Saturday, May 19, 2018

The Challenge of Sentimental Items

For many of us, the largest expense we’ll ever tackle in our lives is our housing. The cost of owning a family home easily devours multiples of a person’s annual income. The median home price in America today is around $200,000, while the average American household income is somewhere around $60,000. Put those together and it’s clear how big of an impact home ownership can have on a person’s lifetime financial picture.

One of the biggest elements of that housing cost is square footage. The larger your home, the more expensive it’s going to be. Other factors like location also play a part, of course – a 2000 square foot home in rural Iowa will cost far less than a 1500 square foot home in San Francisco, for example – but when you’re comparing homes in a similar area, larger homes will cost more than smaller ones.

Why buy a big home, though? The reality is that, for many people, a big home is often used as storage space for our stuff. A home with lots of big closets means lots of storage space for stuff. A home with lots of shelves means you can fill them with lots of stuff. When you buy a smaller home, the biggest thing that you lose is storage space. In reality, no matter the size of home, most of us spend most of our time in just a few rooms in our home. If the home has a lot of rooms and closets and such, most of that winds up unused, often used as storage space.

Taking all of that together, it becomes clear that having a lot of stuff adds to the storage space that a person needs in their living space, thus increasing their housing costs. If you flip that on its ear, minimalism in terms of one’s possessions can thus reduce a person’s housing costs plus the amount one spends on their possessions.

Why do we keep so much stuff, especially when holding onto it becomes so expensive? One big reason for this is sentimentality. Items can trigger in us strong feelings of tenderness, nostalgia, and sadness, a yearning for the past or for a different time. Sentimental items remind us of different times in our life, different people and places and things long since faded, or of different roads in our life that we could have taken. Those feelings are strong, and when they’re deeply tied to a possession, it can be hard to get rid of that possession.

In the past year or two, I’ve made it my goal to slowly downsize my possessions, with some pretty good success. I’d estimate that I’ve eliminated about half the things I own, with a lot more on the chopping block. Some of this has come from eliminating redundant possessions, but a lot of it has come from figuring out better ways to handle items that I’m holding onto mostly for sentimental and emotional reasons. Here are some of the strategies I’ve been using to downsize my sentimental items.

Recognize That the Sentiment Is Inside of Me, Not In the Item

When I look at an item or hold it in my hand, the feeling of sentimentality that it creates is inside me. It’s not a part of that item at all. When I put that item down, that feeling goes with me. The truth is that the feeling of sentimentality doesn’t require the item at all.

I can think about my grandma any time I choose to do so. I don’t need an item to think about her. I can remember a great vacation any time I choose to do so. I don’t need a souvenir to think about that trip.

For me, realizing this helped me to eliminate a lot of the items I was holding onto purely for sentimental purposes. Those memories that were causing me to hold onto those items are still with me, even without the item.

Ask Myself “Will I Ever Use or Display This Again, Especially in the Next Year?”

One of the bigger challenges I have with sentimental items is that some of them are actually functional items or items I might choose to display in my home. I have quite a few board games, for example, that I hold onto because i have great memories of playing them in the past. I have books that I hold onto because I have great memories of reading them in the past.

However, as I said earlier, those memories remain even if I don’t have the item. I can still fondly remember a game I played with friends a few years ago even without having that game in my possession. I can still remember a great book I read a decade ago without actually owning that book.

What I’ve started to ask myself about each item I hold onto is whether or not I’ll actually use this item again in the next year or so. Will I read this book again in the next year or so? Will I play this game again in the next year or so? A very similar question applies to almost everything that I own.

If I can’t honestly answer yes to that question, then why am I holding onto the item? Furthermore, if it possesses such a high level of sentimentality for me but I’m not actually going to use it, shouldn’t I put that item in the hands of someone else who will enjoy and appreciate it?

What I’ve started doing is selling some of my used games and books to friends at a fairly low price, or even giving them away to friends. That way, there’s still the possibility of a future shared experience with those items. Note that I’m only doing this for some items where the sentimentality is strong.

For other items, part of the motivation to get rid of that item is the sense that I will be giving the opportunity for that experience that I had to someone else. To me, that’s a personal nostalgic reward.

Keep Track of Experiences By Other Means

One powerful way I’ve found to make nostalgia and sentiment manageable is to keep track of experiences by other means rather than the physical items themselves. I do this in a number of ways.

I track the games I play and the books I read using apps on my smartphone. Whenever I play a game, I mark it in my board game tracking app, and if something particularly interesting happened, I make a note of it. Whenever I finish reading a book, I mark it in my book reading app and often write a mini-review of it.

Having this record makes it much easier to actually pass along the physical item because I already have another “record” of the experience that I had with that item. I can look through my “games played” app and see all of the games I’ve played in the last several years and, often, just those records spur the kinds of sentimental memories and thoughts I want to have. The same is true for my books app.

A good general way to do this is through journaling. By putting aside some time each day to note the handful of memorable experiences that you’ve had that day, you’re creating a record of those memories. You don’t need other physical items to contain them. You can just flip through your journal and relive them.

Store Some Sentimental Items Digitally

Many sentimental items, such as photos and almost any kind of paper item such as a menu or an event ticket, work perfectly well as digital items rather than physical items. Stored digitally, they take up essentially no physical space whatsoever.

Over the years, I’ve scanned in thousands of pictures and tossed the originals simply because I’ve moved the value of that image into digital form. I’ve done the same with many souvenirs over the years, too – I’ve just taken pictures of things like menus and decals and tickets and saved the digital image while tossing the original physical item.

While I tried digital journaling for a while, I’ve stuck with pen-and-paper journaling, but I’ve found it well worth my time to scan in full journals when I’m finished with them, saving them as large PDF files and then tossing the old journals. I usually use FineScanner for this.

I’ve done this with things like childhood art projects that are memorable but not display-worthy. I’ve done this with countless documents and recipes and other things over the years. I just store them all digitally, dig through them when I’m in a nostalgic mood, and use many of those images as screensavers on my various devices.

Don’t Hesitate When Getting Rid of Things

One issue I’ve found is that whenever I used to consider downsizing a bunch of sentimental items, I end up hedging my bets and holding onto a lot of those things. I would assume that if I tossed it now, I’d never see it again and that would be a permanent decision, whereas if I held onto it now, I could at least keep my options open. This let uncertainty rule the day and basically ensured that I would never really downsize my stuff.

My solution for this kind of “on the fence” downsizing is to put all of that stuff in a big box with a giant label on it that’s dated a year from now. I’ll date it something like “April 1, 2020” or something like that, depending on the date when I fill that box – I just add one year to the current date.

Then, if I’m looking for a particular item and it’s in that box, I pull it out of that box and save it. It’s no big deal – if I find that I actually want something and want to keep it around, I just pull it out of that box and store it properly.

If that date comes and goes and I happen to notice the box after that date, I just get rid of everything in the entire box without even really going through it. I trust my earlier decision that the stuff in that box is just sentimental stuff that I was on the fence about.

With dated boxes, I don’t hesitate to dump that stuff. I don’t have any use for it if I haven’t bothered to even look at it in years. What value remains in memories is value that I’m already getting without those items, so they really do serve no purpose in my life other than taking up space and costing me money in terms of the storage needed.

Deal With Sentimentality in Other Ways

This is going to sound rather strange, but one of the best methods I’ve ever found for cutting through some sentimental ties in a healthy way is to just address those feelings head on in a new way.

One of my big projects for 2018 was to write a journal/family history/book of life advice in my own handwriting for each of my children. This is still definitely an ongoing project, but one of the biggest elements I’ve discovered as a part of doing this is that, in the process of digging through family and personal history, I’ve really come into contact with the fact that a lot of those feelings of sentimentality are wholly inside of me. Very few external items are needed to sustain it.

If you find yourself struggling to let go of sentimental items, find a new way to record the feeling that those items represent. Try writing a detailed family history, for example, or record one as a series of audio recordings. What this seems to do is transfer those sentimental feelings into a new form, one that no longer seems to require the old physical item. Often, it reveals that the feelings really are inside of you and not present in those items.

There are many ways to achieve this type of sentiment redirection. You can make a website. You can make a digital scrapbook. You can make a video series. The whole purpose is to face that sentimentality head on and record all of it in a way that’s meaningful not just for you, but for others as well. As you do that, you’ll quickly begin to find that the value of those feelings isn’t stored in old items, it’s stored in you, and finding ways to truly pass along that feeling holds far more value than a box of dusty items.

Consider Your Possessions As Your Estate

A final strategy I’ve employed is looking at all of my possessions through the eyes of the person who’s going to have to clean it all up if I pass away. If I were hit with a semi tomorrow, who would take care of this stuff? Who would want to even deal with it?

