Saturday, December 3, 2016

Inspiration from Galileo, John McWhorter, Robert Louis Stevenson, and More

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. Galileo on learning

“You cannot teach a man anything; you can only help him find it within himself.” – Galileo

At first, I thought this quote was silly. How can you expect someone to have knowledge of a topic inherently within themselves?

That’s not what Galileo is talking about here, though. Galileo is talking about the willingness to learn and other foundational elements of character. A person with poor character and habits can’t be taught to have better character and habits. All you can do is lay the information at that person’s door; it’s up to them to do something with it, and that willingness comes from within.

I am close friends with quite a few public school teachers and they all more or less say the same thing: there comes a point where it doesn’t matter how much effort you put into teaching, the student is either going to make the effort to meet you in the middle and absorb some knowledge or that student will refuse and probably fail. Some students are chomping at the bit to learn; others learn a ton on their own and barely need instruction at all. Almost universally, they feel that the biggest (and best) part of their job is reaching the people who put forth that basic effort to learn but struggle to get there.

The number one biggest thing that you can do to succeed as a person is to put forth genuine effort in whatever it is that you’re doing. That simple step alone puts you ahead of a lot of people.

2. John McWhorter on why you should learn a new language

From the description:

English is fast becoming the world’s universal language, and instant translation technology is improving every year. So why bother learning a foreign language? Linguist and Columbia professor John McWhorter shares four alluring benefits of learning an unfamiliar tongue.

I summarized his reasons for those who don’t want to watch the video.

Reason one: if you want to really understand and absorb the culture, you need to learn the language that it’s spoken in, because without that you miss almost all of the nuance of communication.

Reason two: if you speak two languages, you’re less likely to suffer from dementia and you’re more likely to be a decent multitasker.

Reason three: learning and using languages is simply fun.

Reason four: we live in an era where it has never been easier to learn a language, especially with tools like Duolingo out there.

I’ve found that learning someone else’s language – or at least trying to – is one of the most effective ways there is to build a bond with someone from a different culture. It’s almost always a fun experience, particularly when you’re also helping them to learn your language at the same time.

I once worked at a shared desk with an individual from China. He was new to the United States and spoke very halting English, though he could read it fairly well. I made it a point to have several conversations with him in English every single day, but our relationship didn’t start clicking until he started teaching me how to converse in Cantonese – his native tongue. I was awful at it and he thought this was positively hilarious. Apparently, every other sentence out of my mouth was an unintentional obscenity. It helped us to bond, it helped me to learn just a little bit of Cantonese, and it also helped me to understand him a little better.

3. Robert Louis Stevenson on judging each day

“Don’t judge each day by the harvest you reap, but by the seeds you plant.” – Robert Louis Stevenson

Over the past few months, I’ve been focusing quite a lot on planting seeds for the future. I’m not talking about literal seeds, of course, but metaphorical ones: things that won’t pay off in any real way today or tomorrow, but something that will pay off way down the road.

For me, the biggest seeds I am planting are my children. I’ve been dwelling heavily on the question of what I can do as a parent to help them to become functional, independent, successful adults. I want them to not only be able to handle adult and professional life on their own, but to want to do it. Not that they’ll forget about ol’ dad, but that they won’t need me to help them manage their daily life and that they’re making good choices on their own.

I’m also planting a ton of career and community seeds by trying to build relationships with people and break through my own natural introversion. This is hard for me – I’m just not naturally the kind of person that dives into conversations.

4. The Avett Brothers – No Hard Feelings

The Avett Brothers are my favorite musical act of the last fifteen years or so (along with Old Crow Medicine Show – maybe). I absolutely love their harmonization, their soulful Americana musical choices, and their laid back style. So, whenever they have new stuff out, I’m going to be sharing it here because their music has brought so much value to my life.

Although I absolutely adore this newest song, I almost always point people to the two brothers singing an acoustic duet of their great Salvation Song in a park on a cold day. You’re going to be struck right off the bat by the fact that it’s bluegrass-y to the core, but listen to the lyrics and how their voices harmonize and don’t be surprised if it hooks you hard.

Bluegrass music works for me because it takes concerns of the modern world and makes them timeless, or, depending on how you look at it, it’s about timeless concerns. It makes me realize that my grandparents and great-grandparents and their grandparents felt heartache and love and worries about the world, and my children and grandchildren and great-grandchildren will feel those same things, too, and it’s done entirely with the instruments they each could have used. It’s eternal. It’s the human experience. And it can be beautiful, even when it hurts.

5. Tom Bodett on the keys to happiness

“They say a person needs just three things to be truly happy in this world: someone to love, something to do, and something to hope for.” ― Tom Bodett

Quotes like this that just break through the layers of modern life and cut things down to the basics really hit home for me.

Something to do. Someone to love. Something to hope for. That’s pretty much the definition of a good life. I put that right up next to Jim Valvano’s definition of a great day: you learn something, you laugh, and you cry.

Really, what else do you need in life? What else do you even want out of life? If you’re able to learn, laugh, and cry every day, and you have someone to love, something to do, and something to hope for… what else is there, really?

6. Ellen Goodman on normal

“Normal is getting dressed in clothes that you buy for work and driving through traffic in a car that you are still paying for – in order to get to the job you need to pay for the clothes and the car, and the house you leave vacant all day so you can afford to live in it.” – Ellen Goodman

This is a life cycle that many, many Americans find themselves in. Don’t get me wrong, I understand why it occurs – people are chasing their dreams. I just can’t help but wonder at times whether those dreams really come from within or whether they’re delivered from outside.

In my own life, I’ve found that the greatest joy – even when I’m working hard on something challenging – comes about when I’m working toward my own dream. My own dream is financial independence. It is not a beautiful house. It is not a shiny car. It is not a $1,000 suit. It’s the ability to wake up some morning in the near future knowing that all of my basic needs are taken care of for pretty much the rest of my life and then deciding what the day is going to hold.

However, along the way to that dream, I want to be an involved father and husband and I want enough space so that I can recharge that creativity that I use to fuel my work.

That dream sometimes leads to different choices than others might make, and that’s okay. Just make sure that the things you’re working for are the things that you really want, not just what someone else tells you that you should want.

7. Time’s 100 Most Influential Images of All Time

Earthrise - Apollo 8

A friend shared this image gallery with me a few days ago and I spent far longer than I should have browsing through this gallery.

Most of the images were familiar, but not all. Some shared iconic moments in history, while others simply showed everyday life. I thought of a couple that I might have included that weren’t there, but I think that feeling would be true of any such collection.

In the end, it’s a wonderful retrospective of the world over the last hundred and fifty years or so. It has a Western slant, of course, as it’s where photography was born and where it exploded in popularity so there’s much more to draw from, but these images do cover the whole world, from rich to poor, from West to East, from the variety of human experience.

Spend some time browsing through it. You’ll be glad you did.

'Migrant Mother, Nipomo, California'

8. Eckhart Tolle on unhappiness

“The primary cause of unhappiness is never the situation but your thoughts about it.” – Eckhart Tolle

I’ve learned over the years that whenever I have an emotional response to something – meaning that something makes me sad or angry or overjoyed – that emotion is almost always useless and often dangerous. Whenever I dwell on something with negative thoughts, it’s almost always useless and often dangerous.

The reality is that I have a lot of control over my emotions and thoughts. Yes, sure, sometimes emotions flood out, but most of the time, I get to actually decide whether I’m happy about something or whether I’m sad about something or whether I’m angry about something. I get to choose whether I think about things in a positive light or a negative light. It’s my choice, and when I make that choice, I end up shading how I feel about and how I respond to things in my life.

Take a person in your life. Any person. If you spend a moment thinking about that person’s positive traits – their humor, perhaps, or their honesty – you’re going to end up feeling a bit more positive about that person. If you spend a moment thinking about that person’s negative traits – their public outbursts, perhaps – you’re going to end up feeling a bit more negative about that person.

The thing is, you get to choose what you think about. You get to decide whether you’re going to dwell on their negative traits or their positive traits, and what you dwell on shapes how you feel toward that thing and how you respond to that thing. That’s your choice.

