Labor Day weekend begins tomorrow afternoon in the U.S. It’s the traditional end-of-summer holiday, and most folks will get Monday off as a paid holiday. My own vacation is going to be a bit different: I’m going to take tomorrow off instead. This will be the last post until Sunday evening.

But as always when I take a short break, I’ll actually be working behind the scenes. Next week is Book Week at GRS, so I’ll be reading and reviewing at least three books. Plus, I’ll be writing the first batch of articles for my animal blog (as part of the GRS blog project) and editing the articles that will run while Kris and I are in Europe next month. So, even though GRS itself is on holiday this weekend, I’m not!

Before the break, however, here are a few financial articles from around the web:

First up, Erin Burt from Kiplinger has a round-up of her favorite fabulous freebies for 2010. This list of 33 items includes things like free car-repair help, free financial apps, free stock-portfolio analysis, free credit reports, and more. It’s a great list. The only puzzlement is why the web version doesn’t include links to all of these sites. (Sometimes old-media companies are baffling!)

Next, USA Today has an article about how the current generation of investors could become a “lost generation”. Mutual fund companies worry that investors are on strike. From the article: “The fear on Wall Street is that this buyer’s strike will linger for years, resulting in a lost generation of investors similar to what occurred after steep stock declines in the 1930s during the Great Depression and early 1970s, a recessionary time punctuated by high inflation.” It’s an interesting article with lots of info about the pros and cons of investing during a rocky market.

A GRS reader — whose name I’ve forgotten (sorry!) — sent me a link to this BBC article about The Age of Debt. Author Adam Curtis cites recent scholarship that says that the West’s recent debt-fueled economy came about because the rich were getting richer. The only way for governments to help the middle-class sustain their lifestyles was to encourage them to fund consumption through debt. His article includes several great old videos about debt. Interesting stuff, regardless of whether you agree with the premise.

One final note: This weekend, I’ll be a guest on the syndicated radio program Your Money Matters with Marc Pearlman. On Monday, Pearlman and I chatted about debt, investing, and the psychology of spending. Check your local listings to see if the show is broadcast in your area. If not, you can listen online, download the show from iTunes, or visit the website to find the show in the archives.

Have a great holiday, everyone!

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

The summer heat has taken a toll on my debt snowball. Two months ago, I paid off the last of my credit card debt, but I still have thousands of dollars in loans. I started the summer with over $10,000 in my savings account, no credit card debt, and a solid plan to pay off my remaining loans within the next few years.

Then life happened. I’ve been living out of suitcases for the past two months, traveling to New York, Buenos Aires, and Bangor. (I’ve blogged quite a bit about how travel is one of my budget weak spots.) So I spent some money. Not as much as I was afraid I might, but more than I probably should have.

Also, I have kids. Those of you with children may have noticed that they’re expensive. There are a thousand articles out there on how to keep the cost of having children to a minimum. I’ve written some of those myself. But I’m here to tell you that whether you do your back-to-school shopping at Bloomingdale’s or Goodwill, kids will add to your monthly expenses.

So here I am. Summer’s ending. I’m writing from the lake house in northern Maine where I’ve been holed up for much of the past few months. In the peaceful quiet hour around sunset, I finally steeled myself and looked at my bank balance.

Resting on my laurels
It’s not as bad as I’d feared. The numbers are still solidly in the black. My savings have a dent in them, but a smaller one than I expected. My checking account is in good shape. My bills are paid.

The shadow in this rosy picture: I haven’t made any extra debt payments all summer. The hot weather arrived, my credit cards were paid off, and instead of rolling that debt snowball right into my car loan, I sat back on my laurels. No wonder I have more money than I expected: I’ve been letting all my debt snowball money (which adds up to almost $2000 a month) sluice around in my regular budget for two months!

I was going to try to slide this under the radar. I figured I’d turn a new leaf when the leaves changed colors, keep paying my debts off as quick as I can, and no one needed to be the wiser.

But then J.D. pointed out that my recent posts here haven’t had a lot of “me” in them. That’s not just because I’m focused on other things. It’s because I don’t want anyone looking too closely at me. I’m a little ashamed of where my finances are.

Not that there’s anything wrong with taking a few months off from my debt snowball. I wanted to do something indulgent and special to celebrate being out of credit card debt. Taking a summer off would have been an expensive but reasonable choice.

The problem is that I didn’t choose it. It just sort of happened. I let things slide. I put “set up increased loan payments” at the top of my financial to-do list in June. (A to-do list I literally left sitting on my desk when I packed my bags and left for the summer.) But I neglected to do set up those payments, or to do any other active management of my household finances for months. There was money in my checking account, and that was good enough for me.

Now there’s a familiar sinking feeling in my stomach as I look at my bank balance and have no idea where my money has gone or what the numbers mean.

Failing forward
I’m not actually in any financial trouble. But my timeline for being out of debt has slipped, and it’s slipped through some of the same cracks that led me into debt in the first place. I don’t know where all that extra money went. Some of it went into preschool tuition and plane tickets and new shoes for the kids. Sure. But I was also careless budgeting for groceries and any number of small purchases. Those add up to a lot of dollars.

My shame isn’t about my bottom line. It’s about my bad habits. I’m making some of the same mistakes I made for years. The mistakes I’m prone to making with money when I don’t pay attention. That’s embarrassing, no matter what my bank balance is.

Of course, shame and fear about money was what led me into this debt trap. I didn’t want to look. For years, I simply refused to know what my spending habits were, or even what my regular bills added up to. By the time I turned 30, that head-in-the-sand approach had saddled me more debt than the total income I’d earned in my life. I’ve spent the past two years digging myself out, and I’m starting to see a light at the end of that tunnel.

I’ve been living on a skinny budget for years. I’ve paid off a mountain of credit cards. But even though I had a lot of credit card debt, the credit cards were still the low-hanging fruit.

Now I have to pay off loans. They have lower interest rates and higher balances than my credit cards did. The bills just come quietly every month and I pay them. The balances only move down, but they move down slowly.

There’s no exciting struggle. No relearning old habits to keep the plastic in my wallet and out of my hand when I’m standing in line at the checkout. No lifestyle changes that will suddenly free up hundreds of dollars to wipe out the debt.

I just need to roll that snowball over and keep paying it. I suspect that even being very aggressive about my debt payments, it will be two years before I hit another financial milestone worth throwing a party about. This approach is effective — but boring. That’s what getting rich slowly is all about.

It’s the beginning of September. The beginning of fall, and of a new school year. A great time for new beginnings. I’m back on the wagon with my budget, and making those extra loan payments this month.

I’m writing about all this publicly in the hopes that it’s a teachable moment. The lesson I’ve learned so far: Sometimes we all slip. The key is to fall back on the skills and strengths you know you have, and start over from wherever you are.

What else can I learn here? You’re a bunch of extremely smart readers. What do you do to stay motivated while paying down debt or saving towards a goal? What helps you keep your good financial habits going?

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Have you ever wondered what the panhandlers you see on the street would do if you actually gave them a bunch of money to spend? Like many people, I generally give my pocket change to anyone who asks. I figure that if they have to ask, they probably need it more than I do. (Yes, I know that there are just as many folks who think this is ridiculous, and who never give anything to folks on the street. What can I say? The empathetic J.D. almost always get his way over the logical J.D. Exception: I never give to aggressive panhandlers.)

Last weekend, the Toronto Star featured a fascinating article from Jim Rankin about a little experiment he conducted. He actually decided to give a few handlers more than just pocket change:

Over the past two weeks, I wandered Toronto?s downtown core with five prepaid Visa and MasterCard gift cards, in $50 and $75 denominations, waiting for people to ask for money.

When they did, I asked them what they needed. A meal at a restaurant, groceries, a new pair of pants, they said. I handed out the cards and asked that they give them back when they?d finished shopping. I either waited at a coffee shop while they shopped or — in the case of those who could not buy what they needed nearby or were reticent about leaving their panhandling post — I said I?d return on another day to pick up the card. That?s when I would reveal that I was a journalist.

Some were unbelieving at first. All were grateful. Some declined the offer. Some who accepted didn?t come back, but those that did had stories to tell.

As you might expect, different people did different things with the gift cards Rankin gave them.

Though there’s no real Big Message to be taken from this feature, I think it’s fascinating. Most of the time, homelessness is used to polarize people on one side or another of a political issue. But sometimes we forget that panhandlers are real people who have stories behind their predicaments. Rankin’s project was a clever way to get at some of those stories.

[Toronto Star: How panhandlers use free credit cards]

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

We hear a lot about the doubts over the future of Social Security. Here are a few I?ve come across:

If you?re among the doubters (of Social Security, not my hairdo), then listen up: The following paragraph is the most important group of words you?ll ever hear regarding Social Security. It’s key to understanding how the program works, and whether you?ll get anything. Here it is:

Social Security is predominantly a pay-as-you-go program. Most of the payroll taxes that are collected from today?s workers go into the checks of today?s beneficiaries. Thus, as long as there are people working and paying payroll taxes, there will be money to pay Social Security benefits.

According to the most recent Social Security Trustees report, from 2037 to 2084 payroll taxes will be enough to cover 75% of projected benefits. That?s not great, but that?s not nothing, either.

People who think that they won?t receive any Social Security benefits must believe one or all of the following three things:

I don?t think Nos. 1 and 2 are likely. No. 3 is possible. The program is already means-tested to a degree, since the percentage of income that is replaced by Social Security decreases as lifetime earnings increase. However, I think that if changes to the means-testing formula result in a group losing their benefits completely, it will be a small group — certainly not 60% to 75%, as the aforementioned surveys suggest. I find it very unlikely that a future Congress — elected by future citizens — will change the program in a way that the majority of people who pay FICA taxes won?t get at least some benefits.

Those crazy trust funds
For many years, the payroll taxes collected were more than needed to pay current benefits. The surplus went into the Social Security trust fund, which invested the money in special-issue U.S. Treasury bonds. However, this year — thanks to the stinky economy — benefits will exceed revenues. That?s projected to temporarily reverse, but at some point in the middle of the next decade, the retirement of the baby boomers will cause benefits to exceed taxes. This is where the trust funds come in. They?ll be sold to cover the shortfall.

In my opinion, this is the essence of questions about the future of Social Security: What, exactly, are we to make of these trust funds? Are they truly assets? Here are the two arguments:

I have to admit, I haven?t quite decided to which camp I belong. I?m inclined to go with the latter. After all, when, say, 2020 rolls around, and the Social Security Administration needs some money from the trust fund, it will take one of these special-issue Treasuries to Uncle Sam and want to exchange it for cash to be sent to retirees. Where will that cash come from? I almost think I need to see a spreadsheet or detailed flowchart or something to fully understand how all that will work. If you have suggestions for how to accurately think about the trust funds, I?m all ears.

For now, plan on getting less
That?s enough talk about Social Security for now (assuming you?re still reading). From a financial-planning perspective, I?ll reiterate my advice from my last post. If you are in or near retirement, plan on getting your benefit. If you?re younger, play it safe and plan on getting 25% to 75% of your projected benefit. But plan on getting something.

I?m sure you have your own thoughts and opinions about Social Security, and I encourage you to share them below. However, let me say this: Often, discussions following articles about Social Security turn into political brawls that degenerate into name-calling and general silliness. So please, all you right-wing nutjobs and left-wing commies, let?s keep it civil. Stick to the topic of Social Security and the facts. And maybe advice for creating a sweet comb-over.

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This post is from GRS staff writer April Dykman.

A couple of weeks ago, J.D. highlighted research that showed that rewards cards cost the poor (in higher prices overall) and benefit the rich (who are more likely to use the cards). But what if retailers offered you a discount if you paid in cash?

It might not be so far-fetched. In Will Financial Reform Kill the Rewards Card?, Brett Arends writes that a provision in the financial reform act allows for such a discount.

If competition works its magic, that discount should end up worth as much, or more, as the points you get from a card. We may end up saying goodbye to the rewards card, and go back to old-fashioned money.

The new cash is, er, cash…According to both the Public Interest Research Group and the National Retail Federation, when you pay for a purchase by credit card, it costs the retailer about 2% in transaction fees. So, logically, that’s about how much they can afford to discount if you pay cash instead.

Arends points out that the value of your rewards can be difficult to determine, especially with points for purchasing items or airline miles.

…experts explained that the average card user is doing really well if they get back about 1½ cents on the dollar. That’s why cash-back cards paying 2% seemed like the best deal for most people.

But why wait to get 2% back if you can never part with it in the first place?

Getting More for Your Money
Paying with cash could yield even bigger discounts, since the new law allows retailers to offer other benefits, like vouchers and gifts, in lieu of cash back.

Stores, naturally, sell products at a profit. So they may be able to offer you $2.50 worth of goods, say, as a bonus for settling your $100 bill in cash. You effectively get rewards worth 2.5%. But it may only cost them 1.8%. (At a high-margin retailer like Tiffany, the deal could be even better. Tiffany’s gross markup was about 75% last year. So the company could give you, in theory, gift vouchers worth $35 in return for settling a $1,000 bill in cash.)

Coming Soon to a Store Near You?
It’ll probably take time before cash discounts are offered by retailers and restaurants, but there’s interest. Before, it was difficult to implement such an offer since the law was unclear and credit card companies employed lawyers to make it harder.

But does this mean rewards might be a thing of the past if the rewards lose their allure?

Store Discounts Could Cost You
Arends is decisively anti-credit card, and that’s not a viewpoint I share for those who use them responsibly. Personally, I haven’t paid interest on a credit card purchase in years, nor have I paid late fees. I have, however, racked up some serious rewards.

For me, it’s worthwhile. But I had to ask myself, given the opportunity to get an instant discount, would I take it? Maybe. But only if I actually got cash back. With vouchers and discounts, it’s easy to feel like you’re getting a good deal, when really you’re just spending more money. In Learning to Discount All Those Juicy Discount Offers, Karen Blumenthal reports that stores that offer discounts through loyalty programs count on people not redeeming their rewards:

…we are likely to spend more to qualify for a coupon or earn cash back?and then forget to spend it. All loyalty programs count on a certain percentage of consumers not redeeming,’ Prof. Nunes notes. In addition, he says, ‘once you get closer and closer to a reward, you want it more and more’ and may spend more to get it.

Second, vouchers are a bigger win for the merchant, or else the programs wouldn’t exist. Take the example of Tiffany’s that Arends gives to show how higher markups can mean bigger rewards. How many things can you buy in Tiffany’s with a $35 voucher? Not much. The cheapest thing I could find on their website was a sterling silver ring for $100. You’re still shelling out $65 to use your voucher. If you were going to buy the item anyway, it might be a good deal. If the discount found you looking for something else to purchase, you aren’t coming out ahead.

So readers, what do you think? If you use a rewards card, would you trade in the rewards for an instant discount? Would you trade them in for vouchers or gifts?

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This is the second part in a short series about insurance basics. Last week, I explained how insurance works. Next week (or possibly the week after), I’ll offer some tips on car insurance. Today’s article offers some general insurance tips useful for most situations.

All insurance works pretty much the same way: You pay a premium (a set amount of money) to the insurance company, usually on some sort of schedule (monthly or yearly, for instance. In return, the company issues an insurance policy to you, which is a contract that gives you certain coverage, or financial protection. When you suffer an insured loss, you file a claim and the company pays you a benefit.

Insurance is meant to protect you against catastrophes, not day-to-day annoyances. You use insurance to guard against things that aren’t likely to happen, but which would cause financial hardship if they did occur.

Your goal should be to have just the right amount of insurance. If you have too much, you’re wasting money. For example, if you have a $50 deductible on your car insurance, you’ll probably end up paying the insurance company far more in premiums than they’ll ever pay you in benefits! Or, if you’re young, unmarried, and have tons of credit-card debt, life insurance usually isn’t a good place to put your cash.

On the other hand, if you’re a 40-year-old small-business owner and father of five, term life insurance could be an excellent way to hedge against the risk that you’ll die tomorrow. Or, if you’re a millionaire who likes to drive fast, increasing the limits on your automobile liability coverage could save your fortune if you get sued for the damage you cause when you plow into the back of a school bus.

How to Save on Insurance
The number one thing you can do to save money on insurance is to self-insure as much as possible. That is, set aside your own money to cover minor and moderate catastrophes, if possible. Try raising the deductibles on your auto and home insurance policies. Then take the difference between your old premiums and your new premiums and put it into a “self-insurance” online savings account every month. It won’t take long for you to have more than enough to cover the deductible.

You can also save by reviewing your coverage from time to time, and following these suggestions:

These tips help you save on most types of insurance. Still, not all insurance advice can be generalized; each type of insurance has its quirks. Next week, we’ll look at specific ways to save on the most common type of insurance: auto insurance.

