Barbara Marquand is a business journalist who writes for GoTalkMoney.com and other financial web sites. She frequently covers personal finance topics, bank industry trends, and credit card news.

Even the brightest Wall Street mavens make investment errors, so don’t beat yourself up if you’ve made a financial misstep or two. Instead, learn from your mistakes and set a better course for your financial future.

Here are seven common mistakes to avoid:

1. Failing to strategize investments

Think about your risk tolerance as you develop a strategy, advises the CFA Institute, a global, not-for-profit association of investment professionals. Know how much money you can stand to lose before you invest, and take into consideration your financial goals and time horizon for investments. Your strategy should aim for a diversified portfolio, with investments in a wide range of industries, companies, countries, and asset classes.

2. Wishful thinking

You need look no further than recent investment scandals as evidence of investors’ wishful thinking. Even sophisticated people are too eager to trust investment pros who promise to perform financial miracles. In his $65 billion Ponzi scheme, for instance, Bernie Madoff reported unrealistically consistent performance to investors, which should have been a red flag that something was wrong. Texas financier R. Allen Stanford, accused of swindling more than $7 billion from investors, reeled in investors with promises of incredible rates on CDs.

3. Paying too much in fees for investments

Ask for the fine print when dealing with a brokerage or trading company, advises the CFA Institute, and understand the fee structure before you invest. Don’t let high fees wipe out investment returns. This goes for stock and mutual fund investments as well as for lower-risk vehicles, such as CDs. Keep in mind you’ll pay fees if you invest in CDs through a broker. Weigh the cost of the fees against the rates the broker offers, and compare the returns to the highest CD rates you can find on your own.

4. Holding onto loser investments too long

Why do investors hold onto obvious losers? The answer comes from the field of behavior finance. In a Wall Street Journal article, Santa Clara University finance professor Meir Statman notes that when faced with losses on paper, investors comfort themselves with the notion that perhaps the investment will go back up. Selling at a loss would mean facing pain squarely, so investors procrastinate and hope for the best, holding loser investments long past their time.

5. Overconfidence

Too many investors think by listening to some tips from financial gurus on cable TV they can do better than professional investors. Overconfident investors tend to trade too rapidly. They don’t do as well as investors who buy and hold diversified portfolios, and they pay more in transaction fees.

6. Neglect of investments

If the tough economy is keeping you from being proactive with investing, then get re-engaged. The CFA Institute recommends setting up a regular contribution program and scheduling regular checkups with your investment professional to keep you focused on your goals and to fix any problems.

7. Buying high and selling low

If you buy a stock after it’s peak, you’ve missed its growth potential. Likewise, many investors bail from the market when it tanks. But when stocks are down, that’s the best time to buy because prices are low and growth potential is high.

You can’t be a perfect investor, but you can prevent a lot of financial heartache by using common sense and avoiding the most common mistakes.

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This is a guest post from WellHeeled of the Well Heeled Blog. If you like what you see here, please consider subscribing to her RSS feed or following her on Twitter.

My earliest memory of personal finance (though I didn’t know the term at the time) was when I was in middle school. My mother had always told me the importance of saving, but one afternoon, she pulled me aside and took out a few sheets of paper – the amortization schedule for the 30-year mortgage on our first home.

She then showed me how much interest we could save over the life of our loan if we accelerated payments on the principal during the early years of the loan. Although my mom first framed the session as an applied math lesson (percentages! subtraction!), that would be my most memorable lesson in financial decision-making.

Many experts say that leading by example is the way to show your kid show to be financially responsible adults. Show, don’t tell, they say. I agree that action is important, but my experience with my parents lets me know that parents should show AND tell. Kids learn from your actions, but they also benefit tremendously from words that explain the reason behind the actions.

Growing up, frugality was the normal state of things for me. My mother was aggressively paying off our mortgage. Every month whenever there was something extra, she put it into the house. As I grew up – and as I ventured into the homes of friends or classmates and become more exposed to malls and advertising – I come to realize that my parents led a very frugal lifestyle.

They bought reliable cars new, but then drove them for over a decade; they almost never went out to eat; and they refrained from buying a DVD player until a few years ago, when it was utterly clear that VCRs were truly machines of the past. Married for almost 30 years, my parents have rarely been on a vacation by themselves.

So I grew up in an environment where saving money is normal. Had my mother not told me later the reasons behind her aggressive payment of the mortgage (financial freedom, she would explain to me patiently), however, that lesson may not have stuck with me for all these years.

Even when I was a little kid, looking at the papers and the rows of figures under the Interest Saved, Years Remaining, Principal Paid columns, I knew I was looking at something powerful. Those numbers were the reason we sat in faded fabric couches when my parents might have upgraded to leather, and had the thermostat set 66 degrees instead of 72 in the winter.

Because of the choices my parents made, they were able to ultimately pay off their mortgage a decade early, invest in other real estate ventures, and pay for my college education. I didn’t quite realize it then, but I realize it now – that amortization schedule was much more than an applied math lesson.

It was a show and tell of a careful weighing and calibration of dreams – of choosing to forgo something (nicer cars, bigger TV, more stylish clothing) in exchange for gaining something else that my parents deemed more important – the ability to pay off our home years ahead of schedule, thus freeing up cash flow for other goals. To this day, I think that amortization schedule explained to me the essence of personal finance more than any expert every could.

Note: Also check out GetRichSlowly’s post on how to raise money-smart kids. JD Roth polled readers who provided tips on how their parents helped prepare them for financial independence.

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Time and again we hear that investment diversification is a must, and rightly so. Diversifying investments – by investing in a variety of different types of index funds and/or ETFs, for example – is a wise strategy for reducing risk.

In contrast, how many of us maintain a similar diversification perspective with respect to our income? Multiple streams of income can be one of our greatest allies in the pursuit of financial security, and yet few pursue this sort of thing. Having additional sources of income serves to hedge against job loss and other employment variables, so shouldn’t income diversification be sewn into the fabric of our daily financial strategy?

Multiple streams of income

How much time you’ve spend diversifying your income (or even thinking about it) probably depends on the circles in which you run. I can say with confidence, however, that our culture generally does not place enough emphasis on the concept… So we need to think outside the box and adopt it ourselves.

In 5 years of marriage, I have had three separate employers and my wife has also had three (jobs in Michigan are particularly unstable). Since January of 2009, we have been focused on expanding our income sources to increase financial security and buffer risk. The possibility of job loss, pay cuts, furlough days, and dubious markets fed our desire to assemble a sprawling network of income sources that we continue to build upon today.

In 2008, we had 2 sources of income; today we have more than 10. The sources we have developed usually center around our passions, tend to be at least partially passive in nature, but also have the potential to grow with additional effort. We get out of them what we put in, and have become addicted to the direct control of our own success.

Don’t quit your day job

Do not misunderstand my appeal for income diversification as a call to quit your day job. The idea is to diversify income sources, not eliminate or constrict them.

Both my wife and I still hold our “career positions” and intend to do so until our debt is eliminated, or until our alternate sources are earning us enough for us to bow out gracefully – whichever comes first. Neither of us are crazy about our “day jobs,” but any discontent we have is rooted more in the necessity to maintain them due to our debt load than in the jobs themselves.

If you have recently lost employment and are in the process of looking for work, then you have a perfect opportunity on your hands! When you’re not out searching for a job, brainstorm a list of several alternate income sources that you could develop and get started. You will be as successful as you want to be… More than anything, success is driven by hard work and consistency.

Trim fat and reallocate existing income

Always remember that there are two parts to leading a healthy financial life. Earning more and spending less. In addition to searching for more income sources, you should take a close look at your spending and see if there are any areas where you can plug unnecessary leaks. For example, if you’re spending a ton of money on servicing your debts, you need to get serious about debt reduction. In the long run, you might find that “trimming the fat” improves your bottom line more than some of your possible alternate income opportunities.

How to brainstorm alternate sources of income

I started with a highly technical approach that I like to call “doing whatever you can think of to make an extra buck,” then tweaked things over time by visualizing things with a mindmap.

Mindmaps provide an excellent canvas to freely sketch out ideas in digital format. If you are unfamiliar with them, mindmaps are diagrams used to represent words, ideas, tasks, or other items linked to and arranged around a central key word or idea (source).

The following image provides a fairly generic representation of my current income sources. I actually have a much more detailed and descriptive breakdown for my personal use that I update and refer to on a regular basis. Laying everything out in this manner helps me brainstorm and organize my projects with a much higher degree of success.

If you want to get started with mindmapping, here are some software options that I recommend:

• Mindjet MindManager – This is the software that I use. In my opinion, it’s the best option on the market, but it costs nearly $300. There is, however, a free 30 day trial.
• Freemind – A free and open source option that I recommend you use to get started with mindmaps.
• Xmind – Offers a free version and a more feature-rich pay version.

In closing…

Income diversification is a prudent practice that can increase financial security and even self-fulfillment. If you’ve never taken the time to map out a network of actual and potential income that incorporates all your gifts and passions, then I highly encourage you to do so. I promise that you will (at the very least) be intrigued by your findings, and you might discover some new possibilities.

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A reader named KC recently wrote in with a question about investing for retirement:

I’m 28 years old with a wife and a six month old baby. We’ve always been money-conscious, but would really like to focus our efforts. We both have Roth IRAs, but are not satisfied with them. They are heavily loaded, and we weren’t that familiar with them when we were advised to set them up. My question is where you would recommend I go for a long-term investing vehicle? I always hear to go with no-load mutual funds but would like your opinion.

This is a great question. I’ve said it before, and I’ll say it again… Friends don’t let friends pay mutual fund sales loads.

My personal preference when it comes to long-term investing centers on low cost, no-load mutual funds. When I say low cost, what I’m really talking about is “passively-managed” index funds that seek to match the market as a whole, or some segment thereof.

As for my favorite places to invest, Vanguard is at the top of my list. We also have some money with Fidelity and have been quite happy with their offerings. A third option would be Schwab, who has a bunch of low cost mutual funds with a low minimum investment of $100.

A slight variation on the above would be to go with index ETFs instead of index mutual funds. The underlying premise is the same, but you get a bit more flexibility when it comes to trading shares. If you do go this route, make sure you select a good discount broker so the trading costs don’t eat you alive.

Of course, there are other options to consider, such as opening a Treasury Direct account so you can buy Treasury securities such as T-Bills, T-Notes, T-Bonds, Series EE Savings Bonds, Series I Savings Bonds, etc. This will allow you to purchase these securities direct from the Federal government with no middleman.

Just keep in mind that the optimal composition of your portfolio depends on many factors, so you really need to give a lot of thought to your time horizon, risk tolerance, etc. before you make any major moves.

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This is a guest post from Richard Barrington, who is a banking analyst for MoneyRates.com. Richard previously spent over twenty years as an investment industry executive.

Many people got religion about saving money during the recent recession. This reversed a trend of steadily climbing U.S. debt burdens–or is it just a temporary pause in that trend?

The answer depends largely on whether people continue the good savings habits they acquired during the recession. You may not be able to do anything about national savings rates, but you can take some steps to make sure your own savings rate stays on track.

Keeping the savings habit going

On the surface, it may seem counterintuitive to find that savings rates actually improved during the recession. After all, incomes were down, and low bank rates created little incentive for saving. Even so, people were scared into good savings habits, and found they could get by with less.

Here are four things you can do to continue good savings habits as the economy turns from recession to expansion:

If Americans were able to increase savings rates during a recession, just imagine how powerful those habits could be once incomes start rising again and there’s more to put into your high yield savings account. If you really want to build wealth rather than just fight off trouble, maintaining good savings habits in an economic expansion is the way to do it.

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Our homeowners insurance (and now life insurance) agent gave called last week. He wanted to see if we would let him price an auto insurance policy for us as “rates have gotten more competitive.”

He seems determined to get us to use him for all our insurance needs. I told him that would be fine; we’re always trying to get a good deal. I doubted he could offer something comparable to what we have now since it’s already such a good deal.

He called again Friday and told me his quote, and suggested that we review the copy he’d be sending in the mail. That’s good, because I don’t make big decisions like that over the phone; my husband and I like to research the numbers and ask around for opinions on customer service. I also look at companies like NetQuote, Geico, Esurance, and Progressive to make sure I’m getting a fair deal (compare rates and get tips on how to save at our post on how to save money on car insurance).

Examining car insurance coverage

The first we did when comparing rates was to pull out our existing car insurance policy so we could compare apples to apples. Here’s what we’re looking for in car insurance coverage:

Bodily Injury ($100,000/$300,000): We need to coverage to protect us from medical bills and lawsuits from any injuries or death that are our responsibility. North Carolina has a lower requirement for bodily injury ($30,000/$60,000), but we believe medical bills can easily top those amounts so extra coverage is important for us.

Property Damage ($100,000): This coverage will pay for any property we damage (such as to someone else’s car) due to an accident. This amount reflects the maximum paid per accident; we think $100,000 should be enough to cover these expenses. North Carolina only requires $25,000, but we think that is too low. We could save money on our premiums if we went lower, but we’d then be responsible for anything over our coverage limit.

Uninsured Motorist Coverage ($100,000/$300,000/$100,000): If we get into an accident due to the other driver’s fault and they don’t have insurance, then this protects us and our property.

Collision: Collision coverage can help when your car is damaged and is in need of repairs. It also includes repairs if your car is broken into. We currently only have collision for my car (2000 VW Jetta). If you have a car loan, most lien holders will require collision, but it’s optional once you pay the loan off. Since collision typically pays up to the value of the car, having coverage for my husband’s car (a 1994 Acura Integra) didn’t make financial sense.

Coverage-wise the new offer looks about the same, but I noticed that our current policy is has slightly lower premiums.

Discounts for car insurance

While reviewing the new policy, I noticed it was lower than what he had been quoted by the same agent months before, and I wanted to know why. I noticed that we now qualified for more discounts. Besides having a multi-car policy, we were now having a multi-policy discount with this insurance company. After getting some more information on our cars, he included discounts for having car alarm systems installed, and we also qualify for something called NC Tiering Program.

Beyond the above, you can also get a better rate though big things like not having any accidents as well as little things like having a clean credit report. With everything included, our 12 month car insurance premium would be around $775/year or about $65/month. It’s definitely in the ballpark with our current policy so we’re considering it. One thing in favor of the new policy is that it would simplify things a bit, as we’d only have one insurance agent.

Consider your Circumstances

Besides price, we’re also looking at any extra benefits of the policy. The car insurance policy the new agent quoted has lower deductibles ($500 instead of $1,000), but our current policy has towing and roadside assistance included with no additional charge.

The new policy quote doesn’t include towing on it, so I’m going to ask the agent if that’s an additional charge. We’ve already used the roadside assistance with our current policy a few times, so we’re definitely interested in keeping it. While celebrating our anniversary, for example, our car got stuck in the mud. All it took was a quick phone call to get a tow truck dispatched, and there was not out-of-pocket expense.

How do you save on car insurance?

Now that you’ve heard about our situation, I want to hear about your tricks for shopping around for car insurance and getting a better deal. What tips do you have for saving money on car insurance? Please let us know by leaving a comment.

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This is a guest post from Jim at Bargaineering. If you like what you see here, please consider subscribing to his RSS feed.

If you haven’t yet received your W-2 form, which reports your wages for the past year, chances are the post office monster ate it. By law, your employer is required to mail a copy of your W-2 to you by January 31st, which means it should get to you at the latest before mid-February. Since it’s early March, we are way past the deadline and since your employer probably didn’t forget, it’s likely disappeared into the abyss of the postal system.

So what are you supposed to do? The easiest way to handle this situation is to go to your payroll or human resources department and ask them for another copy. If you’re eager to get your taxes done and/or don’t want to risk it getting lost in the mail (again!), you can ask them to print you out a copy and hold it for you to pick up in person. If you’re due a tax refund (the average tax refund last year was almost $2700), requesting an in-person pickup can help you file and thus get your refund that much faster.

What if you received your W-2 form but lost it? Do the same thing, go to payroll or HR and request another copy. In either case you might have to fill out a form, depending on how strict your company’s policies are, to get a new copy but it’s usually not a big deal, and you also don’t have much of a choice.

What if you never received a 1099 form? That’s easy… This post explains how to handle a missing 1099 form.

Happy filing!

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This is a guest post from Darwin’s Finance. If you like what you see here, please consider subscribing to his RSS Feed.

While it’s difficult to overcome the urge to react to unexpected events in our lives, patience and consideration of the facts almost always yields better results than emotional reactions. We encounter this every day, from holding off on hitting that send button on a nasty email you haven’t yet fully digested, to not punching the guy in the face who just said something stupid to your girlfriend.

In retrospect, such instinctive responses that were delivered without considering the full context, the facts and the likely outcomes most often lead to regret and often, financial pain, down the road.

“Storm of the Century”

While the media loves to talk about the “Storm of the Century” every few years to keep eyeballs glued to the set, we actually have had the snowfall of the century this year in many parts of the Northeast.

Well… We have some friends who tend to make rapid, emotional decisions that often have heavy financial implications. Last week, they proclaimed, “We’re moving to California. This snow is ridiculous and we’re not dealing with another winter like this.”

In truth, they probably won’t see another winter like the East Coast has had, but their minds are made up. They’ve already talked their parents into moving out West with them so they can still see the grandkids, and he’s already looking for work.

They’re serious; they’re moving because of snow.

Take a deep breath

Based on my recollections, this winter has been off the charts. In fact, I can recall several winters where we didn’t even have any snow to speak of, perhaps a dusting here or there. So, I looked into it a little further.

As it turns out, we haven’t had this much snow in our region for over 100 years, dating back to when they first started tracking snowfall in 1884. Hmmm… Maybe it was a Storm of the Century. But still… Moving?

What’s the big deal about moving? Well, if snow is the sole catalyst, it just strikes me has highly irrational – and expensive.

• An equivalent house (they have a roughly 3,000 sq ft new-construction home) in a reasonably desirable area of California is going to cost more than double what it does here.
• California is essentially bankrupt. It’s inevitable that services will be cut while taxes are being raised – and current tax rates are already higher than most states. Is this a place you want to be moving TO? Or running FROM?
• Moving costs are not trivial.
• What if the job doesn’t work out? It’s tougher to find high paying jobs than it used to be.

It’s now evident this wasn’t a typical snowfall season. Since we haven’t had this much snow in over 100 years, it is unlikely that we’ll see something similar anytime soon. This winter was an outlier, pure and simple.

Wanting to avoid bad winter weather is a lot like the understandable, yet irrational feeling of not wanting to drive a car again after a bad car accident, or even people that are afraid to fly even though the trip to the airport is more hazardous than the plane flight itself. While disasters do occur, they are extremely rare, and repeat events of similar magnitude are nearly non-existent.

So, if there’s a once per hundred year earthquake on the fault line which causes damage and fear, will our friends turn around and move back East? This business of reacting to rare events can get pretty expensive!

Investment decisions

This brings me to how similar thinking affects investors. Left to their own devices, millions of retail investors damage their prospects for an optimal retirement asset allocation by constantly tinkering with it. In the midst of the financial crisis, friend after friend proclaimed that they were boldly moving all their money out of stocks and into bonds – Treasury Bonds that is.

Many retirement accounts offer some sort of “conservative” bond fund, and tons of people have flocked into such investments. Not only did most of these people exit at the worst possible time – pivot bottom in March 2009, but they then shifted money into a money-losing Treasury fund while stocks rallied over 60% from their lows in less than a year (compare Mar 9 onward)!

If you thought Treasuries could never lose money, think again. With yields so low that investors were actually taking a negative yield just to stay liquid in short term paper, the only direction for Treasuries to move was down (driving yield up). And they did. It was so plainly obvious to me in 2009 that I shorted Treasuries in my trading account with a practical risk-free gain in my book.

So, what you have here is people that initially had a reasonable asset allocation suited to their risk tolerance and time horizon (often 20-30 years from now!) shifting money around at the worst possible time. By deviating from a long-term strategy with short term reactive measures, their nest egg at retirement could be hundreds of thousands of dollars short.

While stocks make people nervous, no responsible financial adviser would propose a 0% stock allocation and 100% Treasury bond allocation for a 30 year time horizon. History has demonstrated that you’re lucky if you even beat inflation over decades long periods of time in Treasuries, while equities always outperform other conventional asset classes over long time periods.

Regardless of what your long term strategy is – be it asset allocation in your 401K, career moves, altering a small business strategy, or whatever the situation may be – before you “go with your gut” and make a major decision based on a single data point, your emotions, or a perceived reality, make sure you consider the context and what the possible long-term implications are.

What are some of the worst “Gut Reaction” moves you’ve seen?

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In the past week, I’ve written up the credit card acceptance guidelines for both Visa and MasterCard. But what if a merchant doesn’t follow the guidelines? What recourse do you have?

In short, you can report them to Visa or MasterCard and (hopefully) corrective action will be taken. Here’s how to get in touch with the two companies…

Reporting Visa credit card violations

Perhaps the easiest way to get in touch with Visa is to call them at 1-800-VISA-911. Alternatively, you can call the number on the back of your card.

If you would prefer to send a written complaint, you can address it to:

Visa U.S.A. Inc.
P.O. Box 194607
San Francisco, CA 94119-4607

You might also be able to register your complaint online through your card issuer’s website, but Visa doesn’t have a centralized way of doing this.

Reporting MasterCard credit card violations

Once again, you can call in your complaint to 1-800-MASTERCARD, or you can call the number on the back of your card.

Alternatively, you can register your complaint online via the MasterCard Merchant Violations page. You’ll be asked for your name and address, details about the merchant, and the nature of the problem. There is also space for freeform comments.

Have you ever reported a merchant?

Have you ever reported a merchant for violating the terms of their credit card agreement? Perhaps they required ID, attempted to add a surcharge to your purchase, or tried to enforce a minimum purchase amount.

If so, please share your experience in the comments.

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Last week I wrote about Visa’s credit card acceptance guidelines. This week, I thought it would be interesting to take a look at MasterCard’s merchant guidelines.

MasterCard credit card rules

What follows is a synopsis of MasterCard’s rules regarding card acceptance straight from their merchant guide. The rules regarding card acceptance aren’t quite as explicit as Visa’s in some areas, though there are many parallels. Also note that there are many more rules that what I’ve listed below — I tried to filter out the ones with the least everyday relevance.

Honor all cards. Merchants are required to honor all valid MasterCards without discrimination when properly presented for payment. Merchants may not discriminate amongst customers who seek to make purchases with a MasterCard, nor can they discriminate against or discourage the use of a MasterCard in favor of another brand.

Additional cardholder identification. A merchant must not refuse to complete a transaction solely because a cardholder who has presented a card to pay for a purchase refuses to provide additional identification.

Charges to cardholders. A merchant may not directly or indirectly require a cardholder to pay a surcharge or any part of the merchant processing fees charged in connection with a transaction. However, fees are allowable if they are charged regardless of the form of the payment, and merchants can provide a cash discount.

Minimum/maximum transaction amount prohibited. A merchant may not require, or indicate that it requires, a minimum or maximum transaction amount in order to accept a valid and properly presented MasterCard.

Sale or exchange of information. Merchants may not sell, purchase, provide, exchange, or in any manner disclose MasterCard account numbers, transaction details, or a cardholder’s personal information.

Noncompliance assessment. If MasterCard learns of a merchant’s non-compliance to their rules, they will notify the “acquirer” (i.e., the bank that processes transactions for the merchant) and the acquirer must “promptly” bring the merchant back into compliance.

Failure to safeguard account data. If a merchant is found to have violated any of the security rules (there are several listed), MasterCard can impost a noncompliance assessment of up to $100,000 per violation. They also specify the steps a merchant must take if they believe account data has been compromised, including notification of the acquirer withing 24 hours.

There are a handful of other requirements that I’ve heard about with MasterCards that weren’t listed in the their merchant guide. For example, the cards have to be signed to be valid, and so on. Once again, I’m betting that the biggest hot-button issue will be asking for ID, followed closely by minimum transaction requirements.

What’s your biggest annoyance when it comes to merchants accepting (or not) you credit card?

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This is interesting… Sallie Mae, traditionally a provider of federal and private student loans, has just entered the retail banking world. Their initial products include a high interest savings account and CDs with fairly competitive rates.

The current rate on their savings account is 1.35% APY, and their CD rates range from 1.50% APY for 12 months up to 3.00% APY for 60 months. The savings account has no minimum balance and no monthly fees. Unfortunately, I couldn’t find any mention of a minimum deposit for CDs. Not surprisingly, all accounts are FDIC insured up to current limits.

In addition to a fairly competitive rate, Sallie Mae Bank will match up to 10% of your Upromise earnings (subject to some restrictions). I don’t have an account with Sallie Mae Bank, so I can’t vouch for their user interface or customer service. If any of you have experience with them, please leave a comment and let us know how you like it.

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Like millions of other Americans, my wife and I are upside down on our home mortgage – i.e., the amount we owe exceeds our home’s value. If I had it to do over again, rather than buy with $0 down, I would rent, save money, and buy only after it made more financial sense than renting. If only I could go back in time to alter our decision to buy!

Oh well, our plan moving forward is to pay off our mortgage early and stay put until prices trend upward.

As an aside, if you want more information on buying a home vs. renting you can check out Laura’s view of the buy vs. rent dilemma, as well as my opinion on the same thing.

Mistake #1 – Zero down mortgage

So many new homeowners made the mistake of entering into a zero down mortgage. If you cannot afford a down payment of at least 20%, lenders typically require either a 2nd mortgage or carrying private mortgage insurance (PMI).

One positive result of the housing crisis has been a huge scaling back of the zero and low down payment mortgages, which has been a large contributing factor of plummeting home sales. Nowadays people who don’t have any money cannot buy houses. Go figure, right?

