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Saturday, June 23, 2018

The Struggle to Find Meaning and Purpose in Financial Progress

When I go back and read some of the earliest articles I wrote for The Simple Dollar, I see someone truly enjoying the process of discovery of new frugal tactics and financial strategies. Don’t get me wrong, I still love finding new techniques, but when I was first starting out, all of the ideas were new to me. All of the strategies were new to me.

It was exciting because I could see a direct and notable impact for almost all of the things I was doing. I was watching our debts melt with surprising speed. I was trying out new ways of doing things every single day (and writing about them in the evenings), because there were tons of new things to try. A new book on frugality would give me a hundred new things to try, and I’d dive in as deeply as I could. I’d download long lists of frugal strategies and just dig in.

Over time, however, things began to gradually change.

For starters, Sarah and I started to reach our financial goals. We managed to pay off all of our consumer debt fairly quickly, followed by paying off our car loans and our student loans. Eventually, we moved forward on our life goal of buying a family home, but we bought a smaller one than we could have afforded and managed to pay off the mortgage in four years. We saved for retirement, we saved for our children’s college educations, and we’re debt free and have been for most of a decade. Our big goal nowadays is to essentially retire as early as possible – we plan on visiting every single national park in our fifties.

Second, the “honeymoon period” wore off. I don’t mean that the idea of being financially successful became somehow boring or that new frugal strategies became dull. I still like finding new frugal tips, after all. What happened is that a lot of the frugal strategies became incorporated into our normal everyday life and many of the tips I was finding were repeats of those ideas. Yes, a lot of them worked well and were better than what I was doing before, but I already had tried many of the tips I was finding. Plus, we had already climbed several of the hills we wanted to climb – our credit cards were paid off and so on – and our savings for our big goals had been completely automated. To put it simply, we stopped discovering new strategies to try every day and instead found ourselves implementing what we already had found that worked.

That’s, frankly, a lot less exciting. It’s much more fun at first, when you get out of bed each morning and try out a new tactic, when you can check the mail and see that debt that once seemed immovable breaking down and fading away surprisingly fast. Later on, when the debts are gone, all you have is a climbing balance in an account you probably shouldn’t touch and a life that’s already full of the best common sense routines.

Finally, I began to really notice what I was giving up. The choice to live below our means is a conscious one, but in that choice is a decision to give up some things that you might have otherwise had in life. For me, this meant seeing friends go on great trips that I would have also enjoyed. It meant watching the new technologies come and go while I’m still using a four year old cell phone.

Those things seemed far less important when the days were full of the newness of discovering new frugality and financial tactics and watching our debts disappear. When that newness faded, however, it became harder to ignore.

Those changes over the course of a few years led me to something of a crossroads in my financial journey – and in my life journey as a whole.

Why, exactly, am I pursuing financial success? Is it worth more to me than the things I’m giving up for it? What is the purpose and meaning in those choices?

I’m sitting at a point where I’m in very good financial shape compared to the average American with a similar income at my age. We have a fully paid for home, robust savings for retirement and for other goals, and a plan that leads us to retire early. I’m no longer being chased by immediate financial concerns.

So, why not relax a little and enjoy some of the perks of our financial state?

Why keep going with our financial progress?

It’s a hard question, and I know it’s one that many people deal with once they achieve their short term financial goals and begin the long slog toward their biggest goals.

You no longer have any immediate hills to climb. This isn’t a new adventure any more.

What is the meaning that keeps you going? What is the purpose?

I’ve struggled with this question for the last several years. I’ve really only figured out a few answers to that question, but those answers have been more than enough.

I Like the Life I Have Right Now

I have a marriage that still makes me happy to get up in the morning and see Sarah next to me, even after fifteen years. I have three great children. I have a job that I love more often than I don’t. I have a house that I’m happy living in. I have enough breathing room in my life to enjoy a lot of passions and avocations. There are a few things I need to work on, but those aren’t things that are solved by throwing money at the problem.

In short, I like the life that I have right now.

I view my life as a low stress place where I’m largely content, and from that base of contentment and low stress, moments of true happiness and joy bubble up consistently.

This was not how I felt about my life when I was struggling with debt and under financial pressures. In fact, I felt quite the opposite. I felt like my life was a pretty high stress place in which I was generally unhappy, and I spent money on things because I didn’t have any sense that there was happiness and joy bubbling up in my life. I had a high background level of professional and financial stress, coupled with the lack of sleep that comes from having babies, and it added up to a situation where I felt genuinely unhappy most of the time.

There is no sensible reason for me to risk what I have now, where I’m content almost all of the time and happy much of the time without having to spend money, to have a few amazing experiences but go back to a situation where I’m stressed out much of the time and under financial pressures and need to spend money to feel bursts of happiness.

My life is good, and part of that is because my finances are secure. My life remains good even I spend quite a bit less than I earn. There’s no reason for me to spend a bunch more for something fun that would bring a burst of pleasure that would quickly fade, but in the process disrupt the low stress levels and stability of my life. It’s a losing proposition.

I Like the Life I’m Heading Toward

I suppose that if I were in a position where I was happy with my life right now but I knew I was headed into a less happy life in five or ten years, I might strive to change things, but when I sit down and make a picture of my future, I’m pretty happy with that, as well. As with my life today, there are certainly a few things I want to work on and improve, but on the whole, the place I’m headed to is a place I want to go.

Sarah and I are likely to be able to retire early, not long after our youngest child leaves the nest. At that point, we’ll have a couple of decades of good health (at least) ahead of us, to do with what we wish, adventuring together.

As I mentioned earlier, one of our biggest goals is to visit every national park and camp there for at least one night. I want to get heavily involved with a local charity, far beyond what I can pull off with current familial commitments. Sarah and I are interested in starting a local tabletop gaming convention to be held annually in October. We want to read a lot of books, go on a lot of walks, do a lot of gardening, and simply enjoy a lot of things together.

That’s a future that makes me feel incredibly excited about what the future holds. I want to do all of those things quite badly, and I know I’m on a path to do those things.

The question for me then becomes what would it take for me to want to disrupt those plans? Sure, there’s always a chance that life might step in the way and keep those plans from coming true, but our current trajectory takes us right to those things, and those are what I want most for the future.

Not only that, even if my vision for the future changed a significant amount, I would have the resources to roll with a lot of those changes.

This is not a vision for the future that I significantly want to alter. I want things to keep trucking along, just as they are.

I Can Feel a Strong Connection Between My Daily Actions and My Long Term Goals

This is a subtle factor, but it’s actually incredibly important. I’ve spent a great deal of time encouraging my own natural long term thinking, especially in terms of how I evaluate everyday situations. Because of that, I feel a strong connection between the things I do every day and how that impacts my broader life.

When I take those two factors into account – the fact that I like my life as it is right now and that I’m heading in a direction I’m pleased with – it becomes very obvious very quickly that I have meaning and purpose in the path I’m on and the life I’m leading. That meaning and purpose comes from almost every sphere of my life. I’m happy with my marriage today and where it’s headed. I’m happy with my parental situation today and where it’s headed. While it’s not universal through every sphere of my life, I’m in a far, far better position than I was a decade ago and the areas that I truly want to continue to improve in are very clear to me.

If I were to make a significant change to my life right now, in an effort to seek out some great new experience or some other fundamental change in routine, I would upset those plans and I would upset the life that I have right now that I truly enjoy.

That’s the threshold I use whenever I consider making any notable changes to my life.

I’m not really talking about small one-off events here. What I’m really focused on are repeated behaviors and big events.

For example, if I notice that I’m starting to adopt some sort of new regular routine, particularly if that routine involves spending money, I start to strongly question that routine. Does that routine really make sense? Is it bringing a lot of value into my life? Is it bringing so much value that it overcomes the additive cost of that routine?

As an example, let’s say I’m starting to drift into a regular routine of eating more expensive foods. I’m eating out a little more and using much more expensive ingredients for home cooking and it’s starting to show in our food budget, which has grown by about $300 a month.

That $300 a month could have gone into a Roth IRA, adding up to a contribution of $3,600 a year. With a 7% return and an annual repeat of that contribution, it adds up to about $60,000 in retirement savings over a decade. Ouch. That’s enough to allow Sarah and I to retire a year earlier.

So, how much value am I really getting out of bumping up the relative quality of my food? Is it worth that cost? Is the difference between what I was eating a year ago and what I’m eating now making that much of a difference in my life? Furthermore, would I actually be getting more value if the high quality meals were less consistent and thus more appreciated and anticipated?

