Saturday, March 17, 2018

The Spectrum of Personal Finance

About a year ago, I learned that an old colleague of mine had retired and become something of a “hermit.” He was living apparently completely off the grid and was building a cabin for himself on a piece of secluded land.

This gradually progressed into a conversation with another old colleague about that “hermit” and about how people can approach life in a very different way, so different that it feels almost alien.

I made the point that, in some ways, I appreciated the hermit’s life choices, and my friend responded by pointing out that I’m already halfway there. He’s aware, of course, that Sarah and I live far below our means and are aiming to retire when our youngest child leaves the nest (thereabouts).

I don’t think of our lives as being hermit-like at all, but I also see some differences between our life choices and those of most people our age. We’re still in our thirties. We have zero debt and a very, very healthy retirement savings. We don’t really engage in the more expensive hobbies and trends that many people our age fall into.

It occurred to me that the financial decisions that people make fall into something of a spectrum. At one end of that spectrum are people living paycheck to paycheck and accumulating debt. At the other end are people like my old hermit friend. We’re somewhere in the middle.

From the perspective of the paycheck to paycheck people, the hermit seems crazy. From the perspective of the hermit, the paycheck to paycheck people seem crazy. We’re somewhere in the middle and aren’t perfectly in sync with either group, but we can appreciate and get along with both.

I thought about this spectrum idea for days and eventually I started making up a list of traits of people at various points on this spectrum. At various times, I’ve lived at several spots on this spectrum myself, and I have friends and know people at virtually every point along it.

Here’s how I see that spectrum, with the chief dividing line amongst the band being that person’s savings rate. (Savings rate is the percentage of income that a person saves for the future.)

Red – Paycheck to Paycheck – 0% to 2% Savings Rate

People at this end of the spectrum tend to spend virtually all of their income each paycheck, with very little savings for the future for any reason. They’re usually carrying some debt and paying it down slowly. They typically struggle mightily to come up with money during an emergency and usually deal with emergencies with more debt by putting it on a credit card and then paying that debt off slowly.

The exact lifestyle of people in this band varies a lot depending on their income, but in general their day-to-day lives are pretty expensive. They eat out a lot and fill their lives with as many perks and treats as they can fit in.

Often, people in this range live in the most expensive house they can possibly afford, drive the newest cars they can possibly afford, and have all of the latest stuff they can possibly afford. People in this range tend to treat their possessions as highly disposable, too, and don’t really think of them as long term investments.

In short, people in this part of the spectrum rarely think in a concrete way about their life beyond the next paycheck or two, at least in terms of how they’re going to pay for things. They just assume it’ll work out and that their “future self” will pay for it.

People in this section generally don’t read much at all, or if they do, it’s nothing having to do with personal finance. Fully 30% of Americans don’t read books, and many who do read only one or two books a year. It’s hard to really point to a personal finance book that describes this area of the spectrum.

I should know – this described my life for a few years in the 2000s. It’s a hedonistic lifestyle, one that involves a lot of daily short-term pleasures that cover up a great deal of underlying stress and worry.

This is the part of the spectrum where about 75% to 80% of Americans are. After all, the data shows that 78% of Americans live paycheck to paycheck.

Of course, there are people in this part of the spectrum due to life events and not necessarily by choice. If you’re in a cycle of minimum wage part time work, it can be very difficult to get out of this part of the spectrum, even if you want to.

Orange – “Normal” Retirement and Debt Freedom – 2% to 8% Savings Rate

Some people come to realize that living in the “red” part of the spectrum is a road to disaster, so they tweak their lifestyle a little bit. They don’t want to live paycheck to paycheck any more because it’s stressful and they want to have some semblance of retirement, but they also don’t want to radically change their lifestyle.

I call this the “orange” part of the spectrum.

People in this part of the spectrum generally don’t have a ton of debt. They pay off what debt they do have pretty quickly and generally don’t let it last too long. They’re usually saving for retirement at a pace that, if they save for 30 years, they’ll have a healthy retirement when they retire at a normal retirement age or a bit later.

They tend to go on nice trips and have some nicer possessions, and their day to day lives are a bit more frugal than the people in the “red” category. These people don’t eat out every day and keep a lot of things in the “splurge” or “treat” category to have on an irregular basis. However, they still live a fairly expensive day-to-day lifestyle and probably have some very consistent treats in their lives that have reached the point of feeling completely normal.

People in this group are basically forward-thinking versions of the “red” group. They want to have a very pleasure-filled day-to-day life, but they also recognize the need to protect their future a little.

If they pick up a book on personal finance, they’d probably look at something like You Need a Budget by Jesse Meacham or The Total Money Makeover by Dave Ramsey to move themselves from the “red” to the “orange” part of the spectrum.

I would estimate that 10% to 15% of Americans find themselves in this “orange” part of the spectrum, with the remaining 10% to 15% of Americans spread across the remaining “yellow” to “violet” portions. Let’s look at those.

Yellow – “Healthy” or Slightly Early Retirement – 8% to 15% Savings Rate

People in this group want to be able to retire a little early or with plenty of money in the bank. They like security and stability and they have some very nice visions about what their retirement will be like and they want to get there a little sooner than that.

To get there, people in this group consciously live a little below their means. They, too, have nice splurges like the “orange” group, but they tend to be rarer and their day to day lives are pretty frugal. They don’t go out to eat very often and most of their sources of entertainment are low cost or free. They’ll go on really amazing trips, but they’re irregular. They usually drive well maintained late model used cars when they could afford new and drive them until they’re worn out.

They tend to avoid day-to-day perks and lifestyle inflation. They make coffee at home rather than hitting Starbucks each day. They eat most of their meals at home, only going out when there’s a genuine reason to do so for a social occasion or to celebrate something notable.

I’ve noticed that people in this group tend to have read a few personal finance books, but they could be anything, because a lot of personal finance books orient themselves toward nudging people from the “red” and “blue” parts of the spectrum into this “yellow” part of the spectrum. A large portion of the personal finance books you see in libraries and bookstores are written with this area of the spectrum as a destination.

Green – Financial Independence or Early Retirement – 15% to 25% Savings Rate

These are people who want to either retire when they’re fairly young – 50 or 55 – or discovered these ideas a bit later in life or have a vision of doing something completely different with their life from their midlife onwards. I think this is the part of the spectrum that starts to seem “strange” to people at the “red” end of things.

People in this group do still splurge, but their splurges are often very practical and are directed toward useful things. They’re going to splurge on well-made versions of things that they use very frequently, for example. They tend to value reliability in the things they do have and don’t have a need to have tons and tons of possessions.

When they travel, it’s typically very experience-oriented and low cost. “Green” people are likely to do things like go backpacking in a national park or spend their vacation camping in a minimal way. They might do a big “once in a lifetime” trip, but even that won’t involve staying in five star hotels, but will instead involve staying off the beaten path in another land.

They own their own home and do as much of their own maintenance on it as possible. They drive used cars from reliable manufacturers, drive them until they’re worn out, and replace them with another used car from a reliable manufacturer – all paid for with cash, of course. They make almost all of their own meals, eating out only on the most special of occasions. They’re usually quite frugal with their day-to-day lifestyle, buying store brands almost exclusively and so on.

The types of books that would make the most sense to people in this group are books like The Millionaire Next Door by Thomas Stanley and William Danko or Meet the Frugalwoods by Elizabeth Willard Thames.

Blue – Optimizer (or High Wealth) – 25% to 40% savings rate

It’s at this “blue” stage where the actual process of optimizing one’s finances becomes a pleasure and a goal in and of itself. It’s also possible that people achieve this kind of savings rate simply through a high income, but find that they have more in common personality-wise with the “orange,” “yellow,” or “green” portions of the spectrum.

People in this group tend to love experimenting with frugality. They’ll take on all kinds of do it yourself projects for the joy of doing them and feeling in control of their property. They’ll build their own sheds and fix major home problems and even take a large role in constructing their own home, just because they enjoy the process. Rather than traveling, they’ll often plan “staycations” to take on projects like this.

They tend to live very frugally, but still would be making what would feel like roughly “normal” lifestyle choices. In terms of their day to day choices, they’d look a lot like people in the “green” band, but they’ve invested a lot of time and thinking into optimizing things and have squeezed out all kinds of nooks and crannies because they enjoy the process.

Early retirement and financial independence are not only on the horizon for these folks, it’s bordering on inevitable. Their lifestyle can tolerate major twists and turns, and they’ve usually got a very healthy amount in savings to handle almost anything that might happen.

Books that would really appeal to this group include
The Complete Tightwad Gazette by Amy Dacyczyn and Your Money or Your Life by Joe Dominguez and Vicki Robin.

I’d probably put Sarah and I in this group, or possibly in the next group, “indigo” (or, sometimes, closer to the “green” group).

Indigo – Optimizer-Philosopher (or Very High Wealth or Income) – 40% to 80% Savings Rate

At this point, the question of “why” starts to become very paramount in terms of saving more, and that “why” often has sources that aren’t related directly to accumulation of wealth.

