Saturday, March 10, 2018

Starting a Simple Vegetable and Herb Garden

When spring break rolls around, our children often head out to the grandparents, leaving Sarah and I with a several day “stay-cation” of sorts. While I’m usually still working, I often plan ahead to take a day or two off during that week, and Sarah, as a schoolteacher, usually has much of the week off, too (though she’s usually setting up a ton of things for the rest of the school year).

So, there’s usually four or so days during mid March where Sarah and I spend time at home taking care of things, and one of the big things we work on is preparing our garden.

We have a nice garden in our backyard. It’s roughly 200 square feet and has grown over the years from the 25 or so square feet that we first started with. We now even have a second garden on the other side of our house that’s about 50 square feet itself. These aren’t giant gardens, of course, but they do provide us with a surprising amount of food in the late summer and early fall.

The thing is, our entire gardening routine started when we lived in a tiny apartment and our “garden” consisted of two large pots on our front patio. Once we bought a house, things just steadily grew from there, but we still do the same basic things, just at a larger scale. You can do the basics of this no matter where you’re at.

While this does take some time and there is some initial startup cost involved, the variety and quantity of vegetables and fruits and herbs we get from our garden makes this an extremely worthwhile endeavor. We often turn a few dollars’ worth of initial cost into hundreds of dollars’ worth of produce by season’s end without that much effort.

Iowa seasons line up perfectly so that we usually do much of our garden prep work in mid March, so now’s the perfect time to talk about our process.

Here’s what we’ll be doing next week.


First of all, we’ll be planning out what we want to do. What do we want to grow this year? What perennial plants are coming back from last year?

Here are some of the things we consider when thinking about what to grow?

What grows well in our area? At this point, we have a pretty good idea of what grows well in central Iowa, but if you’re new to gardening in your area, it’s well worth looking into what kind of garden vegetables grow well for you.

More specifically, you’ll probably want to find a vegetable growing calendar for the state you live in, which will tell you when to plant certain vegetables. We’ve learned to trust such calendars; here’s the calendar we use for our area.

Using those guides and your own desires for vegetables, herbs, and fruits, you’ll probably be able to come up with a list of things you want to grow and roughly when to plant them. The next step, of course, is to figure out where you want to plant those things.

For us, this involves drawing a diagram of our garden and identifying what will fit in there. Some of the space is taken up already by perennials that come back year after year (oregano, thyme, chives, rosemary, sage, asparagus), so we leave that blocked off and focus on the areas where we need to plant new things.

If you’ve never gardened before, a container garden is a great way to start. You just need a large, sturdy container of some kind and access to some dirt and gravel you can borrow. I’ve grown successfully in cheap $3 all-purpose buckets from the hardware store before – they work perfectly fine. Put a few holes on the sides near the bottom (an inch or so from the bottom), then add a layer of ordinary gravel, then put in a layer of newspaper or cloth, then fill it the rest of the way with whatever dirt you can get for cheap (like at a construction site – just ask if you can steal a few shovels of dirt and the construction workers will say “sure!”… just get dark soil if you do this, the closer to black the better). It won’t be the best dirt, but it’s cheap, and you can make your own fertilizer, too (we’ll get back to that).

In general, we find it’s way easier to just focus on a few things we know we’ll eat, and then store the excess and swap it with neighbors. We usually grow tomatoes, some sort of squash, and some kind of bean in our side garden. Sometimes, I’ll also make room for a few pepper plants. That’s it – it’s not complicated.

The more different things you grow, the more attention you have to pay to everything and the more time it takes. It’s much easier to grow just a few things, particularly if you have a friend to trade with or you can store the extras.

Preparing the Ground

Another part of spring garden preparation is preparing the ground for planting. We don’t plant yet, of course, as we follow the planting calendar described above, but we do get the ground ready for planting.

What that means is that we clear the ground of debris. Anything that remains from last year is removed so that we have a clear patch of ground. We then turn the soil over (our garden isn’t really big enough to justify a mechanical tiller, so we just use a shovel) and then spread the dirt around with a rake. That way, the garden is largely ready for planting when it comes time.

A combination of a shovel and a rake is definitely hard manual work – it’s a nice little physical workout. If you’re not up for that, you can definitely buy a small tiller (or borrow one from a friend) to get the same effect with a lot less manual effort.

If this is your first garden, you’ll want to discard the top layer of the ground where all of the grass is unless you want to deal with infinite weeds. This means you may need to find additional soil from somewhere – as mentioned above, construction sites often have some available. Look for dark-colored soil – the closer to black, the better. Bring home a bucket or two of this stuff and spread it on top of your new garden space once you’ve removed the grass layer and turned over the soil underneath it.

Usually, in mid-March, the top layer of the soil is thawed, but it still gets below freezing many nights, so while we can turn over the topsoil, we can’t yet really plant anything. Be patient. Trust the schedule.

There’s another thing we do outside, too. We apply a first natural fertilization.

Simple Homemade Fertilizer

Let’s get one thing straight: there’s nothing better than compost for a home garden, but making and applying compost can be a lot of work. We have a compost bin where we toss many of our plant scraps and we sometimes toss worms in there, too, if we see them out after a rainstorm. Every few months, we turn over our compost bin, and when it looks mostly black and rich, we’ll spread it on our garden.

There’s a much simpler method that has much the same effect and benefit, though. Just take vegetable scraps as you accumulate them – the ends off of carrots and onions, the unused portion of steamed and unseasoned vegetables, and so on – and add in a small portion of coffee grounds after you’ve used them, too (don’t make it ALL coffee grounds, but a small portion is good if you happen to drink coffee). Save it in a gallon freezer bag in the freezer until it’s absolutely stuffed to the brim with scraps.

Then, allow those scraps to thaw, and blend them all together in a blender, adding a bit of water until you have a thick puree. Water it down a little and stir it so that it’s maybe as thick as whole milk, then let it sit out overnight somewhere. In the morning, pour the mixture evenly over your garden, whether it’s just a container garden on your front porch or a patch in your backyard. Your soil will love you.

Again, this isn’t as perfect as compost, but this liquid really will help your garden, especially if you pour it on early. This is a great thing to do right when you turn your soil over in the spring, well before you actually plant.

Between this purpose and making cooking stock, I think it’s a huge waste to ever throw away a vegetable scrap. In fact, my own process is to actually make stock with the vegetable scraps first, strain it, then use the remaining pieces to make this fertilizer. It’s not quite as rich any more, but it still helps!

Acquiring Seeds

Another key part of getting ready to start your garden is to acquire seeds. This is easy enough on the surface, right? Just go to your local garden store or home improvement store (or an online retailer) and pick up a few packets of whatever looks interesting, plant what you have space for, and hold onto the rest for next year.

This is a great start, but I strongly encourage you to spend a little extra time finding good varieties to plant, ones that are naturally low maintenance and resistant to pests. Doing a little extra homework now to find the right variety and acquire seeds of that variety will save you a ton of effort later on in the season.

The first decision to make is whether to use heirloom or hybridized seeds. Hybridized seeds tend to be easier to grow, but if you try to save seeds from them to grow next year, they’re sterile and won’t grow. Heirlooms tend to have more variety and can sometimes be trickier to grow (they’re often a little less resistant to diseases, for example, which isn’t a big deal if you pay regular attention to your garden, but if you’re very hands off it can be tricky), but if you save the seeds by extracting them from the vegetables and drying them for next year, you’ll be able to plant them and have new plants without ever buying more seeds. (Sarah and I use largely heirloom seeds from Seed Savers, for those interested.)

The second area of consideration is which varieties to buy. Again, if you’re starting from scratch, I strongly encourage you to look for low maintenance varieties, ones that resist lots of diseases and don’t require a lot of work. In general, varieties that are disease-resistant and low maintenance will talk about these features on their display or packaging, while ones that aren’t particularly strong in those areas typically won’t mention it. This is particularly true with plants that are prone to disease, such as tomatoes – you should really look for easy-to-grow and disease resistant tomatoes if this is your first attempt at growing them.

Starting (Some) Plants

Another early spring gardening tactic is to consider starting some plants indoors before moving them outside. This is really only a good idea if you have grow lights or you have a very well illuminated area with lots of natural lighting several hours a day.

If either of these is true, it’s pretty easy to start plants indoors in small pots. Just fill them up with a little dirt and plant the seeds right in there. You can transfer the full contents of the little containers outside when the weather gets better.

Why do this? The advantage of starting a plant indoors early on is to accelerate the harvest. If you start a 90 day plant indoors in late March, then transfer it into your garden in May, you’re getting produce from that plant in late June. You may even have time to pull that plant and replace it with something else in early July, aiming for a late September and early October harvest.

However, starting a seed indoors can be a notable amount of additional work if you don’t have an appropriate spot for the plants, and it can add some cost, too, if you don’t have a grow light. It just gives you the opportunity to expand your growing season a little if you have the tools.

Sarah and I start seeds some years, and other years we don’t bother with it. It depends greatly on what we’re specifically growing that year and, honestly, how organized we are.