That’s the line of thinking I use to tamp down on steady, stealthy increases in normal day-to-day spending. I simply look at what it means in my life compared to what my life looks like if I dial it back, and I usually wind up on the side of dialing it back.

The same thing is true with a big purchase. Sarah and I are planning on doing a few international trips with our children when they’re a bit older, but we do have the means to start doing them right away. When we look at the impact of those expenses on the big picture, plus the relative difference in value that everyone would get out of doing a big international trip right now versus a much simpler domestic trip, we usually come down on the side of the domestic trip.

I Try To Keep In Touch With What I Really Value

A final part of this equation is the fact that we all change as people over time. The things we care deeply about today might not be so important to us in the future, and vice versa. All of us had things that were incredibly important to us when we were younger and are now not much of an impact at all.

Part of the reason that people run into financial trouble is that they sense those kinds of shifts in meaning but don’t really sit down and consider what’s going on. They keep pumping along a certain trajectory in their life, but what they don’t consider is that their values have shifted and that the trajectory they’re on is no longer taking them to a place they want to go.

It is far better to notice those values as they start to change and deal with them when the shifts are minor rather than not paying any attention until you wake up one day hating your life and the trajectory you’re on. That happened to me in the days before I started The Simple Dollar, and it’s an utterly miserable feeling.

In the latter half of my college years, I was really happy with the trajectory I was on. I had found an area of study I was happy with. I had a couple of mentors that were incredibly helpful to me in figuring out what my next steps were. I had a woman I was deeply in love with. The future looked great.

Over time, the worm turned on those things. I took a job related to that area of study I loved, only to gradually discover that I really intensely liked the bureaucratic structures and how much time I was taking away from my family and wife. My values had shifted – I still loved my area of study, but it no longer weighed above the frustration of dealing with bureaucratic issues. I also found myself caring deeply for my wife and, then, for my infant children.

Yet, there I was, still trying to chug along a career path that was headed to places I didn’t really want to go any more.

If I had sat down then and considered carefully how my values were changing, I probably would not have made a lot of those choices. I made them based on where I thought I wanted to go, without realizing or considering how my values were changing.

As a result, I found myself on a pretty unhappy trajectory, and I “solved” that, in part, by overspending. It led to me feeling better on a daily basis, but actually made my long term problems far worse.

It wasn’t until I sat down and strongly considered what trajectory my life was on and what I really valued that I started to make changes – radical ones. It was getting back in touch with what I really valued that pushed me onto the path that led to The Simple Dollar and to the life I have now.

I learned my lesson well. Nowadays, I think often about what I actually value, what direction my life is headed, what I’m doing right and doing wrong on a daily basis, and so on. I write in journals. I read philosophy. If I start to see some disconnect between what I want most out of life and where my actions are leading me, I address it head on. Is this really what I value? Why am I making these choices, then?

Those might be weighty thoughts, but they’re not all I think about. Rather, I find those thoughts to be something of a cleanser. They leave me with a life that I know I’m happy with today and I know is heading in a direction that I value, and that adds a lot of contentment and joy and erases a lot of worry and stress. It makes my other moments much better.

Final Thoughts

I guess, in the end, my recipe for finding meaning and purpose on the road to financial freedom is to be really sure that you’re happy with your life today and in the direction it’s headed, to deeply understand the connection between the two, and to keep a constant eye on things to make sure that you don’t gradually drift off into a direction you’re unhappy with.

If you’re anything like me, you’ll find a great deal of meaning and purpose in being a good financial steward when you consider these kinds of questions in your own life. For me, the argument for being smart about my money is really obvious and evident in my own life. I get far more benefit from being financially stable and heading in a good financial direction than the money can ever be worth if it were used for other purposes.

If you’re sure of the meaning and purpose of your financial moves, everything becomes so much easier.

Good luck!

The post The Struggle to Find Meaning and Purpose in Financial Progress appeared first on The Simple Dollar.

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Friday, June 22, 2018

The Value of the Roadside Attraction

This summer, my family and I are going on a lengthy road trip vacation through the South, touching the states of Illinois, Indiana, Kentucky, Tennessee, Georgia, and Florida, and possibly portions of Alabama and Missouri. We’re intending to visit several sites along the way, including historical areas, museums, national parks, and amusement parks.

A big part of our family road trip vacations is that we plan a few “tentpole” events – big stops that form some of the destinations of our driving – but most of what makes such vacations so enjoyable isn’t those big tentpole stops, but the little things along the way.

Many days, we start off by stopping at a grocery store and refilling our cooler with some food items for the day – sandwiches, vegetables, and odds and ends like that. Then, we’re off to our destination that evening.

What makes our trips stand out, though, isn’t the race for the destination, but the fact that we’re constantly looking for little quirky stops along the way. The highlights of many of our family vacations have centered around stops at roadside attractions and serendipitous discoveries. In fact, much of our vacation planning is done to include this type of serendipitous discovery.

Why? Two reasons. One, it’s incredibly fun to find a weird roadside attraction or something really unusual in a small town somewhere. Two, it’s almost always free and, if not, it’s always super cheap, far less than the cost of going to big “attractions” in larger cities.

Want a specific example? We don’t build memories at the Mall of America. We build memories at the world’s largest twine ball in Arthur, Minn., and it’s way cheaper.

How do we incorporate this so strongly in our vacation planning?

First of all, we drive shorter legs each day than would be needed if our goal was solely to arrive at the day’s destination. For example, we could drive 12 or 13 hours in a day to make it to a destination, but we’re much more likely to just cut that in half and drive two six-hour legs, each of which provides plenty of time for stops and side journeys.

So, let’s say we’re driving from Iowa to Miami. We could drive that easily in two days if we were really pushing it, stopping somewhere in Georgia for the night. Instead, our approach would be to drive it in three days or maybe even four days, stopping along the way.

We make up for this by spending less time at the actual destination, which is often underwhelming. Plus, lodging at the destination is often expensive, whereas destinations along our road trip can often be found at a much lower price. It’s far cheaper to stay at a hotel in a nondescript area a decent distance away from a metro than it is to stay near a major tourist destination.

Our vacation planning is usually done on each day of the trip, where we scope out tools for finding unusual roadside attractions and offbeat things. We always check out Roadside America and Atlas Obscura for things along our path, as well as the tourism guide for the state we’re in. We look for things that are within a reasonable radius around our driving path for the day.

For example, let’s say we’re driving from Greenwood, Ind., to Dalton, Ga., as a leg of our trip, which is about six and a half hours. As we start out for the day, we’ll check various route options on our trip and then look for various roadside attractions along the route options.

So, one route would take us close to Nashville, Tenn., while the other route would take us to the other side of Tennessee, near Knoxville. I’ll then go to Roadside America and Atlas Obscura and plug in ZIP codes for some of the towns along our route, looking for interesting things near those ZIP codes.

Along one route, we might see things like the Sunsphere in Knoxville and the Big Goofy Metal Bird in Rockford, Tenn. Along another route, we might drive along Music Row in Nashville and then see the Cast Iron Cookware Man in South Pittsburg, Tenn.

The thing is, as I start naming off options along the route to our family (and, often, they’re looking at options, too), it creates a strong sense of days filled with endless possibilities. It can feel like we have tons of options, and the truth is that we’ll often stop at too many things on a road trip day like this and end up getting to our destination quite late at night because the day of road tripping was so fun and fulfilling.

Yes, sometimes the roadside attractions and weird items end up being kind of lame, but, honestly, those things often end up being just as fun. They have become the source of running jokes in our family, sometimes carried over from vacation to vacation. We still make reference to a particularly weird hotel we stayed in more than a decade ago.

On the flip side of that, sometimes you’ll find something absolutely amazing that you never expected to find. A road trip several years ago took us into Bardstown, Ky., which I’d never heard of before. It has one of the most beautiful town squares I’ve ever seen and an absolutely amazing area to walk around near the town square, and it turned out to be one of the highlights of that entire vacation even though it cost us almost nothing (we did eat a meal there, but we were planning on eating a meal in a restaurant anyway).

To bring things back around to the beginning, we often fill up our cooler at the start of the day with items from a grocery store if needed (because we often have items from the day before). This often leads us to have a picnic at a nice town square in a town we’ve never heard of before, or stopping by a playground that’s well regarded due to the unusual equipment or the giant sculpture that’s nearby. It becomes a free lunch that’s also highly entertaining and unusual.