2nd mortgages and Private Mortgage Insurance (PMI):

Private mortgage insurance (PMI) is insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. It is insurance to offset losses in the case where a mortgagor is unable to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property. Typical rates are $55/mo. per $100,000 financed, or as high as $1,500/yr. for a typical $200,000 loan. (source)

A second mortgage (commonly used as an alternative to PMI) is a secured loan that is subordinate to another loan (your 1st mortgage) against the same property. The 2nd mortgage typically carries a significantly higher interest rate and is typically used as part or all of the 20% down payment. The higher rate is a reflection of increased risk to the lender, and results in much higher interest costs to the borrower over time.

We fell into this trap like so many others. We wanted to get into our new home now, and were ready to employ any creative financing necessary to make it happen… And so we entered into a 2nd mortgage for 25% of the purchase price (75/25 loan.)

To avoid a costly 2nd mortgages or PMI, save at least 20% of the purchase price of the home.

Mistake #2 – Buying high and selling low

Whether you’re trying to time the stock market or time real estate transactions, buying low and selling high should always be the goal. In a bad market the temptation to do the opposite can be powerful.

Take my housing situation, for example. I hate the fact that we have debt at all, and am very tempted to sell, despite the fact that we would have to take a loss! I’m tempted to sell our house for a loss and then rent for much less than our current mortgage payments and pay off our remaining debt while renting.

Though getting out from under the mortgages is tempting, I decided against it for mathematical reasons. If we were to sell now, we would not only lose money on the transaction, but we’d have to pay cash to our lender. If I could wind up even money, I would sell tomorrow. Instead, we are doing the next best thing… Making our 2nd mortgage the next victim of our debt snowball.

The faster we can reduce our amount owed, the sooner we can sell without any out-of-pocket costs. Our hope is that the housing market will bounce back in the mean time, affording us the option to sell for gain.

To avoid selling your home for less than you owe, increase mortgage principal payments and wait for the market to rebound.

It is worth mentioning that we cannot control market conditions, so we should spend our energy focusing on the factors that we can control:

Once you have high interest consumer debts under control, focus your debt snowball on reducing your mortgage – and look into refinancing your mortgage to see if rates are attractive as you may be able lock in a lower rate. If you have a 2nd mortgage, pay it off ASAP. Those of you with PMI should also focus on reducing your mortgage principal to speed your ability to drop the PMI once your principal is reduced below 80% of the home value.

Make property upgrades that raise the value more than the amount they cost to implement. DIY projects can cost very little, yet yield superb ROI.

In closing…

Most who fall victim to either of these housing and mortgage blunders end up paying dearly. I hope this article will help future homebuyers avoid the same mistakes. For our next home purchase, my wife and I intend to save 100% of our payment before buying… But that is a post for another day!

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How to Improve Your Credit Score

3 Mar 2010 at 5:00am

Like it or not, your credit score is a very important number. So what can you do if you have a low score and want to improve it? Here are five simple steps that you can take to do just that:

Check your credit report. You’re entitled to a free credit report from each of the major credit bureaus once per year, so there’s no excuse not to do this. But don’t stop there… Be sure to fix any errors that you find.

Start building positive information. If you’ve had credit problems in the past, put that behind you and get back on track with your payments. If you have a secured credit card, be sure that they report your information to the major credit bureaus, as not all of them do.

Try to get negative information removed. Beyond getting inaccuracies removed from your credit report, you might want to try to get legitimate negative information removed. If you’ve been late in the past, but are currently paying on time, call your creditor and ask to have the information removed. They might balk, but it can’t hurt to try. If you have past due accounts, you might be able to negotiate removal of the negative information in return for getting caught up on your payments.

Dispute inaccuracies that can’t be removed. If there’s inaccurate info on your credit report that you can’t get removed, ask the credit bureaus to place the word “disputed” along with a short explanation alongside any items to which you object. They are required to comply. This won’t actual increase your numerical credit score, but it might appease some wary creditors.

Be patient. If you have legitimate negative information on your credit report, you might simply have to wait for it to drop off. Negative information typically remains on your report for seven years, so it might take awhile, but your score will rebound over time if you clean up your act.

So there you have it… Five simple steps to improve your credit score. One last tip is to be very wary if a company offers to help you improve your credit for a fee. There really aren’t any magic bullets here, and you’re perfectly capable of doing pretty much anything that a credit repair outfit can do.

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Ask Your Bank for a Better Deal

2 Mar 2010 at 1:03pm

Last fall, my wife and I went into our nearest bank branch to set up a new savings account for a trust that we’re managing. While we were there, the “Personal Banker” told us about a promo that they were running that would give us a higher than typical interest rate.

I can’t remember the details, but it was something like 2%, when the prevailing savings account interest rates (especially at brick and mortar banks) were much lower. Not only that, but he said he could apply it to our existing personal savings account, as well.

When we got up to leave, he said that the promo rate would end in a few months, but that they’re always introducing new ones. Thus, if we’d just call back and ask, he’d go ahead and apply the code for the new promo rate to our accounts.

I recently called him back and he gave us the new promo rate. I forget the details, but it was significantly higher than their “standard” savings account interest rate. All we had to do was ask.

Oh, and just in case you’re thinking that we must have been dealing with some local bank, and that there’s no hope of getting this treatment from the behemoth bank that you’re dealing with… We do all of our “local” banking with Bank of America.

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Encouraging Family and Friends to Improve Their Finances

2 Mar 2010 at 8:05am

Is money a taboo subject with your friends?

I’m not sure about anyone else, but I don’t think it’s taboo to talk about money. I do, however, recognize that it may be awkward and thus considered a bit wrong by someone to talk to others about how they should handle their finances. Thinking back on conversations we’ve had recently, money has often been a part of the subject matter.

I’ve heard friends and family members say they want to improve their finances and then they mention something that completely contradicts their stated goal. It’s kind of like when you hear people say they’re watching what they eat and then you notice that they’ve ordered and eaten their appetizer, entree, dessert, and even sampled on some of yours.

Do you let things like this slide? If not, when do you speak up and make a suggestion? And if you do feel compelled to talk to them, how can you encourage them to actually do something?

I wanted to go over a few topics that have come up in casual conversation when hanging out with our friends. Hopefully you can relate, and may have an insight that could help with these sticky situations.

Vacationing on credit cards

Our friend invited us to join him and his wife for a conference and show in Los Angeles this summer. Since we’ve never been to LA, we thought this might be a great excuse to go, see some other friends we’ve haven’t seen in a while, and have a good time.

Honestly, it sounds like a great idea. I was already thinking about finding a cheap flight and start budget for the trip when our friend interrupted my thoughts. He mentioned that he was putting it all on his credit card to get some rewards.

At first, I thought that seemed fine. After all, we typically reserve hotels and rental cars with a credit card and then pay it off once we get home. Later in the conversation, though, he told us that he’s still in debt from some of his elaborate vacations. He mixes business and pleasure, extending work trips for fun, and it had resulted in five figure debt.

I kind of backed off of even approaching the topic of funding a big purchase with your credit card. I couldn’t think of a way to begin the conversation without putting him on the defensive (which is a natural reaction). As you’ve probably figured, I hate to see people carry high interest credit card debt, and I worry when they use dent to pay for their wants.

Saving up in advance may force you to delay your purchases, but once the purchase has been made, the hard part is over. You can enjoy your TV or vacation and not worry about how you’re going to pay it all back. We mentioned to him is that we’d definitely like to go, but we’ll need to check our budget and set aside money. I think was probably the best approach in this situation because we’re not going to convince someone in one conversation to change their spending habits. We can, however, show him how budgeting can make it possible to have a debt free vacation.

Creating a budget (and sticking to it)

I’ve heard a few of my friends say that they find it impossible to budget. Like the latest diet or fitness routine, they start off gung-ho with a ‘perfect’ budget that accounts everything to the last penny. They soon wind up going off budget, however, and either wind up back where they started or worse.

This is something I completely understand. I empathize with them on how hard it can be to budget. The most common mistake is that their system is too strict and there is not cushion between what should happen and what actually happens.

I feel a bit better about how we usually handled this because we gave them a couple of tools that have helped us personally with our finances. I also told one friend some of my mistakes with my first few attempts at budgeting and how automating our bills has made it much easier to stay on track.

I think this has been the easiest financial topic for helping other to change their personal finance habits since many people can relate to how hard it can be to start.

Building an emergency fund (only for emergencies!)

Another topic I hear a lot is creating an emergency fund. It can be hard to stay on top of bills while setting aside money in a savings account, but you have to do it. I’ve had some friends lose their jobs or have their hours cut, so I know how important this can be.

I had a friend that was living paycheck to paycheck and wanted to have some money tucked away for an emergency. She had just recently gotten her jobs (yes, she went from no jobs to 2 jobs) and didn’t want to wind up back in the predicament that she just got out of. Whenever people ask for ideas or advice, I take it as a green light to give them some tips that can help them right away.

I suggested that she cut down on things that she doesn’t really care about and use that money to start her emergency fund. It wasn’t a big step (she’s going to stop buying so many magazine at cover price), but it’s a sustainable way to fund her savings.

I also talked to her about using money management tools like Quicken or Mint to see where she could adjust her budget and save some more money. We compared options for different savings accounts. Even though ING Direct (where we bank) offered a high interest savings account, she felt more comfortable at her local credit union (another good option).

The good news is that I was chatting with her again a couple of weeks ago, and she now has two months of expenses tucked away. It felt good to help a great friend and she appreciated the suggestions. If only it was like this every time!

Your Thoughts

How do you handle money discussions with your friends and family? What are some ways you’ve helped others? What are some mistakes you’ve made when talking about finances?

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As a followup to my recent post about what your credit card number means, I wanted to throw out a bit more credit card trivia and talk about how you can tell if a credit card number is valid.

As you may or may not aware, most credit card numbers are generated based on something known as the Luhn algorithm. It thus stands to reason that a credit card number is valid if (and only if) it satisfies the “Luhn check” (a.k.a., the Mod 10 check), which is a simple mathematical test that involves manipulating the credit card number, adding it up, and checking to see if it’s evenly divisible by ten.

Testing credit card numbers

Here’s how to apply the Luhn check to test whether or not a credit card number is valid:

• Step 1a. For a card number with an even number of digits (e.g., Visa or MasterCard), double alternating digits starting with the first digit in the sequence.
• Step 1b. For a card with an odd number of digits (e.g., American Express), double alternating digits starting with the second digit in the sequence.
• Step 2. If the doubling resulted in a number with two digits, add them together to get a single digit number
• Step 3. Now go back to the original credit number and replace the digits that you doubled with the new value — either the doubled value, or the doubled value with the digits added together — and add it all up.
• Step 4. Check to see if the sum is evenly divisible by 10 (you can simply look to see whether or not it ends with a zero).

If the card number does not pass this check, then it is not a valid number. If, on the other hand, it does pass, then it may be a valid number.

Checking validity: an example

Those steps are a bit convoluted, so here’s a real world example… The following credit card image comes from the CitiCards homepage for their Platinum Select MasterCard. The number on the card is 5424 1801 2345 6789. For starters, the fact that the number starts with a “5” indicates that it’s a MasterCard (as does the little MasterCard symbol on the card).

Since there are sixteen digits, we’ll start by doubling the 1st, 3rd, etc. digits and then summing as outlined above. I’ve highlighted the doubled (and in some cases summed) values in parentheses, below. I’ve also underlined the check digit.

(1+0) + 4 + (4) + 4 + (2) + 8 + (0) + 1 + (4) + 3 + (8) + 5 + (1+2) + 7 + (1+6) + 9

This totals up to 70, which is evenly divisible by 10. In other words, this is a potentially valid credit card number, though I’m sure it doesn’t correspond to a real account number. If it does, then L. Walker (the name on the card) probably isn’t too happy about his/her credit card number being spread around like this.

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Have you ever wondered what those numbers embossed on the front of your credit card mean? Commonly referred to as your “credit card number,” there is a lot more information packed into that number than meets the eye… If you have a credit or debit card, you might want to pull it out so you can follow along.

For starters, the first digit in the number indicates what type of card you’re dealing with. This number is always a 3, 4, 5, or 6, and can be interpreted as follows:

3 = Travel or entertainment card (e.g., Amex or Diner’s Club)
4 = Visa Card
5 = MasterCard
6 = Discover Card

Visa credit card numbers

For Visa cards, the numbers are 16 digits long. Visa has used to have 13 digit numbers, as well, but those have been mostly (completely?) migrated over to the 16 digit format.

When looking at the balance of the numbers, the 2nd through 6th digits are the bank number, and the 7th-15th numbers are your account number. The remaining digit is known as the “check digit,” which is used to help determine whether or not the overall number is legitimate.

MasterCard credit card numbers

For MasterCard cards, the number is also 16 digits long. The first digit is always a 5 and the second digit is always between 1-5. The 2nd-3rd, 2nd-4th, 2nd-5th, or 2nd-6th digits correspond to the bank number, and the remaining digits up through the 15th are the account number. As above, the 16th digit is the check digit.

American Express card numbers

For American Express cards, the number is always 15 digits long and it always starts with 34 or 37. The 3rd and 4th digits indicate the card type (business vs. personal) and the currency. The 5th-11th digits are the account number, the 12th-14th digits are the card number associated with the account, and the 15th digit is, once again, the check digit.

As an example, my wife and I have an Amex Blue Cash Rewards account. Our card numbers start with 37, and the 12th-14th digits on our cards are different. The rest of the digits are, however, the same. As far as I’m aware, both Visa and MasterCard issue identical numbers when there are multiple cards per account.

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I was recently digging around for information on the Visa website when I ran across a document containing the Visa card acceptance guidelines for merchants. It includes some pretty interesting information that I thought was worth sharing.

Visa credit card rules

What follows is a summary of Visa’s rules regarding card acceptance. I’ve mentioned some of these things in the past, but ultimately decided that it’s worth having them all in one place.

• Merchants can choose to honor all Visa cards, Visa credit and business cards only, or Visa consumer debit and prepaid cards only.
• Merchants must always honor valid Visa cards in their acceptance category regardless of the dollar amount of the purchase. Minimum and maximum purchase amounts are a violation of Visa rules.
• Merchants must always treat Visa transactions like any other transaction (with a minor exception). They may not impost a surcharge for using a Visa card, but can offer a cash discount. This discount cannot be offered for use of a “comparable card” such as a different credit card.
• Merchants who offer an alternate payment channel, such as telephone or online, are allowed to add a convenience fee as long as it is disclosed, never applied to face-to-face transaction, applied to all forms of payment through the alternative channel, etc.
• Merchants must include all applicable taxes in total transaction amount, and may not collect taxes separately in cash.
• Restaurants, cab drivers, etc. can only authorize an account for the known amount, not for the transaction amount plus estimated tip.
• Merchants may not provide cash refunds for merchandise originally purchased with a Visa card.
• Merchants must deposit their Visa transaction receipts within five calendar days.
• All electronic POS terminal are required to provide account number truncation, such that only the last four digits of the credit card number are printed on the customer’s receipt. The expiration date should not appear.
• Merchants must keep cardholder account number and personal information confidential.
• Return/exchange policies must be properly disclosed before a transaction is completed, or made available online or via mail for “card-absent” transactions.
• An unsigned credit card is invalid and should not be accepted. If an unsigned card is presented, the merchant should check the cardholder’s ID, ask the customer to sign the card, and compare the signature to the one on the ID.
• Writing “See ID” or “Ask for ID” is not a valid substitute for a signature. The customer should be asked to sign the card, as outlined above.
• Visa rules do not preclude merchants from asking for cardholder ID prior to completing a transaction, but merchants cannot make the presentation of ID a condition of acceptance.

I don’t know about you, but I’m regularly asked for ID when I make purchases, and I don’t mind. In fact, I’m one of those people carrying around an invalid card because I chose to write “Ask for Photo ID” on the back instead of signing it.

My biggest complaint is when a merchant enforces a minimum purchase requirement. While I fully understand that even small purchases are accompanied by significant processing fees, nothing frustrates me more than getting to the register and being told I can’t use a credit card unless I spend more money.

At the same time, it’s important to recognize that the cashier doesn’t make the rules and is just trying to do his/her job. Thus, if you have a problem with a merchant’s policies, it’s best to take it up with a manager and/or your card issuer.

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The most recent issue of Money Magazine had an interesting article about protecting yourself from new “credit card traps.” In it, they highlighted a number of changes that banks have introduced to improve their bottom line in the face of recent credit card legislation.

Three of the big fees changes that they highlighted were:

• Fees because you’re not spending enough. Some Citibank cardholders are apparently being hit by annual fee of $30-$90 if they spend less than $2400 per year on their card.
• Fees because you’re not swiping enough. Some FigthThird cardholders are being hit with a $19 fee if they don’t use their card for a year.
• Fees… Just because. Bank of America has introduced annual fees of $29-$99 on a variety of new and existing cards.

There have been a number of other charges, as well, including new or increased fees on balance transfer credit cards, fees for participating in credit card reward programs, and so on. In other words… Fees, fees, fees!

The lesson here is to keep a close eye on your credit cards, and be sure to read any mailing from your card issuer. What you don’t know can hurt you (or at least your pocketbook).

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Does more money result in more happiness?

As my wife and I lazily follow American Idol, we’ve noticed a common statement of hope uttered by many of the contestants, “American Idol is the best thing that has ever happened to me, it’s gonna change everything!”

The contestants are not alone in their zeal to believe that happiness is a direct result of more money, fame, and/or success. Still… Every time I hear those words I cannot help but wonder if these changes will be for the better.

Setting aside fame and success, let’s hone in on the presumption that more money leads to more happiness.

Money and happiness – the wrong way

Whether we’re willing to admit it or not, many of us believe that if we just had more money, things would be better. But would they really? I mean, think about it… What have you done with the money you’ve earned up to this point? Were you responsible with it, or did you spend with disregard and without a plan?

If you’ve failed to responsibly manage little then it’s rational to assume you will do the same with more, only on a much larger scale.

We need only examine the life of the late Michael Jackson to see the possibility of earning untold millions yet departing awash in debt and scandal. Irresponsible money management is not cured by more money, and happiness is not achieved as a direct result of attaining more money.

I believe the “troubled rich” are troubled simply because they place an inordinate amount of attention on the money itself. When we improperly equate money with happiness, we set ourselves up for disappointment and possibly heartache.

Money and happiness – the right way

When kept in the proper perspective, it is possible to achieve an improved state of happiness through the wise use of money.

At this point in my life I can honestly say that more money would increase my happiness, but that statement hinges on my understanding the following two points:

My goal is to be debt free. I need a specific amount of money to meet that goal. My happiness is tied to the goal, not the money. Ultimately, my happiness lies in the freedom and flexibility that accompany the absence of owing others.

In conclusion…

More money can afford us the ability to reduce or eliminate debt, thus increasing our financial freedom and free time. At the same time, more money can lead to corruption, stress, and burden of possession.

Just as personal finance is personal, the link between money and happiness can only be determined at the individual level. Based on my needs and intents for using the money I believe more money could very easily increase my level of happiness.

As Dave Ramsey is quick to point out, money is amoral. Our use of it can be moral or immoral, but money itself is neither. The link between money and happiness is much the same… It’s not the money itself that influences our happiness, but rather how we view the money and how we choose to use it.

Would more money make you happy?

What do you think of money as an amoral entity, attributing the relative good or evil to the person and their use of it rather than to the money itself? What about your particular situation – would more money bring you more happiness? If so, why?

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In case you missed it, the CARD Act of 2009 went into effect on Monday. Among other things, the new legislation aims to curtail the marketing of credit cards to college students and others under the age of 21.

More specifically, the CARD act requires colleges to disclose any marketing agreements they may have with credit card issuers, perhaps by just posting the info somewhere on their website. Moreover, “tangible items” (a.k.a. free stuff such as gift cards, t-shirts, etc.) cannot be used to induce students to apply for a credit card within 1,000 feet of campus.

The CARD Act also prohibits credit card issuers from extending credit to anyone under 21 unless there is an over 21 co-signer or the young applicant can demonstrate and independent means of repaying their debts (though this requirement might not be very effective).

This all begs the question of whether or not these sorts of protections are a good thing. It’s a bit like the military/drinking age thing. If you’re old enough to serve the country, shouldn’t you be old enough to have a beer? The same logic could easily be applied to credit cards.

That being said, I don’t have any real problem with protecting college students from their own stupidity when it comes to finances. What about you? What do you think about these age-related restrictions?

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While a lot of your probably haven’t filed your taxes yet — neither have we — many others have. It’s therefore likely that people are starting to wonder when they’ll receive their refund.

How to check the status of your refund

The good news is that IRS has a refund hotline (800?829?1954) as well as an online “Refund Status” tool for finding our when you can expect your refund. Whether you call or go online, you’ll need your social security number, filing status, and exact refund amount to get an answer.

If they’re unable to locate your tax refund information, you’ll be asked to provide the approximate date that you filed as well as how you filed (paper or electronic). If they still can’t find your refund info, you’ll need to call the IRS for an answer.

Refund check for wrong amount

If your refund showed up but was for the wrong amount, then read on…

If your receive an unexpected check, or a check for more than you expected, don’t cash it until you receive a notice from the IRS explaining the discrepancy.

If you receive a smaller refund than you anticipated, you can go ahead and cash the check. If it is later determined that you should have received more, you should receive a check for the difference.

Either way, if you have questions about the amount of your refund, you can reach the IRA at 800-829-1040. Note that they ask you to wait two weeks from receipt of the erroneous check to provide time for any mailed notices to show up.

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I recently ran across an article about a woman with over $500,000 in student loan debt. While I’m amazed at the sheer amount of debt she is in, I know that’s she’s not the only person struggling with student loans. This is especially true for those who have been laid off or otherwise had their income diminished.

I’ve taken out student loans to support my education in the past and, like some, I wasn’t responsible with all that I borrowed. While I blew some of the cash, however, I soon realized that I needed to pay it all back. I got serious, created a spreadsheet, and got back on budget so I can pay back what I owe.

Work with your lender

Managing your student loan payments depends on several factors, with your lender being the biggest one. With federal student loans, you can usually find a workable solution to get you get back on your feet. Private loans can be a bit harder to negotiate, but it’s still possible.

Either way, you have to come prepared with numbers. Before calling your lender, organize a budget and have a ballpark figure of what you can afford to pay right now. If the customer service representative doesn’t give you a practical number, speak up and tell them what you can afford.

Consider your options

When trying to improve your situation, there are several options you may wish to pursue in hopes of getting back on top of your debt.

Choose a repayment plan that better fits your situation. You may be able to switch to a graduated payment plan with lower initial payments that gradually increase over the term of the loan. You’ll pay more in interest in the long run, but it may be worth it. Alternatively, if your current income has decreased, an income-based payment plan may be a beneficial option. If you have a Federal loan, you can change your payment plan by logging on at Federal Direct Loans.

Apply for a deferment to buy yourself some time. A loan deferment allows excuses you from making payments on your student loan for a set period of time. I’ve had friends use this option as they were job hunting and they resumed payments once they found employment. You can also defer loans when you return to school.

Apply for a forbearance. With a loan forbearance, you may be able to make reduced payments for a limited time, or stop making payment altogether (though interest will continue to accrue). With Federal loans, you can get more information about deferments and forbearances by calling Federal Direct Loans at 800-848-0979. For private loans, contact your lender to inquire about your options.

Consolidate your student loans. If you’re looking for a long-term plan to reduce your student loan payments, loan consolidation may be right for you. Depending on your interest rate, you may be able to consolidate your loans, reduce your interest payment, and have only one monthly payment to make. For private loans, check with your lender to see if there is a minimum amount to consolidate. If you have a mix of Federal and private student loans, you should keep your Federal loans separate as they tent to have very competitive rates.

Your take

Have you ever had to adjust your student loan payments or otherwise modify your loan agreement in order to make ends meet? If so, please share any tips, tricks, or experiences in the comments section.

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As many of you know, we switched to a high-deductible health insurance plan (HDHP) this year. Along with that change came the opportunity to open a health savings account (HSA) to help offset our increased deductible.

For those that are unaware, an HSA is similar to a flexible spending account (FSA), but better. While both provide a tax break on qualified medical expenses, the HSA has a higher annual contribution limit ($6150 for families, $3050 for individuals) and it’s also not subject to the “use it or lose it” provision.

Another very important difference is the freedom to invest funds in an HSA in much the same way you can invest the money in your IRA. While your employer might have a “preferred” HSA custodian, you can actually use an custodian you want.

A better use for our HSA?

All of this got me to thinking… Assuming that you can afford to pay for their medical expenses out-of-pocket and make HSA contributions, should you make claims against your HSA? Or should you leave the money in place and let it grow, completely tax free?

When you really think about it, the HSA combines the best attributes of the Traditional and Roth IRAs. That is, it combines the deductible contributions of a Traditional IRA with the tax-free distributions of a Roth IRA. Add to that the high contribution limits and you’re talking about a very powerful investment vehicle.

Getting your money out of your HSA

Obviously, we’ll eventually want to get our money back out of our HSA. How can we do that? Simple. According to IRS Publication 969:

When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA.

The go on to say that:

You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA… You do not have to make distributions from your HSA each year.

(emphasis added)

But wait… It gets better:

If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses.

One other little safety net is that, once I turn 65, the 10% penalty for non-qualified distributions goes away.

Here’s a quick translation:

• You can take distributions in return for any qualified medical expense that you incur after open your HSA
• You are free to wait as long as your want to take these distributions
• You can even take distributions after you’re no longer eligible to contribute to an HSA
• You can also claim qualified expenses incurred after you lose eligibility
• Once you turn 65, you can take non-qualified distributions by paying taxes (like a Traditional IRA) without paying the 10% penalty

Of course, you’ll have to save your documentation to make this happen. The good news is that you can simply scan and archive the paperwork (just be sure to keep backups!) as the IRS accepts scanned documents.

