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The Simple Dollar: “How to Prepare Your Finances for a New Baby” plus 2 more

2014-10-24T01:25:00.001-07:00

The Simple Dollar: “How to Prepare Your Finances for a New Baby” plus 2 more

How to Prepare Your Finances for a New Baby
Some Thoughts on Following Passion
17 Strategies to Survive Working From Home With Children

How to Prepare Your Finances for a New Baby

Posted: 23 Oct 2014 01:00 PM PDT

Your new bundle of joy will come with a bundle of new expenses, too. Photo: Frank de Kleine

I was once told there's never a right time to have a child, and you can never prepare enough once they're on the way.

After seven years of parenting, I definitely agree with the first part of the statement. As for the second half? You never know what will happen after your child is born, but I do believe there are actions you can take to get your finances in order.

Here are some simple ways to get your financial act together before your new baby arrives, and some useful tips to trim expenses that crop up along the way.

Estimate Expenses

Upon discovering we were expecting our first child, we couldn't be more elated. But as much time as we spent mentally preparing ourselves for his arrival, there's one important step we completely overlooked: expense planning. Let's take a closer look at some of the items you want to think about ahead of time:

1. Child Care

Unless you'll be staying at home with your little one or qualify for an income-based program, brace yourself for the huge sum of cash you'll be forking over each week for child care.

This was definitely a shocker for us. I remember visiting a number of daycare providers a few weeks after our son was born to get an idea of how much we'd be paying for care. To my surprise, it was much more than we could afford at the time — somewhere around $1,000 per month. So, I decided to attend school at night and watch the little one during the day to cut costs.

I eventually returned to work part-time and took a few courses during the day. Fortunately, I was able to find much more affordable care through a home sitter recommended to me. One piece of advice: Start looking before your child is born.

As you plan, here are a few additional cost-efficient child care options worth considering:

Ask family members for help: If a grandma, grandpa, or retired aunt is sitting around all day looking for something to do, asking them to babysit may be the perfect win-win opportunity, at least until you get on your feet. Just be sure they're reliable to avoid issues down the road.
Research employer-sponsored child care: Does your employer have partnerships with local child care facilities? If so, confirm with human resources that you're eligible for discounted care.
Consider on-site care child care if it's available at your workplace: Perhaps there's a facility on-site? Not only is this a convenient option, the “tuition” may be cheaper than that of traditional centers.
Draft up a nanny-sharing arrangement: Splitting the cost of a private nanny can be a big money saver, but it only works if you know of another family you trust that is willing to participate and share their home (and caregiver) with your new bundle of joy.

2. Diapers and wipes

It'll be awhile before your little one is potty-trained, so be prepared to spend at least $50 per month on diapers. During my children's diapering years, I frequently stacked manufacturer and store coupons to curb costs.

Now, I'm not suggesting you go on a diaper-shopping spree just yet, since your baby may be allergic to certain brands. But it's never a bad idea to start collecting coupons for diapers from multiple manufacturers that aren't set to expire in the near future.

A more green and cost-efficient alternative: cloth diapering. I personally don't have any experience with this method, but I know of others who have saved a bundle by ditching the boxed diapers for cloth ones.

3. Formula, Bottles, and Baby Food

Planning to breastfeed? If not, read this section — and even if you are, it doesn't hurt to take a peek since, there’s a slight chance things may not go as planned after delivery.

Formula has the potential to sink your monthly budget if you aren't prepared. Expect to spend anywhere from $13 to $25 per can of formula. Baby food is less expensive, but you’ll still need quite a few jars to fill up your growing infant when the time comes.

A few tips to curb the costs:

Use coupons: Along with diapers, this is one of the few times I'll strongly suggest that you clip away. Also, sign up for perks from the manufacturer to receive coupons by registering online or calling the toll-free number on the back of the can. And ask fellow coupon users to pass along to you what they don't need.
Join a Baby Club offered by your local grocer: If you live in a state with a Winn-Dixie or Publix supermarket, you're in luck. I received over $100 worth of free baby supplies in my my little one’s first year.
Load up at the hospital: I feel a tad bit weird making this suggestion, but some mother and infant units have tons of baby formula sitting on the shelves waiting to be consumed. And I’m certain your nurse won’t mind giving you a few extra cases to “try” at home.
Pick up samples at the doctor's office: In some instances, coupons are also affixed to the can. And if you don’t see them, just ask.
DIY: Yes, you can make your own formula. Isn't that spectacular? There are a host of homemade recipes to choose from online from sites, including Pinterest. I didn’t make my own formula, but I definitely avoided pricey pre-made baby food by using the blender.

4. Apparel and Footwear

As tempting as it is to pick up every cute piece of clothing you run across, do so in moderation. I used to be fascinated with baby clothing until I realized that children grow quickly, and often miss the opportunity to wear their cute new outfits. And if you insist on shopping, give consignment stores and thrift shops a shot. Infants basically outgrow their entire wardrobe every three months, so it’s easy to find barely-worn secondhand children’s clothes.

5. Medical Expenses

During the first few years of your little one's life, you'll be making a number of trips to the physician's office. Whether it be for a routine checkup or emergency visit, be prepared to fork over cash for any co-pays or prescriptions your baby may need.

And if you're currently employed, it's never too early to start researching maternity leave benefits along with any short-term or long-term coverage you have and when it will kick in. I wasn't fortunate enough to have these benefits the first time around; the second round came with three months of paid leave. (And my husband had a chance to join in on the fun, thanks to paid paternity leave). If you don’t want to use up all of your leave at once for financial or personal reasons, inquire with human resources about additional options that may be available to you.

6. Toys

The motto in my home is simple: If it's not on clearance, we don't purchase it. But we ran into a major problem when our first son was still in the oven: There were tons of toys on clearance, and it was tough to narrow down the choices.

My advice: Stick to your budget, because you'll have bigger fish to fry in the near future. Also, friends and family will more than likely shower your new arrival with toys that he’ll barely touch during the first few months.

7. Miscellaneous Expenses

I've given you a pretty good overview of what to expect in terms of expenses, but life happens. In other words, everyone's situation is different, and you just never know what might come up with little ones — so it's best to be prepared for the unexpected.

Adjust Your Spending Plan

Once you have a good idea of how much you'll be spending each month on your new bundle of joy, adjust your budget accordingly.

This was yet another costly mistake we made the first time around. We knew our son would mean some additional expenses, but we figured we'd just find a way to work it all out each month. Boy, were we sadly mistaken.

Don't fall into the same trap we did and be forced to make adjustments after the fact. Instead, be proactive and plan cuts if needed to comfortably afford the extra costs that come with a new addition to the family.

Create a Registry

If you discover that the costs of raising your new arrival greatly exceed the income you're bringing in each month, don't be afraid to throw those necessities on a registry and let your family and friends fill the gap. Also, ask for gift cards as they will come in handy a few months down the line when money's tight.

And don't forget to add the big-ticket items, including furniture, pack n’ plays, strollers, and car seats, just to name a few.

Creating the registry was one of the more memorable moments of my pregnancy — not because it was a load of fun, but because of how time-consuming the process was. However, it's the best thing I could've done, as family and friends purchased enough items, with the exception of baby food and formula, to last us for almost nine months.

Build Your Cushion

Life happens, and so do emergencies. As a parent, you never want to compromise your child's well-being by having to choose between purchasing formula or diapers. I wouldn't wish that on anyone, but I've seen it happen time and time again. So, it's best to establish a "baby fund" to get you through any rough patches.

If money's tight and you're barely scraping by, here are a few ideas to get you started:

Cut the extras: Could you survive without the routine spa visits, pricey gym membership, 300-channel cable package, fancy smartphone data plan, or any other money-devouring habit you've formed? Most certainly, so now's the time to trim those costs for the sake of your little one.
Skip fine dining: I'm a big fan of a gourmet dinner out, but let's face it: The price points are often exorbitant for the portions you receive. As a feasible alternative, visit CopyKat.com and learn to create your favorite dishes in the comfort of your own home. Set the table and the mood with a few candles, prepare your favorite dessert, pour a glass of sparkling cider, and you have the perfect date night for a fraction of the cost.
Sell some stuff: Remember those shoes you purchased awhile back that are collecting dust? Or that artwork grandma gave you years ago? If you have no intentions of using these items, or any of the others sitting around the house collecting dust, host a yard sale or post them on Craigslist. Not only will you make a little (or a lot) of dough to add to your cushion, but you'll also clear up the clutter — and you’re going to want the space with a new baby on the way.
Negotiate your current obligations: You never know until you ask, correct? If so, what's stopping you from picking up the phone and reaching out to your service providers and creditors to see if more cost-efficient alternatives are available or if they offer alternative payment plans? Each time money's been tight in my household or I wanted to make room in the budget for some other expense without touching the emergency fund, I picked up the phone. On average, I've saved $100 or more by making a few calls that took up 30 minutes or so of my time.
Bank windfalls and extra checks: Expecting a tax return or some other cash infusion in the near future? Sorry to burst your bubble, but you ought to forgo that shopping spree or highly anticipated vacation and stow the funds away. Your little one will thank you! The same rule applies to those months with an extra week of payroll: Transfer the direct deposit to the "baby fund" as soon as it hits your account.
Work a little overtime: This is probably the last thing you want to hear if you're suffering from an extreme case of morning sickness or in your final trimester and anxious to head to the birthing table. However, working a few extra hours and banking the cash can provide the extra boost you need to beef up your cushion. Your significant other should be willing to make the same sacrifice; after all, you're in this together for the long haul.

I'm certain your precious bundle of joy will be in good hands once he make his grand entrance, but getting your financial ducks in a row can give you peace of mind to focus on the things that matter most.

And if you weren't fortunate enough to plan beforehand, don't fret. Start now and before you know it, you'll be in the perfect position to start planning for you little one's college expenses.

Most importantly, cherish these precious moments when your children are young, because they grow up way too fast!

The post How to Prepare Your Finances for a New Baby appeared first on The Simple Dollar.

Some Thoughts on Following Passion

Posted: 23 Oct 2014 07:00 AM PDT

A few weeks ago, Mike Rowe (perhaps best known as the host of the Discovery Channel television series Dirty Jobs) posted an interesting essay on the subject of following your passion. In fact, it was interesting enough that it popped up all over the place on social media sites.

His central point is that passion alone won’t bring you success in the field of your choice, which is something that I certainly agree with. However, he carries it a bit further than that, stating that the advice to follow one’s passion is inherently bad:

Like all bad advice, “Follow Your Passion” is routinely dispensed as though it’s wisdom were both incontrovertible and equally applicable to all. It's not. Just because you're passionate about something doesn't mean you won't suck at it. And just because you're determined to improve doesn't mean that you will. Does that mean you shouldn't pursue a thing you're passionate about?" Of course not. The question is, for how long, and to what end?

He goes on from there:

"Staying the course" only makes sense if you're headed in a sensible direction. Because passion and persistence – while most often associated with success – are also essential ingredients of futility.

And:

That's why I would never advise anyone to “follow their passion” until I understand who they are, what they want, and why they want it. Even then, I’d be cautious. Passion is too important to be without, but too fickle to be guided by. Which is why I’m more inclined to say, “Don't Follow Your Passion, But Always Bring it With You.”

I have mixed feelings about what Mike Rowe wrote here, so I thought I’d walk carefully through my own views on passion and how they intersect with careers and the need we all have to earn a living.

What Passions Are

Before we get started, I wanted to talk a little bit about what I view passion to be, and by doing that, I’ll end up discussing some of the things I am personally passionate about.

First of all, in my eyes, passion occurs when your enthusiasm or desire for something is great enough that you’re compelled to do it without compensation, when others would insist on compensation for the same thing. In other words, if you enjoy something so much that you would do it for free, you’re passionate about it.

I’m that passionate about writing. There are few moments in my regular life that fill me with enough internal pleasure than getting lost in writing. When I get so absorbed into putting my thoughts down on paper or on the screen that I lose track of time and then I suddenly “snap out of it,” I feel incredibly fulfilled on a personal level.

I often feel this way when I’m reading a book that really clicks with me, or playing board games with my friends, or when writing computer programs. I also often lapse into this kind of state when spending time with my immediate family. I can feel this way about exploring the wilderness, especially when I’m observing the wildlife or looking for something (such as geocaches or morels). There are a few other events that can trigger a burning passion, such as competing in sports or watching an exciting sporting event, but it’s relatively rare.

Naturally, if you can find a way to make money based on something you’re passionate about, that’s a sweet gig. That, to me, is the real American dream.

The Problem with That Picture

Mike Rowe does a pretty good job of spelling out the problem with this picture.

To put it simply, people pay for skills, not for passion. You can have all the passion in the world, but if you don’t have skill, people aren’t going to pay you for it. It just isn’t going to happen.

I have always been lucky enough that I’ve had enough skill with my passions to earn money with them. My first post-collegiate job tapped into my passion for computer programming. Today, I can tap into my passion for writing as a way to earn an income. In both of those cases, I tapped into something I was passionate about that also coincided with at least some level of skill. I don’t claim to be a great computer programmer, nor do I envision myself a great writer by any stretch of the imagination, but I can write a program to do the things I want (for the most part) and I can get my ideas across with the written word.

Still, we’re stuck with the core problem. People pay for marketable skills and talent. Passion might make those skills and talents really shine, but passion alone does not create them.

So, how can a person “follow their passion” and still make a living if their passion doesn’t happen to match up with an obvious way to earn an income? There are really four separate things you can do here, some of which Mike overlooked.

Build Transferable Skills That People Will Pay For

In other words, you should be skilled in areas that can find employment in a lot of places. Don’t overspecialize. At the same time, at least some of those skills should be transferable to as many fields as possible.

For starters, you should try to choose an area of study that leads to a lot of potential jobs. In fact, I’m going to suggest something that might surprise some people: unless you are quite passionate about a specific field with strong employment opportunities, you should strongly consider going to a trade school. Become an electrician or a plumber or a carpenter. As long as buildings are being built, these types of jobs will always find employment with a solid pay rate.

If you do choose a specific field in school, try to choose a specific path that opens as many doors as you can. Add a teaching certification to your studies. Add a second major so that you can see work in either field. Be diverse.

What about transferable skills? This website offers a great list of these skills. Those skills should be all over your resume because they’re valuable in almost every field. Find ways to build these skills, particularly in ways that enable them to be added to your resume.

This is the exact career advice I’m giving to my own children already. Try things. Figure out what you’re naturally good at. Hone those skills. Add some transferable skills to the mix. If you find your passion and it happens to line up with your skills and healthy employment opportunities, chase that. Otherwise, get into a field with lots of employment opportunities that either uses your natural skills or is something that anyone can do with adequate training.

What if you’re already in a tight career field? Get training in another field. Take evening classes so that you can move into a career path with more diverse options. I’m reminded of my mother-in-law, who moved from a very narrow field (she had a very specialized skill set that basically linked her to one employer anywhere near where she lived) to nursing, which has many opportunities for employment, by taking evening classes. She was in fact taking those classes in the evenings when I first began dating Sarah and then moved on to a successful nursing career from something completely different.

Find Ways to Use Passions at Work While Plying Your Skills

If you follow the first step, you’ll have a job that pays you at least somewhat well. You might not be following your passions, but you should be using at least some of your natural talents and skills.

Once you’re in that context, keep your eyes open for any and all opportunities to use your passion at work or in that career path.

What kinds of projects come through your workplace? Do any of them brush upon your areas of passion? What about projects that other people and companies in your field are tackling? Do they parallel your passionate areas?

If you’ve involved yourself in a field that has lots of employment opportunities and you’ve also built some transferable skills, you’ll have some flexibility in your field. You may be able to jump to another employer who is doing something interesting. You may be able to convince your boss to let you work on a particular special project.

What if there’s nothing in the pipeline that even looks close to your areas of passion? Be patient. Look for things that people are doing anywhere that merge your field of expertise with your areas of passion, then do what you can to prepare yourself to be able to do that should the opportunity present itself.

You might not ever be able to work exactly in your area of passion, but you can certainly merge your skills with some aspect of your area of passion. The possibilities there are limitless.

Devote Your Spare Time to Your Passions, Not Time Wasters

I try very hard to spend my evenings and free time on the things I’m passionate about. I’ll get lost in the pages of a book. I’ll gather a bunch of like-minded friends and play a mind-crunching board game with them. I’ll come up with some sort of crazy project and do it with my kids (and my wife). I’ll work on writing a novel. I’ll work on an iOS app. I’ll learn about something new or try out a new skill.

To me, a great day is one where I get lost – even if just for a little while – in one of my passions where I lose track of time. I’m not doing it for cash; I’m just doing it because I love that particular activity. That is a key part of any great day.

Does this mean I’m magically going to make money from that board game I’m playing? Very doubtful. What it does mean is that passions are a part of a complete life. My life is better because I spend some of my spare time diving deep enough into my personal passions that I lose track of time.

But I don’t have time to do that! Many people come home and spend their time… well, wasting time. The average American watches five hours of television per day and more than an hour of internet usage for pleasure per day. That’s a lot of time.

I’m not suggesting that a person completely cut the cord on their television, but if that average American cut their internet and television time in half, they would have three more hours a day for their passions.

The point? Find time. Look at what you’re doing each day. Of those things, which ones are genuinely more important than investing an hour or so into something that truly makes your life better? Does Sportscenter or The Big Bang Theory trump that?

I devote a block of time each evening – usually from about eight, which means the kids are in bed, to about ten or so – to some specific passion of mine. Often, I’ll devote a healthy portion of my Saturdays and Sundays, too. Most of those times, I’ll get lost in whatever it is I’m passionate about until I’m literally interrupted from it.

That experience makes my life better. It is perhaps the single biggest key in my life to keeping melancholy at bay.

Share Your Passions

Now, here’s the kicker. This is the big part that I felt like Mike Rowe was missing in his essay.

People love passionate people.

Few things make me happier than seeing someone else engaged in something that they really care about in a positive way. I love seeing someone engrossed in a book. I love hearing from someone who is really excited about that book and wants to tell me about it. I love it when someone who is truly passionate about something takes the time to share some aspect of that passion with me.

That’s cool. In fact, in my eyes, that’s about the coolest thing a person can do.

Whenever I listen to a podcast or watch a video on Youtube or read a blog or take a class, most of the time, I’m bumping up against a passionate person, a person who really cares about whatever it is that they’re sharing. That positivity is infectious and enjoyable. It comes through.

For the most part, those people are earning money simply from sharing their passions. They’re not usually experts in their field of passion. They’re ambassadors.

Youtube is full of ambassadors for various passions. So is the field of podcasting and the blogging area. Some businesses hire people with passion for customer relation purposes.

How does this happen? It’s just people sharing their passions.

The Simple Dollar started as a way for me to share my passion for writing by using my own story and the joy I was having in figuring out how to turn my financial life around. I shared it with a few friends. Within a few years, the site was popular enough that I was actually able to leave my primary job to work on The Simple Dollar, earning ad revenue money and signing up for lots of other related projects.

One close friend of mine started a side business of buying and selling trading cards out of a room in his basement. This allowed him to spend his time sorting and organizing cards and trading them with others, something he deeply enjoyed. It’s been a major part-time gig for him for years, which has enabled him to only “work” part time in his community at another job while still, overall, making a great salary. He found a way to share his passion for these cards and the social connections it has built for him and make money from that.

Another friend of mine makes a living from his Youtube videos and a related podcast. What does he talk about? He talks about his own experiences playing games. That’s all. He makes a living at this.

What do all of these stories have in common? All of us spent our spare time on something we were passionate about. We took a chunk of that spare time and channeled it toward sharing what we were passionate about. People were attracted to that passion, which opened up opportunities for each of us. In each case, it took a long time – years of trial and error and sharing and many failures along the way. But, in each case, we made it eventually. The passion for the topic is what kept each of us involved.

Beyond that, most of my closest friends were discovered through my attempts to reach out regarding my passions. I sought out others who shared the same passions that I have and, over time, I’ve built close relationships with many of them. My life is a better place for having found these people.

It shocks me that Mike Rowe overlooked this. It certainly seems like he is passionate about trade craftsmen. He’s not an expert at any particular trade – far from it. Yet, he took that passion for trade craftsmanship and basically made a career out of it. That’s what Dirty Jobs was, in essence. Dirty Jobs could have been made as a YouTube series by two people and a camera (or even one person, for that matter). Perhaps it wouldn’t have had quite the same production quality, but it could have had the same passion and wit – and, honestly, that’s the attractive part of it.

Whatever it is that you love, find a way to share it with others. It’s a great way to build relationships. It can often earn you some income. Sometimes, it can even find you a job that lets you earn a living from that passion.

Final Thoughts

Whatever you are passionate about, find a place for it in your life. For me, at least, one of the big reasons for working is so that I can secure space in my life for the things I’m passionate about. I work to live, not live to work.

Maybe you can find a place for that passion through your primary job or your career path. Perhaps you can find a way to get there in a parallel fashion by finding ways to share it in your spare time.

It doesn’t even really matter whether you’re highly skilled or not, just that you’re passionate about some aspect of it. (Skills help, of course, but it’s not entirely required – look at Mike Rowe’s “skills” at the jobs he did on Dirty Jobs.)

That’s not really necessary, though. All you need to do is to find room in your life for the things that make your heart sing. If you can do that, your life will be in a better place, period.

And One Last Thing…

So, why have this discussion about passion here?

Passion is a big reason why personal finance is so important to me. When you have control over your money and you’re spending less than you earn as a natural matter of course, lots of good things happen.

For starters, you no longer feel an overwhelming stress in your life. Back in the dark days, I felt absolutely tied to my job. Every decision there felt stressful because I needed that job. Our finances were so precarious that losing that job would have been a complete disaster, and a mis-step at work could have caused that firing. This caused me to be constantly stressed about my job for years. It made me often choose “safe” choices at work, which meant that I spent less of my time doing the things I was passionate about and more time doing things that grated at me. It also made me take on extra things that I didn’t want to do, like travel and handling weekend emergencies.

The end result of that experience is that I came home feeling dead inside. The stress just ate me up. I was often happy in the evenings to just sit there staring at the television. Because of that, I lost touch with many of the things that I was passionate about.

As our finances improved, I felt substantially less stressed. I began to realize that if I lost that job, we’d be okay, at least for a while. Our debts weren’t closing around our necks. We had an emergency fund. That paycheck was important, sure, but if I messed up at work, it wasn’t going to end us.

This led to less stress at work. That led to less stress and more energy at home. That led to my ability to start rediscovering my passions, particularly writing, but also reading and some other things. That led to my launching of The Simple Dollar because so many positive changes were happening at once, and those changes were led by our financial turnaround.

Being smart about my money was at the core of everything. It gave me the space in my life to rediscover and dig into the things that I was passionate about, and the ability to do that has helped my life in virtually every dimension.

Remember, always remember, that you should work to live, not live to work, and living is best exemplified by falling deeply into the positive things that you’re passionate about, whether it’s hiking in the woods to find arrowheads, reading deeply from books, or anything else.

The post Some Thoughts on Following Passion appeared first on The Simple Dollar.

17 Strategies to Survive Working From Home With Children

Posted: 23 Oct 2014 05:00 AM PDT

Younger kids can be a handful when you’re trying to get things done. Photo: Rob Briscoe

If you’ve ever thought working from home with small children beats driving to the office each day, you may be sadly mistaken. My children are definitely the apple of my eye, but they can be a handful anytime I sit down to complete an important task. It’s almost as if they have an internal switch that flips on any time the cover of my laptop opens!

Before I made the decision to enroll my youngest son in child care, it was quite a struggle to balance running a business with an infant in tow. After years of following all sorts of tips to minimize distractions, I finally figured out how to successfully accomplish tasks without pulling all my hair out.

Here’s a comprehensive list of tactics I’d suggest if you’re having a difficult time working from home with children:

1. Be realistic

If your children constantly demand attention during non-business hours, do you really expect them to sit in a corner with a pile of crayons, coloring books, or an iPad for hours at a time while you work?

Even as an adult, I am sometimes easily sidetracked during work hours by phone calls, text messages, email alerts, social media (the ultimate time-suck), or a light bulb that suddenly goes off in my head — just to name a few distractions.

And remember, you are the main attraction for your little ones.

2. Have the talk

Assuming they're old enough to keep themselves occupied, explain the situation and that you'll need to remain focused throughout the day with minimal interruptions. Communicate to them that they are a part of the team and their role is to help mommy or daddy remain productive.

3. 'Emergency' drills

There's nothing more embarrassing to a work-at-home mom, dad, or entrepreneur than a sudden outburst from their children during a conference call. (It happened to me this morning). Luckily, the client was understanding.

To minimize this risk, run through a series of simulations to prepare your troops. Nothing is guaranteed, but it's worth a shot.

Since my children tend to be experts at interrupting me at the most inopportune times, we frequently practice the most common scenarios. A few examples:

If the phone rings and mommy quietly steps into the office, do you run after her screaming or quietly have a seat and wait for her to finish the call?
If (for some strange reason) I leave the door unlocked and you decide to enter and notice mommy on the phone, how do you react?
If mommy is staring at the computer screen with “that look on her face" when you enter, do you scream your demands or politely request mommy’s attention?

Over time, I'm confident the children will get the hang of things and give me quiet time when I desperately need it. But until then, we’ll keep practicing.

4. Offer incentives

Set goals for your children to keep them occupied. If they successfully meet the target, offer them a reward. I began using this strategy with my boys about two years ago, and we’ve been going strong ever since. Whether it's 30 minutes at the park, popcorn and a movie, or pizza night at the local parlor we absolutely adore, they hold me to it. Plus I get to spend quality time with them during the workday.

5. Designate an area for your "home office"

You definitely don't want to completely isolate yourself from the children if no one else is around to tend to them, but the kitchen table won't serve as the optimal work space, either. Search for a well-lit area in your home, preferably a spare room with a door, that will enable you to organize your files, stay on task, and minimize interruptions.

6. Work the graveyard shift

As the old adage says, desperate times call for desperate measures. If you've had a rough day at the home office and are on the brink of missing an important deadline, pull an all-nighter. Before doing so, take a power nap to boost your energy levels for the long night ahead. Don't make this a habit since sleep deprivation has negative side effects, including decreased productivity levels. I have to admit that I work late into the evening at least once a week, but I also usually take a few hours off the following day to recoup.

7. Use your time wisely

Do you have an infant or toddler on your hands? Naps may be a part of their daily routine, but they don't need to be a part of yours. As tempting as it may be to unwind for an hour or so midway through the workday, stay on track. You'll more than likely be surprised at how much you can accomplish in an interruption-free zone.

When my youngest was an infant, my schedule was all over the place. However, I had a specific "nap time" list chock full of tasks that needed to be completed at some point. I didn't include anything too urgent on the list in case he decided to skip a nap on a given day, which was not uncommon.

8. Be flexible

If a generous friend or relative stops by unexpectedly for a few hours to give you a break, make the most of your time by using it as a window of opportunity to tie up any loose ends or get a head start on forthcoming projects.

When neighborhood buddies pay me a visit, they know the routine. As much as I'd like to shoot the breeze, there's work to be done, so I immediately get to it. Besides, it’s more fun and relaxing to hang out when you don't have a ton of items on your to-do list that are lingering in the back of your mind.

9. Solicit the assistance of family and friends

If you’re on this journey alone, especially during the summer months, don't be afraid to reach out to those who have extended an offer to help in the past.

As much as we all love our children, the ladies in my section of the neighborhood cringe at the thought of summer break if we haven't made preparations beforehand. Luckily, there's only one week between the last day of school and the start of summer camp. However, my oldest son tends to spend the first day getting caught up on sleep and the remainder of the week driving me up the wall with chatter about how boring life is and how he wishes we could hang out all day.

So, this past summer, I spoke with a few others in the area and realized they were having the same issue. We decided to make a schedule of the days that each parent would host the children so the distribution would be equal, and the children would be occupied until the workday was over. It was successful, and I'm looking forward to participating in the summer care swap next June.

10. Give it a rest

Are the kids driving you up the wall with constant interruptions because they desperately seek your attention? Rid yourself of any internal guilt and take a break! Take them on a bike ride, have a fitness competition, watch a movie, bake cookies, take a walk, or simply play catch. Regardless of the activity you choose, they will be grateful and stay out of your way when work resumes (fingers crossed).

11. Create a to-do/activity list

It's a daily ritual for me and my oldest son on the days when school's out: I either provide him with a folder of fun-filled educational activities or assign him some of my simplest tasks, such as filing and organizing the endless piles of papers on my desk.

If your children are at school for a portion of the day, but you still have a few additional tasks to complete when they arrive home from school, ask them to join you at your desk to read their favorite book or do their homework. That should buy you 30 minutes to wrap up your work for the day.

12. Plan ahead

Always add a few hours to each project and avoid waiting until the last minute to get started. If possible, take control of your schedule by establishing your own internal deadlines, because you never know what each day will bring when you have kids in the house.

This was a very tough pill for me to swallow. Procrastinating has always been my thing; I tend to be most effective when racing against the clock. Unfortunately, it doesn't exactly work that way when you become a parent. I learned my lesson the hard way.

A year or so ago, my oldest son had an accident on the playground at school that cost me four hours of my work day and left me scrambling to meet a deadline. Of course my son's well-being is more important than a project for a client, but that incident resulted in a massive headache, caffeine overload, and unnecessary stress that could have been avoided if I'd planned ahead.

13. Adjust your work space

Some children will entertain themselves for more than a few seconds at a time as long as a parental unit is in sight. If this sounds like your child, designate a small area of your home office as the activity station. Load it up with your child's favorite games, electronics, and activities. I was not as fortunate with my first son, but the second time around, it worked like a charm.

Our little play area contains construction paper, glue sticks, crayons, scissors, and washable markers because my children love exploring their artistic side. And to make it more fun, I submit requests for particular artwork to hang in the "office gallery" they have created.

Another idea worth considering: Visit websites, such as Aussie Childcare Network and ESL Writing Wizard, to retrieve printable worksheets for your child to complete while you're working. It'll keep them occupied and they'll also be learning while you're working.

14. Become an early riser

This is another trick I use to maximize my workday. The kids generally aren't awake in the wee hours of the morning, but I am. It's the perfect opportunity to knock a few items off the mile-long task list and get organized before the madness starts. Or if I'm not exactly in the mood to start working at five o’clock in the morning, I use the time to get things organized for the day and do a few chores around the house. At some point, they have to get done, so why not early in the morning when no one's in your way to create more messes or disrupt your flow?

15. Hire a nanny

Have you hit your wit's end, and things just aren't working out trying to balance work with your little ones in the house? As a last resort, you can always hire a nanny to stop in for a few hours each day to keep the kids occupied. (Notice that I only suggest a few hours for your wallet's sake, although college students and teens on summer break may be an affordable option).

16. Work on the weekend

If you're way behind schedule and desperately searching for a way to get caught up, bite the bullet and rise early in the morning on a Saturday or Sunday to get caught up. It's definitely a sacrifice, but it beats spending the weekday dealing with last week's assignments while you fall even further behind on current work.

To game yourself into working on the weekend, set a goal and an accompanying reward, such as a day off or allowance to enjoy an evening out without your family.

17. Pat yourself on the back

Balancing children and a full-fledged workload is beyond difficult, but it can be done. It's OK to occasionally treat yourself to your favorite meal or a night out on the town for your efforts — within reason. When my husband is able to rip me away from the computer, I enjoy spa sessions or a mini-vacation with friends.

Regardless of how you wind down, make time to pamper yourself on occasion to avoid burning out and crashing into a mental brick wall from work overload.

Most importantly, hang in there. As your children age, it will get easier.

The post 17 Strategies to Survive Working From Home With Children appeared first on The Simple Dollar.

The Simple Dollar: “Best Life Insurance Companies for 2014” plus 2 more

2014-10-23T01:46:00.001-07:00

The Simple Dollar: “Best Life Insurance Companies for 2014” plus 2 more

Best Life Insurance Companies for 2014
If I Can Suggest One Financial Move to Anyone, It’s This
The Rise of Black Box Car Insurance

Best Life Insurance Companies for 2014

Posted: 22 Oct 2014 03:00 PM PDT

Life insurance can ease your loved ones' financial worries if you die unexpectedly, but it's just as essential for your own peace of mind. In short, life insurance helps replace your lost income after you pass away, keeping any beneficiaries you name insulated from major money troubles that stem from your death.

The best life insurance companies offer a wide array of coverage options, superior customer service, and their own financial stability as an incentive to give them your trust — and money. In my research, three companies came out on top:

Read on to discover why these companies stand out from the competition. Further down, I'll explain how I made my picks. I'll also provide a primer on life insurance types so you can make sure you're shopping for the right product. Once you're ready to start your search for a life insurance company, the quote tool below can help you find the best deals in your area.

Best Life Insurance Company Overall: State Farm

One of the largest insurers in the nation, State Farm is also consistently rated one of the best. In fact, it was the only company to earn the highest rating in every category of J.D. Power's 2014 customer satisfaction survey. It's also on rock-solid financial footing, earning A.M. Best's highest-possible A++ rating. State Farm also shines with a consumer-friendly business model that combines online convenience and, if you prefer, a more personal, agent-driven experience. Their website is user-friendly, requiring a minimum amount of identifying information before getting quotes for different kinds of policies all on one page. However, the quote I received for term insurance was among the pricier ones I received, and the company's fees and charges can be on the higher end, too.

Upsides

Highest financial stability rating
Highest customer service rating of all major insurance companies
Easy-to-use, all-in-one online quote generator
Wide range of coverage & payment options
17,000 agent offices nationwide

Downsides

Can be pricier than competitors

Best Term Life Insurance Company: Transamerica

Many customers choose term life insurance because it's their most economical option. Transamerica blew away the competition on price, quoting me just $22.75 a month for a 20-year, $500,000 term policy. But perhaps even more importantly, Transamerica offers flexible, comprehensive term coverage options. Their "Trendsetter Express" term life doesn't require a medical exam, making coverage available sooner. Another plan offers an option to convert to permanent insurance later on, while a "living benefit" feature lets you use policy benefits for certain critical illnesses. There is a wide range of terms and coverage amounts, too. While it didn't perform poorly, Transamerica was not as highly rated as some competitors in customer-service surveys.

Upsides

Very strong financial stability rating
Easy-to-use online quote generator
Flexible term-life options, including low $25,000 minimums and terms ranging from 10 to 30 years
Provided lowest quote of all companies surveyed

Downsides

Average customer-service ratings

Best Whole Life Insurance Company: State Farm

My pick for the best insurance company all-around, State Farm is also a particularly good choice for whole life insurance. You can actually receive a quote for whole life insurance online. This is a major plus, as many companies limit online quotes to term policies (if they provide online quotes at all). State Farm's whole-life options are comprehensive, including limited-pay, single-premium, and final-expense policies. Low minimums and disability waivers are among other policy benefits.

Upsides

Highest financial stability rating
Highest customer service rating of all major insurance companies
Easy-to-use quote generator, including whole life policies
Wide range of whole-life coverage; low coverage minimums
17,000 agent offices nationwide

Downsides

Can be pricier than competitors

Best Universal Life Insurance Company: Prudential

Prudential particularly excels when it comes to universal life for two major reasons. First, it offers online quotes for universal life insurance — most companies require you to call an agent. Second, it offers a comprehensive range of five universal life policies that are easy to directly compare online. Fixed, variable, and return-of-premium death benefits are available. Prudential also has strong financial ratings. However, if you still want to compare universal and whole-life policies, you're out of luck: Prudential does not offer whole life.

Upsides

Very strong financial stability rating
Easy-to-use online quote generator, including universal policies
Comprehensive set of easy-to-compare universal policies

Downsides

Average customer-service ratings
No whole-life insurance

Selecting the Best Life Insurance Companies

I looked at several factors in my search for the top life insurance companies, including customer satisfaction surveys, the online experience, coverage options, and the insurer's financial strength.

Customer satisfaction: It's difficult to pick an insurance company based on individual online reviews, which can trend positive or negative due to highly personal circumstances. It can also be hard to isolate customers' experiences with life insurance versus other policies a company may offer, including car or home insurance. For that reason, I looked at the J.D. Power 2014 Household Insurance Study> and the Insure.com 2014 Customer Satisfaction Ratings for a larger, more reliable snapshot of customers' experiences with their insurance companies.
Financial strength: I looked at each company's A.M. Best rating to gauge stability. Ratings range from A++ (superior/most stable) to D (poor/least stable). A few special ratings below "D" denote companies that are under regulatory supervision, are being liquidated, or have had their ratings suspended. A.M. Best considers any company with a “B” grade or below vulnerable.
Ease of getting a quote: While most life insurance companies make it easy to get a quote online, some still require you to call an agent. In this day and age, I consider that a big downside. For those that do make quotes available online, I compared how quick the process was and how much information I had to input to receive a quote.
Range of coverage options: I determined whether the company offered all major types of life insurance — term, whole, and universal — and checked how many plans were on offer. I also considered how flexible those plans were and whether they offered any unique benefits.
Price: For term insurance, I compared quotes for each company's most basic policy. I made sure to use the same details (female, 33, nonsmoker, excellent health, 20-year term, $500,000 in coverage) for as much of an apples-to-apples comparison as possible.

Make sure you have an idea of what you need before you start comparison shopping. If you still need a primer on the different types of life insurance and which one is right for you, read on.

Types of Life Insurance

Life insurance is among the more complex financial products, but one of the most important. It's essential to understand the different policy types before you buy. There are significant differences between term, whole, and universal policies. Knowing the basics will help you figure out which type of life insurance is right for you.

Term life insurance

A term policy is life insurance at its most basic. It's also the most affordable type of coverage. Just as the name suggests, you get a term life insurance policy for a fixed amount of time: 10 or 20 years, for example. If you die during your policy's term, any beneficiaries you've designated will receive benefits.

Term life's biggest downfall? If your policy ends and you're still alive and kicking, the insurance company keeps your money — you get nothing in return. It can also be difficult to qualify for a reasonably priced term life policy if you're older, have known health issues, or are at higher risk for health issues because of smoking or obesity, for instance.

Whole life insurance

Whole life insurance is a bit more complex and comprehensive than term life insurance. Like term policies, whole life insurance pays a death benefit if you pass away. But, unlike term policies, whole life policies cover you for your entire life. You'll pay the same bill every month, and as long as you're paying, your coverage can't be canceled. There's another benefit, too: Your insurer socks away a portion of your payments in an account that builds cash value tax-deferred, and you can actually borrow against this without paying taxes.

The major downside of whole life insurance is that it's more expensive than term coverage. Although a portion of your premiums will be invested, you generally have no control over how this is done. Many financial experts warn that you're unlikely to be impressed by the returns.

Universal life insurance

The basics of universal life insurance are similar to those of whole life policies. You pay your premium as long as you're alive, and the policy is guaranteed to pay a death benefit when you pass away. Like whole life insurance, some of the premium is invested on your behalf and the same tax benefits apply. However, with universal life insurance, you have more control over the particulars of your policy. You can adjust the amount paid out as a death benefit, and you can generally alter the amount of your premium and how often you pay it, too. Like whole life insurance, your policy will have a cash value you can borrow against, and you can even use this to foot the bill for your premiums. Variable plans even let savvy investors control where their money is going.

Again, cost is the major downside here. Universal life insurance is the priciest kind of coverage available. Just as with whole life insurance, you might not be satisfied with the rate you earn on the invested premium. Finally, universal life is the most complex type of insurance product, and you'll definitely need a seasoned expert to help guide you.

What Kind of Life Insurance Do I Need?

The kind of life insurance that best suits you will depend on your unique circumstances, but there are some general rules of thumb.

Term is probably your best bet

Except in special circumstances, term life is probably going to make the most sense. Why? It's simple to understand and easy to compare across insurance companies. It's much more affordable than whole or universal policies, and the death benefit gives you the most bang for your buck. Finally, term life insurance doesn't lock you into an investment vehicle that may not give you the best returns.

There are rare cases where whole or universal policies might be worth a look. If you're wealthy and looking for investments where you can grow your money tax-free, these policies can be a solid option if you've already maxed out your retirement savings. Those who expect to owe a lot of estate taxes can soften the blow by transferring their paid-off policy to someone else, too. Finally, some financial experts recommend looking at whole or universal policies if you don't have the discipline to simply buy a term policy and invest the rest of your money.

Remember, life insurance is meant to give your beneficiaries a financial cushion in the event of your untimely death. If no one is depending on you and your income, you may not need life insurance at all. This holds true regardless of age. One thing to think about, however, is whether you want to leave family members on the hook for your funeral expenses or debts for which they've cosigned. In that case, you may want an inexpensive burial or term policy.

How much insurance should I buy?

Your magic number will vary according to your circumstances, of course. For a rough estimate of how much life insurance you need, some insurance advisers simply tell you to multiply your income times 10. However, that doesn't take into account potentially crucial information, including how many dependents and the type of debt you have. For a more accurate number, you'll need to consider several factors, like how much your spouse and any children will need to maintain their standard of living without your income, whether any of your children will need help with college, and what your mortgage and other debts are. To arrive at a number, consider using an online calculator such as this one from Life Happens.

Beginning Your Search for the Best Life Insurance Company

Life insurance is a smart move for most people who need to look out for their loved ones. Now that you have a better sense of the different types of life insurance and what's right for you, it's time to comparison shop. Start by using our quick and easy quote tool, which will let you see offers in your area.

The post Best Life Insurance Companies for 2014 appeared first on The Simple Dollar.

If I Can Suggest One Financial Move to Anyone, It’s This

Posted: 22 Oct 2014 07:00 AM PDT

Save for retirement. Period.

There are very few adults in the United States that are of working age that aren’t affected in a positive way by saving for retirement. For virtually all of those people, saving for retirement – or saving more for retirement – is a strong positive move.

If there was one financial move that I got right before my personal finance meltdown in 2006, it was that I saved for retirement from the day I started working. Almost every mentor I had in my life encouraged me to sign up for this the second I started work and, for once, I actually listened to their money wisdom. (If only I had listened to other elements of their advice, such as “pay off your student loans quickly” and “don’t elevate your lifestyle now that you’re making more money” and “spend less than you earn.”)

Let’s start off with the most obvious question.

What About Debt Repayment?

This is the first question that a lot of people are going to ask, and it’s a good one. The problem is that it’s not the best advice for everyone.

It turns out that only around 47% of American households have any credit card debt at all, and of those that do, many of them have a very small amount ($1,000 or less). It’s only a relatively small number of American households that are deeply underwater in high-interest debt.

Obviously, eliminating your high-interest debt (and not acquiring any more) should be the top financial move, but that move really applies only to a minority of American households. The averages that we hear, like the average credit card debt of indebted American households is about $15,000, are skewed by a fairly small handful of households with large amounts of debt. The truth is that the majority of American households have no credit card debt and, of the ones that do, the majority of those have a relatively small amount (less than $4,000).

If you have significant high interest debt, getting rid of that should be your highest priority. However, that advice applies only to a minority of Americans.

Why Retirement Savings?

Every single American under the age of seventy that isn’t drowning in credit card debt will benefit from saving for retirement. Period. There are a bunch of reasons for this.

First of all, Social Security probably isn’t going to be enough. Take a look at your most recent Social Security benefits letter that you received in the mail. Could you survive on that level of income? Could you live an enjoyable life at that level? If the answer is “no,” you need to save for retirement. Social Security benefits aren’t going to go up. You aren’t going to magically have a mountain of money fall on your lap between now and retirement. You need to do it yourself, period.

So, what exactly is “retirement savings”? “retirement” savings just means normal savings that has very nice tax benefits. There are essentially two different ways to score those benefits, depending on which retirement account you use. (Remember, retirement accounts – like a 401(k) or a Roth IRA – is essentially a special type of savings account that gives you some options as to exactly how to save and helps you out with your taxes.)

First, if you contribute to a 401(k) or 403(b) – which is likely offered through your workplace, you’re going to reduce your income taxes for this year. What this means is that less taxes will be taken out of your paycheck than before. There’s not an exact formula for this, of course, because it depends on a lot of factors like your income level, your number of dependents, and so on, but your taxes will go down if you contribute to a 401(k) or 403(b). For example, if you put away $20 into your 401(k) each paycheck, your taxes from each check might drop by $6, which means your paycheck would only drop by $14. (You do have to pay taxes when you finally start making withdrawals, but you’ll likely be earning less money then, so you’ll pay less taxes at that point, too!)

On the other hand, if you contribute a Roth IRA – which you’ll have to set up on your own, you will pay no taxes on your withdrawals from that Roth IRA if you do it after age 59 1/2. None. If you’re 25 and put $1,000 in it and it grows to $5,000 by age 60, you can pull that $5,000 out and pay no taxes at all on it.

The government will basically pay you (in the form of lower taxes) to save for retirement.

Furthermore, if your employer is kind enough to offer matching, it’s free money! Every dollar that they offer in “matching” money is just free money for you, period.

Let’s say that your employer matches 100% of your retirement savings. Remember that example where I suggested putting $20 per paycheck into your 401(k)? That $20 immediately turns into $40. In other words, you’re putting $40 per paycheck into your retirement savings and it’s only dropping your paycheck by $14. Your $14 in take-home pay turns into $40 in your 401(k)! That’s amazing!

If someone said “if you give me $14, I’ll give you $40,” you’d do it over and over again, right? That’s exactly what matching funds are like. They are a giant no-brainer gift to you.

At the same time, the “savings” part of the equation means that you’re putting money away for your future. No matter how your future turns out, having that money set aside is going to help you.

Let’s say you reach age 62 and you can no longer find a high-paying job. That money you socked away for retirement, along with your Social Security benefits, is going to enable you to keep having a pretty good life.

What if you have a great job at that point? Your retirement savings allows you to keep bringing home the bacon while you want to and gives you the freedom to walk away whenever you want and follow whatever path you’d like.

What if you dream of starting a second career, like writing a novel? Your retirement savings can easily finance that.

No matter whether your life is going great in your sixties or if things aren’t going as well as you’d hoped, that retirement savings money will make things better. It can turn a difficult situation into a pleasant one. It can turn a good situation into a great one. It will simply make your life better.

What About Other Financial Goals?

Different people might have other financial goals in mind. Let’s look at them.

What about saving for my children’s college education? It’s almost always preferable to save a healthy amount for retirement before saving anything for college. You should be saving enough to make your retirement secure before saving for college.

Why? First of all, there’s no guarantee that your child will choose to go to college or that the expenses will be significant. Second, money saved for college takes away from your personal retirement savings, which increases the likelihood of you becoming an economic burden on your kids later in life. Third, you can usually tap your retirement savings to pay for that education should you choose to do so. Finally, there is some value in having your child figure out how exactly to pay for college on their own, as this creates the idea that college has real value.

What about saving for a house down payment? As this U.S. News and World Report article describes, most financial advisors recommend saving for retirement before a down payment. In general, the suggestion seems to be that you should be saving 10% of your income for retirement before saving anything for other goals (except for high-interest debt repayment).

What about an emergency fund? Everyone should have a small emergency fund – say, $1,000 in savings – before pursuing other financial goals. If you don’t have that, save for that first. After that, you can use your own judgment, but I would still prioritize retirement higher than a larger emergency fund.

What about having fun? Having fun doesn’t cost money. Sure, there are some avenues of personal enjoyment that have a financial cost, but many do not. If you’re skipping out on retirement savings because you refuse to sometimes choose free things to do with your time, financial advice probably won’t help you with your situation.

Final Thoughts

This is a simple one. If you are an adult American under the age of 70 with a job and without a mountain of high-interest debt, there’s basically no reason why you shouldn’t be saving for retirement. This is something that you need to be doing.

Not only that, the government has made it pretty easy for you. The vast majority of Americans can open a Roth IRA. Many, many employers offer a 401(k) or 403(b). Honestly, signing up for either one is fine. It matters more that you’re saving 10% of your income than anything else.

Don’t know which investment choice to make? Just look for a Target Retirement investment that matches the approximate year when you turn 65. So, if you’re 40, look for a Target Retirement 2040 investment. Put all of your money in there.

It’s essential. It’s pretty easy. Just do it.

The post If I Can Suggest One Financial Move to Anyone, It’s This appeared first on The Simple Dollar.

The Rise of Black Box Car Insurance

Posted: 22 Oct 2014 05:00 AM PDT

Devices that track driving behavior can help lower your premiums — and keep tabs on teens. Photo: State Farm

Car insurance companies have always looked for ways to maximize profits by minimizing their risk. Insurance companies make money by taking in more in premiums than they pay out in claims. It’s hard to raise premiums in a competitive market, so reducing risk is the easiest way for them to become more profitable.

Making money would be a lot easier for insurance companies if they weren’t in competition with one another. All they would need to do is tally up how much they expect to pay out in claims based on their own history, add in a profit margin, divide it all by their number of policyholders, and voila: The insurance company makes a tidy profit.

Sadly — for insurance companies, anyway — there is competition. Further complicating things for them are strict state regulations that ensure consumers get what they pay for, including having legitimate claims paid. That leaves insurance companies with only one option to stay both competitive and profitable: Do a better job of evaluating and charging for risk than the other guy.

Calculated Risks

Car insurance companies have been looking for better ways to calculate risk since the invention of the automobile. But for decades, car insurance companies have based customer premiums on the same handful of factors: the age and gender of the driver, the make and model of the car, and the driver’s record.

Underwriting, which is the process insurers use to calculate car insurance premiums, uses past experience (claims paid) for different criteria to come up with an estimate of what they can expect from a new customer. Each insurance company uses their own formulas to calculate their rates, which is why there prices vary from one company to another. Generally, though, they all start with the same criteria.

Age

Young drivers pay a higher premium than older drivers for several reasons, starting with experience. As with anything else, the more you practice something, the better you get. This is why more experienced drivers get into fewer accidents. Younger drivers also tend to take more risks than their older counterparts, and this is especially true of young men.

Gender

Men are more aggressive drivers than women. Men tend to drive faster and take more risks — such as weaving in and out of traffic — than women. By every measure, under identical circumstances, male drivers will accelerate more quickly and brake harder than women. These and other traits of aggressive driving put men at greater risk of not just getting into an accident, but causing more damage when they do.

Make and Model

The car you drive affects your premium in two ways. The first concerns the size of potential claims. This is because the more expensive the car, the more costly it will be to repair the damage done to it. The second relates to how the car is driven. A sports car like my Mustang 5.0 goes much faster than my wife’s Honda. That, when combined with the age and gender of the driver, can mean that if an accident does occur, it will likely happen at a higher speed — and cause more damage to property and people.

Driving Record

The best indicator of future outcomes is past performance. That is the logic used to determine which team is favored in a game and in predicting how someone will drive in the future. That means if you have had an accident that was at least partly your fault, chances are greater that you will have another. The same is true of traffic violations such as speeding or running a red light. If you did it before, you’re more likely to do it again, and that makes you a bigger risk.

Credit Score

In the past 10 years a growing number of insurance companies have started using credit scores as one of the factors they use to determine car insurance rates. Whether the concept was started by insurers looking for a competitive edge or by credit bureaus looking for a way to boost sales is unclear. Car insurance companies don’t look at full credit reports. They are only interested in your three digit FICO score, which is on a scale from 300-850.

The premise is that your credit score indicates your sense of responsibility. The higher your score, the more responsible you are. They believe that people who pay their bills on time are more responsible and file fewer and smaller claims than people with lower scores. Companies using credit scores are confident that the theory is correct — so much so that it’s possible a driver with a ticket and a minor accident and a high FICO score will pay a lower rate than someone with a low credit score and a clean driving record.

Pay As You Go

There can be three parts of a car insurance policy, of which two — liability and collision — usually require your car to be moving to generate a claim. Liability pays for damage you cause to other cars, property, or people if you are at fault. Collision pays for damage to your car, regardless of whose fault it is. Insurance companies have always recognized that the less someone drives, the lower their chances are of generating a liability or collision claim.

Ever eager to find ways to attract lower risk drivers (people who drive less), insurance companies began offering pay as you go rates that are based on how much you drive.

It works like this: Take 32-year-old identical twins John and Philip. They drive the same make and model car, their driving records are both spotless, and their credit scores are identical. They share the same insurance company. The only difference is that John pays about 15 percent less than his brother for the same coverage. That’s because John only puts about 8,000 miles a year on his car while Philip travels at least 15,000 miles a year.

Pay-as-you-go, mileage-based rates, while still available from a handful of companies, have morphed into something more.

Telemetrics

As a middle-aged man who drives a very fast car very fast, I confess that sometimes I feel like I’m flying a fighter jet and the only thing missing is the black box. Airplane black boxes record information such as altitude, speed, and navigational heading. When accessed after a plane crash, black boxes provide investigators with clues about what might have gone wrong. The information contributes to changes in aircraft design or pilot training that are implemented in the future to make air travel safer.

Telemetric devices are the automotive equivalent of an airplane’s black box. These handy dandy devices are not entirely new. Most cars made in the last five years are equipped with a sort of black box that is about the same size as couple of packs of cigarettes. They are activated if you brake hard and are part of your car’s airbag system. They record information starting from the moment you jam on the brakes. They measure your speed and rate of deceleration and whether an impact occurs. Information contained on them may make its way into court for the first time as part of the class action suit against General Motors.

For the past dozen years or so parents of newly minted teen drivers have had the ability to install real black boxes in the family car. They serve as a way of ensuring that young drivers follow the rules. These devices monitor acceleration, deceleration, average speed, top speed, and cornering. They use GPS to keep track of where and when teens are driving. Some models are equipped with warning beeps that alert young drivers to bad habits. The warning systems remind junior not just to slow down, but that he’s being monitored.

Insurers responding to competitive pressures and the early success of pay as you go premiums began offering their own take on black box technology to customers. Customers are invited to install the devices with the promise of discounts of up to 50 percent. The most aggressively marketed of these is Snapshot from Progressive. All of the devices connect to a port on your car’s steering column. Snapshot tracks how often you brake hard, how many miles you drive each day, and how often you drive between midnight and 4 AM. Some Snapshot devices use GPS to track location, which Progressive says is just for research purposes.

Progressive is not alone in marketing telemetric devices to customers. Travelers Insurance’s IntelliDrive and State Farm’s In-Drive, as well as others, are making major inroads with customers in search of lower rates. In-Drive tracks braking, acceleration, turns, time of day, and speeds over 80 mph. IntelliDrive logs braking and acceleration, average speed, and uses GPS to log where and when the car is driven. As an incentive to get customers to sign up for the devices, insurers are offering discounts of up to 15% right out of the gate and deeper cuts down the road.

The sign-up discounts are not permanent. Initial discounts remain in place between 30 days and six months, at which point a permanent renewal rate is established. Permanent rates are based on data collected by the monitoring devices. Discounts are subject to continued monitoring by the plug-in modules. Each of the systems allows customers to monitor their own performance by viewing online statistics about their driving. Some even offer email alerts for changes or behaviors that fall outside the norm. Some are marketing the monitoring and reporting features as a way for users to kill two birds with one stone: paying less for insurance and monitoring young drivers.

So far, all of the companies that have rolled out telemetric devices insist that customers will not be penalized with higher premiums if the devices report bad habits. Insurers maintain that the worst-case scenario for consumers will be not receiving a discount. But if history is any guide, it may be only a matter of time before insurers change their minds.

What’s more, it may not be long before the devices are required for coverage. Customers could then be rated on their driving habits and both rewarded with discounts or penalized by higher rates as a way to further improve bottom lines in the insurance industry.

Big Brother

Since the 1970s consumers have grown more and more comfortable with behavior-based pricing. They have also grown accustomed to corporations having intimate knowledge of their spending habits.

Credit card companies base consumer interest rates on credit reports. These are little more than report cards on past behavior. Credit card issuers also use spending habits to predict who might be interested in marketing to us and make our names available to “partners” for a price. In other words, they sell our information, either about us as individuals or in the form of metadata.

Some of the telemetric devices in use already have GPS built into them. Progressive says that some of its devices may have GPS but the information they collect is not used to determine rates. State Farm takes a similar position on the GPS functionality of their device, saying that the information collected is only “to help ensure safety and security.” Travelers actively markets IntelliDrive’s GPS tracking as a positive feature for parents of teen drivers, who can can find out not only how their cars are being driven but where.

Privacy advocates question how long it will be before insurers seek to capitalize on information that is potentially worth billions of dollars.

Whether the information gathered is sold based on the behavior of individuals or packaged as metadata, its value is incalculable. It would enable marketers to further hone their demographic data, combining spending habits and other information gleaned from credit card companies and credit bureaus with information about where and when we go about our daily business.

That information could be used to create anything from next-generation roadside advertisements tailored to different commuters at different times to direct mail and email based on our habits.

The post The Rise of Black Box Car Insurance appeared first on The Simple Dollar.

The Simple Dollar: “Chase Slate® Review” plus 2 more

2014-10-22T01:40:00.001-07:00

The Simple Dollar: “Chase Slate® Review” plus 2 more

Chase Slate® Review
Keeping Lifestyle Inflation at Bay
Student Loans 101: Vocabulary

Chase Slate® Review

Posted: 21 Oct 2014 01:00 PM PDT

Chase Slate® is the best card around to help you pay off credit card debt as quickly as possible, then keep your balance hovering at or near zero with an array of helpful budgeting and payment tools.

With Chase Slate®, you'll receive an introductory balance transfer offer with no balance transfer fee for the first 60 days. You'll also get the unbeatable introductory rate of 0% APR on all purchases and said balance transfers for the first 15 months. These introductory offers from Chase Slate are ideal if you've been struggling to pay off your credit card balance because of high interest rates.

I find the Chase Slate® to be truly dedicated to helping you tackle your credit card debt because they don't just absorb your balances and then leave you with a brand-new card that eventually causes more debt. Instead, they offer additional assistance to keep you on track with maintaining a low balance. The Chase Slate® card provides exceptional tools like Blueprint® so you can quickly gain control over your payments, determine where your money is being applied, and gain visibility to your spending habits.

Apply Now!

Chase Slate® Overview

Key Stats and Promotions

Introductory Rate	0% introductory APR for 15 months on balance transfers and purchases
Introductory Balance Transfer Offer	No balance transfer fee for the first 60 days your account is open
Annual Fee	$0

Tips for Using Chase Slate®

Balance Transfers: If you're carrying a large balance, or really any balance that you won't be able to pay off before the next billing cycle, on any of your credit cards with an APR above 0%, take advantage of the 60-day no transfer-fee window.

Everyday purchases: Pay no interest on specific categories by designating your payment plan to Full Pay for your frequent, unavoidable purchases like gas and groceries.

Large purchases: By activating the Split payment method you can select large purchases made on your card, designate when you want those specific items to be to paid off, and your monthly payment will automatically be calibrated to achieve your goal.

Why You Might Like It

You've already spent too much on balances with other cards and are ready to start paying off your debt
You need help structuring how you'll pay off large purchases
You don't want to pay an annual fee on a credit card
You want to set a budget to start gaining back control of your spending
You're a loyal Chase customer

Why You Might Not Like It

You don't have any large credit-card balances and wouldn't be able to take advantage of the balance transfer benefits
You already use a budgeting system that works well and don't want to recreate the wheel
You've already got your payment under control and would rather earn rewards on your spending

Best Way to Use It

Transfer any balances from accounts with above a 0% APR within your first 60 days of opening the Chase Slate card
Set up your personalized Blueprint to stop paying interest on everyday purchases, pay off large purchases more quickly, pay off a balance, or help stay on your targeted budget.

Chase Slate® Details

How it works

Chase Slate® allows you to transfer balances with no fee if done within the first 60 days of opening your account. On top of that, you receive a 0% APR for your first 15 months. Consolidating your credit card debt allows you to stay on top of it more effectively, and consolidating to a single place without interest for over a year gives you the opportunity to finally pay your debt off!

Full Details:

Apply Now!

Chase Slate® Blueprint®

Along with transferring your balances over with no fee and no interest for the first 15 months, you can set up your personalized Blueprint to best fit your needs. Blueprint® is a customizable tool with four plans to help you achieve your financial goals. You can set up one or more plans at a time, including:

Full Pay℠: With Full Pay, you determine which everyday categories of spending you don't want to pay interest on each month. Your account activity will automatically designate these amounts to be paid in full each month even if you're carrying a balance (not recommended) on other items.
Split℠: With Split, you choose any recent large purchase and Blueprint will help you develop a specific plan to pay it off in specified increments within a timeframe that you predetermine.
Finish It℠: With Finish It, you select the amount you want paid down on your lingering balance. You determine the amount of time you need to pay the balance down and Blueprint will set up the payment plan.
Track It℠: With Track It, you set up spending goals throughout various categories and easily track your progress. This is an awesome integrated budgeting tool that will feed your direct spending into your budgeting plans.

Blueprint® Statements

Prior to having visibility to your spending habits, it's hard to make any significant changes. With Blueprint, you can make impactful decisions on your spending and payback plan. You will receive a Blueprint statement with your monthly billing showing the amount that is due for your Blueprint payment in order to accommodate your Blueprint plan. This payment includes your card payment minimum so only one payment is due.

The Blueprint statement also includes an easy-to-read breakdown of each plan with the following helpful tools:

Fully Pay℠ will show the number of transactions as well as the total spend in each category. It also shows historical spending in the form of a bar chart so you can easily monitor when your peak spending times are throughout the year for purchases within those categories.
Split℠ and Finish It℠ will show you a snapshot of a designated purchase or balance, including the original amount, monthly scheduled payment amount, number of remaining payments, remaining balance, and projected payoff date. It also includes an updated progress bar that displays the percentage of total payment completion.
For Track It℠, you'll have to log in to your account to track your progress against your established budget since it updates based on all purchases rather than on a monthly basis.

Chase Slate® Fraud Protection

Chase also offers an exceptional consumer-protection suite with the use of their credit cards. With the increase of identity theft victims year-over-year in the U.S., this asset is a must.

You'll receive excellent protection, including:

Fraud Protection: Chase's fraud protection constantly monitors your account for suspicious activity.
Fraud Alerts: After registering for Fraud Alerts, you can receive warning of potential fraudulent activity via phone, text, or email.
Zero Liability Protection: You are not held accountable for any unauthorized purchases on your account.
Purchase Protection: When you make a purchase on your Chase Slate card, it is covered against damage or theft up to $500 per claim and $50,000 per account for the next 120 days.

Best Use: Pair With a Cash Back Card

Once you have your spending reigned in and your payment plan established, consider pairing with a cash back rewards card like the Chase Freedom®. Keep in mind that these two items should be your first plan of attack before turning to rewards. You want to be sure that you're not mitigating any rewards benefits because your budget isn't set yet and you're carrying large balances on high-interest accounts.

The Chase Freedom® card offers 5% back on bonus categories that change every quarter and 1% on everything else, with no annual fee. Since both cards are offered by Chase, you can easily monitor spending while signed into a single account online.

Other Choices to Consider

Still not sold on the Chase Slate? It can seem counterintuitive to transfer balances from one card to another, and we would not recommend this as a continued best practice. However, getting your finances under control is an absolute must.

Take a look at our in-depth reviews of the Best Balance Transfer Credit Cards. In addition, you can browse our entire credit card directory below to search for what matters to you.

Best Balance Transfer Credit Card Directory

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The post Chase Slate® Review appeared first on The Simple Dollar.

Keeping Lifestyle Inflation at Bay

Posted: 21 Oct 2014 07:00 AM PDT

One of the biggest challenges that people face when it comes to personal finance success is lifestyle inflation. It’s a subtle thing that people often just take on without even really noticing or thinking about it, but then it turns out to be a vicious enemy of their financial goals.

What Is Lifestyle Inflation?

Lifestyle inflation simply refers to an increase in spending in response to an increase in income. Whenever a person starts bringing home more money and then, because of that increased income, they start spending more by buying a nicer car, buying more gadgets, and so on, they’re undergoing lifestyle inflation.

Let’s say, for example, that you get a raise that causes you to bring home $100 more a month. If the presence of that raise causes you, during your next car purchase, to buy a Lexus instead of a Toyota and take on a car payment that’s $100 more per month than you would have otherwise had, then you’re experiencing lifestyle inflation. You’re locking in a higher level of monthly expenses to enjoy a (theoretically) more luxurious lifestyle.

So, why is that problematic? After all, what’s the point of earning more money if you can’t have better stuff?

For starters, more income usually doesn’t mean more happiness. That is, additional income above a relatively low level (around $40,000 a year in the US, depending on the specific study) doesn’t make you happier over the long run. I discussed this in detail in an earlier post, showing these income levels above which happiness doesn’t increase as suggested by different studies (they tend to range from $40,000 to $75,000 in household income). So, if you’re already making a good salary, more income is not going to translate into more happiness no matter how you use it.

The other major problem is that lifestyle inflation takes away from handling long term personal finance goals like financial independence. If you take a raise and start spending all of it now, that means you’re not preserving any of it to spend later on. You’re not bringing retirement any closer. You’re not moving toward debt freedom. You’re simply not moving toward any financial goals.

My Own Experience with Lifestyle Inflation

In 2002, I started my first “good” job after graduating from college. I went from working twenty hours a week for a bit more than minimum wage to working at a full-time salaried position earning about $40,000 per year. That was a huge jump in income.

There were many, many things that I wanted throughout my college years that I had denied myself because I didn’t have the money. I had built up some real debt during those years as well, with books and clothes and food often purchased with credit as well as some serious student loans during the final two years of college.

So, when that income started rolling in, I bought some things. I bought a new pickup truck. I bought a ton of electronics. I bought a professional wardrobe. I bought pallets of DVDs and books. Sarah and I had a two week honeymoon in the United Kingdom that included several days in an amazing hotel that overlooked Hyde Park.

What I didn’t do is get rid of that college debt. What I didn’t do is save a lot for retirement (I did save some, but not nearly as much as I could have or should have). What I didn’t do is think about anything beyond the next few months.

A few years later, Sarah and I were financially tapped out. It was a four year period of negative financial progress.

Of all of those things that I spent money on during those years, very little of it means anything at all to me today. I don’t really regret the honeymoon, but virtually everything else has no meaning in my life. I regret 99% of my excess expenses during those years because they contributed little value to my life but they certainly cost me a lot of money, time, energy, and stress over the years.

Battling Lifestyle Inflation: Ten Strategies

How do you conquer lifestyle inflation? Here are ten strategies that have actually worked well for me.

Strategy 1: Have Big, Meaningful Long-Term Goals

Where do you want to be in five years? Ten years? Twenty years?

This kind of future thinking can be hard, especially if your life isn’t on a certain path. Many people find themselves on uncertain paths where they don’t know how long their jobs will last or whether they even want to stay in that career path.

Here’s the trick. I’m not talking about where you think your life will be in five, ten, or twenty years. I’m talking about where you want your life to be in five, ten, or twenty years.

Let’s assume a few reasonable things go well over the ensuing years. What would you want your life to be like at that point?

That vision of your future defines a handful of long-term goals for you. All you need to do is compare that optimistic vision of your future with where you’re at now and then think about what you can do to make that transition happen. That’s a big meaningful long-term life goal. You’ve just defined it.

I actually go through this process regularly. I spend several hours on a weekend day roughly every three months thinking through my life goals and what I want to achieve. That way, the big goals never become stale.

Strategy 2: Keep Those Goals Front and Center

The real challenge of big goals is that they sometimes aren’t relevant to what’s going on in our day-to-day lives.

If you’re anything like me, your daily calendar and to-do list is frightening. My to-do list, right now, has somewhere around 70 things on it (I use prioritization, thank goodness). My calendar has scheduled events every single day through the end of the month and well into next month. That’s just reality.

A big long-term goal that’s not directly related to those day-to-day things can seem really abstract and easy to forget. It is vital that when you come up with ways to connect those big goals with your day-to-day life.

I find two elements really make this click.

First, I load my life with visual reminders of those goals. I choose desktop pictures for my computer and phone related to those goals. I hang pictures related to those goals in my office. They’re in my car. They’re on the fridge. They’re everywhere. They keep my big goals in my mind constantly.

Second, I break down those goals into something I can actually do every day to move toward that goal. For example, if my vision of myself in five years shows me looking thin, I would put an exercise session or a very low-cal lunch on my to-do list for the day. Checking off that to-do not only feels like I’m achieving something today, it also has that extra benefit of feeling like I’m progressing toward my big goal. It’s also a reminder of that big goal.

Strategy 3: Save Your Raises

Whenever you see a bump in income, it can feel really good to see that bigger paycheck. When you have that bigger paycheck, though, it can become really tempting to spend that extra money.

How about instead of seeing that extra paycheck, you simply never allow it to cross the threshold of your checking account?

Let’s say you receive a 3% raise. Bump up your retirement savings by that same number – from 3% to 6%, for example. That way, your paycheck will barely change, but you’ll be doubling your retirement savings.

On the other hand, you might just set up an automatic transfer from your checking account to your savings account for the amount of your raise so that it just disappears into savings not long after it appears in your checking.

Your raise, in other words, goes purely toward your long-term goals rather than toward whatever your short-term desires are.

Strategy 4: Recognize That Stuff Rarely Buys Lasting Happiness

The more I evaluate life, the more I see the Pareto principle popping up again and again. For those unfamiliar, the Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes. It shows up again and again and again throughout life.

The idea that stuff doesn’t buy lasting happiness is a great example of the Pareto principle. Think about it: 80% of the pleasure you get from your possessions comes from 20% of your possessions. Most of your possessions provide very little pleasure in your life.

Think about all of the stuff jammed in your closet that you never look at. Think about the stuff on your bookshelves that you never deal with. What about the stuff in your cupboard that you never use?

When I think back on the vacations I took in my life, most of them were pretty forgettable. There were high spots during them, of course, but most of those high spots could have occurred on a camping vacation within a few hundred miles of home.

Again and again, I find that spending money does not buy lasting happiness most of the time. I find lasting happiness from personal relationships and from building my own skills and from activities using a pretty small proportion of my possessions. Buying new stuff or investing a ton of money into new experiences rarely adds up to being “worth it.”

Strategy 5: Be Mindful of the Costs When Evaluating What Others Have

Jealousy is a dangerous thing. It can create material desires out of nowhere, making you really want things that wouldn’t have crossed your mind otherwise. You see what other people have… and you really want it, too.

The problem is that when we see what other people have, we don’t immediately balance it out with what it cost those people.

Here’s an example: a wonderful couple I know is currently honeymooning in the tropics. Their honeymoon sounds amazing. I’d love to do that with Sarah and – I admit – I’m just a touch jealous of their trip. It just sounds incredible.

However, when I sit down and start pricing out a trip like that, I begin to see the reality. They are spending many thousands of dollars on the trip. That’s a hefty expense. Their trip may be wonderful, but it’s going to have a lasting negative impact on their finances going forward.

That doesn’t make the trip bad, per se, but it does make it seem like much more of a balance of factors rather than just an awesome good thing.

Whenever you feel a pang of jealousy for something that someone else has or is experiencing, think for a moment about what that possession or experience is costing them and how it’s denying them other opportunities and freedoms. This cuts through my jealousy and desire like a hot knife through butter.

Strategy 6: Maintain a Family Budget

A family budget is a simple plan that describes how all of your family income is spent. Some is spent on this category, some is spent on this other category, some is used for food, some is used for gas, and so on. (I use You Need a Budget to manage my own family’s budget.)

A budget is useful because it requires that you keep track of and figure out where every single dollar coming into your life goes. If you track your expenses and keep them separated into the budget categories, you can see how things are really going.

A budget is particularly useful when your income level changes because now you have the ability to expand the budgetary areas of your choosing. Will you crank up the “debt repayment” category? If you do, then you’ll be making bigger debt payments each month, which means that debt will vanish faster than ever. Maybe it will go into “Roth IRA” or some other category.

Regardless, a budget gives you a framework to make sensible decisions about that extra money. You don’t just rely on intuition and desire when you have a budget.

Strategy 7: Budget for Personal Expenses

Watching your new, higher income disappear into budget categories that don’t spell out any pleasures in your life can be kind of disheartening. All of us like to have a little bit of pocket money, after all, and when a raise comes through, that lack of pocket money can feel particularly disheartening.

My solution for this problem is to simply have a line in the budget for “pocket money.” I budget a certain amount each month for both Sarah and myself to be able to spend without consequence, knowing that our budget is well taken care of.

If you get a raise and really want to reward yourself, raise that “personal expenses” line on your budget by $10 or so. In other words, you’re allowing yourself a bit of nonspecific lifestyle inflation, but you’re also planning so that most of the money is going toward your bigger goals.

For me, simply having that “personal expenses” line is enough. I have enough to spend each month. I don’t need to spend more than that, so it’s quite easy to apply a raise to other expenses.

Strategy 8: Choose Substance Over Style

Many of the elements of “lifestyle inflation” that people buy into are examples of style over substance. Expensive clothes. An expensive car. An expensive home.

Most of the time, that additional expense doesn’t really add anything to the function of those items. It doesn’t buy warmer clothes – it just buys flashier clothes. It doesn’t buy a house that does any better at keeping you warm or keeping you dry. The car you already have gets you from point A to point B; the extra expense is mostly just flashiness.

When it comes to your major expenses, focus on substance instead of style. What do you need your home to do for you? What do you need your car to do for you? What does this more expensive option really add to that? Is that difference worth the expense?

When you stick with substance over style, you always have what you need. When you choose style over substance, you often find yourself without that stable foundation.

Strategy 9: Build Friendships With People That Have Similar (or Lesser) Budgets and Philosophies

When you hang out with people, what do they talk about? What are they proud of?

Do they talk about the new stuff they covet? The hot new restaurant they visited? The expensive new thing they now own?

Or do they talk about their life goals? Do they talk about events and activities that don’t require purchases? Do they talk about philosophy and ideas? Do they talk about staying within their budget and their financial choices that gear toward savings?

One group of friends is going to push you toward lifestyle inflation. The other will naturally push you away from it.

I’ve had circles of friends of both types. When I hung out with the first circle, we were in the worst throes of lifestyle inflation. Today, our circle of friends is much like the second example and our lifestyle has deflated, if anything.

Having trouble cultivating more down-to-earth friends? Look for activities in the community that might attract such people in a social way. Check out book clubs that are hosted by your library or spend time at volunteer activities in your community.

Strategy 10: “Test Drive” Lifestyle Upgrades (and See If They Bring Lasting Joy)

Even after all of these steps, you might be convinced that certain lifestyle upgrades are still the right thing for you. If that’s the case, try taking baby steps instead of giant leaps.

One method of doing this is to look at all of the things that you might be buying or replacing over the next year or so. Across all of those purchases, think about the one or two features that you wouldn’t ordinarily buy that might really matter to you. For example, you might decide that of all of the things you can upgrade in your life, a bigger data plan might provide the biggest impact. Then, just upgrade that one thing and hold back on the others.

This borrows from the Pareto principle mentioned earlier. 20% of the upgrades you pay for will bring you 80% of the value. So, spend some time trying to figure out what that 20% is.

Another method – one that works well if you’re already budgeting – is to “pretend” you have a fatter bill for a while. For example, imagine you’re thinking about moving to a bigger apartment or even renting a house. Your current rent is $500 a month, but the place you’re eyeing is in the $900 a month range. Spend a few months trying out what it’s like to have a $900 a month rent by paying your $500 a month in rent and then putting the other $400 into a savings account and not touching it. If you can get by just fine with that higher rent, make the move. (Plus, you’ll have a thousand or two in savings at that point.)

A third tactic for trying out lifestyle upgrades is to simply comparison shop. Sometimes, by comparison shopping, you can find an opportunity for a lifestyle upgrade but find that it doesn’t cost any more than you already have. For example, a friend of mine recently switched cellular providers, which enabled him to get a better smart phone and a larger data plan for the same price he was already paying.

Final Thoughts

Lifestyle inflation is a sure way to prevent yourself from reaching your financial goals, whatever they may be. If you have big dreams for the future, yet you take your raises and you spend all of that money on short-term pleasures, what you’ll find is that those short term pleasures will almost entirely fade away but you won’t have that long-term goal either.

Being aware of lifestyle inflation is just the first step. Take actions to keep lifestyle inflation from damaging the big dreams you have for the future. You’ll be glad you did.

The post Keeping Lifestyle Inflation at Bay appeared first on The Simple Dollar.

Student Loans 101: Vocabulary

Posted: 21 Oct 2014 05:00 AM PDT

Money and college can be confusing. Whether you're just starting out on your college journey or dealing with student loans from years ago, here is a glossary of helpful terms you may need to know:

Accredited: If your college and program is accredited, it means that it has met specific requirements by the U.S. Department of Education. You'll have to attend an accredited school to get federal loans or use any federal aid.

Administrative Wage Garnishment: If your federal student loans go into default, the federal government has the ability to take up to 15% of your disposable income directly from your employer.

APR/Annual Percentage Rate: This percentage is the interest rate you will pay on your loan.

Auto-Debit: This allows your lender to automatically deduct a payment from your checking account every month. Some lenders offer a small reduction in your interest rate if you sign up for this. This can also ensure you avoid late fees.

Award Letter: You'll receive this letter from your intended college. It will tell you the type of financial aid you qualify for along with the amount. You'll also see your Expected Family Contribution and your school's Cost of Attendance.

Borrower: This is the person who is legally responsible for the student loans. You may have loans where you are the borrower, and loans where a parent is the borrower.