Over the years, this has just become the norm for how we handle long road trip vacations. We used to be much more focused on the destination, but these days I find the journey to be at least as compelling, if not more so, and the journey is often far less expensive to boot. We’ve discovered all kinds of cool small town treasures over the years by doing this and it’s drastically cut into the cost of our trips, too.

If you’re planning a family vacation by car this summer, here are some suggestions to take advantage of this.

First, don’t be afraid to turn one day of driving into two or two into three, and then trim a day or two off of your time at your destination. Often, the destination is overpriced and you’ve seen everything you want to see there in just a few days anyway, so rather than spending five or six or seven days in one place, trim it down to three or four days and add a day to the drive. This allows you to cut each driving leg down substantially.

Second, fill up your cooler with stuff for a meal or two at the start of each day. Sure, you’ll probably eat at some restaurants on vacation, but if you can turn a few meals into simple picnics, you’ll save quite a bit of money. Plus, picnics tend to sync up incredibly well with interesting town squares, parks, and roadside attractions.

Third, as you start your day, take a look at Roadside America and Atlas Obscura to see what you can find near you and near your route. There’s really no need to plan this in advance – it’s far more fun to let spontaneity happen and see what you’ll stumble upon on the drive. Use those tools, along with the state’s tourism guide, and identify some interesting and unusual and weird stuff along your path, and then let people talk about it and decide on what path to follow and what things to visit.

I recommend trying to include a park or a town square as one of those options for a mid-day picnic lunch. Exceptional parks and town squares often show up in tourism guides and occasionally in the other tools, too.

Finally, just enjoy the attractions, good or bad. The good ones are genuinely enjoyable. The goofy and weird and bad ones can be memorable, too, but in a very different way. Just go into these things with an open mind and you’ll usually find some things to appreciate and, if nothing else, you’ll leave with something to laugh about. More often than not, though, you’ll leave having discovered something new and interesting, and isn’t that part of the fun of a family vacation?

Never overlook the value of the roadside attraction. In fact, it’s worth your time to incorporate it into your travel plans.

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Thursday, June 21, 2018

The Wisdom of Frugality: What Is Simplicity?

wisdom of frugalityThis is the first entry in an eight-part weekly series that provides a detailed look at the book The Wisdom of Frugality by Emrys Westacott.

When I first read The Wisdom of Frugality two years ago, shortly after its publication, I was struck more than anything about the depth of the connection between philosophy and frugality. That’s really the book’s central idea: frugality is fundamentally about lifestyle choices and values undergirded by philosophical traditions. Westacott digs deeply into those traditions throughout the book by asking a series of questions that are rather strongly relevant to people struggling with their finances today and digging into what kinds of answers come from different philosophical traditions.

The book starts off by pointing out that there are really two competing visions of what “the good life” actually means. One idea is that of the “thrifty” person who is careful with their money, while the other idea is hedonism and consumerism. We often think of the frugal person as being the right and virtuous one, but if that’s true, why exactly does most of modern society follow a rather consumerist and non-frugal track?

Westacott turns that question around and asks whether or not frugality is a moral value, something we perceive to be somehow an inherently “right” thing to do? Why is simple living associated with wisdom, and why do so many people throughout history associate living well with living simply? Is being extravagant and materialistic a moral failure, and why? Those are the kinds of questions that this book tries to hit on.

I find these discussions valuable because I want to understand the why behind the things that I’m doing, and this book is one of the most direct answers I’ve ever read in terms of addressing the why of frugality.

What Is Simplicity?

The first question that Westacott digs into in the book is simply figuring out what people mean when they say “simplicity” or “frugality” or “simple living.” It’s a concept that’s inherently familiar to many of us, but what does it actually mean?

It turns out that it means something a little different to different people. Westacott finds that there are actually eight elements that come into play in terms of how different people define “simplicity” and “frugality,” and different people hang their hat on different elements of that meaning and different combinations of those elements.

Economic Prudence

This is the type of simplicity that’s often associated with Benjamin Franklin and traditional words of wisdom like “waste not, want not.” Franklin absolutely viewed frugality as a virtue, but he reveals throughout his writings that he primarily centers his idea around the idea of being careful with one’s money. He holds such care with money as a very central virtue in his life, actually practicing it as one of his thirteen virtues.

This is the most obvious and straightforward meaning of simplicity and the one that most people agree on. It tends to center on careful spending practices, avoidance of debt, and avoidance of wasteful spending habits – basically, the core principles of The Simple Dollar. When most people talk about the simple life, this is part of their definition of it. This is the one definition of simplicity that I think most readers of The Simple Dollar follow.

Of course, I find this to be the least interesting meaning, so let’s move on to some of the others.

Living Cheaply

I’ve often tried to carefully spell out the difference between “frugal” and “cheapskate,” usually concluding, as I did here, that a frugal person is trying to seek out the best value for all of life’s resources (money, time, energy, relationships, etc.), whereas a cheap person is primarily concerned with the best value for his or her money above all other aspects.

A cheap person definitely lives in a simple fashion, but they’re driven primarily by a desire to spend as little money as possible. They hate to waste even a single cent.

To put this in a philosophical context, Westacott describes the life of Diogenes of Sinope, the most well-known practitioner of cynicism in its ancient meaning. Diogenes strove to have no possessions beyond the clothes on his back and no wants. He was viewed as being rather eccentric, but respected for his willingness to actually live out his philosophical view of the world.

Much modern frugal advice actually goes pretty far down this path. It focuses strongly on using things up and wearing them out and has a strong self-sufficiency bent. However, the modern world pretty much ensures that none of us are really self-sufficient. In almost everything we do, we’re paying someone else to provide a service for us. We pay the electric company to provide energy for us. Even when we make things from scratch, we’re usually paying others to do some of the foundational work for us, like milling wheat into flour for our “from scratch” bread.

What this means is that the idea of self-sufficiency today is a matter of degree. Sure, it’s more self sufficient and cheaper to make your own loaf of good bread rather than buying it from a baker, but at home you’re still relying on the energy company for energy for your oven and you’re still relying on a miller to mill your wheat for your flour and you’re still relying on some source for your yeast and your water and so on. Sure, you could grow your own wheat and mill it yourself and you could go down to the stream to gather water in a wooden bucket you carved yourself and so on, but even the most ardent “simple living” person still relies to some extent on the efforts of others. This is a big part of the thinking behind Ralph Waldo Emerson’s essay Self Reliance, which I’ve written about in three parts.

The idea of self-sufficiency is highly linked to the ideas of frugality and simplicity, but they’re simply not true for most of us. Besides, modern life actually provides a lot of simplicity for us. What is simpler when you want to contact a friend who lives in the next town over? Sending that person a text, or putting on your walking shoes, walking several miles, knocking on their door, and hoping they’re home? It is certainly “cheaper” to walk to the next town and knock on that person’s door, but it’s not simpler.

The point here is that “living cheaply,” when taken to extremes, becomes ludicrous. When you value saving a dime so much that you’re willing to throw away many hours of effort to save that dime, you’re probably making a questionable decision. A cheap person might put more emphasis on saving a buck than others, but there’s still a reasonable limit to that cheapness. Thus, being cheap is just a degree or two of difference from more reasonable levels of frugality.

Do you consider yourself to be frugal or cheap? In other words, do you try to get value out of things based on lots of factors like money and time and energy, or are you mostly concerned about the financial bottom line?

Being Close to Nature

This is an aspect of frugality and simple living that I hold near and dear to my heart. I deeply love spending time in natural settings – going on hikes and nature walks. I am a huge believer in the idea of “forest bathing” because I’ve felt how time in a natural setting calms me and leaves me feeling better.

This links to a certain degree with the idea of “back to nature” as discussed in the previous section. People gravitate toward things that are perceived to be more “natural,” to the point that it’s often used as a marketing hook. There are lots of magazines and products and websites marketed to appeal to the inner desire of getting back to and being close to nature.

Many, many different schools of philosophical thought over the centuries have put strong value in the “back to nature” aspect of simple living. There’s often an underlying thread that “what is natural cannot be bad” running through their ideas, and it’s something that’s baked into our culture in a fundamental way.

My favorite example of this idea is Henry David Thoreau’s book Walden, of which I’ve written before. In that book, Thoreau discusses his experience in spending two years essentially living as close to nature as he could on the shores of Walden Pond in Massachusetts. He lives in a simple cabin in the woods, provides his own food, and lives as simply as he can in that context. His main discovery was that there is a deep connection between nature and personal happiness, a connection that serves as a major part of his book.

Do you get value out of being closer to nature? What exactly do you do to get closer to nature? Hikes? Camping?