Our Garden Plans This Year

So, what are we planning for the current year?

About half of our main garden is covered in perennials, mostly herbs. Each spring, we mostly just clear this out so the perennials can grow again.

Our perennials include chives, oregano, thyme, rosemary, sage, and asparagus. These mostly grow entirely on their own, with almost no help from us aside from clearing out the area each fall and spring. These are the easiest part of our garden by far.

Our main crops this year are going to be green beans, sweet corn, tomatoes, and watermelons. Our beans and sweet corn are grown in our “side garden” really close to one another, with the bean vines growing up on a handmade string “trellis.” Corn tends to thrive close to beans, so we’re growing our sweet corn as close to the beans as possible. We may end up planting some squash in there to make a traditional “three sisters” garden.

Our larger garden patch will be mostly tomatoes and watermelon. Our children love watermelon and take an active part in preparing the ground and growing them. Sarah and I love tomatoes for their variety of culinary uses. If there’s a bit of extra space, I may also plant some green onions in a single row.

Most of our work will be centered around the tomatoes, which do take a fair amount of work. We tend to cover the ground around the plants in newspapers and straw (or some of our other leftover ground cover materials) to prevent competition from growing and minimize the effort needed for weeding. This basically means our only weeding efforts, once this is all done, will be around the beans and the corn and the watermelon, perhaps 100 square feet in all at most.

Our goal is to set aside one or two heavy workdays in our garden, one over spring break (ideally, given cooperative weather) and one in late May, to get all of this stuff into fertile ground. Once that’s done, we’ll be in a relatively low maintenance mode until harvesting, with just occasional watering and weeding throughout June and July, with harvesting to ideally begin in early August.

Final Thoughts

Gardening is an annual ritual for Sarah and myself. It’s a way to spend some time outdoors, usually together, and to save quite a bit of money on food. The produce that comes from our garden fills our kitchen in the summer and fall, with much of it traded to family and friends and some of it preserved for winter, too.

We incorporate our children into it, too, but we don’t push them into it to the point of burning out. Instead, they just view it as an ordinary part of life – they do a bit of weeding and a bit of planting and a bit of watering here and there and then they have fresh things to eat in the late summer.

Our gardening started in a simple container garden on the front patio of our small apartment we shared more than a decade ago, with a little tomato plant and a few onions near the edge. We got many dozens of tomatoes out of that little container during those first few years, and once we had more space, it just grew from there.

It’s a simple, rather inexpensive, relaxing, and meditative hobby that produces lots of vegetables and herbs for our family. If you’ve ever even considered giving gardening a try, this is the year.

Good luck!

The post Starting a Simple Vegetable and Herb Garden appeared first on The Simple Dollar.

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Friday, March 9, 2018


A few days ago, I was reading the excellent leadership book The CEO Next Door by Elena Botelho and Kim Powell, which basically takes the same core idea behind The Millionaire Next Door (lots and lots of interviews and surveys) and applies it to leaders and their leadership skills rather than millionaires and their financial skills. It’s very good and I’m getting a great deal of personal value from it, but there was one passage that really spoke to me in terms of personal finance that I want to talk about today.

On pages 48 and 49, the book gets into the ideas of aspirational intent and transactional intent.

Aspirational intent refers to our “big picture” intentions in life. I intend to be a good father and a good husband and a good man. I intend to reach a state of financial independence as early as I reasonably can and then enjoy a simple life with my wife and my grown children and (perhaps) my grandchildren. I intend to live a healthy lifestyle. I intend to find ways to help local charities get maximum value out of their meager budgets. I intend to write a novel sequence that I’ve been turning over in my head for years and years. I could actually write a lot of “big picture” intentions for my life. Some of those intents overlap, and some of those intents might contrast with one another.

Transactional intent is different. Transactional intent is our intention in a given situation. If I sit down to eat, what is my intent with that meal? If I go to the store, what is my intent with that visit?

Well, there are actually a lot of transactional intents I could have at the dinner table. I might intend to have a great conversation with my wife and my kids. I might intend to thoroughly enjoy the gastronomic quality and the flavor of the food that’s been prepared. I might intend to eat small portions of the healthiest items until I no longer feel hungry. Some of those intents can overlap, and some of those intents might contrast with one another.

Similarly, I might have a number of different transactional intents at the store. I might intend to figure out what to have for supper that night and buy the ingredients for it. I might intend to just follow this grocery list in my hand because it matches a meal plan I already have at home. I might intend to buy an item or two spontaneously, for the fun of it. Again, some of these intents can overlap, and some of these intents might contrast with one another.

In their book, Botelho and Powell make the key point that success is usually found when you can bring aspirational intent and transactional intent into alignment. That’s actually trickier than it might sound.

As a person, I have a number of different aspirational intentions, as I listed above. Good father, good husband, good man, healthy person, virtuous person, financially independent person, charitable person, novelist… and other things, like simply enjoying some pleasures in life.

As you’ve seen, most life situations present a bunch of different transactional intentions, too. I might buy things as a result of planning, as a result of necessity, as a result of desire, as a result of spontaneity, as a result of social pressures, and many other things.

The key is to have a transactional intent that lines up with a key aspirational intent, as often as possible.

Take a visit to the grocery store, for example. My transactional intent when I go there is to get healthy food for the week for me and my family at a low cost. Makes sense, right? That approach ticks off the “good father” and “good husband” and “healthy person” and “financially independent person” aspirations that I have.

How can I “get healthy food for the week for me and my family at a low cost”? Well, for me, my strategy for doing that is to shop at a discount grocer (financial aspiration), to make a meal plan at home before I leave (financial, marital, and parental aspiration), to choose healthier meal options that ideally everyone will still like (health, marital, and parental aspiration), and to buy store brand items and items on sale when I can (financial aspiration).

What doesn’t fit in there is an impulse buy at the store. It’s usually something unhealthy (literally working against my healthy aspiration) and it’s an extra cost (working against my financial aspiration). So why do I do it?

The thing is, we all have less obvious intents, both aspirational (big picture) and transactional (little picture). For example, I appreciate tasty food – it is a very, very, very secondary aspirational intent (to try interesting foods) but I allow it to become much more important as a transactional intent. I want a yummy, so I eat it, even though it’s completely in opposition to an important aspirational intent (to eat healthy).

Putting some junk food in my cart is a moment where my transactional intent (get something yummy!) is out of alignment with my major aspirational intents (eat healthy, seek financial independence).

In fact, it’s those moments when our aspirational intents and transactional intents are out of alignment that cause us to get into trouble. We truly aspire to be financially independent, but we spend our money frivolously and our professional time isn’t used to further our careers. We truly aspire to be healthy, but we skip exercise and eat unhealthy foods. We truly aspire to succeed in school, but we don’t bother to study and skip class sometimes. Our aspirations point one way, but our transactions in the moment point another way, and we feel lost, like our lives aren’t going anywhere.

How do you break through this? If part of our financial problem (and problems in other areas of life) are due to our aspirational intent and our transactional intent pointing two different ways, what do we do about it?

The book’s answer is pretty close to my own answer. It comes down to reflection and preparation.

If you have a situation in your life that just occurred where you felt like your aspirational intent and your transactional intent were out of alignment, stop and reflect on that situation. One tool I really, really like to use is called the after action review, which consists of four parts.

First, state what you wanted to happen. If everything had gone perfectly and everything had been in alignment, how would that situation have gone?

Second, acknowledge what actually happened. What actually happened instead? What was different than what you ideally wanted to happen? Why did you spend so much when you didn’t intend to spend anything at all?

Third, learn from the experience. See if you can figure out why those differences occurred. Was it because of the location? The time of day? Did you put yourself in a position where one particular aspiration was shouting really loudly (like when I go to the grocery store on an empty stomach – THIS IS A BAD CHOICE!)?

Finally, adjust your behavior. What can you change to make sure that the reasons why you deviated from what you wanted to happen don’t occur again. For example, this type of thinking is why I don’t go to the grocery store on an empty stomach; I tend to at least eat a snack when I’m getting ready to go to the grocery store. There are many, many other little life tweaks that I’ve adopted because of this kind of after action review.

The second tool that’s really useful for getting aspirational (big picture) and transactional (in the moment) intent into alignment is preparation. If you see an event coming, even something as simple as a family dinner, think to yourself about what your goal is for that meal. What are you wanting to ideally get out of it?

For example, when I think ahead to my family dinner this evening, I want to have a good conversation with everyone while eating just enough of the relatively healthy stuff on the table so that my hunger is sated. That’s my goal with most family dinners, actually. It brings my transactional intent in line with my aspirational intent (be a good father, be a good husband, be healthy).

I actually envision that family dinner a bit, picturing myself eating just a little bit and having a good conversation with everyone, and I find that the process actually guides me quite nicely toward actually achieving that vision, more often than not.

Another aspect of preparation is making sure that you actually understand your aspirational intents and have them in order. What do you actually want out of life? How do various things really rank in importance in your head? When does your job trump your family, and vice versa? When is it okay to eat a really unhealthy meal? When is it okay to splurge on something expensive?

