I’ve been working as a web designer since I was 18. I made a few financial mistakes in my early days: leased a car for four years, bought a couple of motorcycles, spent money on Stuff that had no value. I’m 25 now and I’ve owned a condo for four years. I was lucky to buy it really cheap and only have $100,000 mortgage left to pay.

Things have changed in the last two years. I’ve traveled a lot. I’m constantly increasing my knowledge and working on new business ideas. But I don’t have the time to do anything about it because I’m always working…to for pay my condo.

Fortunately, I have no debts other than the condo. I have $5000 in savings. My total expenses are about $1700/month and I make about $2600/month. I made some calculations and I can easily bring my expenses down to $1000/month if I didn’t own the condo.

After working as a web designer for nearly seven years, I’m sick of it. I want out. I want to bartend a couple nights per month and travel the rest of the time. Actually I’d be happy just traveling and doing any kind of work outdoors: bartending by the beach, teaching motorcycle riding classes, gardening, surf instructor…

Would it be wrong to sell my condo (I could get $160,000), take the profits, and go travel the world? Do a few side gigs here and there and enjoy life while I’m still young? I don’t have kids. I’m not married, no girlfriend. No car, no debts other than mortgage. I’ve been wanting to live in Australia, California, Japan. I’m sick of cold winters in Maine.

I’m also scared to just “save money” eternally until I’m too dead to enjoy it. I don’t understand the point of saving my money and working to pay my bills when I can just cash in now, take as much time off as I want, and still get by on a small salary doing work that I really enjoy — outdoors, where the weather is great.

I need advice, and my parents keep telling me to keep my “good” job.

This is an interesting question, one that many GRS readers wrestle with. The good news is that Max is in fairly good shape financially for this stage in his life. He has $5000 cash and $60,000 in equity in his condo. He has no debt. He has no ties.

Based on this, I think there’s a balance to be found. I’m sure many folks would recommend simply finding another job, moving from Maine, and pushing forward with a sedate (but safe) life. And there’s value in that. At the very least, Max should stay away from debt.

But at the same time, I can’t help but remember my friend Sparky. Sparky didn’t have $60,000. His wealth was more like $6000. But when he was Max’s age, he packed up and traveled the world for five months. Sparky loved it.

Because he was not burdened by Stuff, Sparky returned to a financial position similar to the one he’d left. He didn’t have a mortgage or other debt. His core savings and investments were still intact. He lived for five months without an income, it’s true, but he spent exactly what he budgeted, and he had the experience of a lifetime.

Max has an opportunity that may never come again. How many of us at age 40 can simply pack up and travel the world? How many wish we could? (I do!) Knowing what I know now, if I were in his position I would sell the condo, put half of the money in savings, and then use the rest to travel on the cheap. I might even take a job in another country and live there for a while.

When I returned to Maine (or to Texas, or wherever), I’d start again from scratch, either as a web designer or as something else entirely. Maybe go to school. I’d use the remaining condo money to jump-start my life, to stay away from debt.

Along the way, I’d read The Razor’s Edge, Vagabonding, and The Art of Non-Conformity.

This advice may be counter to what you’d expect from me. I’m a huge advocate of saving and investing early. But I think Max already has a good start, and he has a chance to pick up something even more valuable than home equity: He has a chance to build life equity.

What would you do in Max’s situation? Would you travel the world, too? Or would you parlay the good financial start into a stronger foundation for the future? What advice can you offer Max?

Programmer photo by evhead. Photo of Japanese garden by One man’s perspective.

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• Ask the Readers: Can College Students Save Money?
• Daily Links: Non-Conforming Happiness
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• links for 2007-01-13

List the ten most expensive things (products, services or experiences) that you have ever paid for (including houses, cars, university degrees, marriage ceremonies, divorce settlements and taxes). Then, list the ten items that you have ever bought that gave you the most happiness. Count how many items appear on both lists.

Yesterday’s TierneyLab column examined the responses. The results are fascinating. Things appearing much more often on ‘expensive’ lists than ‘happy’ lists include:

• children
• marriage ceremonies
• divorces
• taxes
• most cars
• boats

Items that were on far more ‘happy’ lists than ‘expensive’ lists included:

• meals with friends
• alcohol
• bicycles
• pets
• hobbies
• adult education
• church and charity
• books, music, artwork
• quality beds

And, finally, there was some overlap where things were both expensive and fulfilling. These include:

• houses
• higher education
• travel
• electronics
• certain vehicles

Obviously, these results are not scientific in any way. But they’re interesting.

For myself, I was hard pressed to list ten items on each side. I just listed six or seven. Believe it or not, my Mini Cooper makes both lists. So does our current home. (If I had paid for college, that would have definitely made both lists; I was fortunate to attend on scholarship.) Other than that, though, there’s not a clear relationship between money spent and happiness received.