9. Dropbox Paper

I’m involved with a few different collaborative projects of different kinds. Most of them heavily revolve around sharing information and ideas – ideas for podcast episodes, ideas for visual designs, ideas for video storyboards, ideas for code structures, and so on.

These different projects have used different tools to share ideas. A couple just use email chains. A couple others use Google Docs. One seems to rely on an endless group Facebook message.

One of them, however, recently switched to using Dropbox Paper and it’s been a godsend.

Dropbox Paper is basically like a digital version of a giant piece of scratch paper where you can basically cut and paste and write anything you want. Everyone else (with a Dropbox account) can see it and edit it and it tracks the changes effortlessly.

It just works. There are other collaborative tools that are kind of like this, but this just works effortlessly for group brainstorming.

I’m trying to get some of my other projects to move to Dropbox Paper for idea sharing and brainstorming. I hope it sticks.

10. Seneca on aim

“Our plans miscarry because they have no aim. When a man does not know what harbor he is making for, no wind is the right wind.” – Seneca

Whenever I don’t have a big goal in life, I flounder. Badly.

I’ll fall back on just going through a daily cycle that just repeats the same things over and over without meaning, without heart. As hard as I try, my thoughts eventually turn negative.

I need something big to be working on. Without that big thing, I just regress.

It’s a deep truth about who I am, and it’s something that I think is true for a lot of people (though not everyone). If I have a direction, I get enthusiastic about building plans and executing them and working my tail off. I do everything I can to move toward that destination. Without it… I just idle in place and eventually I grow unhappy.

11. Casey Neistat’s final vlog

For about a year and a half, filmmaker Casey Neistat made a daily video that served as something of a record of his life. He experimented with all kinds of different things throughout the series, trying different things and using different filmmaking techniques to make them interesting and look great.

He’s choosing to end that series, and his reasoning is great. He basically doesn’t feel that it’s challenging him any more. He’s found a formula and a routine that makes it so he can just churn out videos, and for him, the joy in doing it is in discovering, not pumping things out. So he’s moving on.

This is basically a perfect example of why financial independence is so valuable. It’s impossible to do things in that way if you’re not financially independent or at least close to it. If you need that next paycheck, it becomes very hard to move on to the next challenge in life. You’re stuck with what you have.

That’s why creative freedom often rests on the back of either poverty or financial independence. Both enable you to take risks that you can’t take if you need that next paycheck to sustain your life.

12. Mark Twain on good cheer

“The best way to cheer yourself up is to try to cheer somebody else up.” – Mark Twain

Try this. It works surprisingly well.

Go to a public event of some kind and just make yourself be social. Make it your goal to put a smile on the face of each and every person in the room, one on one. Just make that your intent when you go there.

Go around and talk to each person. Be as positive as you can, especially if they’re down. Look for positive things to say and try to lighten the mood with a bit of humor if you can muster it.

Do this with each and every person in the entire room. See if you can raise a smile.

Do you want to know a secret? When you leave that room, even if you’re really introverted and socially worn out, you’re going to feel really upbeat. You’re going to have collected a lot of smiles and a lot of good little moments and it’s going to lift your sense of well being.

Even better, over the long run, if you do it again and again, you’re going to start establishing some great relationships. People are going to be happy to see you walking into the room. They’re going to start reaching out to you on their own and including you in things and in ways you never expected.

Make it your goal to bring good cheer to everyone. You’ll be surprised how much it does for you.

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Friday, December 2, 2016

Planning Ahead for Extended Leave, Financially and Professionally

Quite often, when the topic of extended leave from one’s career comes up, it’s in the context of having children. People often want to spend a few years at home with their children when they’re young, returning to the workforce when the children are entering their school years, or even continuing to stay at home and providing a homeschooling environment.

That’s one big reason for such leave, but there’s another reason as well. Some people want to take a period of extended leave to build a business or chase other creative pursuits, while still others simply want an extended break.

My cousin and her husband, who I’ll call “Nina” and “Craig,” plan ahead often for extended breaks. Multiple times over the past two decades, Nina and Craig have taken time off from their careers to go on adventures. One time, they walked the length of the Continental Divide. Another time, they walked the length of the Appalachian Trail. Yet another time, they set off on a cross-country bicycling adventure. Each time, they planned ahead for the excursion, left their current positions on the best possible terms, spent a year or so on their adventure, and then went back to their regular lives afterwards.

At the same time, one of my closest friends, who I’ll call “Kevin,” walked away from his career for a two-year break during which he hoped to launch a woodworking business. During his spare time, he had developed a plan for this business, and he made financial choices along the way so that he could spend two years either making or breaking that business. Unfortunately, his business didn’t take off like he hoped and he’s back in his previous career path.

When I left my own previous career in 2008, I didn’t know whether it was going to be for an extended leave or whether it was a permanent change. I left on great terms, giving my boss plenty of notice and setting up as much documentation and information as I could before I left (I literally created a “wiki” of my work practices). I intended to spend that time focused on my family, but in the margins of that time I intended to keep building up The Simple Dollar. In a few years, it became clear that I had built something stable enough with The Simple Dollar that it could effectively become my career for a while.

What do each of these cases have in common? They all involve people choosing to take extended breaks from their career to try something different, and there are a lot of specific elements that they have in common, too, if you look closely. Here are some of the strategies that all of these stories have in common.

Build a Very Clear Budget

When you make the decision to move forward with an extended leave at some point in the future, your first step should be to build a very clear budget so that you know what this will cost. Like it or not, that’s going to add up to a lot of money. This is not a cheap proposition. Here are some things to think about while planning.

How much will you need to live on during this period? What is your true monthly cost of living? Furthermore, what money will you need to support whatever it is that you plan on working on? You can start by looking at your average monthly spending right now, then multiplying that by the length of your intended leave.

How will you pay for things like health insurance? Make absolutely sure that you’re covering irregular bills as well as the expenses that are currently covered by your employer. Walk through all of those expenses and know what you’re going to need to cover.

What about an emergency fund, so that an unexpected event doesn’t destroy all of your plans? Unexpected things are going to happen. Make sure that all but the worst events don’t derail your plans. You do that by having some significant flexibility in your budget, which means saving extra money that serves as an emergency fund.

Live Well Below Your Means While Preparing

The savings for this plan is going to have to come from somewhere, and the way you’re going to be able to build it up is by living well below your means as you prepare for the extended leave. If you can find ways to cut, say, 50% of your living expenses, then you’re suddenly able to save 50% of your take home pay.

Try all kinds of frugal strategies, even ones that seem kind of extreme. Completely cut the cord when it comes to television service. Eat all of your meals at home and take leftovers to work. Buy store-brand everything. Use mass transit to get to and from work and sell off a car if you can. Move to a smaller home or apartment. There are many strategies you can use here.

The more frugal strategies that stick, the lower your savings goal becomes as well. Remember, whenever you permanently lower your living expenses, that means that your savings goal becomes lower, too, because you’ve reduced the cost of each month that you’re trying to cover.

Have a Plan for Your Time, Too

While you’re getting your finances in order and saving up for this big idea you have, start thinking about how you’re going to spend your time, too. It’s very tempting, once you’ve taken a burden off of your shoulders, to just idle for a while, and that idling can turn into a long term pattern. If you take an extended leave and do nothing of value with it, what was the point?

If you’re going to start a business, develop a thorough business plan. Don’t just think about it. Write it. Revise it. Find mentors that will look at it and give you suggestions. A business plan is there to help you think through all of the potential pitfalls of a business idea, so take it seriously. It’s your blueprint.

If you’re going to chase a creative endeavor, treat it like “work.” Make sure that you’re planning to spend a lot of time every day on that creative endeavor. Plan those days out now. Even better, start practicing your skills now in your spare time. Make drawings, write short stories, write some code – whatever it is that you want to do, start honing the underlying talent.