The time you invest in thinking about conflicts between your aspirations, the easier it becomes to make good choices in the moment because all you have to worry about is making sure your aspirational intent and transactional intent are the same without needing to worry about various different aspirational intents. Get your goals straight, my friend!

For the last week or so, I’ve been using this framework as much as possible to try to shape the ordinary things that I’m doing. I think about what my intent is with each action that I take and how it lines up with my big life goals, and I’m finding that doing this makes it a lot easier to make choices where my actions today line up with my big goals tomorrow.

It’s all about the intent. What are you intending to achieve with your actions?

Good luck!

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Thursday, March 8, 2018

How to Win Big at Estate Auctions and Furnish Your Home on the Cheap

An estate auction can be as much of an opportunity to fill your home as it is to empty someone else’s.

Estate auctions buy items either from the estate sales of people who have passed away or from willing sellers looking to unload excess stuff. Items up for sale can range from small lots of blankets and kitchen wares to larger offerings like cars, boats, and mobile homes, but it’s the items in the middle that offer some of the biggest bargains.

Five years ago, my wife and I purchased our first home: A more than 2,400-square-foot, 19th-century Oregon farmhouse on two acres that also included various outbuildings, an English garden, and a sprawling goat pen complete with two goats (who were given to us as part of the terms of sale).

We’d bought it as a short sale, and the previous owners were kind enough to leave some furnishings behind, but we’d moved from a 650-square-foot apartment and had never lived somewhere with more than 900 square feet of space.

During our first week in the house, as we watched television in a largely empty room and sat on delicate antique chairs left behind by the previous owner — each chair creaking as if to warn us that they wouldn’t see another century — we knew we needed some help. Our old couch wouldn’t fit through the narrow doors and was relegated to the basement (where it remains), our living room was now one of two largely empty living rooms in the house, and our bed frame was propped up with remnant lumber after two moves in two years — including one 3,000 miles across the U.S. — had taken a toll.

My wife’s cousin, who lives just a few miles away, informed us of an estate auction near our house and took us to a low grey building in Hillsboro, Ore., that resembled a bingo hall. We signed in, got our number and, in our first night, came home with a large pine dresser ($35) that matched an armoire left by the previous owners and a swiveling armchair ($45) for my wife, who vowed to enjoy her next evening in the living room on a stable chair produced within the last century.

Over a span of three years, we went back to the Friday-night auction on an almost bi-weekly basis. We bought a sofa, two latch-front end tables/media cabinets, a coffee table, a tobacco cabinet (now just an odd end table), a record cabinet (used to store games and puzzles), a gate-leg side table, a wingback armchair, matching liquor and cocktail-glass cabinets, a bookshelf, a credenza, assorted lamps, a new bed frame, and a lingerie chest. We also purchased smaller lots that included items like Pendleton blankets, a label maker, assorted glassware, and a whole lot of kitchenware.

Within that three-year period, we spent $2,456 to fill two living rooms, a dining room, a kitchen, our bedroom, and multiple guest bedrooms. That’s roughly $819 a year, which we still considered a sizable sum. However, when even a cost-conscious furniture store like IKEA proposes simple, no-frills rooms for $1,419, spending less than $300 per room feels pretty cheap by comparison; we were able to stretch our dollars further than we imagined.

When we more recently furnished an attached guest quarters with a floor-model sofa ($1,255.80), recliner ($1,362), and coffee table ($299) that, on their own, exceeded the cost of three years at the auction, we wondered briefly why we hadn’t just gone back and started placing bids again instead.

The answer is that estate auctions, while inexpensive, are fickle. Natalie Prinslow, business manager at our local auction house — Estate Sales Unlimited in Hillsboro, Ore. — has worked at the auction house founded by her parents for 33 years and notes that items typically sell for 25% to 50% of their original retail value. She also notes that said value can fluctuate from week to week.

During an auction held earlier this year on Super Bowl Sunday, Prinslow says a couch on the auction house floor sold for $375. The next week, a couch of the exact same brand, model, and condition sold for $1,100.

“Every auction is different,” she says. “It sometimes just depends on who shows up.”

Within the last two decades, Prinslow has watched the auction crowd shift from farmers coming in to buy equipment and inexpensive home goods to tech-savvy employees of Hillsboro businesses like Intel, Genetech, and SolarWorld who are less likely to take items that need some work and more interested in ready-to-use hidden gems. It’s why nights at previous auctions have featured modernist Eames lounge chairs and ottomans selling on the same night as Mantis gas-powered garden tillers and old Sears Kenmore basement refrigerators.

Typically, however, the demographics of the auction matter far less than the actual attendance. As Prinslow pointed out, there were far fewer buyers at an auction that competed directly with the Super Bowl than there was the following Sunday when there were fewer distractions. My wife and I paid considerably more for our second auction armchair ($85) than our first ($45), simply because we bid for the former at a well-attended midsummer auction and won the latter at a sparsely attended winter auction in late February.

While the price of some goods rarely changes — Prinslow says tools typically sell for close to their original retail price, while most jewelry gets a steep discount — there are some steps worth taking to ensure you’re getting the most value for your money.

1. Check with the Better Business Bureau: If you’re going to an estate auction for the first time and want to make sure you’re getting what you’re paying for, check with the BBB for reviews and complaints.

2. Ask the auction employees for help: Employees at a reputable auction house work the auctions regularly and can tell you who owned the product, what kind of condition they found it in, and how it’s holding up.

3. Test before you bid: Estate Auctions Unlimited allows potential bidders to start cars, fire up motors, plug in appliances, and get some idea of whether or not an item is worth buying. However, even Prinslow acknowledges that it’s difficult for staff to check every item themselves in estate auctions with hundreds of lots.

Beyond that, I’ll just let you know that you’re going to make mistakes. I ended up with a dead $20 hedge trimmer simply because I didn’t take the time to test it out. We bought a tiller in January that was useless when we finally went to fire it up in April — with our mower repairman declaring it dead on arrival.

You’ll also get really excited about items and end up with adrenaline-driven purchases you didn’t know you wanted. Some work out (a label maker in a box of old Nintendo games), and some just end up back at resale (we were never going to need 16 oil lamps, even at $10).

Just remember that you’re ultimately in control of what you spend, and you can always just walk away when you’re feeling rushed or cash poor.

“It’s up to you whether or not you want to bid that high,” Prinslow says. “It isn’t like the estate sales, where you pay a certain price for something whether you like it or not… it’s in your hands.”

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Wednesday, March 7, 2018

Personal Finance and Pride

When Sarah and I were shopping for houses, there were some houses that I essentially wouldn’t even look at. I’d look at the picture and then quickly find some reason not to bother with even visiting that house.

Why? Pride. I wanted a house that I would be proud to own and proud to have people come and visit.

Here’s the thing, though: my best friend lives in a very dilapidated house, one that he knew was a complete fixer-upper. It was almost scary to visit him at first, but I still did. Now, it’s looking like a nice house, but even if it still looked beat up, I’d still visit him.

I didn’t think of him as weird or as a lesser person because of the house he bought. I thought of him as my friend, who wanted a fixer-upper to live in.

In the end, it was really my weird sense of pride that drove us to avoid a number of houses in our home search, and it was pride that probably helped us pick the house we live in now.

Pride cost us money. Pride cut off options.

When I was young, we didn’t have a whole lot of money. There were points when we were probably eligible for some kind of assistance. I know quite well from the words of my parents that they didn’t want such assistance, even though the entire program was pretty much designed for the situation they were in. I’m very sure that they never even looked at the option with any seriousness.

The thing is, their lives would have been much easier had they looked for every resource available, but pride kept them from doing so.

Pride cost them money. Pride cut off options.

Over and over again, pride becomes a financial obstacle to people. From the house they live in to the car they drive to the clothes they wear to their actual financial decisions, pride comes to the forefront and helps guide financial choices.

But what is pride, and is it misplaced here?

The best definition of pride I’ve found is this one:

Pride is a feeling of deep pleasure or satisfaction derived from one’s own achievements, the achievements of those with whom one is closely associated, or from qualities or possessions that are widely admired.

Pride adds up to three things in one here, so let’s break them down.

One part of pride is a feeling of deep pleasure or satisfaction derived from one’s own achievements, which is something I’m on board with. If you’ve worked hard to achieve something in your life, you ought to feel good about it, and that good feeling is often going to push you toward more good achievements.

The second part of pride is a feeling of deep pleasure or satisfaction derived from the achievements of those with whom one is closely associated, like, for example, a parent being proud of a child’s achievements. To me, this is less important. I can understand pride in one’s parenting efforts, but feeling proud because someone else did something is a bit of a stretch.

For me, it’s the third definition that’s the real problem. The third part of the definition of pride is a feeling of deep pleasure or satisfaction derived from qualities or possessions that are widely admired. Right here, pride ceases to be about you and instead begins to center itself around what others think of you. It’s no longer about your values, but about the values that you think others have.

