Get Rich Slowly

Labor Day weekend begins tomorrow afternoon in the U.S. It’s the traditional end-of-summer holiday, and most folks will get Monday off as a paid holiday. My own vacation is going to be a bit different: I’m going to take tomorrow off instead. This will be the last post until Sunday evening.

But as always when I take a short break, I’ll actually be working behind the scenes. Next week is Book Week at GRS, so I’ll be reading and reviewing at least three books. Plus, I’ll be writing the first batch of articles for my animal blog (as part of the GRS blog project) and editing the articles that will run while Kris and I are in Europe next month. So, even though GRS itself is on holiday this weekend, I’m not!

Before the break, however, here are a few financial articles from around the web:

First up, Erin Burt from Kiplinger has a round-up of her favorite fabulous freebies for 2010. This list of 33 items includes things like free car-repair help, free financial apps, free stock-portfolio analysis, free credit reports, and more. It’s a great list. The only puzzlement is why the web version doesn’t include links to all of these sites. (Sometimes old-media companies are baffling!)

Next, USA Today has an article about how the current generation of investors could become a “lost generation”. Mutual fund companies worry that investors are on strike. From the article: “The fear on Wall Street is that this buyer’s strike will linger for years, resulting in a lost generation of investors similar to what occurred after steep stock declines in the 1930s during the Great Depression and early 1970s, a recessionary time punctuated by high inflation.” It’s an interesting article with lots of info about the pros and cons of investing during a rocky market.

A GRS reader — whose name I’ve forgotten (sorry!) — sent me a link to this BBC article about The Age of Debt. Author Adam Curtis cites recent scholarship that says that the West’s recent debt-fueled economy came about because the rich were getting richer. The only way for governments to help the middle-class sustain their lifestyles was to encourage them to fund consumption through debt. His article includes several great old videos about debt. Interesting stuff, regardless of whether you agree with the premise.

One final note: This weekend, I’ll be a guest on the syndicated radio program Your Money Matters with Marc Pearlman. On Monday, Pearlman and I chatted about debt, investing, and the psychology of spending. Check your local listings to see if the show is broadcast in your area. If not, you can listen online, download the show from iTunes, or visit the website to find the show in the archives.

Have a great holiday, everyone!

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Related Articles at Get Rich Slowly:

• A Short Holiday
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• Daily Links: Holiday Tipping Edition
• Daily Links: Fundamentals Edition

This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com.

The summer heat has taken a toll on my debt snowball. Two months ago, I paid off the last of my credit card debt, but I still have thousands of dollars in loans. I started the summer with over $10,000 in my savings account, no credit card debt, and a solid plan to pay off my remaining loans within the next few years.

Then life happened. I’ve been living out of suitcases for the past two months, traveling to New York, Buenos Aires, and Bangor. (I’ve blogged quite a bit about how travel is one of my budget weak spots.) So I spent some money. Not as much as I was afraid I might, but more than I probably should have.

Also, I have kids. Those of you with children may have noticed that they’re expensive. There are a thousand articles out there on how to keep the cost of having children to a minimum. I’ve written some of those myself. But I’m here to tell you that whether you do your back-to-school shopping at Bloomingdale’s or Goodwill, kids will add to your monthly expenses.

So here I am. Summer’s ending. I’m writing from the lake house in northern Maine where I’ve been holed up for much of the past few months. In the peaceful quiet hour around sunset, I finally steeled myself and looked at my bank balance.

Resting on my laurels
It’s not as bad as I’d feared. The numbers are still solidly in the black. My savings have a dent in them, but a smaller one than I expected. My checking account is in good shape. My bills are paid.

The shadow in this rosy picture: I haven’t made any extra debt payments all summer. The hot weather arrived, my credit cards were paid off, and instead of rolling that debt snowball right into my car loan, I sat back on my laurels. No wonder I have more money than I expected: I’ve been letting all my debt snowball money (which adds up to almost $2000 a month) sluice around in my regular budget for two months!

I was going to try to slide this under the radar. I figured I’d turn a new leaf when the leaves changed colors, keep paying my debts off as quick as I can, and no one needed to be the wiser.

But then J.D. pointed out that my recent posts here haven’t had a lot of “me” in them. That’s not just because I’m focused on other things. It’s because I don’t want anyone looking too closely at me. I’m a little ashamed of where my finances are.

Not that there’s anything wrong with taking a few months off from my debt snowball. I wanted to do something indulgent and special to celebrate being out of credit card debt. Taking a summer off would have been an expensive but reasonable choice.

The problem is that I didn’t choose it. It just sort of happened. I let things slide. I put “set up increased loan payments” at the top of my financial to-do list in June. (A to-do list I literally left sitting on my desk when I packed my bags and left for the summer.) But I neglected to do set up those payments, or to do any other active management of my household finances for months. There was money in my checking account, and that was good enough for me.

Now there’s a familiar sinking feeling in my stomach as I look at my bank balance and have no idea where my money has gone or what the numbers mean.

Failing forward
I’m not actually in any financial trouble. But my timeline for being out of debt has slipped, and it’s slipped through some of the same cracks that led me into debt in the first place. I don’t know where all that extra money went. Some of it went into preschool tuition and plane tickets and new shoes for the kids. Sure. But I was also careless budgeting for groceries and any number of small purchases. Those add up to a lot of dollars.

My shame isn’t about my bottom line. It’s about my bad habits. I’m making some of the same mistakes I made for years. The mistakes I’m prone to making with money when I don’t pay attention. That’s embarrassing, no matter what my bank balance is.

Of course, shame and fear about money was what led me into this debt trap. I didn’t want to look. For years, I simply refused to know what my spending habits were, or even what my regular bills added up to. By the time I turned 30, that head-in-the-sand approach had saddled me more debt than the total income I’d earned in my life. I’ve spent the past two years digging myself out, and I’m starting to see a light at the end of that tunnel.

I’ve been living on a skinny budget for years. I’ve paid off a mountain of credit cards. But even though I had a lot of credit card debt, the credit cards were still the low-hanging fruit.

Now I have to pay off loans. They have lower interest rates and higher balances than my credit cards did. The bills just come quietly every month and I pay them. The balances only move down, but they move down slowly.

There’s no exciting struggle. No relearning old habits to keep the plastic in my wallet and out of my hand when I’m standing in line at the checkout. No lifestyle changes that will suddenly free up hundreds of dollars to wipe out the debt.

I just need to roll that snowball over and keep paying it. I suspect that even being very aggressive about my debt payments, it will be two years before I hit another financial milestone worth throwing a party about. This approach is effective — but boring. That’s what getting rich slowly is all about.

It’s the beginning of September. The beginning of fall, and of a new school year. A great time for new beginnings. I’m back on the wagon with my budget, and making those extra loan payments this month.

I’m writing about all this publicly in the hopes that it’s a teachable moment. The lesson I’ve learned so far: Sometimes we all slip. The key is to fall back on the skills and strengths you know you have, and start over from wherever you are.

What else can I learn here? You’re a bunch of extremely smart readers. What do you do to stay motivated while paying down debt or saving towards a goal? What helps you keep your good financial habits going?

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Related Articles at Get Rich Slowly:

• Free Debt Snowball Spreadsheet
• Ask the Readers: How to Live Debt-Free?
• In Praise of the Debt Snowball
• Ask the Readers: Emergency Fund or Debt Snowball?
• Ask the Readers: How to Prioritize Savings Goals?

Have you ever wondered what the panhandlers you see on the street would do if you actually gave them a bunch of money to spend? Like many people, I generally give my pocket change to anyone who asks. I figure that if they have to ask, they probably need it more than I do. (Yes, I know that there are just as many folks who think this is ridiculous, and who never give anything to folks on the street. What can I say? The empathetic J.D. almost always get his way over the logical J.D. Exception: I never give to aggressive panhandlers.)

Last weekend, the Toronto Star featured a fascinating article from Jim Rankin about a little experiment he conducted. He actually decided to give a few handlers more than just pocket change:

Over the past two weeks, I wandered Toronto’s downtown core with five prepaid Visa and MasterCard gift cards, in $50 and $75 denominations, waiting for people to ask for money.

When they did, I asked them what they needed. A meal at a restaurant, groceries, a new pair of pants, they said. I handed out the cards and asked that they give them back when they’d finished shopping. I either waited at a coffee shop while they shopped or — in the case of those who could not buy what they needed nearby or were reticent about leaving their panhandling post — I said I’d return on another day to pick up the card. That’s when I would reveal that I was a journalist.

Some were unbelieving at first. All were grateful. Some declined the offer. Some who accepted didn’t come back, but those that did had stories to tell.

As you might expect, different people did different things with the gift cards Rankin gave them.

• With a $50 card, Jason spent $8.69 at McDonald’s before returning the card.
• Mark used his $50 card to buy a $21.64 meal at a local restaurant and then spent $15.50 at the liquor store. He didn’t return the card.
• Rankin gave Joanne a $75 card, which was stolen by an ex-boyfriend. He used it to spend $24.95 at McDonald’s and $38.35 at the liquor store.
• Al took a $50 card, but never used it and never returned it.
• With her $75 card, Laurie bought $74.61 in food, cigarettes, and telephone minutes. She returned the card.

Though there’s no real Big Message to be taken from this feature, I think it’s fascinating. Most of the time, homelessness is used to polarize people on one side or another of a political issue. But sometimes we forget that panhandlers are real people who have stories behind their predicaments. Rankin’s project was a clever way to get at some of those stories.

[Toronto Star: How panhandlers use free credit cards]

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This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the adviser for The Motley Fool’s Rule Your Retirement service. He contributes one new article to Get Rich Slowly every two weeks.

We hear a lot about the doubts over the future of Social Security. Here are a few I’ve come across:

• “Three-fourths of those 18 to 34 don’t expect to get a Social Security check when they retire.” — USA Today
• “My husband and I are both 28, and we laugh every time we hear [‘yes, you’ll receive Social Security’]. No, we won’t receive Social Security, even though we’ve both been paying into it since we were teenagers…I can’t think of one of my peers who expects Social Security to still be around when we’re retirement age. Call us bitter.” — A comment to my last column (“When Will You Be Able to Retire?”)
• “Six in 10 Americans who have not yet retired believe they will get no Social Security benefits when they retire, more pessimistic than at any time since Gallup began asking this question in 1989.” — Gallup
• “According to one survey, 100% of people married to Robert Brokamp wish he would shave his head rather than try to pull off a comb-over.” — My wife

If you’re among the doubters (of Social Security, not my hairdo), then listen up: The following paragraph is the most important group of words you’ll ever hear regarding Social Security. It’s key to understanding how the program works, and whether you’ll get anything. Here it is:

Social Security is predominantly a pay-as-you-go program. Most of the payroll taxes that are collected from today’s workers go into the checks of today’s beneficiaries. Thus, as long as there are people working and paying payroll taxes, there will be money to pay Social Security benefits.

According to the most recent Social Security Trustees report, from 2037 to 2084 payroll taxes will be enough to cover 75% of projected benefits. That’s not great, but that’s not nothing, either.

People who think that they won’t receive any Social Security benefits must believe one or all of the following three things:

1. In the future, people won’t work.
2. In the future, the government won’t collect payroll — a.k.a. FICA (Federal Insurance Contribution Act) — taxes. Currently, workers “contribute” 6.2% of their paychecks to the Social Security system, and their employers match with another 6.2%; the self-employed pay the whole 12.4%. Another 2.9% goes toward Medicare. As you know if you’ve looked at your paycheck, it’s a separate withholding from income taxes. In fact, the majority of Americans pay more in FICA taxes than they do in income taxes.
3. In the future, Social Security will be means-tested to such a degree that the “wealthy” (an arbitrary designation, to be sure) won’t receive any benefits. Those who don’t think they’ll receive Social Security assume they’ll be among these “wealthy.”

