This is a guest post from Mary Hunt, author of Debt-Proof Living. She also runs the Debt-Proof Living website, and is an inspiration to many frugal folks.

Recently, I got a message from Natalie who explained that as part of a financial preparedness night, she’ll have ten minutes to speak about financial freedom. Her question to me was, “What would you talk about if you only had ten minutes?”

Only ten minutes? I find it difficult to introduce myself in that little time, but I’m up to the challenge. So fasten your seatbelts. Here’s a ten-minute crash course in financial freedom.

SAVE. Don’t confuse saving money with spending less, as in “I save money when I buy things on sale.” You’re not saving at all; you’re just spending less. Saving money means that you actually put money into a safe place for some future time. Do that. Starting right now and forevermore make it a rule that you will put some amount of your paycheck into a savings account before you spend any of it. Make it automatic and you won’t miss what you don’t see. Goal: 10% of all you receive goes straight into savings.

GIVE. Give away the same amount as you save. Just give it away — no strings attached as an act of gratitude for what you have, how you are blessed. Goal: Give back 10%.

LIVE. Rein in your lifestyle so that it fits into 80% of your net income. Reduce your spending in every area of your life by a small amount and you’ll be able to achieve this, and probably sooner than you ever dreamed.

CREDIT. You need only one credit card. Put the others away so you can’t use them. If you have a balance on the one card you keep, don’t carry it with you. You’ve given up that privilege until you’re able to pay it down to $0 every month.

DEBT. The only debt that is safe for you to carry is secured debt (mortgage, car — anything with collateral). All others are dangerous to your wealth. Make a plan to pay off all of your credit-card debt quickly. See this as critical to your financial health.

CASH. It’s proven that you’ll spend about 30% more if you depend on plastic to pay for day-to-day spending. Leave the plastic at home. Live as much as possible with cash. Inconvenient? Yes. That’s the point.

PLAN. Society wants you to believe that living spontaneously brings freedom. Just the opposite is true. You need a budget (which is just a way that you “pre-spend” your paycheck on paper) so that you know ahead of time where your money will go. Write it down and then stick to it.

GET SUPPORT. You need to know that you are not alone; there are thousands of people getting control of their financial lives, too. Find a website like Debt-Proof Living or one of countless personal financial blogs like Get Rich Slowly. Sign up, visit daily. Get involved to stay on track.

There you go. If you follow these eight simple steps to manage your money, I guarantee you’ll find financial freedom. Whew! Did we make it in under ten minutes?

Note: Sierra recently reviewed Hunt’s How to Debt-Proof Your Marriage. In the past, J.D. has written about Hunt’s notion of using a freedom account to prepare for the unexpected.

This article is about Basics  Wednesday, 29th September 2010 (by J.D. Roth)  

View the original article here

I write a lot at Get Rich Slowly about Financial Independence, by which I essentially mean early retirement (or semi-retirement). That is, accumulating enough money that I no longer have to work. To me, escape from work has always seemed like the ultimate goal.

This is probably because my father held out retirement as a sort of Promised Land. He worked hard — if not always effectively — and he always made retirement and the end of work seem like the goal of life. And the sooner one reached retirement, the better.

But whenever I write about early retirement or Financial Independence, I get e-mail and comments from readers who never want to stop working. They love their jobs. Others write to say that we’re not supposed like the work that we do, but we’re supposed to do it anyhow. It builds character, and helps us pay the bills.

I’ve never found these arguments convincing. To me, early retirement has remained the goal.

Dirty jobs
Last week, Eileen e-mailed a link to a video with a one-line explanation. “This video is WEIRD and COOL and speaks to many GRS ideas like working and satisfaction,” she wrote. Yesterday, I finally had a chance to watch it. This video made me pause to reconsider my notion of work:

I didn’t know what to think at first. Mike Rowe, the host of Discovery Channel’s Dirty Jobs and the voice of Deadliest Catch, starts by relating an anecdote about castrating lambs with his teeth. “What does this have to do with Get Rich Slowly?” I wondered — but because his story was so compelling, I kept watching for all 20 minutes, 34 seconds. Turns out there is a connection.

It takes about half the presentation for Rowe to make his point, but eventually he does. “People with dirty jobs are happier than you think,” he says. “As a group, they’re the happiest people I know.” And his work on Dirty Jobs has led him to realize that there are a lot of misconceptions about work in the United States.

We hear these messages over and over and over again so that we, too, come to believe that work is something to be fought against. It’s something to be avoided or escaped. Work has been marginalized. It’s looked down upon. In essence, there’s a war on work.

The War on Work
“We’ve declared war on work. As a society. All of us,” Rowe says. “We didn’t set out to do it [...] but we’ve done it. And we’ve waged this war on at least four fronts.” The war on work is being fought:

“The collective effect of all of that has been this marginalization of lots and lots of jobs,” Rowe says. “Somebody needs to be out there talking about the forgotten benefits [of work].” He believes that what’s needed is a PR campaign for work.