This wheels right back around to one of the most fundamental rules of personal finance, in my view: You have to stop worrying about what other people think.

That’s a hard thing to do, particularly if you’re a social person. We all want to be perceived as having value. We all want others to think well of us and want to interact with us in positive ways.

The thing is, if you live by reasonable values – and really live by them – that will happen anyway.

Think about the people in your life that you really, truly respect and like. If you really drill down into those people and think about what you respect and like about them, it’s usually that they have some sort of internal values that they live by and that those values are the core of the things they’ve achieved and how they interact with other people.

When I think of people I really respect and admire and like, they’re just good people, and it’s not because they dress well or have a beautiful house or anything like that.

It’s because they’re kind. It’s because they treat other people well. It’s because they take basic care of themselves. It’s because they’ve worked very hard to achieve things in life, whether those things are financially lucrative or not.

I immediately think of a guy in the community in which we live. He’s an older, retired fellow. He spends most of his time doing volunteer work and is usually wearing this old, red, beat-up (but clean) hooded sweatshirt and jeans. He’ll talk to anyone and, in fact, makes a point to grab people who seem like they need someone to talk to and take them out for coffee and a chat and he just listens to them.

Do I care that this guy dresses in clothes that look like they came from a Goodwill rack? Do I care what kind of house he lives in? Do I care what kind of car he drives? No, no, and no.

I admire this guy because of who he is and the values he has and the fact that he acts on them. That has nothing to do with any of his physical possessions.

I also think of that best friend of mine that I mentioned earlier, the guy who bought the run-down house that was almost scary when I first visited it. I didn’t turn up my nose at him because of his house choice. Instead, I was happy to visit it, because I knew of the quality of the guy that lived there.

When I go through, in my head, all of the people I really care about, my care for them and respect for them wouldn’t change if they drove a brand new car or a dilapidated rust bucket. It wouldn’t change if they dressed in a $5,000 suit or a sweatshirt with a hole in it. It wouldn’t change if they lived in a mansion or a trailer.

For me, a much approach to pride is to have pride in your achievements, have lesser pride in the achievements of those closest to you, have little or no pride in your possessions or what others think about them, and have a set of core values that govern how you act in the world. Treat others as you would like to be treated. Keep yourself clean and presentable, but let your character speak the loudest. Be friendly and listen to other people, and help them when there is an opportunity.

You can certainly take pride in living by those values, as long as the pride doesn’t drive you away from those values.

If I had taken that approach to pride earlier in my life, we would probably live in a different house right now. I certainly would not have purchased the first car that I did (though my current automobile, a car we purchased off of Craigslist secondhand almost a decade ago, would probably still have been a smart buy).

Instead, I would have put more effort into trying to live by my values, first and foremost. Spend less than you earn. Treat others as you would like to be treated. Listen and ask questions and be friendly.

Those kinds of things are harder than simply buying showy possessions, but when you live up to them, you don’t need possessions to win friends and influence people.

Take pride in who you are, not what you possess. Take pride in what you’ve accomplished, not the things you’ve bought. Take pride in what you can make out of the opportunities in front of you, not in your ability to turn up your nose at some of those opportunities. You’ll find that when you take that perspective, a lot of things in life just click together smoothly.

Good luck.

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Social Media Will Try to Bankrupt You – Here Are Four Tactics to Stay Solvent

Finally, a kind word for millennials: According to a study from Allianz Life, this much-maligned group is in fact setting itself up “to be in better financial shape than other generations.”

The study of 3,000 Americans revealed that millennials have good savings habits and that 77% feel “financially confident.” That’s the good news.

The bad news: Social media is messing with their heads.

Allianz recently released some additional data from the November 2017 study. Nearly 9 in 10 (88%) of millennials say they think social media encourages people to compare their lifestyles and wealth with other people’s – and 57% admitted they’ve spent money they hadn’t planned to use because of things they saw on social media.

Problem. In a perfect world, we’d just feel happy for our friends and respond with emoticons rather than shopping.

Spoiler alert: The world isn’t perfect. We’re buffeted from birth with commercials, billboards, product placement and other buy-buy-buy messages.

Here are four simple, effective tactics to help you break that cycle.

1. Take a break from social media.

Out of sight, out of mind, right? If you don’t see that new smartphone or sports car, you’ll be less likely to come down with a bad case of I-want.

That said, it can be hard to break the habit of keeping track of family and friends via Facebook, Instagram, or other platforms. Give it a try, starting with just one or two days away from the virtual meetinghouse.

Can’t do it? Allow yourself a set amount of time – say, half an hour after dinner – and set a timer to keep yourself honest.

Best-case scenario: You find you don’t miss Instagram et al. as much as you thought. In that case, stay gone – and use the time you would have spent in more practical and satisfying ways.

Another option: Develop a new lens for the loot you see on social media. Practice saying this phrase out loud: How nice for them – but right now, that trip to Cabo isn’t in my budget.

Remember, too, that people put the best stuff on social media and they curate the heck out of it. That perfect beach shot may not reveal the clouds that rolled in an hour later, the sand fleas, the trash along the waterline, the parking ticket your bestie got because she lost track of time.

You also don’t know what this picture-perfect life costs. Mr. or Ms. EnvyMyLife could be dodging creditors and/or fighting about money with their spouse. That’s a stressful way to live, to say nothing of the opportunity cost of spending every penny you earn.

2. List your life goals.

Where do you want to be in 10 years, or even in two? As many answers exist as there are individual circumstances. A few popular examples: Traveling. Being debt-free. Living in a new place. Raising a kid. Turning a passion into a fulfilling career.

Having a plan for the future means envisioning what that future could look like. Don’t know how to get started? Consider this saying: “What would you attempt if you knew you could not fail?” Write down your answers, then start brainstorming ways to achieve them.

Do this with friends or secretly, on a whiteboard or a legal tablet. Some people call this a vision board, others call it a life map. Call it whatever you want, or don’t call it anything at all – but do create one. It’s hard to work toward a future if you don’t have any goals.

Your dreams might sound completely different than those of your family and friends. They’re your goals and you don’t have to justify them – or even to share them. But you do have to speak them out loud to yourself.

3. Build a budget.

Incorporate those dreams into a spending plan that works for you. While you’ll want to prioritize things like retirement savings and debt pay-down, leave room for goals like travel, parenthood, homeownership, or whatever floats your boat. (Maybe owning an actual boat is one of those goals. Your dreams may vary.)

First things first: You shouldn’t be shopping for a Chris-Craft if you’re carrying a lot of debt or haven’t saved a dime for retirement. But every budget should include a “fun” category, for dinners out, movies, sporting events, and other not-strictly-necessary things that make our lives better.

Create additional categories that fit your life – a college fund if you’ve just had a child, say, or setting aside a certain monthly amount in order to start your own business in five years.

The 50/30/20 budget works for a lot of people: Spend no more than 50% of take-home pay on essentials (housing, food, etc.), 30% on wants and 20% on saving (debt service, putting money away for emergencies or retirement).

Feel free to tweak it in ways that also work for you. Perhaps you can cut food and housing costs by learning to cook or living with roommates, or reduce transportation and insurance spending by keeping your car for 10 years or more, or even becoming a one-car household.

Other budgeting tactics exist, too. Find one that fits.

4. Look for help.

Resisting the dominant paradigm is easier when buddies have your back. Surely not all of your friends are overspending their way through life. Find pals who can look beyond the here and now, and start talking.

Talk about those life goals. Talk about ways to pay down debt. Talk about how to live the best lives you can on the money you currently have, without losing your dignity or your hopes for the future.

Talk each other down when you’re tempted to bust the budget. Talk about your dreams, and list the steps you’re taking to achieve them.

Look for help in other ways, too. Visit message boards and blog forums devoted to escaping the consumerist mindset. Read books on personal finance and those that focus on building the life you want. (Pro tip: Look for them in the library – and if you can’t find the titles you want, request an inter-library loan.)

The Bottom Line

Social media is a great way to stay in touch with what friends are doing and saying. It’s also a chance to share personal finance tips, or to get the support you need from other frugalists who, like you, want to get control of their cash.

Use social media in other money-smart ways, too. Looking for a reliable used car? Put it out there! You may find that someone’s hairdresser’s cousin’s next-door neighbor is selling a two-year-old vehicle that’s mostly been driven to church and the grocery store.

The e-universe could also help you meet your household’s needs for little or no money. Check out resources like Facebook yard sale pages or one of those “Buy Nothing Day” groups and watch your dollars s-t-r-e-t-c-h.

But when your screen looks mostly like a parade of Things You Haven’t Got, leading you to play catch-up, then it’s time either to back away or to adjust the way you interact with social media. The tactics listed above will strengthen your resolve to live your own life and achieve your own dreams, vs. trying to keep up with someone else’s.

Veteran personal finance writer Donna Freedman is the author of “Your Playbook for Tough Times: Living Large on Small Change, for the Short Term or the Long Haul” and “Your Playbook for Tough Times, Vol. 2: Needs AND Wants Edition.”