I don’t think Nos. 1 and 2 are likely. No. 3 is possible. The program is already means-tested to a degree, since the percentage of income that is replaced by Social Security decreases as lifetime earnings increase. However, I think that if changes to the means-testing formula result in a group losing their benefits completely, it will be a small group — certainly not 60% to 75%, as the aforementioned surveys suggest. I find it very unlikely that a future Congress — elected by future citizens — will change the program in a way that the majority of people who pay FICA taxes won’t get at least some benefits.

Those crazy trust funds
For many years, the payroll taxes collected were more than needed to pay current benefits. The surplus went into the Social Security trust fund, which invested the money in special-issue U.S. Treasury bonds. However, this year — thanks to the stinky economy — benefits will exceed revenues. That’s projected to temporarily reverse, but at some point in the middle of the next decade, the retirement of the baby boomers will cause benefits to exceed taxes. This is where the trust funds come in. They’ll be sold to cover the shortfall.

In my opinion, this is the essence of questions about the future of Social Security: What, exactly, are we to make of these trust funds? Are they truly assets? Here are the two arguments:

• Those who think that the Social Security system is essentially sound will point out that of course the trust funds are real assets. They’re full of U.S. Treasuries, which are considered the safest investments in the world.
• Those who think otherwise point out that since Treasuries are federal government debt, the trust funds contain just worthless pieces of paper with a note written on them that says, “Dear Uncle Sam: I owe you lots of money. Love, Uncle Sam.”

I have to admit, I haven’t quite decided to which camp I belong. I’m inclined to go with the latter. After all, when, say, 2020 rolls around, and the Social Security Administration needs some money from the trust fund, it will take one of these special-issue Treasuries to Uncle Sam and want to exchange it for cash to be sent to retirees. Where will that cash come from? I almost think I need to see a spreadsheet or detailed flowchart or something to fully understand how all that will work. If you have suggestions for how to accurately think about the trust funds, I’m all ears.

For now, plan on getting less
That’s enough talk about Social Security for now (assuming you’re still reading). From a financial-planning perspective, I’ll reiterate my advice from my last post. If you are in or near retirement, plan on getting your benefit. If you’re younger, play it safe and plan on getting 25% to 75% of your projected benefit. But plan on getting something.

I’m sure you have your own thoughts and opinions about Social Security, and I encourage you to share them below. However, let me say this: Often, discussions following articles about Social Security turn into political brawls that degenerate into name-calling and general silliness. So please, all you right-wing nutjobs and left-wing commies, let’s keep it civil. Stick to the topic of Social Security and the facts. And maybe advice for creating a sweet comb-over.

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This post is from GRS staff writer April Dykman.

A couple of weeks ago, J.D. highlighted research that showed that rewards cards cost the poor (in higher prices overall) and benefit the rich (who are more likely to use the cards). But what if retailers offered you a discount if you paid in cash?

It might not be so far-fetched. In Will Financial Reform Kill the Rewards Card?, Brett Arends writes that a provision in the financial reform act allows for such a discount.

If competition works its magic, that discount should end up worth as much, or more, as the points you get from a card. We may end up saying goodbye to the rewards card, and go back to old-fashioned money.

The new cash is, er, cash…According to both the Public Interest Research Group and the National Retail Federation, when you pay for a purchase by credit card, it costs the retailer about 2% in transaction fees. So, logically, that’s about how much they can afford to discount if you pay cash instead.

Arends points out that the value of your rewards can be difficult to determine, especially with points for purchasing items or airline miles.

…experts explained that the average card user is doing really well if they get back about 1½ cents on the dollar. That’s why cash-back cards paying 2% seemed like the best deal for most people.

But why wait to get 2% back if you can never part with it in the first place?

Getting More for Your Money
Paying with cash could yield even bigger discounts, since the new law allows retailers to offer other benefits, like vouchers and gifts, in lieu of cash back.

Stores, naturally, sell products at a profit. So they may be able to offer you $2.50 worth of goods, say, as a bonus for settling your $100 bill in cash. You effectively get rewards worth 2.5%. But it may only cost them 1.8%. (At a high-margin retailer like Tiffany, the deal could be even better. Tiffany’s gross markup was about 75% last year. So the company could give you, in theory, gift vouchers worth $35 in return for settling a $1,000 bill in cash.)

Coming Soon to a Store Near You?
It’ll probably take time before cash discounts are offered by retailers and restaurants, but there’s interest. Before, it was difficult to implement such an offer since the law was unclear and credit card companies employed lawyers to make it harder.

But does this mean rewards might be a thing of the past if the rewards lose their allure?

Store Discounts Could Cost You
Arends is decisively anti-credit card, and that’s not a viewpoint I share for those who use them responsibly. Personally, I haven’t paid interest on a credit card purchase in years, nor have I paid late fees. I have, however, racked up some serious rewards.

For me, it’s worthwhile. But I had to ask myself, given the opportunity to get an instant discount, would I take it? Maybe. But only if I actually got cash back. With vouchers and discounts, it’s easy to feel like you’re getting a good deal, when really you’re just spending more money. In Learning to Discount All Those Juicy Discount Offers, Karen Blumenthal reports that stores that offer discounts through loyalty programs count on people not redeeming their rewards:

…we are likely to spend more to qualify for a coupon or earn cash back—and then forget to spend it. All loyalty programs count on a certain percentage of consumers not redeeming,’ Prof. Nunes notes. In addition, he says, ‘once you get closer and closer to a reward, you want it more and more’ and may spend more to get it.

Second, vouchers are a bigger win for the merchant, or else the programs wouldn’t exist. Take the example of Tiffany’s that Arends gives to show how higher markups can mean bigger rewards. How many things can you buy in Tiffany’s with a $35 voucher? Not much. The cheapest thing I could find on their website was a sterling silver ring for $100. You’re still shelling out $65 to use your voucher. If you were going to buy the item anyway, it might be a good deal. If the discount found you looking for something else to purchase, you aren’t coming out ahead.

So readers, what do you think? If you use a rewards card, would you trade in the rewards for an instant discount? Would you trade them in for vouchers or gifts?

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This is the second part in a short series about insurance basics. Last week, I explained how insurance works. Next week (or possibly the week after), I’ll offer some tips on car insurance. Today’s article offers some general insurance tips useful for most situations.

All insurance works pretty much the same way: You pay a premium (a set amount of money) to the insurance company, usually on some sort of schedule (monthly or yearly, for instance. In return, the company issues an insurance policy to you, which is a contract that gives you certain coverage, or financial protection. When you suffer an insured loss, you file a claim and the company pays you a benefit.

Insurance is meant to protect you against catastrophes, not day-to-day annoyances. You use insurance to guard against things that aren’t likely to happen, but which would cause financial hardship if they did occur.

Your goal should be to have just the right amount of insurance. If you have too much, you’re wasting money. For example, if you have a $50 deductible on your car insurance, you’ll probably end up paying the insurance company far more in premiums than they’ll ever pay you in benefits! Or, if you’re young, unmarried, and have tons of credit-card debt, life insurance usually isn’t a good place to put your cash.

On the other hand, if you’re a 40-year-old small-business owner and father of five, term life insurance could be an excellent way to hedge against the risk that you’ll die tomorrow. Or, if you’re a millionaire who likes to drive fast, increasing the limits on your automobile liability coverage could save your fortune if you get sued for the damage you cause when you plow into the back of a school bus.

How to Save on Insurance
The number one thing you can do to save money on insurance is to self-insure as much as possible. That is, set aside your own money to cover minor and moderate catastrophes, if possible. Try raising the deductibles on your auto and home insurance policies. Then take the difference between your old premiums and your new premiums and put it into a “self-insurance” online savings account every month. It won’t take long for you to have more than enough to cover the deductible.

You can also save by reviewing your coverage from time to time, and following these suggestions:

• Read your policy. As with all legal contracts, it’s important that you read your policy so you know what’s covered and what isn’t. Pay attention to policy changes that come in the mail. If you have questions, ask. And make it a habit to review your policies every so often to be sure you understand them (and check whether anything has changed).
• Don’t duplicate coverage. Know which policies provide which benefits. If you have a AAA membership, for example, you don’t need towing coverage on your car insurance. And if your credit card doubles the warranties on the things you buy, don’t pay for extended warranties. I try to go over my policies once a year to remind myself of my coverage. (I’m a forgetful guy!) I recommend you do the same.
• Consolidate. Get all of your insurance from one provider. Insurance companies often give a discount if you have multiple policies with them. Plus, this saves you the hassle of having to pay more than one company.
• File fewer claims. Don’t nickel-and-dime your insurance company. If you file claims for every little thing, they’ll raise your rates. Insurance is meant to cover unexpected large losses, not every ding your car gets from shopping carts.

Tip: To increase the odds of a satisfactory settlement when you file a claim, be sure to document your losses well. And it’s perfectly acceptable — good even! — to negotiate if you think the insurance company’s settlement offer isn’t fair (and their first offer almost never is). Be persistent.

• Shop around. To find better rates, harness the power of the web. Visit the National Association of Insurance Commissioners and click the “states and jurisdictions” link to find your state’s insurance department. From there, you can find info about your state’s insurance laws and, in some cases, get quotes. You can also get quotes from multiple insurance carriers at sites like insweb.com, insurance.com, insure.com, and even our insurance page at Get Rich Slowly.
• Buy only what you need. Insurance agents are happy to sell you more coverage than your situation calls for. Do some research before you buy. Figure out how much and what kind of insurance you need, and don’t let the agent talk you into more.
• Raise your deductible. The deductible is the amount you pay on a loss before the insurance company kicks in money. For example, if your car takes $400 in damage because you drive over a curb and you have a $250 deductible, you pay the first $250 and your insurance company pays the rest. It’s up to you where to set the deductible, but the lower your insurance deductible, the higher your premiums. Ask yourself how much you can afford to pay if something goes wrong; more specifically, how much is too much? Set your deductible just below “too much”.
• Take care of the things you insure. One of the best forms of insurance is routine maintenance. A well-maintained car is less likely to have an accident due to mechanical failure. If you take care of your house, it’ll weather the ravages of time. And if you exercise and eat right, you’ll get cheaper life and health insurance.

These tips help you save on most types of insurance. Still, not all insurance advice can be generalized; each type of insurance has its quirks. Next week, we’ll look at specific ways to save on the most common type of insurance: auto insurance.

Note: Much of this material was drawn from the “Death and Taxes” chapter of my book, Your Money: The Missing Manual, which was published earlier this year by O’Reilly Media. You can download a sample chapter here.

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It’s Sunday morning and I should be editing articles in advance of my upcoming vacation. Instead, I just got done playing another game of Starcraft II. Since the game was released on July 27th, I’ve played many games of Starcraft II. In fact, I’ve played at least 150 games of Starcraft II. (I know this because the game keeps track of your record. I played 50 training matches, and have since won 47 and lost 42 against human opponents, putting me near the top of my division in the “Silver League”. Plus I’ve played some single-player games.)

How much time has playing 150 games of Starcraft II sucked from my life? At about 30 minutes per game, it’s safe to say I’ve spent about 80 hours over the past month — or about 20 hours per week — building virtual armies and blowing stuff up.