Being Content with Simple Pleasures

This is the meaning of simple living most favored by Epicurus, another fellow whose ideas I’ve written about in the past. As I wrote then, Epicureanism centers around the idea of pleasure as the greatest good. One should seek a life of pleasure, but what exactly constitutes that pleasure is a bit different:

“Epicurus argued that pleasure is found by living modestly, curbing one’s desires, enjoying simple pleasures in the moment without gluttony, and reflecting on and understanding the world. Doing this leads to tranquility and freedom from fear (and, to some extent, less physical pain) and that those factors together are a huge source for personal happiness. Epicurus considered this state to be the highest and best form of happiness and pleasure.”

At the core of this argument is the idea that the best pleasures in life are those that are simply and easily obtained – in other words, you don’t have to spend a lot of your life’s resources (time, money, and energy) to obtain it. Short term pleasures that lead to long term pain are bad – I don’t think Epicurus would be impressed by junk food. He also believed that virtuous behavior made people deeply happy and was thus another thing to strive for.

So, what simple pleasures really stack up here? Food that’s simple and healthy and good. Satisfying work. Good friendships. Time to contemplate ideas and learn new things. Those are among the core pleasures of an Epicurean life.

At the core of all of it? Gratitude. The modern concept of gratitude journaling is all about reminding ourselves of the simple pleasures in life and bring appreciation of them to the forefront, and that concept comes straight from Epicurus.

What simple pleasures do you enjoy in your life? Do you practice gratitude for those simple pleasures? Do you try to make them a key part of your life?

Asceticism

This includes simple living for moral or religious reasons. For a modern American example of this, consider Amish or Mennonite communities or the idea of a monastery.

The core idea here is that denial of comfort or of physical pleasure is a tool to push people to focus on their morality or their faith. Intentionally living a simple life often frees time to think and reflect in a way that isn’t available in the modern world.

People who are driven to any form of deep work often use asceticism as a tool. They’ll retreat to a very closed off and rather spartan setting in order to get complex work done, and those settings often produce great results because they’re free of distractions. I do this to a small extent – I do my best writing when I close myself off from most of the distractions of my life and just bear down on the words.

This is also where the idea that some food and other modern pleasures are “sinful” peeks in. When you see that pop up in marketing or advertising, it’s coming from the idea of asceticism, where simple living is moral and intense pleasure is immoral.

Have you ever used asceticism as a way to keep things simple in your life when you’re trying to really hammer down on an important project?

Physical or Spiritual Purity

This happens when people begin to reject or accept things due to some standard of spiritual or physical purity. For example, some people refuse to eat non-kosher foods, others choose to be vegan and eat no animal products, and so on.

This can spread over into other types of behaviors. The “straight edge” movement, for example, which urges the avoidance of alcohol, tobacco, non-prescription drugs, and in some flavors also includes the avoidance of animal products and sex.

While this tends to fall in the idea of “simple living” simply because these often offer simple rules to live by, the end result of these types of purity practices is that they wind up at least being partially in opposition to other ideas of simplicity. For example, eating a highly restrictive diet that follows a few simple rules can be “simple” in one sense, it’s very likely that such a diet will be more financially costly than other dietary practices.

Have you ever chosen to reject certain things for the purposes of physical or spiritual purity, such as giving up meat during Lent?

Living According to a Fixed Routine

Some people view a simple life as one that heavily follows a fixed routine. If you go through very similar steps and actions each day, your life does become simpler. You can save your mental energy for other things, such as producing great work, because you don’t spend your energy or time on making constant decisions throughout your day.

This is definitely an approach that I like to use in my own life to make my life simpler. I have a lot of responsibilities that I have to balance – being a father to young children, being a good husband, being a child of parents who are growing old, being a writer, being a friend, being an active member of my community, as well as having time for hobbies and other aspects of life – and the best strategy I’ve found for this is to make much of my life as fixed in routine as possible. I wall off blocks of time that I intentionally use for each of those areas, giving important things like my family plenty of time but also ensuring I have time for other things.

This enables me to avoid constantly spending my focus and energy making decisions about what to do throughout the day. Instead, I just follow my calendar without really thinking about it so that I can save my mental energy for being a good father, a good husband, a good writer, and so on, and have energy for enjoying my hobbies and interests, too.

Do you practice a simplicity of routine in your life? Do you have consistent routines for the things that you do? If you do, do you find that they help you have time for certain things or help you maintain focus where it’s more useful?

Aesthetic Simplicity

Think of how fashionable people practice minimalism – the all white apartment with very few possessions, the tiny homes, and so on. This is an example of simple living used for aesthetic purposes – to make a public statement about your values to the world and convey ideas of purity, honesty, essentialism, and so on.

This is a very externally focused look at simple living and frugality, as an approach to mark yourself to the world. It’s usually mixed with other values such as being unpretentious or being more dedicated to doing than to having things.

What do you show to the world by how you choose to live? Is your frugality part of how you display yourself to the world?

Final Thoughts

The thing is, each of us live by a particular and likely unique definition of what simplicity is. Most of us strive for simplicity in some aspect of our lives, but what areas we choose to apply it and what methods we use to achieve it vary greatly.

What’s particularly powerful about Westacott’s treatment of the ideas is that, in almost every case, he points to philosophical traditions related to that particular flavor of simplicity, which thus points to further reading if you’re interested in that particular aspect. A bookshelf filled with works by people such as Seneca, Marcus Aurelius, Lucretius, Epicurus, Franklin, Emerson, and Thoreau will give you quite a lot to think about as you figure out what simple living and frugality really mean to you and how you can best practice those values in the world.

Next time, I’ll delve into the next section of the book and take a look at the question of why simple living is supposed to make us better.

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When Veterans Should (and Shouldn’t) Use a VA Loan

If you’re a veteran who’s thinking of purchasing a home or refinancing the home you have, you may want to consider a VA loan instead of conventional financing. This government loan program was created to help members of the armed forces, veterans, and eligible surviving spouses become homeowners.

VA loans come with plenty of perks. According to the U.S. Department of Veterans Affairs, VA loans used to purchase a property come with competitive interest rates and don’t require a down payment or private mortgage insurance (PMI). Cash-out refinance loans come with equally generous terms, except they let you take out cash to pay down debt or fund other financial goals.

Another popular VA loan program, the Interest Rate Reduction Refinance Loan (or IRRRL, also called the Streamline Refinance Loan), lets you refinance your current VA loan to a new loan with a lower interest rate with no appraisal or credit underwriting. There are also special VA loans for Native American veterans and disabled vets.

At the end of the day, all VA loans offer special terms to veterans, and may be more affordable than other options.

When You Should (and Shouldn’t) Use a VA Loan

To qualify for a VA loan, your length of service or service commitment, duty status, and character of service are considered. Once you determine that you’re eligible, it’s up to you to decide whether to work with the VA or pursue traditional financing for your home or refinance.

Unfortunately, this is where things get tricky, since not all realtors or even mortgage brokers work with VA loans enough to understand them. Kathy Partak, a realtor and former mortgage broker from California, says that she has seen real estate agents talk eligible buyers out of using a VA loan when doing so would have been in their best interest.

“They tell veterans that sellers will not accept their offer because the seller is expected to pay everything,” she said. “There are a couple of things that veterans can’t pay for, and there are so many ways to write an offer to take care of a seller and make the transaction fair and more than equitable.”

While real estate agents may be unnecessarily wary of working with buyers using this option, some loan originators may have their own reasons for steering consumers away from VA loans as well. We reached out to experts to find out when a veteran should — and shouldn’t — consider a VA loan. Here’s what they said:

When a Veteran Should Use a VA Loan

Before we dive in, let’s go back over the benefits of VA loans. One of the biggest is the fact that borrowers don’t have to have a down payment, nor do they have to pay private mortgage insurance (PMI). Since PMI can cost around 1% of the mortgage amount every year, not paying for this coverage can easily save you hundreds of dollars per month.

“VA loans are also more forgiving for people who have had some credit missteps in the past,” says Patton Gade, Phoenix branch manager at BBMC Mortgage. “The waiting period for a previous bankruptcy or foreclosure is much shorter for a VA loan.”

