For years, I loved to get a tax refund. In fact, it seemed the only way I could save was by having extra withheld from my paycheck so that I’d get a big refund at the end of the year. Using this method, I was able to buy a new computer, a new bike, and all sorts of other toys. (But, of course, I was never smart enough to use the money to pay down debt.)

I’m older and wiser now, and I prefer not to get a tax refund. I’d rather get my money up front so I can tuck it in a high-interest savings account. This gives me an extra boost toward my goals.

But let me be clear: I certainly don’t begrudge others who do choose to get a refund. Some folks are happy to let the government use their money for a year, and others are like I used to be, using the refund as a means of forced saving. That’s fine.

If you have a refund due this year and you’re getting antsy for it, you can easily check its status with this simple web-based tool from the IRS web site. You’ll need to provide your social security number, marital status, and exact refund amount in order for your request to be processed.

If you’ve always received a refund but want to see if you now have the discipline to save on your own, consider adjusting your W-4 so that less is withheld from your paycheck. (The IRS withholding calculator can help you calculate how much you should have withheld.) This will, in essence, spread your refund out over the course of a year. If you have the discipline to use this money wisely, you’ll have use of it much earlier than if you had waited for a refund.

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This article is by staff writer Adam Baker, who recently released an 83-page guide entitled Unautomate Your Finances.

Courtney and I are big fans of what we call “mental filters”. These are simple little tips and tricks that we can use to increase our financial awareness. (J.D. likes to call these tips and tricks money hacks.)

For example, I’ve talked before about how we taped a picture of our daughter to our credit cards while we were paying down our debt. Many people I know use some sort of 30-day rule to curb their impulse desires, especially those which contribute to clutter.

Both of these techniques are examples of deliberately installing a barrier between yourself and a routine action. Many of us do this in various aspects of our lives to help raise consciousness, but this technique can be particularly powerful in our finances.

Today, I want to share a mental filter (or money hack, if you prefer) that Courtney and I used while passionately attacking our debt. But first, let me share a quick story:

The $6.25 foot-long
Once upon a time, I was approached by a close friend with a question about his credit card statement. He knew one of his rates was out of control, but didn’t know how to go about asking for a reduction (or even where to find the details on his statement).

Always the good friend, I offered to look over the statement for him. As my eyes drifted down the page I saw a frightening sight: 24.99% APR!

Yikes! The amazing thing was that he’d been paying consistently and timely for well over 18 months at this rate! He’d been paying the minimum payment, and occasionally making a small charge here and there. Because the interest was 90% of his minimum payment, his balance was simply treading water and at this rate he was never going to get out of debt.

Trying to help him brainstorm options (and trying to light a little fire under his butt), I turned to him and asked, ?Do you realize that, until we get this fixed, every purchase you make is actually costing you 25% more??

My friend thought for a second and replied, ?I guess you mean because I could use the money to pay down the card. I never really thought of it that way.?

To be completely honest, neither had I before that very moment. I pondered the concept for a second and then shoved it into the back of my brain as we piled in the car to search out something to eat. As we drove through town we came upon the very difficult choice every person has to make at some point in their life: Subway or Taco Bell?

My friend paused and then said, ?I?m definitely going to Subway. You just can?t beat the $5 dollar foot-longs!?

I tried to fight the urge, but I couldn?t resist: ?More like a $6.25 Foot-loooooooooong!?

Realizing I’d just sucker-punched him, my friend snapped back, “You know, maybe you should change the name of your blog to Man vs. Fun!” Ouch!

The hidden cost of being in debt…
While my friend ended up getting the best of me in the story, I did revisit my side of the conversation a couple of days later. At the time, our highest interest rate on a debt was about 14.5%.

I realized that mentally tacking on an additional 15% (or so) to my purchases might help ensure that I only spent on items that were specifically budgeted for or that were absolutely essential.

From that moment on, I tried to think of any non-essential expense as if it was marked up by a 15% premium.

You know what? It worked. It didn’t really affect the small purchases as much — I wasn’t fazed by an additional $0.25 or $0.50 tacked on — but when it came to purchases of $50, $100, or $150, I started to feel the effects.

Psychologically, nobody likes to pay a premium. Even if it’s still a fantastic deal, none of us enjoy paying what we think is a 15% premium.

The only downside I can see to this mental filter is if it were taken to an extreme. There’s no need (and certainly no benefit) in examining every single purchase through a tiny microscope. For us, we never felt pressured on expenses that were truly needs. I didn’t feel pinched to buy a loaf of bread because I had 15% credit-card debt.

This wasn’t necessarily a life-changing tactic that we employed, but a combination of these small mental filters did play a huge role in our financial turnaround. Each one helped raise our overall awareness!

J.D.’s note: I remain a huge fan of money hacks. Money hacks are identical to what Baker is calling a money filter; they’re little tricks you can use to make yourself spend less and save more. There are tons of money hacks in the GRS archives.

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Last autumn, I shared a list of essential personal-finance e-books. These books covered a variety of topics, and many of them were free. Today I want to draw your attention to two new e-books that you may want to consider.

Consumer Action Handbook
First up is the 2010 edition of the Consumer Action Handbook. I’ve mentioned this book before, and I’ll mention it in the future. This book is from the Federal Citizen Information Center, that small department of the U.S. government in Pueblo, Colorado, which distributes free and low-cost consumer publications.

The 2010 Consumer Action Handbook is a 172-page guide to becoming a savvy consumer, and includes information on buying a car, purchasing a home, preventing identity theft, shopping from home, creating a will, and handling unsatisfactory transactions. And much, much more.

This book would be a good buy at $10 or $15, but it’s freely available from the U.S. government. (Technically you’ve already paid for it with your tax dollars, of course.)

This book is a great resource, and I encourage you to order a copy, download the PDF, or bookmark the web site. Though the 2010 Consumer Action Handbook doesn’t go into great depth on any subject, it provides excellent informative overviews, and it usually points to further resources. It’s perfectly at home on the shelf with all of my other personal finance books. (And was, in fact, an excellent source while writing Your Money: The Missing Manual.)

Unautomate Your Finances
Elsewhere, our very own Adam Baker has just released his first e-book, Unautomate Your Finances, which lays out his personal financial philosophy. This e-book is not free. It costs $17, but comes with Baker’s “as long as I have a pulse” guarantee. (If you’re not satisfied, send him an e-mail and he’ll refund your money as long as he’s still alive.)

Baker believes that the more you simplify your financial life, the easier it is to control it. He’s not necessarily opposed to all automation, but believes that for many of us, automation breeds more complexity than simplicity. He argues that in most cases, automating our financial lives magnifies existing problems, and we’d be better off un-automating things: spending consciously, making sustainable choices, and focusing on our goals.

Along the way, Baker shares solid personal-finance advice on saving for emergencies, coping with credit, and creating a realistic budget. Is Unautomate Your Finances right for you? I don’t know. But since it comes with a money-back guarantee, it’s certainly worth a look!

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Related Articles at Get Rich Slowly:2008 Consumer Action HandbookUnderstanding MoneyEssential Personal Finance E-BooksThe Hidden Cost of Spending While In DebtThe 13 Commandments of Savvy Consumers

This post is from new staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com. Last week, J.D. wrote about Stuff; today, Sierra shares her thoughts on the costs of clutter.

Do you have piles of papers lurking on your desk? Mountains of laundry looming beside your bed? Shelves double-stacked with knick-knacks? I have a bit of a clutter problem myself. The other day, I spent an hour looking for the vacuum cleaner, which eventually turned up buried under a pile of laundry almost as tall as I am.

All that clutter isn?t just annoying. It?s expensive. That?s right: Excess Stuff can keep costing you money even after it?s been bought and paid for.

How expensive is your Stuff? Professional organizer Jen Hunter of Find Your Floor in Boston says clutter can cost us real money in a lot of ways:

To Hunter, the biggest cost is an intangible. ?It’s the impediment that it presents to people’s lives,? she says.

Stacy J. Kaplan of Clutter Away in San Diego agrees. ?You can’t function at your optimum level if you’re disorganized,? Kaplan says. ?You wouldn’t run a business without a business plan. If you’re not organized your business will fail. A house is a small business in a way. It’s the operating structure behind what your family is doing.?

Clutter stops us from working as effectively as we otherwise might. At its most basic level, time spent looking for your car keys is time you?re not spending working, playing or relaxing.

It also costs us time because all that Stuff demands attention. While clutter might be a sign of neglect, it requires us to spend time working around it to accomplish basic household tasks like paying bills or preparing a meal. Those extra hours of housework are a drain on time and energy that could go into creative side projects, education or any number of other productive pursuits.

We can become prisoners of our Stuff. J.D. has written a lot here about how Stuff ties up our money. We can inadvertently tie up a lot of our earnings in rarely used sports equipment, video games, and other pricey toys. Selling that unused Stuff frees up not only your cash but your energy. When there?s too much Stuff around you, you?re like a plant in a too-small pot. It?s hard to grow or thrive when hemmed in by clutter.

Of course, the answer isn?t to move to a bigger place. There are families who live happily in 100-square-foot apartments. They just have less Stuff than we do.

The solution is to put your space on a diet. Some basic steps to get started:

A habit of clutter can be hard to give up. If you?re used to having a lot of Stuff around you, a pared-down space can feel too spare and empty. Before you rush to fill that void, try sitting with it for awhile and really setting an intention for you want to replace your clutter with. It might be original art, new bookcases, workshop space or just more breathing room.

Whatever you choose to do with your space, you can use the same techniques you used to clear it to keep it clean. Don?t keep Stuff you don?t use or need. Don?t buy Stuff you don?t want or need. Spend a little time each day keeping your space organized.

Here are the top three clutter-busting tips from GRS Twitter followers:

I know we just talked about Stuff last week, but how do you combat clutter? What tips and tricks can you share with readers?

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I did it! After months of struggling and hours upon hours of typing, I’ve finally reached that mythical state of Inbox Zero. My inbox is empty — or nearly so. (I still have a handful of messages about stuff I’m actually working on at this moment, such as publicity for the book.)

I do have a stack of 74 guest-post submissions (including many reader stories), but I’m not including those in this tally. I’ll process those gradually, sending replies as quickly as I can. (If you’ve submitted a guest post, please be patient. I have dozens of them to get through, and can’t answer you all at once.)

While sorting through the last 200 e-mail messages today, I found lots of great stuff you folks had submitted. Here are some of the best bits sent to me over the past few months:

Carmen sent me this article from CNN/Money about living on a cash-only diet. The piece profiles five families that have given up their credit cards and are only using cash. Each family has a different motive and a different story. (Some of this covers ground we explored last month in our discussion about saying “no” to credit cards.)

Jill forwarded an article from (never home)maker in which the author shares five critical reasons you must read your bills. Her mortgage company made a $4,070 mistake. If she hadn’t been paying attention, she would have paid way way too much. Yet another example of how nobody cares more about your money than you do, so stay on top of things!

The folks at Your Money Bus wanted me to mention their work. The “buck-mobile” (my name, not theirs) is traveling around the country, providing a place where financial planners can meet with people and offer free advice. Here’s a list of scheduled stops.

Sam over at Getting Finances Done has begun his 12 weeks to fiscal fitness program. If you’re getting started with personal finance, check this out.

Meanwhile, the people at What Would John Templeton Say? are having a contest for bloggers: Write about some of Templeton’s advice, and you might win $500. (Templeton was a famous investor, and is the Templeton in Franklin Templeton mutual funds.)

Finally, Chris asked me if I could tell you about his project, Be Debt Free America. Apparently this is a tool that helps you create a “debt snowball payoff report”, although the site isn’t transparent enough for my tastes. I’d like to see more screenshots and know more about how this works. Why would I choose this over a free spreadsheet?

Okay, back to work. I have to be sure that nobody has tried to send me e-mail in the past fifteen minutes. Must defend Inbox Zero!

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February was National Parent Leadership Month, which highlighted the role parents play in shaping the lives of their children. As a sort of tie-in, the most recent poll in the Get Rich Slowly sidebar asked: “Did your parents prepare you well for financial independence?”

Over 1000 GRS readers responded; the results surprised me:

I, too, fall in that last group, but I guess I didn’t expect it to be so large. It’s great that a third of you folks felt well-prepared to tackle your finances, but it’s incredible that half of us feel like we had little or no preparation at all.

What did your parents teach you about money?
I wanted to know a little more detail, so last week I polled my Twitter followers (both at the site’s @grsblog and my personal @jdroth account). I asked: “What did your parents teach you about money? Anything? Did it work?”

A lot of folks responded to say that their parents were poor examples:

But not all parents fail at training their children about money. Plenty of folks picked up good habits (like searching for a high interest savings account) from the Bank of Mom and Dad. Here are some of my favorite anecdotes and tips:

That last comment is perceptive: “Time will tell if it worked.” Even if your parents did try to teach you about money, how can they be sure the lessons were right for you, or that they’ll stick?

Training for tomorrow
I’m curious: How did your parents prepare you for financial independence? What specific things did they do that helped you develop money skills you could use as an adult? Do you plan to do these same things with your own children?

And for those of you whose parents didn’t give you enough training: What do you wish they’d done differently? (For my own part, I wish my mother and father had included me in the household finances once I was old enough to understand. I know they struggled to make ends meet, but they never showed me exactly what the challenges were. They never showed me their income compared to their expenses. Also, I wish they’d given me a consistent allowance and required me to budget my fun with that.)

What was your story growing up? How did it affect how you handle money today?

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This guest post from Andrea is part of the new “reader stories” feature here at Get Rich Slowly. Some reader stories contain general “how I did X” advice, and others will be examples of how a GRS reader achieved financial success — or failure.

I am a graduate student, working towards a PhD, and I hope to graduate in 2012. Prior to starting my PhD program I acquired a significant amount of student loan debt while working on a Master?s degree. I also had a small amount of debt left over from my undergraduate degree. In total I had accumulated around $70,000 in student loans.

Some people might say that isn?t too bad considering that I already had completed my Master?s degree, and would not be acquiring any new loans while pursuing my PhD. But I had lived paycheck to paycheck for the two years I worked between college and graduate school, and I didn?t want to live that way anymore. I didn?t want that much debt hanging over me, potentially impacting my future career decisions, so I decided to start paying back the loans while still in school.

A rude awakening
While I wouldn?t say that I regret taking out so much in loans for a Master?s degree, and I?m not sure that I would do anything differently if I had the chance, it is different looking at that dollar amount from the other side. I think this is a potential trap that all students can fall into, both undergraduate and graduate, when deciding where to go to school: The financial implications of having to pay back those loans are so far outside your perspective when you sign a promissory note; it?s not until you graduate and have to figure out how you?re going to pay hundreds of dollars every month for the next decade or two that the weight of your decision finally hits you!

It was with the realization that I’d be paying $800 a month for 20 years according to the ?standard repayment plan,? and would end up paying as much in interest as the original loan amount, that I decided to embark on a much more aggressive repayment plan. I am very lucky because I have a husband who works full time and is able to help support me while I am in school. I also was lucky to obtain a training grant that is paying both my tuition and a stipend for my PhD program. Not all graduate students are so lucky.

However, I also work very hard to find other sources of income, and for the past year or so I have budgeted my income very carefully to start paying back some of my debt. While my stipend is enough to live on, it would not provide much extra for paying off loans. So to earn extra money I work part time doing research for a professor in my department.

At times it has been difficult balancing work and school, but in addition to providing extra money it also teaches me time management, and gives me extra experience to put on my resume, which will hopefully help me get a better job when I graduate.

I also take advantage of opportunities to be a Teaching Assistant, which pays $1500 (pre-tax) for each 8-week course. Through the combination of my stipend, working part time, and being a teaching assistant, I was able to take home around $36,000 in 2009.

While this isn?t a huge amount of money, it is a pretty decent income for a graduate student. However, what was more important for me wasn?t how much I was making each month, but how I was budgeting that money. I used an Excel spreadsheet to carefully budget my money each month, allocating money for utilities, groceries, car insurance, my Roth IRA (which I max out each year, since it is the only retirement account I can have as a graduate student), and discretionary spending.

Destroying debt
I set a goal of allotting at least $1000 every month to go towards student loans. My budget was not super strict — my husband and I are careful with our spending, but we do go out to eat and to the movies, and we buy things when we really want them. We pay off our credit cards in full each
month, own just one car, and pack lunches.

By following this reasonable budget I was able to pay off $18,246.45 between May 2008 and September 2009. Here?s the break down of how I did it:

I used a combination of the debt snowball approach and paying off the highest interest loan first. I also chose to make payments in large chunks rather than a set amount on the same day each month. I knew I wanted to pay off the private loan early because it was accruing interest, but I also tackled one of my undergrad loans early on, because I could pay it off in one payment (the December 2008 payment). My final payment in September 2009 paid off the last of my undergraduate loans, just in time for my five-year reunion.

Back on track
For the last few months, I’ve taken a break from this aggressive loan paying, in part because the point I?m at in my degree program didn?t allow me to work as much recently. But I’m ready to tighten my budget again, and plan to devote at least $500 a month to my graduate student loans, comprised mostly of a Federal Direct loan now totaling just over $50,000 because about half of the amount is not subsidized and is accruing interest at 6.8% (a fixed rate — thanks a lot Uncle Sam!). In addition to putting money towards this loan I plan to save money in different ?buckets? in my ING account for things like future travels and home improvements.

I wanted to share my story because I am an avid reader of Get Rich Slowly, and I hope I can inspire other young people out there struggling with student loan debt. You don?t have to stick to the ?standard repayment plan? — most student loans have no prepayment penalties. Even if you don?t make a lot of money, it is possible to find extra money in your budget to pay down student loans early.

Reminder: This is a story from one of your fellow readers. Please be nice. After nearly a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are.

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This post is from GRS staff writer April Dykman.

I’ve been thinking a lot lately about a quote from J.D.?s review of The Total Money Makeover:

Printed on the bottom of every page…is the book?s motto: “If you will live like no one else, later you can live like no one else.”

My husband and I recently made an unusual decision, and I?m in need of a motto that I can repeat to myself every time I question our choice, which I probably will at some point.