Now on the surface, there’s nothing wrong with me having a little fun. I’ve been waiting for this game for almost twelve years. Plus, I’ve been working hard for the past two years, and I’ve been stressed because of it. I deserve some time off, and have intentionally been downshifting to a simpler life, one that gives me time for computer games.

However, having said that, in this case there’s a problem. Recently my game-playing — I’ve also been obsessed with Carcassonne on the iPad (getting close to the global top 100 list!) — has been obsessive, and has come at a price.

• I haven’t been cycling (though I have been going to the gym).
• I haven’t been doing my work around the house.
• I haven’t been studying my French. (One of my goals was too be able to speak a bit of French before our upcoming trip to Paris.)
• I haven’t been prepping my Animal Intelligence blog for re-launch (which is still scheduled for Wednesday!).
• I’ve been scrambling to get articles ready for Get Rich Slowly.

I say I’m going to do all of these things, but I never do. Instead I play computer games. Basically, I’ve turned into the old J.D. — the J.D. of five years ago. I’ve become a Talker instead of a Doer.

Talkers vs. Doers
Five years ago, I was full of hot air. Well, that and I was clinically depressed. And lazy. This was not a good combination for Getting Things Done. I talked a lot about the things I wanted to do, but I never did them. I found reasons not to. I even had trouble keeping up my end of the household chores, which my wife found very frustrating.

I was a Talker.

Maybe you know somebody like this. A Talker seems to know the solutions to everything, has great plans on how he’s going to make money or get a new job. But the funny thing is, the Talker never acts on his solutions and his great plans. And he never gets that new job. He’s out of work or stuck in a job he hates. To everyone else, it’s clear that the Talker is full of hot air, but he believes he’s bluffing everyone along, or conflates talking with doing. When confronted, a Talker always has excuses for not getting things done: he doesn’t have time, he doesn’t have the skills, the odds are stacked against him. When a Talker does do something, he often takes a shortcut.

That, my friends, was the man I used to be.

But something changed in the autumn of 2005. I began to read a lot of books. Not just personal finance books (though, as you know, I read plenty of those), but also self-help books and success manuals. I read Feeling Good to deal with my depression, How to Win Friends and Influence People [my review] to learn how to talk with people, and so on. And gradually I began to take the advice in these books to heart.

I began to take small steps, began to be more active in my world. Instead of just talking about doing things, I did them. I stopped looking for shortcuts — I had been a huge fan of shortcuts — and started actually doing the work required to get things done. Shockingly, this worked. By doing the work, I got the expected results. By doing instead of talking, things started to happen.

I became a Doer.

“We are what we repeatedly do. Excellence, then, is not an act but a habit.” — Will Durant, though often misattributed to Aristotle

We Are What We Repeatedly Do
Author Kevin J. Anderson has a fantastic post on his blog about the similarities between the Olympics and writing. Here’s a lengthy excerpt:

I’ve had many people tell me, “Oh, writing is easy. Anybody can do it if they just sit down and put their minds to it.” Here’s how the conversation goes:

Somebody at a book-signing: “I’ve always wanted to be a writer. I could write a novel.”

Me: “Oh? Why haven’t you?”

Person: “I just don’t have the time.”

Me: “Hmm. Nobody gives me the time, either. I have to make the time, set priorities, discipline myself to get my writing done each day, no matter how tired I am. I worked a full-time regular job while I wrote my first novels, scraping out an hour here or there in evenings and weekends. That’s how I’ve become a successful author.”

Person: “Yeah, right. I think you’re just lucky.”

[...]

I’ve wanted to be a writer since I was five years old. I sat in my dad’s study and plunked out my first “novel” on a manual typewriter when I was eight. By the age of ten, I had saved up enough money to buy either a bicycle (like a normal kid), or my own typewriter. I chose the typewriter. I got my first rejection slip by the time I was 13, had my first story published when I was 16 (after I had gathered 80 rejection slips), and sold my first novel by the time I was 25.

I have a trophy in my office proclaiming me to be “The Writer with No Future” because I could produce more rejection slips by weight than any other writer at an entire conference. My files now bulge with more than 800 rejections. On the other hand, I also have 100 books published, 46 of which have been national or international bestsellers, I’ve got a shelf full of awards, and my work has been translated into 30 languages. I’ve written more than twelve million words, so far.

Anderson is a Doer. He doesn’t just talk about writing — he writes. He writes over and over and over again. Through the sheer act of writing, he became a writer.

Note: Anderson’s entire post is awesome. Go read it now. My article will still be here when you finish.

People often ask me about the secret to this blog’s success. “How did you get so many readers?” they ask. “How can I do the same?”

My answer is similar to Anderson’s. There aren’t any secrets. Write and post great content on a regular basis for a long, long time. In short, you can’t just talk about building a great blog; you also have to put in the work. Simple, right? But it’s not easy.

(I appreciate the folks who come up to me and say, “You know, J.D., I don’t know how you do it. I tried to keep a blog for a few months. It was hard.” Yes, it is. It’s work, just like anything else.)

If there’s something you want to be or do, the best way to become that thing is to actually take steps toward it, to move in that direction. Don’t just talk about it, but do something. It doesn’t have to be a big thing. Just take a small step in the right direction every single day.

If you want to get out of debt, take small steps toward becoming debt-free. If you want to save for a trip to Africa, save a little bit at a time. If you want to get a new job, make moves in that direction. But take action. That’s the most important step.

Action Not Words
Of course, there’s more to getting stuff than just taking action. It’s one thing to say you want to become a commercial airline pilot and another to actually do it. Here are some of the things I learned as I made the move from Talker do Doer:

• Make time for the things you want to do. One of the keys to getting things done is setting aside time for the things you want to accomplish. You have to make time to get stuff done. As the Kevin J. Anderson article I mentioned above demonstrates, you don’t just become a best-selling author or an Olympic athlete. Talking doesn’t make it so. You have to carve out time to do this stuff. You have to put your Big Rocks first and fit the small stuff in around them.
• Have a goal in mind. I truly believe that the biggest reason I used to struggle with getting stuff done is that I didn’t have any sort of plan. I had no goals. Goals give you purpose. It wasn’t until I became committed to digging out of debt that I was able to actually start moving in the right direction. Part of my current problem is that I’ve recently achieved a bunch of big goals, but now have nothing planned for the future.
• Don’t take on too much. While it’s important to set goals, don’t take on too many tasks at once. I try to set just one or two major goals at a time. Any more and I find I can’t pursue any of them effectively. This year, my one goal is to lose 50 pounds. I’m on pace to do that. Why? Because I don’t have anything else on my schedule competing for time. This is my Big Rock.
• Don’t let failures deter you. This is huge. One of the reasons I used to talk so much without acting is that I was afraid of failure. I’m not sure where I learned to be afraid of defeat, but that’s the way I was. And when I did try something but failed, I’d give up. This is no way to get stuff done. Talkers let fear of failure keep them on the sideline; Doers overcome fear and move on, and when they fail, they simply try again.
• Don’t find reasons that something can’t be done; instead, find ways that something can be done. This is a pet peeve of mine. I hate when people come to me for advice, but when I give it, they tell me all of the reasons it won’t work for their circumstances. (This often happens when I suggest people take a second job to boost their income, for example.) One of the biggest difference between successful people and those who aren’t is that the successful don’t make excuses. If something looks difficult or impossible, they find ways to make it happen anyhow.

In the past five years, I’ve learned that I can do anything I set my mind to. Get out of debt? After I stopped talking and started doing, I got out of debt quicker than I thought possible. Losing 50 pounds? Well, I’m not there yet, but I’ve lost over 30 pounds since January 1st — but it didn’t happen until I stopped talking about it and started working hard to make it happen. Learning French? Well, there’s one where my talk outpaces my action right now, and it’s a perfect example of what I mean when I say actions speak louder than words. I don’t study my French as much as I should, so basically all I can do is count and tell you what color my clothes are. (”J’ai deux chemise noir.”)

For five years, my doing slowly increased until this past winter it reached a frenzied pace. I was burning myself out. I was writing and speaking and working and exercising and…well, it seemed like I never had a spare moment. This was the dark side of doing, and it’s what triggered my desire to downshift. It’s what led the pendulum swinging too far in the direction of Starcraft II.

Finding a Solution
So what’s the solution to my current problem? How can I stop playing computer games so much? How can I stop just being a Talker and become a Doer again? Well, making this public confession is a first step. But the thing that I think will really help is the “decision tree” I came up with the other day. Whenever the urge to game strikes, I’m going to ask myself the following questions:

• Have I exercised today?
• Are the house and yard tidy?
• Have I run all of my errands?
• Have I written and/or edited at least two articles for Get Rich Slowly?
• Does my inbox have fewer than 20 messages?

If I can answer “yes” to these five questions, then it’s okay to play Starcraft II or Carcassonne. But if I answer “no” to even one of these questions, I need to have the discipline to let the gaming go. I believe this will help me strike a balance. It’ll help me return to the world of Doing again. Because you know what? Life is a lot more fun as a Doer than a Talker.

Note: At the risk of creating more Talkers in the GRS audience, I’d just like to point out that the Carcassonne app is outstanding. If you’ve played the board game, you must play the iPhone/iPad version. The ability to play — gulp — dozens of games in a matter of days lets you see just how rich and complex this game is. This adaptation is perfect in every way.

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This guest post from Alissa is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes. I like all of the reader stories I publish, but for some reason I particularly like this one. Update: Now with photos! Alissa e-mailed two images of her chain of debt.

In April 2007, I found myself owing $6,500 to my credit cards and $24,000 on my student loans. While not a lot, I was only earning $31,000 and living in Washington, D.C. Earning $31,000 in the D.C. area is not a comfortable salary, especially when you have to pay a large portion of your health insurance costs out of pocket after taxes. Thankfully my student loans were all Stafford loans, and I had them on an income-dependent payment plan.

It was around this time that I officially decided that I wanted to go back to school to get my PhD. In Microbiology, you don’t get much freedom in research with only a BS. I knew getting into graduate school would be hard, and that simply paying for the application process would set me back a few hundred bucks. I also knew that the average stipend for a Microbiology PhD student wasn’t large, so I wanted to go off to grad school with as little debt as I could.

Breaking the chain of debt
To get the ball rolling, I decided that I needed a visual reminder of my debt, something I could look at every day. So I made myself a literal paper chain of debt. I made each link worth $100 and each color group a thousand. Each time I dipped below an amount on a link, I could reward myself by cutting it off.

I was so psyched each month when I could cut off more than one link! But to get myself credit card debt-free in less than two years and not have to pay for my applications with more debt, I had a lot of work to do.

Doing the right thing
I was in the midst of learning about personal finance and was able to find some very simple things that worked well for me to help me spend less than I earned and still have money to pay off my debt. I really don’t feel any of these are particularly special or unique, but it took me a while to realize that I could make it all work and pay off my credit cards. Here are some of the major things I did to help me reach my financial goals.