A person at this stage spends a lot of time thinking about their life’s purpose and how to live it. There’s usually a development of a set of strong internal principles which that person tries to live by to the best of their ability, and those principles often aren’t in line with what’s “mainstream” in society.

People in this group tend to be very interested in knowing how to build and maintain every aspect of their life. They’re probably doing things like building their own home, doing almost every possible repair on any automobiles that they own (and nursing those automobiles along to a very high mileage to extract every dime of value), practicing subsistence agriculture or producing some extra to sell or trade and probably doing it with very high food production standards, and so on. They enjoy homesteading.

People in this group tend to spend their free time reading and thinking and working on very hands-on projects. If they travel, it’s in a very “vagabond” fashion with minimal planning and extravagance.

Books that appeal to them are philosophical books. Specific titles might include books like Early Retirement Extreme by Jacob Lund Fisker and Shop Class as Soulcraft by Matthew Crawford.

Again, as I mentioned earlier, there are people who would be in this group in terms of savings rate due to high income or high accumulated wealth, but their personality is closer to “orange” or “yellow” or “green” or “blue” folks.

Violet – Walden (or Extreme Wealth) – 80%+ Savings Rate

If you’ve ever read the book Walden, or can envision someone who would enjoy being a “mountain man” or doing extreme homesteading and has little need for many material possessions, you’re probably thinking of someone who might fall into this camp.

A person in this group is someone who gets great pleasure out of doing basic tasks, or they have deep internal philosophical disagreements with mainstream culture. People in this group are optimizer-philosophers – the “indigo” group – taken to an extreme. Their lifestyle probably makes little sense to someone in the “red” or “orange” group. They might do things like live in their self-maintained vehicle or live in a self-built cabin in the woods.

I know a few people who would fall into this category. They usually tend to be well-read and well-spoken, but have some very firm principles and ideas that they stick to and live by. They tend to really enjoy doing manual tasks for themselves, even down to simple things like chopping wood. They often try to avoid wasting anything, which can end up making their homes look like a shack or a rust-bucket on wheels, but those homes and vehicles are usually incredibly functional and they can explain every square inch and detail of them. They tend to have a deep understanding of how almost everything works that they own, but they’ll eschew a lot of things that people in America usually take for granted, like internet or some utilities.

My experience with people in this category is that they tend to read original philosophy, like, say, Walden’s Walden or Emerson’s Self Reliance or original works in other areas, as well as really challenging books on whatever topic interests them at the moment.

They tend to see people in the “red” and “orange” category as strange as the people in those categories tend to see them.

Again, as I mentioned earlier, there are people who would be in this group in terms of savings rate due to high income or high accumulated wealth, but their personality is closer to “orange” or “yellow” or “green” or “blue” folks. Also, you’ll find some people in this group who actually have very little money at all but spend virtually nothing.

Where Are You?

So, where would you put yourself on this spectrum? 85% to 90% of Americans fall into the “red” or “orange” categories, but I’m willing to bet that readers of this site spread along the spectrum.

As a family of five, I’d probably place us somewhere around “green” or “blue.” If Sarah and I were without children, we’d probably be “blue” most of the time. If I were single, I’d probably be “indigo,” as I think that most of my worst remaining financial habits are done out of time crunches because I spend so much time on family commitments, and that would decidedly change if I were single.

I would say that when our family is in the “green” area or, at our worst moments, even sliding toward “yellow,” I tend to feel like we’re in the wrong place on this spectrum and start nudging hard back toward “blue.” On the other hand, if I’m reading a lot and reflecting a lot, I’ll nudge toward “indigo,” which doesn’t always work with our family.

I find that having an “ideal” part of the spectrum for ourselves is a good thing to have, because it makes this kind of thinking an easy tool for figuring out when things are out of whack. Maybe we’re spending too much and inching in the red direction, or maybe we’re being too extreme and inching in the violet direction. Figure out where you currently are and where you want to be and you can always use it as a guide.

If nothing else, it’s an interesting way to think about finances. You may find that some elements of this spectrum, which is just my own perspective on it, are different from your perspective, and that’s a good thing. This is just food for thought for thinking about different approaches to personal finance.

Good luck!

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Friday, March 16, 2018

Chase Sapphire Reserve℠ is Not Your Daddy’s Credit Card

JPMorgan Chase puts out a card for the generation that ‘doesn’t want to buy stuff.’

The takeaways

  • JPMorgan Chase offers the Chase Sapphire Reserve℠ for people who just want to experience the world
  • Greater emphasis is placed on earning rewards you can actually use for trips, events, and more
  • If you want to fill your life with experiences instead of just possessions, this might be the card for you

As a millennial (right on the cusp, no less) I’ve heard it all about “the lost generation,” especially, when it comes to money. Being part of the generation that doesn’t aspire to dive headlong into debt, I’ve witnessed the cultural disconnect experienced in a world driven by credit histories. Apparently, so did JPMorgan and, upon unveiling their Chase Sapphire Reserve℠ card, they may very well have truly gotten what millennials value more than picket fences and lifelong entanglement in debt.

Purchasing life experiences

The card is great for travel. Heck, it’s great for fine dining while you’re traveling. In fact, the best way to describe this card would be that it helps you purchase life experiences. Ever want to truly see the world? This card actually bestows $300 (in travel credit, of course) to the cardholder annually. Want an out-of-this-world dining experience? You can redeem your points for culinary events.

Speaking of rewards, the Chase Sapphire Reserve℠ card offers 50,000 bonus points after you spend $4,000 within the first three months of account activation. Just to give you an idea of what that looks like, if you used this card on everything from dining out to daily coffee runs, then you would have more than enough money spent within the first three months. I did something similar with another card when I was demonstrating how you could earn points for travel.

We define our lives through experiences

Gone are the days where your self-worth was determined by the size of your house and the make of your car. While some vestiges of the past still cling to those status symbols, we “oddball millennials” have learned a thing or two from the 2008 financial crisis. As we watched the material monarchy of our parents get washed away like sandcastles against the financial undertow, we learned how fleeting material possessions can be.

While I’m no guru (and most millennials wouldn’t call themselves that either), it’s pretty clear that we define our lives by the experiences we have. We make purchases that lead to life experiences we can cherish (or learn from) for a lifetime. Many of us travel while others just like going out and having a great time with friends. And rarely does a card like the Chase Sapphire Reserve℠ come along and actually reward what millennials value most: a life filled with meaning rather than a life filled with things.

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Life Without Retirement Savings

Recently, The Atlantic published a tremendously powerful article by Alana Semuels entitled This Is What Life Without Retirement Savings Looks Like, which is well worth reading for anyone who is hedging their bets on the question of whether to save for retirement at all or whether to save more for retirement.

It opens with the story of Roberta Gordon:

Roberta Gordon never thought she’d still be alive at age 76. She definitely didn’t think she’d still be working. But every Saturday, she goes down to the local grocery store and hands out samples, earning $50 a day, because she needs the money.

“I’m a working woman again,” she told me, in the common room of the senior apartment complex where she now lives, here in California’s Inland Empire. Gordon has worked dozens of odd jobs throughout her life—as a house cleaner, a home health aide, a telemarketer, a librarian, a fundraiser—but at many times in her life, she didn’t have a steady job that paid into Social Security. She didn’t receive a pension. And she definitely wasn’t making enough to put aside money for retirement.

So now, at 76, she earns $915 a month through Social Security and through Supplemental Security Income, or SSI, a program for low-income seniors. Her rent, which she has had to cover solo since her roommate died in August, is $1,040 a month. She’s been taking on credit-card debt to cover the gap, and to pay for utilities, food, and other essentials. She often goes to a church food bank for supplies.

This isn’t just Roberta’s problem, either:

More and more older people are finding themselves in a similar situation as Baby Boomers reach retirement age without enough savings and as housing costs and medical expenses rise; for instance, a woman in her 80s is paying on average $8,400 in out-of-pocket medical expenses each year, even if she’s covered by Medicare. Many people reaching retirement age don’t have the pensions that lots of workers in previous generations did, and often have not put enough money into their 401(k)s to live off of; the median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000, according to the National Institute on Retirement Security, a nonprofit. Other workers did not have access to a retirement plan through their employer.

That means that as people reach their mid-60s, they either have to dramatically curtail their spending or keep working to survive. “This will be the first time that we have a lot of people who find themselves downwardly mobile as they grow older,” Diane Oakley, the executive director of the National Institute on Retirement Security, told me. “They’re going to go from being near poor to poor.”

This is what the system is like today, and it won’t get better going forward:

The retirement-savings system in the United States has three pillars: Social Security, employer-sponsored pensions or retirement-savings plans, and individual savings. But with the rise of less stable jobs and the decline of pensions, a larger share of older Americans are relying only on Social Security, without either of the two other pillars to contribute to their finances. This by definition means they have less money than they did when they were working: Social Security replaces only about 40 percent of an average wage earner’s income when they retire, while financial advisors say that retirees need at least 70 percent of their pre-retirement earnings to live comfortably.