Cancellation: In very rare circumstances, you may hear of a student loan being cancelled. If your college was closed before you could complete your course of study, you may be eligible to have your loans cancelled. Cancellation may also occur if a borrower has a serious disability or dies.

Capitalization: This is when all of the unpaid interest is added right to your principal balance of your loan. This occurs when you start repaying your loans or when any deferment or grace period ends.

Cost of Attendance (COA): This is the estimated amount that you will pay (or paid) for attending your specific college. This amount includes tuition, books, supplies, and room and board.

Consolidation: Once you're ready to repay your loans, you can have them consolidated, which means combining all of your loans into one loan. A benefit to this is making it easier to keep track of your debt, since now you only have one loan instead of several. Plus, you may be able to get a lower interest rate. However, on the flip side, consolidating loans can also mean losing certain benefits, such as loan forgiveness.

Debt-to-Income Ratio: Your debt-to-income ratio is what it sounds like: It’s the amount of debt you have compared to your income. This is a standard item lenders will look at to determine whether you'll be eligible for a loan. If you have a lot of student loan debt, you may not be eligible for other types of loans and credit, including credit cards, a car loan, or a mortgage loan, for example. This is also looked at when determining what type of student loan repayment plan you'll be eligible for.

Default: Your student loan is considered in default if you fail to make a payment for 270 days. A loan going into default is bad news. Besides harming your credit, you can also lose eligibility for federal student aid, lose the ability for deferment, forbearance, or other repayment plans, and you may even have your federal and state taxes withheld through a tax offset.

Deferment: A deferment is a set period of time during which repayment of your student loans is delayed. There are many different types of deferment, including in-school, unemployment, economic hardship, or active duty military service. You will often need to apply for deferment through your lender by completing an application and providing proof and/or documentation of your eligibility.

Delinquency: The first day you miss your scheduled student loan payment, it is considered a delinquent loan. Your loan will be considered delinquent until you bring your loan current. After 90 days of a loan being delinquent, your lender reports it to the major credit bureaus.

Dependency Status: Your dependency status determines whether if you are considered a dependent student or an independent student. This will impact what information you are required to share on your Free Application for Federal Student Aid (FAFSA) and what types of financial aid you might be eligible for.

Dependent: As a dependent, it is assumed you have support from your parents, and therefore you are required to include your parents’ information on the FAFSA.

Direct Consolidation Loan: This would allow you to combine multiple federal loans into one single loan. This could make it easier to deal with your loan; however, it could also result in the loss of certain loan benefits.

Direct Loan: This is a federal loan that borrowers (including students and parents) can get directly from the U.S. Department of Education. These loans include Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

Disbursement: This is the payment of your funds by your school.

Discharge: If a loan is discharged, it means you (as the borrower) are released from the obligation to repay your loan.

Discretionary Income: For the Income-Based Repayment plan or the Pay As You Earn repayment plan, your discretionary income is the difference between your current income and 150 percent of the poverty guideline in the state you live in for a family of your size. For the Income-Contingent Repayment plan, it is the difference between your income and 100 percent of the poverty guidelines.

Disposable Income: This is the amount that remains from your pay after any deductions.

Economic Hardship Deferment: If you are currently working full-time (at least 30 hours per week) but still have trouble making your payments, you may qualify for this deferment.

Enrollment Status: This is how you are currently attending your college. It can include full-time, part-time, half-time, or less than half-time. If your enrollment status drops to less than half-time, your student loans are eligible to kick in. Enrollment status can also include withdrawn or graduated.

Estimated Family Contribution: If you are a dependent, you are required to submit your parent's financial information on your FAFSA. Once you do, you will receive your estimated family contribution, a dollar amount that your family is expected to contribute and, therefore, will affect your eligibility for financial aid.

Exit Counseling: When you are graduating or attending school less than half-time, you'll need to take exit counseling. It is an information session that will explain to you how repayment of your student loans will work and your responsibilities.

FAFSA: FAFSA is the Free Application for Federal Student Aid. Fill this out before each academic year to see what federal aid you qualify for, including grants, federal loans, or a work-study program.

Federal Loan: A federal loan is one that comes directly from the U.S. Department of Education, as opposed to a private lender.

Federal Family Education Loan Program: Also known as FFEL, this expired program allowed private lenders to give loans to borrowers that were guaranteed by the government. But now, all federal loans come directly from the Department of Education.

Forgiveness: Depending on the type of your loan, you may qualify for a portion to be forgiven. This means that those loans get "erased", and you no longer owe that portion of the loan.

Forbearance: Depending on the type of loan you have and your lender, you can qualify for a forbearance if you are having trouble making your payments. A forbearance allows you to stop making payments for 12 months while interest will continue to accrue.

Grace Period: Most lenders offer a grace period, a certain amount of time after you graduate or stop attending college full-time, when you do not yet have to make payments on your student loans. But as mentioned in 15 Ways to Deal With Student Loan Debt, try to avoid the tempting option of simply ignoring your debt during this period.

Graduate PLUS Loan: This is a federal loan that is used to cover the costs of graduate school.

Grant: A grant is essentially free money that is used to apply towards your education that does not need to be paid back. A grant is similar to a scholarship, but grants are often need-based, while scholarships are often based on merit, athletic ability, or affiliations. You can find grants by filing out the FAFSA, talking with your financial aid office, and researching other grant resources online.

Gross Annual Income: Your gross annual income is the income you earned in one year before taxes. Gross Annual Income (GAI) will be used when filling out the FAFSA, applying for loans, and to determine your repayment plan once you are paying back your student loans.

In-School Deferment: This type of deferment is used when you are currently enrolled in a college, generally for more than half-time. If you are in school, you can defer, or temporarily stop making payments, for the time you are enrolled.

In-State: Generally, each college offers an in-state tuition rate and an out-of-state tuition rate. If you choose to attend a college in the state you legally reside, you will pay in-state tuition, which is generally lower than out-of-state.

Income Based Repayment: This is one of the student loan repayment plans designed to lower your monthly payments, based upon your current income. This specific plan, also known as IBR, caps your payment at 15 percent of your discretionary income.

Independent Student: If you are considered an independent student, you are thought to be receiving no assistance from your family.

Interest Rate: You must pay interest to your lender in exchange for borrowing the money. The dollar amount of interest owed is calculated using a percentage of the debt — for example, 6.25% — your interest rate. A fixed interest rate will not go up or down during the term of the loan, whereas variable interest rates can shift depending on financial markets.

Lender: The lender is the organization that gave you a loan. A lender could be the U.S. Department of Education (for federal loans), a bank, credit union, your school, or another lending institution, such as Sallie Mae.

Out-of-State: Generally, each college offers an in-state tuition rate and an out-of-state tuition rate. If you choose to attend a college in a state where you don’t legally reside, you will pay out-of-state tuition, which is generally higher than in-state.

Outstanding Principal: This is the total sum of the money borrowed on the specific loan, including any capitalized interest.

Pay As You Earn: This is one of the income-driven repayment plans for student loans designed to make your monthly payments lower, based upon your current income. The Pay As You Earn plan caps your payments at 10 percent of your discretionary income.

Perkins Loan: This is a federal loan with low interest, where your school is the lender. Funds will depend on what your financial need is and what is available from your college.

PLUS Loan: There are Graduate PLUS loans and Parent PLUS loans. These PLUS loans are either for graduate students to help fund their education or for parents of undergraduates to help them pay for their tuition.

Principal: This is the outstanding balance of your loan, without any future interest and fees.

Private Loan: This type of loan is given by a private company instead of the federal government. You may receive or have received a private loan from a bank, credit union, your school, state agency, or common loan providers such as Sallie Mae.

Promissory Note: This is what you will sign to agree to the terms of your student loan payback.

Subsidized: The federal government will pay interest that accrues during your grace period, unless it occurred between July 2012 and July 2014.

Unemployment Deferment: If you are actively seeking employment and you're unable to pay your student loan minimum payments, you can apply for an unemployment deferment. This will temporarily postpone your payments.

Unsubsidized: Unlike subsidized loans, you are responsible for your interest on loans during all periods.

Work-Study: This is a type of federal aid. This particular program provides part-time jobs for undergraduates and graduate students with financial need. Your college needs to participate in this program to be eligible.

The post Student Loans 101: Vocabulary appeared first on The Simple Dollar.

The Simple Dollar: “Questions about Baby Exhaustion, Data Plans, Goodwill, Costco, and More!” plus 1 more

2014-10-21T01:13:00.001-07:00

The Simple Dollar: “Questions about Baby Exhaustion, Data Plans, Goodwill, Costco, and More!” plus 1 more

Questions about Baby Exhaustion, Data Plans, Goodwill, Costco, and More!

Posted: 20 Oct 2014 07:00 AM PDT

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Money discipline with baby exhaustion
2. Never enough
3. Piles of old paperbacks
4. Books for high earners
5. Investing small amounts
6. The $2,000 iPad
7. Buy it for life: Goodwill
8. Comparing quality of life
9. “Costco-sized portions”
10. Are data plans worth it?
11. Trick or treat expense
12. Headphones advice
13. Debt repayment or savings
14. Selling hair
15. NaNoWriMo

Recently, I was asked by a personal friend how I still manage to come up with post ideas after so many years and how I avoid repeating things.

First of all, I have no problems with ideas. I have long lists of ideas. The trick is filtering those ideas into ones that will work well as articles.

As for repeating ideas, I don’t worry about it too much. I’ll do a Google search and see if I’ve written anything exactly the same, but if it’s similar to something I wrote three or four years ago, I don’t worry about it. I figure that I’ll have a new angle and new insights and new specific tips that I’ll have based on those three or four years of life change.

Let’s get to the questions!

Q1: Money discipline with baby exhaustion

I made some great progress with my personal finances (paid back debt, built savings etc.) a few years back when I was single. I am glad I did so when I was single because now it's a very different situation.

Now I am 29, married, mother of a 8-month old baby girl.

I recently went back to work. My husband works in shifts. My mother-in-law takes care of the baby while I'm at work.

In theory I know what we should do with our money – spend wisely, save, invest. But ever since the baby came it seems like we can't hold it together! We don't save much. We could save more, but there are many occasions when we eat out instead of cook at home because we are just too exhausted. I buy baby food instead of preparing it at home for the same reason. (I made apple puree once and that was it.)

With all the housework, cooking, cleaning, grocery shopping, it's just crazy. My husband works in shifts so I often end up alone with the baby and it's really hard to get anything done that way. My husband sleeps during different times (works in shifts) and often comes home at 1am or other times gets up for work at 4am, so that is not helping with my sleep at all. On top of that the baby wakes up pretty much every hour at night and doesn't go back to sleep until I cuddle her.

I'm exhausted, my husband is exhausted, and everything is a mess. We use our willpower to get us through the day and get stuff done, and it we have no willpower left to be smart with our spending.

We don't earn too much but still I know we could be wiser with our money.

So my question is, do you think we could do something? Or do we need to just wait this out until the baby is older or until we start earning more?
– Jean

This sounds like virtually every new parent since the dawn of time.

During the first six months of our first son’s life, our home life was a lot like you describe. We were constantly exhausted. There was never enough time to do all of the things we thought we should be doing.

The problem is that you’re still wanting to do things according to priorities that existed before the baby and you’re seeing how that prioritization doesn’t match your life after the baby. There is a huge period of priority adjustment that just happens to coincide with a new person in your home that will not allow anyone to sleep for more than three hours at a time.

What will happen over time is that you’ll figure out patterns that work well for your family. Some things that used to be priorities will drop and vanish. You’ll figure out new ways to multitask.

I would not get too frustrated about being perfect with your money during this transition. Just keep your head above water. It will get easier.

Q2: Never enough

I’ve been enjoying The Simple Dollar for more than a year and I really value your comments. I also read several other money blogs as well.

The challenge I’m facing is that I never feel like I’m doing enough. For example, you’ve said that you and Sarah basically live off of one salary and save the other one. As hard as we try I don’t know how we would ever do that and it makes me feel like I’m never going to be able to do “enough” to get ahead.

I’m sure you’ve read about other examples, like how Pastor Rick Warren gives away 90% of his family’s income. Do you ever feel like you can possibly match that?

How can someone ever feel happy when it seems like so many people are able to do more than them?
– Karen

I honestly don’t worry at all about what other people are doing. I only draw on that experience for more ideas for what I can do better. How can I spend less? How can I earn more? How can your experiences help me with that?

This is because no one else’s experiences match my experiences. Every single person has a unique life journey that puts them in a place that makes their life situation very difficult to compare to others.

The only person you have to compare yourself with is yourself. In other words, you should be striving to do better than you did yesterday or last year or five years ago. How are you improving compared to where you used to be?

The only thing you should use in terms of comparing yourself to others is in the form of tactics. What things are they doing that might be useful to me so that I can do better than I used to do? That’s all.

Q3: Piles of old paperbacks

I’m in the process of cleaning out my dad’s house as he has moved into a retirement home. He has thousands of old paperbacks in boxes out in the garage. Most of them are just old cheap paperbacks that are yellow with age. I can’t imagine anyone wants them but the idea of throwing them away or burning them seems really wrong to me. What should I do with them?
– Charlie

If you’re thinking about throwing them away, think about giving them away instead.

Take the whole collection down to a retirement home or to an American Legion office or to a VFW post or to a hospital and see if they’re wanted. Call ahead so you’re not hauling books everywhere.

If you find that truly no one wants these books, consider recycling them. Recycling centers will accept them and then they’ll be turned into other paper products rather than just visiting a dump.

Q4: Books for high earners

Do you know of any books that focus on money management for high income earners with no debt? We are trying to figure out how to invest our money intelligently but make sure we are being mindful of the short-term and long-term tax burden we may face.
– Timothy

Hands down, the best book on investments I’ve ever read is The Bogleheads’ Guide to Investing by Larimore, Lindauer, and LeBoeuf. The name “Bogleheads” comes from John Bogle, the founder of The Vanguard Group, and the book follows Bogle’s stated investment philosophy and carries it all the way through the various dimensions of a person’s financial life.

In general, the book’s philosophy is that casual investors can’t compete with the professionals, so they should instead focus on matching the overall stock market as cheaply as possible, minimizing investment fees and expense ratios. This is mostly done by using tax-advantaged accounts (like 401(k)s, Roth IRAs, 529s, and so on) and investing in highly diverse index funds to spread out your risk at a low cost.

I swear by this book. I turn to it as my first answer almost every time I have an investment question. It has a permanent place on the bookshelf over my desk.

Q5: Investing small amounts

I want to start investing in the stock market each month – say $100 at a time. How would I go about doing this with minimal expenses?
– Tim

With that small amount and without a healthy amount to start with, fees are going to eat you alive. There’s just no way around it.

Most brokerages make money via transaction fees. Whenever you buy stocks, they charge you. It doesn’t matter how much you buy (for the most part), so a $10,000 buy often has the same fee as a $100 buy. If your fee is $10, then the fee is only 0.1% of your investment with the $10K buy, but it’s 10% of your investment if you do the $100 buy. Ouch.

You’re better off putting money into a savings account for a while and then buying in after a long period. For example, if you put $100 in your savings account each month for a year, you could buy at the end of the year and buy $1,200 in stocks with only $10 in fees – an $1,190 investment, in other words. If you bought in each month, you’d buy only $1,080 in stocks – $1,200 minus $120 in fees. Unless you’re extremely lucky, you won’t make up for that loss in the stock market – the market would have to have a 20% positive year for you to break even on the lost fees.

Of course, if you’re saving up and buying in with a big lump sum, you’re better off just buying an index fund directly from an investment house like Vanguard. If you can save up to the $3,000 mark (which is their investment minimum for most of their funds), you can buy into almost all of their index funds, then set up an automatic investment plan where you put in $100 a month without any fees at all.

That’s honestly what I’d do for now. Put that $100 a month into a savings account. Drop in more when you can. When you get to a few thousand in there, start re-evaluating your options. I recommend seriously looking at Vanguard’s offerings. Even if you don’t choose there, you’ll save a bundle on brokerage fees just by being patient.

Q6: The $2,000 iPad

So, here’s the situation. My older brother buys a bunch of stuff from a rent to own store in our area. He’ll sign up to make a ton of weekly installments there and eventually he’ll own the item. The problem is that if you add up the payments they add up to like four times as much as the item owes. I show this to him but he just says I’m jealous because he can get an iPad for like $19 a week. Yeah, but he’s making 104 payments (one a week for two years) so it’s $2,000.

How do I get through to him that this is a scam?
– Steve

Some people simply have a very short term view of things, and that sounds like your brother. I know quite a few people that seem to be unable to consider elements of their life that exist more than a week or two in the future. They buy last minute presents, sign up for ludicrously bad contracts, and so on.

The simultaneous challenge you’re seeing is that people often don’t like being shown that their choices are poor. They’ll often respond by retreating into a spiny shell of pride, viewing any comment as a personal assault that must be protected against.

That kind of viewpoint is not something you can shake up from the outside. The honest truth is that you’re just going to have to be patient with him and let him figure it out on his own.

You can lead a horse to water but you can’t make him drink.

Q7: Buy it for life: Goodwill

Well built furniture like sofas and desks can be found at goodwill and similar for very little money. I purchased a 10 ft long sofa for $35 and had it completely reupholstered for less than $500. It’s been in heavy use for over 30 yrs and is easily outlasting the sofa i purchased (the 2 recliner type) seven years ago. Desks for kids’ rooms are durable and will last for generations. End tables, picture frames, cookware, glass ware like pyrex and corningware, and seasonal ornaments are also examples of very inexpensive ‘buy it for life’ purchases we’ve made at thrift stores over the past 39 years of marriage.
– John

I am a huge advocate of shopping for almost everything non-electronic first at thrift stores.

Yes, most of the stuff you’ll find there is stuff you won’t want to buy because it’s of poor quality or because it doesn’t meet your needs. Guess what? The same is true of most stores – you wouldn’t want most of the stuff there, either.

With Goodwill and other thrift stores, though, you’ll sometimes walk in and find a stupendous bargain – something well-made and incredibly useful that’s being sold at a pittance. It has happened to me many times.

You’ve just got to be patient and be willing to stop there sometimes and leave empty-handed.

Q8: Comparing quality of life

I understand how you can compare cost of living from place to place. You can use a calculator. But how do you compare “quality of life” from place to place? Where do you even start with that?
– Danielle

The problem is that you can’t come up with a standard definition of “quality of life” that works for everyone.

For me personally, the upper Midwest has the highest quality of life of anywhere I’ve ever been. That’s because of the factors I attribute to quality of life – strong public education, a wide variance in weather between the seasons, constant access to open spaces and fresh air, incredible access to farm-fresh foods, a relatively low crime rate, and so on. That’s what I want in an area where I live because that’s what I value in life. I want a high level of quality in those areas that I value.

If you want to compare areas in terms of “quality of life,” you need to figure out what “quality of life” means for you. What exactly are you looking for? What factors mean the most to you?

If you accept someone else’s idea of what “quality of life” means, they’re going to be spitting out a score based on factors that you might not care about in the least.

So, your first step in answering this question is figuring out what factors contribute most to your quality of life. What are the things that are most important to you? Schools? Public transportation? Crime rate? Cultural opportunities? Something else? Then, compare areas based on those factors.

Q9: “Costco-sized portions”

Do you have any thoughts on this article from The Atlantic on warehouse clubs – http://www.theatlantic.com/business/archive/2014/10/why-people-love-costco-sized-portions/381562/

Seems to imply that people waste money by buying in bulk too much. Thoughts?
– Amy

Bulk buying is a good strategy if you’re actually using everything you buy before it goes bad and it’s not increasing your usage of the item. For example, if you’re buying giant bags of potato chips and that’s causing you to eat more of them, it’s not really helping.

In other words, I think bulk buying is a supplement to a good grocery shopping and food management strategy (and household good strategy), not a full solution. You should buy items in bulk if they make sense based on your already-existing meal plans that are led by fruits and vegetables and meats that are bought on discount.

I think most of the people in this article – at least the ones that are directly discussed – aren’t following that policy and, because of that, they’re not getting the best value out of bulk buying.

To really answer this, I need to write a full-length article on how to incorporate bulk buying into meal planning. Expect it soon.

Q10: Are data plans worth it?

I had an old flip phone for my cell phone which worked out very well for 6 years. The battery died and I was unable to recharge it or replace it. i bought another cell phone for $ 20.00 but have been unhappy with it as I am missing texts (they come the next day), and don’t receive all calls. A friend has given me their iphone 4. Are there quality phones out there that are not required to have data? If I have an iphone is it worth it to have data? We have a family plan with 5 phones ( no contract) and presently we do not have any data plans.
– Sara

An iPhone works just fine without a data plan. You can use all of the other features of it whenever you are near a wi-fi signal. The only thing extra that a data plan provides is access to data – websites, map data, and apps – when you’re outside of a wi-fi area.

Having said that, it will become tempting to get a data plan if you use the non-phone features very much.

As for the late texts, that sounds like more of a provider issue than anything else. If your phone isn’t receiving texts until the next day, I would immediately talk to my provider about it. There may be a phone setting issue or something on their end.

Q11: Trick or treat expense

I live on a block that receives a lot of traffic on trick or treat night – on the order of 400 kids. I don’t have kids of my own. I used to just leave a bowl out front, but then kids would clean out the bowl by taking lots of candy. I don’t really want to sit on the front step and hand out candy either.

I don’t want to buy thousands of pieces of candy – $$$ – but I also don’t want to just shut off my lights and hide downstairs either. Ideas on how to keep trick or treat less expensive?
– Sam

Here’s an idea. How about finding a neighbor kid who is just a bit too old for trick-or-treating and give that kid $5 or $10 to hand out candy on your front step?

This accomplishes a bunch of things at once. One, you’ll be spending less on 400 pieces of candy than 1,000. Two, you’ll be keeping that kid out of trouble on trick-or-treat night and letting them earn a few dollars. Three, you don’t have to deal with trick-or-treat night.

I’m actually in a similar situation. We have about 300 kids on trick-or-treat night at our house, but our own kids want to go out on the town (understandably). Our solution has been to invite our parents up that weekend. They usually hand out treats (my father, in fact, likes to dress up a bit, usually involving a ludicrous wig) while Sarah and I handle the trick-or-treat responsibilities for our own kids.

Q12: Headphones advice

I listen to headphones quite often – probably 2-3 hours a day. This enables me to listen to podcasts while I’m at the library or when I’m at work and want to listen to things without interrupting others.

In this situation, you might think that I want to “buy headphones for life” but my problem is that I beat up headphones. They rarely last me even a single year. I carry them everywhere and something inevitably goes wrong with them.

But then the ultracheap headphones sound like garbage. So I guess what I’m looking for are the cheapest headphones that still sound decent. Or some other solution I haven’t thought of.
– Arthur

The problem here is that you’re using words that are very specific to your personal perceptions. What does “ultracheap” mean in terms of headphones for you? Do you mean $5 earbuds? Do you mean $20 headphones? What does “sound like garbage” mean? Honestly, I’m deaf in one ear, so I listen to everything in mono anyway, so sound quality to me almost assuredly means something different than what it means to you.

So, I asked this exact question of a friend of mine who is a bit of an audiophile. His suggestion was to balance the two and get headphones with a “good but not high-end” sound quality from a brand with a reputation for ruggedness. His pick was the Shure SE112, which has a two year warranty and can be found below $50.

Personally, I can’t tell the difference between “sounds like garbage” and “sounds decent” (which is part of the reason I’ve always had trouble with podcasting – I can’t tell whether I sound good), so I just use cheap over-the-ear headphones and a “mono” setting on my listening device.

Q13: Debt repayment or savings

I carry a large amount of credit card debt. It is currently on a 0% interest promotional rate for another year. I have enough savings to pay it off and still have a good cushion.

A financial advisor recommended that I keep my savings earning interest and hold off on paying off the credit card debt. But I really want to be rid of this debt that has been haunting me for many years. I’m afraid if I don’t pay it off now, there will always be some reason not to.

Another factor in the equation is that I am 51 and am not putting the maximum amount in my company 401k. I feel if I paid off the debt I could immediately start putting more towards retirement.
– Cindy

How about this?

Open up a checking account that earns interest that also lets you schedule online bill payments. Let’s use Ally Bank as an example, which offers a 0.10% interest rate on balances below $15,000 and a 0.60% rate on balances above $15,000. I don’t know how much your credit card debt actually is.

Now, move the amount equal to your credit card balance into that account and out of your savings, then schedule a bill payment for a few weeks prior to when the promotional rate ends. Then just forget about it entirely until that time frame rolls around (add it to your calendar) and check in at that time.

You’ll earn some interest on your money while it sits there, then the payment goes off without a hitch, leaving behind some interest that you can pocket. Plus, the money is out of sight and out of mind.

That’s probably the approach I would take in your situation. If your balance is $15,000, for instance, and it’s a year off, you’ll earn about $100 by doing this.

Q14: Selling hair

So my friend knows a wig maker who will buy long hair for wigs. Basically, if you go to her and your hair is a certain length (I think 14 inches cut, so you’d need hair of 15 or 16 inches so that she doesn’t shave you bald!), she’ll give you a short haircut and pay you $50 for going there. I don’t really mind a short haircut or long hair (I’ve had both many times) so I’m trying to judge whether this is worth it. Seems to me like it’s a great way to just get a “fresh look” every three years or so and make $50 each time.
– Sandy

The additional cost that comes to mind is for hair styling products needed for longer hair. My hair is nice and short, so I need virtually nothing to care for it – a drop of shampoo, or even a drop of body wash if the shampoo is out. It never really matters – my hair is just always soft and kind of fuzzy.

My wife has longer hair and thus uses more specialized stuff. It costs more per wash than my own hair, period. There’s no way around it. Since she’s responsible for buying the stuff (she either buys it herself or tacks it onto a grocery list), I can’t easily estimate the difference in costs. It’s just rolled into our household supplies budget. My estimate is that she spends $15-20 more a year on hair care than I do.

So, if that’s your rate in terms of extra spending on longer hair versus very short hair, you’re going to roughly break even on this plan. It’s certainly a way to maintain different hair stylings over time essentially for free, though. I don’t see a thing wrong with it.

Q15: NaNoWriMo

Have you participated in NaNoWriMo in the past? Are you going to do it this year?
– Keith

Yes, I have participated in National Novel Writing Month in the past. (For those unaware, NaNoWriMo is a month-long event, usually held in November, where people are encouraged to write an entire novel in a month.) Some years, I have managed to complete a novel draft; other years, I’ve tried and failed; in still other years, I’ve not even tried.

I’m planning on doing it this year. In fact, I’ve done more pre-novel prep work this year than I have in any previous year. I have a pile of notes and a good outline in my head of what I want to write.

I’m pretty hesitant to share it as I go along, though, because sometimes life intervenes with things like this. For me, it’s just an encouragement to get things down on paper, but when others are watching, it can sometimes add more pressure than I would like.

Still, I do participate, and I do feel optimistic this year.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

The post Questions about Baby Exhaustion, Data Plans, Goodwill, Costco, and More! appeared first on The Simple Dollar.

Saving Money in Your Startup

Posted: 20 Oct 2014 05:00 AM PDT

So you're thinking about starting a business. Congrats! Now what? Odds are good that if you're starting a business, you’re a “solopreneur” — meaning it's just you, and you’ve got some questions about what to do next.

Whether it’s your first startup or you’ve been down this path before, identifying and accessing key resources — both online and offline — will save you money when you launch your business. Today's post will explore money-saving tools, software, and practices to help you launch your startup in a cost-efficient manner. Ultimately you will have to assess your own business and financial resources to decide what is best for your situation.

So how do you set up a business correctly and get the wheels turning with limited capital and resources?

Outline Your Business Idea

First things first: You need to get a handle on what your business is, and how it will make money. There are a couple of ways to get started.

Business Plan

Traditional business ideology suggests the first step to starting a business is writing a business plan. The old advice was: Write a business plan, find investors, hire a team, go to market, and SELL, SELL, SELL.

Your business plan should include:

Executive Summary
Description of Business and Problem Solved
Marketing Strategy
Competitive Analysis
Financials
Operations
Management Team

Many entrepreneurs write business plans to present to investors in hopes of attracting funding. Business plans also help you get a comprehensive look at the business, market, competition, financial projections, and outline the leadership team that will execute the plan.

“Everyone has a plan ’til they get punched in the mouth.” — Mike Tyson

Business plans are great, but if you’re looking for ways to save money without risking the future success of your business, there are other ways to proceed without investing time or money into a business plan.

Most people struggle with writing a good business plan and consider hiring outside consultants to assist with the process. Do not waste your time paying consultants thousands of dollars to help you with a business plan. If anything, utilize small business resources available through the Small Business Association (SBA) or local colleges.

Lean Startup

Because planning for an uncertain future is very difficult, there is a new school of thought emerging in the startup world that’s making its way into the mainstream and being taught in college classrooms across the country: the lean startup.

The lean startup, explains Stanford professor Steve Blank, “favors experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional ‘big design up front’ development.” The idea comes down to a fast and smart cycle of trial and error: Develop something new, get customer feedback, learn from its failure, and make small, quick improvements as you scale upward.

Research by Harvard Business School shows that 75 percent or more of all venture-backed startups fail. And these businesses fail because they run out of money.

The Lean Startup method can actually make your new business more likely to succeed by keeping expenses low — giving you a longer period of time to increase revenue enough to begin turning a profit.

If you're still trying to figure out what your business looks like, check out a resource like Blank’s “Startup Owner’s Manual” — or “The Lean Startup,” by Blank’s former student, Eric Ries — or an online version of the business model canvas. This can help you get an initial framework for the impact areas of your business and help you save money by focusing on priorities.

Setting up Your Entity

While running out to set up a new business entity isn't the first thing to do on your startup checklist, it shouldn’t be too far down the line. Once you have an understanding of your business idea, costs, revenue streams, customer segments, key activities and partnerships, and path to execution, setting up your business and making it official is the logical next step.

Below are two options for setting up your business.

Option 1: LegalZoom

With so many services moving online these days, it’s no surprise that there are now legal services available, too. The most reputable and trusted online resource for lawyers and legal documents is LegalZoom. LegalZoom bills itself as the nation’s leading provider of personalized, online legal solutions for small business owners and families. They were founded in 2001 and boast having helped start over one million businesses.

LegalZoom provides online legal documents and allows you to set up an LLC or incorporate and set up an S-Corp or C-Corp for $149 + state filing fees. That’s less than most lawyers charge for just an hour of services.

When setting up your business, LegalZoom is a better fit if you already know what type of entity you want to set up for your business. In the event you are not sure what type of entity makes the most sense for your business, LegalZoom takes you through a step-by-step process with questionnaires to be sure you are setting up the right type of entity to meet your needs. They also guarantee your satisfaction with their services.

Advantages of LegalZoom

Ability to browse and review costs of documents ahead of time
$149 + state fees to set up your business
Lots of free online resources available as well as FAQs
Step-by-step guides and questionnaires to assist in decision making
Will check availability of the business name for you with your state
Quick turnaround
24/7 access to information

Disadvantages of Legalzoom

Risk of filing the wrong paperwork or setting up the wrong type of entity (i.e., bad business decisions)
LegalZoom’s guarantee only covers satisfaction issues caused by LegalZoom — not changes to your situation or your state of mind
Inability to seamlessly ask a lawyer questions as they come up
You don’t get to tell your story in person, which could uncover other legal needs or strategies
No hands-on professional there by your side

Option 2: Traditional Law Firm

Knowing a good lawyer is like knowing a good mechanic. They are worth their weight in gold, but most people hope to rarely need their services.

Growing up in a family of attorneys, I took for granted having access to lawyers. But because the nuances of the law are very foreign to most people, using a law firm, while more costly, might be the right option for setting up your business. That said, I’ve opened bills from law firms and had my jaw drop at the billable hours I was charged for.

Advantages of a Law Firm

Peace of mind knowing you are working with a local, trusted professional
The ability to have a lawyer answer all of your questions
A lawyer may recommend other ideas that you hadn’t thought of
You can find a lawyer that specializes in unique circumstances or situations
Years of experience

Disadvantages a Law Firm

COST: Most lawyers charge $150/hr+ and will bill by the hour
Billable hours: Lawyers charge for email, phone calls, and face-to-face meetings
Scheduling: Making appointments and getting on the lawyer’s calendar can be tough

LegalZoom can provide instant access to documents, helping you get the set-up process started right away. Understanding what type of entity you want to set up is important. LegalZoom has lots of online resources and guides to follow, but if you are still unclear or uncertain, it’s a smart idea to schedule a meeting with a lawyer. If you feel LegalZoom will suffice, you can save yourself a thousand dollars or more in setting up your business.

Another option is to use LegalZoom and then set up a one-hour meeting with a lawyer to review your documents to be sure everything is set up correctly as you intended it to be. This can cost you a couple hundred dollars for an hour or two of the lawyer’s time, versus a thousand dollars or more to have the lawyer create the documents for you.

Once your business structure is set up, you will want to look at building out the business’s infrastructure in a cost-efficient but effective manner.

Manage Your Business with Google Apps

Google Apps is the only service I’ve used that I would recommend for managing your business email, file sharing, calendars, video meetings, and internal chat. It saves all your information in the cloud, across devices, and makes files and folders easy to share across teams from anywhere.

And it can be set up in just minutes, so you’ll be up and running in no time.

Your Google Apps account will allow you to get custom email addresses for you and your team. This is a very simple and affordable branding and credibility move you should make early on.

Remember when some businesses didn’t have a website and you started to wonder if they were legit or not? The same can be said for a yourname@yourbusiness.com email address.

If you have a Yahoo or Gmail email address, make the simple move to get a custom Google Apps email address for your business, even if you’re the only one working there. You can forward all of your emails to one account, but the ability to switch between email accounts within Google is pretty seamless (once logged in, Google Apps lets you select from a drop-down menu to switch between accounts).

Google Apps was free for a while, then started to charge $5 per user per month, and now offers a $10 per user per month plan for additional storage and features. While I generally shy away from monthly subscriptions, especially unnecessary ones, Google Apps is a good investment and the return on time, convenience, ease of use, and money invested is second to none in this space. I personally have not tried the $10/month option yet, and get all the business services and storage space we need from the $5/month package.

The calendar and Google Drive allow you to share where you’ll be and what you’re working on with your team. Google Drive offers you a suite of word processing documents, spreadsheets, and folders that you can seamlessly use, store in the cloud, and share with your team.

Website Services

Whatever industry you’re in, your business is going to need a website. If you’re looking for an affordable way to get a professional-looking website, there are a few different services for the do-it-yourselfer. Learning to build a basic website may be a good investment of your time.

If you don’t want to learn to build your own site, you can look to sites like Odesk and Elance, where you can outsource the work for a reasonable price, or find a friend or family member who is willing to do it. Odds are good that someone you know can build you version 1.0 of your website for an affordable price.

Assuming you want to DIY, below are some code-free options for building your website.

WordPress

There are two different WordPress sites, WordPress.com and WordPress.org. Beginners should stick with WordPress.com, which allows you to host your site on WordPress's servers (one less thing for you to worry about). Sticking with the dot-com version, you will want to upgrade to a custom domain name — otherwise you will have dot-wordpress in your URL (e.g., www.yourwebsite.wordpress.com). Note that you must initially start with a dot-wordpress URL, and then you can upgrade.

You can register a domain name with WordPress.com for $18, or map a domain you already own for $13. WordPress is easy to use and is the site I primarily use for building websites.

Here are some advantages and disadvantages I’ve found with WordPress.com (note that these are not the same for the more powerful wordpress.org, which is what I have shifted my sites over to):

Advantages of WordPress.com

Quick setup: You can have a site up and running in less than 30 minutes
Free hosting thru WordPress
Cost effective
No monthly hosting or website expenses
Ability to build and customize a site without coding
Lots of easy-to-use, free templates
Plug-ins to add additional features
Easy click-and-drag integration with Facebook, Twitter, and other social media sites

Disadvantages of WordPress.com

Lack of ability to customize and move things on the screen
Less unique and visually compelling than using a graphic designer
Requires additional set up for an e-commerce site
I’ve found that the best templates usually charge a one-time fee

Squarespace

One of the most hyped new website builder services is Squarespace. One look at their site and you can see how good looking these websites are. Squarespace powers nearly 2 million websites and has gotten rave reviews for its visually appealing and e-commerce enabled sites.

Advantages of Squarespace

Lots of style and design options
Fully integrated e-commerce – allows you to sell things online
Quick and easy setup (again, no coding!)
Responsive templates that optimize viewing on mobile devices

Disadvantages of Squarespace

Cost: $8-$24/month (beware of locking your business into ongoing subscriptions)

Technology is a place where you can sink a lot of your business’s money. There were times in the past when spending thousands of dollars on a website might have made sense. With WordPress.com and Squarespace there is no reason for you to spend that kind of cash to set up your website. Spend a couple of minutes on each site and choose the one that works for you and your business.

The cost of a WordPress site is going to be cheaper annually, but if you need a turn-key e-commerce business website, Squarespace might be a better fit.

Conclusion

It’s important to assess ongoing costs to your business and to keep overhead when low getting started. Most businesses fail because they run out of revenue, so try to keep expenses low while you start to ramp up revenue (we will cover this in another post).

There are always new technologies, innovations, and services coming out, so having someone on your team who can identify value and opportunities in these areas is important. We will get to hiring in a later post, but for now, these suggestions should help get you up and running or shed light on valuable services for your small business.

The post Saving Money in Your Startup appeared first on The Simple Dollar.

The Simple Dollar: “Best Home Warranty Company for 2014” plus 1 more

2014-10-20T01:25:00.001-07:00

The Simple Dollar: “Best Home Warranty Company for 2014” plus 1 more

Best Home Warranty Company for 2014

Posted: 19 Oct 2014 04:00 PM PDT

If you're considering a home warranty to help protect you from costly home repairs, there are several companies that want your business. Unlike the big insurance companies that provide home, life, and auto policies, home warranty companies aren't household names. For that reason, you may feel like you're starting from square one in your search.

The good news: I've done a lot of the legwork for you. After analyzing several of the top home warranty companies, three stand out as the best:

I looked at several factors to narrow down my recommendations. In a moment, I'll detail my criteria on how I selected the best home warranty companies. Later on, I'll discuss the basics of home warranties, what they cover, and whether they're the right choice for you.

The 3 Best Home Warranty Companies

#1: American Home Shield

The largest home warranty company in the nation, American Home Shield allows homeowners to select from three plans or customize their coverage by choosing exactly what they want covered. Their build-your-own plan was the only one of its kind in my search. Customers can also raise or lower their service fee, which helps them control the cost of their plan. Of the companies I investigated, American Home Shield also made it easiest to get a quote — I only had to input my email and street address. The company gets solid reviews overall, including an A+ rating from the Better Business Bureau.

Upsides:

Four plans to choose from, including a build-your-own option
Customizable service fee
Quick and easy to receive quotes
Claims center open 24/7
No exclusions on older homes, appliances
Solid reviews across the web

Downside:

Sample contract can be easily overlooked before purchase

#2: TotalProtect

It was also easy to get a quote and compare plans from TotalProtect, which offers three plans and a customizable deductible. Customers can add a wide range of additional items to base plans, but the company doesn't offer an option to create a plan from scratch. Of all the companies I surveyed, TotalProtect made it the easiest to access contracts by clearly linking to them at the bottom of each plan's description. Though it seems like a small detail, it's a level of transparency I appreciated given many customers' confusion over what home warranties actually cover.

Upsides:

Three customizable plans to choose from
Customizable service fee
Easy to find and view contract
Quick and easy to receive quotes
Claims center open 24/7
No exclusions on older homes and appliances
Solid reviews across the web

Downside:

No build-your-own plans

#3: Complete Appliance Protection

In a rare move among home warranty companies, Complete Appliance Protection doesn't charge any service fees or deductibles for repairs. That means you won't be shelling out more money on top of the price of the plans. It also doesn't exclude items from coverage due to a lack of maintenance, which is common among other home warranty providers. Customers can choose from four coverage levels and add on items as needed. A couple of drawbacks that kept Complete Appliance Protection from a higher spot on my list: The website is rather clunky, and the company provides service in only 35 states.

Upsides:

No service fee or deductible
No "lack of maintenance" exclusions
Four customizable plans to choose from
Claims center open 24/7
Solid reviews across the web

Downsides:

Clunky website
Company services only 35 states

How I Evaluated Home Warranty Companies

Home warranty companies can be tricky to evaluate online. Reviews tend to trend suspiciously positive or frighteningly negative. For that reason, while I considered online reviews while making my picks, I gave them less weight than other factors. Here are all the criteria I considered when looking for the best home warranty:

Number of coverage options: It's standard for home warranty companies to offer two coverage levels: a basic plan that covers appliances, and an enhanced plan that covers systems such as heating and plumbing. If a company offers a third hybrid plan, I considered that a plus. A customizable plan that allows you to pick the appliances or systems you want covered was an even bigger perk. Finally, the best companies offered a number of specialized add-ons for features such as pools, wells, and septic systems.
Customizable service fees or deductibles: Some companies allow you to customize the amount you pay when you request service. This also helps you control the cost of your plan — if you choose a higher service fee, your plan costs less overall.
Around-the-clock claims departments: If your furnace goes cold at 2 a.m. on a frigid Saturday in January, you probably won't want to wait until 9 a.m. on Monday to report it. The longer you have to wait to report a problem, the longer you'll wait for a resolution.
No exclusions on older homes and appliances: Buying an older home may be your primary motivator in purchasing a home warranty. The best home warranty companies don't shun your business simply because there's a greater chance you'll make a claim.
Ability to easily receive a quote and purchase plan online: The best home warranty companies make receiving a quote very easy. During my evaluations, it had to be clear where I needed to start the quote process. And given that home warranties don't vary much from person to person, the less personal information I had to enter, the better.
Solid reviews relative to the competition: Again, reviews are hard to evaluate for home warranty companies, so I based my evaluation on how they fared relative to competitors on particular sites such as Consumer Affairs, Home Warranty Reviews, and Yelp. A good rating with the Better Business Bureau was a bonus. Remember, the vast majority of negative reviews stem from customers who misunderstand their home warranty contract. Which leads me to my next consideration…
Sample contracts that are easy to find and view: Before you purchase a home warranty, it's essential to read the fine print. That means reading the entire contract before you fork over your money. Otherwise, you risk joining the legions of frustrated customers who thought they were getting something other than what their contract specified.

After considering all of these criteria, the three providers I referenced above rose to the top during my search for the best home warranty company: American Home Shield, TotalProtect, and Complete Appliance Protection.

Not sure what a home warranty does, or whether it's right for you? I'll tackle the basics below.

Home Warranties 101

Don't confuse home warranties with home insurance, which protects your home and its contents from natural disasters, fire, and other major calamities. Mortgage lenders usually require you to purchase home insurance. Home warranties help guard against big bills when things including appliances and plumbing unexpectedly fail. They are generally not a lender requirement. Read on to discover the particulars of home warranty coverage, costs, pros, and cons.

What does a home warranty cover?

Home warranty coverage will vary according to the type of plan you choose and whether your home is a new build or dozens of years old. For new homes, a home warranty from your builder typically covers any big structural defects for as long as a decade. Heating and air-conditioning, drywall, paint, appliances, plumbing, and electrical work may be covered anywhere from six months to two years.

For existing homes, warranties typically fall into a few categories:

Appliance-based plans: These typically cover appliances including your range, oven, built-in microwave, dishwasher, washers, and dryers. Refrigerators may or may not be covered.
Systems-based plans: These plans focus on heat, air-conditioning, plumbing, electric, and water heaters.
Hybrid plans: As their name suggests, hybrid plans combine appliance and systems coverage, but are pricier because they are more comprehensive.
Add-ons: Most home warranty companies give you the option to add on coverage for special items not covered under typical plans. Common add-ons include pools, wells, whirlpools, spas, and septic systems.

My husband and I built a new home that we moved into a year and a half ago, and we benefited greatly from our home warranty. After living in the home for almost a year, we presented our builder with a list of issues to rectify before our warranty was up. It included numerous drywall fixes, interior and exterior paint touch-ups, the repair of a wobbly toilet, and a costly valve replacement on our downstairs air-conditioning unit. The air-conditioning repair alone would have been several hundred dollars without the home warranty.

An important point to keep in mind, especially for older homes, is that home warranties are intended to cover unexpected fixes. Many plans won't cover routine service or problems that are the direct result of incomplete or improper maintenance.

How much does a home warranty cost?

The price of a home warranty depends on what type of property you need covered — for instance, whether you live in a condo or a single-family home — and whether you stick with a basic plan or buy an upgraded version. Basic plans typically range from $350 to $500 a year, according to Angie's List; souped-up plans can cost as much as $800. On top of the cost of the plan, you will also have to pay a service fee or deductible of roughly $50 to $125 each time you need something fixed.

If you're buying a newly built home, the cost of your home warranty may be rolled into the purchase price of your home. That was the case when I moved into my new home, and it turned out to be a nice perk. You may also find that if you're buying an existing home, the seller or real-estate agent may throw in a home warranty plan to sweeten the deal.

How do I get something fixed under my home warranty?

The home warranty company will arrange repairs on your behalf after you pay any necessary service fees or deductibles. With rare exceptions, you do not get to choose a company to do the work — the home warranty company already has preferred vendors. You should also understand that a home warranty company is obligated only to make sure covered items are in working order. They don't have to replace your aging relic of a furnace, even if it's long past its prime. Same with that funky avocado stove from the early '80s — don't expect your home warranty company to swap it out for a brand-new stainless-steel model.

Do I Need a Home Warranty?

For most homebuyers, home warranties are about peace of mind. For some, that's reason enough to fork over a few hundred bucks. But like any financial product, home warranties have significant pros and cons. Read on to decide whether a home warranty is the right decision for you.

Home warranty pros

A home warranty can be a big help if you don't have a ton of cash left in savings — a particularly common scenario for homebuyers who just plunked down thousands for a down payment, closing costs, and other incidentals. With home warranty, one big, unforeseen problem may only cost you a small service fee to fix as opposed to shelling out hundreds. A reputable home warranty company can also eliminate the frustration you may feel as you attempt to make repairs yourself or find someone else to do them. So, if you're the type of person who likes to make one call and leave the rest up to the experts, a home warranty can ease some stress.

Home warranty cons

The biggest con of home warranties may be the most obvious: There's a good chance you won't need to request any repairs from your home warranty company, which means you're out at least a few hundred dollars. If you do need something fixed, you will still be paying a service fee or deductible on top of the initial price of your plan. You may not like the repair company your home warranty company sends to do the work, and you'll have little control over the speed with which the repairs are done. There's also a chance your repair won't be covered, which is a common complaint among home-warranty customers. Of course, you can help guard against this scenario by reading your policy contract extremely carefully.

In my case, it's unlikely I would have purchased a home warranty had our builder not included one in our home's purchase price. Though we did end up using the warranty for a costly fix, the chance of major breakdowns is low in a newer home. And as always, you can set aside money in your emergency fund (where it will earn interest, too) to cover unanticipated fixes.

Final Thoughts

Remember the golden rule of home warranties: Read the contract before signing up. And maintain a clear understanding of the pros and cons. Your home warranty policy is meant to keep you from paying big for unexpected fixes, but there are many limits. If you have realistic expectations about what your home warranty can do for you, you may find that the peace of mind is worth the price.

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Insurance Ads: Trick or Treat?

Posted: 19 Oct 2014 05:00 AM PDT

Insurance isn’t a product you can see or touch, so insurers sell memorable characters — such as Allstate’s ‘Mayhem.’

Remember that ad…? Of course you do, because even when you think advertising isn’t having an effect on you, it is. The fact that you remember the Taco Bell Chihuahua or the Old Spice guy is proof that television ads, at the very least, take up some space in your memory. Making a brand or product memorable by associating it with a character such as The Most Interesting Man in the World is only one of a commercial’s goals, but it doesn’t end with brand awareness.

Some commercials are intended to influence your immediate behavior. These are easier to spot because they include clear calls to action: “Order today! Call now! Call in the next hour and receive a special gift!” Ads that create an imperative can include more than just picking up the phone or going online. “Hurry in while supplies last!” and “These deals won’t last long!” are examples of ads that motivate viewers to do something — i.e., “Buy something!”

Ads for insurance companies don’t fit into these first two categories because insurance is not something you can buy on an impulse. It’s not a product you can rush out to buy because it’s on sale. When it comes to insurance advertising, being memorable is not enough. While the goal of insurance advertising is the same as other advertising — to generate a sale — it takes some different routes to get there.

Unlike other products, the quality of insurance is intangible. It has potential value, but nothing you can or even want to touch. The value of insurance is delivered at a later date, which means that by the time you use it, unlike a bad meal or a sweater that doesn’t fit, there is nothing you can do about your purchase. This is why it’s important to understand what insurance ads are saying and how they work, so your insurance purchases will be based on your best interests and not the contents of an ad.

Weasel Words

Federal truth in advertising law says that ads cannot be deceptive or misleading. While that sounds straightforward, it’s not always that simple. Deceptive and misleading means untrue or demonstrably false, and the test of that standard comes from careful examination of the advertising claim. Advertisers know the rules and lawyers scrutinize ads to make sure they comply. However, what the law does not protect against are misunderstandings on the part of consumers.

An illustration of what constitutes a misunderstanding is a T-shirt that is popular with high school boys. It features an image of an oversized pen. The text reads “My Pen is Large!” The casual reader may be offended because they read it as “My Penis Large,” but the shirt is perfectly acceptable because there is nothing wrong with a shirt about writing implements of any size. In the world of advertising regulation, the wearer of the shirt is not responsible for the misreading of the clearly spelled-out message.

Advertisers do something similar with what the ad industry calls weasel words. Weasel words can make a claim sound like one thing to a casual listener when in reality they mean something else or nothing at all. Biggest, best, better, and greatest are common weasel words that, when combined with other words, sound important.

For example, “readers of this column think I’m the greatest writer ever.” That’s not only a bold claim, it’s also true — my friends and family who read this column think I am the greatest. Because the statement does not specify all readers, there is no deception.

What are They Really Selling?

Whether it’s Maxwell the Pig for GEICO, Flo from Progressive, Professor Nathaniel Burke of the University of Farmers, or some other fictional spokes-character, they all have something in common: We like them.

Flo is a mildly awkward, overly enthusiastic employee who loves her job because she works for the best insurance company in the world. The fictional Farmer’s University professor is an amalgamation of all our favorite teachers — knowledgeable, patient, and sincerely interested in helping us learn something new.

The first thing they all sell is their own likability. The more consumers identify with a character, the more we see of ourselves in them, the more we trust them and what they say. Once trust is established, everything the character says or implies is accepted as factual and truthful. This is why insurance commercial characters seldom sell products; they sell themselves and recommend products.

The Other Guys

Bashing the competition may work for selling used cars, but it doesn’t work for insurance. That doesn’t mean insurance ads don’t go after the competition. They just do it indirectly, which has the benefit of addressing multiple competitors at the same time.

Allstate and their online sister brand Esurance are masters of taking down the competition without ever mentioning names. Allstate’s “Mayhem” commercials are like mini movies with fully developed story lines and a moral. They open with Mayhem identifying himself as a person, thing, or animal poised for action — or inaction, as is the case of the guard dog eating a bone while burglars pack up household possessions.

They use dark humor to not-so-subtly point out that no matter how well you plan, things can and will go wrong. It’s only a matter of time until mayhem strikes. Even the expected — like childbirth, which gives you nine months of advanced warning — can lead to the unexpected. The over-the-top dramatizations are like nightmares come to life. The spots finish with the dire warning, “If you have cut-rate insurance, you might not be protected from Mayhem.” Two messages are being delivered: All other insurance is cut-rate, and Allstate is worth its higher price because it protects you better.

Allstate’s partner brand Esurance takes the exact opposite tack with their highly creative commercials featuring a cadre of memorable characters, such as Beatrice the Facebook lady and Milton the copy machine selfie guy. The message they send is obvious: If you’re using some other insurance company, you’re spending twice as much time as you have to and you’re paying too much.

The Esurance ads also present a more subtle message — that only people who are out of touch would buy insurance from someone else. This taps the same psychology that made you ditch your best friend in 7th grade because the cool kids said he was lame.

Allstate and Esurance are one company with two directly opposing approaches — and no matter which one appeals to you, they win.

The Comparison

A popular feature of insurance commercials is the rate comparison. Consider the 21st Century commercials that start out damaging a car and correctly point out that insurance is insurance and both companies will pay for the needed repairs. The difference is that 21st Century is going to cost you less for the same protection, so says the guy in the hard hat. They are telling the truth; the rates they flash on the screen are real. They just may not be accurate!

Insurance rate commercial ads, including Progressive’s price comparison tool, all work the same way. Insurance companies are required by each state’s insurance department to provide their rate books to the state. These books then become public records that can be searched by anyone, including competitors.

The problem is that rate books tell only part of the story; they are baseline rates and do not include underwriting or discounts. When ads compare rates, they will commonly cite the book rates of their competitors and underwritten rates for themselves. The result is that their rates always appear to be lower.

Beware the Disclaimer

Rate comparison commercials will always have a disclaimer in them. Disclaimers are those messages that run in nearly-too-small-to-read print at the bottom of a commercial, and they appear that way for good reason. What the spokesperson or large text gives, the disclaimer takes away. In the case of the 21st Century ads, it’s the savings. “Actual savings may vary,” says the disclaimer.

When Progressive’s perpetually perky spokesperson Flo fires up the price comparison board in this commercial for bundled coverage and assures the customer that “Progressive compares rates with other top companies so you get a great price,” a couple of sneaky things happen.

First, she doesn’t actually say Progressive is less expensive, even though that’s what appears on the board. Flo uses the weasel word “great” to describe the rate. In this case a great rate can mean anything or nothing. The next gotcha is the white text with a faint black shadow on the white background that says “Comparison rates not available in all states or situations.” In plain English, the disclaimer is saying the rates shown may not apply to you.

How important are the disclaimers? In the Progressive commercial for auto-homeowner bundles the disclaimer is the only place you are told that Progressive doesn’t sell homeowners insurance. The disclaimer says, “Home insurance provided and serviced by third-party insurers” — and, by the way, these “great” rates are only for six months. Later in the commercial, a disclaimer lists the actual companies that may or may not be providing your insurance.

Gimmicks Galore

Gimmicks are tricks that are used to draw your attention away from where it needs to be. Magicians use all sorts of gimmicks — which they call misdirection — so you won’t see something that might give away the illusion. Insurance commercials do the same thing. They use offers designed to distract you from the fact that you might not really be getting the best price for insurance.

Allstate puts two different distractions in this auto insurance commercial. The first bit of advertising slight of hand takes the form of their deal with TrueCar for new car discounts. Misdirection is everywhere, starting with the claim that you can “save an average of $3,000.” This, depending on how they calculate the average, probably means you’ll save $3,000 at most.

A savings on what is the real question? The small print next to the third zero gives us the answer: The savings are based on MSRP.

MSRP is the Manufacturer’s Suggested Retail Price, or the sticker price. When was the last time you heard of someone paying the sticker price for a new car? In most cases even the most timid negotiator is going to pay at least $1,000 less than MSRP, with the average buyer paying about $3,000 less.

You don’t need Allstate or any other insurance company to get these savings. If you’re not comfortable negotiating and really like the idea of a discount deal, check your warehouse club membership; Sam’s, Costco, and BJ’s all offer similar programs as part of your membership.

The next misdirection in this ad? Safe driving bonus checks. They’ll reward you for not having an accident by sending you a check.

The gimmick here is that you start out paying a higher rate, and they refund you the overpayment if you don’t have an accident. In essence, they’ll give you back your money and expect you to say thank you for the favor. Of course, there is a disclaimer here, too, that informs you that the offer is NOT AVAILABLE IN EVERY STATE.

Esurance, State Farm, and USAA also offer similar car-buying services and back-end discounts.

Optional Coverage

When you shop for a car it’s common knowledge that options like power windows and heated seats come at an additional cost. The same is true for insurance. Optional coverage means it costs more even though they won’t say it in the commercials.

Take Liberty Mutual’s Better Car Replacement program, which will pay for a replacement car that is a model year newer than your old one. If you don’t go blind trying to read the tiny white disclaimer on the bright yellow background, you’ll see that in addition to being optional, it’s not available in North Carolina and deductibles apply.

Plus your car has to be totaled in order to collect. Totaled means that if your $20,000 car has $19,000 worth of damage you don’t get paid for a newer car. Liberty Mutual’s Accident Forgiveness is another example of optional coverage that offers little more than higher rates. Like Allstate’s Safe Driver’s Bonus Check, you are paying a higher rate to start with, and they’ll refund you the overpayment if you don’t have an accident.

Bait and Switch

State Farm implies that they will find money for you when you need it — delivered by a teleporting company representative. They call it their Double Check Discount.

In the commercial, a couple of friends are out shopping. The State Farm customer, after summoning an agent by singing the company’s famous jingle, receives a wad of cash to shop with. After she gets her magic money, it’s her friend’s turn — she clumsily tries calling for her insurance company and gets teased with “about” $149 less than her State Farm customer friend.

Of course, the tag line reminds us all that, “Having insurance isn’t the same as having State Farm.” That sentiment is unmistakable at the end, when the voiceover tells you that State Farm is there to help you with unexpected savings. The message — that there’s no reason to shop around, and that ordinary insurance companies lure you with rates that aren’t as good as State Farm’s — is as plain as the dollar bill dangling in front of your face.

Once again, watch for the disclaimer that tells you not to pay attention to what the nice young man is saying.

The post Insurance Ads: Trick or Treat? appeared first on The Simple Dollar.

The Simple Dollar - “Nine Strategies for Cultivating a Mindset of Financial Independence”

2014-10-19T01:31:00.001-07:00

The Simple Dollar - “Nine Strategies for Cultivating a Mindset of Financial Independence”

Nine Strategies for Cultivating a Mindset of Financial Independence

Posted: 18 Oct 2014 07:00 AM PDT

As I’ve stated many times, Sarah and I have a central goal of financial independence at the earliest possible age. Financial independence, to us, means that the requirement of money in exchange for our work becomes entirely optional, leaving us to choose options for our work based entirely on our own skills and personal joy. Considering our twenties were disastrous from a financial standpoint, we’re aiming to be able to achieve this goal in our mid-forties or so – a decade down the road, if all goes well.

The biggest challenge of adopting such an enormous goal is that the only way to actually achieve it is to change your mindset. That enormous goal needs to underline how you look at the world and the decisions you make.

That can be a difficult transition. When you commit to saving a major portion of your household income each year, you’re choosing to live in a way that’s likely significantly different than how you were raised and also significantly different than how the vast majority of Americans live.

You have to think a little differently – and the only way to do that is to cultivate a different mindset.

Over the last several years, I’ve spent an awful lot of my time cultivating that mindset – unintentionally at first, and then, eventually, with full intention. I’ve read mountains of books on self-improvement, personal finance, and psychology. In the end, I’ve found a handful of practices that really work well in terms of cultivating that kind of mindset.

Spend Time Thinking About What You Want Most from Your Life as a Whole

Every single day, I spend at least a few minutes thinking about what I want from my life. By that, I don’t just mean the rest of the day or tomorrow or the weekend. I think about things like what my children will tell my grandchildren about me or what might be said in my eulogy or the sum total of people I’ve positively impacted during my time on this earth.

Those are big, weighty things and they can be hard to really think about. So much of our future is shrouded in a mist of uncertainty. We often don’t know exactly what our life will be like tomorrow, let alone in five years or in twenty.

What we can think about are principles. When someone describes you in a single sentence at the end of your life, how will they describe you? When you leave this world, will you have left a positive impact on a lot of lives? How will you achieve those things?

When you spend your time thinking about the short term – today, tomorrow, this weekend – it becomes a lot easier to justify expenses. This weekend might be a lot cooler or better if I bought this item or went on this trip.

When you spend your time thinking about the long term – your big objectives over the rest of your life – those expenses start seeming a lot less meaningful. Does a new dress for the party this weekend really matter very much? What really matters is the relationships you build there – and if those relationships don’t matter, why go?

Spend Additional Time Thinking About How Your Daily Choices Work Toward That Life

Still, I’m human. When I’m already in the mindset of thinking about the big patterns in my life, I can’t help but want to relate them to those short-term things – today, tomorrow, this weekend. Sometimes, they can seem unrelated.

What I try to do is think through things that happened in the last few days and the things I intend to do in the near future with those big ideals in mind. I’m going to the store tomorrow. How will my choices there affect those bigger life goals?

I often walk through interactions I’ve had and have and purchasing decisions I have made and will make while trying to keep those big things in mind. I’ll walk through a social interaction I had. Did I actually cultivate a relationship there? If not, why not? I’ll walk through that upcoming trip to the store. What kinds of foods should I buy for my long-term goals? (Healthy ones, ideally at a low cost.) Should I spend my money on incidental things? (No.)

A lot of people do these kinds of mental walkthroughs – I know I’ve always done it, even when I was little. The difference is that I try to shadow those walkthroughs with my lifelong goals. I don’t think about momentary or short-term pleasures when I’m doing this. I try to think about nothing but the long term and how the situation I’m thinking through helps me with my life goals.

Naturally, I don’t always do everything in terms of the long term, but by thinking through these situations, I make a lot more choices and handle a lot more interactions with the eye toward the long term than I once did.

Learn How to Separate Needs and Wants

The vast, vast majority of things in our lives are wants. Because we’re accustomed to an affluent life, we’ve come to believe that an awful lot of things in our lives are needs because we’ve become so used to having a want fulfilled.

When you step back and look at how many wants are fulfilled in our day-to-day lives, it’s impossible not to feel incredibly blessed.

I really like how Jacob Lund Fisker explains this concept in his book Early Retirement Extreme, which I discussed recently. Here’s what he has to say:

Consider, for example, shelter. Here the list of choices may look like this:

1. Sleeping under open air.
2. Sleeping under a tarp, bascha, or hootchie.
3. Living in a tent.
4. Couch surfing.
5. Living in a shack or a cabin.
6. Living in a ship cabin or a truck cab.
7. Living in a car or a boat.
8. Living in an RV.
9. Sharing a room with other people.
10. Having your own room.
11. Sharing an apartment with other people.
12. Having your own apartment.
13. Sharing a home with other people.
14. …

On this scale there is no demarcation of when a need becomes a want. Each step is slightly different and slightly more expensive than the previous step, with no indication of what the bare minimum is, other than having a place to sleep.

I have family members and friends who have lived at level three and four on this list and they’re perfectly functional, wonderful people. I live somewhere around level seventeen. The difference between the two is just the fulfillment of a lot of wants.

Now, I’m not advocating that people live in tents like hermits. That’s not the point. The point is that if you stop and reflect on your life from this perspective, you begin to see the huge number of wants we have fulfilled on a daily basis and how truly rich and wonderful our lives really are.

I have so much. I have a wonderful big house to live in that is shared only with people I dearly love. Why would I want more? I have a dresser full of well-fitting clothes that look reasonably good on me. Why would I want more? I have more board games that I’ll likely ever be able to play to the point that they’re “boring” or “routine.” The same is probably true for books. I eat amazing meals multiple times a day.

My life is amazing. Why do I need to keep throwing money at more and more and more wants?

Spend some time each day reflecting on all of the things that you have in your life that fulfill wants. Make some lists like that list of housing options. Consider the line where you personally differentiate between “need” and “want” and then reflect on where you find yourself. You have so much.

Whenever I think through this, I begin to realize how much money I spend on pure wants that don’t really add anything significant to my life. If I spend money, it either needs to take care of a basic need, take care of someone else I care about, or extend some core value of my life. If I’m not doing one of those three things, the expense feels pretty empty.

Separate Your Desires from the Desires of Others

The most powerful trick that advertisers and marketers use is that they mess with the line between want and need. They pull in peer pressure, the need for self-actualization, the need for love and to be loved, and many other things and use those to convince us that some thing is a need – or much closer to it than you might have thought. They actively try to alter your desires to match what they want, in other words. This doesn’t just happen in advertisements; it occurs in “news” stories, product placements within other programs, and countless other ways.

In a less pernicious way, the people around you do the same thing. When you see someone else feeling pride or happiness, it’s a normal human reaction to want to feel those things as well. When you see what has triggered those feelings, it’s a normal human reaction to desire whatever it is that triggered those feelings. We want to “keep up” with them. We want to feel good like they do. We may even want to “beat” them in some fashion.

The end result of both of these things is an alteration of our own desires. We suddenly desire something we didn’t desire before. A very minor desire is suddenly amplified into a much bigger one. A nonexistent desire can suddenly bubble into something you must have or must experience.

There are a lot of ways to deal with this and I’m going to mention a few more below, but one very useful strategy is to simply think about your current strong “wants” and ask yourself why you want them. Think about the one or two things you want most right now and ask why you want those items. Then go further – what about that item do you not want? The price tag? Some attribute of the item?

The more you do this, the more you get in tune with what you personally want, separate from others. Often, that list of wants is much smaller, meaning you’re less likely to spend money and time on things that aren’t deeply meaningful to you, and much clearer, meaning the things you do spend money on will have deeper meaning to you.

Research All of Your Purchases

Whenever you make a major purchase – and I define “major” as anything over $20 or so – it’s well worth spending time in advance of the purchase researching that purchase.

No matter what the purchase is, I’ll try to learn more about the specific product I’m buying as well as any significant competitors. I’ll look for multiple comparative reviews that puts the various options side by side and runs them through their paces. Once I’m sure of the one or two or three options I’d be willing to buy, I spend time shopping around for the best price I can find both online and offline.

This can be a rabbit hole of time, of course. I usually break it up over several short sessions. I’ll find some comparative reviews and read them during one session. I’ll find some more during another one. In between, I’ll think about what exactly I want from the item. I’ll then spend a session or two shopping around for that item, often adding it to price-tracking tools like CamelCamelCamel.

Why? If I’m going to spend my money on something, I want to get something worthwhile for that money. I want something I’ll actually use. I want something that will actually last. I want something that is going to provide an excellent experience for the price.

I even advocating researching small, regular purchases. It’s well worth spending some time reading magazines like Consumer Reports and knowing what their “best buy” recommendations are for your common purchases, from paper towels to garbage bags and everything else.

Taking this effort ensures that when you spend money on non-spontaneous stuff, you’re getting good stuff at a good price. This should be a completely natural thing, too.

Take Your Time and Be Patient

It is really, really easy to get impatient in life, today more than ever. With so much information available at a click of the mouse, it’s easy to get frustrated when the answers we want aren’t present immediately. It’s easy to get frustrated when the changes we want don’t happen incredibly quickly.

Financial independence uses a mindset that is almost entirely the opposite of that. Financial independence is all about the long term. It’s about patience. It’s about taking your time. It’s about being willing to move slowly toward something big that really matters instead of moving quickly toward something small that doesn’t matter as much.

There are countless specific practices you can use to improve your patience. Active listening is one. Note-taking is another (and I’ll hit on that one again in a minute). Forcing yourself to slow down is yet another one. Different practices seem to work well for different people.

In the end, your focus should be on doing things well more than doing things quickly. Naturally, that’s not always an option, especially in professional situations, but you should strive to do that again and again at every opportunity in your life.

For example, in conversation, instead of just rushing from your point to your next point, actively listen to the other person and respond to what they’re saying instead of just pushing your ideas out there. It takes longer, but it makes for a better conversation and a much deeper connection.

When you’re repairing a toilet, take the time to make sure everything is well connected and cleaned up well. It takes longer, but the repair will last far longer and the bathroom will look better, too.

When you’re doing the dishes, take the time to load the dishwasher properly. It takes longer, but the dishes will wind up cleaner and you’ll also spend less time later reloading the dishwasher.

Practicing patience in the little things in life like this ends up gradually cultivating patience in other areas of life. As with the other steps in this article, it’s not an immediate transformation, but every step in a more patient direction makes achieving financial independence just a little bit easier.

Educate Yourself Daily

Spend at least a little time each day learning something new about the world on a deeper level than a tweet or a news article. This practice is beneficial in several ways.

One, it teaches you something new about the world. That in itself is a good thing. No matter what you learn, you improve your understanding of the world around you.

Two, it gives you material to draw upon when you’re trying to understand other topics. Our world is interconnected in so many ways. The more you understand about a variety of things in our world, the easier it is to understand other things as they’re presented to you. You can make sense of things much easier.

Three, it forces you to think. To understand a new idea requires you to use your mind in a powerful way. Your mind is like a muscle in that the more you use it, the stronger it becomes. Learning something new is much like a powerful workout at the gym, except that it is your mind that is growing. It becomes much easier to learn other things if you’re familiar with the practice of learning.

Four, it can open up new avenues for earning money. Whenever you learn a new skill or become more proficient in a certain area, you become more likely to be able to capitalize on that skill or knowledge. At the very least, it can help you keep the expense of specialists at bay.

Finally, it can open up new avenues of personal interest. Areas that previously seemed dull can gradually be illuminated and become exciting to you as you learn. I’ve found myself taking on a serious interest in many things that I would have scoffed at earlier on in my life.

Personally, I spend some time each day (usually) reading an article or a section of a book that is either a factual presentation of something I don’t know much about (and would like to know) or presents a perspective on an issue that’s different than what I think or what I’m normally exposed to. I try to take notes on that article or book section as I read because I’ve found that I recall things much better if I write them down with my own hand.

I usually try to spend some time at least a few times a week on learning a new skill. I’ll figure out how to repair something or how to install a level shelf or how to play a musical instrument.

This process enriches my life in many dimensions. I’m much more willing to do things for myself. I’m much more willing to explore the world around me. I’m much more willing to try things outside of my comfort zone. All of those things point in the direction of financial independence.

Maximize Appreciation of the Free Things in Life

For me, this seemed to naturally evolve from some of the other practices on this list, particularly when I took on the practice of learning new things and new skills every day and when I started seriously examining the line between needs and wants and realizing how much bounty my life contained.

It doesn’t cost me a thing to experience the warmth of sun on my neck or the touch of coolness that comes from the breeze.

It doesn’t cost me a thing to go exploring in the woods and finding interesting things, like an ancient graveyard or an old house or a pond.

It doesn’t cost me a thing to do a bunch of bodyweight exercises and feel the endorphins rushing through my system.

It doesn’t cost me a thing to meditate or to pray and lose myself in the power of the moment.

It doesn’t cost me a thing to pull out an old board game from my shelf and play it or to pull out an old book from my shelf and read it. It doesn’t cost me a thing to check out a book from the library, either.

It doesn’t cost me a thing to start a collection of rocks I’ve found or of birds I’ve seen or of geocaches I’ve located or of mushrooms I’ve spotted.

It doesn’t cost me a thing to kiss my wife or hold my youngest son or make my daughter laugh that wonderful laugh that she has.

The more I engage in all of those things, the more I realize how much beauty and depth and joy they contain and how much they bring to my life.

It leaves me wondering why I spend money on so many of the things that I do. And that leaves me spending a lot less money. And that leads, unsurprisingly, to achieving a lot of financial goals.

Build Reinforcing Relationships

When you think about the other elements of this article, ask yourself this: is this how the other people in your life think and behave?

Do the people around you actively listen to you when you talk to them? Do they spend their time trying to learn new things? Are they careful about their purchases? Do they like to engage in things that don’t cost money, whether they’re with you or in other situations?

People like that already have most of the elements of a mindset of financial independence. It’s present from their behavior.

If you wish to cultivate a similar mindset, those are the people you should be spending time with and building a strong relationship with.

Why? The people you spend time with rub off on you. Many of their habits and interests and quirks integrate themselves into your own life. If a friend of yours spends a lot of time on a hobby, chances are that you’ll at the very least be more aware of that hobby. If a friend of yours practices certain daily rituals, the chances are greater that they’ll seem normal and inviting to you as well.

Evaluate the people in your life and see whether or not they are living lives that point toward financial independence and personal growth. When you find people that are, make an extra effort to build a stronger relationship with those people.

Doing so will give you friends who listen, friends who won’t encourage you to spend money on needless things all the time, and friends who will often have valuable insights into all kinds of things in life. Their behavior will rub off, too.

Final Thoughts

Financial independence is most successful when it’s not something you hold at a distance in your life. Instead, it becomes integrated into everything you do, becoming a part of your day-to-day choices even when those choices seem to have little to do with money.

It’s not an on-and-off switch, either. It’s a gradual process. No one should drop all of their friends, change all of their hobbies, and completely alter their time use all at once – that’s not healthy.

Instead, draw on these steps little by little throughout your life. Bookmark this page (or save this email) and look at it regularly. When it comes into your mind, try some of these practices. Be patient with a purchase. Learn something new today… and then again tomorrow. Call up a friend who exhibits some good financial independence traits and invite them over for dinner. Go for a walk in the woods and appreciate the beauty around you.

All of these steps build on themselves and reinforce each other, gradually changing how you see the world.

The post Nine Strategies for Cultivating a Mindset of Financial Independence appeared first on The Simple Dollar.

The Simple Dollar: “Best Free Credit Report Site of 2014” plus 2 more

2014-10-18T01:08:00.001-07:00

The Simple Dollar: “Best Free Credit Report Site of 2014” plus 2 more

Best Free Credit Report Site of 2014
Student Loan Forgiveness Series: Volunteering
The Panic Button

Best Free Credit Report Site of 2014

Posted: 17 Oct 2014 01:00 PM PDT

Credit is a very important part of your adult life, yet it's often neglected by any school curriculum while you're learning the ins and outs of life.

Every U.S. citizen who needs to be extended a line of credit, obtain a job, have a cell phone, and/or rent a dwelling needs to stay on top of their credit. Luckily, there are a lot of different tools out there to obtain free credit reports. You can either sign up for a free trial from a more comprehensive site or sign up with one of the free credit-report sites that don't always offer full reports but do typically provide many helpful credit tools.

The Simple Dollar's Top Picks

Here are the top two free-trial credit report sites:

Here are the top four free credit-report sites:

Free-Trial Credit Report Sites

If you're planning to make a large investment or gain new employment in the near future, you should really consider a credit monitoring and identity theft service from a company like Identity Guard®.

The worst situation would be to have your ducks in a row — save up for a down payment, find your dream home, see your future right in front of you — only to find out you have been denied the loan because you failed to take action monitoring your credit and protecting yourself from identity theft.

According to the Bureau of Justice, "Among (identity theft) victims who had personal information used for fraudulent purposes, 29% spent a month or more resolving problems."

In order to avoid timely resolutions and costly errors, be proactive by monitoring your credit reports regularly. Let's see who’s offering the most extensive monitoring services with a free trial.

Identity Guard®

Identity Guard® is a comprehensive credit monitoring and identity-theft protection service. They offer a 30-day free trial. You can either choose to cancel your subscription prior to the end of your free trial or select from a range of customizable options depending on the level of service you need.

What's included in your free trial:

3 credit scores with 3-bureau credit report updates
Detailed analysis showing what is affecting your credit
3-bureau credit monitoring with prompt email alerts
Unlimited toll-free customer service
$1 million identity theft insurance

Trusted ID®

Trusted ID® is another great resource for monitoring both your credit and protecting yourself from identity theft. Make sure you sign up for the IDEssentials™ plan that includes a 14-day free trial with credit reports from all three major credit reporting agencies, Experian, Equifax, and TransUnion.

What's included in your free trial:

3-bureau Credit Monitoring
3-bureau Credit Report
3-bureau Credit Score
Identity Protection
Unlimited Credit Card, Bank Accounts, SSN scanning
Medical Benefits Protection
Personal Identity Threat Score
Anti-Spyware and Anti-Phishing Protection

Free Credit Report Sites

Free credit report sites are great. However, keep in mind that these are still businesses and their ultimate goal is likely to generate revenue. Sites like Credit Sesame, Credit Karma™, and Quizzle® are all partnered with one of the major credit-reporting agencies.

Two big items to be aware of:

The credit report sites only provide access to the information found on the specific report of the credit reporting agency they're partnered with.
Because they have secure access to your financial information, be aware that you will be pushed products that are tailored to appeal to you and your financial situation.

Also, none of the free credit report sites provide a FICO score, which is used by over 90% of lenders to determine your creditworthiness. If you need to monitor your FICO score, I would suggest signing up with myFICO, which also monitors identity theft.

AnnualCreditReport.com

The Fair Credit Reporting Act (FCRA) ensures that each U.S. resident is able to obtain a free copy of their credit reports every year from each of the three major nationwide credit-reporting companies, Experian, Equifax, and TransUnion. AnnualCreditReport.com is the only website authorized to fill orders for your free annual credit report.

Unless you're paying for a more comprehensive credit-monitoring service like Identity Guard®, which provides monthly reports from all three major credit reporting agencies, you absolutely should take advantage of this opportunity.

You will receive a copy of only the reports, which can be requested for instant delivery online or shipped within 15 days if requested by mail or phone. Getting a credit score comes with a fee.

Credit Sesame

Credit Sesame is exclusively partnered with Experian. They are unique in that they have branched out into the identity theft market and provide up to $50,000 identity-theft insurance and ID restoration assistance. They also are more highly monetized than their counterparts, Credit Karma™ and Quizzle, by tailoring their credit tools to push products more than advice. However, identity theft insurance is a huge bonus from a free service.