• The first step was to realize find out where my money was going, and to make a budget that would allow me to live — but within reason. Simply tracking my spending made me realize I was spending way too much on food, both groceries and eating out, and that I really didn’t need a fabulous new wardrobe.
• I started doing work-trade at the yoga studio I was going to. Every Friday afternoon and evening, I sat at their front desk for a few hours checking people in and keeping the front of the studio neat. I also closed up and cleaned the studio after classes were done for the evening. While this only saved me $54 a month, it meant I didn’t have to spend that $54 to pay to go to classes, and that I didn’t need to feel guilty going to yoga as it helped keep me sane on many levels.
• Every six months, I called my credit card companies to renegotiate my APR. I used the fact that I had a solid history with them and was an excellent customer as my bargaining chips. Thankfully, I’ve never been in a place where I’ve owed so much that I missed payments. If my first phone call didn’t work, I’d call back later and speak to someone else.
• I started targeted savings. I put aside a bit of money each month for things like car insurance so that I could pay my six-month premium all at once, instead of having to pay extra for a payment plan. I also started putting money aside for medical issues. While I have no one big medical issue, I have a bunch of small ones that add up to being a pain. Having the money set aside for doctors appointments and medication really took a lot of stress off my shoulders.
• Speaking of health insurance, to save even more money, during one of the open enrollment seasons, I changed my health insurance from a PPO to a POS. That change saved me another $45 a month, and I didn’t see any change in my health care.
• I figured out roughly how much applying to grad school would cost, and I started putting money aside for that purpose too. Retaking the GRE and applying to eight schools set me back close to $700. In the end, I added no new debt applying to grad school because I saved for it.
• Perhaps the second biggest thing I did was renegotiate my contract at work, which resulted in an extra $100 a month (adding a total of over $200 a month from these things alone to pay off debt).
• But the single biggest thing was taking on a second job two evenings a week. I worked at a university at the time, and at the start of the fall 2007 semester, I learned that my department needed an evening teaching assistant for a class of career changers. While I wasn’t a graduate student, I did have a degree in the field and teaching experience at the high school level. I convinced the course director that I was more than qualified for the position and with my teaching experience, would likely give the class a different perspective than the average graduate-student TA. I did such a good job the fall semester that they automatically offered it to me in the spring. This alone gave me an extra $6,000 and is ultimately what helped me pay off my credit cards before coming to graduate school.

Even with the addition of a $2,000 emergency vet bill, all of my consumer debts were paid off March 2008, allowing me to save money for moving for grad school. I accumulated no new debt buying what I needed to move and had enough saved that I paid for what I needed after moving with cash.

Reaping the rewards
Now, two years into graduate school and earning the least I’ve earned since graduating from undergrad in 2001, I live more comfortably than ever. I carefully budget my money each month. I have not only a general emergency savings, but also targeted accounts. If one of my cats gets sick, I have money set aside to pay for it. I’m mindful of how much I spend on everything, knowing that if I’m careful, I can have some fun even on a meager stipend.

This has also allowed me to start paying back my student loans while still in school and while my loans are in deferment. It doesn’t sound like much to only owe $23,618 now, but I know that if I weren’t making any payments, I’d owe even more in the long run.

The biggest thing that helped me along this path was deciding what my goals were and then trying to align my actions with those goals. Blogs like Get Rich Slowly really helped me see that I could do it. This is the ideal I carry with me today.

Today, rather than being $6,000+ in credit card debt, I now have almost $5,000 in the bank to be able to reach the goals I’ve set for myself. I can now take a trip to see my parents this summer without having to worry about how I’m going to pay for it. No, I don’t get to eat out a lot, nor do I have the newest most fashionable clothing, but I’ve realized those things aren’t important to me. What is important to me is having money to spend on what I do think is important to me. To me, this is true financial freedom.

Reminder: This is a story from one of your fellow readers. Please be nice. After more than a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are. Henceforth, unduly nasty comments on readers stories will be removed or edited.

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Normally, I wouldn’t post something like this at Get Rich Slowly — this is why I have a personal blog — but I’m getting a lot of tweets and e-mail from folks about a piece of ephemera that has surfaced on the internet. It seems that somebody’s stumbled upon a list of the folks who were in the running for the various parts on Star Trek: The Next Generation. And who was up for the part of Wesley Crusher? Why, J.D. Roth was.

Here’s the thing: I’m not that J.D. Roth. That J.D. Roth is the former host of Fun House, the voice of Jonny Quest, and now the producer of The Biggest Loser. If I were that J.D. Roth, I’d be rich! I wouldn’t have to write about building wealth.

So, I wanted to put the rumors to rest. I was never up for a part on Star Trek: The Next Generation. My acting skills were never that good. (They extended to playing the part of “townsman” in our high-school production of Seven Brides for Seven Brothers. I got to carry an axe.)

This (non-)story is sort of fun, though, for several reasons.

• First, I was a huge fan of Star Trek: The Next Generation. Back before the web even existed, I hung out in BBS rooms and posted episode reviews to USENET.
• I also had every episode of the show on video and audio tape. (I taped them myself.)
• Plus, I had elaborate checklists that I filled out when watching each episode.
• Plus, everyone used to tell me I looked like Jonathan Frakes (who played Commander Riker).
• Plus, a couple of years ago, I tried to contact the publicist for the entertainment-industry J.D. Roth. I thought it would be hilarious to interview him for the site: “J.D. Roth interviews J.D. Roth!” Nobody answered my e-mail.

So, yes, I would have loved to play Wesley Crusher in the Trek universe, but I was never up for the part. At that time, I was a goofy college freshman. Note to producers: Since Wil Wheaton is so busy blogging now, I’d be happy to play the role of Wesley in any future Star Trek films. Just FYI.

Have a great weekend, everyone!

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Last week, Isaac asked Get Rich Slowly readers for advice on how to handle life after grad school. He’s about to enter the workforce and needed tips on what to do until he gets his first paycheck. Isaac was very pleased with your helpful responses.

This week, we’ve got a chance to help somebody even younger than Isaac. Nico is 18, a sophomore in college, and financially clueless. He needs help! Here’s his story:

I’m pretty young — about to start my sophomore year of college — and I literally have absolutely no knowledge of anything financial. I do have a simple student account with a paltry amount of money in it, and that’s really about it. So yeah, the majority of your site goes over my head and some things are quite intimidating.

I’m going to continue browsing the basics section in order to see if I can glean some information, but are there any other resources you would recommend to a financially clueless 18 year-old? I think it would be a good idea to start this kind of stuff earlier rather than later.

Nico’s right: The time to start learning about finances is now, before he needs to know the information. Fortunately, he’s not as far behind as he thinks he is, even if he does feel clueless. It’s my guess that most young adults feel lost when it comes to money.

So, what resources would I recommend for an 18-year-old kid? As much as I’d love to pitch Get Rich Slowly and Your Money: The Missing Manual, I actually think there are better options, including:

• Michael Mihalik’s Debt is Slavery, which carries the subtitle, “and 9 Other Things I Wish My Dad Had Taught Me About Money”. This slim volume is one of the quiet classics of personal finance, and it’s perfect for college students. My review from three years ago gives a run-down of the book’s contents.
• On the web, CNN Money has a great little site called Money 101, which features a crash course in various financial topics. Nico should bookmark this page and refer to it whenever he has questions about a particular topic.
• Ramit Sethi’s I Will Teach You to Be Rich — both the book and the website — is specifically targeted at young adults, especially the clueless. (One caveat: Ramit downplays the importance of frugality, and that could lead some folks to problems. Frugality is an important part of personal finance.)

Although Nico didn’t ask for specific advice, I’m going to give him some anyhow. I’ll repeat the same advice I give when I speak to other college students. Namely:

• Develop a basic budget. It doesn’t have to be fancy. Whatever Nico chooses to do, he should get in the habit of setting aside 20% for saving and investing. This may sound like a lot, but if he can start the habit young, it’ll be easier — and will yield greater returns — in the long run.
• Learn how to work. I made a lot of mistakes when I was younger, but this is one thing I got right. I knew my parents couldn’t support me when I was in college, so I worked as many jobs as I could. I learned how to work hard, how to deal professionally with all sorts of people, and how to maintain a positive attitude. These skills are tremendously valuable later in life.
• Avoid lifestyle inflation. Even in college, it’s important to watch your spending. As Nico’s income increases, he’ll be tempted to increase his spending in proportion. The more he can resist this urge, the more successful he will be with his money. It’s okay to spend, but be reasonable.
• Do what you love. A low-paying job that leads to future prospects in a career you like is better than a high-paying job in a career that doesn’t move you in the right direction. Never stick with a shitty job. And don’t be afraid to change your major. It’s easier for Nico to change direction now than it will be in five or ten years.

Maybe it’s because of my own experience racking up debt during college, but I think it’s important for young adults to learn the fundamental law of personal finance: To build wealth, you must spend less than you earn. There’s more to it than that, of course. The less you spend, the more flexibility you have.

When I graduated from college, I bought a new car and developed credit card debt. I had to take any job I could find because I was tied to monthly payments. When my friend Sparky graduated, he had a lot of freedom. His debts were minimal. He traveled the U.S., taking whatever job struck his fancy. He spent time in Mexico. He spent five months traveling southeast Asia. He was able to do these things because he didn’t have expensive obligations.

I don’t think Nico should worry about stuff like investing and insurance right now. These are important, but they’re beyond the basics. For now, Nico should focus on learning how to earn and spend money wisely.

What do you think? What do you wish you had known about money when you were 18? What advice do you have for Nico? What books or websites (or other resources) would you recommend for him? What steps can Nico take at 18 to makes sure that Nico at 41 is happy, wealthy, and wise?

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Kris and I live in a small, quiet neighborhood south of Portland. When the trolley line ran through here — between 1893 and 1959 — Oak Grove was actually thriving community, with shops and stores and more. (It’s true! I’ve seen pictures!) Now, though, downtown Oak Grove, such as it is, consists of a convenience store, a hair salon, a joint once named “the best dive bar in Portland” — and the home office of Get Rich Slowly.

There’s also another business in downtown Oak Grove: a small coffee shop that opened a couple of years ago. It struggled a little at first, but eventually business picked up, and it’s become a valuable part of our community. In fact, Kris and I think of the Oak Grove Coffeehouse as the only real hub our area has.

But there’s a problem. This summer hasn’t been kind to the Oak Grove Coffeehouse. The business is struggling. Jason, the owner, has been forced to cut back hours. He’s waiting for classes to resume at the nearby high school in hopes that the teachers and students will bring a cash infusion. But for now, things look grim. Here’s a recent Facebook post:

I’ll admit that I haven’t been supporting the coffee shop as much as I used to. Kris stops in once or twice a week on her way to work, but I’ve cut it out of my budget for both fitness and frugality reasons. (I’m living the latte factor!)

Why I buy local
Still, I feel passionately that small businesses are vital to the success of a community. It’s probably because my family has owned many small businesses in the past, but I do my best to support Mom and Pop operations whenever possible, and I try to avoid national chains of all types.

• I’ve always joined local gyms instead of national chains.
• Kris and I almost always choose local restaurants instead of national chains.
• I prefer small, independent bookstores to national chains. (Except that I use Amazon a lot, thus proving my hypocrisy.)
• Whenever possible, I choose independent movie theaters instead of the national chains. (I loathe big chain theaters.)
• I try to use small barber shops instead of national chains.
• When we lived in a small town, we used a small, local grocery store instead of a national chain. We don’t have that option now unless we want to drive 20 minutes.
• I use a local credit union instead of a national bank.
• Kris and I have never really had an auto mechanic, but she’s just started taking her car to the place around the corner.
• And so on.