Rowe says that the war on work has casualties, just like any other war. For one, the U.S. infrastructure is a shambles. To make matters worse, trade school enrollment is dropping fast, meaning we won’t have enough workers to rebuild that infrastructure. In order for this to change, we have to stop marginalizing work and start talking about the benefits.

The forgotten benefits of work
I’m disappointed that Rowe’s presentation ends before he can explore this topic further. I’d like to know more about what he thinks are the hidden benefits of work. After thinking about it most of the day, I have a short list of my own:

Though I found Rowe’s presentation entertaining and thought-provoking, I don’t agree with him completely. (I rarely agree with anyone completely.) For one, I still think that you ought to follow your passions, if it’s feasible. Yes, people can get into trouble if they’re slavish to this advice, but I truly believe that work you love can be tremendously fulfilling.

Still, I may have to re-evaluate my dogged pursuit of Financial Independence. I’ve already been shifting my aim from an ideal of early retirement to one of simply semi-retirement (in which I’d continue to work in some fashion). Maybe work isn’t the enemy. Maybe there are reasons to keep doing something I love.

What do you think about work? Is it marginalized in our society? Do you think there’s a war on work? If so, what should we do about it? What sorts of benefits does work provide? Do you love your work, or do you hope to retire as soon as possible? Or both?

This article is about Career  Monday, 20th September 2010 (by J.D. Roth)  

View the original article here

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.

Unless your last name is Rockefeller, Hilton, or Walton (as in Sam Walton, founder of Wal-Mart — four of the seven richest Americans are Sam’s heirs) chances are you had to work for the money you have. If you’re not yet retired, you still have years of that work ahead of you. And you retirees aren’t completely off the hook, either: Houses and cars need to be repaired, meals need to be cooked, and taxes need to be filed. If you don’t do these things yourself, you’ll have to pay someone else to do them.

Your ability to turn your labor into a paycheck — or to do things yourself, so you don’t have to fund someone else’s paycheck — is your “human capital.” This combination of knowledge, experience, talents, work habits, and social skills is perhaps your most important income-producing asset (as I wrote in January).

I’ve been thinking a lot about “enhancing human capital” over the past couple of years, especially as we’ve entered the toughest employment environment since the early 1980s. Few people can take their jobs for granted. Too much can change: the economy, technology, competition, even health (affecting one’s ability to do a job — approximately one-quarter of retirees stopped working due to health problems).

Then there’s the question of how to grow your net worth these days. Cash and bonds are at decades-low yields, and we all know now that the stock market doesn’t always go up. Thus, the asset we have the most control over is the one we take a shower with (assuming you do it alone, at least some of the time). A great career can result in a great retirement, because a higher income allows for more savings and retirement benefits.

But let’s face it: Earning a higher paycheck isn’t easy these days, so it takes deliberate planning, extra work, and perhaps bringing a higher-up into the shower. Since I’m not a human resources expert, I asked one of my Foolish colleagues — Angelique Keenley, Vice President of HR at The Motley Fool — for suggestions. She passed along these 11 ways to improve your income-producing capacity.

J.D.’s note: I’m a huge proponent of personal development. Your career is your most valuable asset, and by becoming a better worker (whether for yourself or for others), you boost your ability to earn. And that doesn’t just pay off now — it pays off for decades to come. Here are some other articles on this subject from the GRS archives: “How I Gave Myself a Raise“, “Five Steps to Six Figures in Seven Years“.

This article is about Career  Wednesday, 15th September 2010 (by J.D. Roth)  

View the original article here

This post is from GRS staff writer April Dykman.

When the 2008-09 financial crisis hit, my husband and I were debt-free and building our savings. We were proud of what we’d accomplished, and I used to stare at our savings balance with a smile after every payday.

At the time, all I seemed to hear was that we Americans had to spend our way out of a recession, that spending was the key to growth. Besides $862 billion in emergency government spending, everyday joes and janes were encouraged to spend through home-buyer credits and programs like Cash for Clunkers. (This wasn’t unique to the current administration, either; the former administration encouraged Americans to “go shopping,” as well.)

Some people say these programs were a success — that Americans are eager for their government to tell them what to do. Others believe that spending is what led to financial disaster in the first place, and more spending isn’t the answer.

You know what? I honestly don’t care. I’m more focused on my personal economy. My husband and I made great headway with our personal finances, and we aren’t about to stop and jeopardize our future by buying a new car or a flat-screen TV. We have goals, and we’re set on hitting them. Someone else is going to have to buy those cars and houses, because we’re focused on building our financial future.

But a recent article in Fortune, “The Naked Stimulus: Why Savings Stimulate More than Spending,” piqued my interest, and I came away with a different understanding of why some people argue that spending our way out of a recession doesn’t work.