With Credit Sesame, you can expect:

Experian credit report alerts
Analysis of credit and loans
$50K identity-theft insurance and ID restoration help
Management of all credits and debts in one place
Convenience of a mobile application

Credit Karma™

Credit Karma™ is exclusively partnered with TransUnion. They are known for their wide range of credit tools, including a credit report card, credit comparison, credit score simulator, calculators, advice columns, etc. Their website is intuitive and user friendly. You will likely see fewer ads than their counterparts, Credit Sesame and Quizzle, but you'll only get a partial one-bureau credit report.

With Credit Karma™, you can expect:

TransUnion credit report alerts
Analysis of credit and loans
Management of all credits and debts in one place
Credit report card
Credit Score Simulator

Quizzle®

Quizzle® is exclusively partnered with Equifax, though they used to partner with Experian. With this new development, now consumers have access to all three major credit bureaus through a free online monitoring service.

Quizzle® is more transparent about the fact that they'll be providing you financial advice tied to products that fit your financial information, and that they're partnered with some big loan companies like Quicken Loans.

They are unique in that they provide a full credit report from credit reporting agency Equifax every six months. Their counterparts, Credit Sesame and Credit Karma™, only provide partial reports from their respective partnered credit-reporting agencies.

With Quizzle®, you can expect:

Equifax credit report every six months
VantageScore updates
A breakdown of each account, including the date it was opened
No purchase or credit card required
Free credit card and home loan recommendations

Free Credit Report Scams

Be leary of companies that have "free credit report" or "free credit score" in their name. As mentioned, only Annualcreditreport.com is authorized to fill orders for your free annual credit reports.

Other websites that claim to offer "free" services often come with strings attached, most of which are an initial free service that comes with a fee after the trial period. If you're being asked to provide any payment information upon signing up for a "free" service, make sure you investigate further.

Those, and a few others, that are listed in the Free Trial Credit Report Site section are very clear about the free portion being a trial period for a potential longer and more comprehensive subscription to credit solutions.

In addition to fees, know that AnnualCreditReport.com and the nationwide credit-reporting companies will not reach out to you to obtain personal information. If you're contacted by anyone claiming to be one of the three major credit-reporting agencies (Experian, Equifax, or TransUnion) or AnnualCreditReport.com, do not provide any of your personal information and make sure to contact the Federal Trade Commission (FTC) at spam@uce.gov.

Why Accessing Your Credit Report Is Important

There is often a misconception that credit is something you own, bestowed upon you along with your Social Security number, a long list of freedoms, and access to free education. The truth is that credit is a product.

We may feel we should have the right to full access and knowledge of accurate credit reports since they are used to determine many of our financial opportunities. The reality of the situation is that credit reporting agencies do the dirty work of continuously compiling up-to-date information on your home address, financial obligations, and payment history. This information is then sold as detailed reports to third parties, such as creditors, employers, and insurers, in order to determine one's creditworthiness.

It is your responsibility to check the information on your credit report to ensure that it is accurate and true.

Who Has Access to My Credit Report?

Don't be afraid your credit report is out there for the taking. The Fair Credit Reporting Act (FCRA) protects you when it comes to who can access your credit reports. You have to give written permission to anyone requesting access to your report including, but not limited to, the following:

Insurance companies to underwrite your insurance
Lenders or credit card agencies when you apply for credit
Employers
Potential landlords

In order for a business to obtain a copy of your credit report, they must have a “permissible purpose,” as defined in section 604 of the Fair Credit Reporting Act (FCRA).

Why Comprehensive Credit Monitoring Might Be Better for You

The Federal Trade Commission (FTC) reported a study to Congress in 2012 concerning the accuracy of information in credit reports, specifically from the three major credit-reporting agencies.

The study concluded that more than one in four people had potential errors on at least one of their credit reports, bringing light to the importance of monitoring all three credit reports.

Do you only look into your checking account once per year? Checking your credit is just as important.

You may be able to access your credit reports more often than just annually, but not under the best circumstances. Under federal law, you have the right to an additional free credit report based on the following:

You are the victim of identity theft.
A company takes adverse action against you, including denying you employment or denying your application for credit and/or insurance.
You are unemployed and will be actively seeking employment within the next 60 days.

By proactively monitoring your credit, you can stay ahead of this list. While employment may not be as much in your control, do not fall victim to being denied a position due to something as simple as your credit score. According to the Society for Human Resources Management, 47% of employers use credit reports when making a hiring decision.

Conclusion

The best thing you can do for yourself and your financial future is to take responsibility and ensure your credit reports are accurate. The amount of money you can save from having the best possible credit score is monumental.

At a minimum, request a copy of your credit reports from each of the three major credit-reporting agencies. If it's in your budget, sign up for one of the credit and identity theft monitoring services like Identity Guard® or Trusted ID® to ensure you're proactively nurturing your credit score. That way, you can aim to pay the least amount of interest on all of your future investments, saving you huge amounts in the long run.

The post Best Free Credit Report Site of 2014 appeared first on The Simple Dollar.

Student Loan Forgiveness Series: Volunteering

Posted: 17 Oct 2014 11:00 AM PDT

Dealing with student loan debt can seem unbearable and overwhelming. As mentioned in the article, 15 Ways To Deal with Student Loan Debt, the average college graduate owes a whopping $40,000 after graduation, but almost 19% owes $50,000 and above and 5.6% owes over $100,000. That’s not the best way to start your financial future.

Maybe in college you worked hard to save money, diligently keeping your student loan debt in mind. Maybe you made some huge financial mistakes during college and ended up taking out much more than you imagined. Whatever road you took to have this student loan debt, now is the time to start planning your exit route.

One idea often thrown around when talking about student loan debt is the option of Student Loan Forgiveness. Student Loan Forgiveness is simply what it sounds like – a portion of your student loan debt gets forgiven, and you no longer owe that set amount of money. Pretty sweet, right?

Many people don't explore this "too good to be true" option since they don't know about it, they don't understand it, or they don't think they'd qualify for such an amazing benefit. That is exactly why I decided to write this Student Loan Forgiveness Series, exploring different ways you can eliminate your student loan debt. First up, volunteering.

Pro and Cons of Volunteering for Student Loan Forgiveness

Before I jump into the actual opportunities, first we need to consider the positive and negative factors of opting to volunteer to help ease or eliminate your student loan debt:

Positives

You can have the opportunity to earn money toward your student loans and, possibly, another small form of income.
Gain a lot of networking opportunities and the chance to meet new people.
If you're having trouble finding a job, volunteering can be a great alternative to continuing to pay your loans and get work experience.
Learn valuable skills that can help with future job opportunities.
Volunteer experience can be a great, unique item to add to your resume to catch a future employer's eye.
Of course, most obviously, volunteering allows you to help people and give back to the world.
Each opportunity comes with its own special set of perks, experiences, and benefits.

Negatives

Many opportunities require a lot of time, some even full time. This can prevent you from earning a full-time salary, which could possibly be the more efficient route to pay your loans.
In most cases, once you sign up, you are committed to completing your service. If you're unable to complete your service for whatever reason, you may be penalized.
Many volunteer opportunities require a lot of passion, time, commitment, hard work, and perseverance. If your heart is really not in it, and you're simply looking to have your loans repaid, it may be a difficult experience for you.

Volunteer Opportunities Offering Help With Student Loan Debt

With that said and done, if you still think volunteering for loan forgiveness is right for you, it's time to explore opportunities. Here are some examples of programs that offer assistance with your student loans for volunteering:

SponsorChange.org

SponsorChange matches skill-based volunteers with nonprofits, while volunteers get assistance paying their student loan debts by sponsors who are willing to donate money. These nonprofits are eager to get the assistance of college-educated volunteers to help with their cause.

Right now, opportunities are limited to certain cities, but it is expected to expand soon. First, create a profile so SponsorChange can match you with a nonprofit that is currently seeking someone with your skill set, experience, education, or passion for their specific cause.

According to the website, each completed project comes with $1,000 toward your student loan debt, which you will get directly deposited to your account.

Besides strangers, your sponsors can also include your family, friends, and coworkers, so encourage them to sign up as well. You can also encourage nonprofits to sign up, especially if you’re already volunteering with one. Nonprofits are required to be a 501(c)(3) Non-Profit Organization or Pending with a well-detailed service project and a defined scope.

Qualifying Loans include:

Stafford loans
Grad PLUS loans
Perkins loans
Consolidation loans
Institutional loans
Private student loans

For more information, visit their website.

Zerobound

Zerobound is somewhat similar to SponsorChange. The organization connects volunteers with sponsors and organizations that are in need of assistance. Besides doing good and helping the community, volunteers are rewarded by getting any funds raised deposited toward their student loan debt.

As a graduate, you first determine an amount you would like to raise over a specific period of time. Then, recruit donors to give toward your fundraising goals while Zerobound also recruits sponsors. Once your project is complete, the funds you raised are given to your student loan company. You'll also create a profile with your story and volunteer experience to inspire people to donate to your efforts.

Like SponsorChange, they also allow you to recruit your own "sponsors," including family, friends, coworkers, and whoever else you spread the news to.

You don't need to pay taxes on the money you raised from your sponsors, as they are considered gifts. However, you may be subject tax by any company sponsors.

Zerobound takes a 2.9% processing fee and a $0.30 transaction fee on all transactions. Then, there's a 5% service fee on all funds raised for successful campaigns and an 8% fee if volunteers don't reach their goal.

Also keep in mind they have eligibility requirements for organizations. Right now, they allow community organizations, nonprofit organizations, and government agencies.

For more information, visit their website.

AmeriCorps

AmeriCorps connects volunteers with nonprofits, public agencies, community groups, faith-based groups, and schools across the country.

According to Finaid.org, if you volunteer with AmeriCorps for 12 months, you can receive a $7,400 stipend plus $4,725 to be used toward your student loans. However, that specific amount, known as the Segal AmeriCorps Education Award, varies from year to year and is based on the current U.S. Department of Education's Pell Grant amount.

This amount is not only eligible for existing student loans, but it can also be applied for future college expenses as well. You're also able to split it up. For example, if you wanted, you could apply half of your award to your current student-loan debt. The other portion can be used for graduate school as long as you're using it prior to its expiration.

AmeriCorps can also assist with student loans by the possibility of deferring them during your service and even possibly getting the interest paid.

Be sure to apply for this award prior to your service to ensure you qualify.

Other benefits can include training, a living allowance, and health insurance.

Qualifying Loans include:

Stafford loans
Federal Consolidation loans
Perkins loans
William D. Ford Direct loans
Supplemental loans for students
Primary Care loans
Nursing Student loans
Health Education Assistance loans
State agency loans

For more information, visit their website.

Volunteers In Service to America (VISTA)

With AmeriCorp's Volunteers In Service to America, or VISTA, you'll be working with private, nonprofit groups that are working towards eliminating illiteracy, poverty, homelessness, and hunger.

You'll need to make a year-long, full-time commitment to serve with a specific organization in some of "our nation's poorest urban and rural areas." According to NationalService.gov, volunteers work on the organizational, administrative, and financial capacity of organizations as opposed to directly tutoring children or literally building homes. Some examples include organizing shelter and job opportunities for victims of disasters, expanding programs to help low-income families obtain health insurance, and setting up transitional housing for the homeless hoping to turn their lives around.

Like AmeriCorps, you'll then be eligible for the Segal AmeriCorps Education Award after completion of your service. According to FinAid.org, you'll receive $4,725 for 1,700 hours of service, but again, that number changes based on the current U.S. Department of Education's Pell Grant amount.

During that time, you'll receive also receive a "modest" living allowance and health benefits.

For more information, visit their website.

Peace Corps

Peace Corps members volunteer in more than 70 developing countries. Opportunities range from teaching conversational English to teaching AIDS prevention: Some of the opportunities include:

Education (a variety of teaching opportunities including primary-, secondary-, and university-level teaching and developing libraries or technology resource centers)
Youth in Development (developing sporting programs for kids, HIV/AIDS education, gender awareness, and employability skills)
Health (teaching nutrition, basic hygiene, water sanitation, and HIV/AIDS education)
Community Economic Development (working with business owners and entrepreneurs to develop and market their products or teach basic computer skills to communities and e-commerce)
Agriculture (work with small-scale farmers to increase food security and introduce farmers to new techniques)
Environment (teach environmental awareness in elementary and secondary schools along with other environmental education opportunities)

Once you complete your service, you may be eligible for partial loan forgiveness under the Public Service Loan Forgiveness (PSLF). However, the only student loans eligible for this forgiveness plan are ones that were received under the William D. Ford Federal Direct Loan Program (Direct Loan). Other loans may be eligible for PSLF if you consolidate them into a Direct Consolidation Loan. Be sure to speak with a recruiter to understand the specifics prior to enrolling.

To be eligible for this forgiveness program, you'll still need to make qualifying payments under a specific repayment plan during your service. However, this also includes income-driven repayment plans and, since you won't be earning much in the Peace Corps, this monthly payment can be very low, even zero.

You may also be eligible for partial cancellation of a Perkins loan depending on your loan lender. According to FinAid.org, that cancellation can be up to 15% of your Perkins loan for each year of service with the Peace Corps.

Other student loan benefits with the Peace Corps can include temporary deferment of Stafford, Perkins, and Consolidation loans during your service.

Other perks include an allowance of $7,425 upon completion of service, full medical and dental coverage, a monthly living and housing allowance, 48 paid vacation days, travel to and from country of service, and language and cross-cultural training.

For more information on the Peace Corps, visit their website.

Things to Keep in Mind for Any Student Loan Forgiveness

Once you think you have the chance to get a portion of your student loans forgiven, it can be quite tempting to instantly sign up. But before you apply and especially before you sign a contact, you need to thoroughly understand how you will receive this loan reimbursement and what you'll be doing to get this. Here is what you need to know:

Understand the terms of service. Many loan-forgiveness opportunities require a certain amount of hours or years of service. Keep in mind that terms and rules change all the time, so always confirm the most up-to-date information.
Know the requirements. Some programs require you to still make payments for a specific amount of time or may have income caps on eligibility.
Be certain your loans qualify. Certain types of loan are only permitted, as well as when you took them out or how you used these loans.
Compare the benefits of these programs. How much will you be forgiven? How much will your salary be? If the loan forgiveness program forces you to take a lower salary than you could have gotten elsewhere or move to an area that has higher rent and cost of living, it might not be the best option for you.
Get confirmation prior to service. Learn what you need to do prior to signing up. Some forgiveness programs require you to apply for the forgiveness benefit prior to the service. You also need to check with your loan provider to verify that the stipulations align with their policies. Will they except this payment?
Don't jump right in. This is a big commitment. Do your research, and learn all the ins and outs of the programs and rules and regulations. Many times, if you interrupt service, you may have to pay back any money already paid toward your loans.

The post Student Loan Forgiveness Series: Volunteering appeared first on The Simple Dollar.

The Panic Button

Posted: 17 Oct 2014 07:00 AM PDT

On September 18, the S&P 500 closed the day at 2,011.36. As of my writing, the S&P 500 sits at 1,864.84. In other words, the S&P 500 has lost 7.3% of its value in less than a month.

Let’s put that in dollars and cents.

Let’s say that on September 18, I had $100,000 in my retirement account invested in a stock mutual fund that’s made up of something very similar to the S&P 500. This is pretty typical for people who are saving hard for their retirement.

Right now, that investment is only worth $92,715.38. $7,284.62 has vanished into thin air.

If you had $500,000 invested on September 18, $36,423.12 has vanished since then.

That kind of quick drop is scary to a lot of people. It’s not altogether different than the feeling you get when you’re riding a roller coaster and you start to drop off of a tall hill. It can make you feel a bit queasy if you think about it too much.

In the last few days, I’ve received a couple of messages from worried readers who have watched their retirement savings drop so quickly and have asked me if they should be doing anything.

My answer? No.

Here’s why.

Stock Investments Are Long-Term Investments

First of all, as an individual investor, you shouldn’t have much money in stocks if you’re not investing for the long term. By long term, I mean ten years at a minimum. If you plan on using money before the ten year mark, it shouldn’t be invested in stocks.

Why is that? The biggest reason is that stocks are volatile. Over the short term – say, a year – stocks can gain a lot or lose a lot. If you’re invested broadly in the stock market (as most people are, in a mutual fund), you can have years where your investment goes up by 25% or drops by 40% (as in 2008). It’s really hard to predict which of those two it will be.

I like to use the typical person’s diet as an example of volatility. On some days, you’ll eat a big unhealthy meal or two and your calorie count for that day is really high. On other days, you’ll eat a small healthy breakfast, skip lunch, and eat a simple homemade dinner – your calorie count is really low that day. It’s volatile. Over the long term, though, the average is usually pretty sensible – but that doesn’t mean that every day or every week will be perfect.

That’s why you shouldn’t measure the success of your dietary choices based on your weight after one day or one week. Instead, you should look at a lot of measurements over a long period of time and the trend matters more than anything. A few measurements, particularly ones placed close together, aren’t too relevant.

The stock market is just like that. In the short term, stocks might dip – imagine your weight the morning after you eat low-sodium foods and drop some water weight – or they might shoot up – imagine your weight the evening after you eat two or three really heavy meals. Over the long run, though, they’ll average out to their long term trend, just like your weight.

Stocks Go Up Over the Long Term

Take a look at this chart. It shows the history of the S&P 500 since 1960. What you’ll notice is that, over that time frame, stock values are constantly going up (with some significant wobble).

How about this chart? Here, you can see the Dow Jones Industrial Average since 1900 – that’s more than 110 years of data. Imagine that – it looks an awful lot like the other chart, featuring a pretty constant upward trend (with some significant wobble).

Warren Buffett states that it’s realistic to expect a 7% average return from the stock market over the long haul.

What’s the point here? Stocks go up over the long term. As long as most Americans work – and they do – and as long as worker productivity keeps going up – and it does, practically like clockwork – companies will produce more and become more valuable, causing their stocks to inevitably rise in value over the long term.

Short-Term Dips Are Normal

Whenever people start selling off stocks, the price drops. That makes sense. If lots of people are selling, that means there are more sellers than buyers and thus in order to sell, the sellers have to drop that selling price. It’s no different than items that don’t sell at the store – eventually the price drops and they go on “clearance,” right?

There are all kinds of reasons for people to sell. Maybe the person needs cash for retirement. Maybe they’re just shifting their investments around. Sometimes, people sell because they see other people selling.

Eventually, though, someone is going to buy. Remember, stocks hold their value because of the future of those companies. If that company looks healthy for the next several years and is paying out dividends, that stock is going to always have at least some value. As the price drops, it’s eventually going to become a bargain.

When that happens, a lot of buyers come out of the woodwork to get that bargain. You can think of a stock market dip as being like a mild version of a Black Friday sale. People see bargains on those stocks, so they open up their wallets and buy.

This is why stock market dips always end and start rebounding. Eventually, the people who are selling run out of things to sell and the people buying “bargains” increases in number.

This type of “dip” happens very regularly. There are tiny dips on a daily basis. There are bigger dips – up to 10% of the value of the market – that happen over the course of a few weeks almost yearly. Every decade or so, there’s an even bigger dip – 20% or 30% or 40%.

At the end of those dips – every time in the history of American business – things rebound and the value goes back up to where it was before and beyond.

If You Sell Now, You’ll Lose Money (Unless You’re Insanely Lucky)

The only reason to sell stocks is either when you actually need the money or when your timeframe is getting short enough that you want your money in something less volatile.

If you try to “guess” the right time to sell to make a profit, you’re going to run into several factors that work against you every time.

First, you’re going to get hit with a tax bill on that sale. This is always true, but if you’re selling with the intent of buying later, some of the proceeds from your sale are going to vanish into Uncle Sam’s coffers, meaning you’re not going to be able to buy as much as you once have. (This doesn’t matter in a 401(k) because all of the taxes are deferred – as long as you keep the money in the account, you can buy and sell individual investments as you please.)

Second, you’re likely to miss out on some dividends. If you have your money out of the market for three months, you’re going to miss out on a dividend payment. If you’re out for a year, you’re going to miss out on several. That’s money you won’t receive.

Third, you’re probably missing the “top” of the market. That’s because you’re not psychic. No one is. If you sell right now, you already missed out on a hefty chunk of the drop.

Fourth, you’ll probably miss the “bottom” of the market when you buy back in. Again, that’s because you’re not psychic. No one is. Unless you guess perfectly, you’ll probably miss at least some of the rebound from the true bottom.

Finally, you may incur brokerage fees on both the “sell” and the “buy.” When you sell off your stocks, your brokerage will probably ding you with a fee. The same will likely happen whenever you buy back in. This also eats into whatever you gain.

In other words, if you time things perfectly and hit both the “top” and the “bottom” at the right moment, you might come out ahead – but you won’t come out as ahead as you thought. If you miss either the “top” (for selling) or the “bottom” (for buying), you’re running a healthy risk of losing money on the move.

Again, only sell stocks when you’re either cashing out for good or you’re moving to something with different volatility and long-term risk for good.

Just Sit Tight

It’s completely normal to worry a little when your stocks drop. The thing you should resist is the desire to make a move. If you do make a move, it’s very likely that you’re going to lose money compared to just sitting still and riding out the drop.

So just sit tight and don’t make a panicked move. You’ll be glad you did.

The post The Panic Button appeared first on The Simple Dollar.

The Simple Dollar: “How to Find the Best Mortgage Rates in 2014” plus 2 more

2014-10-17T01:39:00.001-07:00

The Simple Dollar: “How to Find the Best Mortgage Rates in 2014” plus 2 more

How to Find the Best Mortgage Rates in 2014
The Missing Ingredient for Change
How to Curb the Rising Costs of Parenting

How to Find the Best Mortgage Rates in 2014

Posted: 16 Oct 2014 11:00 AM PDT

Even after the subprime mortgage crisis, homeownership remains a dream for many Americans. If you’re among them, you're probably wondering how you can get the best mortgage rate to keep your payments as low as possible.

Securing the best mortgage isn’t simply about finding a lender who offers you the best rate. You also need to work with a lender who will guide you through the complex process with ease and treats you with respect. This makes finding the best mortgage a little bit tougher than finding, say, the best credit card or savings account.

Mortgage Rate Comparisons

Of course, you’ll need a starting point. The table below gives you a quick snapshot of mortgage rates in your state. You can choose your loan amount, loan type, and whether you're purchasing or refinancing your home to get rolling.

Current Rate Climate

If you've been watching mortgage rates in 2014, you've probably noticed a recent dip. While current numbers don't match the historically low rates of 2012 and the first half of 2013, they're still nothing to sneeze at.

As 2014 draws to a close, the best rates on a conventional 30-year mortgage are hovering just under 4%.

If you're in the market for a mortgage, is it time to act? Experts say yes. Several predict the average rate will gradually climb to 5% by the end of 2015; others foresee a more dramatic rise to 6%. Bottom line? It might be a good time to nab a deal.

Finding the Best Mortgage Rate

If you're ready to get going in your search for the best mortgage rate, here are four tips that will ease your search. If you're unsure of the type of mortgage you'll need, make sure you read my summary of the different kinds of mortgages further down in this post.

Tip #1: Shop around

When you find the home of your dreams, chances are your real-estate agent will direct you to certain preferred lenders that he or she has worked with before. Take that recommendation with a grain of salt. Remember your agent's primary concern might be to close your deal quickly, but securing a mortgage is a complicated process, particularly if you're a first-time buyer. Speed isn't everything.

Whether you want to keep your business with a local lender or are considering working with a big-name company, be sure to look at rates online so you don't get taken for a ride. Our search tool can help you find the best mortgage rates to aid your search.

Tip #2: Polish your credit score

Keeping your credit in top shape is paramount, especially if you're applying for a conventional loan. The higher your score, the better your interest rate and the more loan choices you'll have.

For example, according to the rate calculator at myFICO, I could pay as little as $1,393 a month on a $300,000 home loan in Ohio with a credit score higher than 760. My interest rate would be a hair under 3.8%. With a score of about 680, I'd be paying $1,462 a month at an interest rate of about 4.2%. And with a score of 620, I could be paying as much as $1,678 a month at an interest rate of almost 5.4%. With the lower credit score, I'd be paying $102,778 more in interest over the life of the loan.

Tip #3: Beef up your down payment

It can be painful to save enough for a down payment, but paying more up front can help you nab a better interest rate and save you money as you pay down your loan. It may also save you the cost of mortgage insurance, which many lenders will charge if you have a lower-than-normal down payment.

If I put the recommended 20% down, or $40,000, on a $200,000 home in Tennessee, I'd pay as little as $764 a month in mortgage payments, according to this Bank of America calculator. This assumes a 4% interest rate, solid credit, and a fixed 30-year loan. If I could scrape together $25,000, I'd suddenly be paying $835 a month. And then there's almost $80 a month in mortgage insurance, which I'd have to pay since I couldn't put 20% down. That brings my monthly payments to $915.

Tip #4: Consider how long you'll be in your house

If you know you'll be in your home for a relatively short time before selling, looking at adjustable-rate mortgages can make more sense. That's because you can take advantage of the ARM's low initial interest rates, then sell the home before your rate begins to reset. Of course, this assumes you can and will sell your home within a certain time frame -- and that's an assumption not all home buyers want to make.

If ARMs seem like too much of a risk to you, look seriously at a shorter-term fixed rate mortgage. Your monthly payments will be larger, but you will nab a much lower interest rate. Ultimately, you'll pay much less over the life of the loan with the added bonus of building equity much faster.

Finding a Lender You Can Trust

Taking out a mortgage can be a time-consuming, confusing, and even emotional process. For that reason, we encourage you to look beyond getting the best mortgage rates when choosing your lender. The top mortgage lenders will not only give you a competitive rate, but make the process as seamless as possible. Here are a few tips that can help you find the best mortgage companies.

Tip #1: Do your homework online

Harness the power of the Internet to give you a wider perspective than you can gain from family and friends. You can find reviews of the best (and worst) companies with just a few clicks. As with all online reviews, remember to consider trends. A few very bad (or very good) reviews may be an anomaly, while dozens of good or bad reviews probably get you closer to the truth.

A particularly good place to look is J.D. Power and Associates' annual mortgage lender customer-satisfaction survey. The 2013 survey, based on the experiences of more than 3,000 customers, found Quicken Loans had the most satisfied customers, followed by BB&T and U.S. Bank. Criteria included how satisfied customers were with application and approval; whether the closing process was relatively quick; and whether the lending agent was reliable and easy to understand.

Tip #2: Ask friends and family

Local lenders may not have as many online reviews, so asking around can be crucial. Again, blindly following your real-estate agent's recommendation may not always be your best bet. Conduct a quick survey of your family and friends, especially if they've recently purchased or refinanced a home. Ask whether they felt they understood the lending process, whether their agent was prompt and courteous, and whether they feel they got the best rate they could.

Tip #3: Take note of how you're initially treated

If you call a lender for information and don't receive it quickly, consider that a red flag. Similarly, any lender who is unwilling or unable to clearly answer your questions -- or acts like it's a pain to do so -- will probably be less than pleasant to deal with further down the line. Your mortgage might be the biggest financial transaction of your life, and you should feel comfortable with your lender.

Common Types of Mortgages

Obtaining a mortgage doesn't always mean you'll be coughing up 20% down and forking over the same payment for 30 years. Take a look at today's most common types of mortgage so you understand what's the best for you.

Fixed-rate mortgages

A fixed-rate mortgage is by far the most common type of home loan. It's also the easiest to understand. Though the proportion of principal versus interest on your bill will change over the course of the loan, you still pay the same amount every month. Your interest rate is locked in when you close on the loan, so you aren't vulnerable to sudden increases in interest rates.

Of course, while you aren't vulnerable to interest-rate increases, you'll lose out if rates decline -- you'll be stuck paying that higher rate. It can also be harder to qualify for a fixed-rate mortgage if your credit score is less than stellar, particularly if interest rates are high. Down payments are typically high, too, with most lenders requiring 20% of the loan to avoid pricey mortgage insurance.

Fixed-rate mortgages are most often offered for 10-, 15- or 30-year terms, with the latter being the most popular choice. Longer terms generally mean lower payments, but they also mean it will take longer to build equity in your home. You'll also pay more interest over the life of the loan.

Adjustable-rate mortgages (ARMs)

ARMs make home-buying more accessible for more people. Typically, they offer lower down payments, lower initial interest rates, and lower initial payments, making it easier for a wider range of people to qualify for better homes. The interest rate remains constant for a certain period of time -- generally, the shorter the period, the better the rate -- then rises and falls periodically according to a financial index.

The main downside is obvious: If your ARM begins to adjust when interest rates are climbing, your escalating payments could start to squeeze your budget. It can also make annual budgeting tricky, and if you want to refinance with a fixed-rate loan, the cost can be quite steep. Ultimately, with an ARM, you're accepting some of the risk that your mortgage lender would absorb with a fixed-rate loan.

There are several kinds of ARMs. One-year ARMs offer the lowest rates, but they're also the riskiest because your interest rate adjusts every year. At slightly higher rates, hybrid ARMs offer a longer initial fixed-rate period. Common hybrid loans include 5/1 mortgages, which offer a fixed rate for five years and then and an annually adjustable rate for the next 25 years.

FHA and VA loans

FHA and VA loans are government-backed mortgages. FHA loans require much smaller down payments than their conventional counterparts. In fact, you may qualify for an FHA loan with as little as 3.5% down. They may also be available to those with less-than-perfect credit. However, you'll likely be on the hook for mortgage insurance each month in order to help the lender blunt some of the risk.

VA loans are also available with low (or even no) down-payment options, minus the mortgage insurance required on FHA loans. However, the VA typically charges a one-time funding fee that varies according to down payment. You must have a military affiliation to get a loan -- active-duty members, veterans, guard members, reservists, and certain spouses may qualify.

Interest-only mortgages

Technically, interest-only mortgages are a type of ARM. These mortgages are compelling because they allow home buyers to pay only interest for a certain period at the beginning of the loan, keeping payments as low as possible. They can be a good choice for someone who expects a significant increase in income down the pike.

Of course, once the interest-only payment period is up, your payment will jump significantly with this type of loan. That's likely to be the case regardless of the interest rate when you begin to pay the principal of the loan, too.

Balloon mortgages

Balloon mortgages offer low, fixed interest rates for a short term -- typically five to 10 years. In fact, you may only pay the interest on the loan for that term. The catch? The remainder of the loan, likely a very significant sum, is due when the term is up.

Starting Your Search

Remember, you'll need a good understanding of the best type of loan for you as well as prevailing mortgage rates. And be sure to pick a lender with a reputation for good customer service. Ready to begin? Get started by using our online search tool to find the best mortgage rates in your area.

The post How to Find the Best Mortgage Rates in 2014 appeared first on The Simple Dollar.

The Missing Ingredient for Change

Posted: 16 Oct 2014 07:00 AM PDT

I’ve had a lot of successes in changing my life for the better. Over the course of approximately five and a half years, Sarah and I managed to pay off three student loans, three car loans, four nearly-maxed-out credit cards, and a full home mortgage, moving ourselves from financial disaster to complete debt freedom. I essentially built a new career for myself out of whole cloth, too, practically making my own job up along the way. I switched from a meat-heavy diet to a vegetarian diet (with rare fish consumption).

At the same time, I’ve had a ton of failures along the way. I’ve failed at many of my personal fitness goals. I’ve failed repeatedly to write a novel that I felt was publishable. I’ve failed in countless other things, too.

When I look back at my own successes and failures, I can’t help but ask myself what the difference is between the successes and failures. Why did I succeed at some things and fail at other things?

I tried hard to remove outside influences from the list and break it down to just my own personal choices because, after all, that’s what really matters when it comes to personal change. People may help, but in the end, it is you who is responsible for doing the things that need to be done to succeed and it’s you who also chooses to avoid those things… and subsequently fail.

In the end, I realized that every major change in my life boils down to four ingredients. If all four of those things are present, I tend to succeed – at least, I succeed as far as the things I can personally control. If even one of those things fails to be present, the change that I dream of almost always fails.

The tricky part is that you can’t simply create all of these elements. Some of them have to grow and build themselves up over time. Others are habits that have to become completely natural within you.

In the end, whenever you fail at change, one of these four ingredients is missing. It’s a pattern that’s repeated over and over again in my own life and in the lives of people close to me, too.

Motivation

Do you have a sufficiently good reason for this change? Why are you trying to make this change happen? Without this kind of strong internal motivation, I have never succeeded at changing my life. External motivation – a coach or a friend or a spouse – has never pushed me to any sort of lasting change, either.

Usually, the kind of strong motivation that works for me consists of two parts.

First, there’s a long period where I sense that change is needed and I’m thinking about it, but not ready to commit. During my financial change, the idea that change was needed floated in my head for at least a year before I actually began to make that change.

Second, there’s a powerful moment that moves that thought into action. I’ve had various trigger moments in my life and the biggest thing they’ve all had in common is that they launched from some kind of personal failure where I had simultaneously let myself down and let others down. I wrote at length about the powerful moment that triggered my own financial change.

With my career shift to writing, I had always enjoyed writing but had never taken it seriously until 2006, when someone told me that something I had written had profoundly affected their life in a very positive way. That moment made me want to do that again and again and again – it became my motivation and that motivation still rings true through almost everything I write for The Simple Dollar and elsewhere.

When most people struggle with change, they have the first half of motivation – lots of thinking about change – without the second half – a key moment that pushes that change. My suggestion is to try to find that key moment that triggers change. For example, you might schedule a full physical with your doctor and get all of your health numbers checked. Ask your loved ones what you do that lets them down. Look at your financial state and ask where you’ll be in a few years if you don’t change things around. Those kinds of experiences can create key motivational moments.

What about external motivation? Some people thrive on coaching. I find that most of my external motivation comes from having friends who are moving in a similar direction in life as compared to my own direction. Normal conversations with them become a great external motivator for consistent change.

Without real motivation, I find it hard to take more than a step or two toward real change in my life. I find the work that needs to be done to be purposeless compared to the other things I could be doing with that time, so I either never start at all or only take the most feeble steps toward change.

Self-Control

Self-control simply means the ability to control oneself, in particular one’s emotions and desires or the expression of them in one’s behavior, especially in difficult situations. When the going gets tough, can you continue to make good choices?

For me, the key to self-control is mindfulness. Most of my self-control mistakes occur when I’m not being mindful at all. I do a lot of things to cultivate my ability to focus in the moment – meditation helps, as does periods of daily reflection on my decisions and mistakes of the day.

A while back, I wrote an article outlining ten strategies you can use to cultivate mindfulness. Here they are, in summary:

1. Face the fact that you mess up sometimes. We’re all human. We all mess up.

2. Think about specific situations outside of their normal context. Replay challenging situations in your head later on in the day when you’re in different company and in a different location and the emotions aren’t fresh.

3. Keep a journal. Use it to record things you’re grateful for. You can also use it to aid in reflecting on life situations that you’re unsure about.

4. When you’re unsure about something, research it. Very few things in life need to be addressed right now. Take the time to research them.

5. Put yourself in the other person's shoes. Ask yourself how you would like to be treated. Consider how that person is feeling and how their problems might be altering their behavior.

6. Don't put yourself in decision-making situations when you're not thinking well. If you’re emotionally out of whack, exceptionally tired, or simply not feeling well, don’t allow yourself to make decisions of even the slightest importance.

7. Get adequate sleep. If you’re consistently feeling tired during the day, you need more consistent sleep. Try going to sleep earlier or consulting a doctor if you can’t get adequate sleep.

8. Understand what you really value. Often, people aren’t motivated by the things that they think they’re supposed to care about. Think about the things you really do care about and use them in your life.

9. Let yourself wander when it's safe. No one can be mindful all the time. Let your guard down in situations where you’re not actively making decisions so that you can be more mindful in other situations.

10. Never forget that the perfect is the enemy of the good. You will make mistakes. That’s okay. The goal is to do better than before, not to be perfect.

I also find it incredibly useful to define two or three key missions for the day. I do this at the start of the day and then refer to them regularly throughout the day. When I’m trying to cultivate change in my life, I make sure that one of those key missions is related to making that change happen. Doing this keeps those missions fresh in my mind throughout the day and this pierces through instances where my self-control might be weak.

Another useful method of reinforcing self control is to eliminate temptation and distraction. If you’re trying to control unnecessary spending, cut up your credit cards and delete your credit card number from websites. If you’re trying to control unhealthy eating, keep unhealthy foods out of your home.

Yet another useful strategy is to ask friends and family for help. Ask them to remind you if you’re about to make a bad choice. The big key here is to be thankful when your friends step in and stop you or else they won’t help you after the first time.

This is the area of the four that I’m the strongest at, but I’m not always perfect. I’m usually undone by brief periods of poor self-control, like when I decide to buy something on the spur of the moment or when I choose to eat a quick but unhealthy snack.

Without self-control, I constantly undo my positive steps. If I have the other elements, I can make lots of positive steps. For example, I’ll enthusiastically make and eat a really healthy meal. When self-control fails me, I’ll sneak in an unhealthy snack a few hours later. If self-control isn’t an ingredient, then it’s one step forward and one step back, no matter what the goal.

A Clear Goal

A clear goal is a vital element for creating change in your life. It provides direction. It clues you in to the things that you need to be doing. It gives you something to focus on.

A clear goal contains three key elements, all of which need to be present if you want a useful goal.

One, the goal’s success and failure is entirely in your hands. It does not rely on outside factors or things outside of your control. For example, rather than committing to losing X pounds in a year, you should instead commit to 30 minutes of exercise per day or eating less than 600 calories each day before dinner. Those are things you can control – the exact poundage of your weight loss isn’t. Another example: rather than committing to writing a novel, commit to writing 500 words per day. You can’t control whether or not you actually complete a novel, as you might find your writing path doesn’t pan out. However, if you commit to writing each day, you’ll eventually complete something.

My primary goal when bringing about personal finance change was simply to reduce my spending month over month (excluding true emergencies), starting off with a month where we lived pretty tightly. This pushed me to start keeping better track of every cent, then it pushed me to focus on restricting my spending in key areas. I worked on cutting back my hobby spending first, then my food spending once my hobby spending became much more reasonable.

Two, the goal is challenging but achievable. A good goal pushes you, but it doesn’t push you off of a cliff. For example, an exercise goal might encourage you to exercise today, but it doesn’t tell you to run wind sprints for 30 minutes on your first day of exercise and it also doesn’t tell you that ten jumping jacks is sufficient either.

My primary goal when building my new writing career was to simply write a certain word count every single day. I divided it into a number of short articles, which became the foundation for The Simple Dollar. It was a challenging threshold – at the time, it was 1,500 words a day outside of my normal job – but it was achievable if I committed my time and my energy to writing.

Three, the goal itself immediately describes the action you can take today to move forward. “I want to lose weight” tells you nothing about what you need to do today. “My goal is to exercise for 30 minutes each day” tells you that. “My goal is to eat 600 calories or less before dinner” tells you that.

Those two successful goals both pointed to specific actions that I could achieve in the next month. The first goal said “cut your spending.” The second one said “write something today.” The goals boiled down to those kinds of actions that I could literally take at any time. There wasn’t any doubt about what I actually needed to do.

Every time I’ve had a clear goal that’s clicked in my life, it’s involved all three of these elements. It’s also left me in a position where I have some leeway to plan some sort of action each day, but the goal almost demanded daily action. I had a lot of flexibility in terms of the path, but there was always some basic threshold pushing me forward.

I’ve also found that goals sometimes evolve over time. You might start off with a clear goal, but then find that it’s somehow not right for you. Perhaps it’s introducing a requirement into your life that just isn’t realistic. Maybe it’s not pushing you hard enough. You may find yourself revising your goals, particularly in the first month or two of your change. That’s okay.

Without a clear goal, I’ll get frustrated that I’m not really moving forward or achieving anything and give up out of pure frustration. I need that clear goal to provide not only a sense of direction, but also a sense of accomplishment as I’m moving forward. An unclear goal – one that uses metrics that are outside of my control or one that doesn’t use any metrics at all – is practically as useless as no goal at all.

Persistence

Persistence means the long-term continuation of something. When you’re looking at change in your life, persistence means that you stick with that change over a long period of time.

For me, persistence is what’s needed to bridge the gap between a good short-term change to a lifelong change. It usually happens between the one month and the six month threshold; if I can persist through the six month mark, the change usually becomes automatic for me.

Persistence is deeply connected to the emotional cycle of change that I’ve written about before. In that article, I outlined the five key stages of how we react to change:

Stage 1: Uninformed optimism.
Stage 2: Informed pessimism.
Stage 3: Hopeful realism.
Stage 4: Informed optimism.
Stage 5: Completion.

I find that the other three elements of change – self-control, motivation, and a clear goal – are enough to get through the first stage without any problems. It’s that second stage – informed pessimism – that absolutely requires persistence. Without it, a person simply can’t make it through that period of informed pessimism.

For me, there are several key tools that help with maximizing persistence.

The single most valuable tool – and the one I’d recommend to everyone – is spending time to find the intrinsic joy in whatever change I’m cultivating. I spend time looking specifically for all of the things I actually like about the changes I’m making. Do I feel better on a daily basis? Do I feel good when I’m productive? What types of exercise make me feel joyful rather than exhausted and unhappy? I make an effort to seek out elements that bring me joy and I spend time thinking about those elements, reinforcing the “good” in the change I’m trying to make.

Hand in hand with that, I’ll think about what will happen if I revert from this change. What will my life be like if I throw away this change? In six months, I might be poorer. I might be heavier. I might be in worse shape and less able to keep up with my kids. I will be very unhappy with that outcome.

Another strategy I really like is the Seinfeld “chain.” The idea here is that you choose a specific action that you commit to doing every single day, then you print off a year-long wall calendar. Each day, when you compete that single action, you mark off that date on your calendar with a big black X. As you start marking off consecutive days, you’ll find that a “chain” of Xs starts to grow and, on some level, you’ll really want to avoid breaking that chain. It becomes its own little persistence motivator.

Without persistence, my life changes start faltering after a month or two. I’ll give up on exercise routines or dietary changes at that point because I begin to really see the challenges more clearly than before. I get focused on the negative aspects of the change and without persistence, it becomes so easy to just turn away from that change and go back to old routines.

Final Thoughts

Motivation. Self-control. Persistence. A clear goal.

Those are the key elements to lasting change in one’s life.

They’re like four legs on a stool. If all four legs are present, you can stand upon that stool and reach for new heights. Take away just one of those legs and it quickly becomes nearly impossible to achieve your dreams.

Over and over again, in my own life and in the lives of others, I’ve seen life change happen when all four elements were present. Over and over again, I’ve seen life change fail because one (or more) of those elements were missing.

If you want to change your life, start by working on these four elements. Make sure they’re present in your life. If you find that one of them is weak, focus on what you can do to strengthen that element.

Eventually, you will be able to stand upon the sturdy stool of success, supported by those four pillars of change.

I’ve done it. So can you.

The post The Missing Ingredient for Change appeared first on The Simple Dollar.

How to Curb the Rising Costs of Parenting

Posted: 16 Oct 2014 05:00 AM PDT

Food is a big family expense, but one that can easily be trimmed. Photo: US Army Corps of Engineers Europe

Parenting is the most difficult yet rewarding job I’ve ever had in my life. It definitely hasn’t been easy on my pockets, either. And apparently, I’m not alone in my experiences.

According to a recent report released by the U.S. Department of Agriculture, the average cost to raise a child born in 2013 will be $245,300. That’s the equivalent of a decent home in my area. Here’s a detailed breakdown of the expense categories:

Housing and Transportation: $107,970
Food: $39,060
Clothing and Miscellaneous Expenses: $33,780
Health Care: $20,130
Child Care and Education: $44,400

Obviously, the amount you spend will depend on your area of residence and lifestyle, but there are ways to cut costs across the board.

Housing

Unfortunately, there aren't a ton of ways to slash housing expenses for your children. However, there are two options worth considering:

1. Downsizing or relocating

This is easier said than done, especially if you're locked into a mortgage on a property where the home value has taken a hit. Unless you can unload the home for the equivalent of what you owe, the costs of downsizing will definitely outweigh the benefits.

On the other hand, renters have more flexibility. Moving into a smaller (and cheaper) home or relocating to a less expensive area could save hundreds of dollars per month. But be sure to consider moving costs, your commute to and from work, and the quality of education at the school your child will be attending. You may discover it's worth it to just bite the bullet and find other areas of your budget that could use a little trimming.

2. Shared rooms

If you're running out of room but can’t or don’t want to pay a premium for a bigger home, try having the kids bunk together. You'll erase the costs associated with an extra room and they'll have more bonding time. (However, this could be a painful process if they're older and used to having their own space.) If you have small children, start now. They'll enjoy each other's company at nighttime when all the lights go dim and you're ready to shut down for the day.

A year or so ago, we had to decide whether to relocate or make do with the space we had. Being that we’re both frugal, the latter was definitely the more favorable option. So, I decided to pair up the boys and use the extra room for an office, and it worked out well for our household. The boys look forward to the late-night chats in their room and, most importantly, stay out of my hair in the wee hours of the morning.

Food

This is without a doubt one of the biggest expenses in our home. Here are a few tips I've learned over the years to slash the grocery bill in half:

1. Shop wisely

As a busy mom, I understand that your time is precious and you may not have hours to spare during the week to hunt down coupons and travel from store to store cashing them in. And honestly, I don't either. However, that doesn't mean you have to empty out your wallet on each grocery trip. Instead, pick one or two grocers and stick to them. Once you've narrowed down your options:

Set a budget. This amount should be realistic, but not too excessive. Remember, the goal is to save money.
Grab a copy of their weekly circular. You'll want to spend a few minutes flipping through the pages and circling the items that stand out.
Highlight items you'd like to have that are within your budget.
Create a meal plan from your selections.
If time permits, do a quick Google search or visit The Krazy Coupon Lady or Coupons.com and print out coupons that apply.

Tada! You have a complete grocery list for the week that's within your budget.

Once you arrive at the store, don't give in to the urge to grab additional items that aren't on the list. If you forgot to add something, check the bottom racks first.

2. Shop on Wednesday evening

Most stores begin their weekly sales on Wednesday, so the shelves are full of sale items. You may luck out and convince the cashier to honor the prior week's promotions, too.

3. Try generics

But test the products out first before you go overboard and stock up the pantry or deep freezer. We used to spend a fortune on Froot Loops until we switched over to the generic brand. To my surprise, the children actually enjoyed Fruit Spins much more. The cereal was much crunchier, tasted better, and came in $2.00 cheaper than I was used to paying.

4. Avoid pre-portioned items

If you pack your children's lunch, it's easy to grab a fruit or veggie cup, throw it in the lunch box, and go on about your day. These items come at a premium to help the manufacturer absorb packaging and distribution costs, so buy fresh and do the slicing and dicing on your own. Plus, you'll skip all the unhealthy preservatives.

5. Feed the children before you go

Assuming you take them with you on grocery trips, the last thing you need is their appetites going into overdrive while parading up and down the food aisles. Fail to heed my warning and you’ll end up spending way more than you initially bargained for.

6. Leftovers

Why spend countless hours in the kitchen preparing a scrumptious meal for your family only to end up tossing out what remains? Instead, prepare enough to last your family for the next day's lunch and maybe even dinner. You'll cut costs and save yourself a little time laboring over the stove the following day.

For your children's lunch, try heating up the food and placing it in a thermos immediately before they depart in the morning. If lunch is in the first few hours of the day, the meal will still be warm and fit for consumption.

7. Think outside the 'grocery box'

Have you ever considered purchasing pricier perishables, such as meat, veggies and produce, from an alternative source outside of the nearest grocery store? It's definitely worth a shot. In fact, I'm addicted to local produce stands and meat markets; it's a great feeling to know I'm supporting local farmers and fisherman and saving a ton of money while doing so. Plus, my children love bananas, so at 35 cents per pound — versus the 69 cents I'm accustomed to paying at the grocery store — the visits are definitely worthwhile.

8. Handle your food with care

You should treat your food like your most prized possession. Handle it with care. Refrain from leaving leftovers on the stove or countertop overnight, store perishables in air-tight containers, don't store meats in the fridge for an extended period of time, butter cheese to prevent mold… the list goes on. In other words, use common sense and follow instructions found on the packaging to prevent wasting the food you paid good money for.

9. Follow the golden rules of dining out

So you've decided to treat your family to a nice meal out on the town, but you don't want to spend a fortune. Understood. A few suggestions:

Select water as the main beverage. It's much cheaper and healthier. I have no desire to spend $2.50 for a cup of apple juice for my toddler when I can get an entire bottle for the same price.
Look for kids-eat-free nights. Every Tuesday, the local Texas Roadhouse has free dining for kids and, of course, I'm on the mailing list just in case I need a reminder.

Clothing

Whether it's for a special occasion or recital, children will always need clothing. (And babies will need a little extra underneath it all in the form of diapers). In case you didn't notice during back-to-school shopping, apparel and footwear prices have catapulted through the roof. The days of affordable sneakers and matching short/pant sets at low prices are over. A few tips to cut costs:

1. Save on diapers

I know I spoke against it earlier, but coupons were a lifesaver during the diapering phase. It's not as time-consuming as you may think if it's all your searching for.

Another suggestion: Explore your options. If your child's bottom isn't sensitive, try switching to a more cost-efficient brand, such as Luvs, to give your wallet a break.

2. Don't buy unless it's on clearance

Easier said than done, right? Well, not necessarily. I didn't grow up in a household surrounded by money trees; my parents worked hard for every dollar they earned, and it was not uncommon for my mother to proudly parade in the store and make a beeline for the clearance rack. So, this is second-nature for me. If it's not on clearance, I don’t buy it.

3. Buy off-season

Is it snowing outside? If so, it's a great opportunity to stock up on summer clothing and vice-versa. Don't wait until the demand is high; buy the items no one else wants and your pockets will thank you. And definitely don't wait until the last minute to rack up on weather-appropriate clothing or you'll be among the multitude of other parents who also procrastinated.

4. Thrift shop

If your children are older, they may have a serious problem wearing secondhand clothing. But if they give you a guilt trip, remember that you’re the one coughing up the dough. Be on the lookout for dollar days and irresistible buy-one-get-one-free sales. If you're lucky, you could easily save 50% or more on designer labels.

Health Care

You never know with children; a few sniffles could turn out to be a nasty virus that lingers for days on end and wreaks havoc on your pockets in the form of medical bills. So you definitely don't want to skimp on health care coverage. But the costs sometimes outweigh the benefits. Here are a few ways to soften the blow:

1. Ask questions!

When in doubt, ask questions. And never make assumptions; I did and it resulted in a $400 bill for a 20-minute speech evaluation.

2. Urgent care

I recently spent hundreds of dollars on an ER visit that could have only cost me a $50 copay had I given urgent care a shot. Reasoning: They had all the proper equipment on hand and it would have been a package deal. (I called my insurance provider after the fact to confirm.)

3. Generic prescriptions

I'm no physician, so consult with your primary care provider or pharmacist to see what options may be available to you. I've saved up to 75% buying generic drugs for my children in the past.

4. Dental schools

Struggling with exorbitant dental bills? Give the local dental school a try. You'll receive thorough care from a trained and well-supervised student at a fraction of the cost.

5. Other affordable options

Check with your local health department to inquire about options that may be available to you outside of the plans offered at your place of employment.

Child Care and Education

Depending on your area of residence, it may be best to enroll your child in private care, so I'll let you make the judgment call on that one. But here are a few tips to reduce steep daycare costs:

1. Private care

Going this route saved over $100 per week when my children were infants.

2. Workplace facilities

The price may be comparable to that of standard facilities, but it's much more convenient.

3. Income-based programs

Check with your local child readiness program to learn more.

4. Ask relatives

Is grandma sitting around waiting for something to do? Here's the perfect opportunity to occupy her time in a meaningful way.

5. Stay at home

If the cost of care is equivalent to your income, is it really worth sending your child to daycare? Plus, there are a number of perks to being a stay-at-home parent.

6. Share a nanny

But be sure to iron out the details beforehand. You can also use Care.com to narrow down your options.

7. Use your FSA

The IRS allows you to contribute $2,500 (single) or $5,000 (married filing jointly) of your pretax income to a flexible spending account, which can be used to cover eligible child care expenses. By paying with pretax dollars, you’ll in essence be receiving a sizable discount. But if you don't use the money, you lose it, so plan wisely.

All the other extras

Until there's more wiggle room in your budget, the extras need to be put on hold. I'm not encouraging you to deprive your children of extracurricular activities, educational tools, or the latest gadgets, but make purchases within reason. If two sports leagues have identical registration fees, but one requires substantially less travel than the other, go with the more cost-efficient option.

By implementing a combination of these tips, even parents should experience some relief in their wallets.

The post How to Curb the Rising Costs of Parenting appeared first on The Simple Dollar.

The Simple Dollar: “The Best Retirement Plans and 401k Rollovers are Online” plus 19 more

2014-10-16T01:21:00.000-07:00

The Simple Dollar: “The Best Retirement Plans and 401k Rollovers are Online” plus 19 more

The Best Retirement Plans and 401k Rollovers are Online
Some Thoughts on Extreme Cheapskates
Protecting Your Business From Natural Disasters
Best Gas Credit Cards of 2014
College Internship Guide
Nine Financial Questions to Discuss When Your First Child Is on the Way
Are You Guilty of Financial Infidelity?
How to Find the Best CD Rates in 2014
Questions on Golf, Price Books, Magazines, Cast Iron, and More!
Cash Flow vs. Capital Gains Investing: The Two Investing Paths
Small Business Insurance Basics
Best Credit Report Site of 2014
Hacking Six Normal Life Routines to Save Time and Money
How Do The Rich Pay Lower Taxes? And How Can You Do It?
Books With Impact: Voluntary Simplicity
Student Loan Forgiveness: Move to a Place that Pays Your Loans
Saving Money in Your Startup
How to Get Cheap Car Insurance in 2014
Emergency Funds on the Path to Financial Independence
Separating Obamacare Facts From Fiction

The Best Retirement Plans and 401k Rollovers are Online

Posted: 15 Oct 2014 01:00 PM PDT

I'm on a quest to find the best retirement plan to roll over my old 401(k). Since millions of other people are in this same boat, and don't know where to turn for sound advice, I figured I would conduct the most thorough research I could — publicly — then put my money where my mouth is. At the end of my research I will literally roll over my old 401(k) worth approximately $85,000 to the best plan and company I can find!

A Bit of Background

I'm 33, have two kids under the age of three, and a wife who also has a full-time job. Because my plate is full both at home and at work, I have been desperately searching for the easiest and cheapest way to manage my passive long-term stock and bond investments. I want no hassles and no extra hidden costs.

After leaving a previous job six years ago, the money in my 401(k) account has just been sitting with my old employer collecting dust. I've never met with a representative of the 401(k) plan to discuss my options or my optimal asset allocation to cover the next 30 years until I need the money in retirement. No one contacts me, and I don't know who I would even contact if I had a question. I am, like millions of other 401(k) holders, adrift with no set direction.

I know from my days working in the finance industry that the less I touch my plan, the better. Overthinking my long-term assets has usually done more harm than good. It also needs to be cheap because, once I have a basic strategy in place, there really isn't any required maintenance to the plan for a long, long time.

Staking My Retirement on Online Financial Advisers

In my research for the best retirement plans, I stumbled upon online financial advisers (OFA) like Betterment, Wealthfront, FutureAdvisor, Personal Capital and others. Even online discount brokers like E*Trade: Build your own portfolio are getting in the mix. These services use software algorithms to simplify passive investing and automate many of the value-added tasks we pay money managers a pretty penny to execute. This creates easy plans you can follow at the cheapest possible price.

Since looking into these services, I've become so convinced that this is the wave of the future that I'm staking my retirement on it. This is the first in a series of posts where I will investigate how these automated online retirement services are driving down costs for Main Street investors.

At the end of this series, I will literally roll over my $85,000 401(k) to one of the online services I feel is the best fit for me!

Why? Because I believe the current financial services compensation model is broken. The financial services model as it exists today is not aligned with your average Main Street investor. The current system utilizes high-cost funds and high-cost management account fees that add complexity and fall short on value. The financial services industry model is ripe for disruption and competition.

In the posts to follow, I will discuss how the current financial fee structure is broken, compare different OFA options, and discuss why you should think about using these services in the future.

Passive vs. Active Investing

According to Investopedia, passive investing is: "An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance."

For most people, passive investing comprises three main actions:

Buy and hold for the long term
Diversified asset allocation among a variety of asset classes
Rebalancing and re-evaluation

Active management, in contrast, involves frequent trading to try and maximize return and beat a benchmark like the S&P 500. Most mutual funds as they exist today are actively managed. For regular investors, this option is expensive and rarely returns above a passive benchmark. Virtually every study ever done has shown there is no correlation between high fees for active management and high returns. The additional transactions add to your overall costs, and any additional return above a benchmark is typically washed out by the increased fees on average.

The argument for passive investing isn't new. Burt Malkiel championed this in A Random Walk Down Wall Street as early as 1973. There is no correlation between fees and high returns, so why should you pay them? The easiest and simplest way to invest is passively through low-cost vehicles. This not only saves you money, but also saves you lots of time and headaches.

Problems With the Current Active Financial Incentive Model

I briefly worked in the investment management business straight out of college, but I quickly became aware of the broken incentive structure above. There are two main issues.

Problem #1: Fee Structure

According to Morningstar, a rating service, the average managed stock fund charges 1.33% per year in management fees, but also, as studies have shown, rarely returns more than the market averages. In addition to this fee, you may pay a "sales commission" of close to 5% to your financial adviser. So you start out 5% in the hole.

On the other hand, low-cost ETFs that hold a basket of stocks that simply replicate the performance of the broader market have drastically lower fees. For example, the average ETF expense ratio at Vanguard, a leader in low-fee funds, is 0.14% with no sales fee.

This Atlantic article does a great job of laying out how the fee difference can add up to six figures over a lifetime of savings. In their example, which uses slightly different numbers than the ones I provided, this could be a difference of $257,000!

Clearly, there is a problem with how the typical investor pays for financial services and the actual value delivered. More specifically:

If passive investing is the best strategy for the majority of long-term investors, the big question is: Shouldn't investing then be as cheap as possible? The answer is, unequivocally, yes.

Problem #2: Incentive Structure Is Not Aligned

A typical financial adviser is paid for gathering assets, NOT for generating return for you.

When your holdings go up in value, your adviser earns a miniscule extra amount, but when he brings on new money to manage from someone else, he gets paid significantly more. The risk to him when your assets lose value is small.

Call me naive, but when I learned that I could make more money by pursuing new clients to the detriment of my current clients, I quit so I can trade financial instruments on my own in Chicago. By trading, my interests and my clients' interests were aligned – I didn't get paid if I lost someone money. Here, I could still be connected to the markets, and my income was a direct result of the return I generated for the company. I would do well if I made money, but if I didn't then I'd be fired quickly. This is completely at odds with the current financial services model.

A good financial adviser, and there are scores of them out there, takes the time to work you through asset allocation decisions and can get you in the right investment vehicles. These services are well worth a price. I am not arguing that financial advisers shouldn't be paid. But herein lies the problem. Because financial advisers get paid more for getting more people to place their assets with them, they are incentivized to get many, many clients to whom they cannot allocate enough time. Once your main assets are uncovered, there is actually an incentive to spend the least amount of time with you as possible.

If most of the value a financial adviser creates is with education and account selection, then why should commission fees be tied to how much money you have with the adviser?

How Online Financial Advisers Work for You

At the heart of online financial advising is the basic idea that you should keep more of your money. By using low-cost ETFs, and by using software to "automate" tasks, like rebalancing, that your human financial adviser performs, the cost associated with managing your account is driven way, way down.

An Example Using Betterment

For example, Betterment is an online financial adviser that is growing very quickly. According to recent numbers, ETF expense ratios inside a Betterment portfolio range between 0.05% and 0.36%. So, on average, 0.155% of your assets are going to cover the expenses of the fund rather than 1.33% which, according to Morningstar, is the average for managed mutual funds. That figure is in addition to whatever fee the OFA charges to manage your funds.

Now, you could simply open an account at almost any online discount broker and enjoy these modest expense ratios if you 1) know what ETFs you should choose, 2) know how to diversify, 3) know how to effectively rebalance your portfolio, and 4) understand tax loss harvesting.

However, if you do not know how to do any of these four things, here is where online financial advisers such as Wealthfront and others truly shine. These services can:

Educate you on your investment options
Guide you to the optimal portfolio given your risk tolerance
Automatically rebalance your portfolio to keep your optimal mix of assets
Automatically take strategic losses that can offset your taxable income

On a portfolio of my size, for these added services, which are transparent and aligned with my interests and goals, Betterment charges a 0.25% fee per year.

Recap the OFA math

According to CNN, the average 401(k) balance in the U.S. is $89,000. Using this figure and other data uncovered in this post, we can see the difference in cost from just one year of investing.

Remember, OFAs charge a stated rate, and you are paying fees inside the ETF also. Managed funds have this issue as well, but those fees are significantly higher. So the comparison should look like this:

	Combined Fees	Applied Balance	Total Cost
Betterment	0.455%	$89,000	$404.95
Avg. Managed Fund	1.33%	$89,000	$1,183.70

In the combined fees column I am adding Betterment's 0.25% fee to the average ETF fee that I calculated earlier of 0.155%.

Now ask yourself: How often do I talk to my 401(k) adviser? Is it enough to justify an extra $778.75 per year? I think not.

Wealthfront, Betterment, Future Advisor: The Online Financial Adviser Landscape

At this point, I hope I've made a strong case for you to at least consider how online financial advisers (OFAs) can help you keep more of your money and, quite honestly, more of your time too. In the next few weeks, I will be deciding which OFA to roll over my $85,000 401(k) into. But first, we need to understand the OFA landscape and what our options are. Here is how I see the landscape segmented out. I will give an in-depth review of each service in the following weeks before making my decision.

True Automated Accounts

In order for an online financial adviser to be "truly" automated, the service must be able to hold and manage your assets. This means you create an account with the service, place your money there, and the service enacts several programs to manage your account. This includes ETF selection for diversification, portfolio rebalancing, and tax loss harvesting. With this type of service, you do not have to do anything with your account if you don't want to.

For my research, the top three services I will investigate are:

Wealthfront. I am most familiar with this service mainly because they are the quickest advisory service EVER to reach $1 billion in assets under management. This includes household names like E*Trade, Charles Schwab, Merrill Lynch, and other well-known financial firms. Wealthfront is also working with some high-profile clients like NFL teams.

Fee structure: 0.25%. First $10,000 is managed for free.

Betterment. Like Wealthfront, Betterment uses modern portfolio theory to guide its asset allocation recommendations. They also have automated services that balance your portfolio and maximize your tax efficiency. The main difference on the surface seems to be their fee structure.

Fee structure: Three tiers based on account balance: 0.35% for less than $10,000 with a $100 per month direct deposit; 0.25% over $10,000; and 0.15% over $100,000.

This means that as your balance grows, you have the chance to pay less in percentage fees – very appealing.

FutureAdvisor. Right now, I know less about this service. From their site, it looks like they offer much of the same in this category, mainly rebalancing and tax efficiency. However, the fees are double at 0.5%. Hopefully, I'll uncover some hidden gems that make this service worth the higher price! I can't wait to find out.

Fee Structure: 0.5% of assets.

Do-It-Yourself Software

Do-it-yourself services are software that make recommendations based on many of the same principles as the truly automated services, but you have to implement the trades yourself with DIY. There are a few ways to do this but, for a general idea, imagine you have your own brokerage account and you use a separate software program that reads what your asset allocation is and makes recommendations. You then take the time to implement them or ignore them.

E*Trade: Build your own portfolio. E*Trade's approach gives you the choice as to how much help and control you want with your portfolio. It's not quite a hybrid because I don't think they offer human contact, but you can choose to 1) build your own portfolio, 2) choose an E*Trade portfolio, or 3) choose to have E*Trade actively manage your account.

Fee structure: You pay E*Trade's low commissions on trades within the portfolio.

Marketriders. Marketriders seems interesting because it can work with a variety of brokerage accounts. It recommends low-cost ETFs just like the fully automated ones, but it can work with any brokerage account.

Fee structure: 0.2% of assets.

SigFig. SigFig is similar to Marketriders in terms of recommending a low-cost, tax-efficient portfolio and managing it for you but, as far as I can tell, it only works with TD Ameritrade, Schwab, or Fidelity.

Fee structure: $10/month with no commissions or other trading fees.

Hybrid Automation With Personal Contact

Hybrid services might offer the best of both worlds: low-cost automation, but with the ability to contact a human adviser to answer questions. We shall see.

Personal Capital. Personal Capital seems like "Mint.com for rich people" because it aggregates and displays your financial information much like Mint does with your bank account and spending info. I believe this is a free service. You can then analyze your investments and have Personal Capital manage them for you. Their fees are higher and they seem to cater to high net-worth individuals, but they do offer human interaction.

This could be a good choice if it addresses some of the shortcomings that I experience with Mint.com — but those fees!

Fee structure: 0.89% up to the first $1 million; 0.79% up to the first $3 million; 0.69% on the next $2 million; 0.59% on the next $5 million; and 0.49% on assets over $10 million.

Vanguard Personal Advisor Service. Vanguard is the leader in low-cost ETF investing. In fact, their funds are often used by fully automated services like Wealthfront. Vanguard's Personal Advisor Service uses their low-cost funds to save you money and offers simple tools to figure out your goals and optimal asset mix. You can then partner with an adviser to plan for life changes or to change your allocations.

Fee structure: 0.3% of assets.

The Online Financial Advisor Challenge

I'm very excited to dig into all of these companies to see which one fits best with my long-term objectives. I view myself as a pretty regular guy who has similar work, family, savings, and spending challenges as a good swath of the country. I'm sick of paying too much for things that don't deliver on value, so I can't wait to see how these value-added services stack up. My gut tells me this is the future of long-term investing.

We'll see who gets to manage my old 401(k) money. Let the games begin!

The post The Best Retirement Plans and 401k Rollovers are Online appeared first on The Simple Dollar.

Some Thoughts on Extreme Cheapskates

Posted: 15 Oct 2014 07:00 AM PDT

Extreme Cheapskates is a “reality” television series that airs on TLC that just entered its third season. Over the last two years, the show has launched a new season in October and, as with the previous two Octobers, I’ve been asked a few questions about my take on the show.

First of all, I’m not a regular viewer of “reality” television shows – or of most television shows, for that matter. While I do watch a few series, most evenings, I’m working on personal projects or reading a book. It’s just a personal preference; many of my family and friends are avid television viewers. I just get more personal enjoyment and fulfillment out of reading a book or playing a game with friends than I get out of watching a television program most of the time.

Still, given the encouragement of a few readers, I watched a number of episodes from the first three seasons of Extreme Cheapskates with a notebook and a pen on my lap. As I watched, a few key thoughts came to me.

The Line That Shouldn’t Be Crossed

All of us have certain lines of personal behavior that we feel it is wrong to cross. Many people consider it distasteful to dive in dumpsters for food. Some consider it completely inappropriate to haggle, while others consider it completely fine. Some consider it inappropriate to wear highly worn undergarments, while others are completely okay with wearing them into rags. I could list hundreds of these kinds of “lines” that some people will cross and some people won’t.

This show, rather than focusing on frugality, focuses instead on these “lines.” It’s pretty clear from watching even one episode that they follow the people around and film them in situations where they cross those social “lines” in order to save a buck. They present the “extreme cheapskates” without comment, then rely on our own reactions to those people crossing social “lines” for the entertainment factor.

I saw many behaviors that I object to. In one episode, a mother served some food to their children that I probably would have tossed out, but that’s because I have some strong views on sanitary food practices. I won’t serve my family food that I’m not strongly convinced about.

At the same time, I saw quite a few behaviors that were presented as though they should be “shocking,” but I basically shrugged my shoulders. In one scene, a person bragged about not having purchased new underwear since the late 1990s. I’m not going to see this person’s underwear. That person may have bought very sturdy underwear that lasts for a long time. If I had underwear from 1998 that held up without holes to today, I’d be very happy with that underwear. They had a long lifetime and I got a lot of value out of them. I toss out clothing based on whether it’s worn out, not based on purchase date.

All of these things – and many others – come down to our own personal views on propriety and personal behavior. Rather than just reveling in the shock value, it’s often useful to think about why we’re shocked. Is there really something wrong going on here? Or are we shocked because this person is just doing things in a different way than we have always done things?

The Social Factor

One big issue I saw over and over again was the social factor. It may have simply been the episodes that I watched – and the editing may have been a factor, too – but I couldn’t help but notice that many of the people presented lived fairly solitary lifestyles. They occasionally see family or have friends over, but most of their time is spent at home by themselves or just with the other residents of the home.

On the occasions when social events occurred, it wasn’t hard to notice that the people around them often reacted in a negative fashion toward their behavior. For example, one person invited two friends over for dinner, served them food that had been retrieved from the Dumpster, and then proceeded to brag about this at the dinner table. One of those friends tried to use the bathroom and, instead of finding toilet paper, found a plastic bottle that the friend was expected to use as some kind of manual bidet.

This was the one aspect of the show that made me seriously uncomfortable.

When a friend comes into my home, I think it’s completely reasonable for them to expect that my restroom will provide them what they need to clean themselves to the standards of what they might find in a public restroom, for the most part. I also think it’s reasonable for them to believe that the food I’m serving them is of at least reasonable enough quality that there isn’t a significant chance that they will get ill from the consumption.

Such steps have nothing to do with my own values and how I treat myself. They have to do with respecting others and treating them well.

Serving partially-rotted dumpster items and leaving out no toilet paper and a water bottle “bidet,” in the social standards of America, does not constitute treating your guests with respect. The vast majority of people in that situation would assume that the host was either attempting to harm them or was insulting them in some fashion and the event would cause harm to the relationship.

I know that if I were a guest at someone’s home and I was treated in that fashion, I would probably make a similar assumption unless I knew that person extremely well and was aware of other reasons for such treatment (such as mental illness). Without a caveat like that, I would likely assume the person did not want me around and would minimize the friendship.

I get an incredible amount of value from my social network. I get companionship and camaraderie. I get help when I need it – emotionally, financially, professionally, spiritually. I get tons of useful advice.

The least I can do in response to this bounty that my friends give to me is to meet basic social norms when they visit my home. That means having a clean bathroom with toilet paper and soap. That means serving food that’s healthy. That means not having any obvious health hazards present.

It becomes prohibitively difficult to maintain a strong social network if you pursue this kind of extreme… cheapness. Because of that, you’re denying yourself the many valuable elements that come from having a healthy social life.

Why Are You Cheap?

In the end, this show left me asking one question about me and my own frugal choices, as well as the spending choices of the people on the show.

Why?

Why be cheap? What is the reason behind being cheap? What is gained by choosing not to spend money?

When I sit down and think about my overarching goal of financial independence, I can pretty easily put that into perspective compared to the value of having a healthy meal on the table for my kids or for my friends, or having a clean and reasonably sanitary bathroom for them to use when they visit. Those things are more important to me than financial independence.

At the same time, there are a lot of things less important to me than financial independence. Name brands, for instance. Unless I know the name brand will function better in a vital way, I just don’t care.

I know why I’m sometimes cheap. It’s because, compared to the other things in my life, those things that I’m cheap about are less important.

When I see people on this show and how they handle different aspects of their life, it becomes clear that their financial goals are far more important to them than virtually any other aspect of their life. They’re quite happy to significantly raise the risk of illness, alienate friends, and many other things in order to push toward their financial goals.

This show is a window into a different set of priorities and how people live with those priorities.

Final Thoughts

TLC’s formula for shows like this is pretty clear: show unusual behavior without comment and let the crossing of social “norms” provide the entertainment factor. Shows like Hoarders follow the same exact style.

While watching Extreme Cheapskates, I could feel that method at work. I saw people crossing lines that would make me uncomfortable, particularly in social situations. At the same time, I saw people who were obviously deeply committed to ideas and ideals that they held dear. It takes a lot of courage to be different and make choices that are outside of social norms.

My feeling on the show overall is a simple one, and it’s pretty simple to one of the core ideas behind The Simple Dollar.

You should always feel completely free to make challenging choices in your own life, provided that the impact of those choices are mostly limited to yourself. Most of the things I saw fell into that category – people choosing things for themselves that didn’t really affect anyone else in any real fashion. To those people who keep their choices in that category, I say more power to you!

Where I start to get uncomfortable is when those choices do start to affect other people, like when you feed your children substandard food or when you invite guests into your home and do the same. At that point, your personal choices are starting to affect others in a negative way… and that’s where I start to have serious misgivings.

Never forget the Golden Rule: treat others as you would like to be treated.

In the end, I actually enjoyed Extreme Cheapskates more than I suspected I would, not as a source for frugal tips, but as a window into different value structures and the different priorities people place on things in their lives. It was hard at times to resist the urge to judge, but when I managed to do that, the show was more thoughtful than I expected.

The post Some Thoughts on Extreme Cheapskates appeared first on The Simple Dollar.

Protecting Your Business From Natural Disasters

Posted: 15 Oct 2014 05:00 AM PDT

Hurricanes and earthquakes can wreak havoc on your business, but too many owners overlook these risks.

Running a business is fraught with challenges that must be addressed on a daily basis, ranging from personnel and payroll to competition and cash flow. Most business owners recognize the need to insulate themselves from risks, both internal and external. After all, hazards abound, whether they’re the result of honest errors on the part of the business or third-party negligence. Each of these risks are usually protected against by insurance, such as business property coverage or errors and omissions insurance.

But there is another class of risks that are too often overlooked and even more frequently uninsured: natural disasters. Hurricanes, flooding, and earthquakes are sources of potential catastrophe. They are present in nearly every corner of the continent, and every year they cause billions of dollars in related losses for hundreds of thousands of businesses.

Businesses that are unprepared when disaster strikes are often forced into bankruptcy because they are unable to absorb the loss. A common reason many business owners don’t have the right insurance in place is that they don’t understand their vulnerability.

Risk Assessment

A risk assessment can help you protect your business against all potential threats — in particular, those less frequent but nonetheless devastating natural disasters that strike without warning.

Employing a shotgun approach and insuring against everything is not a smart practice. A sound assessment starts with considering which natural disasters your business is vulnerable to and protecting against them. For example, carrying earthquake insurance for a Florida business is as impractical as having hurricane insurance in Idaho.

Knowing which risks are more likely to affect your business is more obvious in some cases than others. These include heightened threat of hurricanes in the Southeast and along the Gulf Coast, or well-known risks like West Coast earthquakes.

Less frequent dangers can be even more devastating. During Hurricane Sandy, businesses all the way up the eastern seaboard, including those hundreds of miles inland, learned the hard way how vulnerable they were. The lesson — learned too late for some — was that “infrequent” is not the same as “impossible.”

There are some places in the United States that are nearly free from the risk natural disaster. Unfortunately, they are also among the most sparsely populated regions of the county. Most every place else is in danger from one or more natural disaster risks. They include some surprises, such as the danger of a major 5.0 or higher earthquake in the Charleston, S.C., area. In 1886 Charleston experienced one of the strongest quakes in U.S. history, and the area averages 10 tremblers a year.

Here are several types of disaster-related risks, and how to insure your business against them.

Business Interruption Insurance

Business interruption insurance pays for lost income that is the result of an insured peril. That means if your business suffers physical damage from a fire and you are unable to operate you will be paid for the lost income.

Under ordinary circumstances business interruption insurance is a straightforward proposition. Everyday threats like fire, theft, water and smoke are insured. However, when it comes to natural disasters, not having a clear understanding of what is covered can result in a costly lesson.

There are two important factors to consider when it comes to business interruption insurance. The first is: Does your policy cover the natural disasters you are most at risk from?

For example, if your business is located near a geological fault line, will your policy pay in the event of an earthquake? Chances are that it won’t. Earthquakes are a common exclusion, so if one occurs, you may not be protected from loss of income. When you review your policies, you can request an endorsement be added.

The second factor concerns what happens when your business survives a natural disaster unscathed, but access to the business is cut off.

For example, if your business is located on higher ground in a flood-prone area, it may not be damaged during a flood — but the lower roads leading to it could become impassable, leaving you effectively unable to operate. Most business interruption policies do not cover this type of loss of revenue, even for covered perils. Optional protection for these types of scenarios can be added through an endorsement only if you are aware of the risk and make the request.

Hurricanes

Of all of the natural disasters, hurricanes are the most misunderstood when it comes to what insurance covers. That’s because some, but not all, of the damage caused by hurricanes is protected by your business property insurance.

It’s important to understand that a hurricane is a large cyclonic storm with winds in excess of 74 mph that is usually accompanied by heavy rain. The reason you should understand the definition is that some business property policies specifically exclude hurricanes. This is more common in hurricane-prone states such as Florida. The exclusion means that any damage that occurs during a hurricane is not insured.

While this is a common practice along the Gulf Coast, it can happen in lower-risk locales like the Northeast. Policies in non-coastal states that may still be at some risk may also have the exclusion. If you find hurricanes are excluded from your policy, you should be able to add coverage with a policy endorsement. As with all added endorsements, this will cause your premium to increase.

There are times when a hurricane endorsement is not an option with your insurance company. You can then consider other insurers or purchase a separate, standalone hurricane policy.