When it comes to local businesses, I try to put my money where my mouth is. I vote with my dollars. Why do I buy local? For a lot of reasons, including:

• I believe that small, locally-owned businesses give character to a community. They improve its quality of life. Yes, every Starbucks you walk into is the same, and this makes a lot of people comfortable. But I like that independent coffee shops (or record stores or comic shops or bookstores) have a unique feel. I like that Flying Pie pizza is unique, and not just the same homogenous stuff you can get from Domino’s or Pizza Hut.
• I believe that buying local products from local merchants fosters community by enriching my neighbors, by supporting their endeavors. I’ve written a lot about the importance of social capital — mutual goodwill — and frequenting local businesses is a great way to strengthen social bonds.
• Small, locally-owned businesses are more likely to keep the money they earn in the community; it’s not siphoned off to the corporate offices in Akron, Ohio. And local businesses are more likely to use local suppliers. I’ve never found a local product at our nearby Safeway, for instance, but the local produce stand has fruits and vegetables from around our area. (They even had a bunch of Kris’s currants for sale recently!)

Note: I found many internet claims that “local businesses return about 80% of each dollar to their community”, while chains remove about 80% of each dollar from the community. This sounds compelling, but I can’t find actual research to back up the claim, so I’m skeptical. This page cites studies about the economic impact of local vs. national. So does this one.

There are indeed times that I’ll eat or shop at a national chain, but if I have a choice, I’ll almost always opt for local. Yes, there usually is. (Though not always.) But the cost differential isn’t great. Even when I was digging out of debt, I was willing to pay extra to buy local. I considered a sort of “community tax” — a surcharge I paid to keep the local area vibrant and strong. That’s important to me, so I’m willing to pay a little extra to make it happen.

Not everyone feels the same way, of course.

The opposition speaks
Kris and I hosted the annual Roth family reunion last Saturday. It was a smallish gathering (only about 20 adults and 10 kids), but it was lively. Roths can be rambunctious, and we’re not afraid to debate with each other.

Over our sausages and sauerkraut, somehow the conversation turned to supporting local businesses. I forget why the subject came up, but it’s not surprising:

• My family owns a business that makes boxes in Portland.
• My cousin Ted is an artist who makes baskets and furniture.
• My cousin Bob has a company that builds granite countertops.
• My cousin Tammy runs a tutoring business out of her home.
• And my youngest brother is trying to get his own business off the ground.

As you might expect, because there are a lot of small businesses in my family, there’s a lot of “buy local” sentiment. But not everyone feels that way. During our rowdy conversation, Tammy made it clear that she’d rather shop at Wal-Mart than at her neighborhood stores.

“Oh, come on,” said Tammy’s brother, Ben. “There are people here from all sorts of political backgrounds, but I think there are two things we can all agree on: Monsanto is evil, and you shouldn’t shop at Wal-Mart.”

“Why shouldn’t I shop at Wal-Mart?” Tammy asked. “The stuff is cheap, and I don’t have a lot of money to spend.”

The argument discussion continued for several minutes: Tammy vs. the rest of the Roths. When Tammy learned that her brother Ted lives 2-1/2 hours from the nearest Wal-Mart, she was appalled. “I would not like that,” she said. “Where do you get your groceries?”

“Just the local store in town,” Ted said.

“And you’re paying through the nose, right?” said Tammy.

My brother Jeff jumped in: “But he’s supporting a local business, supporting the local economy. If local business isn’t supported…”

“Well,” said Tammy, interrupting. “Think what you want. I’m just not that into the local economy.”

Tammy has some valid points. National chains are successful for a reason. They’re cheap, they’re widely available, and they’re familiar. You know what you’re going to get and how much you’re going to pay. You know how the system works. Working with local businesses can sometimes be…interesting.

Why shop local first? Click the image to view a larger version.

Do YOU buy local?
Family bickering aside, the debate over the importance of buying local occasionally gets debated in communities across the U.S. Last week, for instance, USA Today posted an article about towns trying to block chain restaurants in order to preserve character and protect local businesses.

I was curious what GRS readers thought, so last week I polled my Twitter followers and the folks at the ever-growing GRS Facebook page. I asked, “Do you go out of your way to support small businesses in your neighborhood? Why or why not?” Here are some of the responses:

• Michele Gilhouse wrote: I go out of my way to support local business because I want my neighbors and community to prosper. At times I know I pay more, but it doesn’t bother me.
• Jane Cny wrote: Yes, I support local businesses and have made a conscious decision to increase my support, including moving my money to a local back. I have been unemployed for over a year, and my dentist, my hairdresser and my dry cleaner have all lowered their prices for me to support me during a tough time. I can’t imagine a big business doing this. You can bet these people will continue to get my business!
• Cheryl Estridge wrote: I try too, but I also price shop and buy only from places that are offer the same goods for less $$$$. I won’t spend more money just to support a local business.
• Melissa Bush wrote: I prefer local stores, and when it comes to food and housewares it’s pretty easy to avoid chains. Clothing is a different story. Chains have too much buying power to let a small clothing store selling new clothing.
• Shari Theroux wrote: I try very hard to buy local whenever I can. Being a small town, though, I can’t always find what I need here and have to either travel or buy online.
• Janell Adamczyk wrote: Miss the days of the local shops - like when I was growing up in Chicago. You had almost all you needed down the street or a short bus ride away.

Most of the folks who responded on Twitter and Facebook try to support local stores over national chains, but a few do so with reservations. They’re wary of paying higher prices, and some have had horrible service experiences. (National chains usually have quality standards that keep service uniformly good.)

Conclusion
Let me make one thing clear: I don’t condemn anyone who does not or cannot buy local. I’m an ardent supporter of small businesses, and I hope that you will be too, but I’m not going to say you’re wrong if you have good reasons for shopping elsewhere.

All things being equal, I suspect most people would choose to buy local. But each of us has a different price at which local is no longer an option. For some, this point is immediate: they’ll always buy the cheapest option, regardless of other factors. Others — and I know a few like this — will buy local no matter the cost.

So where does my zealous support of local businesses leave me with regards to the Oak Grove Coffeehouse? What about the latte factor? What about my diet? I’ve made some compromises.

Twice a week for the past two weeks, I’ve walked up to the store on my way to the office. I buy a Mexican Coke and a cinnamon roll. (I don’t actually like coffee.) Now, I know that my $8 per week isn’t going to keep the place in business. But I hope that it helps a little.

Meanwhile, I’m just exercising a little harder to burn off those extra calories…

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• The Science Fiction of Coupons?
• Ask the Readers: Are Local Banks Better Than Big Banks?
• Get Quality Stuff For Cheap from Local College Students

This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com.

Simple living is great. Avoiding shopping malls in favor of clothing swaps, cooking meals at home with your spouse, holding a music jam with friends instead of shelling out big bucks for a concert — all these activities not only save you money, but they also connect you more deeply with what you love.

In a sense, they make you more alive. Which is what getting rich is ultimately about: not simply achieving material wealth, but living a rich life.

Pay now, save later
Some things just shouldn’t be scrimped on, though. There are expenses that save you money down the line. Some also save you time and improve your quality of life. It might be tempting to cut corners on this stuff, but the truly frugal person knows that laying out cash up front will pay off in savings later.

Consider these expenses an investment in your life. You’ll reap material as well as personal rewards when you keep up with these areas of your life:

• Your health. Preventative health care saves thousands on major medical costs every year. In addition to keeping up with your annual physical, be sure to get your teeth cleaned regularly. Dental insurance typically offers only partial coverage of major dental work, and those crowns can add up to huge dollar amounts in a hurry. Taking care of your health also means eating well and getting enough exercise. These things can be done relatively cheaply: You don’t have to spend a fortune at Whole Foods or join a trendy gym to keep fit. It’s worth putting some money into eating well and keeping your body moving, though. Look for bargains at your grocery store, but don’t eat Fruit Roll-Ups instead of fresh fruit just because you have a coupon. Over time, you’ll save money by staying healthy.
• Your home. You don’t need to live in a mansion. A smaller, cheaper home can often bring you more joy because it comes with fewer financial headaches and less labor to keep it clean. Whatever roof you choose to lay your head under, you’ll need to maintain it. Unless you rent, or have a condo association managing it for you, it’s important to stay on top of upkeep on your property. Like your health, preventative maintenance can go a long way towards saving you money and guarding against real harm in the future. Fixing your leaky roof promptly, replacing your water heater as needed, and cleaning your heating system each year will cost you in maintenance fees. But it’s a small fraction of the cost you’ll pay if you let those things slide until they become emergencies.
• Your marriage. Divorce isn’t just painful, it’s expensive. A divorce typically lowers each former spouse’s net worth by 70%. (But it sure boosts the net worth of the lawyers!) Putting some resources into keeping things strong between you and your partner is a great investment, in financial terms as well as emotional. Set money aside for time together, for small thoughtful gifts to let your beloved know you’re thinking of her. If you have kids, spring for a babysitter to create some much-needed time alone. If your marriage is in trouble, consider therapy. The therapist’s fee may seem steep, but it’s a fraction of the hourly rate a divorce attorney will charge, and the end result will likely be happier.
• Your career. Typically, your career is your greatest source of money. But it also creates expenses. These range from having the right clothes for your office environment to taking graduate courses. There’s an art to knowing which expenses will pay off. Do you really need $200 shoes to fit in at work? Is that new laptop an essential business expense or a neat toy? While it’s easy to overspend on your career, especially if you’re self-employed, work is an area where some investment up front can bring you huge returns over time. If a graduate degree will help you step into a higher paying position, or even switch careers entirely, it’s probably worth the cost of tuition bills in the here and now.
• Your happiness. You can’t live entirely in the future. While you save for your long-term goals, be sure to put some energy into being happy in the present. That doesn’t mean splurging on expensive whims to buy yourself a moment of happiness in a bleary day. Spending money you don’t have won’t make you happy. Debt is a major cause of stress and sadness in people’s lives. But as you take control of your finances, be sure to also tend to the joy in your life. That’s best done by fostering close relationships and engaging in activities you love. Unlike the other “life investments” I’ve talked about here, this one comes with a small price tag or none at all. A talk with a close friend, a trip to the library, or a free movie at your local university can all bring big doses of happiness for free.

Investing in these core areas pays off in a better quality of life and saves you money on emergencies. A healthier, happier life is also a cheaper one.

Budgeting for now and later
To get the long-term financial and personal gains of this approach, you’ll need to do some careful budgeting. Make sure you leave room for “unexpected” expenses like home repairs and dental work. A review of your last few years’ spending records should give you a pretty clear idea of what your family typically spends on these periodic maintenance items. By budgeting for them, you’ll have the cash on hand when you need it.

You can also make your life easier by funding a three- to six-month emergency fund to tap into when life throws you a big curveball like a suddenly failed appliance You shouldn’t rely on your emergency fund to cover your new running shoes or evening computer classes, though. Budget for these “life investments” and they’ll fit more easily into your life.

As with any expense, it’s important to make these choices with care. Yes, you’re investing in your life. Keeping your health, your home, your marriage, and your career strong will bring you more happiness every day. But like any investment, take care not to overextend yourself. Sometimes last year’s running shoe is just as good as this year’s — and for half the price. Getting the most out of your money without shortchanging your quality of life is the truly frugal approach.

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Related Articles at Get Rich Slowly:

• General Investment Tips
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• Open Thread #1
• links for 2007-04-08
• Make a Wish List of Financial Goals

I’ve been plowing through my e-mail lately in my never-ending quest to reach inbox zero. As a result, I’ve been answering tons of reader questions. And when I can’t answer them (or when I think a colleague can do a better job), I try to refer the question to somebody else.