With these benefits in mind, here are some of the instances where an eligible consumer should absolutely consider a VA loan:

  • You don’t have a down payment: “If a veteran is purchasing a home and doesn’t have the traditional down payment available to them, the VA loan will allow you to purchase with no down payment,” says Gade. This could help a buyer get into a home they couldn’t buy otherwise, which can help them start building equity faster.
  • You don’t want to pay PMI: The single most important benefit to a VA loan is that a veteran can purchase the home at 100% financing with no private mortgage insurance, said Partak. “Not only is private mortgage insurance incredibly expensive to set up, it also adds hundreds of dollars to the monthly payment.” Keep in mind, however, that VA loans usually come with an upfront funding fee between 1.25% and 3.3% of the loan amount based on your loan details and level of service.
  • You have credit issues. According to Andy Elder of First Securities Mortgage in Michigan, VA loans are more forgiving if you’ve made some credit mistakes in the past. Generally speaking, you need a credit score of around 620 to qualify.
  • You want low closing costs. Corey Vandenberg, a mortgage banker from Platinum Home Mortgage in Lafayette, Ind., says that closing costs on VA loans tend to be lower than those on conventional financing, partly because some of them are regulated. Also, the seller can credit back up to 4% of your loan back to you to cover closing costs.
  • You want to refinance to secure a lower interest rate. If you have a VA loan already but could qualify for a lower interest rate, it almost always makes sense to use an Interest Rate Reduction Refinance Loan (IRRRL). These loans don’t require an appraisal or credit underwriting, and the closing costs can be wrapped into the loan.
  • You’re a disabled veteran. Disabled veterans receiving compensation for a service-connected disability are often much better off with a VA loan compared to traditional financing, because they’re exempt from having to pay the upfront funding fee.

In short, a VA loan is good for most eligible borrowers since costs are low, PMI is not required, and credit score requirements may be more manageable for borrowers who’ve had credit mishaps in the past. For that reason, almost any veteran who can qualify would be better off with a VA loan provided the property they want to buy is eligible.

When It Doesn’t Make Sense to Use a VA Loan

Still, the experts we spoke to said there are some scenarios where a VA loan would be less advantageous than traditional financing. You may want to pursue a conventional mortgage if:

  • You’re using a VA loan for the second time: Because the VA funding fee is based on several factors, including whether you’ve had a VA home loan in the past, it can make sense to go with traditional financing for a second property purchase. Gade says that, if the veteran does not have a VA disability and has used a VA loan in the past, there will be a 3.3 percent funding fee from the VA. “This may offset any of the benefits of using a VA loan and may make a conventional loan more attractive.”
  • You’re buying an investment property. Gade notes that VA loans cannot be used for investment properties or second homes.
  • You’re buying a property that isn’t eligible for a VA loan. Not all properties are eligible for VA loans, although all single-family homes are or should be eligible, notes Elder. “Some condos will not allow them because they are similar to FHA loans in that they need a special VA approval,” he said. “If they aren’t on VA approval list, a lender can request or get them to be, but this is a challenging process and one that takes a lot of time.”
  • You have a 20% down payment. If your down payment is big enough to avoid paying PMI already, you should definitely compare rates and terms on both VA loans and conventional home loans. That’s because the upfront funding fee for VA loans could make the loan more expensive overall.
  • The home you want to buy is too expensive. VA loans come with limits that can make it difficult for veterans to buy in expensive real estate markets. These limits are determined by the county you live in and vary widely. The loan limit for a single-family home in all counties of Alabama, for example, is $453,100, while the limit for single families in every county of Alaska is $679,650.

The Bottom Line

At the end of the day, most borrowers eligible for a VA loan would be smart to consider it. With more lenient credit requirements, low interest rates, and no down payment requirement or PMI, what’s not to like?

But as you move through the mortgage process and start comparing your options, experts say you should make sure you’re speaking to someone who has a wide breadth of experience with VA loans. This is important because not all loan officers have experience with all types of funding.

Gade, who is a military veteran himself, says that both his loan originator and realtor advised him not to use a VA loan when he purchased a home as a young Army officer.

“In retrospect, I know that was bad advice,” he said. “VA loans have gotten a bad rap over the years, mainly because people don’t understand the process.  In reality, it’s no more difficult than a conventional or FHA loan, and often times it can be easier.”

Consider all the costs, interest rates, and the monthly payment for all your loan options, says Gade. “You should also take into consideration your short- and long-term plans,” he says.

By crunching the numbers and working with professionals who are knowledgeable about VA loans, you can figure out which path to choose.

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

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Wednesday, June 20, 2018

The Snowball Effect of Retirement Savings

If there was one financial move that I executed well during my first few years of professional life, it was my decision to save heavily for retirement right off the bat. My first post-college employer offered a great retirement plan and offered robust matching and my mentor, whom I trusted deeply, told me I should go in there on the very first day and contribute enough to get every drop of that matching money, which I did. Thank goodness.

At first, the decision to contribute felt like a monumental one, one where I had total control over the situation. My total contribution was about 20% of my salary and that felt like a lot.

I started contributing right at the end of the recession of 2002 and, for the next six years, I contributed steadily to my retirement plans (across two different employers), receiving matching at both places.

In 2008, I stepped away from that career path and moved to my own, starting a Roth IRA and contributing to that without matching because I’d seen the power of those contributions.

Over the years, I’ve watched those initial contributions grow and shrink and grow again. I can’t add more to those accounts at this point, but I can certainly watch them grow like a terrarium inside of a glass bottle, and I’ve learned a few things along the way.

For starters, for most of the last several years, those investments have grown more each year than I ever contributed to them in a single year, without me putting a drop in there. I personally contributed between $5,000 and $7,000 a year to retirement in those early years and those accounts grew by more than $7,000 a year on their own most of the past several years. This is a function of the power of compound interest.

Another interesting note: I’ve contributed more to my Roth IRA than I ever did to those accounts, yet the balance of my Roth IRA is lower in total than those older accounts. This is, again, a function of the power of compound interest, and taken together, it should be clear to anyone that it makes a ton of financial sense to contribute as much as you can as early as you can to your retirement savings.

However, that’s not really what I’m writing about today.

As you progress down the road to retirement, the contributions you make have less and less of an impact and the ins and outs stock market has more and more of an impact.

Let’s say, for the sake of convenience, that you have an investment account that returns either 10% per year and -20% per year. You have five years of 10% returns and then a sixth year of -20% returns and then the cycle repeats itself.

You contribute $10,000 at the start of year one of this cycle, and that’s all.

At the end of year one, where you earn 10%, you’re left with a balance of $11,000.
At the end of year two, where you earn another 10%, you’re left with a balance of $12,100.
At the end of year three, where you earn another 10%, you’re left with a balance of $13,310.
At the end of year four, where you earn another 10%, you’re left with a balance of $14,641.
At the end of year five, where you earn another 10%, you’re left with a balance of $16,105.10.
At the end of year six, where you lose 20%, you’re left with a balance of $12,884.08.

As you can see, over those six years, you earned $2,884.08. You could have altered that return a little by contributing to a different investment – something that returned 7% a year every single year would have earned you $5,007 over that timeframe, for example. That’s a solid difference, but it’s not a huge one. The investment you choose will definitely make a difference early on, but the difference isn’t enormous. Your earnings difference over six years on that $10,000 initial investment will probably range by a thousand or two if you’re comparing similar investments.

Now, let’s look at a different example.

At the end of year one, where you earn 10%, you’re left with a balance of $11,000. You invest another $10,000 at this point, so your new contribution makes the balance go up 90.9%.

At the end of year two, where you earn another 10%, you’re left with a balance of $23,100. You invest another $10,000 at this point, so your new contribution makes the balance go up 43.3%.

At the end of year three, where you earn another 10%, you’re left with a balance of $36,410. You invest another $10,000 at this point, so your new contribution makes the balance go up 27.5%.

At the end of year four, where you earn another 10%, you’re left with a balance of $51,051. You invest another $10,000 at this point, so your new contribution makes the balance go up 19.6%.

At the end of year five, where you earn another 10%, you’re left with a balance of $67,156.10. You invest another $10,000 at this point, so your new contribution makes the balance go up 14.9%.

At the end of year six, where you lose 20%, you’re left with a balance of $61,724.88.

What’s the point of this illustration? Early on, your contributions make an enormous difference to your balance, but as time goes on, your contributions gradually become less and less important. After several years, most of the time the ins and outs of the stock market will have far more effect on your savings than your contributions. Your contributions have a smaller and smaller impact in terms of percentage, but the impact of the market stays the same in terms of percentage. Eventually, your contributions by percentage are substantially below the impact of the return on your investment.

In other words, once you’ve contributed for several years, your investments, if put into something reasonably aggressive, will start to grow so fast that in a typical year they’ll earn more on their own than you contribute. This gets more and more and more true over time, because as your investment grows, the annual returns grow.