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Tuesday, March 6, 2018

What Should You Do About Bitcoin (and Other Cryptocurrencies)?

In the past few months, a couple of other writers for The Simple Dollar, Holly Johnson and Michael Gardon, have offered their takes on Bitcoin, which in large part overlapped with my own (I offered my own nascent thoughts on Bitcoin back in the early days). Still, a week doesn’t go by when I don’t get two or three mailbag questions about Bitcoin, so I thought it might make sense to just address all of these questions at once in a single article.

What is Bitcoin, and how does it work?

This is probably the most common question that I get. People simply want to know what it is and how it works and why they should care, in very clear terms.

So, here’s my attempt at doing just that.

So, first, why would I be explaining this? I’ve been following Bitcoin nearly since its inception. I have a passion for these kinds of things – my previous career and my college studies drew heavily on computer science and mathematics and it remains an area of passion for me. Combine that with my interest in finances and economics and it’s not surprising that I have had an intellectual interest in Bitcoin since day one. I have personally mined a small amount of Bitcoin, way back in the very early days, and I’ve mostly just held it ever since. (Even with the huge spikes in value, I still don’t hold a lot of value in Bitcoin.)

Here’s how I describe Bitcoin to friends of mine, and even to my older children.

Let’s imagine for a second that dollars were completely digital, like a file on your computer. Imagine every dollar you have was a computer file, right? For some things, like paying some of your bills or giving money to friends, that would be super convenient. If everyone did things this way, it’d be really convenient – you could literally just pay for everything with the dollars stored on your phone.

Well, if that were the case, it’d be easy to become rich. You could just copy all of the files over and over and just make tons of money.

So, how do we fix that? Well, we could have a giant ledger that tracks every single dollar out there and who currently holds it. Whenever someone gives a dollar to someone else, it’s tracked in that ledger. You know how dollar bills have their own serial number – you’d just track them by serial number.

So, there’s a few obvious problems there. One, isn’t that a pretty big invasion of privacy? The solution there is to just let people create their own addresses, like email addresses, that keeps track of their digital dollars. That address isn’t tied to any individual person and is completely anonymous. Let’s call that a “wallet.”

A second big problem is trusting that ledger. Who gets to run the ledger? Who gets to record new entries in the ledger? Furthermore, what’s to stop the person running the ledger from just wholesale inventing more digital dollars and adding them to the ledger and giving them to himself?

Well, you could make the ledger trustworthy by letting pretty much anyone who wants it keep their own copy of the ledger. So, imagine that tons and tons of people have a copy of that ledger, and whenever a transaction occurs, all of the ledgers get updated. If you try to give a dollar to someone that you don’t actually have, the ledgers reject this and say it’s an invalid transaction. Someone can’t just add a bunch of dollars to their own copy of the ledger because all of the other ledgers would say, “That transaction doesn’t or can’t exist,” and reject that transaction.

It’s like an accounting firm that keeps a bunch of copies of the books for a business to make sure they’re all the same, except those copies of the books are distributed all over the world. If someone puts some bogus entries into one of the copies of the books, then that copy would get rejected and thrown away because it didn’t match the many many other copies out there.

This is what Bitcoin is. You have digital Bitcoins you keep in your wallet. When you want to spend them, you give them to someone else. (These steps are all password protected, of course, with some pretty clever cryptography to keep everything secure.) That transaction is shared in all of the ledgers in the world, so you truly no longer have the Bitcoin you spent – if you tried to “spend” a second copy somehow, all of the ledgers would just say “nope” and reject the transaction as bogus.

So, what’s the reward for keeping a copy of the ledger and dealing with all of the transactions? Well, they’re rewarded with occasionally receiving a “free” Bitcoin. This is called “mining” – part of “mining” is that you help maintain the ledger. The ledger that everyone has a copy of is called the “blockchain.”

So, Bitcoin is like virtual money where every time you spend any of it or receive any of it, that transaction is stored in many, many thousands of copies of a ledger (called the “blockchain”) to ensure that transaction is a valid one. Basically, instead of having a physical dollar to demonstrate that you have a dollar, the “proof” that you have that dollar is in the many, many ledgers out there that say you have this dollar. When you spend that dollar, rather than giving a physical item, you just tell all of the ledgers that you’ve given the dollar to someone else, an effort that’s handled electronically.

(I’m simplifying here in some places, but this is the core idea.)

OK, so… what’s the big deal?

The big deal is that the concept of Bitcoin – and the blockchain that supports it – gives virtual things most of the benefits of physical versions of those things. You can’t simply copy them at will, for one, and transactions are extremely difficult to rig. Most of the security issues that have happened with Bitcoin are due to people doing unsecured things with Bitcoin that they wouldn’t dream of doing with actual cash money, like letting the shady guy down on the corner “hold your money for you.”

In concept, Bitcoin – or at least the broader idea of how it works, even if Bitcoin itself isn’t exactly perfect – solves most of the issues with an actual digital currency.

Because Bitcoin was the first digital currency to do this, it’s the one that has been adopted most widely (there are some other currencies trying to do the same thing – we’ll get to those in a bit). I should note that Bitcoin started off as a proof of concept of a really clever idea, and I don’t think even the original creator of it ever believed that it would ever become wildly popular.

People started using Bitcoin at first for transactions as kind of a novelty. After a while, some people who wanted to do financial exchanges that were … shall we way, “off the books” … started using Bitcoin for those transactions, and this made people want to start buying and selling Bitcoin in exchange for both real world currency and for illicit goods. After that, people started investing in Bitcoin, with the idea that if they bought Bitcoin and waited, they could sell it for more than it was worth, because if more people were buying Bitcoins with dollars (or Euros or whatever), the value of Bitcoins would inevitably go up, and then eventually they could sell their Bitcoins and make a nice profit.

That leads us to where we’re at today. You have some people buying and selling Bitcoin as an investment. Others are using it as a legitimate online currency. Others are using it for the combination of privacy and security of long-distance buying and selling.

It would not take too much for Bitcoin to be accepted for payment at a store if you have a smartphone with you with a Bitcoin payment app on it. The backend for that is basically in place.

Why won’t Bitcoin just replace “real” money?

If a government decided that they were going to “back” Bitcoin in some fashion and use it for their official transactions, then it certainly could become “real” money. However, nations generally want a bit more control over the money in their country – Bitcoin would cause them to lose the ability to control the money supply in the country.

(Okay, a bit of economic simplification to follow.)

The big thing that keeps prices from swinging rapidly in a modern country is that the government keeps a pretty tight grip on the money supply. If there is too much money out there, it’s just like normal supply and demand – an individual dollar isn’t worth as much because there are so many of them everywhere and the price of things you buy in the store goes up and this can spiral out of control if they’re not careful. If there’s not enough money out there (and people are just holding onto what they have), then people stop spending money entirely, stores go out of business, and so on. There’s a balance needed there to keep economies going – a dollar needs to be fairly rare, but not TOO rare.

Just using Bitcoin wouldn’t work for a modern nation, because they lose all control over the money supply. Prices would start swinging like crazy, just like the value of Bitcoin. You don’t want the prices of all goods to fluctuate 10% on a daily basis.

My guess is that at some point, governments will start adopting something akin to Bitcoin, but with some government control over the money supply. Bitcoin inherently doesn’t have that.

What about other cryptocurrencies, like Ethereum?

With the huge success of Bitcoin, it’s not surprising that other people have jumped into the mix with their own variation on Bitcoin. Some of them are basically just copies of Bitcoin where someone has a bunch of the currency and hope that it’ll take off and they’ll get rich – those are virtually guaranteed to fail.

Some of the others that actually have a clever improvement on Bitcoin integrated into them have achieved some popularity on their own. Ethereum is one example of that. Ethereum works much like Bitcoin, with the “blockchain” shared ledger idea, but it basically allows more complex contracts to be written instead of just “buy” and “sell” transactions. For example, you might have a contract with someone that enables you to be paid automatically on a certain date and that contract is literally written into the blockchain.

In fact, a lot of large businesses are starting to use an Ethereum-like system to manage internal contracts or agreements, which saves a ton of time and effort for all involved once the system is set up.

So, should I invest in Bitcoin or Ethereum or any other digital currency?

In a word, no, not unless you’re completely fine with losing all of it.

Bitcoin is a real thing with real value, but there is no entity out there that is really concerned with maintaining that value first and foremost. It doesn’t have, say, a Treasury Department working to make sure that the value of it is stable. It’s not even comparable to a company’s stock, in which the company (usually) wants the value of the stock to go up.

Instead, you have a bunch of different entities out there with a bunch of different aims. Some want it to keep going up forever. Some want it to go down. Some want it to go down for now, then up. Others want the exact reverse of that. And there’s no regulating force behind it, no one that wants it to be stable and to maintain value long term. There is no one obligated to buy it if everyone starts selling it, or sell it if everyone starts buying it, for the purpose of adding stability.