Writer Shawn Tully explains that using basic economic math, you can’t borrow from the savers (the taxpayers) to give to the spenders (the government) and expect that to change the GDP. Tully writes:

All savings are spent…GDP measures all spending on all the goods and services that America produces. Savings translate, dollar for dollar, into a major component of that total spending: investment. All the money that the administration successfully moves from savings to consumption simply channels one type of spending to another, in precisely offsetting amounts. It’s like filling a swimming pool from one end, and draining it from the other end. The level doesn’t change. Nor does GDP change when the government drains investment to lift consumption.

How do savings translate into investments? When we save money, most of us don’t hide it in a jar on the top kitchen shelf. Sometimes we buy stocks, which provides companies with money to expand. Sometimes we deposit our money into savings accounts or buy CDs, which the bank lends to corporations or to the government through the purchase of Treasuries. Basically, the money is spent whether you buy a flat-screen TV or deposit it into a high-interest savings account. Even when banks tighten up on lending, they still invest in Treasury bills to earn interest.

The exception to the rule
Tully concedes that there’s one situation where borrowing could raise the GDP, a situation that he says influenced the theories of British economist John Maynard Keynes. During the Great Depression, when Keynes formulated his theories, people didn’t trust banks, so they kept cash in safes or under the mattress. This meant the money sat outside the system, so the federal government encouraged the hoarders to buy Treasuries.

But that’s hardly the situation we’re in today, where most people keep all of their money in the banking system, and most deposits are insured.

Tully hypothesizes that had the government not intervened by borrowing money, the redirected money would have gone elsewhere:

Two other components of GDP would have to be larger to offset the almost $900 billion in spending and borrowing. First, private investment would be higher, because of the bigger pool of savings, a great sign for the future…Second, the U.S. wouldn’t have to borrow nearly as much from abroad. As a result, the dollar would be lower versus other currencies, reflecting its true value.

Hence, imports would be more expensive, and our exports far more competitive on the world markets. The rise in exports would help offset the hit to GDP caused by lower consumer spending. Bigger investment and exports on a tear? That’s certainly a good alternative to the results of the stimulus.

Tully believes it’s possible that our current situation would be the same, but the outlook would be better for our economic future. What do you think of the theory of spending out of a recession versus saving to stimulate the economy?

J.D.’s note: Though we generally try to steer clear of politics at GRS, that may be tough today. This topic is inherently political. All I ask is that during this discussion, you be respectful of each other. Debate is great, but please leave aside the name-calling and gross generalizations.

This article is about Economics, Savings  Wednesday, 15th September 2010 (by April Dykman)  

View the original article here

This article is by staff writer Adam Baker. Baker recently released a guide to help people attack and sell their excess clutter entitled “Sell Your Crap“.

Several weeks ago, I wrote about the early stages of my quest to sell a family car. While I had always used either the local newspaper, word of mouth, or Craigslist to help sell my automobiles, I’ve recently run across several stories from people who successfully sold their cars using eBay Motors.

My original article caught the attention of a representative of eBay Motors, who e-mailed me to ask if I’d like to interview their Manager of Dealer Training, Clayton Stanfield. Stanfield spends his days educating and training automobile dealerships across the country how to better market their cars and trucks using eBay Motors.

After the last article, many of you commented that you’d love to see a follow-up with more specific tips on how to better use eBay Motors to sell a car. Since I’m going through the process for the first time, I jumped at the chance to chat with Stanfield about his top tips and tricks.

Create a great-looking listing
On the call, I asked Stanfield the primary question, “What are the top areas where the average consumer can have the biggest impact in improving their listings?” In other words, I was looking for Stanfield to show me the low-hanging fruit. I wanted to know the areas where you and I could get the biggest bang for our time and effort.

The first words out of Stanfield’s mouth were: “You’ve got to create a great-looking listing.” He was the first to admit this is common advice, but reiterated that not enough people take it heart.

“Seventy percent of cars that sell, sell to a buyer outside of state lines,” Stanfield said. “Out-of-town buyers need to be able to visualize the car. Focus more on pictures than anything else.”

Stanfield suggested creating a “virtual test drive” for potential buyers. I’ve since fallen in love with that phrase. One of the first principles Stanfield teaches is that dealerships can do a better job of this by always including 24 high-quality images (eBay’s maximum) with every listing. Thorough images help the buyer really get to know the vehicle, similar to being able to test drive it themselves in person.

Titles vs. subtitles
Another way to improve the average listing is through the smart use of titles and subtitles. When listing an everyday item on eBay, creating a subtitle costs extra money and isn’t searchable by default. This means that when a potential buyer searches for an everyday item, the information you provide in the subtitle won’t help them find your listing.

eBay Motors works differently. When listing your car or truck, eBay Motors generates a basic title for your listing automatically. Usually this includes the year, make, and model. For example, my car’s automatic title is “2003 Honda Accord”. eBay Motors then provides a subtitle where you can fill in more specific information. In contrast, when selling an automobile the subtitle is free and is included in searches by potential buyers.

