutely recommend this book to someone who works well with a guided environment… with one caveat. Some of the specifics in this book are a bit dated, as the most recent revision came out in 2003. The advice is still quite strong, but there are references to financial institutions that no longer exist and tax rules that have been superceded since 2003. A revision could be in order here. If it gets a revision, this book would get a thumbs-up as a solid beginner’s workbook from me. For now, it still gets a thumbs-up, but perhaps not a really strong one.

Check out additional reviews and notes of The Finish Rich Workbook on Amazon.com.

Online Financial Tools and Security

Posted: November 6th, 2011, 7:00am MST by Trent

A long while back (was it really 2008), I wrote an overview of the web-based personal finance tools available at that time. I didn’t really give a strong recommendation to any of them, though I did end up serving as an advisor for a time with Wesabe.

Today, Mint.com is clearly the frontrunner in this field, but there are many other services that offer similar financial tools via the web. Many banks have incorporated similar tools into their online services, and other similar services such as TurboTax can be done fully via the web.

Personally, I don’t use any of them.

Why not? Mostly, it comes down to information security, as I briefly touched on in the article linked to above.

It’s not that I doubt the security policies of any of the sites. I think Mint, TurboTax, and other such web-based tools have stellar security policies, and I genuinely believe that they’re all doing the best they can to preserve the sanctity of your personal information. I’ve reviewed a lot of security policies and a lot of security histories over the years and I know that when you’re dealing with financial data, you’re not only buried behind a lot of regulation, you’re also dealing with an absolute requirement for your customers. This is not something any of them want to mess up in any way, and they’ve all taken powerful steps to keep you safe.

That’s not the point.

The reason I avoid using such tools is that all it takes is one mistake from one person for your information to be stolen. For one bright, shining example of this, take the loss of 100 million credit card numbers by a card processor in 2009. Even though the business had incredibly strong security policies, a hacker still managed to scrape off up to 100 million credit card numbers and related information from that company’s database. How did it happen? Most likely, one information security professional didn’t set up one security protocol correctly, and that was enough.

So, how does that affect whether I use such tools? The more places where you use your personal information, the greater the chance you have of getting your information or even your identity stolen.

Let’s say Alice has her personal information available to only one business in the country, her bank. She’s very careful about letting out any of her data anywhere else.

Let’s say Bob, on the other hand, has accounts at ten different financial institutions and uses several different tools to access those accounts. As many as twenty different companies with twenty different security policies have access to Bob’s data.

Let’s now say that personal data is lost by some company in America. Because Bob has his information with so many different institutions, Bob is twenty times more likely to be affected by this loss of data. By having so many accounts, Bob is putting himself at additional risk.

With every account you open where your personal information is used, you increase your risk of falling prey to a random act of information loss, whether it be someone breaking into a computer network or someone losing a backup tape.

Because of that, I’m very wary of the number of businesses that I share my information with. Unless there is a strongly compelling reason to share my personal data, I don’t share it.

For me, none of the online tools offer enough value to be worth increasing that risk, at least in my eyes. Mint might be awesome, but it’s not worth that additional risk to me. Neither is TurboTax Online or any of the other similar services.

It’s for this same reason that I use a single credit card with identity theft protection for most of my purchases.

I just want to minimize my risk of having my information out there when something goes wrong with information security somewhere, and my general recommendation to others is that they do the same.

Some Thoughts about Holiday Cards

Posted: November 5th, 2011, 2:00pm MDT by Trent

As November rolls forward, one end-of-year task that starts floating in my mind is holiday cards. This is usually a fairly time-consuming project for us, but I consider it to be a very worthwhile one. Here’s how we do it.

Send it early.
With a large project like this one, it’s incredibly easy to keep postponing working on it until you’re throwing something together quickly and tossing it in the mail – or not even bothering at all.

My approach is to simply set a goal of mailing them out very early. Ideally, I try to get them in the mail before Thanksgiving. Seriously. This way, if I absolutely must slip a week, I don’t panic about it.

Send them all at once.
It can be tempting to send them out in drips and drops, but that can be a mistake. If someone notices that you’ve sent a card to someone else but not to them (even though you’ve intended to do it), you’ve opened yourself up unnecessarily to a negative opinion. It’s not worth it.

I usually work on mine gradually, keeping all of the finished ones together in a box. Then, when they’re all done, I ship them off all at once.