This has caused me to really start organizing my possessions and categorizing them in ways that are both useful to me and would be useful to a person who had to clean things up. It’s also led me to discard a lot of sentimental items that honestly have almost no personal value for anyone other than myself.

I have no reason to keep piles of old letters written to me over the years. I’ve scanned the ones I want to keep. The rest? Sure, a bit of sentimentality for me, but for the person who has to clean up my stuff, they’re useless. Out they go.

Basically, if someone cleaning up my estate is going to largely view these possessions as nothing more than a hassle and they’re not providing a lot of value to me personally in the sense that I’m actually using the item frequently, there’s really no reason to hold onto that item. Sentimentality is often a big reason to keep items that would fall into this category.

Final Thoughts

In general, I’ve begun to find that the most effective way to store the memories of the past are in digital form or in my own handwriting (which can then be stored digitally). Keeping around physical items for sentimental reasons – meaning I won’t actually display them in my home or use them again in the foreseeable future but it feels good to hang onto them – comes with a whole host of problems – you need space to store them (which costs money), you need time to manage them, and someone eventually has to deal with them.

Find new ways to deal with those old sentimental items. You’ll find your closets emptying out, your need for more space disappearing, and you’ll surprisingly find yourself more in touch with those feelings than you might expect. This process ends up not being a loss, but a pretty big win.

Good luck!

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Friday, May 18, 2018

How To Be a Frugal Auto Enthusiast

A couple of my extended family members have a very expensive hobby. They rebuild old cars, turn them into hot rods, and show them off at car shows. They sometimes recoup their financial investment if someone likes what they’ve built, but unless someone is actually paying them for a custom hot rod, it’s never a guarantee and sometimes results in a loss – occasionally a steep loss. This doesn’t even include situations where things don’t go quite right and all of the other associated costs, like traveling to car shows, paying for entries, and so on.

Even if you’re not quite as into cars as my relatives, the appreciation of and ownership of and, if you’re into it, the improvement of nice cars can still be a really expensive hobby. What do you do if you love beautiful cars but are trying to have some degree of financial responsibility? Here are six suggestions, mostly straight from the mouths of friends and family.

Go to and actively participate in car shows. Car shows are a prime opportunity to enjoy beautiful cars without having to shell out much money at all, especially if you’re willing to get involved and help with some of the work involved with putting on a successful show. Many car shows are free, while others have a very low cost of admittance; people who volunteer usually get extended access to the cars and the makers themselves, along with other perks.

Some advice for attending car shows and getting maximum value and enjoyment from the trip:

Plan ahead Take a look at the car show’s schedule in advance and make a plan so that you can see every scheduled event of interest to you. Make sure you give yourself some windows of time to just wander around and look at the cars, too.

Pack a bag Have a bag with you – or at least in your car – that includes things like sunscreen, aspirin, a light jacket, a water bottle, snacks, and maybe even a meal. This will keep your costs low and your comfort high at the show.

Be humble The people that put cars on display at car shows have often put hundreds or even thousands of hours into those cars. Even if it’s not something that aesthetically pleases you, their car is usually something intended to please someone, often the person making it themselves. Rather than tearing down a car at a car show, look for things to appreciate in each car. That will make the car show far more enjoyable.

Ask lots of questions There are few better ways to show genuine interest and appreciation in someone’s work than to ask lots of sincere questions about it. Come equipped to ask plenty of questions. Center the questions around what interests you and give the car’s owner or maker plenty of time to respond at length. Most of them will happily do so – it’s great to be appreciated!

Consider what you need Many car shows include a swap meet or a car part flea market. If you’re looking for specific components, this can be a good place to look, but make sure you know what you’re actually looking for and what those things should actually cost. Do your homework in advance and you won’t get ripped off by someone asking an elevated price.

Volunteer If there’s a local car show in your area, consider volunteering to help out with the show rather than just attending. Most shows will happily accept volunteers to help out with all kinds of tasks, and volunteering usually comes with perks of some kind. Plus, it’s a great way to get yourself “known” in the local car community even if you don’t have anything to show.

Buy an old junk car with promise and slowly fix it up yourself. One of my closest friends does this. He owns a house with a fairly large garage. He’ll go to estate auctions and junkyards and other places and finds an old beat up car that he thinks he could turn into something beautiful. He gets it home, parks it in the garage, and spends his spare time over the course of many months or even years turning it into something beautiful. He does all of the work himself and goes very slowly to do it well, investing relatively small amounts of money into parts and no money into labor (because he’s figuring everything out on his own).

He then takes his finished car to local car shows, puts a price on it that’s obviously meant to get it to sell, and then flips that money right back into buying his next car to improve, equipment for his shop, and parts to improve that next car, and maybe a little bit of pocket money.

In other words, the actual work of improving a car is his hobby, not the acquisition of cars. He loves the tasks involved in shaping an old rusty car into something utterly beautiful, and in doing so he recoups his cost and more. Yes, his time isn’t well compensated, if it’s compensated at all, but it’s his hobby and passion.

Use this strategy yourself. Buy an old junk car and slowly improve it, entirely with your own hands. Figure out how to do all of the tasks involved and slowly turn that car into a beautiful machine. You can then sell it to recoup most of the costs involved (usually, the startup costs exceed the return on the first car or two, according to my friend) and then do it again, and again. It’s a great way to really dive deep into the hobby.

Find friends who are also into fixing up old junk cars and help each other with the projects. This doesn’t need to be a situation where you’re alone in a garage, though it can be. Seek out friends who are also into doing this. The best way to find them is at auto shows and any auto-related meet ups in the area.

Simply find people who seem to be doing this on their own because they love it, then invite them over to your shop to tinker around. If they’re similarly passionate, you may have just found someone to help on jobs that require more than one person, and you can offer that help back to your new friend. Not only that, this kind of hobby exchange is often the foundation of a new friendship.

Buy and assemble model cars with care and love. Another avenue for enjoying an automotive hobby without breaking the bank is to buy model cars, or even receive them as gifts, and then invest the time to slowly and carefully assemble and customize those models for display in your office and home. An automobile model that you’ve assembled and painted yourself can involve many, many hours of detail work that gives you the opportunity to know some of your favorite makes and models in intimate detail.

This can also be a somewhat expensive hobby, but the cost per hour invested in a model car is far, far lower than the cost per hour involved in buying and selling cars or fixing up old cars or even attending car shows. It allows you to really examine the fine details of some of your favorite auto models and produce a beautiful end result that you’re proud to display in your home or office.

Dive deep into automotive media, particularly online media. This is a great free way to dig into your hobby without breaking the bank. Get involved online in the multitudes of conversations constantly happening involving the automotive world. One good place to start is to simply get a Twitter account and follow some of the best automotive Twitter accounts and dig into those conversations. Look for car forums dedicated to your favorite makes and models – you can find them through a simple Google search. Hit Youtube and check out some of the many great channels and programs related to cars on there.

Don’t like online media that much? Hit your local library. They often have extensive back catalogs of car magazines. Borrow a bunch of back issues and dive deep into the world of automobiles.

Take classes on automotive repair. If these ideas seem interesting but you’re simply overwhelmed and don’t know where to start, consider starting by taking an automotive repair class at your local community college. Most community colleges offer an array of automotive repair classes; many offer a full curriculum. Community college classes are inexpensive and usually hands-on.

If nothing else, a community college class on automotive repair will help you feel more confident in handling small repairs on your own car, which will end up saving you a lot of money over the long haul.

You don’t have to spend tens of thousands of dollars a year to be an automobile enthusiast. You just have to be curious and be willing to get your hands involved a little. While diving deep into any hobby is usually a little expensive, there are many ways to keep the cost of an automotive hobby low while constantly keeping it engaging and social.

Good luck!

The post How To Be a Frugal Auto Enthusiast appeared first on The Simple Dollar.

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Thursday, May 17, 2018

The Truly Frugal Diet

Food takes up a major part of a family’s monthly budget. Depending on the size of the family and their food choices, this can range from hundreds of dollars a month to well over a thousand dollars a month. It’s also an area of spending where frugal tactics can really cut that cost significantly.

However, there’s another aspect of food spending that’s often overlooked: your dietary choices today can either increase or decrease your health care costs in the future. Making bad dietary choices can increase your long term health care costs; making good dietary choices can decrease those very same costs.

This has several important implications when it comes to thinking about minimizing your costs.

First, “unhealthy” food is more expensive than you think over the long term. An unhealthy meal that adds to your long term health care costs has an extra cost hidden inside, one that you don’t see on the initial sticker.