Stanfield says that one of the biggest mistakes people make is that they repeat information in the title (generated by eBay Motors) again in the subtitle. There is no need to repeat the information in the title! In other words, eBay has already provided me with 2003 Honda Accord. It makes no sense for me to repeat that information in the subtitle (which I actually did the first time!).

Instead, Stanfield urges customers to use every available character in the valuable subtitle to help your listing appear in more searches. He suggests thinking for terms that a buyer may search for, but that aren’t already included in title. Some possibilities:

According to Stanfield, appearing in more searches is the number one way to increase the final price you receive for the auction!

A personalized, friendly description
When it comes to creating a description, the most important factor is being thorough and including as much detail as possible. But if you want to maximize the amount of bidders, simply listing the facts isn’t enough. Stanfield encourages dealers and individual sellers to personalize their descriptions by including background information on the car.

For example, you may include information such as when you bought the car, how long you’ve driven it, or why you are selling it. “You don’t just have to list details and facts; try sharing the background and history of the automobile, if you can” Stanfield says. He points out that sharing details not only allows people to identify with the car, but also makes you seem more personable and down to earth.

Most importantly, Stanfield suggests being brutally honest in your descriptions. It’s not only the ethical thing to do, but will result in better results and far less hassle. On one particular listing, Stanfield even went so far as to offer up this in bold: “This car is in worse shape than you think!” (I laughed out loud when he told that story on the phone!)

Reserve and starting price
At the end of the interview, I asked Stanfield for his suggestions on setting a reserve price and a starting price. Stanfield recommends setting the reserve at “the bare minimum you’d accept for the vehicle.” He notes that almost every listing sees an increase in activity and bidding once the reserve price is exceeded. Buyers are much more willing to bid on automobiles that are no longer protected by reserves. The quicker your reserve price is met, the more exposure your listing will get!

When it comes to starting price, Stanfield suggests starting low as well. “The most important bid is the very first one,” he says. “It gets the ball rolling and increases exposure in the search engine results.” He suggests starting the bidding at between 10-20% of your reserve price as a rule of thumb. For example, if you set a minimum reserve of $5,000, placing the starting bid at $500 would be a good idea. Most of the time, this will allow for bidding to initiate much earlier than a higher starting price!

Thanks to eBay Motors
I enjoyed interviewing Clayton Stanfield and appreciate him taking the time to share his expertise! Special thanks also goes to the eBay Motors team for reaching out to me on Twitter and making the introduction to Clayton.

As for me, I learned several specific tips during this interview that will help me spruce up my listing and try my hand at some national exposure. If there’s anything you’d add, let me know below!

This article is about Cars, Interviews  Tuesday, 21st September 2010 (by Adam Baker)  

View the original article here

It’s been a long time since I wrote about investing at Get Rich Slowly. I haven’t abandoned the subject, but my mind has been on other things. Besides, I’ve been practicing what I preach. I’ve invested my money in low-cost index funds (and some bonds), and I never make a trade. Because I know it pays to ignore financial news, I have. Earlier this week, I peeked at my portfolio for the first time since May. You know what? It’s doing just fine — even without me checking the balance every day.

Although I haven’t been writing about investing, I’ve continued to further my personal education on the subject. Whenever the mail brings the latest issue of the AAII Journal — the publication of the American Association of Individual Investors — I read it. (The latest issue just arrived today!) I’ve also been reading books about investing. In fact, I’ve just begun David Swensen’s highly-regarded Unconventional Success: A Fundamental Approach to Personal Investment; so far, it’s fantastic. Look for a review when I return from Europe.

And the other night, I had dinner with the Diehards.

I attended the first meeting of the Portland Diehards two years ago, but I’ve only managed to make it to one quarterly meeting since then. On Tuesday, I made it a priority to meet the group to talk about investing over Chinese food. There were six of us: J.D., Loren, Kris (not my Kris), Ron, Van, and Gary. We each brought different experience and perspectives to the table, which made for an interesting couple of hours talking about investing.

Spouses with different investment goals
As we ate snow-pea chicken and hot-and-sour soup, we asked questions and shared advice.

For example, I asked how you should invest when you have a different risk profile from your partner. I, for example, am fairly risk tolerant; I’m willing to take chances in expectation of higher returns in the future. My wife, on the other hand, is not. She’d rather sock money into low-risk investments that also produce low yields.

Van suggested that we split the difference. That is, we should take half of our investment capital and invest it the way I want, and take half to invest the way my wife wants. So, if I want 80% in stocks and 20% in bonds, but she wants 40% in stocks and 60% in bonds, then we’d average that to a 60-40 split in favor of stocks. (Which, co-incidentally, is how my money is invested right now!)

Valuation, risk, and return
The group spent some time discussing the concept of risk. Loren is near retirement, and seems tempted to chase investments that are currently offering high returns.