A loan story
I?ve mentioned in previous GRS posts that my husband and I are building a house. As we started on the final construction documents, we began working with a lender to sort through the construction loan. It?s not a fun process, let me tell you. Half of what the lender said went right over my head, despite my short-lived foray into the real-estate industry.

The first issue that arose was that we?d have to have a two-time closing. This means there’s one closing at the start of construction and a second closing after the home has been built to refinance into a permanent mortgage. Apparently one-time closings, which are loans with a single close for both the construction term and the mortgage, are a thing of the past.

The problem is that my husband and I couldn?t have a change in employment until the house was finished and the second closing was complete. But he?s planning to start his own business. Also, if one of us happened to lose our jobs, we?d be at the mercy of the bank. Even if we could easily make our payments from my freelance income, the bank wouldn’t recognize that income source until I had two years of tax returns on the business. It was a concern, but we decided to move forward.

Charges, interest, and fees
The lender sent the estimates for interim and permanent loans. As I sorted through the initial fees worksheets, I saw the standard stuff:

And on and on and on…

It?s not that I didn?t expect these fees, but they were sure adding up quickly. Also, we could expect a good interest rate on our mortgage, but the interest we?d pay for a 30-year loan would double the total cost of our home. Again, not unexpected, but still disconcerting when I was plugging in our numbers.

Closing delays
Another issue was that we?d need $15,000 to close the interim loan. With an interim loan, the bank requires 20% of the total value of the land plus improvements (i.e., the house). We have a lot of equity in the land, but not enough to cover 20% of land and house value. Since we were unwilling to tap our savings, we?d have to wait until autumn to start building.

I was getting a sinking feeling in my stomach, like we were going to be trapped. My husband couldn?t start his business. If one of us lost our jobs, it would be the bank’s decision whether to work with us, on their terms, or not.

Finally, the relationship with our architect, who also was to be our builder of record (another lender requirement), was deteriorating, causing us to reconsider the arrangement.

Assessing our situation
My husband and I are in a unique situation. My parents own land in the country, and we live next door to them, rent-free. This has allowed us to build a lot of equity in the land we purchased, which is five minutes away. My dad also is in construction, and he?s able to do the majority of the work to build what he can for us and subcontract the rest.

It might sound crazy not to take advantage of our situation, but there’s something to be said for having your home finished with all of the amenities you want, such as a dishwasher, carport, bigger kitchen, laundry room, and more space to host guests. I have this dream of what our home will look like, of what it will feel like to wake up in it every day, and it’s hard to be patient.

Number crunch
I started to run numbers on how long it might take to build our home if we paid in cash; assuming no change in income, it looks to be five years — six if I?m being super conservative. I assumed a completion date of April 2015. If we went with the loan, we?d probably complete the home in September 2011. By waiting about four years longer, we?d own our home and land outright, as opposed to paying on it for 30 years. Even if it takes longer than expected, it’s still a good deal. Owning our home sooner would give us so many options:

The point is that we?d have those choices. Our decision came down to having the home now, or having more freedom later. Again I thought of Dave Ramsey’s quote:

“If you will live like no one else, later you can live like no one else.”

You can probably figure out what we decided to do. We?re going to pay in cash, building as we can. Impatience is not worth the headaches, fear of losing a job or the house, and the interest we’d pay if we continued with the construction loan.

Patience and resolve
I realize we?re in a fortunate position. If our circumstances were different, this might not be an option, however, I believe our choice and Ramsey?s delayed gratification advice is relevant to everyone.

Every time I?ve put my impatience aside, the outcome has been positive. This was the case when we put off buying a second vehicle and when we moved out to the country, originally thinking we’d buy a house in the city as soon as possible.

Besides patience, delayed gratification also requires resolve. When you make choices outside of the norm, friends and family members might think you’re nuts. They mean well, and they’re only thinking of you, but some of them will definitely think you’ve lost your mind. One car for two people?! You’re just asking for a divorce! It can be hard when you’re already questioning yourself. The trick to not letting these comments derail you is to remember the reasons why you made your decision, and maybe find an affirmation, which is why I’m going to print Ramsey’s motto and read it often.

Delayed gratification isn?t easy, but it usually brings the most rewards.

How has delayed gratification benefited you? How have you exercised patience and resolve? Share your tips — I’m probably going to need them!

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This article is by staff writer Adam Baker, whose own blog featured the hit post 42 Ways to Radically Simplify Your Financial Life.

When I was 14 years old, I opened my very first checking account at Bank One. That’s where my Dad banked and so that’s where he drove me when I asked to open an account. Over the years, I continued to give them my business.

By 16, I had opened another checking account (don’t ask me why) and a new savings account, too. At 20, I started my journey into credit cards with… yep, a brand new Chase credit card. (Note: Chase ate Bank One in 2004.)

At 21, I opened my first Chase business checking account and, at 22, I funded $1000 into my new Chase investment account. When my wife and I married the following year, we canceled her National City account to combine our finances with… Chase.

You get the point. While this may not seem too out of the ordinary, there’s only one problem: Neither of us really likes Chase Bank.

In fact, I’ve never really liked them that much. I’ve wanted to switch to a local credit union for years, but just haven’t done it. I’ve been eyeballing USAA ever since they opened their checking and savings accounts up to civilians. Mentally, I want to change…but physically I’m still a Chase customer.

What does it take to make you switch banks?
There are plenty of reasons why someone might switch banks. A couple factors that come to mind:

So, will I walk the walk? I’m not sure whether Courtney and I will switch our bank. We want to, but we aren’t compelled to…at least not yet.

I’d enjoy supporting a local credit union or a testing out a bank with a reputation like USAA. I’m not much of a rate chaser and accessibility isn’t a huge priority. I much would prefer a bank I feel good about supporting and that offers me fantastic customer service.

At this point, Chase seems to be just doing enough to keep us around. But after writing this, we’ll see how long that lasts!

Have you recently switched banks? What was your motivation? Any suggestions for me?

J.D.’s note: I stuck with a lousy bank for a l-o-n-g time. Ultimately, I moved my accounts to a local credit union, and I love it. I’ve since added an online bank to the mix (ING Direct). Neither of these banks is perfect, but they both provide excellent customer service and above-average deals, so I’m pleased to stay with them.

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My pal Chris Guillebeau has a great interview up over at his blog, The Art of Non-Conformity. He recently profiled artist Tsilli Pines (who also happens to be a loyal GRS reader and a customer of my family’s box factory). The interview discusses Tsilli’s development as an artist, her initial steps toward starting her own business, and her decision to make the leap to full-time entrepreneur. Here’s an excerpt from the conversation:

Chris
What is your advice to someone who wants to ?escape? from traditional work and start something like this?

Tsilli
Find what you love to do, and then do it, even if it doesn?t bring in money at first. Experiment on the side, experiment on the cheap. It?s the single most important concept to grasp if you are looking to build something from scratch.

Chris
What worries you?

Tsilli
Everything! I?m a chronic worrier. But there?s a bad way to worry, and a good way.

The bad way of worrying paralyzes you. You worry you won?t make the money side work, and it seems so overwhelming that you decide not to even try. I used to worry in this way, and did nothing.

The good way of worrying keeps you competitive, keeps you striving. For example, I still worry about making the money side work (especially now that I?ve thrown my weight into my own business completely). I still think, ?What if all the work dries up? What if a competitor comes into the market that takes away my market share?? But I worry about it differently now. I worry about it by thinking ahead of the curve, recognizing what my strengths are and what I can do to mitigate that risk.

I think this is fascinating. I’ve always admired artists for their passion, but wondered how they could make a living. It’s great to see somebody making a go of it. (Doubly so since Tsilli is a GRS reader!)

You can see some Tsilli’s art at her website; her business is called New Ketubah.

By the way, I recently did something I’ve always wanted to do: I commissioned an artist to do a painting for me.

Chris’s wife Jolie does whimsical paintings of children’s toys. When my wife’s sister loaned Jolie a stuffed Kermit the Frog to paint, I loved the result, and I knew I had to commission a painting of my very own. Here is a very very J.D. painting, which I plan to display in my Man Room:

I love Kermit holding his pipe, his glass of Scotch at his side, and sitting on a copy of Your Money or Your Life. The only thing that could make this better would be if he had a stack of comic books by his side.

Speaking of art and entrepreneurship, Jolie is conducting an interesting experiment right now. In order to challenge herself (and perhaps make a little money), she’s creating 100 paintings in 100 days. And she’s selling each of them. For the first painting, she charged $1. For the second, she charged $2. And so on. The 100th painting will go for $100.

Though the money Jolie earns from this will be modest ($5,000 before expenses), it’s a great way for her to get her name out there. It’s a marketing ploy and a money-making project all in one.

Artists are entrepreneurs, too! It’s fun for me to get a small glimpse into their world.

[The Art of Non-Conformity: The Eight-Year Escape Plan: Interview with Tsilli Pines]

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This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the advisor for The Motley Fool?s Rule Your Retirement service. He contributes one new article to Get Rich Slowly every two weeks.

I find predictions, and the people who make them, fascinating for a few reasons. First, I — like everyone — would love to get a hint of what?s coming up.

But successful forecasting is pretty difficult. Which brings us to the second reason why I like predictions: It?s entertaining to see how different the world turned out from how people expected. Here are several memorable predictions of yore:

Good stuff.

The blind leading the blind
But we don?t have to go back decades to find instances of people (some of them pretty smart) being wrong about the future. Let?s flip through the cyber-pages of the Dec. 20, 2007, issue of BusinessWeek, which featured one of those year-end, ?where the Dow will be a year from now? types of articles.

So where did six Wall Street experts think the Dow would be at the end of 2008? Dumb roll, please…

You may recall that the Dow was quite a bit lower than each of those predictions on Dec. 31, 2008 — approximately 40% lower, in fact, at 8,776.

Okay, so those people aren?t really dumb. In fact, they?re likely in possession of above-average intelligence, and work with teams of analysts who also have above-average brains. And they also likely have access to the most data, the fastest computers, and the best software.

And they still were very, very wrong.

Boy, it would be great if we could consistently predict which investments would be the winners and which would be the losers. But it?s very difficult; in the short term, it?s impossible.

Dr. Doom
Want more proof? By now, you likely have heard and seen Dr. Nouriel Roubini, the NYU professor known as ?Dr. Doom? for his pessimistic outlook. He gained a lot of fame for predicting the housing crash and resultant deep recession. Good for him.

In December 2008, Fortune magazine asked Roubini for his predictions for 2009. Here?s what he wrote:

For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cash-like instruments such as short-term or longer-term government bonds. It’s better to stay in things with low returns rather than to lose 50% of your wealth.

Well, you know how good that advice was. The assets that Roubini warned against posted huge double-digit returns in 2009. As for the investments he recommended, the Vanguard Short-Term Treasury Fund (VFISX) returned just 1.4%, and the Vanguard Long-Term Treasury Fund (VUSTX) lost 12.1%.

As Yogi Berra once said, “It’s tough to make predictions, especially about the future.”

On my CAPS blog, I occasionally summarize predictions I?ve run across from the previous week or two. I always break them up into two groups: Those who predict good things for the economy or stocks, and those predict ill. Invariably, the people I quote are all smart, thorough, well-educated people. And they look into their crystal balls and see vastly different things.

But isn?t picking stocks the same thing as making predictions? If the future is so hard to forecast, why even try?

Ay, there?s the rub. If you?re putting money in an IRA or 401(k), you have to choose which investments to buy with that money. And investing, by its nature, is a predictions game; you put your money into the things that you think will be worth more in the future than they are worth today.

So what to do?

The power of diversification
As I?ve written before, having a well-diversified portfolio is the way to go for most people, because there?s no crystal ball required. You own lots and lots of investments, so that something will do well in just about any scenario. You own domestic and international investments; large, mid, and small stocks; index and actively managed funds; and if you own fixed-income investments, then diversify across corporate bonds, Treasuries, and inflation-adjusted bonds.

If you?re investing in individual stocks, keep yourself honest by tracking your results. If, after all the time you spend researching and monitoring your stocks, you underperform the market, then perhaps you?d be better off in a mutual fund of some kind. Motley Fool CAPS is a great way to see if you have what it takes to be a stock-picker before you commit too much of your nest egg.

In summary, my fellow Americans (and the Canadians who are reading — darn you and your gold-winning hockey team! — though you put on a great Olympics), unless you put all your money under your mattress, you have to make some guesses about what the future will bring. But do so with great humility and honesty. And beware of any ?expert? who is very confident about what will happen. Chances are, if you examine his record, you?ll find plenty of reasons he shouldn?t be so confident.

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It seems like every time I travel, I come home committed to win my war on Stuff. This time was no different. I lived out of a single carry-on bag while vacationing in Belize last week, and even that felt luxurious. Now I’ve returned to a house packed with doodads and gewgaws, knick-knacks and baubles.

The more I purge Stuff from my life, the more I travel, and the more I see (and read) about how little others need to get by, the stronger my conviction to reduce what I own, as well. I’m in awe of my friend Leo from Zen Habits, for instance. At his secondary blog, mnmlist, Leo has been chronicling his attempt to reduce the number of thing he owns. At first, this was his 100 Things Challenge (he wanted to own just 100 personal items). Recently, he’s upped the ante. It’s now a 50 Things Challenge. Wow.

I’m not ready to go to this extreme — not even close. But I am beginning to wonder: How many t-shirts does one man need? How many jackets? How many books? And how in the heck did I end up with more than ten pairs of shoes? Ridiculous! How much Stuff does one man really need?

Small steps
Over the past three years, I’ve made great strides in ridding my life of Stuff. I’ve sold or given away thousands of books (yes, thousands). I’ve purged a garage full of computer parts. I’ve managed to turn off the rationalization switch in my brain and learned to simply donate my Stuff to charity instead of saving it for “someday”. And about a year ago, I started my slow-motion clothes purge.

Based on a Get Rich Slowly reader suggestion, I moved all of my sweaters and button-down shirts to an unused closet. For the past several months, I’ve gradually pulled one shirt and then another into my regular closet as I actually wear them. Unworn shirts and sweaters stay in their temporary holding space. At the end of this process (which should be in June), all of the shirts I’ve worn in the past year will be in one closet, and the Stuff I don’t wear will be purged.

Do you know how many different shirts I’ve worn over the past nine months? I just went upstairs to count. My “good” closet contains 17 button-down shirts and three sweaters. My closet of unused clothes contains 30 shirts (two of which haven’t even been taken out of their packaging) and 11 sweaters.

Sometimes I think I’m the village idiot. I don’t even wear two-thirds of my wardrobe? It’s like I’m just throwing my money away. But rather than beat myself up over this, I can use the info going forward.

For example, Kris and I made a trip to REI before leaving for Belize. I fell in love with one shirt, but I almost didn’t buy it after looking at the price tag. $40? For a shirt? Get real! I rarely spend more than $20. But then I realized: If I really love the shirt and it’ll live in my “good” closet, then spending $40 is much better than buying two cheap shirts I never wear. I bought the REI shirt in two colors (rust and aqua), and I’m glad I did. (But maybe I should get rid of two other shirts from my “good” closet to make up for this.)

I’ve begun to realize it’ll take a few more years to finally get rid of the worst of my Stuff. It took me two decades to acquire these things; it’ll take a bit of time to unload it. But how will I know when I’m finished? How much Stuff does one man need?

The magic of thinking small
It was interesting to see how small the average homes were in Belize and Guatemala. In the U.S., the average new home was 2349 square feet in 2004 (up from 1695 square feet in 1974). In Central America, homes seemed to be maybe 600 or 700 square feet (here’s a typical example).

Seeing these small homes made we think: What would I choose to own if my space were limited? Could I really rationalize my comic book collection? Forty-seven button-down shirts and fourteen sweaters? Two bicycles? My burgeoning pile of shoes? Which Stuff is worth owning, and which is not? And if it’s not worth owning in a small home, why is it worth owning in a large home?

I don’t know the answer to these questions; I’ll continue to puzzle them out.

This weekend, one of our neighbors held a yard sale. Kris and I went across the street to chat. “Wow,” Kris said. “It looks like you’re selling everything.” She scooped up the neighbor’s canning jars.

“In a way, I am,” our neighbor said. “I’m moving into a smaller place, and I have a couple of weeks before I have to be out of this one. I’ve already moved everything I want to keep, and I’m selling everything else.”

“That’s awesome,” I said. “I wish I could do that.”

But who says I can’t? Why can’t I pretend that I’m moving into a smaller place? If I did, what would I keep? What is it I really value? How much Stuff does one man really need?

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On Friday, I shared a guest response to a reader question about life insurance. Many GRS readers rightly complained that it didn’t do a good job of answering the question. One reader — Mike from Four Pillars and ABCs of Investing — took it upon himself to write this response.

One of the most common issues that people with any kind of dependents face is, “How much life insurance do I need?”.

This is a tough question to answer in a simple equation; there are quite a few variables which affect the amount of insurance needed. First off, I’m only going to discuss term insurance. For most people, that’s the only type of insurance to consider.

One of the key factors to consider is what kind of lifestyle you want your family to have if you pass away. How much financial impact will your death cause to your family? Do you want them to be filthy rich if you die? Do you want your partner to continue to work? Do you want them to be debt free? Is it important that they keep the same house? Will they be fine without any insurance?

The amount of insurance you might need/want will vary widely depending on your current financial situation. Let’s look at two general situations.

Situation one: You want enough insurance to cover a specific use and don’t need any insurance to provide future income for your spouse.

This might be the situation where both spouses are working and making decent money and have no kids. In that case, they might decide to get enough insurance to pay off all debts, at which point the survivor should be fine since they’ll keep working.

This calculation is pretty easy. Just add the amounts of debts and whatever other costs you want covered, and that’s how much insurance you need. The problem, of course, is that the amount of debt you have now and the amount of debt you have in 10 years will be quite different. (Hopefully, you’ll owe less in 10 years!)

There isn’t a lot you can do about this other than buy different terms of insurance. For example, you might buy $100,000 for 10 years and $100,000 for 20 years. You can also cancel insurance at any time, so one strategy is to insure for the entire amount necessary and, if you end up debt-free, then just cancel the insurance. Life insurance needs are very inexact so sometimes you just have to pick a reasonable amount and go with it.