The recession and economic trends in the years since have also worsened the finances of millions of seniors. Some bought homes during the housing boom and then found they owed more on their homes than they were worth, and had to walk away. Others invested in the stock market and saw their investments shrink dramatically. Jackie Matthews, now 76, lost her investments during the recession, and then had to sell her Arizona home in a short sale, netting only $3,000. She now lives near her family in Southern California, renting a room in a friend’s apartment, and budgets her finances carefully, skimping on meat and never buying anything new.

But even people who emerged from the recession relatively unscathed may have a hard time saving, according to a 2017 report from Government Accountability Office. Average wages, when adjusted for inflation, have remained near where they were in the 1970s, which makes it hard for workers to increase their savings. This has had a significant impact on the bottom 80 percent of workers, for whom average wages have remained relatively constant, even as income increased for the top 20 percent of households in the past three decades.

Much of the article goes on to describe various political methods for solving this problem for people who are in this state now, but for me, this article really shouts out to the people who are well under retirement age, the people who are making the decision right now whether or not to save for retirement.

I want you step back for a moment and think of yourself in the shoes of an elderly person that you know and love. If you can’t think of anyone, think of Roberta.

Imagine that your body doesn’t work as well as it does right now. You can’t move as quickly. You injure easily. You get tired easily. You’ve still got plenty of life in you, but you’re older.

Now, imagine that you either have to put in a full hard day of work each day – probably at a different job that pays lower wages and puts some demands on you – or you have to live on far less than minimum wage. Your choice.

In that situation, remember, you’re older. You’ve already worked for many, many years, and your body is a little worn out. It’s hard to do it.

That’s the future you most likely have for yourself if you don’t save for retirement. It’s basically unavoidable. Social Security can’t provide enough for you to live comfortably on in your old age, not on its own. It can provide enough to barely scrape by, but that’s it.

Now, imagine the alternative. Imagine you did save for the future.

You don’t have to work at that job. Sure, you can work at a simpler job of your choosing if it’s something you enjoy, but you’re not forced up against the wall to have to work a hard full time job just to eat.

You don’t have to push yourself hard in your later years. You can actually enjoy them. You can rest when you need to, and have adventures when you want to, and know that you have the resources to be able to do both.

Right now, as you sit at 25 or 30 or 35 or 40 years old, you’re making that decision for your future self, the version of yourself that will exist thirty or forty years from now. That will be you. There is no magic that will keep it from happening eventually.

The question you must ask yourself is this: are the most frivolous things in my life right now worth a huge improvement in my life later on? Are things like going out for lunch with coworkers every day or buying more and more hobby supplies or putting unnecessary yard decorations up worth having that kind of life challenge down the road?

The thing to remember is this: when you choose to save for retirement, you’re giving up the least important expenses in your life right now in order to have a much better life in retirement. You’re giving up leather seats in your car for cloth seats. You’re giving up a meal at a high-end restaurant in exchange for a meal at a medium-level restaurant. You’re buying store brand hand soap instead of name brand hand soap. You’re having people over instead of going out to somewhere forgettable. You’re making a few energy improvements to your home instead of just forgetting about it.

Those are very minor changes in terms of the quality of your life today. They’re almost inconsequential. Yet, those changes add up to enough to enable you to fund your 401(k) at work at a healthy level, or to start feeding a Roth IRA. Lock onto those things and keep feeding them until it’s time to retire and guess what? You’ll actually be able to retire. And by retire, I mean you’ll have control over what you do with your time during those later years. You can choose to rest if you want to. You can choose to work on your own terms because it’s not done out of pure financial need. You’re free.

That choice is up to you, and you start making that choice right now. Not tomorrow, not next year, now. If you sign up for retirement savings right now, you’ll have the maximum power of compound interest behind you, a power that fades with every year that passes. If you start now, you can save less and get the same results than if you waited a few years. The impact on your day-to-day life will never be less than it is now if your goal is to have a nice retirement.

What are you going to do about it?

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Thursday, March 15, 2018

Seven Subjects to Learn More About Once You ‘Get’ Personal Finance and Investing

You’ve read several personal finance books over the last few years. You’ve gorged on personal finance websites. You’ve developed a plan to get yourself out of debt and largely executed it. You’re saving for retirement at a nice rate.

In short, you’ve largely got this “personal finance” thing figured out.

The thing is, once the core principles of personal finance are stuck in your head, continuing that journey of learning and improving becomes a bit more challenging. At its core, the tenets of how most people manage their personal finances are actually pretty easy; the trick is in implementing them in your actual life. Once you’ve got that… what else is there?

You can always keep digging into subgenres of personal finance. There’s always more to learn about investing, for example, and there are always new frugal strategies to try out.

Eventually, though, many people feel like they’ve learned “enough” about personal finance, yet they still yearn for something in their life that’s as exciting and interesting as the process of learning how to take control of their money.

For some people, it’s an intellectual itch. For others, it’s a desire to understand “why.” For yet others, it’s a desire to keep on improving their lives.

The nice thing about personal finance is that it does have a lot of overlap with a number of different areas that people can dive deep into, whether it’s for intellectual growth, personal growth, or even spiritual growth.

Here are seven areas that you might want to dive into if you find that personal finance itself is beginning to feel “mastered.” You’ll probably note that, in various ways, I dabble in all of these areas on The Simple Dollar, lacing them in with personal finance on a regular basis. That’s because these topics offer a lot of breathing room and area to constantly explore new angles on personal finance and on living itself. You’ll also note that these areas overlap with each other quite a bit, too.


Economics is the study of the production, distribution, and consumption of goods and services. It’s a pretty broad area of study, but in general it breaks down into two areas.

Microeconomics borders right up against personal finance, because it’s the study of the economic behavior of individual agents – individual people and small groups and retailers – and how they consume and produce goods and services. You go to work to produce a good or a service (or assist in it somehow), for that you earn money, and then you use that money to buy goods and services.

Macroeconomics, on the other hand, is the broader study of economies. It looks at things like inflation, overall employment rates, economic growth, and so on, rather than looking at how individuals behave.

If you’re wanting to put your own personal financial behavior into a broader context of what other people do and how all of that behavior affects the world as a whole, economics is probably an area for you to explore.

If you’re looking for a single easily readable introduction to economics, I’d probably choose The Armchair Economist by Stephen Landsburg. It’s a great friendly introduction to microeconomics with enough material there to give you something to think about, but not much jargon.

If you want a book that also includes some talk about macroeconomics, too, I’d point to Naked Economics by Charles Wheelan. This really does balance both macroeconomics and microeconomics, but I’d describe it as a bit more complex than the first choice.

If you’d rather learn from video and audio sources than reading a book, the best introduction to economics that I’ve found for a general audience is Microeconomics and Macroeconomics, freely available from Khan Academy. These provide a great introductory series for learning about economics.

Personal Development

I like Wikipedia’s definition of personal development: “Personal development covers activities that improve awareness and identity, develop talents and potential, build human capital and facilitate employability, enhance the quality of life and contribute to the realization of dreams and aspirations.” That sums it up quite nicely.

In short, personal development is the process of making yourself into a better person so that you can better fulfill your potential, in whatever areas you see fit. I think of personal development in a very foundational way. What are my values and principles? How do I live by them on a daily basis? Do I live by them on a daily basis? What are my big goals and life ambitions? What am I doing to achieve those big goals and life ambitions? What do I need in my life to make those things possible?

There’s a tendency of this type of thinking to edge toward New Age type thinking and self help. I tend to see the dividing line differently. Self-help comes in when you feel you’re in a bad place and need to dig out of it. Personal development is when you’re in a good place and want to go further. It tends to overlap quite a lot with philosophy and often with career development, too.

One great introductory book for personal development is The Four Agreements by Don Miguel Ruiz, which argues that personal freedom and independence are a core component of a person’s place in the world and that those things come from keeping up your end of four basic social agreements. Be impeccable with your word. Don’t take anything personally. Don’t make assumptions. Always do your best. If you do those four things in every situation, you’ll find that you’re much more able to build and maintain relationships with other people and you’re much more resilient to unfortunate events.

This next recommendation is actually more of a philosophical text, but it absolutely rocked my world in terms of how I think and react to things around me. Meditations by Marcus Aurelius is all about stoicism, which is a personal philosophy of evaluating your emotional responses to things rather than just immediately acting on them. It was written by a Roman emperor as his personal journal, with the focus being on how he can handle all of the problems and challenges constantly given to him while maintaining respect and internal consistency, which we all strive for.

If you prefer to watch videos and listen for your learning, I suggest Gary Vaynerchuk’s YouTube channel. Vaynerchuk is a serial entrepreneur with a daily video blog that touches on a mix of entrepreneurial issues and personal development. A good example of his work is 6 Minutes for the Next 60 Years of Your Life; his channel is loaded with similar stuff.