What this feels like to me is pushing a snowball down a hill. At first, you have to really push and push and push a snowball around to make it sufficiently big, but there comes a point where that ball starts to have momentum on its own and it starts to roll on its own without you having to keep pushing it. You can keep pushing it, but you’re adding less and less and less force to that snowball rolling down the mountain and it’s picking up more and more and more steam on its own.

It’s at this point that making a good investment choice becomes increasingly important. When your balance on your account is $1,000, the difference between a 9% return and a 10% return is just $10. When the balance on your account is $100,000, that difference jumps to $1,000. Furthermore, that difference accelerates over time because that return is reinvested.

What’s the lesson here? The absolute most important thing you can do for your retirement savings is to just start contributing now. Don’t worry about choosing the perfect investment option. Just start contributing as soon as humanly possible. The earlier you start, the quicker you can get your retirement savings snowball big enough that it starts rolling down the mountain on its own momentum.

Later on, it will make sense to start looking more carefully at your investment options, not so much because a strategy change is in order, but to make sure you have your money in an option that charges low fees. I have every drop of my retirement savings in index funds for this purpose – they’re low fee investments that basically just match the overall stock market.

However, you don’t have to worry about that right now if you haven’t even started saving. The most important thing, by far, is that you get started right away. That’s far more important than what investment you choose. You can sit there blindfolded and choose one at random and as long as you eventually get around to figuring out which one you want in the next several years, you’re going to be in far better shape than waiting.

Start now. Start your snowball. Contribute something to retirement and start doing it consistently. Don’t worry about the specific investment that much, at least not right now. You’ll never regret this.

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Should You Remodel or Move?

If you’re feeling like you’ve outgrown your current home, you might be considering a move. And with housing markets around the country heating up with the weather, it’s peak house hunting season.

But what if the idea of moving stresses you out? What if you like your yard and your neighborhood, but just not your house? In that case, you may want to consider an alternative option. Moving isn’t the only way to get a larger home or upgrade your living space, after all. You could also remodel what you have — a move that has become increasingly popular as housing prices continue to surge and available inventory remains surprisingly low.

Moving vs. Remodeling: Pros and Cons

Remodeling may not be as exciting as buying a new home, but it could be a more cost-effective move in the end. This is partly because moving itself is costly — as is selling your existing home.

But it’s also because home prices have been rising dramatically. Real estate data firm CoreLogic’s home-price index shows that, nationwide, housing prices were up 6.9% in April 2018 compared to the year before, and they’re expected to climb another 5.2% through May 2019.

Obviously, rising prices are a huge consideration for anyone considering moving. Sellers may receive a higher sales price for their home, but they’ll likely pay more when they go to take out a mortgage for a new property. Plus, there are other costs to be aware of. Surging sales prices can also mean higher prices for other essentials, such as homeowners insurance and property taxes. All of those expenses can and will add up over time.

Should you move, or should you remodel? Experts we spoke to say you should consider the pros and cons of both options before you take steps in either direction. Here are some of the advantages and disadvantages to consider:

Advantages of Moving:

  • You can physically move your location. John Bodrozic of Home Zada says one of the biggest advantages of moving is the fact that you get to select a new location to call home. This can mean looking for a considerably larger or smaller home based on your preferences, but it can also mean choosing a better neighborhood or a lot in the country if that’s what you want. You could even move to an area with better schools, which is something you don’t get when you remodel your existing home.
  • You don’t have to live in a construction zone. If remodeling your home would require an invasive project like a bathroom or kitchen remodel, moving could save you from dealing with the mess and the stress. A major kitchen overhaul could leave you without a place to prepare food for months, after all. This can be inconvenient and costly.
  • You don’t have to deal with contractors. While remodeling your home could seem ideal, dealing with contractors is rarely stress-free. There are always hiccups when you remodel or build, and not everyone wants to deal with the drama or the expense.
  • You can purchase a home that’s 100% turnkey. Earl Correll, president of Texas-based On Point Custom Homes, says that moving gives you the option to buy a home that’s been remodeled and upgraded to your specifications. If you buy a home that’s in great condition already, you can pack up your stuff and move right in after closing.

Disadvantages of Moving:

  • You may not get exactly what you want. One major reason home prices have been rising is the lack of inventory – and that means you may not have a ton of options in your desired area. According to Correll, it’s pretty common to find homes that check off some of the boxes you want — but not all of them. “This means you’ll probably have to compromise on a few wish list items,” he says.
  • You may have to leave an area you love. If you love your current neighborhood and can’t find something bigger in your area, leaving the area to get what you want can be a major disadvantage. You may love your new house, but what if you don’t love your new neighborhood or your child doesn’t like their new school?
  • Buying a home and moving can be time-consuming and stressful. Bodrozic says that dealing with finding a new home, getting financing, and closing on the new home while selling your current home can be a huge hassle. Timing can be especially tricky with homes flying off the market in an average of 34 days — the fastest rate in years, according to Redfin.
  • Moving is expensive. While you might find a “deal” on a new home that brings it within your price range, don’t forget the costs of selling your home and moving. You’ll likely need to pay around 5% to 6% of the sales price in real estate agent commissions when you sell your existing home. You may also have closing costs on both homes, moving costs, and the costs of upgrades (paint, new carpet, etc.) for your new home.

Advantages of Remodeling:

  • You can plan a remodel to meet your exact specifications. Ethan Vickery of Triplemint Real Estate in Manhattan says that remodeling lets you choose exactly how everything is created and finished to suit your needs and tastes. This is a big contrast to selling your home and moving since your new home won’t be designed just for you.
  • You may be able to use home equity to pay for the renovation. If you have a lot of home equity, a home equity loan or HELOC would allow you to use your home as collateral and borrow against its value to pay for the remodel. Borrowing against home equity can be less costly and less of a hassle than taking out a new home mortgage as well.
  • If you love your neighborhood, you don’t have to move. Remodeling lets you stay where you’re at, which can be a huge advantage if you love the local schools, your neighborhood, or the area in general.
  • You can avoid the costs of moving and selling your home. While remodeling isn’t cheap, you can avoid the realtor commissions, moving costs, and the money you’d likely spend getting your new home exactly how you want it.

Disadvantages of Remodeling:

  • You’ll probably face some surprise expenses. Correll says it’s extremely common to run into unexpected issues during a remodeling project. “This is especially true if you are taking on a large-scale project that includes tearing down walls, moving plumbing, adding gas lines and so forth,” he says. Unfortunately, these surprise expenses can cause your remodeling budget to surge.
  • Remodeling can be a pain. Bodrozic says that the home improvement process can be mentally tough, especially when you’re dealing with budgets, contracts, contractors, product selections, and potential delays. Depending on how intrusive the remodel is, you might have to live in a construction zone for months or even stay with family or in a hotel during the worst of it.
  • You may not get your money back out of your remodel. While remodeling your home can be cost efficient, most remodeling projects cannot offer a 100% return on your money. According to the 2018 Cost vs. Value Study from Remodeling Magazine, a minor kitchen model brought an 81.1% return on average nationally last year — meaning a $20,000 kitchen remodel would only increase a home’s value by about $16,220. However, those who paid for a major kitchen remodel only recouped 59% of their costs during resale.

Other Issues to Think Through

In addition to the considerations above, there are financial implications that come with both choices. Bozrodic says you really have to run the numbers on how much equity you have in your current house, the price point of what a new house will cost, and whether either option will leave you better off financially.

It also makes a difference whether you got a great deal on your existing home or not. If you bought low and housing prices are currently high where you live, you may not want to start over with a bigger house and a bigger mortgage. You may have lots of equity in your current home, but you’ll deplete it if you sell and buy a home at a much higher sales price.

On the flip side, there are times when you don’t have much of a choice in terms of what to do. Vickery notes that remodeling isn’t always an option, since there are times when even a full remodeling project won’t address the biggest problems with your home. If you live in a condo, for example, you probably can’t just add a room for more space.

Finally, don’t forget that moving may have tax consequences that could be either good or bad. For that reason, it may be wise to consult your financial advisor or accountant to see how selling your home or moving could impact your bottom line.

Move or Stay Put? Here’s How to Decide

While there are no hard and fast rules to determine whether you should sell your home or stay put, realtor Don Cramer of Urban Nest Realty in Las Vegas says there are plenty of questions you can ask yourself that will help you decide.

For starters, you should ask yourself what your housing goals will be in the next five to 10 years. If you like your home and it works for your job and your family, then it can make sense to remodel and work with what you have. If you plan to move in a few years anyway, then you may want to consider staying where you are and not remodeling, on the other hand. Since it’s unlikely you’ll get all your money back out of a remodel when you sell, spending a ton of cash on a huge project may not make financial sense.