Dr. Miller offered a brief analysis of the survey results, noting a handful of trends, including:

• For many, there is an overlap between expensive purchases and happiness.
• Many people — including myself — find that paying for experiences is more likely to bring happiness than buying physical Stuff.
• Many commenters emphasized the value of thrift in daily life so they could afford to spend on the things that mattered.
• Some people noted that the act of saving money for the future brings them happiness.

If you find this topic as interesting as I do, I recommend you read the full post, which contains a lot of additional information and a fuller analysis. Also, the comments on the article are quite good.

[TierneyLab at The New York Times: When money buys happiness, via e-mail from Robin B.]

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• links for 2007-06-14
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A couple of weeks ago, I spoke to a group of elementary-school teachers about their 403(b) plan (the 401(k) equivalent for non-profit employers, in case you didn’t know). Like most investors, they were a bit shell-shocked over what’s happened over the past 20 months or so.

Many asked whether they should be contributing to their retirement accounts at all, given that the S&P 500 is still down approximately 40% from its October 2007 high, even after the rally we’ve seen since early March. It’s understandable. By some metrics, the past decade has been even worse than what happened during the Great Depression.

My answer was, yes, you should still contribute to your retirement accounts. The tax breaks are just too good to pass up. Money you contribute to a traditional 401(k) or 403(b) reduces your taxable income, so it’s essentially a tax deduction. Plus, you don’t pay taxes on any interest, dividends, or gains until you withdraw the money in retirement. That’s known as tax-deferred growth, and ends up providing more money in retirement.

Now, if your boss doesn’t match your contributions to the company plan, you might be better off in a Roth IRA, which doesn’t give you a tax break today, but gives you one in retirement. Whichever account you choose, you should still keep saving; it’s the only way you’ll be able to retire. If you can’t stand the volatility of the stock market, invest in bonds or even cash. Just keep saving!

Stocks for the Really Long Run
That said, I do think most investors should have some of their money in stocks. Especially the 30-something teacher who told me that she couldn’t stand seeing her account balance drop, drop, and drop last fall, so she sold everything and has been in cash ever since. Again, I understand — it’s not easy watching years of savings seemingly disappear in a matter of months. But it’s important to remember that investment success isn’t based on how much you have right now, but how much you’ll have when you need it. Staying too conservative for too long can increase the chances that you’ll come up short.

The truth is, folks, your investment time horizon might be longer than you think. Let’s assume the teacher I met is 35 years old and plans to retire at 65. That’s 30 years of investing ahead of her. But she won’t sell all her investments on the day she retires.

Sure, she should have at least 40% of her money in bonds at that point — and perhaps even more, if she’s more conservative — but she can’t play it too safe. Because at age 65, the average woman lives another 20 years; the average 65-year-old dude lasts another 17 years. Marriage actually increases the chances that one spouse will make it even five years longer (my wife doesn’t believe it). And those are the averages; half of the population will live longer.

Add in lengthening life expectancies, and our 35-year-old teacher could reasonably expect to be living — and investing — well into her 90s. Of course, by then she should be playing it very safe, perhaps with only 10% to 20% of her assets in stocks. But it means that a stock (or mutual fund) that she buys today could still be in her portfolio by the year 2070.

Historically, with a timeframe that long, stocks have been the investment of choice. The chart below indicates how often from 1871 to 2006 that stocks beat bonds over various holding periods, courtesy of the fourth edition of Jeremy Siegel’s classic Stocks for the Long Run.

If 2007 and 2008 were included in these numbers, all those percentages would be lower, including a 30-year period when bonds beat stocks (assuming that the bonds used were long-term Treasuries). So I’m definitely not saying that stocks are riskless investments as long as you hold on long enough.

But I still find the historical odds very compelling, especially for a multi-decade investment time horizon. And let’s face it: Most of us will need stock-like returns to be able to retire and ensure that our portfolio keeps up with inflation over such a long timeframe. But that’s a topic for a future article.

In the meantime, have some fun (or grim reality) with the longevity calculator at www.livingto100.com to get an idea of how long your portfolio will have to last.

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• Carnival of Investing #30
• links for 2007-04-05
• Socially Responsible Investing
• links for 2006-11-07
• General Investment Tips

With banks, brokerage firms and Web sites now providing a range of options for managing personal finances, the consumer need for Microsoft Money Plus has changed. After suspending annual updates of Money Plus in 2008, Microsoft is announcing today that we will no longer offer Microsoft Money Plus for purchase after June 30, 2009.