Again, Wikipedia defines this well: “Psychology is the science of behavior and mind, including conscious and unconscious phenomena, as well as thought.” That really nails it.

When I mention psychology as an area to potentially explore, I’m not so much referring to it as a practice for trying to analyze the psychological problems of others, but for understanding how your own mind works and, to a lesser extent, the minds of those you interact with the most. I’m far more interested in normal behavior and how to get around it so that I can achieve personal goals, like having a better grip on my spending or losing weight or being an effective leader or an effective writer or an effective parent.

Our minds make decisions. A better understanding of our minds leads to better decisions for us. A better understanding of the minds of others helps us to make better decisions regarding others.

One excellent psychology book for people who want to delve into psychology from this perspective is Mindset by Carol Dweck. Dr. Dweck delves deeply into the difference between “fixed mindsets” and “growth mindsets,” or, as I like to think of them, scarcity and abundance mindsets. A fixed mindset believes that their talents and abilities are fixed traits, and challenges that can be solved with your current talents and abilities are ones that should be tackled and ones outside of that should be avoided. A growth mindset believes that skills and abilities can be nurtured and grown, values that growth process, and is willing to take on bigger challenges. Success in most areas of life is achieved much easier by applying a growth mindset to the situation, but in many areas of life, we choose instead to adopt a fixed mindset. This book really differentiates the two, shows how people often hold a mix of those viewpoints, and gives strategies for adopting growth mindsets in more areas and encouraging growth mindsets in others.

Another wonderful book on the basics of personal psychology is The Antidote by Oliver Burkeman, which argues that directly seeking happiness is almost always a losing effort and that the feeling of happiness is a natural occurrence as a side effect of success and good behavior in other areas of life. If you try to be happy, you’ll never reach it; if you find success at something entirely different, though, you’ll feel happiness. Burkeman digs deep into that psychological phenomenon and how you can utilize it in your own life.

If you want a nice broad overview of psychology and prefer watching videos and listening instead of reading, check out Crash Course in Psychology, which is a great video series that covers the basics of psychology in a really nice cohesive series. While it does delve into clinical psychology issues, much of the material really relates to our everyday thinking processes, which is quite valuable.


Again, Wikipedia provides a great basic definition: “Philosophy is the study of general and fundamental problems concerning matters such as existence, knowledge, values, reason, mind, and language.” Philosophy can be abstract, such as trying to figure out what is real and what isn’t or what it means to truly “know” something, or it can be more practical, asking questions like what the best way to live is.

I find both avenues very interesting and both are good parallels to personal finance. Understanding some of the big “whys” of the world often helps refine a lot of your internal perspectives and helps you define your internal values and principles, and the more practical elements of philosophy tend toward some degree of personal development, which I discussed earlier as an interesting area in its own right. Both avenues provide a lot of tools for thinking through challenging problems in life.

Honestly, philosophy (in a broad sense) is probably my favorite subject for reading these days. I find myself very attracted to books on philosophy and associated fields and sub-fields. I’ve jokingly suggested to my wife that this is something of a midlife crisis as I’m trying to figure out why I’m here and what the best life is.

One great introduction to philosophy actually comes in the form of a novel, Sophie’s World by Jostein Gardner. It tells the story of a teenage girl and an old philosopher who find themselves trapped in some sort of game or experiment by a person who seems to have Godlike powers. The philosopher’s responses to everything and the way he explains things to Sophie without the plot just falling apart makes the book quite enjoyable while still passing along a lot of good ideas and questions about philosophy.

If you want a more general introduction and something a little more challenging and brain-itching, try The Problems of Philosophy by Bertrand Russell. Russell is what I call a “tight” writer – he doesn’t waste many words, which means that his writing can sometimes feel dense. However, most of the time, his books are short and to the point, as this one is. This is basically Russell’s “introduction to philosophy,” where he focuses on a lot of the big questions that philosophy tries to address (what is life? what is a good life? how can a person know anything? what is real?) and covers some of the better answers to those questions and some of the tools for figuring out your own answers. This is the book that really got me started on reading philosophy.

If you prefer to watch and listen to learn, try Crash Course in Philosophy, a series of excellent videos that provides a nice summary of the various big philosophical questions and many of the common answers to them. This series largely walks through those questions in historical order, starting with the earliest questions and answers that people developed and moving up to the modern day. The videos are really entertaining – the Crash Course series always are.

Another great way to dip your toes in philosophy in a truly fun way is by watching the sitcom The Good Place. The series focuses on a woman, played by Kristen Bell, who dies and is sent to a heaven-like place called “The Good Place.” The only catch is that she firmly believes she wasn’t a good person on Earth and feels as though she must act like a good person in order to not get thrown out. The sitcom digs surprisingly deep into a lot of philosophical subjects; I am normally extremely picky about sitcoms, but I really enjoyed this one and there’s actually some great food for thought in it.

Personal Skills

Another great area to expand into once you feel like you have personal finance under control is simply building up a strong set of personal skills that can handle lots of common life problems and challenges. Simply knowing how to navigate daily life better is valuable, and there are many, many areas to dig into and many skills you can learn.

Here are a few of my favorite examples.

Cooking is a valuable skill for almost anyone to have. Not only does preparing your own food save a lot of money, it also gives you a ton of lifestyle flexibility. Plus, it’s something that almost every home is equipped for, at least to some degree. How to Cook Anything by Mark Bittman is probably my favorite introduction to how to cook, something that many cookbooks completely miss out on. This starts with really simple stuff like boiling water and making very basic scrambled eggs (crack eggs, mix them up, put some butter in a skillet, turn heat to medium, let butter melt, spread it around skillet, add mixed eggs, keep stirring and scraping them until they form curds, eat), and builds from there.

Another great personal skill to build, especially for introverts like myself, is simply being social and having good conversations. My go-to book for this is How to Win Friends and Influence People by Dale Carnegie, which is a classic in this genre. The book feels very… mechanical… at times, but the thing to remember is that it’s written making very few assumptions about a person’s social skills or natural extrovertedness. It works incredibly well as a step-by-step instruction manual on how to be friendly and approachable in social situations, which doesn’t come naturally to everyone.

Personal organization is another great skill that people can build. Simply knowing how to organize one’s belongings in a sensible way can make a tremendous difference. The Life Changing Magic of Tidying Up by Marie Kondo is a very strong book in this regard, as it offers a clear recipe for going through your possessions and organizing them in sensible ways, no matter whether you live in a huge house or a tiny apartment.

If you learn how to perform basic maintenance on your automobile – things like changing wiper blades and changing the oil – you can save yourself a lot of money at the shop, plus you can do it at your own convenience at home and, honestly, do a more thorough job that will help your car last much longer. The best introductory car maintenance book I’ve seen is the Idiot’s Guide to Auto Repair and Maintenance by Dave Stribling, which is wonderfully written and includes lots of photographs. You can obviously supplement this material with videos and other online materials for your specific model, but this will cover the basics really, really well.

Those are just four examples; there are many more, and each one can provide a nice rabbit hole of learning and growth.

Transferable Skills

Transferable skills are somewhere in the middle between personal and professional skills. They are skills that will definitely help you in the workplace no matter what your job is, but they’re also skills that can pop up in other areas of your life as well. Obviously, transferable skills have a lot of overlap with personal skills, but they tend to go beyond them as they tend to be skills you can use regularly in your professional field.

Leadership is one of the most valuable skills to have, no matter what kind of organization you’re involved with. Wherever people meet, leadership skills are useful. My favorite book on general leadership is On Becoming a Leader by Warren Dennis, which lays out many of the skills one needs to be an effective leader, along with how to build them in yourself and actually put them to work. The most valuable lesson? A good leader puts everyone else first and exists mostly to resolve conflicts and provide direction.

Another invaluable transferable skill is understanding other’s emotions and, to an extent, your own emotions. This is called emotional intelligence, and it’s covered extremely well in the book Emotional Intelligence by Daniel Goleman. Delving into this skill will cause you to spend a lot of time evaluating how you handle the emotions that bubble inside of you and considering the emotions that others put on display. Understanding this makes it easier to build strong relationships with people in your life. Some people naturally have a pretty high emotional intelligence; for those that don’t, this is a great skill to practice.

Time management is another incredibly valuable transferable skill, one that, for me, bleeds into my personal life, too. The book that changed the game for me in terms of time management was Getting Things Done by David Allen, which showed me a completely different approach to managing my time. Basically, Allen’s approach is to get it out of your head – don’t ever try to remember things you have to do. Instead, get it all out into a trusted system, and then trust that system and just do what it says to do. The book describes a fairly complex system for doing this, but it comes in pieces that you can easily pull out to fit your own needs.

Transferable skills like these can transform your professional life, but they can really impact your personal life, too.

Professional Specialized Skills

Of course, the next step is to focus on skills that are almost purely professional in nature. This involves increasing the skills that are your specialty or building out those skills into similar areas so that you’re employable in a more diverse set of situations.