Note: Much of this material was drawn from the “Death and Taxes” chapter of my book, Your Money: The Missing Manual, which was published earlier this year by O’Reilly Media. You can download a sample chapter here.

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It’s Sunday morning and I should be editing articles in advance of my upcoming vacation. Instead, I just got done playing another game of Starcraft II. Since the game was released on July 27th, I’ve played many games of Starcraft II. In fact, I’ve played at least 150 games of Starcraft II. (I know this because the game keeps track of your record. I played 50 training matches, and have since won 47 and lost 42 against human opponents, putting me near the top of my division in the “Silver League”. Plus I’ve played some single-player games.)

How much time has playing 150 games of Starcraft II sucked from my life? At about 30 minutes per game, it’s safe to say I’ve spent about 80 hours over the past month — or about 20 hours per week — building virtual armies and blowing stuff up.

Now on the surface, there’s nothing wrong with me having a little fun. I’ve been waiting for this game for almost twelve years. Plus, I’ve been working hard for the past two years, and I’ve been stressed because of it. I deserve some time off, and have intentionally been downshifting to a simpler life, one that gives me time for computer games.

However, having said that, in this case there’s a problem. Recently my game-playing — I’ve also been obsessed with Carcassonne on the iPad (getting close to the global top 100 list!) — has been obsessive, and has come at a price.

I say I’m going to do all of these things, but I never do. Instead I play computer games. Basically, I’ve turned into the old J.D. — the J.D. of five years ago. I’ve become a Talker instead of a Doer.

Talkers vs. Doers
Five years ago, I was full of hot air. Well, that and I was clinically depressed. And lazy. This was not a good combination for Getting Things Done. I talked a lot about the things I wanted to do, but I never did them. I found reasons not to. I even had trouble keeping up my end of the household chores, which my wife found very frustrating.

I was a Talker.

Maybe you know somebody like this. A Talker seems to know the solutions to everything, has great plans on how he’s going to make money or get a new job. But the funny thing is, the Talker never acts on his solutions and his great plans. And he never gets that new job. He’s out of work or stuck in a job he hates. To everyone else, it’s clear that the Talker is full of hot air, but he believes he’s bluffing everyone along, or conflates talking with doing. When confronted, a Talker always has excuses for not getting things done: he doesn’t have time, he doesn’t have the skills, the odds are stacked against him. When a Talker does do something, he often takes a shortcut.

That, my friends, was the man I used to be.

But something changed in the autumn of 2005. I began to read a lot of books. Not just personal finance books (though, as you know, I read plenty of those), but also self-help books and success manuals. I read Feeling Good to deal with my depression, How to Win Friends and Influence People [my review] to learn how to talk with people, and so on. And gradually I began to take the advice in these books to heart.

I began to take small steps, began to be more active in my world. Instead of just talking about doing things, I did them. I stopped looking for shortcuts — I had been a huge fan of shortcuts — and started actually doing the work required to get things done. Shockingly, this worked. By doing the work, I got the expected results. By doing instead of talking, things started to happen.

I became a Doer.

We Are What We Repeatedly Do
Author Kevin J. Anderson has a fantastic post on his blog about the similarities between the Olympics and writing. Here’s a lengthy excerpt:

I?ve had many people tell me, ?Oh, writing is easy. Anybody can do it if they just sit down and put their minds to it.? Here?s how the conversation goes:

Somebody at a book-signing: ?I?ve always wanted to be a writer. I could write a novel.?

Me: ?Oh? Why haven?t you??

Person: ?I just don?t have the time.?

Me: ?Hmm. Nobody gives me the time, either. I have to make the time, set priorities, discipline myself to get my writing done each day, no matter how tired I am. I worked a full-time regular job while I wrote my first novels, scraping out an hour here or there in evenings and weekends. That?s how I?ve become a successful author.?

Person: ?Yeah, right. I think you?re just lucky.?

[...]

I?ve wanted to be a writer since I was five years old. I sat in my dad?s study and plunked out my first ?novel? on a manual typewriter when I was eight. By the age of ten, I had saved up enough money to buy either a bicycle (like a normal kid), or my own typewriter. I chose the typewriter. I got my first rejection slip by the time I was 13, had my first story published when I was 16 (after I had gathered 80 rejection slips), and sold my first novel by the time I was 25.

I have a trophy in my office proclaiming me to be ?The Writer with No Future? because I could produce more rejection slips by weight than any other writer at an entire conference. My files now bulge with more than 800 rejections. On the other hand, I also have 100 books published, 46 of which have been national or international bestsellers, I?ve got a shelf full of awards, and my work has been translated into 30 languages. I?ve written more than twelve million words, so far.

Anderson is a Doer. He doesn’t just talk about writing — he writes. He writes over and over and over again. Through the sheer act of writing, he became a writer.

People often ask me about the secret to this blog’s success. “How did you get so many readers?” they ask. “How can I do the same?”

My answer is similar to Anderson’s. There aren’t any secrets. Write and post great content on a regular basis for a long, long time. In short, you can’t just talk about building a great blog; you also have to put in the work. Simple, right? But it’s not easy.

(I appreciate the folks who come up to me and say, “You know, J.D., I don’t know how you do it. I tried to keep a blog for a few months. It was hard.” Yes, it is. It’s work, just like anything else.)

If there’s something you want to be or do, the best way to become that thing is to actually take steps toward it, to move in that direction. Don’t just talk about it, but do something. It doesn’t have to be a big thing. Just take a small step in the right direction every single day.

If you want to get out of debt, take small steps toward becoming debt-free. If you want to save for a trip to Africa, save a little bit at a time. If you want to get a new job, make moves in that direction. But take action. That’s the most important step.

Action Not Words
Of course, there’s more to getting stuff than just taking action. It’s one thing to say you want to become a commercial airline pilot and another to actually do it. Here are some of the things I learned as I made the move from Talker do Doer:

In the past five years, I’ve learned that I can do anything I set my mind to. Get out of debt? After I stopped talking and started doing, I got out of debt quicker than I thought possible. Losing 50 pounds? Well, I’m not there yet, but I’ve lost over 30 pounds since January 1st — but it didn’t happen until I stopped talking about it and started working hard to make it happen. Learning French? Well, there’s one where my talk outpaces my action right now, and it’s a perfect example of what I mean when I say actions speak louder than words. I don’t study my French as much as I should, so basically all I can do is count and tell you what color my clothes are. (”J’ai deux chemise noir.”)

For five years, my doing slowly increased until this past winter it reached a frenzied pace. I was burning myself out. I was writing and speaking and working and exercising and…well, it seemed like I never had a spare moment. This was the dark side of doing, and it’s what triggered my desire to downshift. It’s what led the pendulum swinging too far in the direction of Starcraft II.

Finding a Solution
So what’s the solution to my current problem? How can I stop playing computer games so much? How can I stop just being a Talker and become a Doer again? Well, making this public confession is a first step. But the thing that I think will really help is the “decision tree” I came up with the other day. Whenever the urge to game strikes, I’m going to ask myself the following questions:

If I can answer “yes” to these five questions, then it’s okay to play Starcraft II or Carcassonne. But if I answer “no” to even one of these questions, I need to have the discipline to let the gaming go. I believe this will help me strike a balance. It’ll help me return to the world of Doing again. Because you know what? Life is a lot more fun as a Doer than a Talker.

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This guest post from Alissa is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes. I like all of the reader stories I publish, but for some reason I particularly like this one. Update: Now with photos! Alissa e-mailed two images of her chain of debt.

In April 2007, I found myself owing $6,500 to my credit cards and $24,000 on my student loans. While not a lot, I was only earning $31,000 and living in Washington, D.C. Earning $31,000 in the D.C. area is not a comfortable salary, especially when you have to pay a large portion of your health insurance costs out of pocket after taxes. Thankfully my student loans were all Stafford loans, and I had them on an income-dependent payment plan.

It was around this time that I officially decided that I wanted to go back to school to get my PhD. In Microbiology, you don?t get much freedom in research with only a BS. I knew getting into graduate school would be hard, and that simply paying for the application process would set me back a few hundred bucks. I also knew that the average stipend for a Microbiology PhD student wasn?t large, so I wanted to go off to grad school with as little debt as I could.

Breaking the chain of debt
To get the ball rolling, I decided that I needed a visual reminder of my debt, something I could look at every day. So I made myself a literal paper chain of debt. I made each link worth $100 and each color group a thousand. Each time I dipped below an amount on a link, I could reward myself by cutting it off.

I was so psyched each month when I could cut off more than one link! But to get myself credit card debt-free in less than two years and not have to pay for my applications with more debt, I had a lot of work to do.

Doing the right thing
I was in the midst of learning about personal finance and was able to find some very simple things that worked well for me to help me spend less than I earned and still have money to pay off my debt. I really don?t feel any of these are particularly special or unique, but it took me a while to realize that I could make it all work and pay off my credit cards. Here are some of the major things I did to help me reach my financial goals.

Even with the addition of a $2,000 emergency vet bill, all of my consumer debts were paid off March 2008, allowing me to save money for moving for grad school. I accumulated no new debt buying what I needed to move and had enough saved that I paid for what I needed after moving with cash.

Reaping the rewards
Now, two years into graduate school and earning the least I?ve earned since graduating from undergrad in 2001, I live more comfortably than ever. I carefully budget my money each month. I have not only a general emergency savings, but also targeted accounts. If one of my cats gets sick, I have money set aside to pay for it. I?m mindful of how much I spend on everything, knowing that if I?m careful, I can have some fun even on a meager stipend.

This has also allowed me to start paying back my student loans while still in school and while my loans are in deferment. It doesn?t sound like much to only owe $23,618 now, but I know that if I weren?t making any payments, I?d owe even more in the long run.

The biggest thing that helped me along this path was deciding what my goals were and then trying to align my actions with those goals. Blogs like Get Rich Slowly really helped me see that I could do it. This is the ideal I carry with me today.

Today, rather than being $6,000+ in credit card debt, I now have almost $5,000 in the bank to be able to reach the goals I?ve set for myself. I can now take a trip to see my parents this summer without having to worry about how I?m going to pay for it. No, I don?t get to eat out a lot, nor do I have the newest most fashionable clothing, but I?ve realized those things aren?t important to me. What is important to me is having money to spend on what I do think is important to me. To me, this is true financial freedom.

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Normally, I wouldn’t post something like this at Get Rich Slowly — this is why I have a personal blog — but I’m getting a lot of tweets and e-mail from folks about a piece of ephemera that has surfaced on the internet. It seems that somebody’s stumbled upon a list of the folks who were in the running for the various parts on Star Trek: The Next Generation. And who was up for the part of Wesley Crusher? Why, J.D. Roth was.

Here’s the thing: I’m not that J.D. Roth. That J.D. Roth is the former host of Fun House, the voice of Jonny Quest, and now the producer of The Biggest Loser. If I were that J.D. Roth, I’d be rich! I wouldn’t have to write about building wealth.

So, I wanted to put the rumors to rest. I was never up for a part on Star Trek: The Next Generation. My acting skills were never that good. (They extended to playing the part of “townsman” in our high-school production of Seven Brides for Seven Brothers. I got to carry an axe.)

This (non-)story is sort of fun, though, for several reasons.

So, yes, I would have loved to play Wesley Crusher in the Trek universe, but I was never up for the part. At that time, I was a goofy college freshman. Note to producers: Since Wil Wheaton is so busy blogging now, I’d be happy to play the role of Wesley in any future Star Trek films. Just FYI.

Have a great weekend, everyone!

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Last week, Isaac asked Get Rich Slowly readers for advice on how to handle life after grad school. He’s about to enter the workforce and needed tips on what to do until he gets his first paycheck. Isaac was very pleased with your helpful responses.

This week, we’ve got a chance to help somebody even younger than Isaac. Nico is 18, a sophomore in college, and financially clueless. He needs help! Here’s his story:

I’m pretty young — about to start my sophomore year of college — and I literally have absolutely no knowledge of anything financial. I do have a simple student account with a paltry amount of money in it, and that’s really about it. So yeah, the majority of your site goes over my head and some things are quite intimidating.

I’m going to continue browsing the basics section in order to see if I can glean some information, but are there any other resources you would recommend to a financially clueless 18 year-old? I think it would be a good idea to start this kind of stuff earlier rather than later.

Nico’s right: The time to start learning about finances is now, before he needs to know the information. Fortunately, he’s not as far behind as he thinks he is, even if he does feel clueless. It’s my guess that most young adults feel lost when it comes to money.

So, what resources would I recommend for an 18-year-old kid? As much as I’d love to pitch Get Rich Slowly and Your Money: The Missing Manual, I actually think there are better options, including:

Although Nico didn’t ask for specific advice, I’m going to give him some anyhow. I’ll repeat the same advice I give when I speak to other college students. Namely:

Maybe it’s because of my own experience racking up debt during college, but I think it’s important for young adults to learn the fundamental law of personal finance: To build wealth, you must spend less than you earn. There’s more to it than that, of course. The less you spend, the more flexibility you have.

When I graduated from college, I bought a new car and developed credit card debt. I had to take any job I could find because I was tied to monthly payments. When my friend Sparky graduated, he had a lot of freedom. His debts were minimal. He traveled the U.S., taking whatever job struck his fancy. He spent time in Mexico. He spent five months traveling southeast Asia. He was able to do these things because he didn’t have expensive obligations.

I don’t think Nico should worry about stuff like investing and insurance right now. These are important, but they’re beyond the basics. For now, Nico should focus on learning how to earn and spend money wisely.

What do you think? What do you wish you had known about money when you were 18? What advice do you have for Nico? What books or websites (or other resources) would you recommend for him? What steps can Nico take at 18 to makes sure that Nico at 41 is happy, wealthy, and wise?

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Kris and I live in a small, quiet neighborhood south of Portland. When the trolley line ran through here — between 1893 and 1959 — Oak Grove was actually thriving community, with shops and stores and more. (It’s true! I’ve seen pictures!) Now, though, downtown Oak Grove, such as it is, consists of a convenience store, a hair salon, a joint once named “the best dive bar in Portland” — and the home office of Get Rich Slowly.

There’s also another business in downtown Oak Grove: a small coffee shop that opened a couple of years ago. It struggled a little at first, but eventually business picked up, and it’s become a valuable part of our community. In fact, Kris and I think of the Oak Grove Coffeehouse as the only real hub our area has.

But there’s a problem. This summer hasn’t been kind to the Oak Grove Coffeehouse. The business is struggling. Jason, the owner, has been forced to cut back hours. He’s waiting for classes to resume at the nearby high school in hopes that the teachers and students will bring a cash infusion. But for now, things look grim. Here’s a recent Facebook post:

I’ll admit that I haven’t been supporting the coffee shop as much as I used to. Kris stops in once or twice a week on her way to work, but I’ve cut it out of my budget for both fitness and frugality reasons. (I’m living the latte factor!)

Why I buy local
Still, I feel passionately that small businesses are vital to the success of a community. It’s probably because my family has owned many small businesses in the past, but I do my best to support Mom and Pop operations whenever possible, and I try to avoid national chains of all types.

When it comes to local businesses, I try to put my money where my mouth is. I vote with my dollars. Why do I buy local? For a lot of reasons, including:

There are indeed times that I’ll eat or shop at a national chain, but if I have a choice, I’ll almost always opt for local. Yes, there usually is. (Though not always.) But the cost differential isn’t great. Even when I was digging out of debt, I was willing to pay extra to buy local. I considered a sort of “community tax” — a surcharge I paid to keep the local area vibrant and strong. That’s important to me, so I’m willing to pay a little extra to make it happen.

Not everyone feels the same way, of course.

The opposition speaks
Kris and I hosted the annual Roth family reunion last Saturday. It was a smallish gathering (only about 20 adults and 10 kids), but it was lively. Roths can be rambunctious, and we’re not afraid to debate with each other.

Over our sausages and sauerkraut, somehow the conversation turned to supporting local businesses. I forget why the subject came up, but it’s not surprising:

As you might expect, because there are a lot of small businesses in my family, there’s a lot of “buy local” sentiment. But not everyone feels that way. During our rowdy conversation, Tammy made it clear that she’d rather shop at Wal-Mart than at her neighborhood stores.

“Oh, come on,” said Tammy’s brother, Ben. “There are people here from all sorts of political backgrounds, but I think there are two things we can all agree on: Monsanto is evil, and you shouldn’t shop at Wal-Mart.”

“Why shouldn’t I shop at Wal-Mart?” Tammy asked. “The stuff is cheap, and I don’t have a lot of money to spend.”

The argument discussion continued for several minutes: Tammy vs. the rest of the Roths. When Tammy learned that her brother Ted lives 2-1/2 hours from the nearest Wal-Mart, she was appalled. “I would not like that,” she said. “Where do you get your groceries?”