With money, treasury departments do this directly. With stocks, companies do this indirectly with things like dividends, and occasionally directly with stock offerings and stock buybacks. With cryptocurrencies, as of yet, no one is doing anything for stability, (other than small startups solely piggybacking on a particular cryptocurrency, and they generally don’t have enough power to stop a flood of selling).

That doesn’t mean that Bitcoin is somehow bad, just that an individual investor shouldn’t be betting a significant amount of his or her net worth on something that can fluctuate so wildly. If you have a bit of extra money and want to dabble in it, I say go for it, but I wouldn’t based anything I was relying on for future living on it.

But aren’t people getting rich off of this?

Yes, there are quite a few people who have gotten rich off of cryptocurrencies, Bitcoin being the most notable one. Mostly, the people who have gotten rich are people who were speculating in Bitcoin with money they could afford to lose without disrupting their financial future – many had substantial wealth already, or had very little to lose to begin with and were willing to accept enormous risk.

I could invest a lot of my net worth in any number of highly risky things. Some might pay off enormously – most wouldn’t. If I have resources to spare, then this might make for a great way to spend my time and extra resources.

The reality is that most people don’t have that kind of flexibility in their finances. Investing enough money into something to actually make a huge change in their life would require risking a large portion of their net worth in something with a high risk factor, and if that investment didn’t pay off, that person is left destitute. It’s far too big of a risk for most people to reasonably take.

When you see the success stories around Bitcoin, what you don’t see are the twenty times as many failure stories in all kinds of other investments, or even the failure stories of people who bought into Bitcoin when it was near its peak and lost half of their money in a month. They don’t get reported because they’re not exciting. The guy who was already wealthy who invested $1 million that he could afford to invest and turned it into $20 million? That’s a story.

It’s honestly not that different than the gold rushes in the 1800s. Stories would spread of the person who struck it rich early on and that would cause a stampede, only for almost none of the next wave of people to do very well. The people who did do well were the ones who set up the hotels and sold the supplies.

So, what should Simple Dollar readers do?

First and foremost, understand in a basic way what Bitcoin is. Bitcoin is a virtual item that people can buy and sell. When one is given to someone else, that transaction is recorded in many, many ledgers around the world. That system of ledgers is called the “blockchain.” There are a lot of smart security steps in this process. That’s really all most people need to know. Other cryptocurrencies use basically this same idea, with some variations.

Second, don’t invest in any cryptocurrency unless you can afford to easily lose all that you “invest.” Never, ever put any money into a cryptocurrency unless it’s money you don’t need to survive on in the future. If you want to play around with Bitcoin or any other cryptocurrency, then do so, but use “fun money” to do it. There are a lot of scammers out there making up new cryptocurrencies, and even the reputable ones are bouncing around in value like a child in an inflatable pen.

Third, I virtually guarantee there will be versions of blockchain technology that you will be using ten years from now. The core idea is one that you should most definitely understand, because it is a really great way to make digital transactions secure and verifiable. There are already companies using this internally, and there are really brilliant ideas for blockchain being publicly considered and developed all the time. Understand it now, so it seems more natural later. I truly believe that some variation on blockchain is how all financial transactions will eventually be handled – it just likely won’t be through Bitcoin itself or any of the other current cryptocurrencies.

Finally, if you have any deep interest in math, computer science, and economics, cryptocurrency, Bitcoin, Ethereum, and all of these things are really fascinating right now. How the systems actually work and some of the uses and ideas being proposed right now are really, really interesting. If this kind of topic interests you, the best starter book I’ve found is Mastering Bitcoin: Programming the Open Blockchain by Andreas M. Antonopoulos, which will teach you the basics. Read it slowly, look up things you don’t understand, and you’ll get there.

What about you? Are you invested in Bitcoin or other cryptocurrencies?

In early 2012, I mined a small amount of Bitcoin while I was learning about it. (Remember, mining effectively means supporting the network of ledger copies called the “blockchain.”) I participated in a very early Bitcoin mining pool that was run in a very ad-hoc way, where it was more of a lark than anything. Bitcoin was valued at about $3 per BTC at that time. I ended up with only a fraction of a Bitcoin – approximately 0.05 BTC – but I only mined for a very short while. A year or so later, I donated 0.02 BTC to a website that I was enjoying. I still have the remaining 0.03 BTC. I haven’t bought any Bitcoin, nor sold the 0.03 BTC that I have.

I find Bitcoin pretty interesting and have followed it and other uses of the “blockchain” idea for years. I think Bitcoin will retain some value over the long term, but I am not at all convinced that it will remain over $10,000 per BTC. I expect that it will remain incredibly volatile. I have little faith in other cryptocurrencies other than as proof of concepts for neat ideas until one is backed by the full faith and credit of an extremely large institution that ties its financial future to it and thus has interest in maintaining some stability. I will not be investing in any cryptocurrency until something like that happens, though I may attempt to mine some for fun.

I do not feel someone is foolish for investing in Bitcoin provided that they have the financial resources such that it is not financially damaging to them to do so. If someone is well off and uses excess resources to invest, or someone is doing it with their fun money, then there are far worse things to do with your money than dabble and trade in Bitcoin. I just discourage anyone from using any money that they need for their financial future in Bitcoin or any current cryptocurrency.

Good luck, and have fun.

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Why Do I Get So Many Credit Card Offers in the Mail?

It may not feel like it as you stuff a new batch of junk mail into the “to shred” pile, but having a mailbox flooded with preapproved credit card offers can be a good sign.

Credit card issuers routinely send attractive card offers to consumers with good to excellent credit. Therefore, when you receive these types of offers in your mailbox, it usually means credit card issuers believe you to be a good credit risk and that they want to do business with you.

Why Card Issuers Mail Those Preapproved Offers

If you receive preapproved offers in the mail, you’re certainly not alone. Credit card issuers are always hunting for new customers who meet their qualification criteria. Billions of promotional letters — a.k.a. preapproved offers of credit — are mailed out by credit card issuers every year.

Why do card issuers mail so many preapproved offers of credit? Because it works. By prescreening applicants, card issuers can, for the most part, avoid advertising to people who are likely to be turned down for their product. The result is a much smarter, more cost-effective and targeted advertising campaign.

How Prescreening Works

Selling your data is the primary way the three credit bureaus make money. Credit reports are probably the most universally recognized “product” the credit bureaus sell. Yet, there are several other ways the credit bureaus can profit off the sale of your information.

Prescreened lists are another revenue generator for the credit bureaus. So how does prescreening work? When a credit card issuer wishes to purchase a prescreened list of consumers for prospecting purposes, they begin by providing one of the credit bureaus with what’s called “selection criteria.” The card issuer might, for example, want to purchase a list of consumers (names and addresses) who meet requirements such as:

  • Residing in a specific state
  • Credit score of 720 or higher
  • No late payments on file in the past 24 months
  • No bankruptcy present on credit reports

If your credit information matches the card issuer’s selection criteria, then a preapproved offer of credit may find its way into your mailbox in the not-so-distant future.

Does Prescreening Hurt Your Credit Scores?

That prescreening process does not harm your credit scores in any way. Yes, a portion of your credit information may be accessed during the prescreening process and, yes, a promotional inquiry may be posted on your credit reports.

Such inquiries, however, are known as “soft inquiries.” They don’t have any impact on your credit scores. In fact, only you can see them… not any lenders, and not any credit scoring systems.

How to Stop Promotional Inquiries

Preapproved credit card offers might be a good sign that your credit is healthy — and they can even a source of juicy signup bonuses. But that doesn’t mean they’re welcome in your mailbox. Nobody loves junk mail.

Even though prescreening doesn’t harm your credit scores, you have the right to prevent your credit information from being accessed for prospecting purposes. Whether you don’t like the idea of credit card issuers (or others) being able to access your information without prior consent, or you simply hate junk mail piling up or the ecological waste it creates, you can put a stop to it.

You can opt out of receiving future preapproved offers by visiting OptOutPrescreen.com. Fill out a simple form online and you can opt out for five years. You can also print and mail in a request if you wish to opt out permanently. If you ever change your mind, the same website will allow you to opt back in as well.

There’s an additional benefit to opting out if you choose to do so: Fewer credit card offers in your mailbox means fewer credit card offers that can be stolen by fraudsters. And while opting out certainly won’t prevent you from being a victim of fraud, it will at least reduce your exposure.

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Monday, March 5, 2018

Questions About Vacuum Cleaners, Roth IRAs, Any Dacyczyn, 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. Finding new financial goals
2. Investment Policy Statement
3. Amy Dacyczyn update
4. Using a Roth for college
5. Indoor temperatures?
6. Supporting sibling with low-paying career
7. “Dead” vacuum cleaner?
8. Suggestion: day old bread
9. Credit cards and emergency funds
10. Finding a local Facebook group
11. Savings rate question
12. Why is financial responsibility hard?

This past week, I got hammered with a cold worse than any I’ve had in a very long time. I actually stayed in bed for almost three straight days because I felt dizzy standing up and had virtually no energy.