Situation two: You want insurance which will provide future income for your spouse/kids.

This is a bit more complicated since you’re now dealing with a lot of future assumptions. Regardless, for this situation an incorrect amount of insurance is a heck of a lot better than no insurance at all, so let’s continue.

In this case I’d suggest that you start with all current debts and assume you need enough insurance to cover that amount. That’s the first part of your insurance needs. The second part will provide an investment portfolio large enough to provide the desired annual income. To do this calculation, you can use the 4% withdrawal rule to be conservative.

The amount of insurance you buy will be the sum of these two numbers.

Step one: Add up the debts = $340,000 insurance needed.
Step two: Calculate the portfolio size necessary to provide $40,000 per year. $40,000/0.04 = $1,000,000.

Total insurance needed is $1,340,000.

You can see from this example that future income is expensive! Using the 4% rule is fairly conservative. You might want to consider using a 5% or even 6% rule if the income needs are for a shorter term (i.e., if the insurance is only to cover a 10-year income gap before retirement age).

Other facts to consider when looking at future income:

In summary, ignore all rules of thumb and insurance salespeople, and sit down to figure out how much insurance you need/want. Think about what it would be like financially if you or your spouse died and there was no insurance. Think about what you would like things to be like financially, and calculate how much insurance is necessary to fill the gap. Another approach is to pick specific insurance amounts and then apply those amounts to your situation. For instance, if you had $500,000 of insurance and you died tomorrow, what would your spouse do with the money and what would their financial life be like?

Don’t get hung up on details. It doesn’t matter how accurate your estimate is because things will change and then you’ll be over- or under-insured. I did a case study on myself only a couple of years ago where I went through the process for determining how much life insurance I needed. Things have changed so much in the last two years for me (I can’t believe how much) that I’ll have revisit this calculation: We have two kids now, our debt is less than half of what it used to be, my business is doing extremely well, and I don’t think I’ll keep my day job as long as I’d originally thought. (I get a lot of my insurance through work.)

Too much insurance is expensive. It’s easy to just get a large amount of insurance (just to be safe), but the reality is that if you are over-insured, then you’re paying a lot of extra money over 20 years. Plus, you don’t want to give your beneficiaries any extra incentive to bump you off!

J.D.’s note: Another way to come up with a coverage amount is to use this handy online calculator from the nonprofit LIFE Foundation.

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One of my core beliefs is this: It’s more important to be happy than it is to be rich. My personal experience bears this out (though I’m fortunate to be both), as do the anecdotes I receive from GRS readers. In fact, of all my fourteen philosophies, this one is most important. It’s so important that I chose to open Your Money: The Missing Manual with a chapter on happiness.

No surprise then that for the past couple of years, one of my favorite blogs has been Gretchen Rubin’s The Happiness Project. Rubin is a former lawyer who abandoned her promising high-paying career to follow her bliss: She decided to become a writer. She started her blog as a part of a year-long experiment to find new ways to be happy. She’s now turned that experience into a best-selling book.

The Happiness Project (the book) was released in late December. I’d hoped to review it when it was published, but work on my own book got in the way. Last week, as I was happily soaking up the sun in the jungles of Belize, I finally found time to read Rubin’s book. It’s fantastic.

The Happiness Project
I’ll admit that, on paper, The Happiness Project may seem sort of lame. Rubin decided to spend one year consciously pursuing happiness. Each month, she tackled one specific aspect of life — marriage, work, attitude, and so on — and during that month, she attempted to meet a handful of related resolutions she hoped would make her happier.

Her financial resolutions for July, for instance, were about money. Rubin is an “under-buyer”; she’s frugal by nature. For this month, she wanted to indulge in a modest splurge, buy needful things, spend out (meaning to actually use the stuff she has), and give something up (Rubin stopped obsessing over office supplies).

Fortunately, the book isn’t lame. Rubin’s style is warm and engaging. Though The Happiness Project includes tons of info from research into happiness and well-being, this data isn’t presented in a dull, dry way; it’s neatly woven into Rubin’s account of her day-to-day progress toward happiness (or lack thereof). She shares the research in casual prose, not in academic jargon.

Among my favorite findings, I bookmarked these:

The Happiness Project is filled with anecdotes: from Rubin’s life, from the comments on her blog, and from the people she meets. These stories add a lot of color to the topics she covers, and help to show how complex happiness can be. For example, from the chapter on money, here’s a story that made me laugh:

While I was thinking hard about the relationship between money and happiness, I struck up a conversation with a fellow guest at a bridal shower. I told her that I was trying to figure out ways to “Buy some happiness.” (As I explained the issue, it began to dawn on me, dimly, that I might be becoming a happiness bore.)

She became quite indignant at my suggestion. “That’s so wrong!” she said. “Money can’t buy happiness!”

“You don’t think so?”

“I’m the perfect example. I don’t make much money. A few years back, I took my savings and bought a horse. My mother and everyone told me I was crazy. But that horse makes me incredibly happy — even though I end up spending all my extra money on him.”

“But,” I said, confused, “money did make you happy. It makes you so happy to have a horse!”

“But I don’t have any money,” she answered. “I spent it all.”

“Right, because you used it to buy a horse.”

She shook her head and gave up on me.

Rubin undertook her happiness project because she realized, “I wasn’t as happy as I could be, and my life wasn’t going to change unless I made it change.” This realization is so important. Too many folks sit back, waiting things for to improve. That’s what I used to do with money. But it wasn’t until I actually too charge of my own life that I was able to defeat debt and build wealth. And it wasn’t until Rubin decided to be responsible for her own happiness that she was able to make the little changes that brough about increased well-being.

Making resolutions
The section on “finding fun” — one of the subjects of chapter 5 (”May: Be Serious About Play”) — literally moved me to tears. As I read about Rubin’s love of children’s literature, how she rediscovered her passion for scrapbooking, and her general quest to make room in her life for fun, I realize that’s something I’ve been missing. For the past few years, everything I’ve done has been very very Adult. I’ve reaped adult rewards for adult effort, but it hasn’t been a whole lot of fun. I need to make room in my life to enjoy myself just for the sake of pleasure. So, that’s one of my goals for the next few months: Find more fun.

But Rubin draws a distinction between goals and resolutions:

You hit a goal, but keep a resolution. “Run a marathon” makes a good goal. It’s specific, easy to measure success, and once you’ve done it, you’ve done it. “Sing in the morning” and “Exercise better” are better cast as resolutions. You won’t wake up one day and find that you’ve achieved it. It’s something you have to resolve to do every day, forever.

As you know, I’m a fan of goals and, generally, I refuse to set resolutions. But I see Rubin’s point. As a result, I’ve decided to set some resolutions of my own. I’ll be tracking the following with Joe’s Goals:

Some of these will be easier than others. I write nearly every day because I cannot help myself; I’m drawn to it. Tidiness? Real food? Being true to myself? These things will be tougher, but I really think they’ll make me happy.

I’m tempted to say that The Happiness Project is one of the best books I’ve ever read, but I know that’s just me engaging in hyperbole. Instead, it’s probably better to say that this was the perfect book for me to read for where I am in life. It spoke to me. I can’t say for sure that it will speak to you, but I’m willing to bet that for many GRS readers, a personal happiness project could lead to increased wealth — financial and otherwise.

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This guest post from Maria is part of the new “reader stories” feature here at Get Rich Slowly. Some reader stories contain general “how I did X” advice, and others will be examples of how a GRS reader achieved financial success — or failure. This story very much reminds me of the book for unmarried couples I reviewed earlier this week.

This is a story about a relationship between two people and some money.

Part 1
Boy meets girl. Boy moves in with girl. Household expenses are split and all seems well. Years pass. Boy wants to change cities for professional reasons. Girl wants to finish grad school. They make a deal: They’ll move when the degree is finished.

Warning signs: She is paying a greater share as the years go by and her career advances. He doesn’t take any concrete steps toward advancing his own career. He has sold his car ‘to save money’ and relies on her to drop him at the train station for his job. He has no real friends and his ‘project partners’ (in six years, there’s only one finished project) all seem to be women. And then:

Part 2
The degree is finished and true to the deal, she starts organizing a move. She researches new jobs cross-country. She rents a truck, makes hotel reservations, and arranges for a friend to drive the car in caravan with them. Oh, by the way, she’ll pay the friend’s airfare home. She puts down the money on an apartment. She lands a job, but he says he needs some time off work to get things going. They make a new deal: She’ll cover the rent for a while so he can concentrate on jump-starting his career. Years pass. His career hasn’t started. The subject comes up fairly often, but she hates to fight.

Warning signs: By the end of three years, not only is she paying all living expenses, she’s giving him an allowance to cover his “career-building” expenses. He hasn’t held a job since the move. His ‘project partners’ still all seem to be women. He has built no social or professional network and does not participate in her social life. (This didn’t bother her much when she was in grad school, but life is different now.) She doesn’t really want to live alone, and she tells herself he isn’t costing her much more than it would cost to live alone; but their relationship has become that of roommates. And then:

Part 3
She takes up an activity she’s passionate about. He isn’t interested. She meets someone new and tells her roommate she wants to pursue the new relationship. He panics. He asks her to marry him. He argues. He threatens. He marches her into the bank and stands at her back while she takes cash advances on six credit cards, a total of $30,000. He deposits the money in his own account. She tells him that they can’t continue to live together, and she can’t afford to move because she doesn’t have the money for a deposit. He won’t move out. She starts spending most nights and weekends away.

Warning signs: The whole situation.

Part 4
After months of misery, she is able to finally get him out by renting a truck, packing it with almost all their possessions, and driving it to his sister’s home nearby. With the expenses of the move, her own living expenses, and the extortion debt, she is barely making ends meet. She has no savings and no assets. She talks things over with the new partner. They decide bankruptcy may be the best solution. She asks around and gets the name of a firm of attorneys.

Part 5
The attorneys hear the story, go through all the paperwork, and agree that going after the ex in court would be both expensive and unlikely to result in restitution. A bankruptcy petition is prepared and filed, at a cost of a few hundred dollars. She has to appear in court. She feels like an idiot, a failure, a disappointment to herself. The judge hears a brief statement of her reasons for the petition, nods, signs off. That’s all. Ten years later, the bankruptcy is off the credit report. Had she not filed, she would still be making payments on the debt.

Author’s note
This is a true story. I’ve heard similar stories from half a dozen women, and a couple of men, in my city. At least I never married him. At least I didn’t have to smuggle my belongings to my office and store them under my desk until I had all the essentials together, and leave for a new state from the office, like one of my friends did. At least I wasn’t that scared.

In hindsight, perhaps I should have either moved out immediately or had the bank call the police. But I didn’t want to feel responsible if he hurt himself, I surely didn’t want him to hurt anyone else, and his behavior was sufficiently frightening that I believed one of those outcomes was possible. So I bought him off.

What is the moral of this story?
Don’t cover expenses for another able-bodied adult without a contract, and don’t make financial deals that only favor one party.

Reminder: This is a story from one of your fellow readers. Please be nice. After nearly a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are.

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Greetings, friends. I am back from a relaxing week-long vacation in the jungles of Belize (with a one-day trip across the border to Guatemala to visit Mayan ruins — or the rebel base on Yavin IV, if you’re a Star Wars geek like me). I had a blast. I slept a lot, thought a lot about my future plans, and basically forgot about the world.

As always, coming home was overwhelming. It’s a shock to come back into the U.S. and be instantly bombarded by the constant flood of commercialism and, especially, the mass media. Plus, there’s so much junk food! For an entire week, Kris and I ate healthfully (well, except for the beer), and then the first thing I ate in the Houston airport? A pretzel dog. My stomach rebelled! Don’t get me wrong — I love this country — but it’s far from perfect, and very very insular. I wish we, as a culture, were more willing to look at what other countries get right.

Speaking of rebellion, it looks like there was a fuss over certain posts I picked for my absence. The life insurance post on Friday especially took some heat, some of which was deserved, and some of which was not. When I requested that post, I hadn’t yet written the chapter in Your Money: The Missing Manual about insurance (including life insurance), so I felt I needed an expert to respond. If I were to do it again, I’d field the question myself, and would write (as I did in the book)

The bottom line: For most people, the best choice is guaranteed renewable term life insurance.

But term life isn’t always the best answer. Cash-value policies make sense for some people, especially those with high incomes, large net worths, or small businesses. These folks should consider whole life coverage. But one point is correct: Seek advice from an independent adviser, not from somebody who has a vested interest in selling you an expensive policy.

By the way, Your Money: The Missing Manual went to the printer yesterday. It’s now available for pre-order from Amazon, and should be hitting shelves in your local bookstores in the next couple of weeks. Meanwhile, I’m already starting to think about Book #2, which would be much more of a “J.D. book”, I hope — more about my personal journey and how the lessons I’ve learned can be used by other folks, too. (Your Money: The Missing Manual has some of this, but it’s much more focused on the nuts and bolts of personal finance.)

So, the book is done, I’m back from vacation, and I’m ready to blog!

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This is a guest post from Sanford Ellowitz, a New York State licensed insurance agent. He has over 25 years experience in the insurance and financial services industries. He’s also a Certified Financial Planner and a Certified Employee Benefit Specialist.

Penny recently wrote with the following question:

I’m interested to find out how one sets out a financial plan for life and how much insurance does a person really need because there are so many insurance plans, some are regular savings, some are a combination of investment linked insurance. How much does a person really need and what type of insurance does a person on a budget need the most?

J.D. asked me to write about this since he isn?t an insurance expert himself, so I’ll give you some ideas about how much and what type of life insurance you need, but first let’s start off by helping Penny set out a basic financial plan for life. Once you get some planning done, you’ll have a better idea of your life insurance needs.

Starting down the winding road
Think of a financial plan as a roadmap for a life-long journey. Your starting point is where you are financially right now. Begin by listing all your assets, such as the equity in your home and your savings accounts, and then subtracting what you owe, like the balance of your mortgage and credit card debt. This will give you a good idea of where you stand.

Once you’ve figured that out, think about your future obligations, such as getting your kids through college, saving for a comfortable retirement, achieving your goals, and making dreams a reality. You can find online savings calculators to help you estimate how much you’ll need to save for each of these, from a trip around the world to a little place on the beach to spend retirement.

Where does it all go?
Next, it’s time to gather all of your bills for the last few months so you can see where your money goes. This should include everything that you’ve spent money on — period. Be honest about any seemingly small expenses, and make reasonable estimates. You may be surprised to find out how much you’re spending on things you may not need, like eating out or your daily espresso habit.

Make a budget that includes enough savings to meet your obligations and goals, and — this is the really important part — stick to it.

Insurance is your contingency plan
When it comes to insurance, first you need enough to at least cover your obligations in case something happened to you tomorrow — that’s your base line. From there, it’s time to look into the future and prepare for what’s coming down the pike. Don’t underestimate how much you need. If your kids will be starting college ten years from now, you need to cover what it will cost then. (And it’ll probably cost a lot more than it does now!)

After that, you can decide what type of life insurance is best. Term life insurance is the cheapest, but it’s exactly what it says it is. If you get a term policy for 20 years and find that you need coverage after that, you’re out of luck. You’ll have to apply again, when you’re older and maybe not as healthy. Also, if you outlive the term of your policy, you don’t get anything back. Betting against your own longevity to save money may seem like a good idea now, but you might end up kicking yourself — or worse — down the line.

Permanent life insurance, which comes in different flavors (such as universal, variable, or whole life insurance) provides coverage for as long as you live, so you know there’ll always be a payout. Each has different savings features and can build up cash, which you may take or borrow against. The same coverage will cost a lot more than term life insurance, but you can count on it always being there.

Your bottom line for life insurance
Since Penny is on a budget, term life insurance sounds like the way to go — right now, anyway. She should make sure she has enough coverage for as long as you need it. Later, when her situation changes and she can loosen her belt a little, she may want to get some permanent insurance. At that point she’ll be able to take full advantage of its savings features, as well.

Remember, insurance is there for when things go wrong. It might mean the difference between putting your kids through college and putting them up to their eyes in debt, if something were to happen to you. It’ll be important for you to keep remaking your budget as things change in your life, as they always do. Don’t worry, though; it gets easier every time. Just remember that insurance is your way of playing it safe, no matter the odds.

J.D.’s note: I’ve done more reading on life insurance since I first asked Sanford to answer Penny’s question. I actually think term life is the best choice for most people (but not everyone). There’s certainly no shame in taking out a term policy. If you think you might want permanent insurance down the road, look for a convertible term policy, which will let you switch over.

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Related Articles at Get Rich Slowly:InsuranceHow Much Life Insurance Do You REALLY Need?Reader Story: How I Saved Hundreds of Dollars on InsuranceMore Cheap Travel: Where the Hell is Matt?Ask the Readers: How Do You Manage Health Care Costs When You’re On Your Own?

This is a guest post from Gina Lincicum, a long-time GRS reader who writes about frugality and family finance at MoneywiseMoms.com.

Moving to the D.C. area after my twins were born, we transformed from a family of three living comfortably, to a family of five struggling to make ends meet on one income. I had to get creative with our family budget, and one of the biggest line items to tackle was clothing. Four years later, I finally have a handle on it. Shopping for clothes for my three kids has been fine tuned into a system that keeps us humming along season by season. How?

Buy Quality Clothes — For Less
You can save on sturdy kids’ clothing — I get great longevity from Lands’ End and Gymboree — by only shopping sales and clearance. In her article about the best time to buy almost everything, April mentioned which days are best to shop the clothing stores, but knowing the seasonal clearance schedule is helpful as well. For example, I send my kids to their first month of school in shorts and wait for the jeans/pants/leggings to go on sale in late September and October. Winter coats are on clearance in February; be ready to shop ahead for next year.

You can shop online, but do it wisely. I never shop online without coupon codes, and I always shop through a cashback site like Ebates. Shopping online gives me a larger selection of clearance items than local stores. Additionally, shopping online helps me stick to my list and budget, whereas in a store I am tempted to make impulse buys. Finally, most online retailers allow you to return clothing to the store for free if they don?t work out.