Send one to everyone of personal or professional importance to you.
The first step in the process is to update my “master list” of people I intend to send cards to. I keep this as a Word document. It contains the most current addresses of everyone I would ever want to send a card to – personal contacts, professional ones, and so on.

I then go through and make a card individually for each one. I start off with a template of my own design, usually incorporating a family picture.

Write a handwritten paragraph inside each one.
With each one, I write a handwritten paragraph on the inside, usually something directly for that person, touching on something we have in common. I make sure to wish them well in whatever they’re working on, particularly if there’s something new in their life.

The handwritten paragraph doesn’t have to be long. It’s usually just a few sentences.

I don’t turn it into a family newsletter.
I’m sending them a card because I care about them, not because I want to brag about my family. I can talk about my family through other communication by following up on questions that they might ask on the phone, by email, on Facebook, or some other form.

The purpose of the card is to simply say “I care about you.” To me, a family newsletter doesn’t say that at all.

Remember who the recipient is.
I usually make my own cards, mostly because it makes it easy to make variations on the cards. For some, a Christmas card is the best thing to send. For others, a more generic “season’s greetings” card is much more appropriate. I don’t view such a card as an opportunity for evangelism of what I believe.

Why put in all this effort?
When it all comes together, it’s a powerful way of making sure that a lot of people I care about all have a clear message telling them, in a very personal way, how much they mean to me and how much I value them. A handwritten note really hammers that idea home.

For me, this is an incredibly enriching November project, one that helps me to maintain connections and relationships with a lot of people I care about.

Ten Pieces of Inspiration #45

Posted: November 5th, 2011, 8:00am MDT by Trent

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Joyce Lock on strengths and weaknesses
I’ve become a big believer in the idea that you should work to make your strengths as strong as possible so that they overshadow your weaknesses and eventually overtake them. Lock explains this idea very eloquently.

“Build upon strengths, and weaknesses will gradually take care of themselves.” – Joyce Lock

Keep this in mind as you think about what to improve in yourself.

2. Halloween
My children went trick-or-treating this year. That night is one of the highlights of the fall for me, as I love seeing all of the children of our neighborhood out having fun.

Thanks to Teo for the wonderful picture.

3. Spellboy
This is an online spell checker. All you have to do is paste in your text and it finds and corrects misspellings for you.

Why do I like it? It’s really easy to use. Plus, I wish that people would use it when posting online. I catch the vast majority of my own mistakes, but I often see postings online where people seem to not care about their spelling, not realizing that multiple spelling errors start to undermine the credibility of what the person is saying. This tool makes that go away.

If you want to make a point, spell well. This great tool will help with that.

4. Churchill on putting worry to work
Worrying doesn’t accomplish a thing.

“Let our advance worrying become advance thinking and planning.” – Winston Churchill

When you find yourself worrying, instead ask yourself what you can do about it.

5. Sarah Kaminsky on her father the forger
The thing that stuck with me here is that everyone has some skill that’s valuable and useful. We just need to look for situations where our skill works for something great.

I really enjoyed this story and presentation.

6. The Grant Wood murals at the Iowa State University library
If you live anywhere in central Iowa and haven’t seen these, you’re missing out. They’re an absolute art treasure hidden away on the Iowa State campus.

Wood, well known for his painting “American Gothic,” painted these on the library walls in the 1930s, employing assistants who had presented work at the Iowa State Fair in the early 1930s. The result is some fantastic art that’s quite impressive in scope, yet it’s almost hidden away. It’s a treasure worth finding.

7. Cecile Springer on challenging yourself
If you don’t challenge yourself, you’ll never really get anywhere.

“Above all, challenge yourself. You may well surprise yourself at what strengths you have, what you can accomplish.” – Cecile Springer

I’ve come to not like situations that come easy to me. I’d rather have a situation where I fail over and over, but sense that I’m improving a little over time.

8. Julian Treasure on five ways to listen better
If I’ve learned one lesson lately, it’s that listening is incredibly valuable. It’s more valuable than talking, I think.

The simplicity and practicality of this talk was quite worthwhile.

9. Tom’s custom art
An old friend of mine has taken the first step towards turning a hobby into a side business. Tom has always liked to sketch things and make wonderful drawings, but lately he’s started drawing fantasy art on play mats, which are essentially large mousepads that you can use for various purposes.

I’m absolutely ecstatic that Tom has taken this step and I wanted to share his work with all of you.