I’m half-recovered as I write this. I can at least get out of bed now and it doesn’t hurt to eat a little bit of food, but I still feel exhausted.

A cold really takes it out of you. If you’ve noticed that some of my posts have been a bit… off in the last week, that’s why. My cold-influenced tired brain perhaps isn’t the best at keeping up with writing!

On with the questions!

Q1: Finding new financial goals

I’m asking for advice regarding where I should put my money. I spend less than I earn and my only debt is my mortgage. However, since paying off my other debts, I feel like I haven’t made much progress on any one front. I paid off my debts using the ‘snowball’ method. Knocking off one debt at a time gave me a satisfying feeling.. like I was really improving my situation one step at a time. Without such easily defined goals, my focus has evaporated.

I’m single, 32, with a stable full-time job (10 yrs) in the medical field. I bought a place three years ago and I pay $200 extra on my mortgage every month; I owe about 81% (with PMI) of the total mortgage and my rate is 4.25%. I contribute 12% (match is 6%) to my 403(b). My 403(b) balance is 1.5x my yearly wages. I’m a cord cutter, my car is paid off, and while my spending has inflated a little bit, I’m still pretty frugal.

Here’s the problem: I don’t have much in the way of savings.. only a few thousand. My house is good now but needs some work (replace A/C, garage door, windows). I want to start contributing more money to my savings account but I’m not sure where to take it from. Stop the extra payments on my mortgage? Should I wait until I get rid of my PMI? I’d hate to back off on my retirement contribution.
– Julie

If I were you, I’d keep your retirement contribution where it is, and then I’d set up a number of goals for yourself beyond that.

The first one would probably be the PMI. It sounds like you’re close to getting rid of it, so aim for deleting that PMI. That will knock a portion off of your mortgage payment, just like that.

The second thing I’d do is aim for having some level of cash savings for emergencies. It sounds like you have a small amount for small emergencies. Aim for a larger amount – a few months of living expenses so you can just roll through any big crises that occur (like a sudden job loss, for example).

After that, I’d start knocking down the home repair issues you mention, one at a time.

None of these goals should take you that long to achieve – a few months to a year, given your current state. Good luck!

Q2: Investment Policy Statement

I recently read about the idea of a Investment Policy Statement (https://www.bogleheads.org/wiki/Investment_policy_statement) which defines your investment goals to keep the course during times of market volatility. Do you have one of these, either formally or informally?
– Karen

I think it is a good idea to actually write down your investment goals regularly and your approaches for meeting those goals and your reasoning for doing so. The Investment Policy Statement you shared here is just a nice formalized way of doing that.

It’s pretty formal. It has a lot of structure already in place, which is great for people who want to walk through it and have someone fill in the blanks for them, but it might be overkill for some.

I have an investment statement of sorts, not as formalized as this, but a description of my own goals, how I’m approaching them, and why I’m using that approach. I’m a writer, though – it wasn’t hard to come up with a good structure that fit what I wanted. For non-writers, a structure like this one might really be useful.

Q3: Amy Dacyczyn update

Hey Trent, where are Amy Dacyczyn and The Tightwad Gazette nowadays? Oh, I realize she stopped publishing years ago. But she was one of the defining financial figures in the 1990s world.

I think my larger question is, do the leaders in any time frame in the frugality field stay with it? Are they now, in the years approaching retirement age, still committed to and living out what they learned and published 25-30 years ago?

I followed her closely back in those days. She was similar in age to me and an absolute inspiration. But now, 25 years later, I realize that all the financial writers I follow closely (like you) are more the ages of my children, and many have only been writing for a few years. Is there staying power to this philosophy?

Even when, due to having “done” it, someone’s life turns out prosperously? Do such people keep on the same track for decades? It’s too soon to say for many of the current writers who aren’t even out of their thirties yet. But what about Amy? Plus, I missed her. Over time one felt really connected to her family. I’ve always wondered how they all turned out.
– Nina

A few years back, I actually had the chance to talk to Amy, and my conclusion from talking with her is that the stress of having to write a steady stream of material for so many years eventually burned her out on it, and when she retired from The Tightwad Gazette, she retired for good.

I’ll be honest: it is really, really hard to come up with good content day in and day out. There’s a balance of wanting to find new angles but also hammer home fundamental concepts without getting (too) repetitive. There’s a balance of writing personal stuff without it becoming a personal newsletter, and trying to make sure things stay useful. There’s the sheer time spent researching and filtering ideas and trying things out and actually writing the articles. And then the cycle repeats itself.

A few times over the course of The Simple Dollar, I’ve had to significantly change things up to avoid that kind of burnout. It doesn’t matter how much you love a topic, it’s going to eventually happen. I think I have a good balance right now, but will it be a good balance in a year or two? Who knows?

The thing is, when I step away from this, whenever that might be, I’m going to want to take a long break from it.

This is almost exactly the sentiment Amy shared with me when I talked with her. She did it for a long time, decided to retire, and stuck with that retirement. It was almost definitely the right move for her own well being.

Q4: Using a Roth for college

I’ve followed your blog for years. I just stumbled upon an article about how to pay for college. What are your thoughts on converting a conventional IRA to a Roth IRA to use as a college fund? We would have it in the Roth for the 5 years prior as the rules state. I gather taxes are paid upfront… so I plan to consult an accountant about how that would be for us specifically. I have to add that we are on track for retirement from my husband’s accounts. This is one I had from working may years ago. So far our plan is 2 years of community college, then using the Roth to send our child away to finish the degree.
– Jenna

Provided that retirement is already accounted for even without that IRA, I don’t think this is an unreasonable plan. However, I can’t give it full-throated approval because I don’t know your full financial state.

I think your approach of consulting an accountant with this is a wise move. A CPA should know the rules regarding these matters and can ensure you’re following them appropriately.

Q5: Indoor temperatures?

What do you keep the indoor temperatures set at in your home during the winter and summer?
– Julie

During the winter, we let the temperature go down to about 55 F at night. When the whole family is home, the home temperature is usually around 65 F. During the workday, when I’m the only person at home, I usually turn it down to about 60 F and wear a long sleeve shirt and slippers. I personally would allow it to get colder than this, but these temperatures are a compromise.

During the summer, we leave the air conditioning off until the indoor temperature hits around 80 F, at which point we close the windows and kick on the air with a thermostat setting of around 74 or 76 F (depending on humidity). Again, a wider temperature range really doesn’t bother me, but this is a compromise.

During a typical Iowa year, our furnace and air conditioning don’t run very much except during the most extreme peaks of summer and winter. One of our neighbors literally did not believe us when we said our energy bill during a prime winter month was about 1/3 of theirs, and we have similar sized houses.

Q6: Supporting sibling with low-paying career

Hi! I’m 28 years old, single, earn about $110K per year as a software engineer. I have been responsible for raising my younger sister (now 18) for the last five years since our parents died. She is considering pursuing a degree in social work. I have told her that if she does I will support her but she wisely made the point that such support is tenuous and creates a difficult relationship between us. I feel obligated to help because I used the vast majority of our parents’ estate after they died paying off my own student loans and buying a house but there is no legal obligation for me to help. Do you have any suggestions?
– Danny

My best idea is that you pay for her education in full, guaranteeing that she leaves school with no debt and thus making the social work path much easier to follow. In other words, you’re putting your money where your mouth is right away.

If she already has education handled, start contributing to a post-graduation fund solely in her name and do it now.

In other words, the best thing you can do is speak with your actual money actions NOW in non-rescindable ways.

Another option would be to draw up a contract of sorts between the two of you, in which case you should consult a contract lawyer.

This might seem like a trust issue on the surface, but I think that it is a good layer of security for her to have regardless of how much she trusts you.

Q7: “Dead” vacuum cleaner?

Have had a vacuum for the last 15 years. It barely sucks up anything any more. How do I know when to replace it?
– Juliet

The absolute first thing you should do is thoroughly clean it, top to bottom, inside and out. Most of the time, suction problems in a vacuum cleaner come down to some kind of obstruction, usually caused by many years of buildup of dust and hair and other things.

If you have no idea how to do this, the manual will give you clear directions… but finding the manual might be a trick, too. I suggest Google – that’s how I found our vacuum manual, to be honest.

If you haven’t ever done this before, you’re probably going to pull out a lot of dust and hair and gigantic dust bunnies and other things from your vacuum, clearly answering the question of why it won’t suck up dirt as well any more. Just follow the disassembly and assembly directions in the manual and clean everything thoroughly as you go.

Q8: Suggestion: day old bread

Another idea you should use: go to the bakery or the bakery part of the grocery store and see if they have any old bread on discount. It makes the best toast! And you can turn it into bread crumbs and croutons because the bread is already dry for that!
– Angela

Angela sent in a list of food tips and this one was my favorite of all of them. It’s something we do sometimes – if I see a day old loaf of bakery bread at a discount it’ll often wind up in our cart.

I like to use it in making French onion soup, as a piece of stale bread soaks up the wonderful broth so well. Old bread is great at the holiday season when you can use it to make a great dressing.