Gary — who offered lots of sage wisdom throughout the night — asked Loren, “What rate of return do you need on your investment to fund the rest of your life? That should determine where you put your money. If you need a 10% return on your money to fund your life, then you need to be in stocks. But if you only need 2%, why risk it?”

Gary also noted that it’s important to take valuations into account. That is, you shouldn’t just blindly buy a particular investment vehicle, whether that’s stocks, bonds, or commodities. Obviously, it’s impossible to know whether an investment is going to go up or down in the short term, but you can make a pretty good guess as to whether something is under- or over-valued in the long term.

As a prime example, gold would seem to be over-valued now, just as housing was five years ago. And a little less than two years ago, it was pretty clear that stocks were under-valued. Gary’s not saying you should chase whatever is tanking; he’s just saying that if you’ve been making regular investments in gold, for example, but the market seems high (like now), then maybe it makes sense to suspend your investments — or even to sell.

Do-it-yourself investing
I thought it was fascinating to listen to Van, who is trying to educate herself so that she can direct her own investments. She’s new to this, and trying to learn as much as possible so that she can make her own decisions. “None of the financial advisors I’ve talked to really knows what’s going on either, so I might as well do it myself,” she says. She figures that she’d rather make her own mistakes than pay somebody else to make mistakes for her. So, she’s educating herself by reading books and coming to meetings like this Bogleheads gathering.

All of us agreed with her, I think, which probably isn’t surprising. Loren said, “No matter who you talk to for advice, never forget that you are the boss of your own money.” I agree with this 100%. In fact, in May I published a guest post at Boing Boing about the importance of DIY finance. (No need to look it up; I’ll be posting it here at GRS in a few weeks.)

Picking stocks — or not
Van is especially interested in learning how to pick stocks. Ron, the chief Boglehead in our group, cautioned Van, saying that from his experience, the default position should be to start with (and perhaps stick with) index funds. His argument is that if you’re going to do anything other than:

Then you need to be able to state your reasons for doing so. You might have good reasons for not sticking with this default, but if you don’t, and if you can’t state them, then why take chances.

Once again, Gary shared the wisdom of his experience. “I started investing by picking stocks myself,” he told Van. “When that didn’t work, I went to a full-service broker and paid him $400 a trade to pick stocks for me. That didn’t work either — and it cost more — so I went to a discount broker to get my fees down. But I still couldn’t match index funds. So, I gave up. I’d rather spend my time playing golf than picking stocks. Now I’m in index funds, in ETFs.”

Shared wisdom
We talked about a few other topics, as well, but this post is already running long. I’ll skip the bits about certificates of deposit, investing in gold, and handling a windfall. But I do want to pass along a couple of quotes I liked:

Meetings like this are invaluable. They’re a chance to exchange ideas with fellow investors, and to profit from their success and mistakes. I highly recommend finding a similar group in your area. There’s no need to be intimidated. It’s fine to show up and just listen if you feel like you don’t have anything to contribute. I feel lost a lot of the time, but the more often I do things like this, the less lost I become.

This may be because I take notes. I filled my ever-present notebook with four pages of scribbles, including books to borrow from the library, websites to visit, and concepts to consider. (And, of course, writing this article helps to reinforce much of what I learned.) I already have December’s meeting on my calendar. I’ll be back for more Chinese food and more convesation with the Diehards.

This article is about Interviews, Investing, Real-Life  Friday, 17th September 2010 (by J.D. Roth)  

View the original article here

This is a guest post from Beverly Harzog, who writes about credit cards and personal finance at Card Ratings. Harzog is the co-author of The Complete Idiot’s Guide to Person-to-Person Lending.

When I was in my early twenties, I was a credit card mess. I’d go shopping with my credit card in hand and not worry about how much I spent until the bill came. At that point, though, I’d start worrying a great deal — sometimes, I’d worry about it all night!

It didn’t take long for me to realize that I had to change my evil spending ways or cut up my card. So, I spent a lot of time learning everything I could about credit cards and personal finance. I literally read everything I could get my hands on. The more I learned, the easier it became to have a relationship with my credit card that it didn’t involve sleepless nights.

Fast forward a couple of decades. Now, I spend the better part of every day either writing or talking about credit cards or personal finance. But I freely acknowledge that credit cards aren’t for everyone. Cash is king for many people. But for those who do want a mutually beneficial relationship with their credit cards, here are the five habits common among cardholders who use their cards effectively.

Habit #1: They have an organized credit life.
You need to check your credit report and FICO score regularly. On AnnualCreditReport.com, you can get a free credit report from each bureau (Equifax, TransUnion, and Experian) once a year. Instead of ordering them all at once, request a report from a different credit bureau every four months. This way, you can monitor your report throughout the year. When you read the report, look for errors and signs of identity theft. (Here’s Adam Baker’s step-by-step guide to how to get your free credit report from AnnualCreditReport.com.)