“Just the local store in town,” Ted said.

“And you’re paying through the nose, right?” said Tammy.

My brother Jeff jumped in: “But he’s supporting a local business, supporting the local economy. If local business isn’t supported…”

“Well,” said Tammy, interrupting. “Think what you want. I’m just not that into the local economy.”

Tammy has some valid points. National chains are successful for a reason. They’re cheap, they’re widely available, and they’re familiar. You know what you’re going to get and how much you’re going to pay. You know how the system works. Working with local businesses can sometimes be…interesting.

Do YOU buy local?
Family bickering aside, the debate over the importance of buying local occasionally gets debated in communities across the U.S. Last week, for instance, USA Today posted an article about towns trying to block chain restaurants in order to preserve character and protect local businesses.

I was curious what GRS readers thought, so last week I polled my Twitter followers and the folks at the ever-growing GRS Facebook page. I asked, “Do you go out of your way to support small businesses in your neighborhood? Why or why not?” Here are some of the responses:

Most of the folks who responded on Twitter and Facebook try to support local stores over national chains, but a few do so with reservations. They’re wary of paying higher prices, and some have had horrible service experiences. (National chains usually have quality standards that keep service uniformly good.)

Conclusion
Let me make one thing clear: I don’t condemn anyone who does not or cannot buy local. I’m an ardent supporter of small businesses, and I hope that you will be too, but I’m not going to say you’re wrong if you have good reasons for shopping elsewhere.

All things being equal, I suspect most people would choose to buy local. But each of us has a different price at which local is no longer an option. For some, this point is immediate: they’ll always buy the cheapest option, regardless of other factors. Others — and I know a few like this — will buy local no matter the cost.

So where does my zealous support of local businesses leave me with regards to the Oak Grove Coffeehouse? What about the latte factor? What about my diet? I’ve made some compromises.

Twice a week for the past two weeks, I’ve walked up to the store on my way to the office. I buy a Mexican Coke and a cinnamon roll. (I don’t actually like coffee.) Now, I know that my $8 per week isn’t going to keep the place in business. But I hope that it helps a little.

Meanwhile, I’m just exercising a little harder to burn off those extra calories…

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

Simple living is great. Avoiding shopping malls in favor of clothing swaps, cooking meals at home with your spouse, holding a music jam with friends instead of shelling out big bucks for a concert — all these activities not only save you money, but they also connect you more deeply with what you love.

In a sense, they make you more alive. Which is what getting rich is ultimately about: not simply achieving material wealth, but living a rich life.

Pay now, save later
Some things just shouldn’t be scrimped on, though. There are expenses that save you money down the line. Some also save you time and improve your quality of life. It might be tempting to cut corners on this stuff, but the truly frugal person knows that laying out cash up front will pay off in savings later.

Consider these expenses an investment in your life. You’ll reap material as well as personal rewards when you keep up with these areas of your life:

Investing in these core areas pays off in a better quality of life and saves you money on emergencies. A healthier, happier life is also a cheaper one.

Budgeting for now and later
To get the long-term financial and personal gains of this approach, you’ll need to do some careful budgeting. Make sure you leave room for “unexpected” expenses like home repairs and dental work. A review of your last few years’ spending records should give you a pretty clear idea of what your family typically spends on these periodic maintenance items. By budgeting for them, you’ll have the cash on hand when you need it.

You can also make your life easier by funding a three- to six-month emergency fund to tap into when life throws you a big curveball like a suddenly failed appliance You shouldn’t rely on your emergency fund to cover your new running shoes or evening computer classes, though. Budget for these “life investments” and they’ll fit more easily into your life.

As with any expense, it’s important to make these choices with care. Yes, you’re investing in your life. Keeping your health, your home, your marriage, and your career strong will bring you more happiness every day. But like any investment, take care not to overextend yourself. Sometimes last year’s running shoe is just as good as this year’s — and for half the price. Getting the most out of your money without shortchanging your quality of life is the truly frugal approach.

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I’ve been plowing through my e-mail lately in my never-ending quest to reach inbox zero. As a result, I’ve been answering tons of reader questions. And when I can’t answer them (or when I think a colleague can do a better job), I try to refer the question to somebody else.

Over the weekend, for example, LP wrote:

I’m a college student and have started saving up and setting aside money, and I feel that the time has come to consider a high-yield savings account, a certificate of deposit, or something similar. It would appear to me that in the time that’s passed since you wrote articles on these types of things (and also helpfully comparing some, thank you), the interest rates have dropped from 4-5% on average to 1-2% on average. Why is that? Is it the economy? Should I sign up for interest rates this low, or should I wait and hope that they increase?

Though I understand the basic reasons that interest rates are so low, I decided it made more sense to ask my colleague Richard Barrington from Money Rates to chime in with an authoritative answer. All of the info in the next section is directly from Barrington.

Why interest rates are so low right now
LP has hit the nail on the head: The economy is the reason interest rates are so low right now.

When the economy is weak, people and businesses are less inclined to borrow money. Like anything else, the cost of loans is affected by supply and demand, and low demand for loans means that the cost of loans — the interest rates — has come down.

Adding to this, the Federal Reserve has moved to lower interest rates. These actions range from lending money to banks at extremely low rates to buying bonds on the open market, which drives market interest rates lower. By lowering interest rates, the Fed hopes to stimulate the economy.

Their reasoning is that if loans are cheaper, more people and businesses will borrow, spending will rebound, and the economy will be on its way again. This hasn?t worked particularly well, however, because many people are already swamped with debt, and banks have been reluctant to lend money because they got burned in the housing crisis.

So, where does this leave us? According to the FDIC, savings account rates now average 0.19%, money market rates average 0.27%, and 1-year CD rates average 0.68%. However, you can do somewhat better than these rates if you shop around. For example, the best money market rates are up around 1.50%.

One silver lining is that while interest rates are low, inflation has also been quite low; in fact, some economists are talking about deflation rather than inflation in the months ahead. Still, no matter how you slice it, today?s interest rates are unusually low. Any decisions you make about those rates should be considered in the context of the fact that these rates are very much out of the ordinary.

Also, your level of optimism about the economy should be a factor. A more robust recovery would increase demand for loans, and would also eliminate the need for the Fed to keep pushing rates lower. In other words, a stronger economic recovery would most likely push interest rates higher.

What should you do with your money?
Thanks to Barrington for taking the time to answer LP’s main question. As for LP’s secondary question — “Should I sign up for interest rates this low, or should I wait and hope that they increase?” — the answer is: It depends.

My philosophy is that your decision about where to put your money should be less about the potential returns than about your eventual use for the cash. In general, stocks will earn more than bonds, which will earn more than CDs, which will earn more than savings accounts. Not co-incidentally, the higher the potential return, the more risk or drawbacks an investment option has.

All of this is to say: If LP needs his money next year, he probably shouldn’t invest it in the stock market. Yes, the long-term average return on stocks is about 10%. But “long-term” is measured in decades. And average is not normal. Those stocks might go up 30% in the next year, or they might drop 50%. If LP needs the money, he should put it somewhere safe, which probably means a CD or a savings account.

No, a CD or a savings account won’t give LP the 4% or 5% returns of years gone by. But as Barrington notes in his summary above, those interest rates should be back once the economy improves. The most important thing to understand, though, is that when you’re saving for the short-term, high interest is a bonus. What you really want is for your money to stay safe.

What about you? With interest rates so low, where are you putting your cash? Have the low rates prompted you to move your money to the stock market? Have you opted to make major purchases? Or do the interest rates influence your decision at all?

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I don’t write a lot about insurance around here. For one thing, insurance is kind of boring. For another, I don’t know a lot about it. Still, insurance is an important part of personal finance, and my silence on the subject hasn’t gone unnoticed.

Josh wrote last week to make a request:

I’ve been reading your blog for about a year now, and I consider it a constant source of valuable information. However, one area that I find that it is lacking is in auto insurance. [...] I’m not writing this to take anything away from your site, but rather to politely ask that you cover this topic sometime in the future.

Josh’s wish is my command. For the next month or so, Get Rich Slowly will feature a weekly post on insurance. The first couple of articles will cover the basics of insurance, laying the groundwork for the last couple of articles, which will be specifically about auto insurance.

An Introduction to Insurance
Insurance is a way to manage risk. As you go through your life, there’s always a chance that you’ll be in a car accident, twist your knee, or that your home will burn down. The risk of these accidents is small, but if one of them were to happen, the effects could be catastrophic. Without insurance, you’d have to come up with the money on your own to repair your car, have knee surgery, or rebuild your home.

Although these things happen to some people, they don’t happen to everyone. With enough data, it’s possible to know roughly how many people are likely to experience these setbacks — and how much it will cost to recover from them. Using this info, an insurance company can spread the risk among all its customers.

An Elementary Example
Imagine Eastside Elementary, a school with 100 students. Every year for the past 25 years, one Eastside Elementary student has broken an arm in the schoolyard, resulting in about $5,000 in medical expenses. Without insurance, every family would have to save $5,000 to cope with the odds that their little tyke would be the one with the broken arm. At the end of the year, 99 families would have paid nothing (and have $5,000 left in savings), but one family would have paid $5,000 (and have nothing left).

With insurance, the Eastside Elementary families can join together to spread out the risk. If they created an insurance fund, all 100 families would pay $50 at the start of the school year. This $5,000 total would then go to the family of the child with the broken arm.

By spreading the risk, each family only has to save $50 instead of $5,000. Sure, that $5,000 is gone if it’s not your child who breaks her arm, but for most people, that’s an acceptable trade. Instead of having to scrape together the full $5,000, they’d rather risk losing $50 for a chance to avoid $5,000 in medical bills.

But is it really fair to have every family pay $50 into the insurance fund? Some kids go to the library at lunch to read Harry Potter and Mysterious Benedict Society books; others climb around on the jungle gym and throw stones at each other. The bookworms are much less likely to break an arm, aren’t they? And maybe the 25 years of data show that girls break their arms less often than boys. With enough info, the Eastside Elementary Insurance Fund could charge each family a different rate depending on how likely their child is to break an arm.

How Insurance is Like Gambling
Insurance is a bit like gambling. You’re betting a little money now because you think the odds are good that you’ll need a larger payout in the future. But there’s one huge difference between gambling and insurance: Gamblers seek risk in an attempt to get more money; when you buy insurance, your goal is to reduce risk so you don’t lose more money.

In fact, gambling casinos and insurance companies make use of the same statistical laws, especially the Law of Large Numbers, which says that the more you have of something, the more likely the characteristics of that something will tend toward average. The more people who roll the dice at the craps table, for instance, the better the casino can predict its earnings. And the more people in an insurance fund, the more accurately the insurance company can predict its losses (and its profits).

Insurance is a Good Thing
Most of the time, using insurance to spread risk is a good thing. That’s why most states require car insurance, and why smart folks keep homeowners insurance even after their mortgage is paid off. But insurance can be expensive, especially if you have too much or the wrong kinds. Next week, we’ll cover some general insurance tips. The week after that, we’ll cover the basics of auto insurance.

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This post is from GRS staff writer April Dykman.

Could you produce your birth certificate, car title, or an old tax return at a moment’s notice?

You’re supposed to store vital documents in a fireproof box or keep them in a safe-deposit box, but how many of us actually do that? We may not need these papers often, but when we do need them, we really need them. You need vital documents to sell your car, travel overseas, apply for a job, get through an audit, refinance your house, and more.

The good news is that if you’ve lost important pieces of paper, you can replace them ? and it might be easier than you think. Here’s how to replace six of the most important documents in your life.

Birth certificate
You need a birth certificate for everything from enrolling in school to getting a marriage license (if you don’t have a passport). To replace one for yourself or your child, go to the vital statistics office website for the state where the birth occurred. You might need a photo ID, and you’ll need to provide as much of the following information as you can:

Replacing a birth certificate costs $10-$20, depending on the state.

Social Security card
A Social Security card can be required for a number of things, such as applying for a job or enrolling in college. Sometimes you only need the number, but other times you might be asked to produce the card. To replace it, contact your local Social Security office. You’ll fill out an application form, and you’ll need one of the following forms of ID:

Plus one of the following proofs of citizenship:

There’s no fee for a replacement card, and you are limited to three replacement cards in a year and 10 during your lifetime. For security reasons, it’s recommended that you go to your local Social Security office in person instead of mailing in the application and ID document.

Passport
You need a passport to travel abroad, but it’s also handy to have for identification purposes should you lose your driver’s license. If your passport has been lost or stolen, you’ll need to report it by calling 1-877-487-2778. Then, go to a passport agency or acceptance facility in your area and bring the following two completed forms:

You’ll also need to bring identification and proof of citizenship (see list for Social Security replacement above for acceptable forms of proof) and two passport photos. Renewing an adult passport costs $140.

If you need the passport in less than two weeks for an upcoming trip, you can contact the National Passport Information Center to make an appointment at a local passport agency.

Property deed
If you sell or refinance your house or property or transfer the title, you need to show proof of ownership in the form of a property deed. Try the following ways to get a copy (and have the address and tax map ID number handy):

The first two methods are cheap, usually costing a small fee for photocopies. Hiring a title company can run $100-$150, but can yield a more complete search.

Car title
Hoping to sell your car? You’re going to need the title. Contact your state’s department of motor vehicles. You’ll need the following:

You’ll also need proof of ownership, such as your license plate number and vehicle identification number or your vehicle registration.

Tax returns
To get tax returns from previous years, start by contacting your accountant or tax preparer, who should keep copies of your returns. You also can get copies directly from the IRS by filling out form 4506, Request for Copy of Tax Return. There’s a $57 fee per tax year requested.

For more information about replacing these and other documents, visit the online USA.gov guide. To keep from losing your important records in the first place, create a vital documents map! Use this guide, complete with inventory worksheets, to get the ball rolling.

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This guest post from Mike Choi is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes.

Almost two years ago, J.D. shared an “ask the readers” column about how to rent out your spare room. In that post, Penny was renting a spare bedroom to her brother-in-law, but when he moved out, she regretted seeing the rental income go. To make up for the rental income, Penny was thinking about renting to strangers, and was asking for advice from GRS readers. I don?t know what kind of financial relief or savings it provided for Penny, but my story is about the result of what Penny planned to do.

I’ve been renting out my rooms for the past five years. This whole thing started out as way for me to pay for graduate school back in 2006. I already had about $18,000 worth of student loans from my undergraduate studies, and I didn?t want to take out more student loans. I figured I could get about $600 a month from rent, which could easily help pay for grad school tuition, which costs $1,600 per class. I placed an advertisement online and found a roommate.

After about ten months of renting my room, things were going well; my roommate and I were getting along, and I was taking grad classes. However, my graduate studies were going slow because I was only taking one class a semester. I wanted to take two classes a semester so that I could graduate sooner. I had the time to devote to the extra work load, but didn?t have the money for the extra class.

It was then I decided to finish my basement and move down there myself so that I could rent out the bedroom I was currently living in. This would allow me to bring in another roommate to make the additional money I needed to take a second graduate class during a semester. My plan worked: I found a second roommate and was able to collect a second rent check in addition to the first. This was more than enough to pay for two classes a semester.

Fast forward three years.

I finished my graduate degree without a single penny in debt! Had I taken out loans, I would now have an additional $32,000 of student loan debt.

Since I was able to avoid taking student loans for graduate school, I can say it was definitely worth it to rent out my spare rooms. To this day, I continue to rent out both rooms. Now instead of using the rental income to pay for graduate school, I use the rental income to pay down my mortgage.

Even though I can afford the mortgage payments on my salary, when I bought my property back in 2005, I took on a considerable amount of debt to buy my house. How much debt did I take? I currently have two mortgages, and my mortgage debt/situation is very similar to this blog post at Five Cent Nickel: I got caught up in the real-estate bubble hype and bought my place with no money down.

With my current mortgage situation, I can?t refinance because the value of my property is less than the value of my loan. To get out of this mess, I have to pay off the second mortgage with the higher interest rate and refinance the first mortgage. With the rental income, I have been paying additional principle to my second mortgage because it has the higher interest rate. By doing this, I was able to bring the balance on my second mortgage from $35,000 to $21,500. If all goes according to plan, I should have the second mortgage paid off in early 2012.

Renting out my spare rooms has been a fantastic example to show how rental income can provide financial relief. My story may be a bit extreme given that I am renting out half of my primary residence; nonetheless, it can provide motivation for homeowners to get out of consumer debt or perhaps pay for college tuition for a child who is no longer living at home.

If you’d like to learn more, you can read more about this subject at my blog, Renting Out Rooms!