Now that Microsoft has thrown in the towel, where does that leave existing users of Money and Money Plus? Some of them are worried. I’ve received several e-mails about this recently, including this one from Lee G.: “Microsoft just left us in a lurch by killing Money. Any suggestions on finance software? I’m not really a fan of Quicken, but would entertain it.”

First, it’s important to note that Microsoft intends to support Money Plus at least through 31 January 2011. Until then, you can still get stock quotes and use the software’s billpay feature. After that time, the online functions may (read: “probably will”) expire. If you’re a Microsoft Money user, you still have 18 months to find a replacement. The Money FAQ offers this helpful advice to guide you:

A number of online personal finance management and planning tools are available, many for free, on the Web. Other software solutions may be for sale from companies other than Microsoft. For general account information and transactions, your bank Web site may provide the best solution.

It would have been nice if Microsoft had provided a list of these “personal finance management and planning tools”. Since they didn’t, I spent a couple of hours surveying the current options. Here are 16 powerful personal finance programs to take the place of Microsoft Money:

• AceMoney is a Windows desktop app that offers all the features you’d expect: downloadable transactions, budgeting, investment tracking, and more. AceMoney costs $30, but a free “lite” version is available.
• Budgetpulse is a free “upbeat” way to manage your money. It offers standard budgeting and tracking features, as well as international compatibility. One of this program’s stated goals is simplicity; it doesn’t try to do a whole lot other than track your core accounts.
• Buxfer started as simple tool for tracking debts and has grown into a more comprehensive financial management tool. It allows users to import data from their bank and credit card accounts, set spending limits, track shared expenses, and more. iPhone app available.
• ClearCheckbook is “an extremely easy to use tool that helps you balance your checkbook and manage your money. Think of us as an online checkbook register with the added bonus of viewing reports, setting budgets, creating reminders and more.” A premium version adds features. iPhone app available.
• Expensr seems to be similar to Budgetpulse. It too offers simple account tracking. Expensr includes some social networking components, allowing you to compare your money habits with other broad groups that you select.
• Geezeo allows users to create and manage a budget while obtaining support from other members. According to the intro video, Geezeo also has the ability to track investments. Mrs. Micah tried Geezeo and liked the goal-setting and community aspects of the tool.
• Mint has become the Big Daddy of online personal-finance apps, with almost a million registered users. Mint offers support for investment accounts, which is cool, and allows users to create personal budgets. I’ve heard both praise and complaints from Mint users, so it sounds like something you’ll need to try to see if it’s right for you. (Here’s an early Mint review from a GRS user.) iPhone app available.
• Moneydance is a full-featured desktop personal-finance manager. It’s available for Mac, Windows, and Linux. Moneydance offers budgeting tools, investment tracking, and many built-in reports. Because I prefer a desktop money app, I’m very tempted to try this.
• moneyStrands is the new kid on the block. Based in part on a financial management tool from Spain, moneyStrands offers all of the features you’d expect (though no investment-management yet). This tool offers lots of budgeting goals with highly-configurable alerts (”let me know when I’ve spent $30 on coffee this month!”). It also allows you to compare your finances with other demographics (not individual users, but groups of users). If you prefer Spanish, this app is for you. iPhone app available.
• Mvelopes is a web-based version of the envelope budgeting system. It automatically connects with most banks and offers a free billpay service. This looks like a slick product, but it’s by far the most expensive program on this list. At a minimum, it costs $7.90 per month.
• Quicken is perhaps the most popular personal-finance software available today. It’s fairly comprehensive and well-supported, but not without problems. Old versions are “sunset-ed” at regular intervals, forcing users to upgrade if they want to continue using certain features. I use Quicken for Mac, which supposedly updates investment portfolios automatically. Supposedly. My copy is broken though, and I can’t get it to update correctly. There’s an online version of Quicken, but to be honest, I haven’t heard good things about it. iPhone app available (though users don’t like it).
• Rudder sounds like a tool for those who don’t want a lot of extras. As with all of these programs, it allows you to connect to all of your accounts. It also helps you schedule upcoming bill payments. Rudder claims that its “secret sauce” is a widget to help predict your future cashflow. iPhone app available.
• Thrive is another online tool similar to Mint. It offers a budgeting component, as well as prompts for when to pay bills and how much to pay. It also encourages users to save. (This feature sounds neat.) Thrive features tools to help users plan for the future.
• Wesabe was one of the first online personal-finance apps. It sports a dedicated base of hardcore users. In fact, one of Wesabe’s strengths is its active community — users draw support from each other, sharing tips and ideas. Here’s my review of Wesabe from 2006. (Disclosure: I am on the Wesabe advisory board.) iPhone app available.
• YNAB is popular among GRS users, especially those for whom budgeting is important. I haven’t used this software myself, but I know that it allows you to import bank transactions, pay bills, etc. YNAB isn’t for users who want to track investment accounts, but is good for those who want to emphasize budgeting.
• Yodlee is the grandpappy of online money-management software. It’s the platform on which many tools, including Mint, are based. But Yodlee also offers its own personal-finance product called MoneyCenter. As you’d expect, it provides the same account-tracking functionality that most of these applications have, but it doesn’t feature budgeting as prominently. Yodlee offers tight integration with most banks, and also has a billpay feature. iPhone app available.