Policies that do include coverage for hurricanes only cover damages that are a direct result of the hurricane itself. That means only damage that is from either the wind or rain acting directly on your business. That distinction means direct wind damage is covered if, for example, your roof blows off. Damage caused by wind blown objects such as a garbage can that flies through your window are also covered.

Damage from hurricane-associated rain is insured, as long as the damage occurs before the rain hits the ground. That means you are insured against damage from rain that enters your business through a hole in the roof or through broken windows that are a result of the wind.

However, as far as your policy is concerned, not all damage caused by a hurricane is considered hurricane damage. Once the torrential rain hits the ground, it’s considered flood water, and any damage that occurs from flood water is not covered by standard business policies.

The same goes for streams and rivers that overrun their banks during a hurricane, or levies and dams that are overtopped. Water driven by hurricane winds, such as tidal surges, are not covered, even though the water is from the rain and the wind that pushes it is from the hurricane. They are all considered floods, and are almost always excluded from business property insurance.

Floods

Falling rain is generally covered by your business owner’s policy (BOP) or business property insurance. Once that rain lands somewhere, however — whether it’s the ground, your roof, or a body of water like a lake or river — it is no longer considered rain. Any damage that is caused by rain after it lands is not covered by business property insurance.

In fact, insurance companies consider nearly all water that is outside of your place of business to be potential flood water. That includes water and sewer mains, which are only covered when the pipes that carry them are located in your business.

As a rule, once water enters your place of business through a pipe you are insured against damage caused by it. With the exception of falling rain, nearly any other way that water causes damage to your business is considered a flood and is excluded.

So if a pipe bursts and fills your basement with water, destroying equipment, you are insured. On the other hand, if a water main breaks one foot outside your business and water rushes in your front door, you are not covered.

The same principle applies to ground water that seeps in from under your business or water that backs up through your plumbing. Each of these is considered a flood or water back-up and is excluded from your business property policy. A recent court ruling determined that rain water that accumulates on a flat roof because of inadequate or blocked drains may be considered flood water — meaning it’s excluded from standard business insurance policies.

Other types of flooding that are excluded from business policies include: overflowing rivers or streams, flash floods, storm surges, and tidal waves. Each of these can impact your business even if you are miles from what you believe to be the nearest flood zone. Flooding from Hurricane Sandy caused damage hundreds of miles from both the ocean and the storm’s center. Flood damage is far more prevalent than most business owners realize — until they are faced with uninsured damages from flood water.

The Federal Flood Insurance Program, which is administered by FEMA, is the only way to purchase flood insurance protection for your business. Visit the program’s website, where you can check your business’s address to determine your actual flood risk and obtain rates for flood insurance.

Earthquakes

According to the U.S. Geological Survey (USGS), there are about 20,000 earthquakes each year affecting 42 states. Half of all U.S. earthquakes happen in California, where more than 80 percent of businesses don’t have earthquake insurance protection.

While California has more earthquakes than any other state, more than 10,000 earthquakes occur across 41 other states every year. In addition to the dangers posed to five states along the Pacific Ring of Fire, at least nine other states are at risk from a major earthquake. The New Madrid fault, which affects a large swath in the Midwest, along with the Charlotte, S.C., fault, are often unmentioned when business owners discuss earthquake risk.

Other geologically stable areas such as Pennsylvania, Texas, and Oklahoma are experiencing a dramatic rise in earthquake activity. Some have attributed the increased activity to hydraulic fracturing, or “fracking,” a process used to extract natural gas. While most of the earthquakes believed to be caused by fracking are minor and do not cause significant damage, the potential risk is still real. A November 2011 quake in fault-free Prague, Okla., registered at 5.6 on the Richter scale, qualifying it as a major earthquake. That was strong enough to damage some buildings.

BOP and business property insurance policies do not provide protection for damage to buildings and equipment caused by earthquakes. Businesses located in fault zones can add coverage to their existing policies with an earthquake endorsement. Premium increases for the endorsement are based on the risk.

Not all insurers in high-risk states like California offer the policy endorsement. The California Earthquake Authority offers an endorsement which can be added by either contacting the authority or your agent. The endorsement covers structural and property damage resulting from the shaking caused by an earthquake.

Volcanic Eruption

Volcanoes present a risk in five states: Hawaii, California, Oregon, Washington, and Alaska. Several other states, including Idaho and Nevada, have a somewhat lower risk of volcanic eruption. Business owner’s policies and business property insurance cover damage that is caused by volcanic explosion, lava, and ash; they do not cover damage by earthquakes associated with the eruption.

Standard policies do not cover mudflows and flash floods caused by rapidly melting snow and ice. These events, along with burst dams and tsunamis, are considered flooding. Landslides that are the result of movement of the earth caused by tremors from an eruption require a separate earthquake endorsement to afford protection.

Tornado

Of all of the natural disasters that could potentially affect your business, tornadoes are the only ones whose effects are fully covered by a BOP or a business property insurance policy.

The post Protecting Your Business From Natural Disasters appeared first on The Simple Dollar.

Best Gas Credit Cards of 2014

Posted: 14 Oct 2014 07:13 PM PDT

The best gas credit cards enable you to take advantage of high reward rates on inevitable spending. With more than 200 million licensed drivers in the U.S. traveling on average over 13,000 miles a year, there are a lot of rewards that are going unrecognized and unredeemed.

The best credit cards for gas are actually cash back rewards cards. Each of these credit cards offer higher reward incentives for fuel purchases while providing a return on most other spending.

The Simple Dollar's Top Picks

Here are the five best gas credit cards for U.S. consumers:

Chase Freedom®
Blue Cash Preferred® Card from American Express
TrueEarnings® Card from Costco and American Express
Barclaycard® Rewards MasterCard®
Blue Cash Everyday® Card from American Express

Chase Freedom®

The Chase Freedom® credit card is an excellent all-around shopping tool. At 5%, it offers the highest return on gas purchases when gas rewards are part of the quarterly bonus. In 2014, this accounted for six months out of the year with all other months offering a 1% return, averaging at 3% cash back for all gas purchases.

The Chase Freedom® also boasts a long list of additional benefits, highlighted below:

Highlights

Who Should Get It

For Who?

Best Way To Use It

Best Use

If you're a calculated spender who likes variety and taking advantage of special deals.
If you're working on, or unable to pay off your balance immediately (but you eventually should), then the 0% interest rate is a good fit.
This card is perfect if you're not a big spender due to the maximum purchase amounts for rewards.
If you do not want to pay an annual fee.
If you also own or plan to own Chase Sapphire Preferred®. With these two cards, you can transfer rewards points from account to account and combine points for larger redemption.

Make sure you plan out any major purchases ahead of time. With the rotating quarterly categories, you will want to make sure to appropriately align your big purchases to take advantage of the largest rewards.
Before making any online purchases, check the new Cash Back Booster site for additional rewards.
Opt in each quarter to get 5% cash back. Don't worry, Chase will remind you to sign up via text or email and you can easily do so by responding on your phone without ever having to sign in online. You can also opt in and get rewarded retroactively at the 5% cash back rate.

Blue Cash Preferred® Card from American Express

The Blue Cash Preferred® Card from American Express is the best example of an everyday purchase card. It offers a healthy reward on gas purchases (3%) and an exceptional reward on grocery purchases at U.S. supermarkets (6%). This card has one of the highest regular earning potentials for a cash back rewards card.

Check with American Express to make sure the rewards will apply where you regularly shop. Most if not all major gas stations (e.g. Mobile) and supermarkets (e.g. Whole Foods) qualify; however, some smaller locally owned businesses may not.

If you're the errand runner of the household, make sure you take advantage of these great everyday rewards:

Highlights

Who Should Get It

For Who?

Best Way To Use It

Best Use

You should get the Blue Cash Preferred® Card from American Express if you have a family. The rewards are specifically tailored to everyday purchases for the mobile family, including high return on gas and grocery spending.
If you spend more than $50 per week on groceries, this card is the best choice. The annual fee will pay for itself at this rate.
If you plan to make a big purchase, take advantage of the 15 month 0% intro APR. Just make sure you have a solid plan to pay off the balance as quickly as possible.

Use the Blue Cash Preferred® Card from American Express to buy all your gas, groceries, and select department-store purchases.
Make sure to hit the $1,000 spending mark in your first three months to take advantage of the $150 credit. This alone will cover the annual fees for the first two years.
Pair this card with another rewards card so you can get 2x rewards once you hit the 6% earning cap for the year.
Take full advantage of the rewards by making sure you hit the $6,000 cap for the year at U.S. supermarkets.

TrueEarnings® Card from Costco and American Express

The TrueEarnings® Card from Costco and American Express is ideal for the mobile individual. It offers 3% cash back on gas purchases (up to $4,000 annually), 2% back on all travel and restaurant purchases, and 1% in all other shopping categories. It also offers the American Express travel-assistance package, which includes car rental loss and damage insurance, a roadside assistance hotline, travel accident insurance, and a global assistance hotline.

If you're a business traveler who does not possess a corporate card and are a Costco member, the TrueEarnings® Card from Costco and American Express should be in your wallet. It'd be a waste to continue accruing a balance on inevitable travel purchases without receiving the most opportune rewards!

Highlights

Who Should Get It

For Who?

Best Way To Use It

Best Use

All Costco members. If you're not already a member, you can become one by paying the $55 annual membership fee online or in-store.
The mobile individual who frequently travels either by car, plane, or both.
If you often dine out.

Use the card to buy all of your gas, travel, and restaurant purchases.
Take full advantage of the dual rewards benefit by shopping at Costco to save money on countless items.
Use this card for car rentals, and make sure to have it on hand when traveling in the event you need to take advantage of the complimentary roadside and/or global assistance hotlines.

Barclaycard® Rewards MasterCard®

The Barclaycard® Rewards MasterCard® offers two points for each gas purchase. There is no annual fee or maximum earning potential, which makes it ideal for those who drive a lot of miles each year and do not have a standing membership that qualifies them for other rewards cards, like the The TrueEarnings® Card from Costco and American Express.

Also, MasterCard is a more widely accepted form of payment than American Express, giving you additional freedom to shop where you want to. Unlike MasterCard and Visa, American Express is a closed-looped system, meaning they issue their own cards and have complete control over setting their own fees and rates. This makes American Express less desirable for small businesses that do not have the same bargaining power as their larger competitors.

Highlights

Who Should Get It

For Who?

Best Way To Use It

Best Use

If you're a high-mileage driver who doesn't want a rewards earning cap.
If you need to monitor your FICO credit score, but currently don't have a budget to pay for a credit monitoring service.
Those who shop at locations where American Express is not an accepted form of payment.

With a slightly higher interest rate, at 24.99%, make sure to pay your balance each and every month. Carrying over any balance can easily negate your rewards earnings.
If you don't carry a card with higher gas purchase rewards, make sure to pull this out every time you take your car to the pump. If you own another card that's time-sensitive or has a maximum earning potential, like the Chase Freedom®, make sure to maximize that before turning to your Barclaycard® Rewards MasterCard®.

Blue Cash Everyday® Card from American Express

Similar to the Blue Cash Preferred® Card from American Express, the Blue Cash Everyday® Card from American Express offers solid rewards earning potential. Due to the lack of an annual fee, the cash back rewards are slightly lower than its partner card and is a better fit for the smaller spender.

Highlights

Who Should Get It

For Who?

Best Way To Use It

Best Use

The rewards are specifically tailored to everyday purchases for the mobile family who are conscious of their budget.
If you're a big spender, you should opt for the Blue Cash Preferred® Card from American Express. If not, the $0 annual fee and competitive rewards provided by Blue Cash Everyday® Card from American Express is a great fit.
If you eat at home and don't dine out often, this card is the best choice.

Use the Blue Cash Everyday® Card from American Express to buy all of your gas, groceries, and select department-store purchases.
Take full advantage of the rewards by making sure you hit the $6,000 cap for the year at U.S. supermarkets.
You'll want to pair this card with another rewards card, so you can get 2x rewards once you hit the 3% earning cap for the year.
Make sure to hit the $1,000 spending mark in your first three months to take advantage of the $100 credit.

The Best Gas Credit Card for Poor Credit

If you've had some financial trouble in the past or haven't had the opportunity to build up your credit, you can still earn rewards on everyday purchases like gas. One of the best cards on the market for those with a lower credit score is the Credit One Bank® Credit Card with Gas Rewards.

Credit One Bank® Credit Card with Gas Rewards

With an annual fee between $35 and $99 depending on creditworthiness, this card is ideal for the individual who spends a lot of time on the road and has yet to take advantage of one of the best gas cards. It's specifically tailored to the individual with a lower credit score by offering free online monthly credit-score tracking, pre-qualification without affecting your credit score, and automatic reviews for credit-line increases.

Highlights

Who Should Get It

For Who?

Best Way To Use It

Best Use

Individuals who cannot obtain a higher rewards card.
Those who frequently drive and are trying to build their credit score.

Use the Credit One Bank® Credit Card with Gas Rewards to purchase all gas.
Make sure to make all payments by their due date in order to improve your credit score over time.
Keep an eye on your credit information with free online monthly credit-score tracking.
Increase your credit limit with each opportunity without increasing your spending. This in turn will help your credit by lowering your utilization rate.

Why Is Using a Gas Credit Card Important?

According to the Federal Highway Administration, over 32 billions of gallons of gas were purchased in the U.S. in just the first quarter of 2014. With an average gas price of just over $3.50 per gallon, that equates to over $5.6 billion in potential rewards if all buyers had used the Chase Freedom® card that quarter.

Statistically, we drive more during the summer months, which means this number is likely to exponentially grow over the next two quarters. Isn't it time we started getting something back for all of our stops at the gas station?

Realizing the potential of earning cash back on everyday purchases like fuel and groceries is key to combating growing prices. Fuel prices this summer were at the highest average in the past six years.

What Should I Consider When Selecting a Gas Credit Card?

Ratio of rewards on gas purchases: the higher the rate of reward, the more money is returned to your pocket.
Annual Percentage Rate (APR): If you do not pay your balance off in full each month, which we strongly recommended, you could easily negate any rewards you earn. As a general rule of thumb, always try to secure the lowest interest rate possible when getting a line of credit.
Annual fee, or lack thereof: Make sure you determine the amount of rewards you anticipate receiving each year. If it is less than your annual fee, it's best to choose a different reward card that will prove profitable in terms of rewards.
How much gas you purchase: For high-mileage drivers, a cap on earning potential can be a real deterrent. Calculate the amount you spend on gas annually before committing to a card.
Other rewards (cash back on other spending, sign-up bonuses, etc.): These rewards can drastically increase your rewards earning potential. Determine which card most closely aligns with your spending habits.
Other benefits (FICO score, travel assistance, etc.): These additional perks should be taken into less consideration than those listed above; however, they can easily help if you're on the fence between two cards. If you need to monitor your credit score but don't have the budget to pay for a monitoring service, or if you frequently travel, specific cards will be a better fit for you.

Gas Credit Cards for the Mobile Employee

As the economy continues to slowly bounce back, employees may not be willing to attempt to put their home on the market just yet, but are willing to travel longer distances to secure employment. The Worldwide ERC® Foundation reported:

"No longer are long-distance commuters considered a rare breed." — It's time you get cash back rewards for the hours you spend in the car.

More than 61 billion commute trips are taken annually, with an ever-increasing number of mega-commuters. Beyond commuting, driving is a necessary responsibility for many employees. As organizations move away from company-provided vehicles and corporate cards, it leaves more and more employees footing the bill for their gas until later reimbursement or writing off their business vehicle expenses on their tax return at the end of the year.

If you're an employee who gets a cent-per-mile reimbursement or are on a vehicle reimbursement program, make sure you're using one of the best gas credit cards to maximum your earning potential.

Summary

If you own and operate a car on a regular basis, it's in your best interest to have one of the best gas credit cards. Getting rewards for everyday purchases allows you to work within a strict budget without having to commit to big purchases in order to see a return on your spending.

Take into consideration all of the factors listed in the What Should I Consider When Selecting a Gas Credit Card section. Depending on how much you drive or spend on other high-reward purchases, you may want to avoid a rewards card with an annual fee. While you'll be compromising additional rewards, you always want to be sure that the benefits are exceeding the expense of the tool.

The post Best Gas Credit Cards of 2014 appeared first on The Simple Dollar.

College Internship Guide

Posted: 14 Oct 2014 03:00 PM PDT

College is tough. You're applying for scholarships, dealing with student loan debt, taking tough courses, and all while worrying about the end game – getting a job after graduation.

An internship is one of the best things you can do to help with your job quest. If it's new to you, an internship is a job opportunity while you're in college that occurs for a set period of time.

Here is your complete guide to finding an internship and how to make the most of it when you get one:

The Benefits of an Internship

What you'll gain with your internship is priceless. Here are some of the benefits of doing an internship:

Experience

Of course it will depend on your specific internship, but the hope is that you'll leave with great job experience. You'll learn more about your industry while gaining skills and know-how that can make you can bring to your next position.

Building a resume

Besides that experience helping in your next position, it can get you your next position. Having that internship on your resume is the best thing you can do to score a full-time job or even another internship if you're not ready for a job yet.

The possibility of a job offer

When a company is hiring for a new position, they often turn to interns to fill that void. In fact, a NACE survey estimates that 67 percent of interns are offered jobs after their internship is complete.

Networking

Doing an internship could be the chance for extensive networking. The connections you make at your internships, with your supervisor, co-workers, and even other interns, can lead to other opportunities down the road. It’s also great practice on how to network. The people I’ve met in internships have landed me numerous opportunities throughout my career.

References

Do a job well-done, and it's the best way to score references and letters of recommendation. These are perfect for your next internship, future job opportunities, scholarship applications, and even if you decide to go to grad school down the line.

Adding to scholarship applications

It's not just a resume for jobs that is getting beefed up with this internship experience. If you plan on applying for scholarships, which you obviously should be, then adding this valuable experience to an application can help.

Compensation

There is a lot of debate about unpaid internships. If you're lucky enough, you can score a paid internship. This could also come in the form of a stipend, a lump sum of money at the end of completion.

College credit

Many internships offer college credit. If you need the credits anyways, this is a perfect way to kill two birds with one stone. Keep in mind that your college may have requirements for what constitutes an internship so run it by them first. They also may require additional work. To get college credit for one of my internships, I had to write an essay prior to the internship on what I hoped to achieve and my expectations. Upon completion, I had to write another essay explaining my duties and what I learned while also having my internship supervisor submit a survey on how I did.

Other perks

There can be a ton of other perks with doing an internship. You may have access to company benefits such as a gym, discounts around town, or free food in the cafeteria. Being an intern, you could be welcome to attend company events, conferences, or other beneficial meetings. I’ve had friends who got their transportation costs reimbursed. As a journalism intern, I had an unpaid internship that came with enticing perks. One I had with an esteemed editor in the industry offered to proofread and edit any of my work – including school work, cover letters, or whatever else I was working on.

How to Find Internship Opportunities

Once you've decided that you want to do an internship, it can seem daunting to try and find one. Start early. You may come across internships that only welcome Juniors or Seniors to apply, but don't let that discourage you from searching your Freshman and Sophomore years. The more experience you have, the better!

Websites

There are plenty of websites that can help you find an internship. Keep in mind that any job search website most likely will have internships listed as well. Here are some websites to keep in mind:

Internships.com
Monster College
Fastweb
InternMatch
Indeed.com
Career Builder
Your local Craigslist
Idealist.org
Experience.com
LinkedIn
USAJOBS is the Federal Government's official source for federal jobs and internships

Your College

College is a great resource for internships. Visit the career center for internship opportunities. Your school may also offer an online job board and job search database that allows you to search for internships. If your school offers a job fair or internship fair, be sure to attend for a possible opportunity. Lastly, ask your professors. Many times, they are industry professionals who may be able to put you in contact with supervisors looking for internships.

Companies

The same way companies post job listings on their website, they post internship opportunities as well. Even if there aren't any internship opportunities posted, don't hesitate to contact companies you'd like intern with directly. I was one company's first intern because I pitched the idea of having an intern and of course, pitched myself.

Industry-Focused Groups and Websites

Consider your major and your career's industry while searching for internship opportunities. Professional organizations are a great way to find opportunities. Being a journalism student, I joined the Association of Women Journalists in Chicago at a reduced student rate. This gave me access to the internship job board plus dozens of valuable connections to professionals with internship opportunities to offer. Besides actual organizations, check out specific websites for your industry. For communication students, Mediabistro.com lists opportunities for internships.

Making your Resume

Creating a resume for an internship is somewhat ironic. You want an internship so that you'll have experience, yet you're expected to have a resume with experience to land the internship in the first place. Don't freak out. Here's what you can add to your resume to land than internship:

Job experience

While you may not have had super relevant job experience yet, if you had any, it is imperative you list it. Even if you don't think it's something to brag about, take a second to look back on what you did at that job. The truth is, any job you've had proves you have a work-ethic and you're responsible. Highlight any responsibilities you had during your employment.

Join clubs and organizations.

Check out extracurricular activities you can be a part of at your school. Highlight specific duties you had as a member.

Emphasize your academic achievements.

If you've got a high grade point average that's an easy way to show your stuff. But even if you don't, there's still plenty you've got to brag about. List relevant classes you've had that would make you a great intern.

Volunteer in a relevant field.

Any volunteer work listed on a resume is great, but try to even go one step further. Make that volunteer experience help you get that internship. There's plenty of worthy organizations that would love to have help with accounting, marketing, or other duties that would make your resume shine.

Start a blog.

Regardless of your goal, opting to create a blog is a good way to highlight experience if your resume is lacking. Keep posts relevant to your industry and what your ultimate career aspirations. Do you want to be a teacher? Blog about activities to do with kids, issues with education, and tips for raising a healthy child. Are you striving to be in the fashion industry? Write about trends, how to save on fashion, and other fashion advice. If you have something to show – a writer, photographer, graphic designer, or designer for example, this is the place to do it.

Join professional associations.

Become a member of your industry's organization. You may get access to job boards, events, and articles, but it also looks good on your resume.

Applying and Interviewing

Now that you've got your resume in order, it's time to apply. This is what you need to know:

Keep application deadlines in mind.

Internships may have specific dates they start accepting applicants and deadlines. Be sure you know what these are so you're not wasting your time.

Read the job description fully.

Understand what you're applying for. Besides knowing if the job is right for you, you'll be able to link certain skills and experience to the requirements of the job in your cover letter and on an interview.

Clean up your online act.

Go through all of your public updates and photos on your social media outlets. If there's any hesitation about whether something would be appealing to a potential employer, take it down. If you don't already have one, make a professional e-mail.

Know the basics.

They're simple so you may take them for granted, but don't forget the basics such as spell check, proofreading, knowing who to address your cover letter to, and how they want you to apply. When it's time for an interview, be early and dress appropriate.

Do your homework.

Before you step foot in an interview, go over basic interview questions so you're prepared. Research the company you're applying for and more than just skimming their website. Understand exactly what the company does, what their mission statement is (if they have one), who their clients or audience are, any relevant awards or recent news, what they do that sets them apart, and most importantly, why you want to work there. In addition to their own website, search news articles to see what other people think of them, download their app (if they have one), follow them on Twitter, like them on Facebook, and Follow them on LinkedIn. This should give you even more insight.

How to Get the Most Out of Your Internship

Treat this like a job.

Once you walk through the door, forget that you're an intern. Of course, you need to do the basics – dress appropriately, show up on time, and leave your personal issues or school work at home. But also do your best everyday. Take on responsibility, and try to prove yourself.

Learn as much as you can.

What you're learning at this internship can't be learned in your classes. Don't be afraid to ask questions or ask for more responsibility. Once you get a vibe of who is willing to help you, ask them for advice and any suggestions. If you can, ask if you can shadow them for a bit to see what they are doing for the company as well.

Meet people.

Next to what you're actually learning, the people you work with are your most valuable asset. I met a nice woman while interning at a company, and she taught me a great deal of information. She ended up moving on to a new place, but years after my internship, she got in touch with me about a job at her new company.

Keep track of what you're doing.

Keep a log of what you do every day. This will help you efficiently update your resume when you're done. You might forget about a certain computer program you used or project you accomplished.

End on a good note.

Once your internship is winding down, ask for a letter of recommendation. Even if you don’t need a letter of recommendation at that time, it is best to request one when your great performance is fresh in someone’s mind. Ask anyone you had a positive work experience with to connect on LinkedIn. Send a thank you note to anyone who deserves one, especially your internship supervisor. If you’re interested in a job opportunity with the company, be sure to close the letter explaining that you would greatly appreciate if they kept you in mind for any future opportunities.

The post College Internship Guide appeared first on The Simple Dollar.

Nine Financial Questions to Discuss When Your First Child Is on the Way

Posted: 14 Oct 2014 07:00 AM PDT

In February 2005, Sarah and I were handed a completely unexpected piece of information. Sarah was pregnant and our first child was going to arrive late in the year.

It was a life-changing moment. Sarah and I had several months to prepare, of course. Unfortunately, since we weren’t in the best financial shape at the time, we didn’t really focus on the financial implications very hard. Instead, we spent our time on learning how to be parents on a day-to-day basis. How were we going to take care of this baby?

While I’m glad we did so much reading and research and thinking about caring for that baby, I really wish we had spent more time preparing for the financial implications. Many of those issues came up in the first year or two of our child’s life during a period where we were frazzled by the huge life changes that parenting brings about. We didn’t always make the best choices given our exhausted states of mind.

Here are nine questions that I wish Sarah and I had discussed before our first child arrived on the scene. As I said, we did address these questions after our child was born, but I genuinely wish we had considered them beforehand and planned appropriately rather than trying to make these decisions with our new parent sleep-deprived minds.

It is worth nothing that these questions merely scratch the surface. Each one of these questions will likely lead to many more questions. Each one can be the foundation of a really good discussion.

Of course, as with any spousal discussion about money, active listening and a calm demeanor are incredibly valuable. Listen to what your partner is saying. If you feel emotions bubbling up, take a break and come back to the topic in a day or two and spend that time trying to dig through the emotions.

Let’s get started.

1. What is our child care plan?

A baby needs someone to take care of him or her all of the time. Most of the time, a parent will be taking care of that duty, of course, but will there be times where a parent can’t handle the duty?

If you’re both planning on returning to the workplace, unless you have a very unusual work schedule, there will be significant patches of the week where you’ll need someone else to take care of your child. Who will provide that child care? You need to figure out that solution as quickly as possible.

Some parents might decide that a stay-at-home situation will work best for them. It’s likely that such situations will result in a loss of household income – that’s effectively the “cost” of that type of child care.

Things you should specifically discuss:
+ Is one of us going to be a stay-at-home parent? In that case, how much income will be lost to your household.
+ Who will take care of our child if/when both of us are working? This involves figuring out what child care options are available to you – daycare, family members, and so on – and what their respective costs will be.
+ What do each of us expect from child care? Sarah and I both agreed that we were going to use some form of daycare for our child during the day, but our visions of what that would entail were very different. Some parents may want to stay at home. Others may want in-home daycare. You should examine child care options together so that you both understand what’s provided and what the costs will be.
+ How will we afford it? No matter what, you’re going to have a significant shift in your expenses or your income. What will that change really look like in your life? (We’ll touch on this in more detail later on.)

2. What are the maternity/paternity leave options in our workplaces?

Both parents are going to want to take some time off when the child is born. The family is adding a new member and new mother is facing a serious medical challenge to boot. It’s going to be a challenging time and you’re ideally going to want some time away from work to handle these situations whether you’re a new mother or a new father.

The Family and Medical Leave Act allows both parents to have twelve weeks of unpaid leave from their jobs to care for a new baby without any worry of losing that job. This is an incredibly useful guarantee for new parents, but it doesn’t solve all of the potential financial problems.

For example, Sarah ended up mixing together paid leave and unpaid leave after the birth of our first child. This caused a pretty healthy dip in short-term income for our family at about the two month mark in our baby’s life, which coincided with the start of paid child care. We had to dig into some additional credit card debt at that point because we weren’t prepared for it (the Christmas season happened in that timeframe as well, which didn’t help).

Things you should specifically discuss:
+ What do our employers offer for maternity/paternity leave beyond the basics mandated by the Family and Medical Leave Act? Both of our employers allowed us to take the twelve weeks of unpaid leave allowed by FMLA and we could use as much of our sick leave as we wanted during that period, turning that unpaid leave into paid leave but draining our sick leave at work. Some employers are more friendly than that; others less so. You need to know what your employers offer so that you can make a smart financial decision.
+ Will our specific choices for leave cause us to lose any household income? If you choose
+ How will we handle these expenses? Are we going to save for this financial bump in the road? The correct time to start saving for these kinds of expenses that you see coming is right now.

3. Do we have an adequate emergency fund?

When our first child arrived, we faced a big surge of visitors and little purchases that we didn’t expect, all of which added up to a big pile of unexpected expenses. We didn’t have an emergency fund at the time, so our credit card just got a little more bloated.

With our second child, we had a big unexpected expense right after her birth. She had severe jaundice that popped up within a few days of her birth, requiring an emergency hospital stay and some serious alterations to our plans and expenses for the first week or so of her existence. There were meals unexpectedly eaten out, child care expenses (for our older child) that we didn’t expect, some medical expenses, and so on. We had to tap our emergency fund here, unsurprisingly.

Thankfully, we smartened up between the birth of our first and second child and established an emergency fund. An emergency fund is a simple thing – it’s just cash stowed away in a savings account for truly unexpected expenses. I highly encourage new parents to have one. Your entire life will be on unsteady ground for a while and you’ll be glad to have a financial buffer to fall back on.

Things you should specifically discuss:
+ Do we have an emergency fund at all? More than a third of Americans have no savings whatsoever. That’s just completely unacceptable if you’re a parent. You need to have some money in the bank for the inevitable emergencies that life will throw at you, now more than ever because you have a defenseless baby that’s relying on you.
+ How much should we have? My recommendation is to shoot for $1,000 as a starting goal. If you’re in good financial shape, you should aim for having a month’s worth of household living expenses for each dependent in your home, so if you have a new baby in a household of three, that would be three months of expenses.
+ What do we need to do to get there? How are you going to save up that much money? Focus at first on the smaller goal – $1,000. Try to get to that balance in your savings account. You’ll be glad you did.

4. Are we saving for college? How much?

One of the biggest worries foisted upon new parents is the huge expense of college that they’ll be facing in about twenty years. Yes, right now, college is incredibly expensive, yet it is often seen as the necessary “foot in the door” for educational opportunity.

Sarah and I are saving for our children’s educations. If we were ever in financial trouble, these would be among the first things we would cut back on. While we’re happy to help them with college, it is not a net benefit to them if it means that we’re not going to have adequate retirement savings.

Even if you don’t plan on saving for college yourself right now, it’s not a bad idea to open up a 529 college savings plan regardless. It’s pretty easy and provides a place to stick any money that comes in. Often, relatives will want to contribute to a child’s college savings and it’s far better to have that money go into a 529 than into, say, a savings bond, which doesn’t exactly offer great returns.

Things you should specifically discuss:
+ How are we doing financially in other aspects of our life? Are we saving for retirement? Do we have a healthy emergency fund? Do we have any high interest debts? Taking care of all of those things should be a bigger priority than college savings.
+ Do we expect to play a major role in financing our child’s post-secondary expenses? Do you actually need to pay for all of your child’s college expenses? Some of them? Any of them? There is no right answer here. My parents helped me very little with my college expenses, as I used roughly a 70/30 split between scholarships and loans to pay for my education and I don’t feel that they did the wrong thing in any way. Every situation is different and there is no right or wrong philosophy.
+ Do we expect to support extra educational expenses before high school graduation? For example, is private schooling an option? What about special extracurricular programs? Even if you plan a hands-off approach for college, you can still use educational savings vehicles to save for these items (though you probably won’t need to save at an intense rate).

5. Do we actually need all of the “recommended” child care stuff?

When Sarah and I first realized that a child was on the way, we were stuck. None of our close friends were parents. Our own parents lived a minimum of three and a half hours away. Even our professional mentors were either non-parents or were far, far removed from active parenting.

All of our advice came from books – and most of the books in the child care genre are focused on covering every possible situation, not on covering what you actually need.

It turned out that we needed far less than we thought. Secondhand clothes were perfectly fine. So were flannel wipes (cut up out of a big sheet of flannel from the store) and a spray bottle and cloth diapers. Homemade baby food was perfect. We didn’t need a wipe warmer or a changing table – we just warmed wipes a bit with our hands and used the foot of our bed or a towel on the floor as a “changing table.”

Every parent has different needs, but it’s well worth turning a critical eye to all of the stuff that you supposedly “need” as a new parent. My single biggest piece of advice: find parents in your social network and tap them for ideas.

Things you should specifically discuss:
+ Do we have any parents in our social network? The best advice you’ll get about what you really need and what things are available in your local area will come from other parents in your social network. Evaluate your network and ask those parents for help. Ask them what you actually need. Ask them what the best options in the area are for various things like child care and health care.
+ Are there sources for hand-me-down items? Do you have relatives or friends who might be looking to get rid of their used baby clothes and other items? They might give them to you or sell them to you at a cheap price. Plus, they’ll be able to provide valuable advice for usage.
+ What are our minimum needs? The approach I most strongly suggest is to focus on what you minimally need, then figure out what other items are useful as you experience parenthood. Don’t buy things based on a guess. Just remember the basic needs – food, warmth, clothing, clean pants – and focus on meeting those.
+ Where are the children’s consignment shops and secondhand shops in the area? You should shop there first for clothes. In fact, aside from pure safety equipment, I’d happily buy everything used if I had to do it again.

6. What will we cut out to handle the new costs?

As you discuss the first five questions, you’re going to quickly realize that there’s going to be an enormous change in your family’s expenses in the near future.

For us, this change was more of a nebulous thing. We didn’t really think about it in a specific way – we just figured that our responsible future “parent” selves would handle it. That was a big mistake. It only took six months after our child’s birth for us to reach a devastating financial situation.

Like it or not, you’re going to have to cut some costs to make this work. Yes, your tax load will lighten up a little bit thanks to your new dependent, but it’s not going to be nearly enough to offset all of the costs.

Things you should specifically discuss:
+ How will our time use change after the baby is born? You simply won’t be able to go out nearly as often. Your home time will change, too – you simply won’t have the free time you once had. What things will you be giving up due to time?
+ How does that change in time use change our finances? If you’re not going out as often, you’re probably saving money on eating out and other “out on the town” expenses. You might also be giving up a hobby simply because you don’t have the time. What do those spending changes add up to? Are they enough?
+ What stuff do you have that you can sell? These changes in time use might point you toward some items in your closet that you’re no longer going to use. Sell them off, either right now or in the months after the baby is born. Use that money to build your emergency fund.

7. Do we have a valid will and/or durable power of attorney and/or health care proxy?

All right, let’s start by talking about what these things are.

A will is a legal document where you name someone who will handle your affairs upon your death. It also typically includes instructions as to who will receive your property.

A durable power of attorney is a legal document where you assign someone the power to make legal decisions on your behalf should you be incapacitated.

A health care proxy is a legal document where you assign someone the power to make health care decisions on your behalf should you be incapacitated, including end-of-life decisions.

All of these documents are important to have regardless of parenthood, but they become even more important when you do have a child because they will help define what exactly happens to your child should you no longer be able to care for that child. If you don’t have these documents, the state will decide (and there’s a good chance that you would be unhappy with that decision).

Things you should specifically discuss:
+ What do each of you want to happen should you be incapacitated? Most of the time, married couples make these decisions for each other, so it’s good for each of you to know what to do. You should also get a health care proxy so that someone else you trust can make these decisions if needed.
+ What should happen to our possessions if we pass away? Again, if you’re a married couple, your spouse would typically receive all possessions should one of you pass away. If you both pass away, it can be more difficult. Where do you want personal items to go? Many parents want all of their assets to be used to care for their child should they pass away, but that should be legally stated.
+ Who will be our executor? In other words, what person do you trust enough to handle these decisions for you?

8. Who will be the guardians of our child if we can’t do so?

This is perhaps the most important decision that you’ll make regarding your children in the event of your untimely passing. If both of the child’s parents have passed away, who will raise the child?

This is a hard decision. Sarah and I discussed it for a very long time and, at various points, have assigned this role to three different couples.

It’s an important one, though.

People generally don’t like to think of their own mortality, but this isn’t about your mortality. It’s about the life of your child. In this situation, your child lives on, and it’s your job as a parent to take care of that child.

Things you should specifically discuss:
+ Will the guardian(s) care for my child in a way that we would approve of? You’ll want to choose a guardian (or guardians) that will raise your child in a way that’s at least somewhat close to your values and will treat the child with love.
+ Is the guardian willing to take on that role? Not everyone is comfortable with taking on a role like this in a child’s life. Make sure that the person is willing to take on that responsibility if necessary.
+ Are you willing to cement the relationship between the potential guardian and your child? The guardian(s) should know your child and have a positive relationship. Without that, the transition could be a difficult one.

9. Do we have adequate life insurance?

What does your family’s financial situation look like if one of you passes away suddenly? Could the other one make ends meet as a single parent with ease?

If the answer isn’t an emphatic “yes,” then you should strongly consider a term life insurance policy for the members of your family that are financially essential.

Not only that, such a policy can help take care of your child in the event that you both pass away.

Why a term policy? It’s the least expensive option. It takes care of what you actually need, which is cash in the event of death. It’s also not tied into a questionable investment policy.

Things you should specifically discuss:
+ How much life insurance does each of us need? In general, it’s a good idea for parents to have enough individual term life insurance to make up for their take-home salary until their youngest child reaches eighteen years old, minus any savings and investments. That can end up being a very large policy, but that policy provides great security.
+ What if our insurance salesperson recommends policies besides term policies? In simplest terms, I’d ignore that salesperson. If you want to invest, invest separately in a retirement account for yourself.
+ Does our child need a policy? Unless there is an elevated risk in your family of a disease or condition that might make the child uninsurable in the future, infant life insurance generally isn’t worth it. You’re better off investing money into a child’s college savings or securing your own retirement. However, after discussing matters, you and your partner might feel differently.

Final Thoughts

The questions in this article are bound to provide a ton of conversation starters with you and your partner concerning the finances of having a child. It can seem overwhelming at first, but if you take these issues one topic at a time, they’ll break down much easier than you might expect.

The post Nine Financial Questions to Discuss When Your First Child Is on the Way appeared first on The Simple Dollar.

Are You Guilty of Financial Infidelity?

Posted: 14 Oct 2014 05:00 AM PDT

Finances and cheating are amount the most common reasons for divorce. And what happens when you merge the two? You get a case of financial infidelity, but there's a twist: a third party doesn't have to be present to cause a problem.

In a nutshell, it's the practice of concealing assets, debt obligations or conducting transactions behind your partner's back that could have a major impact on your financial well-being as a unit.

And apparently, financial infidelity is somewhat commonplace. According to the results of a poll published by National Endowment for Financial Education, one-third of adults involved in a relationship where finances were combined admitted to some form of financial deception. Among the list of qualifying offenses were:

Hiding a purchase, either major or minor, from their significant other
Hiding a bank or account statement from their significant other
Hiding an outstanding bill from their significant other
Lying to their significant other regarding a financial matter
Concealing an outstanding debt from their significant other
Concealing actual income received from their significant other

For quite some time, I didn't understand how it's possible to engage in infidelity with money matters until I got married.

If there was something I strongly desired to purchase but my husband was against it due to budgetary constraints, I had to make the decision to follow his advice or go against the grain and make a purchase off the record. Over the years, I've learned there are many levels of financial infidelity, some of which are serious enough to warrant a divorce.

Your significant other may easily forgive you for a miniature shopping spree, but wiping out a savings account that once carried a $60,000 balance to be used for a down payment on a home could have more severe consequences.

How about that pay increase that you rerouted to your personal account to fund personal wants instead of contributing to the joint account to further assist your partner with meeting the financial obligations of the family? This situation can be even more detrimental if your partner is struggling to make ends meet while you’re withholding funds that could be used to eradicate outstanding debt balances.

Underlying Issues

Exactly why do people commit financial infidelity? Here are a few possible explanations:

1. Addictions

When you initially decided to spend the rest of your life with your significant other, did you vow to stop partaking in a particular activity because they were strongly against it? Whether it was smoking, excessive dining out, binge drinking, weekly spa visits, or some other activity you couldn't seem to live without, the expenses wreaked havoc on your bank account so it was in your best interest to agree with your partner and quit.

But what happens when life gets a little rocky and you anxiously crave one of those addictions? Do you stick to your guns or give in? For some, it's the latter even if their decision will have long-term negative effects on their relationship.

I'm no stranger to binge spending for comfort. Before transitioning to the world of freelance writing, I was stuck in a job that I absolutely loathed and the only thing that got me through the day without having a nervous breakdown was dining out for lunch. And while we must all eat for our physical well-being, there was a major problem with my approach; not only was I failing to address the underlying issue, I was also impeding the progress of saving for larger long-term goals by spending a substantial amount of cash on lavish lunches with coworkers. When I reached the point where I could no longer continue to suppress the issue, I confessed to my husband and he handled it much better than I expected. We were also able to devise and action plan to keep the spending to a minimum going forward.

2. Emptiness

We've all experienced rough times in our lives, some which leave an everlasting void. How have you chosen to fill the emptiness that lingers inside of you? Is it through some sort of positive activity or the almighty dollar bill?
Several years ago, I lost my mother unexpectedly and instead of searching for the proper outlets to seek healing, I turned to money. While I am by no means proud of my actions, I don't regret them because I learned a valuable lesson: money really doesn't buy happiness. I know we hear that phrase time and time again, but I assure you that it's true.

I wasn't a millionaire sitting around searching for ways to blow a few dollars, but I did have a handsome sum of money at my disposal during that depressing time of my life. And since I had practically lost hope and didn’t feel worthy of living now that both of my parents were gone, I figured if I indulge in all of life's little pleasures that I didn’t have access to beforehand, everything would be OK.

Boy, was I sadly mistaken. I purchased thousands of dollars in material possessions and took quite a few lavish vacations, but that empty feeling still lingered inside. Not even an expensive handbag or two hour spa session could erase the pain.

Perhaps you're struggling with some form of depression, and are unsure of how to cope so you resort to money you really don't have to wash all your pain away? If these excessive spending habits carry over into your marriage, they could easily result in financial infidelity if your partner insists that the your curb your unhealthy financial actions.

3. Financial Illiteracy

Courses on personal finance are not commonplace in the high school curriculum. According to Council for Economic Education, only 17 states mandate the inclusion of personal finance topics into the curriculum.

So teens are either forced to learn what they can from their parents, who may or may not be financially responsible, or let life and the school of hard knocks be their teacher. Both are potentially dangerous scenarios for a number of reasons. For starters, who's to say you grew up in a financially responsible household? Your parents may have provided a fabulous life for you before adulthood, but do you really know what their finances looked like behind closed doors?

I see it time and time again; parents living in grand homes, driving expensive cards, dressing to impress and giving their children the best of everything. But a quick glance at bank, retirement college fund and credit accounts clearly indicates financial mismanagement. They've robbed Peter to pay Paul each month for a number of years, each car was leased and accompanied by an exorbitant interest rate due to poor credit history, their savings and retirement accounts were practically depleted and college funds were non-existent.

Assuming you attempt to follow in their 'perfect' footsteps, you will quickly learn the truth and face the dilemma of cutting back to appease your spouse and finances or keeping it up by committing financial infidelity.

On the other hand, if you weren't given the talk or lessons you need to lay the proper foundation at home, the only way to learn is by making mistakes. And sometimes, it's too late to make things right once you've taken that first step.

4. Poor Decision Making

We all make poor decisions for various decisions. And one bad move has the ability to turn your finances upside down, forcing you to turn to financial infidelity to get yourself out of a bind before your significant other finds out. For example, opening a credit card with an exorbitant interest rate and maxing it out without having a means to make the minimum payment is a recipe for disaster.

Warning Signs

Wondering if you fit the bill? Here are a few ways to tell if you're guilty of financial infidelity:

1. Vanishing statements

When bank or other account statements arrive in the mail or electronically, do you review them with your partner or quickly place them in a secure place that only you are aware of? If the latter is true, is there something you're trying to hide from your significant other? Perhaps you're afraid to let them know where you all stand financially or worried that they'll have an adverse reaction.

2. Phantom (or understated) income

Do you always have a way of making income magically appear when money's tight and your spouse begins asking questions? Whether you use a credit card cash advance, savings account or borrow funds to cover the gap, lying about income is never a good idea.

On the other side of the fence are those individuals that generate a healthy amount of income, yet disclose a substantially lower number to mislead their spouse.

3. Unexplained spike in expenses

This may be the result of additional debt you've incurred or excessive fees from past-due accounts or late payments, just to name a few.

4. Dwindling account balances

Once you're way in over your head, it's not uncommon to find yourself struggling to make ends meet. And as a result, the well soon begins to run dry.

5. Random bills

Have you subscribed to random services that your partner has no knowledge of, and now you're on the edge and afraid your spouse may find an invoice and begin to ask questions?

6. 'Closed' accounts

If an account was beginning to spiral out of control, did you communicate to your partner that you paid the balance in full and closed it out when all you really did was remove his or her from the account so they'd be unaware of the actual status?

7. Calls from debt collectors

Maybe things started off on the right foot, but now you're drowning in bills and the debt collectors have begun calling non-stop to collect payment? Have you gone as far as removing your significant other's contact information from the list so they'll be kept in the dark?

8. Absence of activity on frequently used accounts

To hide transactions from your partner, have you resorted to a separate account to handle business so they won't grow suspicious?

9. Purchases that are unaccounted for

Has your significant other raised concerns about shopping bags or other deliveries that entered the home, but were clearly absent from the bank statements?

10. Nervousness when discussing finances

When your partner wants to have the money talk, do you welcome communications with open arms or quickly change the topic?

11. Constant stress

Are you constantly searching for ways to generate extra income in an effort to patch things up?

12. Withdrawal

Depending on how severe the financial condition actually is, maybe you've begin to withdraw emotionally from your spouse of out fear that they'll discover what you've done and immediately file a divorce before you can plead your case?

13. Constant shielding from monthly bills

Do you insist on handling the finances each month even when your partner offers to help? Or maybe you find an excuse to avoid sitting down and having the money talk when it's proposed?

Moving past the 'infidelity hurdle'

Step 1: Plan ahead

If you're extremely nervous about the thought of coming clean, which is to be expected, have a plan of action intact to prevent things from going left in a matter seconds.

Step 2: Put it all on the table

Tossing and turning at night or can't seem to get money matters off your mind? It's time to come face your partner regarding the actual state of the finances.

My suggestion: propose a time and explain to him or her that you'd like to have a budget meeting. Request that they bring along any pay stubs, income sources, bank statements, credit reports, tax returns (if married filing separately) and credit card or other account statements.

Step 3: Relax!

Once the meeting is in session, reveal the infidelity, admit responsibility and communicate your willingness to be more transparent and make things right moving forward. And remember, if you're on the defensive, your partner may shut down and be unwilling to hear your perspective.

Step 4: Discuss triggers and potential solutions

Express the reasons for your infidelity and what changes you'd like to see made to improve the situation moving forward. For example, if your partner insists that you only visit the spa once per quarter but you insist on monthly visits, try to reach a happy medium. Just don't play the blame game because it won’t resolve the issue.

And if things take a turn for the worst, marriage counseling is always an option.

The post Are You Guilty of Financial Infidelity? appeared first on The Simple Dollar.

How to Find the Best CD Rates in 2014

Posted: 13 Oct 2014 11:00 AM PDT

If you’re frustrated with the low interest rates of savings accounts but wary of high-risk investment strategies, Certificates of Deposit (CDs) might be your ideal middle ground. Your money will be safe and you’ll receive a better return than a savings account would offer, though the best CD rates largely depend on how long you're willing to part with your money.

According to Bankrate, the average one-year CD interest rate in 2013 fell from 0.28% to 0.23% APY, or annual percentage yield. Certainly not an imposing return — that is, until you compare it to the average APY of savings accounts — 0.06% — in roughly the same time frame.

As 2014 winds down, the best current CD rates are hovering around 1.10% APY for one-year terms, 1.25% APY for two-year terms, and 2.3% APY for five-year terms.

Fortunately, there are several quality options that will keep you near these benchmarks for the best CD rates. Start your search by using the tool below, which lets you check out current CD rates for specific terms and minimum deposits.

What Is a CD?

According to Investopedia.com, a CD is “a savings certificate entitling the bearer to receive interest.” You can get a CD at just about any bank where you would open a savings account. Banks offer CDs with fixed time periods, called terms, that may be as short as a month or as long as five years or more. In most cases, you’ll face a penalty fee if you take your money out of the CD before the term expires.

Main Types of CDs

CDs are a fairly simple product, but banks offer several variations that can benefit you if you do your homework. Here are the main types of CDs:

Traditional: These CDs lock away your money for a certain amount of time. The longer the term, the better your interest rate, which is fixed. Withdraw money early, and you could face a steep penalty fee. These penalties vary from bank to bank, but a fee equal to six months’ interest is most common on a one- or two-year CD, according to Bankrate.
Variable rate: The interest rates on these CDs can change periodically according to certain indexes. The setup varies from bank to bank. You're still guaranteed your initial investment but are vulnerable to fluctuating interest rates. These can be a better bet when you're reasonably sure that rates will go up.
Bump-up: Say you put your money in a CD with a certain term and interest rate, but then the bank offers another CD with a similar term but a better interest rate. You can “bump up” your CD to the new interest rate. However, you can typically only do this once, and your original rate may be a bit lower than those offered on traditional CDs.
Liquid, or “no penalty”: If you need to withdraw your money before your term is up, liquid CDs will let you do that without paying a penalty fee. But, you'll pay for this convenience with a lower interest rate.
Callable: You’ll get a higher interest rate, but the bank reserves the right to “call back” your money and nix your CD before your term is up. So, if your CD has a three-year term and the bank calls it back after two, you lose out on a year of interest.
Zero-coupon: You can purchase these CDs for much less than face value. For instance, you can get a $50,000 CD for $30,000, but you won't see any interest until the CD is mature. And you still have to pay taxes on that anticipated interest every year.
Jumbo: True to its name, a jumbo CD is an option only if you have lots of cash on hand, typically $100,000 or more. Your jumbo investment will typically net you a higher interest rate.
Brokered: A brokered CD is simply a CD purchased on your behalf by a financial adviser or broker who does the legwork of finding the best rate. Of course, you'll probably pay a fee for this service.

Is a CD Right for You?

CDs are a stable, low-risk way to dip your toes into the world of investing. They're easy to open and generally don’t require further decision-making once your money is secure. Traditional CDs guarantee you’ll get your investment back — plus interest earned with a predetermined interest rate — when your term is up. If you can keep your hands off your money for the whole term, you’ll reap a higher interest rate than what’s offered by a typical savings account. CDs are worth a look for someone who is wary of higher-risk investments and can afford to sock money away for a longer period of time.

On the other hand, if you need easy access to your savings, a CD isn't the best choice. For instance, you don't want to put your emergency fund in a CD — that's money you need to be able to withdraw immediately if the need arises. Also, the interest rate on a CD might not earn you much more than a savings account unless you set aside a lot of money for a long time. Finally, consider that interest rates can only go up from today’s rock-bottom levels, and you might not be pleased that your money is locked away at today’s low rates when they finally do rise.

A Primer on CD Rates

Remember, interest is denoted as APY, which stands for "annual percentage yield." Don't confuse APY for APR, which means “annual percentage rate” relating to loans and credit cards.

If you put $500 in a one-year CD with a 1.10% APY, you would make $5.50 in interest after the year-long term. Note that interest is always denoted annually, which can be confusing if you're considering a CD with a shorter term. Say you deposit $500 in a six-month CD with a 1.10% APY. You aren't going to see $5.50 in interest after the six-month term. Instead, you'll see $2.70 — half the interest you would have earned in a year.

Another thing you’ll probably see denoted: How often your CD compounds — that is, when the interest rate is applied to the balance of your investment. This may happen as little as every year or as often as daily (or even continuously). Fortunately, if you directly compare the APY from current CD rates, you don't have to worry about how frequently the CD compounds. The APY will already take that into account no matter how frequently it occurs.

Why are CD interest rates so low?

As I mentioned above, today's current CD rates are nothing to write home about. In 2006, one-year CDs had an average APY of about 3.6%. With the exception of a brief rally in 2008, they’ve been falling ever since. Why? There are several factors at play. One is that banks are sitting on a lot of money. The subprime mortgage bust forced many banks to merge and consolidate their reserves, meaning they don't necessarily need your cash. Plus, in response to the subprime mortgage crisis, the Federal Reserve lowered its target interest rates to record-low levels in order to stimulate the economy. In turn, this gives banks little incentive to raise their own rates. Finally, demand for safe, low-risk places to stash money is high, meaning banks don’t need high CD interest rates to attract customers.

Most experts think the Federal Reserve will maintain its rock-bottom rates well into 2015 or possibly as late as 2016. In other words, don't expect a miracle rebound in bank CD rates this year.

What Is CD Laddering? The Pros and Cons

If you've poked around the world of CDs a bit, you may have heard of “CD laddering.” Simply put, this is an investment strategy in which you divide your total investment into several equal chunks of cash. You invest each chunk in a CD with a different term so that the CDs mature at different times.

A major benefit of this strategy over investing all your cash in one longer-term, higher-interest CD is that you can access a portion of your investment relatively soon, when the first CD matures. Then, you can reinvest the money into a longer-term CD at a better interest rate and continue doing the same thing each time one of your CDs matures. Essentially, you get the benefits of better interest rates with the assurance that you can access some of your money periodically.

For example, if you have $10,000 to invest, you might invest $2,500 in one of each of the following: a one-, two-, three-, four- and five-year CD. When your first CD matures in one year, you can access your cash, plus interest earned, without a penalty. Then you can reinvest it in a five-year CD with a better interest rate. You can do the same thing when the two-year CD matures, then the three-year CD, and so on. Eventually, you’ll have a five-year CD maturing every year. You'll be enjoying the higher APY of a longer-term CD, but you’ll still be able to access some of your money every year.

The downsides to CD laddering mirror those of investing in CDs in general. Even though you'll have more access to your money, you still won't have the liquidity that a savings account would offer. And portions of your money may be locked in at a low APY even as rates rise. Fortunately, being able to reinvest periodically can help offset the latter risk.

4 Tips for Finding the Best CD Rates

Now that you're clear on what CDs are and whether they're right for you, the tips below can help you secure the best CD interest rates.

Tip #1: Comparison shop

Obviously, your local banks and credit unions will offer a range of CDs. But before you embark on a tour of nearby lending institutions, consider using the Internet to land the best deal. As with savings accounts, online banks often offer the best CD rates because they don’t have as much overhead as traditional competitors. Online banks also typically make the web and mobile experience smoother for customers than brick-and-mortar banks.

Tip #2: Invest for a longer term — maybe

Traditionally, long-term CDs have higher interest rates. The obvious tradeoff is that you can’t get your hands on your money as fast. CD laddering, discussed above, can help you benefit from higher interest rates without locking away all of your money.

Tip #3: Look for special deals

Banks sometimes offer an attractive rate because of special circumstances. Maybe they need the cash, or maybe they’re trying to stand out in a crowded market. And it never hurts to ask in person whether your bank can do a little bit better on its rate.

Tip #4: Look beyond traditional CDs

Today’s interest rates are extremely low, and many experts say the tide is bound to turn by the end of next year. Liquid and bump-up CDs will let you take advantage of rising interest rates if you’re willing to accept a slightly lower initial rate. Of course, these CDs are inherently riskier, and if low risk is what drew you to CDs in the first place, they might not appeal to you.

Begin Your Search

Now you know what kind of CDs are out there, why interest rates are low and how to score the best rate. If you think CDs are a good place to stash your cash, it's time to shop. Begin by comparing current CD rates using our online quote tool.

The post How to Find the Best CD Rates in 2014 appeared first on The Simple Dollar.

Questions on Golf, Price Books, Magazines, Cast Iron, and More!

Posted: 13 Oct 2014 07:00 AM PDT

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Tracking grocery expenses
2. Price book advice
3. Letting go of old business
4. Credit cards and international travel
5. Compromise and financial goals
6. Enameled cast iron advice
7. Job change advice
8. “Sharing economy” thoughts
9. Amazon Prime question
10. Salary advance question
11. Magazines worth keeping?
12. Earning money in an emergency
13. Use for phone books?
14. Too many goals and projects
15. Finding old golf balls

Once every year or so, I find myself taking a nap in the middle of the afternoon.

I don’t like naps. If I’m feeling worn out, I would far rather solve that problem by going to bed early that night. Sometimes, though, things don’t line up exactly the way I want them to. A child cries in the night or a huge storm blows through. I can’t get to sleep because of various thoughts running through my head. I stay up too late working on a project.

And then I just fall asleep on the couch in the middle of the afternoon.

I hate those days. When I finally do wake up, I feel incredibly groggy for the rest of the day, go to bed early anyway, and then wake up at 4 AM because I’ve already had tons of sleep in the last twenty four hours.

Guess what time it is as I’m working on this draft?

4:12 AM.

Darn naps.

Q1: Tracking grocery expenses

I know you’ve mentioned using Excel spreadsheets for tracking spending. Do you have a basic sample that you’re willing to share? Do you use one for groceries? I remember seeing a letter from someone who had saved every receipt for the past 18 months and they wanted to know if they should spend the time putting all of that information into a spreadsheet. You said, “No, only the past 6 months.” I found myself musing that I have that many months receipts as well, so could identify with the writer’s situation.
– Kelly

My homebrew spreadsheet for tracking expenses is really, really simple. I just have one column with the date, one column that describes the expense, another column for the category – food, entertainment, and so on – and another column for the total.

At the end of the month, I just use simple formulas to total up the expenses in each category. This great article explains exactly how I do that. Essentially, off to the right, I’ll have a cell that’s labeled Total Food Expenses and then the one next to it has a formula like =SUMIF(C:C,”food”,D:D) which just totals up all of the values in column D that line up with the word “food” in column C.

These days, however, I just use You Need a Budget for all of that stuff. It does all kinds of things like this much more efficiently than my homebrew kludges.

Q2: Price book advice

Since I shop at different stores, how would I track prices of one store vs. another for items? I’m thinking that this could get really cumbersome, very quickly.
– Kelly

I tried doing this once upon a time. It’s called a price book. You’re right – it gets cumbersome quickly.

Instead, what I did is figured out what my twenty or twenty-five most frequently purchased staples are – things like milk or bananas that I buy every time I go to the store (or close to it). I then went to several stores in the area and priced out those items, then I totaled the prices at each store to determine which one would be cheapest if I bought all of those items. That store became my primary store (it was actually Fareway).

Every year or so, I do this comparison again. In my area, Fareway usually wins because it fills my list; a few other stores can do many of the items cheaper (Aldi, for example), but they don’t seem to carry all of the items.

Because of this pricing, I prefer to shop at the nearby Fareway. If I’m near an Aldi (which is farther away), I’ll shop for some items there. This takes care of 95% of my grocery shopping.

Q3: Letting go of old business

Over the last decade, I built a small gardening and lawn care business from scratch. Eventually, I employed a few people and found that less and less of my time was being spent on the actual yard and garden work that I really loved, so I sold the business. I agreed not to start a competing business for a while.

My big problem is that I miss the work. I really love working in people’s yards and making them look great. Few things really make me feel happy like a well-maintained lawn. So I went back to the old business and asked for a job but he told me that he really didn’t have hours for me. I think the new owner was afraid of me effectively “running the show” or poaching clients (which is understandable).

I need to let go of the business and move on but I’m having a hard time with it. What do you suggest that I do?
– Andrew

I have this same problem. I loved many aspects of the job I had prior to moving to The Simple Dollar full time. Even now, I still check in on the websites and other things that are related to that old job, and I still miss many of the people and the technical problems that I dealt with there (the parts I didn’t like were the weekend interruptions and the travel and the bureaucracy).

For me, the thing that keeps me from obsessing over it is the realization that I made a tradeoff. I gave up some things that I cared about so that I could have some other things that I cared about. It wasn’t an easy or perfect decision, but it was one that I made and it was one that most certainly rewarded me with some things that I couldn’t have had if I had stuck with that job.

Focus on what you gained. You gained freedom from the management parts of the job that you didn’t like. You gained some financial security, I’m sure. You gained a chance to try new things in your life.

If you miss the yard work, focus on your own yard. Make it look amazing. If you reach the end of your agreement, don’t be afraid to set out your shingle again … but then keep it small so you’re not managing employees.

Q4: Credit cards and international travel

My girlfriend and I, want to go to visit her parents, daughter and granddaughter in Bolivia. She has not seen them for 10 years. :( We live in Spain and Las Vegas, so our question is what travel credit card would you recommend for us to get to use for international purchases while we are in Spain? We want to go to Bolivia the end of next year. What are your thought or suggestions?
– Anderson

The exact offers change all the time. What you should focus on are cards that offer no foreign transaction fee. As long as they’ve got the Visa or MasterCard logo, you should be fine using them in those countries (at least as far as I can tell with my research).

How can you find cards like that? Again, if I were you, I’d start with cards from very large banks that operate in those countries – Citi, Chase, and so on. Go to their websites and look for cards with no foreign transaction fees and start comparing.

For example, I went to the Chase site and quickly found a bunch of cards with no foreign transaction fee (here are several such options). The exact card you choose will probably depend on your preferred airline and other such personal factors.

Q5: Compromise and financial goals

My husband and I have both always been pretty cheap. We save/invest about 35% of our annual income and have done so for the past decade.

The one area where we disagree financially is on cars. Whenever a car gets really old, I start to avoid driving it if I can. When a few repairs hit, I stop trusting it and I start seeing all of the flaws of age in the car and I really yearn to get a “new” one. He wants to keep driving them until the transmission is dragging along the pavement and there are rust holes in the floorboard.

This has caused more disagreements than you can imagine. I was hoping you had some insight into this.
– Alison

This is an area where compromise really matters.

Are there any areas where your husband feels that it’s appropriate to spend more than you do? For example, I’m more of a cheapskate than Sarah when it comes to cars (she’s the one that drives the newer car for her commute, while I mostly use the car bought off of Craigslist), but I prefer to spend more on gifts for others. Compromise there – you can choose a replacement car when you start getting nervous while he gets some leeway on an area that’s important to him.

You guys aren’t hurting for money. If your saving dips down to 30% because of these compromises, you’re still going to be retiring really early. You’ll just be able to do it without worrying about the transmission falling out of your car.

Q6: Enameled cast iron advice

My husband and I are looking to replace some of our Teflon-coated items in our kitchen before they peel. I know that in the past you’ve sworn by enameled cast iron pots and pans (and regular cast iron skillets). I went and looked at some enameled cast iron stuff and was shocked at the price. The Le Creuset stuff you use goes in the hundreds of dollars!

Is there an inexpensive way to get some good quality enameled cast iron pots?
– Denise

Our Le Creuset French ovens (which essentially means an enameled cast iron pot) were acquired through a gift and a going-out-of-business sale. I would also balk at the price the items go for new, but it’s pretty hard to argue with a 101 year warranty.

So, what should you do if you don’t want to pay that high price? I’ve had nothing but good experiences with Lodge cast iron items, both their enameled cast iron stuff and their non-enameled stuff. These items just work well – I’ve never seen one break and it seems to work pretty much as well as our Le Creuset.

Honestly, after switching to enameled cast iron for our pots, I really don’t want anything else. I can cook anything in these pots and after some scrubbing you can’t tell I did anything with them. We’ve been using ours several times a week for at least five years and they basically look new.

Q7: Job change advice

A little background: I am the sole provider of a family of five; my kids are not yet school aged. I currently have a decent, low stress job that includes a decent house on acreage as part of my salary. I have a good deal of latitude and overall am comfortable. The pay is above average, but only slightly so. Sounds good, right?

The twist: I’ve been contacted by a startup in my industry and have been offered a position. The position comes with a salary that is about 30% higher than what I currently make, and would potentially become much, much higher as the company grows. I would have to move my family to a new area and purchase a house.

My dilemma: Do I leave a stable job with a stable company for a risky startup in a new area that may have a huge reward (or huge consequences), or do I stay in the comfortable situation and maybe miss out on the job of a lifetime? The startup has a huge upside but has just a much of a chance of failing after the first year.
– Niles

Your question is answered by your response to a different question: what happens if you jump ship and the startup fails?

It’s as simple as that. If you can’t quickly bounce back on your feet and provide a solid income for your family very quickly, then you shouldn’t jump. If you’re not sure what you would do, then you shouldn’t jump.

You should only make a jump like this if you have a healthy amount of savings and a clear plan for an exit strategy that gets you into another job quickly.

I would give completely different advice to a single person or even to a married person without children. Once you have children, though, you’re responsible for someone who can’t earn but has expenses that you must be able to cover. That changes your options.

Q8: “Sharing economy” thoughts

Any thoughts on this article: http://www.theatlantic.com/sponsored/delta-view-from-the-top-2014/what-it-takes-to-grow-a-startup-from-the-ground-up/187/?

You rarely mention services like Uber and Lyft so I wanted to get your thoughts on them.
– Alex

I don’t mention services like Uber and Lyft because they don’t exist in rural Iowa. If I need a ride, I’ll ask a neighbor. Since I’m not familiar with the service, it’s really hard for me to personally recommend it. If I did start talking up Uber and Lyft, it would be pretty obvious that I was making stuff up.

As for the idea of a “sharing economy,” I just feel like it’s an organized extension of what a good relationship with your neighbors and a healthy social network with people in your physical community gets you. If I need a garden hoe, I can just go ask a few people, walk to their house, and get one in five or ten minutes. I needed a corded drill with plenty of torque for a project I was working on recently – I had one in my hands, from a friend, within a day.

It just seems like businesses are stepping in here to facilitate community that’s withered on the vine. Nothing is keeping anyone from asking their neighbors for help or sharing what they have with their neighbor.

Q9: Amazon Prime question

When is Amazon Prime is worth the cost? From what I can tell the benefits are free two day shipping on all items and Netflix-like streaming video. I can’t decide whether that is worth the annual cost.
– Lana

It really depends on your situation. No service is right for anyone. While I like the two-day shipping, it’s not the killer thing for me.

The thing that really makes Prime worthwhile for me is that I can now use Amazon as a true price comparison tool for everything. If I see something in a store, I can check the price on Amazon and if Amazon is way lower, I can just order it from there (or ask for a price match). The two day shipping offer with Prime doesn’t require a minimum price, so I don’t have to look for items to add to get the price up to the “free Super Saver Shipping” level.

Is it worth the annual price for that? Probably not. For us, it’s the summation of the various features. We give two day shipping service to my parents as part of our Prime membership. We certainly take advantage of the two day shipping for us. I use the Kindle Lending Library pretty frequently. We also watch a number of shows on Amazon Prime. In all, the pieces add up to “worth it” for us, but they might not for you.

Q10: Salary advance question

My employer was recently acquired by another organization. We went from a bi-weekly payroll schedule to semi-monthly, and they offered a salary advance to offset the difference in payroll cycle. The repayment agreement states that I will pay the partial salary advance back by 6 equal payroll deductions from future paychecks.

My question is this: the payroll advance was netted, with deductions made for 401k contributions and applicable tax withholdings. But the repayment agreement states that I will pay the gross amount back. Is this correct? I feel like that would mean I am paying taxes twice.

The numbers: net advance $800, gross $1,200. Repayments of $240×6 pay periods.

Can you explain what I'm missing?
– Shawn

You’re not missing anything. If you were given a pre-tax salary advance, then it should be “paid back” in a pre-tax fashion. It sounds like that’s what your agreement says, too.

If I were you, I’d head over to your human resources office and get this straightened out. This sounds like someone messed up the distinction between “net” and “gross.”

If you can’t get them to fix it, I’d contact the IRS and see whether or not you can resolve this when you file your personal income taxes. You shouldn’t have to pay income tax twice. That’s double taxation.

Q11: Magazines worth keeping?

What magazines do you think are worth keeping around for future reference? We have several magazine subscriptions and save them all, but I just realized that we really don’t look at them. We have a closet full of magazine boxes.
– Claire

On the occasion when I find an article or an item in a magazine that I might want to reference in the future, I tear out that page and scan it into my computer, then I chuck the magazine. This lets me search the article text later on. I have a folder on my computer of articles I’ve scanned over the years.

This generally only happens with how-to magazines – food magazines, do-it-yourself magazines, and so on. I’ll occasionally find an article I want to save to reference in future writing, too.

The only magazine I’ve saved is MAKE, which is a do-it-yourself magazine. However, I also have the issues in electronic format, so I’m not sure I’ll be hanging onto the paper versions forever. They are taking up space in a closet; when I look at old issues, I always look at the electronic back issues.

Q12: Earning money in an emergency

What kinds of things can a person do to earn money *legally* in a short period of time (like a week or two)? Let’s say I have a property tax bill that needs paid by the end of the month but I don’t have access to that kind of cash. How can I earn $1,000 or so beyond my normal income in just a few weeks?
– Adam

There are a number of things you can do to earn some quick cash. Sell plasma. Clean out your closet and sell stuff you’re not using. Offer to babysit with every parent that you know. Go to some free dinners in the area and avoid spending money on groceries. Get a part-time job. Hang up postings that you’re willing to do odd jobs. There are lots of ways to make a quick buck.

Obviously, many of those things aren’t sustainable. A new job can work in the short term, but often presents logistical problems after a while. You can only sell so much stuff out of your closet. These tips only really work well the first time around.

Still, those ideas should give you a jump start toward your goal. Between them, you should be able to come up with most of the cash.

Q13: Use for phone books?

A couple of decades ago I read some homemaking tips from a book by Ruth Stout, who’s best known for popularizing mulch farming in How to Have a Green Thumb Without an Aching Back. Anyway, this idea is from another of her books.

She wrote about using pages from an old phone books for paper towels. I’ve done that ever since–never pay for paper towels again. This works because in our town anyone can get free phone books any time of the year. I go through 3-4 a year. If we couldn’t get those for free, I’d probably ask friends to save their old phone books when the next year’s one comes out.
– Mary

That’s certainly a good idea. It turns something that isn’t very useful today – phone books – into something that is useful.

Around here, at least, they’ve stopped shipping out phone books. We haven’t received one in a while – at least a year or two since our last one. I think that the companies that make the books have realized that they’re not as useful as they once were.

My solution for a paper towel substitute is… get this… a hand towel. We keep a bunch in a drawer in our kitchen and use them when needed. They just go through the normal laundry and back into the drawer.

Q14: Too many goals and projects

How do you deal with having too many goals and projects on the docket?

I keep pretty careful track of all of my ongoing goals and projects and they number in the dozens. There are far too many to make forward progress on each and every day.

Is this a problem that you run into? How do you handle it?
– David

If you have so many goals that you can’t make forward progress on them, you’ve got to cut some of them out. There’s no way around it.

I try to focus on single projects that move me forward in multiple dimensions of my life at once. For example, let’s say I want to get into better shape and also want to spend more time with my kids. If that’s the case, why not institute some sort of family exercise? Take a family bike ride a few days a week or play basketball together a few times a week. That way, you’re killing two birds with one stone.

Just look through your projects and come up with ones that can meet the needs of multiple priorities in your life, then toss the rest of them. You can always come back to them later as your priorities change.

Q15: Finding old golf balls

I wanted to share one of my favorite tactics for golfing on the cheap. I golf about once a week over at a local public course when the fees are really low. They have “happy hours” and other times where you can golf for a pittance.

Anyway, my big tip for saving money is to look in the weeds for balls when you hit your ball over there. I hit my balls in the weeds all the time and I usually find it, but when I do, I’ll find a few “lost balls” too. I toss these in my bag. Right now, I have a five gallon bucket in the garage with hundreds of balls in it and I haven’t purchased a ball in many years.
– Jim

This is a really good idea for people who aren’t exactly “pro” when it comes to their golfing (like me).

About three weeks ago, Sarah and I went golfing with friends on a public course. It was my first golf outing in years. I had several old balls in my golf bag that I used, but I actually came home with more than I left with. I found a ton of balls in the deep rough.

When I got home, I cleaned up those balls and put them back in my bag. It now looks like I have a pile of new balls! Sure, they might not be functionally perfect, but they’re close enough that I won’t be able to tell (especially in three years or whenever I go golfing again).

The post Questions on Golf, Price Books, Magazines, Cast Iron, and More! appeared first on The Simple Dollar.

Cash Flow vs. Capital Gains Investing: The Two Investing Paths

Posted: 13 Oct 2014 05:00 AM PDT

Ever wondered what it takes to become a successful long term investor?

You don’t necessarily need to have deep macro knowledge about international trends, or a gambler’s mentality. No, long term investing really comes down to your investment principles, and having the courage to stick to them.

In the investment world, there are two basic investment principles. They are:

Investing for capital gain
Investing for cash flow

One of the foundations for successful investing is to be clear on which principle you want to follow. It’s advisable to choose one as your main principle even if you end up doing a bit of the other along the line. If you decide to go in just any direction at any point in time, chances are you’ll end up being confused – and frustrated.

If for no other reason, the one reason why you want to have an investing principle is to help you measure your success.

I should make it clear that, contrary to what you might have read in the past, cash flow investing isn't superior to capital gains investing – nor vice-versa. It all depends on what you want to achieve in the end. Let's consider these investing principles one by one.

Capital Gains Investing

At its heart, capital gains investing is the art of buying and selling an asset for a profit. For instance, you are a capital gains investor if you buy a stock for $100 a share and sell at $150 a share. This means that being successful at capital gains investing fundamentally hinges on your ability to identify undervalued assets.

People often mistake capital gains investing for the game of speculating on assets. While there is a risk of speculation when investing for capital gains, this investing principle isn't about speculating. Successful capital gains investors don't buy and “pray” that the asset just appreciates, as many antagonists of this investing principle describe it. Capital gains investing is a principle of buying below retail value and waiting for the asset to rise (its stage of maturity). It’s not the game of buying at, or even above, retail price and hoping that inflation will occur to make a profit. The latter is speculating while the former is investing. Investors who invest for capital gains research assets to be sure they are trading below their intrinsic value.

A good way to see capital gains investing is by seeing yourself as a value investor. Value investors look at certain aspects of an asset to determine the asset presents an upside potential.

If you're going to invest for capital gains, the first thing you want to do is to research an asset to make sure that it’s not already overpriced. You have to put down some criteria for anything you want to invest in. We'll consider two instances, one for stocks and the other for real estate, to establish a proper capital gains investing discipline.

Instance 1: Investing in Stocks

Note: This example isn't to recommend any mentioned stock, and I do not own shares of any mentioned stock.

Since the stock market is made up of various industries, the first thing I recommend is to only invest in the industries you understand well. Investing in industries you don't know is the first step to becoming a speculator, as your investment decisions won't be adequately informed. On the flip side, when you invest in industries you understand, you can easily tell when a company is doing something that presents an investment opportunity.

Having said that, let's consider some investments that target capital appreciation.

Let’s say that in 2007, when Steve Jobs unveiled the iPhone, you predicted Apple would change the mobile phone landscape. So, you bought Apple stocks with some level of certainty that its price would rise in future. In reality, when the iPhone finally delivered on that promise, Apple stock rose.

Now let’s say that when Google came out with Android, based on your research you determined Apple could no longer dominate the mobile phone market. So, you decided to cash in at a profit. You wouldn’t if you found something new in Apple that promised an even greater upside potential.

Instance 2: Investing in Real Estate

As a capital gains investor who wants to invest in real estate, you have to lay down some real reasons why you want to invest in any property. Whatever the reasons are, there must be an upside potential. You can't just buy a property because there is an in-built theory in real estate investing that properties will always appreciate. Again, that would mean you're speculating on the property.

Here is a good instance of proper capital gains investing in real estate. You might set your discipline as investing in properties in regions that could see significant urbanization over the next few to several years. For instance, if you have reliable information that a higher institution will be established in an environment that is relatively under-urbanized, you might decide to take positions in properties in that environment knowing that, when the institution arrives, the value of the properties will rise.

You’ll notice that, in the two examples, the key strategy is buying when an asset is undervalued and selling when it's no longer fairly priced, or better yet, overpriced.

Capital Gains Investing Best Practices

As I stated above, it's easy to speculate when you invest for capital gains. However, if capital gains investing is your favorite path, consider the following as part of your discipline:

First, don't sell just because an asset you bought at $100 is now $150. Your reason for selling should be that, at whatever price it is, the asset no longer holds the criteria which motivated you to buy in the first place. While you may lose at times, if you had a reason that's beyond metrics, you will win in most situations.
Don't sell because the market is down. For instance, if you bought Apple in 2007 because it would dominate the mobile market, chances are you were tempted to sell and get some profit when the market went down in 2008. That would be a wrong call, since the market crash didn't make Apple lose its position in the mobile market. You should always keep in mind the market always fixes itself somehow.
Don't speculate. No matter how much analysts talk up any asset, you need to be sure that it meets your investment discipline before you take any position. You have to be sure that it is really undervalued. Anything other than that is called speculating.
Research a lot, buy a little. If you're going to be successful at capital gains investing, you have to spend more time researching than investing. If you conduct your research diligently, you will always find out that only about 10% of the assets you research are worth investing in. But don't be tempted to invest because of the time you have invested.
This is not really a "best practices point," but it's worth mentioning. If you're going to invest for capital gains, you should ensure you have a positive cash flow. As stated above, capital gains investing requires diligence and patience. If you don't have a positive cash flow, it is easy to foul on your discipline and speculate instead of doing everything stated above.