It’s hard to give examples because it depends so much on the field you’re in. Different fields have different types of expertise and different ways you can build your skill set.

Regardless of your field, however, you’ll never go wrong reading new books related to your field. Keep an eye out for books that touch upon your field of expertise and read them. If your field is highly technical, technical manuals are useful, as are books that can help you translate the technical talk into something relatable to the layperson.

At the same time, publications related to your field are always worth reading. It is never a bad idea to stay up to date on journal articles and publications related to your field of expertise, because it constantly gives you a leg up on what’s coming down the pipe.

If reading books and long articles isn’t your thing, try to keep an eye on well regarded podcasts, blogs, and social media accounts related to your field, as they’ll keep you up to date on the latest changes in a succinct way that, in the case of podcasts, you can easily absorb during your commute.

Often, these books and articles and other materials will point you straight toward skills that you should be building for your specific career. Do so. The time invested in building useful resume-worthy skills is time that’s really going to help your career.

Final Thoughts

Personal finance is a foundation of so many things that we want to do in life, but once we have that foundation in place, it’s time to build from there and see what’s next. These seven areas provide a lot of space to grow, helping you figure out how to make yourself better and how to understand your place in the world better. You’ll be able to interact with others better, have a better grip on your career, and have a wide array of useful skills in all areas of life.

Personal finance is just the beginning. Good luck!

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Wednesday, March 14, 2018

Why ‘It’s Only $X per Month’ Is Disastrous Financial Thinking

Recently, my wife and I have been shopping around for a car to replace our 2004 vehicle, which has over 200,000 miles on it and a host of repair issues starting to pop up. At one point during this process, we found ourselves at a dealership and we overheard a financial representative talking to a customer while we were waiting.

Part of the representative’s pitch to this customer involved looking at different financing options (something I’m glad that we’re able to avoid, because we’re simply paying cash for the replacement). The finance person was clearly nudging the customer toward a long-term finance package and was pitching it hard because the package was “only $350 per month.”

Only $350 per month.

At a quick glance, particularly if you’ve never really thought too much about your finances, that might not seem too bad. The average American household brings in about $60,000 per year, which, after taxes, amounts to about $1,000 per week that’s brought home. That means that the $350 per month is actually less than 10% of that income. It doesn’t seem that big in comparison, right?


The idea of a relatively low monthly cost makes it easy to get yourself hooked up to expenses that you really can’t afford over the long run, not because of the individual cost, but because monthly expenses really start to pile up over time.

Let’s say that family signs up for that $350 a month bill for the next six years for that car.

They’ve likely also got a mortgage or rent. Let’s say that’s $1,500 a month.

They’ve probably got a monthly electric bill. Let’s park that in at $150 a month.

They’ve all got cell phones. Let’s park that at another $150 per month.

Maybe they have cable television. On average, that’s another $100 per month.

If they’re feeding their family of four even at the basic minimal USDA food costs, that’s another $500 or so a month.

So, before they even agree to take on this car, out of the $4,000 they’re bringing home, they’ve already locked into place at least $2,400 a month in required expenses that can’t really budge. That doesn’t include things like minor emergencies, insurance, gasoline for their car, car maintenance, home repairs, property taxes, clothing, extra little purchases, and so on, which is covered by the remaining $1,600 a month.

On top of this situation, they want to stack on another $350 per month. What will that change? Suddenly, things like minor emergencies, insurance, gasoline for their car, car maintenance, home repairs, property taxes, clothing, extra little purchases, and so on now have to come out of only $1,250 per month. They’ve lost about 25% of their monthly breathing room in their budget to afford this car.

What that means is that there are either going to have to be some real lifestyle changes or they’re going to start sinking into credit card debt.

This situation obviously makes it harder than ever before to save for things like retirement or for your children’s college education. You’ve just cut your budgetary breathing room by 25% – that doesn’t leave much room for that kind of future planning. For most American families, retirement savings just doesn’t happen in that situation, and it’s disastrous.

There’s another problem, too. They’re now signed up for a minimum of $2,750 a month in expenses. In order to keep the lights on, a roof over their head, food on the table, and to get back and forth to work, the family must be earning at least $40,000 per year, minimum.

What happens if there’s a job loss? It’s very likely that, in this family, a job loss means that things go into panic mode very quickly. This is a situation that’s likely in “paycheck to paycheck” mode – remember, 78% of Americans are in “paycheck to paycheck” mode.

So, not only would this family be thrown into chaos, the replacement job now has to be making more than it would before buying this expensive vehicle in order to make ends meet and not start losing things.

In short, that extra $350 a month is an extra shackle. It becomes even more risky than ever before to lose your job or to do anything that would risk your job, because you need it to keep things going. If you lost it, there are fewer jobs that could keep things going for you. Your boss probably knows this, too. You can’t really consider a career change because you need to have that money coming in, too.

All of this is stressful. You’re now making tougher and tougher financial decisions every day of the week. You have 25% less flexibility in your monthly budget. You have a little less freedom and a little more tension at work.

Here’s the truth: the pathway to financial success involves avoiding “$X per month” expenses. You want your monthly required expenses to be as low as humanly possible. That way, you have enough flexibility in your budget to easily pull yourself out of debt and to start saving for the future.

So, how do you do that?

You drive your car until it’s in need of a number of repairs, and then replace it with what you can afford. Do everything you can to get out of the cycle of making car payments, starting right now. It starts with the car you’re currently driving. Drive it until you’re no longer making payments, then keep driving it until it’s ready to fall apart. If you’re on a lease, get out of that lease when you can and move into a situation where you can own some sort of car without payments on it.

You live in a small place that you can easily afford. Don’t live in a giant apartment or a huge house. Most of that space is just used to store stuff that you’ll rarely use anyway. Live in a smaller space instead. That will come with a smaller mortgage or a smaller rent check, depending on the the financial path you’re on.

You extract yourself from as many subscription services and monthly bills as possible, or cut their costs as low as possible. Your cell phone is a monthly bill. How can you cut that monthly bill? Maybe you can go to a different data plan, or switch carriers. Your electric bill is a monthly bill. How can you eat up less energy consistently? Maybe you can switch to LED lights and leave your thermostat off. Your cable bill is a monthly bill. How can you cut it? You can try cutting the cord entirely and just watching over-the-air television or Netflix (which is another monthly bill, but a smaller one). How many other little monthly bills do you have that you really don’t need? Scour your credit card and bank statements to see what you’re missing.

You start using that money you’re saving to pay off debts, starting with your credit cards. Debts are monthly bills that you can make disappear with some consistent effort. Credit cards are the worst offenders, as they have a high interest rate, so credit cards are always a good place to start. Start with focusing on your highest interest credit card; make minimum payments on all of your debts, then make the biggest extra payment you can on your highest interest card. Once it’s paid off, move on to whatever becomes your highest interest debt. As each one is paid off, your monthly required expenses will go down.

You build an emergency fund. One of the easiest ways to fall right back into debt is to have an unexpected crisis. Your car doesn’t start. You need to fly home for a family emergency. Your furnace goes on the fritz. Your washing machine dies and leaks water all over the basement. Those are ordinary events, unexpected and financially painful but not out of the ordinary. Such events, however, can force you deeper into debt, undoing your progress. A better approach is to have a cash emergency fund – an amount of cash set aside in a savings account for just such purposes. The easiest way to do it is to talk to your bank and set up a small automatic weekly transfer from your checking to your savings. That way, the emergency fund will automatically build without any worry and you can tap it when you need it.

Once the worst of your debts are gone, you start saving for upcoming future expenses. You’re going to have to eventually replace your car, right? Start saving for it now so you don’t have to fall back into that “only $X per month” trap. Put aside a “car payment” into savings each month with the intent of using all of that savings to buy a car when it comes time.

Don’t let yourself fall into the “it’s only $X per month” trap. Try to keep that monthly amount you’re required to spend as low as possible, so that you have the flexibility you need to easily handle a job loss and to prepare for your future. It’s also far less stressful.

Good luck!

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Do the Numbers Add Up for Long-Term Care Insurance?

Long-term care is expensive and frightening to think about. But that doesn’t make long-term care insurance the right way to deal with it.

Melinda Kibler, a certified financial planner with Palisades Hudson Financial Group in Fort Lauderdale, Fla., has one thought on the matter: “Don’t buy long-term care insurance.”

Kibler notes that long-term care is a big financial risk, but that long-term care insurance premiums may only increase in retirement. Unlike insurance designed to protect your home in case of a fire or your car in case of an accident, Kibler points out that long-term care insurance covers medical costs that are almost inevitable.

With other types of insurance, only a portion of the population collects, while the rest continue to pay their premiums, covering expenses paid out and keeping premiums manageable. Math works against long-term care insurance because, since most people will need it, the risk isn’t spread out across a big enough pool of participants.