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This guest post from my wife is yet another installment in her ongoing quest to grow and preserve food for our household.

Making jam makes me happy. Okay, that?s only partly true. I?m also happy making jelly, preserves, and syrups — and I’m pretty darn pleased with conserves, marmalades, and most things pickled. No matter that I could never eat everything I make — even with J.D.?s help — the mere process is somehow satisfying to me. So, I madly preserve whatever I can lay my hands on each summer, then spend hours inventorying and organizing the jars, finally doling them out like precious jewels on special occasions to friends and family.

Competitive canning
Last year, I steeled my courage and submitted a few jars for judging at the county fair. I was pleased as punch when my gingered dilly beans won a blue ribbon, and vowed to enter more preserves this year. As I made my batches this summer, I put jars aside for the fair. In the end, I had to leave out some of my favorites, since you?re only allowed one entry per category.

I turned the jars in last Sunday morning, and then bit my fingernails until our trip down to the fair yesterday. I was a bit apprehensive, since this has been my summer to do most of my canning without boxes of commercial pectin. Instead, I’ve been putting my chemistry degree to use, combining high-pectin fruits with low-pectin fruits and using pectin I extracted from unripe June-drop apples from neighborhood trees. Despite my chemistry skills, I’m a novice at using home-made pectin, so it was sometimes a challenge to get a nice firm gel instead of a runny syrup.

The county fair?s judging process for preserved foods is a bit of a mystery. But what I do know is that it?s based 50% on appearance and 50% on ?product quality?. If they don?t rate the appearance highly enough, they won?t even open the jar for the remainder of the judging, so the jams and jellies have to look good!

This year, my entries included some standards (like Concord Grape Jelly) and some that were pretty unusual. Here?s how they did:

I’m especially proud that my Triple Berry Jelly won Class Champion for jellies. In other words, it was judged the best jelly entered in the fair! Woohoo! As much as I relish (no pun intended) the results of my canning projects for their own merits, it?s a thrill to get a little outside validation as well; my chest swells with pride.

I believe one reason my jellies did well is that I collect the fruit juice with a steam juicer so that it’s very clear. I?d share the recipe for the Triple Berry, but it calls for a steam juicer, red currants, and homemade apple pectin, so I doubt it’d get many takers. Instead, here?s a wonderful soft spread I?ve made before. Maybe apricots are still in season where you live….

Puree the pitted fruit in a food processor. In a non-aluminum 8-quart pot, combine fruit, nectar, and butter. Bring to a boil over medium heat.

Reduce heat and stir until apricots are softened, about 10 minutes, stirring
frequently. Stir in the sugar and lemon juice. Bring to a simmer and stir until the sugar is dissolved.

Reduce to a slow simmer and cook until it is thick enough to mound on a
spoon, about 30-40 minutes.?Stir frequently. (Remember, it will firm
more as it cools?you can put some on a chilled plate to gauge how thick it is.

Ladle into clean pint or half-pint jars, leaving 1/4-inch headspace. Wipe the
rims clean with a damp paper towel and add lids and screwbands. Process in a boiling water canner for 10 minutes. When cool, check the seals. If sealed, remove the bands and store in a cool, dark place. If it didn?t seal, you can either re-process it or store it in the fridge for up to a month.

Getting started with home canning
In an agricultural region like Clackamas County (where we live), many people still grow and preserve their own food. Nationally, the trend seems to be on fire as well. I recently read that Jarden Home Brands (maker of both Ball and Kerr canning jars) saw a 30% increase in sales over the last year (according to the Philadelphia Daily News). That?s good news!

High-acid foods like jams, jellies, pickles, and some salsas are an easy way to start preserving your own food without stressing about botulism; recipes and instructions abound on the internet. My favorite canning blog (yes, they exist) is Food in Jars by former Portlander Marisa McClellan. Her enthusiasm is infectious, and she’s a pro at creating small batches in an evening hour or two. If you?ve tucked fruit into the freezer this summer for later use, check around for a canning recipe for a mid-winter day?s work.

I especially like that glass canning jars are reusable year after year and don?t need giftwrap when given away. They are welcome homemade gifts that won?t turn into clutter (unless you?re my Dad, who has an entire cupboard packed with food I?ve made for him over the last five years — long story). And I was excited to find a source for BPA-free reusable canning lids through the magic of the internet. I split an order with two friends and used them for the first time (easy!) on a batch of dill pickles the other night. One more step toward self-sufficiency; now if I could just grow and refine my own sugarcane…

A word of caution: You’ll still find recipes that tell you to seal canning jars by turning the jars upside down or by simply packing them with very hot food and closing them immediately. USDA recommendations call for a boiling water bath — usually between 5 and 25 minutes — for safe canning. Without the boiling water bath, your jars may seal, but they won?t be sterile and could develop mold. It?s worth the effort to do the boiling water bath step.

In fact, preserving local food using whole ingredients is now being called an ?eco-craft? in our post-Martha Stewart, revival-of-the-home-arts, make-the-most-of-your-money kind of world. No matter what it?s called, I like it. And that purple Class Champion ribbon will look great in my kitchen!

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Isaac wrote recently with a question about how to make the transition from college to the Real World. He has a good degree, but it’ll take him time to find a job, especially since the economy is still sluggish. He’s worried about how he should handle is finances in the meantime. Here’s his question:

I recently graduated from college with a degree in electrical engineering. I’m currently living at home with my family while I search for a job. I’m concerned about my first month or two once I find one, though.

I have no savings, and I’m not sure how I will be able to buy a car (and insurance) to get to and from work, rent an apartment, or even buy necessities for my first few weeks while I wait for a paycheck. I know that some jobs will give a signing bonus or relocation package but I don’t want to count on that. My parents are in deep credit-card debt and live paycheck to paycheck, so I can’t borrow money from them.

Any advice? Should I get a short-term bank loan? Or maybe borrow from better-off friends?

This is something that I struggled with almost 20 years ago; my transition from college to my first job was rough. A lot of my trouble was self-induced, though. As soon as I found work, I bought a brand-new car, a new wardrobe, and all sorts of new toys. So, instead of waiting until my first paychecks started coming in, I spent money I anticipated having…eventually.

My story is all too common; I know a lot of folks who have done the very same thing. Looking back, these mistakes seem obvious, but they weren’t so obvious at the time. I think there are at least three things that Isaac can do to gain more control of his situation.

Accumulate cash
It doesn’t sound like Isaac is doing any sort of work now while he’s looking for a job in his field. I think he should — and I don’t think he should be picky about it. One way to ease worries about where he’ll get money to tide him over until his first paycheck is to actually earn that money in advance.

Some people don’t like taking short-term employment, especially if the pay is low. They think it’s beneath them or that it looks bad on a job application. Hogwash. It’s always better to have some income — no matter how small — than to be earning nothing. Every little bit helps. So, I’d recommend that Isaac look for work in a restaurant or a retail store, or maybe even seek the help of a temporary agency. (I waited tables at Red Robin while hunting for my first job; I also did odd jobs through a temp agency.)

Moderate spending
Meanwhile, Isaac should be cautious with his spending until he’s found a job and a place to live. That means no big indulgences, but it also means that Isaac should be wary of committed expenses. I can’t emphasize this enough: When you’re just starting out, you should take on as few recurring expenses as possible. And those you do take on should be kept as low as possible.

When your get out of school and move out on your own, it can be tempting to buy all the things your parents had, or the things you’ve always wanted. There’ll be plenty of time for that in the months and years to come. Isaac’s goal now should be to take care of the essentials so that later he can afford comforts and luxuries without having to go into debt.

Negotiate benefits
Isaac is going into a field that could require him to relocate. When he’s hired, there may be some sort of signing bonus or relocation package. But here’s the important thing: Even if there’s not, Isaac should negotiate for this sort of benefit. (Here’s a GRS article from last year about how to negotiate your salary; the same principles apply to negotiating benefits.)

By preparing now to negotiate this benefit, Isaac can increase the odds that he’ll receive it as part of a job offer. For more detail, Isaac should check out Jack Chapman’s site on salary negotiations.

What would you do?
I’m sure that Isaac’s situation is common. Many folks graduate from college (or leave home) and find themselves without any cash to get by while they wait for their first paycheck to come in. Some rely on debt to get by. (That’s what I did, and I regret it.) But surely there are other options.

How did you bridge the gap between the time you left home and received your first paycheck? What worked? What didn’t? What would you do if you were in Isaac’s situation today?

Update: Isaac left a comment below to let us know that he does have a part-time job, but that he’ll look at other possible ways to make money. So, there’s no need for additional “get a job” suggestions!

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What does a blogger’s spouse do while the blogger is out of town? Hang out with other bloggers and their spouses, of course! While Chris Guillebeau was off playing with the tigers in Thailand, his wife Jolie spent some time with Kris and me.

Last Friday morning, we picked peaches (and then Kris and Jolie canned them). In the evening, the three of us had dinner with Erica (from erica.biz) and her husband Richard. As you might expect, the conversation had a tendency to stray toward personal finance. Because I’d just published my article about life in the third stage of personal finance, we talked a bit about that.

Third stage frugality
“How does frugality work when you have more money?” Richard asked.

I was confused. “What do you mean?” I said.

“Well, when your income increases, how do you stay frugal when your expenses go up? How does frugality scale?”

“Ah,” I said. “Well, frugality works pretty much the same way as it did before. I mean, if you’re doing certain things to be frugal when your income is smaller or you’re digging out of debt, you should probably continue to do most of those things, even if you get more money. For example, we just picked and canned peaches this morning. Growing and preserving our own food is one way we stay frugal. Plus, we buy a lot of our clothes at thrift stores. That sort of thing.”

I thought for a moment. “I guess it all comes down to conscious spending.” Richard hadn’t heard the term before, so I explained how it’s important to remember at any income level that you can have anything you want, but you can’t have everything you want. In other words — and as I said the other day — we choose to skimp on some things so that we don’t have to skimp on others.

“Here’s an example,” I said. “In Your Money: The Missing Manual, I profile Chris Guillebeau. He spends a small fortune on travel every year, but he doesn’t own a car. He bikes or rides the bus or walks everywhere he needs to go. Plus, he and Jolie have a spartan home. There’s no clutter.”

And here the conversation suddenly changed directions…

De-cluttering once a week
“Oh,” said Jolie. “There’s no clutter at our place because I make sure we de-clutter every week.”

“Every week?” Kris asked.

“Every Saturday night,” said Jolie. “We go through the house and get rid of the stuff we no longer need.”

“Is it actually getting rid of Stuff?” I asked. I found it hard to believe that anyone could de-clutter every single week. (I have a hard time de-cluttering a few times a year, though I know I should do it more often.)

“Yes!” she said. “And it’s so much fun. It clears your headspace.”

“How much of your home do you reclaim every Saturday?” asked Richard.

“Well, not a lot. But it’s mostly about getting in the habit of letting go,” Jolie said. “Sometimes I’ll see something say, ‘I like the idea of this, but I’m never going to use it.” So I chuck it.”

“What do you do with the Stuff you might need someday?” Kris asked.

“Then someday when I need it, I’ll buy it or borrow it. But usually the Stuff I might need someday, I don’t need any day. Not enough to keep it around, anyhow. So I get rid of it.”

“I have a problem with keeping too many books,” Erica said. “I can’t get rid of a book if I think I might want it someday.”

“Yeah,” said Richard, “but we still got rid of a lot of books when we moved to San Diego.”

“We purged our books several years ago,” I said. “We had thousands of books, and we sold them to used bookstores or donated them to Goodwill. I think we got rid of almost two-thirds of our collection. And you know, I do find that sometimes I want a book that I got rid of — but not very often. When that happens, I either buy it or borrow it from the library.”

“Me too,” Richard said. “I think I’ve had to re-buy maybe three books since we moved.”

“What do you do with the Stuff people give you?” asked Erica. “You know, gifts and so on.”

“It’s gone,” Jolie said. “If it’s clutter, we get rid of it.”

“Even if Chris gave you flowers?” asked my Kris.

Jolie smiled. “I don’t like flowers because they’re clutter.”

We all laughed at that, and then the conversation moved on to other things. We ate our desserts (chocolate lava cakes all around!), said good night, and headed home.

Shared knowledge
I enjoy meeting readers and colleagues for lunch or dinner, and precisely because we tend to have conversations like these. We compare notes. We share what works for each of us, and we ask questions about how other people manage money. Meetings like this used to scare me — I was worried the people I met might be psycho-killers! — but I’ve come to see them as one of the highlights of this job.

Vicki Robin (co-author of Your Money or Your Life) has long suggested that most folks would benefit from talking about money in a small-group setting. I think she’s on to something. (In fact, starting next month, she’ll be conducting a series of Financial Intelligence telephone workshops that some of you may be interested in.)

There’s a sort of tacit taboo against talking about money in our society, and that’s a shame. By not talking about our financial successes and failures, it’s difficult for anyone to see what does (and doesn’t) work except through painful trial and error. But if you have the courage to approach a friend or colleague to ask them if they’d be willing to compare notes, each of you can come away better equipped for financial success!

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This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com. In today’s article, she tackles a topic I’ve been meaning to write about, but haven’t made the time.

Contrary to popular belief, money can buy you happiness — if you spend it on the right things. That’s the skinny from the New York Times Business section, which last week took a close look at spending habits and happiness. Stephanie Rosenbloom writes that increased spending on leisure, travel, and hobbies tends to make people more satisfied with their lives, but buying Stuff does not.

You don’t have to spend a lot to be happy. In fact, simple living often leads to a richer life. The article opens and closes with a profile of Tammy Strobel from Rowdy Kittens, who gave up a solid professional life with all the cars, furniture, and Stuff her boring-but-lucrative job could buy. She’s a freelance writer now, living simply with her husband in Portland, Oregon.

Like a lot of people who’ve shifted away from a consumer lifestyle, Tammy now has more money to spend on what she loves because her needs are small. She’s not buying Stuff or keeping up a big apartment. She and her husband swapped their cars (and car payments) for bicycles.

Experiences, not Stuff
More and more people are moving away from conspicuous consumption towards a life of conscious consumption and saving. A recent spate of research is looking at how to squeeze the most happiness from your dollar. What they’re finding won’t surprise many Get Rich Slowly readers:

What really makes people happy is connection. When we’re engaged in a leisure activity, we’re more likely to be socializing with others, forming and strengthening our relationships. It’s these strong relationships, not the Stuff we accumulate, that bring us lasting joy throughout our lives.

Experiences also pay off better than Stuff because we tend to color our memories happy. Let’s say you spring for that new couch. The day you bring it home, it’s perfect. The exact shade, texture, and firmness you wanted. You’re in your bliss, sitting on it for the first time.

Fast forward ten years. Now the couch is tattered and stained, and the cushions have gotten lumpy. Remembering how perfect it was doesn’t make you happier now; it makes you sad that you’re sitting on a bumpy relic of your couch’s former greatness.

Let’s say instead you’d put that money into an experience. A vacation where you were bitten by mosquitoes, almost missed your flight, and lost your hiking boots at the resort. Ten years later, your mosquito bites are gone, the shoes are long forgotten, and the photographs of the beautiful waterfall you visited still hang on your bedroom wall. The vacation actually gets better with time, as you hold on to the happy memories and forget the hassles.

Finally, experiences pay off on the happiness meter because of their novelty. We grow bored with Stuff and then want more! newer! bigger! better! Stuff. But it’s not the Stuff we want more of, really. We’re looking to replace the happiness kick we got from the Stuff when it was new. This is why so many of us can be staring at a closet full of expensive clothes and think we have nothing to wear, or restlessly scroll through thousands of songs in our iPods finding nothing we want to hear.

The psychology of spending
The fancy psychological term for this is “hedonic adaptation”. We adapt to Stuff faster than we adapt to new experiences. A vacation, a cooking class, seeing a good play — these experiences are all complex. They take time to digest, mentally and emotionally. When we do them with friends or loved ones, they become part of our relationships with those people, adding yet more layers to the experience and the memories that come out of it.

Frugal happiness seekers can use these principles to their advantage. It doesn’t take a lot of money to seek out new experiences. Just going for a walk down the beach with a friend can provide plenty of happiness, with no price tag attached.

Remember that idea of stringing small luxuries together, that I mentioned above? Splurging on a series of small indulgences is worth more happiness than one large splurge.

That kind of spending on frivolous luxuries pushes against the grain of my own non-consumer heart, but it’s another way to thwart hedonic adaptation. Buying one large item gives you a burst of happiness that quickly dissipates. While over time you’ll also adapt to the flavors at that restaurant you love or the joy of having flowers on your desk at work, a variety of small indulgences will give you many little happy moments.