If you’re going on an adventure, plan at least the framework of that adventure. When will you leave? How long will it actually take (with some extra time thrown in to handle unexpected events)? What will you actually need on this adventure? What preparatory steps will you need to take to pull it off? Make a packing list. Make a timeline of things you need to take care of. Do the thinking now so you can jump right into the “doing” later.

Don’t Burn Bridges; Do Everything You Can to Leave Them Intact

This is probably the most important principle behind all of these stories. When you step away from your current career path for an extended break, don’t burn bridges. Do everything you possibly can to step away in the most positive fashion possible.

Give plenty of notice. Don’t just show up, drop a two week notice on someone’s desk, and then stroll out the door. That will almost always harbor negative feelings. Instead, when you give notice, give plenty of lead time so that the process for finding a replacement is as clear as possible.

Document your work. Make sure that you have thoroughly documented your work as much as you possibly can, so that someone else who comes in to replace you can pick up the threads easily. Make sure to show all of this documentation to your supervisor so that they’re aware that you took many steps to make the transition smooth.

Maintain positive relationships. Even if you’re frustrated by workplace relationships, take an extra effort to make sure that they remain positive during your final months and weeks at work. Don’t leave with an angry rant against anyone, even if you feel it’s justified. Be positive with everyone in your final days. Then, try to maintain some of those relationships even after you leave, even if it’s just through social media.

Make Sure You Have a Clear Path to Return

This is the flipside of the “don’t burn bridges” strategy. You want to make sure that the door is open to your return, so take those steps now as you’re thinking about leaving.

Talk to your supervisor about the prospect of returning at the end of your timeframe. What would you need to do to maximize the chances of that return? What small steps can you take now to make it possible? What about a few steps even while you’re gone?

Don’t let your knowledge completely atrophy while you’re gone. Spend at least a little time each week keeping up to date on the changes in your field. What new things are coming down the pike that you need to be aware of? Things will change while you’re away.

Maintain those connections. One great way of doing this is to start a blog or an Instagram about your adventure and share it with your old coworkers and supervisors. This keeps you as a real presence in their lives. Tag them in your posts sometimes and respond to any comments that they leave. If you remain at least somewhat on their radar, your return will seem much more plausible for everyone.

Final Thoughts

Walking away from your career in the middle of the journey can seem as scary as possible, but if you plan for that departure carefully, don’t burn your bridges, and keep the door open for a return, you’ll find that your adventure will have a much greater chance of giving you life-changing results while still keeping a bit of a safety net in place.

Good luck in wherever your adventures may take you!

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How to Get a Cheap Rental Car

For most people, the vacation planning hierarchy goes flight, hotel, then vehicle. But don’t treat your car rental as an afterthought — knowing your needs and conducting a little online research could save you a lot of money.

“You don’t want to pay for services you don’t want or need because you don’t understand them,” said Neil Abrams, president of Abrams Consulting Group, which focuses on the car rental industry. By following our tips below, you won’t get taken for a ride on your next rental car purchase.

First, decide whether you really need a rental car

If you’re traveling to a major city like New York, Boston, or Chicago, you could be fine riding the rails, hailing taxis, or taking a Lyft or Uber. A seven-day MetroCard is good for unlimited subway and bus trips in New York, and only costs $31. As an added bonus, you don’t have to navigate gridlock traffic in an unfamiliar town or pay to park downtown.

Aggregate, don’t procrastinate

If you’ve determined that a rental car is the way to go, start by searching the aggregator sites for perspective. Hipmunk and Kayak compare prices from many different sites and are often the cheapest way to rent a car. If anything, it’ll give you a good baseline to start with.

Darkness, your old friend

Similarly, opaque sites like Hotwire or Priceline — where you may know the price before booking, but not the company — negotiate for “stressed inventory,” according to Abrams. “If a rental company knows that a particular vehicle is not going to be rented on a particular date, time, and location, they’ll off-sell it at a net-rate deal to one of these opaque channels.”

Pay up front

Budget offers as much as 35% off your rental if you pay when you book your car instead of when you pick it up. A quick search on Budget.com and Avis.com for cars at Los Angeles International Airport returned a 10% to 15% discount if you use the “Pay Now” option. That said, their “Pay Now” prices were about the same as Alamo’s normal price.

Check your credit cards

The Chase Sapphire Preferred®, Barclaycard Arrival Plus™ World Elite MasterCard®, and Discover it® Miles cards all offer excellent sign-up bonuses and waived annual fees for the first year, and you can book a discounted rate directly from your credit card dashboard online.

Also, many people overlook their credit card’s rental car insurance options – look into your cards’ policies and use the best one to pay for the rental. “Understand what services come with [your credit card], because each offers different types of auto rental insurance,” Abrams said.

Bundle up

Travelocity, Orbitz, Expedia… all the big sites offer discounts when you package your vacation, so be prepared to book your car at the same time as your flight if you see a good deal. For instance, booking a flight, hotel, and car through Expedia for a weeklong trip to Orlando netted a $191 savings on the car rental when compared to the agency’s website. Don’t forget to look at airline and hotel and credit card sites, too, which also promote bundled discounts.

Get your off brand on

Sites like CarRentals.com (owned by Expedia) and CarRentalExpress.com include local and smaller national chains in their search. Don’t be afraid of Ace, Fox, Payless, or other agencies with which you may not be familiar. “There are three companies that own the eight major brands that control 95% of the industry,” Abrams said. That said, don’t expect off brands to always be on target: We searched for a compact rental from O’Hare Airport and found CarRentals.com was about $20 more expensive than Priceline.

When in Rome…

If you’re traveling to Europe, check out MyTripCar.com, an online rental upstart that promises “honest car rentals” by analyzing fees, waiting times, and credit card holds. Don’t be afraid to search for locally owned companies, too, such as Dan Dooley Car Rentals in Ireland.

Join the club

Big-box stores such as BJ’s and Costco both have their own car-rental affiliate programs, AAA has an exclusive partnership with Hertz, even college alma mater programs and the AARP can save you money. If you’ve paid your dues for the year, check to see if you can get some of that money back with a cheap car rental through your affiliation.

Sharing saves

Look for a ZipCar or Enterprise CarShare program close by. Car share options are great if you only need a vehicle here and there during your trip. However, make sure there’s a drop spot nearby, because you don’t want to eat into your savings by taking a taxi to your rental.

Peer-to-peer options

Operating in over 4,500 cities and over 300 airports, Turo is the Airbnb of car rental — basically, you rent a car from a person instead of a company. Formerly known as RelayRides, Turo boasts a 35% savings over traditional agency prices and offers $1 million worth of insurance per trip. We live in exciting times.

How to get a cheap rental car: Where the rubber hits the road

In addition to using the “Pay Now” option, there are a number of other ways to save money once you commit to your car rental:

  • If you can, avoid renting at the airport: With the exception of Manhattan, rates — and fees — are almost always lower when you rent a car in town rather than at the airport. If the price difference between an airport and city rental is more than a roundtrip taxi or subway ride from the airport, the savings might be worth the hassle.
  • If you can, book on a weekend: Enterprise, for example, offers $9.99 daily rates Friday through Monday at participating locations.
  • Weekly rates may be better than daily ones: Sometimes it makes sense to rent a car for five days even if you only need it for three.
  • Check your insurance: Your primary car insurance may have you covered. Also Visa, MasterCard, American Express, and Discover all offer at least secondary car rental insurance if you pay for the car with your card. Remember, too, that selecting the agency insurance could actually invalidate insurance you already have through your credit card.
  • Never mind the bells and whistles: Rental car companies make a lot of their money on the add-ons they try to sell you at the counter. “Too often you have people buying the protection packages, what we call LDW—Loss Damage Waiver. They’ll buy navigation systems, which they don’t really need. The margins for rental companies are greater on those product lines than on the car itself,” Abrams said.
  • Fill up your own tank: While we’re on the subject, fuel plans at agencies are outrageously expensive. You’ll save big-time if you gas up yourself at a nearby station before returning the car.