Know what your credit card balances are on each of your cards. Also keep tabs on the interest rates for your cards. Check your accounts online several times a week so you stay on top of your balances. I know it’s a high-tech world, but it’s a good idea to keep files that have your credit report, score, monthly credit card bills, and disclosure statements. Nothing fancy required. Manila folders work just fine.

Habit #2: They Pay Their Bills in Full Every Month
One reason you want to have an organized credit life is so you always know where you stand with credit card balances. The goal is to pay off the balance every month. There’s really no middle ground here. You have to have the self-discipline to stop spending when you reach your budgeted limit. If your past history suggests that you will keep spending, don’t use credit cards.

And give yourself a pat on the back for honesty. The people who are the most successful at managing their money are the ones who know their strengths and weaknesses and make decisions accordingly.

Habit #3: They Use Rewards Cards to Their Advantage
I admit I love a good rewards card. I guess it’s the personal finance geek inside me who loves the idea of getting paid to use my credit card. The key here is to use the rewards card to your advantage and that means paying off your bill in full every month (see Habit #2). Rewards cards tend to have higher interest rates. If you carry a balance, you not only negate the benefit, you lose money.

Habit #4: They Track Their Credit Card Expenses
When I had sleepless nights over credit card bills it was because I wasn’t tracking my expenses. So when my statement arrived, I almost passed out from anxiety. If you’re an effective credit card user — make that a highly effective user — you’re never surprised by your bill. And since you’re paying the bill off every month, it’s just another piece of mail.

There are a lot of fun money management tools out there right now. You just have to do some research and find one that works for you. I use Mint and it’s worked well for me. I’m a visual person, and I love all the colorful charts and graphs.

Habit #5: They Read Their Credit Card Bills and Disclosure Statements
Open your statement as soon as it arrives. Look at every transaction to make sure the charges are legitimate. If you see any discrepancies, get on the phone immediately. It’s very important right now to read all the disclosure statements you receive. With the credit card legislation still being phased in, credit card issuers are sometimes getting creative when it comes to fees.

This article is about Basics, Credit Cards  Tuesday, 28th September 2010 (by J.D. Roth)  

View the original article here

“Does this shirt make me look fat?” I asked Kris the other day. I was trying on clothes as I packed for our upcoming vacation in France and Italy. I want to limit myself to just four or five shirts for the trip. (Truly light packers would probably only take two shirts.)

“Well,” Kris said. “It’s not that the shirt makes you look fat. It’s just way too big on you. It looks like a tent. Most of your shirts are like that now.”

I laughed because I knew she was right. It’s great that I’ve lost 35 pounds so far this year (with another 15 pounds until I reach my goal), but one side effect is that my clothes don’t fit very well anymore.

I have three lovely cotton t-shirts, for example, that I bought from Costco in March. They’re heathered earth tones, which are perfect for me. (I’m a heathered earth tones kind of guy.) If these shirts still fit, I’d wear them all the time. But they don’t fit anymore. When I wear one, I look like I’m under sail! Ahoy!

The truth is, it’s time for me to buy some new clothes. I’m no longer an extra-large; I’m a medium. So, today I bit the bullet: I went clothes shopping…and not at a thrift store.

Shopping with Confidence
I’ve always purchased my clothes at one of two places: Costco or a thrift store. For years, I took the shotgun approach to clothes shopping. I’d buy a bunch of cheap stuff in the hopes that one or two items would see regular use. This worked — sort of. Using this method did let me find pieces of clothing I’d wear all the time, but it also gave me a closet full of junk.

I recently spent an entire year sorting through my clothes closet. For twelve full months, I noted which shirts I wore. At the end of the project, I purged anything that hadn’t been used. When I shared this story in May, I didn’t really know what lessons to draw from it. But over the past few months, I’ve realized the project taught me a lot, both on a micro level and a macro level.

On the micro level, I discovered that it’s possible to buy good-quality new clothes without worrying I’ll never wear them. The key is to look at what I already wear.

The clothes I kept after my year-long wardrobe project all had similar features. Namely, they were mostly “classic” items that will always be in style. I had a lot of formerly fashionable clothes in my closet (well, as fashionable as I get anyhow), but I rarely wore them. I didn’t wear patterned shirts, either, or clothes with words and logos. I favored plain clothes, especially those in a single solid color. (I like plaids, too, but Kris doesn’t, so I’m trying to keep those to a minimum.)

I also found I tended to like synthetics instead of natural fibers. Heresy, I know, but when I go to my closet, I skip over the clothes with wrinkles. I go for the things I can just pull out and wear.

Understanding these things about me makes a difference in the way I shop for clothes. In fact, this self-awareness made it possible for me to go buy new pants and shirts today without worry that they’ll just end up closet clutter. I shied away from shirts with patterns, sticking to solid colors instead. Because I know how much I’ve worn my $8 pair of zip-off pants over the past five years, I had no qualms spending $65 for a brand-new pair. (Although I’d obviously have preferred to get another pair for $8.)