Your thoughts

So, dear readers, what do you think? If you’re in a position to cover the out-of-pocket expenses associated with your healthcare while contributing to an HSA, should you take distributions from your account? Or should you leave those funds in place to grow tax free such that you take better advantage of them in the future?

As for us, leaving the money in place is a pretty attractive proposition, and we’re currently archiving receipts instead of taking distributions while we consider our options.

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I just ran across an interesting post about hiring a housekeeper over at GetRichSlowly. In the comments, a reader asked JD about how they handle the tax issues. His response was:

Our housekeeper is not our employee; she is an independent contractor. Because of this, taxes aren?t an issue.

This is a convenient answer, but is it true? It’s clearly beneficial from a tax perspective to hire your housekeeper as independent contractor vs. an employee, but just because you claim they are an independent contractor doesn’t necessarily make it true.

According to the IRS:

To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories ? Behavioral Control, Financial Control, and the Relationship of the Parties.

While I’m not a tax expert, it seems likely to me that JD’s going to run into trouble with the Behavioral Control aspect, where the IRS is interested in whether or not the employer “has a right to direct or control how the work is done, through instructions, training, or other means.” I’m guessing that JD and his wife do exert some level of control over the work being done.

As further evidence that the IRS frowns on treating a housekeeper as an independent contractor, check out IRS Tax Topic 756, where it states:

Household employees include housekeepers, maids, baby-sitters, gardeners, and others who work in or around your private residence as your employees. Repairmen, plumbers, contractors, and other business people who work for you as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do but how they do it.

Also note that the IRS has ruled in the past that the employee/contractor issue is dependent on the nature of the relationship, and not the existence of a contract stating that someone is an independent contractor. Again, just because you say someone is a contractor doesn’t mean that it’s true.

Now… As I noted above, I’m not a tax expert, so perhaps my interpretations are wrong. As always, please feel free to chime in by leaving a comment if you have anything to share.

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Earlier this week, I ran across some interesting data from the National Association of Colleges and Employers. More specifically, they had a listing of the ten highest paying college degrees of 2010.

Note that they’re talking specifically about Bachelor’s degrees here, so things like doctors, lawyers, etc. are off limits. Here’s the list:

Notice anything about the entries on that list? Every single one of them involves science, engineering, or computers. This probably shouldn’t come as too much of a surprise, though I did sort of expect to see something in the finance sector creep onto that list.

Just for the sake of contrast, check out this list of the lowest paying college majors that I published last fall:

Quite a difference, huh? This isn’t to say that you (or your children) should pick a major based solely on future earning potential. After all, not everyone is cut out to be a petroleum engineer, and fewer yet would be happy showing up to work as one on a daily basis. Nonetheless, future earning potential is one of many factors that should probably be kept in mind during the overall decision-making process.

What did you major in, and do you have any regrets?

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As a followup to my previous article on tracking Lending Club investments in Quicken, I wanted to share how I account for defaults. If you’ve been reading my updates, then you’ll know that I had a borrower default last fall. It wasn’t until recently, however, that I decided how best to tackle this situation in Quicken.

Tracking notes in Quicken

As a quick refresher, I track my loans under a mock security name of “LC Loans,” and with a stable share price of $1. If I invest $25 in a note, I “BUY” 25 shares of LC Loans. As principal is repaid, I “SELL” the appropriate number of share. Interest payments are recorded as dividends (DIV), and so on. I do this on a monthly basis with a single, aggregated BUY, SELL, DIV, etc. transaction. But I hadn’t figured out the default thing until this past weekend.

How to record defaults

As it turns out, the solution is very simple. In this case, it was a $25 note that went into default, and the borrower never made a single payment (nice, huh?). Initially, I thought I’d simply record a “SELL” transaction in Quicken for 25 shares of “LC Loans” at a price of zero. Unfortunately, Quicken wouldn’t let me assign a share price of $0.

My workaround was simply to leave the share price at $1, and to record a $25 “commission” in the commission field. The end result is that I deducted 25 shares of my investment without adding any cash value to my account. This has the same net effect of selling them for $0/each, or just magically erasing them.

As for timing, I recorded this transaction during the month in which the loan was finally declared a lost cause (November 2009). Quicken now gives me a completely accurate picture of my true portfolio performance, including the effects of both idle cash and loan defaults.

Any other suggestions?

If you have any tips or tricks for tracking your Lending Club investments, please share them in the comments. While the above approach doesn’t allow you to track things on a note-by-note basis, it’s very easy to implement, and gives you accurate numbers for your portfolio as a whole.

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The need to give is everywhere.

Giving is an important and integral part of personal and family budgets throughout the nation. As American’s we are blessed with an abundance, and with great abundance comes great responsibility. But are we forgetting our own communities by focusing our giving efforts on national and international tragedies?

No matter where you go in the world you will always find the needy. There are needs in Indonesia, needs in Haiti, and needs in Africa, and need elsewhere in the United States, but…

What about the needs right here at home? Extensive television coverage of major tragedies can easily command our attention. Local community needs, on the other hand, rarely grace our TV screens.

Does this make one need more important than another? Of course not. It simply means that the focus our media gives tragic global events can cause the needs of our local communities to slip under the radar when it comes to charitable giving.

Shouldn’t we focus on meeting the needs within our local communities before committing our support to other national and international crises?

Media tends to focus on sensational events

When disaster strikes, no nation responds with the speed or quantity of the United States… Yet there is so much unmet need at the local community level. Why? Do American’s care about the broader needs of other states and nations more than the needs of their own neighborhood?

I don’t think so. I think local needs often go unmet simply because we’re unaware of exactly what they are. It’s more sensational for media outlets to carry stories of global disaster than to talk about the homeless people living 10 miles away.

If we care to know the needs that exist right in our own back yards, we have to seek out that information ourselves.

How to find local need

If you are interested in giving locally, here are a few place to start:

Giving locally makes sense

As I was writing this article, my wife came home from work and told me about a local family that lost everything in a house fire last night. She gave a good portion of her the money from her miscellaneous cash envelope to help their cause. This is the exactly the kind of local tragedy that happens every day, but rarely receives the media coverage necessary to elicit enough giving to meet the need.

The following snippet from a local charitable organization expresses the point beautifully:

“Giving locally makes sense because you know where and how your charitable dollars are being spent. Local charities and non-profit organizations understand and embrace the interests and values of our community. Local charities have fewer layers of administration than international or national charities and more of your dollars are likely to go directly to delivering the service the charity or non-profit was established to provide. In the end, giving closer to home improves our city’s quality of life and helps to build a stronger local community.”

Give where your burden or passions lie

Ultimately, you should give where you feel called to give. If you feel that your charitable donations should go to the aid of a foreign nation, then you should follow your heart. If you feel inclined to work with the homeless population in your community, then do that. The most important thing is to give somewhere.

Where we give

Because we believe giving should be focused locally before being committed elsewhere, our entire giving budget is allocated to our church and our local homeless shelter. Once we become debt free, we hope to be able to expand and give much more, but that’s a story for another day!

Personally, I have never given to an international organization nor to support the tragedies in a state or country other than my own. This is not because I don’t care about other nations or other communities, but because I have limited resources and would rather see them resources poured into the place where my family lives, works, and plays.

While I don’t want to project my burden for giving onto anyone else, my view is that a locally-focused giving strategy would greatly benefit individual communities.

Where do you give?

Do you give? If so, do you give locally, nationally, or internationally? Or perhaps a combination of all three? What do you think of the idea of focusing on your local community first?

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Over the past few months, I’ve locked in hundreds of dollars worth of savings without giving up a thing. How? Easy. I re-evaluated some of our recurring monthly expenses, reduced our level of service, and we’re now saving nearly $30 per month on an ongoing basis, and without sacrificing anything.

Streamlining our Netflix subscription

As I noted awhile back, we decided to scale back our Netflix subscription because we weren’t taking full advantage of it. We’d been on the 3 DVDs at-a-time plan, but we haven’t been watching all that many DVDs. On the other hand, we use the heck out of the online streaming service thanks to our Roku player. We thus decided to drop to the 1 DVD at-a-time plan, which still gives us access to unlimited streaming.

That decision saved us roughly $8.50/month and we haven’t missed a beat. Granted, $8.50 isn’t exactly a princely sum, but it’s our $8.50, and we weren’t really gaining anything by forking it over, so we might as well keep it for ourselves.

Cutting back on cell service

Next, I was recently reviewing our cell phone bill when I realized that we’re paying for way more service than we need. We’ve been on a family plan with 700 monthly minutes at a base price of $60, but we’re nowhere near that in terms of actual usage.

We ultimately dropped from the 700 minute cell phone plan to a 550 minute plan that costs $10 less per month and which qualifies for an additional $7.50/month discount from my employer. When you figure in the nearly 15% in taxes that gets added to our bill every month, we’re looking at roughly $20/month in savings.

Where can you cut back?

I could do the typical finance-writer thing here and point at that it costs nearly $40 in per-tax earnings to cover that $28.50 in unnecessary costs (depending on your income tax bracket), or that by investing that $28.50/month at an 8% return for the next 30 years will result in a roughly $40k nest egg. But I won’t.

Instead, I’ll simply point out that I’ve merely scratched the surface here, and further challenge you to take a closer look at your own spending. Are there any areas in which you can cut back without even noticing it? If so, then do it.

This isn’t to say that you should only cut back in areas where you won’t notice the impact, that’s up to you to decide. But you have no excuse not to cut back in the pain-free areas.

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This is just a quick note to say that I recently received a letter from E*Trade Bank saying that they’re moving my account to Discover Bank. According to the letter:

“We are writing to let you know that your E*Trade Bank account referenced above will soon be transferred to Discover Bank, and become a Discover Online Savings Account. This follows our plan to focus more exclusively on providing optimal investing solutions to our customers. We expect this transfer to occur on or about March 7, 2010.”

Apparently slashing their savings account interest rate to 0.5% APY last fall wasn’t enough to drive away all of their customers, so they’re selling their banking operations to Discover Bank.

(We have an account with E*Trade Bank, but it’s currently empty.)

If you have an E*Trade Bank account, here’s what you need to know:

• You’ll still be able to access your account for the time being.
• Seven days prior to the transition, they will no longer allow Quick Transfers from outside of E*Trade Bank.
• Any checks deposits have to be made at least seven days prior to the transition.
• Direct deposits will be accepted until March 5, 2010. After that date, they will be returned to the sending institution.
• Past statements and tax documents will remain available from etrade.com after the transition, but your account history will not be transferred.

You should receive a welcome letter from Discover Bank approximately five days before the transition with your new account details. The good news in all of this is that Discover Bank is paying nearly twice as much, at 1.35% APY.

Update: I’ve seen statements in the news that this doesn’t apply if your E*Trade Bank savings account is linked to an “active” brokerage account.

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The following is an excerpt from The Financial Crossroads.

How then, can you determine how to find a truly professional advisor, or if you already have an advisor, how do you know that he or she is a professional?  Here are six criteria to which a truly professional advisor should be held.  Your advisor should be:

1. Educated

• Minimum of a Bachelor?s Degree; preference for advanced degree??Master of Business Administration (MBA), Master of Science in Finance, or Master of Financial Planning (very few exist)??and/or financial planning specific certificate(s)

2. Credentialed

• CFP®, Certified Financial Planner?, is the financial planning credential
• CPA, Certified Public Accountant, is the accounting credential, and an excellent addition to your financial planner?s resume
• CFA, Chartered Financial Analyst, is a very demanding credential, specific to investment analysis
• JD, Juris Doctorate, indicates you?re working with an attorney; very demanding degree, often accompanying planners who specialize in estate planning
• CIMA, Certified Investment Management Analyst, is awarded by the Institute for Certified Investment Management Consultants
• AIFA® and AIF®, Accredited Investment Fiduciary Analyst and Accredited Investment Fiduciary are two newer credentials that are growing in reputation dealing specifically with investing as a fiduciary
• ChFC, Chartered Financial Consultant, is good but should be in addition to CFP® credential and probably indicates insurance sales background
• CLU, Chartered Life Underwriter, almost always indicates insurance sales background and should be combined with CFP® for credibility

There is a veritable alphabet soup of letters that people put behind their names, but any of them that are not preceded by CFP®, CPA, CFA, or JD are either less than central to the practice of financial planning or masking a lack of appropriate credentials.

3. Experienced

• Minimum of 5 years experience and working in conjunction with senior planner or minimum of 10 years, and still ideally partnering with a more seasoned planner

4. Independent

• Should not be working for one of the Big 3, but also be wary of ?Independent Broker Dealers? which carry the word independent, but often reflect the sales practices of the Big 3
• Purely independent financial planning and Registered Investment Advisory (RIA) firm optimal

5. Fee-only

• Steer clear of conflict-of-interest by steering clear of commission

6. 100% Fiduciary

• Contrasted with part-time fiduciaries in the fee-based model or no-time fiduciaries in commission-only realm

There is no panacea or bias-free utopia in financial planning.  I am part of the National Association of Personal Financial Advisors (NAPFA) as well as the larger Financial Planning Association and several sub-associations, groups and think tanks, and the discussion of how we can improve compensation models is endless, and will be, because we?ll never find something that will be optimal for every single client and advisor.  The best advisor decision starts with you.  Review the different variants listed above and determine what is best for you.  An excellent online resource is available for you at www.focusonfiduciary.org.  This is a website designed by NAPFA to help consumers differentiate between advisors and salespeople.  Also keep your eye out for a coalition that has been formed with the CFP® Board, the FPA and NAPFA to ensure that the fiduciary standard becomes the minimum standard for financial advisors in the wake of the financial crisis.

The following is a guest post from Marotta Wealth Management.

Frugality is the new status symbol, or at least it ought to be. It is green. It is compassionate. And it brings with it a financial margin for when life colors outside the lines. It helps bring us the priceless gift of serenity and contentment.

Bruce Waltke translates Proverbs 10:4 as "A poor person is made with a slack palm." To be wise financially, our hands must remain steady. Extend your hand toward an impulse purchase and with one weak flick of your credit card, all thoughtful budget planning can be hopelessly broken. And for many families, it's once on the charge, forever on the card. Excess spending slows our accumulation of capital to invest. When we are drowning in excess purchases, getting ahead is like trying to sprint through deep water.

Get control of the spending that breaks the bank. Certain purchases that are typically both unnecessary and unplanned are budget busters. Avoiding these financial slips requires hedging some of our worst impulses and constraining our desire for instant gratification. Only by saving enough in discretionary spending can we afford to put 10% of our budget toward those true and unavoidable emergencies.

Here are three rules that will help you and your spouse limit impulse buying and better align your spending with your thoughtful values.

First, limit the dollar amount you can spend unless you and your spouse both agree. You owe it to your partner not to undo months of frugality and sacrifice by acting on a whim. Honoring each other in this way helps avoid resentment and alienation that can bust your marriage as well as your budget.

Negotiate the dollar amount. I suggest setting a limit of 1% of your monthly budget. If your annual spending is $60,000 and your monthly budget is $5,000, you would need to confer on any purchase over $50.

The idea of setting a limit will seem more acceptable if you consider the millionaire mindset. Millionaires recognize that saving and investing just $100 a month over the course of your working career produces a million dollars at retirement. They watch their spending carefully. They recognize that frugality is just another way to describe deferred consumption, which is the definition of capital. And capital, once invested, is what produces an ongoing income stream.

Put another way, if the average budget should include 5% taxable savings each month, every time you mindlessly spend over 1% of your budget, you lose more than a fifth of what you should be saving and investing outside of retirement accounts. I've seen many financial affairs ruined by the repeated spending of amounts much less than $50 at a time.

If you are struggling financially and having trouble agreeing on your goals, you may want to set the limit lower. As you both begin to feel your spending is under control and your savings exceeds your targets, you can readjust the limit higher. Exceptions can be made for regular bills and necessary purchases such as utilities and groceries.

Talking with someone else about a possible purchase can clarify your thinking not just about the item but also about your other competing financial priorities. It changes the question from "Do I want to buy that?" to "What do I want to give up to buy that?"

The second rule limits the frequency of mistakes. Practically speaking, you can learn to postpone spending one purchase at a time. When our children were very young, they had to wait a week before spending money on a toy. After the seven days, they often wanted a different toy instead. Then they had to postpone the purchase again.

Children should be required to wait as many days as they are years old before being allowed to make a large purchase (that is, more than a week's allowance). You can use the same technique to strengthen your own slack palm.

When you're tempted to buy something, wait a week before acting. If you still aren't sure, wait another week. There is always tomorrow, and most of the time you won't remember what attracted you to it in the first place. Simply learning to delay and avoid impulse buying can cut your spending in half.

My wife and I sometimes wait years to be sure a purchase will further rather than impede our goals. The rule is simple. If you are not sure of a purchase, wait another week. This ensures that your hand will be confident, not slack, when it decides to act.

The goal isn't to be rich but instead to be thoughtful, industrious, content and thrifty. If you struggle with Madison Avenue's mantra of personal fulfillment through excessive spending, turn the image around. Nearly all of our spending is discretionary, and every spending delay can be a way to bring peace into your life.

The third rule is to recognize the categories where you make mistakes. Dieting works because you are forced to observe what you are eating and learn which foods tempt you to break your calorie budget. Creating a financial diet works similarly. It creates a system that makes spending money more painful. Simply keeping track of all your purchases in a small spiral notebook makes you more mindful.

Refrain from discretionary spending in any budget category that is under pressure. It might be eating out. It might be clothes. It might be household items. If you keep your budget in mind, it will help you not to spend more money than you intended.

Whatever your lifestyle, you probably think everything would be just fine if you had $10,000 more a year. That is the deceptive seduction of wealth. We don't realize there are people living off $10,000 less than we have who are saying the exact same thing.

Ask yourself, "What will I do when I run out of money?" Whatever you would do then, you should do now to keep your spending under control and live within your means. The best way to learn to be content is by taking money out of our spending categories and saving it. The less we spend, the better we will learn to be satisfied. Just as the harder we train, the better our endurance.

If you must satisfy frivolous spending, limit the amount and budget for it. Set aside a half of a percent each for husband and wife. For a family with a budget of $60,000 a year, this would be $25 a month each. If you wanted to buy a $300 item, you might have to save up for it for an entire year. But only put this in the budget if you are saving adequately for all your other big goals.

An even better way is to lovingly meet each other's desires through the portion of the budget allocated to giving gifts. Too often family members don't know what to purchase. Consequently, unwanted or inappropriate gifts represent a great deadweight loss of value. But when we leave our desires in the hands of others by offering, say, a gift certificate we can afford, we build family bonds rather than resentments.

In summary, to avoid impulse buying, set limits, wait a week, and watch out for those categories that entice you to break your budget. And when you must spend frivolously, limit those purchases to a small fraction of your budget.

Here we go with the second round of Free Money Finance March Money Madness (if you wonder what's going on in these posts, see my article announcing March Money Madness and/or click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1 - Saving; Game 2 - Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 15

• Money Attitude -Your Money Psychology (Attitude) - Money is more than just about numbers, it's about how you see and feel about money, what money means to you and how much importance you place on it. If it was just about the simple math we would not fall deep in debt, it's about much more than that. Assess your money attitude and money psychology.

VERSUS

• The Worst Seat On An Airplane Is The Best Seat In The Office (Seat) - For most of us, our earnings power is our most important asset.  Yet, often times hard work and smarts is not enough to get ahead.  With this article's simple concept, you will be able to build relationships that will further your career like no other and allow you to make much more money in the process.

GAME 16

• Human Life Value (Life) - No one wants to think about, nor knows how to answer the question of what their life is worth.  However, life insurance companies have to do it all the time.  They call it human life value.  Ever wonder how they calculate it?  Do you maximize your life insurance or is your life worth less than what the insurance companies calculate?

VERSUS

• Truth, The Highest Thing that Man May Keep (Truth) - Do you share facts about yourself with any and all comers? Most people blurt out the truth when asked point-blank for personal information that's no one's business. Private details need not -- and should not -- be shared with strangers. Funny about Money argues that in some circumstances it's acceptable to lie to merchandisers to keep private information private.

Here's a piece from MSN Money that says the lifetime cost of bad credit is over $200,000. They detail how they got to this number, but the short version is that if you have a bad credit score you end up paying more for all sorts of things -- mortgages (where half the $200k costs lie), auto loans, credit cards, home equity loans -- basically whenever you borrow money.

Of course, if you never have to borrow money, then you can avoid these costs anyway. But if you have a great credit score, you'll also save on many non-loan services that have nothing to do with borrowing money. An example: we save a bundle on our homeowner's insurance because of a good credit score.

So even if you're Dave Ramsey, you need a good credit score. That is, if you want to save money. Ok, maybe it's not $200k (and it may not even be the $100k you can save from using coupons) but even if it's "only" $50k, isn't it worth the effort?

For weekday updates of what I find to be some of the most interesting personal finance articles on the web, follow me on Twitter.

Here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week and my posts that were included:

• Consumerist says Subway charged $2,273 for a $5 footlong. 
• Debt Free Adventure makes progress with his debt snowball! 
• Christian PF wonders what's the best way to help the poor. 
• A Gai Shan Life has baby issues. 
• Festival of Frugality - How to Earn $100 an Hour (Or Save $100,000 in Your Lifetime)

Enjoy!

P.S. Carnival Hosts -- If my post is in your carnival in a given week, please send me the URL to the carnival and I will include it in my weekly roundup.

Here's an email I recently received from a reader:

My husband and I own three homes.  We have a cash savings of $500,000.   Two homes are paid for: one in Florida on the inter coastal waterway and ocean and one in CAPE COD Chatham Massachusetts. The Chatham Massachusetts home was bought for summer income WHILE LIVING YEAR-ROUND ON THE Cape. The small cottage brings in a summer rental of net (after expenses) $7000 a year.  The Florida home requires $11,000 a year in property taxes.   The third home is our primary residence on Cape Cod has a mortgage of $441,000 down from 602,000 since 2006.   We are now in a 3/ARM @ 4.88% - started June 2009 and paying $2335 A MONTH. Our combined income is $89,000 a year after deductions.    We are paying $28,000 a year in mortgage payments. We are in the red each year, approximately $12,000 with medical and property taxes being the largest bills.

OBJECTIVE:  Lower our monthly mortgage payments so we have a better cash flow to help take care of our cost of living.   We are debt free other than this mortgage and property tax. 

#OPTION ONE: Should we take $75,000 plus closing costs (3,000) from our savings and reduce our current monthly mortgage payments from 2335.00 a month to $1800 with a 30 year fixed at 5%?   

#OPTION TWO:  Sell the home in Florida for 500,000 (a recent offer) as this home requires $11,000 a year in property taxes.  The home is too old to rent out to summer tourists. Not up to code in wiring and AC and bathrooms. Buyer intends to bull-doze the home. 

#OPTION THREE:   Pay off the entire mortgage from our current savings thereby demolishing our savings account AND sell Florida home which will replenish our savings to $490,000 (minus unforeseen expenses in closing) And put this amount back in savings (minus the expenses on our wish list ? see below.  

EXPENSE THAT IS NEEDED ASAP: my husband wants to buy a used tractor for his farming, so that would reduce the 490,000 to approximately 480,000.  Moving our furniture from Florida back to the Cape another $2,000 leaving approximately 478,000.   Repairing a fence in Brewster $2500, leaving $475,000.

I am going to retire in 5 years (I am older than my husband) and my husband who is 47 will retire in 20 years.   

What's your advice for her?

As you know, we got a new, high-efficiency furnace last fall. Once winter is over here (which is the end of April, unfortunately), I'd like to do a cost comparison to see if the new furnace saved us money versus the old on we had last year, and if it did, how much it saved us.

I'm assuming that the basic information I need to compare the two years is the cost of natural gas each year as well as how much we used. If the calculation was that simple, I think I could do it easily. But it's not that easy, is it? Don't I need to somehow adjust for the average outside temperature from one year to the next (we kept the inside temperature relatively the same each year, so I'm calling that a wash)? For instance, what if one year was a lot colder than the other (which I think last year was colder than this year)? Then the furnace would have used more simply because of the weather, not because it was less efficient. So how do I make the adjustment?

I looked around on the web and couldn't find a calculator that would help me out, so I thought I'd ask all of you for your thoughts. There are a lot of smart people that read this blog and I suspect a few of them can set me straight. Am I thinking about the way to compare the two correctly? And is there an online calculator or guide that can help me make the comparison with little effort?

Kiplinger lists five things you need to know about Social Security as follows:

1. Patience pays off. The longer you wait, the bigger the check.

2. Marriage has its perks. Couples have the most flexibility.

3. But you can collect if you decouple. You may be able to collect on your former spouse's benefits, as long as you were married for at least ten years and are 62 or older. (If you remarry, however, you can't collect based on your first spouse's record -- unless your second trip to the altar ends in divorce, annulment or death.)

4. Bide your time. Get a bonus. If you wait until age 70 you can collect even more, thanks to the delayed-retirement credit, which is worth 8% a year.

5. Ask for a do-over. If you started collecting Social Security and wish you had waited in order to get a higher benefit, you can press the reset button. You'll need to pay back what you've received -- which could be $100,000 or more -- but the government won't charge you interest.

Personally, I'm not counting on Social Security being around when I retire -- and I'm saving accordingly. Then if it does pay me anything, I'll consider that a bonus.

So, as you might imagine, I'm planning on waiting as long as possible to withdraw funds (I shouldn't need them, so I'll wait for a bigger payday.) Then again, if the whole thing appears to be collapsing, I might jump in and get as much as I can before it topples.