On the other hand, we can get more happiness out of large purchases by saving for them in advance, rather than buying them on credit. It’s not simply that being debt-free is a happy way to be; you’ll also get pleasure from anticipating the purchase while you’re saving up for it. Once you have your new couch or dream vacation, you’ll enjoy it more knowing it’s the fruit of your hard work as a saver.

Ultimately, it’s our experiences in life that make us happy, and the relationships we have with those who share our journey. Money can be a great tool for getting the most out of our adventures and our time with loved ones, if we know how to spend it right. That means putting our money where our hearts are: spending on the activities and people we love, not the Stuff we’re told we have to have.

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

Permit me to introduce a new term into the financial planning lexicon: goals-based budgeting. (Well, a Google search turned up a few other instances of its use, but they?re on government websites, so no one has seen them.) I came up with the term after reading through the comments of my last article (?The High Cost of Modern Living?) and reading J.D.?s recent article about his entry into the Third Stage of personal finance, which he explained thusly:

I?ve paid off my debt, built a cash cushion in savings, and am maxing out my retirement accounts. And after doing all of these things, I have money left over to spend on comic books and travel.

In my previous article, I listed several items we spend our money on — for instance, cell phones, cable TV, chocolate-covered pork fat — that didn?t exist in the past, and suggested that the allure of these modern inventions may explain why some people haven?t saved enough for retirement.

A few readers rose to defend their expenditures, arguing that many modern devices and services save time, increase efficiency, and replace older/costlier/less-efficient Stuff. Those are all valid points…if those purchases are aligned with your financial goals, or you?re saving enough to meet your financial goals and have money left over to spend on thingamajigs, doohickeys, and whatchamaspankits. This is J.D.?s ?third stage? — the point at which you can relax a little bit with your spending.

Which brings us to this reader comment appended to J.D.?s article:

Whenever I hear that someone is “maxing out retirement accounts”, a red flag goes up. Depending on how late in life you?re starting and how much it will take to sustain your lifestyle, “maxing out” may not be enough. I hope that instead you are looking at how much you?ll need to accumulate and feel you are on track with that.

A very important point, indeed. If the analysis cited in a recent Wall Street Journal article is to be believed, nearly three of five baby boomers will run out of money in retirement. These folks have been walloped by stinky stocks, evaporating home equity, and interest rates that pay no interest. But many of them just didn?t save enough. For all of them, saving more is the solution.

Running Your Retirement Numbers
How do you know if you?re saving enough for retirement, or any other money-reliant goal? The best (though still imperfect) way is to use some sort of financial calculator, be it online tool, software program, or spreadsheet. There are loads of these available. Do a Google search on ?retirement calculator? and you get 84,700 hits. No, wait — that?s what you get when you search on ?Goldman Sucks.?

Well, no matter; you don?t need to search for a retirement calculator because I’m going to point out a few in this post. In fact, I?ll walk you step-by-step through my favorite among The Motley Fool?s calculators. Click on ?Retirement,? and then on ?Am I saving enough? What can I change?” This calculator can handle all kinds of variables: Social Security, pensions (and whether they adjust for inflation), anticipated spending levels in retirement, and Roth and traditional retirement accounts.

So gather your retirement account statements, pull up the online calculator, and get ready to peer into your possible future.

Getting Cozy With the Calculator
This calculator has input boxes, most of which have been completed with default data. You can get rid of those by typing in your own numbers (or zero if that field doesn’t apply). Certain areas are accompanied by a question mark. Click on one, and you’ll get an explanation of the desired data. Now, let’s start entering.

A note on returns: Be conservative when projecting investment returns. Young investors with stock-heavy portfolios shouldn’t assume more than 6%, and retirees with a mix of stocks and bonds should cap their assumed returns at 4%. I certainly hope that returns are higher, but I?m not betting my retirement on it.

And the Verdict Is…
It’s time to score your test. At the bottom of the page, click “get your results.” The analysis will be expressed in months, e.g., “Your living expenses after retirement will be fully funded for 173 months.” Divide that number by 12, and you’ll get how many years your savings will last.

If the calculator gives your retirement plan high marks, congratulations! If not, click on the “inputs” tab at the top and adjust the variables to see what combination of increased savings, reduced retirement income, and later retirement age will give your plan an acceptable score.

Don?t Take One Tool?s Word for It
While I think crunching your numbers is important, the truth is, the analysis will be wrong. There are just too many variables ? such your rate of return, the rate of inflation, and how long you?ll live ? that are unknowable. The best this tool will be able to do is give you a rough idea of whether you?re on track. Therefore, it?s important to do two things: 1) Run an analysis every year to see if you?re still on track, and 2) try other tools to get a second and third and fourth opinion. Here are a few others to consider:

If you’re looking for calculators that aren’t exclusive to retirement, head to Dinkytown (which, it should be noted, is not as fun as Funkytown).

Each calculator will give you a different result, due to how they run the numbers. You’ll be looking to see if a consensus emerges from the tools. If three of four calculators indicate that your retirement plan will succeed, then you’re probably on the right track. If three of four say you’ll run out of money, it’s time to plan to save more or work longer — or both. The same goes for your other financial goals.

Which brings us back to goals-based budgeting: If you?re saving enough for your priorities, then go nuts with the rest of your money. But I can tell you that there are millions of people in their 50s and older who wish they could turn back time and trade their purchases of yore for more savings today.

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This post is from GRS staff writer April Dykman.

Josh Stevens of Chicago might win $100,000 ? if he can keep from spending a single cent (literally) for a year.

Stevens accepted internet coupon company Groupon’s “Live Off Groupon” challenge, beating out 400 contenders, and since May he’s been using only online coupons for food, lodging, and other expenses. With strict rules, he’s had to be resourceful. Guidelines include the following:

Stevens told CNN that he “started with one pair of shoes, socks, underwear, and a paper suit made of Groupons. They gave me a laptop, camera, Internet card, and phone. They put it in a paper messenger bag.”

Wearing the paper suit, he used a coupon for a carriage ride to a clothing store, where he used more coupons to buy clothes. Obviously, the challenge requires him to be creative, like the day he needed to park a rented car and had no way to pay for parking. Stevens found a hotel valet who was willing to park his car in exchange for a coupon for a boat cruise.

Deal of the Day in Your Inbox
Groupon e-mails members a different discount offer each day and serves more than 40 cities in the US. The deals are only finalized when enough people purchase the coupon, which encourages members to forward the offer to friends and family members. Discount merchants include restaurants, subscriptions, classes, tours, spa services, and more. Groupon has sold more than 1.6 million coupons since its launch in 2008. If you can stand the often nonsensical coupon descriptions, you can find pretty good deals.

Lessons from the Challenge
The challenge is a great marketing move, but there are some interesting lessons that can be gleaned from Stevens experiences thus far, such as the following:

If Stevens completes the challenge, he has said he’s thinking of using the $100,000 prize money for a down payment on a home and possibly to pay for a graduate degree.

What do you think of the challenge? Do you regularly use skills like networking and bartering or a no-spend challenge?

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As you’ve probably noticed, travel has become a priority in my life. There are number of reasons for this. For one, I love it. I love visiting other cities, other states, other countries. I love seeing how different people live, and how they do things. Here in the U.S., we are so myopic — we tend to focus on just our way of life, so that it becomes difficult to imagine that there are billions of people in the world living in completely different ways.

But there are other reasons, too. For instance, I worry about my mortality. I don’t know if I’ve shared this here at GRS, but my father’s side of the family tends to have short life spans. Very short life spans. I don’t want to find out at age 49 that I only have a year to live, and then not be able to do all the things I wanted to do. (That’s another reason I’m so focused on fitness lately: My father’s side of the family also tends to be unfit. I’m hoping that by becoming — and remaining — fit, I can kick the “Roth men die by 50″ trend.)

As I’ve begun to travel more, I’ve also started to read more about the subject. Not just blogs (though certainly I read those), but also books. I’m looking for ideas about how to travel frugally, of course, but also tips on smart travel in general. That’s one reason I’ve become obsessed with packing light.

One of my travel goals is to backpack across England. The U.K. has a number of designated walking trails with varying degrees of difficulty. I’d love to spend a week or two walking from one side of the country to the other. (This doesn’t appeal to Kris in any way, so it’s something I’d do alone, or with a friend or two.) In fact, I had tentatively planned to hike Hadrian’s Wall next summer, although that may change if we go to South Africa.

All of my rambling is just prelude to an article I read last week at The Art of Non-Conformity. Chris Guillebeau took time to interview Jodi Ettenberg, who retired from life as corporate lawyer to backpack across the world. I particularly liked her discussion of how she saved to be able to do this:

What were some of the things you did to make your dream a reality? (Did you open a second bank account, post your goals on your mirror, etc.?) What advice would you give others with a similar dream?

First and foremost, I thought of every purchase in terms of a plane ticket?s value. ?I could buy this, but it?s basically a plane ticket from Bangkok to Bali? or the like. I felt a bit like a salmon swimming upstream with my ?means to an end? mentality in a fast-paced, results-driven city like New York. But you do what you have to in order to stay focused, and for me that meant concentrating on the eventual travel as a way of pushing past the city?s obsession with material things. I did open a second bank account, and dumped a set percentage of my salary into it each month.

I was also fortunate for two reasons. The first is that I went to law school in Canada, meaning that as a Canadian resident my tuition was extremely reasonable by North American standards. As a result, I was able to pay off my school debt entirely in my first year of working in New York. The second is that I was in a profession with significantly higher salaries than most. However, the end result regardless of positioning is the same: you put your head down when you can and you work toward your goals. For me, that meant buying kids? clothes to wear under my suits (I?m small, so it?s a bonus), hiking in Harriman park instead of weekends in the Hamptons and spelunking for cheap eats in a city known for extravagant food options.

None of these were true sacrifices. The true sacrifice was the time spent at my desk, and the nights where I fell asleep under it waiting for a deal to close. But I was bolstered by my goal of seeing the world, and wanted to make sure I saved a sufficient amount to take my time doing so when I finally did quit my job to travel.

Stories like this inspire me. Even though I’m doing well on my own journey, there are times I do get discouraged or slip into old habits. But reading about Jodi’s attitude and choices gives me renewed resolve to travel while I still can. So, yes, that means making South Africa in 2011 a priority. And maybe backpacking across England, too. (That’ll be tough. We’ll see.)

In any event, I have another travel blog to read now. Jodi writes about her experiences at Legal Nomads.

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Last Friday, we had a great discussion about the socio-economic implications of credit-card rewards programs (or lack of implications, depending on your viewpoint). The conversation wasn’t nearly as tedious as my description makes it sound.

In response to that article, Califia e-mailed:

[Could you provide] a quick elaboration of this statement from your recent post: “I?ve gone from anti-credit-card to pro-credit-card — but only for those who can use them responsibly.” How do you define “responsibly”? Why did you change from anti to pro?

I think I’ve written plenty about the Whys behind my switch from anti-credit card to pro-credit card. But it occurred to me that I’ve never really elaborated on the Hows.

Essential credit card skills
Two years ago, I summarized a Consumer Reports article about essential credit card skills. Those skills include

Learn to read the fine print. Read the legal stuff when you fill out the application, when you receive the card, and on any future mailings. Credit card terms and conditions can be confusing. This credit card glossary from Wells Fargo can help. If you don’t understand something, ask for help.

These skills are all rather academic. They’re important, yes, but they don’t address the behavioral issues that lead to credit card debt. It’s one thing to say “pay your bill on time and in full every month”, but it’s another thing to actually do it. What most people need are real-life methods for using credit cards without going into debt.

Essential credit card behavior
I can’t speak for everyone, but I know that for me, I had to adopt an actual set of written guidelines to define what acceptable credit card behavior would look like. No joke. When I decided to re-enter the world of credit cards in 2007, I was very nervous, so I set the following ground rules:

Despite these careful steps, I do sometimes worry about my use of credit. Research shows that people tend to spend more with credit than with cash? Am I doing that? Is my use of credit hurting local businesses? (My wife and I refuse to use credit at the local coffee shop, for example, because we’ve talked with the owner and we know that merchant fees for card use hurt his business. We always pay cash when we buy from him.) And by using credit, am I feeding the monster of predatory lending?

I’m still wary of credit cards, and I don’t think they’re for everyone. I often say that credit cards are the chainsaws of personal finance: If you know what you’re doing and you treat them with respect, they can be a useful tool. But if you’re not careful, they can cause a lot of financial damage — and they can do it quickly.

Credit cards are not a source of free money, and you shouldn’t treat them as such. Credit cards are tools that allow you to use the money you already have in different, more efficient ways.

Here are some related sites from around the web:

Finally, whenever this topic comes up, I’m reminded of one of my favorite old educational films, “Wise Use of Credit“. But while this 50-year-old movie has some great advice, it’s also fairly outdated. Credit cards were new then, and nobody had a clue what they’d become.

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This guest post from Bon is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes.

I?ve always been a bit of a capitalist so to speak, so when I decided to join the Peace Corps several years ago, not only was it a shock to my family and friends, it was a little bit of a shock to me. At the time I loved my job but knew that I would regret staying too close to the corporate path I had been following.

Calculating opportunity cost
When considering a major lifestyle change, ask yourself if you’re really losing your entire salary when you take a break from work. When I was weighing the financial impact Peace Corps would have, I knew the program would cover my travel, living expenses, and health care, so I wouldn?t really be giving up my entire salary for two years. I?d only be giving up what I might potentially have saved at the end of each year. Instead of my opportunity cost being something like $100,000 for two years, it was actually closer to $14,000 total. This seemed like a reasonable price to pay for the experience.

So, I did it.

I lived in West Africa for two years working as a small business advisor, and I loved every single second. Okay, maybe not every second, but as most volunteers will attest; although you join Peace Corps to serve others, you come away from the experience feeling as though you were the one who received the greatest service.

When I returned, my perspective on money, wealth, and consumption had changed. I had lived extremely simply, and this dramatically impacted my spending habits. (An early trip to Banana Republic brought me to tears.) I’ve always been frugal, even before my service, but living in a developing country on $150/month makes it much easier to see the line between Wants and Needs. Years after my service, the savings I?ve gained from my modest lifestyle have easily made up for that initial opportunity cost.

Standing out from the crowd
I had never considered that international volunteer work could be advantageous for my career; in fact, I always considered it a bit of a professional sacrifice. However, my experience set me apart from other job candidates. When I returned home, it took some time but I found an excellent position in the field I wanted. A bit further down the line when I wanted to live overseas again, my time in Peace Corps was a key selling point to my new employer, which was looking for someone with international experience.

I now live and work in Asia, and I?m happily back on that corporate path I was following before my service. But now I have confidence knowing that I can change routes and be successful.

Other advantages
Aside from making frugal habits nearly automatic and gaining valuable international and cross-cultural experience, there are other potential financial advantages of programs like Peace Corps:

Words of warning
Just as there are potential benefits, there are also several cautions and considerations:

There are several things that can make Peace Corps difficult or impossible:

Finally, if you do decide to do international volunteer work, don?t be tempted to spend a lot of money on Stuff before you go. I spent too much, and most of my ?essentials? ended up under my bed for two years!

A chance to see the world
Full-time volunteer work isn’t for everyone. That said, if you’re longing to see the world, but don?t see yourself being a blogging nomad or specializing in ?lifestyle design? — and if you genuinely want to push yourself and serve others — your finances shouldn’t stand in your way.

Are there others who have participated in similar programs with very different experiences? If you’re considering a program like this, what else might be preventing you from taking action?

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Yesterday we had a great discussion about some of the financial choices I’m facing, but today it’s time to look at a decision a GRS reader is trying to make. Catherine wrote to ask if it makes sense to sell her home so that she can become debt-free and have the freedom to pursue a simpler life:

I’m in my mid-forties, self-employed in a high-cost city where I live in a one-bedroom condo that I bought ten years ago. I have about $220,000 in equity in the condo (and about $132,000 left on the mortgage).

My mortgage is very affordable because I refinanced into a 30-year loan last year. Still, housing costs eat up about $1500 a month (and would be $400 more if not for the refinance). If I rented, I’d probably spend about that much for an apartment. As part of my housing costs, I pay over $500 each month toward the homeowners association, and there are a number of expensive building renovations looming on the horizon.

I haven’t been putting more money towards the mortgage because now I’m obsessed with thoughts of selling my apartment and renting to give me more flexibility in pursuing a less stressful life. (My dream includes a small house in a lower-cost city, having a garden, etc.) I make a decent living, but I don’t love what I do. On the other hand, I have no idea what I’d do if I switched careers.