Also consider how your lifestyle will come into play — both today and tomorrow, says Cramer. Are the kids now out of college and starting families on their own? If they are or soon will be, you may not need a larger home at all and could benefit from a simple remodeling project to improve your home’s flow or make it more comfortable.

Also consider your finances. Moving can be extremely expensive, but so can remodeling. Before you choose either option, make sure you can truly afford it. Money you borrow will ultimately need to be paid back, so you should be prepared to pay for your dream home for the long haul.

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

Related Stories:

Have you ever had to decide between remodeling and moving? What criteria did you consider? What did you decide to do in the end?

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Tuesday, June 19, 2018

How an Impulsive Personality Can Find Financial Success

Alex writes in with a great question:

I have a very impulsive and addictive personality. I find it really difficult to stick to things and I’m constantly distracted by the cool new thing or the quick snack and that makes it real hard to make any financial progress. I need some help in overcoming this side of me so I can have some kind of financial future. Trying to be “less impulsive” isn’t helping.

Impulsive behavior – particularly that which causes financial damage – is a problem that many people deal with.

To some extent, it’s a challenge for me, too. I’m often attracted to impulsively buy books and interesting food items and sometimes that can get me into a bit of financial trouble as I overshoot my budgeted hobby money without realizing it because I acted on impulse.

Those impulses can sometimes feel like the spice of life, but at the same time, they’re utterly disastrous to a healthy financial situation. Thus, over the years, I’ve had to develop several strategies to get around my impulsiveness. As Alex notes, impulsiveness itself is a hard customer to defeat, but you can work around it and divert it into healthier channels. Here are some tools for doing just that.

Automate As Much of Your Financial Planning as Possible

Rather than relying on yourself to constantly decide to make good financial decisions, automate as many of them as possible by having automatic withdrawals and automatic transfers into and out of your various accounts.

For example, if you know you want to save for retirement, sign up for a Roth IRA and instruct that investment firm to automatically withdraw an amount from your checking account every week to fund it. That way, there’s never a choice about whether or not to save up for retirement – it just automatically happens.

If you want to have an emergency fund, set up an automatic regular transfer from your checking account to your savings account. For example, you might want to transfer $20 a week into your emergency fund, so you just have your bank automatically move $20 a week into your savings account from your checking. Again, there’s never a choice about doing this – it just happens automatically, so you never have to think about it.

These types of automatic transfers take the decisions out of your day to day hands. It removes the possibility of the “whim of the moment” decision to simply spend that money on something else – it’s saved automatically for you, so you don’t even have to think about it.

Nuke Your Credit Card from Orbit – It Is the Only Way to Be Sure

A credit card is a dangerous tool for an impulsive person. It enables you incredibly easy access to fairly unlimited funds at an instant’s notice, and if you’re impulsive, that can lead to all kinds of unnecessary purchases that you’ve almost forgotten about as soon as you make them.

My solution? Nuke the credit card entirely for a while. Cut it up, delete your numbers from any online sites that store it, and learn to live on cash and/or a debit card for a while.

Simply not having access to a credit card forces you to think more carefully about many of your worst financial impulses. You can’t simply go into a bookstore and buy three new books without directly and immediately impacting your checking account and your ability to keep bills paid. That type of immediate consequence is far more likely to stick around with an impulsive person than the lack of immediate consequence that a credit card represents.

Just go away from credit cards for a while – a long while. You can always start using them later once you have a much better grip on your impulses, but for now, just stop using them. They represent too much of an easy temptation to be financially impulsive, which is the exact opposite of what you want.

Shape Your Choices So That the Financially Responsible Choice Is the Enticing Choice

I’m a big believer in the idea of the path of least resistance. To put it in simple terms, the path of least resistance is whichever option before you is the easiest way to get a sufficiently high quality return on your experience. For example, a fast food burger is reasonably tasty and fast and convenient, so many people eat fast food, even though it’s definitely not the best quality food and it’s expensive for what you get.

You can use the idea of the path of least resistance in your own efforts to curb your impulsive spending. Simply set up situations in advance so that you’re reducing the resistance against the more financially sensible choice.

A great example of this is make-ahead meals. Let’s say you like to eat a quick breakfast before starting your day, so you often stop at a drive-thru to get an egg sandwich and a cup of coffee because it’s too much effort to make a savory hot breakfast during the busy morning. Now, let’s say you had a whole bunch of breakfast burritos in the freezer that you could pull out and quickly microwave before you left, taking a hot breakfast with you. You’d likely do that at least some of the time, and thus you’d likely cut down substantially on your breakfast costs (a drive-thru coffee and sandwich probably costs $7 – a breakfast burrito and a coffee from home is probably around $1.50).

If you’re impulsive about stopping for supper on your way home, start making meals in the slow cooker by getting it going in the morning so that all you have to do is walk in the door and supper’s ready. Alternately, you could just prep some of the ingredients for dinner in the morning before you go to work so that you know that a lot of the work for a great dinner is already done for you. Eating at home is a far less expensive routine than eating out.

If you like to read but your desire as to what to read changes rapidly, just go to the library and check out several books at a time. Pick out five or 10 books on different topics or in different genres and leave them all out on the table. That way, when you get a desire to read, you already have a bunch of choices there, so you don’t have to start looking in the Kindle Store for options.

Can’t stop smoking? Get rid of all of your cigarettes and start learning how to solve the Rubik’s Cube. Can’t stop drinking? Get rid of all of your alcohol at home and fill your fridge with water bottles you’ve filled yourself. Tempted to stop somewhere each night after work? Consciously figure out a better path for commuting home that doesn’t take you anywhere near the tempting area – it’s probably a better route, anyway.

It’s all about putting a different path of least resistance in your way.

Ask for Help in Curbing Your Worst Impulses

This one’s easy. Just sit down with one of your most responsible friends, explain that you’re trying to curb your worst impulses, and ask them to give you a nudge in a more responsible direction in the heat of the moment of your worst impulses.

I have a friend who has always done this for me, almost naturally. He just nudges me in a more responsible direction almost without effort, causing me to think more responsibly about my choices. I’ve learned, over time, to just kind of let him lead and suggest things when we’re hanging out because, although he chooses interesting things to do, he rarely comes up with situations that trigger my worst impulses.

It can be hard for a friend to do this, especially if you’re a persuasive person or one who will react negatively toward someone nudging you away from your worst impulses. This is a tactic only to use if you have a very close and trusted friend who can just roll with it. Not all of us are lucky enough to have such a friend, but if you do, ask that person for help.

Most importantly, if you do ask for help, there are going to be moments where it’s tough for that person. You’ll probably react negatively toward that person in the heat of the moment, even though at a calmer moment you were strongly encouraging that person to help you curb your impulses. Remember that this friend is doing a hard thing to help you and show your appreciation when you’re in a less disruptive mindset.

Engineer Who You Spend Time With

You may find that you don’t actually have any friends in your regular circle who are responsible or trustworthy enough to ask for help in curbing your impulses. If this is true, it’s likely due to the fact that most of your social circle – the people you spend time with – are actually enabling your impulsive decision making.

If that sounds familiar to you, you’re going to have a very hard time overcoming impulsiveness and becoming financially responsible without making some significant changes to your social life. You need to consciously spend time around people who you enjoy spending time with who also happen to curb your worst impulses because they don’t engage in those things.

Let’s say you’re a big impulsive shopper with a social circle that loves to engage in retail therapy. There’s a good chance that any time you do something social, you’re going to wind up in a situation where you’ll impulsively shop and none of your friends are really going to do anything to curb it, and that’s a disastrous recipe for your financial health.

The solution here isn’t to dump all of your friends and become a hermit. The solution is to spend some time looking for new social situations within which you can build new friendships that won’t provide an easy path to your worst influences. This doesn’t mean abandoning your old friends, but simply widening your social circles.

There are many ways to do this. Join a civic group – you can usually find out about these on your community’s website. Join a church or other religious group. Check out Meetup and see if there’s anything interesting for you. Stop by the library and see what regular events they have going on. Go to some of those events, give them some time to unfold, and consciously make an effort to get to know some of the people there. Get involved with the groups that click, and invite specific individuals you click with to do other things outside of the group. If things don’t click, move on to another opportunity.

This doesn’t mean that you should start turning down invitations to do things with your old friends, but it’s simply about opening up new opportunities – and those new opportunities will point away from your worst impulses.