Oh the joys of dealing with a government-run retirement program. ;-)

Update: Sometimes I post articles in advance without looking at what was just before and after them. This one is a case in point. Didn't we just discuss SS yesterday? :-)

Here's an email I received from a reader earlier today:

I am getting a job offer letter in the mail this week.  The new employer told me that they actually prefer me to start May 1st (instead of April 5th that I originally offered to them).  My dilemma is that I have a quarter end coming in my current company.  I'll be busy the whole month of April in my current job if I don't leave before April.  Financially I can afford not working for a month.  I love the opportunity to take off one month to relax before starting my new job in May, but I worry it will burn my bridges with my current employer if I leave before the busy season.  I have been with my current job for a little over a year and have a good relationship with my current bosses and coworkers.

Should I just hang on my current job for another month and put in my notice in mid-April (i.e. during the busy season) or should I just put in my notice next week so I get out of here before April?  My thinking is that if I put in my notice mid-April (during the busy time), they may hate me the same way just as if I leave right before april.  So either way, they won't like it.  I might be better off just take April off to relax.

What is your advice for her?

CBS MoneyWatch weighs in on when to take Social Security benefits. Here's a summary of their thoughts:

Today, most people who qualify for Social Security are eager to get their hands on a check as soon as possible. A full 70 percent of recipients sign up for Social Security between age 62 and the normal full retirement age, which is between 65 and 67, depending on the year you were born.

Some, undoubtedly, have been forced into early retirement for health or economic reasons. But anyone who can avoid taking Social Security checks early will do themselves a big financial favor by delaying, since taking benefits early slashes what the government provides. As a married couple, however, you can employ more sophisticated strategies to collect Social Security early and still maximize your benefits over time.

Then they share this example:

To see the long-term benefits of waiting, consider this example from T. Rowe Price senior financial planner Christine Fahlund. A man born on January 2, 1948, who earns $80,200, he can expect a $2,157 a month from Social Security at his normal full retirement age of 66. But if he retires this year, at 62, he?ll receive just $1,458 a month, about a third less. Using Social Security?s assumptions, by waiting until 70, his checks will start at $3,303 ? more than double what he?d get at 62.

True, he must pass up eight years? worth of checks ? in this example, that?s a total of $149,517 in inflation-adjusted benefits from age 62 through 69. But if he starts taking benefits at age 70, the bigger checks will let him make up that $149,517 in a little over six years, or by the time he?s 77. From then on, he?ll be ahead of the game. Through age 85, he?ll have collected $786,450, or $219,462 more than if he had started benefits at 62. Postponing meant eight years of tax-free, government guaranteed growth.

It's a long time before I will be taking Social Security -- and honestly I'm wondering if it will be around when I get to 62, 66, or anything close. As such, I'm saving like I'll get nothing from it and if I do get anything, I'll be pleasantly surprised. As such, I think I'll be in a position  to wait as long as I need to to start collecting Social Security, a move that could earn me an extra $200k. Cool!

By the way, the piece linked above goes on and on above various withdrawal options and a couple special ones for married couples. I have one word for those scenarios: complicated! I'm surprised that there isn't an industry set up to help people weed through their Social Security options in order to maximize their payouts. Then again, maybe there is. Do financial planners do this sort of stuff?

Here we go with the second round of Free Money Finance March Money Madness (if you wonder what's going on in these posts, see my article announcing March Money Madness and/or click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1 - Saving; Game 2 - Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 13

• How to Pilot Through a Financial Crisis Like Captain Chesley "Sully" Sullenberger (Pilot) - Through the heroics of Captain Sully Sullenberger we can learn a lot about how to hand money.  Difficult times will surely come our way, but we can overcome these challenges if we are prepared, stay calm, and like Sully, make good decisions.

VERSUS

• How to Build Confidence and Destroy Fear (Confidence) - Without self-confidence, we have a tendency to make poor decisions. We make choices based on fear instead of what is best for us. If you lack confidence, you might fill your life with self-destructive behavior: You might work at a job you hate, you may allow yourself to get deep in debt, you may find yourself moving from one bad relationship to another. Without confidence, you don?t allow yourself to pursue your dreams. But by facing your fears head-on, by taking action, you have the ability to build confidence and to destroy fear.

GAME 14

• The Ultimate Home Buying Guide ? Buying vs Renting Detailed Comparison (Ultimate) - The only piece of information you will need to read when deciding if renting or owning a home is the right option for a you. A 3,000 word post with every piece of information about home owning discussed.

VERSUS

• 6 Mistakes of New Earners and How to Fix Them (Earners) - Jill highlights the mistakes she made as well as ways to fix them after starting out on her own a couple years ago. It's a must read for anyone who has just graduated or needs a little refresher.

The following is an excerpt from Where the Jobs Are Now: The Fastest-Growing Industries and How to Break Into Them.

Maybe there was a time when you could post your résumé on Monster.com and sit back and wait for the offers to come flooding in, but that time is long gone. In today?s economic climate, that?s like waiting for the job fairy to come and tap you on the head with a magic wand. Well, guess what? There is no job fairy. That?s what I call a reality-based wake-up call, and one I?ve repeated time and time again to the thousands of people I?ve spoken to as a career coach and strategic advisor. What it means is, you can?t afford to be passive and wait around for the jobs to come back, because a lot of them won?t. It?s time to take control of your career again.

The way to take control is to go where the growth is. It?s not hopeless out there, even though it feels like it sometimes. There are choices you can make that will improve your situation. They may be tough choices, but whoever said the important things in life are easy?

It?s not just that the growth industries are the only ones that are still standing strong amid the rubble of the recession. There are other benefits to working at a growth industry, too. Chief among them is the fact that you are far more likely to have a positive employment experience at a business that?s part of a growing field instead of a shrinking one. Workers are more likely to receive raises and promotions, because when a business grows, employers need more workers to step up and fill the higher jobs. Similarly, workers in growth industries are more likely to have better, more robust benefits packages available to them, as well as perks like subsidized gym membership and transportation reimbursement plans. It?s not like anyone?s desperately trying to quit Google, right? Nor am I seeing any health-care workers fleeing through the doors of Mount Sinai Hospital.

People want to stay employed in growth industries because, by its very definition, working in a growth industry is better than working anywhere else, and that inevitably leads to a happier, more productive career.

Think of your career as if it were a business. You don?t see any businesses out there spending all their time trying to find the customers with no money, or who have so little money that they can?t spend it on that business?s products, do you? Of course not. A company like that wouldn?t last two seconds. Instead, businesses know they need to target customers who?ve got the money to spend. There?s no reason you shouldn?t treat your career the same way. Why chase a job in a shrinking industry, where benefits packages are being cut and there?s no room for advancement, when you can go where the growth opportunities are instead?

The industries that are still hiring are the ones that weren?t hit all that hard to begin with, namely, the service industries. According to the BLS, service occupations are projected to have the largest number of total job openings, 12.2 million by 2016, with 60 percent of those openings coming from worker replacement needs alone as the baby-boomer generation heads toward retirement. Just take a look at the job growth numbers for the 18 highlighted in this book and you?ll see what I?m talking about:

• Health care. 21.7 percent, or 3,000,000 new jobs created by 2016?the number one fastest growing industry in the nation
• Biotechnology. 24 percent, or 48,000 new jobs created by 2016
• Education. 3.5 percent, or 479,000 new jobs created by 2016
• Green energy. 25 percent, or up to 5,000,000 new jobs created by 2020
• Government. 4.8 percent, or nearly 1,000,000 new jobs created by 2016?the nation?s largest employer
• Security. Hundreds of thousands of new jobs created by 2016 in both government and the private sector, including even more in classified departments and agencies whose numbers aren?t made public
• Information technology. 24 percent, or 872,000 new jobs created by 2016
• Entrepreneurship. 6 million new businesses a year, 26 percent of the workforce turning to freelance and contract work, and independent niche consulting growing by 5.9 percent
• Accounting. 15 percent annually over the next decade, or 150,000 new jobs created every year
• Customer service. 25 percent, or 545,000 new jobs created by 2016
• Dental hygiene. 30 percent, or 50,000 new jobs created by 2016
• Engineering. A collective 11 percent, or 160,000 new jobs created by 2016
• Finance. 41 percent growth in personal financial advisors, or 72,000 new jobs created by 2016, and 34 percent growth in financial analysts, or 75,000 new jobs
• Firefighting. 12 percent, or 43,000 new jobs created by 2016
• Insurance. 7.4 percent, or 148,000 new jobs created by 2016
• Law. 11 percent growth in attorneys, or 84,000 new jobs created by 2016, and 22 percent growth in paralegals, or 53,000 new jobs
• Social work. A collective 22 percent, or 132,000 new jobs created by 2016
• Veterinary medicine. 35 percent growth in veterinarians, or 22,000 new jobs created by 2016, and 41 percent in vet techs, or 29,000 new jobs

It?s easy to get overwhelmed by all the doom-and-gloom numbers being reported in the news every day. It?s also easy to get overwhelmed when presented with a multitude of career options like the ones you?ll find in this book. So it?s important to remember amid all the noise and numbers that, in the end, you?re only looking for one job.

Yours.

The Wall Street Journal says that weddings are much more expensive than people think, stating the following:

Your $18,000 wedding? It may really end up costing you between $90,000 and $200,000.

That's because the biggest cost of every dollar you spend is invisible. It's all the money you'd accumulate if you saved it instead. Over long periods, this cost dwarfs the mere sticker price, often by a factor of several times.

Do the math. The typical bride is just 26 at her first wedding, according to the U.S. Census. She has four decades or more to save.

If her savings earn 4% a year above inflation over the long haul, each dollar she spends now is actually taking $5?in today's terms?out of her lifetime savings. If her money earns 6% a year above inflation, an estimate that is challenging but not ridiculous, she is taking out $11. Per dollar spent.

Yes, this is real. Today millions are, of course, struggling to make ends meet. There is an unsung national crisis among those nearing retirement with very little set aside. Someone in their 50s today would have an extra $100,000 if they'd saved just $5,000 more 30 years ago.

Couldn't agree more! In fact, I said so almost two years ago (though my estimated savings was $500k or so -- the cost of weddings has actually dropped a ton since then.)

We all have to remember that every financial choice is a decision that impacts our lives in other ways. The decision to save now allows us to have more later, just like the decision to spend now robs us of potential savings in the future. Of course, it's your life to live and your money to spend, so do whatever you like. But remember that the more you spend now, the greater the impact will be on your financial future.

I think people are starting to realize this more and more and, in particular, decide that the cost of weddings is out-of-control and not worth it. That's why more people today are more willing to take the cash over the wedding.

There seems to be an ever-growing list of personal finance "experts", "personalities", or whatever you want to call them. I thought it would be fun to highlight the ones I consider to be the most popular (which will undoubtedly spark debate -- I know one will!) and let you then chime in with suggestions on where I missed the mark. Here are my top five (along with a brief summary from Wikipedia) in no particular order:

• Dave Ramsey - Ramsey's syndicated radio program The Dave Ramsey Show is promoted with a tagline that "It's about your life and your money," and it is heard on over 450 radio stations throughout the United States and Canada, as well as on XM and Sirius satellite radio.

• Suze Orman - She is the host of The Suze Orman Show on CNBC. She has written six consecutive New York Times Best Sellers; has written, co-produced, and hosted six PBS specials based on her books; and is the most successful fundraiser in the history of public television. Similar programs that she hosts on QVC, the leading home shopping network, also place her as the top seller.

• David Bach - David Bach is a financial columnist and author of several best-selling books on personal finance. He has appeared often on television, including spots on "The Oprah Winfrey Show" and "The O'Reilly Factor." His books include Start Late, Finish Rich and The Automatic Millionaire. Bach also writes a weekly Yahoo! column on personal finance.

• Jean Chatzky - An American financial journalist, author and motivational speaker. Chatzky has given personal financial advice on various TV shows. She is the financial editor for NBC's Today Show.

• Robert Kiyosaki - An American investor, businessman, self-help author and motivational speaker. Kiyosaki is best known for his Rich Dad Poor Dad series of motivational books and other material published under the Rich Dad brand. He has written 15 books which have combined sales of over 26 million copies.

I don't agree with any of these 100%, but I do see eye-to-eye with much of what Ramsey, Bach, and Chatzky have to say. I don't see much of Orman (or read her stuff either) as it can be a bit wacky IMO (i.e. "respect your money and it will respect you.") Kiyosaki is a character in his own right and I think he says 80% of what he does simply to be contrarian and generate publicity.

So there's my list. Who did I miss?

Update: I found this piece about a Orman/Kiyosaki smackdown. Interesting.

In a few weeks I'll be speaking on "how to make the most of your career" to several hundred people. I want to give them tips on how they can grow their careers and get better than average raises over the course of their working lives. I'm going to focus on "how to grow in your career" versus "how to get a new job", so the resume/interviewing tips will be limited (if shared at all.) Having said that, here's my list so far:

• Work so you deserve a raise
• Ask for raises
• Seize promotions
• Network inside and outside your company
• Take challenging, high-profile projects your have a good chance of succeeding with
• Transfer companies when need be
• Get involved in your community (volunteer, join organizations) -- a different way to network
• Become certified/get extra training
• Keep educating yourself
• Have a positive attitude

See any here that should not be on my list? Anything to add?

Specifically, if you had to name the seven best ways to grow your career, what would they be?

Here's a recent comment left on my post titled Anyone Ever Been to a Gold Party?

I think selling your old BROKEN jewelry is a great idea! I am planning on doing a gold party and I love the idea. Getting cash for old jewelry is a great opportunity for some people, who are in a bind and need cash. In this economy any option like scrap gold is great! I am sure some people are traveling around ripping people off but there will always be dishonest, sleazy people whether it be scrap gold, insurance, salesmen. I definitely agree with doing a little research on gold before going to a gold party to get an idea, but remember you obviously want to sell your stuff for a reason. It is OLD or BROKEN or just collecting dust. It costs money and time to put things on EBAY with no guarantee it will even sell, so for those who have neither selling scrap is an excellent idea.

Shortly after I received this comment, I saw this piece on gold parties in my local paper. Interesting note: 93% of people who attend a gold party accepted the retailer's monetary offer.

So let's assume you have some old gold jewelry you don't want any longer. Is now the time to sell? Probably is. But what is the best way to do it? Gold parties? Gold retailers like "We Buy Gold"? Jewelers? Somewhere else?

Anyone have some thoughts on this? My wife has a few things we may want to sell -- stuff she's ready to get rid of -- but is it even worth it? Anyone tried to comparison shop for companies offering to buy gold?

Here's a piece a reader sent me that shows people with the amount of their college debt written on signs. There are all sorts of (usually high) levels: $100,000, $250,000, $180,000, $92,000, $40,000 and so on.

Then, if you want to, you can read each person's story and get the details on how they racked up so much debt, how it's a big burden to them today, how they don't know how they'll pay it back and so on. But you don't need to read them all because they are basically the same story. My summary:

• I wanted to go to a certain school.
• I didn't think about the cost of the school or what I would make when I graduated from it. I simply borrowed as much as I wanted/needed to pay for it.
• I didn't think about the size of the debt, how I could pay it back, the terms of the loans, or anything else a sane person would consider before they borrowed tens of thousands of dollars.
• A major part of my life is this over-whelming debt I don't know how I'll ever get out from under.
• Boy, do I feel stupid.

Ok, so that's not what they all say -- but it's pretty close.

Why is it that all financial sanity seems to go out the window when people start looking at colleges and deciding what and how to pay for an education?

Let me say it again in case any of you are new to this topic -- you MUST make sure the amount you borrow for college is acceptable based on what you'll earn when you graduate. Most people do not do this and that's why you have people with $100k in debt making $20k per year in social work. The math does not work that way. It's fine (even commendable) if you want to do social work, but you don't need a degree from an Ivy League school and a boatload of debt to do so.

Just like any other purchase -- and especially large purchases -- you need to take necessary steps to be sure your college costs are as low as possible (and that includes asking for a discount). Don't shut off your brain and simply pay "what it costs" for a degree that's not going to earn you a decent rate of return back. That's called a BAD INVESTMENT.

This piece from CBS MoneyWatch made me chuckle. It tells older workers looking for a job how not to act/appear to be old to younger hiring managers. They list 11 tips in all including:

1. Don?t play the wisdom card
2. Drop the corporate formality
3. Stay away from the slang
4. Don?t be an ageist
5. Drop the name-dropping
6. Stifle the unsolicited advice
7. Don?t get too personal
8. Nix the negativity
9. Delete the jokes about how flummoxed you are by technology
10. Don?t smirk at the vision thing
11. Don?t fear the niceties

It's a strange world out there sometimes, isn't it? A 50-year-old being hired by a 25-year-old used to be very rare. Now there are 25-year-olds that OWN successful companies, and a ton more that hire workers of all ages. I guess being in such a position is akin to dating again after being married for such a long period of time (and not being married all of a sudden for whatever reason) -- it all just seems so foreign.

Remember, to be successful at getting a new job you need to market yourself correctly. And by "correctly" (in this case) I mean you don't want to appear stodgy, out-of-date, out-of-touch, feeble, like someone's mom/dad, and so on. None of those will help you get the job you want (and thus, that's why you need to avoid the list above). Instead, you want to appear capable with a long list of accomplishments that show you can deliver for your potential employer.

Anyone ever been in this position -- either as the job seeker or the hiring manager? Any good war stories for the rest of us?

Here's a unique twist to add to our recent discussion about saving money with coupons. Sound Mind Investing talks about how some people actually BUY coupons to save themselves money. The author tells about how he bought a Home Depot coupon (which he used at Lowe's -- they honor competitive coupons) on eBay for $24 and proceeded to save a ton using it. His final tally:

$132 (siding discount) + $70 (dishwasher discount) - $24 (cost of coupon) = $178 savings

Ok, so if you could pay $24 and save $202 ($178 after counting the coupon cost), wouldn't you? I think anyone would.

But can't you find these for free on the web somewhere? Maybe not. Perhaps you more-sophisticated coupon users can enlighten me.

And one other thing to consider, the FTC says the following:

Selling or transferring coupons to a third party violates most manufacturers? coupon redemption policies?and usually voids the coupon.

Anyone with experience buying coupons? If so, please share your knowledge with the rest of us.

Note that the Best of Money Carnival is up now. Congrats to all participants and especially the winning post, 8 Effective Ways to Raise Frugal Kids. I also made the carnival with my post titled Making the Most of Your Most Valuable Financial Asset.

Enjoy!

A couple of days ago I went to a one-day financial planning class.  I got a few nuggets out of the class and I’ll share one with you here.

The instructor spent a few minutes on creating a working budget.  This part was pretty standard.  If you don’t have Quicken fired up, then

• Take a standard list of common spending categories,
• Gather up a month’s bank statements and pay stubs, and
• Categorize the month’s expenses.

This produces a good starting point for a working budget.  But that’s just one of the budgets he recommended drawing up.

He recommended four separate budgets which cover the present, a couple of what-if’s, and the future.  Here they are:

What is the purpose of making these budgets?  The main purpose, for me, would be to put the spotlight on holes in my current budget. Take away my paycheck, and what’s left?  Take away my wife’s good works, and what slack do I have to assume?

Do the numbers still work? If they don’t, then I have work to do so that they do work.

Got money questions? Ask them at Cash Commons

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Happy Middle Name Pride Day, everyone!  There seems to be a bit of inconsistency as to what the proper day to celebrate MNPD is – Holiday Insights says that it’s “always March 10th” whereas the Wikipedia article says it’s on the Friday of the first full week of March as one of a number of festive days of Celebrate Your Name Week.

But no matter.  In the spirit of Middle Name Pride Day, whether on time or two days early, I will reveal my middle name to (hopefully) at least three people who don’t know it already.  I’ll also share some tweets from some followers who gave their take on their middle names.

Here are the submitted posts for this week’s Money Hacks Carnival!

My picks for this carnival:

• Darwin’s Finance runs down 401(k) loan rules and discusses the pros and cons.
• PT Money describes how credit card numbers are generated.  (Very interesting!)
• Balance Junkie relates financial literacy to green eggs and ham.  (Thank you!  Thank you, impressed-I-am.)
• ABCs of Investing explains in detail how to convert to a Roth IRA.
• My Dollar Plan runs down three tax deductions to help the unemployed.

@EverydayFinance mine’s “whatchoo talkin ’bout Willis”. I was mocked relentlessly as a kid but now I can laugh about it.

@thefrugallawyer Middle name is Starr. It was supposed to be my first name but wasn’t a good Christian name, so it went to the middle.

@centsiblelife middle name:Liann. Named after a cousin and the first syl. is both a repeat from my 1st name+ my Dad’s name.

@The_Weakonomist my middle name is “the”

• Live Frugally or Die Broke keeps a keen eye on #1: paying yourself first.
• Wench Wisdom quotes Prudent Bear on the disincentive to save.
• Rabbit Funds hops on an interview with the founder of MoneyDesktop.com.
• Dividends Value lists 18 stocks that are raising their dividend yield on cost.
• Free Family Finance reports a late-breaking story on politicians getting a fiscal clue.  (I can’t believe it myself, but you be the judge.)
• Green Sherpa suggests asking for directions if you’ve lost your financial way.
• Money Help for Christians explains the tax implications of Roth IRAs vs traditional IRAs.
• Good Financial Cents goes through how to make quarterly estimated tax payments.
• Consumer Boomer asks: “How much retirement income should you withdraw?”
• Provident Plan outlines how to create a budget and stick to it.
• Studenomics runs down some favorite time management tips.
• Wealth Pilgrim explains how to regain your mojo.
• Canadian Finance Blog has ten tips for going green and saving money.
• Money Ning suggests that investing in physical gold can cost you.
• Dough Roller lists credit cards that you can transfer balances at zero percent for a year.  (They do still exist, apparently!)
• Personal Finance Playbook explains effective yield.
• Steadfast Finances comments on investor psychology and losing out on profits.
• Stumble Forward reveals a scam.
• Len Penzo warns that fees can erode your savings account returns.
• Live Real Now has a February 30-day project.  (He can put two extra days in the month if he wants; it’s his blog!)

My middle name is Burnett.  It was my grandfather’s first name, and I carry it proudly.

Have a great rest of the week!

Got money questions? Ask them at Cash Commons

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We’re in our new home (albeit with boxes and such).  Tonight I started tackling one of the toilets in an attempt to replace a shot flush valve.  It won for tonight until I can get a bigger wrench.

• Squawkfox explains how to make a budget in an “unboring” way.
• Wise Bread reveals the one question that might get you free money if you’re shown the door by your employer.
• Free Money Finance asks, “When should your net worth reach $1 million?” (How about: “ASAP?”)
• Generation X Finance lists a big twenty-eight ways to save money on car expenses.
• Consumerism Commentary gives some ideas on what to do when friends get involved in MLM.
• Digerati Life says to beware of refund anticipation loans.
• Quest for Four Pillars has a guest post on the risks of buying a foreclosed home.  (Our new home was a foreclosure.  I’ll agree that it’s definitely different than buying from the owner-occupier.)
• Money Ning says that investing in physical gold can cost you.  (Ahh, but will you be able to take delivery when you want it?)
• Frugal For Life is into fiscal fitness.
• Frugal Dad recommends doing something you love before you have to do something for money.
• Budgets Are Sexy wonders what would happen if the unemployed worked for their unemployment checks.  (Kind of like retiring from retirement?  Or maybe not.)
• The Frugal Lawyer discusses where vanity and brokeness compromise.

Have a great weekend!

Got money questions? Ask them at Cash Commons

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He really is.

I’m not talking about his blog.  He’s not a slacker there.  The guy is a finalist for no less than seven Plutus Awards, one of which is for his PF Blogger Showdown series.   (By the way, it looks like PT Money has a comfortable lead in our showdown, but there may be a small amount of time left to tip the scale should you so choose.)

What I am talking about is that he’s a slacker at buying lottery tickets. He’d need to buy a whole lot more of them if he wanted to excel at it. I mean, he did drop $100 on his Budgets Are Sexy scratch off lottery project, but that was only one-fifth of what the average American household spends on lottery tickets.  (Hat tip to JLP for that link.)  The fact that J. slacks at this job is a good thing!

Five hundred dollars per year is the average, according to that Washington Post article.  Now, $10 a week isn’t high finance — a daily Starbucks will run you that — but the lottery is almost certainly a loss in the long run.  Even if the winnings per week are $4 (about what J. Money saw in his project) then it’s still a $6 per week loss.  Why knowingly go into this kind of arrangement?

Bringing up math in conversation, even in passing, usually does one of two things: (a) it causes people’s eyes to glaze over, or (b) it annoys them.  Case in point:

A Friend:  So, do you think so-and-so is going to have a boy or a girl?

Me:  A boy.

A Friend:  Why do you say that?

Me:  Because there’s a 51.5% chance that I’ll be correct.

I’d annoy a lot more people if I told them exactly how much per ticket they were losing.  They’d be annoyed that I was ruining their fun.  They might do something about it, perhaps, if I say that they could easily pay for a Netflix subscription with the amount that they’re blowing on lottery tickets.

But nonetheless, being a slacker at buying lottery tickets is something to be proud of.  To J. Money and all of the other lottery slackers out there, I salute you!

Hot hot hot money questions at Cash Commons

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A few weeks ago I received word of a Facebook application called Buddy Bailout.  It’s a spin on the giant corporate bailouts that have happened recently, and in part it plays on people’s thinking: “Why can’t I get a bailout, too?  I sure could use one.”

Maybe one of that person’s friends (a) knows that they could use one, too, and (b) wants to point out the main reason why they’re in the position of needing to be bailed out.