Cash Flow Investing

Simply put, cash flow investing is the art of purchasing an asset and holding onto it in expectation of getting a constant return on a monthly, quarterly, or even annual basis. Regardless of the interval, the keyword here is a "constant return on your investment."

The periodic return usually takes the form of dividends for certain investment vehicles like equities, or it could come in form of rent in real estate investing. The core idea of investing for cash flow is to build wealth steadily. This investing principle is what gurus would tell you to use to prepare for retirement.

This model is also good for building capital, as it assures you of a constant income at intervals. The reason why investing gurus advise people to invest for cash flow is that it helps people keep their eyes off short-term market movement, which could lead into panicking.

With cash flow investing, you aren't caught up in the risk of estimating too much. I must state at this point that, as shown by various researchers, if capital gains investing is done right, it promises better return than investing for cash flow. In fact, as Geoff Considine found, income investing reduces safe withdrawal rates.

However, investing for capital gains comes with a somewhat higher estimation risk. Since you’re after capital appreciation, it is easy to overestimate the investment opportunity at hand. But with cash flow investing, you won't have to do much estimation since what you’re after is steady income.

Another reason why income investing could be potentially safer than capital gains investing is that it doesn't depend very much on your ability to time the market.

Strategy Still Matters

Cash flow investing isn't all about just putting your money into some income-generating assets. You will need to have a strategy. First, you should always take the long-term view. You have to research the potential state of an asset (real estate or securities) for years to come. At the minimum, even if the asset will have a problem in the future, you need to be certain to some extent that the asset would have generated enough cash flow to cover your initial investment. Again, here are two instances to understand the proper way to invest for capital gains.

Instance 1: Investing in Stocks

You can’t afford to invest in a dividend-paying stock just because it pays well at the moment. You need to conduct research to have some level of certainty that the company behind the stock has the potential to, first and foremost, sustain its business at a level where it can keep distributing its gains among investors at intervals.

It's of great importance to know that lethargic economic growth and depressed earnings forecasts, among other factors, could make companies cut their dividend payout or even completely stop paying dividends.

When investing in stocks for income, you need to be aware that the most important thing is the ability of the company in question to maintain a huge cash reserve. It is from cash reserves that companies pay dividends. If, for instance, you want to invest in Microsoft, you want to be sure that the company can generate and maintain a huge cash reserve.

An effective way to assess a company's cash-generating power is by looking at its businesses. You want to check how diversified the company is. You have to check the company's position in the markets in which it operates. One thing I have found with the most-performing dividend stocks is that they are leaders – not necessarily number one – in their industries.

In the case of Microsoft, the company is a leader in the PC market, and it is also well diversified. It also generates sufficient free cash flow from its businesses. As long as the company leads the PC market and remains diversified enough to keep generating a healthy cash reserve, it would be a good option for generating income. Without these fundamentals, investing in Microsoft just because it pays dividends will be risky.

Instance 2: Investing in Real Estate

Again, you can't afford to invest in any property just because the income is great at the moment. You also need to be sure that the properties you invest in can perform long enough for you to recoup your initial capital.

When investing in real estate for cash flow, you have to think about things like this: What future events could cut me from this stream of income? Earthquakes or any natural disaster? Civil unrest? And then, you have to research into the possibilities of these events occurring. This will help you make safe and informed decisions.

For instance, a good practice would be to invest in properties in areas that are usually peaceful. Such areas will naturally attract residents, which will assure you of a consistent – and perhaps growing – income from rentals. However, if you invest in some property in a volatile area just because it generates high income at the moment, you are exposing yourself to significant risk, as such an environment might end up being unsafe to inhabit and end up forcing income down due to decrease in property demands.

As a matter of fact, you might want to follow the approach I described in capital gains investing. Invest in any asset because you see value in it. This approach, while it may not promise the highest yield, gives some assurance that your invested capital will be safe, whilst you generate income.

Cash Flow Investing Best Practices

History matters. This might be counterintuitive since some gurus say that the past doesn't determine the future. Yes, they’re right. But the truth is that the more we hear such things, the more we find history repeats itself. Even after you're sure that the asset you're investing is great, you need to look at its history to see what it’s been building. If nothing else, be sure that the company has traces of consistently maintaining good cash reserve.
It's not always about yield. It's easy to be tempted to buy an asset simply because its yield is high. However, you need to ask yourself if the high yield can be maintained. You're better off with a low-income asset that’s consistent than a high-yield one that cannot be maintained. After all, income investing is all about consistency.
Debt matters. When you're investing for cash flow, you want to be sure that you're investing in assets that don't have huge debt on them. It’s even better to invest in assets that have no debt at all. Understand that debt will reduce your earning power.
Payout ratio also matters. This is to tell you what portion of the generated cash is used in paying dividends. A low payout ratio combined with a healthy yield signifies that dividends are being paid easily, and that it could rise in future.

A Big Misconception

One of the biggest misconceptions about income investing is that it’s all about buying and holding. While you shouldn't focus on short-term market movements which, by the way, isn’t even advisable for capital gains investing either, you need to keep tabs on the fundamentals of your investments. No matter how attractive an income-generating asset could be at the moment, you would be right to cash in and look for better options if the fundamentals are no longer there.

How to Determine the Path You Should Take

There is no one-model-fits-all approach here, but beginner investors are better off investing for cash flow — at least until they have a positive cash flow and can manage their emotions and expectations. An in-depth understanding of markets is required to make it in capital gains investing.

In addition, if you're planning for retirement – a relatively modest one at that – cash flow investing could be better suited for you since it guarantees a constant income.

Capital gains investing, on the other hand, is better suited for you if you already have a constant flow of income – like salary – and you're not preparing for retirement. A constant flow of income will help you stick to your investing disciplines no matter what. However, you need to be able to stomach more risk if you're going to invest for capital gains.

The post Cash Flow vs. Capital Gains Investing: The Two Investing Paths appeared first on The Simple Dollar.

Small Business Insurance Basics

Posted: 12 Oct 2014 11:00 AM PDT

There are about 45 million businesses in the United States of which more than 99 percent are considered small businesses. More than 40 million of those small businesses have fewer than 20 employees. All businesses, small and large share a common need for protection against the unexpected, and small business insurance satisfies that need. Unlike, big businesses that can have policies tailored to their exact needs, small businesses must rely on off the shelf solutions.

The challenge when it comes to small business insurance is twofold, having the right coverage and enough of it to provide adequate protection. The answers to both challenges are unique to the individual business, however, making a decision about how much insurance is necessary cannot be done without knowing what kind of insurance is needed. To help decode the myriad business insurance offerings, we’ve created an overview of each of the different business insurance products available.

Types of Small Business Insurance

Business Owner Policy

When small businesses set-up shop the most common type of insurance they get will be a Business Owner Policy. The reason for the ubiquity of this policy is its ability to customize to meet the particular needs of different businesses. This is possible because a BOP allows a small business owner to package a variety of coverages under the cover of a single policy. This simplifies administration for you by having only one premium and renewal date to keep track of.

At the heart of all Business Owner Policies is business interruption insurance, which may also be called business income insurance. Its purpose is to replace part of all of your lost income in the event your business is unable to operate because of a disaster that forces you out of your place of business. In addition to replacing lost income due to disaster events such as fire you may be eligible to receive additional funds to help defray the added costs of operating from a temporary location.

As a bundled coverage policy, you can add other types of coverage to your BOP based on your particular needs. Additional coverage can be added for things as disparate as outdoor signs and e-commerce protection for viruses or other cyber attacks that inhibit your ability to conduct business online. Each of the additional types of insurance you add increase your base premium and share the same renewal dates as your original policy even when they are added at different times.

While having much or all of your business insurance in a single policy has the advantage of convenience, there can trade-offs that should be considered. The foremost of these is cost, which can be higher. For example, in many cases the separate premium for business car insurance may be lower than it would be if it is part of a BOP bundle. A popular school of thought is to bundle as much as possible under a single BOP when a business is new and insurance needs are limited and to break out coverage into separate policies as the business grows and it becomes cost effective to do so.

Property Insurance

This popular component of a business owner policy can be purchased separately and tailored to your needs. Property insurance offers protection for two types of business property, structures and contents and is sometimes called fire and theft insurance. The structural portion of commercial property insurance insures your business premises from damage, whether you own or lease. It also covers certain exterior features such as signage fencing and landscaping against loss or damage due to covered risks.

The contents portion of a business property insurance policy covers loss or damage to what’s inside your place of business. You furniture, computers, equipment and inventory are all covered for loss or damage. Work product items, like architectural drawings or client files are also covered. For example, if a fire occurs in an adjacent office and your business has damage from smoke and water you will be paid for the damage and the cleanup costs associated with the incident.

Liability Insurance

Like business property insurance, liability protection is often added into a BOP for new and very small businesses with limited liability risk. An uncomfortable reality for all businesses is the possibility of being sued due to faulty service or a bad product. Liability insurance also provides protection in the event someone is hurt by your business or while at your place of business. Liability insurance will pay for the medical expenses of those injured up to the limits of your policy. In addition to providing for actual damages this insurance will pay for an attorney and court costs associated with defending your business.

Workers Compensation

Workers compensation insurance will pay for the medical expenses and a portion of lost wages of covered employees who are injured while working for you. The requirements for workers compensation insurance vary from state to state with the exception of Texas which does not require it. The majority of states require that your business has coverage if you have one or more employees. A small number of states do not require workers compensation for less than three to five employees. It is important to check with your state’s department of labor because not having required insurance can result in substantial fines and penalties.

Business Auto Insurance

The insurance portion of business vehicle insurance works exactly the same way it does with your personal car insurance. In most cases you will not need this separate coverage if your car is used for both personal and business. However, if the vehicle is exclusively for business use you will need a separate policy. The same types of coverage are available, liability, collision, comprehensive, personal injury protection and uninsured\under-insured motorist. A significant difference is that a business auto policy may only cover drivers that are named on the policy. While this can be bundled with a BOP policy it often pays to shop for the best rate separately.

Errors and Omissions

This is similar to liability insurance in that it protects you against lawsuits, but it is for professional services which why it is also known as professional liability insurance or malpractice insurance. It is intended for businesses that provide services to consumers, such as doctors, lawyers, accountants. This insurance should also be considered by certain other service type businesses such as advertising or insurance. In fact, any business where the customer is relying on the opinion and expertise of the business should consider E&O insurance.

Employment Practices Liability Insurance

Once, only large corporations had to be concerned with employee claims that their rights had been violated but in recent years the number of suits against small businesses has skyrocketed. Employment practices liability insurance, EPLI works by defending you against claims such as; sexual harassment, discrimination, wrongful termination, negligent evaluation and other employee initiated suits. If a claim is successful EPLI will pay the claim. EPLI will not pay for punitive damages or fines. Small businesses that want this protection can have it added to the BOP policy as an endorsement.

Not all insurance companies that offer business owner policies offer an employment practices liability endorsement and those that do usually have rigorous underwriting requirements. Rates for this coverage are based on several factors, including the number of employees and your company’s history of disputes and lawsuits.

Directors and Officers Liability Insurance

This type of coverage can be summed up as personal protection for professional decisions. Directors and officers liability insurance insures managers and board members in the event they sued personally for actions they took as managers or board members. D&O coverage is primarily of interest to businesses that operate outside of the United States at least a part of the time since such lawsuits uncommon in the U.S.

D&O liability insurance is often confused with errors and omission insurance because both protect against lawsuits that result from bad decisions where the company is the plaintiff. Coverage is based on claims made basis, which means directors and officers are only protected while the policy is in force. Any legal actions that are initiated after the policy is cancelled are not covered even if the incident occurred while the policy was in place.

Key Employee Insurance

Key employee insurance is life insurance with the specific business purpose of providing money to ease the cost of losing an important employee. A key employee life insurance policy is one that is owned by the business and has the business as the beneficiary of the policy. The purpose of this type of insurance is to provide income or funds to help with expenses while a replacement for the deceased employee, manager or even owner is found. This coverage could also be used as a means to replace income that results from the untimely death of a business’ top salesperson which can be particularly devastating if they were responsible for generating new business rather than servicing existing customers.

Key employee insurance may even be required by some lenders when credit is based on the contribution of the key employee to the business. Since these policies are permanent forms of life insurance such as whole life the accumulated cash value is often given to the employee upon retirement as compensation. The IRS does not allow companies to deduct the premiums as an expense unless the policy has been assigned to a third party such as a lender. The IRS does not treat proceeds of the policy as taxable as part of the employee’s estate even if the employee was the owner of the company as long as the beneficiary is the company and not an individual or estate.

Data Breach/Cyber Liability Insurance

Businesses understand that protecting the personal information entrusted to them by customers is of the highest priority, but still data breaches can and do occur. Data breach and cyber security insurance protects against the loss of electronic and paper records by thieves. This coverage may be purchased as a stand alone policy or added to a BOP as an endorsement. Policy terms vary from one company to another, but generally help offset the costs of notification, public relations and legal and liability expenses resulting from the breach.

Umbrella Policies

As the name implies umbrella insurance provides protection over and above the limits of other policies. For example, if a company has a $1 million or more umbrella policy and it is sued successfully for $1.5 million as part of a personal injury suit and only has $1 million of liability coverage the umbrella policy would provide the additional $500,000 to satisfy the claim rather than the company having to make the payment.

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Best Credit Report Site of 2014

Posted: 11 Oct 2014 10:22 AM PDT

The Simple Dollar team and I dedicated an extensive amount of time researching credit reporting agencies, credit sites, consumer reviews, national surveys, and other published research to determine the best credit report sites that suit a variety of individual needs and life circumstances.

When you're choosing which credit monitoring company is the best fit for you, there are several factors that play into your decision. Do you need to monitor your credit reports regularly on a continuous basis? Do you need to know your FICO score more often, or just when you're applying for credit and are potentially denied? Have you recently cleaned up all the errors on your three credit reports and aren't planning to make any major purchases in the near future?

As I delved into my research, I discovered a lack of clarity as to where individuals should turn to depending on their current life stage and, more importantly, where they plan to be in the future. So, I separated life scenarios into three general stages based on the level of involvement necessary while monitoring one's credit. I have selected the top two best credit report sites most fitting for each scenario, highlighted below.

The Simple Dollar's Top Picks

Here’s a brief overview of my findings. As you continue to read, I go more in depth and explain why these companies is the best for different purposes.

Best Credit Report Sites: For those who are vested in their financial future or have been neglectful in the past.

Best Credit Score Sites: For those who want to keep a pulse on their FICO score and make financial decisions at the most opportune times.

Experian
myFICO

Best Sites for a Free Credit Report: For those who will not be making any large financial decisions in the future but want to stay involved.

Credit Sesame
Credit Karma

Your financial life changes over time, and you may find yourself jumping between these categories. Don't be afraid to revisit and determine where you best fit. Before I go in-depth about what the best credit companies are, let's talk about credit in general.

If you feel as if your knowledge of credit is subpar, you're not alone! According to a survey conducted by the Consumer Federation of America (CFA) and VantageScore Solutions, last year, less than 60% of Americans reported they possessed basic knowledge of credit.

What Is Credit?

Credit is your financial reputation. It defines your freedom to borrow and is measured by credit scores based on your predictability to repay. As with any reputation, it takes time to build trust and reliability, and one misstep can cause a need to rebuild that relationship. Credit is no different.

Your credit scores are derived from credit reports compiled by the three major nationwide credit-reporting agencies: Equifax, Experian, and TransUnion. These reports comprise all your financial borrowing and repayment history. The majority of lenders use an individual's FICO score, which takes into consideration a ratio of factors from all three reporting agencies to determine one's creditworthiness.

Why Is Credit Important?

The two most impactful consequences of credit are money and opportunity. I have yet to encounter a person who would willingly and knowingly walk away from either of these things. By monitoring your credit on a regular basis, you have the control to capitalize on these concepts. Let's explore examples of each.

The lower your credit score, the higher the risk of repayment is for lenders. This in turn increases your interest rate and, therefore, monthly payments. According to Stephen Brobeck, Executive Director of the Consumer Federation of America, "Low credit scores will often cost car buyers more than $5,000 in additional finance charges and cost home purchasers tens of thousands of dollars in additional mortgage loan costs."

According to the Business of Consumer Protection (BCP), landlords have the right to take action on those with unfavorable credit scores by requiring a larger deposit, increasing the rent in comparison to an applicant with a higher credit score, or rejecting your application altogether. All they need to do to treat you differently from your neighbor is issue an adverse action notification, just one brief letter dropped in your mailbox. They can do this solely based on your credit score.

A 2012 survey conducted by the Society for Human Resources Management found that 47% of employers use credit reports when making a hiring decision. Fresh out of college, and totally oblivious to the importance of credit when seeking employment, I failed to check my credit reports prior to applying for a job. The interview and reference checks went great, but I was denied the position due to discrepancies on my credit report. I was fortunate enough to provide my prospective employer evidence of my pending disputes of these claims and, upon resolution, was offered the job.

Your credit history is important to a lot of parties, including lenders, utility companies, prospective employers, landlords, cell-phone providers, and banks. Any of these groups may check your credit at some point, but this is why your credit should be important to you.

Your credit is a living entity that you — and only you — have the responsibility of growing and nurturing. Don't waste time losing out on money and opportunities by not taking action and monitoring your credit!

Who Needs to Regularly Monitor Their Credit?

If you've been a recently been a victim of identity theft and/or plan to borrow money from a financial institution within the next few years for a home, car, refinancing, or business or personal loan, you should be regularly monitoring your credit score. Many companies like Identity Guard provide you with reports from all three credit-reporting agencies. Unlike most other companies, Identity Guard provides these reports on a monthly basis, has customizable plans to fit your budget, and provides exceptional identity theft protection services.

The potential savings when one invests in the monitoring and improvement of their credit report is tremendous. Now that you know more about credit, let's discuss the best places to obtain and monitor your credit reports.

Best Credit Report Sites

These sites and services are for individuals who need to monitor their credit regularly. If you're planning to make a large purchase that will need financing in the near future, are a recent victim of identity theft, or haven't monitored your credit in the past few years and need to dedicate some time to cleaning up your credit reports, this level of service will be the most beneficial.

#1 Identity Guard

Identity Guard may sound more like an identity theft protection service than a credit report monitoring site, but it offers the best of both worlds. They provide a free two-week total protection trial, including premium credit monitoring and ID theft protection solutions.

With over 16 million victims of identity theft in the U.S. in 2012, one cannot discredit the importance of identity theft protection in conjunction with your credit score monitoring. As you can imagine, identity theft can have a serious, detrimental effect on your credit score. The goal is to hinder any negative trends to your credit score before they happen.

For $19.99 per month, Identity Guard goes beyond identity theft protection and includes a personal credit dashboard where you can easily monitor all three credit bureaus and keep a pulse on your credit-building progress. They provide a detailed analysis of what exactly is affecting your credit score and send you email alerts with any changes.

Identity Guard has a variety of plans to fit your budgeting needs. For individuals who are planning to make a serious investment, such as the purchase of a home, a comprehensive monitoring subscription such as Identity Guard Platinum is an absolute must. Failing to invest in the maintenance of your credit score in advance of large transactions will have a sustained negative impact on your financial future.

The recommended Identity Guard Platinum membership costs $24.99 per month and provides the following services:

Daily 3-Bureau Credit Monitoring
3-Bureau Monthly Credit Reports and Scores
3-Bureau Credit Analyzer
Account Access via Mobile App
Public Record Monitoring
PC Keyboard Encryption Software
PC Antivirus Software
Social Security Number Monitoring
Online “Black Market” Monitoring
ID Verification Alerts
Account Takeover Alerts
Identity Theft Victim Assistance
Lost Wallet Protection
$1 Million Identity Theft Insurance
ID Vault® Password Protection
Address Change Monitoring

Drawback: Identity Guard does not provide a FICO score or VantageScore, and only the scores provided by each of the three credit-reporting agencies.

#2 Privacy Guard

Similar to Identity Guard, Privacy Guard provides you with a monthly three-bureau credit report along with a credit score. A monthly monitoring of all three credit reports is critical in order to catch potential errors as quickly as possible. Privacy Guard provides one-on-one dispute assistance for any identified errors along with an array of identity theft protection services.

New members can try out the monitoring service for just $1 for the first 14 days followed by a $14.99 per-month fee.

With this membership, you get such services as:

Daily 3-Bureau Credit Monitoring
3-Bureau Monthly Credit Reports and Scores
3-Bureau Credit Analyzer
Credit Dispute Assistance
CreditXpert Credit Simulator
$1 Million Identity Theft Insurance
Norton Internet Security Online

Drawback: Privacy Guard does not provide a FICO score or VantageScore, just the CreditXpert Credit Scores from information on file at Experian.

Best Credit Score Sites

These sites and services are for individuals who just need their FICO or VantageScore in order to make the best financial decisions. They will want to continuously monitor these in order to strategically move forward with these decisions at the most opportune time.

#1 Equifax

Equifax is one of the three major credit-reporting agencies and has been in existence for over 100 years. With Equifax credit monitoring, you not only receive their credit report but also those of the other two major credit-reporting agencies, Experian and TransUnion. In addition to the reports, you receive your FICO and VantageScore, which is pretty unique to this industry. While FICO scores are used by the majority of lenders, VantageScore has been gaining in popularity and, by using a different methodology, provides further credit insight.

Equifax offers both credit monitoring and ID theft products as well as one-time credit reporting and credit scoring. Their Credit Score Watch includes monitoring of your FICO score and purchasing power and starts at $14.99 per month.

The Premier Plan includes the following and comes in at just $19.99 per month:

Privacy Monitoring and Protection: reveals information that exists about you on the Internet
Daily credit-file monitoring and alerts of key changes to your Equifax, Experian, and TransUnion credit files
Annual 3-bureau credit scores and profile
Unlimited access to your Equifax Credit Score
Ability to set up wireless credit and financial alerts through the Member Center
Auto fraud alerts encourage lenders to take steps to verify your identity before authorizing new or additional credit
Ability to lock and unlock your Equifax Credit Report
Up to $1MM Identity Theft Protection
Access to an identity theft specialist in the unfortunate event you become a victim of identity theft
Lost wallet protection

Equifax also has a family plan, which is ideal for the married couple who will start or continue to apply for mortgage loans together. While credit scores are tied directly to an individual's Social Security number, when two people apply for a joint loan the financial institution defaults to the lower credit score of the two.

Drawback: Equifax offers continuous monitoring of their own reporting, but only provides annual reports from the other two major bureaus. This should be sufficient unless you are hoping for more continuous and in-depth monitoring. If so, I would recommend scrolling up to the Best Credit Report Sites section where both top options are able to provide monthly updates from all three major credit-reporting agencies.

#2 myFICO

I rank myFICO as one of the best only because this section is specially tailored to individuals who have a need to continuously monitor their FICO score. While FICO is the most widely used scoring system for lenders in their determination of creditworthiness, other credit monitoring sites often do not provide FICO scores.

A myFICO monitoring subscription includes a FICO Score Simulator that provides you insight to how your financial decisions can impact your overall score. They also alert you of any additions of new accounts, score changes, contact information updates, or inquiries. However, unless you subscribe to the three-bureau credit monitoring, you will only receive alerts from Equifax.

As of recently, myFICO added the ability to monitor identity theft both in conjunction with FICO credit monitoring or entirely on its own. For $29.99 per month, you'll get the FICO Identity Ultimate plan and receive:

Daily change tracking of FICO scores from all three bureaus
Annual three-bureau credit reports
Identity analysis report
$1 million identity theft insurance
Identity restoration
Lost wallet protection
Customizable alert settings

Drawbacks: There is a three-month minimum required for all credit monitoring subscriptions. Also, the credit reports from the three major agencies are only provided annually, which U.S. consumers can get for free anyway.

Best Free Credit Report

Thanks to the Fair Credit Reporting Act (FCRA), all U.S. residents are able to obtain a free copy of their credit reports every year from each of the three major nationwide credit reporting companies, Experian, Equifax, and TransUnion. Just visit AnnualCreditReport.com. These do not need to be ordered at the same time and, if continuous monitoring is not in your immediate budget, it may be best to stagger these throughout the year.

There are also a few other free credit tools available out there. As with any free service, there will be less information, accuracy, critical analysis, potential protection, and services provided. An increase of advertising can also be expected on each of these sites. Be leary of the fact that your financial information is analyzed within this setting and therefore easier for these sites to customize and push products on your based your situation. However, depending on your budget and future financial plans, these free credit sites could be perfectly sufficient for your needs.

#1 Credit Sesame

Credit Sesame offers free credit monitoring and scoring on a monthly basis. However, this comes with the limitation that it only reports on one of the major credit reporting companies, Experian. The score provided is not a FICO score, as their computation is proprietary; however, they do offer a comparable score that will allow you to see fluctuations. Along with the monthly score, you're given:

Experian credit report alerts
Analysis of credit and loans
$50K identity theft insurance and ID restoration help
Management of all credits and debts in one place
Convenience of a mobile application

One of their biggest strengths is identity theft protection, which is rare in the world of free offers. They also have a patent-pending analytical tool to help you determine how to save the most with your debt repayment.

Drawback: As mentioned, Credit Sesame only provides one-bureau data. With over 20% of credit reports containing at least one disputable discrepancy, as determined by the Federal Trade Commission's 2012 study on credit report information accuracy, this really exposes the risk of missing potential detrimental information on the other two major credit-reporting companies' reports.

#2 Credit Karma

Credit Karma also offers free credit-monitoring services along with four free credit scores annually. Keep in mind that the score provided is limited to one credit reporting agency, TransUnion, and is not a FICO score. Rather, the score is a comparable three-digit number to monitor for fluctuations. Along with the monitoring notifications and scores, you get:

TransUnion credit report alerts
Analysis of credit and loans
Management of all credits and debts in one place
Credit report card
Credit Score Simulator

Credit Karma's credit report card does an excellent job of breaking down the different components and their weights to provide a better general understanding of your credit score or grade. Their Credit Score Simulator helps predict how specific financial actions, such as a late payment, can affect your score over time.

Drawback: Similar to Credit Sesame, Credit Karma only provides one-bureau data. Based on my personal experience and consumer reviews, they also have occasional system issues that inhibit the functionality of some services like the Credit Score Simulator.

How Do You Establish Good Credit?

The only way to establish credit is to use credit. Prior to borrowing, make sure you're confident that you'll be able to pay any and all bills on time. Even if you're only able to pay the minimum amount, know that late payments will result in a decrease of your credit score, and therefore borrowing ability, with every infraction.

Credit scores are developed similar to a grade you would receive in school. Understand that different components, such as on-time payments and credit utilization, weigh more heavily on your score than other components, such as total number of accounts. While test scores often were the largest determining factor in a school grade, you still needed to complete your homework in order to get an A.

Consider a secured credit card as your first line of defense. Visit the Best Credit Cards for Bad Credit (or perhaps no credit) section for a more in-depth explanation of which card may be best for you.

Make sure not to apply for too many credit cards in a limited period of time. Unlike shopping for the best rate on a loan, hard credit inquiries for credit card applications will negatively impact your credit score.

As you initially develop your credit score, and throughout your lifetime, try to maintain a variety of credit types. These include:

Revolving: Revolving credit lines have varying payments based on the utilization of credit from the account. They can carry balances forward month to month, such as a credit card.
Installment: Installment accounts have fixed payments within a set period of time, such as a loan.
Open: The balance on open accounts needs to be paid in full each month without the option to carry an ongoing balance, such as a cell phone or utility bill.

Certain factors out of your immediate control, like length of credit history, have an impact on your score. Continue to monitor your credit reports annually at minimum in order to mitigate the risk of reporting errors.

How Do I Improve My Credit?

In order to improve your credit, you have to commit time, effort, and resources. I would recommend subscribing to one of the Best Credit Report Sites for at least a year. From there, you can determine if monthly monitoring is necessary, or if a scaled-back or free service may be sufficient for some time until your next big financial decision is on the horizon.

The Federal Reserve published five tips for improving your credit score:

#1 – Get copies of your credit reports, then make sure the information is correct.
#2 – Pay your bills on time.
#3 – Understand how your credit is determined.
#4 – Learn the legal steps to take to improve your credit report.
#5 – Beware of credit-repair scams.

As discussed earlier, it's your responsibility to stay informed when it comes to your credit and take action when necessary to correct discrepancies. In late 2012, the Federal Trade Commission (FTC) reported a study to Congress concerning the accuracy of information in credit reports, specifically from the three major credit-reporting agencies.

In summary, over 26% of participants, more than one in four, found potential errors on one or more of their reports. Over 13% had a change to their credit score after the discrepancy had been disputed and ultimately resolved. Of those modified reports, 8% saw a FICO point increase of over 50 points. Do not find yourself becoming one of these statistics.

Research Recap

Credit is not built overnight and requires an understanding of all components involved in the development of your credit score. Make sure you take preemptive action to monitor and improve your credit score well in advance of any major financial decisions.

While credit can seem confusing at times, keep yourself educated. It is your responsibility to understand your credit score and use it to your advantage to save money and provide endless opportunities. My top recommendation for anyone looking to get started is Identity Guard, but ultimately the best choice depends on your personal situation.

The post Best Credit Report Site of 2014 appeared first on The Simple Dollar.

Hacking Six Normal Life Routines to Save Time and Money

Posted: 11 Oct 2014 07:00 AM PDT

In my experience, many of the truly useful frugal tactics come about from little tweaks to one’s daily routine. If you can look at something that you do almost every day and find some little way to shave a minute off of it, you’ve saved more than six hours over the course of a year. If you can look at that routine and shave a quarter off of it, you’ve saved $90 over the course of a year. If you can do those kinds of changes to several routines in your life, you’re starting to look at some impressive savings.

I’m not talking about things that throw your routine to the wolves and force you to start over from scratch. I’m talking about simple little ways to alter a routine so that the expense of each run of that routine is a little less or the time involved is a little less.

Here are six examples of pretty normal daily routines in my life that I’ve managed to “hack” in significant ways over the years to save both time and money.

Doing Laundry

With two adults and three kids living under one roof, laundry is practically a daily occurrence around here. It eats up time and it definitely eats up money in the form of detergent and energy.

How I Once Did It

Once upon a time, I would simply buy a jug of detergent and a box of dryer sheets from the store. Whenever I did a load of laundry, I’d follow the instructions on the tags and also sort the clothes by color before doing a load. I’d use warm or hot water on the clothes, then use the dryer appropriately afterwards to dry the clothes.

How I Tweaked It to Save Time and Money

The first tweak I made was to make my own laundry detergent, a process that I described in detail here. These days, I actually just make powder detergent by mixing the soap, borax, and washing soda in powder form and using just a tablespoon per load. Making this laundry soap takes about five minutes once every two months or so and trims the soap cost per load from about $0.20 to about $0.02, adding up to about $64 in savings per year.

The second tweak I made was to only wash large loads. A washing machine only uses a bit more energy and a bit more water when you’re using a large load rather than a medium-sized load. Since I’d estimate that I do two large loads rather than three medium-sized loads, it’s a net savings of both time and money.

The third tweak I made was to use cold water for everything unless specifically directed not to do so by a garment tag. I’ve never seen any difference in terms of getting my clothes clean, so using warm or hot water just wastes energy and adds to the monthly energy bill.

The fourth tweak I made was to cut my dryer sheets into quarters. This takes about a minute to cut the sheets from a single box into quarters. The quarter sheets do a perfectly good job of softening my clothes and it reduces the expense of the dryer sheets by 75%. Most dryer sheets cost about $0.06 a pop, so over the course of a year, this quick cutting technique saves about $6 a year.

The fifth tweak is to do laundry late in the evening, just before bed. By doing this, we’re using the cheapest energy our energy company provides, which usually kicks in at 7 PM for us. Check with your energy company – off-prime hours are almost always cheaper for energy use and that’s when you should run your big appliances. This tactic works for other appliances like your dishwasher.

The final tweak worth mentioning is that we use a drying rack for many clothes items. Rather than just throwing everything in the dryer, I’ll hang up many of the items on a drying rack or a line in the laundry room. This makes for much smaller loads in the dryer without any additional time (it doesn’t really take any longer to put a shirt on a drying rack than it does to stuff it in the dryer) and a smaller load in the dryer means less energy used and less dryer time, too.

Making a Simple Breakfast

Every single school day, I have to make breakfast for my three children (and myself, and often for my wife who is rushing to get to work). It’s a routine that requires a healthy breakfast to be prepared and also really values using minimal time.

How I Once Did It

Usually, I’d wake up in the morning and make whatever I had on hand. This usually meant quickly cooking an oatmeal packet or scrambling some eggs or something like that. That procedure involved at least a little bit of prep time.

How I Tweaked It to Save Time and Money

My first tweak was to make a ton of breakfast sandwiches in advance. Homemade breakfast sandwiches are substantially cheaper than ones purchased in the store and don’t take terribly long to assemble. I usually do this as an extension of a normal breakfast on a weekend day, assembling fresh sandwiches for the family and then freezing a bunch of them. I usually wrap them in a paper towel, then put them in a pint freezer storage bag for storage. In the morning, you can just pull out the sandwich and microwave it for a moment or two and have a perfectly fine breakfast. According to my calculations, I can make a sandwich for $0.55 when similar sandwiches cost a dollar or so at the store (or at a restaurant). This saves some time in the mornings (mostly due to moving that time usage to the weekends) and also saves some money.

My second tweak was to make “overnight” oatmeal in a slow cooker. Rather than buying oatmeal packets, we just buy a large container of steel cut oats. Before going to bed, I put the steel cut oats and some water (and a bit of honey) in a small slow cooker and turn it on low. The next morning, we just serve the oatmeal, usually topping it or pairing it with some fruit. This is substantially cheaper per serving than oatmeal packets (my math indicates that we save about $0.15 per bowl) and it’s far quicker in the morning, too. I just toss the crock into the dishwasher when we’re done.

My third tweak was to buy discounted fruits. I watch the grocery flyer and when fruits go on sale, I purchase just those fruits and use them to accompany breakfast that week. Some weeks, my children enjoy bananas; other weeks, they enjoy strawberries with their breakfast. They’re cheap because of the sale and they’re very quick to prepare.

Washing Dishes

With five people in our home (and guests on a pretty regular basis), we find ourselves doing a load of dishes almost every day – and often two or even three loads in a single day.

How I Once Did It

I’d throw dishes in the dishwasher to maximize the number of dishes I could fit in there, then I’d close the door and start things up, using hot water to get them really clean and hot drying to avoid spots. I also used whatever detergent was on sale.

How I Tweaked It to Save Time and Money

My first tweak was to switch to a good detergent and buy it in bulk. The better the detergent, the lower the likelihood of dishes not being clean at the end of the load. Also, cheap detergents can slightly etch your dishes, reducing their lifespan. Adding those factors together, the cost of cheap detergent usually adds up to more than the cost of good detergent. I usually stick with Finish Quantum tabs, which are highly recommended by Consumer Reports.

My second tweak was to start using vinegar in each load. Most dishwashers come with a spot for a rinsing agent like Jet Dry, but for most dishes, a bit of white vinegar works just fine as a rinsing agent and costs about 10% as much as the commercial rinsing agents. I use vinegar in most loads.

My third tweak was to turn off the heat during the drying cycle. If you’re using a rinsing agent, you don’t need heat to prevent spots. The rinsing agent takes care of that, so you don’t need hot air during the dry cycle. Just turn off that setting on your dishwasher and never use it again – it’ll save energy. In fact, I’ll often just open the door if I notice it when the load is finished and allow the dishes to air dry.

My fourth tweak was to pay attention to how I load the dishes. Almost all dishwashers operate better if you load the dishwasher in a smart way. Load plates on the bottom rack with the plates facing the middle of the dishwasher (as best you can). Put silverware in the silverware rack with the handles down. Bowls and cups go on the top rack with cups facing down and bowls slanted downward. Most dishes that aren’t fully washed fail because they didn’t follow those simple rules. It doesn’t add any time in loading, but it does reduce the need for re-washing.

My final tweak was to use the short wash cycle. I once used the “pots and pans” cycle for almost everything until a friend showed me how silly that was. Now, I use the short cycle and virtually everything gets clean. The only key is to make sure that you’re not putting dishes in there that actually have food “chunks” on them – if there’s a chunk, rinse it off quickly in the sink. You’ll save a lot of water and energy this way.

Cleaning Out the Refrigerator

This is a task that needs to be done on a regular basis to prevent outdated items in your fridge from going bad and contaminating other items in there. I don’t particularly relish the task, but it’s something that needs to be done.

How I Once Did It

About once a month, I’d pull everything out of the fridge, evaluate each item, and put some of it back. I’d end up throwing away a significant portion of what’s in there. I usually needed to clean the racks at this point, too.

How I Tweaked It to Save Time and Money

My first tweak was to start a weekly rotation. This is really easy and only takes a few minutes. Just reach in the back, pull out the items that are furthest out of sight, and put them in the front. It’s incredibly easy and it brings attention to the older items.

My second tweak was to assemble a meal plan as part of that rotation. I got into the routine of doing that item rotation when I assembled my meal plan for the week. This would often inspire me to use those things in the refrigerator that needed to be used up – a half-empty jar of marinara sauce or a bowl of rice cooked two days ago, for example. Rather than letting these things go bad in the back of the fridge, I incorporate them into next week’s meals. These items get used rather than wasted, saving money.

My third tweak was to start using transparent containers when possible. I often miss leftovers when looking in the fridge, which again means that they wind up going bad in the back. By using transparent containers, I can see what’s in there, which means that I don’t overlook them and they actually get used, saving money.

My final tweak was to simply save a thorough washing until it needs it. Since I’m not pulling everything out all the time, I find that I actually don’t need to do that top-to-bottom cleaning as often. This saves me time over the long run.

These tips also work perfectly when cleaning out your cupboards or pantry. By just using a little bit of time frequently, you wind up wasting far less stuff, cut back on your grocery bill, and avoid having to do the “big clean” nearly as often.

Preparing Dinner

One of the central tenets of our family life is that, if at all possible, we eat dinner together around the dinner table (or at a community dinner). While that’s awesome, it does also require that a family meal be prepared every single night.

How I Once Did It

I’d go to the grocery store with a few vague ideas for meals in mind, then toss stuff in the cart to fulfill those meals. Each evening, I’d spend half an hour to an hour preparing a meal.

How I Tweaked It to Save Time and Money

My first tweak was to start using a meal plan/grocery list system for grocery shopping. It’s so simple, yet it saves a ton of time and money. Before I ever go to the grocery store, I pull out the grocery store flyer and look through the pantry and the refrigerator so that I can come up with meals that use the things that are on sale along with what we already have to make really cheap meals. I then make a list of the things I need to buy for those meals, then I stick with that list at the store. It makes grocery store visits way cheaper and also much quicker.

My second tweak was to make meals in advance. As with the breakfast sandwiches above, I try to take advantage of the process of making whole meals in advance and saving them for later in the freezer. Casseroles and soups work really well for this. The method I use is to make a quadruple batch of a meal on a weekend, using one of them that evening and freezing the other three. When I need to use them, I let them thaw in the refrigerator for twenty four hours (or so), then cook it as normal. This saves prep time on busy evenings, saves overall prep time (because you’re preparing the meals simultaneously on the weekend), and saves money because you can buy ingredients in bulk.

My third tweak was to use a slow cooker. This is an invaluable tool around our house as it allows us to prepare simple meals in the morning – I usually do this just after the kids leave for school – and then have a ready-to-serve meal on the table as soon as everyone arrives home. This is an incredible time saver for our family, moving the prep time from a period where my time is in high demand (when the kids arrive home from school) to a time where the demand is less (right after they leave for school). Plus, most slow cooker recipes are simple fare, which means that you’re buying relatively inexpensive basic ingredients.

My fourth tweak was to prep leftovers for lunch in two days. After a meal is finished, we’ll ideally have some left over for future meals. Sarah and I will both prepare future lunches out of these leftovers, putting them in containers for future use. Ideally, we eat that leftover meal not the next day, but the day after that. Doing that prevents “leftover burnout” where we don’t want to eat the same thing the next day.

My final tweak was to have “leftover night” every third or fourth night. Sometimes, Sarah or I won’t use our prepackaged leftovers or maybe there will be extra leftovers at the end of a meal. Every third or fourth night – Thursdays and Sundays seem to often be the dates for us – we’ll pull all leftovers out of the refrigerator and that’s what we’ll have for our family dinner. This allows everyone to choose among several different dishes so that they can eat more of what they liked and less of what they didn’t like. It’s very fast to prepare it and it drastically reduces food waste, saving us money, too.

Washing the Windows

Normal life causes your windows to gradually get dusty and a bit grimy. Eventually, they need to be cleaned, but it’s never a fun task.

How I Once Did It

I’d grab a spray bottle of window cleaner at the store. When it’s time to clean, I’d head to the windows with a roll of paper towels and that window cleaner.

How I Tweaked It to Save Time and Money

My first tweak was to fill my window cleaner bottle with my own homebrew. Instead of buying more window washing solution at the store, I took the bottle I already had and added two cups of water, 1/4 cup white vinegar, and a small squirt of dishwashing soap. I swirled it a bit before each usage then sprayed it as normal. It’s way cheaper and does a great job on our windows.

My second tweak was to ditch the paper towels and use a sponge and a few rags. The paper towels were very wasteful. Why not just use items you can clean and re-use? Now, I just spray the window down, use the sponge to clean it, then use the dry rags to wipe the windows dry. The sponge and the rags can be used again and again and again.

My final tweak was to do it during the right time of day. This seems surprising, but it’s much harder to wash windows when light is directly shining on them. There are more streaks and more problems when hit with direct sunlight, causing you to have to re-wash and clean up spots. I usually just wash the windows in the evenings.

Final Thoughts

Ideally, you’re already using some of these tweaks in your normal routines. Different people have learned different tactics along the way.

Having said that, the real value in this article is that there are time and money savings to be had from almost every daily routine. You can save money and time on your commute. You can save money and time on your lunch break. You can save money and time on almost all of your normal routines.

The key is stepping back and taking a look at those routines in your life that feel completely natural. Are there little changes you can make to shave a little time from those routines or save a few cents without adding effort? If you can find one or two little tweaks like that, you’ll end up saving a ton of time and/or money over the long run because of the sheer repetition.

The post Hacking Six Normal Life Routines to Save Time and Money appeared first on The Simple Dollar.

How Do The Rich Pay Lower Taxes? And How Can You Do It?

Posted: 10 Oct 2014 07:00 AM PDT

Erin wrote in with a wonderful question that I started to address in Monday’s reader mailbag, but the answer quickly escalated into many, many paragraphs. Here’s her question:

I don’t understand how billionaires who bring in millions a year can pay less in taxes than someone working hard at a job and making $50K a year. That seems really wrong to me.

She’s referring to statements like this one from Warren Buffett:

But the differential between me and the rest of the office, not just my secretary but the rest of the office, was greater than that. It’ll be closer, but I’ll probably be the lowest paying taxpayer in the office.

He’s not lying. It is very likely that Warren Buffett is paying a lower tax rate than the other people in his office.

How is that possible? Well, let’s dig in a little bit and find out.

Tax Rate and Your Tax Bill

Most of the time, when someone refers to how a rich person pays low taxes, what they’re actually referring to is the percentage of their income that they pay in income taxes.

For example, let’s say that Millionaire Joe makes $2,000,000 a year and his income tax rate is 18%. That means he’s paying $360,000 a year in income taxes.

On the other hand, Ordinary Guy Bill makes $50,000 a year, but his income tax rate is 20%. That means he’s paying $10,000 in income taxes.

Millionaire Joe is indeed paying a lower tax rate than Ordinary Guy Bill, but his tax bill is way higher than Ordinary Guy Bill.

Simply having a lower tax rate doesn’t mean that your total tax bill is lower. Your tax rate matters in terms of your tax bill, but so does your annual income.

Normal Income

When anyone earns income from their job, they pay the normal income tax rates, which are summed up in this useful article.

For example, a single person who earns $50,000 a year will have a total tax bill of $5,819. That means their overall tax rate will be about 11.6%.

On the other hand, a single person who earns $300,000 a year will have a total tax bill of $80,904. That means their overall tax rate will be 27%.

(I used this income tax calculator for the tax bill, then used division to get the overall tax rates.)

As your normal income goes up, so does your overall “effective” tax rate. That’s how most people expect that income tax works and that’s why it’s so surprising when it doesn’t seem to work that way.

Investment Income

Where things get crazy is when you start considering investment income. From that same article above:

A top rate of 15% applies to qualified dividends and the sale of most appreciated assets held over one year (28% for collectibles and 25% for depreciation recapture) for single filers with taxable income up to $406,750 ($457,600 for married filing jointly). Long-term capital gains or qualified dividend income over that threshold are now taxed at a rate of 20%.

So, let’s take another look at those income levels above.

Let’s say that someone has chosen a path of early retirement. They’re choosing to live on their investments and so all of their income during the year is from dividends on stock investments that they made years ago. This means that the dividends are considered “qualified dividends” and they qualify for a lower tax rate.

If this person makes $50,000 a year from these dividends and nothing from any other income source, when that person files their taxes, they’re only going to owe $443 in income taxes. Yes. That’s it. Their effective tax rate is less than 1%. (I used this calculator, filing single, with the default settings, $0 in regular income, and $50,000 in qualified dividends.)

Compare that to the tax rate calculated above. A single person earning $50,000 in normal income will pay $5,819 in federal income taxes, an 11.6% rate. A single person earning $50,000 in qualified dividend income will pay only $443 in income taxes, a 0.9% rate.

Wow. That’s huge. It gives us a great hint as to how rich people are able to keep their tax rates low.

What about that $300,000 person? If that person earns $300,000 this year in qualified dividends and $0 in normal income, that person will pay $37,943 in federal income tax. That’s a 12.6% rate. The person earning $300,000 a year in normal income, as noted above, will pay $80,904 in taxes. That’s a 27% tax rate.

Again, that’s really dramatic. That’s a difference of more than $40,000 a year in taxes paid in this example and it’s a huge clue as to how the wealthy keep their income taxes low.

Wealthy People Usually Earn a Mix

Most of the time, wealthy people have a total income that represents a mix of these different types of income. Here are a few typical examples.

A person who launches a startup company that eventually goes public is probably the CEO of the company. He might earn a salary of… let’s say, $500,000. A person in that situation usually owns a ton of shares of that company. Let’s say that person owns 10 million shares of their startup. Since they’ve never sold any of those shares, they’ve never paid any taxes on those shares. The company then pays a dividend of $0.25 per share. That guy has 10 million shares, so he makes $2.5 million in qualified dividends each quarter, totaling $10 million over the course of the year.

(He might also sell some of those shares, but since he’s owned them for years, any money he makes from that sale are also taxed at the same lower rate that applies to qualified dividends.)

So, what’s this person’s tax bill? Remember, this guy just made $10.5 million this year – a $500,000 salary and $10 million in dividends. That person is going to pay $2,151,026 in federal income taxes. That’s a 20.5% effective income tax rate.

Remember earlier, when we looked at the person earning $300,000 as a normal salary? That person is actually paying a 27% effective income tax rate.

This is almost exactly how Warren Buffett pays a lower tax rate than the people who work for him. The vast majority of his income comes from qualified dividends and long term capital gains, both of which are taxed at that lower rate.

How Can Ordinary People Take Advantage of This?

So, how can an ordinary person take advantage of this knowledge and use it to trim their tax bill a little bit? Here are some strategies that can work.

Live lean. Try as hard as you can to spend as little as possible. Trim your household expenses. Get involved with low-cost hobbies, especially ones that might earn you a little money. Move to a lower-cost area. There are lots of ways to do this, but it’s hard to ever put yourself in a better financial place if you’re spending all of your income.

Get rid of debts. Debts devour your monthly cash flow. You need monthly cash flow to invest consistently. The interest on your debts is gobbling up your post-tax income, which is really painful. Get rid of your debts as quickly as you can. If you’re living lean, channel that money toward debt freedom.

Invest for the long term. You can’t take advantage of the things described here – qualified dividends, long term capital gains – if you don’t hold onto your investments for a while. So, when you start investing, invest in things that you’re happy to sit on for a while. I especially like index funds for this as they’re diversified and many of them pay dividends. Once you own them for a while, the income generated from those investments are going to be taxed at that lower rate.

Use tax-advantaged accounts. Investing in a 401(k) and/or a Roth IRA and/or a college 529 account is a great way to reduce your tax rates over the long haul. Each of these accounts provides tax advantages in various ways. The 401(k) delays your tax payments until you’re retired, which means you’re earning less and paying a lower tax rate, while a Roth IRA eliminates taxes on the money you earn (as does a 529 if the money is used for educational expenses).

Ask for (some) compensation in the form of stocks. If you work for a company, see whether or not you can receive some of your compensation in the form of stocks. This not only gets you on board for earning qualified dividends and (eventually) long term capital gains from selling them, it also indicates that you’re professionally interested in the long term health of the company. This can be risky – if you can, you should balance this by investing in other things so that you don’t have all of your eggs in one basket.

All of these strategies will either reduce your tax rates over the long term or set you up for using those strategies.

Final Thoughts

Like it or not, tax laws in the United States are designed to benefit investors. Most wealthy people are investors. Thus, the tax laws benefit wealthy people.

Having said that, the only thing that’s keeping you from being an investor is your own financial choices. If you’re spending everything you earn, you’re choosing to not invest. You’re choosing to accept the higher tax rates.

It is a hard choice to make. It requires financial discipline to get there. But once the ball starts rolling, it’s amazing.

The post How Do The Rich Pay Lower Taxes? And How Can You Do It? appeared first on The Simple Dollar.

Books With Impact: Voluntary Simplicity

Posted: 09 Oct 2014 07:00 AM PDT

The “Books with Impact” series takes a deeper look at specific books that have had a profound impact on my financial, professional, and personal growth by extracting specific points of advice from those books and looking at how I’ve applied them in my life with successful results. The previous entry in this series covered Early Retirement Extreme by Jacob Lund Fisker.

I was first introduced to Duane Elgin’s Voluntary Simplicity in the margins of the most powerful personal finance book I’ve ever read, Your Money or Your Life by Joe Dominguez and Vicki Robin. Given the cover and the brief description, I really expected it to be a straightforward guide to minimizing and simplifying your life.

That’s not what I got at all.

Instead, I read through what seemed to be an argument on behalf of the environment and how the everyday choices we make can benefit the environment.

That’s not to say the book wasn’t interesting and worthwhile. It just wasn’t what I wanted to read or think about at that point in my life. I was focused on improving our financial state and our career options at the time. While environmental issues were absolutely on my mind, they weren’t central to me, at least not in the way that seemed to be proposed by Voluntary Simplicity.

So I just walked away from it. I tossed it on my shelf of books that I thought were interesting enough that I might look at them again someday, but it didn’t quite make the cut of books that I regularly turn to for reference and inspiration.

It sat there on that shelf gathering dust for a while. In fact, at some point, I had made up my mind to trade away most of those books on that shelf, so I sat down to decide whether I really wanted to keep each of those books.

At that point, a year or two ago, I reopened Voluntary Simplicity. Very quickly, I realized that, somehow, I had completely internalized the message of the book. It made sense to me in a completely different way than it once had.

The book absolutely uses an environmentalist theme throughout it, but the real core message of the book is that you don't have to overconsume – or consume at all – in areas that aren't important to your life. If an item or expense doesn’t do something that you truly need in your life, then you don’t really need that item or expense.

Voluntary Simplicity often relates that core idea to environmentalism, which can blind some to the valuable core idea of the book. Avoiding overconsumption has an environmental benefit, but it has benefits in almost every area of life.

One | Cool Lifestyle for a Hot Planet

Simplicity means taking charge of lives that are too busy, too stressed, and too fragmented. Simplicity means cutting back on clutter, complications, and trivial distractions, both material and nonmaterial, and focusing on the essentials – whatever those may be for each of our unique lives.

The core idea of this book is that simplicity does not mean deprivation. Instead, it means actively choosing elements of your life so that you’re less invested in less important things and more invested in more important things. Each of us define for ourselves what is important, of course. Simplicity merely means that you’re chopping down the things that aren’t important to you so that they’re not distracting you from the things that are more important to you.

For example, I’ve made the choice to have a really simple wardrobe. Most days, I wear a t-shirt and simple denim jeans and walk around the house in my bare feet. They’re comfortable. They’re inexpensive. They’re easy to wash. I choose well-made items, so they last and last and last.

As a result, I spend very little time thinking about or putting effort into my clothing. I don’t have to worry about special washing. I don’t have to worry about clothes replacement very often. I rarely have to think much at all about my wardrobe choices as almost everything works with everything else. It doesn’t cost much, either. It’s about as simple as it can possibly be.

[It] is a conscious simplicity that represents a deep, graceful, and sophisticated transformation in our ways of living – the work we do, the transportation we use, the homes and neighborhoods in which we live, the food we eat, the clothes we wear, and much more.

That type of thinking can work in almost every avenue of life. I used clothes as an example, but the same logic occurs in almost every element of our lives. We can make choices that add to the complexity of our daily life or we can make choices that reduce that complexity.

Do we sign our kids up for another activity? Do we make a simple meal or a complicated one? Do we spend a bunch of money on stuff at Target this weekend or do we just buy the essentials and get out of there? What do we do with that stuff when we get home?

It’s an endless series of choices… but it’s a conscious series of choices. We actively decide which path we’re going to follow with practically every choice we make.

I really like that Target example. We live not too terribly far from a number of department stores and grocery stores. Each week when I do our family’s shopping (I usually take care of it on Friday afternoons while the children are still in school and I’ve ideally finished my writing for the week), I have the option of going to those stores and buying things without any planning while just relying on my whims and intuition, or I can spend time consciously assembling a grocery list.

The grocery list method takes some more time up front, but it results in less time in the store, less stuff in the cart, less stuff to put away when I get home, less stuff in the cupboard to dig through, and fewer items that we’ll probably rarely use. To me, a grocery list is practically a poster child for voluntary simplicity.

Poverty is involuntary and debilitating, whereas simplicity is voluntary and enabling. Poverty is mean and degrading to the human spirit, whereas a life of conscious simplicity can have both a beauty and a functional integrity that elevates the human spirit.

People often mistake “simple living” with “poverty.” While they both have elements that might appear the same to the outside world, they’re far from the same thing.

The book touches on this idea again in chapter three, so I’ll go a little bit further with it when we get there.

Two | Pioneers of Green Living

I am doing what [Buckminster] Fuller calls doing more with less. He also speaks of education as the process of “eliminating the irrelevant,” dismissing all that is not furthering our chosen articulation of value – eliminating wasteful speech as well as costume, dietary habits as well as information addictions

To me, voluntary simplicity shines because it frees up time, energy, and money in your life for the things that truly matter the most to you, no matter what those things might be. You’re called to compromise much less frequently when you have fewer things in your life that can interfere with those matters that are truly important to you.

In that way, you’re doing more with less. By reducing the time, money, and energy spent on things in your life of a lesser importance, you naturally increase the time, money, and energy you can spend on things in your life that you view as more important.

Remember that clothes example I gave above? Let’s say that those choices save me five minutes a day in choosing my wardrobe and an additional five hours a year avoiding shopping for clothes. That’s a total of thirty five hours a year that I’m not devoting to clothing. Plus, there’s the reduced expense of it all. That time, energy, and money can directly be devoted to other things.

I can spend those extra five minutes a day reading a few pages of a book that I’ve always wanted to read and, over the course of the year, finish two or three thoughtful books.

I can use that saved money to push myself a little closer to financial independence or to purchase a “buy it for life” item that will last for years and years and reduce my maintenance effort on that item or apply it to some other goal in my life.

That simple choice of “less” when it comes to my clothing becomes “more” in other parts of my life, parts that I view to be more personally important. That’s the exact recipe for a more fulfilling life and voluntary simplicity is a big part of it.

We measure happiness by the degree of growth, not by the amount of dollars earned.

It is really tempting to use net worth as a way of “keeping score” when it comes to financial growth and a move toward financial independence. I’ll be the first to admit that I keep track of my family’s net worth on a regular basis.

That number isn’t really all that important, though. It’s mostly a signifier that I’m still making good financial choices – nothing more, nothing less. It does not matter as a comparison to anyone else because no one else has the same situation as I do. It only matters as a self-comparison, a tool for evaluating how good my recent decisions have been.

Three | Living Voluntarily

It makes an enormous difference whether greater simplicity is voluntarily chosen or involuntarily imposed. For example, consider two people who ride bicycles to work in order to save gasoline. The first person voluntarily chooses to ride a bicycle and derives great satisfaction from the physical exercise, the contact with the outdoors, and the knowledge that he or she is conserving energy. The second person bikes to work because of the force of circumstances – this may be due to the high cost of gasoline or the inability to afford a car. Instead of delighting in the ride, the second individual is filled with resentment with each push of the pedals.

This sums up the difference between “voluntary simplicity” and “poverty” quite beautifully.

Because voluntary simplicity is a choice, it really has no way to elicit resentment or anger. It’s all about positive feelings because you’re choosing a path that has more benefits for you.

Poverty doesn’t involve freedom of choice. It involves forced choice and, because humans are often wired to see the greener grass on the other side of the fence, it can feel incredibly painful and bitter.

It’s also an interesting lesson for the outside world. If you see someone bicycling to work, what’s your initial reaction? Is that person poor? Is that person just making a personal choice? What about when someone is driving an old car? What about when someone has a cart full of generics and produce at the grocery store?

Often, the tools we use to make assumptions about others are completely off base. If we assume that there are people out there who choose voluntary simplicity – and there are; I’m one of them much of the time – then the assumptions that we make based on quick glances like that can easily be way off base.

It all comes down to mindfulness. Voluntary simplicity has actually reinforced a very valuable lesson for me – the idea that the first impression you get from someone or something is often a very poor impression.

To live voluntarily requires not only that we be conscious of the choices before us (the outer world) but also that we be conscious of ourselves as we select among those choices (the inner world).

What does this mean?

Let’s say you’re standing in your favorite store in the world, whatever that might be. Maybe it’s a hardware store. Maybe it’s a bookstore. Whatever it is, you’re in there and you’re holding an item in your hand that you want but you don’t need at all.

You’re looking at it and you’re consciously talking yourself into that purchase. You have lots of reasons for buying it – you have the spare money, it’s got a good price on it, you’ll enjoy it.

But on some level, deep down in your gut, there’s a question mark. You might overlook that uncertainty as you’re consciously thinking about the item, but it’s there.

If that question mark is there, you should never buy. You should always walk away.

The problem is that it’s really easy to overlook that question mark in your gut. Often, your conscious mind is running through the options in an active way and you’re not listening to that little voice deep down in your gut. That voice is usually telling you good things – I find that it sums up lots of little things that I’m not consciously noticing. It just takes a lot of work to learn to pay attention to it.

We tend not to notice or appreciate the degree to which we run on automatic – largely because we live in an almost constant state of mental distraction. Our minds are constantly moving about at a lightning-fast pace: thinking about the future, replaying conversations from the past, engaging in inner role-playing, and so on. Without sustained attention it is difficult to appreciate the extent to which we live ensnared in an automated, reflexive, and dreamlike reality that is a subtle and continuously changing blend of fantasy, inner dialogue, memory, planning, and so on.

Again, it comes back to mindfulness – something that takes time and essentially has to be trained. You have to work at it.

For me, the best approach I’ve found is to spend some time each day thinking about some of my decisions that day after the moment. Was that the right call? Did I really need to make that purchase? Did I really need to spend an hour playing Civilization?

The point isn’t to second-guess myself. The point is to really figure out if those uses of time, money, and energy were good ones and whether or not there were better ways to use my time, money, and energy. It informs future decisions.

Four | Living Simply

To live more voluntarily is to live more deliberately, intentionally, and purposefully – in short, it is to live more consciously. [...] To live moresimply is to live more purposefully and with a minimum of needless distraction.

I like to think of the distinction this way.

Living voluntarily means that I think more about each decision that I make. It means that I try to be mindful about all of those choices I make each day and I strive to make those decisions as well as I possibly can.

Living simply means that I actively try to remove those decisions and choices in advance. I make choices so that I don’t have to make as many choices later on, allowing me to focus more at that later time.

Those two things work together quite well. It’s been shown over and over again that too many choices tax the brain, leading to worse decisions. By making life simpler, you have more time and more mental energy for the remaining decisions in life. This idea is called “decision fatigue;” the more decisions you have, the more tired your brain becomes, leading to poorer decisions.

Here’s an example. Let’s say I have a distracting computer game installed on my workstation. I’m living voluntarily when I actively choose not to play that game and instead choose to work. I’m living simply when I make the decision to just delete that distracting game entirely because it’s rarely beneficial for me to play it, thus eliminating that repeated choice of whether to play or not to play that game.

The bottom line is that there is a weak connection between income and happiness once a basic level of economic well-being is reached – roughly $13,000 per year per person. [...] Once a person or family reaches a moderate level of income, here are the factors that research has shown contribute more to happiness: good health, personal growth, strong social relationships, service to others, and connection with nature.

Most of the readers of The Simple Dollar are above that threshold of “a basic level of economic well-being.” In other words, most of us are actually striving for those other factors in life: good health, personal growth, strong social relationships, service to others, and connection with nature. We just want money to get out of the way of those choices.

How do you get money out of the way? You get rid of debts. You spend less than you earn. You choose lower-cost hobbies and activities to fill your time. This results in fewer and fewer decisions every day that involve spending money.

That’s the truth of it: when you get your finances in order, you make fewer money decisions in an average day. Because of that, you can make better money decisions because you’re not suffering from as much decision fatigue.

Excess in either direction – too much or too little – is complicating. [...] Does what I own or buy promote activity, self-reliance, and involvement, or does it promote passivity and dependence?

That’s a brilliant question to ask about every single decision you make that involves owning or buying something.

When you’re about to buy or acquire (or sell) something, ask yourself this: does that item promote activity, self-reliance, and involvement, or does it promote passivity and dependence?

This doesn’t have to be your only decision-making tool when it comes to buying something, but it’s a pretty useful one. Try using it when you’re at the grocery store – it almost always encourages healthier buying choices. Try using it when you’re buying things for your hobby – it almost always encourages productive and fulfilling hobbies.

Five | The World at the Tipping Point

Our first requirement – as individuals, communities, nations, and a species – is to step back and take a very hard look at what is happening with some key trends, such as climate change and running out of cheap oil.

This section of the book focuses on the connection between our day-to-day choices and global issues. I was actually quite happy to read that the author touches upon issues that are of concern to almost every area of the political spectrum. In this sentence alone, Elgin touches on both climate change and peak oil, which are global concerns for somewhat different groups (although there is overlap).

The specific issues that Elgin raises are not the point, though. Regardless of what issues worry you at night, his point is still the same.

As individuals, we are not powerless. Opportunities for meaningful and important action are everywhere: in the food we eat, the work we do, the transportation we use, the manner in which we relate to others, the clothing we wear, the learning we acquire, the compassionate causes we support, the level of action we invest in our moment-to-moment passage through life, and so on.

If you are worried about something in a global fashion and yet you make choices in your day-to-day life that just makes the problem worse, it can be very difficult to feel good about what you’re doing.

One of the most powerful parts of voluntary simplicity is that it gives you the breathing room in life to actually take daily actions in favor of those things you really care about. You’re not squeezed into poor choices because of economic concerns or because you need to take “shortcuts” because your life is complicated.

It frees you to live your day-to-day life in alignment with your global concerns. For example, if you’re worried about peak oil, you can make day-to-day choices to reduce your reliance on oil. If you’re worried about climate change, you can make day-to-day choices to reduce your carbon footprint.

Can you change the world with those actions? No. But you do have the chance to make a person’s worth of difference. You do have the chance to influence the people around you.

We are each responsible for the conduct of our lives – and we are each unique. Therefore, we are each uniquely responsible for our actions and choices.

It is really easy to simply lay blame for the big problems of the world on others. Other people caused it. Other people will fix it. It’s too big for me.

The problem is that if you allow yourself to think this way, you justify making daily choices that actually go against solving the problem that worries you.

For example, if you’re worried about jobs going overseas but then you choose to buy goods made in nations where labor is cheap, you’re personally making choices that make the problem worse.

Sure, you might be pushed into that choice by economic need or by time pressures, but those pressures often exist because your life is overly complex. A big part of the point of voluntary simplicity is to remove those pressures so that you can make those personal choices. No more excuses!

Six | Deep Simplicity and the Human Journey

Simplicity has deep roots in all the world’s wisdom traditions.

The Simple Dollar isn’t really a place to discuss various religions, faiths, and intellectual traditions. Our goal is to help people reach their financial goals regardless of the spiritual and intellectual ideas they may hold.

This section, however, makes it clear that the idea of simplicity pops up in most of the major religious and intellectual traditions in our world.

I consider it a beautiful thing that so many faiths and traditions hold so many key principles in common. We are all more similar than we realize in terms of our ideals. It is only when we focus on the differences that we fall apart. We would all be better off if we focused on the many things we have in common rather than fighting over the relatively few things we see differently.

Consumerism makes sense in a dead universe. If matter is all there is, then where can I look for happiness? In material things. How do I know my life matters? By how many material things I have accumulated.

I don’t believe that most people really view their life in this way. They don’t find happiness primarily in material things. They don’t decide that their life matters by the pile of things they’ve accumulated.

Most of the people I know find happiness and judge the quality of their life based on the things I mentioned above: good health, personal growth, strong social relationships, service to others, and connection with nature.

When I think about what really makes me happy in life, money and possessions rarely come to the forefront. I think of my wife and my children. I think of the things I’ve actually achieved in life through my own effort. I think of my closest friends. I think of the moments when I’ve actually felt connected to the world and of the moments when I’ve had a flash of understanding.

Those aren’t moments driven by money, though they can be pushed away by worries over money. Those moments can be cultivated, though, and choosing simplicity really helps.

People use the consumption levels and patterns portrayed in TV advertising to establish their sense of identity and measure their personal well-being.

I think that “TV advertising” is a pretty narrow description here – I’d also include things like the TV programs themselves, magazine articles, print advertising, and most of the content on the internet – but I agree with his point. We often look to those sources (whether we directly notice it or not) to help us define what we should buy and what levels of luxury we expect and/or “deserve” in our lives.

My solution in this regard is to look at every hot new thing that’s talked about on television or online or every cool item that a friend or a neighbor has and reflect on a single idea, that the new item might make that person happy, but other things make me happy. I can certainly be glad that someone else is happy because of their new possession… but that doesn’t have to imply anything about my own happiness.

I already know the things that make me happy, as I mentioned above. Why would I choose to add more stuff and more complexity to my life that would take me away from those sources of happiness?

Final Thoughts

Voluntary Simplicity is a very philosophically-oriented book. It rarely talks about specific steps to take in order to achieve the methods described in the book. The author assumes that you can figure these out on your own by doing additional reading.

I respect that approach. It allows the book to focus on the “why” of voluntary simplicity instead of the “how” because if you really understand the “why,” filling in the “how” blanks is both (fairly) straightforward and (very) fulfilling.

In the beginning, my voluntary switch to a simpler lifestyle was done out of pure financial need. I knew that if I stepped back from many of the ways I spent money, I would be able to take on my debt problem and eventually start building toward a better life with a nice home for my family and perhaps more career options.

Eventually, I came to realize that the choice represented more than that. It represented a desire I had inside of me to spend my time and energy on things that were more meaningful to me, not necessarily those things that were prevalent on the television shows I watched or the online articles I read. It’s a process of constant re-evaluation: is this part of my life really doing anything for me? Is it building me into a better person? Is it bringing me joy on a deep level? Is it improving the world in any fashion?

I make mistakes on that journey every day. I waste time and money and energy on things that aren’t as fulfilling as they could be. My goal is to try to learn from those mis-steps.

One thing I can’t help but notice, though, is that I’m almost exclusively more happy and more fulfilled by options that involve spending less money. Generally, those choices involve less maintenance time and effort, too, and generally have a better impact on the people around me. Those things tie together even if I don’t necessarily see the connections.

Voluntary Simplicity is a philosophical guide to that shift.

The post Books With Impact: Voluntary Simplicity appeared first on The Simple Dollar.

Student Loan Forgiveness: Move to a Place that Pays Your Loans

Posted: 09 Oct 2014 05:00 AM PDT

Dealing with student loan debt can seem unbearable and overwhelming. As mentioned in the article, 15 Ways To Deal with Student Loan Debt, the average student owes a whopping $40,000 after graduation but almost 19 percent owe $50,000 and above with 5.6 percent owing over $100,000.

Maybe you worked hard to save money in college diligently keeping your student loan debt in mind. Maybe you made some huge financial mistakes during college and ended up taking out much more than you imagined. Whatever road you took to have this student loan debt, now is the time to start planning your exit route.

One idea often thrown around when talking about student loan debt is the option of Student Loan Forgiveness. Student Loan Forgiveness is simply what it sounds like – a portion of your student loan debt gets forgiven, and you no longer owe that set amount of money. Pretty sweet, right?

Many people don't explore this "too good to be true" option since they don't know about it, they don't understand it, or they don't think they'd qualify for such an amazing benefit. That is exactly why I decided to do this Student Loan Forgiveness Series, exploring different ways you can eliminate your student loan debt.

Next up, moving to a place that offers a student loan forgiveness incentive.

Why Are Places Locations Offering Student Loan Forgiveness?

The places mentioned in this article are looking to grow economically and/or build their population. Generally speaking, college graduates would add to economy by drawing more businesses to the area and putting more money into the economy. Recent college graduates can not only mean more apartments are getting rented and even homes being built, but it can also mean more money spent at restaurants, shops, and other businesses.

Things to Consider Before Moving for Student Loan Forgiveness

Before you start packing your bags, take some time to consider if this opportunity would be right for you. It's a big decision and comes with other stipulations, including a length of time you'd be required to live there before you receive student loan forgiveness. Here are some questions to ask yourself before changing your zip code:

What is the cost of living in these locations compared to where you live now?
Would you be comfortable moving to a new area, possibly leaving your family and friends behind and not knowing anyone?
Does exploring a new area and getting a change of pace sound exciting? Do you want to move out of your area anyway
What is the job market like in these areas compared to your current location? Would you be able to find a job in your industry? What would your salary be in this area compared to where you live now?
What is this area really like? Before you consider moving, do your research on crime, transportation, attractions, and the general culture of the area. If possible, a trip to the area would be helpful, too.
What would your transportation be in this new region? For example, if you live in a big city right now and depend on public transportation, moving to rural Kansas would probably require purchasing a car.

Places to Move to get Student Loan Forgiveness

The following places offer some type of incentive for recent college graduates with a student loan balance to move there. Check out these locations, what it's all about there, what you're required to do, and how much you can earn to pay down your student loan debt:

Detroit, Michigan

Where you need to live: Live in Downtown Detroit or one of the nearby neighborhoods listed below.

Location details: They boast 13,000 theatre seats, pro sports teams, and the Detroit RiverWalk, a 3.5 mile promenade with bike paths along with Detroit River. Like many urban big cities, you'll find museums, a variety of bars and restaurants, and shopping. However, Neighborhood Scout ranks Detroit at number six for most dangerous cities in the U.S.

Requirements: You need to live in one of the following Detroit neighborhoods: Downtown, Corktown, Lafayette Park, Eastern Market, Woodbridge, Brush Park, Cass Park, Art Center, and Lower Cass. You also need to work for a specific company. These include Blue Cross Blue Shield of Michigan, Compuware, DTE Energy, Marketing Associates, Quicken Loans, or Strategic Solutions.

What you'll get in return: If you're buying a new home, you can receive up to $20,000 forgivable loan toward the purchase of the primary residence. If you want something less permanent and want to rent instead, you'll receive $2,500 allowance of funding towards the cost of your apartment the first year and then $1,000 the next year.

Learn more at Detroitlivedowntown.org.

Kansas

Where you need to live: Reside in one of 77 counties included in the Rural Opportunity Zone list. These counties cover most of the state. Also, in addition, some participating Kansas communities – Plainville, Osborne, Lincoln, and Marquette, offer free land if you're building a home.

Requirements: To be eligible for student loan repayments, you must establish residency in the Rural Opportunity Zone after July 1, 2011, which shouldn't be an issue if you're researching this now. You'll need to have previously earned an associate's, bachelor's, or post-graduate degree, and have an outstanding student loan balance. There is no requirement on when you graduated, unlike the other programs that stipulate a time restriction on graduates. This eligibility is also only determined by where you live so you may live in one area and work in another.

Location details: Every community and county offers something a little different. In general, most boast a lower cost of living, a slower pace with fewer people, and a safer community vibe. While entertainment opportunities might not be as great as a big city, the Kansas Tourism Bureau highlights a variety of breweries, wineries, art, and small-town, rural charm across the state.

What you'll get in return: For moving to the Rural Opportunity Zone, you can get student loan repayments up to $15,000. In late fall, you'll receive a check that you must deposit and then send to your lender (you'll need to show proof). The program pays 20 percent of your outstanding loan debt up to a maximum of $3,000 per year. You can take advantage of this program for up to five years, hence the total $15,000 reimbursement towards your loans. But according to their website, each county can determine if it wants to pay over that $15,000 amount, but the state will not match anything over $15,000.

Plainville is giving free lots for construction of a new home plus a 50 percent property tax saving over a 10-year period. The City of Osborne is also offer free home lots as well as Lincoln and Marquette.

Also, you can be eligible for a Kansas income tax waiver (if you've lived outside of Kansas for five or more years immediately prior to establishing a residency in one of these Rural Opportunity Zones). You'd need to live in the zone for the entire tax year to claim these benefits.

For more information on these Rural Opportunity Zones, visit their website. You can also find out how you can apply, where exactly you'd need to live, and how the process works.

Niagara Falls, New York

Where you need to live: You need to live in the designated downtown area on Niagara Falls, NY.

Location details: Despite being a major tourist attractions for both Americans and visitors, Niagara Falls has experienced a rapid population decline over the last 50 years. The city boasts, most notably, Niagara Falls State Park, a wine trail, and festivals and events year-round.

Requirements: In order to receive student loan reimbursement, you need to have earned a 2 or 4-year degree from an accredited college and either rent an apartment or buy a home in the designated area.

What you'll get in return: According to Inquisitr, you'll earn $3,500 per year for the next two years.

Saskatchewan, Canada

Where you need to live: You'll need to live and work in the province of Saskatchewan in Canada to qualify. If you're not familiar with where it is, it is directly above North Dakota and Montana.

Location details: The province boasts an arts culture with festivals and events, parks, a good health care system, and leisure sports and recreation opportunities. According to their website, Saskatchewan's taxes and household charges are amongst the lowest in Canada, and if you have little ones, kindergarten through grade 12 is no cost for residents. The province has a mix of cities, smaller villages and towns, and a vast Northern area. In an effort to appeal to immigrants, the province offers many cultural organizations, various religious centers, and says they have a "high quality of life with a low cost of living".

Requirements: To earn money towards your student loan debt, you must have graduated from an approved program and approved college after January 1, 2006. You'll also need to either already live in Saskatchewan or be moving there. Besides simply living in this province, you will need to file a Saskatchewan income tax return so this means you are also required to steadily earn an income. All graduates are eligible, even if you're from the U.S. or another country outside of Canada.

What you'll get in return: The Graduate Retention Program (GRP) offers a refund up to $20,000 of tuition fees. According to their website, you'll receive this over the course of seven years. The amount you can earn depends on the duration of your program. For example, that $20,000 amount is for graduates of a 4-year degree program. If you've taken a one, two, or three year program, your student loan reimbursement amount will be less.

Visit their website for more information on how the program works, requirements, and how to apply.

Things to Keep In Mind For Any Student Loan Forgiveness

Once you think you have the chance to get a portion of your student loans forgiven, it can be quite tempting to instantly sign up. But before you apply and especially before you sign a contact, you need to thoroughly understand how you receive this loan reimbursement and what you'll be doing to get this. Here is what you need to know:

Understand the terms of your contract. Understand exactly where you need to live, how long you need to live there, and what other requirements there are.
Know what happens if it doesn't work out. What is the Plan B? If you move to the area, and have to move back home because of a loss of a job or family emergency, what happens now?
Be certain your loans qualify. Certain types of loan are only permitted as well as when you took them or how you used these loans. The same is true for where you went to school and the program you studied. Confirm that your course of study qualifies for reimbursement.
Compare the benefits of the programs. How much will you be forgiven? How much will your salary be? If the loan forgiveness program forces you to take a lower salary than you could have gotten elsewhere or move to an area that has higher rent and cost of living, it might not be the best option for you.
Get confirmation prior to moving to a new location. Learn what you need to do prior to signing up and moving there. You may need to apply before actually relocating.
Don't jump in. This is a big commitment. Do your research, and learn all the ins and outs of the programs and rules and regulations.
As mentioned before, really get to know the area before moving there.

The post Student Loan Forgiveness: Move to a Place that Pays Your Loans appeared first on The Simple Dollar.