Other than my mortgage, I have:

If I sold the condo, I could pay off my debt, pocket a good chunk of change, and have more time to think about what I want to do with my life. Is it crazy to sell my home when I don’t have my plans mapped out yet? It would be such a relief not to worry about the ever increasing condo fees and the repairs I’ll need to make soon…

When I first read Catherine’s e-mail, I thought she was asking whether she should sell her home to pay off her debt. But that’s just a part of what’s going on here. Catherine has $300,000 in retirement savings, $220,000 in home equity, and almost $12,000 in savings accounts. That’s about $532,000 in assets to just $148,000 in liabilities. Not bad.

Still, I’d be cautious about rushing into anything. While I absolutely think Catherine should explore new careers, I think she should be patient as she does so. Here’s my advice:

The more I think about it, the less this is a personal-finance question, and the more it’s a question about personal values. It’s yet another example of how money is more about mind than it is about math; no economist has yet constructed an equation that accounts for the decisions Catherine has to make!

Have you ever faced a choice like this? (Or do you know somebody who has?) What would you do if you were in a ho-hum job in a house you didn’t care for, and had the opportunity to try something new? Should Catherine take a risk — make a leap of faith, sell her home, and move somewhere else? Should she just bite the bullet, stick with her job, and keep at what she’s doing until she retires? What other options should she consider?

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I paid off the last of my debt in 2007, quit my day job in 2008, and have been working to build wealth ever since. As I wrote early last year, I’m in the Third Stage of personal finance: I’ve paid off my debt, built a cash cushion in savings, and am maxing out my retirement accounts. And after doing all of these things, I have money left over to spend on comic books and travel. I’m a lucky man.

For the past year, GRS readers have been asking me to write more about the Third Stage of personal finance. What’s it like there? What choices does a person face? What sorts of things does she do with her money?

Though I’ve wanted to respond to these requests, I haven’t.

Today, though, I’m going to write a little bit about the Third Stage of personal finance. I’m even going to share some actual numbers. All I ask is that when you see these numbers, you understand that I’m making conscious decisions to spend this money, and I’m sacrificing other things in my life to make the purchases I describe.

The cost of fitness
Tonight was Guys’ Night Out. Or Geek Night. Or, as my sister-in-law calls it, Dragon and Troll night. Every month, my band of geeky friends gets together for some sort of activity. It started out as a chance to play Dungeons and Dragons, but it’s morphed into an ever-changing variety of events.

Tonight, for example, we headed into downtown Portland to watch the Portland Timbers take on the Minnesota Stars. The Timbers are the local pro soccer team, for which I bought a pair of season tickets last spring. (I paid $435 for two general admission tickets.) We geeks didn’t watch the game from the stadium, though; instead, we headed next door to the Multnomah Athletic Club. One of our group is a member, and he signed us in so we could watch from the club’s balcony, which overlooks the south end of the stadium.

The Multnomah Athletic Club is amazing. It’s posh — it oozes wealth. It looks like the sort of place where you might have to wear a suit and tie just to jog on the treadmill. Everything is dark wood and brass and wall-to-wall carpeting. The attendants at the door are in suits and ties. It’s not a very J.D. place.

“Wow,” I said to Josh as we waited for the game to start. “This place must be expensive.”

“I knew somebody was going to bring that up,” he said. “It is expensive, but my parents have been members for almost forty years. It only cost them $700 back then.”

“$700 for what?” I asked. “Per month?”

“No, $700 for the initiation fee,” Josh said. “I think the fee is getting close to $10,000 per family now.”

“$10,000?!?!?” I asked. “Just to join?”

“Yeah,” said Josh. “And there’s a waiting list to get in. Plus, once you do join, dues are about $200 a month.”

My mind boggled. I was about to say, “That’s outrageous!” when I realized: I’m paying $200 a month for my gym, too.

Whenever I talk about Crossfit and the amazing things it’s done for my health, I always leave out the cost. Yes, I’ve lost 30 pounds. Yes, I’ve dropped from a size 38 to a size 32. Yes, I’m stronger than I’ve ever been in my life. But this progress has come with a cost: $200 a month, to be precise. You know what? It’s a cost I’m happy to pay, and one I plan to continue paying. If this system is working — and it is — then it’s worth every penny. If I’m not fit, nothing else matters. (But again, taken out of context, this expense would look ludicrous.)

So, I admitted to Josh that I was paying just as much as he was for a gym membership. (But without any initiation fee, of course.) We stopped chatting as the match began.

The cost of fun
We watched the Timbers and Stars play to a 2-2 draw in front of a large crowd. As the game wound down, I used my binoculars to spy my seats for next year. In 2011, the Portland Timbers will join Major League Soccer, and last month I spent $1410 to purchase a pair of tickets on the mid-field line. I’m eager for the season to start, and the current season isn’t even over!

Walking back to my car after the game, I thought about that expense: $1410 for a pair of season tickets for a soccer club. A couple of years ago, I would have thought that was insane. I wouldn’t have been able to view it as a justifiable expense, no matter how much I had in savings, no matter what sorts of sacrifices I made in other parts of my life. I would have condemned it as lifestyle inflation.

Maybe it is lifestyle inflation. But it’s also an example of conscious spending. I love soccer, and I can afford the tickets. I’m meeting all of my financial obligations. When you’ve paid off your debt, saved for emergencies, and set aside money for retirement, whatever’s left over is yours to do with as you please, right? In my case, that means that if I want to buy Portland Timbers tickets, I can. I have no regrets.

These are the sorts of things I think about in the Third Stage of personal finance.

The cost of travel
There are still financial dilemmas in the Third Stage. Being here doesn’t mean I can afford everything I want. In fact, I’m always picking and choosing. (It’s just that the things I’m choosing between are sometimes more expensive than before.)

For example, Kris and I just learned about an opportunity to travel to Africa in February. Our college has put together a package tour for alumni that includes visits to South Africa, Botswana, Zimbabwe, and Namibia. It’s a 19-day tour and it costs $5600 per person.

Well.

I’ve been begging Kris to go to South Africa for a l-o-n-g time. I’ve wanted to visit ever since I read Cry, the Beloved Country. (Jolie Guillebeau doesn’t help by always reminding me that South Africa is her favorite place she’s ever visited.) Kris has always steadfastly refused to consider a trip to South Africa — until now. She actually wants to go on this tour, and so do I.

The problem is that even though we’re in the Third Stage of personal finance, $5600 (per person!) is a lot of money for a trip. Especially considering we’ve already shelled out a lot for our upcoming journey to France and Italy.

Can we afford to take on the expense of traveling to South Africa in February? And if we can, is it something we really want to do? As I drove home from the game tonight, I thought about it.

First, I considered how to come up with the cash. We’ve already funded our trip to Europe, so that’s not an issue. I just need to figure out how to come up with $5600 by February. (Because Kris and I keep separate finances, she has to come up with her own $5600. That’s not really going to be a problem, though. Remember: She’s always been the responsible one, and she has tons of money in savings.)

I considered my options:

Plus, I could make sacrifices in other areas of my life: I could eat out less often, I could make better use of the public library, and so on. At its heart, this is the same sort of decision I used to make, but on a different scale. Instead of trying to scrounge up $500 per person to spend a week in Victoria, B.C., I’m now trying to find $5,000 per person to spend three weeks in Africa.

Again, is this lifestyle inflation? If so, is it wrong? And do Kris and I really want to spend this much money on a three-week vacation? I don’t know, and I’m not sure how to find an answer.

Life in the third stage
These are the sorts of things I think about in the Third Stage of personal finance. Yes, we’re still growing and canning our own food, still looking for cheap entertainment, still shopping at thrift stores, and still asking for discounts whenever possible. Now, though, these aren’t techniques to help me get out of debt. Instead, they’re the steps that allow me to spend $200 a month for Crossfit, $1410 for soccer season tickets — and maybe $5600 to travel to Africa.

I’d love to hear from other folks who have reached this stage. What sorts of things do you spend on? Do you sometimes think, “Man, ten years ago, I would have thought this was outrageous?” Do you still make sacrifices in order to buy the things you want? Do you still practice frugality? If you’re in the Third Stage of personal finance, what’s life like for you? (And if you’re not there, do you find this sort of spending inspiring? Or is it intimidating? Infuriating?)

Portland Timbers fan photo by Jenny Cestnik.

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“How to Build Confidence and Overcome Fear” is a rare GRS re-run; it originally appeared on 17 February 2009. I’m dealing with a family crisis, and haven’t had time to write. Things should be back to normal tomorrow.

Last week I did something that scared the hell out of me. I stood in front of nearly 200 financial planners and I talked to them about why financial blogs are a good thing.

I’m a confident writer; I’ve been doing this long enough that I know my strengths and my limitations. I’ve had enough feedback to understand that I’m an effective communicator — when I use the written word. I’m less confident as a speaker. I don’t have time to pause to formulate my thoughts. I’m not able to edit. I’m afraid of being trapped in a corner without being able to talk my way out. Basically, I’m scared to speak.

It would be easy to simply refuse the opportunities that come my way. When somebody asks me to speak in front of a group, I could say “no”. When radio and television stations call for an interview, I could say “no”. But for the past two years, I’ve been following my own policy to say “yes” to new opportunities (so long as they don’t violate my personal code of conduct).

To say “no” is to live in fear. My goal is to continually improve myself, to become better than I am today. One way to do that is to do the things that scare me, to take them on as challenges, and to learn from them — even if I fail.

The magic of thinking big
In mid-November, a local station asked me to appear on live television. “I realize it?s short notice,” the producer wrote, “but we?d love to have you on the show if you?re available tonight.”

It’s one thing to say that you want to overcome your fears, but it’s another thing to actually do it. Fear is real. When I was asked to appear on live television, I was frightened. I remembered my disastrous interview with a Seattle radio station in early 2007. I thought about recent taped television interviews that I had hated. I was afraid of what might happen.

But I also thought about the things that had gone right. I thought of how my speaking skills had improved over the past year. I thought about my enthusiasm for frugality and personal finance. And then I thought of the book I was a reading, a book that I had bought for $1.29 at the local thrift store.

The Magic of Thinking Big was a huge bestseller during the 1960s. Written by Dr. David Schwartz, a professor at Georgia State University, the book contains dozens of practical hints and tips (and many anecdotes) to illustrate the power of taking risks to achieve big goals. Schwartz argues that nobody will believe in you until you believe in yourself.

So when the television producer asked if I wanted to appear on his show, I thought big. “Sure,” I said. “I’ll do it.” I acted confident, but on the inside I was frightened. What I needed were techniques to boost my confidence and to overcome my fear.

How to build confidence and overcome fear
Without self-confidence, we have a tendency to make poor decisions. We make choices based on fear instead of what is best for us. If you lack confidence, you might fill your life with self-destructive behavior. You might work at a job you hate. You may allow yourself to get deep in debt. You may find yourself moving from one bad relationship to another. Without confidence, you don’t allow yourself to pursue your dreams.

In The Magic of Thinking Big, David Schwartz argues that all confidence is developed. “No one is born with confidence,” he writes. “Those people you know who radiate confidence, who have conquered worry, who are at ease everywhere and all the time, acquired their confidence, every bit of it.”

Confidence is built slowly, one success at a time. I’ve learned that in order to overcome fear, I need to employ a variety of techniques. Here are a few that I’ve picked over the years, and which I’ve used to help myself get out of debt, and to develop the courage to speak before groups or to appear on live television:

The techniques I’ve listed are effective, but here’s the thing: No list you find on the internet is going to magically make you more confident. No list is going to take action and grant you instant CSS skills, or give you extra money, or grow your savings account, or make you a better writer. In order for these techniques to be effective, you have to act on them. You have to pick one or two and practice them. Then move on to another pair and practice those.

It’s important to put these tips into action. Do something, if only for ten minutes a day. Tell yourself that you’ll move toward your goals for ten minutes a day. If you don’t succeed, do it again. Keep going until you do succeed. Never give up.

Further reading
I’ve barely scratched the surface of what it takes to develop self-confidence. If you, too, have struggled with this, I encourage you to borrow one of the following books from your public library. (These are the books mentioned in this article.)

If you simply want to find more web reading related to this topic, check out the following:

The Magic of Thinking Big — the book that inspired this post — is outstanding. It’s sold millions of copies in the fifty years since it was published, and no wonder. On the surface it may seem like touchy-feely feelgood stuff, but deep down, it’s built on strong psychological principles. Here’s Tom Butler-Bowdon’s summary of the book.

Moving forward
Tonight I will speak to a group of graduating seniors at Western Oregon University. I’ll talk to them about debt and money management, and about pursuing their dreams.

When I gave this same talk last year, I was nervous. I was afraid. I was worried that I’d do poorly. Even after I’d finished, I thought it hadn’t gone well, so I was surprised to learn that the group had given me high marks.

There’s no guarantee that tonight’s talk will be a success, of course, but I know one thing: I’m much more confident going into it than I was last year. I know that I’ve done this before. I know that last week I spoke before 200 financial planners. I have positive experience to draw from.

By facing my fears head-on, by taking action, I really have been able to build confidence and to overcome fear.

2010 note: Eighteen months later, I still live by these guidelines I shared in early 2009. I challenge myself, and I do my best to meet these challenges. Sometimes I succeed. Sometimes I don’t. In either case, I try to learn from the experience so that I can do better in the future. If you’d like to read more on this subject, check out The power of “yes”: A simple way to get more out of life. That article summarizes the one change that has made more difference in my life than any other.

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I’ve been a little quiet around here the last couple of days, and I apologize. I usually aim for the Monday post at GRS to be a J.D. post; and if the Monday post isn’t from me, then I certainly want for the Tuesday post to be mine! But as you can tell, that didn’t happen this week.

We’ve been dealing with a minor family medical emergency, so I spent most of Sunday evening in the emergency room, and then part of today at the doctor, as well. (Plus I spent all day yesterday worrying instead of working.) Things are going to be fine, but because I don’t have an “emergency fund” of articles right now, I was caught off guard. Tomorrow’s post may be a re-run or a guest post, but everything should be back to normal after that. Thanks for your patience.

Meanwhile, here are a handful of articles from elsewhere that have caught my attention lately:

First up, I wanted to mention a nice review of Your Money: The Missing Manual. There have been lots of reviews of my book around the web, and I ought to link to them all. But I like this one because the reviewer really seems to understand what I was trying to say. (On a related note, I recently did a radio interview with Debbie Whitlock in Seattle, and I had a blast. You can listen to it on her website.)

Next, I’ve heard a lot of people complain that they can’t ask for a raise in this bad economy. Nonsense. Over at Pop Economics, Pop argues that now is a fine time to ask for a raise. Pop writes: “No matter if you think you?re getting paid fairly or not, asking for a raise is a conversation everyone should have regularly, if for no other reason than to keep your career in motion.” As you know, I’m a big believer that increasing your income can help your cash flow more than being frugal. And asking for a raise is part of that.

My pals at Five Cent Nickel have posted a couple of useful articles recently. For example, Laura has a piece about how to file an insurance claim after you’re in an auto accident. This is stuff you can muddle through on your own, of course, but I always wish there were some sort of instruction manual when I have to file a claim. I actually bookmarked this for future reference. (Though I hope I never have to use it.)

Finally, a lot of folks sent me the link to the recent New York Times article about money and happiness. I hope to write a longer piece on this topic soon, but in case I don’t, I’m including the link in this round-up.

Now, if you’ll excuse me, it’s time for me to go back to worrying about my family. Plus, I have a lot of work to catch up on — for the blog and at home — after three days of focusing on Real Life.

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

Shopping momentum is the bane of many budgets. You may have a good grip on your money most of the time, but once you’ve opened up your wallet to make one purchase, it’s easy to just keep spending.

People sometimes experience shopping momentum during times of stress or transition: when they’re traveling, when there’s a crisis at home or at work, during a big life change like a move or welcoming a new baby. You’ve just laid out a lot of money for an unusual expense, and something in your brain tells you it’s time to spend more.

Shopping momentum
Crazy as it sounds, this is a real psychological phenomenon. Research at the Stanford Graduate School of Business showed that people who buy one item are more likely to continue buying others.

Essentially, the decision to buy anything — from a house to a toothbrush — involves two steps:

In the first step, you weigh your options and carefully consider your choices. Once you’ve made a decision, your brain shifts gears to the “buying” mode. In that mode, it’s easy to keep buying. Your buying brain doesn’t stop to carefully consider your alternatives on each purchase; it just throws stuff in the cart and keeps going.

Shopping momentum in real life
I worried about shopping momentum during our recent trip to Argentina. From past experience, I know I spend more when I’m traveling and when I’m stressed. Traveling with young kids is stressful, so our Argentina trip featured at least two budget danger zones for me.

My worries were unfounded. While in Argentina, I barely spent anything at all. We stayed with family, and spent most of our time hanging out with family and friends. I was concerned about how much the trip cost, and so was very focused on keeping our incidental expenses low. At the end of the month, we flew home with a third of the money I had set aside for the trip unspent.