That’s where Buddy Bailout comes in.  How it works (currently):

• Choose a Facebook friend that needs to be bailed out (i.e. has a spending issue).
• Choose from one of more than two dozen common spending issues that best matches what the issue is.
• Post it to their wall, with a message saying something like “Mighty Bargain Hunter thinks YOU need a bailout!” and gives the specific reason why.

Bills.com, the designer of the application, uses this as an introduction to the website, which provides financial information and other services.  The direct, in-your-face communication style of the application reminds me of Larry Winget’s, which can be very effective and helpful at the time when it’s needed most.  Staring your problems square in the face, and accepting responsibility for them, is the first step towards working them out.

Buddy Bailout sends the message in a genuine, often lighthearted way, but the point of the message is still right there.  So for that, I applaud them. Getting people toward responsible spending habits is a fantastic endeavor.  But, as this application is now, I personally wouldn’t have the guts to use it, even if I knew it could do an incredible amount of good for the person on the other end.

These “bailout messages” are wall posts.  Users typically set permissions so that their friends can see their wall posts, so the “bailout message” would be visible not just to them, but to anyone who could view their wall.  The bailout posts are what people need to hear, but probably not what they want to hear even in private, let alone in the semi-public world of their Facebook wall.  For me, it would be a very risky move, with respect to relationships, to post a bailout message for somebody.  It could work out if that person’s friends support my observation, but the message could just as easily be ignored, or worse, attacked.  In any case, everyone knows now that I think my friend spends too much money at Starbucks, and that can’t be taken back.

I know some people aren’t bothered by confrontation, and even thrive on it.  I don’t like confrontation at all, so the thought of it affects how I behave in different circumstances.  Another thing that may come into play is the traditionally private realm of personal finance.  I’m sure open discussion of personal spending habits wouldn’t have happened in the past, but is it time now?

What do you think?  Would you broach the subject of a person’s spending patterns on Facebook?

(Note:  If you have a money question and want to ask it on your own terms, head over to Cash Commons.)

Ask your burning money questions at Cash Commons

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The standard Settlement Statement, the HUD-1, just got a makeover this December.  The extra page is an extra burden on lenders to get the Good Faith Estimate right the first time.

Last week at the closing for our new house, we got a small bonus courtesy of the new requirements.  The expenses are broken down into three categories based on how closely the actual charges have to agree with those on the Good Faith Estimate:

• Charges that cannot increase at all - the loan origination charge, the cost of points for the chosen interest rate, adjusted origination charges, and transfer taxes
• Charges that cannot increase by more than 10% - government recording charges, appraisal fees, cost of credit reports, cost of tax services, cost of flood certification, and cost of pest inspection
• Charges that are allowed to change – initial escrow deposit, daily interest charges, homeowner’s insurance, title services, lender’s title insurance, owner’s title insurance, and home buyer’s warranty

In our case, the lender underestimated our transfer taxes by $41.85, so we got that as a credit at closing.  What kind of sucked for the lender was that they overestimated the cost of the credit report by $26.67, and overestimated the cost of the appraisal by $50.00, but couldn’t use either of these to offset the underestimate of the transfer taxes.

The new page of the HUD-1 was the result of a November, 2008, rule change to the Real Estate Settlement Procedures Act (RESPA), and went into effect at the beginning of 2010.  Though the little bonus at closing was nice, these extra regulations just slow the whole process down and mean extra costs for everyone in the long run.  The background research to get the better estimates is an additional cost.  Filling out the third page is an additional cost all the way up the chain.  The loan still goes through, I still end up owing lots of money, and the lender still has my first-born in escrow the whole time — in essence, the same kind of lender-borrower relationship that existed before — but it’s not as efficient as it was before.

For the meantime, though, lenders now have to pay for some of their bad guesses.

Got tweet? I do!

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Had to catch up a bit at work after running around Thursday to close on our new house.

So it’s Saturday morning Fiscals, but here are great links nonetheless

• A Gai Shan Life has an elaborate post on pets and preparedness.
• The Millionaire Nurse discusses life insurance needs.
• Sweating the Big Stuff talks about the best deal ever.
• The Frugal Lawyer tried out Credit Karma.
• Everybody Loves Your Money outlines someone’s big ol’ lost dream.
• Frugal Dad has 33 essentials for your bug-out bag.
• Frugal For Life is beating back the frugal fatigue.
• Money Crashers has 5 easy ways to make some extra cash.
• Mrs. Micah shows how to create a personal balance sheet.
• My Dollar Plan asks if you should use savings to pay off debt.

Special thanks to Wise Bread and The Simple Dollar for sending a whole boatload of traffic this week from the mentions in their roundups.  Also a shout-out to Get Rich Slowly for including my bank post in this week’s Carnival of Personal Finance.  Lastly, both this site and the Carnival of Debt Reduction site cracked a nice new compilation of financial resource links.

Enjoy the weekend!

Follow me on Twitter for random acts of Mighty Bargain Hunter

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A friend from our previous church sent me an e-mail tonight. Because we’ve been buried in 1.2 miles of snow for the past few days, she had the opportunity to pile through some projects. She had just gotten to a pile of stuff she had been meaning to sell for quite some time, and e-mailed me to ask for help since I had offered before.

I explained how she could get an estimate of market value through eBay for the things she wanted to sell, then gave some suggestions on when to sell on eBay and when to sell on Craigslist.

Some kinds of items, especially big ones, can do better on Craigslist.  For those items, I told her how I would go about selling them there:

What are the advantages of doing it this way? There are several:

Craigslist is free, but free comes at a price:  your time.  Following this kind of selling process will reduce the time you spend screening out people who aren’t really serious buyers.

Got money questions? Ask them at Cash Commons

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(This guest post is by Ann Smarty, a search engine geek, social media enthusiast and a passionate blogger. She has recently started a community of guest bloggers, so if you have a blog and want to promote it for absolutely free, go help Ann build the valuable tool for that by joining and participating.)

Bargain hunting is only effective when done right otherwise you find yourself using a coupon whenever you are aware of one (which causes even more spending) or always forgetting to use a coupon (how many of us first buy something and only then remember they saw a deal for the same product in another store?).

Anyway, here’s my point: to take advantage of special offers, you don’t need to be a bargain hunter (meaning that you don’t need to keep track of all the deals and coupons around the web). All you need is to know how to find a good deal only when you need one.

And, quite naturally, when it comes to searching, Google is more often than not the only tool you will ever need. So here are the 3 (somewhat advanced) Google search tricks to help you find a good timely deal:

1. Search for Synonyms and Related Words

Various sites can use various words to call its special offer: a bargain, a coupon, a sale, etc, etc. To make sure you include all those in your search results, try the following tricks:

1. ~ operator

This search operator will include all synonyms which it refers to, for example [laptop ~coupon] will include [laptop promotion], [laptop deals], [laptop sale], etc and even [laptop free shipping]:

2. OR operator

If you want search results to include any of the terms you mention, use OR between them, for example laptop (coupons OR deals OR promotions):

3. * operator

If you are unsure what exactly you want to search (for example, you don’t know which exactly computer you plan to buy), use * (wildcard) operator. Google will substitute it for one or more related words. For example, [ "* laptops coupons" (with the quotes) will include Dell laptops coupons, cheap laptops coupons, instant laptops coupons, etc:

2. Search For the Recent Results

One of the search options I use most of the time is Google's date search: it is accessed via clicking "Show options" link above the search results. It opens up a search side panel which contains the following options:

• Latest (to see real-time search results from social media sites like Twitter);
• Past 24 hours (to see pages created/updated over the past 24 hours);
• Past week (to see pages created/updated over the past week);
• Past year (to see pages created/updated over the past year);
• Specific date range (to choose the time frame).

These options are an awesome help if you need to find most recent search results (in our case, to find fresh deals and newest coupons).

3. Search Within a Site

We all have our favorite sites when it comes to any daily tasks and interests. For example, for me, Google is the only tool to do web search (I never need to use any other) and Buxr is the only site to locate a shopping deal. For the maximum efficiency, I just need to combine the two.

Google's SITE: operator allows to restrict your search to any given domain, for example [site:buxr.com], plus you can take advantage of any search tip listed above:

Why do I need to search within any site using Google? It is simple: Google offers plenty of unique search options no other site has: besides the two most awesome ones mentioned above, there are other advanced search operators as well as advanced search features and recent advances. With Google’s SITE: operator, you get the freedom to use all those great search opportunities to search any site.

So the fact is, Google is a nice service in itself but when used to its full capacity it becomes your #1 tool no matter what you need to do.

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I’ve been talking about some things related to the home purchase we’re doing now.  One of the conditions of purchasing our new home was ability to get financing.  Since I couldn’t buy with cash, I needed to apply for a mortgage.  What I couldn’t do was make the purchase contingent on the sale of my current home (the property we were interested in was a foreclosure), so I needed to be able to qualify for the new loan without settling my current mortgage.

This seemed to be a bit harder of a condition to meet since it would mean carrying a higher debt load.  I was a little concerned that I wouldn’t qualify, especially now that lenders weren’t writing loans for anyone who happened to have a pulse anymore.

Back before I knew what I could qualify for, I asked around over at Cash Commons to see what kind of mortgage qualification criteria lenders were using to determine a maximum loan amount.  Reduce Debt Faster gave an insightful answer which included things like:

• Housing expense ratio (ratio of principal, interest, taxes, and insurance to monthly gross income)
• Debt to income ratio (ratio of total debt service to monthly gross income)
• Credit score (now they’re looking for 750-ish for prime rates)
• Income level (the higher, the better)
• Job stability (the more, the better)
• Down payment (the more, the better)
• Loan-to-value ratio (the smaller, the better)

After I applied and got my pre-qualification letter, my jaw dropped at how much they approved me for. Now, I did have a great credit score (even better than FCN’s before it dropped) and the only debt I carried was my current mortgage.  The credit union used the 40% debt to income ratio to determine what they could lend me.  But what got me was that the 40% was based on gross income, not net income.  This would have allowed us to purchase nearly twice the house we were interested in.  If I was worried about qualifying, those worries were blown out of the water.

My take on it is that if you’re the right candidate for a loan then they’ll let you borrow up to your eyeballs — even today.  That doesn’t mean you have to, of course, and you shouldn’t.  Banks are happy to lend you as much as they can if they have excellent assurance that they’ll get paid back.  They’re not nearly as interested in what you have to do in the rest of your budget to make those payments back to them.  You’ll give up a lot of things before you give up your house.

So, it may be tougher to qualify for a mortgage today than it was a few years ago, but it is possible.

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A long time ago, after posting several articles about using a crock pot to save money and still produce great, quick meals, readers asked me to post ten of my favorite crock pot recipes. Since digging through my recipes and typing them out again in an comprehensible format takes a while, I started by posting five of them.

And I never got around to posting the other five. Today, I’m completing that post.

So, after you’ve perused the art of the slow cooker and five of my favorite recipes, here are five more for you to try. I have no idea where these originally came from, but each was experimented on and modified more than a few times and seem to only exist on my own handwritten cards.

One big tip! If you?re going to leave these on for more than eight hours, add an extra half a cup of water before you go. The biggest danger for cooking things in a crock pot longer than that is having the food dry out.

Let’s go!

Chicken Chili (our current favorite crock pot recipe)

1 1/4 lbs boneless skinless chicken breasts
2 15 oz. cans great northern beans or navy beans (I prefer to soak dry beans myself)
12 oz. frozen sweet corn kernels
1 4 1/2 oz. can chopped green chiles (or you can chop your own)
3 tbsp. chili powder
16 oz. chicken stock or chicken broth
8 oz. half and half (you can use skim milk if you want it healthier)
1/2 tsp. corn starch (if you want it thicker)
1/2 cup sour cream
1/2 cup chopped onion (optional)

Dice the chicken into 1″ cubes and put them in a slow cooker. Add the beans and corn and optional onions. In a bowl, mix the chili powder, the peppers, the half and half, and the chicken broth or stock (and the starch, if you want it thicker). Stir until well-mixed, then add to the chicken. Cover and cook for 8-10 hours on low. Just before serving, stir in sour cream until consistent.

Wild Rice Turkey

1 1/2 cups wild rice
2 cups finely chopped onion
1/4 cup golden raisins
2 apples, chopped
3 cups chicken broth or chicken stock
1 1/4 tsp. thyme
1 tsp. salt
1/4 tsp. marjoram
3/4 tsp. sage
1/2 tsp. pepper
whole turkey brest (4 lbs. or so)

Mix rice, onion, raisins, apples, thyme, salt, pepper, sage, and marjoram until consistent. Put thsi mixture on the bottom of the pot. Cover with chicken broth/stock and make sure all of the rice is covered with at least a quarter of an inch of liquid – if not, supplement with some water or additional stock. Place whole turkey breast (thawed, of course) on top. Cook on low for eight hours and be sure to check the temperature of the turkey before you remove it (it should be 160 degrees F or roughly 75 C).

Stuffed Zucchini

1 medium zucchini or squash, halved lengthwise, with seeds removed
1 cup tomato sauce
1 tbsp. red wine vinegar
1 onion, chopped
1 tsp. minced or powdered garlic
1/4 cup brown rice (uncooked)
1 tbsp. parsley
1 tbsp. basil
1/8 tsp. black pepper
Mozzarella cheese (optional)

Put the zucchini halves in the bottom of the crockpot. Mix the tomato sauce and vinegar together in a small bowl – a cereal bowl works. In another bowl, combine the onions, garlic, rice, parsley, basil, and pepper and mix thoroughly. Add two tablespoons of the tomato-red wine mix to the onion mix and stir thoroughly. Put the onion mix on the zucchini halves, then pour the rest of the tomato-red wine mix on top. Cook on low for 6 hours.

Three Bean Stew

1 cup dried lima beans
1 cup dried great Northern beans
1 cup dried chickpeas / Garbanzo beans
4 cups water
16 oz. carrots (baby or sliced full carrots)
1 1/2 cups chopped onion
2 1/2 cups or 1 14 oz. can diced tomatoes
2 tbsp. tomato paste
3 garlic cloves, minced
1 tbsp. parsley
1 tsp. basil
1/2 tsp. thyme
1/2 tsp. salt
1/8 tsp. pepper
1 bay leaf

Soak the beans together overnight in water by putting the beans in a pan, then adding water until there’s an inch of water on top of the beans. Drain the beans and place in crock pot. Add the water, carrots, oinion, garlic, parsley, basil, thyme, pepper, and the bay leaf to the crock pot. Cook on low for eight to ten hours. Add the tomatoes, the paste, and salt and cook for another hour on low. Remove bay leaf and serve.

Barbecued Ribs (it doesn’t beat slow-cooked on a grill, but it’s very good!)

4 lbs. baby back ribs, lightly peppered and salted
2 cups catsup
1 cup finely diced tomatoes
1/2 cup finely chopped onion
1/8 tsp. cloves
1/4 cup vinegar
2 tbsp. pepper
1/2 cup packed brown sugar
2 tsp. oregano
2 tsp. Worcestershire sauce
hot sauce to taste

Rub the ribs down with salt and pepper. Put them in a shallow baking pan and bake them in the oven for 15 minutes at 400 F / 200 C. Turn the ribs over and brown for another 15 minutes in the oven. While it’s browning, mix the other ingredients in a bowl. Take the ribs from the oven, place in a slow cooker, pour the sauce over the ribs, and flip the ribs around to coat them. Cover and cook on low for eight hours. Delicious!

Good luck!

Monica writes in:

I don’t understand how you can recommend that people shop in thrift stores for clothes. The stuff there is usually worn out and just looks bad and outdated. I would never wear that stuff to work.

It sounds to me like you’ve made up your mind about thrift stores and secondhand stores before even stepping inside the door. I’ll make the case anyway.

First of all, I won’t buy the vast majority of clothing on sale at such a store. I’m with Monica on this one – most of the stuff there can be pretty worn out. I’ve seen lots of threadbare sweaters, worn out dress pants, and other items that, if they were in my home, would be meeting the rag bag.

Those aren’t the items I’m shopping for. The reason I go is to look through a long rack of clothes and find two or three items that are barely worn. How do quality items of clothing get to the secondhand store? A person gains or loses a lot of weight. A person passes away. A person decides they just don’t like how the item looks on them. A person is a clotheshorse who only wears an item a couple of times before getting rid of it. Each of these cases can result in some very nice clothes on the rack at the secondhand shop.

If you don’t like the item, don’t buy it. However, there are a lot of gems buried on the racks if you’ll spend some time digging through them.

Second, my biggest focus for clothing buys – once they meet a minimum standard of quality – really is cost per use. Yes, unquestionably, I could go to a store like Men’s Wearhouse, find a high quality article of clothing, and wear it, say, sixty times over the course of several years. That article of clothing might cost me $60, so the cost per use would be $1 per use.

On the other hand, I might find a nice item at the secondhand store. It might have been worn a few times already, so I might only get fifteen wears out of it instead of the sixty I might get from the new shirt. However, that secondhand item only cost me $3. That’s $0.20 per use.

I will take the second item of clothing any day of the week.

What about the time cost? Time cost is one of the first things people mention when they hear a money-saving tactic that they’re unsure about. Human beings are creatures of habit and if we can find a good reason to retain that habit (or even a not-so-good reason), we’ll use it. Time cost is often that reason.

However, in this situation, time cost matters little. I go clothes shopping twice a year, period.

In the spring, I’ll dig out all of my summer clothes (in fact, I’m intending to do this this weekend), determine what needs to go and what can stay, and then figure out if I need to add some clothes to the mix or if I have enough. I do the same thing in the fall with my winter clothes.

Once that’s done, I actually make a shopping list for clothes. I need some number of dress shirts, some number of jeans, some number of shorts, some number of khakis, some number of underwear – you get the idea. Then, I go shopping.

If I use secondhand store clothes in this process, I still just rotate them out at season’s end if they’re too worn, the same thing I’ll do with clothes that are purchased new. I’ll still go clothes shopping twice a year, regardless of whether I’ve bought new or used clothes in the past.

What this comes down to is simple: spending control. I keep a pretty tight rein on my clothes shopping habits. I simply don’t go clothes shopping more than twice a year. Because of that, I don’t devote much time in a given calendar year to picking out new clothes – and I don’t spend nearly as much money, either.

At its heart, an awful lot of frugality and financial success comes down to control over your spending. If you have firm control over how your money leaves your wallet, it’s often shocking how many ways there are to cut your spending without cutting your quality of life one iota.

Every time I visit the grocery store, I’m amazed to see how much of the fresh produce aisle is taken up with prepackaged fresh foods. You know what I’m talking about – bags of prewashed lettuce, pre-cut apples, pre-cut celery, pre-cut pineapple, and so on.

I understand why such items are for sale – they’re convenient. It’s easier to just grab a bag of prewashed romaine lettuce than it is to grab a head of romaine and deal with it when you get home.

Yet, when you look at the prices, you’re actually paying a significant markup. Two bags of Dole romaine lettuce at my local grocer costs about the same as a single head of romaine. The bags cost about $4.50 together, while the head costs about $1.60 (with some variance, of course, due to weight, sales, and so on). By buying the head, you save $2.90 – or, from a different perspective, you’re paying $2.90 for the convenience of someone else washing your lettuce.

Is that really worth it? I bought a head of romaine lettuce myself, put it in one of those handy bags that they provide, and took it home with me. Upon arriving home, I set a stopwatch for myself, then chopped the leaves off of the head of lettuce, rinsed them thoroughly, rinsed the bag a bit (leaving some moisture inside), then put the leaves back in the bag, tying it. I then tossed the knife in the dishwasher and stopped the stopwatch.

Total time? Three minutes. Actually, it was just a bit shy of that.

Let’s say over the course of the next year, I repeat the same action twenty times. I buy a head of romaine, put it in one of those bags from the store, take it home, chop it myself, and store it in that bag. Each time, I’m saving myself $2.90. Over the course of a year, I spend an hour chopping up the lettuce and save myself a total of $58.

The same holds true for all of those convenience foods.

Apple slices? I found apples I like at the store for $1.29 a pound, whereas pre-sliced apples added up to $4.76 a pound (I found four four-ounce bags of them for $1.19 each). I have a nice little apple slicer, so I’m able to slice up a few apples at dinnertime and completely clean up from it in about thirty seconds. My estimate on this is that buying un-cut apples saves me about $80 for every hour of apple-slicing I’m willing to do.

Celery sticks? I can buy a bag of celery for $1.49 or I can buy about three containers of pre-sliced sticks for $1.99 each. I spend about four minutes cutting the sticks and it saves me $3.47 – or about $52 over the course of a full hour.

I can go on and on with these items, but in each case the central idea is true: the convenience has a really, really high cost, much more than it might seem at first glance.

To me, this type of convenience food is a perfect example of how the little things really add up when it comes to personal finance. There are so many little conveniences that we pay for in life, whether it’s pre-sliced apples or take-out food or a lawn care service. When you actually step back and calculate the hourly rate that these things are costing you, it’s truly astounding. Yet people fill their lives with these conveniences and question those who skip out on them, then they wonder why it’s challenging to make ends meet.

Take a stand today. Slice your own vegetables. Then put that saved money aside for something for yourself.

The more of life I experience, the more I realize that the most valuable thing a person has in their life is time. The cost of a book is trivial compared to the value of the time spent reading it. The cost of raising a child in terms of dollars is far less than the value of the time spent rearing the children.

Time is the one thing I wish I had more of.

I just found out that I will be unemployed come mid-August and I am just wondering what steps I should start taking in savings and job hunting until then. I am currently an Americorps*VISTA, which means that I cannot start a second job until the completion of my term (again, August). I live very simply, but only make about $800/month take-home and have about $1400 in CC debt (started the year at $4000; I’ve been working to get rid of it) Your thoughts?

Related to that, my position generally only winds up taking about 25 hrs/week, while I’m required to ‘work’ (be in the office) for 40. How would you utilize those extra 15 hours?
- Tessa

The first thing I’d do is figure out what I would like to be doing with my time come August. What exactly is the next step for you? If you don’t know, start investing those fifteen extra hours a week (and more) to figuring out what comes next for you.

Once you know, then you should be able to fill in the blanks as to how to fill your time until the change happens. It might mean building up a resume. It might mean spending a lot of time firming up old connections and relationships. It might mean applying for college or for scholarships.

In short, you need to figure out what comes next, make a plan for how to get there, then spend the remaining time executing that plan as strongly as you can. The key, though, comes from you. What do you want to do next?

My husband is irresponsible with money. I knew when we got involved that he had a student loan and some credit card debt (about $5000 dollars combined), and that he felt no obligation to pay these off. He also hadn’t filed his taxes for several years. I probably should have listened to my gut then and run for the hills, but i didn’t, and I’m not looking for marriage advice here. Once we became seriously involved, I made sure his taxes were filed. The government garnished his refunds until the student loan was paid off, and we paid off the cc debt too with the understanding that he is unable to control his spending and should not have access to a cc in the future.

He still sent away card applications from time to time and was always rejected due to his poor history, but after paying off these loans, he sent away another application and was granted a card with a $10,000 limit. Within no time, he maxed out his card, once again with no concept of having to pay off the balance.

Our mortgage is in my name ($110,000 left) , my car is paid off, his car loan is in my name($9000, he does pay this), I carry no cc debt. We have an 18 month old. We both work. We do not have much money at the end of the month. He undermines my attempts to cut down our monthly expenses (ex, if I call to cut down our cable package, he calls and has it reinstated. Or, currently he has signed himself up with *three* different 36month term cell phone contracts!) I am working on building an emergency fund (it is still quite small at the moment, but growing)…Anyway, I could not bear the thought of his cc balance sitting there with a 20% interest rate, so I paid it off with my line of credit (5%), and have taken over making these payments. Once again, the condition was that he would absolutely not have access to a credit card.

Once again, he got another card, and now has a $2000 balance, and is not making payments. I am done bailing him out. I am just wondering how his bad credit is going to affect me if he doesn’t pay this off? Whether or not we stay together, what can I do to protect myself from his debt? Is there anyway a spouse at the end of her rope can call the credit card companies and get his cards cancelled or say “Stop issuing this man cards!” If we do split up at some point, am I going to be responsible for half of his debt?
- Michelle

The important question is to consider whose names the debts are in. If he’s applying for credit cards on his own, are they just in his name? If they are and you file for divorce, they will remain his debts and are not your concern. If they’re in both of your names, you need to get your name removed from as much of it as possible if you’re considering a separation.

That being said, I think some professional counseling is in order in this situation. Clearly, there are serious trust issues going on in your relationship and your husband has some significant self-control problems. These are the types of issues that need counseling – they will not go away due to your sheer force of will.

If you care for him at all, seek help for him and for your relationship. I can’t tell from your email whether you’re beyond that point or not.

After I finished school I went to work for an outdoor education center for nine months. I loved the job but, wasn?t happy with the management so I came back to my parent?s house and found a job there. It is in a similar field but most of the work is in an office. I originally planed to stay at this job for three or four years but now the program might lose its funding. This wouldn?t affect the funding to my job but it would nearly make it pointless. My supervisor encouraged me to be on the lookout for other jobs. I sent out several resumes to some outdoor education centers and have interviews soon.

Everything is going great except that my Dad hates the idea. The problem is they pay minimum wage or just above it. Very few of these places offer health benefits but they all offer room and board. I don?t have any debt so I really don?t see much of a problem with the low pay. I also think the quality of life, free house and food make up for it.

Do you think it would be foolish to go back to that type of work?
- Beth

Your father’s frustration is probably stemming from the fact that he does not see you heading down a path that leads you to financial independence. He wants to see you being at least successful enough to fly under your own power through adult life. If you take another minimum wage job and continue to live at home with your parents, you are shifting a significant portion of your life’s expenses off to your parents as well as intruding on the privacy of their adult lives. He likely sees your choice as not moving at all towards repairing that situation.