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Thursday, December 1, 2016

31 Days to Financial Independence (Day 16): Trimming Your Spending – Education and Miscellany

“31 Days to Financial Independence” is an ongoing series that appears every Thursday on The Simple Dollar. You might want to start this series from the beginning!

Last time, we continued looking at the average American family budget, going through each category and examining how one could trim the cost of typical expenses in that category. Here’s the “average American family budget” that we’re looking at, along with links back to the earlier entries on those specific areas:

Housing – $10,080
Transportation – $9,004
Taxes – $7,432
Utilities – $7,068
Food – $6,602
Insurance (including things like pensions) – $5,528
Debt Payments – $5,252
Healthcare – $3,631
Entertainment – $2,564
Cash Contributions – $1,834
Apparel and Services – $1,604
Education – $1,138
Vices – $775
Miscellaneous – $664
Personal Care – $608
TOTAL – $63,784

Today, we’re going to take a look at the remaining categories on the list, particular education and vices. As you can see from the budget above, the average American family spends $1,138 per year on education, which averages out to about $100 a month, plus another $775 on vices, which adds up to about $60 per month. Remember, however, that this “average American family” includes single adults, married couples without children, and families with children, too, so not every family is going to be exactly the same.

Exercise #16 – Trim Your Education and Vice Spending

The rest of this article consists of a long list of specific tactics that you can use to trim your educational costs and your vice costs. As with the other savings articles in this series, it’s important to remember that everyone lives a somewhat different life and thus some of these tactics are going to seem useful and sensible to you, while others will seem like a stretch to you, and still others won’t apply at all. That’s okay. Ignore the ones that don’t apply. Make an effort to adopt the most sensible ones. Then, give the others a trial run and see if it’s something that can work for you. Commit to some of the challenging ones for thirty days and see if they work, or apply them during the relatively rare situations when those costs come up.

Remember, your overall goal is to cut back hard on the areas of life that are less important to you – the shallows – so that you can afford the “deep” areas of your life both today and tomorrow. Keep that in mind as you read each tip. Is this tip cutting back on something that’s really important to me, that amounts to a core life value? If not, why not cut it so that I can afford those things that really matter?

Let’s dig in.

Don’t use vices when you’re alone. I’m not going to stand here and talk about completely abstaining from vices. It’s going to take more than a personal finance blog to convince someone that smoking or drinking or drug use are something that is a net negative in their life. Given the up front cost and the long term health costs of such vices, the financial case against them is pretty easy to make.

However, I will say this: if you’re alone, try to find other ways to manage your emotions that don’t involve shelling out money or damaging your health. Try vigorous exercise, for one, or listening to upbeat music. Do anything you can to break a habit of consuming alcohol, tobacco, or drugs when you’re alone, because when you’re alone they don’t even provide a social conduit. (Of course, dropping vices entirely is the best route.)

Buy equipment used rather than renting a new version. This holds very true for things like musical instruments. Quite often, you’ll find that the cost of renting an instrument is fairly high, but actually purchasing a used version of that instrument is surprisingly low, sometimes only a few months’ worth of rent for that instrument. This exact scenario recently happened in our household, where a flute was offered for rent at a rate that would have paid for the used flute we outright purchased in just five months of rent payments.

You’re far better off buying a used instrument from a reputable manufacturer than buying a new instrument from some outfit with no reputation, too, when the prices are comparable. A used instrument from a reputable manufacturer is often perfect for learning and will last a long time, while new instruments from cut-rate manufacturers often end up breaking or have other design flaws (new instruments from good manufacturers are overly pricy for a new learner). The savings are tremendous from going this route.

If you plan on paying for an education in the future, start saving for it now. This is true for yourself and for anyone who is dependent on you. If you see educational costs coming in the future for anyone you might have to pay for, start saving for that expense now.

There are two big reasons for doing this. First, if you have money in the bank, the financial burden of that educational expense becomes a lot smaller. It’s not going to crush your day-to-day finances nearly as hard. Second, if you save money now, it will earn an investment return for you, meaning that you’ll have more dollars when you withdraw it than you’re putting into savings right now. In other words, saving for that future educational expense is a much smaller burden on your life if you start saving now rather than figuring it all out later.

Use a 529 College Savings Plan to save for the education of anyone in your family (including yourself). A 529 College Savings Plan is a brilliant tool for anyone facing educational expenses in their future. In a nutshell, a 529 plan enables you to easily put money away for future educational expenses, and the bonus is that when you withdraw money from that account for education, you don’t have to pay any taxes on the earnings. So, if you put in $10,000 over the years and the account has a $15,000 balance thanks to investment growth, that $5,000 in growth is tax free, likely saving you at least $1,000 in taxes. If you use the plan in your own state, you’ll probably get some additional state income tax benefits, too.

Each state runs its own 529 plan, so look at the one in your own state first (particularly if you live in a state with state income taxes). Most plans are pretty comparable, with comparison sites digging rather deep to find significant differences between plans. I’ve been happy with Iowa’s plan for years.

Get electives and basic courses out of the way at a community college that transfers credits to your school of choice. The reason for this is very simple: community college credits are far less expensive than credits at a typical university, so if you can get credits at the community college level that transfer to the university you want to graduate from, you’re going to save literally thousands of dollars. Plus, it’s very likely that you can take those community college courses locally, whereas a university might not be easily available to you.

Many students follow a path of working while taking night time and weekend community college courses, then transferring to a university a few years later to finish up their studies and earn a degree from a much more prestigious school in just a year or two. This drastically cuts into their educational expenses because many of the credits were earned at the much less expensive community college.

Strongly consider a public university over a private one. When you’re considering which school to go to, don’t worry about going to the best school that you can get into. Instead, focus on the school that offers the best “bang for the buck,” and that’s often going to be a public university in your state.

Public universities are large, which can intimidate people, but they also offer tons of opportunity. You can often find classes there that you can’t find at smaller schools, plus there are often extracurricular opportunities that you just can’t find at smaller schools. Not only that, the tuition is almost always drastically lower, particularly if you’re an in-state student.

Strongly consider an in-state school instead of an out-of-state school. If you’ve made the decision to attend a public university, you’ll quickly realize that most public universities are far cheaper if you attend as an in-state student rather than as an out-of-state student. In other words, if you are a citizen of that particular state (and the exact qualifications of citizen vary, but they generally involve being a resident for more than a year), your tuition costs drop drastically.

It is almost always worth it, then, to either attend a public university in the state where you currently live or spend a year establishing residence in the state where you want to attend school before attending. In both cases, the cost of tuition will drop through the floor.

Strongly consider a school close enough to home that you can live there. If you happen to live within a reasonable radius of a public university, give strong consideration to attending there. This enables you to live at home for a few years, which eliminates your housing cost and likely a significant portion of your food cost.

You can simply “commute” to school each morning, stay as late as you need to for classes, projects, and extracurriculars, and then go home each evening. There’s no housing cost. There’s very little transportation cost if you live in an area with good mass transit. Your food is probably covered if you live at home. Basically, your only expenses are education-related.

Apply for every scholarship you can find that you’re eligible for. Yes, this can mean that you spend a ton of free time filling out scholarship applications, writing essays, and searching for new scholarships, but it’s surprisingly worth it. Many scholarships get fewer applications than you might expect (I’ve served on the review board for a few and you’d be surprised how few people spend fifteen minutes filling out an application for a shot at $500), which basically means if you fill out a bunch of applications and sell yourself well, you’re likely to catch a few worms.

I recommend starting this process as early as possible. One big reason is that many scholarships ask for your total amount of other awarded scholarships, so if you start early, you can keep that number at “$0” on as many applications as possible. Another reason is that the earlier you take care of it, the more time you have later for even more applications. You can pay for a very large part of your education through piecemeal scholarships.

Plan your courses carefully to minimize your semester count. At most colleges and universities, you pay for tuition by the semester or term, so if you want to reduce your total expenses, you need to reduce your total count of semesters or terms. It’s just that simple.

The best way to do that is to plan for it. Schedule a meeting with your academic advisor outside of the “crunch times” and come up with a plan that can get you to your degree in the minimum number of semesters. Make that plan with a little bit of flexibility because there will be times when you don’t get into every class that you need, but strive for the minimum semester count.