All that changed when we landed. Coming home was wonderful, but suddenly we were facing a wall of pent-up need:

Pretty soon, we’d stacked up a lot of expensive requests — enough to spend all the money we’d saved on our trip…and then some. Some of these needs are real, of course. We really do need groceries. I really do need appropriate shoes and clothing for the conference and the race. But once I’d started buying, the expenses piled up fast. I “needed” a haircut, and new lip gloss, and…

What I really needed was to take a deep breath and recognize what was happening.

Just because I’m doing some stressful, exciting things doesn’t mean I have to spend a lot of money. In the end I got away with buying only a new bra and paying for a haircut. Everything else I was able to borrow, reuse, or do without.

Stopping shopping momentum
How can you stop shopping momentum once it gets going? The first step, of course, is to recognize it. To do that, set up some sort of mental alert for yourself, to pay attention when you have an unusual expense. There are plenty of good reasons for unusual expenses. These come up in our lives all the time, and there’s nothing wrong with spending money when you need to. The trick is to notice that you’re doing it so you don’t accidentally slip into a buying mindset.

If you have trouble taking mental note of a shift in your spending patterns, you can set your personal finance software to alert you when you’ve had unusual activity in a particular category. Mint alerts me whenever I spend more than $100 on “shopping”. It doesn’t happen very often, and it’s good to be aware when my shopping expenses are unusual.

You can also help yourself recognize shopping momentum by getting to know your financial personality. Look at your spending records each month. What kinds of situations cause spikes in your spending? Do you spend too much when you travel? When you go out with friends? On your kids? Figure out what pushes your brain into buying mode, and you’ll be able to catch it that much sooner to hit the brakes.

To stop the shopping once you’ve started, ask yourself these questions before any purchase:

A lot of times, even good purchases aren’t urgent. If you’re really struggling to slow your spending, try adhering to a 30-day list. If you see an item you want to buy, put it on a list instead of buying it. Wait 30 days. If you still want the thing after 30 days, consider buying it. You’ll be amazed at how much Stuff you’re able to just cross off your list without purchasing.

The power of conscious spending
Stopping shopping momentum is good for everyone. Even if you have plenty of money, you don’t want to end up at the end of a shopping spree with a bunch of Stuff you’re not interested in having and a big bill to pay. Shopping also soaks up valuable energy that you might rather spend on a hobby, a side job, or just relaxing with friends and family.

By mastering your buying brain, you’ll have more time and energy to pursue the things you really want.

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Related Articles at Get Rich Slowly:How Shopping Momentum Leads to More ShoppingWant to Spend Less? Carry Bigger BillsBehavioral Economics on Why We Buy What We BuyMore Lessons from ‘Why We Buy’Reader Survey: Shopping Malls or Thrift Stores?

Filed under: Employees, DJIA

Continue reading Dow Clue #2: Keep an Eye on Jobless Claims, Over Quarters

Dow Clue #2: Keep an Eye on Jobless Claims, Over Quarters originally appeared on BloggingStocks on Thu, 02 Sep 2010 18:30:00 EST. Please see our terms for use of feeds.

Filed under: Cisco Systems (CSCO), Hewlett-Packard (HPQ), Nokia Corp. (NOK), QUALCOMM Inc (QCOM), Stocks to Sell

Continue reading Five Famous Technology Stocks Short Circuiting Now

Five Famous Technology Stocks Short Circuiting Now originally appeared on BloggingStocks on Thu, 02 Sep 2010 18:00:00 EST. Please see our terms for use of feeds.

Filed under: Stocks to Buy, Stocks to Sell

Continue reading Option Traders Buying TransDigm Calls and Avanir Pharmaceutical Puts

Option Traders Buying TransDigm Calls and Avanir Pharmaceutical Puts originally appeared on BloggingStocks on Thu, 02 Sep 2010 17:30:00 EST. Please see our terms for use of feeds.

Filed under: Options, SanDisk Corp (SNDK)

Options Update: Manpower Volatility Flat originally appeared on BloggingStocks on Thu, 02 Sep 2010 17:00:00 EST. Please see our terms for use of feeds.

Filed under: After the Bell, Apple Inc (AAPL), Hewlett-Packard (HPQ), Burger King Hldgs (BKC), S and P 500, DJIA, NASDAQ

Continue reading Closing Bell: Choppy But Solid Day Ahead of Unemployment (HPQ, DELL, PAR, ME, BKC, OREX, AAPL)

Closing Bell: Choppy But Solid Day Ahead of Unemployment (HPQ, DELL, PAR, ME, BKC, OREX, AAPL) originally appeared on BloggingStocks on Thu, 02 Sep 2010 16:00:00 EST. Please see our terms for use of feeds.

Filed under: International Markets, Forecasts, Rumors, Industry, Market Matters, Commodities

Continue reading Technical Analyst Says Cocoa to Fall 12% in Two Months

Technical Analyst Says Cocoa to Fall 12% in Two Months originally appeared on BloggingStocks on Thu, 02 Sep 2010 15:30:00 EST. Please see our terms for use of feeds.

Filed under: Automatic Data Proc (ADP), Stocks to Buy

Continue reading ADP: Sideways Action Continues

ADP: Sideways Action Continues originally appeared on BloggingStocks on Thu, 02 Sep 2010 15:00:00 EST. Please see our terms for use of feeds.

Filed under: Stocks to Buy

Continue reading The TJX Companies: A Retail Shining Star

The TJX Companies: A Retail Shining Star originally appeared on BloggingStocks on Thu, 02 Sep 2010 14:30:00 EST. Please see our terms for use of feeds.

Filed under: Major Movement, Good news, Options, Technical Analysis, Nordstrom, Inc (JWN)

Continue reading Nordstrom August Sales Beat Estimates

Nordstrom August Sales Beat Estimates originally appeared on BloggingStocks on Thu, 02 Sep 2010 14:00:00 EST. Please see our terms for use of feeds.

Filed under: QUALCOMM Inc (QCOM)

Qualcomm Inc. (QCOM) may be at a tipping point right now. And for a stock that has seen four big price gaps during 2010, the move could be a big one. The question is, will the stock gap higher or lower?

Goldman Sachs -- citing influences like a higher mix of smartphones and tablets, the move from voice-to-data-centric devices in China and India and a weaker US dollar -- recently reiterated its Conviction Buy List rating for Qualcomm and raised its price target from $44 to $46.

Continue reading Time to Ride a QUALCOMM Straddle?

Time to Ride a QUALCOMM Straddle? originally appeared on BloggingStocks on Thu, 02 Sep 2010 13:30:00 EST. Please see our terms for use of feeds.

Filed under: Market Matters, Personal Finance, Federal Reserve, Financial Crisis, Currency

Jim Rogers, chairman of Rogers Holdings, has long advocated fiscal conservatism. In a recent interview for CNBC, he told the U.S. to stop printing money, bite the bullet and go on an austerity program. His ideas are sound but are falling on deaf ears at the Federal Reserve. Rogers said that he would rather have Europe manage our fiscal policy.

We must remember that Fed chairman Ben Bernanke has already pledged and spent $12.8 trillion dollars to bail a handful of bankers. Now he says he will spend more if needed. He is already pumping money into the economy by buying treasuries with the proceeds of expiring securities.

Continue reading Rogers: U.S. Should Adopt Austerity Measures

Rogers: U.S. Should Adopt Austerity Measures originally appeared on BloggingStocks on Thu, 02 Sep 2010 13:00:00 EST. Please see our terms for use of feeds.

Filed under: Ford Motor (F), Newsletters, Stocks to Buy

"We do have a select number of speculative stocks and growth funds in our portfolio; among them, my favorite is Ford Motor Co. (F)," says Mark Skousen.

The editor of Forecasts & Strategies explains, "The stock, which has been my favorite speculation for 2010, reported another blockbuster quarter.

"Its second-quarter earnings blew past Wall Street estimates last month and the stock now is up more than 20% from our recommended price.

Continue reading Driving with Ford (F): A Favorite Speculation

Driving with Ford (F): A Favorite Speculation originally appeared on BloggingStocks on Thu, 02 Sep 2010 12:30:00 EST. Please see our terms for use of feeds.

Filed under: Consumer Experience, Economic Data, Commodities, Federal Reserve

What is happening in the cattle market is directly affecting food prices at your local supermarket. Here are some upsetting numbers.

Continue reading Higher Meat Prices Are Fueling Food Inflation

Higher Meat Prices Are Fueling Food Inflation originally appeared on BloggingStocks on Thu, 02 Sep 2010 12:00:00 EST. Please see our terms for use of feeds.

Filed under: Analyst Reports, Analyst Upgrades and Downgrades, Hewlett-Packard (HPQ), Netflix, Inc. (NFLX), Boston Scientific (BSX), Analyst Initiations, Rio Tinto plc ADS (RTP)

Analyst Upgrades

Continue reading Analyst Calls: BSX, FORM, HPQ, JACK, MCO, NFLX, PPL, RTP, VALE ...

Analyst Calls: BSX, FORM, HPQ, JACK, MCO, NFLX, PPL, RTP, VALE ... originally appeared on BloggingStocks on Thu, 02 Sep 2010 11:30:00 EST. Please see our terms for use of feeds.

Filed under: Competitive Strategy, Cisco Systems (CSCO)

A company the size of Cisco (CSCO) needs to find massive market opportunities. So why not the electric grid? No doubt, it needs lots of improvement. In fact, there is an emerging trend towards making it much smarter. And no doubt, Cisco's technology can be a big help.

At the same time, the company is revving up its acquisitions machine. The latest deal is for Arch Rock. The financial details were not disclosed.

Continue reading Cisco to Buy Smart-Grid Operator Arch Rock

Cisco to Buy Smart-Grid Operator Arch Rock originally appeared on BloggingStocks on Thu, 02 Sep 2010 11:00:00 EST. Please see our terms for use of feeds.

Filed under: Forecasts, Market Matters, Economic Data, Federal Reserve, Recession

Are we in a recession or a depression? A recession usually means a temporary dip in an otherwise growing economy. A depression is much worse, feeding on itself and dragging the economy lower and lower. A recession carries hope. A depression is pure hopelessness.

We have all kinds of forecasts, from extreme optimism to bleak pessimism. Government officials and the mainstream media are touting this as a dip in a long-term growth cycle.

Continue reading Are We in a Recession or a Depression?

Are We in a Recession or a Depression? originally appeared on BloggingStocks on Thu, 02 Sep 2010 10:30:00 EST. Please see our terms for use of feeds.

Filed under: Newsletters, ETF Investing, Commodities, Oil, Stocks to Buy

"The Cushing MLP Total Return Fund (SRV) is a closed-end fund that invests in master limited partnerships (MLPs), MLP bonds, and natural resource companies that are not publicly traded," notes income specialist Carla Pasternak.

The editor of High-Yield Investing explains, "In addition to providing diversification, SRV provides a huge advantage over investing in individual MLPs.

"Unlike individual MLPs, SRV is classified as a corporation for tax purposes and doesn't generate a K-1 form or unrelated business taxable income, which can be taxable in an IRA. In short, SRV offers the high income of MLPs without the tax hassle.

Continue reading Cushing MLP Total Return: Partnership Profits

Cushing MLP Total Return: Partnership Profits originally appeared on BloggingStocks on Thu, 02 Sep 2010 10:00:00 EST. Please see our terms for use of feeds.

Filed under: International Markets, Forecasts, India, Commodities

Higher prices are not keeping gold buyers away in India. This year it is estimated that India will buy between 600 to 625 metric tons of the precious metal, up fromm 480 to 485 tons last year, according to the National Spot Exchange Ltd, a reported by Bloomberg. This year's purchases will make India the world's biggest consumer of gold.

According to the World Gold Council, India's bullion demand almost doubled in the first half of this year. Anjani Sinha, CEO of the nation's'biggest bourse for trading physical gold said: "This level of prices is already accepted, so during this period compared with last year, the demand will be higher."

Continue reading India Imports More Gold Despite Higher Prices

India Imports More Gold Despite Higher Prices originally appeared on BloggingStocks on Thu, 02 Sep 2010 09:30:00 EST. Please see our terms for use of feeds.

Filed under: Charles Schwab Corp (SCHW), E*TRADE (ETFC)

TD Ameritrade (AMTD), a broker whose competitors include Charles Schwab (SCHW) and E*Trade (ETFC), closed Wednesday's session higher by 2%. The final quote came in at $14.93. That's not too far from the 52-week low of $14.53. The twelve-month range is a narrow one, as the 52-week high is $21.30.

Is the stock a trade? An investment? Indeed, you may be thinking that it's time to buy. Some things worry me, however. The one-year chart isn't attractive at all. Well, in one sense it is, because a trader/investor would be buying low at this point.

Continue reading TD Ameritrade: How Does the Stock Look?

TD Ameritrade: How Does the Stock Look? originally appeared on BloggingStocks on Thu, 02 Sep 2010 09:00:00 EST. Please see our terms for use of feeds.

If you are bullish on stocks going into September, the place to be is the big cap technology sector. These stocks are downright cheap. If the market falls, they will likely get cheaper, but if we are putting in a bottom, this is undoubtedly a great buying opportunity for both the short and long term.

Every single one of these stocks has been beaten down and is trading at a very compelling valuation. Furthermore, these names are the cream of the crop in the technology space. If the market can find a bottom in the next couple of weeks, you will be grateful to have added Cisco Systems, Inc. (CSCO), Microsoft Corporation (MSFT), Intel Corporation (INTC), Hewlett-Packard Company (HPQ) and Dell, Inc. (DELL) at these depressed levels.

Continue reading Looking for a Bounce? Buy Big Cap Tech (CSCO, MSFT, INTC, HPQ, DELL)

Looking for a Bounce? Buy Big Cap Tech (CSCO, MSFT, INTC, HPQ, DELL) originally appeared on BloggingStocks on Wed, 01 Sep 2010 18:30:00 EST. Please see our terms for use of feeds.

Now that I’m flying a lot more again, I’m back in the hunt for some frequent flier perks. I just came across the new Continental Airlines OnePass Plus Card from Chase, which has a pretty nice mix of perks for travelers.

Sign-Up Bonus: Free Flight

Travel Perks

As you may have heard, Continental and United are merging, and the resulting airline is supposed to have the name United. Here’s a chance to rack up some miles that will eventually merge together – this card and bonus may not be available in the future. Until when they actually do merge, I should also note that Continental’s OnePass is known as one of the better programs when it comes to redeeming miles for trips.

Besides the OnePass Plus card, you can get a more flexible $250 sign-up bonus but less travel-specific perks from the Chase Sapphire Preferred Card. Actually for you can also trade the $250 cash bonus for $312.50 in airfare through their rewards site.

Since we’re on the topic of college tuitions, I have recently adjusted the investment mix in my Ohio CollegeAdvantage 529 Plan. As I’ve mentioned before, I choose a very conservative mix because I think a 20-year or less horizon with a 4-year or less withdrawal period is actually a pretty short horizon. I just want to see gradual but reliable increases in my balances. In contrast, I view retirement as a 30 year horizon with another 20-30 year withdrawal period.

Previous Asset Allocation

My original asset allocation was 100% Treasury Inflation-Protected Securities (TIPS) through the Ohio 529′s Vanguard Inflation-Protected Bond Option which is essentially the Vanguard Inflation-Protected Securities Fund (VIPSX) with a slightly higher expense ratio. Back in 2009, I ran a comparison of the CollegeSure Tuition-Indexed CDs vs. Inflation-Protected Bonds, and picked TIPS. However, back then the real yield was 1.7%, and it is now 0.49%. Accordingly, the fund has a pretty good performance since then.

Updated Asset Allocation

20% Stocks (simple low-cost index option)
40% Inflation-protected bonds
40% Bank CD 10-year initial term, paying 5% APY.

Adding Stocks

The reason I chose to add stocks is that historically, adding 20% of stocks to a portfolio has actually reduced volatility while increasing returns. Here is a chart from my Choosing An Asset Allocation series of posts. As I get closer to college start date, this 20% portion will go down to zero.

Adding a 5% Bank Certificate of Deposit

Right now, a regular nominal 10-year Treasury Bond yields less than 2.50%. The real yield on a 10-Year TIPS bond is 0.95%, so the market is basically predicting inflation over the next 10 years to be about 1.50% annually.

However, the Ohio 529 plan offers a FDIC-insured certificate of deposit with a 10-year term earning 5% APY through Fifth Third Bank. (Heads up via Bogleheads.) That’s quite a big boost in yield. For every $10,000 I put in today, I’m guaranteed over $15,000 in 10 years. Early-withdrawal penalties are steep at half of accrued interest, so I had to be sure I wouldn’t need the money sooner.