From what I’ve seen, these apps are a lot alike: the desktop programs offer similar feature sets, and the online tools are all close cousins. There’s not a lot to differentiate them. Wesabe has a great community, Mint tracks investment accounts, and moneyStrands offers a Spanish-language option. Each program offers something unique. But is there any one app that knocks it out of the park? I don’t know. What do you think? Which option would you recommend for refugees from Microsoft Money?

For myself, I’ll continue to use the desktop version of Quicken on my Mac. It’s not perfect, but I know its quirks.

Addendum: Many commenters also recommend gnucash, a free Open Source money-management tool. I considered listing gnucash, but discarded the idea because the software is billed as an “accounting” package. GRS readers report that it’s actually very suitable for personal finances.

Note: There are many other specialized personal-finance apps out there: PearBudget for budgeting, Fuelly for tracking gas mileage, etc. I’ll do a run-down of these in the future.

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• I Want a Freeware Utility to…
• Should You Invest Like Your Congressman?
• The Best $20 You’ll Ever Spend
• Handy Personal Finance Spreadsheets
• ING Direct Financial Literacy Writing Contest and Grants

• June 1st: Where we’re starting from
• June 2nd: The lazy way to investment success
• June 7th: The loneliness of the long-distance debtor
• June 11th: 25 essential books about money
• June 16th: Online banking: 13 choices for high interest rates
• June 19th: How to handle a windfall
• June 22nd: Remnants of things past
• June 24th: My sister’s keeper: Sharing financial goals with an accountability partner (a guest post from Kinley Levack)
• June 25th: The first three steps to financial freedom

The blog isn’t the only part of this site. If you have burning questions about personal finance, one of the best places to get answers is the Get Rich Slowly discussion forum.

The forums are a great place to chat with your fellow readers. Have questions about emergency funds? Ask! Want to chat about cheap vacations? This is the place to do it. The forums have 3200 registered users and over 38,000 posts.

Subscribe!
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This weblog is a success because of you and your support. As always, I welcome reader contributions, either as ideas for stories, or as guest entries. If you have any comments or requests to improve this site, please feel free to pass them on.

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Related Articles at Get Rich Slowly:

• The Best of GRS: June 2007 Edition
• The Best of Get Rich Slowly: June 2008
• The GRS Garden Project: June 2009 Update
• Daily Links: Gentle June Edition
• Press

Or, to use a better metaphor, each smart choice you make creates ripples throughout your life. As you work toward financial freedom, you make it easier for yourself to accomplish other goals.

With the help of my Twitter followers, I’ve drafted a list of several ways that financial freedom makes it easier to accomplish other goals. Financial freedom means:

• Freedom to choose your work. “Financial Freedom means choosing a job or career I want to work at,” tweets @squawkfox. “I don’t need money to be the sole deciding factor.” I think this is huge. For sixteen years, I worked at a job I hated: I sold boxes for the family business. I couldn’t leave because I felt trapped by debt. Once I repaid my debt, I could consider other opportunities — like becoming a professional blogger.
• Freedom to live where you want. Do you like where you live? Would you rather live elsewhere? New York? South Dakota? Rome? There are other considerations than money, of course, but when you are financially secure, you’re better suited to practice “geographic arbitrage”, to explore location-independent living. In other words, if you have the money, you can live where you damn well please.
• Freedom to do what you want. Wealth doesn’t just open doors with work and housing. It also gives you freedom with your time. On Twitter, @MillionMommyND writes, “For me, financial freedom = The freedom to choose how I spend my time: wake when rested, play when playful, work when/if I want.” My friend Sparky had financial freedom, if only for a little while, and it let him travel the world.
• Freedom to seize opportunities. On Friday, I met Tsilli, a long-time GRS reader. She explained how being out of debt and financially secure allowed her to refinance her mortgage when the opportunity came along. She was financially prepared, so she could act. My friend Rhonda practices what she calls “predatory shopping”. She can afford to delay purchases until she finds what she wants at rock-bottom prices. On Twitter, @healthymcm suggests, “Financial freedom means no worry about paying everyday bills. Means able to give back, able to invest when opportunities arise.”
• Freedom from worry. Most of all, financial freedom means freedom from worry. When you’ve eliminated debt, when you have money in the bank, you can sleep more soundly. As @crowgirl tweeted: “Financial freedom means freedom from worry to me. It means knowing I’ve done the best I can to spend and save wisely.”