Over the weekend, for example, LP wrote:

I’m a college student and have started saving up and setting aside money, and I feel that the time has come to consider a high-yield savings account, a certificate of deposit, or something similar. It would appear to me that in the time that’s passed since you wrote articles on these types of things (and also helpfully comparing some, thank you), the interest rates have dropped from 4-5% on average to 1-2% on average. Why is that? Is it the economy? Should I sign up for interest rates this low, or should I wait and hope that they increase?

Though I understand the basic reasons that interest rates are so low, I decided it made more sense to ask my colleague Richard Barrington from Money Rates to chime in with an authoritative answer. All of the info in the next section is directly from Barrington.

Why interest rates are so low right now
LP has hit the nail on the head: The economy is the reason interest rates are so low right now.

When the economy is weak, people and businesses are less inclined to borrow money. Like anything else, the cost of loans is affected by supply and demand, and low demand for loans means that the cost of loans — the interest rates — has come down.

Adding to this, the Federal Reserve has moved to lower interest rates. These actions range from lending money to banks at extremely low rates to buying bonds on the open market, which drives market interest rates lower. By lowering interest rates, the Fed hopes to stimulate the economy.

Their reasoning is that if loans are cheaper, more people and businesses will borrow, spending will rebound, and the economy will be on its way again. This hasn’t worked particularly well, however, because many people are already swamped with debt, and banks have been reluctant to lend money because they got burned in the housing crisis.

So, where does this leave us? According to the FDIC, savings account rates now average 0.19%, money market rates average 0.27%, and 1-year CD rates average 0.68%. However, you can do somewhat better than these rates if you shop around. For example, the best money market rates are up around 1.50%.

J.D.’s note: Money-market accounts are technically just savings accounts. However, many banks brand their deluxe savings accounts as “money-market accounts” to attract savers with larger balances. These accounts generally offer higher interest rates.

One silver lining is that while interest rates are low, inflation has also been quite low; in fact, some economists are talking about deflation rather than inflation in the months ahead. Still, no matter how you slice it, today’s interest rates are unusually low. Any decisions you make about those rates should be considered in the context of the fact that these rates are very much out of the ordinary.

Also, your level of optimism about the economy should be a factor. A more robust recovery would increase demand for loans, and would also eliminate the need for the Fed to keep pushing rates lower. In other words, a stronger economic recovery would most likely push interest rates higher.

What should you do with your money?
Thanks to Barrington for taking the time to answer LP’s main question. As for LP’s secondary question — “Should I sign up for interest rates this low, or should I wait and hope that they increase?” — the answer is: It depends.

My philosophy is that your decision about where to put your money should be less about the potential returns than about your eventual use for the cash. In general, stocks will earn more than bonds, which will earn more than CDs, which will earn more than savings accounts. Not co-incidentally, the higher the potential return, the more risk or drawbacks an investment option has.

All of this is to say: If LP needs his money next year, he probably shouldn’t invest it in the stock market. Yes, the long-term average return on stocks is about 10%. But “long-term” is measured in decades. And average is not normal. Those stocks might go up 30% in the next year, or they might drop 50%. If LP needs the money, he should put it somewhere safe, which probably means a CD or a savings account.

No, a CD or a savings account won’t give LP the 4% or 5% returns of years gone by. But as Barrington notes in his summary above, those interest rates should be back once the economy improves. The most important thing to understand, though, is that when you’re saving for the short-term, high interest is a bonus. What you really want is for your money to stay safe.

What about you? With interest rates so low, where are you putting your cash? Have the low rates prompted you to move your money to the stock market? Have you opted to make major purchases? Or do the interest rates influence your decision at all?

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Related Articles at Get Rich Slowly:

• Money Hack: Use CDs to Beat Falling Interest Rates
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• Compare the Best Mortgage Rates

I don’t write a lot about insurance around here. For one thing, insurance is kind of boring. For another, I don’t know a lot about it. Still, insurance is an important part of personal finance, and my silence on the subject hasn’t gone unnoticed.

Josh wrote last week to make a request:

I’ve been reading your blog for about a year now, and I consider it a constant source of valuable information. However, one area that I find that it is lacking is in auto insurance. [...] I’m not writing this to take anything away from your site, but rather to politely ask that you cover this topic sometime in the future.

Josh’s wish is my command. For the next month or so, Get Rich Slowly will feature a weekly post on insurance. The first couple of articles will cover the basics of insurance, laying the groundwork for the last couple of articles, which will be specifically about auto insurance.

Note: These articles draw heavily from the insurance chapter in my book, Your Money: The Missing Manual from O’Reilly Media. (You can download a sample chapter here.)

An Introduction to Insurance
Insurance is a way to manage risk. As you go through your life, there’s always a chance that you’ll be in a car accident, twist your knee, or that your home will burn down. The risk of these accidents is small, but if one of them were to happen, the effects could be catastrophic. Without insurance, you’d have to come up with the money on your own to repair your car, have knee surgery, or rebuild your home.

Although these things happen to some people, they don’t happen to everyone. With enough data, it’s possible to know roughly how many people are likely to experience these setbacks — and how much it will cost to recover from them. Using this info, an insurance company can spread the risk among all its customers.

An Elementary Example
Imagine Eastside Elementary, a school with 100 students. Every year for the past 25 years, one Eastside Elementary student has broken an arm in the schoolyard, resulting in about $5,000 in medical expenses. Without insurance, every family would have to save $5,000 to cope with the odds that their little tyke would be the one with the broken arm. At the end of the year, 99 families would have paid nothing (and have $5,000 left in savings), but one family would have paid $5,000 (and have nothing left).

With insurance, the Eastside Elementary families can join together to spread out the risk. If they created an insurance fund, all 100 families would pay $50 at the start of the school year. This $5,000 total would then go to the family of the child with the broken arm.

By spreading the risk, each family only has to save $50 instead of $5,000. Sure, that $5,000 is gone if it’s not your child who breaks her arm, but for most people, that’s an acceptable trade. Instead of having to scrape together the full $5,000, they’d rather risk losing $50 for a chance to avoid $5,000 in medical bills.

But is it really fair to have every family pay $50 into the insurance fund? Some kids go to the library at lunch to read Harry Potter and Mysterious Benedict Society books; others climb around on the jungle gym and throw stones at each other. The bookworms are much less likely to break an arm, aren’t they? And maybe the 25 years of data show that girls break their arms less often than boys. With enough info, the Eastside Elementary Insurance Fund could charge each family a different rate depending on how likely their child is to break an arm.

Note: This is why young drivers tend to have higher rates than older drivers. Yes, it sucks that your premiums are so high if you’re under the age of 25, but there’s a reason for that. The statistics show that drivers under the age of 25 have more accidents (and more costly accidents) than older drivers.

How Insurance is Like Gambling
Insurance is a bit like gambling. You’re betting a little money now because you think the odds are good that you’ll need a larger payout in the future. But there’s one huge difference between gambling and insurance: Gamblers seek risk in an attempt to get more money; when you buy insurance, your goal is to reduce risk so you don’t lose more money.

In fact, gambling casinos and insurance companies make use of the same statistical laws, especially the Law of Large Numbers, which says that the more you have of something, the more likely the characteristics of that something will tend toward average. The more people who roll the dice at the craps table, for instance, the better the casino can predict its earnings. And the more people in an insurance fund, the more accurately the insurance company can predict its losses (and its profits).

Insurance is a Good Thing
Most of the time, using insurance to spread risk is a good thing. That’s why most states require car insurance, and why smart folks keep homeowners insurance even after their mortgage is paid off. But insurance can be expensive, especially if you have too much or the wrong kinds. Next week, we’ll cover some general insurance tips. The week after that, we’ll cover the basics of auto insurance.

Note: Wikipedia has a great article about insurance and how it works. Sure, it may seem like a dry topic, but the history section of that article is especially fascinating.

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Related Articles at Get Rich Slowly:

• Insurance
• Insurance Basics: How to Save on Insurance
• Ten Ways to Drive Down Your Car Insurance
• Auto Insurance Tip: Monthly Sucks
• 14 Tips for Purchasing Life Insurance

This post is from GRS staff writer April Dykman.

Could you produce your birth certificate, car title, or an old tax return at a moment’s notice?

You’re supposed to store vital documents in a fireproof box or keep them in a safe-deposit box, but how many of us actually do that? We may not need these papers often, but when we do need them, we really need them. You need vital documents to sell your car, travel overseas, apply for a job, get through an audit, refinance your house, and more.

The good news is that if you’ve lost important pieces of paper, you can replace them — and it might be easier than you think. Here’s how to replace six of the most important documents in your life.

Birth certificate
You need a birth certificate for everything from enrolling in school to getting a marriage license (if you don’t have a passport). To replace one for yourself or your child, go to the vital statistics office website for the state where the birth occurred. You might need a photo ID, and you’ll need to provide as much of the following information as you can:

• Name
• Birth date
• Gender
• Parents’ names
• Place of birth

Replacing a birth certificate costs $10-$20, depending on the state.

Social Security card
A Social Security card can be required for a number of things, such as applying for a job or enrolling in college. Sometimes you only need the number, but other times you might be asked to produce the card. To replace it, contact your local Social Security office. You’ll fill out an application form, and you’ll need one of the following forms of ID:

• U.S. driver’s license
• State-issued, non-driver identification card
• U.S. passport

Plus one of the following proofs of citizenship:

• U.S. birth certificate
• U.S. consular report
• U.S. passport
• Certificate of Naturalization
• Certificate of Citizenship

There’s no fee for a replacement card, and you are limited to three replacement cards in a year and 10 during your lifetime. For security reasons, it’s recommended that you go to your local Social Security office in person instead of mailing in the application and ID document.

Passport
You need a passport to travel abroad, but it’s also handy to have for identification purposes should you lose your driver’s license. If your passport has been lost or stolen, you’ll need to report it by calling 1-877-487-2778. Then, go to a passport agency or acceptance facility in your area and bring the following two completed forms:

• Form DS-11: Application for a U.S. Passport (Do not sign until instructed to do so by the agent.)
• Form DS-64: Statement Regarding a Lost or Stolen Passport

You’ll also need to bring identification and proof of citizenship (see list for Social Security replacement above for acceptable forms of proof) and two passport photos. Renewing an adult passport costs $140.

If you need the passport in less than two weeks for an upcoming trip, you can contact the National Passport Information Center to make an appointment at a local passport agency.

Property deed
If you sell or refinance your house or property or transfer the title, you need to show proof of ownership in the form of a property deed. Try the following ways to get a copy (and have the address and tax map ID number handy):

1. Contact the attorney who handled the closing to see if he or she has a copy.
2. Call the county clerk’s office, where deeds are typically recorded.
3. Hire a title company to search for it.

The first two methods are cheap, usually costing a small fee for photocopies. Hiring a title company can run $100-$150, but can yield a more complete search.

Car title
Hoping to sell your car? You’re going to need the title. Contact your state’s department of motor vehicles. You’ll need the following:

• Application form
• Fee (varies by state)
• ID, such as a driver’s license

You’ll also need proof of ownership, such as your license plate number and vehicle identification number or your vehicle registration.

Tax returns
To get tax returns from previous years, start by contacting your accountant or tax preparer, who should keep copies of your returns. You also can get copies directly from the IRS by filling out form 4506, Request for Copy of Tax Return. There’s a $57 fee per tax year requested.

For more information about replacing these and other documents, visit the online USA.gov guide. To keep from losing your important records in the first place, create a vital documents map! Use this guide, complete with inventory worksheets, to get the ball rolling.

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Related Articles at Get Rich Slowly:

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This guest post from Mike Choi is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes.