Figure Out What Triggers Your Worst Impulses and Remove Those Triggers

Most impulsive people find that their worst impulses tend to happen in certain kinds of situations. Perhaps it’s triggered by a mood (like boredom) or the presence of a certain friend or being in a certain place. Whatever it is, it’s well worth your time to figure out what that trigger is for your impulses and find a way to avoid that trigger going forward.

Here’s what you need to do: sit down and think carefully about the last several times you made a really bad impulsive decision that you now regret. What do those situations have in common?

Did they happen at a particular place, or a particular type of place (like a store or a bar)? Did it happen with a particular person present, or a particular group of people present? Did it happen when you were sad or when you were happy or when you were lonely? Did it happen in the day or the night? Did it happen before work or after work?

Try to identify patterns in your impulsiveness. If you can see particular circumstances that cause you to engage in the worst excesses of your impulsive behavior, strive to cut those circumstances out of your life or at least reduce their frequency.

For example, I’ve learned that I shouldn’t go into bookstores because I will often impulsively buy books without even a second thought. What do I do instead? For starters, whenever I have the desire to go to a bookstore, I make a conscious effort to go to the library instead. That keeps me away from a known trigger for impulsive spending.

Consciously Reflect on the Downsides of Your Worst Impulses

Many people don’t want to give up their impulsiveness. Often, they think positive thoughts about their impulses – they remember the fun they had or the best outcome they ever had from an impulsive moment.

A person reflecting on their impulsiveness at a club might think of a really great time they had. A person reflecting on their impulsiveness at a bookstore might think of the great book they bought at a bookstore in the past.

What they don’t remember is all of the mediocre times at the club, nor do they remember the bad times, nor do they remember the aftermath of spent money and regret and hangovers.

They don’t remember all of the impulsive and truly mediocre books they bought and barely even remember. They don’t remember all of the money spent on books that they essentially dumped at the used bookstore a year later for a penny or two on the dollar at best.

In both cases, they don’t think about the opportunity cost – what they could have done with that time and that money instead of spending it at the bookstore or at the club.

When you think back to your impulses, don’t think about the best times that you had. Think instead about the many mediocre times and the bad times and the aftermath and the costs and the lost opportunities. Think about what being impulsive so frequently has really cost you, and ask yourself whether it’s really a net positive in your life.

Such thinking isn’t meant to kill all impulsiveness, but rather it’s meant to make you second guess it a little bit so that you’re not dealing with the negatives while being blinded by the positives.

Have an ‘Impulse’Part of Your Budget and Keep That Money Separate

A final strategy that I’ve found really useful is to partition one’s budget so that there’s a chunk of money left behind each month for impulsive spending. I call this my “hobby budget.”

Each month, I withdraw a certain amount of money from my checking account for my various hobbies. I turn some of it into cash and put the rest into PayPal for online purchases. Then, during the month, I do my best to stick to that amount. (If I make an online purchase without PayPal, I just move money from PayPal back to my checking.)

If I want to buy something impulsive offline, I have to pay cash for it. I don’t carry around an ATM card most of the time, so if I don’t have the cash, I simply don’t do it. If I want to buy something impulsive online, I use PayPal for it, or if I can’t, I transfer enough for the purchase out of PayPal and use a credit card.

It’s not a perfect system. The biggest mistake I make is an occasional online impulse purchase that I forget to pull out of PayPal, or when a friend pays or repays me for something via PayPal and I forget to pull it into checking and treat it as hobby money. Still, it does put a pretty strong cap on my online and offline hobby spending and definitely gives me a measure of control.

The point of this tactic is to wall off your impulsive spending from the rest of your finances. Success in this regard goes a long way toward protecting the rest of your finances, so it’s well worth your time to experiment a little and find a system that works well for you.

Don’t Give Up!

Virtually everyone messes up sometimes on the road to financial freedom, and this goes doubly true for people with an impulsive streak. The key thing to remember is to never give up. If you make a mistake, pick yourself up, dust yourself off, figure out where you went wrong, make an effort to correct things so that it doesn’t happen again, and keep moving forward.

This is a long journey with many obstacles. Impulse will sometimes deter you a little. Don’t let it deter you a lot.

Related Reading:

The post How an Impulsive Personality Can Find Financial Success appeared first on The Simple Dollar.

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Your Car Probably Doesn’t Need as Much Maintenance as You Think

Your car definitely needs maintenance — but it doesn’t need as much of it as you’re being told it does.

I didn’t used to think about routine maintenance a whole lot. For most of my driving life, I drove older, second- to third-hand vehicles and did maintenance myself when I could. My rule of thumb involved changing the oil and oil filter every 5,000 miles, replacing the air filter as soon as I bought the car, replacing fluids, and bringing it into the shop when there was a strange sound or light.

I learned what a dying universal joint sounded like, what a bear head gaskets were to replace, and how many $100 to $500 problems would eventually kill a car’s value. It wasn’t until I began leasing vehicles that I learned about actual routine maintenance and how to ward off some of those costlier issues before they cropped up.

I currently lease a 2017 Subaru Forester and adhere to a fairly straightforward maintenance schedule. Subaru requires a check-in every six months or 6,000 miles. It’s supposed to be whichever comes first, but I work from home and really only use the vehicle for store runs and longer trips. My annual mileage allotment is 10,000 miles a year (which cuts the cost of both my monthly payment and car insurance premiums, but that’s another story), but I’ve only driven about 7,500 in my first 14 months of ownership.

While I think of that 6,000-mile checkup and oil change as generous — and my lease agreement and warranty offer some leeway on it — it turns out that such a stringent schedule may be unnecessary for the average driver. Though the folks at AAA advise following your vehicle’s factory-recommended maintenance schedule, they acknowledge that there’s wiggle room.

AAA notes that, for low-mileage drivers, most automakers recommend an oil change every 12 months (or basically half as many as my maintenance schedule recommends). Modern lubricants can extend the time between oil changes to up to 7,500 miles, while vehicles that use full synthetic motor oils may not need an oil change for 15,000 miles. Over the course of a two-year, 24,000-mile lease, that’s all of one oil change.

Consumer Reports puts that oil-change figure at 5,000 to 10,000 miles, but also recommends following the service indicator on newer dashboard displays for a better indication of when you need maintenance.

Also, as it turns out, you should just about never need to use nitrogen in your tires (at an extra $5 per tire) or flush your transmission fluid (most manufacturers now use 100,000-mile or “lifetime” fluid). Meanwhile, modern coolant and antifreeze is also meant to last for the life of the car and save you about $50 to $100 in changes, according to Consumer Reports.

Automotive pricing and analysis site Edmunds.com, meanwhile, points out something that becomes all too clear to most car owners after a visit or two: Dealership service departments and chain oil-change shops value their bottom line over the needs of your car. Considering the recommended mileage on most of the more modern vehicle maintenance guides listed in Edmunds’ database, may vehicle owners could get away with roughly half of the maintenance visits that chains like Jiffy Lube emphatically suggest (though don’t mandate anymore).

Insurance companies and even some dealerships suggest that you shouldn’t have to take a vehicle in for more than a routine oil change or tire rotation every 15,000 miles or so — though the items you’ll be taking them in for change with age. However, as J.D. Power points out, those who use their cars far more roughly under adverse conditions will have to give their vehicles a little more attention. That makes pre-paying for a dealership maintenance plan a dicey proposition.

While those up-front maintenance plans promise to lock in pricing over the life of the plan and are convenient for folks, they also don’t cover “wear-and-tear” items like brakes and wipers. Not only that, but Edmunds points out that they make a whole lot of money for dealerships by scheduling more service than is needed and charging more than the average cost of service.

So what should be a vehicle owner’s more realistic rule of thumb? Consult your maintenance manual, determine just how much you use your car, and follow the manual’s recommendations. Even if you lease a vehicle, the folks backing your lease just want to see that you’re following the manufacturer’s maintenance guidelines. In the meantime, you can check your tire pressure and tread, fluid levels, oil, timing and serpentine belts (40,000 to 60,000 miles), wipers, and air filters on your own without expending much energy doing so.

The good news about automobile maintenance is that improved technology has made it a whole lot less necessary than it once was. The bad news? Even if you’re doing much of it yourself, someone is always going to try to talk you into paying for more of it than you need.

Open the glove box, crack the owner’s manual to the maintenance section, and save yourself some money and aggravation.

Related Articles:

The post Your Car Probably Doesn’t Need as Much Maintenance as You Think appeared first on The Simple Dollar.

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