Another way to save is with used clothing, especially in the early years (infant to age four). Considering the amount of wear, tear, and washing these clothes go through, you’re better off saving the “good” clothes for church, holidays, and photo opportunities and dressing little ones in used clothing for everyday wear. Whether purchased at yard sales, thrift stores or consignment sales, look for those high-quality brands, the ones that hold their shape and color for years. (J.D. has shared his 18 tips for thrift-store shopping.) I’ve also found new-with-tag clothes at yard sales. The ultimate way to save? Get kids’ clothing for free through Freecycle or handed down from family and friends (don?t be shy about asking!).

Take Care of What You?ve Got
When you take care of the clothes you have, you stretch your dollars by giving items a longer life and better value. I’ve taught my children to care for their clothes by returning to the old-fashioned notion of “playclothes”. My son has learned to come home from school and change from his khaki pants (bought on sale with a coupon, of course) into sweats or other playclothes. These clothes are for running around outside, getting muddy, doing art projects, and the rest of childhood life. We all wear jeans at least twice before washing, and I tackle stains early so they don’t set in. If long-sleeved tees become stained or too worn, they become undershirts for layering.

Resell Clothing When You?re Done With It
I choose my best-quality items to resell at my multiples club’s consignment sale or eBay, sell some at yard sales, and donate or Freecycle the rest. By doing so, I not only recoup some of my initial cost, I also avoid the expense of storage space and keep my kids’ closets clutter-free. The only clothing I keep from my son are those I’ve bought with my twin girls in mind — raincoats, pajamas and other unisex items in neutral colors like red and blue (which my girls prefer to pink, anyway). I even resell my children’s shoes, though that phase is almost over; older children’s shoes get worn out before they’re outgrown.

While I’m sure I’ll have to adjust my system a bit as my kids reach the tween years, adding their opinions and peer pressure to the mix, I’ve set the groundwork for reasonable clothing expenses. My 6-year-old knows we have a budget set aside for clothing and we discuss why a Pokemon T-shirt costs more than a plain one. Already, I see him making choices with his allowance that come from our discussions about wants vs. needs.

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This post is from new staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com.

The recession has hit families where they live. For many, it?s forced a change of address. Think about all those foreclosed homes and urban deserts: One in every 400 homes received a foreclosure notice last year. Unemployment is approaching 10%. Some families no longer have a place to call home at all.

That?s the situation for Jamie Alden (not her real name), a single mom of four kids who found herself caught up in a series of recession nightmares that have left her homeless and jobless, but not hopeless. She?s chronicling her adventures on The Boxcar Kids, where she writes with painful frankness about trying to find a job, help her kids thrive at school and keep her family together while living in a small travel trailer with her children.

The Boxcar Kids
Alden is a far cry from the stereotypical homeless person. A professional with a master?s degree in anthropology, Alden had a career for over a decade in environmental science. She relocated to California after a doctor recommended the warmer, drier climate would help one of her children, who has a chronic illness.

Like a lot of relocating families, Alden accepted a job in her new city before she?d sold her house. So she rented it out, and rented a place near her new job.

Then the economy tanked. Her renters defaulted, and she used most of her savings going through expensive legal ordeals to evict them. She was left with a damaged home that she could not find new tenants for. Unable to make the mortgage payments and pay rent on her new home, she lost the house to foreclosure.

Meanwhile, her company started layoffs. ?California has a little budget problem,? she says sardonically. ?We couldn?t work on any of our contracts.? She survived the first two rounds, but eventually her lack of seniority put her under the axe. As soon as he found out she?d lost her job, her landlord asked her to move out. ?He knew I wouldn?t be able to pay the rent,? she says.

Throughout the summer, Alden and her kids found themselves living in state parks in second-hand tents. She used free hotel stays she?d accumulated over years of business travel to buy them an occasional night of warm beds and hot showers.

Now they have a 26-foot RV they call home. The school district considers them homeless, but Alden doesn?t. Homeless, she says, was when they lived in a tent and had to move every week. This is comparative luxury.

Alden named her blog after a series of popular early 20th century children?s books about four kids who live a scrappy, happy life in a boxcar after their parents die, until they are rescued by a kindly, rich grandparent. There?s no rich grandparent to rescue Alden and her kids from their boxcar. Instead, Alden is learning to navigate a maze of social services and getting creative about frugality in ways most of us have never considered.

She?s not alone. Many formerly middle-class families have found themselves at least temporarily without a home to call their own. Foreclosures were filed against 2.8 million properties in 2009, while apartment vacancies are also at a 30-year high water mark. A lot of people are just not living in houses these days.

Where are they going? Many are staying with family or friends. Some are in shelters. Others are what Alden calls ?alternatively housed? in RVs, camper vans, anything with a roof.

The best defense is a good offense
Alden?s story, and the many others like it are a scary wake-up call for me. My own family is not so far from the precipice these folks fell off of.

We own a home, but don?t have a lot of equity in it. We have a small emergency fund, but not enough to get us through even one month of normal living expenses. I?ve been putting all our money into debt repayment, not building up capital. We have some retirement funds that are still pretty hung over from the financial collapse in 2008.

In other words, we?re a lot like many middle-class families: comfortable enough day-to-day, but not secure enough to withstand a major disaster. Time to make an emergency plan: Not just an emergency fund, but a plan that goes beyond bank accounts. Here?s what I came up with:

If you?re partnered, it?s probably a good idea to talk over a family disaster plan with your better half. You know, before you’re living in an actual disaster. These conversations always go better when they?re hypothetical.

Making an emergency plan was a bit like making a will; we had to think about what would happen to our kids, our stuff and our estate should we suddenly be unable to care for it. It was no fun, I hope to never need it, but I?m glad to have done it. For more tips on emergency planning, check out Philip Brewer?s article on Wise Bread.

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This article is by staff writer Adam Baker, whose own blog paid homage to the movie, Fight Club, with the post Tyler Durden’s Guide to Personal Finance.

While I generally check my credit report every 4 months or so, the last time I checked my credit score was November 2008. At that time, it was right at 740. Earlier this week, I checked my credit score again. I was pleasantly surprised to find out it was 730+!

Why would I be pleasantly surprised that my credit score has dropped between 5-10 points over the last 16 months? Because that’s when we stopped playing the credit game.

In early November 2008, Courtney and I not only canceled our credit cards, but also paid off our only non-student installment loan. The following month, we decided to take it a step further and close our final remaining credit card.

For the last 15 months, we’ve lived free of credit cards, other revolving credit, and traditional installment loans. (We still have student loans). While this has had an overwhelming positive affect on our financial life, it was supposed to have a dramatically negative affect on our credit scores.

After all, the following graphic is from myFICO’s “What’s in your FICO Score?”:

According to the graph and the information on the site, we have several strikes against us:

To be fair, we did have several factors working for us:

Could my credit score be even higher?
It’s very possible that even though my credit score hasn’t tanked, it could be much higher. Had I not canceled my credit cards, maybe my score would be 750+ or 760+! There’s no way to know for sure, but canceling my credit cards may have caused my score to stagnate.

Another possibility is that FICO’s algorithm may still need more time before it begins to punish my “negative” behavior. I find this theory less likely, as it’s been well over a year. Over time, maybe the score will slip more dramatically.

On that note, if we keep up our current pace, we’ll eventually cease to have a credit score at all! It can be argued whether this is good or bad, however you’ll be hard pressed to convince me that executing our current plan for another 5 years will put us in a bad position financially.

So what does this all mean for you?
It’s important not to draw any sweeping conclusions from a single example. I fully expected my credit score to drop more than a mere 5-10 points, based on the information I’ve been reading for the past two years. It would be irresponsible to assume canceling your own credit cards would yield a decrease or an increase in your score based on my results.

At the same time, my sample case study has caused me to reevaluate just how much we know about the algorithm used for calculating your credit score. After all, no one knows the exact formula. All we have are graphs and lists of potentials factors that may be taken into consideration.

The only universal lesson that can be extracted from this is to ensure that an estimated change in your credit score isn’t the primary influence on your major financial decisions.

Of course, you should have any and all information you can. I’m not suggesting we should all ignore the information that is available about the make-up of credit scores. You should absolutely consider it. Just be wary of letting it dictate any major financial decisions on its own.

A week ago, I considered myself fairly savvy on the topic of credit scores. Today, I’m not so sure anymore!

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Related Articles at Get Rich Slowly:Credit Card Companies Are Closing Unused AccountsNational Credit Score IndexHow and When to Cancel a Credit CardAsk the Readers: How Will My Family’s Credit History Affect My Own?Sallie Mae’s Screw-Up May Cost YOU Money

This is a guest post from WC, a guy in Chicago that writes about money at The Writer’s Coin.

In May, I will celebrate my two-year anniversary with M, my favorite person in the world. I thought I knew a lot about everything before we got married, but now I’m wiser. So for all the newlyweds out there, or the ones thinking of walking the plank getting married, here are some things you should know.

There is no I. Marriage is all about the “we”. It’s not “your” money or “my” money, it’s “our” money. It isn’t your retirement, it’s our retirement. It’s not an easy concept to grasp, but you’d better adjust because when you get married you really don’t have a choice. The sooner you accept it, the easier it will be. Don’t fight it…As you’ll see, this will become a recurring theme throughout your married life.

There is no “right” way to do things. When M and I got married, I checked my bank and credit card accounts every day. M did not — she just made sure there was always money left in her account at the end of the month. When I showed her my method, she was taken aback, but she saw some use to it.

So we found a middle ground: we sit down and run through our budget midway through the month and at the end. It gives us a checkup halfway through and then at the end we check to make sure we met all our goals. It’s like a challenge and it works for us.

Maybe you use a fancy spreadsheet you run through every month that tells you exactly where your money is going. Or maybe you use Mint to track your spending. Or you might be one of those people that does it all in their head — no paper trail necessary.

Either way, it might be the way you do things, but that doesn’t mean it’ll be the way we do things. You will have to adjust and find a way of doing things that works for both of you.

Saving is saving, no matter how you do it. Being a big fan of I Will Teach You to Be Rich, I used to have sub-accounts with specific names for whatever it was I was saving for. It’s called targeted saving, and I thought it was a great idea.

If something unexpected happens, you take money out of the emergency fund and you still get to make your budget. It’s all a psychological thing to keep you feeling like you’re on track.

I showed M the system and she gave me a look: “What’s the point? It’s all the same amount of money either way.” She was right and I started to question how useful the whole system was. In the end, it didn’t make the cut — we didn’t find it useful enough for the time it took to set up. I thought it was a great idea, but M was right: it’s still the same amount of money. End of discussion.

The important thing is that we were saving, regardless of how we did it.

Falling in love is good for the budget. It’s called economies of shared living, and it means you’ll spend less money when you split the cost with another person.

But you’ll still need to set up a budget that works for the both of you.

I used to use my credit card for everything. It tracked all my spending and gave me some decent rewards. M, on the other hand, liked to have cash in hand. But I wanted to get her to budget, and my system of simply knowing how much you’d already spent (remember by daily checking of accounts?) just wasn’t going to work for her.

But she felt the pressure to find a system that worked for her so we could meet our budget every month. And she did: the envelope system. She took out the money she had allotted for the week and then stopped spending if she ran out of money.

As for me, I still use my credit card like I did before. This was one thing we were able to keep individualized, which is important when you get married (we still have individual accounts outside of our joint account). With all the push to turn I into we, it’s good to have your own things you can do how you want.

The important thing is that you have a budget in the first place.

Cooking together is a great idea. You get to spend time together, it’s good for the budget, it’s healthier, and it creates some equality in an area where traditionally it’s one person doing all the cooking.

In most relationships, one person does all the cooking. Maybe you have an arrangement where the person that doesn’t cook does the dishes to make up for it. That’s fine — but I would recommend trying to spend a fair amount of time in the kitchen with your significant other.

It’ll give you a good environment to work together towards a common goal — making a good meal. Things can get tense in the kitchen, but that’s the whole point — you’ll learn from it and when something more serious than overcooked lasagna happens, you’ll have the tools to handle it.

Plus it’s fun.

Communicate. Marriage isn’t easy, especially when you’re talking about money. But even if none of the other stuff I’ve mentioned clicks with you, then you should at least take one thing with you from this post: communication is key.

You might not track your money or save anything or cook together. But you better communicate or else your marriage is going to be a train wreck.

‘Til death. I’ve been married for just under two years, but I can still remember what it was like to deal with money on my own: You think you have all the answers and you treat everything the way a dictator would. You’re never wrong and everyone else sucks.

Marriage has introduced democracy into my decision making and I’m grateful for it. It’s made me smarter, wiser, and less of a jerk.

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When you get married, figuring out the financial implications can be a challenge. Do you merge your money completely? Do you keep some or all of the accounts separate? And who takes care of which household financial chores?

As difficult as marriage and money can be, things are even tougher for unmarried couples, both gay and straight. There are all sorts of legal, financial, and emotional issues, and it’s difficult for these folks to get good advice in a society that’s geared toward married couples.

While researching Your Money: The Missing Manual, I stumbled upon a fantastic book from Sheryl Garrett and Debra Neiman (both of whom are certified financial planners). In Money Without Matrimony (Dearborn 2005), Garrett and Neiman provide tons of advice to help unmarried couples plan their financial futures together.

Unique problems
According to the 2000 U.S. Census, 5.2% of American households contain “unmarried partners”. Of these, 89.1% are male/female partners, 5.5% are male partners, and 5.4% are female partners. The authors divide these groups into younger heterosexual couples, older (retirement-age) heterosexual couples, and same-sex couples. Each group has specific concerns, and Money Without Matrimony takes care to explore issues unique to each situation. The authors write:

If unmarried couples take the right approach to financial planning, put in place proper legal documentation, and capitalize on existing laws, it’s possible to nearly equalize the inequities of a system geared toward married couples.

Money Without Matrimony covers a broad range of topics, exploring each from the perspective of the unmarried couple. The book explores:

The book also covers insurance, retirement planning, children, and more. A lot of these topics may seem boring, I know, but they’re crucial for every couple, married or not.

Drama in real life
The best parts of the book are the real-life examples of how couples deal with actual dilemmas. (I love books that do this, which is one reason my book contains lots of stories from GRS readers.) Here’s a prime example of the type of story the book includes (and the issues facing unmarried partners):

Jordan and Betsy shared a home that Jordan initially owned individually. When the couple moved in together, though, they split everything 50-50 and always talked about “their” home and their future together. Betsy just assumed Jordan had changed the deed on the house to include her. It never occurred to either of them, in fact, that the home didn’t belong to both of them. Two years into their relationship, Jordan popped the big question, asking Betsy to marry him. She said yes, but no date was set for the wedding. Jordan’s family still hadn’t warmed to Betsy, so the couple thought it best to wait for a while before tying the knot.

Not long after proposing to Betsy, Jordan died in an automobile accident. Naturally, Betsy was upset and distraught. After the funeral and reception, friends of the couple took her out to dinner. When Betsy finally arrived back at her home, Jordan’s older brother and father were in the process of moving Betsy’s belongings out of the house and into a rented van. Betsy was horrified to learn that her partner had left the house to his brother, according to the terms of his will drafted six years earlier — long before she and Jordan had met. Betsy buried her partner and lost her home in the same day, and she had no recourse.

This story makes my blood boil (and yet it’s unfortunately all too common), but Jordan and Betsy could have avoided this tragedy if they’d planned ahead. That’s what Money Without Matrimony is all about: Making sure that unmarried partners take the steps necessary to share their finances together, both now and in the future.

The bottom line
Money Without Matrimony is a great book. It’s non-judgmental, practical, and packed with advice. If you’re in a committed unmarried relationship, I highly recommend you track down a copy. (This may be difficult: My county library system only has two copies, and the book is out of print. But Amazon has some cheap used copies left.)

And to be honest, a lot of the advice here is great even for married couples!

Note: Here’s the book’s official site, which doesn’t actually have a whole lot of info, though you can preview the first few pages of the book.

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This post is from GRS staff writer April Dykman.

For many people, mindful consumerism starts with questioning the desire to buy Stuff. The reason might be to save money or avoid clutter — maybe both. It’s the first part of a journey to differentiate needs from wants and make mindful decisions about where to spend our hard-earned money.

But at some point, most of us will consume. We’ll buy food or clothing or household items. We’ll need to replace something, fix something, or upgrade something. When we make these purchases, we’re playing a role in a process. Much goes into creating a product and getting it on the shelf, though as a consumer, we don’t see that process. We don’t know if the companies involved in bringing it to us have decent working conditions for employees, pollute water systems, or include additives that pose health risks to our families.

Daniel Goleman, author of Ecological Intelligence: The Hidden Impacts of What We Buy, wrote about considering the global effects of our purchases in his essay, Making the Right Choice:

An organic cotton t-shirt may be called “green” because they didn’t use pesticides or chemical fertilizers when growing the cotton. That’s on the good side of the ledger, to be sure, but if we look into the life cycle of the t-shirt, we discover that organic cotton fibers are shorter than other fibers, so you need to grow a lot more cotton per t-shirt. Cotton is typically raised in arid parts of the world, and it’s a very thirsty crop, so a lot of water is implicated in the production of the t-shirt.

Also, if it’s a colored t-shirt, we have to take into account that textile dyes tend to be carcinogenic. When we consider all these angles, we may come to see that if you change one thing about a product and leave 999 unchanged, it’s not green.

It’s enough to make the average consumer’s head spin. Most people would like to make informed choices and reward companies whose processes make us feel good, but doing this in practice is daunting. If a busy parent is in the grocery store with two children to wrangle, it’s not feasible for that person to stop and trace the life cycles of Cheesy Poufs versus Cheddar Puffs. People can’t be expected to spend hours on the web researching the health, societal, and environmental effects of every purchase. Not gonna happen.

Technology provides the tools
Luckily, it’s getting easier to know what’s behind a brand. Skin Deep and GoodGuide are two web databases that provide the backstory on the Stuff we buy.

For example, GoodGuide provides information about Quaker Quick Oats, which it rates a 7.3 overall (out of 10), and Nature’s Path Organic Instant Hot Oatmeal, which is rated 6.7. We might assume that the organic brand would be healthier, but in fact it’s higher in sugar than similar products. When it comes to environmental effects, Quaker Quick Oats scores lower for water and energy management. Users can delve deeper into how these ratings are determined by clicking on See All Data.