Almost two years ago, J.D. shared an “ask the readers” column about how to rent out your spare room. In that post, Penny was renting a spare bedroom to her brother-in-law, but when he moved out, she regretted seeing the rental income go. To make up for the rental income, Penny was thinking about renting to strangers, and was asking for advice from GRS readers. I don’t know what kind of financial relief or savings it provided for Penny, but my story is about the result of what Penny planned to do.

I’ve been renting out my rooms for the past five years. This whole thing started out as way for me to pay for graduate school back in 2006. I already had about $18,000 worth of student loans from my undergraduate studies, and I didn’t want to take out more student loans. I figured I could get about $600 a month from rent, which could easily help pay for grad school tuition, which costs $1,600 per class. I placed an advertisement online and found a roommate.

After about ten months of renting my room, things were going well; my roommate and I were getting along, and I was taking grad classes. However, my graduate studies were going slow because I was only taking one class a semester. I wanted to take two classes a semester so that I could graduate sooner. I had the time to devote to the extra work load, but didn’t have the money for the extra class.

It was then I decided to finish my basement and move down there myself so that I could rent out the bedroom I was currently living in. This would allow me to bring in another roommate to make the additional money I needed to take a second graduate class during a semester. My plan worked: I found a second roommate and was able to collect a second rent check in addition to the first. This was more than enough to pay for two classes a semester.

Fast forward three years.

I finished my graduate degree without a single penny in debt! Had I taken out loans, I would now have an additional $32,000 of student loan debt.

Since I was able to avoid taking student loans for graduate school, I can say it was definitely worth it to rent out my spare rooms. To this day, I continue to rent out both rooms. Now instead of using the rental income to pay for graduate school, I use the rental income to pay down my mortgage.

Even though I can afford the mortgage payments on my salary, when I bought my property back in 2005, I took on a considerable amount of debt to buy my house. How much debt did I take? I currently have two mortgages, and my mortgage debt/situation is very similar to this blog post at Five Cent Nickel: I got caught up in the real-estate bubble hype and bought my place with no money down.

With my current mortgage situation, I can’t refinance because the value of my property is less than the value of my loan. To get out of this mess, I have to pay off the second mortgage with the higher interest rate and refinance the first mortgage. With the rental income, I have been paying additional principle to my second mortgage because it has the higher interest rate. By doing this, I was able to bring the balance on my second mortgage from $35,000 to $21,500. If all goes according to plan, I should have the second mortgage paid off in early 2012.

Renting out my spare rooms has been a fantastic example to show how rental income can provide financial relief. My story may be a bit extreme given that I am renting out half of my primary residence; nonetheless, it can provide motivation for homeowners to get out of consumer debt or perhaps pay for college tuition for a child who is no longer living at home.

If you’d like to learn more, you can read more about this subject at my blog, Renting Out Rooms!

Reminder: This is a story from one of your fellow readers. Please be nice. After more than a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are. Henceforth, unduly nasty comments on readers stories will be removed or edited.

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Related Articles at Get Rich Slowly:

• Reader Story: A Drastic Change for Drastic Results
• Ask the Readers: How to Rent Out Your Spare Room?
• Reader Story: How I Paid Off $18,000 in Student Loans While Still in Graduate School
• Reader Story: Debt-Free by 30 — Including the Mortgage!
• Dinosaur Comics on the Rent vs. Buy Debate

This guest post from my wife is yet another installment in her ongoing quest to grow and preserve food for our household.

Making jam makes me happy. Okay, that’s only partly true. I’m also happy making jelly, preserves, and syrups — and I’m pretty darn pleased with conserves, marmalades, and most things pickled. No matter that I could never eat everything I make — even with J.D.’s help — the mere process is somehow satisfying to me. So, I madly preserve whatever I can lay my hands on each summer, then spend hours inventorying and organizing the jars, finally doling them out like precious jewels on special occasions to friends and family.

Competitive canning
Last year, I steeled my courage and submitted a few jars for judging at the county fair. I was pleased as punch when my gingered dilly beans won a blue ribbon, and vowed to enter more preserves this year. As I made my batches this summer, I put jars aside for the fair. In the end, I had to leave out some of my favorites, since you’re only allowed one entry per category.

I turned the jars in last Sunday morning, and then bit my fingernails until our trip down to the fair yesterday. I was a bit apprehensive, since this has been my summer to do most of my canning without boxes of commercial pectin. Instead, I’ve been putting my chemistry degree to use, combining high-pectin fruits with low-pectin fruits and using pectin I extracted from unripe June-drop apples from neighborhood trees. Despite my chemistry skills, I’m a novice at using home-made pectin, so it was sometimes a challenge to get a nice firm gel instead of a runny syrup.

The county fair’s judging process for preserved foods is a bit of a mystery. But what I do know is that it’s based 50% on appearance and 50% on “product quality”. If they don’t rate the appearance highly enough, they won’t even open the jar for the remainder of the judging, so the jams and jellies have to look good!

This year, my entries included some standards (like Concord Grape Jelly) and some that were pretty unusual. Here’s how they did:

• Smooth (seedless) Raspberry Jam — no ribbon
• Raspberry-Red Currant Jam — no ribbon
• Wild Oregon-Grape (Mahonia) Preserve — no ribbon (and unopened because the judges didn’t like its appearance) but it’s delicious!
• Old-Fashioned Strawberry Preserves — 2nd prize for Strawberry Jam/Preserves
• Golden Plum Syrup infused with Vanilla and Rosemary — 2nd prize for Berry or Other Syrup
• Concord Grape Jelly — 1st prize for Grape Jelly
• Lemon-Summer Squash Marmalade with Lemon Balm — 1st prize for Orange or Other Marmalade
• Triple Berry Jelly — 1st prize for Jellies: Two or more fruits

I’m especially proud that my Triple Berry Jelly won Class Champion for jellies. In other words, it was judged the best jelly entered in the fair! Woohoo! As much as I relish (no pun intended) the results of my canning projects for their own merits, it’s a thrill to get a little outside validation as well; my chest swells with pride.

Kris’ prize-winning triple-berry jelly

I believe one reason my jellies did well is that I collect the fruit juice with a steam juicer so that it’s very clear. I’d share the recipe for the Triple Berry, but it calls for a steam juicer, red currants, and homemade apple pectin, so I doubt it’d get many takers. Instead, here’s a wonderful soft spread I’ve made before. Maybe apricots are still in season where you live….

Apricot Essence Preserves
(Makes 2-3 pints)

• 3 pounds apricots, pitted and chopped (about 24)
• 1/2 cup canned apricot nectar
• 1/2 teaspoon unsalted butter
• 3 cups sugar
• 2 tablespoons fresh or bottled lemon juice

Puree the pitted fruit in a food processor. In a non-aluminum 8-quart pot, combine fruit, nectar, and butter. Bring to a boil over medium heat.

Reduce heat and stir until apricots are softened, about 10 minutes, stirring
frequently. Stir in the sugar and lemon juice. Bring to a simmer and stir until the sugar is dissolved.

Reduce to a slow simmer and cook until it is thick enough to mound on a
spoon, about 30-40 minutes.
Stir frequently. (Remember, it will firm
more as it cools—you can put some on a chilled plate to gauge how thick it is.

Ladle into clean pint or half-pint jars, leaving 1/4-inch headspace. Wipe the
rims clean with a damp paper towel and add lids and screwbands. Process in a boiling water canner for 10 minutes. When cool, check the seals. If sealed, remove the bands and store in a cool, dark place. If it didn’t seal, you can either re-process it or store it in the fridge for up to a month.

Getting started with home canning
In an agricultural region like Clackamas County (where we live), many people still grow and preserve their own food. Nationally, the trend seems to be on fire as well. I recently read that Jarden Home Brands (maker of both Ball and Kerr canning jars) saw a 30% increase in sales over the last year (according to the Philadelphia Daily News). That’s good news!

High-acid foods like jams, jellies, pickles, and some salsas are an easy way to start preserving your own food without stressing about botulism; recipes and instructions abound on the internet. My favorite canning blog (yes, they exist) is Food in Jars by former Portlander Marisa McClellan. Her enthusiasm is infectious, and she’s a pro at creating small batches in an evening hour or two. If you’ve tucked fruit into the freezer this summer for later use, check around for a canning recipe for a mid-winter day’s work.

I especially like that glass canning jars are reusable year after year and don’t need giftwrap when given away. They are welcome homemade gifts that won’t turn into clutter (unless you’re my Dad, who has an entire cupboard packed with food I’ve made for him over the last five years — long story). And I was excited to find a source for BPA-free reusable canning lids through the magic of the internet. I split an order with two friends and used them for the first time (easy!) on a batch of dill pickles the other night. One more step toward self-sufficiency; now if I could just grow and refine my own sugarcane…

The jams and jellies section at the county fair

A word of caution: You’ll still find recipes that tell you to seal canning jars by turning the jars upside down or by simply packing them with very hot food and closing them immediately. USDA recommendations call for a boiling water bath — usually between 5 and 25 minutes — for safe canning. Without the boiling water bath, your jars may seal, but they won’t be sterile and could develop mold. It’s worth the effort to do the boiling water bath step.

In fact, preserving local food using whole ingredients is now being called an “eco-craft” in our post-Martha Stewart, revival-of-the-home-arts, make-the-most-of-your-money kind of world. No matter what it’s called, I like it. And that purple Class Champion ribbon will look great in my kitchen!

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Related Articles at Get Rich Slowly:

• links for 2007-05-14
• Frugality in Practice: Canning Season
• Frugality in Practice: Home Canning
• How to Make Your Own Small-Batch Strawberry Jam
• How to Shop at an Estate Sale

Isaac wrote recently with a question about how to make the transition from college to the Real World. He has a good degree, but it’ll take him time to find a job, especially since the economy is still sluggish. He’s worried about how he should handle is finances in the meantime. Here’s his question:

I recently graduated from college with a degree in electrical engineering. I’m currently living at home with my family while I search for a job. I’m concerned about my first month or two once I find one, though.

I have no savings, and I’m not sure how I will be able to buy a car (and insurance) to get to and from work, rent an apartment, or even buy necessities for my first few weeks while I wait for a paycheck. I know that some jobs will give a signing bonus or relocation package but I don’t want to count on that. My parents are in deep credit-card debt and live paycheck to paycheck, so I can’t borrow money from them.

Any advice? Should I get a short-term bank loan? Or maybe borrow from better-off friends?

This is something that I struggled with almost 20 years ago; my transition from college to my first job was rough. A lot of my trouble was self-induced, though. As soon as I found work, I bought a brand-new car, a new wardrobe, and all sorts of new toys. So, instead of waiting until my first paychecks started coming in, I spent money I anticipated having…eventually.

My story is all too common; I know a lot of folks who have done the very same thing. Looking back, these mistakes seem obvious, but they weren’t so obvious at the time. I think there are at least three things that Isaac can do to gain more control of his situation.

Accumulate cash
It doesn’t sound like Isaac is doing any sort of work now while he’s looking for a job in his field. I think he should — and I don’t think he should be picky about it. One way to ease worries about where he’ll get money to tide him over until his first paycheck is to actually earn that money in advance.

Some people don’t like taking short-term employment, especially if the pay is low. They think it’s beneath them or that it looks bad on a job application. Hogwash. It’s always better to have some income — no matter how small — than to be earning nothing. Every little bit helps. So, I’d recommend that Isaac look for work in a restaurant or a retail store, or maybe even seek the help of a temporary agency. (I waited tables at Red Robin while hunting for my first job; I also did odd jobs through a temp agency.)