I think @MoneyEnergy provided the best summary of financial freedom: “For me, it means never having to work to further someone else’s goals instead of my own. It means options and more opportunities.” Financial freedom means options and opportunities. I like that. I believe it’s true. Debt is slavery because it limits your options and prevents you from seizing opportunities. But financial freedom allows you to pursue your own goals, to build the life you’ve dreamed of.

What does financial freedom mean to you? Have you reached it yet? Do you have a plan to do so? Or do you think the notion of “financial freedom” is just a marketing ploy?

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• What Motivates You to Pursue Smart Personal Finance?
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Join Jim and me this afternoon for the 14th episode of The Personal Finance Hour. We’ll be discussing home improvement: what projects are worth the money, how can you keep costs down, and how do hire a good contractor?

We would love to have you call with questions and share your own experiences! There are four ways to hear the show. You can listen through an audio feed at the show page, or you can dial the call-in number at (347) 327-9144. You can also listen through this widget:

Note that the widget always holds the archive of the most recent episode. So, right now it contains last week’s discussion about credit scores (with special guest Liz Weston). Later this afternoon it will contain episode number fourteen.

We’re also on iTunes! You can subscribe to The Personal Finance Hour as a weekly podcast by following this link (which will open iTunes).

Jim and I do this every Monday — and we hope you’ll join us. We think this is a fun way to connect with readers and to help everyone learn more about money management. You can catch The Personal Finance Hour live at 3pm Pacific (6pm Eastern) every Monday.

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• The Personal Finance Hour, Episode 11: Frugal Weekend Fun
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• The Personal Finance Hour, Episode 4: Couples and Finances
• The Personal Finance Hour, Episode 3: Finding Balance
• The Personal Finance Hour, Episode 13: Credit Scores with Liz Weston

Based on this recommendation, I drove to hear Slim speak. I was impressed. Chris is right: She’s the real deal. I was so impressed, in fact, that I spent the weekend reading her book, which is also called Escape from Cubicle Nation.

Opening up to opportunities
Escape from Cubicle Nation starts at the beginning of the entrepreneurial journey: deciding what to do with your life. Slim spends several chapters discussing how to get in touch with what’s important to you. At times, this almost seems touchy-feely. Almost.

Even if you currently have no intentions to quit your job, Slim’s advice can help you protect yourself from future layoffs. She recommends:

• Developing a wide social network
• Investing in personal development
• Pursuing a small business on the side

Slim advocates a philosophy of “life first, business second”. By becoming clear about what you want from life, what your ideal life contains, you can craft an entrepreneurial vision that helps you to pursue this goal.

Slim says that it’s important to choose work you’re passionate about. She cites the “sweet spot” described by Jim Collins, which is the place these three sets of skills overlap:

• What people will pay you to do
• That for which you have great passion
• That which you are “genetically encoded” to do

In my case, that seems to be blogging. For you, it’s going to be something else. It may take time to find that “something else”, but when you do, you’ll be ready to create a business plan.

The reality of entrepreneurship
“Hating your job intensely is not a business plan,” Slim writes in the book’s introduction.

Although I think it is a tremendous idea to work for yourself and live a life of happiness and financial success, I don’t believe that is possible to become an overnight sensation with a few magic techniques or systems.

Slim doesn’t candy coat things. While she encourages readers to pursue their dreams, she admits that the path is often difficult. She also offers “a few horror stories for good measure”, real-life examples of how things can go wrong. She wants her readers to escape from corporate environments, but she wants them to have realistic expectations.

Escape from Cubicle Nation also covers topics like:

• Drafting a business plan
• Building and using a social network
• Lifestyle design
• Developing a personal brand

There are a lot of buzzwords in that list, but Slim handles each topic thoughtfully, with examples that readers can relate to. (Rachael Ray, for example, is a perfect example of personal branding.)

Make the money work
“Nothing will cause you more pain than ignoring the financial side of your business,” Slim writes. “Not horrible sales calls, crashed laptops, surly employees, or even bad press. When the financial side of your business is not working, life is miserable.”

To begin, however, your personal finances must be in order. Slim offers solid advice (the sort you’re used to seeing on Get Rich Slowly), and encourages readers to have realistic expectations about their financial situations. (This section even excerpts an underrated GRS post about facing and fighting financial trolls.)

There’s also a chapter on benefits for the self-employed, including health insurance.