10. Jim Carrey on visualization
I don’t believe in The Secret. I don’t believe that if you just visualize something, it will come true. This is much closer to what I believe.

“I would visualize things coming to me. It would just make me feel better. Visualization works if you work hard. That’s the thing. You can’t just visualize and go eat a sandwich.” – Jim Carrey

If I think about good outcomes for my hard work, I feel better, but I know it won’t happen if I don’t put in the hard work.

Dinner With My Family #37: Curried Chickpea Stew

Posted: November 4th, 2011, 2:00pm MDT by Trent

My wife loves this recipe and finds reasons to make it often. It’s helped by the fact that we had a giant harvest of squash this year, so we had to find lots of ways to use it. I like curried soups and stews, so that definitely contributed to my desire to share this one with you.

Most of the cost here is going to be the vegetables, so the more of these you have access to outside of the grocery store, the less expensive this recipe will be.

What You Need
Here’s what you need for this meal…

You’ll need:
a diced bell pepper
half of a diced onion
one minced garlic clove
a cubed and peeled eggplant
a cubed and peeled butternut or acorn squash
1 cup cooked chickpeas (canned is fine)
1 cup water or vegetable broth (we used stock)
1 1/2 teaspoons curry powder
one teaspoon of olive oil (or other vegetable oil)
salt and pepper to taste

The Night Before (or Early That Day)
The best thing to do in advance is to chop up all of the vegetables and store them in bowls in your refrigerator. You can store the bell pepper and onion together, and you can store the eggplant and squash together, too.

Preparing the Meal
Preparing the meal is really simple. Just put the oil in a large saucepan over medium heat until it’s shimmering. Then, add the bell pepper and onion and stir for five minutes.

It’ll smell really good at this point!

Next, add the garlic, curry powder, and a dash of salt and pepper and stir for a minute more, then add the remaining ingredients. Wait until the liquid is at a low boil, then reduce heat until the liquid is barely simmering.

Let it sit for twenty five minutes, then serve. We accompanied it with a simple sandwich.

Optional Ingredients
You can make all kinds of vegetable substitutions in this meal and still have a great soup. You can use any kind of bell pepper, replace the chickpeas with other kinds of beans, use pumpkin instead of the squash, and so on. As always, use what you’ve got on hand or have inexpensive access to.

Saving Pennies or Dollars? Making Your Own Coffee

Posted: November 4th, 2011, 8:00am MDT by Trent

Jeff writes in: How much money do you ACTUALLY save in time and money by making your own coffee at home? I would appreciate the assumption that the user is using non-generic, non-Folgers or Maxwell House coffee.

For some standardized data on this, I visited the website of the SCAA – the Specialty Coffee Association of America. In one of their protocol documents, I found this information, which I’ll use to analyze how a great cup of coffee is constructed at home:

The optimum ratio is 8.25 grams of coffee per 150 ml of water, as this conforms to the mid-point of the optimum balance recipes for the Golden Cup.

Let’s say we’re looking at a 16 ounce cup of coffee – what you might fill a to-go cup with from a coffee shop, for example. A 16 ounce cup of coffee is approximately 473 mL, which, using the ratio above, would require 26 grams of coffee to make it yourself. An ounce is 28.3 grams, just for measurement’s sake.

So, how much does “good” coffee cost? I asked my wife to select what she considered to be a very good coffee for the price and she chose Eight O’Clock Coffee’s original ground, which can be obtained at a rate of $0.39 per ounce.

Simply put, you’d need about $0.38 of decent ground coffee to make a good 16 ounce cup of coffee at home. There’s also the negligible cost of water and electricity (say, one cent per cup), plus the ongoing cost of filters (say, two cents per cup), plus the cost of the cup (say, one cent per drink prorated out over time), plus the startup cost of purchasing an inexpensive pot to brew the coffee with (say, another two cents per cup, prorated out over time). That’s a cost of about $0.44 for a 16 ounce standard coffee.

Now, if you add cream or other ingredients to that, you’re increasing the cost, but not significantly. For example, International Delight French Vanilla liquid creamer costs $0.08 per cup. Other options might ding you as much as a quarter per cup for flavoring, which is still leaving you below $0.70 per cup.

Depending on what exactly you order at your typical coffee chain, a 16 ounce coffee will set you back somewhere between $2 and $5. The variation here is pretty impressive, but even if you’re comparing the low end of a purchased coffee with the high end of a homemade cup, you’re still talking about a savings of a dollar per 16 ounce cup. It’s quite likely you’re saving even more than that.