Second, “healthy” food is less expensive than you think over the long term. A healthy meal is likely to reduce your long term health care costs, thus the actual cost of that meal is lower than you might initially think.

Third, “healthy” food is often perceived as being not very tasty and inconvenient to prepare. This isn’t entirely true, but it is true that the most convenient foods are laden with ingredients that amp up the convenience but aren’t exactly good for long term health.

Finally, it is really hard to find a consensus on what “healthy” and “unhealthy” means in terms of food. There are some very different ideas of what constitutes healthy eating out there, so it can be hard to figure out what actually is and isn’t healthy.

So, how do we puzzle all of this out? A good place to start is to figure out what the consensus is on “healthy” foods.

What’s “Healthy”? (And What Isn’t?)

As I noted earlier, there are a lot of different diets out there and a lot of different ideas of what constitutes healthy eating. Without going into a comparison of fifteen different ideas of “healthy eating,” we’ll simply look at the things that these diets have in common.

In this article in The Atlantic, the author, James Hamblin, performed a meta-analysis of a lot of different diets and concluded that almost all of them had a handful of general food principles in common. In summary:

A diet of minimally processed foods close to nature, predominantly plants, is decisively associated with health promotion and disease prevention.

Let’s be clear: following a diet that’s “decisively associated with health promotion and disease prevention” is going to save you significant money on long term health costs. That diet, in Hamblin’s words, consists of “a diet of minimally processed foods close to nature, predominantly plants.”

In general, these five principles seem to apply.

One, most of the food you eat should consist of plants, not meat and dairy products. Fruits, vegetables, grains, legumes – you get the idea. This doesn’t need to be all of your diet, but it should be most of it and it should make up most of the food you eat.

Two, most of the food you eat should be minimally processed. Basically, the fewer the ingredients in the items you buy, the better. Stick to the produce section as much as possible and you’re probably in good shape.

Three, “plants” doesn’t just mean fruits and vegetables – it means nuts, grains, legumes, seeds, and basically anything that directly comes from a plant. You don’t have to live on a steady diet of oranges and okra here. There’s a wide variety of foods that fall under the umbrella of “plants” and mixing and matching that variety is not only healthy, but provides a lot of culinary variety to your diet.

Four, make your own meals as much as possible so you can control the ingredients. Quite honestly, almost anything you get at a restaurant is full of a bunch of stuff you don’t really want in your diet. Often, you have no idea what it is you’re actually eating. The more you prepare your own food, the more you know what’s going into your body and the easier it becomes to follow all of these steps.

Finally, if you do buy a premade food, choose the one with the fewest ingredients that aren’t directly plants. Just grab the item, read the ingredient label, and choose the one that seems to have the highest proportion of pure plant products. If you’re looking at two pasta sauces and one of them has high fructose corn syrup as the second ingredient, you should probably choose the other one.

Taken together, these steps will improve your long term health care outcomes. They’re guiding principles, of course, and not absolute rules, but the closer you stick to those principles, the lower your long term health costs will be on average.

The “on average” part is important here. Some people who eat super healthy do get sick, and some people who eat really badly seem to never get sick. However, on average, the people who eat a diet closer to those principles have better health outcomes, and those better health outcomes add up to a higher quality of life and lower health care costs.

Thus, from both a financial standpoint and a long-term quality of life standpoint, following these principles is a frugal choice. You’re going to spend less over the long term on health care costs if you follow these principles.

However, it’s often hard to really translate these principles into pure dollars and cents in your grocery bill and monthly budget. If you choose to follow these dietary principles, you’re somewhat restricting the food choices you can make at the grocery store, which is potentially going to result in at least a small bump in your food expenses. That bump, on average, will be more than repaid down the road, but that reality isn’t captured in this month’s budget.

Following These Principles Frugally

So, how do you follow these principles and still keep your food costs low? Here are some strategies for doing just that.

Don’t radically change your diet to center it around foods you don’t like. A radical diet change can work if you move entirely to foods you enjoy, but most of the time, radical diet changes center around diving into foods you don’t entirely like or foods you’re familiar with. That’s usually a bad approach.

Instead, just start adding more fruits, vegetables, nuts, legumes, grains, and seeds that you happen to like into your diet. If you like oranges, start keeping oranges around and snack on them. If you like black beans, start planning more meals that involve black beans. If you like grilled zucchini, start grilling it more often.

Get into a routine of designing a meal plan and buying ingredients for that plan. One sure way to start nudging yourself in that direction is to start planning your meals in advance with more care, consciously choosing meals and snacks that are closer to the principles listed above (basically, more fruits, vegetables, nuts, legumes, grains, and seeds and less meat, dairy, and processed foods).

Our family uses a roughly weekly meal planning cycle that starts with grabbing the grocery store flyer, seeing what’s on sale, deciding on the meals we’re going to have for the week, penciling them in, figuring out what ingredients we need for those meals, making a list, and heading to the store with that list. This actually saves us a lot of time in the store because we can purely trust the list and just look for those items instead of wandering the aisles, plus we spend less while there. We end up recouping the time spent planning meals by being much faster in the store, and it saves money, too.

If you use that process or something similar, consciously choose to plan more meals around the produce mentioned in the flyer than anything else. It’s that easy.

Shop more in the produce section. In general, if you’re shopping more in the produce section than you used to, you’re probably moving in the right direction regarding these principles. If your cart is half full before you leave the produce section when, in the past, you maybe grabbed one or two items there, then you’re heading in the right direction.

This doesn’t mean that everything has to come from the produce section – in fact, that’s a bad idea for most people as you’ll end up with a diet that leaves you unhappy and frustrated. Instead, you should just be eating the fruits, vegetables, nuts, seeds, legumes, and grains that you like more often than before. That means a few more produce items in the cart and fewer processed foods in the cart, too.

Spend less time in the aisles. This is the counterbalance to shopping more in the produce section. If you’re putting more produce in your cart, that means you should be putting fewer items from other parts of the store in your cart. After all, you’re not eating more, just different, and if one type of food goes up, others should go down.

Again, this doesn’t mean never shop in any section other than produce – that’s just silly. It just means being aware of what you’re doing and choosing to buy fruits for some snacks rather than cookies, or buying fresh vegetables for a side rather than a prepackaged food kit. I’m not saying that fruits should be your only snack or that you should only have fresh vegetables as a side, just that those things should be increased in frequency a little bit.

Try new fruits, vegetables, nuts, legumes, grains, and seeds to find things that you really like. Just try new stuff. See if you like it. Prepare it a few different ways – steaming, grilling, different seasonings, on its own, as part of a dish, and so on. Give things that you may not have liked as a kid a fresh new chance.

Yes, you probably won’t like some of the things you try, but I’ll bet you find a few things that you do like, and the more fruits, vegetables, nuts, legumes, grains, and seeds that you like, the more variety you can have in your diet while still eating healthier foods.

It was through this very process that I discovered how much I loved things like tomatoes and fresh peaches, items I didn’t particularly like as a kid. I adore pears. I adore raspberries. Those are both things I didn’t buy ten or fifteen years ago.

Prioritize items with shorter ingredient lists. Even if you make some dietary changes, you’ll still be shopping for some items in the rest of the grocery store. Here’s a simple strategy for making good decisions throughout the store: compare similar items and choose the one with the shorter and more natural ingredient list.

For example, let’s say you’re buying some pasta sauce. Grab a few bottles of the less expensive options and start comparing the ingredients, then choose the one that is made up almost entirely of vegetables and put the one with lots of corn syrup and other junk back on the shelf. Do the same with pasta. Do the same with salsa. Do the same with snack foods. Do the same with everything.

Yes, this might mean that sometimes you’re not buying the cheapest version of an item, but you’ll likely still find a pretty low cost version that excises a lot of the preservatives and sweeteners and other junk that you simply don’t need in your diet.

When in doubt, choose the item with the fewest ingredients and you’ll generally be making the best choice.

Eat out less. Eating out is really convenient, but it’s also an unhealthy proposition. You have no control over – and often no idea – what’s on your plate. Restaurants will often toss every unhealthy preservative they can into food to make it last longer in the back, and they’ll add all kinds of unhealthy things to food to raise rather mediocre ingredients to a level of tasting quite good. While this might end up making for a tasty night out, it’s very rarely healthy unless you’re extremely careful.

The solution? It’s not that you should never eat out, but that you should just dial back your frequency of eating out. Hit restaurants and fast food places and takeout places less often. Instead, eat meals at home more often.