“Long-term care insurance is an investment that doesn’t make sense,” Kibler says. “It’s better to plan for long-term care on your own by saving and investing, and in some cases, using a trust.”

A recent study by the U.S. Department of Health and Human Services estimates that more than half of Americans turning 65 will eventually require some form of long-term support services. Yet the majority of us underestimate our risk of developing a disability that requires long-term care.

The cost of that care can’t be overestimated, either. According to insurance provider Genworth, the median cost of homemaker services — which help with household chores that can no longer be managed alone, including cooking, cleaning, and running errands — is $20 an hour nationwide. If you have to hire a home health aide for various personal needs that fall just shy of medical care, the median rate charged by a non-Medicare certified, licensed agency is also $20 an hour. Adult day health care (ADC) — which provides social activities and outings, but also may include personal care, transportation, medical management, and meals — clocks in at a median cost of $69 a day.

And that’s just at home. Assisted living facilities (ALF), which provide personal care and health services just short of those offered in a nursing home, come at a median cost of $3,600 a month. Nursing homes that provide personal care assistance, room and board, supervision, medication, therapy, rehabilitation, and 24-hour on-site nursing care start at a median cost of $220 per day for a semi-private room. That’s just over $80,000 a year at its median cheapest, and more than $91,000 if you want some privacy.

Investment firm UBS found that even wealthy investors have a difficult time gauging the cost of long-term care. After surveying 2,028 people with at least $1 million (including 475 with at least $5 million), 73% say getting sick is their top concern, while 43% worry that no one will take care of them. Yet just 50% have factored healthcare costs into their overall financial plan, while only 23% have saved for their future care.

“Maintaining self reliance is important to the vast majority of investors,” said Paula Polito, Client Strategy Officer, UBS Wealth Management Americas. “Having a plan in place for long-term care before they actually need it will help them avoid burdening their children.”

But the numbers don’t necessarily support long-term care insurance as a solution to those healthcare concerns. The average cost for long-term care insurance for an individual at age 55 is $2,007 a year, with a benefit of $164,000, according to the American Association for Long-Term Care Insurance. For a couple, it’s $2,466 per year combined, with a payout of $164,000 each. Over age 60, it’s $3,381 a year with a $164,000 initial payout.

While the benefits rise because of a 3% compound inflation growth option, Kibler asserts that the eventual rise in premiums for older buyers makes it burdensome. She warns that this can cause healthier buyers to opt out, leaving a pool of less-healthy buyers.

“Instead of paying into a policy with rising premiums that may empty your retirement savings, it is better to plan for long-term care by saving and investing,” Kibler says.

Out of curiosity, we took that $2,007 annual cost of individual long-term care insurance and used it as the initial investment in the Securities and Exchange Commission’s Compound Interest Calculator. We put it in a fund pegged to the S&P 500, used the 11.6% average growth of the S&P over the last 30 years, set up a $167.25 monthly payment ($2,007 a year) and kept it up for 25 years (let’s say age 40 to 65). With annual compounding interest, we ended up with $282,862, or nearly $120,000 more than the initial long-term insurance benefit. Even assuming a more modest return of 7% would yield $146,975, nearly as much as the insurance benefit itself – with a lot more flexibility.

While that money will come in handy if you do require long-term care, it’s also available for other retirement needs or to hand down to heirs if you remain healthy. If you don’t see help from Medicare or Medicaid in your future and aren’t independently wealthy enough to pay for long term-care, investing money specifically earmarked for long-term support services is one of the better options available.

“The best solution is to save up for care using a balanced approach, investing in a comfortable mix of U.S. and foreign stock funds and bonds,” Kibler says.

You could try strategies like gifting money to your adult children so you’ll be eligible for Medicaid, but there are problems with that. Medicaid looks back at assets you gave away for up to up to five years. If you apply for Medicaid within that widow, you’ll pay a prorated penalty based on the cost of care in your area.

Even if you give away assets beyond that five-year period, Kibler recommends setting up an irrevocable trust to protect them. Without it, those assets could be lost if your child is hit with a divorce settlement, is sued, or falls into deep debt.

“A lifetime of savings could be lost quickly,” she says.

Finally, if your goal is to leave money to your heirs, consider buying a life insurance policy instead. It won’t necessarily help you with the cost of care, but it’s there even if you deplete your long-term care savings and will be of more benefit to your loved ones than long-term care insurance that ends with you.

“Life insurance is a good way to leave assets to survivors,” Kibler says. “It’s more predictable and has more reasonable costs than long-term care insurance.”

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Tuesday, March 13, 2018

16 Little Frugality Tips That Make a Surprising Difference

So, it’s not a secret to anyone who reads The Simple Dollar that I carry around a pocket notebook and a pen with me most of the time. I use it to jot down little thoughts or things that I want to remember and then, each evening, I go through it and follow up on those thoughts and things.

One thing I often do is write down little frugal things I’ve been doing lately, things that I’ve tried that have worked out but aren’t really big enough on their own to write a post about. I save them and then, every once in a while, I go through that list and turn it into a post of little money saving things I’ve been doing lately.

This is the latest batch of those items, sixteen in number. I may have mentioned some of these before – maybe not. All of these are things that I’ve found useful in my life in the last few months as a way to easily save some money.

I hope you’ll find that at least a few of them are useful to you, too.

1. Buy a bunch of bulk cloths, keep them under your sink with a bin for used ones, and replace paper towels with them.

We have a big pile of cloth squares that we bought in bulk at a warehouse club (I think). We use these for everything – doing dishes, drying dishes, wiping down tables, cleaning up small messes, and so on. When one is used, we either toss it into the laundry room or toss it into a small bin in the kitchen to be washed later.

If you have a sufficient number of these – say, fifty or so – they effectively replace paper towels. They handle virtually every use that you would ever use a paper towel for, plus you can just wash them when you’re done. Even a ton of these little square cloths don’t make for a full load of laundry – we usually wash them with towels.

They’re better than paper towels, too. They’re far more absorbent, for one. You can also just wring them out, rinse them a bit, and use them again for a similar task rather than having to just toss the paper towel. They also don’t wind up in a landfill.

The initial cost of this is a little expensive, depending on your original source of the cloths, but if they replace 90% of your paper towel use for years, you’re going to make the money back and more.

2. If you’re taking off an article of outer clothing that’s still visually clean and smells fine, hang it up instead of tossing it in the dirty clothes.

For a long time, I used this approach just with my pants, but I find I’m doing it with outer shirts as well. If I take off an outer shirt or my pants and they stand up to visual inspection and a sniff test, I simply put them aside to wear again without washing them.

This not only saves a lot of laundry effort and cost, it also drastically reduces the wear and tear on those clothing items. The biggest source of wear and tear on almost all clothing items is laundering. They get rotated and smacked around in the washer and dryer for a long time, far worse than they get out of a typical day of wear on your body.

Thus, if you can get a second (or a third) day of simply wearing the clothes without a washing, you’re naturally extending the lifespan of the clothing item. This means, of course, that you replace clothing items less frequently and your annual clothing expenses goes down.

It’s simple, too. When you take off an outer article of clothing, just examine it. Are there any spots or odors associated with it? If not, just hang it up and wear it again next week.

3. Make a big batch of a staple food you like on Sunday, store it in a container in the fridge, and eat it throughout the week.

Think of a simple food or simple meal that you like. Perhaps you like having some rice with most meals and like to add it to your soups. Maybe you really like bean burritos. Perhaps you love reheated spaghetti (I do, actually).

Whatever it is that you like, just make a huge batch of it on Sunday. Make a ton of rice. Make a big batch of soup. Make 20 bean burritos. Make a huge pot of spaghetti.

Then, put everything you don’t eat on Sunday evening in the fridge in a few containers.

Throughout the week, dip into those containers regularly. Take spaghetti to work two or three days and have it for dinner a night or two, or do the same thing with the soup you’ve made. Have a couple of burritos for lunch each day. Add some rice as a side to several meals, and maybe put a handful in some soup you just made.

This achieves a lot of savings all at once. For one, it allows you to pay bulk prices for the ingredients of whatever it is you’re making. You can buy bulk tortillas or the bulk bag of potatoes or whatever you need to make whatever it is you have in mind.

For another, it cuts down on the cost of all of those meals you’re replacing. Instead of eating out a few times for lunch, you just eat that leftover soup or a container of that leftover spaghetti or whatever it happens to be. Instead of prepping dinner or getting takeout or delivery on a lazy or busy evening, you just eat whatever’s in the fridge to save time.

Those numbers really add up over time. Plus, there are few things better than reheated chili – it’s an example of a dish that’s better the second time because of the flavor melding.

4. Make three brown bag lunches at once and save them in the fridge.

This kind of follows the previous tip. Just make three brown bag lunches at once and store them in the fridge. Each morning, grab one. Boom – you’ve taken care of three days of lunches in a row.