As long as the real yield on the TIPS fund stays below 1%, then as long as inflation stays below 4% over the next decade the CD will win out over TIPS. If inflation somehow goes nuts, then the TIPS will keep the portfolio from falling too far behind. (Hopefully the stocks will help out as well.)

Since these are all in a 529 plans, the gains will be tax-free if used for qualified college expenses, which is good because otherwise federal and state taxes on a bank CD would be pretty high for us.

This chart from Clusterstock (via Carpe Diem) shows the cost of college tuition comparison to historical housing prices and the Consumer Price Index (CPI) over the same period. The CPI is designed to track our cost of living by estimating the average price of consumer goods and services purchased by households. Everything was normalized to 100 starting in 1978.

While housing went up 4x at its peak (~400), college tuition has gone up over 10x. Instapundit Glenn Reynolds says the higher education bubble is about to burst:

It’s a story of an industry that may sound familiar. The buyers think what they’re buying will appreciate in value, making them rich in the future. The product grows more and more elaborate, and more and more expensive, but the expense is offset by cheap credit provided by sellers eager to encourage buyers to buy.

Buyers see that everyone else is taking on mounds of debt, and so are more comfortable when they do so themselves; besides, for a generation, the value of what they’re buying has gone up steadily. What could go wrong? Everything continues smoothly until, at some point, it doesn’t.

Yes, this sounds like the housing bubble, but I’m afraid it’s also sounding a lot like a still-inflating higher education bubble. And despite (or because of) the fact that my day job involves higher education, I think it’s better for us to face up to what’s going on before the bubble bursts messily.

The college tuition prices being tracked in the chart was done by the CPI for US cities for “College Tuition and Fees”. According to this BLS.gov link, this tracks actual expenditures by households, and not some measure of median college tuition, which is often just the “retail price” before various forms of financial aid and/or scholarships.

Another hot topic is the rapidly rising cost of health care. Well, college tuition CPI beats that too, from this Wikipedia chart:

I know that I’m scared to imagine what college will cost in another 20 years. Dealing with this issue will be tricky, with huge amounts of easy government credit being given to 18-year-olds that are being told by everyone (including parents) that it is totally worth it. For many people, it will indeed be worth it. For others, not so much.

In my humble opinion, it also seems obvious that this trend can’t survive forever. But will it burst like a bubble? Perhaps if the government turns off the loans suddenly, but that seems unlikely. I like Reynold’s idea that there may be an educational revolution with the internet, online coursework, and changing educational standards.

I’ve been getting an increasing number of telemarketing calls recently, so I readily agreed to a review copy of How To Sue a Telemarketer by Stephen Ostrow, lawyer and judge. I had a vague recollection that you can get $500 every time a telemarketer violates the Do No Call list, and was hoping there would be a quick form or template to fill out and slam these annoying folks. It turns out to be a bit more complicated than that, but the basic steps are outlined below.

Before you do anything else, you should confirm that your phone number is registered at the National Do-Not-Call Registry. While you can file a complaint at the same website, that doesn’t have nearly the bite of a lawsuit with financial penalties.

Step 1: Data Collection

When an unsolicited telemarketer calls and you think they are in violation of the law, don’t yell at them. In a conversational tone, try to extract as much of the following information as possible:

Writing it all down is probably the most simply, having a recording is easier but you can’t tape a telephone conversation without notice in many states. (Here’s is a list of states with one-party consent.)

Step 2: Research and Lawsuit Initiation

Using this information, you can then research the legal names of either the company employing the telemarketer and/or the telemarketers themselves. Now you know who to sue. Next, you must file a complaint through your state’s Small Claims Court. The form is relatively simple to fill out and some templates are included in the book.

Here’s a list of potential violations of the Telephone Consumer Protection Act of 1991 (TCPA), each of which are separate. You can have been a victim of any one or a combination. Federal law allows for $500 per violation, which can be increased to $1,500 per violation if deemed” willful and intentional”.

A third party must then serve the complaint to the defendant, usually via sheriff or process server. You’ll also need to file a Proof of Service to show that the accused was served.

Step 3: Your Day in Small Claims Court

Now that you have filed the lawsuit and the defendant has been notified, a court date will be set and you’ll actually face your defendant in court. The person who actually called you won’t be there, just some representative. Some tips about how to present your case to the court are given, but basically you want to document all the details of the call. Since this is a civil court, you just need to prove that it happened more likely than not.

While searching online, I found another success story for suing rogue telemarketers. In his case, the telemarketer actually called him up before the court date and offered him $500 upfront to settle out of court. Nice.

The most depressing part of the book was the part where I found out what calls are not covered under the Act:

So if I get service from Comcast, they can still bug me. And I’ve already decided to vote against any politician who robocalls me. Grrr.

There are many more nuances in the book that aren’t covered here. If you aren’t turned off by required footwork above, then this book may be worth a read. It does try to keep a humorous edge to it, hopefully the energy will encourage you to follow through and get some justice.

The last time I actually paid for my credit score was before I bought my house, and that was basically a fit of paranoia to make sure it was crazy-awesome before the lender pulled it. There are plenty of “FAKE-O” credit scores out there, but the only place to get your real FICO score is myFico.com.

I’ve actually checked my FICO score several times since then for free, as promos usually pop up every couple month or so. I always try to post them here, but am often a bit late. This happened again this week, with myFICO offering free scores to the first 3,000 people. It was announced on their Twitter feed @myfico, so you may want to follow them for future opportunities. (While you’re at it, follow me @mymoneyblog too. I sometimes post smaller or short-lasting deals only on my Twitter page.)

Here are the best promotional codes out there currently: TWEET25 to get 25% off your Transunion FICO and SW94608 to get 30% off your Equifax FICO. You enter the promo code relatively late in the buying process, right before entering your credit card information.

Whenever you do buy a score, I would recommend trying to correlate your score and the current information on your report. Then you can start to learn what changes really affect your personal score. I’ve applied for 12 credit cards and canceled 5 with almost no appreciable affect to my scores (see credit score myths) – despite all the “rules” – only to have a huge balance on my mom’s credit card (with me as authorized user) show up and drop it by 30 points.

There was a lot of media coverage yesterday when Google announced that they would offer PC-to-Phone calls to US and Canada numbers for free from their Gmail interface. To try it out if you haven’t already, just log into your Gmail email account.

But wait… Google Voice (GV) has offered free US long-distance for a while already, and they’ll call your landline or cell phone so that you don’t have to sit by your PC and use a headset. Much more convenient in my opinion, even though I still love my Ooma. I primarily use GV for their voicemail transcription feature.

On top of that, let’s say you live in Texas and a big chunk of family and friends live in San Francisco that use landlines. Sign up for a Google Voice number with a San Francisco area code, and have your friends call that number. It’ll count as a local call for them, and will be forwarded for free to your existing phone.

However, this does make it more convenient to use, since Google’s service works within a web browser (plugin required) instead of a separate application. Skype might have to drop their prices as well, since they charge 2.1 cents a minute or $3 a month unlimited for the same features. Another perk is for international residents that want to call into the US for free, it appears you just need to have Gmail and have the default language set to “US English”.

I ran across Getting Organized in the Google Era in an airport bookstore last month, and while I wasn’t enamored enough to pay the $23 retail hardcover price, I did add it to my library want list. The author Douglas Merrill was formerly the Chief Information Officer at Google, so I figured he might know something on the topic of organizing data in the digital age. Here are my notes.

First of all, this is not a detailed organizational framework like that of the best-seller Getting Things Done by David Allen. It’s actually more like a series of blog posts that ended up being stretched into a book. Merrill uses a very casual, storytelling style of writing with lots of (sometimes awkward) personal stories and song lyrics mixed in. It skips around a lot, from high-level organizational philosophies to tips on using Gmail to how his girlfriend died of cancer.

Organizational Principles

In the end, the book’s overall theme did stick to the subtitle of “How to Get Stuff out of Your Head, Find It When You Need It, and Get It Done”, and I did write down a lot of good basic principles from the book. Here they are, paraphrasing:

Useful Tools and Services

Another good part of the book was his list of software and websites that he found useful in organizing his life. Most are free, but some do cost money. A few are only on Mac OS X. Like I said, this seems like it would make a nice blog post… and now it is one I’m only listing the favorites.

A related book that I also plan on reading soon is Upgrade Your Life by Gina Trapani of Lifehacker.

Groupon is currently offering any ticket on Fandango.com for $4 (up to $12 value including all fees and charges). If the value is over $12 (NYCers?) then you just pay any additional difference. If you don’t have a Groupon account already, please use my sign-up link. Then visit the deal link.

Only about 4 days left on the deal or until quantities run out. Over 40,000 already sold. The coupon expires Feb 28, 2011. Limit 1 per person. Not valid for IMAX or 3D movies.

Groupon is a popular group-buying site where in major metro areas you get one deal per day from a local retailer as long as enough people sign up for it, along with occasional nationwide offers.

If you still read newspapers like me, you may have come across an advertisement like this one recently touting an abnormally high 3-month or 6-month CD rate in last Sunday’s issue:

According to Bankrate, the current national average for a 6-month certificate of deposit is 0.37% APY, with their top yield being 1.25% APY. Highly-advertised Ally Bank offers 1.14% APY. So how can a tiny local non-bank that you’ve never heard of beat the rates of even online banks by over 2 whole percentage points?

It turns out that this is the newest version of the “free show tickets for timeshare presentations” marketing ploy. In this case, you must go into the office of an life insurance agent and listen to their sales pitch before getting the bank CD. Allan Roth over at CBS Marketwatch visited one of these offices and wrote about it. These non-bank salespeople are supplementing bank CDs from other FDIC-insured banks with their own money to reach the advertised rate. Questionable? Yes. Scam? Well, maybe not.

How It Works…

How Much Extra Interest?

But really how much money are they losing on this? If you buy a six-month CD with an annual percentage yield (APY) of 3.35% and commit $25,000, you?ll earn approximately $418. With a APY of 1.25%, that is $156. The difference is $262. That’s basically the “bonus” that they are paying to get you into the door.

The article by Roth was initially published more than 8 months ago, so that would suggest that this marketing ploy is working and the word is spreading amongst insurance salespeople. Now, I’m sure some people will call about the CD and either not have the $25k or otherwise decided not to go for it, so that improves their bottom line. I am pretty certain that their ad targets those with large cash balances looking for income-type investments, so that they can pitch annuities with seemingly safe and high yields.

Warnings

If you still want to invest in one of these bank CDs + incentives, you should be prepared to be presented with annuities that will actually seem to yield even more that their advertised 3-month CDs. They will be carefully packaged to look like a good deal. They will be described as “insured” and “safe” because they will be backed by an insurance company. The actual yields will be computed by a formula too complex for most math PhDs to fully understand.

Next, you should check if the extra interest is really worth it due to the fact that you’ll have to deal with paper checks. If you are writing a check from a bank account that isn’t earning interest, that is some lost days of interest right there. Since you’ll be receiving the CD funds as a check as well, that’s another few business days of potential lost interest. Use my handy Ultimate Rate Chaser Calculator to see your net interest boost.

Finally, you should be sure to only write the check to an FDIC-insured institution. You should interact with them directly to ensure safe transfer of funds and proper opening of account. Double-check the CD renewal guidelines, so you are not stuck rolling the CD over for another 3 months.

Here’s a list of other companies that I found offering similar ads. Some are pretty shady in my opinion, and pretend to be an elite broker supplying high-yield bank CDs. Others are actually pretty transparent about the fact that they are offering a carrot for you to listen to their pitch. If you know of any others, please leave a comment below, and I’ll add it to the list.

I personally wouldn’t trust any of these guys with a $9.99 cut-n-paste GoDaddy website and a rented office with any of my personal details.

The auto review issue of Consumer Reports is always very popular, due in part to the fact that they can be more impartial by actually buying all the cars they test anonymously and not accepting any outside advertising. (This is not the case with any other car magazine.) Here’s a few charts and graphs from Consumer Reports summarizing their car reliability data by brand.

Long-Term Reliability

This chart below shows a graph of problems vs. age of vehicle for 8 major automakers. The data is from their 2008 Annual Auto Survey, which had more than 1.4 million responses. A typical eight-year-old Volkswagen has almost three times the number of problems as a typical eight-year-old Toyota. [source]

Overall Test Scores and Reliability Ratings

This second chart, released in 2009, plots major automakers on two scoring scales: those from road tests by CR staff and predicted-reliability ratings based on surveys. Being in the top right corner is best. [source]

If you know of any more recent versions of these charts, let me know!

Thinking about simplifying your life and living in less space? Perhaps you already live in a small space. If you haven’t heard of Resource Furniture, you should definitely check out this video of space-saving and transforming furniture from their store in New York City, land of the 250 sf studio. These are way beyond your standard Murphy beds.

I love the innovation here, although I have a feeling this stuff comes at a relatively steep premium. Their website doesn’t show prices (must ask for quote), but I’ve read around $8,000 for a bed/sofa combo. I wonder how long it will take to these designs to trickle down to mass market stores. Via Reddit.

LendingClub.com is a website that securitizes person-to-person loans so that you can lend money to other people in as little as $25 increments, and you collect the interest after some fees. The idea is to replace banks and credit cards as the major middlemen used for lending. “Investors earn better returns, borrowers pay lower rates.” I’ve been investing some money with them since they started in 2007.

Last time I wrote about LendingClub in May, I expressed concerns about their historical performance data living up to their marketed 9.65% returns and then LendingClub responded on why they thought things weren’t that bad. It’s been 3 months, so I figure it’s a good time for another update.

The first part of their argument is that they think that loan performance over time will go like this, with a drop and then significant recovery near the end of the term:

However, I don’t see that behavior happening. As you can see below, the older the loans, the lower the overall performance. Returns just keep dropping for loans going from 1.5 to 3 years old. There is no rise or recovery at the end of the three-year term. Data was taken from actual LC loans with observation date of August 17th, 2010.

Loans Originating Second Half of 2008 (about 1.5-2 years old)

Loans Originating First Half of 2008 (about 2-2.5 years old)

Loans Originating 6/1/2007 to 12/31/2007 (about 2.5-3 years old)

Now, the next part of their argument was that all the loans that originated before they changed their credit requirements and interest rates at the end of 2008 weren’t a valid data set to be analyzing. (That doesn’t make me feel much better because as an early adopter, I hold a lot of those loans.) While improved underwriting may make the average returns higher, I don’t see why it should affect the overall performance behavior over time.

2009+ Loans Only

Okay, so the newer vintage loans that originated after January 1st, 2009 take into account their current lending criteria. In the end, we’ll just have to see if people really get higher returns. From now on, I’m going to try and track the performance every quarter. Here is the performance of loans originating in the first half of 2009, as of August 17th, 2010. Since it a loan has to be late for 4 months to be actually considered in default, this means the loans only have effective ages of 1 to 1.5 years.

So far, not too bad at about 8% return. Here is the performance of loans originating in the first quarter of 2009 with two observation dates (May 2010 and August 2010) overlaid on top of each other. You can see that the loan performance has decreased slightly over the last 3 months. I hope that I am wrong, and that the performance does start to improve.

You may call me a LendingClub basher, but I still consider myself an active investor and supporter. I want them to have awesome returns, but the data simply doesn’t support the likelihood of earning 9.5% annually. Investors should go into it with realistic expectations, and ideally an interest in P2P social lending. Despite this, if LendingClub can average, say 6% returns going forward, that would still be quite an accomplishment for this new business model. I know I’d be happy with that.

New Lender Incentives – Free $25 to $100 Bonus

If you are interested trying P2P lending with no risk, you can still use this special $25 lender sign-up link to get a free $25 to try it out with no future obligation. There is no credit check and you don?t even have to deposit anything. After you are approved, the $25 will show up in your account balance, and you can lend it out immediately.

If you’ve done your research and are willing to jump in with both feet, those that are willing to invest at least $2,500 at once and link a bank account can get a $100 bonus when you get a referral from an existing member. (Yes, you must actually invest $2,500 in loans.) Send me an e-mail if interested.

P.S. Prospective Borrowers
Honestly, LendingClub is more attractive as an option for borrowing money and/or credit card debt consolidation. You can borrow up to $25,000 and you can know your rate before actually applying for the loan. If the rate quote they give you can be beaten elsewhere, then just walk away with no obligation. When writing your loan application, try to include as much applicable information as possible (reason for loan, how will you repay, monthly budget breakdown) and answer all lender questions promptly for the best results.

A funny thing happened when Morningstar performed a study on whether expense ratios or Morningstar “star” ratings are better at predicting higher future mutual fund returns. Expense ratios won. Russel Kinnel, Morningstar’