Make healthier eating convenient. One of the big arguments in favor of eating out is the convenience of it. It’s often intimidating to go home and prepare a meal for your family after a long day and when there’s a busy schedule for the evening. It’s easier to just grab takeout or order delivery or take everyone through a drive-thru or go to a restaurant, right?

That might be true, but there are lots of ways to make meals at home after busy days much more convenient. One of my favorites is to eat flash frozen vegetables that can be steamed in their bag in the microwave as a side dish – they cost a dollar or so and ensure more veggies on the plate. We often make meals in the slow cooker by putting ingredients in there in the morning and letting it cook all day. We also make meals in advance on the weekends and freeze them, pulling them out a day or two in advance so that they can just be tossed in the oven and cooked quickly at the end of the day.

Again, you don’t have to do those things every single day, but simply make them a more regular part of your life. Spend a weekend afternoon making a bunch of meals in advance and stick them in the freezer. Buy some flash-frozen vegetables that steam in the bag and serve them as a side dish at dinner with a bit of salt and pepper on them. Have a few slow cooker recipes around that just involve dumping in the ingredients and turning on the slow cooker in the morning.

Final Thoughts

The goal here is simple: you want to minimize the costs related to the food you eat over the length of your life. By choosing healthier foods now, you’re reducing your long term health care costs on average over the course of your life.

This doesn’t mean radically overhauling your diet and becoming a vegan. It means going to the grocery store more often and to the fast food joint less often. It means hitting the produce section hard when you’re at the grocery store. It means putting more fruits and vegetables on your plate. The thing is, those changes usually don’t cost too much at all – in fact, many of them will actually save you money now, let alone the savings from health care costs later on. Plus you’ll feel better, too.

You don’t have to give up your favorite foods. You can just choose to put more vegetables on the plate. You don’t have to give up your favorite snacks. You can just choose to eat an orange or an apple instead of a candy bar. You don’t have to stop eating out ever. Just make a slow cooker meal once in a while when you would have eaten at a restaurant.

Those things might cost you a little now or they might save you a little now, but what they will do is cut your long term health care costs and raise your long term quality of life, and that’s well worth it.

Good luck.

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Which Bills Affect Your Credit Score?

Making an effort to keep your bills paid on time is always a good idea, and for a variety of reasons. Whenever you make your payments late or become past due on a financial obligation, it can trigger some pretty unpleasant consequences. Sometimes that might include damage to your credit reports and scores, but not always.

If disaster strikes and you find yourself in a situation where you have more bills than money to pay them, you may be facing some tough choices about which financial obligations to take care of first and which ones to let slide while you try to dig yourself out of the hole. If you’re worried about the impact of a missed payment on your credit, you should know that not every account is necessarily going to have an immediate impact on your credit scores.

In order for an account to impact your credit scores, it first has to show up on your credit reports. If an account isn’t reported to the credit bureaus, then it can’t impact your scores in any way. The reason is simple: Credit scoring models are designed only to consider the information that’s present on your credit reports.

Bills That Generally Don’t Impact Your Credit Scores

  • Utilities (e.g., gas, water, or electric service)
  • Cable, satellite, or internet service
  • Insurance premiums (e.g., auto, homeowners, health, and life insurance)
  • Childcare
  • Medical bills
  • Rent
  • Mobile phone service
  • Gym membership dues

The accounts listed above are generally not reported to the three credit reporting agencies (Equifax, TransUnion, and Experian). This means that if you fall behind or miss a due date on one of these financial obligations, your credit scores won’t be impacted negatively.

Of course, even if your credit scores aren’t immediately impacted, you could still face late fees, account closure, suspension of services, cancellations of membership, and a host of other negative ramifications.

Unfortunately, paying these bills on time won’t do anything to help your credit scores either.

And, if you miss several payments and eventually go into default, there’s a real possibility that the original creditor will send your account to a third-party debt collector, and they almost always report to the credit bureaus.

Bills That Can Impact Your Credit Scores

  • Credit card payments
  • Personal loans
  • Student loans
  • Mortgages
  • Auto loans
  • Home equity loans and lines of credit (HELOCs)

These represent some of the most common types of accounts likely to show up on your credit reports. Any account reported to the credit bureaus has the potential to impact your credit scores, one way or another.

If you properly manage the accounts that show up on your credit reports — paying your bills on time, every time, and keeping your balances low — your credit scores should greatly benefit. However, if you fail to manage these accounts well, or if you stop paying as agreed, then your credit scores are probably going to suffer some damage.

Beware the Exception to the Rule

Although there’s a long list of accounts above that do not typically appear on your credit reports, that doesn’t mean those accounts can’t be added later. The above list is accurate as of the publication of this article.

Because credit reporting is voluntary and the credit bureaus can always change their policies and practices, there could come a day when any or all of the above accounts could commonly show up on credit reports. That would mean even lower level late payments could end up on your credit reports and lower your credit scores to some extent.

The easiest way to avoid any ambiguity in credit reporting is to simply avoid missing payments.

Related Articles

John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.

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Wednesday, May 16, 2018

Today’s Promise, Tomorrow’s Challenge

Most mornings, I wake up at about 5:30 AM and spend an hour or so waking up, stretching, doing a bit of reading and exercise and a few other odds and ends, and planning my day. The day before me feels like it’s full of promise and possibilities.

What will I do? How will I fill it? Will I be smart with my money and not buy anything foolish? Will I be really productive at work and write something that clicks with people? Looks like I have a morning meeting with my coffee group… will I have a lot of good conversations there and build some relationships? Will I learn some new things? Will I get some great exercise? Will I build up my relationship with my wife and my kids?

Today holds a lot of promise. Can I fulfill it?

Most days, I fulfill at least some of that promise. Some days, I write really well. Most days, I keep my spending completely in check. Most days, I have at least a few moments of genuine bonding with my children and my wife.

In other areas, I might fall short. I’ll clam up in a social encounter because I’m introverted and it feels much easier to just clam up. I’ll play a computer game instead of reading a challenging book.

At the end of the day, as I’m changing clothes for bed and brushing my teeth, I’ll think about the day that just passed and judge it. Was it a good day? Did I really do the things I set out to do? Did I do something positive in each of the major areas of my life? Did I practice good virtues? Or did I mess up and make mistakes?

As I go to sleep, I recognize that tomorrow is another challenge, another day. I could see it as just another day in an endless string of them, but I prefer to see each new day as a new challenge, to do things just a little bit better than the day before and to build on the good things I did today. Sometimes I succeed at that challenge; sometimes I fall short. What matters is whether I tried to do things a little bit better than the day before.

There are some really good pieces in all of this that anyone can pull out.

First of all, treat each day both as a fresh start and as a fresh challenge. Maybe yesterday wasn’t all that great, but today is a blank slate. You can control your spending. You can do great things at work. You can connect with people.

Don’t view the sequence of days that fill your life as an endless void of similar days, but as a constant opportunity to make yourself better. Today might seem similar to the last one, but if you genuinely use today to improve some aspect of your life – or multiple aspects – tomorrow will be just a little bit better. The difference might be so small that you don’t even notice it, but if you do the same thing tomorrow – genuinely try to make an aspect or two better – and then the day after that and the day after that, you will notice change.

Let’s put this in a personal finance context. There are really two ways to improve your financial state – spend less or earn more. Makes sense, right?

Today, what can you do to spend less than you do on a typical day?

Today, what can you do to put yourself in position to earn more money?

Ask yourself those two questions in the morning and come up with a genuine answer for each one.

For the first one, maybe it’s something as simple as skipping your morning coffee.

For the second one, maybe you can dedicate an hour of your time at work to taking care of an unfinished project that’s just been sitting around.

At the end of the day, think a bit about your progress on each. Did you manage to cut your spending a bit? Did you manage to do something that will nudge your career forward a little bit, or help you to launch a side business or take a new career step?

Ideally, that answer is “yes” (most of the time).

The question then becomes how can you keep that momentum moving forward to tomorrow. What can you do to build on this little success today? Maybe you can actually plan out a meal plan and a grocery list tomorrow and do some well-planned grocery shopping to take care of your food needs for a few days without breaking the bank, and then slowly get into a routine of cooking at home more often. Maybe you can start an online class to help master a new skill and then dedicate some time each day to going through the lectures and exercises.

To put it in simplest terms, today’s promise is the opportunity to do something positive; tomorrow’s challenge is coming up with a plan to build each of those little steps into something life changing and then sticking to it. Today’s promise, tomorrow’s challenge.

Which one is more important? I go back and forth on it.

At times, I relish today’s promise. I understand that if I can keep my eye on the ball today, that’s the fundamental element of building something bigger.

At other times, I relish tomorrow’s challenge. I plan for the future and try to come up with ways to channel today’s opportunities and time and effort into something bigger and better.