Regardless of what job you choose, you should be working on a plan to be independent and they should be in the loop about that plan. What form that takes is really up to you, your situation, your skill set, and your passions.

Recognize, though, that your parents are people, too. They’re providing for you now because they care deeply about you, but every time you drink from that well, you leave them less water.

We took up a mortgage of $200k, with $140k being fixed and $60k in what’s called a revolving credit account here in New Zealand. We thought the revolving credit facility would allow us more flexibility if we are disciplined enough with our spending.

This is how it works, the monthly repayment of the fixed mortgage are deducted from the revolving credit account. All our income will go into this account, and we can draw up to 60K from this account for our expenses. The idea here is that if we are able to keep the account in positive, we’ll not be paying any interest, but once we go negative, we will be charged interest for the credit.The 60K available in that account also serves as emergency funds for us. So far, we have managed to keep the balance at zero (i.e. no interest charges). We channel our surpluses into a saving account, and will be using them to pay off the fixed mortgage (in parts) when it’s due.

For all these, we are paying a service charge of $12.50 a month. To me, the revolving credit facility seems like another good alternative, what do you think?
- Art

It sounds an awful lot like a money merge account, something I wrote about in detail in the past.

In the United States, such accounts are generally pretty expensive and can ring you into the thousands of dollars. For that kind of cost, I don’t view such an account as being worth it unless you have little financial discipline. In your case, I think it actually might be worth it, though.

I’m not entirely sure, though, why you’re taking money out of the account and putting it into a savings account. I’m assuming that this is for extra payments on the mortgage, but if I understand the account correctly (based on my understanding of money merges and the documentation on revolving credit accounts in New Zealand), leaving the money in the account has the same effect of paying down your mortgage faster, plus it decreases the risk that you might go over your credit withdrawal limit. If that’s the case, I would put a severe cap on how much I transferred out of the account, only keeping enough to serve as a true emergency fund.

You don’t talk about Lost enough in your mailbags so I’m going to keep emailing you Lost questions until you answer one. So here goes. Who is the good guy of the series? Jacob or UnLocke?
- Kelly

Neither one is. I think you have a prison-like situation where the inmate (UnLocke) has been held in solitary confinement for a very, very long time. He’s like a rat in a cage. But does that mean the guard (Jacob) is a saint?

I still think there are two real heroes in this series: Jack and Locke. I still believe that to be the case. My belief is that Locke on the island will come back to life at the same time as Locke off the island walks again thanks to Jack’s spinal surgery, and Locke will eventually become the guardian of the island. Jack has been searching for something to fix for the entire series – he will get to fix Locke.

Or maybe I have no idea what I’m talking about and the series will end with a “Cop Rock”-esque singing montage.

My partner has about $8000 worth of credit card debt and I’ve been trying to help her figure out the best way to pay it off. We’re in the process of refinancing our mortgage (to 5.25%) and are wondering if it makes sense to wrap it into our mortgage, since she pays a higher interest rate on the credit card. She also make the monthly mortgage payment (I made the down payment, and am making the monthly payment on a second property we own, so she says it’ll still be her responsibility, as we’re keeping track of who put how much into each property). I’m skeptical, not wanting to add any more debt to our mortgage (and feeling that HER debt being added to OUR total will make keeping track messy), but can you clarify just how much this is or isn’t an okay thing to do?
- Heidi

Yes, in a strict sense, it makes sense to wrap that credit card debt into the mortgage.

The challenge comes in when you look at the self-control issues. If you guys have no credit card debt at all, will she have the spending control to resist simply charging those cards up again for purchases you don’t really need?

I’m not sure about your domestic arrangement, however. You seem to want to distinguish heavily between HER debt and YOUR debt. If this person is genuinely your partner, then that includes your finances. There is no HER debt or YOUR debt. There’s OUR debt – you deal with it together because the debt is affecting you both.

I just realized that paying extra every month decreased my minimum payment amount and not the length of the loan. (Mostly because I just started paying extra.)

My original car loan- $9,815.43 for 4 years (48 months). My original minimum payment was $252.36. I now pay $275.00 a month.

I’ve been trying to figure out how early my auto loan will be paid off if I add extra in every month. All of the loan calculators I’ve found online that calculate don’t seem to take into account that the minimum payment amount decreases every month while my payment does not. I keep paying my original amount that included the extra. Is there a formula to figure all this out?
- Susan

It’s simple: ignore the minimum payment. Instead, calculate what your payment should be right now. Tack a small amount on top of that. Pay that amount every month, regardless of what the bill says. Soon, your loan is gone.

If the minimum payment is getting smaller, it’s because the lender wants you to pay on the loan for a longer period in order to maximize the amount of interest they get from you. They don’t mind receiving smaller payments in the short term if it means more income in the long term. Thus, they’ll show you the minimum amount you’d need to pay to stick with your original payment schedule – and if you’ve overpaid in the past, that minimum amount will be nice and small.

Ignore it. Use Bankrate’s great loan calculator and figure out when you’ll get the debt paid off if you add in some extra to each payment.

My husband and I both have student loan debt of $10k each at around 3%, and a mortgage for $140 k at 6.75%. We have the option to refinance down to 5.1% but it would cost $3,000 into the principle. We’ve been paying the mortgage for 2 1/2 years, but have no plans to ever sell. The house is a rental property that we also live in, so the amount of mortgage, taxes, and fees and repairs we pay after the rents come in is only around $400/month, therefore allowing us both to save alot. We have no other debt.

I have personal cash savings of $15k, and we have a joint cash savings of $17k. My husband has cash savings of around $5k (we only mingle part of our finances for the purposes of paying the mortgage, which doesn’t work for everyone, but works for us.) We both work in stable jobs and make ~$40 k each, although I don’t want to work in the corporate life forever. We have so much in cash because we are looking to buy another rental property this year. (we will need about $25 k for this)

We both currently have 401ks, I have $12k in mine, and my husband has $16k. I’m 26 and he is 28. I am thinking about opening an IRA and to fund it for 2009 so I can get the tax reduction. I have no idea what funds to pick from the list at Vanguard. I’m pretty comfortable with risk because this money is for retirement, but I don’t have very much time to devote to looking at my investments all the time. My 401k is just in a mix of funds that were picked based on my time until retirement. I am thinking of putting in the full amount for myself, $5,000. It should take around 6 months before we finalize a property purchase and have to come up with the down payment, so I can build that cash in my account back up.

Or would it be better for me to open a Roth IRA, or put my money somewhere else, or even pay my student loan off?? I doubt we would pay the mortgage down because we use the expenses against the income we get from the rents. My personal cash savings is earning no interest in my checking account (i know, i know, but this is why I’m working on this.)
- Danielle

First of all, funding a Roth IRA won’t get you a tax reduction, at least not today. Roth IRAs are funded with after-tax money.

Second of all, if you’re six months away from buying a property with a $25K down payment and have only $32K in joint cash savings, it is probably prudent to hold onto the cash until you have the purchase in hand. You do not want to find yourself in a position without a cash emergency fund, because when things go wrong at an inopportune moment, they can seriously snowball.

If I were to do anything with the savings, I would take $3,000 of it and refinance the loan. If you can drop the interest rate on $140,000 by 1.65%, you’ll be saving yourself a couple hundred a month in loan payments, which would pay back that $3,000 in a year or so and then leave you in better financial shape for the length of the mortgage.

Other than that, I’d sit tight until you’ve bought the property. I don’t see any major reason to change anything, assuming that the property buy is a definite thing.

Read this in your March 5 post: “…when my contract expires, I?m going to simply cancel the phone and get a pay-by-the-minute el cheapo phone.” I’d be curious to know how you go about choosing a pay-by-the-minute cellphone plan when the time comes. My husband and I would like to switch to a prepaid option as well, but each company structures their charges so differently that it’s hard for me to decide which plan would be best for us.
- Lynn

This is one of those times when I turn to Consumer Reports. What do they recommend when it comes to such pay-by-the-minute plans?

Right now, looking it up wouldn’t really help as I won’t be doing it for at least a few months yet. When it gets close, I’ll visit my library and start digging through the back issues of CR to find their most recent article about such cell phones (likely, it’ll be found in their most recent cell phone roundup). I’ll move on from there.

My choice will probably be the best “bang for the buck” phone rather than the cheapest one, at least with the “bang” being call quality. It’s not worth my money if I can’t easily place calls with the phone at my convenience, after all.

I’ve just read a document on “travel hacking” that gives tips on how to maximize your frequent flyer miles for free tickets. One of the tips is to “cycle” credit card applications where you are applying for a new Citi card (to get the American Airlines miles) every 60-90 days. It’s legal, but I wonder what it will do to my credit score. If I don’t need to apply for any loans in the near future, does a decrease in my credit score (now 790 I think) really matter? Thanks for your help!
- Jill

This will have a mild negative effect on your credit rating. However, with a credit rating near 790, I don’t think the negative effect will be strong enough to affect anything you might use your credit rating for.

My concern with such rampant credit card hopping is identity theft. To get each of these cards, you have to apply for a new card, which is another opening you’re giving yourself to identity theft. The threat of theft on any one application or card you have is minute, but if you have lots of cards and applications floating around out there, the chance multiplies.

Unless I’m already flying a lot and can directly save a lot of money by doing this, I would not view it as being worth the combination of time and personal risk. If you fly several times a year already as a normal course of life, then the benefits might outweigh the costs here, but if you’re only doing this to try to build up miles in case you might choose to fly somewhere someday, then it’s not worth it.

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

My two children are extremely blessed in many ways. Perhaps their greatest blessing is that they’ve surrounded by a family that loves them dearly and truly cares about their future in a deep, fundamental way – and I’m not merely talking about myself. I’m talking about their grandparents, their aunts and uncles, even some of their cousins. They are surrounded by a cadre of people who love them, care for them, and truly want them to have a wonderful life.

Because so many people care so much for these two children, they’re often the recipient of gifts. Yes, their birthdays and Christmases are full of presents, but it even goes beyond that. Their grandparents often buy them spontaneous gifts. Their cousins sometimes literally give them their old toys and clothes. We even do it ourselves, though our influence is often in the form of books for their bookshelves.

This has a challenging side effect – the kids have accumulated an awful lot of stuff. Their toy boxes are overfilled. Their bookshelves are stuffed with books.

Several problems are made evident by this. First, it’s difficult to keep all of this stuff in order, simply because of the clutter problem. Second, it encourages our children to be overstimulated because as soon as they even have an inkling of being less interested in a particular item, they can just bounce onto another one. Third, they’re often much less enthusiastic about the wonderful gifts that their grandparents give them because they already have so many.

The solution is obvious: reduce the toy count. But how do you do this without upsetting the children?

My goals are very straightforward.

First, I want to reduce clutter. Dealing with clutter means more money sunk into stuff and more time spent cleaning it up. That means less money for the things that are important (like a less stressful career, deeply meaningful experiences, and so on) and less time for them as well.

Second, I want my children to enjoy life with less stuff around them. I do not want them to feel that lots of stuff is the norm.

On a smaller note, I want my children to increase their attention span. With a huge number of toys easily at their disposal, it’s very easy for them to just jump from toy to toy. By strongly reducing the availability of such items, the opportunity to jump around is less.

Here’s my solution for this problem.

First, I’m taking an inventory of which toys they like and play with frequently – and which ones they do not. I’ve actually been making a list of the toys that each child plays with over a multi-week period. If toys are on this list, they’re probably going to be kept. Toys that are not on this list are going to be targeted for removal.

Second, I’ll talk about the process with them. I’m going to ask them what their favorite toys are. I’m going to also tell them that I’m going to take some of the toys that they never play with and give them to other boys and girls that don’t have many toys to play with. Believe it or not, this works very well with our children, even the two year old.

Third, I’ll take advantage of a period when they’re visiting grandparents to reorganize and minimize their toys. When they return from their grandparents, I will have removed many of the toys from their sight, minimizing the clutter. What will remain are the toys I’ve identified as their favorite ones. The toybox will be only about half full (if that) instead of overflowing. The bookshelves will be filtered a bit (though I’m not as interested in reducing their book count).

Finally, I’ll keep the excised toys in storage for a short period, then either yard sale many of them or take them to Goodwill. The reason I’ll keep them in (hidden) storage for a short period is so that if I discover that I removed a toy accidentally that the children really value, I can retrieve it.

One thing I won’t do is discourage family members from giving them gifts. I understand that this is done as an expression of love for children that they don’t get to see as often as they’d like. Instead, I simply want to create a situation where these toys and gifts are deeply appreciated.

For a long time, we did some toy rotations so that the children would always have something new to play with. In my eyes, that doesn’t really achieve the goals I listed above. We still have a lot of stuff. It still doesn’t subtly teach patience and attention to the children.

Any thoughts on this plan?

A weird sequence of events has caused me to find myself all alone over the coming weekend. My wife is visiting her sister, while my two children are visiting their grandparents. This leaves me with two full days without any real responsibilities.

Of course, me being me, I already have a long list of stuff to do – things that simply require some focused hours and are difficult to do when the family is around. Five years ago, I would have been headed to the golf course or to Prairie Meadows. Times change, I guess.

Lessons for you and me from Warren Buffett?s annual letter Warren Buffett’s annual letter to Berkshire Hathaway shareholders often has a lot of interesting personal finance thoughts in it that go far beyond mere investing. (@ pop economics)

The High Cost of Clutter Every time you buy something new and bring it home, you’re adding to the clutter of your home. It’s one more thing to stuff on a shelf. It’s one more thing to dust. It’s one more thing to maintain. It’s one more thing to take up space. Those are costs, both in terms of money and time. (@ get rich slowly)

6 Ways To Keep The Fire In You Burning This can be a challenge for anyone at times, no matter how much they love what they’re doing. (@ pick the brain)

My Valuable Downgrade “Upon completion of the final draft of my latest novel three years ago, I sent out an e-mail to my family and closest friends. Subject heading: ?What Has Mark Been Doing for the Last Six Years?? The message field was empty.” Something about that opening really struck me. (@ soul shelter)

Save Money! Get a College Degree In Three Years If I had not been blessed enough to get scholarships to cover my tuition, room, and board, this is likely the college path I would have chosen. Whether I would have been successful at it is another story. (@ free money finance)

When Your Friends Become Social Sellers and Multi-Level Marketers Quite honestly, I view such a thing as directly cashing in on a friendship, far worse than asking me for a favor. I’d far rather spend an afternoon helping a friend patch up his roof than spend two hours at a Lia Sophia party. (@ consumerism commentary)

I’m going to share with you excerpts from seven different emails I’ve received from readers in the last few days.

Kenny:

I listened to your radio discussion with Vicki Robin and I was really intrigued by the whole five year plan. I have a big dream I’d love to accomplish (being a radio host) but I feel like it’s so far from my life that I’ll never get there. Any ideas?

Scott:

In five year[s] I would like to have built my own house but I don’t even know where to start.

Angela:

I would like to be a writer someday but I’m not a writer.

Monique:

You have the courage and ability to try such a thing. I do not. I might want to be making clothing in five years but I’ll still be working in this office.

Em:

All I ever wanted to do was play in the WNBA. Now I walk with a limp and people shy away from me. I would do anything to be back in the basketball world.

Raghu:

I keep telling myself I will move back to that town and really make a difference there but it is a lot easier to go home at night, take a nap, and watch a movie.

Sean:

Nothing makes me happier than playing the piano. Nothing makes me sadder, either, because I know nothing will ever come of it.

All of these people have a lot of things in common. They have a dream, one that they spend a lot of time thinking about. They’re nowhere near that dream in their day to day lives. They feel as though the gap between where they are now and where that dream is may simply be too much of a bridge for them to cross. So they’re walking in place through a life that has much less meaning for them than they would have ever liked.

I was there once, in a way. I know exactly how it feels to sense that everything you’ve dreamed about in your childhood and in your adult life slipping away from you. I know how hard it seems to fight for it when everything in your life seems to be flowing in a different direction. And I also know how good it feels when you find some success against the current and can feel yourself moving in the right direction towards that dream.

If you know what you truly, deeply want out of life, but you can’t see how you can get there from where you are now, here’s how to get started.

First, get your financial house in order. This is paramount. It is almost impossible to make powerful, positive life changes if you’re swimming in debt and your spending is out of control. Learn how to spend less than you earn. Pay down that debt as fast as you can. It seems difficult, but it actually works quite well in conjunction with the other tips here.

Second, re-engineer your free time and your social circle. If you really want to make this work, you’re going to have to make time for it in your life. For most of us, this probably means some significant changes. Maybe you give up your thrice-weekly raid night on World of Warcraft. Maybe you can cut your television viewing by an hour a day. Maybe you can withdraw fr some of your social commitments.

Once you’ve decided what to cut, it’s just as important to decide what to add to replace it. Obviously, it needs to be something in connection with your dream – but we’ll talk about exactly what to choose in a minute.

It’s important to remember that these choices are simple. They’re little choices you can make every day. “Instead of spending an hour channel surfing or watching SportsCenter, I’ll work on a short story.” “Instead of going out shopping with the gals, I’ll go to the workshop and work on a painting.” “Instead of playing computer games all night, I’ll get intimate with my piano.” They are choices that you make in the normal flow of your life.

Third, find ways to share what you love. If you love a sport, volunteer to coach a youth team. If you love to play a musical instrument, play a song, record it, and share it with others. If you love to write, start a blog. If you love politics, volunteer for a campaign.

If you want great things to happen, other people need to have access to what you’re doing. If you sit in your home playing the piano for your own enjoyment, you’ll never find a way to make a living with it. You have to get out there and find others. Remember, anything anyone does for a living involves relating to others. We all have customers.

Do not worry about compensation at first. Compensation will come once you’ve built a good reputation and used the experience you’re getting to develop yourself into something better.

Fourth, know how to deal with failure. It will not come easy. Success won’t fall on your lap. It takes time. It takes sustained effort. It takes an awful lot of “no” before you start getting “yes.”

If you take into account the entire scope of all of the writing I’ve done in my life, I am a monumental failure as a writer. Any success I’ve seen has come in the last couple of years. Virtually everything prior to that point was met with “no” and “no” and more “no.”

Why? I wasn’t a good writer – I had some good ideas, but I expressed them poorly. When I did find myself able to produce something good, I hadn’t produced enough goodness and hadn’t shared what good I had done widely enough to actually get anyone’s attention.

It would have been easy to quit. But I loved writing – and I still do. It was always something that made me feel better. It brought me personal pleasure just to write. I’d get a rejection letter in the mail and, yes, it would hurt. But that didn’t mean I would stop writing.

I love writing enough that I would keep writing even if no one read what I wrote. The fact that people do read it – and that I earn enough from it to put bread on the table for my family – is incredible icing on the cake.

If you feel that way about something – it makes you happy regardless of what other people think and whether it makes you any money or not – that’s something you need to dig into. Chase it. Master it. Share it. Then worry about the question of making money – if you’re good at it and share it, the answers will be closer than you think.

Good luck.

One frequent question I’m often asked is whether or not paying half of a mortgage payment twice a month versus paying a full mortgage payment once a month is actually worthwhile.

Let’s say, for example, you’re in the situation that Paul, one of my readers who wrote in recently, finds himself in. He just took out a $219,000 mortgage. His monthly payment on that mortgage is $1,300.89. Paul wants to know whether paying half of the mortgage twice a month will save him a significant amount.

The first thing he needs to do is make sure that his mortgage allows early payments – and how they work. Make a call to your lender and ask them how often interest is compounded (this needs to be daily or compounded monthly based on the average balance of the month – if it only compounds monthly, paying in advance won’t help), plus how multiple payments during a month are applied to your loan (they must be applied as soon as received for this to work). Most loans work this way, but not all.

There are two options with making early payments.

First, Paul can literally make two payments a month – say, on the fifteenth of every month and on the last day of every month. This means, over the course of a year, Paul pays the exact same amount in principle that he would otherwise pay. The only difference is that on the fifteenth of each month, he pays in half of his payment and at the end of each month, he pays in the remainder of his payment.

In my calculations in Excel, I assumed monthly compounding using the average balance of the last month. Using this method, I calculate that this method will save Paul just over two months’ worth of balance on the mortgage. He’d save $2,931.33 in interest, which would mean he would be able to skip his final two payments and make only a partial final payment.

However, a superior method of doing this would be to simply make a payment equal to half of the amount of the monthly mortgage bill every two weeks. Over the course of a year, this adds up to one extra full payment: since there are fifty two weeks in a year, you’d make 26 half payments, and thus 13 full payments.

In my calculations, I again assumed monthly compounding using the average balance of the last month. I calculated that this method will save Paul $41,117.09 over the course of the loan. His final, partial payment would be issued just shy of five years early.

This method falls perfectly in line with many income schedules (the federal government, for example, issues paychecks every two weeks), which means that you can just allot a certain amount from each paycheck directly toward your mortgage and then not think about it again.

For me, at least, twice-a-month payments would not provide enough benefit to be worth the management hassle of them unless it happened to line up directly with my paychecks.

On the other hand, biweekly payments – once every two weeks – do provide a lot of financial incentive to give them a shot. Add on top of that the fact that it’s directly in line with many pay schedules and that would seem to be a winner to me.

In a nutshell, simply paying twice a month doesn’t save much at all, but paying once every two weeks saves a lot. Yes, one or two fewer days per payment can save you tens of thousands at the end of the payments.

Good luck.

2010 has seen a ton of books released already that I’d love to read, from The Politician by Andrew Young to The Immortal Life of Henrietta Lacks by Rebecca Skloot. (I happen to be passionate about books, of course – perhaps your passion is films or video games or gadgets or music or something else entirely.)

Five years ago, I would have rushed to the bookstore and picked up these titles in hardback. I would have been completely impatient to read them, so I would have just thrown down the $20 or so, picked up the hardback, and headed home with it. About twenty percent of the time, I would have read the book once, stuck it back on a shelf somewhere, and ignored it as it gathered dust. The other eighty percent of the time, I wouldn’t even have read it before it started gathering dust on the shelf.

Why did I do this? There were several factors – I didn’t have the time I wanted to have to read, for one – but the biggest one was what I like to call the “cult of the new.”

Simply put, the “cult of the new” is the willingness to pay a premium price for whatever the newest releases are. When something new comes out, you’re inordinately focused on it because it’s new. It pops up again and again.

If a new restaurant opens, you have to visit it even if the reviews are mediocre.
If a new book or album comes out, you have to pick it up.
If a new car is released, you can’t help but swing by the dealership to scope it out.

It’s a very expensive routine. You constantly overpay for things in terms of their actual quality – instead, you pay a premium for the “new.” You pay new release prices for DVDs and for film tickets. You pay hardcover prices for books. And, in the end, you get far less for your dollar – or you dig yourself into a financial hole.

Some people do it with some level of social justification – they need to keep up with (or keep ahead of) their friends. To them, I say that if your friends value you only because of what’s on your shelves or where you ate last night, there’s not much depth to the friendship.

Others do it to feel good about themselves, so that they feel current. This is perhaps even more dangerous, because you’re tying your self-esteem and happiness to material things and short-term experiences. Without a constant influx of these things, you begin to feel bad about yourself. True self-worth comes from within, not from external things, and it took me a very long (and painful) time to learn that lesson.

It took me years to break out of the “cult of the new.” Here are some of the things that really helped me.

I adopted a firm rule about buying such new things – I don’t. Excepting gifts for others, I simply don’t buy new releases, period. I don’t pick up books for myself until they’re in paperback. If I do happen to read a hardback I like enough to keep around for multiple readings, I still wait until the paperback comes out.

If I truly must read something that’s brand new, I visit the library. I’m a very heavy user of our local library’s book reservation system. Yes, sometimes I don’t get hot new releases in the first month they’re out. However, I do get them eventually and, quite often, I get them faster than I expect (because other readers check them out for much shorter periods than expected). You can do the same thing with movies – sign up early to rent a new release from Netflix, for example.

I also swap frequently with my friends. If I do receive a book as a gift that I think a friend will like, I loan it out. Similarly, they’ll loan their new releases to me. This way, a new release given to me as a gift is often like two or three of them, since I have friends with which I share interests and can trust in terms of swapping books. One’s social network, if filled with compatible, good people, can be a very valuable resource.

I learned to love exploring the archives. If I find an author I like, for example, it’s much cheaper to dig through his or her older books than it is to charge out and buy the new releases. Take Richard Russo, an author I discoverd a few years ago (and subsequently hooked my mother on). Rather than rushing out and buying myself his newest work in hardback, I used PaperBackSwap to read a multitude of his older novels. The cost for these older books was trivial, but I was still able to deeply and fully enjoy his writing without paying that “new” premium. I explored Douglas Coupland in a very similar fashion.

When I finish a book (or a game, or a movie…), I first turn to my own shelves. I don’t insist on finding the thing I want to read/play/listen to already on my shelf, but quite often I find it anyway. I’ll spy a book that just speaks out to me, saying “read me…” in its own special way. So I pick it up and I suddenly have free entertaiment that I’m deeply enjoying.

Some set of these techniques work no matter which form of the new you’re chasing, whether it’s restaurants or trading cards. Whatever it is, if you can seek out other avenues for your passion than the shiny new thing, you’ll almost always receive a big thank you from your wallet.

My two year old daughter is showing a tremendous nascent interest in making music. She sings constantly. She uses her hands as percussion all the time on her knees, on the table, and anywhere else she can use them. She climbs up to our keyboard and attempts to play songs.

Right now, I’m trying to figure out some ways to encourage it in ways that might actually build into a lifelong love of creating music. (Yes, I’m the type of parent who would be thrilled to hear their child choosing a musical career.) However, I’m finding it difficult to reach out to her at this stage, so I’m mostly just encouraging her strongly whenever she completes a song or something similar.