Making the leap
It’s one thing to draw up a business plan and to embrace the idea of entrepreneurship, but it’s another thing to actually make the leap. It can be scary to quit a safe job to pursue the unknown. In the final section of her book, Slim offers advice for smoothing the transition.

First, she tells readers to expect resistance from the people they know. “You are crazy if you think you can convince all your friends and family that starting a business is a good idea,” Slim writes. She provides techniques for handling common questions, and she stresses the importance of open communication with your spouse or partner.

Finally, Slim provides some pointers for getting organized — and deciding when it’s time to leave your job, to escape from cubicle nation.

Conclusion
I thought Slim’s workshop last Friday was great, and not just because of her content. I was impressed with the dynamic people in attendance. The flood of tips, ideas, and experiences was inspirational.

But Escape from Cubicle Nation — the book — is even better. Some people might be put off by how often she quotes from other sources. Not me. I love it. I like that she synthesizes advice from a variety of books and blogs to give the readers the best information possible. I wish more authors did this.

If you think Escape from Cubicle Nation might be useful for you but aren’t quite sure, you can give Pam Slim’s ideas a test drive at her blog. (Slim has also made the first chapter of the book available via PDF.) Based on the number of Get Rich Slowly readers at the workshop last Friday, it seems that many of you are looking to escape your corporate jobs to pursue your passions. That’s awesome.

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• Tips on Saving Gas
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• Spare Change #3

It’s the beginning of summer, and that means our garden is lush and green and growing. It also means there’s nothing exciting to write about. We’ve begun to harvest a couple of things, but mostly our chores have become routine. We weed and fertilize while we wait for the crops to ripen.

One problem we’ve encountered this year is weeds. There are always some weeds to be pulled, but as many GRS readers warned, spreading horse manure on our vegetable garden caused more weeds to sprout. Kris is the weed-puller (and plant-fertilizer), so she puts the most hours into the garden. She spent four hours working on food crops this month, while I spent three, all of which were harvest-related.

Harvest
As our harvests begin, I want to remind you of our methodology. For the purposes of this project, we’re using “best match” pricing. Based on GRS reader suggestions, we’re obtaining typical pricing from our local farmers market. In some cases, we use pricing from a local organic produce stand. In all cases, we’re trying to be fair, but this is more art than science.

Also, last year we established through repeated measurements that a pint of berries weighs roughly 300 grams. I’ll use this approximation frequently throughout the summer.

Those ground rules established, here’s our harvest for the month of June:

• 13.55 pounds (6.151 kg or about 20.5 pints) strawberries @ $2.99 per pint = $61.30
• 5.17 pounds (2.344 kg) snow peas @ $2.99/pound = $15.45
• 0.31 pounds (0.139 kg) raspberries $3.49/pint = $1.62

Our harvest this month was worth a total of $78.37. In June 2008, we harvested $50.83 worth of food. That’s a 54% increase in the value of our crops!

Despite the correct pruning we gave them this year, our raspberry harvest looks as though it’s going to be pitiful. The culprit? They’re overcome by the monstrous marionberry vine that has taken over the entire trellis. We may relocate the raspberry canes, so will evaluate the yard for a suitable spot and decide later this summer. However, there is a silver lining; we love marionberries (a type of blackberry-boysenberry cross).

Summary
And so the profit portion of our project has begun! July, August, September, and October will be even more productive as we begin to pick our caneberries, our tree fruit, and, especially, our tomatoes.

For now, here’s the monthly summary for June, including comparison data from 2008.

As always, we’ve been supplementing our own produce with food picked elsewhere. Last weekend, our friend Jolie joined us for a trip to the strawberry patch. Kris and I picked 24 pounds of berries (about two flats), for which we paid just over $20.

On Friday, our neighbor came over to let us know that her cherries were ready to harvest. We’ve decided not to preserve any cherries this year, but we picked about 10 pounds just for snacking.

Final word
This garden project is not a formal experiment. Kris and I are long-time hobby gardeners, and we have set ways that we do things. This year, we’re trying to incorporate some new ideas from GRS readers, but most of the time we’ll do things the way we have for nearly 15 years.

We’re not trying to be 100% organic (though we are mostly organic through our normal practices). Nor are we trying to be 100% frugal. Instead, we’re trying to see just what our garden costs and produces based on our normal habits. We hope the results of this experiment will help us find new ways to economize and to improve our crops.

You can read about my goals for this series in The year-long GRS project: How much does a garden really save?

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• The GRS Garden Project: May 2009 Update
• The GRS Garden Project: February Update

For seven hours, Kris and I walked up and down the quiet residential streets — not so quiet today, as they bustled with a carnival-like atmosphere. (This year, there were plenty of people playing Michael Jackson tunes at their sales.)

“What are you after today?” I asked Kris before we started.