What I’ve come to realize is that in order to have the life you really want, you need both today’s promise and tomorrow’s challenge. You need to focus on making the absolute most out of today, but without putting some sort of direction around that effort, you wander in circles without really going anywhere or building anything.

I might be incredibly frugal each and every day, but if I don’t do something worthwhile with what I’m saving, it just goes to waste. At the very least, I should use it to pay down debt with a debt repayment plan or invest it for the future.

I might work my tail off today and do a great job, but if I’m not using at least some of that effort to make myself better so that I can perform better and create better things and simply do better work, I’m just going to run in circles forever.

We need today’s promise because that’s where all of the action is. That’s where we expend all of our effort and that’s where we get the results.

Without tomorrow’s challenge, all of today’s promise amounts to surprisingly little. We must take our best efforts today and build on them.

Today’s promise calls us to do our best this very day and be proud of those efforts. Tomorrow’s challenge is to build up all of those best efforts into something far beyond what we could ever achieve on our own with a single day’s efforts.

We need them both.

Today, live up to the promise that a new day gives you. Do your best to succeed at the challenge you have in front of you. If you’re trying to improve your finances, make the decision that today you will focus on making great spending choices. If you’re trying to improve your career, make today a great day at work. Only today really matters in terms of that actual effort.

Tomorrow, challenge yourself to build on those efforts and put them in a broader plan. If you’re trying to improve your finances, figure out what you’re going to do with the money you’re saving from your daily frugal efforts and put that cash to work. If you’re trying to improve your career, start building big resume-worthy things and improving your education.

Today’s promise, tomorrow’s challenge.

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Tuesday, May 15, 2018

How We Frame Our Spending Choices – and How To Do It Better

I really love finding ways to save a dollar here and a dollar there. I buy store brands. I skip out on little treats all the time. I make a lot of meals at home. I make a lot of things myself. I usually make attempts at repairing things myself. I’ve made big lists of ways to trim your spending.

Yet, there’s an interesting counterpoint to that effort, not in the idea that frugality is somehow bad, but that it’s misdirected. A great summary of this perspective is in this New York Times article How to Pinch Pennies in the Right Places
. In that article, the author, Sendhil Mullainathan, points at a research study by Daniel Kahneman and Amos Tversky that people are more likely to put forth effort to save a high percentage on a very small price than the effort they’re willing to put out to save a small percentage on a big price.

It’s easy to see what they’re talking about if you put it in the form of a story.

Let’s say I’m at the store and I overhear someone whispering that the price on the $20 bag of dog food I’m looking at is $5 cheaper at a store that’s 10 minutes away. That’s a 25% savings!

On the other hand, let’s say I’m at the electronics store and I’m looking at a tablet that costs $500 and someone says that I can save 5% on that tablet by going to another store on the north side that’s 10 minutes away. 5%? Probably not worth my time.

The catch, of course, is that in the second story, I’d save $25 on that trip. In the first example, I only save $5. However, by percentage, the $5 I save in the first story seems like a bigger deal.

That’s because our minds constantly use framing to make comparisons easier for us. We constantly think of things in terms of percentages rather than raw dollars. A $1 coupon for a $5 item seems great, but saving $5 on a $500 item doesn’t seem as worthwhile to us. Why? Compared to $5, $1 seems like a lot; compared to $500, $5 doesn’t seem like much.

If you step back and look at this from a broader perspective, it’s obviously better to spend 2 minutes to save $10 than it is to spend 2 minutes to save $1, yet people will often do the opposite if it’s framed poorly. If you can save $1 on a $3 item, it looks enticing, while saving $5 on a $1,000 item doesn’t seem like a very big deal at all.

The idea of framing changes the game, at least to a degree, when it comes to frugality, and some different approaches are needed.

Framing Has No Impact on “Instant Frugality,” So Don’t Change Anything

Let’s start by looking at what isn’t affected by framing: “instant frugality.” By that, I mean frugal choices that don’t require any investment of time whatsoever, or a completely trivial investment of time.

When I’m at the store and I decide to buy the store brand version of an item rather than the name brand because I know the store brand does the job just as well, there is no time whatsoever invested in that decision. I’m simply making a choice to buy the less expensive option. That’s “instant frugality.”

When I’m driving along and I’m thinking about getting a coffee and I spy a coffee shop and choose not to stop there, there is no time whatsoever invested in that decision (in fact, it saves time). I’m simply making a choice to not buy anything. That’s also “instant frugality.”

“Instant frugality” choices are almost always good ones, regardless of how much you save. If you can save a dime in an instant, it’s worthwhile. There’s no “framing” involved in that decision at all.

So, my first suggestion for frugality with the issue of framing in mind is that frugal choices that involve no time or energy commitment, like choosing a lower priced item on the store shelf, are always good choices.

If You’re Making a Big Purchase, Do Your Homework Up Front

Whenever you’re spending a significant amount of money, you owe it to yourself to spend some time researching that expense. Are you really getting a good deal for that money? Are you buying the best “bang for the buck” version of that item? Are you finding the lowest price for that item?

Answering those questions can take some time. For most purchases above the $50 mark or so, I use a pretty standard method for researching those purchases.

First of all, I ask myself whether this purchase is a real need at all. Do I actually need this thing I’m considering buying? Or is there something else I can do to fulfill this need or desire? You’d be surprised how often spending some time thinking about a purchase in this fashion can change whether or not you buy anything at all.

Second, I narrow down the features I’m looking for. One feature that I almost always insist on is reliability. I’m not interested in flimsy items that will break if I’m going to be using this item with any regularity (and if I’m not… why am I buying it?). I usually identify a core set of features that I really care about and then, when I’m actually looking for an item that matches, I basically ignore the other features that don’t really matter to me. I’m not buying a car because it has a seat warmer, for example. I’m buying a car because it reliably gets me from point A to point B with reliability and good fuel efficiency. The presence or absence of a seat warmer is a non-factor in my purchasing decision.

Third, I identify a list of products that match the features I’m looking for. I usually do this by evaluating trusted product comparison tools like Consumer Reports. What do they suggest? What are their highest rated options that have the features I want? What is their “best buy” choice that has the features I want? This usually leaves me with several options for my purchase, all of which have the features I’m looking for. I usually have them ranked and will buy the highest one on the list unless I find an exceptional deal on one further down the list.

At this point, I start shopping for those options by price. I usually have a good idea of what I want and what the manufacturer’s suggested retail price is, so now I bargain hunt. I check lots of websites. I dig into forums. I’m simply seeking out a good deal on those items. If I can’t find a great deal on my top item, I start going down the list until I find one at a great price. I am generally willing to pay a little more for my #1 option and won’t choose other options unless there’s a nice discount – and that discount requirement gets bigger the further I go down the list.

This usually takes an hour or two for most purchases and several hours for others, but I find that in the end I wind up with a good item at a good price. To compare this to the story above where there’s a discount at another store, this process has generally already pointed me to the retailer with the best overall price so those situations rarely pop up for me.

All throughout this process, I’m usually still trying to talk myself out of the purchase. The most frugal strategy most of the time is to simply not buy something unless you actually need it. On big purchases that aren’t absolutely essential, I usually wait a while (often, at least 30 days) before officially deciding to buy because, quite often, my desire for that purchase will fade over time.

If you’re practicing frugality with framing in mind, it’s worth your time to actually do some research on major purchases. You’ll end up saving money on what you pay while winding up with the product that actually meets your needs the best. In other words, you create your own framing for big purchases.

Convert Everything Into Dollars and Cents

There are many situations where savings are framed in a way that makes it unclear what you’re actually saving. Savings will be expressed as a percentage, or in the terms of a sale (like “buy one get one free”), or in terms of a dollar amount without any context as to what the original price was (“$5 off!” doesn’t mean much if the original price was way too high).

All of these techniques are done by marketers to use framing against you. They want you to see the savings they’re offering as being as big as possible, regardless of whether the savings is actually worthwhile.

The best way I’ve found to fight back against that is to convert everything down to raw dollars and cents. This requires some math – having mental math skills is helpful, but almost everyone can use the calculator on their phone to do the same thing.

The goal is to always figure out exactly how much you’re going to pay per item and whether that’s actually a good deal. Figuring out the exact price usually just involves a bit of math. Remember that “buy one get one free” is actually just a 50% off sale – would you buy a single of that item if it were just 50% off? Convert it to dollars and cents and see if that purchase makes sense.

It’s worthwhile to use your phone as a comparison tool. What does the actual price of this item look like elsewhere? Amazon is always a good place to start, simply because they have many items for sale with reasonably competitive prices.