The brainchild of Dara O’Rourke, a professor at University of California-Berkeley, GoodGuide was developed with experts from Harvard and MIT, with tech input from talent at Google, eBay, Amazon, and Intuit. And the tech part is what makes GoodGuide great. The database is available as an iPhone, iPod Touch, and iPad app that allows users to scan barcodes and compare products. Users also can create personalized shopping lists and lists of products to avoid, making it easier shop mindfully when you’re on the go.

Start small
If you’re interested learning more about where your Stuff comes from, make a few changes and build from there. Don’t feel like you have to throw out all of the “bad” Stuff you own and replace it with the “good” Stuff. To start, pick one product you’re curious about, and see if it’s listed on Good Guide or Skin Deep. How does it score? Is there a better alternative that will still meet your needs? Often the better-rated product also is the less expensive, which is a great bonus. In fact, I’ve slowly replaced my skin-care products with cheaper products that also rate better when it comes to health and societal effects. Sometimes the expensive products packaged in “green”-looking bottles rate surprising low.

I’m interested to know what you think about databases like Skin Deep and GoodGuide. Have you ever wondered how some of the products you buy get to the shelf? Would you use tools like these to learn more about the effects of the Stuff you buy?

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This guest post from Michelle is part of a new feature here at Get Rich Slowly. Every Sunday will include a reader story (in the new “reader stories” category). Some will be general “how I did X” stories, and others will be examples of how a GRS reader achieved financial success.

In 2001, I got a new job. Not just any job — this job was for a former employer who wanted me to come back to work for them after about two years of working for a nonprofit agency. Their offer was very, very tempting. It meant a 50% raise. (Yes, 50%. Take your current income, divide it half and add it to your salary. Fun, huh?)

The money got to me, and I left my nonprofit job for this new opportunity. I was happy with my old job and had good friends at both organizations, so my motivation for the change was purely the increased income.

The lure of money
About four months into this new job, I was sitting in a beige cube and wondering where all my money was. I had been collecting checks that were indeed 50% more (in terms of my gross income at least — I was paying more in taxes, so it didn?t calculate out as a 50% raise in my take-home pay). But it was still significantly more money than I thought I would ever earn, and I couldn?t figure out why I still felt broke.

Looking around those beige walls, I despaired at the idea of living the rest of my life like this. If this huge salary increase wasn?t the answer to happiness, what was?

I went home and went through my financial statements. My husband and I have joint accounts and have used Quicken since the beginning of our relationship, so this part was easy. After looking through Quicken for about 20 minutes, I could see where that extra money had gone. We?d taken a couple of trips. We were eating out a lot more. We joined a gym. We bought a new car. We were spending my 50% raise almost as I got it.

My husband and I had struggled with credit card debt early in our marriage and overcome it. When we spent money, we used debit cards and had cash in the bank to cover it. Big expenses (those vacations) went on a credit card, but were paid off right away. But we had $20,000 in student loans from both our college educations and a new car in the driveway with a $21,000 loan on it. Those debts felt like anvils hanging around my neck.

My job was okay, but I was finding the work a little tedious and dull. The bigger paychecks did not completely make up for the loss of creativity and the corporate hassles that came with my new responsibilities.

I thought what I wanted my life to look like: It wasn’t sitting in a beige cube.

Debt is slavery
I realized that I’d basically sold myself into slavery doing a job that paid well but didn?t give me a great deal of satisfaction in order to have more money to spend. But spending the money wasn?t bringing me happiness. I felt worse, not better.

So I decided my best option was to reconfigure my life so that I didn?t need to earn as much money as I did currently, thereby giving me more freedom to pursue work that made me happy, no matter what my paycheck looked like.

And that?s what I did. Over the next two-and-a-half years, I paid off the student loans and the car loan by reducing my expenditures and doubling my monthly payments (using the same advice you can find right here at Get Rich Slowly). Every extra bit of money my husband or I got in from freelance work or bonuses went straight on the loans.

After three years at that job, I got laid off in 2004 when the company moved our office to the East Coast. Instead of being stressed and worried about finding a job that would pay well enough to replace my income level, I rejoiced in the fact that I had no debt except my reasonable mortgage payment. I was free at last to do what I wanted to do.

I happily collected my unemployment insurance and severance pay while I worked on setting up my own business. Now I work as a writer, editor, and website developer for small businesses. I?m doing things I enjoy, and after five years, my part-time income matches that full-time salary I earned while staring at those beige walls.

Buying freedom
What I’d done was decide to spend my increased income from that job on buying myself freedom. It took more than just money. It took a paradigm shift on my part to determine what I really wanted from my life and my money. It turned out that what I wanted wasn?t more money after all. Helping my clients succeed and spending more time with my family bring me more happiness than money can buy.

I?d like to say that this process is a journey, not a destination. I still struggle sometimes with strong desires to have more money to buy things like vacations for my family or a slightly bigger home. Remembering this experience helps keep me grounded, and I can refocus on what I truly value. I?ve recently decided more freedom is more desirable, and my husband and I are working towards paying off our 15-year mortgage early, too. I know that nothing I can buy is going to feel as good as holding the deed to my own home in my hand. I?m looking forward to working towards that goal next.

Reminder: This is a story from one of your fellow readers. Please be nice. After nearly a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are.

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At long last, I’m officially finished with Your Money: The Missing Manual. No more writing. No more editing. No more nothing. The book is in my publisher’s hands, and they’re sending it to press on the 26th. It’ll be in stores sometime in March, but you can pre-order it now.

Now that I’ve completed this Herculean task, it’s time for a break. Though perhaps I should have saved my advance against royalties for something smart, Kris and I are going to use it to take a short vacation instead. We’re going to spend a week in Belize: exploring jungle ruins, canoeing through caves, and photographing exotic birds. (Exotic to us, anyhow.) We have a house-sitter to guard our home, and I have a blog-sitter to guard Get Rich Slowly.

I’ll be back on March 1st, rested and ready to tackle personal finance anew! In the meantime, here are a few loose ends:

I always wanted to be in comics!
The folks at Credit Card Daily have turned my whining about the book project into a comic that my friends and I think is hilarious. Seriously: I laugh every time I read this. It’s not 100% accurate (my editor is nice, and I’m lucky to have her), but it does a good job of capturing my frenzied state over the past five months. I think the artist did a darn fine job on this considering we never even discussed anything. (I think he used reference photos from the site to draw the comic.)

All the same, there are a handful of tiny “mistakes” that only stand out if you really know me. My brother found all but one — how many can you find?

The art of manliness
I don’t think I mentioned this yet, but I was a guest on The Art of Manliness podcast earlier this month. I spoke with Brett about conquering debt, inspiring personal finance books, and financial problems faced by men.

(Brett was once an active commenter around here before his blog grew into the monster it is today. It’s good stuff: Male-oriented content that’s pointedly not sexist. He and his wife run the site together, and it’s one of my favorites.)

Personal branding
Also earlier this month, I spoke with Dan Schawbel from the Personal Branding Blog. We talked about how I wrote Your Money: The Missing Manual, and the ways in which it’s different from other personal finance books. And, of course, we covered a little bit of personal branding. You can read the interview here.

Guest posts and reader stories
If you’ve sent me a guest post or a reader story, please be patient. I’m processing them as fast as I can, starting with the oldest articles in the inbox. There’s a fine line to walk here: You folks are anxious to share your stories, but you also get cranky when I share too many guest articles. I’m trying to find a nice balance.

Plus, editing these things takes time! I have 43 e-mails in my “guest post” mailbox, the oldest of which is from December. And I know there are others that I haven’t sorted to this mailbox yet. So please: Give me time. I’ll get to you eventually!

Two twitters
Finally, just a reminder that I’ve split my Twitter life in two. Some folks didn’t want to read my tweets about cats and comic books, so I set up a GRSblog account that features auto updates when a new GRS post goes live. It’s also the place I tweet about anything money-related. Plus, anyone who helps me with the site (staff writers, forum mods, and so on) can tweet from this account.

Of course, some of you do want updates on my daily life. If you’re one of those, you should follow me here.

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This is a guest post from my wife. It’s a response to the debate on Erica’s recent article about outsourcing life.

J.D. and I have been employing an independent housekeeper for about 10 years. The one who?s been working for us for almost five years, Michele, is fantastic and we feel lucky to have her. (We found her through Craigslist). Housecleaning is her full-time job.

It took us some time to get over our self-imposed barrier of hiring some help with the house chores. I?m not lazy, and it struck me as a weak, self-indulgent thing to do. But, as J.D. freely admits, he’s a slob. We’d fight over the mess in the house, and time and time again would try to institute a ?system? to keep it clean, only to fail once more and descend into arguments. With both of us working full-time, we wanted to spend our time at home in other ways than cleaning.

Still, I felt guilty for paying someone else to do work I didn?t want to do myself. I admit it: It feels weird to pay someone to clean your toilets! And I felt guilty for even being able to afford considering ?outsourcing? the housework. After all, anyone can do housework, right?

The “housekeeper dilemma”
Over time, however, I?ve realized that my guilt is misplaced. (Although it still lingers a bit.) Why would I feel any guiltier paying someone for cleaning my house than cooking my food at a restaurant, or growing my food at a farmer?s market, or knitting a hat I buy at a cute store? I can cook; I can grow food; I can knit. But often I choose to pay someone else to do these tasks rather than do them myself. Why does the housekeeper, then, represent such obscene luxury in our debates on the complexities of social economics?

Primarily, I believe it’s because we see our housekeeper face-to-face. We invite her into our homes and our lives. We see the struggles in her life (she?s a divorced mom of two teenagers) in a way that is invisible for the many other jobs we outsource. The agricultural worker doesn?t deliver pears to my door, nor the factory worker bring inexpensive mass-produced products to personally stock the shelves in my pantry. I don?t directly pay the garbage-collector, the office custodian, or the guy who sweeps out the theater after J.D. spills all his candy on the floor. For these things, there?s an insulating layer of ?a company? between the producer of the goods and the consumer. With housekeeping, no such dividing layer exists.

Professional housecleaning, like agricultural harvesting, child-care, and many service-industry jobs, is a job that is frequently performed by people without much higher education or unique skills. (Or they are choosing not to use that education or skills, or perhaps there is no market for their particular talents.) These jobs are typically low-paying, but that doesn?t mean the people who perform these jobs are unworthy. I?m all for a living wage, but the more specialized and rare your skills, the higher salary you can command if there is a market for those skills. It?s basic supply and demand. And just because a job doesn?t pay well does not mean that job is demeaning.

I won?t pretend my housekeeper has such a ?passion for cleaning houses? that it led her to this profession, but she?s a survivor, and has chosen housecleaning for many personal reasons, not the least of which are the flexibility in her schedule, the freedom to choose the clients she serves, and the chance to be her own boss. The trade-offs include a physically-demanding job, inconsistent income, and a relatively low salary (due to not working 40 hours a week, although at $22, her hourly wage is decent).

I think another part of the ?housekeeper dilemma? is the historical disregard for the value of work that has been ?women?s work?, and the expectation that if there is a woman is in the house, she shouldn?t need to pay another person (usually another woman) to do the tasks she is supposed to be doing herself. If someone is cleaning a house that?s not their own, they must feel degraded, right? But any work can be found degrading, sustaining, fulfilling or mind-numbing. I doubt that those of you who clean your own toilets feel degraded by the process.

What matters is not so much the type of work but the working conditions and the self-respect possible for the worker. Michele knows her work is valued in our home. The days I come home after Michele has been at my house are like a treat to me! And she knows it — because I tell her. I?d gladly give up other expenses before I cut Michele out of my budget. For her part, I?m pretty sure she values having us a steady clients who always have the check ready on the table and share the garden produce in the summer months.

Everyone outsources
The popular opinion is that anyone can do housework (so you shouldn?t outsource this labor), but does that mean that everyone has to? As GRS readers know, we grow and preserve much of our own food. That’s something I truly enjoy. Housework? Not so much. Someone else might think canning applesauce in a hot kitchen on a 90-degree day sounds like pure drudgery; they?ll outsource the task and get their jar of applesauce at the store. No one gives that a second thought, but there are a lot of outsourced laborers between the apple tree and that jar. Me? I?ll outsource cleaning the kitchen instead.

In my mind, the bottom line is that everyone outsources. Unless you grow, harvest, and process your own food, make your own clothes from fibers you?ve produced and spun, build your own house, create your own power sources, and are completely independent from the long chain of people in the manufacturing economy, you’re paying other people to do that which you do not want to do, don?t want to make time to do, or lack the skills to do. In the modern word, specialization is the norm.

So, do what work works for you — I?ll be in the garden.

J.D.: What sorts of people hire a housekeeper?
Michele: All sorts of people. Students, new mothers, women with careers. It’s usually women, although lately a lot of men have been responding to my Craigslist ad. That kind of makes me a little nervous sometimes, but so far it’s been fine. I think they’re just trying to give their wives a break.

J.D.: Should people feel guilty about hiring a housekeeper?
Michele: No way! Why should they? I had a housekeeper for a while. I had so much going on that I didn’t have the time to clean like I wanted, and I could afford it then. I’d do it again if I could. But I guess some people do feel guilty — especially women. There’s this stigma: People think women should be able to do it all — raise the kids, go to work, clean the house — but they can’t. A housekeeper helps relieve some of that stress. So I guess women feel guilty because they feel like they’re not doing everything they should. But bachelors that hire me? They don’t have one ounce of guilt! I think once people get past the guilt, they love having a housekeeper. It’s just a matter of where your priorities are and what you can afford.

J.D.: How do you feel about cleaning houses? Is this what you see yourself doing the rest of your life?
Michele: Well, my passion is working with animals. I’d love to work in an animal shelter. And I’m a trained doula, but I just haven’t done anything with that. So, I clean. But that’s what I do anyhow. It’s just what I do. It’s in my blood. My dad owned a janitorial service. My sister cleans houses. My mother cleans houses. I clean houses. I like it. I like being my own boss. I like the variety, going from house to house, and I like the flexibility. Last time, you let me adjust my schedule so I could take my son to get a tattoo, for example. I couldn’t do that if I wasn’t my own boss. And it’s pretty good money — if I can fill up my days, which is harder with the economy like it is. But I enjoy it.

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This article is by staff writer Adam Baker, whose own blog featured a real life negotiation example in the huge post Negotiation Tips for Beginners.

Each of us have specific items or activities for which we are more than willing to pay a premium. In fact, deciding what we are and aren’t willing to spend money on is one of the core issues in personal finance.

A willingness to pay extra for everything would quickly bury most of us in debt. At the same time, willingness to pay for nothing will burn out even the most frugal among us. When allocating our spending, we will likely each have a couple of financial vices that surface.

What is a “financial vice”?
Wikipedia defines a vice as “a practice or a habit considered immoral, depraved, and/or degrading in the associated society.” This definition may be a little intense for our own purposes. However, if we equate the “associated society” with the personal finance community, an interesting concept emerges.

My definition of financial vice is, therefore, “any regular expense we willing include in our budgets that may appear extreme, bizarre, or down-right ignorant to many members in the personal finance community.” Most of us have one or two financial vices that are inconsistent with the other patterns in our budget. These are the expenses that would make our friends and family cry, “What in the world are you thinking?”

Sometimes these are healthy vices — expenses that we passionately choose and that bring benefit into our lives. Other times, our friends and family may be onto something: Unhealthy financial vices have the potential to do some serious damage (often to more than just our budgets).

I won’t speak for J.D., but he’s written about several of his own financial vices both when he was fumbling in the dark and since entering the third phase of his personal finance journey. I will, however, speak for myself. [J.D.'s note: Comic books have historically been my biggest financial vice. You all know that, right?]

My primary financial vice

There are several financial vices that tend to consistently surface in my own budget. The primary one in my life right now would have to be Brazilian jiu-jitsu training.

I love training in martial arts. I’m far from a professional — just the opposite. I’m unmistakably new to the sport. Nevertheless, I love how I feel when consistently training. I love the physical workout, the mental benefits, and the instructors/students.

There’s a gym close to me that offers Brazilian jiu-jitsu (with an authentic teacher), Muay Thai, and Boxing classes six days a week. It’s close, it’s convenient, and it’s fun. The price I pay? $168 per month! Outrageous? Understandable?

To put it in perspective, Courtney and I share one car to save money. Just yesterday we had a 30-minute conversation about whether or not to spend an extra $15/month to get a DVR with our cable/internet package. The furniture we need for our temporary rental is coming from a combination of Goodwill and 4th-level family hand-me-downs.

Despite the efforts we go through to save money in some areas of our life, we are both okay with this oddball expense. Why? Because it passes the ground rules we’ve established for managing the financial vices in our own life.

4 questions to help control your financial vices
Here in the Baker family, we try to ask ourselves four questions when face to face with an expense of this nature:

If an expense seems to be of an excessive amount, we run it through these four questions. Most of the time, it fails to pass one of the questions. In rare cases, we find ourselves with a true financial vice that emerges.

Limiting your financial vices
Allowing yourself a financial vice can be a huge blessing (even directly to your finances). However, if you aren’t careful, over time your definition of vice may expand to be synonymous with anything I want. To help control this, Courtney and I try to limit ourselves to only one major vice at any time.

Courtney supports my martial arts training and I do everything I can to support her journey to improve her photography skills (her primary financial vice). If we choose to pursue something else, it means either eliminated or drastically reducing our current vice. Of course, sticking to only one financial vice each is easy for us…we can’t afford any more!

Joking aside, I’m interested in hearing your own insight into this issue. Have you found your own way of keeping your vices in check? Share your financial vices in the comments below!

J.D.’s note: I’d argue that what Baker has described isn’t a vice; it’s too controlled. I’d say it’s more of an indulgence. Conscious spending like this is great because it can lead to improved happiness. A true vice is something that you can’t control, and isn’t really conscious. Right? Tune in tomorrow when my wife reveals one of our household’s financial indulgences! Photo by dlcampos.

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This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the advisor for The Motley Fool?s Rule Your Retirement service. He contributes one new article to Get Rich Slowly every two weeks.