Saving Money in Your Startup

Posted: 08 Oct 2014 04:00 PM PDT

We get it. You’re starting a new businesses and you’re strapped for cash. There are a million questions going through your head. We empathize with bootstrapping entrepreneurs and small-business owners everywhere, and today we explore meaningful ways (that add up) where your business can save money in the early phases. That said, every small-business owner and entrepreneur has a unique set of circumstances that pertains to their business, industry, strategy, and execution. Here we will outline some of the key choices, some obvious, some less obvious, on ways you and your small business can save money.

Where is your business located?

The cost of living cannot be ignored when you’re looking at starting a business. While the glamour of the big city lights and talented potential workforce might be appealing, it might not be the best place for you to start a business. The cost of creating a startup in San Francisco or New York versus a small town in the Midwest needs to be taken into consideration. Having lived in San Francisco, Los Angeles, New York, Chicago, and Madison, Wisconsin, it's far easier to start a business in Madison, WI from a cost perspective.

Geographic Comparison

Let’s take a closer look at how the difference of geographic location affects your balance sheet. The average one-bedroom apartment in San Francisco rents for $3,140 a month as of June 2014 (according to data company Priceonomics). Annually, that’s an expense of $37,680.

According to Rent Jungle, the average one-bedroom apartment in Detroit rents for $751 a month. Annually, that’s an expense of $9,012.

The per-year difference in housing costs is $28,668. Think about how saving nearly 30 grand a year could help your business and extend your runway.

The Oracle of Omaha, Warren Buffett, would agree. If you have the flexibility to move to save money and find somewhere with a low cost of living and an educated workforce, it can greatly assist your business in getting started, growing, or keeping the lights on. We realize not everyone can pick up and move across the country, but consider real-estate options within your own town, as “fake it till you make it” is the fastest way for your startup to run out of money. The longer the runway you have, the better your chances of success. When it makes good business sense, keep expenses low.

Where You Should Work: Office Space vs. Coffee Shop vs. Co-Working

Keeping overhead expenses low is one key way to improve your chances of starting a successful business. For recent college grads, starting a business while living under mom and dad's roof may be one of the best times to do it. Whether or not they are pushing you out the door, you have more of a safety net to try and start a business when you aren't paying rent. Merely looking at the statistics, more and more college grads (as high as 85%, according to CNN Money) move back in with their parents after college. If this is you, you have a window to start a business where your overhead is as low as it will ever be.

Nowadays, depending on your type of business, you have several options for where you can work once you’ve found a place to live: a traditional office space, coffee shops, and co-working spaces.

Traditional Office Space

For decades, getting office space was synonymous with starting or operating a small business. Over the last few decades, we've heard about the Googles, Dells, and Apples of the world that started off in a dorm room or in someone's garage. And while running a business out of an actual garage might not be your cup of tea, the symbolism is not to be ignored. The goal? Keep overhead expenses as low as possible until the business is generating a steady revenue stream, at which point it makes more sense to plow some money back into the business.

While the idea of getting a physical office space is something to consider, it's not a necessity for all businesses these days.

Advantages of renting office space

Does your startup need exclusive space to call its own? If so, getting office space might be a good investment.
Stable location and address for your business
Ability to keep folders, files, and work stuff at the office
Signage and visibility
Full autonomy to make business-specific changes to the space you're in (as long as it's in accordance with your lease)
Set your own hours
Keys and added security

Disadvantages of renting office space

Usually locked in to a 12-month lease
Credit risk of being on the hook if the business doesn’t become or remain profitable
Expenses for electricity, Internet, and other infrastructure needs
Cost to invest in furniture, chairs, copiers, and supplies

Coffee Shops

The Real Math of Coffee Shop "Free Internet"

A grande (medium) latte at Starbucks in New York costs $4.30, while that same drink costs $3.55 in Detroit. Here is a comparison of the prices of Starbucks lattes in cities across the world. Again, as mentioned before, each city is going to have a very different cost of living, which will affect you and your business. Being conservative, and using prices in Detroit, one latte a day five days a week would cost you $71 a month.

That's for one drink a day, not including food or anything else you purchase at the coffee shop or taking into account gasoline or transportation costs to and from the coffee shop. If you're anything like me, my coffee shop visits usually included multiple drinks along with snacks, which functioned as fuel and pseudo-meals to keep me going. There were days I easily spent $20 a day on caffeine and snacks. $20 a day five days a week runs you $400 a month. For a budding entrepreneur or small-business owner, that money is better invested elsewhere.

Coffee shops are also limited for what resources they can offer the entrepreneur.

Many entrepreneurs or small-business owners need to make phone calls, copies, or hold meetings, which can be challenging in the coffee shop environment. Some business calls are not appropriate being held in the coffee shop setting (for privacy reasons), and respecting the other patrons at the coffee shop is also something to keep in mind.

I have been in coffee shops numerous times where I have witnessed an important business meeting being held next to a table with distracting small children or a conversation that interfered with the meeting.

Coffee shops do provide comfortable seating and access to caffeine and Internet, but it’s important to think about what the benefits and limitations of coffee shops are before evaluating if that’s the best out-of-house exit strategy for you and your business.

Advantages

"Free internet"
The ability to get out of the house to work
Easy access to snacks, coffee, and (usually) restrooms
Save money on tables, desks, Internet, and other office costs

Disadvantages

Distractions from other patrons
“Hidden costs.” A latte or two and eating out every day can add up.
Hours are limited to coffee shop hours
Lack of privacy
Inability to answer important phone calls
You must take your stuff with you when you leave

The Co-Working Option

As a co-founder of the co-working space 100state in Madison, WI, we have unleashed a new model of bootstrapping entrepreneurship, innovation, and how to live, work, and give back to our community.

At 100state, we house about 150 entrepreneurs and consultants. The most common reason why people join is a sense of community and a (reasonably priced) place to work. Many of these entrepreneurs had been previously working from home or in coffee shops. As an entrepreneur, working from home seems like a promising idea. No mandatory work attire and complete control over when you work. I worked from home for about three years. While I saved money on office space, at times I suffered from a lack of discipline, and at times I sorely missed the ability to bounce ideas off a co-worker and learn from the information overspill of what the person next to me was working on.

The next logical step for me and most work-from-home entrepreneurs was to get out of the house. You want to find a place to be able to get some work done — with comfortable seating, Internet access, and a space to clear your mind from anything and everything going on at home. Enter the coffee shop. For the better part of the 90s and early 2000s, with the growth of the Internet, coffee shops were heaven sent for entrepreneurs who needed to get out of the house for a couple hours a day (or longer) to get some work done. The market for Starbucks and other Internet-friendly coffee shops boomed as coffee shops evolved from merely a place to grab coffee and gather socially to the new home office for thousands of consultants and entrepreneurs. As outlined above, there are advantages and disadvantages to coffee shops.

Is co-working for you?

Co-working is a style of work where individuals and small companies share a community office space.

Most "co-workers" do not work for the same company, though the co-workers often share resources, ideas, and connections for a monthly membership fee. Most co-working spaces provide Internet access, restrooms, access to copiers, and other small-business needs.

I just spoke with one of our co-workers who recently started an electric moped company called Flux Mopeds, and they are looking for innovative ways to market the product and increase sales. We spent 30 minutes brainstorming, discussing sales, marketing, and potential strategic partnerships to help grow the business. It was a nice break from what I was working on and I'm always happy to share my ideas with fellow co-workers. By being part of a co-working community, Matt gets to leverage not just the physical space of the co-working community but also the brainpower of other co-workers.

When was the last time that happened to you at a coffee shop?

Most co-working spaces cost $50 to a couple hundred dollars a month. When factoring in the saved cost of caffeine and unnecessary purchases to justify the coffee shop loitering, the savings can add up, not to mention the intangible value adds.

While co-working is an opportunity to save money, there are other reasons it may be a smart financial decision for your business.

One of the reasons I mentioned Flux Mopeds was to highlight the additional benefits of being part of a co-working community. Connections and resources.

Most small businesses and entrepreneurs are limited with financial and human capital resources and are always in search of the right connections to run and grow their businesses.

Advantages of co-working

"Free Internet"
The ability to get out of the house to work
Co-workers to exchange ideas with
Laid-back environment
Save money on tables, desks, Internet, and other office costs
Cost-effective, usually $50-$150/month
Office chairs, desks, and basic supplies are usually provided
Conference rooms to use for meetings

Disadvantages of co-working

Limited hours. Some co-working places do not allow 24/7 access.
Lack of privacy
Potential lack of professionalism
You may need to take your stuff home with you every day unless there are offices or dedicated desks available for rent.

Check out co-working spaces in your area to see if you can find one that fits your needs. It’s good to assess privacy, a place to take phone calls, hours, and other things that may be important to your business. Visit: www.desktimeapp.com to locate a co-working space near you. If that doesn't produce your intended results, you may want to Google your city (and state or zip code) + “co-working.” Most co-working spaces let you come visit for a day or buy a day pass, which is a good way to check out the environment before committing.

Summary

Managing your company's expenses, especially when just starting the business, is essential to keeping your business solvent. We focused today on location-based solutions to save your business money. A quick recap…

Find a city where overhead costs are manageable for you and your business. If you’re a recent college grad, there’s no better time to start a business (assuming you have an idea or experience) than when you're living at home with mom and dad.

Consider all your options before investing in office space. Most office space requires a lease and 12-month commitment. Most startups and small businesses have a degree of cash-flow uncertainty, so minimize your risk by exploring coffee shops and co-working spaces until your firm has smooth and predictable cash flows.

Check back for my next post in this series as we explore more ways for entrepreneurs and startups to save money.

The post Saving Money in Your Startup appeared first on The Simple Dollar.

How to Get Cheap Car Insurance in 2014

Posted: 08 Oct 2014 02:00 PM PDT

Whether you have a set of shiny new wheels or a decaying rust bucket, cheap car insurance is a must for staying legal on the road. The good news? You have more control over factors that influence your car insurance rates than those that affect other types of coverage, such as life insurance or home insurance. In this guide, I'll outline seven strategies that will help you save on car insurance.

In a nutshell, those strategies are:

Shop around for cheap car insurance quotes using an online quote generator
Bundle your car insurance with other policies
Raise your deductible
Drive a low-risk car
Change your driving habits
Ask about discounts
Maintain good credit

Before you can shop, you need to know what kind of car insurance to purchase. Here's a refresher on your policy options so you don't overbuy.

The major types of car insurance

Though companies offer several more nuanced options and add-ons, the three major types of car insurance boil down to:

Liability coverage
Collision coverage
Comprehensive coverage

Liability coverage

Liability coverage, required by law in most states, covers the other driver's personal injury and property damage in a crash where you're at fault. Importantly, it does not cover your own injuries or property damage. Buying only liability insurance is always going to be your cheapest option, though not necessarily the wisest. Sometimes it makes sense to carry only liability coverage, and sometimes it doesn't. More on this in a minute.

You'll probably see your liability coverage written like this on your quote or car insurance policy: $50,000/$100,000/$50,000 (or 50/100/50). That means you have $50,000 in bodily injury coverage for each person, $100,000 in bodily injury coverage total, and $50,000 in coverage for property damage. Your state will require a minimum amount of liability insurance for you to stay legal.

Buying the bare minimum is tempting since it will keep your rates as low as possible. Unfortunately, that's a bad idea — a bad crash can mean your costs will easily surpass low state minimums, and then you'll have to pay up. If you don't have the money, that will leave your other assets vulnerable.

Collision coverage

There is also collision coverage, which covers the damage to your own car sustained in a crash. Most commonly, this covers crashes when you're at fault, but it may also pay in certain circumstances when another driver is at fault, or in scenarios not covered under your other policies. The cost of your collision coverage will largely depend on your car's value, but you control the deductible — the amount you pay out of pocket before your insurance company picks up the rest of the tab.

Comprehensive coverage

True to its name, comprehensive car insurance covers almost any car-related calamity you can think of minus damage resulting from a crash. Instead, comprehensive policies pay for things like auto theft, damage from severe weather, or needed repairs after a late-night rendezvous with a disoriented deer. Comprehensive coverage is meant to complement collision coverage, not replace it. Like collision coverage, the cost will depend on your car but you control your deductible.

What type of car insurance coverage do I really need?

Comprehensive and collision coverage seem like a smart choice, but they come with a much heftier price tag than liability-only insurance. If you took out a loan to pay for your car, you probably don't have a choice — your lender will require proof of comprehensive and collision coverage. And dropping comprehensive or collision coverage isn't a good idea for anyone without the savings to pay for repairs out of pocket.

But there are situations when opting only for liability makes sense. For instance, if you drive an older, paid-off vehicle that you can easily fix or replace, keeping only liability coverage can mean significant savings. Comprehensive and collision coverage may also be overkill on any car you drive sparingly.

To see how much I would save on car insurance by nixing all coverage but liability, I plugged my own stats into a quote generator from GEICO. I'm a married female in my early 30s driving a paid-off 2011 Hyundai Sonata. I live in a small southern city, have a clean driving record, and average 12,000 miles a year. A policy with 50/100/50 in liability, as well as comprehensive and collision policies with $250 deductibles, would set me back $45 a month. Dropping the comprehensive and collision policies would bring my bill down to just $24 a month.

Would I do it? No, since my car is still relatively new and would cost a significant sum to repair or replace. But let's say I have a beat-up 2004 Nissan Altima with 150,000 miles on it. Replacing it would probably only cost about $2,000, a sum I could cover with my emergency fund if my car was totaled. Suddenly, potentially cutting my car insurance bill in half by dropping comprehensive and collision coverage makes a lot more sense.

Bottom line: Liability coverage is your cheapest option and will keep you legal on the road, but dropping collision and comprehensive coverage might be a risky move if it would be a major financial hardship to fix or replace your car.

Other types of coverage

There's a number of other coverage types and add-ons. Of particular note is personal injury protection, which pays your own medical expenses after a crash. There's also uninsured or underinsured motorist coverage, which means you won't be left on the hook in a crash when an uninsured or underinsured driver is at fault in a crash with you and can't afford to pay. Other add-ons pay for rental cars and roadside assistance.

If you're trying to keep your bill low, personal injury coverage probably isn't a smart buy as long as you have a good health insurance plan — there would be too much overlap between the two policies. However, uninsured and underinsured motorist coverage is a decent bet, especially in areas with a high percentage of uninsured drivers. It's also fairly inexpensive: Adding both options to my GEICO quote boosted my monthly bill only a few dollars. As for other little add-ons, consider skipping them. If you can cover the cost of a rental (or borrow a car from a friend while you're in a jam) rental-car riders are unnecessary, and an AAA membership is probably a better deal than roadside assistance coverage.

7 Tips to Find Cheap Car Insurance Companies

Now that you know what kind of car insurance you need, it's time to do a little more legwork to get a good deal.

Certain factors that affect your car insurance rates are largely beyond your control. These include basic demographics such as your age, gender, marital status, location, and job. But other factors, including what and how you drive, are easier to change. And everyone can comparison shop, exploit discounts, and consider bundling policies to find the cheapest car insurance companies, too.

Tip #1: Shop around

It's a no-brainer, but it always pays to shop around for cheaper car insurance. Instead of wasting time making endless phone calls or filling out the same information on dozens of websites, save time by using an online quote tool. Online quote tools help you get a quick snapshot of potential rates from several auto-insurance companies at once.

The results of your search can surprise you. Don't assume a certain provider will be the cheapest car insurance company because it was the case for your family or friends. So many factors affect your rate that you'll never know which company will come out on top until you compare apples to apples. Use the tool below to start your search.

Tip #2: Bundle policies

Many car insurance companies will give you a discount if you have other policies with them. For instance, you may get a break on car insurance if you use the same provider for life, home, or renter's policies. Bundled policies are convenient, too; you'll be dealing with only one bill and one company.

A note of caution: Don't automatically assume bundles will save you money. Companies that offer only auto insurance may offer compelling discounts to keep your business. Sometimes that means you get cheaper car insurance if you keep policies with separate insurers.

Tip #3: Boost your deductible

Your deductible is what you pay out of pocket before your insurance covers the rest of the cost to fix or replace your car. A plan with a $250 deductible will generally cost more than one with a $1,000 deductible.

For a real-world example, I plugged my own stats into a quote generator from Progressive, changing only the deductible to see how it would affect my rate. As mentioned earlier, I'm a married female in my early 30s driving a 2011 Hyundai Sonata. I live in a small southern city, have a clean driving record, and average 12,000 miles a year. With a $100 deductible on comprehensive and collision coverage, I would pay roughly $120 a month. Raising that deductible to $250 brought my bill down to about $100 a month. A $500 deductible reduced my monthly bill to $90, and a $1,000 deductible pushed it down to $82. That means I get to hold onto $456 if I go with the $1,000 deductible instead of the $100 deductible — not a bad sum.

However, raising my deductible is a good move for me only because I have $1,000 set aside in an emergency fund to cover the higher deductible. If you don't have cash stashed away to pay the higher deductible in case of a crash or other calamity, raising your deductible isn't the wisest move. Also keep in mind that factors such as your age and driving record will affect how much raising your deductible will save you.

Tip #4: Drive a low-risk car

Powerful, sporty luxury cars are always the most expensive to insure. These cars have the power to go extremely fast, and insurance companies know their drivers are more likely to get into trouble. These cars also cost a lot more to fix and are attractive targets for thieves — all situations your insurance company wants to avoid. The most expensive 2014 car to insure, the 545-horsepower Nissan GT-R Track Edition, will set you back about $3,169 a year in car insurance, according to Insure.com. Right behind it are a slew of luxury rides including the BMW M6, Mercedes-Benz CL550, and Porsche Panamera Turbo S, all of which average close to $3,000.

If you don't have six figures to drop on a car, here's some good news: Family-friendly vehicles including minivans, sedans, and smaller SUVs cost the least to insure. Their drivers tend to be more careful, ultimately filing fewer claims. These vehicles are simpler to fix and they aren't quite as tempting for thieves. The cheapest car to insure, the Jeep Wrangler Sport, will set you back only about $1,080 a year. The Honda Odyssey LX, Jeep Patriot Sport, and Honda CR-V LX are similarly easy on the wallet.

Ultimately, the choice is yours, but a less-glamorous ride can help you nab cheap auto insurance.

Tip #5: Change your driving habits

Insurance is all about risk. If you get a speeding ticket every month, your bill will skyrocket. If you've had a clean driving record for years, you will have cheaper car insurance. Unfortunately, cleaning up a spotty driving record can take time.

A quicker way to save that's often overlooked? Simply drive less. Consider your options carefully: Can you carpool? Work from home? Use mass transit or even move closer to your job? All of these options can help you save since less time behind the wheel means less chance of a claim. Be sure to tell your insurer about your new habits, though.

Tip #6: Look for discounts

Many car insurance companies have discounts that go beyond bundling or safe-driving rewards. High-school or college students with solid grades may be eligible for good-student discounts. Active-duty military and veterans can reap savings, too. Installing a car alarm or other safety equipment may earn you a break with some car insurance companies, as can taking a defensive driving course. Many insurers will even lower your rate if you pay in full or automate your payments. Ask companies for a full list of discounts while you're shopping since they may not publicize all of them.

Tip #7: Maintain good credit

It may seem unfair, but the vast majority of car insurance companies look at your credit score to help determine your rate. If you have good credit, your insurer assumes you'll be more responsible behind the wheel. Bad credit means you're statistically more likely to file a claim, insurers say. According to consumer advocacy group United Policyholders, a rock-bottom credit score could mean you'll pay double, triple, or even quadruple over someone with a perfect credit score.

This controversial practice is illegal in a four states: California, Hawaii, Maryland, and Massachusetts. If you don't live in those states, you'll want to work on raising your credit score in your quest for cheap auto insurance.

It's time to save

Ready to get started? A little legwork now can save you big in the long run. And remember to re-evaluate your car insurance at least annually. Your own changing circumstances and old-fashioned competition always have the potential to hook you a cheap car insurance policy.

Now that you know what you need and how to save, compare rates from several car insurance companies to start your search. Our streamlined quote tool can help you get multiple cheap car insurance quotes quickly.

The post How to Get Cheap Car Insurance in 2014 appeared first on The Simple Dollar.

Emergency Funds on the Path to Financial Independence

Posted: 08 Oct 2014 07:00 AM PDT

One of the first things that’s recommended for people as they start on their journey toward financial recovery is to build an emergency fund.

The reason is simple. An emergency fund is simply cash held in a savings account that you can tap when a life emergency happens – like an unexpected death in the family or an automotive issue – without negatively affecting your financial progress on your debts. You simply tap that emergency fund to handle the issue, fill it back up over the next few months, then keep pressing forward.

However, when you move a lot further along the path toward financial independence, your financial situation changes quite a bit. Usually, you have no outstanding debt (other than perhaps a mortgage). You’ve been saving money in your retirement accounts and have a healthy balance; you may also have been saving money in an investment account or in a 529 for your children.

Do you really need an emergency fund at that point? If so, how much?

To answer this question, there are two concepts that need to be explored a little bit.

Cash Flow

The biggest financial difference between someone struggling with a mountain of debt and someone who is debt free (or close to it) is monthly cash flow.

Let’s say you make $50,000 a year, which means you bring home a check for about $3,000 each month. Out of that check, you might have to spend $500 on food, $200 on household expenses, $500 on enjoyment, and another $300 on utilities and other bills, adding up to $1,500.

For a person without debt, that means they have $1,500 each month to spend on investing and preparing for the future. That’s pretty sweet! It’s one of my favorite arguments for getting rid of debt (along with the reduction in personal stress… and the amount of money you’re no longer just handing to the bank…).

On the other hand, a person with lots of debt sees a different picture. They might have two maxed-out credit cards with a $200 total bill, a $300 student loan bill, and a $800 mortgage. That adds up to $1,300 in debt payments, leaving them with just $200 in breathing room each month.

If a $1,000 emergency comes along, the debt-free person can knock it out of the way with their ordinary cash flow for the month. The person with debt? Not so much. That’s why they have an emergency fund.

If you’re looking at the situation solely from the cash flow perspective, an emergency fund, at least for relatively small things, might not make a lot of sense for a person with no debts. An emergency fund for a person in this situation is intended to help with larger emergencies (like suddenly flying your family to Boston for an unexpected funeral) or a simultaneous stack of several smaller ones (like a transmission failure coupled with a flooded basement and a loss of a freelance contract).

Liquidity

Theoretically, a person with great cash flow is going to be doing something productive with that extra money. They’re going to be investing for the future in some fashion, whether it’s through buying real estate, investing in stocks, funding a business, or something else.

Some of those things are going to be very liquid. By that, I mean that the investor can quickly obtain cash from those investments if needed for life emergencies. Money in a savings account is incredibly liquid, for example. You can just stroll down to the bank or to the nearest ATM and withdraw money at your convenience. Stocks are pretty liquid – usually, you can just issue a sell order to your stockbroker and you’ll have cash in a few days.

Other things aren’t so liquid. If you have all of your money tied up in the purchase of a house, for example, you might not have any spare cash that’s easy to tap. In those situations, a short-term significant emergency can cause some serious financial problems.

In other words, I consider it vital that you have some liquid assets at all times no matter what your financial state. You should never, ever have all of your money tied up in something that you can’t sell off within a day or two. If you do that, you’re begging to put yourself in a real financial pinch.

What About Credit?

Some people feel as though they’ve solved this problem by having a credit card with a healthy credit limit or some other line of credit through their financial institution – maybe a home equity line of credit. If something significant happens in their lives, they can simply tap that line of credit, right?

This works fine if you assume a couple of things.

First, you’re assuming that the bank will always exist and always extend this credit to you. If a bank changes ownership or financial direction or re-evaluates the credit they’ve extended to you, they may choose to no longer extend that credit. If that happens, your “emergency fund” has just vanished.

Second, you’re also assuming that identity theft will never happen to you. A pervasive case of identity theft can severely impact your credit and can even cause existing credit cards and lines of credit to close. In that situation, you can be in big trouble if you don’t have access to cash.

People often overlook these constraints because the chance of their occurrence is relatively small. Of course, the chance of most types of emergencies is relatively small. In my eyes, an emergency fund is the one portion of your financial state that should have the absolute minimum risk and choosing to use credit introduces an additional level of risk.

In other words, the purpose of an emergency fund is to protect yourself against the unknown. Emergencies where your credit is denied are certainly part of the “unknown,” but a credit-based emergency fund won’t protect you in that situation.

Of course, if an emergency occurs and you judge that emergency to be one that you can handle with credit without accruing significant interest instead of tapping your cash emergency fund, that’s a personal call regarding your financial state. (This is not a choice I would make if I were carrying a balance on any line of credit or credit card in my name.)

So, What Should You Do?

No matter what your financial situation, I strongly encourage you to have enough liquid assets to cover any significant emergency that comes your way. This is regardless of the amount of credit you have or any other aspect of your financial state.

Having said that, I would still be hesitant to simply call my stock investments or other liquid investments my “emergency fund,” for several reasons.

One, many liquid investments are quite volatile. They can vary widely in value from week to week or month to month. If you find yourself in an emergency, it can quite likely coincide with a big dip in the value of your investment, leaving you short. The best way around this is to have a very healthy amount in that liquid investment.

Two, selling off part of your investment to cover a personal emergency will trigger capital gains tax. If you sell stocks, for example, you’re going to be facing capital gains tax on the profit you earned, which is going to affect your tax bill at the end of the year.

Three, selling off part of your investment will alter the balance of your investment portfolio. You may find yourself exposed to more risk than you’d like… or you might wind up with a more conservative set of investments than you desired.

Four, any assets that you can’t sell locally may be difficult to acquire during an emergency. If a natural disaster hits your area, it is much easier to get some cash out of the local bank than it would be to get cash from a sale of stock through your stockbroker. Some investments are just more liquid than others.

Given those reasons, I still maintain a healthy cash emergency fund. Our savings account always contains six months of living expenses for our family; money beyond that is invested elsewhere. There is almost no emergency that I could face (at least, emergencies that are fixed in some way by money) that couldn’t be solved by having those savings available – and tapping that money isn’t going to disrupt any of my financial plans or trigger any kind of tax bill.

You may choose otherwise, but there is at least some level of risk that’s added by using credit or investments as your emergency fund. It’s a higher level of risk than simply using a savings account at your local bank.

My emergency fund is the one element of my finances where I want to absolutely minimize my risk and maximize my liquidity. I don’t mind not getting much of a return on that portion of my finances. I consider the benefit of minimal risk and very high liquidity to be worth it in terms of how it protects me against personal emergency.

Because of that, I’m pretty happy with just earning 1% in a savings account on that portion of my money that serves as an emergency fund, even though I have plenty of credit and plenty of investments that could step in during a true disaster.

The post Emergency Funds on the Path to Financial Independence appeared first on The Simple Dollar.

Separating Obamacare Facts From Fiction

Posted: 07 Oct 2014 11:00 AM PDT

Chances are you already have a strong opinion about Obamacare — and you’re not alone. The one consistent factor since Obamacare was passed and signed into law is that most people find the law confusing. Much of that confusion is driven by misinformation and misunderstanding. We’ve gathered some of the most common ones here. I’ll explain what the facts are and, when possible, how the rumors got started.

What’s in a Name?

The term Obamacare refers to the Patient Protection and Affordable Care Act, which was signed into law in March 2010. Most of the time the law’s name is mentioned in the media it’s shortened as the Affordable Care Act, ACA or healthcare reform. Adding to the confusion are the state-administered Obamacare plans in 18 states. For example, in Kentucky, where Obamacare is called Kynect, an overwhelming majority of people doesn’t like Obamacare. A smaller percentage dislikes the Affordable Care Act. However, a significant portion of Kentuckians love Kynect, which is Obamacare.

So What Is Obamacare?

Nothing, it does not exist. There is no such thing as Obamacare, the law. There is no such thing as Obamacare Insurance. Obamacare does not exist. The term was coined because it was an easy way to associate the law with the President. After the name took hold in the media, it became widely believed that it was a new kind of health insurance. Insurance that everyone had to buy. The name is used throughout this article for the same reason it is used elsewhere: familiarity.

What About the Government Takeover of Health Care?

There hasn’t been a government takeover of health care. Health care continues as it always has, as a business run by private companies and non-profit organizations. With the exception of Medicare for senior citizens and Medicaid for the poor, health insurance can only be purchased from insurance companies. Insurance companies operate in the same way as they always have: as privately or publicly owned corporations. Insurance companies are regulated in the same way they were before the law, mostly by state laws along with some federal statutes. The only thing the Affordable Care Act did was to change some of the rules to give consumers and patients greater rights and more protections.

The Website

Now let’s discuss the Obamacare website healthcare.gov. The federal site acts as a marketplace for individuals, families, and small businesses to comparison shop for healthcare insurance. Eighteen states and Washington D.C. run their own exchanges or healthcare marketplaces operating under the same guidelines as the federal site.

What About the Problems With the Website?

The federal healthcare exchange healthcare.gov “failed to perform as expected” when it was launched in October 2013. That is bureaucratic speak for: It didn’t work. It’s true; when the site first came online, it was plagued with problems. The government was forced to hire a new contractor to oversee repair of the site. The result? Most of the fixes were completed by January 2014 and are all done now. Healthcare.gov and each of the 18 independent state exchanges are now all working perfectly.

I Heard the Website Is Not Secure?

This is both true and false. The healthcare.gov website, like most e-commerce websites, is secure. However, like all websites, there is always the possibility that it can be hacked. Human ingenuity and greed will always mean there is someone somewhere who will try to break in. What is not true is that the site has been breached repeatedly and that identify theft is rampant.

If I Don’t Use the Site Will, I Be Fined?

No one is required to use either the healthcare.gov or any of the state sites to shop for or buy insurance. The healthcare marketplace websites are there for people who want to compare plans from multiple companies or want to apply for a subsidy. Those who are not comfortable using the website can call a toll-free number or visit a service center to apply. There are no fines or penalties for not using healthcare.gov or a state exchange.

Public Opinion Polls

News organizations, particularly cable news channels, love public opinion polls because they help them create stories on slow news days. The problem with poll results and the news is they can sometimes be mistaken for facts and not people’s perceptions. This next group addresses some rumors that resulted from polls.

Is It True That a Third of People Who Signed Up Never Paid?

When open enrollment ended in March 2014, about 80% of applicants on the website paid their first premium. Of the 20% who did not, many got health insurance elsewhere, such as through their employer or by direct purchase from an insurance company. According to a Gallup poll in April 2014, just under 10 million people got insurance through an Obamacare website.

What Happened to the People Who Wanted to Keep Their Old Insurance?

In most cases, those who wanted to keep their old insurance could. It is true that some health insurance plans were cancelled because they did not meet the new standards for coverage. Some low-cost policies that did not meet the minimum standards, as defined by the law, were taken off the market. This caused some people to have to find different insurance. Most of those whose plans were cancelled found better coverage for a similar cost.

Are Women Being Forced to Use Birth Control?

This is a case of straight misunderstanding. The law does not require anyone to use birth control. It does require all health insurance plans give access to birth control at no cost. Another side of this controversy is that religious organizations that are opposed to birth control are being forced to provide it. As of June 2013, all religious employers are exempt from having to pay for contraceptives as a part of their healthcare plan. The rules defining religious organizations were expanded and simplified. This resulted in more organizations qualifying for the exemption.

The IRS and Taxes

Everyone’s favorite villains and least-liked subjects, the IRS and taxes, are discussed next.

Obamacare Is the Largest Tax Increase in History

At the core of this rumor is a kernel of truth in the form of a small tax increase for high earners. The tax increase applies to individuals making more than $200,000 per year and families earning more than $250,000. Taxes were also increased on the healthcare industry, including physicians, hospitals, and pharmaceutical companies. The majority of taxpayers and businesses are unaffected by the tax-rate increases.

What About the New Tax on Sporting Goods?

This one probably began like the childhood game of telephone where a message is whispered from one person to another and comes out the other end as something completely different. The rumor started when the 2.3% tax on medical devices made its rounds in emails and was eventually picked up by some media outlets. The logic behind it was that exercise has health benefits so exercise equipment can be considered a medical device. While it’s true exercise is good for you, treadmills and soccer balls are not medical devices and not subject to the tax. The medical device excise tax only applies to manufacturers, not consumers.

Is the IRS Keeping a Medical Database?

Minnesota Congresswoman Michelle Bachmann is personally responsible for getting this one going. She started it during a television interview on May 2013 when she conflated the IRS and insurance companies by way of the subsidy. The only actual involvement the IRS has with health care are the tax credits. The IRS sends insurance companies the tax credits for qualifying individuals and families. The flow is one way, and the IRS does not have access to any of your healthcare information. There is no IRS database and they are able to see your health records no more than the cashier at the supermarket.

Business and Employment

On both sides of the same coin, business and employment are discussed in this section. While rumors about mass job losses and businesses being driven into bankruptcy are less common, they still persist.

My Small Business Can’t Afford to Provide Healthcare Insurance

Most businesses are exempt from having to provide health insurance to employees. The employer mandate, which was delayed a year, begins in January 2015 for businesses with more than 100 full-time employees (30 hours a week or more). They will have to provide employer-funded health insurance or face penalties. Companies that employ more than 50 full-timers start in 2016. The more than 96% of small businesses that have fewer than 50 employees are eligible for tax credits and do not have to provide insurance.

How Many People Are Losing Their Job Because of Obamacare?

According to the non-partisan Congressional Budget Office, no one is expected to lose their job because of Obamacare. The rumor first came to life in the North Carolina Senate race when Thom Tillis made the claim in a TV ad that 2 million jobs would be lost. The ad misstates the CBO report of February 2014 that estimates between 1.5% and 2% of workers will voluntarily reduce their hours. The reason being is they will no longer need the extra income to pay for health insurance. A quick check of the math shows that 2% of the U.S. workforce is about 2.25 million Americans, and the root of the rumor.

Another side to this story gained prominence thanks to a 2013 interview with Florida Senator Marco Rubio. He said that up to three-quarters of small businesses planned to lay off workers to avoid having to comply with the law. The claim was debunked by the U.S. Chamber of Commerce in a study that showed that less than 10% of businesses with 50 or more full-time employees were considering cutting their workforce. That translates to less than one-half of 1% of all businesses.

The Law

The items here are mostly nuts-and-bolts issues about the law. Most of them are complete fiction rooted in one part of the statute or another. Others are related to how the law is treated and who is treated differently.

You Can Go to Jail for Not Paying

There is a slew of stories circulating about potential prison time for not buying insurance. Other stories land people in prison for not paying the penalty assessed for not having insurance. None of them are true. The IRS, which is the agency responsible for collecting the fees and taxes, does not have police authority. That means they can’t arrest anyone. In fact, they can’t even ask that another agency make an arrest for them. The only authority the IRS has for collecting the healthcare-associated taxes and fees is to withhold it from refunds. They are not even allowed to levy wages or assets to collect outstanding penalties.

Non-Citizens Get Free Health Care

There are no provisions in Obamacare for free health care for anyone. This includes citizens and non-citizens, both legal and undocumented alike. Undocumented individuals are not allowed to apply for Medicaid or Medicare.

Will I Be Forced to Allow the Government to Inspect My Home?

This provision of the law is for an optional program that sends nurses on house calls to check on pregnant and poor women. The rumor started when the South Carolina legislature decided to address a problem that did not exist. The program is entirely voluntary and does not involve inspections of any kind.

Why Is Congress Exempt From the Law?

While it is true that Congress regularly exempts its members from all sorts of laws and rules, this is not one of them. Members of the House and Senate, along with their staff, are required to have health insurance just like everyone else. As employees of the federal government, they do receive employer-sponsored health insurance just as other federal employees.

Death Panels

The most famous progenitor of this rumor is former Alaska governor and VP candidate Sarah Palin. She started the ball rolling with an August 2009 Facebook post. The misunderstanding comes from the law’s requirement that Medicare pay for doctor’s visits to discuss end-of-life issues. Before Obamacare, Medicare did not cover patients discussing living-wills, do-not-resuscitate, and other end-of-life decisions with doctors. Governor Palin transformed that into death panels. Despite being widely debunked and the butt of countless jokes, this absolutely bogus story still manages to rear its ugly head every few months.

The Law Is Unconstitutional!

This is a popular battle cry of opponents of the law who continue to rant about it at every opportunity. They do so in spite of a Supreme Court ruling in 2010 that found the law constitutional. The crux of the constitutionality argument is the individual mandate, which is the requirement that individuals buy insurance or face a penalty. The constitutionality issue was resolved when the penalty was changed to a tax. The court said the Constitution grants the federal government the authority to levy taxes.

No One Has Ever Read the Whole Law

This claim comes in a couple of parts. First, there’s the notion that the law is 2,000 pages or more long. It is not. It is 974 pages, including the extensive table of contents and even more extensive footnotes. The pages also have excessively wide margins, making it appear longer than it is. While it’s not a Ray Bradbury short story, it is readable and has been read by countless people, including me.

Cost and Quality of Care

This final group addresses concerns that are at the core of the law, the cost, and quality of care.

The Cost of Insurance Has Increased Since the Law Passed

True! The cost of health insurance has increased since Obamacare was passed into law. Equally true is the fact that healthcare premiums and costs have risen every year since WWII. This includes many years where costs rose by double digits. Preliminary estimates from the CBO and the Kaiser Family Foundation point to a slower rate of increase since the law has passed. Many economists and healthcare experts suspect it will take at least a few years to determine if the slowing is permanent or just a hiccup.

Will I Have to Change Doctors?

Much was made of the claim, “If you like your doctor, you can keep your doctor.” Marco Rubio went so far as to call it false, which is itself mostly untrue. There are some cases where switching insurance will mean moving to a plan that your doctor does not accept. However, doctors are also business people and they make money based on being able to see as many patients as possible. That means that most doctors make great efforts to accept as many insurance plans as possible. So in most cases, you will be able to keep your doctor.

I Heard There Will Be Healthcare Rationing

The theory behind this one is that once everyone has insurance there won’t be enough healthcare providers to go around. The bottom line on this one is the bottom line, meaning health care in the United States is a for-profit business. The greater the demand for healthcare, the more providers there will be to meet the need. Contrary to what some detractors say, Obamacare is not government controlled or socialized health care. That means the marketplace will always rise to meet demand.

Medicare!

Seniors have been subjected to an onslaught of rumors and misinformation regarding the effect of Obamacare on Medicare. From the fabled death panels and rationing to cuts in reimbursements and increases in out-of-pocket costs, Medicare is under assault. The fact is that the only changes to Medicare under Obamacare have been to increase and improve benefits. The best example of this is closing the prescription drug donut hole.

The post Separating Obamacare Facts From Fiction appeared first on The Simple Dollar.

The Simple Dollar - “Inspiration from Gillian Welch, John Steinbeck, Kurt Vonnegut, and More”

2014-10-05T01:24:00.001-07:00

The Simple Dollar - “Inspiration from Gillian Welch, John Steinbeck, Kurt Vonnegut, and More”

Inspiration from Gillian Welch, John Steinbeck, Kurt Vonnegut, and More

Posted: 04 Oct 2014 07:00 AM PDT

Once a month (or so), I share a dozen things that have inspired me to greater personal, professional, and financial success in my life. I hope they bring similar success to your life.

1. Colin Grant on being the son of a difficult father

From the description: Colin Grant has spent a lifetime navigating the emotional landscape between his father's world and his own. Born in England to Jamaican parents, Grant draws on stories of shared experience within his immigrant community — and reflects on how he found forgiveness for a father who rejected him.

For starters, I love hearing the stories of people with lives that have been much different than my own. While I can hear a few echoes of similarity in Colin’s story, most of it is on completely different ground than what I’m familiar with and I find that fascinating. It’s a window into another world of human experience.

More than that, however, this story shines because it shows that we all have the capacity to overcome and rise above the challenges and mistakes and problems of our past. It’s not easy – nothing worth doing ever is – but you don’t have to define yourself and give yourself limitations because of what your past was like.

Your parents don’t define you. Your childhood doesn’t define you. Your early adulthood doesn’t define you. Your mistakes and successes back then don’t define you. What defines you is the choices you make right now that will carry forward from here. You define yourself every single day by what you choose to do (and what you choose to not do).

2. John Steinbeck on the fall of adults in the eyes of children

“When a child first catches adults out—when it first walks into his grave little head that adults do not always have divine intelligence, that their judgments are not always wise, their thinking true, their sentences just—his world falls into panic desolation. The gods are fallen and all safety gone. And there is one sure thing about the fall of gods: they do not fall a little; they crash and shatter or sink deeply into green muck. It is a tedious job to build them up again; they never quite shine. And the child's world is never quite whole again. It is an aching kind of growing.” – John Steinbeck, East of Eden

I still remember how it felt when I first realized that the adults I really looked up to in my life – my parents, some of my teachers, and a few others – weren’t perfect. They were fallible flawed people who often made tremendous mistakes and could actually hurt me intentionally and for no reason.

It was crushing.

The thing is that, even through that crushing change, my parents were always there for me. They were the same steady, reliable, thoughtful people that they’ve always been and it didn’t take too much of that “teen angst” period for me to realize how valuable they really were. My parents were not perfect, but they were far more than I deserved.

I can’t be perfect for my own children. My best bet is to be the kind of steady, reliable, thoughtful parent that my own parents were for me so that when the reality of my supposed infallibility comes crashing down to the ground for them, they’ll see that there is still a ton of value in those broken pieces.

You can never be perfect, but you can always choose the better option.

3. FollowUpThen

FollowUpThen is a surprisingly useful tool that I’ve come to rely on more and more and more over time. It’s one of those things that’s such a simple idea that I can’t believe I didn’t think of it.

Basically, FollowUpThen is a service to which you can send an email and the service will send it back at the designated time. For example, if I send an email to the address threehours@followupthen.com, it will forward that email back to me in three hours. If I send it to twoweeks@followupthen.com, then it will forward that email back in two weeks.

This helps me plow through my email inbox quite easily. I don’t have a need to leave messages around in my inbox if they’re related to things I’m not going to deal with for a while. Instead, I’ll forward the email to, say, threedays@followupthen.com and then I can just archive the email, cleaning out my inbox.

Three days later, I get an email – right on time – that tells me what I need to know. That time, I can actually do something and then get rid of the email for good.

It’s just brilliant.

4. Gillian Welch – Time (The Revelator)

This song blows me away every time I hear it. The mix of Gillian Welch’s voice and David Rawlings’ guitar on this downbeat song is something special, period.

This is a downbeat song, don’t get me wrong. I am so often blown away with how music can so effectively convey an emotion and a mood, something this song does so well.

The best songs make you feel something. They don’t simply go in one ear and out the other. They change you on the way through. That’s what makes them special.

5. Lao Tzu on leadership

“A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will say: we did it ourselves.” – Lao Tzu

This simple statement outlines the biggest danger for leadership: the human need for recognition. Many people who take on the mantle of leadership expect and desire that the position will give them some form of recognition – recognition by peers, recognition by superiors, recognition by pay, and so on.

The problem is that questing for such recognition almost always stands in the way of leadership success. It requires the leader to stand out from the rest of the project in some way, which draws away from the many people that contributed to success.

A true leader strives for no recognition; if any comes their way, they deflect it to the others on the team. This works for several reasons. One, great leaders will simply be recognized no matter what they do because of the team’s success. Two, deflecting recognition to team members allows those team members to shine. Three, deflecting recognition to team members shows those members that you personally appreciate them.

If you take on a leadership role, you’re better off not caring at all whether you get recognized for your efforts. Instead, focus entirely on making sure that the project you are working on is a success. If there is success and there is recognition doled out, deflect it to team members that genuinely deserve it. You will never, ever regret doing this.

6. Walt Whitman – I Hear America Signing

I hear America singing, the varied carols I hear,
Those of mechanics, each one singing his as it should be blithe and strong,
The carpenter singing his as he measures his plank or beam,
The mason singing his as he makes ready for work, or leaves off work,
The boatman singing what belongs to him in his boat, the deckhand singing on the steamboat deck,
The shoemaker singing as he sits on his bench, the hatter singing as he stands,
The wood-cutter's song, the ploughboy's on his way in the morning, or at noon intermission or at sundown,
The delicious singing of the mother, or of the young wife at work, or of the girl sewing or washing,
Each singing what belongs to him or her and to none else,
The day what belongs to the day — at night the party of young fellows, robust, friendly,
Singing with open mouths their strong melodious songs.

I sing when I am truly happy with my work. I’ve been known to sing when I’m building or fixing something. I sing in the shower when cleaning myself and I sing when I give my children baths. I’ve even been known to sing when revising my own writing.

Why? It feels natural. Singing comes from the heart and when it’s done while working, it’s often an expression of pleasure with that work.

I am always happy to hear someone singing because they’re happy with whatever task they’re doing. That happiness is a wonderful sound.

7. Dan Harris on the simplest way for improving your life

From the description: Dan Harris explains the neuroscience behind meditation, but reminds us that the ancient practice isn’t magic and likely won’t send one floating into the cosmic ooze. He predicts that the exercise will soon become regularly scheduled maintenance, as commonplace as brushing your teeth or eating your veggies. Harris, an ABC News correspondent, was turned on to mediation after a live, on-air panic attack.

Also, from the transcript: In sports this is called being in the zone. It's nothing mystical. It's not magical. You're not floating off into cosmic ooze. You are just being where you are – big cliché in self-help circles is being in the now. You can use that term if you want but because it's accurate. It's slightly annoying but it's accurate. It's more just being focused on what you're doing. And the benefits of that are enormous. And this is why you're seeing these unlikely meditators now, why you're seeing the U.S. Marines adopting it, the U.S. Army, corporate executives from the head of Ford to the founders of Twitter. Athletes from Phil Jackson to many, many Olympians. Scientists, doctors, lawyers, school children. There's this sort of elite subculture of high achievers who are adopting this because they know it can help you be more focused on what you're doing and it can stop you from being yanked around by the voice in your head.

I’ll be the first to admit that I used to think that meditation was bogus. It was something that was a waste of time that was sold by “new age” types as some sort of patent medicine cure-all that didn’t really do anything.

It took a friend of mine to coax me into it. She kept insisting that it really worked and at a professional conference I attended in either 2003 or 2004, she walked me through it. She basically insisted that I do it for five days in a row and directly walked me through the process.

I basically did it to get her off my back and for the first couple of days, I didn’t notice a change. By the end of the fifth day, though, I began to notice it. It was subtle, but there was something different. I just seemed more aware of what was going on around me. I picked up more out of what people were talking about. I didn’t get bored or tired quite as easily.

I’ve basically kept it up as a daily practice since then. There are a lot of different practices for doing it, but the way that works best for me (and has for a long time) is to just focus on one phrase and repeat it over and over in my mind for twenty minutes, bringing my mind back to that phrase if it starts to drift.

It really makes a difference. I can focus on my children for long periods of time. I can concentrate on basically any project for hours and hours. I notice lots of little things all the time and can often recall them later.

It isn’t life changing. I’d describe it as a 10% or 15% improvement on my focus and attention compared to where I’m at without it. However, it’s enough to be noticeable and it’s enough that, over the course of days and weeks, it really adds up to a much better life.

It doesn’t require you to buy anything or wear yourself out with physical effort. It just requires a few minutes (I used to just do it for five minutes or so, but it gradually grew over time because it really feels good.)

8. Neil DeGrasse Tyson on cheating in schools

“When students cheat on exams, it’s because our school system values grades more than students value learning.” – Neil Degrasse Tyson

A quote like this points out something that’s unquestionably true – a higher value is placed on grades than on actual learning – but it leads down a long path of thinking. How exactly do you fix that problem?

The reason that tests exist in school is because they solve the problem of inadequate numbers of teachers. With individual learning, a teacher can accurately assess what a student knows. When you have a math teacher teaching 160 different kids per day in a rotating classroom environment, that type of one-on-one assessment is quite simply impossible.

Another problem is that those test scores are what parents and colleges and employers use as a basis to judge the students by. What a student has learned can’t be summed up by a single number, but a person’s SAT score or GPA certainly can be. When it’s that number that becomes the source of judgment, people are going to focus on how to improve that number, not on what it represents.

I don’t know what the solution is, but it does leave me thinking, and when a quote can leave you thinking for a long time, it’s a quote worth respect.

9. Richard Branson on entrepreneurship

From the description: I think the most important thing about running a company is to remember all the time what a company is. A company is simply a group of people. And as a leader of people you have to be a great listener and you have to be a great motivator. You have to be very good at praising and looking for the best in people.

I actually believe what he’s saying here. His company, Virgin, has a strong reputation for being a great place to work because they treat people like people, and yet Branson was able to become a billionaire by building it.

I’ve found that there are two ways to succeed in business. One is to crush your employees into the ground in order to sell for the absolute minimum prices. The other is to treat your employees well so that they’ll attract customers even in the face of somewhat higher prices.

Even as a frugal person, I’m usually attracted to the second type of business. A company that has a history of treating me well is likely to earn my business in the future, even if I could save a dollar or two by going elsewhere.

If I ever again find myself in the position of having employees to manage, this is the philosophy I’ll take. They’re people, not tools.

10. Kurt Vonnegut on looking back

“And Lot's wife, of course, was told not to look back where all those people and their homes had been. But she did look back, and I love her for that, because it was so human. So she was turned to a pillar of salt. So it goes. People aren't supposed to look back. I'm certainly not going to do it anymore.” – Kurt Vonnegut, Slaughterhouse-Five

The story of Lot’s wife was the one story that always troubled me when I was younger. She was the one in that whole group that made sense to me. As she walked away from Sodom and Gomorrah, she was walking away from every friend she had ever known, every member of her extended family. She loved them. No matter how many mistakes they may have made, they were still the people that she loved and the people that she had filled her life with. It is no wonder that she looked back at them.

The problem is that looking back is always a double-edged sword. Our hearts often long for the good things we once had, but that can keep us from seeing the good things we have today. Our minds often regret the errors we once made, but focusing on them allows us to excuse the mistakes we make today.

You can’t change the past. You can only change the present and, by extension, the future. At best, the past only serves to teach us lessons about what we can do today and tomorrow. If you must look back, look back only with the aim of using that past to make the present and the future better.

11. The Missing Scarf

This short animated film has won a ton of animation awards over the last two years and deservedly so. Although the ending is a bit dark (be forewarned… screen it yourself before you share it with the kids), the film touches on a number of thought provoking ideas, particularly the amplification of everyday fears into something much larger than they ever should be.

But that’s not entirely why I’m including it here.

I’m including it because that film was, in large part, the work of one guy holed up with his laptop. As is described here:

Then came production, which basically consisted of Eoin [Duffy] and a laptop for almost 5 months, as he alone designed and animated all visuals.

He collaborated with a few people on specific elements – refining the script, the music, the voice work, and so on – but the crux of this thing came from just one guy on his laptop.

If you ever think that you can’t really do anything amazing by yourself, just think of Eoin Duffy spending months with his laptop and essentially creating an amazing short film basically out of thin air. That’s pretty inspirational.

12. Emerson on disagreements and personal attacks

“Let me never fall into the vulgar mistake of dreaming that I am persecuted whenever I am contradicted.” ― Ralph Waldo Emerson

Just because someone disagrees with you does not mean they are personally attacking you. Just because someone else does not follow your way of thinking does not mean that you are less of a person, nor that they are less of a person.

Few things in life frustrate me more than when people judge the entirety of someone else by what their political beliefs are. A person is not a lesser person because they have a political or philosophical or religious stance than is different than your own. All it does is provide a convenient excuse for you to not have to think about your own stances because you’ve decided that the opposition is somehow less than you.

Every time I see someone use the words “Obummer” or “Teabagger,” I don’t lose respect for President Obama or the Tea Party. I lose respect solely for the person that would use the word “Obummer” or “Teabagger” to describe a person or persons that they disagree with on political philosophy. Rather than actually listening to each other and working together to come up with a healthy solution to whatever problem is at hand, they instead choose to slap a horrible name on the other person so that the other side becomes less human and thus they don’t have to listen to or interact with that person. That cheap label becomes an excuse not to think and not to work to solve problems.

Never, ever fall into that trap. Not only do you lose, so does everyone else who might have been a part of a worthwhile conversation.

The post Inspiration from Gillian Welch, John Steinbeck, Kurt Vonnegut, and More appeared first on The Simple Dollar.

The Simple Dollar: “The Affordable Care Act and You” plus 1 more

2014-10-04T01:20:00.001-07:00

The Simple Dollar: “The Affordable Care Act and You” plus 1 more

The Affordable Care Act and You

Posted: 03 Oct 2014 11:52 AM PDT

The Patient Protection and Affordable Care Act, commonly referred to as Obamacare or the Affordable Care Act was signed into law on March 31, 2010. The goal of the Act is to make affordable health care accessible to all Americans. The Congressional Budget Office estimates that once the ACA is fully implemented 94 percent of Americans will have some form of health coverage. By the end of 2014 87 of 90 provisions of the law will be in place. The remaining provisions which include employer mandated health insurance for companies with 50 or more full-time employees will begin rolling out next year.

The Three A’s of the Affordable Care Act

To achieve the goal of ensuring that all Americans have adequate health protection the provisions of the ACA can be divided into three overarching sections; accessibility, affordability and accountability.

Accessibility

The most widely talked about aspect of the Affordable Care Act has been the creation of federal and state insurance marketplaces. The marketplaces enable insurance shoppers to search for coverage in two ways. The first is by dividing available options into three broad levels of coverage; bronze, silver and gold. The second enables consumers to do side by side comparisons of policy benefits and cost.

Affordability

The ACA has already slowed the rate of increase of health care costs by increasing the number of healthy people in the system and by improving delivery of services included preventative care. The act works to improve affordability is a second more direct way by providing premium assistance in the form of tax credits to individuals and families whose income is less than 400 percent of the federal poverty level.

Unfortunately, affordability is a hotly contentious piece of this legislation. For many people, health insurance has actually become more expensive under the ACA because many insurers have pulled out of certain exchanges.

Accountability

– Holding insurance companies, health care providers and pharmaceutical companies accountable for the care they provide ensures that consumers receive the best possible care. Changes in the relationship between insurers and policyholders include coverage for pre-existing conditions and an end to lifetime benefit caps. Providers have been given incentives to offer greater preventative care and rule changes now make it easier for lower cost generic medications to make it to market sooner.

An Affordable Care Act Time Line

Over the coming years the Affordable Care Act will continue to transform the health care is delivered if it stays in its existing form. While 97 percent of the provisions of the Affordable Care Act will be in place and active by the end of 2014 looking at a timeline of the changes will provide an understanding of not only what has changed but how the law works. The timeline includes the year, the number of provisions that were supposed to begin and the number that actually did as well as key provisions for that year.

2010 – 26 of 26 Provisions went into effect

Insurance companies must not justify unreasonable premium increases.
Small business tax credit for companies with fewer than 25 employees.
Lifetime limits removed from health insurance policies.
Adult dependent children can remain on parents’ insurance until age 26.

2011 – 18 of 20 provisions went into effect.

The Medicare prescription donut hole was filled, saving senior citizens an average of $545 per year.
Improvements to the way Health Savings Accounts can be used.
Grants of up to five years became available for small employers to establish wellness plans for employees.
15 Member Medicare Advisory Board is delayed in Congress and is still not implemented.

2012 – 10 of 11 provisions went into effect.

Insurers must now provide uniform coverage summaries so that consumers can easily and accurately compare competing plans.
Data collection to identify and fix disparities in the delivery of health care begins.
More than a half dozen changes to Medicare and Medicaid went into place to reduce fraud, improve services and reduce cost.

2013 – 13 of 14 provisions went into effect.

Federal and state health insurance exchanges (Marketplaces) began enrolling consumers.
The financial disclosure provision which requires disclosure of relationships between health providers such as doctors, hospitals, pharmacists and manufacturers and distributors of drugs and medical supplies be disclosed.
Financial disclosure rules began requiring doctors, hospitals, pharmacists and others to report relationships.
Flexible spending account limits were raised to $2,500 with future adjustments tied to the cost of living.

2014 – 15 of 16 provisions went into effect.

Medicaid benefits are expanded to individuals and families earning less than 138 percent of the federal poverty level in 27 states and Washington, D.C.
Premium assistance, subsidies, are available to individuals and families earning less than 400 percent of the federal poverty level.
Individual mandate requiring everyone to have private health insurance, Medicare or Medicaid.
Health insurance availability is guaranteed for everyone regardless of pre-existing conditions.
Health insurance premiums can only be based on age. Higher rates based on poor health are no longer permitted.
Annual benefit limits are removed.
The employer mandate was delayed one year.

2015 – 2 Provisions will go into effect.

The employer mandate which was delayed in 2014 will go into effect for employers with more than 100 employees.
An increase in federal matching funds for CHIP will take effect on October 1^st.

2016 – 2 Provisions will go into effect.

The employer mandate which was delayed in 2014 will go into effect for employers with more than 50 employees.
States may form compacts with each other to allow insurance plans to be sold across state lines.

2017 – There are no provisions scheduled for this year.

2018 – 1 Provision will go into effect.

This final provision is a tax on high cost employer sponsored health plans.

Breaking the Affordable Care Act Down by Title

The Affordable Care Act is like other large complex pieces of legislation in that it is broken down into a number of sections called Titles. Each title of the law addresses specific areas within the overall law. The Affordable Care Act is divided into 10 Titles of which each is briefly explained below.

Title I – Quality, Affordable Health Care for All Americans

This opening title makes fundamental changes to the way health insurance functions by providing substantial protections for consumers. One of the most significant changes is the elimination of “lifetime and unreasonable annual limits on benefits.” For health care consumers this means that if they fall victim to a catastrophic illness or injury all of their care will be covered by insurance. Prior to the act insurance companies were able to place arbitrary annual and lifetime limits on benefits resulting in patients running out of insurance and being unable to continue treatment.

Title I of the ACA will go a long way toward reducing the 60 percent of bankruptcies that were the result of medical treatments. 75 Percent of medical bankruptcies were initiated by people who had health insurance. In some cases, those financial collapses were not because patients exceeded their benefits, but because insurance companies cancelled their policies when they became sick. Title I makes it unlawful for an insurance drop a customer due to illness or injury and prevents them from raising premiums for people with pre-existing conditions. Finally, this tile allows dependent adult children to remain on their parents insurance until they are 26.

Title II – The Role of Public Programs

The focus of this section is public health programs for the poor and middle class. This title extends Medicaid benefits to individuals and families whose income is up to 133 percent of the federal poverty level. The extension of benefits is only available to those who live in one of the 27 states and the District of Columbia that have accepted federal grants to expand the program. This title also extends CHIP or the Children’s Health Insurance Plan through 2015. CHIP is similar to Medicaid in that it provides health insurance specifically for low income children.

Title III – Improving the Quality and Efficiency of Health Care

The most prominent feature of this section is the closing of the Medicare drug donut hole which will save senior citizens hundreds and in many cases thousands of dollars a year in medication costs. This title also addresses numerous procedures and protocols for delivering health care to seniors and the poor. Each of the changes is designed not only improve the quality of care, but the efficiency with which care is delivered by providing incentives to hospitals and other providers to improve senior care. This section also called for the creation of a Medicare Advisory Board to find additional ways to reduce costs, but is still awaiting congressional action to begin work.

Title IV – Prevention of Chronic Disease and Improving Public Health

Benjamin Franklin once said that “an ounce of prevention was worth a pound of cure.” While he was not talking about health care he was nonetheless correct. Preventing disease is far less expensive than treating or curing disease and this title makes that fact the law. It funds a wide range of public health and prevention programs designed to improve wellness and thereby reduce health care costs and ultimately health insurance premiums.

Title V – Health Care Workforce

In order to provide health care for the tens of millions of previously uninsured Americans the ACA includes a provision to fund scholarships and loan repayment programs for people pursuing a career in health care.

Title VI – Transparency and Program Integrity

A two prong approach is taken with this title to improve the transparency and integrity of health care. Greater transparency is achieved by requiring improved disclosure to patients of cutting edge research and treatment. There are also greater disclosure requirements concerning providers who have been identified as high-risk because they have defrauded patients in the past. States have been given the ability to prevent penalized providers in another state from setting up operations in a new state.

Title VII – Improving Access to Innovative Medical Therapies

In the past, patients have not always had access to necessary medications due to high cost. Anti-competitive practices which have traditionally driven the price of drugs higher are ended by this title. The statutes in this section improve the process of getting less expensive generic drugs to consumers.

Title VII – Community Living Assistance Services and Supports Act (CLASS Act)

This is a separate act within the ACA that was repealed in 2013.

Title IX – Revenue Provisions

In order to ensure that the other provisions of the law are paid for this title addresses the many facets of revenue. Revenue is generated through both new taxes and the closing of loopholes for existing taxes. The new taxes imposed under this section do not affect families earning less than $250,000 annually or small businesses. The majority of new taxes and fees are levied against large businesses (more than 500 employees) and the health care industry, especially pharmaceutical companies.

Title X- Reauthorization of the Indian Health Care Improvement Act

This provides for the reauthorization of the Indian Health Care Improvement Act (ICHIA) which provides essential health services to American Indians and Native Alaskans.

Small Business and the Affordable Care Act

The implementation of the mandate requiring businesses to offer health insurance to employees was delayed by one year. Small businesses with fewer than 50 full time employees (30 or more hours) are not required to offer health insurance. However, they can take advantage of the Small Business Health Options Program (SHOP) where they can visit a special health care marketplace to shop for plans. The SHOP program pools, small businesses to increase purchasing power resulting and lower premiums. This is important because historically small businesses have paid up to 18 percent more for insurance than larger businesses. To participate a small business must meet certain criteria that include offering the plan to all employees and meeting participation minimums.

Small businesses with fewer than 25 FTE employees in may be eligible for a small business tax credit of up to 50% of premiums paid. Qualifying small businesses may carry the credit back to 2010-2013. Since the cost of premiums exceeds the amount of the credit employers are able to both receive the credit and deduct the expense. Employers who do not have a tax obligation in a given year may carry the unused credit backward or forward as needed.

Shared Responsibility

The most controversial part of the law is the employer shared responsibility provision which is commonly called the employer mandate. Originally scheduled to begin in 2014 it was delayed one year to 2015. The provision affects businesses with 100 or more full time employees starting in 2015 and business with 50 or more full time employees in 2016. Qualifying businesses will be required to offer employer sponsored health insurance and pay at least 60 percent of the plan premiums or be subject to penalties.

There are two sets of penalty formulas under this provision; the first applies to businesses that do not provide health insurance at all. While businesses are required to provide health insurance the penalties are only assessed, if at least one employee receives a subsidy. The penalty is $2,000 per employee, regardless of whether they receive a subsidy or not. The penalty calculation exempts the first 30 employees. For example, if a business with 75 employees does not offer health insurance and one employee receives a subsidy the company will have to pay a penalty of $90,000 the first year. The equation looks like this; 75 employees minus 30 exemptions multiplied by $2,000 equal $90,000.

The second penalty formula applies to businesses where a sponsored plan is offered, but the minimum requirements are not met. Those requirements are that the company pays at least 60 percent of the premium cost, and that the employee contribution does not exceed 9.5 percent of family income. The penalty becomes effective if one or more employees choose to buy their own insurance and receives a subsidy. The penalty calculation exempts the first 30 employees and is calculated the same way as if no insurance is offered with one addition. The penalty for each employee who receives a subsidy is $3,000 rather than $2,000.

The post The Affordable Care Act and You appeared first on The Simple Dollar.

When Should a Person Start Social Security Benefits?

Posted: 03 Oct 2014 07:00 AM PDT

Whether I like it or not (and I most certainly don’t like it), my parents are growing older. My mother is getting close to the age where she will begin to be eligible for Social Security benefits and my father is already there with his benefits already unlocked.

Naturally, one of their biggest questions is when should she start her Social Security benefits? Should she start immediately at age 62? Or should she wait for a while to receive larger benefits each month for the rest of her life?

I thought I’d walk through the ins and outs of this question on The Simple Dollar because I know that many readers are asking similar questions, both for themselves and for their spouse.

Full Benefits and Partial Benefits

Whenever you receive a statement in the mail from the Social Security Administration, it tells you what your monthly benefit will be. However, that monthly benefit does not kick in at age 62. Instead, a person can receive a partial benefit starting at age 62 or their full benefit starting at age 65 to 67 (depending on birth date).

For example, if a person was born between 1943 and 1954, that person can choose to have benefits start at age 62, but their monthly benefits for the rest of their life will be cut by 25% per month. On the other hand, that person could wait until age 66 to start benefits and would receive the full benefit for the rest of their life.

This isn’t an either-or choice, of course. A person can start benefits at age 64 and have their benefits cut by only 13.3% for the rest of their life, for example, and there are similar thresholds at almost every point along the way. A full table of all of these options is available.

Spousal Benefits

A married person has an extra perk when getting their Social Security benefits. They can either receive their full benefit or half of their spouse’s benefit, whichever is greater. For example, if someone would only receive $300 a month from their own wage earnings but their spouse is eligible to receive $1,000 a month, that person could instead receive $500 a month – half of their spouse’s benefit.

Of course, the spousal benefits are also trimmed down if you start receiving them early, as described above. If you were born between 1943 and 1954 and your benefit is going to be the “spousal” option – equal half of your spouse’s benefit – you’ll only receive 35% of your spouse’s benefit if you start receiving it at age 62, but if you wait until age 66, you’ll get the full 50% of your spouse’s benefit.

A Real Example (Similar to) My Mother

So, let’s look at a real-world example that’s fairly similar to my mother’s situation. She’s married, so the spousal benefit is available to her. However, she earned enough money in her life to earn a $1,000 benefit on her own, so we’ll use that as an example (it’s a nice round number so that the calculations are clear). She was born between 1943 and 1954, so the numbers above are accurate – if she starts benefits at age 62, she’ll only receive $750 per month. If she starts at age 64, she’ll only receive $867 per month. If she waits until age 66 to start benefits, she’ll receive $1,000 per month.

Unfortunately, this isn’t a cut and dried math problem. There are a few questions that are really relevant before deciding what to do.

To make things simpler here, I am not including inflation at all. Social Security provides cost of living increases that largely balance out with inflation, so including it makes things unnecessarily complicated and confusing, so I’m just leaving everything in today’s dollars.

First, what is her life expectancy? The longer her life expectancy, the longer she should wait to start benefits.

For example, if she were to die on her 66th birthday, she would receive $0 if she had waited for full benefits, but if she started at age 62, she would have received $36,000 in benefits and if she started at age 64, she would have received $20,808 in benefits.

On the other hand, if she were to die on her 70th birthday, she would have received $48,000 if she started at age 66 with full benefits, $62,424 if she started on her 64th birthday, and $72,000 in total benefits if she started at age 62.

What about at age 74? If she started at age 66 with full benefits, she would have received $96,000 in benefits. If she started at age 64, she would have received $104,040 in total benefits. If she had started at age 62, she would have received $108,000.

It’s right after age 74 that the best benefit begins to change.

At age 78, for example, she would have only received $144,000 in total benefits if she started at age 62 and she’d only be getting $750 a month thereafter. If she had waited until 64 to start, she would have received $145,656 in total benefits and would be receiving $867 a month thereafter. However, if she waited until age 66 for full benefits, she would have also received $144,000 in total benefits to this point and she would be receiving $1,000 a month for the rest of her life.

In other words, there’s a point around age 75 where it becomes better to have waited for the full benefit than to have cashed in early.

This is why life expectancy is so important. A good estimate of your life expectancy will allow you to make a smart answer when it comes to this question. I recommend using the Social Security Administration’s life expectancy calculator to get an estimate of how long you can expect to live.

However, using this standardized table for life expectancy, my mother should expect to live into her early eighties. In fact, that’s pretty much true for any adult woman today – you should expect, on average, to live into your early eighties.

Given that fact alone, I’d encourage people to wait until they’re eligible for full benefits before cashing in. However, that’s not the only factor to consider.

The second question they should be thinking about is what is her financial state in the event of my father’s death? This is a more complicated question to answer as it involves making a budget for that point in time. It’s both emotionally and financially demanding to figure out that situation.

How much of his pension will she continue to receive? How much will her expenses drop? Will she receive any life insurance upon his death? When all that is figured together, how much will her monthly expenses truly change – and will that reduction in expenses make up for the drop in income?

The more difficult that situation for her, the longer she should wait for benefits.

A third question to consider is what would they do with the extra benefits now? To me, this is the only truly compelling argument for earlier benefits – it would give them more financial leeway while my father is still in good health.

With that extra $750 a month, they would have a lot more financial freedom to travel a bit, splurge on a few things they’ve never really been able to splurge on before.

This is a real quality of life issue. My parents live on a fairly tight fixed income, below the $40,000 a year that is often cited as the “threshold” above which additional money does not add to happiness. If my mother cashed in her benefits starting at age 62, they would be much closer to that threshold for the years that they have remaining together, which is a very valuable thing.

A final question: what about investing early benefits? Let’s say she were to simply drop her Social Security benefit straight into an investment each month while my father is still alive. Wouldn’t that be the best route?

According to my back-of-the-envelope math, if my father lived to his average life expectancy and my mother invested all of her benefit starting at age 62 in an investment that returned 7% per year, she would “break even” with her age 66 benefits at about age 83 – not too far from her average life expectancy.

However, this assumes several things that I don’t have faith in. It assumes that they’d just put all that money into an investment each month and never spend any of it. It also assumes that the market returns 7% per year like clockwork, which I absolutely don’t trust. It’s also only beneficial if she only barely makes it to her life expectancy… when I hope she lives for a very long time beyond that.

So, What Should They Do?

Given this situation, I see two main roads that they could take. My mother could either start collecting benefits at age 62 and give my parents more financial breathing room while they both live, but this would have the drawback of making things more challenging for her in the event of my father’s death.

On the other hand, she could wait until age 66, during which they would have four more years of being relatively tight with their money, but after which they would have even more breathing room and my mother would have less worry after the passing of my father.

In my eyes, the answer to this question really hinges on predicting a monthly budget for the time after my father passes away. What does that budget look like in each situation? Is the budget with a lower income level something that she can live with? Or is it just too tight?

This is the step of the process that they’re working through right now – assembling a budget for the event that my mother becomes widowed (if my father became widowed, he’d be fine financially). If it’s just too tight, they’ll wait, but if it’s livable, I’m pretty sure they’ll start benefits as early as possible so they have as much quality time together as they can during their golden years.

There is one final factor, an additional detail that I didn’t mention here: me. Regardless of what they decide – and this is still an ongoing process – I will never allow my parents to be in a position where they are truly struggling. They do not have to worry about not having food in the cupboard or not having electricity or anything like that – I will not allow that to happen to them. I do hope that many parents have that type of support available to them as it makes decisions like this less of a high-wire act.

Their final decision is theirs to make, but I have confidence they’re making that decision with a good framework and with the right topics in mind to think and talk about.

The post When Should a Person Start Social Security Benefits? appeared first on The Simple Dollar.

The Simple Dollar: “Special Announcement From The Simple Dollar Team” plus 1 more

2014-10-03T01:33:00.001-07:00

The Simple Dollar: “Special Announcement From The Simple Dollar Team” plus 1 more

Special Announcement From The Simple Dollar Team

Posted: 02 Oct 2014 01:32 PM PDT

Dear Readers of The Simple Dollar,

I’m writing to you today to inform you of some improved changes that you’ll see coming to the site very soon. I ask that you please take a few minutes to read this to ensure that you get the most value from our site in the future.

Here’s a brief overview of what I’ll be covering:

New contributors and content
New website features
RSS feed changes

New Contributors And More Content

As many of you know, The Simple Dollar was started by Trent Hamm. Since 2006, Trent has shared his story, advice, and other wisdom with you. As the founder and main contributor, Trent continues to be a big part of The Simple Dollar today by writing 6 posts each week. Trent will also continue answering your questions every week in the Reader Mailbag.

Contributors

Over the past few weeks, we’ve been working hard to find personal finance experts and established authors to join Trent and The Simple Dollar team. Our goal is to publish quality articles in a wider range of personal finance topics that may interest you. We want to deliver even more value to you so that you have everything you need to navigate your personal finances by coming to our site.

Each of our new contributors will write 1-2 articles per week on topics like investing, small business, debt management, money, careers, education, insurance, and home/lifestyle. So far, we have around 10 new people who will be joining our team to write articles for you. You’ll have access to all of these new articles, plus the same great content from Trent each week. (Just to be clear: none of this comes at any additional cost to you. Everything is free.)

The contributors will be introducing themselves in upcoming articles starting next week. We have a collection of people with various backgrounds who are considered experts on many of the personal finance topics we’ll be covering. They’ve already started writing their first articles and they are eager to share their knowledge and experiences with you. Our contributors are looking forward to interacting with you and answering your comments and questions as well.

In-House Team

We’ll also have our team occasionally contribute their own articles when situations arise in their life worth sharing. For example, Michael Gardon is researching where to rollover his retirement account as I write this. He plans to document his research, explain the process he went through, and actually roll over his 401k into his top choice (as you follow along). We hope some of these real life experiences can help other readers in a similar situation.

Additionally, we have an editor joining our team who has worked with popular personal finance websites, like MSN Money and TheStreet. We’re looking forward to having him apply his financial editorial knowledge to improve the quality of our content.

Guides

In addition to all of these new articles, we’re also working on creating guides that will help save money on important purchasing decisions. These guides are designed to enable you to make save time, save money, and make the right choices. Several of the guides will revolve around getting a business started or making money online, so the information should be valuable for those of you who are looking to earn an extra income.

As an example, if you’re starting a blog, you’ll need web hosting. You probably want to find the cheapest (yet still high-quality) web hosting company. We’ll do that research for you and present it in a logical way so you can easily find what you need. Our researchers will also be available to answer any questions and comments you have by using the commenting feature on the articles.

New Website Features

Search Function

We receive a lot of feedback from many of you and appreciate it all. One of the most requested items by readers was a search function for the site. As you can see below, we recently updated the site so that you can now find valuable information from one of our nearly 7,000 posts. You can find the search function on just about every page on the site.

Authors

Beyond that, we now have segments by author. These are similar to the categories, except it just displays the posts written by a specific author. If you only want to read content that Trent has written, you can either click on him at the bottom of the home page, or you can simply go to his author link here: http://www.thesimpledollar.com/author/admin/

As our contributors become more frequent writers, they will join our list of authors on the home page so you can follow specific authors.

RSS Feed Changes

Many of you receive articles from The Simple Dollar via RSS feed. There is an RSS feed on the site you may have subscribed to in the past. Basically, it sends all new posts to your email. This is not an actual email list or an email newsletter, as some people may think. It’s a feed from the blog sent to your inbox automatically (not by our team).

If you signed up to receive emails from us prior to June of this year, you are signed up on the RSS feed, not our actual email list.

If you want, you can sign up for our email list now. (We have some big plans to add a lot of value for people on this list in the future.)

All of the articles we publish will go through the RSS feed — that means you’ll be getting a lot more content in your inbox from our site because we’ll be writing much more. If you’re like me, you probably don’t want a ton of emails coming into your inbox from an RSS feed each day. I have a solution that can help…

Sign up for our email list to receive a weekly roundup of our most popular content.
Make sure to respond to the opt-in email in your inbox after signing up.
Unsubscribe from the RSS feed so you don’t get bombarded with RSS feed emails.

We completely understand if you don’t want to read every article we publish. The evolution of The Simple Dollar may not be aligned with your interests and you might just want to read Trent’s content. (I do strongly believe you’ll be missing out though because we have some great people who are going to be writing on our site.)

If you’re interested in specifically subscribing to Trent’s articles, continue reading and I can help you with that.

SubscribeTo A New RSS Feed

Here are instructions if you want to subscribe specifically to Trent’s RSS feed:

Copy his RSS Feed link (http://www.thesimpledollar.com/author/admin/feed/) into your RSS Reader.

If you don’t have an RSS Reader, I recommend using Feedly.

Unfortunately, subscribing to an RSS feed for an author is a manual task and there is no easy way to do it other than the instructions above. If you can get to a computer, it will only take a couple of minutes. You should get a lot of benefits from utilizing RSS Readers.

Also, if you would like to get Trent’s posts sent directly to your email inbox, you can do so by using blogtrottr.

In the URL field shown above, just simply enter Trent's RSS Feed (http://www.thesimpledollar.com/author/admin/feed/), then your email address, and you will be subscribed to Trent's RSS via email.

Questions Or Comments?

If you have questions or comments about anything, please feel free to post in the comments section of this page. I’ll do my best to respond to everyone as quickly as possible.

For those of you who need any technical assistance with anything, or if you want to write something to us privately, you can reach us at inquiries[@]thesimpledollar.com.

We appreciate your continued support of The Simple Dollar.

Thank you for your time,
Mike Jelinek

The post Special Announcement From The Simple Dollar Team appeared first on The Simple Dollar.

Fifteen Things I Skimp On

Posted: 02 Oct 2014 07:00 AM PDT

A couple of days ago, I posted a list of fifteen items I don’t skimp on. That list mostly consisted of extremely heavy use items and maintenance of my health and my most expensive purchases (homes and automobiles).

So, what do I skimp on? In truth, I skimp on a lot of things… but they’re mostly things that don’t seem to affect my quality of life when I spend less on them. This article lists fifteen of those things.