You can do this with leftovers, as described in strategy #3. You can do this with freshly assembled foods, like sandwiches and cut vegetables (or whatever you like). You can throw in ready-to-eat items, like an apple. You can mix and match – whatever’s convenient for you.

The advantage of doing this kind of meal preparation is that, again, you can buy items for it in bulk, but more than that, it simply becomes convenient to replace eating out at lunchtime with your brown bag lunch. You just reach into the fridge and grab a lunch bag that morning and it’s already ready to go, and then you just eat the contents for lunch without having to go out or order anything or buy food from a cafeteria or anything.

The end result? You have more control over your lunches. They cost less because you can get some ingredients in bulk. Once they’re made, they’re more convenient – you literally just grab and go. They replace the cost of eating lunch at work. It’s just a series of wins.

5. Store sugar and/or dry rice in a half-gallon or full gallon milk jug.

This one’s easy. The next time you buy milk, buy it in a half gallon jug or a full gallon jug. Use up the milk, clean out the container, and let it dry. Then, pull out a funnel and fill the jug with the bag of rice or the bag of sugar you have in the pantry.

Why is this helpful? How does it save money? Well, in both cases, having the rice or sugar in a half gallon jug makes it much easier to dispense exactly how much you need. Rather than scooping it out or trying to get the right amount out of the bag, you just pour it until you have just the right amount. Dry rice and sugar both pour well, as do very small beans (like lentils). Plus, these jugs store really well in a pantry, as they take up very little “floor space.”

I found that when we started buying bulk rice, simply storing it in a gallon jug was the easiest way to go. That way, the only time that we needed to pull out the giant bag of rice was to refill the “rice jug.” A gallon jug full of rice weighs about 7.5 pounds, and the weight goes down as you empty it out. If that’s too heavy, use a half gallon – you’ll fill it twice as often, but it’ll never be more than 4 pounds at most.

6. Make your own broth or stock and save it in milk jugs, too.

You can do the same exact trick with broth or stock that you make yourself. Just pour it into a jug or two, keep it in your fridge, and pour it out as needed.

Making stock is easy. Just take any vegetable scraps you have (I save them for a while in a gallon Ziploc bag in the freezer) along with any bones you’ve saved from various meals (like chicken bones or beef bones). I also like to add some salt and some peppercorns and maybe a few other herbs and spices to experiment a little. Put all of that stuff in a slow cooker and then fill it with water so that everything is just covered with a couple of inches to spare. Then, let it cook on low for 12 to 24 hours. When it’s done, strain it and save the liquid; the other stuff can be discarded.

That liquid you’ve saved is magic. It works great as a substitute for water in almost any flavorful meal. It works amazingly well in soups, just straight up amplifying their flavor. If you store it in a jug in the fridge, it’s easy to pour whenever you need it, too. Just pull out the jug, pop off the cap, and pour. My only suggestion is that if you intend to store it for more than a few days, make sure it’s salty, which helps with preservation, or else freeze it.

This stuff is so cheap to make – it’s basically water and leftovers – and yet it adds so much flavor to leftovers. Putting it in an old milk jug in the fridge makes it super convenient, too.

7. Get involved in a community volunteer organization.

How does this one help save money?

First of all, it’s a way to spend some free time without any cost. If you’re doing volunteer work, you’re not spending money on activities or things. You’re just helping others.

For another, there are often little perks involved, like a free meal or something akin to that. I used to serve regularly at a very nice community dinner and part of that was a free plate for yourself.

The third benefit is that you end up building some very nice relationships with people. The people who spend their time volunteering are usually compassionate, thoughtful people, the kind of people you’re glad to have in your life and the kind of people you want to help when they’re down and who will help you when you’re down. These are the kinds of people you want to build relationships with.

I love charitable work. Not only is it time spent helping others, I almost always feel like I got at least as much out of it as the people I helped. I go in with the intent of building friendships and enjoying what I’m doing and feeling good about helping other people, and it costs nothing at all and occasionally gives me an additional perk as well.

8. Start keeping a water bottle with you all the time.

This is a trick that I picked up over the years from one of my closest friends, who seemingly always has a water bottle with him. Whenever he’s thirsty, he just hits a water fountain or some other place to dispense water, fills up his bottle, and then moves on with a free beverage in hand.

I keep one in my bag that I take with me most of the time when I leave the house. I also keep a water bottle in the car, which I’ll often refill at gas stations or rest stops while traveling (and I’ll usually try to fill it up before departing on a road trip, too).

Why do this? If you have an empty water bottle that you can conveniently fill, it makes the desire to buy a soda or another expensive beverage just to quench your thirst and have a beverage to carry with you far less appealing. Instead, you have that water bottle that costs nothing to fill up and quenches your thirst perfectly, and it’s usually faster to just fill it up than to buy a beverage somewhere.

That’s why you’ll usually find an empty water bottle in my bag and one laying on the floor in my vehicle. It saves money.

9. Make a list of books/DVDs you have up for swapping and list them on social media.

This is a neat idea that a friend of mine did recently. He simply went through his shelves and made a big list of all of the books and DVDs he had laying around. He posted the list on social media and said, “I’ll swap any of these books and DVDs with you for a while. Just let me see your list and we can work out some swaps!”

What happened? He ended up temporarily swapping about 20 DVDs and about 15 books. This gave him a bunch of movies to watch and a bunch of books to read for free, with the only cost being that he doesn’t have his old, already-read books on his shelf for a while.

This one is so simple. Just go through your shelves and make a list of all of the DVDs and books you’d be happy to loan to a friend for a few weeks. Post that list on social media, and ask friends to share their own lists. Look for anything they have that you’d like to watch or read, and ask them to pick out things you have that they’d like to watch or read, and swap them for a while.

It’s an easy way to get a bunch of good reading or viewing material, to meet up with a friend at least a couple of times, and then to have a bunch of books you’ve both read and movies you’ve both watched as common touchstones for conversation, and it costs nothing aside from loaning out a few items that would otherwise just sit on your shelf.

10. Check out the websites, particularly the activity calendar, of your local colleges and universities.

I often encourage people to check out the websites of the community they live in as well as adjacent communities, plus the parks and recreation department of each, when looking for free things to do.

Another great source for free things to do is to look at the calendars for any universities and colleges that happen to be nearby.

Universities and colleges host a lot of events that are open to the public and of interest to members of the community. They often host lectures and debates and athletic events and group meetings, most of which are completely free and completely open to the surrounding community.

Don’t be afraid to jump in. I’ve often discovered talks from authors whose books I’ve read, meetings of interesting groups, and even debates between people with interesting and differing viewpoints just by looking at the events calendar at local universities and colleges. All were free, and all were open to the public.

11. Get a short haircut, as short as you’re happy with.

A short haircut has a number of advantages.

First of all, a short cut means that you can wait a little longer between cuttings, which means that you’re spending less money at the barbershop or salon.

Second, short hair requires fewer hair care products. My (very short) hair requires just a tiny drop of shampoo and conditioner to stay soft and natural looking. It also holds up better to not being constantly washed. I simply spend a lot less on hair care products.

Another advantage of this is that, if your haircut is short, it’s very easy to maintain it yourself with basic barbershop equipment. I can maintain my own hairstyle with just clippers and a razor, though I do occasionally have it done by someone else because I think it’s starting to look awkward (I’m pretty bad at getting the back perfect).

Consider getting a really short, lower maintenance haircut the next time you get your hair trimmed. You’ll find that it saves you a lot of money.

12. Use a large pump for your shampoo, conditioner, and body wash in the shower and refill them in bulk.

The squeeze bottles that shampoos, conditioners, and body washes come in are convenient, but they also have rather large holes that make it very easy to dump out way too much of that stuff. A little squeeze can give you a fist full of soap when you only need a little bit, which means that the excess goes to waste and flows right down the drain.

The solution is to get a few large pump bottles. Think of pump bottles as being like a hand soap dispenser, but larger. You can sometimes get soap and shampoo in such containers, but you may have to buy them.

Once you have that in place, you can easily get your soap, shampoo, and conditioner one pump at a time, guaranteeing that you have a small amount appropriate for cleaning without a bunch of excess swirling down the drain.

Even better, having a pump bottle means that you can buy your shampoo, conditioner, and body wash in large bulk containers. You just refill your pump bottle from the big bulk container that you keep in your closet.

Together, these tactics save you quite a lot on your soap and shampoo. It allows you to easily buy it in bulk, plus you use far less per shower. This really adds up over time without any inconvenience and without switching brands.

13. Fold up a blanket and put it firmly in front of any place in your house where you can feel a flow of hot or cold air.

If you find that there’s a lot of air flowing under a doorway, the best long term solution is to get a weatherstrip and put it in place. That will block hot air from entering in the summer and cold air from entering in the winter, making it easier to maintain an ideal home temperature.

However, a weatherstrip isn’t free, and it also takes time to install it and a trip to the hardware store to get the items. That’s not always convenient in the moment.