“Jars,” she said. She and her friend Rhonda are avid jar collectors, and they’ve found that yard sales can be a good source for them. “What about you?” she asked.

“I’m not after anything in particular,” I said. “I have a $50 budget, but I don’t want to come home with a lot of Stuff. No more Stuff.”

Each year, certain items seem to be for sale at every house. This year there were lots of lawnmowers and luggage, as well as a large supply of vacuums. And, as always, there was kids’ stuff galore. (There’s just no reason to ever buy kids’ stuff new. You can buy everything used at huge discounts. Well, except for diapers perhaps.)

Kris and I had a great time wandering the sale together, just hanging out. We got to meet a GRS reader (hi, Emily!) and we spent a couple of hours with Kris’ sister, Tiffany.

After looking through the stuff in one driveway, I had to chuckle. “What’s up?” asked Tiffany.

“Did you see that girl back there?” I asked.

“No,” said Kris.

“She’s maybe ten years old, and she had an arm full of scarves,” I said. “Her mother said, ‘Are you sure that’s what you want?’ The girl said yeah, so her mother gave her three bucks. But she warned the girl, ‘Here’s the thing — we’re just getting started. You can buy those now, but what if we go to the next sale and there’s some toys that you want?’”

“So she didn’t get the scarves?” asked Kris.

“No,” I said. “She bought the scarves! But at least her mother tried to get her to think about her choice.”

In the end, I spent $32.50 of my $50 budget. Here’s what I bought:

• $2.00 — a heavy, long-sleeved Nike “dri-fit” running shirt for winter
• $0.50 — Motoring Atlas of Europe (2006)
• $0.25 — Road map of Alsace-Lorraine, my family’s ancestral homeland, and one of the most hotly-contested corners of Europe
• $1.00 — Leather-bound Tiffany & Co. world atlas (1994), travel sized
• $2.00 — Bible-like edition of Shakespeare’s complete works (onion skin pages, tabbed by play, etc.) from Oxford University Press (1924)
• $5.00 — Chatterbox Cats and Dogs, a 1909 children’s book of stories about anthropomorphized animals, wonderful illustrations. I love this book.
• $0.25 — October 1953 phone book for Bend, Oregon
• $0.50 — December 1933 issue of Popular Science, with articles like “Radio Pen Writes in Letters of Fire on Far-Away Screen”
• $8.00 — set of 5 vintage etched-crystal champagne glasses
• $4.00 — set of 4 vintage etched-crystal port glasses
• $4.00 — set of 3 vintage etched-crystal cordial glasses
• $5.00 — 1960s molded glass liquor decanter

“It’s interesting to see that even wealthy people have the same junk as the rest of us,” Kris said when we were finished. It’s true. But I like to think that this is higher quality junk. It’s certainly high-density junk, as there are over 200 yard sales crammed into a small area. The $32.50 I spent today would have been well worth it, even if I hadn’t come home with anything. We had a lot of fun.

Kris came home with enough old canning jars to fill the dishwasher. The total cost for 31 jars? $7.25.

This evening, Kris and I chatted about the things I bought. “You realize that the things you bought today are just Stuff, right?” she said.

“Yeah,” I said. “I know.” I keep trying to tell myself that — except for the decanter, which Kris looks upon with disdain (”There’s nothing special about that!”) — none of this is Stuff. I have a purpose in mind for each item. (I have a purpose in mind for the decanter, too, but Kris really doesn’t like it, so it may not live long in this house.)

“It may not seem like Stuff now because they’re all things you intend to use,” Kris said. “But it’s still Stuff, or soon will be. It’s still going to clutter your life. I think you should consider purging some your old Stuff to make room for this new Stuff.”

As usual, my wife is right.

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One thing I love about reading Get Rich Slowly is that J.D. is always willing to get his hands dirty and throw on a different hat. J.D. is a do-it-yourselfer. From writing monthly updates on his garden progress to giving instructions on how to make homemade pumpkin butter and muffins, J.D. does it all! One DIY post caught my eye in particular, though.

J.D. mentioned that the best way to save money on home repairs is regular maintenance. He mentions in the article that he met with a series of contractors to get quotes on things he did not want to do, like painting the house. The point was not that he met with a bunch of contractors — it was that there is a lot of value behind regular maintenance.

J.D. did a good job making that point, so I would like to emphasize the other half of the equation: the value of getting a lot of estimates.

My parents’ situation
Now, my parents are a lot older than J.D. and not as able-bodied. Maybe once upon a time they were, but they are not DIYers anymore. They recently decided they needed a lot of work done on their house. What did they need done?