Let?s say it?s 8 p.m. on a weekday. Or 2 p.m. on a Saturday. Or maybe 3 a.m. in the middle of a night when you can?t sleep. Whatever time it is, assume it?s a time when you have an hour or two free — you can do whatever you want. What would you do?

If you?re like me, you don?t always do what you should do — something that would move your life forward, or at least relieve some stress, rather than something that just provides a temporary squirt of pleasure. I may read yet another book about World War II rather than work on an article that?s due. I?ll let myself get sucked down the email rabbit hole instead of transferring that IRA to a better broker. I?ll turn on ESPN and watch other people exercise instead of doing it myself.

Why is this? Why do we not do things we know would improve our lives?

When it comes to personal finances, we all know how less-than-optimal ways we spend our time can end up costing us money, or at least peace of mind. There?s late fees, a reluctance to tackle snowballing debt, putting off saving for retirement, missed opportunities to enhance our careers and human capital, not getting a will and other important documents — the list goes on until the break of dawn.

I?m fascinated by this, both as a guy who writes about personal finances as well as someone who doesn?t always do what makes the most sense. I don?t have a definitive answer yet, but here are some things I?ve run across recently that might provide some clues.

Blame it on the brain
In his article ?Human Decision-Making: A Scary Thing,? Dr. Jim Phelps says that humans are wired to look for short-term risks and rewards:

Research by psychologists shows that we pay most attention to the risks that are right in front of us. Risks that won’t appear until later, even if they are huge, just don’t get to us the way a risk we face right now does…

People will start a heart exercise program after their heart attack, when the risk of having another attack is now very clear to them. Those people knew about the value of exercise before the heart attack. They aren’t stupid or foolish, they’re human…

Worse yet, solutions with immediate strong benefits strike us as much more attractive than solutions with less immediate results — even if those benefits will be many times greater later! Buy a new TV now instead of investing and letting that money compound interest…

Our minds evolved to handle immediate problems. Is there a saber-tooth tiger out there? Where are we going to find food today? Who can I trust in my social band? Does Joe still owe me a favor? That’s what we “grew up” thinking about.

We?re too tired
You just got home after a long day at the office, but your work isn?t done. You still have to cook the kids, wash the dinner, and put the dishes to bed — or something like that. And then you?re going to analyze that last year?s spending to find ways to save money? Not likely.

Of course, for many of us, nighttime isn?t the only tired time. And when you?re tired, it?s much more difficult to make the choice to do something that doesn?t have immediate rewards.

This is one of the main lessons of The Power of Full Engagement by Jim Loeher and Tony Schwartz. As they write:

Every one of our thoughts, emotions, and behaviors has an energy consequence, for better or for worse. The ultimate measure of our lives is not how much time we spend on the planet, but rather how much energy we invest in the time that we have. The premise of this book — and of the training we do each year with thousands of clients — is simple enough: Performance, health, and happiness are grounded in the skillful management of energy.

To manage energy, Loeher and Schwartz suggest four principles:

We?re hungry, scared, selfish, and horny
Like Dr. Phelps, marketing guru Seth Godin blames our difficulties on the primitive parts in our head, what Godin calls our ?lizard brain? (and scientists would call the limbic system). In a speech (that you can watch here), he explained it thusly:

The idea of the lizard brain is this: It is hungry, it is scared, it is selfish, and it is horny. That?s its job. And that?s all it does. All it thinks about is, “How am I going to survive? How am I going to have kids? Get me out of here!”…

Every single time we get close to shipping [that is, completing and delivering a project], every single time the manuscript is ready to send to the publisher, the lizard brain speaks up. The lizard brain says, “They?re gonna laugh at me.” The lizard brain says, “I?m gonna get in trouble.” The lizard brain is screaming at the top of its lungs. So what happens is, we don?t do it. We sabotage it. We hold back. We have another meeting. You don?t need to be more creative. All of you are actually too creative. What you need is a quieter lizard brain.

It seems to me that the lizard brain comes into play when the things we know we should do involve a certain amount of personal risk (real or perceived), and where the stakes are potentially big. This isn?t why we don?t take out the garbage as much as it is about why we don?t take chances to do what we really want to do with our lives.

Steven Pressfield, author of The War of Art [J.D.'s review], calls this ?Resistance.? Here?s a bit from an interview Pressfield did with Godin that I found simple but all too true:

Pressfield: Do you experience Resistance (meaning self-sabotage, procrastination, self-doubt, etc.)? In what form does Resistance present itself?

Godin: Until you wrote about it in The War of Art, I didn?t know what to call it. For me, the resistance disguises itself as important, even urgent work that could and should be put aside. The resistance most often looks like checking my email. Email is the perfect distraction for me, because it?s fresh, new, and bite-sized. When I turn off email, even for an hour, my productivity triples.

One answer
Which brings us to the solutions portion of our show. I don?t have all the answers (yet), but Leo Babauta over at Zen Habits has a suggestion that I?ve been trying to implement: Identify, and focus on, your most important tasks (MITs):

It?s very simple: your MIT is the task you most want or need to get done today. In my case, I?ve tweaked it a bit so that I have three MITs — the three things I must accomplish today. Do I get a lot more done than three things? Of course. But the idea is that no matter what else I do today, these are the things I want to be sure of doing. So, the MIT is the first thing I do each day, right after I have a glass of water to wake me up. And here?s the key to the MITs for me: at least one of the MITs should be related to one of my goals. While the other two can be work stuff (and usually are), one must be a goal next-action. This ensures that I am doing something to move my goals forward that day.

As Babauta concedes, he didn?t come up with the idea, and he links to a post on Lifehacker that picks up on Godin?s advice:

Author of Never Check Email in the Morning Julie Morgenstern suggests spending the first hour of your workday email-free. Choose one task — even a small one — and tackle it first thing. Accomplishing something out of the gate sets the tone for the rest of your day and guarantees that no matter how many fires you’re tasked with putting out the minute you open your email client, you still can say that you got something done.

That?s just one idea, and may not help with all our sub-optimal behaviors. But this post is long enough. Plus, ?The Simpsons? are on, and, well, I?m pretty tired.

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Here’s something cool I learned at Mapgirl’s Fiscal Challenge. Apparently you can now use your tax refund to automatically buy I-series bonds from the U.S. government.

As recently as three years ago, I was a huge fan of tax refunds. Despite the arguments against them, I liked getting a tax refund because it was the only way I’d found to save. I’m able to save on my own now, so I no longer aim to get a tax refund every year, but I certainly don’t fault anyone else for doing so. If that’s what you need to save, then do it!

If you’re truly trying to save with the money, the U.S. government has a new option for you starting this year: Now you can buy U.S. Series I savings bonds with your tax refund. Instead of getting a cash refund, you can designate up to $5,000 of your refund to be delivered in actual paper bonds issued in your name.

I Bonds are savings bonds that are indexed for inflation. The earnings rate on an I Bond has two components:

The fixed rate and the variable rate are combined to get a composite rate, which is currently 3.36%. I know this is a lot of gibberish. All you really need to know is that I Bonds are a safe place to put your money so you don’t have to worry about it losing value to inflation.

Because of this, I Bonds are an attractive alternative to high-yield savings accounts, especially now. They offer higher rates of return, and I Bonds are state and local income-tax exempt. (Federal income tax on I Bonds can be deferred until the bonds are cashed in or stop earning interest after 30 years.)

One drawback? I Bonds aren’t as liquid as a savings account. You can cash them out whenever you want, but if you do so before five years, the bond is subject to a 3-month earnings penalty. (This is sort of like breaking a certificate of deposit early.)

If you’re going to use your tax refund to save, why not actually save, all while getting a great rate of return on your money?

[Thanks to mapgirl for clueing me into this great program! Go check out her blog...]

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Over the past year, one of the frequent questions I get is: “Where I can safely invest my money to get a decent return?” For example, Joseph wrote in November:

Around February/March I should have $5,000 to invest. My debts are under control and my wife and I have lowered our monthly expenses. I was wondering if you had any advice on ways to invest $5,000? I don’t want a savings account because the interest rates are just sad, but I don’t know if a certificate of deposit or money market account is worth the effort.

Or take this e-mail I got from MG just last week:

How about addressing how to invest $5,000, $10,000, or $15,000 these days? With high-yield savings rates getting lower and lower and the stock market not doing so well either, what would you recommend?

Because the stock market has been so volatile over the past fifteen years, a lot of people are scared to invest. Or they just want to find safe places to put part of their money in the short term. Unfortunately, it’s not like new ways to invest safely are being invented. If you want your money to be safe, you’ve basically got the same tried-and-true investments you’re already familiar with.

Two recent articles in national magazines addressed this subject. Let’s look at their advice.

Advice from Consumer Reports
The March 2010 issue of Consumer Reports has a great article on finding the best rates on your savings. They start the same place we all start: bank accounts. Here’s what Consumer Reports recommends:

To be honest, I’m not sure that chasing stock dividends is the best way to get safe savings. Yes, I believe the market will increase over the long term, but folks who want safe harbors are usually looking to avoid risk, and over the short term, stock funds are risky, even if they do have nice dividends.

The article suggests another option, one that I happen to like a lot. Because yields are so low right now, it can make sense to use your money to pay down your mortgage instead. You shouldn’t do this if you don’t have emergency savings yet, but if you’re near retirement or you’re still paying private mortgage insurance, this can be an especially great use of your savings dollars.

Advice from Kiplinger’s
The March 2010 issue of Kiplinger’s Personal Finance has a small section on finding better rates. Their advice? “Start by looking online. Ally Bank is paying 1.5% 1.44% on savings — way north of the 0.23% average rate on money-market funds.”

Kiplinger’s recommends taking on a little more risk in order to get better rates. In particular, the magazine suggests:

For safe savings, bond funds may make more sense than stock funds, but I still think they’re riskier than most people in this situation are after. I guess it depends on what your goals are.

The bottom line
As you prepare to save, you need to ask yourself a few questions:

Where do you put money that you want to keep safe? Do you even worry about returns? How can GRS readers find a good balance between safety and earnings?

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Filed under: International Markets

Continue reading Poll: Global Economic Confidence Dips on Greece's Debt Woes

Poll: Global Economic Confidence Dips on Greece's Debt Woes originally appeared on BloggingStocks on Wed, 10 Mar 2010 18:00:00 EST. Please see our terms for use of feeds.

Filed under: Bad News

Continue reading Central Garden & Pet: The Patience Ends

Central Garden & Pet: The Patience Ends originally appeared on BloggingStocks on Wed, 10 Mar 2010 17:30:00 EST. Please see our terms for use of feeds.

Filed under: Exxon Mobil (XOM), Chevron Corp (CVX), ConocoPhillips (COP), Oil

Continue reading Oil Gives Back Some Gains

Oil Gives Back Some Gains originally appeared on BloggingStocks on Wed, 10 Mar 2010 17:00:00 EST. Please see our terms for use of feeds.

Filed under: JetBlue Airways (JBLU), Delta Air Lines (DAL)

Continue reading U.S. Airlines to Face $27,500 Per Passenger Fine for Long Tarmac Delays

U.S. Airlines to Face $27,500 Per Passenger Fine for Long Tarmac Delays originally appeared on BloggingStocks on Wed, 10 Mar 2010 16:30:00 EST. Please see our terms for use of feeds.

Filed under: Citigroup Inc. (C), Chevron Corp (CVX), Amer Intl Group (AIG)

Continue reading Closing Bell: Another Wishy-Washy Day of Trading (MCO, MHP, CVX, ITMN, AIG, C, MU)

Closing Bell: Another Wishy-Washy Day of Trading (MCO, MHP, CVX, ITMN, AIG, C, MU) originally appeared on BloggingStocks on Wed, 10 Mar 2010 16:00:00 EST. Please see our terms for use of feeds.

Filed under: Earnings Reports, Gap Inc (GPS), Abercrombie and Fitch (ANF), American Eagle Outfitters (AEO)

I'm characterizing this as odd because I guess I was expecting to see a big beat on the bottom line after observing the strong rally in the stock. At the time of this writing, shares of the retailer were trading higher by over 6%, with tons of volume backing the bid.

Continue reading American Eagle Outfitters Rallies on Q4 Stats

American Eagle Outfitters Rallies on Q4 Stats originally appeared on BloggingStocks on Wed, 10 Mar 2010 15:30:00 EST. Please see our terms for use of feeds.

Filed under: Industry, Economic Data

Continue reading No Surprise: Chile Leads to Reinsurance Rate Increase Debate

No Surprise: Chile Leads to Reinsurance Rate Increase Debate originally appeared on BloggingStocks on Wed, 10 Mar 2010 15:00:00 EST. Please see our terms for use of feeds.

Filed under: Hasbro Inc (HAS), Stocks to Buy

Continue reading Hasbro Powers Ahead

Hasbro Powers Ahead originally appeared on BloggingStocks on Wed, 10 Mar 2010 14:30:00 EST. Please see our terms for use of feeds.

Filed under: International Markets, Forecasts, India, China, Brazil, Russia, Mexico, Economic Data

Devan Kaloo, of Aberdeen Asset Management foresees a 15% drop for stocks of developing countries. His fund is investing in the developing countries of Mexico, India and Turkey. He is neutral on Brazil and underweight on Russia.

He is holding fewer Chinese stocks because he feels that stock valuations in China are overdone. The $586 billion stimulus package is due to run out this year. The helped the Shanghai Composite Index to rise 80% last year. This year to date the index is down 6.4%.

Continue reading Aberdeen Foresees Stocks of Developing Countries Falling 15%

Aberdeen Foresees Stocks of Developing Countries Falling 15% originally appeared on BloggingStocks on Wed, 10 Mar 2010 14:00:00 EST. Please see our terms for use of feeds.

Filed under: Forecasts, Employees, Housing

Most investors understand the relationship between job growth and the U.S. economy: For a sustained U.S. economic expansion to occur, there must be job growth.

Further, politically, the responsibility for lowering unemployment rests with the party in power -- President Barack Obama and congressional Democrats. That's how the American political system works. It doesn't matter whether the problem started on your watch -- if you hold the office, you're responsible at election time. End of discussion.

Continue reading This Decade's U.S. Expansion Will Have Few 'Bubble' Construction, Mortgage Jobs

This Decade's U.S. Expansion Will Have Few 'Bubble' Construction, Mortgage Jobs originally appeared on BloggingStocks on Wed, 10 Mar 2010 13:40:00 EST. Please see our terms for use of feeds.

Filed under: Good news, Allergan (AGN), Options, Technical Analysis

Continue reading Allergan Rises On FDA Botox Approval

Allergan Rises On FDA Botox Approval originally appeared on BloggingStocks on Wed, 10 Mar 2010 13:20:00 EST. Please see our terms for use of feeds.

Filed under: Newsletters, Stocks to Buy, Israel

The editor of Global Investing says, "Its software lets companies and government entities manage their workforce and customer service by fully integrating call centers, customer relationship management (CRM), scheduling, location tracking, and mobile telephony links with workers in the field and their waiting customers."

Continue reading Click Software (CKSW): Israeli Firm Eyes Workforce Management

Click Software (CKSW): Israeli Firm Eyes Workforce Management originally appeared on BloggingStocks on Wed, 10 Mar 2010 13:00:00 EST. Please see our terms for use of feeds.

Filed under: Management, Law, Pfizer (PFE)

As class action lawsuits go, I have never encountered one any more questionable than the recent complaint issued against Medivation Inc. (MDVN), via the law firm Izard Nobel LLP.

Readers of this space may recall that just a few days ago I decried the sell off of shares that occurred on the heels of Medivation's ill-fated phase 3 drug trial of the potential Alzheimer's treatment dimebon. At that time, I pointed out that one failed drug trial is not equal to the failure of a company. I still stand by that common sense determination.

Continue reading Medivation Class Action Has Questionable Roots

Medivation Class Action Has Questionable Roots originally appeared on BloggingStocks on Wed, 10 Mar 2010 12:40:00 EST. Please see our terms for use of feeds.

Filed under: Competitive Strategy, China Mobile Limited (CHL)

In terms of subscribers, China Mobile (CHL) is the largest mobile carrier (the base is more than 500 million). But of course, the company wants to become even bigger.

And one of the most promising markets is mobile payment. However, it can be difficult to pull this off. So, China Mobile has agreed to pay $5.83 billion for a 20% stake in Shanghai Pudong Development Bank. The transaction was priced at a 13% discount.

Continue reading China Mobile Bets $5.8 Billion on Mobile Banking

China Mobile Bets $5.8 Billion on Mobile Banking originally appeared on BloggingStocks on Wed, 10 Mar 2010 12:20:00 EST. Please see our terms for use of feeds.

Filed under: Major Movement, Analyst Reports, Analyst Upgrades and Downgrades, Good news, Products and Services

Late Tuesday, an advisory panel of the Food & Drug Administration (FDA) voiced its approval for pirfenidone, the experimental lung drug from InterMune (ITMN). The panel voted 9-3 in favor of recommending pirfenidone to patients with idiopathic pulmonary fibrosis.

The FDA is expected to follow the advice of the advisory panel, although it's not required to do so. The regulatory agency is due to issue its final ruling on the drug's fate by early May.

Continue reading InterMune Showered with Analyst Love on FDA Approval

InterMune Showered with Analyst Love on FDA Approval originally appeared on BloggingStocks on Wed, 10 Mar 2010 12:00:00 EST. Please see our terms for use of feeds.

Filed under: Analyst Reports, Analyst Upgrades and Downgrades, Analyst Initiations

Analyst Upgrades

Continue reading Analyst Calls: ADI, BCS, CMA, CVX, FACT, GR, ITMN, JCG, LMT, NFLX ...

Analyst Calls: ADI, BCS, CMA, CVX, FACT, GR, ITMN, JCG, LMT, NFLX ... originally appeared on BloggingStocks on Wed, 10 Mar 2010 11:30:00 EST. Please see our terms for use of feeds.

Filed under: International Markets, Newsletters, ETF Investing, Commodities, Stocks to Buy

Continue reading Chile Fund (ECH): Post-Quake Buy

Chile Fund (ECH): Post-Quake Buy originally appeared on BloggingStocks on Wed, 10 Mar 2010 11:10:00 EST. Please see our terms for use of feeds.