Fill out the FAFSA, no matter your financial situation. There’s almost nothing but upside from filling out the FAFSA, even if you think you won’t receive any aid. The truth is that you’ll likely receive more than you think, particularly if you have lots of family members.

Fill it out, even if it feels like a hassle and even if you doubt that it will help. It can do nothing but help.

Get the smallest student loans you possibly can. Many people are tempted to get student loans that help them to finance some lifestyle “extras.” I’m guilty of this myself; I got a larger student loan than necessary to help pay for a larger apartment than what I really needed, cable service, a new computer, and so on. I didn’t really need any of those things.

The best strategy to follow when you’re getting student loans is to live as absolutely cheaply as you possibly can. Live in a tiny apartment with a roommate – it’s not like you will spend a lot of time there. Have a minimal wardrobe and don’t update it unless clothes are falling apart. Eat as inexpensively as you can. Spend nothing on entertainment; let Youtube and other free online sources be your entertainment.

Go minimal when buying stuff before your first semester. Many people tend to overbuy on items that they “need” before their first semester in college. Don’t. Go absolutely minimal instead.

I took way too much stuff to college my first year. Most of it sat around completely unused. It was a waste of money, to be honest. The only things I actually used with any frequency were about a third of my clothes, my toiletries, my school supplies, and my computer. Everything else was unnecessary.

If I were to start college over again, everything I would take with me would fit in a duffel bag and I’m not even remotely exaggerating. I’d take about five changes of clothes with one extra “nice” change of clothes, a laptop computer, a Kindle, bedsheets and a pillow, some notebooks and pens… and, honestly, that would be about it. If I were moving into an apartment, I would get a few basic dishes and a pot and some silverware from Goodwill. Nothing else is really necessary or will even be used.

If you have a meal plan, squeeze every ounce of value out of it. Different colleges and universities have different value propositions when it comes to their meal plans. Whatever it is, spend the time to figure out where the best “bang for the buck” is in terms of your meal plan and then extract every dime of value out of it.

For example, I had a friend in college who had a “one meal a day” plan in the campus food service. He ate exactly once a day in there … but he got every ounce of value out of it, going through the cafeteria line several times and getting incredibly full. Aside from that, he would eat a granola bar occasionally in the early part of the day to “provide fuel.” He was a Dean’s List student and seemed to thrive on it.

You won’t starve without a three-meal-a-day plan. Trust me. Just take maximum advantage of whatever plan you do have.

Take advantage of student discounts. You’ll find that many businesses and services around your university or college offer a great discount if you show your student ID. Take advantage of that, not to buy extra stuff, but to get discounts on the stuff you’d already buy.

If you decide you need a haircut, for instance, choose a place that has a good reputation and a student discount. If you need dental work, see if any dentists offer good arrangements for students. If you need a new hat, are there any clothiers that have a student discount? Milk that discount for every dime you can get from it.

Utilize on-campus resources to help manage your basic needs. When you’re in college, you’ll often find that many of your needs are handled perfectly well by on-campus services and programs that are freely available to all students. Universities often have a fitness center or two, so there’s no need to pay for a gym. They often have free health care services. They have free internet, so you don’t need to pay for it at your apartment.

My favorite benefit is the piles of free food. When I was a student, the student organizations were always having meetings where they provided pizza or some other food that was just free for the taking for anyone who showed up. I would constantly dabble in various student organizations, going to their meetings, eating the free food, hanging out with people for a while, hearing about what the club was up to or maybe listening to an interesting speaker, and then heading out. Free dinner, free social time, perhaps a free interesting presentation – it was a good deal, and it kept my food costs really low.

Get maximum value out of every educational experience. If you’re paying for an education, wring every dime of value out of that education. Don’t just take a class – do all of the homework, participate in the online discussion forums for that class (if they exist), and go to office hours. Ask tons of questions – everything that you can’t resolve yourself – and don’t be afraid of “dumb” questions.

Take advantage of the out-of-class educational opportunties that your tuition affords you as well. Go to on-campus talks that seem even remotely interesting – and mingle afterwards. Go to any and all meetings related to your department where you might have a chance to learn something and mingle with the professors. What you’re going to find is not only do you learn a bunch of useful additional things, but that you start building some really valuable relationships with people that can help springboard you into a career opportunity.

Buy your textbooks used and then re-sell them. Unless there is literally no other option, you should avoid buying a new textbook for a class. Buy used ones instead and then re-sell them at the end of the term to recoup some of your money and invest it in the next round of textbooks for the next semester (or pocket it when you’re done).

The best way to buy and resell used books is to watch bulletin boards in the buildings that you frequent on campus as well as Craigslist and any specific messageboards for your university. I highly recommend posting your books for sale as early as possible before the start of the next semester and indicating which classes they might be used for. You’ll often find that the sale of one semester’s books basically pays for the next semester’s books.

Tune in next time for the next entry in this series, which will take things in a new direction…

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Three Things NOT to Do at Your Year-End Performance Review

The end of the year is performance-review time at many companies, which means that you’re probably reading this in between frantically reacquainting yourself with your goals for 2016, and wondering how to persuade your boss to give you a raise.

If you’re feeling a little nervous, take a deep breath. While annual reviews can be stressful, they’re also an opportunity to make your accomplishments known, advocate for yourself, and get on track for the coming year.

Go into the meeting prepared and with a clear head, and you could come out ahead. But first, let’s talk about what you absolutely shouldn’t do, if you want a productive and positive performance review.


1. Expect the worst.

Ideally, your manager is your partner, not your adversary. If he or she is any good at their job, you should already know where your weak spots are and what you need to do to improve, thanks to plenty of one-on-one meeting during the year. There should be no surprises in a performance evaluation, and if there are, that’s on your boss, not on you. (Provided that you’ve kept your ears open and that you’re receptive to constructive criticism.)

That said, not every manager is clear on their responsibility to communicate areas of improvement throughout the year. Some have trouble giving constructive criticism — even though research shows that workers want corrective feedback, provided it’s delivered in a helpful fashion.

Regardless, approaching your performance review like a trip to the principal’s office won’t help you get the conversation off to a positive start. Even if your manager highlights areas for improvement, that’s not necessarily a bad sign. In fact, it might show that he or she is willing to endure a tough conversation in order to help you achieve your potential at the organization.

2. Come in unprepared.

The biggest mistake you can make in a performance review is to wing it. For one thing, your lack of preparation will be evident, and give the impression that you’re not taking the meeting seriously — not what you’re trying to convey to the person in charge of your raise. For another, it’s hard to remember everything you’ve accomplished when you’re on the spot.

Start by gathering your materials, including your job description, goals from last year (if you were at the company at that time), and a list of what you’ve accomplished. Best-case scenario, you’ve been tracking these over the course of the year, and will just have to match your accomplishments against your goals. If you’re not quite that organized yet, go through your projects, folders, and inbox, and highlight your wins. Now’s the time to put a number and a dollar sign on what you’ve done. If you can demonstrate that you’ve made or saved the company money, you’ll be in a much better position going into your review.

3. Demand a raise.

It might surprise you to know that the end of the year is not necessarily the best time of year to ask for a raise. For one thing, budgets tend to be set. There’s no point in demanding a 10% raise if your manager only has a 3% bump in the budget.

That doesn’t mean that you should give up on getting more money. Provided your review is going well, the second half of the conversation is a great time to let your manager know about your goals for your future at the company. If you’d like to be promoted, for example, ask your manager what you’d need to do to get there in the coming year. If you think your current duties seem more relevant to another, more highly paid job, you can make that point. The goal is to help your manager see your path and help you make progress.

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Wednesday, November 30, 2016

Balancing Your Financial Success and the Luxuries of Your Friends

We’ve all been there at some point or another.

We meet up with a friend and discover that he or she has acquired some sort of luxury good or had some sort of expensive experience. Maybe that person has a brand new car that’s shining in the sun. Maybe that person has the latest smartphone. Maybe that person just got back from a trip to Rio.