Anyway, on to the questions.

I’m 23 and my husband is 24, therefore we are “newbies” in the credit card scene, making our credit limits pretty low (mine is 4000 and his is 2000). Is the ratio computed based on balances carried over month to month, or is it at any point in time? We pay off our credit cards each month, therefore never carrying over our balance. However, at some points in the month, our credit card balance is over 50% (easy to do with a 2000 credit limit). So if we charge over 1000, are we being adversely affected, or are we fine as we pay off our balances?
- Jena

I’m assuming you’re referring to your debt-to-credit ratio.

A big problem with how credit scores are calculated is that they’re effectively calculated in secrecy. FICO, the most commonly used credit score, is a secret formula held by the Fair Isaac Corporation, and they’re not talking. We can only believe tham (and rest on observations of scores and credit reports) when they tell us that the debt-to-credit ratio is important.

Based on my own observations, it appears to me that the amount that credit card companies report to the credit bureaus – and thus the amount that appears on your credit report – is your balance that is carried forward from the previous month. So, for example, if you pay off your entire bill each month, a $0 balance is reported. If you carry a balance of $2,000 forward from the previous month, $2,000 is reported.

I’ve looked far and wide for information on this and have even contacted my credit card company for writeups about it in the past and have never received a truly straight answer about this issue. However, this seems to be the case based on my repeated checks of my credit report and my own credit card statements.

My wife and I currently owe $119,000 on our 5/1 ARM. This is our ONLY debt. We are looking to refinance as our five year fixed period is up March 2011. We currently have $140,000 in savings and $100,000 in retirement assets. We are both 33 years old.

In addition, we are looking to transition from 2 incomes to 1 when we have our first child in Oct. We currently live fairly frugally, but my income alone is not enough to make ends meet without dipping into our savings. If we eliminate our mortgage, we would be able to live on one income comfortably.

Is it better to eliminate the mortgage in one fell-swoop or should we refinance and then use our savings each month to pay the mortgage? Or refinance the mortgage and put some of the savings down to lower the loan amount.
- Greg

The best move you can possibly make as you prepare for a stay-at-home period is to minimize your monthly expenses, and paying off your mortgage would certainly do that.

If you completely eliminate your debt, you’ll be left with $21,000 in savings and six months of work time in which to build that up some more without the burden of a mortgage payment. Given that you’ll own the home free and clear at that point and could, ptentially, use it as equity in the future if you absolutely needed to, plus you have the retirement savings as well, my choice would be to pay off the entire mortgage and get it over with.

I don’t think there is a major advantage in keeping your mortgage and retaining a lot of money in savings at this point. If you were continuing to work or were perhaps saving for a different major goal (such as starting a business), the answer might be different, but you’re heading into an income reduction.

I was not lucky enough to find “the one” early and am now in my forties with no one and feel like it’s over. I am frugal as hell but have no one to share my life with and for some reason, maybe it’s an age related thing, find myself pining for marriage. What do you do when you’re not lucky enough to find the one early in your life and hanging out bars, church or synagogue(where there are mostly married men in your age group or single people but in their twenties)or other social groups does not seem appealing nor worthwhile? In DC there are lots of attractive women and very few single men and moving is not really an option for various reasons.
- Renee

I don’t think you’re doing anything wrong, necessarily.

If I were you, I would focus on finding and attending social events that really reflect your values and what you enjoy doing with your life. I don’t know what that might be. For some people, it might be the bar scene. For others, it might be their church. For others, it might be political activism or volunteer work or book clubs or countless other things.

What would you want your life partner to be passionate about that parallels your own passions? That’s where you’ve got to start in this journey. You’re much more likely to find true happiness by meeting someone whose passions match your own – a person who is already out there chasing them.

People often mention the “bar scene” when they talk about meeting people. I always find that really strange unless the bar is a major source of happiness in your life. It’s fine, I suppose, if you’re merely seeking short-term flings, but my eyes would be elsewhere if I were looking for a long-term mate.

There’s too many mixed messages out there! Which do I do first?? Save for an Emergency Fund? Snowball debt repayments? Pay off our Mortgage? Save for retirement? The kids college? Save for a bigger house? What about travel?

We have over $80 000 in debt (credit cards & family loan), $230 000 mortgage left, no retirement savings, nothing for the kids, $500 in savings, and we have to visit overseas family every other year and just had another baby.

Suze Ormand says 8 months of savings? Dave Ramsey says snowball bigger balances first, David Bach says no lattes, Kiyosaki says buy your home outright – PF bloggers everywhere say a whole stew of things – the budget is sliced too thin already.
- Gina

I don’t think there necessarily is a perfect right-or-wrong answer here as long as you are spending less than you earn. That extra money can be used in a lot of productive ways, whether it’s paying off debts, saving for retirement, or saving for the kids’ college fund. None of these options are the best option for everyone.

The big difference in these choices really is your values. If you want to just follow someone’s plan, you’ve got to find someone who shares your values and who makes sense to you.

Dave Ramsey offers some strongly Christian values and emphasizes debt freedom. I value my family and discovering your passions and I usually advocate in favor of maximizing your day-to-day stability, which means building up an emergency fund first and foremost. Others speak from entrepreneurial values.

I don’t think any of these options are perfectly right or perfectly wrong. I think they click for different people because everyone thinks differently and is motivated differently. The important thing is that you’re motivated, too, and you’re making choices in line with what’s most important to you.

What is most important to you? Minimizing future risk for your family? Giving back to the community? Building a business? They all have different routes to financial successs. You have to figure out what you want first – otherwise, it’s like flailing around with a chainsaw.

Have you ever done a post on “How to host a game night” — I know from the blog that you do this from time to time, and lately my husband and I have become fans of playing board games as well. We like “Power Grid” and “Robo Rally” both really well. We’ve got a small group together that likes these games too – however getting everyone together at the same time / should we have food / will there be room for everyone when they come? (i.e. many games have a max of so many players). It seems like you play all sorts of games so where do you find the “right people” to play with and how do you bring them together. I mean the last time we hosted a game night, one of my friends walked out right in the middle of it – she didn’t say why – but I got the sense that this game was too much for her ( as you know some of the games have a lot of rules, and strategy involved.- which I enjoy, but some people don’t.) Ok – so what are your “keys to success” with this.
- Erin

First of all, Power Grid is one of our favorite games around here and RoboRally is on my wish list. We have a game group of about five people that meets about three times a month to play such board games and it’s a social highlight of the month.

I stick to three big things to avoid this type of scenario that you describe.

First, I make sure at least one person knows a game cold before we play it. Someone there should be able to always explain the game and answer questions throughout on your first play-through or two. It rarely ends well if everyone is new to playing a particular game. I often do this by playing a new game through a few times solo, meaning I lay out pieces for multiple people and play all the roles myself with the aid of the manual.

Second, if someone is new to such strategic games, I don’t throw them into the deep end of the pool. I simply wouldn’t sit down with my mom and play Agricola, not without having played a lot of other lighter strategic games first. I’d play Stone Age first so that the worker placement idea was familiar to her, for example. If someone has never played board games beyond Checkers or Monopoly when they were a kid, I’d play something like Ticket to Ride with them the first few times.

Third, if someone is really apprehensive, play one-on-one with them a few times first. If you’re a good friend and you know the game cold, invite just that one friend over and play the game just with them. Go through it nice and slow. Play with your cards/pieces revealed and explain why you’re making the moves you’re making.

Friends have been trying to convince us lately to switch our checking account from the bank where it’s been for over twenty years to a credit union. Ours isn’t a mega-bank, but it’s not local, either. However, the people AT the bank have been there through three changes in ownership in the last decade, and they know us. (Our son dated one of the tellers when they were both in high school… it’s a small town.)

OTOH, I’m not sure if that’s enough reason to stay there. I’ve also considered getting an ING checking account to match the (tiny) savings account we’ve got there. But I suspect we’ll still need a local account, just for an anchor, so that leaves the question: stay we’re known and pay eight dollars a month, or go to a credit union where we know no one. That, btw, involves opening both a checking AND savings account in order to get the free checking.

What do you think of the differences between banks and credit unions? Which do you recommend, and why?
- Kate

Whenever I hear that banks still charge a fee just to maintain a checking account there, I’m shocked. There are so many banks out there that now offer free checking that paying $8 a month just for the checking service seems akin to just throwing $96 a year – or $960 a decade – out the window.

Unless there’s a compelling reason that you’ve not mentioned here for continuing to use your local bank, I would probably switch banks. However, I wouldn’t necessarily switch to the credit union just yet. I’d spend some time looking at the various options available to you, including online-only banks like ING Direct and so on. Look at their features and look at the fees they charge, too.

If having a local “anchor” bank is important, open up a checking and savings account at the credit union (if it’s the best local option). However, you don’t necessarily have to use that as your primary bank – you could just maintain small balances locally for the convenience of cashing checks and other purposes and keep your main banking at an online-only bank.

I am a recent college graduate who just married a wonderful man with $20,000 worth of student loans and no degree (he was studying English). He dropped out after his dad stopped paying financial aid, but not before getting depressed and flunking a few last courses. Right now, he really hates his tech customer support job and is having trouble finding a better job, like everyone else. Also, I was just laid off and the unemployment checks have just started coming in. Should he go back and get a degree in the field he wants to work in (Computer Science)? He has about 5 years of work experience. I don’t feel like adding on $40,000 more loans, but at the same time, I feel like his career will have a slow start because of this hindrance.
- Frances

If he’s figured out what he’s passionate about, then he should go back to school and get his degree. It will be worth the expense and the economy will be in better shape by the time he graduates.

However, you need to be absolutely sure that he’s not just picking this career because he thinks it’s something that he likes (but doesn’t necessarily love) that can earn him a lot of money. That’s the very mistake that I made and it wound up putting me in a very hard spot about seven years down the road.

I’d suggest that if he’s not 100% sure that he loves computer science, he spends some time figuring out what he really loves and then following that. It’d not be a smart move to put $40,000 towards a degree that he’s not really passionate about and is just doing for the money.

I recently read a article by Christine Benz, of Morningstar, about opening a Roth IRA and using it as your emergency fund, when necessary. She would rather you had both, but for someone just starting out and short on cash, it seems as though it is a good idea. Do you have any thoughts on this?
- John

I wouldn’t do it.

The big disadvantage of using a Roth IRA as an emergency fund is that when you make withdrawals from it, you can’t put that money back into the account later. You have a $5,000 window each year for contributions, period. Once you take money out, there’s no putting it back other than through your normal contributions to the account.

The last thing you want to do is sacrifice your long-term retirement savings because of a short-term problem like a temporary job loss or a car breakdown. I’d build up at least a month’s worth of living expenses in a savings account before I started to worry about a Roth IRA at all.

Anyway, when we bought our house about six years ago, we also took out whole life insurance policies on each other for $250K each, as well as some larger term-life insurance policies. My thinking at the time was that the term life policies were in the nature of income replacement, while the whole life policies were bought with the specific purpose of ensuring the surviving spouse would have the ability to pay off the house. The cash value of the policies builds at a guaranteed minimum of 4.25% per year, and I view them as additional house payments, since our intention is to cash them in when the cash value is sufficient to pay off what’s left on the mortgage, and then pay off the mortgage. At the time we bought the house, I figured that would enable us to pay off our 30-year mortgage in about 18-20 years, and I still think we’re on track for that.

I’m trying to accomplish two goals here – make sure the house is safe in case one of us dies (a concern that a term policy would resolve), but also find a way to keep from completely throwing money away, since we’re both relatively young and healthy, and thus the policies are unlikely to pay (which term insurance can’t address). This is why we decided to invest more money in a whole life policy instead of a term policy, vis-à-vis this specific need/concern.

The problem is that I keep hearing that whole life is a bad investment choice, I should instead pay for more term insurance and invest the difference, etc. Is (seemingly) the rest of the world right? Should I get out now, before I spend another dozen or so years continuing to pay for these policies? Or does my logic remain sound? I think the total difference in cost for the two whole life policies versus two term life policies with the same coverage would be something like $200/month – is that a worthwhile price to pay for what we’re doing?
- Mike

If you’re sitting at a crossroads and trying to decide whether to open up a whole life insurance policy or a term policy, I would go for the term policy. You can take the difference in cost between the two (since the whole policy will cost more) and invest it yourself into index funds or other such things.

However, once you’re into a policy for a number of years, the situation changes a bit. Quite often, the return you get in further contributions to a whole life policy versus the return you get on a term policy plus investments are similar once the first few years of payments are out of the way. Whole life policies tend to improve a bit in later years, returning better than they do early on (when the policies are covering the commissions of the salespeople).

You have to ignore the past when making these decisions. Don’t let what might have been influence you right now. Sit down and look at where you’re at with the policy. Right now, starting with your next contribution dollar, what puts you in better shape? Another dollar into the whole life policy, or starting over with a term policy and some investing with the additional money?

Without specific numbers, I can’t tell you that for sure. I can just tell you to ignore your contributions up to this point and look at what puts you in better shape starting right now.

My husband just started a post-doc position. There are two types of post-docs through the university. One gets paid officially by the university, taxes are taken out, and benefits are paid for. The other type of post-doc (the one my husband has) is paid for by a federal grant, so you get paid, but no taxes are taken out, it’s not reported to the IRS, etc. We will pay estimated taxes on it, of course, but a little wrinkle has come up that I wasn’t expecting.

While we have health insurance through the university and the university pays for a significant chunk (they pay about $800/mo for a $1100/mo family plan), they do so by paying him a “health insurance stipend” of about $800/mo and then take the entire $1100 out of his paycheck every month. I didn’t realize that and when I calculated our estimated taxes, I just did it based on the income put in his contract (about $37k) plus my PhD stipend (about $30k), also with no taxes taken out. He asked around at work and everyone pays taxes on the entire amount – which increases our income and taxes substantially. I realize we can recoup that partially by itemizing (we don’t own a home, so itemizing has never made sense for us before) since our medical expenses will be enormous. Is that our only option? We probably would have considered a different post-doc if we had realized what our tax burden would be.

It just doesn’t seem fair that we have what looks like a lot larger income in terms of taxes – most people do not pay any taxes on their employer benefits. Have you ever heard of this type of situation before? I suppose we could not report it but I don’t want to get in trouble with the IRS down the road.
- Amanda

IRS Publication 502 states that insurance premiums on health insurance are tax-deductible. In other words, when you go to file your taxes, the premiums you’ve paid in yourself can be deducted from your taxes, reducing the amount you need to pay in.

Most employers simply use pre-tax money to cover this insurance because it simplifies things for pretty much everyone. For some reason – probably related to the fact that they’re passing the tax management on to you – they’re not doing this in your case.

I would strongly encourage you to use a program like TurboTax when filing your taxes, as they help you greatly in discovering big deductions like this and applying them properly.

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

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

The entire argument of Seth Godin’s book Linchpin is that there are no longer any great jobs where someone tells you what to do. That’s not to say there aren’t great jobs out there – there are many – but they now require the ability to basically blaze your own path, creating things and building connections that are indispensable to those around you. That person, in Godin’s terminology, is a linchpin.

I think, to a degree, this general argument is spot on. We live in a globalized world where most jobs can be shipped anywhere, from Mexico to Indonesia. Jobs in which people are merely following instructions all day are among the easiest to ship and the few that remain in America aren’t going to be strongly financially rewarding. Success comes from making yourself essential to the operation – and simply following orders, even if you do it well, keeps you firmly in the “replaceable cog” camp.

How do you stand out? What kinds of choices can you make to turn yourself into someone indispensable? Let’s dig in and see what the book has to say.

The New World of Work
Most jobs where you simply follow instructions and do a faceless job demean the real value you provide. They’re faceless jobs, but you’re not a faceless person. You’re not merely a cog in the machine of capitalism – but your job might be. The biggest difference between a follow-the-instructions job and a linchpin is that a linchpin creates his or her own value, whereas an instruction follower doesn’t add any value beyond a specified task that’s completed. A linchpin works in ways that improves those around him or her, while an instruction-follower simply follows the tasks at hand. I like to think of it this way: what’s the difference between a mediocre administrative assistant and the best administrative assistant you can imagine? That’s roughly the difference between a person who is a linchpin and a person who is not.

Thinking About Your Choice
The choice that’s on your plate is simple: do you keep merely following instructions and counting the days until Friday or do you look for ways to make yourself transcend those roles and become a linchpin? This is an urgent question, because a global marketplace makes the instruction-follower role more dispensable than ever. Some people are content to fill the role of instruction-follower – and that’s fine. However, the career opportunities for such people are simply shrinking – that’s a fact of life.

Indoctrination: How We Got Here
Most of what we learn in school serves one purpose – to make you an effective person at filling an instruction-follower job. Schools do not encourage creative thinking (which is an invaluable part of being a linchpin) – instead, they encourage lots of rote memorization and repetitive tasks which are scored on standardized tests. It’s a pretty neat trick to make school funding tied to these standardized tests, isn’t it?

Becoming the Linchpin
Every workplace has a few people that are simply indispensable. They take very challenging situations and make them work. They seem to solve tons and tons of problems. They’re the ones everyone goes to when there are crises. Those people are the indispensable ones – if you’re not one of them, you’re a lot more dispensable than they are. The question really is whether or not you’re willing to work to become one of those indispensable folks.

Is It Possible to Do Hard Work in a Cubicle?
Being a linchpin means a lot of hard work. The biggest part of it is being willing to give all of what you have to doing a great job. This does not mean just filling your hours with whatever task you’re assigned. It means bringing all of your passion, your ideas, and your creativity to the table whenever you work. It means taking on the hard problems that might scare you a little bit (or more than a little bit).

The Resistance
Our brains typically work in resistance to those kinds of tasks – we’re biologically wired to look out purely for number one. We avoid risk. We avoid anything that might be perceived as a threat. We avoid generosity. However, all of these things – risk, taking on threats, generosity – are key parts of being a linchpin. We have to work hard to overcome these resistances in order to become something greater.

The Powerful Culture of Gifts
Giving of yourself to others opens countless doors. Our brains often expect immediate reciprocity – if we give something, we want something in return and soon. The world rarely works that way. Our generosity – going above and beyond the expectations of others – builds a strong reputation for us, one that secures our work and builds positive relationships and interactions for us in ways we often never directly see. Quid pro quos rarely work – but building a strong reputation for great work and generosity certainly does.

There Is No Map
How do you do this? Unfortunately, there is no road map – and that’s a big part of the difficulty of it. You have to seek out the challenges in your own situation and take them on head first. You have to seek ways to up the quality of whatever it is you’re doing. In other words, you have to go off the instruction sheet – and that’s the real challenge.

Making the Choice
Linchpin value is created by what you choose to do, not by what you’re born with. Anyone can become a linchpin – it’s not an inborn trait, it’s a sequence of choices to step beyond the instructions and do things that improve everyone around you. It’s a scary choice, but it’s still a choice, one that offers a lot of rewards if you’re willing to take the leap.

The Culture of Connection
In order to succeed as a linchpin, you have to build a lot of connections with the people around you. Indispensable work is work that’s connected to the work that others do. You build on their work and they thrive on the work you’ve done. A big part of this is personality and attitude and a big first step is to recognize that negativity towards others will never, ever get you to being a linchpin. Positive relationships are the ones upon which you can build great things.

The Seven Abilities of the Linchpin
Here are the seven abilities, in a nutshell, from page 218:

1. Providing a unique interface between members of the organization
2. Delivering unique creativity
3. Managing a situation or organization of great complexity
4. Leading customers
5. Inspiring staff
6. Providing deep domain knowledge
7. Possessing a unique talent

Linchpins provide at least one of the things on this list and often provide more than one. It’s key to remember that these things are there to provide value to the people around you and make their work better, because in doing so you make yourself indispensable.

When It Doesn’t Work
If you’re trying to be a linchpin and it isn’t working, blind persistence is usually not the way to go. The value of a linchpin isn’t in repeating things that aren’t clicking or working. Instead, they constantly seek out new approaches and ideas and try them, instead. No one has a 100% success rate with their endeavors and ideas, but it is the successful ones that provide so much that they more than make up for the failed attempts.

Is Linchpin Worth Reading?
If I were to hand a recent graduate or a twentysomething a book on modern careers and how to succed in them today, I’m pretty sure that Linchpin would be the first book that I would grab.

The ideas in this book are reflected in virtually every workplace I’ve ever been a part of, from entry-level work to highly technical work. The people that stepped up to help others and solve problems were the ones that were indispensable, while the others merely hoped to hold onto their jobs. I also noticed that the people who stepped up to the challenge tended to be a lot more positive about their job, whereas the people who were dispensable were negative about their job and the people around them.

There are a lot of great ideas about the modern workplace in this book. If you’re struggling in your career, Linchpin is probably well worth a read.

Jennifer writes in:

Yesterday, I received a notice from [my credit card company] that my credit limit had been lowered from $10,000 to $4,000 on my primary credit card. I was immediately worried that my credit had been damaged by identity theft, so I checked it on annualcreditreport.com and there was nothing there at all. I’ve always paid all of my bills on time and my life has been pretty much normal and unchanged for a long time. Why would they make this change? I’m not concerned about reaching my credit limit, but that reduction in my limit does alter my debt-to-credit ratio, which could negatively impact my credit rating.

Jennifer describes a pretty typical scenario today. A credit card company sends a letter out of nowhere, for no obvious reason, announcing a significant drop in one’s credit limit.

One big effect that such a drop has is that it alters your debt-to-credit ratio, as Jennifer mentions. Simply put, your debt-to-credit ratio tells what percentage of your credit limit across all of your credit cards you’re actually using. So, let’s say Jennifer had a $3,000 balance on her $10,000 card – that’s a 30% debt-to-credit ratio. When the company drops her credit limit, she then had a $3,000 balance on a $4,000 card – that’s a 75% debt-to-credit ratio. The higher your debt-to-credit ratio, the more negative impact it has on your credit score.

This type of behavior seems alien, particularly after a decade where credit card issuers would commonly raise credit limits without you even asking. What gives?

The reality of the credit card industry has changed. For one, the econmic downturn has seen a large spike in the number of people who have simply defaulted on their credit card bills, not bothering to pay them. For another, the Credit Cardholders’ Bill of Right Act recently became the law of the land, restricting some of the business practices of the credit card companies.

Credit limits are not a right. Another issue is that many people, particularly after the last decade of rampant growth in credit limits, view their limits as something of a right and when credit card companies reduce those limits, their rights are somehow being infringed. In truth, that’s not the case at all – your cardholder agreement makes it very clear that your credit limit and your interest rate can be changed at any time.

So how do they decide when to lower your limit?

They watch what you buy via data mining. Every time you make a credit card purchase, the credit card issuer’s computers store a record of that purchase (you’ll see such information on your bill). Obviously, this is a wealth of information, one that they can use to figure out all sorts of things, such as where you live (so that if you suddenly make a rash of purchases elsewhere, they can throw a block on the card).

They draw conclusions based on what you buy. Another thing that they do is watch what you buy. They look at the places you normally shop and draw conclusions based on that.

Let’s say Jennifer normally shops for clothing at, say, Banana Republic (I don’t know this, I’m just creating a hypothetical example). Based on this, the credit card company would conclude that she fits the profile of an average Banana Republic customer, meaning she has a fair amount of discretionary income.

Now, let’s say Jennifer is suddenly a bit worried about the economy. She and her husband decide to curb their spending and she starts doing things like buying soap at the dollar store with her credit card.

When the credit card company analyzes the data, looking for spending changes that might affect credit limits, they’ll observe from their data that Jennifer is spending a lot less at the Banana Republic and a lot more at the dollar store. That means she’s got a different spending profile – one that signifies the potential for financial trouble.

They act in accordance to those conclusions. Given their recent problems with people defaulting on credit card debt, they take pre-emptive action and reduce her credit limit.

To Jennifer, this seems sudden and unfair – and for good reason. She’s likely not in any true financial trouble at all and is simply choosing to be a bit thrifty in these uncertain times.

What can you do to protect yourself? The truth is that Jennifer should avoid being in any kind of position where such a credit limit change has any impact at all on her. In other words, don’t be reliant on that piece of plastic. Use it as a tool instead of as something you need to have.

One big way to do that is to never carry a balance on your card. If a bill comes at the end of the month, pay it off. If you’re thinking of making a purchase where you wouldn’t be able to do that, you can’t afford that purchase. Wait a few months and save up the cash.

This not only keeps your debt-to-credit ratio pretty low, but it also leaves you out of any sort of “danger” from the credit card company adjusting your limits or your interest rates. More importantly, though, it prevents you from building up a significant amount of debt on the card, which can be very, very difficult to pay off.

Use your credit cards wisely and changes like what happened to Jennifer will have little or no impact on your life.

As I’ve mentioned many times before, my wife and I shop at Sam’s Club. It’s really the only warehouse club available to us easily (there are no BJ’s around here and the only Costco is on the far side of Des Moines, almost an hour away) and it serves a lot of our needs.

I’ve been shopping there for several years and I’ve found several little techniques that really maximize your value in shopping there. You really can do much better on some items by utilizing a warehouse store, but you’ve got to follow a good plan. Here’s how.

1. Take a look before you sign up. Before you walk in the door and sign up for a membership, visit the store and look at the prices and the selection to make up your own mind. Warehouse clubs often offer one-day memberships, either in the newspaper or at the desk there. Give them a call and find out before you go.

If you can’t get in using these methods, ask around your social network to see if anyone’s a member, then ask if you can visit the store with them. This method is even better because you can make purchases when visiting with a full member, whereas with the short-term memberships, there’s a 10% markup on prices.