Filed under: Analyst Reports, Forecasts, Market Matters, S and P 500

Abbey Joseph Cohen, chief market strategist at Goldman Sachs (GS), says that U.S. stocks have room to run on the upside. She spoke on CNBC Tuesday and reiterated this important fact: "The stock market is almost always a discounting mechanism that almost always moves in advance of the economy, but we don't think it has moved too far at this point."

This bit of wisdom should be posted at the top of every trader and investor's computer screen. Many investors have a tendency to look back at what happened, rather than looking forward to what will be. The past is dead. Today's trading is done. Now you must move on to tomorrow, to the unknown.

Continue reading Market Analyst Abbey Joseph Cohen Sees Further Gains for U.S. Stocks

Market Analyst Abbey Joseph Cohen Sees Further Gains for U.S. Stocks originally appeared on BloggingStocks on Wed, 10 Mar 2010 10:50:00 EST. Please see our terms for use of feeds.

Filed under: Forecasts, China

Continue reading Roubini Sees Little Movement by China on Yuan in 2010

Roubini Sees Little Movement by China on Yuan in 2010 originally appeared on BloggingStocks on Wed, 10 Mar 2010 10:30:00 EST. Please see our terms for use of feeds.

Filed under: International Markets, Insiders, Politics, Financial Crisis

For the past few weeks we've been hearing cries from Europe concerning how to regulate or ban derivatives trading. Now the word has crossed the pond and we are hearing the same complaints here in the U.S.

We have a parade of regulators who want to do something about derivatives trading. First we heard from Gary Gensler, chairman of the Commodity Futures Trading Commission, who said: "Standard credit default swaps and other privately traded, over-the-counter derivatives need drastic reform." He went on to say: "The only parties that benefit from a lack of transparency are Wall Street dealers."

Continue reading Will There Be an End to Derivatives Secrecy?

Will There Be an End to Derivatives Secrecy? originally appeared on BloggingStocks on Wed, 10 Mar 2010 10:10:00 EST. Please see our terms for use of feeds.

Don’t get too excited. Equifax is offering a free “Credit Score Card“, which in reality just gives you a range of what your credit score is. And the score is from their “Equifax Risk Score” system, not a FICO score. (You can still get 30% off a real FICO score with MYPOINTS30.) The Equifax Risk Score does range from 280-850, which basically the same as FICO from 300 to 850.

Well, it’s free and it’s from Equifax which has all my personal information anyway, so what the heck. Here are my results:

Key Factor(s) Affecting Your Score:
Because your credit score is in the highest range, you may qualify for some of the lowest interest rates and offers from lenders. Below are the top factors that may be preventing you from achieving an even higher credit score.

It still seems stupid that to get a “perfect” credit score of 850, I’ll need to add an auto loan, a personal loan, and a department store card. I’ll hopefully never have any one of those, and I’m betting I can still get just about any loan out there. Nobody needs perfect credit.

Here is an updated application link at Pinecone Research, which is again accepting new members. (May expire at any time, so apply now if you’re interested!) Looks open to all, but only one person per household can sign up. Link via Realm of Prosperity.

PineCone Research remains one of the better paying and reliable survey companies, with a payout of $3 (check or PayPal) for each 15-minute online survey. The hardest part is getting accepted, as they only take applications intermittently. Some users have reported an increase in unpaid “weed-out” surveys, while others seem to remain happy. I got kicked out a while ago for missing some surveys when I moved, so I’m afraid I can’t provide any comment.

The four survey sites that I have been most active with nowadays are NFO MySurvey, Opinion Outpost, BzzAgent, and SurveySavvy. I like it them because they consistently offer me paid survey opportunities, they pay out reliably (important!), and they don’t mind if I don’t do every single survey offered (unlike Pinecone which does).

I shared my thoughts on Pinecone and paid surveys in general here. I call them Bored Money - not terribly efficient but you can do it at your leisure and occasionally get to try some neat things like shampoo, dog food, new soda flavors, and once even got a new $100 Sonicare toothbrush to keep.

Although relatively new, Monoprice.com has quickly become a very popular place to buy cheap but high quality audio/video cables and adapters online. I recommended shopping there if you’re trying to connect your laptop to your TV (and maybe drop your cable subscription?). I’ve probably bought from them five times in the last year, and I don’t even shop online that much.

However, if you bought anything from them recently, I would check your credit cards for any fraudulent charges. Monoprice shut down their site today and placed this message up:

A few of our customers recently reported to us that information from credit cards they used on the Monoprice website had been misused. We promptly began an investigation with the help of expert computer forensic investigators to determine if any card data had been stolen from our computers.

To date, the investigators have found no evidence that card information has been stolen from Monoprice?s computer network. As a precaution to ensure that our customers? information is not at risk, we have taken our website offline temporarily while we and our investigators complete the audit of our computer network.

April 15th is only a month away, and you haven’t started your taxes yet. Time to file an extension! The IRS automatically grants a 6-month extension to anyone who asks. Asking a search engine will often direct you towards websites like FileLater.com that charge upwards of $20 to file the form, but here are two ways that anybody can e-File for free. Apparently, the only thing keeping these sites in business is lack of education!

Method #1: TaxAct
This is how I did my extension last year. Just sign up with TaxAct and e-file your extension for free through them. It’s quick. It’s easy.

You don’t even need to actually use them to file your taxes later, although TaxAct is also free for federal taxes with e-File included regardless of income, and is only $14.95 for state returns including free e-File. That’s cheaper than TurboTax or TaxCut, although if you’re already familiar with those programs it may be worth the extra bucks to stick with them.

Method #2: Free File Fillable Forms
This one’s a little harder to find, but here are some step-by-step instructions. Go to the Free File Fillable Forms site (say that 5 times fast) and click on “Start Free File Fillable Forms”. Click “Sign-in” on the top left, and create a new account.

After you’re signed in, click on “Continue” and pick your form. Go with 1040. On the top right, you should see an icon with the label “File an Extension”.

This will bring up Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, a long title for a really short form. You’ll need to estimate your total tax liability for 2009. This form only extends the time to file, not the time allowed to pay. Overestimate your tax liability to avoid penalties. Here is how I estimated my tax liability.

You can even request your estimated tax payment to be withdrawn electronically by supplying your bank’s routing and account numbers. For identification purposes, you’ll need your adjusted gross income (AGI) from your 2008 tax return.

Got state income taxes as well? Here is a helpful page on manually requesting state-specific tax extensions.

A collection of links to free educational material online. The amount of information available online is expanding so fast, you can at least explore a new direction without leaving your house.

University-Specific

Collections

Open Culture.com is a blog about free educational and cultural materials on the web. Here are some highlights (some posts are older):

The other site I used when selling back my old textbooks online was and SellBackYourBook.com. All the websites I used did indeed eventually pay me for my books.

Reviews on the Web
I did not spend more than couple minutes on this, but a quick search did not find any claims of non-payment or scam reports on SellBackYourBook.com.

I found two Better Business Bureau listings for this site. One gave No Rating and the other gave an A- rating. SellBackYourBook.com does advertise that it is an BBB Accredited Business, so if you do have issues I would file a complaint.

My Personal Experience
After typing in my ISBN numbers into BigWords.com, SellBackYourBook was the highest bidder for certain textbooks. Although I found their site lacking polish, I went ahead and agreed to their price and terms, and they provided me with a printable packing slip and prepaid shipping label. Here’s part of the email sent to me:

This confirms that your order has been placed with Sell Back Your Book. Please print a copy of your packing slip and include a copy of it in the box with your books. A link to print your packing slip can be found at the bottom of this email. Please mark your order number on the outside of your box so that we can quickly check in your books and pay you (order number is listed below).

It took me a couple of days to get around to going to the post office, and mail it out via USPS Media Mail (formerly known as Book Rate). 20 days later, I received a confirmation email, partial text below. There was no 2nd email confirming payment was sent.

Thank you for your order. We have received your books and payment will be processed with in three business days.

A check was made the same day, and three days later it was in my mailbox for the exact amount the promised me for my books. It was from “Ez Book Recycle Inc.”, for which SellBackYourBook.com is the sourcing arm. In total, 23 days went by from mailing out to receiving the check.

Summary Timeline

Day 1 - Sent out book via USPS Media Mail

Day 20 - Email confirmation of arrival

Day 20 - Check printed and mailed out

Day 23 - Check received successfully

It’s been about a month since I wrote about selling back my old textbooks online. I ended up selling books to two websites, ValoreBooks.com and SellBackYourBook.com. I figured I’d do a quick review of each one, starting with ValoreBooks.

Reviews on the Web
There were some online accusations at RipOffReport and ComplaintsBoard from people who said that ValoreBooks was a scam because they mailed off their books and never received any payment at all. It’s hard to prove anything because ValoreBooks only covers your Media Mail postage to their warehouse, and it is your option to buy Delivery Confirmation or other sort of tracking. But if I’m only selling $15 worth of books, it’s hard to just paying another $1-2 in my opinion. Perhaps for a larger order.

The Better Business Bureau gives them a rating of A+, although I don’t really think it’s that hard to achieve such a rating. It does indicate that the company is willing to try and resolve issues, if you file a complaint with the BBB.

BBB processed a total of 21 complaint(s) about this business in the last 36 months, our standard reporting period. Of the total 21 complaint(s) closed in the last 36 months, 21 were closed in the last 12 months.

My Personal Experience
After typing in my ISBN numbers into BigWords.com, ValoreBooks was the highest bidder for certain textbooks. I agreed to their price and terms, and they provided me with a printable packing slip and prepaid shipping label. Here’s part of the email sent to me:

Please follow the steps below to complete your order:

1. Include your packaging slip with your shipment.
2. Package your books tightly in a cardboard box or padded envelope.
3. Cut out your prepaid shipping label and affix it to your sealed package.
4. Drop off your package at your local Postal Office.

It took me two days to get around to going to the post office, as you have to drop off the package in person for items weighing more than a pound. “No, this is not an explosive.” Would I really tell you if it was?

Then came the waiting game. Media Mail is notoriously inconsistent, so I almost forgot about the book when 15 days later I received the following confirmation in my email:

ValoreBooks Ship to Us Order: 1026XXX Arrived
Your sell back order has arrived at our warehouse and will be processed within 48 business hours.

I’ll never know if it really took 15 days to get there, or if they just sat on it for a while. In any case, one hour later I received another e-mail:

ValoreBooks Ship to Us Order: #1026XXX Confirmed
Thank you for choosing to sell your book(s) with ValoreBooks.com. [...] Your order has successfully been checked in and you can expect payment within 10 business days to the following address: [...]

Six calendar days later, a check was in my mailbox from “Bucks4Books” of San Diego, CA. I did get the exact amount the promised me for my book and reported condition. In total, 22 days went by from mailing out to receiving the check.

Summary Timeline

Day 1 - Sent out book via USPS Media Mail

Day 16 - Email confirmation of arrival

Day 16 - 2nd Email confirmation of payment approved

Day 19 - Check printed and mailed out from ValoreBooks

Day 22 - Check received successfully

People usually agree that checking your credit report regularly is a good idea, but after downloading all my credit reports just now I found out that I had overdue library fees of $40 from my old city and they sent me to collections! I am 99.9% sure I returned them. I received no mail notices and have received no phone calls from any collection agency either. It’s dated April 2008, although I’ve opened several bank accounts, brokerage accounts, and credit cards since then with no indication that my credit was anything but flawless. It’s only on my Experian report as well.

I’ll have to follow up on this later. Meanwhile, for you library users, I found this NY Times article Late Library Books Can Take Toll on Credit Scores. Well, not a big toll…

I’ve recently been interested in the website Etsy.com, which is an online marketplace for buyers and sellers of handmade items (and craft supplies and vintage items). I know someone who makes some pretty cute baby clothes with hand-stitched animals on them.

For sellers, the fee schedule appears to be pretty simple. You pay a listing fee of 20 cents for each item (nonrefundable if it doesn’t sell in 4 months), plus a flat 3.5% of every sale. The average sale is about $15-$20. With over $10 million is sales each month, this can be a easy streamlined way for creative people to make some money on the side.

I’m looking for a reader who is an experienced Etsy seller to do a sort of Enterpreneur Interview-type of post. You’ll get a chance to share your story and also publicize your storefront and products. Sound fun? Contact me

Ally Bank has been making several customer-friendly tweaks to their product line which are worthy of note. First up are two that give you a way to lock in a higher rate, but with a handy exit plan in case rates start rising due to inflation or other governmental intervention.

60-day Early Withdrawal Penalties
The usual deal for a certificate of deposit (CD) is that you agree to keep your money at a bank for a fixed length of time, and the bank agrees to give you a higher interest rate in return since it allows them to lend more easily. Of course, the purchaser is hoping that rates don’t rise a lot after already being locked in.

If you break that agreement, you get hit with a hefty penalty. It is not uncommon for some banks to take half of all your interest accrued if you “break” the CD. On a 2-year CD you’d lose a year’s worth of interest. On a 4-year CD, 2 years of lost interest. But Ally CDs now have only a 60-day interest penalty for breaking their CDs, from 6 months all the way up to 5 years! (See the Fees tab.)

5-Year CD: APY
Since the early withdrawal penalty is so short, you can run some scenarios where you earn the 5-year CD rate of APY unless rates rise significantly and you can then simply break the CD, pay the penalty, and yet still come out ahead versus going with a shorter CD.

The actual break-even requirements depend on how long you’ve held the CD and how high rates go. The longer that rates stay relatively low, the more “ahead” you’ll be since you’ve been earning that higher interest for a while.

2-Year CD with One-Time Rate Bump
Another new product is their Raise Your Rate CD. Right now it is only available in a 2-year term paying APY. If rates rise, you can have your rate bumped up to whatever the current 2-year CD rate is, any time during your 2-year term. This is nice because you are essentially paying no early closure penalty at all, and you don’t have to re-commit to another 2-year term.

Finally, a few extra small-but-handy details. All Ally CDs can be opened with $5 or $50,000 as they have no minimums. They also offer a 10-day guarantee that you won’t fund your CD only to miss out on a rate hike, or to have your rate drop if your paperwork takes too long to process:

With our Ally Ten Day Best Rate Guarantee, when you fund your CD within ten days of opening or when your Ally CD renews, you automatically get the best rate we offer during those ten days. Most banks offer only one rate?the one you get the day you fund.

In trying to spend some Sports Authority gift cards thoughtfully given to me, I found a nice $25 off $100 coupon at sportsauthority.com/save if you sign up for their e-mail newsletter (which you can cancel immediately afterwards) . I thought that was a pretty good deal, until I read their coupon exclusions, which disallowed the first five things that I could think of buying…

Discount excludes the following:

Adams Golf, adidas Golf, asics, Atec, Baby Jogger, BagBoy, Bauer, Bowflex, Bridgestone, Callaway, Carhartt, Cat Eye, Championship Merchandise, Cleveland Golf, Cobra, Coleman, Columbia, Daiwa, DeMarini, Diamondback, Dye, E-Force, Easton, Ektelon, Escape, Fitness Quest, Footjoy, Fred Bear Equipment, Gorilla, Head, Heavy Putter, Horizon, Huffy, Hunter Dan, Jugs, K2, Kettler, K-Swiss, Lobster, Louisville Slugger, MacGregor, Magnum, MBT, Merrell, Miken Sports, Mission, Mizuno, Mongoose, NBA Jerseys, Nextt Golf, NFL Jerseys, Nike, Nike Golf, Oakley, Odyssey, Parkland Heritage, Prince, Pro Feet, Rawlings, Razor, Rollerblade, Salomon, Schwinn, Skechers Shape Ups, Skycaddie, Sole, Speedstik, Spring Step, TaylorMade, Ten Point, The North Face, Thule, Tippmann, Titleist, Top-Flite, Tour Edge, Trend Sports, Trikes, Under Armour, Wilson, Worth, Yakima

All bike racks, electronics/optics, select fitness, exercise bikes, ellipticals, treadmills, home gyms, weights, benches, trampolines and accessories, select Fan Shop furniture, select camping products, canopies, scooters, table games, fishing and hunting products, and select basketball systems.

Other exclusions may apply.

It looks like this has been going on for a while, with the Consumerist writing about this two years as well:

Sports Authority misses you so much that they sent out a 20% off coupon that doesn’t apply to sports equipment or 68 named brands. You might, might be able to get 20% off a pair of socks.

Ha! Or I can buy $100 of overpriced electrolyte drinks…

It’s one thing to find a bank with a high interest rate, and another thing to have that rate stay high. Many banks post teaser-like rates to attract deposits, and then hope you’ll be lazy and stay while they gradually become uncompetitive. A post yesterday on the NY Times Bucks blog explored ways to counter this.

Bankrate does a quarterly ranking of top banks with consistently high yields, which is ?based on the number of times within the quarter that an institution?s yield was among the top 20 for the product category and the relative position of the yield in relation to the others in the product category.? But that’s only one quarter. So the Times asked them which banks have been on top for every single of the last eight consecutive quarters (Q1 2008 to Q4 2009). Good idea!

The next natural question: Which of these banks has the highest rates now? So I visited each site and found the current rates (as of 2/25/10) for their highest yielding savings account (or money market) and their 12-month CD. Since some of the rates were tiered, I picked the rate for a $10,000 deposit and also included the minimum balance needed to avoid fees. Here are the results, sorted by top overall yield:

EverBank	1.51% APY / 2.25% Intro ($5k+)	1.49% APY
Discover Bank	1.40% APY ($10k+)	1.60% APY
Ally Bank	1.39% APY (No min)	1.59% APY
Stonebridge Bank	1.25% APY ($1k+)	1.50% APY
Intervest National Bank	1.13% APY ($500+)	1.50% APY
American Bank	0.90% APY ($10k+)	1.30% APY
MetLife Bank	0.85% APY ($10k+)	1.15% APY
First National Bank of Baldwin County	0.50% APY ($5k+)	1.35% APY
M&T Bank, NA	0.50% APY (No min)	1.10% APY
UmbrellaBank (now Beal Bank)	0.50% APY ($1k+)	1.06% APY
BankDirect	0.15% APY ($10k+)	1.11% APY

Looks like AT&T Wireless is offering folks a $20 gift card if they sign up for automatic payments on a Mastercard. Good for covering part of those iPhone monthly fees!