So, my third tip is to convert all prices and sales and discounts into dollars and cents, focus on the actual price you’ll pay, and make sure that price is fair.

Focus On Actual Dollars Saved Above All Else

If you’ve followed that third tip, you should be in the business of comparing the actual price you’ll pay at different retailers, with all of the sale tricks eliminated. How much money would you spend at this store? How much money would you spend on that same item at this other store?

If you have decided to buy and you’ve found that there’s a price difference, isolate that price difference. Nothing else matters than the price difference. Put everything in terms of the lowest price available to you, and then look at the options through that lens.

For example, you might be able to get an item at one store that’s 5 minutes away for $100, the store you’re standing in now for $105, and on Amazon for $102. Rather than looking at those prices, consider it a different way.

If you drive ten minutes round trip, it’ll cost you nothing. If you buy it here, right now, it’ll cost you $5. If you order it off of Amazon, you’ll wait a few days and it’ll cost you $2.

I use this trick because the reality is that the lowest price is a sunk cost. If I’ve already decided I’m buying the item, I’m spending that lowest cost no matter where I buy it, so that lowest cost doesn’t really matter any more, so I can just eliminate it from all options. All it does is shadow my actual decision, which is a decision to drive a bit to save $5 or order it online and wait a few days to save $3.

So, here’s my next tip: if you’re trying to decide among retailer options, subtract the lowest price available to you from all the options and look at just the extra costs from using certain retailers. Rather than thinking of it as spending $110 here versus spending $100 at another store, think of it as spending $10 here versus spending nothing at the other store. If you’ve already decided to buy the item, treat the lowest price as having already been covered and ignore that amount. That’ll help you make the decision as to where to buy it more rationally.

Start Comparing Different Things

The biggest value in all of this isn’t in comparing similar options, like whether to buy this exact item at Target or at Amazon. The biggest value in thinking of things in terms of raw dollars and your efforts is when you’re comparing all kinds of different things in your life.

The thing is, most frugality that isn’t “instant frugality” has a cost associated with it, usually in the form of time and energy. When you start looking at everything through that lens – I save $X by giving up Y minutes of my time and effort – you start to expose which things are really worthwhile and which things are not.

I often look at things through the lens of “is $5 worth ten minutes of effort?”. Most of the time, it is, so I’ll make time for it. If that’s true, though, then “is $200 worth a few hours of effort?” should also be an absolute yes. Where you need to say “no” is when you’re asking yourself “is $1 worth 20 minutes of effort?” That’s a firm no, and it’s only through thinking of everything in this way that you can start to discard the inefficient frugal choices and keep the efficient ones. In general, my threshold for frugal efficiency is that it needs to be saving me at least $10 per hour of effort, because that $10 is after tax and thus worth more than that in terms of income, unless there’s some additional reason to be doing this (maybe because I actually enjoy the task or something). Some people may have a higher threshold, and others may have a lower one, but you should always be considering your frugality through that lens.

Always think of frugality in terms of money saved versus time and effort invested. You can use that metric to compare all kinds of things – you can use it to compare cutting your cable bill to clipping coupons. Know what your threshold is, though – how much do you have to save for an hour of effort to make it worthwhile? Don’t bother with things that don’t save enough.

Make It Natural

The key to avoiding the framing of your spending choices is to make all of the tactics above a natural part of your spending habits. If you think this way naturally, then it starts to quickly become clear which frugal tactics are worth your time and which ones are not.

For me, it’s been a matter of conscious practice for a very long time. I’ve consciously made the effort to try to evaluate my frugal decisions through this lens over and over until it feels like the natural way to consider things. When I’m making buying decisions, I’m constantly flipping the dials in my head so that everything appears in terms of what I’ll actually save (or make) by doing things this way versus what I’ll actually save or make by doing things this other way, and then I choose the one that seems like the best value for me.

At first, this can seem slow and not worth the time. It can feel clunky to constantly turn to your calculator to make these kinds of comparisons, or to constantly stop and think through prices and choices.

Stick with it – trust me, it gets faster and faster until it feels like second nature. You’ll start to gain a natural sense of how to compare prices and how to decide whether investing effort is worthwhile, but this natural sense isn’t based on framing. It’s based on the raw dollars you’ll actually be saving versus the effort you put in.

Good luck!

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Rich People Still Worry About Money — Here’s Why

Have you ever felt like a specific sum of money would solve every problem you have? Maybe you’re working toward a certain threshold where you will actually feel “rich” — even if you’re technically at that point already. If so, what sum of money would finally leave you feeling secure?

These are good questions to ask yourself, although the way you define “rich” may predict how likely you are to get there. According to a recent study from GoBankingRates, 26.2% of 5,021 respondents said they would need to earn over a million dollars per year to feel “rich.” Another 47.3% said they would feel rich earning less, and 11.7% even said they would feel rich if they earned six figures. To add even more contrast, 12.8% of respondents said they wouldn’t feel rich unless they earned $10 million dollars or more.

Seven Reasons Rich People Still Worry About Money

This just goes to show how American ideals on wealth can be drastically different. One person’s “rich” is another person’s average lifestyle, and the level of wealth one needs to feel secure can vary by a lot.

Even if you’re “wealthy” in a traditional sense, it’s also quite likely you worry about money for one reason or another — and that’s true no matter how big your bank account is.

But, why do American ideas on wealth vary so much, and why do some people need a lot more cash to feel like they could never worry again? We interviewed financial planners to find out. Here’s what they said:

#1: Money is a finite resource — even if you’re rich.

It’s easy to assume that reaching a certain level of wealth protects you from financial peril, but there are plenty of examples that show this isn’t the case. We’ve all heard stories of professional athletes and celebrities who have earned millions and burned through it all: Mike Tyson. Allen Iverson. Dorothy Hamill. Johnny Depp. Toni Braxton. And so many more.

Financial advisor Kelly Wright of Pinnacle Advisory Group says that rich people often worry over money since they are keen to the idea that it’s not what you make — it’s what you keep.

“Many wealthy people with enormous incomes have gone bankrupt by not focusing on their expenditures,” she says.  In that sense, the wealthy may be wise to worry over money and how their spending could leave them penniless if it gets out of control.

#2: Wealthy people worry about opportunity cost.

Alexander Lowry, professor of finance at Gordon College, says that the “rich” may not have to worry about daily money troubles like paying bills or keeping food in the fridge, but they still have plenty to mull over when it comes to their cash — specifically, how to put their money to use.

Lowry says that wealthy individuals often adhere to the concept that those who understand interest earn it and those who don’t pay it. “This means that they compound their wealth in intelligent, income-producing securities,” he says. In other words, they look for ways to earn interest while reducing their outflow. Ultimately, the quest to maximize their money can lead them to worry even when money isn’t scarce.

#3: When it comes to money, everything is relative.

Lou Cannataro, a partner at Cannataro Park Avenue Financial in New York City, notes that wealthy families often strive to build a lifestyle that they feel they can afford and deserve. Once they get accustomed to a certain level of wealth, however, their new lifestyle and its associated costs become the new normal.

But the quest for wealth can also turn into a treadmill. The more the rich get used to being wealthy, the more accustomed they are to worrying over whether they can keep it up all the way to retirement. And since many of them have worked hard to achieve their success, the last thing they want to do is see their life change for the worst due to bad decisions or mishandling of their wealth.

Many people believe that a random sum like $3 million would solve all their money woes, says Cannataro, but they don’t realize they would just take on a new level of worry.

Average people “know how bad it feels to live check to check or feel like they won’t have enough for college or retirement,” he says. “If they hit the lotto and the money arrived yesterday, they would strive to set their life up in a new level of satisfaction and comfort and try to hang on for dear life.”

#4:  More money means more problems.

Women’s wealth advisor Jessica Weaver says that one of the biggest reasons the wealthy worry about money is the fact that having wealth requires you to face increasingly complex financial decisions.

If you think this through, makes some sense. When you have hundreds of thousands or millions of dollars to invest, the stakes are higher; you have to do more than stash money away in a high-interest savings account or simply boost your 401(k) contributions; you have to come up with a solid investing plan that helps you maximize earnings while reducing taxes. This feat isn’t always easy.

Weaver says financial decisions regarding wealth can be overwhelming to people who aren’t sure which move to make next. “If they don’t have a trusted team of professionals to help guide them, they will always worry if they are making the most of their wealth,” says Weaver.

#5: Being successful in business doesn’t make you a successful investor.

Many people believe that becoming financially successful is their ticket to financial freedom. When you have a larger than average income, what could possibly go wrong?