Whatever it is, they’ve just enjoyed some luxury, one that’s well outside the borders of your budget.

And you’re jealous. At least a little.

It’s not a question of whether or not their luxury is something you’d actually want for yourself. It’s that a friend of yours has a luxury in their life. They have access to something luxurious that they personally desired at a time when you don’t have anything luxurious yourself.

You look at your ordinary routines and then look at the luxurious item or experience that your friend has and you simply feel jealous of it.

It’s at that point that you’re primed to make some awful financial choices. You might instantly decide that you need some sort of luxury for yourself and then, within the next day or two, find yourself making a purchase that you wouldn’t have otherwise made. You might dwell on that luxury, letting it swell in your mind and convincing yourself that your current life is denying you so much that you just abandon your financial principles for a while and start splurging. You might even begin to doubt the entire reason that you make good financial choices.

After all, if you can’t have that luxury, what good is it?

Here are some vital things to think about if you find yourself in that mindset.

First of all, you’re actually in the process of buying one of the best luxuries in the world. You don’t have the latest smartphone or a shiny new car, but you do have financial stability in your life and you’re probably building to a state where you can quit working many years before your friends and family while enjoying all the free time in the world to do whatever it is that you enjoy most in the world.

To me, there is literally nothing better that I could be doing with my money. I cannot imagine anything else I’d rather have in this world than endless amounts of free time with enough financial security to not have to worry about day-to-day needs. There are so many things I’d love to explore or try or dig deep into, and the only way to be able to do that is to maximize my control over my time, and the best way to do that is to build a financially secure foundation for my life.

What I often do is transform that luxury item into that free time. My friend might have that shiny car while I have a fourteen year old SUV that I bought off of Craigslist (seriously, I drive an old Honda Pilot that I bought off of Craigslist), but when I look at that shiny new car, what I actually see is about a year‘s worth of days where I have the freedom to choose whatever I want to do with my time. I would way rather have that year – and I think a lot of people, if they really thought about it for a while, would prefer that year, too.

Second, you probably don’t want that luxury anyway. There are many “luxuries” that I have witnessed my friends purchase that I honestly wouldn’t own if I had a billion dollars. It’s just not me. Although I can see that the item is clearly a luxury item, it’s not something I would want.

I have a friend who purchased a Jaguar several years ago. I genuinely have zero interest in owning a Jaguar. I can appreciate that it’s beautiful and so on, but that doesn’t mean I want to own it or use it as something to get back and forth.

That doesn’t mean that I view the person who bought that item with disdain. I understand why someone would want a particular item, but I simply recognize that it’s not for me. I understand why my friend wanted a Jaguar and I understand that my friend is likely to get a lot of enjoyment out of a Jaguar, but I recognize that I wouldn’t get nearly the same enjoyment out of owning one.

Third, you have a friend in front of you that’s probably very happy about this luxury, so share in that joy! Even if you feel immensely jealous of that item that your friend just acquired or that experience that your friend just had, check that jealousy for a moment and switch shoes with that person. Imagine that you just bought something you’ve always wanted or taken a fantastic trip or something and you can’t wait to share it with a friend. How would you want that friend to react? With joy? Or with jealousy, bitterness, and negativity?

Be the friend that you want in your own life. Even if you feel insanely jealous of the purchase. Even if it’s clear it’s something that you wouldn’t buy for yourself. Even if you think the purchase was financially disastrous. No matter what, check the negative feelings and be happy for your friend.

It can be really tempting as well to swing into judgmental talk about finances. Don’t. You can save the financial talk for later. Even if you can’t muster a single ounce of joy related to the item, focus instead on the joy of your friend and be a part of that.

What I’ve found, almost every time, is that by sharing in the joy, my own desire to get something luxurious actually fades away. I begin to realize that it’s not about the luxury item, but about my friend doing something that brings my friend joy. The luxury item could be anything – it doesn’t matter.

Fourth, you likely have things already in your own life that bring you joy, so make sure you always have room for them. I’ve found, over and over again, that I become more jealous of the luxuries that my friends have when I’m feeling negative about the state of things in my own life. If I’m unhappy with some big aspect of my own life at the time my friend shows up with a luxury, I’m going to end up with negative feelings of jealousy. Negativity feeds on negativity, after all.

What’s the solution, then? The solution, for me at least, is to do my best to maintain a life balance. If I feel negativity creeping up in my life, I do everything I can to address it head on. For me, addressing that negativity usually comes in the form of consciously setting aside time and energy for things that are important to me that I’m currently neglecting. Whether it’s a relationship or a hobby or something else, I make sure that I’m setting aside time for that thing, giving it the attention that it needs so that it is no longer a negative.

Letting a bad situation limp along in your life because you believe “it’ll get better soon” or “I can deal with it next week or next month” isn’t a solution because those outcomes never happen. If there’s something in your life that’s bothering you, deal with it now because the longer you let it sit, the more likely it is to become a lasting pattern that you just can’t get rid of.

Finally, give it time. Many of the solutions I describe here require time more than anything else. You might still feel jealousy in the moment, but if you don’t do things in response to that jealousy and instead give yourself some time to reflect on the state of your own life, why you feel that jealousy, and what areas of your own life are feeling negative right now, you’ll probably end up coming to some valuable conclusions that don’t involve spending a dime.

For me, a strong jealous response to something means that something is out of whack in my current life. Those things can be hard to figure out, especially in the moment. So, if you feel jealous, recognize that jealousy, but don’t act on it. Give it time. Try to figure out why you’re feeling jealous.

You may just find that the answer you needed was right there all along.

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What Are My Student Loan Repayment Options?

Graduating from college takes determination, hard work, and fortitude — but so does paying for your education. Picking the right student loan repayment option is so hard because you often enter into the process before you have a real idea of what your future will hold. And while you can change the terms of your loan down the road, you can’t change the amount you borrowed.

“Many students just borrow loans without thinking about what the payments will look like, what their job prospects will be, and how they will handle their finances in the future,” said Betsy Mayotte, director of consumer outreach at American Student Assistance, a Boston-based nonprofit. In other words, if you’re drawn to a career that typically pays $35,000 a year, it may be unwise to take on $200,000 of debt to pay for a private school education.

And when it comes to private loans, tread lightly! It’s important to remember that unless you have a well-established credit history, you’re going to need a cosigner to take out a non-federal student loan — private lenders won’t take on the risk. And private loans don’t come with the protections and flexible repayment options of federal student loans: Once you have a private loan, your only real option for changing the terms of it is through refinancing.

Federal Student Loan Repayment Options

Don’t panic, though: When it comes to your federal student loans, you have options. The Department of Education’s (DOE) website lists a number of federal loan repayment options meant to cater to borrowers’ needs. There’s also the Federal Student Aid Repayment Estimator, a great tool for estimating repayment for all of the federal plan options available, including how much you’d pay per month, overall, and if there is any forgiveness available.

But while you’re here, let’s take a look at the two primary types of federal loan repayment plans: Basic and Income-Driven Plans (IDP), and what they encompass.

Basic Repayment Plans

Basic loans are not driven by your post-graduation income. There are three types of Basic plans: Standard, Graduated, and Extended.

Standard Plan

  • Definition: This is where you start, a 10-year plan at a fixed amount. If you’re consolidating with other loans, be sure to review this repayment schedule, as your term may be longer.
  • Who should consider: Those who are confident that a lucrative post-college career will allow them to pay down their loans without trouble.

Graduated Plan

  • Definition: Same style as the Standard plan, except your payments start small and grow every two years.
  • Who should consider: People entering into careers with regular promotions that lead to increasingly larger paychecks.

Extended Plan

  • Definition: Similar to Standard, with lower monthly payments spread out over a longer period of time. The borrower must have $30,000 in outstanding direct-loan debt, and no outstanding debt from previous loans; check here to see if you qualify.
  • Who should consider: People who need longer periods to repay their debt, but don’t necessarily want their repayments to be calculated based on their income.