What is convenient, however, is just grabbing a blanket or a big towel, rolling it up, and stuffing it under that doorway to block the flow of air. It’s not a perfect blocker by any means, but it’s a free blocker, and it will definitely slow down the flow of unwanted air.

That simple step will keep your furnace and/or air conditioner from kicking on nearly as often, which will show up in the form of energy savings. It’ll also help keep your feet warm in the winter, because cold air blowing through the gap in the bottom of the door can make feet cold in a hurry.

14. Haggle a little on any big purchase, especially at nontraditional retailers and on sale items.

Whenever I’m about to make a large purchase or I’m buying from someone that’s not a traditional retailer (where they can’t budge on the price of a bar of soap), I haggle at least a little. I’ll make an offer that’s lower than what the sticker price is, usually 15% or 20%, and then we start negotiating a little.

I find this works well any time you’re buying a very expensive item without a firmly fixed price (like a car) or an item that’s actively on sale, like a floor model. It also works well at nontraditional retailers, like a farmers market. It works far less often at big box retailers where you’re buying normally-priced items, to the point that I essentially don’t do this unless it’s a very expensive item.

Here’s the thing with haggling: the worst thing that can happen is that they say no, at which point you’re paying the original price anyway. If they say yes, you save a little money or get something thrown in.

In the last two months, I’ve drastically reduced the price of a car repair, scored a free board game expansion, and received a free cup of chili, all for just haggling for a second by simply asking for a discount or a throw-in. It’s easy, and it never hurts to ask.

15. Pretend to “cut the cord” for a month.

For any subscription service that you use in your home to save money, try pretending to live without that subscription service for a month.

Try living without your cell phone or without your data plan. Try living without cable. Try living without Netflix. Try living without any online subscriptions you may have. Just see what life is like without that service.

What alternative options can you easily find? What other things might you do with your time? Just try it and find out.

What you’ll probably find, for many of those services, is that your life goes along just fine without it. You either find other things to do or else you find a very adequate substitute for that expense.

For example, by going without cable, you may end up trying out over-the-air television options and discover that they meet your needs, or you may just find that you have other things to do with your time.

16. Be your own person.

Over and over, I find that a lot of purchases are, at their root, done to somehow impress other people and win their favor. In some way or another, people buy a lot of items to either “keep up with the Joneses” or to impress random people on the street or just to keep up with whatever their perceived idea of “normal” is.

I’ve had readers write in and say that they could literally never buy a store brand item because they would look bad to their guests. That’s an extreme example, but we all do things like this on a surprisingly frequent basis if we really dig into our reasons for buying things.

You shouldn’t stop caring what other people think, but you should strive to be your own person. Don’t buy things that you wouldn’t buy if you were the last person on earth – or at least think very carefully about such purchases. If there was really no one else out there to impress at all, would you buy this?

Again, naturally, you do want to keep up a nice public appearance, but you can do that with inexpensive clothes and cleanliness and hygiene and a nice demeanor. You don’t need expensive threads or jewelry or the latest gadgets or a shiny car to build a positive relationship or have people think of you positively. Frankly, most people won’t even think of you at all, no matter what you do.

Be your own person. Focus on things that you want, that truly matter to you. Think about why you’re buying things, and start severely cutting the value you give to what other people might think. You’ll always be happier in the long run.

Good luck!

The post 16 Little Frugality Tips That Make a Surprising Difference appeared first on The Simple Dollar.

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The Paradoxical Power of Idleness

In 1935, the influential British philosopher Bertrand Russell wrote an essay titled “In Praise of Idleness.” In it, he extolled the virtues of relaxation and leisure even in the face of withering pressure to push your body and mind to their limits.

Russell proclaimed that working four hours per day is not only feasible economically, but that it would “guarantee happiness and joy of life, instead of frayed nerves, weariness, and dyspepsia.”

While I can’t speak to his claim about excess work causing dyspepsia (indigestion), the bulk of his thesis rings true. It’s time we start embracing the notion that idleness can spark creativity, improve efficiency, and even boost our health.

Idleness and Ideas

Many of us have experienced a flash of insight when we least expected it. Just recently, I thought of a way to unknot a frustrating work problem while relaxing on my couch. I wasn’t racking my brain at the time. It just sort of happened.

But there are more impressive examples of people having profound creative breakthroughs while on their downtime. For instance, NASA scientist Jim Crocker had a key insight into the design of the Hubble space telescope while in the shower.

Researchers even have a pet phrase for this kind of downtime-related epiphany. “In creativity research, we refer to the three Bs — for the bathtub, the bed, and the bus — places where ideas have famously and suddenly emerged,” Keith Sawyer, author and professor of education at the University of North Carolina in Chapel Hill, told Time. “When we take time off from working on a problem, we change what we’re doing and our context, and that can activate different areas of our brain. If the answer wasn’t in the part of the brain we were using, it might be in another.”

If you’re trying to work your way through a tough problem, idleness can be a crucial ally.

As Russell put it, “The modern man thinks that everything ought to be done for the sake of something else, and never for its own sake.” The key is to truly let your mind wander. Then, if you’re lucky, the insights will follow.

If multiple brainstorming sessions haven’t led you to a breakthrough on your problem, what you might really need is a soak in the tub.

Idleness and Productivity

Even though the four-hour workday is still a pipe dream, people are starting to realize that building some idleness into the day can have positive effects.

A study from the Boston Consulting Group showed that when they forced their employees to take more breaks, productivity went up. A similar study out of Cornell concluded that worker efficiency significantly increased when a computer program reminded the workers to stop and take breaks. Anyone who has ever felt mentally recharged after getting some fresh air knows intuitively that these studies make sense.

Furthermore, author and economist Nassim Taleb makes a compelling case in his book “Antifragile: Things That Gain from Disorder” that idleness played a big role in ushering in the Industrial Revolution. He points out that many key inventions, such as the power loom, were made not by professional machinists, but by amateurs. These were the people who had enough free time to try audacious projects without the fear that failure would cost them their livelihood.

Ironically, America’s “work til’ you drop” culture could be holding back American production. As Russel so eloquently put it, “In a world where no one is compelled to work more than four hours a day, every person possessed of scientific curiosity will be able to indulge it.” Sure, some people would simply golf or goof off with extra downtime, but plenty of others would have more time to pursue their ideas and passions. Who knows, maybe the cumulative effect of all those curious people could propel us into the next phase of economic development.

Idleness and Health

Russell did not imagine that increased leisure time would lead to more laziness. On the contrary, he felt that idleness would encourage more self-expression. He mourned the loss of play, saying, “There was formerly a capacity for light-heartedness and play which has been to some extent inhibited by the cult of efficiency.” This loss, in his eyes, makes us weaker economically, physically, and spiritually.

Modern science backs up Russell’s intuition. Numerous studies now show that play is as beneficial for adults as it is for kids. Playing, whether that’s tossing a football, playing cards, or using coloring books, reduces stress and contributes to overall well being.

Beyond just forcing us to miss out on the benefits of downtime, long hours in the office have demonstrated negative effects all their own. Working 55-hour weeks increases the risk of heart disease and stroke and can lead to diabetes and depression. And, if that work is performed sitting at a desk, it can significantly increase your overall chance of dying from any cause. Long work weeks are the anti-fountain of youth, and we should be doing everything in our power to reduce their length.

Idleness Ain’t Easy

Productivity guru Tim Ferris wrote a book called “The 4-Hour Workweek,” which became a bestseller. The book encouraged people to construct their lives to maximize output while minimizing effort. As the title implies, parts of it are like Russell’s ideas on steroids.

Yet, Ferris found that living up to his own advice in the modern era (and as he grew more successful) was easier said than done. He has admitted that he’s nowhere near that ideal four-hour workweek, at one point drinking 10 cups of coffee per day to keep up with his workload while experiencing major stress and anxiety.

In an era where it’s not uncommon for people to work 60 or more hours per week, it’s as difficult as ever to take a step back. Which begs the question: When even famous authors who write extensively about the joys of working less end up as workaholics, what hope is there for the rest of us?

Thankfully, there are many things you can do to build a more healthy work-life balance. For instance, my productivity goes way up when I’m vigilant about organizing my schedule so that I can take afternoon walks. I also find I’m more productive overall when I get involved in projects or activities outside of work, like sports leagues. The key is to take the time to figure out what’s really important to you, and then do your best to prioritize those things above all else.

Whatever tools you use, remember that your leisure time is precious and that you are more than your job.

Summing Up

Bertrand Russell believed that “four hours’ work a day should entitle a man to the necessities and elementary comforts of life, and that the rest of his time should be his to use as he might see fit.” If that was the case 83 years ago, well, I think it’s fair to say it’s even truer today.

Amazingly, both science and intuition support Russell’s call to (in)action, and it seems in the near future society might finally stop thinking that “idle” and “lazy” are synonyms.

Russell also notes that “without a considerable amount of leisure a man is cut off from many of the best things.” I couldn’t agree more. Now, I’m off to go play.

Related Reading:

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