Another tip: I absolutely prefer using day-old bakery bread to fresher bread when I’m making a grilled cheese sandwich. It adds just a little crunch to the sandwich that’s just amazing!

Considering the bread is often cheap, it’s a good deal, in my opinion. If nothing else, you can just dry it in the oven just a little more, toss it in a blender, and have a super cheap source of bread crumbs.

Q9: Credit cards and emergency funds

I don’t understand why I don’t just use a credit card for my emergency fund. Seems to me that using cash just ties it up.
– Dave

The purpose of cash in an emergency fund isn’t to earn a return, but protect you from having to go into debt due to an emergency.

Furthermore, there are many, many emergencies that a credit card won’t help with. It doesn’t help in any situation where you’ve lost your wallet. It doesn’t help in identity theft situations. It doesn’t help if the bank decides to revoke your line of credit. Cash, however, does fine in those situations.

Not only that, in a large emergency, you’ve just put yourself right back into debt, because it’s likely enough of a pull on your credit card that you’re going to be carrying a balance on that card for a while and thus losing everything you “gained” to credit card interest – and more.

Cash is king.

Q10: Finding a local Facebook group

You mentioned finding a local Facebook group for buying and selling and asking for items locally. How do you find such a group?
– Adam

Facebook doesn’t make this immediately intuitive, unfortunately. Most such groups are started by local people just want a swap group like this. You can usually find it by searching for the name of your town and state in Facebook, if there is such a group. Try also searching for the largest nearby town.

If there doesn’t seem to be one for your town, start one and invite everyone local you know of to join it and encourage them to invite friends to it, too.

I’m in my local community group and it’s mostly used like a classified ad section or Craigslist. People mostly list things at a pretty reasonable price and there are often requests in there from people looking for items.

Q11: Savings rate question

I was reading an older article of yours where you talked about how important savings rate is but you lost me on the math. Could you explain it a little better? What is savings rate and why is it so important?
– Charlie

A person’s savings rate is the amount of income that a person saves for the future divided by their total income after income taxes.

So, let’s say a person makes $55,000 a year and pays $5,000 total in income tax, leaving them with $50,000 a year. That person puts $4,500 a year into their 401(k) at work and $5,500 a year into their Roth IRA, adding up to a total of $10,000. Thus, their savings rate is $10,000 divided by $50,000, or 20%.

Savings rate is vital for two reasons. One, the higher it is, the more you’re saving for the future. Two, the higher it is, the lower your cost of living, which means that you’ll withdraw less each year upon retiring.

In that example above, the person is living on $40,000 per year ($50,000 in after-tax income minus the $10,000 they’re saving). Thus, if they retire and choose to withdraw 2.5% of their retirement savings a year to live on, they’ll need $1.6 million (this assumes no Social Security and no change in lifestyle), which they’d reach in 37 years.

On the other hand, if that person downshifts to living on $35,000 a year ($50,000 in after-tax income minus the $15,000 they’re saving), that represents a 30% savings rate. Thus, if they retire and choose to withdraw 2.5% of their retirement savings a year to live on, they’ll need only $1.4 million (again, assuming no Social Security at all), which they’d reach in 30 years. Jumping from 20% to 30% shaves off about a fifth of the total saving time.

Now, naturally, a person’s probably going to get some Social Security benefit and they’ll probably withdraw at a 3% rate or maybe even higher – 2.5% is very, very safe – and they’ll also probably spend a little less in retirement than when they’re working, so the real world numbers here would actually be far more optimistic, with only 20 years or so of savings at a 30% rate to get there.

Q12: Why is financial responsibility hard?

Why do you think it is so hard to be financially responsible?
– Kevin

I think our culture discourages financial responsibility and encourages spending. Almost every aspect of it glorifies spending every dime you bring in, and much of the media presents a nonstop array of things to buy and desire.

The amount of media depicting people spending money on all sorts of unnecessary stuff blows away the amount of media depicting people making financially responsible choices.

That rubs off on how people talk to and interact with each other. People go shopping as a social occasion. People are wired to “feel good” when they buy, and if you have money in your checking account, why not feel good? That’s a powerful, powerful draw.

It takes a lot of self-control to buck what’s considered “normal” especially when there are positive feelings tied to that normalcy. Self-control isn’t easy to generate unless you can convince yourself there’s a deeper problem.

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 Vacuum Cleaners, Roth IRAs, Any Dacyczyn, and More! appeared first on The Simple Dollar.

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How Heavily Should Seniors Be Invested in the Stock Market?

Because people are living longer, seniors often are advised by financial experts to keep a large portion of their holdings in the stock market, to fund what could be a very long retirement.

Unlike savings accounts, which typically pay low interest rates, the stock market offers investors an opportunity to grow their cash holdings at a rate higher than the pace of inflation. However, that opportunity brings added risk. When it comes to the stock market, there are no guarantees.

During 2017, the stock market soared, but giddy investors got a wake-up call earlier this month when the market underwent a sharp correction. Periodic setbacks are easy to shrug off when you’re 30, 40, or even 50. However, as you near retirement, it becomes more important to protect your money, since you may need to access those investments before they have time to recover.

If the market takes a major dip, you may not be able to wait years for it to bounce back before you start withdrawing money in retirement. Matt Hylland, an investment adviser based in North Liberty, Iowa, advises caution.

“The stock market is volatile and can take years or even decades to recover from losses,” he said. “Seniors invested too heavily in the stock market could be forced to withdraw their savings at a time when stock prices are depressed, and therefore take out a larger portion of their portfolio than may be sustainable.”

Deciding how much of your portfolio to invest as you approach retirement can be a difficult call. There is no single strategy that works for everyone. Things to consider include your tolerance for market downturns, your life expectancy, and your ability to live on your on your savings without income from investments.

People who haven’t accumulated enough money to retire on schedule may be tempted to take bigger stock market investment risks to make up for lost time. This can be the right decision, but only if you’re prepared for market setbacks.

Dealing with increased longevity

James Barnash, a financial advisor in Buffalo Grove, Ill., said as life expectancies have increased, relying on the stock market to provide adequate retirement income has become more common. With savings accounts offering little incentive in the way of interest rates, “it has been hard not to look at the stock market as the tool to use,” he said.

Although there’s no single investment strategy that works for everyone, he recommends that seniors begin by considering “the rule of 100.” This approach requires you to subtract your age from 100. The result is a conservative recommendation for how much of your portfolio should be invested in stocks. For example, if you’re age 65, you’d want 35% of your total retirement portfolio invested in stocks.

Brett Gottlieb, an investment adviser in Carlsbad, Calif., says this approach makes sense for prudent investors.

“The concern with going more aggressive than this is, as the market corrects or a bear market begins, you may not have enough time to ride the cycle all the way through and… losses could impact your planning goals,” he said.

Looking beyond the stock market

Savings expert Ken Tumin of DepositAccounts.com dislikes the uncertainty of the stock market, preferring savings accounts and CDs, despite the current low interest rates. In order to avoid feeling pressured to invest heavily in stocks, he suggests that seniors focus on creating large savings accounts before they retire.

If you can live on income from a combination of savings, a pension, Social Security benefits, or other sources, owning stocks becomes purely optional. If you don’t have the stomach for stock market fluctuations, you’re free to leave such risks to others.

Aside from the financial burdens, taking on too much risk can take a personal toll, warns Tumin. “Some people can’t sleep at night with a large portion of their money in a roller coaster stock market investment,” he said.

If you need extra income from stock market investments to fund your retirement, make sure you have enough cash set aside to cover unexpected near-term expenses. If you’re forced to take money from your investments for emergencies, you may spend down your portfolio too quickly. And be aware that if you tap into investments ahead of schedule, the additional income could place you in a higher tax bracket.

Working longer

Some financial experts advise seniors who worry about having enough money to pay for their retirement to simply to work a few years beyond the traditional retirement age of 65, health permitting. The best solution may be to stay with your current employer and delay retirement, said Barnash.

“With retirement lasting for two or more decades, many seniors don’t have enough to keep them busy anyway, so working longer, saving more, maybe delaying Social Security for a few more years all can add to a more secure, enjoyable retirement,” he said.

A new working paper from the National Bureau of Economics Research found that delaying retirement by just three to six months can have the same effect on your retirement standard of living as saving an additional 1% of your salary for the previous 30 years.

Citing a 2016 report from the Stanford Center on Longevity, CBS News reported that in 2012 almost one-third of Americans between age 65 and 69 were working at least 10 hours per week. That marks an increase of 26% since 2000. The report also noted that 17% of Americans age 70 to 74 were working in 2012, an increase of 42% over 2000.

Barnash acknowledged that health concerns may limit the ability of some people to work beyond the traditional retirement age. For people in such circumstances, he suggests looking into part-time jobs if possible.

But the fact is, none of us knows what the future holds and if working longer will be a realistic option later in life – so it’s best to start saving now.

Related Articles:

The post How Heavily Should Seniors Be Invested in the Stock Market? appeared first on The Simple Dollar.

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