A few caveats:

This list doesn’t include stuff that I just don’t buy. I don’t spend my money on most junk food options. I don’t buy a lot of hobby supplies, either, outside of the occasional board game or book. This list focuses on things that I do buy regularly, but where I seek out the lowest possible price.

This list is my preferences, not yours. You may not want to skimp on some of these items. So why am I sharing this list? The goal is to give you ideas and to see that other people do skimp on a lot of common purchases.

Also, this list isn’t a be-all-end-all. I skimp on a lot of things; this list is just fifteen of them that I felt merited some additional comment. I’m a big believer in the idea that you should skimp on everything but the things that are actually personally important to you and, for me, that list is actually pretty short. I had a much harder time coming up with my list of fifteen items I don’t skimp on than I had coming up with this list.

My hope is that you come away with some new ideas on things that you can cut back on in your own life without sinking your quality of life in any way. Remember, frugality isn’t about misery; it’s about maximizing the value you get out of every dollar so that you have the greatest overall value in your life.

Let’s get started!

15 Things I Skimp On

Wine is something that can often be found on our dinner table. Sarah and I will often have a glass of wine with our dinner and sometimes we’ll have a glass in the evening after the kids are asleep.

However, neither one of us have ever tasted a big difference between wines based on their price point. We’ve tried a bunch of wines and while we’ve found some that we both thought were “bad,” that list of “bad” wines were completely disconnected from the prices.

In fact, we’ll usually just drink Charles Shaw wines at dinner. For those uninitiated, Charles Shaw wines are sold at Trader Joe’s and are often colloquially referred to as “two buck Chuck” because many of the bottles are available in the $2 to $4 range.

This philosophy is backed up by this study which concludes that “[i]ndividuals who are unaware of the price do not derive more
enjoyment from more expensive wine.”

Undershirts are thin shirts that are worn underneath other shirts for the purposes of absorbing body perspiration (and perhaps a bit of background color for your outer shirt). Since these aren’t visually apparent to other people (unless you’re wearing an outer shirt that’s unnecessarily thin), you don’t really have to worry about appearance when it comes to those shirts.

I basically just buy the cheapest tight white t-shirts that I can find for my undershirts. As long as they’re reasonably comfortable, they’ll work just fine. I’ll bleach them and wear them until they’re literally falling apart, which takes quite a while.

I do own some nicer t-shirts that are made to last, but these aren’t in that category. It’s the undershirts that I skimp on.

Freezer bags are a category where the store brand seems functionally identical to the name brand. I often use pint-sized freezer bags for things like making bulk breakfast sandwiches. I tried Ziplocs once with a coupon and they worked great. However, I usually just buy the cheap store brand and they work great, too.

Because of that, I just buy the cheapest freezer bags. I reuse them, too, by turning them inside out, rinsing them a bit, and letting them air dry on the counter, then sticking them back in the box. So a single box of generic freezer bags can last for a very long time around here.

I should point out that I don’t think Ziplocs are bad in any way here. This is just a category where the generics seem to work really well, too, so I don’t see a reason to buy anything other than the cheapest option.

Washcloths and hand towels are items that we buy in bulk at the warehouse club and use until they’re falling apart. Since they’re mostly just pulled out of a cupboard and used to clean things, the patterns and colors are quite unimportant on these items.

Our usual strategy is to wait until enough have worn out that we’re struggling with rotating these items, then we’ll go to the store and buy one of those bulk bundles of washcloths and/or hand towels. These go straight into the rotation.

Also, we keep a drawer with a lot of hand towels in it right in our kitchen which basically eliminates the need for paper towels. When there’s a mess, we just grab a hand towel, clean it up, and toss the hand towel into the laundry room to be tossed into the next appropriate load.

Exercise equipment is something that I rarely spend much on at all and, when I do, I buy it secondhand.

Why? The only exercise items you’ll find in our house are free weights and jump ropes – you can almost always find them at secondhand sports stores. We don’t own a treadmill or an exercise bike or any of that stuff. Instead, we use the sidewalk and a real bicycle for those needs.

Sure, there are periods in the winter where running outside is really miserable, but it’s not worth buying a treadmill to cover a handful of deep winter days. On those days, I just find other methods of exercising inside if the bug bites me.

In truth, most of our exercise is done with body weight, doing things like yoga, push-ups, abdominal crunches, and so on. This requires very little equipment and, when you do buy it, you can get the cheapest option available.

Over-the-counter medications are often completely identical to the name brand versions. Aspirin contains aspirin. Acetaminophen contains acetaminophen. You get the idea. The active ingredient in both is basically identical.

If I’m thinking of buying a medication and the active ingredient in the medications is identical, I will always skimp and buy the cheaper one. There’s no functional reason that I can come up with not to do so.

This does mean that when I’m buying a new medicine, I’ll need to compare the generic to the name brand and see if they’re different in terms of their active ingredient. It is extremely rare (at least with the things that I buy) that there’s any difference at all.

Kitchen staples such as sugar, salt, baking soda, baking powder, and so on – items that are extremely simple staples that are simply a part of more complex recipes – are items that I will always buy in their cheapest form. If I want whole wheat flour, I’ll buy the cheapest whole wheat flour.

Most of these items are made up of one ingredient. While there may be minor differences between them – such as one brand of flour being “fluffier” than another – proper kitchen use – such as sifting the flour – undoes most of those differences.

I’ve made countless baked goods with lots of different ingredients and in the case of flour, sugar, baking soda, baking powder, and so on, I can’t tell any difference between the brands, so I just buy the cheapest brand.

Cleaning supplies are another product where I just can’t see why I would spend money on a “premium” brand. After all, the goal is straightforward – removing dust, dirt, and grime – and that doesn’t require rocket science.

In truth, I’ll often just add vinegar to empty squirt bottles and use that to clean most things around our house. I use plain white vinegar as my “default” cleaning agent, relying only on other things (like a paste of baking soda) for severe stains.

This extends to things like bleach, where I’ll just buy the cheapest container available – bleach is bleach, after all.

Bottled water is another purchase that I don’t dole out the money for. I don’t even buy the cheap cases of bottled water, let alone the expensive ones.

Yes, I do spend money on this – on the “bottle” part, at least. I’ve actually broken Nalgene bottles before and actually had to purchase a replacement water bottle… but my current primary water bottle is actually a freebie, so I guess I don’t even purchase those that often.

My usual strategy is to just have a few refillable water bottles around which I can fill up with tap water (or tea) and store in the fridge. When I get a hankering for a beverage, I can just reach in the fridge and pull out a cold bottle of water, then just toss that container in the sink when it’s empty.

Don’t buy into the myth that bottled water is “cleaner” or “better” – the truth is that tap water is held to a higher cleanliness standard than bottled water is.

Gasoline is an item that I always buy at the cheapest price that I can find, which is usually either at my local warehouse club or at the gas station that has a “fuel saver” program that I cash in once a month or so. I buy the normal gas at the lowest octane that the station sells. I have seen very little benefit from buying anything else – nowhere near the value of the price difference.

There’s a little caveat here. I buy the low octane gas because that’s what’s recommended by my owner’s manual for my car. Most cars specify in their manual that low octane gas (the cheap stuff) is just fine, but there are models out there that specify better gas.

I simply can’t perceive any difference between the “cheap” gas and the premium gas in my car, so I don’t spend more.

Baby clothes are items that your baby will only wear for a little while before he or she outgrows them – and your baby is very likely to spit up on those clothes a time or two. Given those two factors, I have never seen the need to dress a baby in anything beyond the least expensive clothes I could find. You don’t need to worry about the clothes lasting forever, after all.

We bought most of our baby clothes at secondhand stores. We received more as gifts at baby showers for our first child. Most of those clothes were handed down to our younger children when they arrived on the scene. After our third child, many items were shared with cousins and others.

Sure, it can be “cute” to play dress-up with your baby in expensive adorable clothes, but those clothes are going to be rarely worn and are likely to be spit up on, plus babies look adorable no matter what they’re wearing.

Breakfast cereal is something that I always pick up in generic form or with a coupon. I consider it a waste of cash to buy the name brand version of breakfast cereal.

When I go to the store, I look for generic boxes of the kinds of cereal that my children like the best – usually a generic Cheerios. I’ll also grab coupons for those types of name-brand cereals and I’ll compare prices to see which is cheaper.

Honestly, for simpler cereals like Cheerios, the generic version and the name brand version are pretty much identical. There is very little functional difference between the generic and name brand version unless you’re buying some specialized flavored cereal, which we avoid anyway.

Bath soap doesn’t need to be bought in a name-brand form. We just buy soap in bulk at whatever is available at the lowest prices.

Our family doesn’t have any skin issues other than a bit of dry skin in the winter, so we don’t have any special needs that require expensive soaps. Our focus is on getting clean and removing all of that dust, dirt, and grime from a hard day of play. You don’t need name brand soaps for that.

I do prefer body wash in the shower, but I’ll just buy whatever is the least expensive option and I only use a drop or two, so it seems as though I get more showers per dollar out of a big bottle of body wash than a bar of soap.

Greeting cards are just an easy way to let someone else write a sentiment for you. I don’t mind buying a very simple greeting card with a very simple sentiment or a blank center, but I see no need for an elaborate card of any kind.

My perspective is this: I have X dollars to spend on someone for a particular occasion – a birthday or a holiday or something else. Let’s say I’m going to spend $5 on someone for their birthday because I intend to send a card. Why not just fold a piece of card stock in half, write a nice birthday note, and slip a $5 iTunes gift card in there, saying that they’d probably get more enjoyment out of that “card” than an expensive greeting card?

Not only that, a handwritten note means more. When it’s handwritten, you know the sentiment came from their heart. It’s not just a regurgitation of what a clever greeting card writer said.

Denim jeans are something I wear pretty much every day. They’re very comfortable and durable, no matter the brand. And it’s that “no matter the brand” that really matters to me.

If a pair of jeans has the right waist size, the right inseam length, and the right fit, it’s going to work for me. I don’t care what the label says or anything else. I like to be presentable, but I have no interest in “skinny jeans” or anything like that. I just want something that doesn’t look atrocious and is comfortable and durable – that’s all I want.

You don’t need a name brand for that. In fact, the cheapest jeans in the store tend to provide those features quite well. The only thing I do when buying jeans is check the seams to make sure they’re well-made – and, honestly, I’ve found more examples of poor seams in the more expensive jeans than the cheap ones.

Final Thoughts

As I was assembling this list – and culling that list down to fifteen things – I kept noticing that there were a few trends that held true throughout these items.

One, I tend to go cheap on “simple” items. Things like basic clothing and basic kitchen staples are items that I will certainly try in their cheapest form and I’ll usually stick with them, too. My concept of what I functionally need from those items is pretty straightforward and the generic versions almost always meets those needs.

Two, I usually prefer homemade alternatives, if possible. I like making my own greeting cards, not just because they’re cheaper, but because they have a more personal effect. I can’t see why I wouldn’t just bottle my own water or put a bit of white vinegar into a spray bottle for cleaning windows. Buying products in these cases makes no sense to me especially when buying anything beyond the cheapest version (like simple blank greeting cards).

Three, I love experimenting. I will always try the cheap version of anything I buy or anything I do, just to see how it works. If the cheap version fails, it’s no big deal because I’m not out too much. Even in those cases, I still walk away having learned something from the experience. Quite often, though, I learn that the cheap version has no negative impact on my life compared to the expensive version and it leaves more money in my pocket.

Again and again, I come back to the core idea that frugality is about finding the best value in whatever it is that you’re doing, but that requires really understanding what it is that you truly value. That’s easier said than done, particularly at first, but I find that the more you’re willing to try new things and see how “cheaper” alternatives work, the more you find that an awful lot of them stick around in your life.

The more “skimping” strategies that stick around in your life (because you discover that they really don’t have a negative impact on you), the less you’re spending on your day-to-day life and the more value you’re getting for your dollar on all of those areas of your life. You’re getting the same quality of life as before, but it’s costing you less and less. This leaves you money to pay off your debts, save for retirement, and do all of the things that you need to do to secure your future and bring about a sense of financial peace.

Good luck!

The post Fifteen Things I Skimp On appeared first on The Simple Dollar.

The Simple Dollar - “Distinguishing Between Luck and Hard Work”

2014-10-02T01:31:00.001-07:00

The Simple Dollar - “Distinguishing Between Luck and Hard Work”

Distinguishing Between Luck and Hard Work

Posted: 01 Oct 2014 07:00 AM PDT

You know those moments that happen in life where you wish you had the right words at that moment, but instead they come to you days later? I’m about to tell you about one of those times.

An old friend of mine – we’ll call him Jeffrey – has struggled throughout his adulthood with, well, many aspects of adult life. He’s struggled with maintaining a steady job. He’s struggled with alcohol dependence and substance abuse. He’s struggled with parenthood, too.

He has an older sibling – we’ll call him Will – that has done reasonably well with his life. This older sibling has a challenging but well-paying job and two children that are on solid professional tracks.

Whenever Jeffrey is feeling down on his luck, he’ll often go on a drinking binge and find someplace to hide out for a while. If you try to talk to him, you’ll hear the same few refrains over and over.

“Will gets all of the breaks in life. He gets all of the luck and I get nothing.”

“It doesn’t matter what I do. I can’t get ahead.”

“No one respects me.”

“I’m just going to be broke for the rest of my life. People who have money are just lucky.”

During those moments, the people who care for Jeffrey mostly just try to get him to sleep it off. They’ll listen to him for a while and then try to convince him to go to bed or to drink a bunch of coffee or do something else.

When a few days pass and Jeffrey’s complaints are considered, though, it becomes quickly clear how much of a farce they are.

Here’s the reality.

His older brother Will goes to work almost every day at a very challenging job. While I can’t speak firsthand about what it’s like, I know enough about it that I would dread going into work each day and even if I loved it I would find it challenging.

Not only that, Will spends his spare time cultivating side gigs. He has a mowing business and he also works as a farmhand during the peak of the harvest season. Will spends sixty hours a week (or more) working.

I respect that. A lot of people do. It’s pretty hard not to have some respect for someone who busts their tail every day to put food on the table for their family and ensure that their kids have the things they need and at least some opportunities after graduating from high school.

Will is not lucky. Will is a hard worker. Period.

At a quick glance, a person might perceive Will as lucky because of his family and because he has a nice car and a nice house. Behind the curtain, though, it’s clear that Will’s success in life is the result of a lot of hard work.

I identify with Will in that respect. I built The Simple Dollar from scratch while also working a full time research job. I usually have several side gigs going at any given time to earn additional money.

Nothing good in my life would have happened without a lot of hard work. Period.

Don’t get me wrong, luck does play a role. There are always uncertain events in life. Sometimes they’ll benefit you and sometimes they’ll work against you.

Having said that, hard work can overcome a lot of bad luck and it attracts good luck. It also amplifies the effect of any good luck that comes your way.

A person who is always trying to do a good job at work is going to be noticed by their supervisors and when it comes time for layoffs, that good worker is going to be one of the ones that’s kept. When it’s time for a promotion, the hard worker that does a good job of encouraging everyone else to keep it up is going to be eyed for that better job. The presence of that pink slip and that promotion might be luck, but keeping away the pink slip and attracting the promotion are the result of hard work.

A person who invests a lot of hours building a side business is going to have extra money in their pocket. When they need something (or when they want something), they’re going to have the cash for it. A person who comes home from work and doesn’t bother to keep working to improve themselves simply isn’t going to have access to that additional money. The difference is hard work, not luck.

In the end, I don’t really believe in “luck” at all, at least not in the sense of our lives being run by forces outside of our control.

Life is full of uncertain events, of course. Some of those events are positive and some are negative, and sometimes bad things can happen to hardworking people.

However, a person who works hard is going to actively reduce their chances of bad “luck” and actively increase their chances of good “luck.” The harder worker is likely to earn more money and have more professional support than the person who doesn’t work hard.

Mindset also plays a role in this.

Everyone has good and bad things in their life. I’ll use myself as an example instead of Jeffrey and Will here (as they don’t need to be exposed to the world any more than they already have in this article).

I was born with extremely limited vision in my right eye. I basically can’t see anything out of it other than vague colors and shapes. I am completely deaf in my left ear. I was born with an inactive thyroid gland for which I’ve had to take medication since I was three days old and which has a number of minor but unenjoyable consequences for my life.

I could easily hang my hat on these things and use them as reasons for why I am “unlucky” and why I can’t get ahead in life. In fact, in my weaker moments, I do that sometimes.

At the same time, though, I am blessed with a quick mind and a reasonably good work ethic. I have a wife and a number of friends and family that genuinely care about me. I can smell the flowers, hear my daughter’s singing voice, feel the warm sunlight on my skin, see my wife’s beautiful smile, and taste the wonderful flavor of a freshly-picked apple. I am blessed with a ton of things that many people in the world do not have.

It’s always up to me to decide which of those things to focus on. Do I focus on the fact that I have to tilt my head in conversation and constantly ask people to repeat things and use that as an excuse for failure? Or do I think about the fact that I’m good at solving problems and use that as a reason to work hard and succeed?

That decision is a fundamental one and it’s entirely up to me to make it. Countless good consequences and bad consequences in my life follow from that fundamental choice.

Do I choose to work hard and have the unpredictable events in life swing in my favor? Or do I choose to give up and blame others and let the unpredictable events in life push against me?

I will always choose the first one. Without that choice, personal finance success and career success become practically impossible.

So, what would I have said to Jeffrey if I had the chance to talk to him?

“Will gets all of the breaks in life. He gets all of the luck and I get nothing.”

Will works sixty hours a week. He doesn’t get all the breaks in life. He earns them.

“It doesn’t matter what I do. I can’t get ahead.”

Just like Will, you have the choice to work… and you have the choice to blame others and drown your sorrows in a bottle. Every time you make a choice like that, you’re deciding what kind of luck you’re going to have in the future. Choosing to work means choosing better “luck;” choosing to blame and complain means choosing worse “luck.” You have that choice countless times each day, so it certainly does matter what you do. You can’t blame others for the choices you make.

“No one respects me.”

People respect – and don’t respect – the outcome of those choices you make every single day. If you want the respect of others, make the challenging choice and make it regularly. Choose to go to work. Choose to do the best job you can do there. Choose to spend your spare time building up a side gig or two to earn some more cash. Choose to not drink.

Make those choices over and over and people will respect you. You’ve got to earn that respect with lots of tough but positive choices.

“I’m just going to be broke for the rest of my life. People who have money are just lucky.”

When you choose not to work, you choose to be broke. When you choose to drown your sorrows instead of busting your tail, you choose to be broke. When you choose to work hard and do the best you can at your job, even if it’s hard, you choose to have money in your pocket. When you choose to spend your spare time working even more, you choose to have money in your pocket.

It’s your choice. Luck has nothing to do with it.

The post Distinguishing Between Luck and Hard Work appeared first on The Simple Dollar.

The Simple Dollar - “Fifteen Items I Don’t Skimp On”

2014-10-01T01:22:00.001-07:00

The Simple Dollar - “Fifteen Items I Don’t Skimp On”

Fifteen Items I Don’t Skimp On

Posted: 30 Sep 2014 07:00 AM PDT

Frugality is a major part of our financial independence strategy. Since we live on only one income and save the other one, we have to be quite careful with our spending.

As I’ve mentioned many times, my perspective on frugality is to spend as little as possible on things that aren’t as important to us so that we can spend adequately on things that are important to us.

Still, there are a number of things that I simply don’t skimp on. Buying the “dirt cheap” version of these things seems to cause more problems in my life than the savings will ever be worth, so instead I either choose to buy these items “for life” (meaning I shoot for highly reliable versions of the item) or I buy the best “bang for the buck” version I can find (relying on recommendations from trusted sources like Consumer Reports).

This is by no means an exhaustive list, but it does provide a great example of some items that I don’t skimp on.

Let’s get started.

Shoes provide the buffer between your feet and the ground. A cheap pair of shoes causes foot discomfort, blisters, and other foot ailments, making the simple act of walking around that much more painful.

I usually have three pairs of shoes: a pair of sandals for daily use around the house and in the yard, a pair of athletic shoes for exercise and vigorous activity, and a nicer pair of shoes for appropriate occasions. In each case, I’m concerned with a long lifetime and adequate foot comfort. I want shoes that will last for years without causing blisters or other problems.

My current sandals are Keen Newport H2, my current athletic shoes are ASICS Gel-Fortius TR, and my dress shoes are Clarks UnRavel casual Oxfords. All of these have lasted for years (except for the ASICS, as they were recent replacements for some nearly decade-old athletic shoes), were recommended by a trusted source, and were shopped for with great patience until I found the right price. I tend to wear them until they’re on the verge of falling apart.

Again, I don’t have any allegiance to specific brands. I tend to just read comparative shoe reviews when I need a new pair looking almost entirely at comfort and lifespan, identify some quality “bang for the buck” options, then carefully shop around for them and look for sales while using up the last few months of the life of my previous pair. I want my shoes to last and last with comfort and I’m willing to pay for that.

Car maintenance is key. I want my car to be as reliable as possible for as long as possible and the best way to do that is to simply follow the maintenance guide in the owner’s manual. It tells you exactly what you need to do and when you should do it.

My usual strategy here is to look at my car’s manual after each maintenance, note when the next maintenance is, and add a reminder to my calendar one or two months down the road to check the mileage on my car and see if it’s time for that maintenance. So, for example, if my car is at 125,000 miles and the next maintenance is at 130,000 miles, I’ll put a reminder in my calendar to check in two months to see if it’s at 130,000 miles yet. If it is, I take care of that maintenance. If it’s not, I just add a new calendar entry.

I don’t mind doing the maintenance myself if it’s realistic, but there are things that I simply don’t trust myself to do, in which case I use a trusted repairman that I’ve used for all of our vehicles to take care of it.

It can be easy to “skimp” on maintenance and push off an oil change for a few thousand miles or push off other things for far longer than you should, but doing that risks several things. It risks an undesired breakdown, which can happen at a poor moment and cost you a lot of money. It can also reduce the lifetime of many of the parts of your car, which also costs you money. That’s not worth it to me, so I don’t skimp on maintenance, not even a little.

Home maintenance essentially follows the same philosophy as car maintenance, except that the schedule isn’t quite as clear as simply opening up your car manual.

Instead, I usually rely on our copy of the Complete Do-It-Yourself Manual, which a friend gave us as a housewarming gift. It contains a pretty good checklist in there, which I actually moved over to my calendar so that it just reminds me on the first of each month that I should check on certain things around the house.

If you’d like to see a similar list online, check out this post over at Art of Manliness, which contains most of the same stuff.

Again, I don’t “skimp” on these things. It mostly takes time and a few dollars worth of supplies, but it keeps our home and most of our major appliances running well and repair-free. We’ve lived in our current home for more than seven years and have not experienced a major appliance failure (other than our son breaking our dishwasher… *sigh* … long story).

Mattresses are something that I would never, ever encourage anyone to skimp on. To put it as clearly as possible, if your mattress is causing you to not sleep comfortably or is producing back pain (or other kinds of pain), get a new mattress. Period.

You need a good night of sleep. The mattress you sleep on has more to do with that good night of sleep than just about anything else in your home. Don’t let your mattress prevent you from getting the sleep you need.

During my first year or so of professional life, I had an awful mattress, one that caused me to toss and turn and usually left me with back pain in the morning. Upon getting married, Sarah and I invested in a new mattress, one that we’re still using to this day. Neither one of us wakes up with aches and pains (unless we exercised too hard the day before) and neither one of us has any problems sleeping.

The key is to do your homework. If you feel you need a new mattress due to poor sleep or back pain, spend some time studying mattresses and identify several that will meet your needs. Find prices for them online and then, if you choose to buy in a store, bring in those online prices and request a price match. Mattress salespeople have a ton of leeway on pricing (in my experience) and will often happily price match in order to get a sale.

Food items are another thing I’m not afraid to spend money on if necessary. If I want a good cheap meal, I have plenty of opportunity for that. I know how to make lots of good meals from rice, beans, and other cheap staples.

However, like most people, I want variety in my meals, and that means buying other ingredients and experimenting a little. I also want healthy meals with good quality ingredients.

Like it or not, that’s not cheap. When I want to add some cheese to a meal, I want to add cheese – not that watery, plastic-y stuff that doesn’t even taste like cheese. When I want eggs, I want farm fresh eggs with a golden yolk, not eggs with a pastel yellow yolk. I want vegetables that weren’t raised on a steady diet of herbicides and pesticides.

I care about what I put into my body and that unfortunately sometimes means spending more on food items.

Medical and dental checkups are no different than home and car maintenance, in my eyes. They’re maintenance for your body.

I’m lucky enough to have medical insurance that provides for some free checkups, but I follow the exact suggestions for checkups from my general practitioner, my eye doctor (though I sometimes skimp on the glasses replacements), my ear doctor, and my dentist. The specialist checkups require a small co-pay, but it’s well worth it.

Sure, it takes time. It shoots a couple of hours each time I have one of these appointments and most of the rest of the day is shot after an eye appointment (thanks to those wonderful dilating eye drops). However, I’m always on top of any real medical concerns I have and I don’t have to rely on paranoia and WebMD for my medical information.

I want to be around for as long as possible and without checkups, I might never notice medical problems sneaking up on me. If I can catch them in the bud, the treatment is likely to be much less expensive and much less traumatic than waiting around until it’s causing real issues.

Socks fall into the same category as shoes. You rely on your feet all day long and, in my experience, socks can cause just as much foot discomfort as a poor pair of shoes.

Most of the time around the house, I don’t wear socks at all. I simply wear sandals. However, when I do wear socks – when I’m exercising or when I’m out and about – I want socks that won’t rub against my feet and will keep moisture off of my feet, and I prefer socks that will last through many washings. You don’t get socks like that at the dollar store.

Right now, I’m actually struggling with socks. I used to be a devout customer of Gold Toe socks, but in recent years, their quality has fallen substantially (as have their prices) as they seem to be transforming into a lower-cost and lower-quality brand (that’s just my impression).

I have a few pairs of Darn Tough Socks that are made of merino wool and I’m blown away with the quality of them (and the lifetime warranty), but they’re pricy. They seem to have no seams at all that touch my feet, they’re soft without generating wear on the bottom of my feet when walking a lot, they wick away all moisture no matter how much I’m sweating, and they seem very sturdy. In the future, I will likely just hunt for sales on this type of sock.

When I do have a good pair of socks, I tend to wear them until they are actually falling apart (or cause some kind of foot irritation).

Tires are related but not entirely the same thing as auto maintenance. With tires, you often have a plethora of options, different seasonal needs, and different situations.

I tend to take a strong “safety first” perspective when it comes to tires. I do a “tire tread” test pretty frequently using a quarter – I just stick in the quarter with Washington’s head facing the tire and if the tire doesn’t touch his head, it’s time to get new tires. You can also use the tire tread indicators to check, but I’m usually concerned if the tread is even close to those indicators.

I’ve experienced tire blowouts in the past when I was a “cheapskate” with my tires. I have children in the vehicle now and the last thing I want is a blowout when I’m rolling down the interstate with my wife and my side and three kids in the back.

Tire buying can be a fairly confusing process. I strongly recommend reading this How Stuff Works guide to tires as it will help you find the right kind of tire for your vehicle. It’s usually not the tire that the car shop will try to sell you first.

Another valuable tip is that tires really require maintenance. You should keep them properly inflated (with free air at the gas station) and rotate them regularly.

Yet another valuable tip: haggle! Don’t be afraid to price out similar tires at different stores and use those prices as a basis for negotiation. Many shops have free reign to negotiate on tire prices with you (at least to a certain extent) – they’ll often price match to keep you in the store rather than see you walking out. I’ll often figure out what I want online, find the price for those tires, then call around to different shops looking for prices when I decide to buy.

Safety equipment such as bicycle helmets and pads are things that our family never skimps on. It’s not worth it.

It’s a good idea to keep safety equipment out of the sun when you’re not using it to avoid any UV degradation and if it looks banged up or has lived through an incident or two, it’s time to shop around for a replacement helmet. If you’re not sure, there are great guides online for inspecting safety equipment, like this bicycle helmet guide.

I’m not an expert in any way on most safety equipment. I just tend to keep an eye on the equipment we have and inspect it regularly. When a new piece is needed, I’ll research that piece and usually look for the best “bang for the buck” option (after all, I don’t need a custom-molded bicycle helmet when I only ride every once in a while). The biggest way we don’t “skimp” on safety equipment is by avoiding using old items as they begin to wear out.

Pens are one of those things that I use a bunch of times every single day. I am constantly jotting down notes on a pocket notebook or a scrap of paper and keeping those notes in my pocket to organize a few times a day.

Because of that, I really don’t like dealing with pens that clog up after a few uses or that explode in my pocket. I don’t have the time or the desire to deal with these kinds of cheap pens.

On the other hand, I don’t go for the expensive pens, either, because I tend to lose them. I know that as often as I pull them out and use them, I’m going to inevitably misplace them. It just happens.

So, I use a “middle ground.” I really, really like the Uniball Signo 207 Ultra Micro pens. They cost between seventy five cents and a dollar each, but they never fail on me and I’ve never had one explode in my pocket on me. I’ve ran several of these completely out of ink, which means I’ve used them an incredible number of times. I have never done that with a cheap pen, ever. Plus, since they’re only $0.75 – $1 each, I’m not in a panic if I misplace one (I don’t like it, but I don’t go into a panic – I can move on with life).

When I skimp on pens, I inevitably get some cheap pen that clogs up after several uses and never writes well again or else it blows up in my pocket getting an ink stain everywhere. That’s just unacceptable and useless.

Toilet paper is a minor “splurge” that’s all about the comfort. I’m quite happy to admit that I’ll spend a little more to be comfortable at those key moments.

In this category, I just stick with Consumer Reports‘ recommendations. Up until a year ago, they used to recommend White Cloud Three Ply, but after a manufacturer switch, the paper seems to have drastically dropped in quality. Now, I use Charmin Extra Strength.

To save money here, I tend to buy it with a coupon and in the largest packs that I can find.

Cell phones are the one thing on this list that I would cut back on if our finances ever shifted. However, I find myself using my cell phone many, many times a day for making calls, sending texts, taking notes, taking family pictures, checking my calendar, and so on. I couldn’t really live without it.

Our strategy is usually to get the best smartphone that comes for free with our cellular service, which is usually the previous generation iPhone (although I’ve used Android ones in the past, too, and I’m not really a “zealot” on either side of the iOS vs. Android debate). I don’t feel the need to have the newest cell phone – we’re currently both using phone models that are at least a generation or two old.

This does mean we have the additional cost of a data plan, which is something we’d drop if we were ever in a tough financial state, but it’s something Sarah and I both rely on personally and professionally.

Kitchen tools are simply not worth skimping on. I’ve had too many cheap “nonstick” skillets work well for a year or so, only to find that a meal is ruined due to some peeling Teflon, leaving us with an unusable skillet that has to be replaced. I’ve had cheap kitchen knives that couldn’t cut anything to save their lives. It’s just not worth it.

Instead, we tend to follow recommendations from Cooks Illustrated for minimal kitchen items. We keep a few cast iron pots and pans, use just a few knives (but good ones), and stick to glass bowls and well-made multitasking items in our kitchen. We don’t want a lot of stuff, just a few well-made things that work for a lot of different tasks.

We make a lot of meals at home and, with a busy family, we need tools we can rely on that just work and don’t have disastrous Teflon-based failures or cause bloody fingers because we have to chop like a maniac.

Garbage bags are an item I’ve mentioned before. We don’t buy the cheap ones here for a number of reasons.

First, I’ve had cheap bags split on me many times in the middle of our kitchen, causing trash to go all over the floor and causing a bunch of time to be wasted while I picked up garbage and used another trash bag and a bunch of cleaning supplies. I don’t like that experience – it’s not worth saving a few cents on garbage bags, even if it’s just one bag failure per box.

Second, in order to avoid splitting on cheap bags, I only fill them about two-thirds full, which means that I’m using three cheap bags for the same trash as two better bags. It also means I’m taking out the trash 50% more of the time.

So, I’ll get the same amount of trash carried out with a 48 count box of cheap bags as I would with a 30 count box of better bags, plus I’ll spend less time carrying them out and avoid a kitchen floor disaster or two. I’m happy to pay twice as much per bag for that.

For the last few years, we’ve bought Glad ForceFlex bags in bulk at our local warehouse club. They have yet to fail; even in the rare occasions when something has actually punctured the bag, they didn’t slice all the way to the floor, meaning we could just slip another bag around the problem. I only recall that happening once or twice and I’ve never seen a complete failure.

Other people are among the most valuable things in my life. Without the people I care for most, my life would be a lot more empty.

When I do choose to buy a gift for someone or help them out with something, I intend to do it well. There is no point at all in giving a cheap gift that I can see. (Note that I didn’t say “inexpensive” gift.) How does that possibly show that you care?

My friends, family, and loved ones are worth the world to me. I’m never going to show it by just wrapping up whatever’s on sale and giving it to them. If I’m trying to be frugal, I’ll make them something using my baking skills or some other personal talent. Regardless of what I do, I’ll try very hard to think of something they’ll appreciate.

The people closest to me are not something I’ll ever skimp on.

Final Thoughts

In the end, most of these items come down to a couple of things. They revolve around maintaining what I have – my body, my home, my car – or on specific items that I use a lot and cause inconvenient time delays when they don’t work well – pens, garbage bags, toilet paper, and so on.

So, what do I skimp on? Tune in two days from now to find out!

The post Fifteen Items I Don’t Skimp On appeared first on The Simple Dollar.

The Simple Dollar - “Questions about Mislabeled Roasts, Skillets, Dollar Shave Club, and More!”

2014-09-30T01:13:00.000-07:00

The Simple Dollar - “Questions about Mislabeled Roasts, Skillets, Dollar Shave Club, and More!”

Questions about Mislabeled Roasts, Skillets, Dollar Shave Club, and More!

Posted: 29 Sep 2014 07:00 AM PDT

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Buying cheap or for life
2. Best financial decision?
3. Grocery store ethics
4. Stuck in a tough spot
5. Taxes and early retirement
6. Being “rich”
7. Organizational credit card
8. Trusting the bank
9. Buy it for life: skillet
10. Dollar Shave Club thoughts
11. Is a HSA useful?
12. Escaping past
13. Financial responsibility over time
14. Book suggestion
15. GTD today

This past weekend, we didn’t really do anything special at all. Sarah and I finished a few household projects. We had a family movie night, then had an old family friend over for dinner the following night. I got to spend a few lazy hours just reading, which was really enjoyable.

After a run of busy weekends, it’s really nice to simply have two days “off” to stay at home, catch up on household tasks, and work on personal projects. I feel so much more together at the end of a weekend like that.

Q1: Buying cheap or for life

One more thing to consider when buying cheap or lifelong – will you lose the item? I tend to lose umbrellas each 5 years or so. Buying an expensive one does not make sense for me. Same for pens, kid's sunglasses, etc.

As well, for some of my clothing (I don't grow out of clothes much), I know I'll want to change style (I work in a school – our clothes are actually very important in the image we give our students) so buying clothing that will last 15 years makes no sense. Except for winter coat – I just bought a reasonable one in navy blue because I couldn't trust myself to enjoy a more trendy color for more than 2-3 years. I've loved navy blue for decades now, so I'd rather change scarves every few years than a $200 down coat (we're in Canada and I have recess duty outside).
– Connie

I agree with you on many of those items.

I’ll take pens for an example. I used to swear by the Fisher Space Pen (for my pocket) and the Retro 51 (for my desk) in terms of a pen that will always work well. The problem is that they each cost more than $10 and, with kids and a wife who will often “borrow” my pens and forget where they put them… they’d go missing.

So I switched to using the best “cheap” pen I could find, which is the Uniball 207 Ultra Micro. I buy these by the box. They’re just tremendous pens and they cost about $0.70 each. Considering they never clog up and I don’t need to toss them until the ink runs out (I don’t think I’ve ever tossed one early), I love having them around and if I misplace one… it’s only $0.70, not $20.

I also agree with your suggestion of kid’s sunglasses – I wouldn’t spend very much at all on them. In fact, I’d never buy anything “for life” that was primarily used by my children.

I understand what you’re saying about clothing, but I’m not much of a fashion chaser, so I just buy clothes that will last a very, very long time.

Q2: Best financial decision?

You do a great job of relating your mistakes and how you overcame them, but what about the good moves you made? What is your best financial decision that wasn’t just fixing your own mistake?
– Sam

The best financial decision we’ve made in a long time was our commitment to live off of Sarah’s salary alone once our house was paid off.

When we submitted that last payment to pay off our house, we sat down and talked about what to do next. It was at that point that we really decided to commit to early retirement and our method for doing that was to live off of Sarah’s salary alone.

Since the end of 2011, we’ve done just that and it actually hasn’t been hard at all. Sure, we could probably be driving nice cars and have amazing gadgets if we chose to do something different, but instead we have a very healthy start on our dream of retiring very early. I haven’t regretted it for a second.

How does this actually work? Whenever I’m paid for writing, we save a portion of it for taxes and put the rest of it directly into investments (this is actually done automatically). Sarah’s pay goes directly into our main account and we live as a family off of that money. Our budget doesn’t even mention my income.

When we reach a point where the investments are paying out dividends big enough for us to think about living off of, we’ll assess whether it’s time for us to change directions.

Q3: Grocery store ethics

I had something strange happen at the grocery store and I wanted to know your thoughts on it.

I was looking at picking out a roast to cook in the slow cooker. My husband and I have roast and vegetables out of the slow cooker about once a week and it’s one of our favorite meals.

Anyway, I came across a roast that easily weighed two pounds, but the label on it indicated that it weighed 0.04 pounds and the price was $0.15.

Is it dishonest to buy it? I took it to the checkout and the checkout person didn’t notice, so I just took it home with me, but I felt guilty about it.
– Fran

Personally, I’d tell them about it. The reason is that the label on the item was incorrect and didn’t represent what the item actually was.

Having said that, this is a minor enough issue that I really wouldn’t think any less of anyone who did this. After all, the store was the one that made the error here.

In fact, if I did report it, I would guess that, unless the person I interacted with was incredibly unfriendly to customers, they’d just let me have the roast for that price.

I agree with you about slow cooker pot roasts – they’re amazing. They used to be one of our routine meals before we switched to a primarily vegetarian diet (I’m vegetarian, but no one else is – however, most of our meals are vegetable-heavy).

Q4: Stuck in a tough spot

I’m deeply in debt, have no savings, no assets, and am well behind where I should be compared to my peers. Im trying to correct my financial behaviors. So, I got a second job because the first one just pays the bills and little else and I cant get ahead- it seems like- ever. The problem is – it’s draining the life out of me and I don’t know if I should quit and go on scratching by, or if I should hang in there. If I stay I could be out of debt in two years- maybe less, but if I leave It would take five or more years and maybe never if something new were to pop up. If I stay I could have relief sooner and maybe some savings and finally reach some financial goals. If I leave I would enjoy my life a lot more. The second job is very physically demanding- I thought- cool- I lose some weight too- It pays very well and I like it, but I come home stiff and sore, feel ill the next day, and can’t sleep well- it could jeapordize my full time job- which I get paid a lot more at. I have the best jobs for the money that I can get and I’m very lucky.
– Dan

If the second job is significantly reducing your quality of life, you shouldn’t continue to do it. I’d walk away.

That doesn’t mean that there isn’t a second job out there that would work well for you. There’s likely another job out there that would serve what you want – earning some extra income so that you can work toward debt freedom.

If you like the idea of a job that encourages you to get into better shape, perhaps you can look for a job that requires some activity, but not as much as this job.

Regardless, if your work is making your life miserable, it’s not worth it. People should work to live, not live to work.

Q5: Taxes and early retirement

Under the usual “early retirement” plans, people are encouraged to put a lot of money into an investment account and then sell off those investments when they’re ready to retire. Doesn’t that create a HUGE tax bill?
– Jim

There are two big factors that make the bill not as big as you expect.

For one, people typically don’t empty out their entire investment account all at once. They’ll usually leave much of it in place and slowly withdraw it or move it to other investments.

For another, when that money is withdrawn, it’s usually hit just with long term capital gains tax – and that’s only on the gains. That rate for most people is 15%.

So, let’s say you invest $10,000 and let it sit for ten years. At the end of those ten years, it’s worth $20,000. You withdraw all of it. You only owe taxes on the $10,000 gain and that’s only a 15% rate. So, out of that $20,000, you’re only paying $1,500 in taxes – that’s a 7.5% rate.

That’s pretty good. It’s far from what I would view as a giant tax bill.

Q6: Being “rich”

What are your thoughts on the traditional goal of being “rich”? Let’s say you’re shooting for a net worth of five million or more. How would you go about it?
– Samuel

That type of goal isn’t on my radar at all. My goal is to save enough so that I can live off of the dividends, which doesn’t require anything close to $5 million in the bank.

If I were shooting for that kind of money, I’d focus entirely on entrepreneurship. The only way most people are going to build that kind of wealth is by either building a successful business or being at the absolute top of their field (and that’s only in a relatively small set of fields), so I’d focus on entrepreneurship.

Building a successful business usually requires you to throw your heart and soul into it, building a good idea into something that a lot of people really want and will pay for. I’d simply study entrepreneurship.

Q7: Organizational credit card

I am the volunteer treasurer of a small non-profit organization for a two year term. The organization has asked me to get a credit card associated with the business checking account. The card would have the organization’s name and also my name. I would open the credit card this year and cancel it two years from now. Will this card show up on my credit report and if so, how will it impact my credit score?
– David

It depends on what you’re required to provide for this credit card. Are you required to provide your own Social Security number in order to get this card? If you are, I’d expect it to appear on your credit report. If you’re not required to provide that, it probably won’t show up.

If it does show up on your credit report, it will likely show up as a revolving line of credit. Honestly, it probably won’t have a tremendous impact one way or another, provided that the bills actually get paid on this card. If the card ends up getting pushed up to the credit limit, it could have a negative impact. However, if the bill is paid regularly and the balance remains low, it will probably give you a credit bump.

I have seen cards that were simply registered to the business and used the business’s tax ID for the card. I’ve also seen cards that were effectively registered to the person on the card. I’m not sure which this is, but a requirement of your Social Security number is a pretty sure sign.

Q8: Trusting the bank

I found your argument on behalf of an emergency fund to be very thoughtful. I had not considered that relying on a credit card during an emergency might not always work as in the case of identity theft as you mentioned or in other crises.

However, I can’t help but wonder if you’re not overstating that risk. Even in the event of identity theft, you should still have access to pre-existing lines of credit, right? Why would a bank ever call you and say “sorry but we are canceling your card”?
– Stephen

I’m not really too worried about the situation you describe.

What worries me is something like the Target credit card breach. During that period, my credit card was temporarily closed for a while as a replacement card was issued, which took a couple of weeks. No charges were allowed until I reported my new card as received.

If an emergency happened in that timeframe and I was reliant on that card for an emergency, then I’d have a real problem on my hands.

That’s why I can never fully trust credit cards for my emergencies. There are simply situations where they won’t come through for you, and that’s often when you really need them (think Murphy’s Law).

Q9: Buy it for life: skillet

Do you know of a skillet that has a good no-stick surface that won’t just wear off in a few years? I have bought several Teflon skillets but the Teflon surface starts to wear off in three years or so and as soon as that stuff starts to peel you need to pitch it because you don’t want Teflon in your food. Suggestions?
– Maggie

Your solution is to buy a cast iron skillet and properly season it.

A cast iron skillet – after it’s well-seasoned – will develop a patina that is actually an incredibly good nonstick surface. You have to clean it a bit differently – with a wire brush and water rather than through the dishwasher – but it really works well.

I highly recommend the Lodge pre-seasoned cast iron skillet. While it’s “pre-seasoned,” I still recommend seasoning it a time or two by cooking something really buttery or fatty in it at first. For example, don’t cook eggs in it the first time you use it or else you may have a mess.

A cast iron skillet will last for many, many years of home use and you can cook practically anything in it when it’s well-seasoned.

Q10: Dollar Shave Club thoughts

I have read and learned some excellent techniques from your article http://www.thesimpledollar.com/the-frugal-shave/ but do you have any thoughts on the Dollar Shave Club https://www.dollarshaveclub.com/? Is it a value, etc.

My brother sent me an email asking me to sign up, and then he gets 5 bucks incentive toward his. 12 bucks (for cheapest option) doesnt sound bad, but it really limits what control I have to ‘save’ money on blades if they are going to charge me regardless. Maybe it’d be cheaper to just give my bro the 5 bucks, and save the $7.
– Kevin

I have two seemingly contradictory things to say about Dollar Shave Club.

First, compared to just buying cartridge blades, it’s actually a pretty good deal. Two, I signed up for it for a while… and then I cancelled it.

I unsubscribed because, frankly, they sent more blades than I actually use. With good razor habits – keeping them dry and using a razor cartridge sharpener – I wasn’t going through the number of blades they sent me each month. I quickly started building up a backup of the blades. After a while, it became silly enough that I just cancelled the service. I’m still working through the backlog.

At the same time, cartridge blades aren’t the cheapest way to keep cleanly shaved. That would be a safety razor with individual razor blades, which can give you a shave as cheap as a penny per shave.

I think for people who get a cartridge razor, don’t take care of the blades, and toss the cartridge after two or three uses, Dollar Shave Club will save money. The further you deviate from that, the less of a bargain it becomes.

Q11: Is a HSA useful?

I am 29, my wife is 28, we have no plans for children and are healthy. We both keep seeing articles talking about how useful HSAs are and we have the chance to put money in one, but if we don’t have any health problems is this a good idea?
– Frank

HSAs are only beneficial if you actually have medical expenses. Without medical expenses, they’re not as useful.

However, that doesn’t mean you shouldn’t contribute right now. If you’re allowed to put money in there and it will stay there for a number of years, it can make sense to contribute a little each year so that you can cover expenses later on when they pop up.

Generally, HSAs are available with medical plans with a high deductible, so if you just put away a little ach year – say, $20 a month – you’ll find that you have $1,000 in there in four years. If you then have a medical problem in four years, you’ll have $1,000 to cover your deductible and it’s tax free.

So, the reason for saving isn’t for right now – it’s for things that pop up down the road a bit. I’d contribute a little, but I wouldn’t make it the highest priority.

Q12: Escaping past

When I was younger, I made a bunch of stupid moves. I wound up convicted on a drug trafficking charge that will haunt me for the rest of my life.

When I got out of prison, I felt like an outcast back in my home town. A lot of the “respectable” people will have nothing to do with me. If I go to community stuff I am basically just ignored.

My father went to bat for me big time and got me a job in an HVAC repair business. He paid for the classes I needed and got me a job thanks to an old friend of his.

The problem is that I don’t ever think I am going to get ahead here. As nice as my boss is, I know he’s nice because he’s an old friend of my dad’s and if he ever decides to close up shop I’m probably out of a job again or at the least I have no chance of ever managing this place or doing anything more. If I started my own business I don’t think I would have customers here. I just feel stuck.

I know that the obvious answer is to move and get a fresh start, but I’m not sure I could find a job like this anywhere else.

What should I do?
– Donald

I don’t know exactly what you were convicted of, but if it is only one felony conviction, you may want to look into getting it expunged from your record. You can quickly find out if this is possible for you by contacting your lawyer.

If you’re able to get that conviction cleared from your record, then you no longer have to worry about background checks. You should skate right through them.

Of course, you may be in a situation where you can’t get that conviction cleared. If that’s the case, I would probably turn to your boss and talk to him about long-term plans. Is he planning on closing the business when he retires? Is he thinking of expanding or franchising? You have one person who does trust you in your field, so I’d look at what I could do to build upon that.

Q13: Financial responsibility over time

I’m dong a project on financial responsibility and I was wondering, do you knew of any research which tracks how much people care about it over time?

For example, intuitively it seems obvious that when the financial crisis hit and people may have started losing jobs, people cared very deeply about financial responsibility. This is likely displayed through a series of actions like:

A shift to using debit cards over credit cards
Consumer “consumption” on financial education (through the purchase of books, attendance at seminars, or visits to websites like yours)
People investigating their credit scores
etc…

Have you heard or seen of any study which tracks these or similar indicators?
– Anna

The most obvious thing I know of along these lines is the upturn in savings rates during periods of economic downturn. If you look at that chart and go back to every point of economic downturn over the last twenty or thirty years, you’ll see a spike in savings rates.

Of course, over that timeframe, the economy has generally been strong much more than it’s been weak, so overall the savings rate has declined.

I don’t know of any studies that analyze actual consumer behavior beyond that.

Q14: Book suggestion

You’ve spent most of the last decade researching and thinking about and experimenting with self-improvement. Have you ever considered writing a book that covers just the stuff that actually works?
– Charles

I have, actually.

I have about six different half-written manuscripts floating around, one of which is basically what you’re describing here. It focuses on the things I’ve done in all of the different dimensions of my life over the last decade or so to enable me to change careers, build a business, have a tight family, get rid of all my debt, and gain a great deal of inner peace (among other things). I just stick with the stuff that actually works.

It is good to know that there’s interest in a book like that. When I hear these kinds of requests, I’m more likely to put a higher focus on that particular project.

Q15: GTD today

Do you still use GTD as your system for keeping track of things you need to do? Or have you moved to something else?
– Vernon

I use what I would call a partial GTD system to keep track of all of my tasks.

Whenever an idea or a task pops into my head, I write it down (usually in Evernote). A few times a day, I go through those new notes in Evernote and do something with them, adding stuff to my to-do list or whatever needs to be done with each note.

Each day, I make a to-do list for the next day that usually has two or three big things and several smaller things. I also have a big ongoing list of “next steps” for projects. During the day, I just look at that daily to-do list and my big list of “next steps” when figuring out what I’m going to do next. I don’t like to waste time wondering what I’m going to do now.

Each week, I spend some time reviewing all of that, figuring out which projects are working and which ones aren’t and whether I missed anything.

That’s basically the same as the Getting Things Done system, though it’s not nearly as formal.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

The post Questions about Mislabeled Roasts, Skillets, Dollar Shave Club, and More! appeared first on The Simple Dollar.

The Simple Dollar - “Nine Strategies for Stretching Out a Tiny Food Budget”

2014-09-28T01:24:00.001-07:00

The Simple Dollar - “Nine Strategies for Stretching Out a Tiny Food Budget”

Nine Strategies for Stretching Out a Tiny Food Budget

Posted: 27 Sep 2014 07:00 AM PDT

We’ve all faced it at some point in our life.

Your next paycheck isn’t due to arrive for a week or so. You don’t have much in your checking account and there’s not too much in the cupboards, either. You need to put food on the table for the next week but you have only a tiny amount of money.

What do you do?

In this situation, many of the usual strategies don’t work. Grow a garden? Useless; you don’t have three months to wait for food to grow. Buy in bulk? How exactly are you going to do that with an extremely limited budget?

I’ve been in this situation a few times, particularly during my college years, but even a couple of times later on. It’s hard, especially when you have family members relying on you, particularly children.

Thankfully, there are a number of short-term strategies you can use that will help you stretch a handful of dollars across a surprising number of days, keeping food on the table for your whole family. Not only are these strategies useful during these short-term pinches, they’re also useful for day-to-day life in terms of keeping your food budget low.

Let’s dig in.

Clean Out the Pantry/Cupboards

The first step you should take is to go through your pantry, cupboards, and refrigerator and take stock of everything you have. There are several reasons for doing this.

One, people often have more useful food on hand than they think. It’s easy to forget about nonperishable items stuffed in the back of the cupboard or in a corner in the pantry. It’s also easy to forget about sauces and other items in the back of the refrigerator, still good but forgotten.

Two, it gives you a chance to get rid of bad food. This is a great chance to toss highly stale, moldy, or otherwise damaged food items that you wouldn’t otherwise eat.

Three, the process often inspires meals. Every time I dig through our pantry, I find myself plotting a number of meals from the things that I pull out of the cupboard. These are meals that aren’t even remotely on my mind before I start pulling out items, but I’m simply inspired by what I find.

Four, the packages themselves sometimes inspire recipes. Many packages include simple four or five ingredient recipes that can directly inspire you to make something.

Finally, it gives you a chance to make an inventory. Often, you have more components for a meal on hand than you think you do, even if you don’t have everything. Making a big master list of all of the stuff you have on hand makes it much, much easier to plan out some meals to get you through the rest of your lean period.

Another point of advice: the sell-by date doesn’t mean the “throw it away” date. Most of those dates, particularly on non-refrigerated items, simply refer to the date by which the manufacturer will no longer vouch for the product. That does not mean it’s no longer edible or usable. Look for obvious signs of spoilage, not a sell-by date.

This pile of food should help you along the path to at least a few meals (even if it means pancakes for supper!).

Scour the Grocery Flyers

Your local grocery stores each likely issue a weekly flyer outlining the items that are on sale for that week. Sometimes, the flyer includes coupons for additional discounts.

These flyers are incredibly useful. Flyers, along with all of the food you’ve pulled out of your cupboard, can provide all that you need to plan meals until you’ve got some money in your checking account again.

First, I look for foods that have a low “price per pound.” Fresh produce and meats usually have “price per pound” listed in the flyer, like $1.79/lb. Look for the fruits, vegetables, and meats that can be acquired at a really low price and focus on those items. What can you do with them along with the items you already have?

Next, I look for obvious items that complete meals based on what I already have. For example, if I already have pasta sauce but no pasta, I’ll look for cheap pasta. If I already have a pancake mix that just requires a bit of milk, I’ll look for cheap milk. You get the idea.

Then, I look for items that work as standalone side dishes. Potatoes, for example, can be turned into a number of side dishes with little effort. Flash frozen vegetable bags from the freezer aisle can also add nutrition to your meal at a very low price.

Finally, I check online for coupons on the items I’ve already selected from the flyer. If I can find even a coupon or two, I’m taking advantage of “stacking” where I’m using both the sale and the coupon to really chop down the price of foods.

Ideally, I’m mostly relying on the stuff from my cupboard for meals, but the items here can really complement those items and help me to make a lot of meals.

Focus on High “Calorie Per Penny” Foods

There are some foods that not only work in a lot of different meals, but also provide a surprising amount of nutrition for just pennies. They’re often on sale, dropping their price even more, and they’re actually pretty healthy to boot.

In my experience, six foods really stand out from the pack.

Rice is incredibly cheap and filling. You can buy twenty pounds of dry long-grain rice for less than $9 and, upon cooking, it nearly doubles in size, meaning you’re spending about a quarter per pound of cooked rice. Rice is like a blank canvas upon which you can cook almost anything, from adding sugar and cinnamon for something sweet to adding spices for a wide variety of ethnic styles.

Dry beans offer most of the same advantages of rice in that they’re already cheap in their dry form, but more than double in mass when cooked thanks to water absorption, dropping the price right down into the fifty or sixty cents per pound range. There are many different varieties of beans that work well in so many different contexts – side dishes, soups, salads, tortilla fillings, and so on.

Oatmeal is an incredibly healthy breakfast, contributing fiber and many other nutrients to your diet, and it can be acquired well below a dollar a pound dry. Oatmeal can be supplemented with almost any fruit or sweetener to make a distinct meal and it’s an incredible way to fill yourself up in the mornings.

Eggs can be found for as low as a dollar a dozen and is likely the best source of protein on this list. Eggs are also quite flexible as they work as food on their own in many different preparations as well as an ingredient in countless other things – egg drop soup, pad thai, and on and on and on.

Sweet potatoes are, like all of the other items on this list, cheap and flexible. They’re very nutritious and can be prepared in countless different ways, easily working both as a savory and a sweet food. Sarah is a huge fan of these, so they’re regularly consumed at our house.

Peanut butter rounds out this list. Peanut butter is almost constantly on sale and, again, can be used in a variety of ways such as sandwiches, pancake toppings, or even as an element in a stir fry.

There are other known “cheap” foods like ramen noodles, but they’re unhealthy enough that you should use them sparingly. A diet of mostly ramen noodles will have health consequences.

If your grocery list is mostly full of these items and items that are on sale at the store, you’ll be getting a lot of food for very little at the store.

Make Homemade Foods

There are many foods that you might be tempted to buy at the store but you can in fact make it at home with stuff you likely already have on hand.

For example, consider a loaf of bread. If you have flour and yeast in your cupboard, water from your tap, and an oven, you can make your own bread. There are countless variations on the recipe for a humble loaf of bread, but they’re all straightforward and easy to make at home.

The ideas are endless. Turn that homemade bread into croutons by seasoning slices, cutting them into cubes, and baking them. Make corn tortillas at home out of masa flour (it’s like $2 for five pounds) and water. Make tortilla chips by cutting up those corn tortillas and baking them. Make refried beans by cooking beans to death in a slow cooker (with some onions, green peppers, and oil). Make potato chips by thinly slicing potatoes, tossing on some seasoning, and baking them. I could literally go on all day, but you get the idea.

Quite often, you’ll have the ingredients you need for a lot of these simple foods already in your pantry, likely purchased for other cooking experiments. Try making some things yourself and you’ll likely be shocked by how easy it is.

Shop Alone with a Grocery List Based on a Meal Plan

That simple statement breaks down into three separate pieces, so let’s look at those pieces.

Shop alone When you shop with others, you’re asking to be distracted and not focused on the task at hand, which is maximizing the value you get from every dollar you spend at the grocery store. Your kids distract you. Your spouse will, too. Your friends certainly will. If it is at all possible, you need to shop without them so you can keep your mind solely on the matter at hand.

With a grocery list You should have a grocery list in your hand that lists just the foods you need to get through until you have your paycheck. Nothing should go into your cart that isn’t on that list. In fact, you should have a pretty good idea of exactly how much you’re going to spend as soon as you walk in the door – the grocery flyer should have told you that.

Based on a meal plan That grocery list should have been generated from a meal plan, which is simply a list of the meals you intend to have until your short-term financial situation improves. That meal plan, of course, is based on the food items you already have and those found in the flyers, so your grocery list should naturally contain mostly sale items.

It’s a pretty straightforward system, one that I’ve been using for years to keep our food costs cheap. It works regardless of your situation.

Shop at the Cheapest Grocery Store

If you’re buying anything that’s not directly from the flyers, you’re going to be paying the typical store price. The way to minimize the price on those items is to shop at the store with the lowest prices.

Around here, that’s usually Aldi, though Fareway can give it a run for its money on many items. The other grocers almost always have higher prices on the whole.

How can you figure out which local grocer is the cheapest? In a pinch, you should ask your friends and coworkers that live in the area for advice. What do they think is the cheapest one? If you have a bit more time, you can price check them. Make a list of fifteen or twenty of the items you buy most often, then go to several stores and write down the price of those items. Total up the prices from each store and you’ll quickly see which one is clearly your discount grocer.

I do most of my grocery shopping at Fareway, as it balances low prices and selection. Aldi is cheaper, but sometimes their selection is sorely limited, leaving me to shop elsewhere.

Shop at the End of a Farmer’s Market

Another cheap food strategy is to shop at the end of a farmer’s market and haggle.

When you see people getting ready to pack things up at the end of a farmer’s market, go up to them and make a lowball offer on the items they still have out there. If they’re selling cabbage for $3 per head, make an offer of $1 or even $0.50 for that head. If they’re selling carrots for $2 a bundle, offer $0.50 for a bundle.

The problem with this strategy is that you’ll get the items that have been picked over by the other shoppers and, quite often, the item you want is already going to be sold out. However, if you’re willing to work with whatever you can get to make a tasty and nutritious meal on the cheap, you can get a good discount here.

I like to use these kinds of purchases in flexible meals. I’ll often make a stir fry out of any vegetables I can get on the cheap – and some fruits, too. I can also make soup out of virtually any set of vegetables – just toss in lots of veggies with some salt and pepper and let it simmer for a long time.

Drink Water

The water coming from your tap should be your primary source for beverages. Not bottled water, not soda, not coffee, not alcohol – tap water.

Why? Tap water is practically free. It’s just as safe as bottled water. It’s not loaded down with sugar or other substances that you don’t really need. Plus, it’s a great way to fill yourself up before a meal so you don’t overeat.

By eliminating beverages from your grocery purchases, you can save quite a bit of money and channel that savings directly into food purchases that can provide some real nutrition and calories.

Leave the soda and the tea and the coffee and the alcohol behind. Stick with water.

Check Out Community Dinners

If you’re still struggling for short-term food options, look around your community for community dinners.

Many of the churches in our area as well as some of the civic groups have a “community dinner” on a very regular schedule where people give a “free will” donation in order to enjoy a meal. If you’re strapped for cash, don’t be afraid to go there and get a great meal for a dollar.

In my experience, these meals are usually surprisingly good. They’re a great way to fill yourself – or your family – up for just a few dollars or even for free if you’re really struggling.

It’s important to remember, though, that such meals run largely on donations. It is vital that you pay back this type of giving later on when you have more money in your pocket. If you enjoy a few meals there for free or for just a dollar or two, go back later when you can drop a $10 or a $20 bill into the collection jar.

Within a twenty mile radius of our house, I was able to identify seven regularly scheduled community meals that are either entirely free or based on freewill donations. If you’re looking for meals in your area, I suggest starting with the local churches. Check their websites or give them a call to see what they have on offer.

Final Thoughts

Almost everyone struggles with putting together enough cash for a meal at some point on their financial journey. It can be a heartbreaking struggle, too, especially if you have children at home.

All of the strategies in this article are short-term strategies to help get you over that financial hump. While they certainly can help over the long term if you keep doing them – and we certainly use most of them – they’re mostly useful for just minimizing your spending this week.

A good long-term strategy for lower food costs includes other things.

Buying in bulk Buying nonperishable foods that you use all the time in a bulk purchase can save you a lot of money. If you eat rice or beans multiple times a week, buying a 20 lb. or 50 lb. bag of the stuff will save you a quarter or more per pound which adds up to a lot of savings over time.

Making meals in advance Whenever you make a meal, particularly something that’s a casserole-style meal, you can make several copies of that meal at once without adding too much time to the equation. Then, you just pop those extra versions in the freezer. When you need a meal later, you pull one out and cook it. This allows you to buy the ingredients in bulk – even relatively perishable items.

Growing a garden If you have a little patch of ground that you can cultivate, gardening can be a very inexpensive way to get quite a lot of produce. Sure, you’ll have to wait a few months to make it work, but the rewards can be tremendous. There are few things more heartwarming than having a kitchen counter completely covered in tomatoes or cucumbers (or whatever your favorite vegetable is).

At the same time, if you’re struggling to buy food, it’s likely a sign that you need to rethink your personal financial situation. You may want to consider finding additional work, even if it’s not in your current field. You may want to start looking very carefully at your current spending habits. You might also want to look at major financial changes, like moving to lower-cost housing.

This might just be a moment in your life that you can survive, but it might also be the beginning of real change in your life.

Good luck.

The post Nine Strategies for Stretching Out a Tiny Food Budget appeared first on The Simple Dollar.

The Simple Dollar - “Unhappy With Being “Locked In”? Here’s a Strategy for Building a New Career Path”

2014-09-27T01:39:00.000-07:00

The Simple Dollar - “Unhappy With Being “Locked In”? Here’s a Strategy for Building a New Career Path”

Unhappy With Being “Locked In”? Here’s a Strategy for Building a New Career Path

Posted: 26 Sep 2014 07:00 AM PDT

Recently, one of my family members gave me a copy of the wonderful book The Nighttime Novelist. It was a little more than an obvious hint – this family member really believes that I have some interesting novels inside of me and she wants to read them.

While the book has a lot of good writing tactics, the part that really made it stand out for me was the overall sense of career encouragement. After all, many of the people who would read a book like this one are people who dream of becoming writers but find it difficult to make room for it in their busy life. The Nighttime Novelist focuses quite a bit on that problem – I mean, the title itself is a big hint – but the advice goes way beyond merely being a novelist.

Let’s start by looking at the core problem and then move on to solving it.

The Dream of a Different Career or Business

The problem is deeply related to the idea of “lock in.” As was discussed a few days ago in the discussion of Jacob Lund Fisker’s book Early Retirement Extreme, many people reach a sense of “lock-in” after a certain point in their professional lives.

Typically, people go to college after high school and complete a degree in some area of study, usually accumulating student loans along the way. At such a young age, it’s often hard to really know what you should be studying, but you have to choose an area of study, so you’re “locked in.”

At that point, you have training for a career path that offers better pay than what you could get otherwise and you’re burdened with student loan debt (and maybe credit card debt), so you go into that career path.

You then find yourself a few years later working in a career path you find that you don’t really like (because you were forced to choose it when you were too young to make a good choice). You’re still facing debt. The only strong professional contacts you have are in your current career path. Your resume mostly only has value in your current career path.

Basically, you’re “locked in.” It is quite hard at that point to change gears and go elsewhere (unless a job loss or something forces that to happen).

Still, people have dreams. They dream of a different career. They dream of having a side business – or a full-time business – doing whatever it is they’re truly excited about doing.

This almost perfectly describes me several years ago. It also almost perfectly describes quite a few people I know ranging from folks in their mid-twenties to people in their fifties.

Making It Happen

How do you go from that state of “lock-in” to building a side business or a path to a new career? There are three ingredients you really need above all else: time, focus, and a plan.

You Have to Give Up Something (Time)

For most people, time seems like the real obstacle. Where can that time possibly come from? Let me just throw two facts your way.

The average American watches five hours of television a day.

The average American spends more than three hours online a day.

Add those together and you have eight hours per day that’s used just surfing the web or watching television.

I’m going to argue that most people only need two hours a day to start building a side business or a second career, so the average American would only need to lose a quarter of their television and internet time.

My solution to this problem, back when I fully committed to the dream of writing full time, was to basically eliminate television from my diet. The only television I watched was commercial-free television series and movies watched with Sarah. Honestly, since then, television has never really returned to the picture in a large way.

That simple change has given me plenty of time for all kinds of personal projects. I generally spend my evenings working on personal projects rather than watching television and I don’t really feel like I miss a thing.

Alternately, you can try waking up two hours earlier than before and then spend those two hours in the early morning working on your project. This will likely force you into an earlier bedtime in the evenings, which can work just fine for some people.

You Have to Build an Environment (Focus)

So, you’ve found space for two hours a day. For those two hours to be useful, you need to use those hours in a focused way.

I have a “working” desk at home that, when I’m there, I’m working. I usually turn off all distractions such as my cell phone and my internet connection and I close the door leading to that room. I don’t want distractions during that time.

During that period, my goal is to slip into a “zone” where I lose track of time because I’m so engrossed in what I’m doing and, if that happens, I stay in that “zone” for as long as it lasts. If I find that I’m not quite clicking today for some reason, I’ll stop and vigorously exercise for about five minutes. It seems to work wonders for my focus.

But what am I focusing on?

You Have to Be Headed in a Positive Direction (A Plan)

When I’ve decided on a project – say, writing a novel – I’ll usually spend several evenings working on a plan for that project. I don’t just sit down and start writing. I create an outline, some character sketches, and so on.

This is true for almost any project. What exactly do you need to do to reach the goal you have before you?

The first step is research. Spend some time figuring out what actually needs to be done to achieve your goal. What’s involved in writing a novel? What’s involved in making wooden rocking chairs? What’s involved in training to become a nurse? What’s involved in becoming a contract-based computer programmer?

What skills do you need? What education do you need? What things do you need to accomplish? What are the milestones you’ll need to reach along the way?

Once you know those things, assemble them into a plan. Figure out the steps you need to follow and list them in a sensible order. If a step seems really big and kind of overwhelming, chop it down into smaller pieces – a list of smaller steps that result in the completion of that bigger step.

That list is your checklist. It’s always telling you what to do with those two hours of focus.

Don’t Worry About Profit – Worry About Skill

If you focus on building your skills and creating good stuff, profit will eventually be a natural side effect. People will always pay for skill and talent and quality.

Generally, you build skill that people want by doing. That means, as soon as you can, you should be applying the skills you’re learning to real projects that produce some sort of product – a blog, a book, videos, whatever.

Another useful strategy is to start sharing the products of your skill once you start producing quality results. If you make an excellent drawing, share it. If you make an amazing web app, share it. If you make a beautiful rocking chair, share pictures of it.

Similarly, share your own skills as they grow. Use your new skills for a volunteer project. What you’ll find is that not only do those skills help out that project and the project helps you exercise your skills, this experience becomes the first lines on your resume for your next career.

In my experience, if profit isn’t coming easily, then you just need to keep honing your skills, work on projects of your own design, and volunteer your skills for good causes. When your skills reach a high level, people will start coming to you in a trickle and, when that happens, you’re ready to turn this into a real business.

Final Thoughts

It’s simple. The best path out of a “lock in” situation is to build your skills in a new area and use those skills to launch a side business. Sometimes, that side business will blossom into a new full-time career; at other times, it’ll just be a new income stream which complements what you’re doing.

In either case, it helps knock away many of the shackles that are around you. You’re no longer solely reliant on your current job or even on your current career path. You’re also earning more than you were before, making it easier to eliminate debt.

All it takes is time, focus, and a plan. Are you ready?

The post Unhappy With Being “Locked In”? Here’s a Strategy for Building a New Career Path appeared first on The Simple Dollar.

The Simple Dollar - “How to Use the “Snowflake” Strategy for Debt Repayment”

2014-09-26T01:19:00.001-07:00

The Simple Dollar - “How to Use the “Snowflake” Strategy for Debt Repayment”

How to Use the “Snowflake” Strategy for Debt Repayment

Posted: 25 Sep 2014 07:00 AM PDT

When you’re facing a giant mountain of debt, it feels almost impossible to overcome it. When your total debt exceeds your household income, it can feel like debt is just going to be a part of your life. It can seem as though, in order to live your life, you’re going to have to constantly hand money to the banks until you’re old and grey.

It doesn’t have to be this way. Sarah and I paid off more than $10,000 in credit card debt, two car loans, several student loans that totaled more than $30,000, and a home mortgage over the course of about five and a half years, taking us to complete debt freedom. We did this with three children and with a car replacement cycle right in the middle of that five year period.

Snowflakes were a big part of that success. What are snowflakes? Well… let’s step back from that a bit first.

The First Step: Make a Debt Repayment Plan

If you’re facing a big pile of debt, the first and most important thing you can do is to build a debt repayment plan. This comes before anything else.

The process is pretty easy. You simply take all of your debts, seek ways to consolidate them and reduce their interest rates, and then order them by interest rate with the highest rate first. Then, you make a minimum payment to all of your debts, then strive to make a big extra payment to that debt with the highest interest rate.

For more information, read my detailed guide to making your own debt repayment plans.

Snowballs and Snowflakes

The idea of a debt repayment plan was in part popularized by radio host Dave Ramsey, who modified the idea a little bit (by encouraging people to sort their debt by balance size) and referred to it as a “debt snowball.”

Snowflaking is just a cute term for an idea that works well in conjunction with any debt repayment plan.

In simplest terms, snowflaking refers to any little action you take that immediately saves money, then that money is directly applied to the debt on top of your debt repayment plan.

Here’s a simple example. Let’s say you usually spend $5 buying food from the food cart outside of your workplace. One day, instead of spending $5 at that cart, you heat up your leftovers from the night before. Boom – there’s a $5 snowflake. You then add $5 to your next extra debt payment.

Approaches for Actually Making the Payments

The real trick with snowflakes is to make sure that you actually use that money for extra payments. There are a lot of ways to do this.

One approach is to immediately make a money transfer (on your phone) each time you make a “snowflake.” In other words, you sit down at your desk and immediately execute a $5 extra debt payment. Most banks will allow you to make several small payments like this to the same company each day.

Since that meant stopping for a few minutes each time I had a snowflake, I used a different approach during my own financial turnaround. I kept a pocket notebook and whenever I had a snowflake, I wrote it down in that notebook. At the end of the week – I usually did it on Saturday – I’d sit down, add up all of my snowflakes from the past week, and then make a single extra debt payment for that total amount.

I don’t really advocate waiting longer than a week to take some kind of action on that snowflake. If you wait longer, you’re greatly increasing the chances that you’ll forget about the snowflake or that you’ll find that you have “extra” money in your checking account and spend it on something else.

Zen and the Art of Finding Snowflakes

Our lives are chock full of spending decisions. Not only do we have lots of situations where we open our wallets to spend money, we also make tons of choices where we choose not to spend money or when we choose to use a resource that we’ll have to pay for later.

Thus, we have tons of opportunities to choose to spend less. Sometimes, those choices won’t affect our life quality at all. At other times, it might not be worth it and we’ll choose to spend money anyway.

The real key here is mindfulness. The more aware we become of our choices and what we would do if we weren’t focused on paying off debt, the more snowflakes we’ll see and accumulate.

For example, some people might be so caught in the routine of heading to the food truck and spending $5 for lunch that they don’t even think about it or consider it a moment where they could make a different choice. They’ll buy little things at the checkout or leave lights on when no one is awake or home, never thinking about how a slightly different action could save them money without affecting their quality of life.

You have to be mindful of what you’re doing all the time in order to get the most out of snowflaking.

The Psychological Benefit

For me, the benefits of snowflaking went far beyond the money. The psychology of it was just as valuable.

What do I mean by that? Snowflaking made it feel like I was truly taking action on my debts several times each day. This left me feeling in control of the situation. I wasn’t just hoping for the future for this problem to go away. I was doing something right now to make it better.

Thirty Six Opportunities for Snowflakes in Your Life

Need some ideas for getting started? Here are thirty six ways in which you might find snowflakes in your own life.

1. You can save aluminum cans. In states where there’s a nickel or dime refund, you can turn ten or twenty cans into a dollar. In other states, you can still recycle your cans and make a few pennies per can.

2. Try having a yard sale. Go through your closet and find the things that you don’t really use any more. Then plan a yard sale where you put up a few advertisements and then sell all of those things right in your driveway or front lawn, putting all of the proceeds toward your debts.

3. Alternately, sell that stuff on Craigslist.

4. Make several identical meals in advance. This lets you take advantage of bulk buying as you’ll be able to buy the large container of noodles or sauce or cheese. Put the saved money from those bulk purchases toward your debt. For example, if buying in bulk causes you to buy a big container of lasagna noodles for $5 when the smaller packages would have cost you $8 for that many noodles, put the saved $3 toward your debt.

5. Air up your car tires, then put 1% of your fuel costs toward your debts for the next month. Most Americans keep their tires underinflated and each PSI that you’re lacking eats up 1/8th of 1% of your fuel efficiency. If you add just two PSI to each tire, your fuel efficiency goes up by 1%. If you spend $100 on gas thanks to commuting each month, then there’s an extra dollar each month toward your debt.

6. Make a bunch of bottled coffee at home so you can grab a drink and go each morning instead of stopping at the coffee shop. Just make a big batch on the weekend and pour it into five individual bottles, then warm one up each morning just before you leave. If you can make a $2 latte at home when it normally costs $5 at the coffee shop, that’s $3 a day.

7. Keep your eyes on the ground and pick up change. Save your extra change in a change jar and then cash it in every few months, putting that cash toward your debt.

8. Skip a regular meal you’d eat out and make something very simple at home, like spiced beans and rice. You’ll save $10 (or more) on your meal which you can immediately snowflake.

9. Talk to your physician about generic medications if you have a regular prescription. Switching to a generic medicine can save you a shocking amount each month.

10. Shop around for insurance. If you can save $100 a year on your insurance costs by shopping around and finding a more cost-efficient provider, you can apply that savings as a snowflake. Just use the amount you save on each subsequent insurance payment.

11. Skip a beverage and drink water instead. If you typically drink a soda each day, skip that soda and drink some water instead, then bank the money you saved by not drinking that soda.

12. Buy store brands as much as possible. When you actively choose to buy a store brand instead of a name brand, you can put the difference in price directly toward your debt. Generic ketchup can make a surprising difference.

13. Make convenient snacks in advance. For example, you can make microwaveable pockets quite easily at home for less than a dollar’s worth of ingredients. Make a bunch and put them in the freezer, then “snowflake” the money you saved compared to buying that number of convenient foods at the store.

14. Don’t smoke. Every time you smoke a cigarette, you’re essentially burning a quarter (or more). Whenever you’d normally light up, avoid the temptation and drop a quarter into your snowflake jar.

15. Do a careful price comparison and find the best grocery store bargain. Make a list of the twenty five most common things you buy, then see how much those items cost at different grocery stores. Switch to the cheapest one and then each time you buy a week’s worth of groceries, bank the difference between the prices of those items versus your old store.

16. Make some bread. Try making a loaf of bread from flour and yeast. It’ll be at least a dollar cheaper than a loaf from a store, so put that dollar in the kitty and enjoy some truly delicious bread.

17. Shop used when you need an item. For example, does your son or daughter need a hockey stick? Instead of buying online, hit a secondhand sporting goods store and see if anything meets your needs there. If you can save $10 by buying something used versus buying the new version, that’s $10 that goes toward your debts.

18. Buy holiday supplies right after the previous year’s holiday. For example, buy all of your Christmas decorations and wrapping paper for the next year on December 28th of the previous year. Everything will be on sale, so bank the amount you saved for your next extra debt payment.

19. If you get a magazine or newspaper that you rarely read, cancel that subscription. Then contribute that $10 or $20 (or more) each year toward your snowflake payment.

20. Create some low cost snacks around your house. Do you like munching on those little “100 calorie” packs? Use a bunch of small Ziplocs and a big bag (or box) of that treat to make your own 100 calorie packs (by weighing the snack). It’s way cheaper to buy the big container and make your own little packs and you can save the difference.