My wardrobe project has taught me that it’s possible to shop for new clothes wisely. But it taught me something about the Big Picture, as well.

The Clean Slate
Last week, Adam Baker interviewed me for his Sell Your Crap project. After we talked a bit about my clothes purge, he made an interesting observation.

Baker pointed out that what I’d done with my clothes was essentially create a “clean slate” and then gradually add things into my life. He said that most of the time, we have a tendency to try to reduce clutter by taking things away from the entire population of Stuff we own. I guess you could say the usual approach is “subtractive” (we de-clutter by taking stuff away) and my closet project was “additive” (I started with nothing and then added until I reached a pre-determined limit).

Hearing Adam say this produced a big Aha! moment for me.

Most of the time, I’m one of those who uses the subtractive approach to de-clutter. I want to keep taking things out of my life until I somehow reach just the right level of Stuff — whatever that might be. The problem is, I never seem to reach that level.

What if instead I found a way to use the additive approach, but on a large scale? Is there a way to do a complete clean sweep of all my Stuff and then gradually add things back in? What about using this approach with my time?

This reminds me of my Man Room. When we moved into our house six years ago, we had one room downstairs that was essentially unused. We didn’t have any furniture for it. For years, it was just sort of a holding area for the Stuff that didn’t have any other place to live. Last year, we bought some new furniture for the room — but we only bought the essentials. For the past twelve months, I’ve been disciplined about not allowing extra Stuff to creep into my Man Room (or den, if you prefer).

I also think about what I call my Dream Apartment. Despite living in our dream house, I have a fantasy of moving to an apartment or condo in downtown Portland. For the past few months, I’ve been using Evernote to collect things that would go in the Dream Apartment (example). When I imagine the space, it’s very spartan; there’s very little there. Only the necessities.

I told Kris about this the other day, and she just laughed. “You could never do it,” she said. “Look at all the Stuff you have in the house we have. Where would it all live in your Dream Apartment?”

She’s right, of course — Kris Gates is always right — but still…a part of me would love the opportunity to move just so I could start over using the clean slate approach. I’d love to get a new place, and just have it sit empty for a couple of weeks while I get a feel for it. Then I’d add just a few things at a time.

My friend Sparky used to live like that. He owned almost nothing. And while I don’t aspire to his level of non-attachment, I often think about how little he needed to get by. I think about how little I need to take with me when I travel. I wonder what it would be like to start with a clean slate — and keep it clean. Could I do it? I don’t know, but I’d love to try.

This article is about Clothing, Consumerism, Shopping  Wednesday, 22nd September 2010 (by J.D. Roth)  

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There are all sorts of rules of thumb about how much you should spend on a home, but what about that other major expense in your life — your vehicle? Have you ever wondered how much to spend on a car?

I’ve thought about this question before, but never really considered that there might be an answer. (Well, no answer other than “as little as possible”.) But the folks over at BeFrugal have put together a car calculator that lets users figure out how much it makes senset to spend on wheels.

You enter the amount of time you spend at home, the amount of time you spend driving, and the amount you spend on your house (or apartment). The calculator spits out a figure that tells you how much (proportionally) you could spend on a car.

BeFrugal offers these caveats regarding their calculator:

This calculator assumes that you get equal satisfaction from having a nice car as that you get from a nice home. It only takes into account the information that you filled in above. Here are some things that are *not* taken into account:

Since we are only calculating how much you should spend on the car, and not the house, this calculator assumes that you have made a good (and frugal!) choice with your home.A newer or more expensive car is likely to be safer in an accident.A newer or more expensive car is less likely to leave you stranded.A hobby car cannot be evaluated using this calculator, as the purchase is based on enjoyment value, not utility.

How useful is this? I don’t know. I still think the best advice is to determine which model (or models) suits your needs and then shop for a good used vehicle.

As for myself, I’m happy with my used Mini. It’s one of the best purchases I’ve ever made. Still, I know it can’t last forever, so I’m diligently setting money aside in my Mini Replacement Fund so that I can buy a new Mini when this one dies. (Except that I did raid my Mini Replacement Fund to pay for next year’s trip to Africa. Time will tell whether that was smart or stupid.)

[BeFrugal: Car cost calculator]

This article is about Cars, Tools  Tuesday, 21st September 2010 (by J.D. Roth)  

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I’ll admit it: I’m way behind on posting reader questions. I get tons of questions, and can never reply to all of them. I do ask a handful of folks if they’d like to put their problems to the general readership. But even after sifting these through, I still have about a dozen dilemmas to put before you.

I had hoped to write up one “ask the readers” column per week that I’ll be in Europe, but that didn’t happen. Instead, I’ll post one today, and then we’ll tackle the backlog in earnest when I return.