Massachusetts-based wealth manager Liam Timmons says that earning money isn’t enough and that rich people seem to be keenly aware of their limitations. They may have excellent entrepreneurial skills or the ability to bring in a big paycheck, but that doesn’t mean they know a lick about investing or protecting their wealth.

That’s because the accumulation of wealth requires a different skill set from maintaining and managing the wealth, he says. This is also why many rich people who seem to be well-versed in investing still hire a team of professionals to help them. They’re smart enough to know they don’t know everything, so they hire the best help money can buy.

But not all rich people hire professional help. Many assume that earning a lot is enough, and they waste their financial potential as a result of not saving and investing enough of their income.

“Part of the issue is education, says financial advisor Roger Ma of Life Laid Out. “People aren’t required to learn the basics of personal finance in school.” As a result, they may think simply earning a high salary will lead to long-term financial stability, when having a modest salary and being deliberate about expenses could actually prove to be a better plan.

#6: Lifestyle creep can be a problem.

For many families who earn more than average over time, lifestyle spending tends to increase along with income. A 2017 study from CareerBuilder even found that 10% of households making more than $100,000 per year live paycheck to paycheck. This is a first-world problem for sure, but lifestyle creep is still very real for many people who earn a lot but can’t figure out how to spend less than they bring in.

Lifestyle inflation can be an especially big issue for people who are “suddenly rich” — as in, they’re earning a lot of money for the first time in their lives. “Even as you accumulate higher earnings and maybe build up some savings, it still feels more precarious than you’d have imagined when you were making half or less that amount,” says financial planner Ryan Frailich of Deliberate Finances.

Since humans adjust very quickly to whatever circumstance becomes normal, a salary they may have only dreamed about three years ago can quickly become something they’re accustomed to. They’re used to spending their entire paycheck, so they quickly adjust their spending to whatever they’re earning now. Ultimately, even wealthy people can struggle if they don’t learn to live below or at least within their means.

#7: They want to leave a legacy behind.

Finally, let’s not forget that wealthy people think about more than just their own lives; they also dream about the future. According to Cannataro, the rich often place a priority on providing for their children and making sure they have every opportunity to become successful in their own right.

Many wealthy people also realize the odds of their children becoming as successful as they have are not in their favor.  As a result, they may worry over how to preserve their wealth or how to protect it against the poor decisions of future generations.

The bottom line: The wealthy may be rich already, but chances are good they want their children, grandchildren, and future generations to have the same lifestyle they’ve had or better. And can you blame them?

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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The post Rich People Still Worry About Money — Here’s Why appeared first on The Simple Dollar.

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Monday, May 14, 2018

Questions About Work Culture, Haircuts, Choosing Funds, and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Planning ahead for a child
2. Frugality and self-denial
3. 401(k) and multiple jobs
4. Work culture and telecommuting
5. Why don’t people save?
6. Figuring out credit card debt
7. Getting started with children’s haircuts
8. Picking funds in 401(k)
9. Parking ticket problem
10. Using Roth IRA contributions
11. Old canned items
12. Basic income? Really?

It’s strange how someone can be a regular part of your life for fifteen years and you just feel like they’ll always be there, then suddenly one day you find out that they’re leaving the area and moving far away from you.

We’ll miss you, Heidi.

Q1: Planning ahead for a child

I’m 29, my wife is 26. We just bought a house with the help of my wife’s inheritance and are now debt free. We want to have a child three years from now and my wife plans to be a stay at home mom. What are some strategies for planning ahead for this?
– David

The number one thing I’d suggest that you do is practicing on living on one income, the income you’ll have when you make this leap. Live on just your paycheck and bank your wife’s entire paycheck.

You’re going to find this challenging, and that’s the point. It won’t be easy to go down to one income, and it’s a good idea to work out the kinks now so that when you actually have to do it this way, it’s smooth sailing.

Plus, if you’re banking your wife’s salary, you’re building up a hefty emergency fund that will help you deal with whatever may come. You’ll definitely have unplanned expenses when you have that first child, trust me, and you’ll be glad that you have the savings.

So, just start by trying to live off of your income for a while and saving your wife’s income. See how it goes, and try to figure out how to overcome challenges without tapping your wife’s income.

Q2: Frugality and self-denial

I don’t see how it’s healthy to just keep denying yourself the stuff that you want all the time. You say that it leads to happiness somehow but all I see is misery in that lifestyle.
– Anna

The goal isn’t self-denial for the sake of self-denial. The goal is denying short-term desires and impulses because they’re genuinely less important to you than your big goals in life. The only thing that those short-term desires and impulses really have going for them is a sense of urgency that the bigger and more important things often don’t have.

If I see a book I want at the bookstore, there’s a sense of urgency about it. I want it now! I can have it now! Compare that to something that’s more important to me overall, like early retirement. I do want it now, but it’s not burning and urgent, and I can’t have it now – it’s something down the road. However, the desire for early retirement lasts for years and years and years, and the benefit from it will last the rest of my life. That book? I probably won’t even be very interested in it several days from now.

Frugality, to me, is about realizing that the thing that’s urgent and exciting right in this moment often fades really quickly into nothingness and regret, while the big important things might not be as strong right now, but they last and last and last and add up to far more value in life than that short term desire. So, I’m simply very careful about the short term desires that I choose to fulfill so that they don’t stand in the way of my big long term plans.

To me, that’s the opposite of misery. As each year passes, that big goal becomes more and more real. I feel less and less money stress. All I had to give up to have it was a bunch of completely forgettable short term things. That’s a trade I’m never going to regret.

Q3: 401(k) and multiple jobs

I am in law school and during the school year I have been working part time in the retail industry. The pay is $3 above minimum wage, hours are flexible enough that I can work with a law school workload, and they provide a 401k with immediate vesting (full match up to 3%, half match up to 5%).

For the summer I have secured a high paying legal internship, but this job does not allow me to contribute to a 401k. Luckily, I have been able to keep my retail job and will be working on the weekends. My thoughts are to contribute 100% of that money into the 401(k).

Is that a smart plan with the retail job (contributing 100% to the 401k)? Will that solve the tax problem of having two jobs, or does it not matter because I won’t make enough for the year?
– James

You are never, ever making a bad move contributing to retirement. Ever.

Having said that, two questions stick out regarding this plan.

First of all, is that 401(k) offering matching? If it isn’t, you might want to consider a Roth IRA for that money instead of a 401(k). If you make it as a lawyer, you will be very glad to have a pool of money for retirement that can be used tax free, which is what a Roth IRA provides, plus you have a much wider array of investment options to choose from. I’d consider a Roth IRA through Vanguard.

Second, are you accumulating any debt due to your legal education? If you are, what’s the interest rate on that debt? If it’s very high, you might get more value for your dollar by paying off some of the debt now rather than later, because the interest savings may add up to more than you could make in retirement savings.

Regardless of what you choose, the simple act of putting money aside for the future is the wisest choice you can be making right now. What exactly you do with it is very secondary to the simple act of putting that money aside at all.

Q4: Work culture and telecommuting

My understanding is that you have worked from home for ten years. Do you have any good connections with coworkers? Do you have any sort of work culture or work environment?
– David

Part of the challenge of working from home is building those kinds of relationships and work culture. It is fairly hard to do this when working remotely, but it’s definitely possible.

I have a good relationship with several people that I have contracts with. I’ve mostly built this through back and forth email and occasional phone call and extremely rare meetings for lunch when our paths happen to cross.

Much more important than that has been connections to local people who also telecommute or work from home. I have formed a small group of such people and we meet regularly for coffee and occasionally for lunch and sometimes for group work sessions. That’s been the replacement for my “office culture,” in all honesty, and it’s actually even better than that because our commitment there is to each other and not to the company or to getting a one-up on each other. We’re not really in any sort of conflict, so our purpose is in helping each other and getting help when we need it. If we help someone else in the group, there’s no real worry that they’re just going to get promoted over us or something.

My advice to anyone considering working at home, especially if your employer is far away, is to find a local group of people that you can work with regularly. Get together with them regularly just to chat about work issues and bounce ideas off of each other.

Q5: Why don’t people save?

You often link to that story about how 78% of Americans live paycheck to paycheck and to articles about how little people have saved for retirement and how much debt they have. I don’t understand why it happens.

I understand that some of it has to do with how you were raised. I was raised in a family where saving for the future was really important. My parents put money away for the future.

Why don’t people just do this as a matter of course?
– Dana

My honest feeling is that you have to consciously choose to focus on the long term in order to save consistently, and most people don’t have that long term focus. My experience has been that, for a lot of people, they don’t really think about the future beyond the next month or two and they assume things will just work out.