You will receive a confirmation email in 1-2 days and your Gift Card will arrive in 4-6 weeks. It’s that easy! Log in today.

A reader recently asked me about what I thought about the fact that financial aggregation site Mint requires you to give them limited Power of Attorney when using their website. There was also a recent discussion on Bogleheads about it. You can find it in the Terms of Use Agreement page.

For purposes of this Agreement and solely to provide the Account Information to you as part of the Service, you grant Intuit a limited power of attorney, and appoint Intuit as your attorney-in-fact and agent, to access third party sites, retrieve and use your information with the full power and authority to do and perform each thing necessary in connection with such activities, as you could do in person. YOU ACKNOWLEDGE AND AGREE THAT WHEN INTUIT IS ACCESSING AND RETRIEVING ACCOUNT INFORMATION FROM THIRD PARTY SITES, INTUIT IS ACTING AS YOUR AGENT, AND NOT AS THE AGENT OF OR ON BEHALF OF THE THIRD PARTY. You understand and agree that the Service is not sponsored or endorsed by any third parties accessible through the Service.

Sounds serious! My first thought is that without this clause, Mint could not perform their intended service of being a one-stop shop for all of your online financial accounts. They would essentially have to walk up to every single site and ask for permission to be an official portal for them, yet at the same time be released from liability. That would be basically impossible.

In the end, you are basically giving up some of your rights in exchange for the convenience of having all your accounts checked for you at once. If you are worried about something going wrong with either Mint, a rogue employee, or a malicious hacker getting access to your personal information, then you might consider limiting what accounts you link.

Along that line, I would think that credit cards would be both the most helpful to link since you can then track your expenses, while also having the least exposure to fraud. This is because as long as you report any fishy behavior to your credit card issuers as soon as you find it, you likely won’t be liable for any unauthorized charges. (And if you monitor regularly with Mint, you’ll be that much more likely to notice…)

However, I for example would be more hesitant to link my Vanguard and Fidelity accounts with the bulk of my IRAs and brokerage accounts, as the benefits aren’t as great. Most of my net worth is stored at those brokers, and any screw-up would be highly stressful. Besides, I can usually check my balances at those sites separately with little added effort.

What do you think?

Here are the results of a recent study by industry research firm IBISWorld that compared the price of an average grocery cart in Los Angeles, New York City, and Chicago.

In general, organic products cost about 20% more than simply name brand items. However, the organic grocery cart is nearly 40% more expensive than a cart filled with store-branded products whenever possible. I wish there was more information on what makes up an “average” grocery cart, but I’m guessing it contains a wide variety of items.

Which reminds me of a previous post on which fruits and vegetables you should buy organic. If you value organic but are still on a budget, certain conventionally-grown vegetables retain much higher amounts of pesticides than others. Prioritize your spending with this updated list from Foodnews.org (you can even download an iPhone app with the chart):

How’s the housing market in your area doing? You can find what Zillow thinks in their Real Estate Market Reports for many metro areas. There are lots of options to play with; you can view different metrics, change the time period, or even compare entire states.

Here’s a graph of Zillow’s Home Value Index for the US as a whole as well as selected large cities over the past decade. As you can see, there was a wide range of price swings from city to city.

It would interesting to see the same chart but with rental rates instead.

With the recent natural disasters and also economic recession, many people are being extra careful to make sure their donations go as far as possible. Earlier this month, BusinessWeek ran an article Philanthropy: Rethinking How to Give which did a good job exploring the many websites now available to help you do just that. Initially, most websites focused on financial factors like what percentage of donations go to administrative or fundraising expenses, whereas now many sites tackle the harder task of measuring actual impact for the dollar.

Here is a list of the links, along with a quick description of that makes them unique, as they each have a slightly different approach. What was new to me was the idea of giving to a mutual fund-like portfolio of charities focused on a specific area, like education or global health.

Here’s a book review of an oldie-but-goodie. Liar’s Poker by Michael Lewis is a non-fiction account of the author’s experiences as a 24-year old the 1980s who started working as a bond salesman for Salomon Brothers, one of the most powerful investment banks at the time (now folded into Citigroup).

Half of the book is an insider’s view of the fast-paced and testosterone-driven world of trading and sales on Wall Street. Lewis explains terms like “Big Swinging Dick” and how he made of dollars of profits for the company, sometimes by necessarily screwing a few customers over. Don’t ever forget their priorities! Here is a quote from a 2008 Portfolio article where Lewis takes a look back:

When I sat down to write my account of the experience in 1989?Liar?s Poker, it was called?it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future. Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.

The other half explains how some of the most powerful securities in the world were created - namely high-yield “junk” bonds (which exploded in the late 1980s) and mortgage-backed securities (which took longer, and exploded in the late 2000s). They saw an opportunity:

From the early 1930s legislators had created a portfolio of incentives for Americans to borrow money to buy their homes. The most obvious of these was the tax deductibility of mortgage interest payments. The next most obvious was the savings and-loan industry.

The savings and loan industry made the majority of home loans to average Americans and received layers of government support and protection. The breaks given savings and loans, such as deposit insurance and tax loopholes, indirectly lowered the interest cost on mortgages, by lowering the cost of funds to the savings and loans. The savings and loan lobbyists in Washington invoked democracy, the flag, and apple pie when shepherding one of these breaks through Congress. They stood for homeownership, they’d say, and homeownership was the American way. To stand up in Congress and speak against homeownership would have been as politically astute as to campaign against motherhood. Nudged by a friendly public policy, savings and loans grew, and the volume of outstanding mortgages loans swelled from $55 billion in 1950 to $700 billion in 1976. In January 1980 that figure became $1.2 trillion, and the mortgage market surpassed the combined United States stock markets as the largest capital market in the world.

Following the money, in 1986 Salomon Brothers created the first mortgage derivative. Soon after, they figured out how to take BBB-rate bonds with a unknown maturity and perform financial voodoo to create top AAA-rated bonds with more predictable maturities. (A good explanation of collateralized debt obligations (CDOs) and tranches is in the video Crisis of Credit Visualized.)

Lewis also learned the trader mentality:

Many of the trades that [mentor] Alexander suggested followed one of two patterns. First, when all investors were doing the same thing, he would actively seek to do the opposite. The word stockbrokers use for this approach is contrarian. Everyone wants to be one, but no one is, for the sad reason that most investors are scared of looking foolish. Investors do not fear losing money as much as they fear solitude, by which I mean taking risks that others avoid. When they are caught losing money alone, they have no excuse for their mistake, and most investors, like most people, need excuses. They are, strangely enough, happy to stand on the edge of a precipice as long as they are joined by a few thousand others. But when a market is widely regarded to be in a bad way, even if the problems are illusory, many investors get out.

All in all, this book was a very fun read. It reminded me of somewhat of Ugly Americans by Ben Mezrich, but Liar’s Poker had a much more authentic and feel of historical significance to it.

Quicken also sent me a 50% off link to all their 2010 products. Offer good only until 2/22/10. The following Special Offer Code was included in the e-mail: 6321762157. Download version might be better if you plan on returning?

Note: Offer applies only to purchase of Quicken Deluxe, Premier, Home & Business, or Rental Property Manager when you order directly from Intuit by February 22, 2010, 11:59 PM PST.

If you’re not 100% satisfied, return Quicken 2010 software with your dated receipt within 60 days of purchase for a refund of the purchase price (return shipping and handling charges are not included).

I don’t know how many Canadian readers I have, but I do have one free copy of QuickTax Platinum ($69.99 value, download version) available to give away.

The Platinum version is the most fully-featured “personal” edition, and includes assistance with investment gains/losses and rental property, as well as RRSP guidance. Other than that, I don’t know much about QuickTax, other than it is made by Intuit and thus looks a lot like TurboTax in the US. However, there doesn’t seem to a similar product by H&R Block for the Canadian market. Who is their biggest competitor then?

To enter, simply leave a comment with a valid e-mail in the proper field below by Midnight Pacific on Sunday, 2/21. Real name not necessary, you can even leave the actual comment box blank. One entry per reader. I?ll randomly pick one winner. Thanks!

Another topic I’ve been interested in is the 100 Thing Challenge started by Dave Bruno. If you read a lot of simplicity blogs you’ve probably already heard of it, but it’s a pretty simple idea: Live with only 100 personal possessions. You can always quibble about what is a “thing” - a pair of socks, or all your socks? Your nail clippers, or all toiletries? But you get the basic idea.

The goal of the 100 Thing Challenge is to break free from the confining habits of American-style consumerism. A lot people around the world feel “stuck in stuff.” They feel like their closets and garages are too full of things that don’t really make their lives much better. But how to get unstuck?

Reduce (get rid of some of your stuff)

Refuse (to get more new stuff)

Rejigger (your priorities)

Press coverage has included Time magazine, USA Today, and The Times (UK). Here are some lists of folk’s sub-100 inventories:

Seems like clothes usually take up at least 20 items. Since this challenge basically requires that as many things as possible be digitized, I’ve been eyeing out this $400 Fujitsu bulk scanner out… even though that would be a new thing.

This week, the New York Times offered up two helpful articles about the current best sites for finding cheap airfares: Booking a Flight the Frugal Way by the Frugal Traveler and Sites That Do Your Fare Digging by the Practical Traveler. I guess nobody wants to hear from the Disturbingly Rich and Wasteful Traveler.

Instead of having to read through these long articles again every time I need to book a flight, I found myself just making a list of all the handy links that were thrown out.

Have you seen those “follow the green line” ads from Fidelity? Well, they reminded that a reader sent me their retirement account holdings for review which was managed through the Fidelity Portfolio Advisory Service (PAS). This is a managed portfolio service, which means that you pay Fidelity a fee and they do all the research, selection, buying, and selling for you. Fidelity has two managed-portfolio tiers for individual investors, with the Portfolio Advisory Service for account balances of $50,000+, and the Private Portfolio Service for those with $300,000+ to invest.

At only a $50,000 minimum portfolio size, it appears that the PAS is targeted a relatively large portion of the generic public. Unfortunately, in the wealth management business such small balances usually also mean generic, cookie-cutter portfolios with little or no personalization. Here’s what Fidelity says:

In the Fidelity Portfolio Advisory Service product, customers are invested into model portfolios of Fidelity and non-Fidelity mutual funds based on their time horizon, risk tolerance and investment goals. These model portfolios are managed by a team of investment professionals that includes Portfolio Strategists and Mutual Fund Analysts.

Sounds like “we make you answer a short questionnaire and the computer spits out an asset allocation” to me. Let’s see how Fidelity constructs this person’s portfolio. I will mention here that this is an IRA account, so that taxes aren’t a huge concern.

Portfolio Comparisons

Benchmark Portfolio
This particular account used the “Growth w/ Income Portfolio” benchmark, which has an overall 60% Stocks/40% Bonds balance. Other portfolio options are Conservative (20% stocks), Balanced (50% stocks), Growth (70% stocks), Aggressive Growth (85% stocks), and All Equity (100% stocks). Here are the indexes and asset allocation for this portfolio.

Stock
50% Total US (Dow Jones US Total Stock Market Index)
10% Developed International (MSCI EAFA Index)

Bond
25% US Investment Grade Bond (Barclays Capital US Aggregate Bond Index)
10% US High-Yield (Merrill Lynch US High Yield Master II Constrained Index)

Cash
5% Treasury Bills (Barclays Capital 3-month US T-Bill Index)

Hypothetical Index Fund Portfolio
As mentioned in the statement, you cannot invest in an index. So, I created below a portfolio consisting of actual investments that passively track the above indexes with minimal costs. I chose the cheapest ETF that tracks the exact index if possible, not the cheapest ETF that was similar. I also included the annual expense ratios.

50% SPDR Dow Jones Total Market ETF (TMW) 0.21%
10% Vanguard Europe Pacific ETF (VEA) 0.16%
25% Vanguard Total Bond Market ETF (BND) 0.14%
10% SPDR Barclays Capital High Yield Bond (JNK) 0.40%
5% SPDR Barclays Capital 1-3 Month T-Bill (BIL) 0.13%

The total weighted expense ratio was 0.20%.

Actual Fidelity-Managed Portfolio
The actual choice of investments in this account matches the benchmark asset allocation closely, and included over 30 different mutual funds. You can view the entire mutual fund list here, but here is the overall breakdown:

51.5% US Stock Funds
10.0% International Stock
28.5% Investment-Grade Bonds
10.0% High-Yield Bonds
0% Cash

This includes a mix of twenty (!) different actively-managed domestic stock funds from both Fidelity and outside companies like Janus and T. Rowe Price (Okay, 1.5% was in one index fund - S&P 500 Fidelity Spartan.) The average expense ratio for these was approximately 1%. Six different international stock funds were included, with an average expense ratio of ~1.2%. The overall bond fund expense ratios were 0.8%. This brought the total weighted expense ratio to ~0.94%.

Performance Comparisons

Now for the important part, returns after all fees. This account was not ten years old, so the best long-term return number was the 5-year historical annualized returns. The statement was as of 6/30/09.

First up, we have the 5-year annualized of the Benchmark Portfolio, which as of 6/30/09 was 1.6%. Of course this is a benchmark, which doesn’t include any management fees or commissions.

I was unable to find performance numbers as of 6/30/09 for my Hypothetical Index Fund Portfolio as it is already 2010 (if someone knows how to do this please let me know). However, we can estimate the return since the total weighted expense ratio was 0.20%. If we estimate trade commissions to be $5 per trade x 5 ETFs = $25 per month… on a $100,000 portfolio that is 0.30%. (Such trade commissions would be zero if held at Zecco or WellsTrade, given the account size.) Assuming the ETFs follow the indexes closely, then the 5-year returns would be in the neighborhood of 1.1%.

Now, what was the actual 5-year annualized return on this fully-managed account? -0.6%. Yes, negative 0.6%.

Conclusion

Over the past 5 years, the Fidelity Portfolio Advisory Service managed to construct a portfolio that lagged a simple index fund portfolio by 1.70% annually. That’s a huge difference over time. Use any compound interest calculator and stick in two numbers that differ by 1.7%, and you’ll see the effect of compound interest working against you for a few decades. Why did this account perform so poorly relative to its benchmark? Isn’t it supposed to beat the benchmark?

Too many advisors. To me, if people choose to hire someone to manage their investments, it would be to tap into their expertise and special insight. I’d want him/her to make calculated bets that will beat the market. Putting my money in 34 different mutual funds, each with their own team of advisors, seems like everyone’s bets would cancel each other out.

While the reason given for so many funds was “diversification”, the only phrases that came to my mind were “overlap” and “lack of focus”. You don’t need to own a ton of funds to get diversification. With so many funds, you’d probably end up owning the same companies as the index fund anyway.

Costs matter. The actively-managed mutual funds are the first layer of expenses, which was a weighted 0.94%. Then there is the second layer of management fees charged by Fidelity, which includes all trade commissions and varies from .25%?1.7% based on asset levels. In this account, it was 0.8%. Thus, in order to simply match the benchmark, the investments chosen would need to outperform it by 1.74%. Every. Single. Year. That is a stiff headwind.

The really sad thing is, even if I just invested in the index funds through the Fidelity PAS and basically paid them to do nothing, I would have still done better than the funds they chose. 1.6% index - 0.2% index fund expenses - 0.8% Fidelity fee = gaining 0.60% a year. Compare that with losing 0.60% a year.

For a $200,000 portfolio paying 1.38% in portfolio management fees, that’s $2,760 a year. Don’t pay nearly 3 grand a year for a cookie-cutter asset allocation that doesn’t even match an index fund. It can be well worth your time to learn more about investments yourself. Here are some starting ideas.

Walletpop had a good article last week about cheap major league baseball tickets being available on StubHub.com. The season hasn’t started yet, so planning ahead and grabbing $2-$10 tickets can make for some reasonably cheap fun. I also found an upgrade to some nice box seats for only $40.

Stubhub’s service fee equals 10% of the full price of all the tickets in your order ($5 minimum per order), and there is also a $4.95 delivery fee (per order). Yes, it’s a bunch of fees, but just look at the total price and you can still find some deals. I’d like to see all the baseball stadiums someday, although I’m falling behind as the Astrodome and old Yankee Stadium have already been replaced! Fenway Park is my current favorite, although Wrigley Field is the next one I most want to visit.

Morningstar recently started publishing their Morningstar Lifetime Allocation Indexes, which are designed as benchmarks for mutual funds that shift their asset allocation as a target retirement date nears. An example is the Vanguard Target Retirement 2045 fund (VTIVX), a buy-and-hold fund designed for those retiring around the year 2045.

Created using historical performance data with Ibbotson Associates, the indexes provide asset allocations that are optimized based on Modern Portfolio Theory. The asset classes included are US and international stocks, US and international bonds, inflation hedges like TIPS and commodities, and cash. However, the interesting part is that their “efficient frontier” optimization model incorporates the idea of human capital, which is defined as the present value of a person’s future earnings.

Here is a chart from their factsheet explaining the idea (click to enlarge):

Accordingly, there are 13 indexes with three different risk profiles - aggressive, moderate, and conservative. It is recommended that you choose the proper profile not based on your love of risk-taking, but based on the quality of your human capital:

Human capital is defined as the present value of a person?s future earnings. This ability to work and earn money over time is like a giant bond that provides fairly stable cash flows. The human capital bond is not investment-grade for all investors however. Some investors have stable income streams and thus should have a higher capacity for market risk. Others have income streams that are more sensitive to economic conditions and should therefore have a more conservative financial asset allocation.

Without further ado, you can view all the asset allocations here. I’ll probably make a nice graph out of this later. For now, let’s say I wanted to retire at about age 50 in the year 2030, and I feel my human capital is moderately stable. The Moderate 2030 asset allocation looks something like this:

84% Stocks
– US 57%
– International 27%
10% Bonds
– US 10%
6% Inflation Hedges
– Treasury Inflation-Protected (TIPS) 1%
– Commodities 5%

I don’t really have any further thoughts on it, besides the fact that I don’t think we should necessarily base everything on historical returns. It might be better to try and figure out the source of those returns. Otherwise, it’s just another data point to add to the many model asset allocations out there.