Income-Driven Plans (IDP)

Most of us fall into the income-driven spectrum. There are a few different flavors of Income-Driven Plans, but they all share many of the same traits:

  • Repayment is based on a percentage of your discretionary income—usually 10% to 20%. Discretionary income, according to Mayotte, is “your adjusted gross income minus 150% of the poverty line for your family size.”
  • The loan periods are longer than basic plans — 20 or 25 years.
  • More money is paid in the form of interest over the life of the loan.
  • With Income-Based and Pay-As-You-Earn plans, it’s your discretionary income at the beginning of the payment schedule that counts. These loans will never become more expensive per month than the Standard Plan. With Revised-Pay-As-Your-Earn and Income-Contingent Repayment plans, your monthly repayment schedule changes based on your income. These loans could get more expensive per month than the Standard Plan. More information is available on the DOE website.
  • IDPs feature loan forgiveness at the end of their terms — however the forgiven balance is treated as taxable income. That means if you have $50,000 in student loans after 25 years for an Income-Based Repayment loan, that balance will be forgiven — but will be considered taxable income.

Speaking of forgiveness, check to see if you’re eligible for Public Service Loan Forgiveness (PSLF), which wipes out your balance after 10 years of governmental or accredited non-profit employment. PSLF is not taxable.

Income-Based Repayment Plan (IBR)

  • Definition: Your monthly payment is limited to 15% of your discretionary income (10% if you have no outstanding Direct or FFEL loan balances). There are income level and family size requisites, so check to see if you qualify. Outstanding balances are forgiven after 20 years.
  • Who should consider: People not earning enough based on their debt to pay off a loan under the Standard plan. With this plan, married borrowers should file their taxes separately.

Pay As You Earn Plan (PAYE)

  • Definition: Repayment is capped at 10% of your discretionary income. There are income level and family size requisites — check here to see if you qualify. Outstanding balances forgiven after 20 years. The main difference between IBR and PAYE is that with IBR, you pay 15% of your income if you aren’t considered a new borrower.
  • Who should consider: People with high debt-to-income ratios. As with the IBR plan, married borrowers should file their taxes separately.

Revised Pay As You Earn Plan (REPAYE)

  • Definition: Like PAYE, payment is capped at 10% of your discretionary income. Outstanding balances are forgiven after 20 years (undergrad loans) or 25 years (grad school loans).
  • Who should consider: Pretty much everyone qualifies for this plan. People interested in but not eligible for the PAYE plan usually consider REPAYE.

Income-Contingent Repayment Plan

  • Definition: Monthly payments will be either 20% of your discretionary income or the amount you would pay based on a 12-year fixed payment plan, whichever is less. Outstanding balances forgiven after 25 years.
  • Who should consider: Any borrower with an eligible loan can access this plan, including parents.

When it comes to student loans, remember to consider the “long game,” as Mayotte says. “It’s not about paying the least amount per month–it’s about paying the least over time,” she says. If you take a close look at the DOE’s website, talk with your loan servicer, and consider your future career, you’ll make the right loan choice for you.

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Tuesday, November 29, 2016

Figuring Out a Great Life on a Limited Budget

About a week ago, Sarah and I sat down and took a look at our finances, something we do on occasion. We’re mostly just looking for things we can be doing better, as we’ve found that, for the most part, we’re on a very good financial path that we don’t want to upset.

For kicks, we decided to see what our day-to-day financial life might look like if we suddenly both decided to quit our jobs. What would happen to us if we were both unemployed by choice for a long period? We ran the math on our retirement and other savings and found out that we would be living somewhere close to the poverty line if we stuck with a 4% withdrawal rate on our savings and added in residual income that we would earn with no additional working effort.

This was an unusual moment for us. It was the first time that we felt like we could actually do this. We could, if we really wanted to, walk away from our jobs and just fill our hours however we wanted on the backs of the careful spending and saving and professional choices we’ve made over the past decade.

But what would that life really look like? Could we live an enjoyable life on that income level?

We concluded, after some discussion, that if we gave up some of the things that we value, we could in fact pull this off, and that it’s the relative value that we place on those things that would maintain our professional focus for the ensuing years. (Mostly, we’d have to give up some well-loved hobbies and we would seriously axe our travel plans in coming years.)

We could live a happy life on about $22,000 a year, in other words. This does include having our home paid off in full, though we would still have to pay insurance and property taxes on it.

What would that life look like, though? How can someone with modern tastes enjoy life on such a limited budget? Mostly, it falls right in line with the way we already live our lives, with a few significant alterations.

Cut almost every subscription bill right down to zero or as close to it as possible. We’d eliminate our cable bill and switch exclusively to Netflix and over-the-air channels (with Netflix being chopped, too, if necessary). We’d keep our internet bill, but go down to a lower speed, and the same would be true for our cell phone bill (less data, mostly). We’d cancel basically every other subscription that we have – things like Amazon Prime would vanish.

The thing is that we mostly use television for unwinding from a stressful professional day and without that daily stress, neither one of us would have much reason to watch television at all.

Is this a big loss? See, the thing is, it seems like a big loss given our day-to-day routines right now. I need a stable internet connection for professional purposes (as does Sarah at times), but without that… what real purpose does it serve? My main hobbies don’t involve the internet and none of Sarah’s do. I almost never watch television and Sarah usually only watches it in the evenings to de-stress, and without professional stress there’s really no need for anything beyond over-the-air channels. Most of the Prime packages I get are work-related (books for research, etc.) so that could easily go away. It’s easy to see how many subscriptions and ongoing bills are mostly necessary thanks to our careers, and eliminating most of them and reducing some of the others would not strongly negatively impact our day-to-day life.

Eliminate a vehicle. With both Sarah and I no longer chasing professional goals, we could easily eliminate one of our vehicles, reducing ourselves down to one vehicle that could transport our whole family if necessary. We’d sell or trade both cars and replace them both with the most fuel-efficient minivan that we could find.

This elimination cuts out insurance costs, registration costs, the cost of replacing a car, and so on. There’s no need to own and maintain a second car if we can get by with the other transportation tools available to us to meet our needs.

Is this a big loss? Again, it’s not a loss at all if Sarah is no longer commuting to work. Our biggest real need for vehicle redundancy is to ensure that Sarah can make it to work in all circumstances (nasty weather, a car breakdown, etc.). If that’s no longer a need, one vehicle can meet our family’s needs almost all of the time, as redundancy is far less vital. Our day-to-day quality of life would barely be impacted by the elimination of a vehicle.

Improve the fuel efficiency of your remaining vehicles. Taking little steps to make your current automobiles a bit more fuel efficient can save you a surprising amount on fuel costs, making each and every drive a bit less expensive. Naturally, using your cars as little as possible is the best strategy, but when you do use your car, it should burn as little gas as possible.

You can improve fuel efficiency by keeping plenty of air in your tires, by minimizing the weight you’re carrying in the vehicle (except under winter weather conditions, where extra weight can sometimes help with traction), by driving at the speed limit, and by driving in a fuel efficient manner by not overly accelerating and coasting and minimizing brake use when possible and reasonable.

Is this a big loss? Most of these strategies result in no real change whatsoever in a person’s day to day life. It simply means that when you do drive, your car isn’t eating as much gas, which is going to end up saving quite a bit of money over the course of a year.

Use alternative methods of transportation. Even better than using less gas is simply using no gas at all. When you have to do something outside of the house, consider using other methods of transportation to get there such as walking or riding a bicycle.

Take our current situation, for example. We live within a couple of miles of a grocery store and a library. It might be tempting to just drive there, but the truth is that riding a bike to both places doesn’t take much longer, gives me some exercise, and doesn’t burn any gas at all. I can hit the library, hit the grocery store, and get back home in not too much more time than I could in a car and it’s basically free.

Is this a big loss? It does require some changes in the types of transportation that you choose to use and if you’re not used to walking or biking a mile or two, it can be challenging at first. However, most alternative transportation methods at short distances don’t take significantly longer than using a car, provide some exercise, and have virtually no cost associated with them.