Moderate spending
Meanwhile, Isaac should be cautious with his spending until he’s found a job and a place to live. That means no big indulgences, but it also means that Isaac should be wary of committed expenses. I can’t emphasize this enough: When you’re just starting out, you should take on as few recurring expenses as possible. And those you do take on should be kept as low as possible.

• Keep your rent low.
• If you don’t have to take out a car loan, don’t. (Buy a cheap beater if you have to! Better yet, bike or take the bus.)
• Don’t subscribe to newspapers and magazines.
• Don’t sign up for cable TV.

When your get out of school and move out on your own, it can be tempting to buy all the things your parents had, or the things you’ve always wanted. There’ll be plenty of time for that in the months and years to come. Isaac’s goal now should be to take care of the essentials so that later he can afford comforts and luxuries without having to go into debt.

Negotiate benefits
Isaac is going into a field that could require him to relocate. When he’s hired, there may be some sort of signing bonus or relocation package. But here’s the important thing: Even if there’s not, Isaac should negotiate for this sort of benefit. (Here’s a GRS article from last year about how to negotiate your salary; the same principles apply to negotiating benefits.)

By preparing now to negotiate this benefit, Isaac can increase the odds that he’ll receive it as part of a job offer. For more detail, Isaac should check out Jack Chapman’s site on salary negotiations.

Note: In his question, Isaac asked if he should consider borrowing money from a friend. I really dislike this option. Borrowing and lending money with friends is a recipe for disaster. Sure, most transactions probably go fine, but the potential for catastrophe is so large that it’s almost always better to look at other options.

What would you do?
I’m sure that Isaac’s situation is common. Many folks graduate from college (or leave home) and find themselves without any cash to get by while they wait for their first paycheck to come in. Some rely on debt to get by. (That’s what I did, and I regret it.) But surely there are other options.

How did you bridge the gap between the time you left home and received your first paycheck? What worked? What didn’t? What would you do if you were in Isaac’s situation today?

Update: Isaac left a comment below to let us know that he does have a part-time job, but that he’ll look at other possible ways to make money. So, there’s no need for additional “get a job” suggestions!

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What does a blogger’s spouse do while the blogger is out of town? Hang out with other bloggers and their spouses, of course! While Chris Guillebeau was off playing with the tigers in Thailand, his wife Jolie spent some time with Kris and me.

Last Friday morning, we picked peaches (and then Kris and Jolie canned them). In the evening, the three of us had dinner with Erica (from erica.biz) and her husband Richard. As you might expect, the conversation had a tendency to stray toward personal finance. Because I’d just published my article about life in the third stage of personal finance, we talked a bit about that.

Third stage frugality
“How does frugality work when you have more money?” Richard asked.

I was confused. “What do you mean?” I said.

“Well, when your income increases, how do you stay frugal when your expenses go up? How does frugality scale?”

“Ah,” I said. “Well, frugality works pretty much the same way as it did before. I mean, if you’re doing certain things to be frugal when your income is smaller or you’re digging out of debt, you should probably continue to do most of those things, even if you get more money. For example, we just picked and canned peaches this morning. Growing and preserving our own food is one way we stay frugal. Plus, we buy a lot of our clothes at thrift stores. That sort of thing.”

I thought for a moment. “I guess it all comes down to conscious spending.” Richard hadn’t heard the term before, so I explained how it’s important to remember at any income level that you can have anything you want, but you can’t have everything you want. In other words — and as I said the other day — we choose to skimp on some things so that we don’t have to skimp on others.

“Here’s an example,” I said. “In Your Money: The Missing Manual, I profile Chris Guillebeau. He spends a small fortune on travel every year, but he doesn’t own a car. He bikes or rides the bus or walks everywhere he needs to go. Plus, he and Jolie have a spartan home. There’s no clutter.”

And here the conversation suddenly changed directions…

De-cluttering once a week
“Oh,” said Jolie. “There’s no clutter at our place because I make sure we de-clutter every week.”

“Every week?” Kris asked.

“Every Saturday night,” said Jolie. “We go through the house and get rid of the stuff we no longer need.”

“Is it actually getting rid of Stuff?” I asked. I found it hard to believe that anyone could de-clutter every single week. (I have a hard time de-cluttering a few times a year, though I know I should do it more often.)

“Yes!” she said. “And it’s so much fun. It clears your headspace.”

“How much of your home do you reclaim every Saturday?” asked Richard.

“Well, not a lot. But it’s mostly about getting in the habit of letting go,” Jolie said. “Sometimes I’ll see something say, ‘I like the idea of this, but I’m never going to use it.” So I chuck it.”

“What do you do with the Stuff you might need someday?” Kris asked.

“Then someday when I need it, I’ll buy it or borrow it. But usually the Stuff I might need someday, I don’t need any day. Not enough to keep it around, anyhow. So I get rid of it.”

“I have a problem with keeping too many books,” Erica said. “I can’t get rid of a book if I think I might want it someday.”

“Yeah,” said Richard, “but we still got rid of a lot of books when we moved to San Diego.”

“We purged our books several years ago,” I said. “We had thousands of books, and we sold them to used bookstores or donated them to Goodwill. I think we got rid of almost two-thirds of our collection. And you know, I do find that sometimes I want a book that I got rid of — but not very often. When that happens, I either buy it or borrow it from the library.”

“Me too,” Richard said. “I think I’ve had to re-buy maybe three books since we moved.”

“What do you do with the Stuff people give you?” asked Erica. “You know, gifts and so on.”

“It’s gone,” Jolie said. “If it’s clutter, we get rid of it.”

“Even if Chris gave you flowers?” asked my Kris.

Jolie smiled. “I don’t like flowers because they’re clutter.”

We all laughed at that, and then the conversation moved on to other things. We ate our desserts (chocolate lava cakes all around!), said good night, and headed home.

Shared knowledge
I enjoy meeting readers and colleagues for lunch or dinner, and precisely because we tend to have conversations like these. We compare notes. We share what works for each of us, and we ask questions about how other people manage money. Meetings like this used to scare me — I was worried the people I met might be psycho-killers! — but I’ve come to see them as one of the highlights of this job.

Vicki Robin (co-author of Your Money or Your Life) has long suggested that most folks would benefit from talking about money in a small-group setting. I think she’s on to something. (In fact, starting next month, she’ll be conducting a series of Financial Intelligence telephone workshops that some of you may be interested in.)

There’s a sort of tacit taboo against talking about money in our society, and that’s a shame. By not talking about our financial successes and failures, it’s difficult for anyone to see what does (and doesn’t) work except through painful trial and error. But if you have the courage to approach a friend or colleague to ask them if they’d be willing to compare notes, each of you can come away better equipped for financial success!

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This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com. In today’s article, she tackles a topic I’ve been meaning to write about, but haven’t made the time.

Contrary to popular belief, money can buy you happiness — if you spend it on the right things. That’s the skinny from the New York Times Business section, which last week took a close look at spending habits and happiness. Stephanie Rosenbloom writes that increased spending on leisure, travel, and hobbies tends to make people more satisfied with their lives, but buying Stuff does not.

You don’t have to spend a lot to be happy. In fact, simple living often leads to a richer life. The article opens and closes with a profile of Tammy Strobel from Rowdy Kittens, who gave up a solid professional life with all the cars, furniture, and Stuff her boring-but-lucrative job could buy. She’s a freelance writer now, living simply with her husband in Portland, Oregon.

Like a lot of people who’ve shifted away from a consumer lifestyle, Tammy now has more money to spend on what she loves because her needs are small. She’s not buying Stuff or keeping up a big apartment. She and her husband swapped their cars (and car payments) for bicycles.

Experiences, not Stuff
More and more people are moving away from conspicuous consumption towards a life of conscious consumption and saving. A recent spate of research is looking at how to squeeze the most happiness from your dollar. What they’re finding won’t surprise many Get Rich Slowly readers:

• Spending money on experiences brings you more lasting happiness than spending money on Stuff. For example, a vacation will make your life better, over time, than a new couch.
• It’s okay to think small. Spending on several small treats — like a massage, a good book, or dinner at your favorite restaurant — will bring you more happiness than one big-ticket item like a sports car.
• Leisure activities like games, sports, hobbies, and entertainment have more happiness value than material goods.

What really makes people happy is connection. When we’re engaged in a leisure activity, we’re more likely to be socializing with others, forming and strengthening our relationships. It’s these strong relationships, not the Stuff we accumulate, that bring us lasting joy throughout our lives.

Experiences also pay off better than Stuff because we tend to color our memories happy. Let’s say you spring for that new couch. The day you bring it home, it’s perfect. The exact shade, texture, and firmness you wanted. You’re in your bliss, sitting on it for the first time.

Fast forward ten years. Now the couch is tattered and stained, and the cushions have gotten lumpy. Remembering how perfect it was doesn’t make you happier now; it makes you sad that you’re sitting on a bumpy relic of your couch’s former greatness.

Let’s say instead you’d put that money into an experience. A vacation where you were bitten by mosquitoes, almost missed your flight, and lost your hiking boots at the resort. Ten years later, your mosquito bites are gone, the shoes are long forgotten, and the photographs of the beautiful waterfall you visited still hang on your bedroom wall. The vacation actually gets better with time, as you hold on to the happy memories and forget the hassles.

Finally, experiences pay off on the happiness meter because of their novelty. We grow bored with Stuff and then want more! newer! bigger! better! Stuff. But it’s not the Stuff we want more of, really. We’re looking to replace the happiness kick we got from the Stuff when it was new. This is why so many of us can be staring at a closet full of expensive clothes and think we have nothing to wear, or restlessly scroll through thousands of songs in our iPods finding nothing we want to hear.

The psychology of spending
The fancy psychological term for this is “hedonic adaptation”. We adapt to Stuff faster than we adapt to new experiences. A vacation, a cooking class, seeing a good play — these experiences are all complex. They take time to digest, mentally and emotionally. When we do them with friends or loved ones, they become part of our relationships with those people, adding yet more layers to the experience and the memories that come out of it.

Frugal happiness seekers can use these principles to their advantage. It doesn’t take a lot of money to seek out new experiences. Just going for a walk down the beach with a friend can provide plenty of happiness, with no price tag attached.

Remember that idea of stringing small luxuries together, that I mentioned above? Splurging on a series of small indulgences is worth more happiness than one large splurge.

That kind of spending on frivolous luxuries pushes against the grain of my own non-consumer heart, but it’s another way to thwart hedonic adaptation. Buying one large item gives you a burst of happiness that quickly dissipates. While over time you’ll also adapt to the flavors at that restaurant you love or the joy of having flowers on your desk at work, a variety of small indulgences will give you many little happy moments.

On the other hand, we can get more happiness out of large purchases by saving for them in advance, rather than buying them on credit. It’s not simply that being debt-free is a happy way to be; you’ll also get pleasure from anticipating the purchase while you’re saving up for it. Once you have your new couch or dream vacation, you’ll enjoy it more knowing it’s the fruit of your hard work as a saver.

Ultimately, it’s our experiences in life that make us happy, and the relationships we have with those who share our journey. Money can be a great tool for getting the most out of our adventures and our time with loved ones, if we know how to spend it right. That means putting our money where our hearts are: spending on the activities and people we love, not the Stuff we’re told we have to have.

J.D.’s note: For more on this subject, see the first chapter of my book, Your Money: The Missing Manual. (You can download that chapter for free as an 889kb PDF.) Later today, I’ll post a semi-related anecdote about Stuff.

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