What about the time? I’m not a coffee drinker, but Sarah usually sets up the coffee pot the night before. It takes her about a minute. When she gets up, she flips a switch, and then she drinks a cup a little while later, then fills her to-go cup on her way out the door, taking her maybe another minute or two. She usually cleans the pot up when she gets home from work, taking another couple of minutes.

The time invested is perhaps five minutes total per day, and she’s probably saving $2.50 or so per day, making for a pretty good hourly rate. Plus, she believes the coffee made at home tastes better.

If you drink coffee more than a time or two a week, you’re going to save money making it at home, and it’s probably going to be well worth the small amount of time invested, too.

How Important Is It to Start Early?

Posted: November 3rd, 2011, 2:00pm MDT by Trent

I get a lot of emails from people in their forties and fifties who are suddenly panicking about their retirement savings. Often, they don’t have any or they have very little, yet they still want to retire at age 65.

At the same time, I also get emails from people in their twenties who are already saving diligently for retirement. What they want to know is how much they actually need to save so that they, too, can retire at age 65.

The people in the first group obviously spent a big chunk of their adult life not having to save for retirement. This gave them more flexibility with their money in their twenties and thirties than people who were already saving for retirement.

On the other hand, people who start saving early don’t have to save as much overall as people who start later on.

So, which approach is better? Let’s look at the two cases.

Let’s say you’re 20 years old right now. You want to have $2 million set aside for retirement at age 65 and, magically, there’s an index fund out there that will return 7% a year (I’m using this index fund as a convenience, basing the 7% on what Warren Buffett suggests is a good number to use for average stock market returns going forward).

If you start investing at age 20, you’ll need to put aside about $510 a month to reach this goal.

If you start at age 25, you’ll need to set aside about $725 a month to reach this goal, but you don’t have to save anything from ages 20 to 25.

If you start at age 30, you’ll need to set aside about $1,050 a month to reach this goal, but you don’t have to save anything from ages 20 to 30.

If you start at age 35, you’ll need to set aside about $1,530 a month to reach this goal, but you don’t have to save anything from ages 20 to 35.

If you start at age 40, you’ll need to set aside about $2,270 a month to reach this goal, but you don’t have to save anything from ages 20 to 40.

If you start at age 45, you’ll need to set aside about $3,480 a month to reach this goal, but you don’t have to save anything from ages 20 to 45.

If you start at age 50, you’ll need to set aside about $5,600 a month to reach this goal, but you don’t have to save anything from ages 20 to 50.

As you read through those previous sentences, you probably thought that the amounts early on were quite manageable, but when you got to age 50, you’re likely thinking that it’s bordering on impossible.

That’s the lesson here. You can forego the early retirement savings, but catching up later on can be incredibly punishing and the longer you wait, the more punishing it gets.

Thus, my advice is to start saving for retirement right now, no matter what age you are. Even if you can’t save very much, start by saving something. If you’re not saving, you need to be doing something else that’s financially urgent with your money.

For example, if you just save $100 per month starting at age 20 in the above retirement account, increase it to $200 a month at age 30, $300 a month at age 40, $400 a month at age 50, and $500 a month at age 60, you’ll have $720,000 saved for retirement. Double each of those numbers and you’re getting close to where you need to be.

Start saving now, even if it’s just a little bit. Don’t burden your future self with crippling amounts of retirement savings or employment until the very end of your life.

Reader Mailbag: The Family Months

Posted: November 3rd, 2011, 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. Charter school conundrum
2. Roth as college savings
3. Saving Legacy TreasuryDirect
4. Favorite board game
5. How I read
6. Education debt question
7. Community of church without religion
8. Introductory banking offers
9. Checking account conundrum
10. Creating online buzz

I like to think of November and December as family months. It’s during these two months (and the holidays contained within) that I get to see my extended family more than I do during the other ten months combined.

I’m usually apprehensive about it all as it approaches, but that apprehension gives way to relief once things actually happen, and then often the relief gives way to good times and good memories with good people.

Q1: Charter school conundrum
I have a 9 year old daughter, who is in 4th grade. Her school is consistently short of funds, and each year, tries to pass an operating levy that fails, leaving them hurting worse with each passing year. Currently, she has art once every 6 days, gym every 6 days, and computer lab every 6 days, and there has been talk of eliminating e

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