Today’s reader question is a little bit different. Generally I edit the e-mails severely and then chime in with my advice before passing the baton to you. I’m not going to abridge today’s message at all. I’m posting exactly what came in. And I’m not going to lend advice — I’ll leave that all to you.

Here then are the woes of Kim, a single parent who is at her wit’s end.

My life has exploded with craziness. I am 26, a single mom (again) going through a dissolution of marriage from my husband (not my son’s father).

My husband kept everything, the house (currently in foreclosure) and furniture, his paid off car, the pets, etc. I kept my son and his belongings, my second hand dresser (older than me) my bed and books and my new car with a slightly hefty car payment (just under $300/mo). Everything else I own is second hand. I’m happy with this decision. I miss my house (I made it a home) but I’m happy with my 2 bedroom apartment. I removed myself from a very unhappy situation and with the support of my friends and family I’ve found independence and happiness.

My mother is disabled (brings home $800 a month after her medicare cost) I help her out as much as I can and in exchange she gives me free babysitting for various times. My son is 7, is very active (soccer, baseball, cub scouts, etc) has many friends and is the love of my life. I give him an allowance of $10 a month which is split between spending, saving (for college), charity, and saving for a long term goal (currently a vacation next year). He also receives spare change and sometimes dollar bills from my wonderful family which he is awesome about saving for his long term goal or giving to charity.

I’ve taught my son what my parents did not, money management. I’m still trying to teach myself. This year was especially crazy as my sister is getting married. I spent about $1,000 on the wedding (I’m a bridesmaid).

I currently work 2 jobs (1 full time and 1 part time), I coach soccer, I am involved in my sons’ scouting activities (mostly planning/helping at pack mtgs), and I have just started dating a very wonderful, responsible man.

My problem is I feel like I don’t know where to start. I gained a lot of unwanted weight during my marriage, the accumulated debt feels like a dead weight which I’m ALMOST done paying off but can’t seem to get rid of the last little bit, I’ve saved quite a bit but have also spent a majority of my savings due to unexpected expenses, I’ve neglected my mental health (I’m diagnosed bi-polar and depression) because I can’t seem to squeeze time and money for therapy sessions ($25 co-pay per 50 min visit), my teeth are in bad shape due to past bulimia/lack of insurance problems. How would I prioritize my and my sons needs/wants?

My sons teeth are in OK shape, mostly needs 1 cavity filled but the other 2 cavities are in teeth that will fall out very soon (doesn’t make sense to fill them). Otherwise his activities just seem to nickel and dime me to death. My boyfriend and I planned a vacation before we started dating and we were just friends. He gave me the deal of a lifetime and I took it with the support and well wishing of friends and family. We are now dating and he doesn’t understand that I don’t want him to pay for everything, even if I’m struggling. I have a need to accomplish things on my own, I don’t want him to rescue me every time I make a mistake financially.

I have a separate vacation fund with Smarty Pig, a savings account linked to my checking account which is used as a small emergency fund (for expenses I forget about) and am waiting until after my sis’ wedding to start a Smarty Pig emergency fund that I won’t be able to touch as easily. I promised my son we would take another family vacation next year and I feel that I could swing it if I pinched my pennies harder.

I guess my question is how do I prioritize my life? How would a normal (i.e. an individual who doesn’t feel like they are drowning) put their priorities? I’ve always put everyone else first, mostly I had to because I was a young single mom and relied on others to help me out so I felt like I owed them everything.

I do accept help for certain things that I feel guilty about (my dad pays my car insurance, I don’t pay my dad for babysitting but I pay my mom, etc). I’m intelligent, I’m better off now than I’ve ever been in my life and I’m happy even under all this feeling of helplessness and overwhelmed. Between both jobs and my child support I gross about $36,000 but I can’t really identify where about $8,000 a year goes. I’m currently tracking my spending in Excel to figure it out. (And by the way, I’m considering quitting my second job simply because I miss my kid!)

What advice can you offer me? I need to hear the truth from an objective party, no matter how gruesome it is.

Now do you see why I can’t reply to every e-mail I receive?

Kim’s situation sounds overwhelming. When I try to think of advice I could give her, it all sounds facile or mean. (”Yes, cut the cable TV. Use that money for one of the goals that matters to you!”) Or it sounds like a cop-out. (”Seek the advice of a trained professional!”) Plus, there’s a part of me that wants to offer to contribute money to her Smarty Pig account because I feel like she needs it more than I do.

But none of that is really constructive.

So, dear readers, this week I’m not going to offer my customary response to the “ask the readers” question. Instead, it’s all going to be your advice.

What should Kim do? Where should she set her priorities? How much help should she accept from others? What can she do to solve her problems herself? If you were in her situation, where would you start?

This article is about Ask the Readers, Budgeting, Relationships  Friday, 24th September 2010 (by J.D. Roth)  

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