2. Split a membership. Find a close friend and split a membership with them. Just go to the store, sign up for a membership, put your friend down as the other card, and get membership cards for both of you. This will cost you each half the normal price of an annual membership, getting you in the door for a year for just $20.

You usually have to sign up at the same time, but warehouses are completely fine with you and your co-member having different last names, different addresses, and different phone numbers.

3. Bulk-buy in cooperation with friends. Hesitant to buy a giant mountain of toilet paper? Talk to a friend of yours and agree to split the cost of that mountain. This way, your cost per roll on that toilet paper is very low, but you also don’t have to deal with the storage of that much toilet paper.

There are lots of items you can purchase this way, from paper towels and fruit juice to diapers and bagels.

4. Only buy stuff you know you’ll use up. One of the big temptations at a warehouse club is to convince yourself that you’ll use a huge amount of something that’s perishable, whether it’s salad greens or fresh fruits. You see the price per pound, recognize that it’s much lower than it is at other stores, and talk yourself into it.

Don’t.

Ignore the cost per pound. Instead, you have to focus on the amount you’ll actually use before having to chuck the rest – and that’s a tricky thing. I usually figure on the very low end. On occasion, it’s still a value even if more than half winds up in the compost bin, but most of the time, it’s not really a bargain.

5. Make a price book. Along those same lines, in order to maximize the value you get from a warehouse club, you have to have some sort of a price book.

A price book simply means that you have a list of prices of many of the common things you buy at various stores that you shop at. Maybe you just have the prices from your favorite grocery store on it. In any case, you simply take that list with you to the warehouse club and use that as a basis for comparison. So, an entry in the price book might be “3 rolls of Bounty – $3.33″ and then you can use that to figure out whether twelve rolls of Bounty for $11 is actually a bargain (it is).

6. Use a shopping list. Another important factor is to know what you actually need before you go. Thus, before you go, make a shopping list. Write down all of the things you actually need, then hit the warehouse club before you visit the grocery store.

Doing this not only helps to ensure that you get all the stuff you actually need, but sticking to that list goes a long way towards curbing impulse buys, since you’re so focused on the grocery list instead of wandering down the aisles.

7. Look at gas prices. Most warehouse clubs offer gas prices that are lower than other gas stations in the area. This savings varies a lot – in some areas it can be as much as a dime per gallon and in other areas it’s only a penny or two. Our area seems to vary between about two cents per gallon and five cents per gallon.

Thus, whenever I have an opportunity, I fill up at Sam’s Club. If I fill up there once a month, putting 20 gallons in my tank and saving five cents a gallon, that saves $12 a year. If my wife does the same, filling up there three times a month and putting 12 gallons in the tank, that saves $21.60. All told, we save $33.60 from the gas alone.

Two other areas where the savings were surprising for me were liquor (beer, wine, and hard liquor) and big-ticket electronics, like laptops and televisions. Their prices were very, very strong on these items.

8. Take note of the other benefits. Most warehouse clubs offer other benefits beyond the cheap household stuff and the gas benefits. Take a careful look at the pamphlets that the club provides and see if any match your needs.

For example, Sam’s Club offers a discount on car prices with certain cooperating dealerships. Thus, I can take that extra info into account when we make a car purchase and it might reveal a better car deal for me. That’s a potential significant savings.

9. “Gap” your membership. When your membership is about to expire, go to the club and stock up on all of the nonperishables you buy there – shampoo, toilet paper, soap, and so forth. Then allow your membership to expire for several months as you use your backlog of items. When you start to run out of your backlog, go in and renew your membership.

Let’s say that you fall into a twelve months on, six months off pattern. Over the course of six years, you would reduce your membership buys to four, saving you $80 over that period.

10. Get your impulses in check. This is perhaps the most useful tip for warehouse club shopping. You have to get your impulses in check before you go. If you don’t, the benefits of the club will go away for you.

What do I mean? It’s easy to see items at a warehouse club that you might use, and the price per unit is often very low. It becomes really tempting to throw it into your cart. However, if those buys are impulsive, not only is it something you wouldn’t have otherwise bought, it’s also something bought in an excessive quantity. That’s a recipe for throwing your money away.

We save a lot of money each year by shopping at Sam’s Club.

Many newer readers of The Simple Dollar haven?t been exposed to the hundreds of great articles in the archives of the site, so this is a weekly series that highlights the five best posts from one year ago this week, two years ago this week, and three years ago this week. I call it ? the Time Machine.

One Year Ago (February 28 ? March 6, 2009)
The Cost of the Psychology of New When I re-read this post, I was reminded of an email I received from a reader recently who didn’t like PaperBackSwap because she couldn’t get all of the newest releases on it. I pretty much never buy a new release in book form – I use the library for those. I don’t buy books unless I’m sure I’ll reread them multiple times. The cult of the new is expensive.

Depression Cooking I loved these videos – they were the best thing I’ve seen on YouTube, perhaps ever.

Personal Finance and 1,000 True Fans Planting the seeds of powerful relationships might cost you a little bit now, but it’ll reap huge rewards later on.

A Step-By-Step Guide to Building a Big, Healthy Emergency Fund Emergency funds are a vital tool for personal finance success, but many people have difficulty getting started with one. Here’s a guide to doing just that.

Do You Want to Be Rich? Being rich is not my goal (trust me, if it were, The Simple Dollar would be quite a bit different). Is it your goal?

Two Years Ago (February 28 ? March 6, 2008)
The Stock Market Is Way Down This Year? Here?s Another Way To Think About It I look at stocks being down as an opportunity. The companies themselves haven’t changed a bit, but their cost is lower. That’s called a sale.

?Freegans,? Dumpster Diving, and the Limits of Frugality We all have some personal lines that we won’t cross. Yes, for me, dumpster diving to save money on food is one of them.

Financial Planning for Self-Employment: What?s Different? The biggest challenge with self-employment is that your income is very irregular. You don’t get that steady paycheck week in and week out and you have to plan accordingly.

Learning the Right Lessons from Your Mistakes When you make a mistake, it’s worth your time to step back and think deeply about why you make it. If you don’t, it’s easy to draw the wrong conclusion.

Six Ways to Break Free of the ?Purge and Splurge? Cycle This type of cycle happens in anything that requires self-discipline, from spending control to dieting control. Here are some techniques to control it.

Three Years Ago (February 28 ? March 6, 2007)
Personal Productivity and Personal Finance: Ten Techniques I Use To Juggle This Blog, My Money, My Work, and My Life I wrote this when I was simultaneously working a full time job, creating The Simple Dollar in my spare time, and juggling other personal needs as well.

An Average Day: Ten Tweaks I Made To My Daily Routine To Start Saving Money These little tweaks can help a lot when it comes to putting yourself in the right mindset at the start of the day.

PaperBackSwap: An Effective Way To Save Money On Books I can’t even tell you how much I’ve used PaperBackSwap over the last few years to save money on my voracious reading habit.

Ben Stein And I Explain Why I Just Bought Stocks Today, Even With Stocks Down 5% In The Last Week Similar to the above post, if you buy stocks when they’re down 5%, you’re essentially buying them when they’re on sale. The company itself hasn’t changed, just the sticker price has.

How Much Money Does Breastfeeding Really Save? It saves quite a bit, really, according to our real-world math.

If you?d like to browse through more of the archives, visit the chronology, where all posts are listed in chronological order.
Nine Ways to Get More out of The Simple Dollar
This is kind of a FAQ for new readers and is posted each week along with the Time Machine. Here are nine great ways for new readers to dig deeper into The Simple Dollar.

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

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

3. Read my story of financial meltdown and recovery. The Simple Dollar isn?t based on what I?ve read in books or learned in school. I?ve made a lifetime of financial mistakes ? The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

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

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

I also participate on several other social networks. Feel free to check me out on del.icio.us (it?s where I collect links, from which I select the ones that appear in my weekly roundups), wakoopa (what software I use), GoodReads (what books I?m reading), Facebook, and FriendFeed (which aggregates everything). I also have an irregularly-updated personal site, TrentHamm.com.

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

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

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

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

Earlier today, I did a lengthy interview with Dean Voelker on his Improving Your Financial Health radio show. Dean’s very much into preparation, so I actually wound up doing a substantial amount of prep work for the interview.

Since I had accumulated such a pile of notes for the interview in advance and Dean asked so many worthwhile questions, I made something of a transcript of the interview and am sharing it with you.

Tell us about your background.
I grew up in rural Illinois. My parents didn’t have much money and, sometimes, they struggled to make ends meet. I learned a lot about frugality from them, but I didn’t learn as much about pure money management skills. I attended Iowa State University and graduated with a degree in the hard sciences, after which I spent about six years working in various jobs in research fields. Recently, I’ve been a full time writer.

How long have you been writing The Simple Dollar?
I started writing the blog that would become The Simple Dollar in October 2006. I launched The Simple Dollar publicly in November 2006.

How did you decide to do that?
In April 2006, I experienced a personal and professional meltdown of sorts. I had always dreamed of being a writer, but it felt as if my dreams for doing that were slipping away in the flow of my professional life. I was unhappy with some aspects of my current job. To make things worse, we were in dire financial straits, with a large pile of consumer debt over our heads.

I decided that things had to change. After a while, I began to see that a lot of people my age were going through similar crises – a “quarter life crisis,” if you will. They were finding themselves in serious financial problems and sometimes were deeply questioning the path they had chosen in life. However, most people my age were very reluctant to actually talk about these problems with anyone outside of their immediate family and maybe a very, very close friend or two.

I started The Simple Dollar because I felt that this was a conversation that people needed to have. I felt that by sharing my story and my experiences, both in the positive sense and in terms of my own failings, I would open people up to think about their finances and career more and talk about it, whether by sending me emails or comments or by talking to people in their own lives.

Where did the name ‘Simple Dollar” come from?
One night shortly before the launch of the site, I just brainstormed a long list of names. I crossed some of them off that I didn’t like and my wife took a turn at the list, too. Eventually, The Simple Dollar is the name that stuck out.

Looking back, I’m glad I didn’t choose a name like “Trent’s Financial Failings.”

About how much time do you spend on this per week?
On The Simple Dollar alone, I probably spend fifteen hours purely writing and composing posts. I spend another five to ten researching posts and doing reading related to it. I probably spend another ten hours on site management, approving comments, and answering emails – but, frankly, I have more emails and comments and other things like that than I can cover in ten hours, so I sometimes have to pick and choose.

I spend additional time on other writing projects, such as my upcoming book.

Where do you get most of your information?
Books. I’m a voracious reader. I read, on average, three books a week, of which one is usually something geared towards personal finance or careers.

What are your “14 Money Rules”?
My 14 Money Rules is simply a list of what I think are the true core values and ideas of what I talk about on The Simple Dollar. I keep these rules posted on every page on the site, in the right hand bar. The 14 Money Rules are:
1. Spend Less Than You Earn.
2. Don’t Over-Think Your Investments.
3. Stop Wasting Time.
4. Eliminate (and Avoid) High-Interest Debt.
5. Talk About Money (And Be Honest).
6. Stop Trying to Impress Other People.
7. Watch Your Progress (But Make It Fun).
8. Take Care of Your Things.
9. Do It Yourself.
10. Plan Ahead Every Time You Spend.
11. Find and Work Toward Your True Passions.
12. Build Real Friendships and Relationships.
13. Improve Yourself Every Chance You Get.
14. Give Without Strings or Regrets.

Which ‘Rules’ generate the most discussion?
Doing it yourself tends to generate the most discussion. Many people argue that it’s better to pay someone else to do something for you if you’re earning more than that person’s hourly wage. My argument against that is twofold: first, you only earn more than that person’s wage if you’re earning more post-tax and you actually spend the time you’ve hired someone in gainful employment. Two, and perhaps more importantly, doing things yourself teaches you things and makes you more resourceful. Almost every skill you have in life has value – if nothing else, it can help you build relationships with others. If you know how to fix a toilet, for instance, you can share that skill with a new friend or acquaintance in an effort to forge a stronger bond.

Tell us about your free E-Book “Everything You Ever Wanted To Know About Personal Finance On Just One Page.”
A long time ago, I wrote a very popular post entitled ?Everything You Ever Really Needed to Know About Personal Finance on the Back of Five Business Cards?. After posting it, several people contacted me and suggested that I try to turn it into a book of some sort.

Over the next several months, I tossed the idea around and eventually developed it into a fifty page short book, intending to use it to shop around to various book publishers. I incorporated a lot of original writing, pieces of various Simple Dollar posts, and lots of other interesting elements.

At some point, I just decided that it would be a very worthwhile move – in terms of helping people with their finances and encouraging people to think about it and talk about it – to simply give the short book away, which is exactly what I did.

What are your thoughts on the new credit card regulations which just went into effect this week?
I think, on the surface, they protect consumers. However, the credit card companies are businesses that are out there with the purpose of making money. If you close one door on them, they’ll open another.

I think we’re in a period where they’re going to try different methods of earning money, since some of their previous methods have now had the door shut on them (such as young card holders). What form will that take? Whatever it is, the end consumers will be the ones paying for it. It might be the return of annual fees. It might be higher interest rates. It might be something entirely new, like a minimun number of uses required per month. Only time will tell.

You also have some downloadable books. What can you tell us about that?
The “downloadable books” on The Simple Dollar are simply collections of older posts on a common theme. I’d write a series of posts on a certain topic – say, building a blogging business – and then I collected all of the posts together, edited them a bit so that they made sense as one long document, and turned them into a downloadable PDF. Since the posts are available for free anyway, I have a minimal charge on these donwloadabe books – they cost two dollars a piece. Some people buy them because it’s convenient for the purpose of printing them out for a trip or something like that; others buy them simply as a way to support the site.

The Simple Dollar has some great open discussions which readers participate in. How were you able to come up with 25 Gadgets That Save Money?
One big thing I like to do when writing an article is look for things that have something interesting in common, sometimes in an unusual or unexpected way. In that case, I simply collected a list of items that can actually save you money, including paying for themselves, over a long period of time.

The idea started from looking at programmable thermostats. If you buy one of those and set it so that your furnace doesn’t run when you’re not at home or when you’re asleep – or the same thing with the air conditioning during the summer – your energy bill savings will add up to much more than the cost of the thermostat after a few years.

A few of the items in the article were a bit extreme, such as a wind turbine, and I think most of the discussion came from those items. You can, indeed, save money with the purchase of a wind turbine, but it takes quite a while.

I loved the McDonald’s article! You compare a McDonald’s double cheesburger to making a cheesburger at home. What did you learn?
If you take all of the short term costs into account – time and money, in other words – the two roughly balance out. The homemade burger is slightly more expensive, but it’s also more tasty. Of course, I did add a lot of toppings to the homemade burger that weren’t on the double cheeseburger from McDonald’s, such as lettuce and such, but it wouldn’t be a homemade burger if I didn’t.

If you’re making just a single burger for yourself, then there’s a decent argument that McDonald’s provides a better value in the short term. If you’re making several burgers, the homemade ones are much less expensive. The real advantage of fast food is the convenience – it’s not really all that cheap, as you get lower quality food than what you can make at home for a similar price.

How long did it take to gather your research?
It took a surprising amount of time. I had to plan out what I intended to do – make a burger and compare it to the McDonald’s one. I had to shop for the ingredients for the homemade burger. I had to visit McDonald’s to get the double cheeseburger. I had to make the actual burger at home. I also spent time documenting all of this with pictures and time recordings as well. I spent on the order of six hours on the post.

Have you seen the documentary film “Super Size Me”? (2004 by Morgan Spurlock)
I think that movie touches on what would be my real concern with eating fast food – it’s unhealthy. It causes you to gain weight. The high amount of salt in the food can cause high blood pressure. It can definitely leave you feeling lethargic. It’s not exactly good for your heart.

Thus, the long term costs of that double cheeseburger is quite a bit more than the ninety nine cents you paid at the drive-thru. You’ll have health care costs and lost productivity costs as well.

I see the “Rich Dad, Poor Dad” books and seminars by Robert Kiyosaki everywhere. What should people know about him and these books?
I am not a fan of Robert Kiyosaki’s work. For starters, he severely underestimates risk in nearly everything he discusses. He paints a picture that makes it seem as easy as a run down to the courthouse steps to make thousands of dollars. It’s no different than any other “get rich quick” scheme – there are opportunities out there, but it takes a lot of hard work to find them and there’s a lot of risk for failure along the way.

The biggest problem, though, is the utter disdain he has for people who make the choice not to do things the “Rich Dad” way. He actually refers to people who work at a job and make an honest wage as “hamsters,” right in print in the book.

He’s right in that a steady job will not make many people wildly rich. A 401(k) will not make a person wildly rich. What it will do, however, is make a person secure, both in the sense of not having to worry about the future and in the sense that their future life won’t have financial need. That’s the goal that a lot of people have in their life, and achieving that goal revolves around low-risk choices. Kiyosaki ignores risk and calls such people “hamsters.” I don’t really have much respect for that attitude. Different people value different things in life, and an awful lot of people value steadiness and security – that doesn’t make them “hamsters,” it makes them the backbone of America.

Have you met anyone who said that his advice really worked for them?
I’ve never met people face to face who have said positive things about Rich Dad, Poor Dad. I’ve read many positive comments from Simple Dollar commenters about the book, but it’s often hard to tell whether the people are legitimate or whether they’re people who have paid thousands of dollars for a seminar and want to feel as though they’ve made a good decision.

You also wrote an article about buyng your car – 2009 Toyota Prius. What were some of the main reasons you bought it?
We bought the car for two reasons: fuel efficiency and reliability. My wife commutes almost forty miles one way to work about three days a week, plus all of our family lives about four hours away from where we live and we visit them regularly. Thus, we rack up a lot of miles on our cars.

We sat down and ran the numbers several times on a multitude of cars available, both new and used. We took the Consumer Reports reliability data on makes and models into it, and we also calculated fuel costs up to 200,000 miles on the car’s odometer assuming gas prices at $2 a gallon and at $3 a gallon. We simply couldn’t find a better deal than the Prius that we purchased, even after a multi-month hunt. We found ones that exceeded it on total cost of ownership questions – the cost of buying the car, getting it road-worthy, and paying for fuel up to 200,000 miles – but they all had reliability concerns.

What types of concerns have you had with recent news about Toyota?
Every large manufacturer is going to eventually have some sort of product problem that warrants a recall or a fix. You simply cannot test everything – you just have to do as much due diligence as you can and ship the product.

The current Toyota issue is a tricky one because it’s apparently very hard to replicate. I’ve read on messageboards where one person claims to have caused the problem by doing some specific thing, then another person can’t replicate it.

The real question is how Toyota deals with all of this over the next six months. They have to absolutely make it right by their customers, but we won’t know the full story for a while yet.

I know you are not an advisor, but what are your thoughts on municipal bonds?
I think they’re good choices for people in a high tax bracket who want something pretty safe that has returns that aren’t a big tax burden. Municipal bonds definitely have a place in a larger portfolio. However, I’m not sure that they’re the best choice for beginning investors who are often not in a really high tax bracket and would often be better off chasing larger returns with a bigger risk.

There is a lot of information out there. What is ONE THING someone listening today should do if they are having financial difficulty?
Talk about it. Don’t be ashamed of having financial difficulty. There are many, many people out there going through similar problems to what you’re going through. If you feel you can’t talk to your friends about it, go online and look for others sharing your problems.

Knowing that there are people out there who share your concerns and are willing to offer you helpful words and helpful advice can make an enormous difference when it looks as though the chips are down.

Over the last few days, I’ve had several interactions with readers who are heavily concerned about the healthiness of their food and other chemical items they bring into their home. In general, these people subscribe to the “five ingredients or less” school of eating, meaning they don’t bring home any food item that has more than five ingredients in it. They tend to prepare most meals starting with raw foods. They also tend to use vinegar, homemade soap, and baking soda for most of their household cleaning tasks.

In other words, they are heavily focused on minimizing the number of preservatives, toxins, and other chemicals that come into their home.

The question on their minds is what can they do to save money while also subscribing to these values? My answer is kind of a surprising one.

The convenient part with this approach to modern life is that some things are in fact cheaper. Using vinegar and baking soda for most cleaning challenges is a great way to save some cash. During peak growing seasons, eating mostly raw foods can be a big money saver – trust me, during the peak of sweet corn season in Iowa, it can be very inexpensive to eat.

However, most things are much more expensive with this approach. Fresh foods out of season can be very expensive. There’s also a major time cost, as you’ll be doing lots of food preparation work yourself that would go far beyond what other people would do (like making pasta out of flour and eggs, for example, instead of popping open a box to boil it), as well as some preparation work for home cleaning supplies.

By choosing this kind of approach, you’re inherently adding not only to your family’s food and home care costs, you’re also investing a significant amount of time in keeping it up. Since food and home care are pieces of a family budget that everyone has, by making this kind of choice, you largely cut yourself off from money-saving and time-saving tips in that area.

Here’s the thing, though. If protecting your family in these areas is one of the key values in your life, that’s completely fine.

Most people really only have the time, passion, and resources in their lives to really follow through on a small number of key values in their lives. For me, those key values are my family and reading/writing. In some way, virtually everything else I do with my time and my money is in line with one of those two values.

If you’ve made the choice to live that sort of healthy, chemical-free lifestyle because it’s a central value in your life, that means that you’re devoting some significant amount of time and energy to it. You’re more careful with your shopping. You’re more careful with your food preparation. You’re more careful with your household cleaning. That eats up attention and time, but that’s absolutely an awesome use of your time and energy if it’s something that you truly value.

The key thing is to recognize that it is eating a significant amount of your time and energy and that energy and time have to come from somewhere. If you’re spending your time on these things because that’s what you value, it means you’re not spending time and energy on other things.

Maybe you have a huge DVD collection, but you don’t find yourself watching movies any more because you’ve moved on to new values.
Maybe you have a beautiful car, but you don’t get the same rise out of driving it that you once did.
Maybe you have some exercise equipment in the garage that’s just gathering dust.

If you’re living a life in line with where your values are now and not where your values were ten years ago, then it’s perfectly fine to not have the time and energy for those old things. Instead, you should focus on converting what you can of that old value into your newer values. Sell off your DVD collection. Downgrade your car. Have a yard sale. Cancel your memberships. Get rid of your cell phone.

What I see, time and time again, is that people have a short-term passion for something, invest money and energy into it, then grow tired of it and move on, but they don’t let go of the vestiges of that passion. They keep paying the bill for something they don’t use any more. Things sit around and gather dust and fill up a closet.

What are those things in your life? What passions have you moved on from, but still hold onto the material elements of?

Wouldn’t your life feel more complete if you cleaned out your attic, sold that stuff, and invested it into the things you value today?

On the conference call I had last night with Vicki Robin, one of the listeners (I believe his name was Crispin) brought up an interesting topic of conversation. In a world where globalization is a fact and many jobs can easily be moved anywhere in the world thanks to the power of the internet and the information economy, we’re gradually going to see a global marketplace. In other words, all of the nations of the world will gradually see their average standard of living even out, as many of the workers are competing for jobs with everyone else in the world.

My belief is that, for the most part, the standards of living everywhere else in the world will rise rapidly to meet the standard of living in the United States. However, I also feel that our standard of living here will probably never grow at the same rate as it did in the twentieth century. In short, I think our growth rate will be much lower than that of the rest of the world and may in fact be a slow reduction over a long period of time.

I don’t really think it’s anything to panic about, though. This decline has been happening already for a long time, starting in roughly 1970. Real wages – meaning the amount that people get paid when you get rid of inflation – have essentially remained unchanged since then.

The real change in our financial lives has been the big increase in costs. There are countless services we have today that many of us consider essential – and that we pay for every month like clockwork – that simply didn’t exist thirty five years ago. Cell phones. Home computers. VCRs and DVD players. The energy required to run all of these devices. Internet access. Non-extortionary long distance telephone access. The vast majority of Americans consider these expenses a requirement – and they didn’t exist in 1970.

My prediction for the future is that these trends continue. Real wages won’t go up, but our expenses will go up.

So what do we do? As always, there are two key solutions for this – and they’re solutions anyone can follow. Plus, they’ll benefit everyone regardless of whether they believe such change is happening or not. And these two key solutions are summed up in one phrase: spend less and/or earn more.

We can spend less by recognizing that we don’t need every service or tool that comes down the pipe.

On a regular basis, step back from your life and look at how you spend your money. Keep track of all of your spending for a month. Then, sit down and honestly evaluate it. Where are you spending money on things that really don’t add value to your life? Then, cut them hard.

Five years ago, I was a cell phone addict. I never went anywhere without it. I was constantly calling and texting people. Over the last two years, I have essentially weaned myself from cell phone usage. Now, I rarely pick it up and, when my contract expires, I’m going to simply cancel the phone and get a pay-by-the-minute el cheapo phone. Why? I realized I didn’t actually need what it provided. What I wanted was connection to the important people in my life – and cell phones didn’t really provide that. The only actual need it fulfilled in my life was additional security while traveling and, on rare occasion, contacting a friend to make sure we were meeting up at the correct time and place. I can do that for a lot cheaper with a prepaid cell phone, so I’m going to make that switch in the very near future.

On the flip side of that coin, we can earn more by improving our soft skills.

What do I mean by that? Think about it this way. There are two very competent mechanics in your town that charge roughly the same price for the same quality of work. One of them is very gruff with customers, doesn’t explain repairs well, and doesn’t provide documentation or assistance. The other one is very friendly with customers, explains the repairs in common terms, and gives documentation to his customers. Which mechanic will eventually have most of the business?

This is true in any field. Everyone has hard skills that they can provide to the world. We’re all good at something – and some of us are good at several different things. When you have your choice among people who are good at a particular task, you don’t choose