Some people have childhoods that really train them to look into the future. A few others just do it naturally. For most people, though, it doesn’t come naturally and they weren’t trained in childhood to do it.

For some adults, the value of that long term focus pops into their life at some point and they have a financial turnaround. That happened to me. It’s not impossible for it to happen.

Another challenge, of course, is that the short term distractions are really compelling and tempting. They make you want to focus on short term things. I think that many people who might have had a long term focus in another era might be distracted by the many short term temptations of today.

Q6: Figuring out credit card debt

I have debt spread across four credit cards and need help figuring out what to do next.

Credit Card A – $5000 balance, $8000 credit limit, 19.9% interest, good rewards
Credit Card B – $2200 balance, $5000 credit limit, 19.9% interest, all right rewards
Credit Card C – $1000 balance, $8000 credit limit, 24.9% interest, good rewards at one retailer
Credit Card D – $2000 balance, $5000 credit limit, 31.9% interest, no rewards to speak of

Obviously Card D is bad and I should pay it off first, but what about the rest? Should I pay off C next? Should I try to balance transfer off of A so that I can use the rewards program? I use A for most purchases.
– Anna

Carrying over $10,000 in credit card debt is a sign that you might not be good at staying within your means unless you very recently got a really good job or were using cards to stay afloat in between jobs or something. If you accumulated this debt with your normal salary, you should spend some time living entirely without credit cards and mastering living completely within your means while paying down these cards. Your first step in that situation should be to make minimum payments on these cards while building up a small emergency fund in your savings account, then paying down these cards quickly starting with D, then C, then B, then A.

If you accumulated this debt during a low income period and now you’re earning a lot more and paying this down rapidly, and you wish to use Credit Card A as your main credit card for purchases, I’d try to transfer some of the balance of A to B if possible, then focus on paying down D, then C, then B, then A, as stated above.

In short, clearing out D and C should be your highest priority, regardless of your situation.

Q7: Getting started with children’s haircuts

I have two young boys at home aged 4 and 2. I have taken them to get haircuts in the past but the process seems really simple and so I wondered why I couldn’t do this at home. I looked up a few tutorials on it but they seem to include buying expensive clippers. How does one get started on this on the cheap?
– Emily

Really, all you need is a comb and a pair of kitchen scissors, though hair clippers are pretty useful. This is probably my favorite tutorial on the subject. It’s really not very hard.

If you’re wondering about gear, kitchen scissors are fine as are any old combs you might find at the dollar store. For clippers, the best “bang for the buck” ones I know of are these sub-$30 Wahl clippers which will pay for themselves with just one cut.

The biggest suggestion I have is to give them a “long” cut the first time you do it. Cut their hair a bit longer than you normally would, so that if you mess up, you can cut it shorter to fix the problem (and hair clippers can really fix it if it gets too problematic).

Q8: Picking funds in 401(k)

I signed up for my 401(k) at work in January. The women who walked me through the form said that it didn’t matter what investment I chose and they just kind of pointed me at one. It is a Total Stock Market Mutual Fund. Is this the best choice?
– Alex

Without knowing your age, the year you hope to retire, and what options are available to you – and that means knowing the exact funds they’re talking about – it’s hard to tell if that’s the best option available to you.

From just the name alone, it sounds like it’s not going to be entirely bad. It’s most likely a very diversified stock market investment, which means that if one company goes bankrupt, it won’t hurt your investment very much. You’re actually invested in the stocks of a lot of companies at the same time, owning just a little bit of each. So, if one company does really well, it only helps you a little, but if one does really bad, it only hurts you a little. There are definitely worse things in the world!

I usually nudge people toward Target Retirement Funds if they’re available in their 401(k) package. Those types of funds are ones that are optimized for the year you plan to retire. So, there might be a Target Retirement 2040 Fund or a Target Retirement 2050 Fund. Just choose the one that has a year close to the year when you turn 70 and you’ll be in good shape.

Again, it’s really hard to give specific accurate suggestions without knowing a lot more information than this. I would say that your current choice is probably a reasonable one and that a Target Retirement Fund is probably a good choice, too.

Q9: Parking ticket problem

I have received repeated letters in gradually more aggressive language about a parking ticket that my car apparently received in a city I’ve never been to. I’ve never even been to that state. I am single and no one has ever driven my car but me. Not sure what to do.
– Nigel

This ticket is probably due to an incorrect VIN in a database somewhere, or possibly an incorrectly typed license plate number. At some point, someone registered a car with a similar VIN as yours and it got typed in wrong.

Just go through your bank records or credit card records or other records and make sure you have some clear evidence that you weren’t in the area at the time of the supposed ticket, then contact them. Simply state that you’ve never been to that area and have records showing that you were in another part of the country on that date. That should clear things up in a jiffy.

I’m almost certain that this is due to someone typing in a VIN or a license plate number wrong somewhere.

Q10: Using Roth IRA contributions

In my late twenties I got super serious about saving for retirement and maxed out my Roth IRA for several years while also contributing 15% to my 401(k) and getting 5% of that matched. I am very well off for retirement now.

Given this do you think it is a good idea to use Roth IRA contributions to help pay for my son’s college education? I am a single mom with only one child. He’s going to a state university and living at home while doing so for at least the first year or two. My Roth contributions can cover his tuition for three years or so. Good idea or not?
– Brenda

Again, it’s really hard to know the right answer without seeing a full picture of your finances. It does sound like you are in good shape for retirement, but I would consider it more important that you’re in great retirement shape than paying for his college tuition.

Unless you are extremely sure that you are in absolutely great retirement shape, I wouldn’t pull out my Roth IRA contributions to help. Instead, I’d have him take out some student loans to pay for the tuition. If you can help a little out of pocket, make some payments on those loans when they’re in forbearance to keep the interest in check, but don’t tap your Roth IRA for it.

If you’re dead sure you’re in extremely good retirement shape and helping your son emerge from college without debt is very important to you, then it’s a reasonable choice, but be absolutely sure you’re in good shape first!

Q11: Old canned items

My parents used to do a lot of canning until they got sick. They have a lot of older canned stuff in their pantry. How old is too old for canned foods?
– Amy

I’d generally stick to USDA guidelines on this. They recommend that high-acid foods like tomatoes are eaten within a year and a half, and other items within five years. Canned foods are sterile – if they’re not, the lid will pop up and you should discard them. The reason for those guidelines is that beyond them, the foods really start to break down and become mush.

If the lid is still sealed and it hasn’t popped up, the food is still safe to eat, but it may not be a pleasant experience as it may all be mush.

Q12: Basic income? Really?

Are you really in favor of a basic income?
– Daniel

I’ve made this offhand comment several times, but I haven’t really addressed it in detail, so let me clarify.

I’m not in favor of a basic income today. I don’t think that in a situation where there are lots of employment opportunities that basic income is helpful.

Rather, I’m looking forward to a future in which there aren’t jobs available. Like it or not, most entry-level jobs are going to be automated in the next ten to thirty years. The pieces are in place already to automate a lot of jobs – the only reason it hasn’t happened in a lot of industries yet is because the initial investment is high. As developers of a lot of the technologies that make automation possible start lowering the price (and they will), companies will start looking at their balance sheet and start automating a lot of jobs. Tens and even hundreds of millions of jobs. Truck drivers, cabbies, farmers, vegetable pickers, construction workers, and on and on and on. Those jobs will be automated in a few decades.

The time to start thinking about how society will handle that is right now. How exactly do we handle a situation where the vast majority of the population don’t have the skills needed to be employed? There will be jobs left in this future, but there won’t be many and they’ll require a rather strong technical skill set. What about everyone else? What about a situation where people who want to work literally can’t do anything that a machine can’t already do better?

Solution A is to let people starve. I’m not on board with that. Solution B is to force companies to employ people. I’m not really on board with that, either, but that’s closer to the solution. I think simply providing everyone the means to meet their basic needs is the solution, actually, and paying for it via taxation of companies that use widespread automation (in this future, that’s most companies).

Our challenge is going to be finding things for those idle hands to do. I honestly don’t know how to solve that problem, but it seems more humane than letting people starve if they don’t have a Ph. D. in robotics or computer science.

It’s a sticky problem, and there is no wonderful, perfect solution. We have thirty years or so to figure out a solution. Basic income is the best solution I’ve found so far, though I’m definitely open to better ones. It’s not a problem that I know how to solve; it’s just that basic income makes the most sense to me in a world where the vast majority of people don’t have the skills and natural talents necessary to produce things that machines can’t produce more efficiently.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. 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 Work Culture, Haircuts, Choosing Funds, and More! appeared first on The Simple Dollar.

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