Strongly consider moving. While our current home is paid for, we are still facing a significant property tax and insurance bill each year. A smaller home – one that eliminates a bedroom, for example, and perhaps eliminates one of our “family rooms” and has a more efficient layout – would serve our family perfectly well.

Making that move would create some revenue from the home sale, enough to buy the new home and leave us with some leftover money. It would also cut our property taxes and insurance costs, which would lower our annual burden.

Is this a big loss? Honestly, it’s not that big of a loss. We essentially have two living rooms in our home, making one of them practically redundant, and we could easily trim a bedroom and reorganize our sleeping arrangements. I would no longer need a home office, which frees up even more space. While a move wouldn’t be a guarantee, I’d describe it as fairly likely if we were on a limited budget. Our day-to-day quality of life wouldn’t be significantly reduced by a move to a smaller home.

Eat mostly at home. We already eat mostly at home, but this would become even more frequent. Our biggest reason for eating out at this point in our lives is our need to stack a bunch of family appointments and activities together onto the weekends which sometimes leaves us out and about during a mealtime. With more flexible scheduling, which is what would happen with one or both of us stepping away from our careers, we would rarely find ourselves in that position.

For many families, this can be a steep threshold to climb. As I’ve noted in other recent articles, the average American family eats out more than they eat at home and the primary reason for that shift is a growing lack of comfort in the kitchen. Many people resist making food at home – even though it’s incredibly obvious how much money it saves – simply because they’re intimidated by how much time and effort it will take as an addition to their busy lives. The truth? Cooking at home actually isn’t that hard, especially with tools like a slow cooker, and the amount of money it saves is tremendous. Plus, if you start cooking and get more comfortable cooking at home, it starts to seem easier than going out to eat (I’m not kidding in the least – I’d rather make a simple meal at home than go out most days, even if the cost were the same).

Is this a big loss? For our family, it’s not a major change, so I wouldn’t describe it as a major loss. Eating out would become even more of a treat, of course, and we’d make almost everything at home (and plan picnics for our excursions). For other families, this might be a tougher challenge, but it’s one that becomes easier the more you eat and prepare meals at home.

Find free or extremely low cost hobbies and sources of entertainment. When I look at three of my primary hobbies – reading, playing tabletop games, and walking on trails – all of them could easily fold into a completely free hobby. I can fully sustain my reading hobby at the library. The hiking hobby is already basically free. The tabletop game hobby could be sustained by playing what I already have and trading for other games and attending community game nights. So, luckily, if our income were suddenly sliced, I would not have to make major changes to my hobbies, though I would have to cease many of my hobby purchases.

This might not be true for others. Many hobbies, like golfing and hunting, have a constant upkeep of expenses. Any hobbies that constantly require new supplies (golf balls, ammo, etc.) or constantly require entry fees (like greens fees) are naturally expensive hobbies and should be looked at very carefully for anyone struggling to find financial success on a tight budget.

Is this a big loss? For us, it’s not a big loss. Sarah’s primary hobbies largely overlap with my own, so we’d just utilize the library all the time for books and movies and we’d hit all of the local parks for trails. For others, it might be more of a challenge.

Expand gardening operations and consider raising chickens We currently have a small garden and that’s something I’d love to expand greatly with an increase in my free time. Our garden, as it is, is an income-positive hobby already, as we reuse seeds from previous years and plant them again for more produce. The only real cost is time and I find that time to be very meditative and valuable for my mental well-being.

When I was a child, my family raised chickens primarily for their eggs, though occasionally for eating. If you have a good location for it, chickens are actually pretty easy to raise. I would happily raise a few chickens again in order to enjoy the eggs they produce.

Is this a big loss? It would push gardening (and perhaps chicken raising) more to the front of my list of hobbies, but is that a big loss? I don’t think so. Gardening is already something I enjoy in a narrow timeframe, so giving it more time actually seems really appealing.

Buy almost exclusively store brands. This is something we already largely do, but perhaps not as universally as we could. What we’ve found is that for our purposes, most store brands are functionally identical to the name brands, with the only difference being that the store brands have a lower cost and the name brands have flashier packaging and a more familiar name. There are a few rare exceptions (trash bags come to mind), but this rule holds almost universally true for us.

Many people perceive a decline in quality when using store brands, but most of the time that decline in quality comes from not paying close attention to the name brand but suddenly looking for flaws when buying the store brand. Often, those same flaws exist in the name brand, too, but people aren’t looking for flaws in the name brand.

Is this a big loss? For the vast majority of products people buy, buying a store brand is going to have zero impact on their life versus buying a name brand. The only difference that it will make is in an occasional product where you’re already very sensitive to product performance. Most of the time, they’re truly identical, and in the cases where store brands and name brands aren’t exactly the same, you won’t notice a difference the vast majority of the time.

Cut vices down sharply. Many people have a vice of some kind that helps get them through their life. Alcohol. Tobacco. Marijuana. Maybe something else entirely. Vices often form a psychological crutch that people rely on to take the edge off of their stress and challenging feelings.

The problem is that vices are an expensive psychological crutch when a cheap one will do. Smoking might take the edge off of stress and create a brief bloom of good feelings, but so do many other practices in life (like meditation or vigorous exercise). Not only that, those alternative methods of bringing about positive feelings and de-stressing are often far cheaper than vices. There might be a case for occasional social use of vices, but when you’re using them when at home alone, there are better methods for de-stressing that are more effective, less expensive, and have much better long term health consequences.

Is this a big loss? Cutting a vice out of your life is hard, particularly when you have daily routines built around them or they’re physically addictive. However, finding new ways to handle daily stress and negative feelings, particularly ones without a constant financial cost, is going to reduce your expenses drastically while also making it easier to deal with those feelings.

Make your home as energy efficient as possible. Your home gobbles energy, as witnessed by your monthly home energy bill. One effective way to continue leading a great life on a low budget is to find every possible way to trim that energy bill, and one great way of doing that is to make your home incredibly energy efficient.

There are lots of methods for doing this. You can replace all of your light bulbs as they burn out with LED bulbs. You can air seal your home by caulking your windows and adding weatherstripping around external doors. You can add more insulation to your home, too. The list goes on and on.

Is this a big loss? Since you’ll essentially not notice any of the energy-related changes at all around your home, it’s a very big stretch to suggest that any such changes are a loss at all.

Maintain your home, your car, and your expensive appliances. One big expense that often hits many people when they’re trying to live a great life at a low income is the unexpected expense of something that you rely on breaking down. A car breakdown or an appliance failure at an unexpected moment can thrust a huge expense at you at a moment when you least expect it.

The best solution that a person can apply to this is to simply keep your stuff maintained. Follow the maintenance schedule for your automobile as closely as possible (you’ll find it in the manual) and do as much of the maintenance yourself as you can. Look into common steps for maintaining your home and your largest appliances and follow them on a schedule as well. Put things like replacing the furnace filter or vacuuming behind the fridge on your calendar and set aside a little time to do those things and your home, car, and appliances will last far longer and result in far less unexpected expense.

Is this a big loss? It takes time, sure, but it’s time that you’re not spending having to figure out how to deal with a broken-down car or a failed appliance. It’s time you’re not spending shopping for a new car or a new appliance. I’d far rather spend some time doing a little low-cost or zero-cost maintenance than to spend time shopping for a new appliance and dropping hundreds or thousands of dollars.

Final Thoughts

Almost all of the strategies above have little real impact on a person’s life, particularly if they have a bit of extra time available. I consider these strategies to be the key part of anyone’s plan to deal with life changes that result in a lower income, whether that change is by choice or otherwise. They can help you through adjusting to a period of unemployment, an early retirement, a lower-paying job, or any other shift that may lower the stress and challenge of life but decrease one’s income.

In the end, lower income is not a ticket directly to misery. Instead, it’s an opportunity to look closer at the life routines we all take for granted and adjust them in a way that enables us to skate right through the harder part of life’s changes and embrace the benefits.

Good luck!

The post Figuring Out a Great Life on a Limited Budget appeared first on The Simple Dollar.

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