21. Get into a brown bag lunch routine. Take leftovers to work each day and, if that doesn’t work, take a very simple lunch that you like. For me, my “default” lunch is two poached eggs and toast, which costs less than a dollar and can actually be reheated really easily. Compare that cost to the cost of your normal lunch and put the difference toward your debt.

22. If you have kids, try a babysitting swap. Rather than hiring a babysitter, talk to friends that also have children and see if they will do a “swap” with you where you watch their kids one evening, then they watch your kids for an evening. That eliminates the cost of a babysitter, which you can then bank toward your debts. (Of course, don’t turn this into a more expensive date!)

23. If something’s broken, like a toilet or a toaster, try repairing it yourself. If you succeed, you can turn the money you saved by not needing a repairman into a great extra debt payment. If not, then you’re stuck calling a repairman anyway.

24. Replace your incandescent light bulbs with LEDs. Modern LEDs have amazing light quality that’s comparable to normal incandescents. They also use only a fraction of the energy. So, whenever you replace a regular incandescent with an LED, your energy bill should see a little dip. You can capitalize on that with snowflaking by contributing the difference between your most recent energy bill and the one from the year before (or the month before) to your debt repayment.

25. Move. This might seem like a stiff life change, but it’s one that can really make a difference with your debts. If you can save $100 or $200 a month on rent or house payments just by moving, you can push all of that straight toward your debts.

26. Try out a free community event instead of going out. If you’re tempted to go out to the movies or do anything that costs money, look at what’s on your local community calendar instead. Are there any free activities going on that would be quite fun, too? If you choose the free one, you’ll still get to have a ton of fun while also putting some money toward your debts.

27. Hit the library. A book checked out from the library is one that you didn’t buy, so you can apply that savings toward your debts. The same is true for the DVDs that many libraries provide – checking out a DVD instead of buying one is pure savings.

28. If you’re about to go on a road trip, pack food and water. If you can stow away $2 worth of food and water and it replaces a $10 or $20 stop at a fast food restaurant or a gas station, then you can easily put that $10 or $15 toward your debts.

29. Spend some time parsing your bills. Look for line items that you don’t understand, then call up your cell phone provider or your energy company (or the provider of whatever bill you’re looking at) and ask to have those fees and charges removed. If they drop even one charge, then you have an amount that you can contribute each month to your debt repayment.

30. Practice good razor usage. Make sure your razor is dry after every use and sharpen it every once in a while using a RazorPit. If you can move from buying ten razors a month to buying three or four, you’ve suddenly found more money for your debt payments.

31. Make your own household supplies. Make your own window cleaner by just putting vinegar in an empty spray bottle. Make your own homemade laundry soap by shaving a bar of soap and mixing it with half as much borax and half as much washing soda. There are countless recipes out there and each will shave a little bit of spending out of your life.

32. Don’t speed when you drive. In general, fuel efficiency decreases rapidly over 50 miles per hour, reducing your efficiency by 1% or so for each additional mph. On top of that, braking and accelerating devours your fuel efficiency. If you can keep your speed below or at the speed limit and maybe reduce your braking and accelerating in town, you’ll easily be able to save 5% of your fuel bill.

33. If your home is drafty at all, air sealing your home can reduce your energy bill by 20% or more. It’s a simple process (well explained by this guide) that just eliminates those drafts and keeps your heat (and your cool air) from simply vanishing out the door. That means your furnace or your air conditioner doesn’t have to work nearly as hard.

34. Alter your commute. If you can find a different route that uses a bit less fuel than your previous route, then that’s going to be a daily savings. Start by trying to figure out the shortest possible route to work and then figure out how much gas you’re saving.

35. Try reducing or eliminating your cable bill. Not only will you find a bunch of additional free time, you’ll also have a nice healthy lump of cash to save each month. Still want television? Over the air signals are free and Netflix is only $9 a month.

36. Refinance your debts. If you can get a lower interest rate on your debts over the same term, your monthly payments will go down with no drawback. Then, you can take that savings and apply it to whichever debt has the highest interest rate, double dipping on your savings.

Final Thoughts

Snowflaking is valuable in so many ways.

First, it gives a very direct sense of “taking action” on your debts, usually several times a day. Your debt isn’t some nebulous thing you encounter once a month. It’s something that you actually get the chance to reduce over and over each day.

Second, it’s flexible in that you can decide whether a particular snowflaking tactic is “worth it” right now or not.

Third, it can establish new patterns in your life. You might discover better ways of doing things which will reduce your spending permanently and make it easier to escape debt and never go back.

Finally, it directly eliminates your debt. A single snowflake directly means a reduction in your debt, no doubt about it.

Yes, these steps are little, but that’s the point. They’re simple choices you can make without completely altering your life. Instead, it empowers you to make better choices every day and really take charge of your debt.

Plus, it also works for saving for any goal. Trying to build up an emergency fund? Snowflake. Trying to save for vacation or for a car purchase? Snowflake. The only difference is you dump money into a savings account instead of into a debt payment.

Don’t let those little moments slide by. Take action. You’ll feel great and your debt will shrink a little. What’s not to love?

The post How to Use the “Snowflake” Strategy for Debt Repayment appeared first on The Simple Dollar.

The Simple Dollar - “How to Switch to Paying Cash for Your Car”

2014-09-25T01:17:00.001-07:00

The Simple Dollar - “How to Switch to Paying Cash for Your Car”

How to Switch to Paying Cash for Your Car

Posted: 24 Sep 2014 07:00 AM PDT

In 2003, I purchased a 1997 Ford F-150 pickup. Given the financial disaster that my life was at the tiem, I “paid” for it entirely with a loan, which saddled me with car payments for the next three-plus years.

In 2010, the Ford F-150 needed to be replaced, so we bought a 2004 Honda Pilot. This time around, we paid cash for the whole thing. No loans were involved – we just paid cash.

This was a pretty major transformation. I went from an approximately $10,000 car loan to paying $10,000 in cash for a car. The difference, of course, was a lack of car payments, but it also saved us thousands of dollars. Literally.

Let’s walk through this change and how you can make it happen in your life.

How Much Money Can You Save?

Let’s assume that you’re buying a late model used car for $10,000. Current used car interest rates clock in at 4.75% or so. If you get a 48 month used car loan for that $10,000, you’re going to be facing a monthly payment of $229.16. Over the course of that loan, then, you’ll be paying $10,999.68 over the course of that loan. In other words, you’ll just be handing the bank $999.68.

On the other hand, let’s say you do this beforehand. You put $229.16 into the bank each month – the exact same amount you’d be paying on that loan. That savings account earns a 1% return. After four years, that account will have $11,218 in it. Pay $10,000 in cash for the car and you still have $1,218 in your hand.

The difference between saving up for a car and using a car loan is $2,217 for a $10,000 car – and this is at a point where the interest rates are about as strongly in your favor as they have ever been. If interest rates on loans ever go up from here, the number is going to get bigger and bigger.

In other words, the practice of saving up for a car and paying cash is going to save you a significant percentage of the value of the car – 20%, easily, and usually far more – compared to taking out a loan for that car.

How Can I Make This Change?

The process is actually pretty easy. It just involves making a few smart moves.

First of all, you should subscribe to the “drive it into the ground” model of car ownership. It is much, much more difficult to adopt a cash-only car buying routine if you’re buying new or late model used cars and quickly upgrading in a few years.

By “drive it into the ground,” I mean that you should keep up maintenance on the car and continue to drive it until it begins to no longer be consistently reliable or repair costs approach the value of the car. Depending on the model, this milestone could be reached anywhere between 125,000 and 300,000 miles (or even more).

Of course, you’ll want to be on the higher end of that range, and the way to do that is to stick with car brands that have a strong reliability record. The easiest way to find that information is to head to the library before your next car purchase and look at recent editions of the annual Consumer Reports car buying guide. These provide a list of different car makes in order of their reliability as reported to Consumer Reports through reader surveys.

So, the game plan is to to drive your current car until you can’t drive it any more. There are a few situations you might find yourself in as you adopt that plan.

First, your current car might be on a lease. Your game plan should be to buy the car at the end of the lease provided that the price is reasonable. This may involve a loan (for now), but we’ll get there in a minute. Note how much your monthly lease payment is.

Maybe your current car is still on a loan. If that’s the case, simply note how much your monthly car payment is.

What if your current car is loan-free? Look back and see how much your monthly car payment was.

In each of these cases, you should have a monthly number in mind. As soon as you are free of payments, you should start paying that amount to a savings account each month.

So, let’s say you have a $250 car payment each month. Maybe it’s a lease. Maybe it’s a car loan. Regardless of the reason, as soon as you’re free of that payment and wholly own the car, switch to making those payments to a savings account.

I suggest making those payments automatic, much like your car payment likely already is. Just ask your bank to make a monthly transfer to a savings account for you. Most banks can automate transfers between checking and savings accounts upon request.

When you reach a point where you need to replace your car, take a look at this account balance. That’s what you’re going to be using to buy a replacement car.

You might end up buying a very used car at this point because you’ve only saved for a few years. That’s okay. Just drive this used car for a few years and your account will have built up a healthy balance, plus you’ll enjoy very low insurance rates during that period.

If you truly cannot afford a reliable car due to the low balance of that account (this might happen if you’re buying a car only a few months after starting), take out a car loan for the new car then switch back to paying it off. As soon as this loan is paid off, switch to saving the amount of your old car payment each month.

After the first car purchase completely from the account, you can usually trim back your monthly payment by about 50% or so as long as you stick to the “drive it in the ground” philosophy. So, in the example above, you might trim back your monthly contribution to $110 or so. Over the course of eight years, that amount will add up to more than $10,000, more than enough to buy a reliable late model used car.

What if you only want new cars? If you’re only going to buy new cars or if you’re only going to drive cars until the 100,000 mile mark or so, you’re going to have a very hard time switching to paying cash up front. The only way you can get there is to save each month beyond your car payment until you have enough in savings to make a purchase and, at that point, you’ll need to seriously bump up your account contribution to the level of your old car payments (or more).

This is a very poor financial strategy, however. New cars – especially anything beyond economy models – are incredibly cost-efficient and devalue rapidly almost as soon as they leave the lot. Similarly, selling off a car before you’re close to the end of the car’s life essentially sacrifices your car’s most financially efficient years. I really recommend the strategy of buying late model used and driving it until it’s no longer reliable as those are the most financially efficient years of car ownership.

Final Thoughts

The entire goal here is to transition to a situation where you can just pay for a replacement car whenever you need it out of your savings account and the account continually builds itself back up because you contribute $100 a month (or so) to the account like clockwork.

This is exactly the situation we find ourselves in. We put aside about $250 a month ($125 per car) for car replacements and we plan to do that as long as we’re a two car household. Whenever we reach a point where we need to replace a car, we’ll just tap that account and use the money to buy a late model used car (or possibly a new economy car, depending on discounts and other factors).

This level of funding enables us to constantly maintain two high quality reliable automobiles. One is an efficient economy car that Sarah uses primarily for commuting and the other is a larger vehicle used for our family needs.

Our goal is to never make a car payment ever again and, with this account and this savings plan, that kind of future looks very possible.

Can you do this? Absolutely. The real key is to just transition your car payments to your savings account once your current car is paid off. If you do that – and you stick with your car for a few more years – your savings account will have more than enough money to pay for it. That’s a pretty good feeling – and it’s one that will help your financial bottom line.

The post How to Switch to Paying Cash for Your Car appeared first on The Simple Dollar.

The Simple Dollar - “Triggering the Spark of Financial Independence and Frugality”

2014-09-24T01:17:00.001-07:00

The Simple Dollar - “Triggering the Spark of Financial Independence and Frugality”

Triggering the Spark of Financial Independence and Frugality

Posted: 23 Sep 2014 07:00 AM PDT

Kayla writes in:

I’ve never really understood how you could suddenly make the switch from way overspending to actually living on just one of your two incomes and saving half of your income. How does that even happen?

As I thought about Kayla’s question, I started writing a list of things that I felt played a real role in this turnaround. It’s easy to point to one single thing – my “financial bottom” – but that actually only tells a little bit of the story. It wasn’t just that one painful day – it was a series of things that happened both before and after that moment. All of these things pointed my life in a different direction than before.

Let’s walk through them.

Sarah and I Had a Child

Our first child arrived in late 2005, about six months or so before our financial turnaround began in earnest. Unsurprisingly, it triggered a bunch of changes in many different aspects of our lives.

One, it became much harder to go out in the evenings. Having a child at home made having a few date nights a week much more logistically challenging. We either needed to get a babysitter – which meant preparing supplies and directions and straightening up the apartment and also spending money on that babysitter – or we could just stay at home with our new little guy. Usually, staying at home with the new little guy won out, generally because it was easier.

Two, I wanted to spend a lot of time with my son. I was now motivated to go directly home each night after work, only stopping for vital errands. I enjoyed spending time with him – holding him, reading to him, talking to him, and so on. Most days, I really looked forward to spending some time right after work with him.

Three, we started to incur child care costs. Since Sarah and I both worked during the day, we needed someone to watch our son – and we were quite picky about who we chose. We ended up using one of several centers in the area and it wasn’t cheap. This added an extra strain on our budget.

Four, we had all of the other child care costs, too. Diapers. A breast pump. Formula for emergencies. Wipes. All of that stuff really adds up.

The simple presence of this baby in our life altered our daily routines significantly and added to our expenses.

My Hobbies and Use of Free Time Started to Change

Naturally, because I wanted to spend more time at home with my son, my hobbies and free time usage began to change direction. Not getting home until six or seven no longer made sense. Instead, I wanted to get home right after work to see my son and check on his new tooth or read him a book.

Since we were now spending a lot more time at home, I wasn’t engaging in some of the hobbies I once engaged in. There was no time for poker night. I basically withdrew from going out for drinks with coworkers. We didn’t go out to eat.

Instead, I started digging into hobbies and activities that I could do at hime. For a while, I played a lot of video games, but other hobbies really began to take center stage.

I Rediscovered Reading

More than anything, I really rediscovered my passion for reading. There were a lot of times where we wanted the apartment to be quiet so that our baby could sleep for an hour or two, so we looked for hobbies that were nice and quiet. Reading is a natural hobby in that regard.

So I started digging through the piles of books we had accumulated and started actually reading them. I had always enjoyed reading as a hobby, but I had allowed other hobbies to take front and center with my time while still buying a lot of books. This left a ton of unread books on my shelf – and I started digging in.

The most valuable part of reading is that, if you read something more challenging than a page-turner, it forces you to consider new ideas in a deep way. You really have to turn over your thoughts and feelings about various things, deciding for yourself whether your previously-held ideas make sense in the face of new information and new arguments.

So, not only was I filling my time with a new quiet hobby that was based on things already on my shelves, I was also exploring new ideas and new thoughts about my life and how the world worked. I view my reading in the winter and spring of 2006 as being invaluable in terms of priming my mind for the changes to come.

I Found My First Taste of Writing Success

In 2005, I experienced real success with writing for the first time in my life.

Throughout that year, several exciting things happened. I had a very strong tug of interest in a novel I had been working on from a smaller publisher. I started writing a column on playing poker for an organization that was paying quite well (given that the poker boom was in full bloom at that time). After our son was born, I started a parenting blog that saw a great deal of success in the winter of 2006 (I chose to discontinue it that summer for personal reasons).

For the first time in my life, I began to actually feel as though I could make real money from my writing efforts. Because of that success, I began to devote more and more of my spare time to writing. Most evenings, I could be found with a laptop crafting words.

Other “Side Gigs” Began To See Success, Too

At the same time in 2005, I saw some success with three other side gigs, though the success wasn’t as grand as with writing.

I played a great deal of online poker and I had a wonderful winning streak in 2005 and 2006. I had “invested” some money to play with, so I took my investment back out of the account. Then, later, I took out some additional money. I was literally playing with the house’s money at that point.

In 2003, I started a home computer repair business targeting elderly people in the area where we lived. I focused on the “social” side of business, fixing their computer while engaging in conversation with them. The business mostly grew through word of mouth and I was making a couple house visits a week (almost all were within walking distance of our apartment).

I also had some success with independent web design. I created websites for three different clients in 2005 and 2006, earning some nice pocket money.

Although my earnings in each of these endeavors was small – less than $2,000 each – it did show me that I didn’t necessarily have to rely on my primary job to earn a living. It became clear to me that I could switch careers should I ever need to or want to. (A few years later, I did just that, spurred on by a sense of separation from my children.)

I Started to See How My Financial Behavior Affected Others

Prior to the birth of our first child, I never really considered how my personal spending choices really affected the rest of my family. Sarah and I kept our money largely separate, mostly paying bills by committee.

After our son was born, we both began to see how our individual spending choices really impacted our family. Before then, overspending just meant that we had to personally cut back on some other area for a little bit, then everything would be fine. With a child, cutting back became a lot harder.

I didn’t like it whenever I felt like I had to make a hard spending choice related to my child. I didn’t want to ever have to buy him the cheap diapers that might leak or the cheap wipes that might irritate. I didn’t want him to ever be uncomfortable or unhappy, whether it was Orajel for his emerging teeth or a teddy bear to cuddle with.

It didn’t take long before the connection between my own spending on silly things would have a direct negative impact on my ability to provide for my son. It didn’t take much more to start realizing how the same connection was true with Sarah as well. We all relied on each other. We weren’t independent.

When I made a dumb spending choice, it wasn’t just me on the line there. It was Sarah. It was our baby, too. It was also my future self – my retired self that may or may not be able to dig out of a financial hole. It was a recognition that made me start to consider the ramifications of how I spent money.

My Social Circle Started To Change, Too

With this change in my time use – heading home quickly after work, spending a lot of time quietly at home – the time I spent with most of the people in my social circle began to change, too. I stopped going out for drinks after work other than on rare occasions. I stopped taking time to play golf. I basically dropped out of my poker group.

A few of those people understood that my life was significantly changing and maintained a friendship with me. Most of them did not and they quickly fell back to being casual acquaintances.

Within a few years, I was much more involved in community events (starting with things like coaching three and four year old soccer and local charities) which led to new friendships. We began to connect with new neighbors in our area and a pair of old friends moved back to the area.

Between 2005 and 2008, our social circle almost completely turned over. Those new people contributed new influences in our life. Many of them were parents. Almost all of them were fairly frugal. Many of them cared deeply about social causes. Naturally, those things became more pronounced in our own life.

It was hard to let go of some of those friends and some of those social connections, but I soon realized that the relationships that really mattered stuck with me. The friends that really meant something are still a part of my life because they were friends with me, not simply people enamored with whatever activity we happened to be sharing.

I Had a “Moment” That Made Everything Clear

As I mentioned at the start of this article, I did have a “trigger moment” that pushed forward a lot of these ongoing changes.

It wasn’t just an isolated moment, though. It was just a key moment that was a part of a sea change going on in my life. That moment was vital in terms of making me consciously aware of all of these changes, but it wasn’t as if my life completely transformed in that one moment.

In other words, I don’t think “creating” a moment like that works. Instead, it was just the natural result of changing all of the other factors in my life. It was an inevitable spark.

If you want to create a “moment of change” in your life, the best thing you can do is upset your routines. Find ways to make yourself try new approaches, meet new people, learn new things, and establish new routines.

That kind of change provides a fertile field for a transformative moment to grow.

I Spent a Lot of the “Honeymoon” Learning Why, Not Just How

I read a ton of personal finance books during the first few months after that “moment” and most of them were useful.

Some of them really helped with figuring out what specific actions to take to really get my finances in gear. I sold off a lot of things from our closet that we weren’t using, for example, and we built a debt repayment plan.

However, the books that really stuck with me – like Your Money or Your Life – are the ones that focused on why I was making these financial changes.

It wasn’t the “how” that kept the ball rolling forward. It was the “why.” The more I understood and thought about why I was doing these things, the easier it became to stick with those changes.

Since then, I’ve been deeply attracted to books that focus on the “why” of things, much more than the “how.” A list of instructions is just a list of instructions, but knowing the reasons behind those instructions makes you understand whatever it is you’re doing in a much more intimate way. It changes the way you feel about… well, everything.

I Had Big Goals That Really Excited Me

A big part of the “whys” was simply setting big, exciting goals. The thought of being free of debt seemed incredible. The thought of controlling my own professional destiny – and perhaps someday being financially independent – seemed awesome.

I wanted those things. I wanted big changes in my life.

Before that “moment of change,” those big goals were really nebulous and vague. They were something that my “future self” would do. After that “moment of change” and after a lot of time thinking about why I was doing this, I began to realize that it really was up to me – right here, right now – to make those goals happen.

The idea that I really could make those big changes happen in my life was amazing. All it required was smart use of my time and some self-discipline. I let those big goals become the clear horizon in my life and I became really excited about heading toward them.

Not only that, I did all I could to keep that excitement going. I spent a lot of time continually thinking about those big goals and how my life would be when they were achieved. Whenever I felt doubt, I brought those goals back front and center.

I Started To Let Go of Things – And I Realized It Didn’t Hurt

At the same time, I was making lots of practical changes in my life. I was experimenting with saving money and frugality and I was also experimenting with earning money, mostly through writing.

My frugality experiments showed me again and again that my life was still pretty amazing after I let go of whatever it was that I was hanging myself up on. Whenever I tried something new that was intended to spend money, I usually found that the change was not nearly as bad as I thought it would be. Sometimes, the change was actually an improvement.

I let go of old hobbies. I let go of old routines. I let go of old habits. And I found out that it didn’t really hurt. My life was just fine without them.

Prior to that, I thought that changing my spending routines and dropping my splurges would actually hurt. It would make my life un-fun somehow. I would just be unhappy with an empty life void of spontaneity and pleasure.

The opposite basically happened. Not only did I find new pleasures to fill my time – ones that didn’t involve spending money – I became much more at peace as our financial position became more stable.

What Does This All Mean?

For me, at least, the big lesson was that my spending habits are intimately connected to everything else going on in my life. It’s tied deeply to how I spend my days, who I spend them with, and what I’m actively thinking about.

If I spend my time with people who enjoy spending money or spend my time reading websites about the latest stuff that I might want to have or I increase my exposure to ads and product placement, I find myself with a much greater desire to spend money even if I’m conscious of the changes. It just happens.

At this point, most of my routines are pretty independent of spending desires. It’s pretty hard to build desire for spending when you’re at home alone with the internet turned off, writing my fingers off. It’s hard to want to spend money if most of your evenings involve playing games on the table or reading books I already have or are found in the library rather than digging into media forms that encourage me to buy stuff.

Can you force your life to change with these kinds of broad strokes? I’m not really sure, to be honest. For me, the ball was kicked off by the birth of my first child. It triggered a ton of changes in my life, forcing me to try new things.

There are a lot of things you can do in your own life to trigger these kinds of rippling changes. Turn off your cable subscription or your home internet subscription. Get a new job in a new place. Drop out of your usual social circles and spend your evenings trying new things. Read a book about lifestyle changes that have always been intriguing to you.

Those kinds of actions are like throwing a giant rock into a still pond. The ripples go outward, bouncing off the shore, and eventually mix together to make a completely different kind of surface.

It’s actually pretty simple. If you want change in your life, make change. Change who you spend time with. Change how you spend your time. Change where you life. Change what you do.

Then watch what happens. When you move your wheels out of the familiar ruts, interesting things happen, especially when you have a deep desire for change in your heart.

Good luck in wherever this takes you.

The post Triggering the Spark of Financial Independence and Frugality appeared first on The Simple Dollar.

The Simple Dollar - “Questions about Old Stamps, Yoga, Hospital Bills, Chess, and More!”

2014-09-23T01:37:00.001-07:00

The Simple Dollar - “Questions about Old Stamps, Yoga, Hospital Bills, Chess, and More!”

Questions about Old Stamps, Yoga, Hospital Bills, Chess, and More!

Posted: 22 Sep 2014 07:00 AM PDT

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Hospital bills and 529 plans
2. Planning with constant challenges
3. Using old baseball cards
4. Frugal yoga tip
5. Baking bread at home
6. Frugality and “ripping off” businesses
7. Buy it for life: underwear
8. Old stamps
9. Reliable car brands
10. College savings and ill child
11. Wondering about a 401(k)
12. Time management insight
13. Flipping stuff on Craigslist
14. Timing of new car purchase
15. Frugal way to practice chess

Our family usually goes camping several times during the year, with these weekends spread across the spring, summer, and fall.

When I was younger, I used to relish the summer camping trips because of the really long days. Now that I have children and am in my thirties, I actually prefer the spring and especially the fall camping trips. The days are shorter, which means that the children can enjoy some campfire time without completely wrecking their bedtime, and the weather is more palatable in that the daytimes aren’t scorching hot and the evenings and nighttimes have just a bit of chill in the air.

I hope that we get a few more chances to camp before 2014 is over.

Q1: Hospital bills and 529 plans

My wife and I are not big spenders. We cook at home, drive 10 year old cars, no cable TV, and budget a dollar amount for savings. My wife and I have a municipal funded pension and 401k. We have 7k in our savings and would like to start investing in a 529 plan for our newborn and personal investment of index funds for a better return than our savings account.

One issue that’s holding me back from this is that our newborn baby required extensive open-heart surgery. With that, came a large hospital bill of 8k after insurance deductibles. I have already made calls to the hospital for a discounted rate of roughly 5-6k.

The hospital gave us two options. Do a payment plan of the roughly 8k? Or pay a discounted rate of 5-6k in one lump sum? And after that is taken care of, what is a good amount of money to start the 529 and personal investment? Isn’t it best to invest most of the money than keep it in the savings account, knowing we will continue saving?
- Steve

If it’s only $5,000, I’d make the lump sum payment. That would leave you with a $2,000 emergency fund for the moment, which is low with a newborn baby with health issues, but not dangerously so.

If the lump payment is $6,000, you start cutting that emergency fund very, very tight. I would be nervous to be in a situation with a sick child and only $1,000 in the emergency fund.

If the emergency fund were a non-factor, of course, the lump sum would be far and away the better choice.

Q2: Planning with constant challenges

So my husband and I have a debt repayment plan and we have a retirement plan too that we’re contributing to each month. As far as I can tell we are set to retire at age 62 or so. Sounds great, right?

The problem is that I seem to have terrible luck. It seems like at least once a year some sort of disaster befalls me or our family. I’ve had two different types of cancer (both in remission). We have three children, two of which are autistic and the third one requires a number of medications to help with her breathing. I’ve lost six jobs in the last nine years all because the business folded up not because of my performance. My husband has had several long stretches of unemployment including one for an accident that broke a bunch of bones.

I feel like making plans is useless because something else is going to happen any day now.
- Janine

If you’re planning for the future in a way that involves reducing debt and saving money, don’t worry about those kinds of “terrible luck.”

Less debt and more savings will help you no matter what happens in your life. You will never, ever regret having more money in the bank. You will never, ever regret having less debt.

What you will regret is spending money in a way that doesn’t bring some value into your life. Debt reduction and savings both reduce stress and reduce the impact of anything that happens, both of which have a lot of value.

Q3: Using old baseball cards

This is a tip for those of you with old baseball cards. What we’ve done with them is turn them into interesting decorations. We’ve taken team sets of baseball cards from 1986-1992 and turned them into framed art. So, for example, we took all of the cards out of his complete set of 1986 Topps and sorted them by team, then we took the pile of 30 or so cards for each team and arranged them in a multi-picture frame. We have sold a bunch of these for the nearby teams and a few from the other teams. I’ve even sold some of them on Etsy and Ebay. If you have old cards lying around that won’t sell on their own, try something like this.
- Denise

This is a simply brilliant idea.

A friend of mine has an uncut sheet of 1987 Topps baseball cards framed in his living room. It’s actually a great little piece of art that is invariably a conversation starter.

Simply taking cards from that era and turning them into a conversation starter wall hanging like this is simply genius. I already want a 1989 Topps one that features all of the Cubs from that year.

Q4: Frugal yoga tip

I greatly enjoy group yoga classes at a local studio, but individual classes range from $10-17 each (for one hour) and even with all possible discounts, $75 per month for an unlimited membership.

I explained to the front desk ambassador at the yoga studio that a financial commitment like that is not in my budget, and she suggested that I participate in the “trade” or “karma yoga” program. I come into the studio 2.5 hours per week to tidy up the space and work the front desk and I get unlimited free classes! What’s really nice about this arrangement is that “trading” makes me accountable for showing up to multiple classes a week (to get my “money’s” worth) and it has helped me make great friends that are also trading!

If any of your readers love yoga, have a bit of extra time, and want to save a lot of money, I suggest they inquire at their area studio about this great opportunity. Most yoga studios have a “trade” program! Some don’t require cleaning, some ask for cleaning, web site design, and other types of help for free classes!
- Kelly

This is a great idea!

In fact, this is a reasonable thing to check on with any community organization, not just a yoga studio. Many such businesses have staffing challenges which means that exchanges like this can sometimes bring value to such a business.

Of course, businesses won’t necessarily agree to this type of arrangement. It really depends on what they need to keep the doors open and if they’re not interested, harassing them about it will do the opposite of helping. Still, it doesn’t hurt to ask.

Q5: Baking bread at home

I tried your recipe for baking bread at home and it seems pretty labor intensive. My wrists couldn’t take doing that very often. I’ve tried some of the no-knead recipes too and they never turn out well. I would like to make bread at home because the ingredient cost blows away store bread and the bread is just way better (and better for you without all the junk in it). What is a low cost frugal way to make bread without tons of kneading and labor?
- Karen

A bread machine bought at Goodwill seems like a great idea here, but unfortunately, my experience has been that if you don’t like the no-knead breads, you’ll probably not like the bread that comes out of a bread machine. It often has a questionable texture.

My best suggestion is to get a very sturdy stand mixer, like the ones made by Kitchen Aid. Avoid Kitchen Aid mixers made between 2006 and 2011, however, as they have a vinyl gear inside of them that breaks down – they switched back to metal in 2011. The nice thing with a stand mixer is that it can be used for tons of things from making bread to mashing potatoes.

That’s really the best alternative for homemade bread that actually tastes good. The secret is in the kneading and the only mechanical solution I’ve found is a stand mixer.

Q6: Frugality and “ripping off” businesses

I think a lot of your frugality tips are great like taking advantage of sales and bulk buying and stuff. What turns me off are stories from people who do things like basically rip off businesses like asking for constant “extras” at sandwich and burrito places or taking tons of sauce packets at restaurants and putting them in their purse. What do you think about those tactics?
- Stephen

This type of behavior leaves a bad taste in my mouth.

Businesses offer these types of services under an obvious social contract. They leave out sauces and such things for people to use on the food they just bought, not to fill their pockets and bottles at home. They allow you options on your sandwich so you can have it the way you like it, not so you can jam on so many toppings that you never have to buy a meal for the rest of the week.

I view people who do things like that to be leeches who take advantage of customer-friendly businesses. It’s not frugal in the least.

Q7: Buy it for life: underwear

I never buy underwear, but my current rotation is on its last legs. What’s the best, affordable, long lasting underwear?
- Gary

This is a question I never thought I’d answer in a reader mailbag, but here goes.

Honestly, my experience has been that the best “bang for the buck” in men’s underwear – and it’s not even close – is the C9 brand sold at Target. It’s usually labeled “C9 by Champion.”

The cost is a little high compared to the other items sold there, but these things just last and last and last. I’m really impressed with them. They’re comfortable and they’re incredibly cheap in terms of cost per use.

Gary has a second question.

Q8: Old stamps

I have a few 46 cent stamps. Does it make sense to put two 46 cent stamps on my envelope and drop it in the mailbox at work instead of making a special trip 1.5 miles to and from the post office just for a 49 cent stamp? I hardly ever mail anything. I would compare this to driving out of your way for gas that’s 3 cents cheaper.
- Gary

If you live on a rural route, you can actually buy the stamps from your mail carrier. Just call the post office and see what they can do for you. My experience has been that it involves leaving an envelope in the mailbox for the carrier to pick up and the carrier leaves behind stamps.

Even if you’re not rural, a quick call to the post office might help you to find a solution here that doesn’t involve you wasting those stamps.

You can also buy stamps at USPS.com, but that may involve a shipping charge that eats up the benefit.

Q9: Reliable car brands

What is a “reliable car brand”? Whenever you mention buying cars you talk about cars that are from reliable brands. What do you mean by that? The only brands I think of as “reliable” are super expensive (like BMW).
- Tim

I usually trust the reliability information in Consumer Reports. In their annual car issue, they usually have a ranking of different car manufacturers in terms of their long term reliability as reported to CR by their readers via their survey system.

Over the last several years, Honda, Toyota, and Nissan have almost always been near the top of these lists. CR usually separates them by brand, so Lexus (for example) is near the top though they are made by Toyota.

If you’re interested, I suggest hitting your local library and finding the most recent Consumer Reports car-buying issue.

Q10: College savings and ill child

When our daughter was born, we started a 529 plan almost immediately, putting $150 a month into the plan. A few months ago, our daughter (now age 4) was diagnosed with leukemia which she may not survive. We continued funding the 529 without really thinking about it since it was automatic. Given that her long-term prognosis is not good, should we continue to fund the account? What kind of penalties are involved? I am just trying to get our finances in order no matter what happens. I have become accepting that we may not get to see her grow up.
- Dallas

If I were in your shoes, I would assume that your daughter will grow up just fine. No matter how bad the situation, keep acting as though she’ll skate right through it. Usually, you’ll be fine doing this.

For example, with the 529 account, if the beneficiary were to pass away, this just becomes a normal investment account as there’s no penalty for taking the money out (assuming you stop contributions at that point). You have to pay taxes on the gains as normal, but that’s all.

I’d just keep contributing like normal. If something does happen, you can get the money out as if it were a normal investment. If everything goes according to plan, then you’ll have plenty of money for her when she goes off to college.

Q11: Wondering about a 401(k)

I am employed full time at a small family owned business. They do offer a 401(k) program. However, instead of matching funds, the owners can decide to make a “discretionary contribution” to the 401(k) based on company profitability once a year. Below is the exact wording:

“*****. may elect to make a discretionary matching contribution equal to a percentage of your elected salary deferral. In addition, ***** may make a discretionary qualified non-elective contribution allocated as a percentage of compensation; and/or a discretionary profit sharing contribution which will be allocated to eligible participants in proportion of their compensation to compensation of all eligible participants. Forfeitures will be used to reduce any employer contribution.”

In the past 5 years, they have made contributions twice. As far as I can verbally research the contribution is always based on percentage of compensation. Out of 36 employees I rank about 29th in compensation level by my best estimate and I’m only investing minimally ($20/wk) as I pull out of debt and bankruptcy. Therefore my portion of the contribution has been minimal. ($1,600 last time).

My question is should I stop contributing to the 401(k) but leave it open so that it will receive any company contributions and it will continue to “grow” based on investment returns and open an IRA and make my weekly contributions to it? Essentially – the major benefit (as I understand it) to a company 401(k) is the matching funds – since that is negligible, would I be better in an IRA?

Part of the reason for the concern is that my husband owns his own sole proprietorship and has no employees and no retirement savings. The current 401(k) is all we have so I’m trying to maximize my dollar since I am 42 and he is 46.
- Stan

That’s probably what I would do in your situation. I’d leave it open for company contributions but if there is no matching, I’d invest elsewhere in a situation where you have more control over things.

Your best route would be to open a Roth IRA, in my opinion. I have one through Vanguard and I’m extremely pleased with their offerings. Regardless of where you choose to open it up, it’s pretty simple to do and if you set up automatic contributions, you can practically forget about it while it builds up money for retirement.

That would be my plan in your situation. Naturally, if your employer changes their policy and starts matching, I’d take advantage of that, but that doesn’t sound like that’s what’s happening.

Q12: Time management insight

I love your articles on time management and the different systems you’ve tried out and tools you’ve experimented with. One quick thought: I’ve found that most people either succeed or fail at time management regardless of the system. Some people are just better time managers than others. In other words, little tricks to help improve time management are probably more useful than starting from scratch.
- Dean

I know what you mean, but it’s a double-edged sword.

I didn’t really discover the idea of time management until I was well out of college and into my career. I made it through college with almost no time management at all and certainly no formal system for it. At times, things were really chaotic for me and time management would have helped greatly.

In other words, even people that are in successful jobs after earning a degree are still largely unaware of how time management can help them.

I do agree with you that tips are more interesting at this point, but I can often extract tips from articles describing time management from scratch. I generally try to write a little bit of both because I find time management incredibly helpful in my day to day life.

Q13: Flipping stuff on Craigslist

My husband had a really good “side business” going that he’s stopping because we’re going to travel a lot now. Here’s what he did. He would buy items off of Craigslist that were used or not working well that he knew how to fix. He would negotiate with them and buy the not-working items for cheap. Then he would bring them home and fix them. Then he would list them again on Craigslist. He could sometimes make $50/hour doing this but it was pretty irregular as he had to find items with problems that he knew he could fix. Anyway it did make him a lot of pocket money and some nice dinners and helped our savings out on the home stretch to retirement. Since he is out of the business I thought why not share it with The Simple Dollar?
- Annie

This is a great little side business idea for someone who’s a little bit handy.

Many devices like lawnmowers and toasters can be fixed with a bit of work and some knowledge of how they operate. It’s usually just a piece or two that’s broken in them so if you can figure out what’s wrong and fix it, you can usually get the parts for a song and turn a non-working item into something really useful.

The problem is finding stuff that’s in good shape except for one or two problems. I sometimes see stuff like that on Craigslist, but it’s usually all stuff that works. People seem to assume broken stuff won’t sell so they just send it to the dump.

Still, if you’re willing to watch Craigslist, this is certainly a way to make a few bucks.

Q14: Timing of new car purchase

My husband and I both work full-time currently, though his job is PR for a ministry that runs until Christmas time, so he’ll be finding a new job before the end of the year (we’re not too horribly worried about that – he’s already got leads from this job). We currently live a little over 10 miles away from his work, but almost 30 miles from mine (almost a 45 minute commute). He drives a 1997 Grand Prix (250k+ miles) and I drive a 1999 Corolla (200k+ miles). His gets kind of sad gas mileage (at least compared with my little clunker), and the transmission is failing, among other smaller problems like rust. My Corolla seems to keep developing both small and large problems which would cost far more to repair than it’s worth, and if the Grand Prix’s transmission dies, the same will be true for it.

We want to go down to a one-car family, but because he works a standard 8-5 job and I work second shift at a hospital, there is no feasible way to do this. We’re going to get a Prius, but we’re not sure if we should wait until we can go down to a one-car family and risk one or both of the cars dying (and thus having to buy a car anyways, on a time crunch, which I want to avoid), or trading in one of the cars now and figuring out a way to sell the second one later without having to offload a dying car on a probably semi-unaware (since stuff the seller and buyer didn’t know about always seems to crop up later) private buyer.

Financial stuff: Currently we have the income stream to be able to pay off a new Prius (and yes, it will be brand new, because with the rates we can get, it actually would cost almost exactly the same to buy used, and we’d pay less interest in the end) in about half the loan term, though I have a worker’s comp-related health issue that may force me to find another job soon or finally start a business. We are legacy USAA members, so we have access to their amazing auto loan rates (we might be able to get 1.49% rate on 60 months, depending on when we buy), as well as their car buying service, which would save us somewhere around $4k off MSRP. Both our cars have been paid in full for a long time, and pretty much the only other debt we have right now is student loans (on income-based repayment plans), though we would like to get a fixer-upper (or something along those lines) house in a couple years, once we figure out where we’re settling down. We also tend to drive our cars until they die, as our parents all have (and my folks’ 2005 Prius is still going strong, and has only been in the shop ONCE in its lifetime – for a front-end alignment!), so this would be a relatively buy-it-for-life kind of thing… we just can’t figure out when to actually buy it. Please help!
- Carly

In your situation, I’m not really sure how a one-car system would work. Are your shifts opposing enough that you can both drive the single car to work? If that’s not the case, then it seems impossible unless you live in an area with a transit system. My guess is that you’re looking at changing jobs given the “worker’s comp” issue you discuss in the final paragraph, which would take away the need for a second car.

It sounds to me like you’re on a “buy it new, drive it into the ground” cycle. I wholly agree with the “drive it into the ground” part of the cycle. The “buy it new” part can be questionable – late model used are typically better deals – but there are situations where new purchases can make sense.

My suggestion to you is to bank it all on reliability. What does your life look like if one of those cars fails right now? Would there be job endangerment? If so, I’d sell quickly and get a stable car at home. If there’s not, I’d probably wait. Soon, you’ll need only one car (apparently), so if you can make it until then, the decision gets easier because there’s no pressure.

Q15: Frugal way to practice chess

I am 61 years old and retired for a few years after selling my business. I am the guardian of my grandson because both of his parents passed away in an accident several years ago. My grandson is twelve years old and is active in his school chess club and the community chess club. I used to be very good at chess but haven’t played in 20 years other than playing with him. His skill is growing rapidly and although I can still win most games, I realize that if I want to keep playing with him I need to practice during the day as he is constantly practicing.

I have a reasonably modern Windows computer with an internet connection and access to a library. What can I do on the cheap (say $20 or less) to polish my chess skills?
- David

Short of a grandmaster level, everything you really need to learn how to play chess is available at chess.com. You can play against the computer, against other people, and try out chess problems.

When I was really into chess a while back, I found a great deal of value in the “computer workout” section of chess.com. It does a great job of teaching you how to handle various situations and get the most out of your pieces.

I think it’s just about perfect for what you’re wanting to do.

The post Questions about Old Stamps, Yoga, Hospital Bills, Chess, and More! appeared first on The Simple Dollar.

The Simple Dollar - “Books with Impact: Early Retirement Extreme”

2014-09-21T01:36:00.001-07:00

The Simple Dollar - “Books with Impact: Early Retirement Extreme”

Books with Impact: Early Retirement Extreme

Posted: 20 Sep 2014 07:00 AM PDT

The "Books with Impact" series takes a deeper look at specific books that have had a profound impact on my financial, professional, and personal growth by extracting specific points of advice from those books and looking at how I've applied them in my life with successful results. The previous entry in this series covered How to Win Friends and Influence People by Dale Carnegie.

Why Early Retirement Extreme?

The biggest drawback that most personal finance books seem to have is that they don’t really ever discuss making significant life changes. Sure, they discuss lots of small tactics like stopping at Starbucks less often and things along those lines, but they mostly focus on how to organize one’s debts and so on.

Most personal finance books seem to shy away from suggesting that the reader make major changes to their life. They usually don’t suggest living in a smaller house or selling a car or moving to a different location – or if they do, they include them in a one-off paragraph or a sideboard section that talks about “extreme methods.”

I don’t expect that I’m going to adopt every single life-altering method that I read about, but I do want to know about them. I want to dive deep into the ideas of voluntary simplicity and extreme saving, not because I want to fully commit to them, but because the ideas inform me and widen my own horizons. A book that digs into why we struggle with personal finance is much more likely to introduce life-altering ideas and conclusions.

The book that had the greatest impact on my personal finance growth, Your Money or Your Life, actually does this. It advocates some serious introspection and some serious life changes if you fully commit to all of the ideas there.

Early Retirement Extreme falls right in line here. The subtitle is pretty clear: a philosophical and practical guide to financial independence. That’s exactly what this book delivers. It walks through the reasons why a person might seek out financial independence and then offers a path for getting there that doesn’t pull any punches.

Fisker uses a very philosophical tone throughout the book, digging into the ideas behind financial independence and the reasons for shaping one’s life in a new direction. In many places in this discussion, I’m striving to summarize two or three pages of philosophical ideas into one or two sentences, which means that some nuance is left behind for the sake of brevity.

Let’s take a look.

A Different Frame of Mind

Fisker starts off with his definition of financial independence, which he describes as a state of no longer having to work for money. It’s clearly a difficult path that is a bit outside the mainstream today, so Fisker identifies a number of factors that have to exist in order for a person to choose to pursue financial independence.

You have to be dissatisfied with significant portions of your current life. This can exist in different flavors for different people. Perhaps you’re dissatisfied with consumerism. Maybe you’re unhappy with your career or with your struggle against debt. The reasoning here is that if you’re happy with your life, you’re probably not going to be interested in making major changes (this is why I think most personal finance books shy away from these topics).

In 2006, I was dissatisfied with several different dimensions of my life. I liked many aspects of my job, but I was really unhappy with the travel and the pretty regular weekend interruptions, as I felt like I was missing out on my son’s growth and development. I was frustrated with our debts and with my performance as a father in terms of building a future for my child. I was also starting to develop a pretty strong distaste for the consumerism of many of the people I spent time with. These dissatisfactions had primed me for making a real change.

You have a vision in your head of the life you’d like to have. You’re dissatisfied with big aspects of your life. What would your life be like if you were satisfied with those things? The richer your vision, the more likely it is that you’ll be able to follow a path of financial independence.

I have always dreamed of being a writer, particularly one that can write solely for my own pleasure rather than writing for an audience. I have a number of stories floating around in my head that I enjoy. I have no idea if anyone else would. Getting them down on paper in a coherent and logical and sequential narrative is a pretty serious task, particularly when I have no idea whether anyone else would like the stories or not. I’d love to devote some real time – a few years – to making this a reality, but that’s not going to be a reality while both parenthood and full-time work are on the docket. I’d also like to spend a lot of time working for a pair of local charities and launching another one. That’s my vision for the future… but that vision requires some youth, some health, and no job that eats my days.

You’re willing to develop a plan to get there. You know where you are and you’re unhappy with it. You have a vision of where you want to go. How do you get there? This requires the ability to make a plan and stick to it, even when it’s hard, even when it seems like the success you want is a long way off.

In 2006, Sarah and I sat down and worked out plans for getting from here to there. It involved some serious spending cuts, some lifestyle changes, a fresh commitment to some side businesses, and several other things. We are still more or less following that plan with no changes to the big ideas and only some tweaks to the smaller pieces.

You’re also willing to implement unusual or different or challenging things as a part of that plan. In other words, you have to be willing to not really care what other people think and you have to be willing to alter your own life in significant ways. Your life is a lot more flexible than you think it is.

Between 2005 and 2009, I quit my career and started a new one. I completely rebooted my social circle, moved to a new place, and completely altered my list of active hobbies. I sold off a large chunk of my possessions, too. I changed an awful lot of my life to get there.

Reading this section was almost like walking through the past several years of my life. All of the elements that Fisker points to as necessary elements for a life that points toward financial independence appeared in my own life. Based on my own experience, Fisker’s words ring true.

The Lock-In

“Lock-in” refers to the idea that people often follow some variation of the same well-worn financial and professional path throughout life and, once you’re on that path, it can be extremely hard to get off of it even if you want to. That “lock in” occurs in several stages.

Educational lock-in refers to the idea that people often go to college directly out of high school, spending four years pursuing a degree in a field that may or may not even be something they’re really passionate about as an adult. Upon graduation, they’ve got a piece of paper that gets their foot in the door on a certain career path, but they’ve also usually got a big pile of debt. They’re financially obligated to follow that career path.

Career lock-in refers to the build-up of references and certifications and job history that come with working in the same career for a while. You’re well-prepared to continue in that career path, but getting out of it can be extremely challenging. Beyond that, many people have put themselves in a financial state where they need that high level of income in order to keep paying the bills, so a career switch is simply unviable.

Stuff and Status lock-in means that you’ve become accustomed to a certain level of status in your community and in your social circle and the most powerful way you know of to preserve that level of status is through additional purchases. You’ve got to “keep up with the Joneses” and in order to do that, you have to keep buying new things – new cars, a new house, new gadgets, and so on.

Debt lock-in means that in order to finance all of the stuff mentioned above, you’ve incurred a lot of debt – student loan debt, a mortgage, credit card debt, car loans, and so on. Often, the minimum payments on that debt and the continuation of your current level of stuff and status leaves you little breathing room.

Retirement often is seen as a respite from this journey, but more and more Americans find themselves working into their seventies, leaving them only a short period near the end of their life to enjoy the full fruits of their labor.

This paints a very familiar picture for a lot of American families – our own included. We were well on our way down this path of “lock-ins” when we started our own financial turnaround and breaking out of these “lock-ins” was perhaps the most difficult part of the journey.

Economic Degrees of Freedom

It’s at this point – in the third section – that Fisker starts to dive into some interesting philosophical areas. Here, he divides people into four distinct groups based on two factors – how dependent they are on their single employer (which he calls “coupling”) and how directly their efforts translate into results (which he calls “linearity”).

A salary man is any person that works at a single steady job where they directly exchange their time for a certain wage. That income comes from a single source – their organization. That person is completely at the mercy of his or her employer in terms of work requirements and wages, with their only solution involving seeking another job that’s likely to be similar. This is essentially the “worst” category in Fisker’s eyes as it’s the one most susceptible to “lock-in.”

A working man is essentially a freelancer. That person is able to earn income from many different sources, but they still must deal with the needs of an employer who is paying them to produce according to that arrangement. This person is much like a salary man, but has traded some stability in exchange for having many sources of income.

A businessman doesn’t rely on employers for making money. Instead, they tend to effectively make money using other people’s money by building a business, usually from a business loan. While that person is essentially free from meeting the demands of an employer, that person is still coupled to the bank that provided that loan (and to any shareholders or partners).

A Renaissance man breaks free of all of this by having a wide range of skills that can be applied both to earn income and to take care of personal needs. Because of this, a Renaissance man is able to invest his or her time into non-linear things like writing a book – things that don’t directly translate an hour of work into a certain amount of income. A Renaissance man doesn’t have to rely on the bank, on employers, or on shareholders.

Fisker pretty clearly identifies the Renaissance man as the ideal here and spends much of the next section discussing how to become one. Although I agree with him that having a diversity of skills is a huge benefit in terms of career flexibility, Fisker takes the idea pretty far.

The Renaissance Ideal

Fisker’s core idea here is that in almost every aspect of life, there’s a certain threshold of skill above which you can use that skill to earn an income. For example, there’s a skill difference between someone making spaghetti in their home kitchen and someone being an effective line cook and it’s that skill difference that people pay for. The Renaissance ideal, in Fisker’s eyes, comes from raising your skills above that threshold in as many areas as possible.

How do you get there? Fisker suggests that the most certain route is through fundamentals. Rather than learning how to repeat a specific task, if you learn the basic skills and ideas behind that task and build the critical thinking needed to put those skills and ideas together, you’ve got that task (and many others) well in hand. The more basic ideas and basic skills you have and the stronger your critical thinking skills, the larger your set of marketable skills will be and the less coupled you’ll be to the economic state of the moment.

Fisker’s idea makes a lot of sense, but it requires a great deal of commitment to lifelong learning. I deeply enjoy learning new skills and figuring out how things work, but that’s not something everyone enjoys.

It also stands in direct opposition to how college functionally works today. Today, college mostly serves to train people in specific fields. Once you earn your degree, you’re trained for your specific field, but you may not have any transferable skills for other fields. Fisker’s view is that educational time should be spent solely on growing critical thinking skills and gaining the philosophical ideas and core skills needed for a wide variety of fields.

It’s an interesting perspective. I know that my own fields of study – life science and computer science – got my foot in the door with my first job after college, but it’s barely related to what I do now. The skills I use now were built in my spare time. I also know that I enjoy learning new things and, as time moves forward, I feel more and more prepared to handle lots of things that life can throw at me. I feel as though there are many career paths that I could dive right into should I choose to do so.

Strategy, Tactics, and Guiding Principles

Here, Fisker lays out some core ideas for adapting your life to that Renaissance ideal.

For example, Fisker argues that having a large number of goals is a good thing because, ideally, each thing you actually do should push you toward multiple goals. For example, if you spend a few hours helping a friend build a new deck in exchange for dinner, you’re achieving several goals at once – physical fitness goals, friendship goals, skill goals, and so on. If you have a network of goals like this, it’s not a big deal to decide that one goal doesn’t fit anymore because the effort you put into that goal helped you approach success with other goals.

I’ve noticed this in my own life, as I tend to find success with goals that have some overlap so that I can feel like I’m pushing toward multiple goals at once with a single action. For example, I feel a lot better about both exercising and self-education if I can listen to an insightful audiobook while I’m jogging. That kind of goal synergy makes time feel much more productive.

Another interesting insight was his assertion that there is no difference between needs and wants. He uses an example of shelter, listing a number of variations of shelter with slight differences between them such as location, cover, and so on. He argues that there is no clear line between a “need” and a “want” at any point on this list, though each item on the list has slightly more cost and slightly more creature comfort than the one before it. In other words, we define our own sense of “need” by whatever threshold we personally choose not to cross.

Again, his point is clear. There are many “lines in the sand” that people refuse to cross, defining those things as needs. I’ve had readers get incredibly angry with me when I stated that home internet access was a “want” and not a “need,” for example. I have my own “lines in the sand” when it comes to various things and it’s not hard to notice that your “lines in the sand” change if you have more income. Why? Do they need to change? It’s an interesting thing to contemplate.

A Renaissance Lifestyle

Obviously, the Renaissance lifestyle described in the previous chapters works really well if your financial needs are low and that’s largely what this chapter is all about. It focuses on how to live a bountiful life with minimum expenditure – and I mean minimum.

Fisker’s best argument concerns possessions. He strongly advocates minimizing one’s possessions because possessions cost money, take up space, and require maintenance. Outside of a few essentials, Fisker advocates borrowing things when you need to use them. This allows a person to live in a very small home with minimal maintenance required.

Much of the rest of the section focuses on what I call “strong” frugality tips – ones that encourage some degree of lifestyle change in order to save quite a bit of money. For example, Fisker advocates a frugal exercise routine that’s much like the Lifetime Fitness Ladder in that it’s equipment-free and relies on aerobics and body weight.

For me, this section felt like firm ground. At various points, I’ve tried most of the ideas presented in this chapter in my own life and considered almost all of them. The key, I think, is simply a willingness to try things and to cross those “lines in the sand” that exist only in our own mind.

Foundations of Economics and Finance

The final section of the book discusses some broader issues of economics and finance. Though this section is short, Fisker does take many of the ideas from the earlier chapters, such as drawing some fresh lines between wants and needs, and looks at how they alter some of the basic tenets of personal finance.

For example, if you push back your sense of “need” quite a bit, then you don’t need that large of an emergency fund. Most emergency funds are based on having a certain number of months of living expenses to cover “needs,” but if you shrink your sense of “needs,” you naturally shrink the size of your emergency fund.

This section provides a lot of dangling threads that encourage the reader to dig more into economics and finance.

Final Thoughts

Many of the ideas in this book are clearly starting points from which people can go off on their own educational journeys, learning more about the specific ideas in question. This book focuses a lot on philosophy and core ideas (excepting, perhaps, the section on frugality) and thus demands more from the reader than most personal finance books. In order to get full value from this book, you’re going to have to contribute some additional investigation and thought.

That’s why, to me, Early Retirement Extreme comes close to bridging the gap between personal finance and philosophy. It’s absolutely loaded with interesting ideas to consider but it never really provides easy answers or recipes to follow.

For some, that’s an interesting mix. I find myself returning to this book regularly to dig for new insights and give myself new food for thought, whereas books that just provide a recipe for success tend not to see that kind of constant referral.

If you want an easy solution to your personal finance situation, this isn’t the book for you. It basically never takes the easy road and is heavily balanced toward the philosophical as opposed to the practical. However, if you’re seeking out a mental shift in how you perceive finances and enjoy books that challenge your thinking, this one is well worth reading.

The post Books with Impact: Early Retirement Extreme appeared first on The Simple Dollar.

The Simple Dollar - “Living Lean Without Being an Outcast”

2014-09-20T01:13:00.001-07:00

The Simple Dollar - “Living Lean Without Being an Outcast”

Living Lean Without Being an Outcast

Posted: 19 Sep 2014 07:00 AM PDT

It’s not exactly a secret that the “spend less than you earn” strategy is a little different than how the average American lives their lives. As I’ve quoted many times on The Simple Dollar, 76% of Americans live paycheck to paycheck. Simply by adopting a “spend less than you earn” mindset and sticking with it for even a little while, you put yourself in that 24% minority that doesn’t live paycheck to paycheck.

Here’s another way of looking at it. 65% of Americans have a net worth of less than $100,000. With only a year or two of truly “spending less than you earn” on the average American’s income, most people can get over that threshold.

Clearly, mainstream American society isn’t geared toward saving money. Instead, much of mainstream American society focuses on and lauds spending every dime that you have on a wide variety of consumer goods. Gadgets, premium brands, expensive cars, big houses, fine clothing – the list goes on and on and on.

This presents a pretty big conflict for people who are working toward financial independence. If popular culture is geared toward these types of expenses – many of which financially independent people aren’t spending their money on – then it’s pretty easy to begin feeling like an outcast.

I know this is true for me. When I visit a news site like CNN, I usually browse the front page and find myself completely disinterested on most of what I find there. A large chunk of the articles are centered around buying stuff that I don’t really want or following sources of entertainment that I don’t care about. That’s just one example upon many.

It often feels as if popular culture is pushing me in the opposite direction of financial independence.

So what can I do about it? I don’t want to withdraw from popular culture and live like a hermit. I value being culturally aware – if nothing else, it provides a good way to connect with other people.

Here are six strategies for balancing a lifestyle aimed toward financial independence with a popular culture that seems to be headed the other way.

Be Selective About Your News Sources – But Don’t Withdraw

If I’m going to spend the time to read a news article, I want to walk away from it with at least one piece of information that challenges or changes what I already thought about an issue. If an article just reinforces my opinions and ideas without bringing anything new to the table, then it wasn’t worth my time to watch or read it.

In other words, I want to maximize what I understand about the world in the minimum amount of time. I want every article I read to inform me and to force me to re-think my ideas, but I don’t want to spend a lot of time browsing articles that just fill my mind with junk.

For my day-to-day news, I usually read The Week, The Atlantic, and BBC World News to keep up on what’s happening right now. I also get a lot of value out of opinion pieces from everywhere on the political spectrum, especially people who provide their sources.

I tend to avoid articles that just talk about the latest products because, frankly, I don’t care. I’ll research a new product independently when I have the need for it.

If a news or opinion article hasn’t made you think and ask yourself whether your ideas are right in a while, you need to find new things to read.

Why is this valuable? If I can understand a number of different viewpoints on the big issues of the day, not only do I understand the issue far better, I can have good non-confrontational discussions with anyone on just about anything. Even better, very little of that effort leads to me wanting to buy stuff, so I’m not really motivated to open my wallet.

Think About Why You Want Things

All of us have material desires. I’ve not exactly been shy about my personal passion for books and for tabletop games – and there are some gadgets that I want, too.

Here’s the question, though. Why do I want those things? Why do I want a new board game when there are plenty on my shelves that we haven’t played many times? Why do I want a new book when there are ones I haven’t read already on the shelf? Why not just hit the library?

Why do I want the higher-priced version of something when a lesser-priced one will likely fill my needs? Why do I want this item at all?

Whenever I spend money on something, I feel I owe it to myself to answer those questions before I buy it. This doesn’t stop me from fulfilling my desires. It just ensures that when I do spend money on something, I’m actually buying something that I genuinely want that won’t just sit there unused for a long time.

In terms of staying in touch with society, this thought process is actually really useful. It gives me what I need to articulate what I actually find interesting and compelling about things, which makes for more interesting conversation.

When You Have a Desire, Write It Down First

Another strategy I use for enjoying things without necessarily opening my wallet is to keep a list of those things. When I see something interesting that I want, rather than opening my wallet, I simply write it down so that I can think about it later. I review the list every few weeks and delete things that I realize I no longer want.

This list is useful in a few ways. One, it allows me to take some sort of action related to that desire, which often sates it. Two, it also provides an “out” for that purchase in a social situation. Finally, it gives you a venue for reviewing that item in the future.

Purchases are often impulsive, driven by whatever ideas happen to float to the top of your head. Writing it down pushes that decision off into the future, making the decision less impulsive.

Fill Your Time With Media-Free Activities

It’s simple. Spend less of your leisure time on activities that involve advertising, product placement, or encouragement to buy new things. Spend more of your leisure time on activities that don’t do these things.

For example, you might spend less time reading magazines, watching television, surfing websites, and reading articles about products, and spend more time actually participating in your hobbies, going to social events, reading books, and watching films or commercial-free programs.

Avoiding media-rich activities reduces the opportunity for advertisements, product placement, or PR-heavy “news” articles to insert desires into your head.

This doesn’t mean you should completely avoid these things. Instead, just gently shift your time in a direction away from media-rich activities and toward media-free activities.

Don’t Be Afraid to Not Know the Latest

For a long time, I thought it made a lot of sense to be the person that knew the latest news. I put a great deal of value in being the information provider in conversations. This required me to spend significant time reading news sources of all kinds, which (unsurprisingly) also lifted my desire to spend money on things.

Over time, I’ve learned that it’s okay – in fact, it’s often good – to be the information receiver in conversations. Instead of being the person who provides more information, I’m often happy being the person that receives more information.

For starters, it allows me to easily reduce my time spent browsing the “news” without damaging any social tools. It also gives me a great opportunity to allow someone else to talk and show off their knowledge in conversation. I don’t have to be the person “showing off.”

Find Friends Who Engage in Media-Free Discussions and Activities

The biggest difference between the circle of friends I had ten years ago and the circle of friends I have now is what our conversations cover.

Ten years ago, many of our conversations covered products. We talked about clothes. We talked about the latest devices we each had. We talked about going out to restaurants. A lot of our conversations were about the process of buying things or the products themselves.

Today, most of my social conversations are about other things. Often, we talk about books that we’ve all read, usually involving jokes about the library’s reservation queue. We often talk about the projects we’re each working on (for instance, our most recent game night was dominated by discussion of repairing a water heater). We also talk about ideas – the ins and outs of each side of the abortion issue, for example. (We’re able to talk about things like that because we understand that we’re all trying to understand the issue better.)

I never walk away from time with my friends thinking that I need to buy something or that I need to somehow catch up in terms of the stuff I have or the experiences I have. I might walk away thinking I should look up a topic or learn how to fix something or check out a book from the library, but I never feel like I need to buy stuff.

How do you find friends like this? The most useful technique I’ve found is to attend low-cost events that are focused on a hobby you’re passionate about. People who congregate around hobby participation rather than spending money will tend to be people that you can build great friendships with.

Final Thoughts

It only takes a few tweaks to one’s relationship with media and one’s connections with friends to significantly alter the internal desires one has for buying things. You don’t have to completely withdraw from culture or society in order to live a financially responsible lifestyle. You just need to be a bit mindful of your purchases, your friends, and where you get your information. Good luck!

The post Living Lean Without Being an Outcast appeared first on The Simple Dollar.

The Simple Dollar - “Self-Reliance, Part Three”

2014-09-19T01:31:00.000-07:00

The Simple Dollar - “Self-Reliance, Part Three”

Self-Reliance, Part Three

Posted: 18 Sep 2014 07:00 AM PDT

Six weeks ago, I shared with you the first third of my favorite essay of all time, Self-Reliance by Ralph Waldo Emerson, and three weeks ago, I walked through the middle third of that essay. Self-Reliance has profoundly affected my life in countless ways, and I find myself re-reading it every month or two. Each time I read it, it reveals something new to me, giving me something to think about.

The original essay, published in 1841, outlines the value and need for each of us to follow our own path in life, one that relies mostly on our own efforts. It’s a call to do our own thing and to focus our energies in making our lives as independent as possible so that there are minimal consequences for doing our own thing.

Today, we’re going to look at the concluding third of that essay. As before, I’ll be walking through the essay paragraph by paragraph, quoting large relevant pieces and then discussing them in my own words and experiences and relating them to the experiences of others.

As before, If you’re not a big fan of 19th century writing, don’t fret; you can feel free to skip the quoted parts below, as those just contain direct quotes from Self-Reliance. I’ll reiterate the main points below the quotes and tie them into both my own experiences and the journey of self-improvement and financial independence we all find ourselves on.

If you would rather read the full essay on your own, you can read the full text of Self-Reliance at the Emerson website. It comes in at around ten thousand words.

Check this lying hospitality and lying affection. Live no longer to the expectation of these deceived and deceiving people with whom we converse. Say to them, O father, O mother, O wife, O brother, O friend, I have lived with you after appearances hitherto. Henceforward I am the truth’s.

Simply because someone in your life lies to you does not mean that it’s okay to lie to others. Simply because someone in your life stole from you does not mean that it’s okay to steal from others. Simply because someone in your life values a particular type of material thing does not mean that you have to value it, too.

You are your own person. You can decide for yourself what you should be spending your time, money, and effort on. If you want to be frugal, be frugal – don’t feel like you have to hide it. Stick to the things that are true to you.

More importantly, be proud of those things. Never, ever be ashamed of something you’re passionate about (as long as it’s not harmful to others). Never, ever hide the fact that you’re working to improve yourself. Those are things to be lauded and if others do not laud them, that is indicative of the other person’s flaws, not yours.

Does this sound harsh to-day? You will soon love what is dictated by your nature as well as mine, and, if we follow the truth, it will bring us out safe at last. — But so you may give these friends pain. Yes, but I cannot sell my liberty and my power, to save their sensibility. Besides, all persons have their moments of reason, when they look out into the region of absolute truth; then will they justify me, and do the same thing.

The truth is that if you stick to your core principles in everything you do (whatever those principles may be, provided they’re at least somewhat socially positive), others (at least, the ones that matter) will come to admire you over time. They might not necessarily like the ideas you’re basing your life on, but they will respect that you believe in something deeply and truly follow it in the actions of your life.

Yes, of course, some people will always be negative. However, it doesn’t matter what you do – you will never, ever please some people. Over the long run, though, you’ll make many more people happy – including yourself – if you stick to the things that are true to you, not necessarily those that are true to everyone else.

How do you figure that out? Pay attention to your heart. The things that you do that really ring true simply make you feel good because of your positive achievement and your impact on others. When you go to bed at night and think back on your day, the things that make you feel like you’re building something that matters and the things that leave you feeling as though your day was a great one are the things you should look towards.

The populace think that your rejection of popular standards is a rejection of all standard, and mere antinomianism; and the bold sensualist will use the name of philosophy to gild his crimes. But the law of consciousness abides. There are two confessionals, in one or the other of which we must be shriven. You may fulfil your round of duties by clearing yourself in the direct, or in the reflex way.

Always remember that your actions are not a criticism of others, no matter how they interpret them. Your actions and your words are representative of you and no one else.

It can often feel like a personal judgment when others don’t follow the same patterns that you do. The truth is that it’s not a judgment – it’s simply someone following a different path. Rather than rejecting that person, there is much more value in studying that person and seeing whether or not their path is a useful one.

Learn from others, but don’t judge yourself by them. Everyone has their own path to follow and it’s perfectly fine if someone else follows a different one than your own. Instead, view that exposure to a different path as an opportunity to learn.

If any man consider the present aspects of what is called by distinction society, he will see the need of these ethics. The sinew and heart of man seem to be drawn out, and we are become timorous, desponding whimperers. We are afraid of truth, afraid of fortune, afraid of death, and afraid of each other. Our age yields no great and perfect persons. We want men and women who shall renovate life and our social state, but we see that most natures are insolvent, cannot satisfy their own wants, have an ambition out of all proportion to their practical force, and do lean and beg day and night continually.

Modern society wants to knock people down and fill us with fear, making even the simplest decision (like letting children play in the yard) seem like risky enterprises.

In the end, the problem is that we’re not making decisions based on core principles. We try to balance the safety of our child with the need for our child to learn independence and leadership – and all that happens is that they don’t really learn either one.

You can commit to financial independence and achieve it. Or, you can halfheartedly pledge allegiance to the idea and also devote yourself to having many of the latest and greatest toys. Guess what? You’ll never catch up with the Joneses nor will you ever achieve financial independence.

Figure out your path, commit to it, and stick to it. Without that, you’ll never achieve much of anything.

If our young men miscarry in their first enterprises, they lose all heart. If the young merchant fails, men say he is ruined. If the finest genius studies at one of our colleges, and is not installed in an office within one year afterwards in the cities or suburbs of Boston or New York, it seems to his friends and to himself that he is right in being disheartened, and in complaining the rest of his life. A sturdy lad from New Hampshire or Vermont, who in turn tries all the professions, who teams it, farms it, peddles, keeps a school, preaches, edits a newspaper, goes to Congress, buys a township, and so forth, in successive years, and always, like a cat, falls on his feet, is worth a hundred of these city dolls. He walks abreast with his days, and feels no shame in not ‘studying a profession,’ for he does not postpone his life, but lives already. He has not one chance, but a hundred chances.

Many people use their first big failure as a reason that they’ll never succeed. They’ll view their current career as their one chance for success and keep applying for jobs in that career path five years after losing their last job.

The truth is that success usually comes to the people that keep trying new things and digging into new approaches. Sure, that person is going to fail – usually many times – but every once in a while that person will hit upon a success and sometimes it’ll be a big one.

If you stop with your first failure or your first middling success, you’ll never build something bigger. Even worse, you’ll find yourself chained to only one stream of income – and if that one dries up, you’re really in a pickle.

Insist on yourself; never imitate. Your own gift you can present every moment with the cumulative force of a whole life’s cultivation; but of the adopted talent of another, you have only an extemporaneous, half possession.

Do the things that ring true in your heart. Don’t just imitate others or do the things that please them.

All of us have experienced moments where we clearly feel as though we’ve done something good. We’ve achieved something great at work. We’ve achieved something wonderful in our personal life. Those are the experiences that we should seek out. The routine of our ordinary days should be such that we’re leading to those great moments. Time that’s simply wasted doesn’t build to anything at all.

Ideally, each day should end with a sense of having done something true to yourself that builds upon what you’ve already done in your life or takes it in a new direction. A day in which you spin your wheels isn’t much of a day at all.

That which each can do best, none but his Maker can teach him. No man yet knows what it is, nor can, till that person has exhibited it. Where is the master who could have taught Shakspeare? Where is the master who could have instructed Franklin, or Washington, or Bacon, or Newton?

Teachers can teach us lessons. Books can teach us things, too. We can learn a lot from the masters.

However, just repeating their steps won’t lead to anything great. Why? That path has already been blazed by others. At best, it can simply set you up to follow your own path.

The journey isn’t simply holding on for a ride on the back of a giant. The journey is climbing to the top and standing on the shoulders of giants. Let the methods and successes of those that came before you be your starting point, not your end goal. Use what they did to forge your own path.

The civilized man has built a coach, but has lost the use of his feet. He is supported on crutches, but lacks so much support of muscle. He has a fine Geneva watch, but he fails of the skill to tell the hour by the sun. A Greenwich nautical almanac he has, and so being sure of the information when he wants it, the man in the street does not know a star in the sky.

The more we rely on the services and products of others without the ability to actually do those things for ourselves, the more precarious our situation becomes.

Would you be able to acquire clean water without the local grocery store or the service from your tap? Could you fix a problem with your automobile without the phone number of a repairman? Could you handle a toilet explosion without ringing up the plumber?

In modern life, it’s impossible to know how to do everything. Yet, in times of trouble, it’s the people that do know how to do many things that are going to be the ones that succeed.

Spending your spare time learning new skills can make it easier to handle emergencies without making panicked phone calls and writing big checks to specialists. Not only that, spending your spare time learning new skills can sometimes open up new income streams and career paths for you.

Try something new. The worst thing that can happen is that it doesn’t go perfectly, in which case you’re usually right back where you started. Most of the time, you’ll learn something new and perhaps fix a problem along the way.

It is curious to see the periodical disuse and perishing of means and machinery, which were introduced with loud laudation a few years or centuries before. The great genius returns to essential man. We reckoned the improvements of the art of war among the triumphs of science, and yet Napoleon conquered Europe by the bivouac, which consisted of falling back on naked valor, and disencumbering it of all aids.

This becomes more and more true all of the time. The latest technology ten years ago is considered outdated today. The thing that would change all of our lives just a few years ago is now in the dustbin of history.

It is rarely a good decision to be an early adopter of a new technology. Not only do you pay a big financial premium for that privilege, you’re facing one of two possible outcomes. One, the technology doesn’t catch on and you have a useless device (think of an HD-DVD player). Two, it does catch on, other companies refine it, and a much better version of the same device is on the market in two years for half the price. In either case, you were much better off waiting.

Stick with reliable things that work and do their job. If something just works, day in and day out, there’s no reason to replace it with the newest and latest and greatest.

And so the reliance on Property, including the reliance on governments which protect it, is the want of self-reliance. Men have looked away from themselves and at things so long, that they have come to esteem the religious, learned, and civil institutions as guards of property, and they deprecate assaults on these, because they feel them to be assaults on property. They measure their esteem of each other by what each has, and not by what each is.

The more we rely on our stuff to take care of us and entertain us, the less we rely on ourselves for that same purpose. When we rely on the television to provide our entertainment, it becomes harder to entertain ourselves in the absence of television, for example. Furthermore, we come to expect that society will protect all of that property for us through laws and law enforcement.

The truth is that our most valuable property is between our ears. Our skills enable us to achieve great things with or without equipment and our imaginations entertain us and enable us to create new things.

Rather than cultivating an ever-growing pile of property and possessions, how about focusing on developing skills and imagination and focus? Those things will stay with us no matter whether the country goes bankrupt or your employer fails or someone seizes your home via eminent domain. They can’t take your skills and your mind away from you.

So use all that is called Fortune. Most men gamble with her, and gain all, and lose all, as her wheel rolls. But do thou leave as unlawful these winnings, and deal with Cause and Effect, the chancellors of God. In the Will work and acquire, and thou hast chained the wheel of Chance, and shalt sit hereafter out of fear from her rotations.

People take chances throughout their lives. Almost every professional and personal choice has some risk embedded in it. Many people never even think of those risks. They tend to blame misfortune on others, not on their own decision to take that risk.

Think of the recently fired person railing against their previous employer. How many times did that person take the risk of loafing on the job? How many evenings did that person take the risk of not building their skills and instead simply treading water in their field? Is it the employer’s fault that the person made these kinds of decisions? Of course not.

Whenever you work to improve yourself and increase your self-reliance, you’re improving your ability to avoid the risks in your life and increasing your ability to take advantage of the opportunities that life hands to you.

A political victory, a rise of rents, the recovery of your sick, or the return of your absent friend, or some other favorable event, raises your spirits, and you think good days are preparing for you. Do not believe it. Nothing can bring you peace but yourself. Nothing can bring you peace but the triumph of principles.

Don’t take joy in events that are entirely outside of your control. Instead, take joy in events that were the result of your own efforts.

Take pride in a novel written or a lesson absorbed. Don’t take pride in a football game won that you didn’t participate in. Feel happy at a bathtub fixed or a project completed. Don’t take pride in something someone else actually did.

When you learn to derive most of your enjoyment from your own achievements, you become more and more driven to achieve things for yourself.

I hope you found this walkthrough of Self-Reliance to be valuable and enjoyable. The words of Emerson have inspired me quite often, and I sincerely hope his ideas bring something useful into your life.

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The Simple Dollar: “How to Prepare Your Finances for a New Baby” plus 2 more

The Simple Dollar: “How to Prepare Your Finances for a New Baby” plus 2 more

Estimate Expenses

1. Child Care

2. Diapers and wipes

3. Formula, Bottles, and Baby Food

4. Apparel and Footwear

5. Medical Expenses

6. Toys

7. Miscellaneous Expenses

Adjust Your Spending Plan

Create a Registry

Build Your Cushion

What Passions Are

The Problem with That Picture

Build Transferable Skills That People Will Pay For

Find Ways to Use Passions at Work While Plying Your Skills

Devote Your Spare Time to Your Passions, Not Time Wasters

Share Your Passions

Final Thoughts

And One Last Thing…

1. Be realistic

2. Have the talk

3. 'Emergency' drills

4. Offer incentives

5. Designate an area for your "home office"

6. Work the graveyard shift

7. Use your time wisely

8. Be flexible

9. Solicit the assistance of family and friends

10. Give it a rest

11. Create a to-do/activity list

12. Plan ahead

13. Adjust your work space

14. Become an early riser

15. Hire a nanny

16. Work on the weekend

17. Pat yourself on the back

The Simple Dollar: “Best Life Insurance Companies for 2014” plus 2 more

The Simple Dollar: “Best Life Insurance Companies for 2014” plus 2 more

Enter Your Zip Code:

Best Life Insurance Company Overall: State Farm

Best Term Life Insurance Company: Transamerica

Best Whole Life Insurance Company: State Farm

Best Universal Life Insurance Company: Prudential

Selecting the Best Life Insurance Companies

Types of Life Insurance

Term life insurance

Whole life insurance

Universal life insurance

What Kind of Life Insurance Do I Need?

Term is probably your best bet

How much insurance should I buy?

Beginning Your Search for the Best Life Insurance Company

What About Debt Repayment?

Why Retirement Savings?

What About Other Financial Goals?

Final Thoughts

Calculated Risks

Age

Gender

Make and Model

Driving Record

Credit Score

Pay As You Go

Telemetrics

Big Brother

The Simple Dollar: “Chase Slate® Review” plus 2 more

The Simple Dollar: “Chase Slate® Review” plus 2 more

Chase Slate® Overview

Key Stats and Promotions

Tips for Using Chase Slate®

Why You Might Like It

Why You Might Not Like It

Best Way to Use It

Chase Slate® Details

How it works

Chase Slate® Blueprint®