• Back deck — Our back deck was in slight disrepair. Back when I was in high school and college, I would do what I could to help keep the house up and running. I actually paid my way through college by running an exterior painting company. So with that skill set came the familial duty of power washing, scraping, sanding, caulking, glazing, priming, staining, sealing, and painting different parts of the house. One thing I never got really good at was wood replacement and wood repair. I normally subcontracted that kind of work out when I was running my company. A bunch of the slats and fencing were rotted on their deck. Underneath the deck, a few of the support beams were also starting to rot. Seems they had termites. On top of that they had a storage shed right next to the deck which was getting decrepit and was only storing old lawn chairs and Halloween decorations. Phew! Lots of work!
• Carpeting (full house) — My parents moved into their current residence in 1988, a full 21 years ago. The wall-to-wall carpets have not been changed since then. They made do with what they had and would steam clean them to keep them looking nice enough. But now that the economy is tumbling, they decided they would be able to find some good quotes on carpet replacement. The catch? They didn’t want to move any of the furniture, so any quote would need to include moving the furniture from the room, and putting it back after replacement.
• Kitchen Revamp — Similar to the carpets, the countertops and cabinets have been the same for the past 21 years. I stripped the wallpaper and painted the walls and cabinets about five or six years ago. The appliances have been replaced because of wear and tear. Other than that, nothing has really been changed in the kitchen. So my parents wanted a quote on completely tearing out and replacing the countertops and the back wall, repainting the walls, changing the cabinet hardware, repainting the cabinets, and tearing up and re-tiling the floor.

So there we have it: three huge jobs that my parents wanted done in the middle of an economic recession. Good thing they’ve saved money for opportunities like these.

A kitchen in need of a remodel — but not the kitchen in this article.

Getting the Estimates
My parents went through the normal routine in order to get estimates. They called people from the phonebook, they looked at the local classified advertisements for services, and they asked some neighbors for referrals. When all was said and done, how much were the estimates?

• Back deck — The highest estimate they received for the back deck was about $10,000. They had a few other estimates ranging from $7,500 to $8,800. The highest estimate they received was also the first estimate they received. If this isn’t a testament to getting multiple estimates, I don’t know what is. But they did not sign with the contractor who gave a $7,500 estimate…it gets better!
• Carpeting (full house) — Estimates for the full carpeting job were as high as $6,500 and stayed in the range of $5,500 through $6,500. Why? Each contractor stated that the estimate was a lot higher due to the request that they be responsible for moving the furniture. Understandable…that is a lot more work than they were probably expecting. But my parents did not sign with the $5,500 estimate.
• Kitchen revamp — For the kitchen work my parents also got an estimate from a Home Depot-certified contractor on top of the other contractors that came in. The top estimate wound up being $3,800 and the lowest was $2,900. Surprisingly the Home Depot contractors were in the middle.

Once my parents got all of their estimates, they figured that the maximum they would spend would be about $20,300 by choosing all of the highest estimates. If they chose all of the lowest estimates they would spend about $15,900. Not too shabby…that is a $4,400 cost savings, or 21% off!

But Wait…ONE More Estimate
My parents were ready to go ahead and spearhead all three projects by going with the three lowest estimates. However, I would like to point out that they called the references for all of the lower estimates and all of them checked out as doing excellent work. I would never advocate just going with the lowest estimate to save money as you could wind up having to do a lot of “cleanup” work down the road. They asked me why there would be such a disparity, and in my experience from working in the industry, it is very whimsical.

Luckily for my parents, though, they decided to not squeeze the trigger yet. They knew the neighbor across the street was a big time DIYer. Over the years we have watched him build his front porch, repave his driveway, build an in-ground pool, build a two level deck in the backyard around the pool, cut down trees, plant trees, build a shed, repair his foundation, replace sections of his roof, etc. I said J.D. does a lot… but compared to our neighbor I would venture to guess J.D. is an amateur! [J.D.'s note: There's no question I'm an amateur. Very much so!] What line of work is our neighbor involved in? He is a high school teacher.

My parents decided to talk to him just to see if the prices were in line with the amount of work that was involved. They figured that he, of all people, would know how much time and equipment these three jobs would require. When they asked him they got a much better response than they imagined.

• Back deck — For the back deck he offered to do the job for $1,200, materials included, as long as he could spread the work out over a few weekends. He would also put a few more support beams in to be safe. Potential savings = $8,800 off of the highest estimate and $6,300 off of the lowest estimate.
• Carpeting (full house) — He didn’t offer to do this work. However, he did have a licensed contractor he has worked with before that came out and did an estimate. Their estimate? $3,800! After checking their references my parents found out they passed with flying colors. Potential savings = $2,700 off of the highest estimate and $1,700 off of the lowest estimate.
• Kitchen revamp — The neighbor offered the same deal as on the back deck. He would do the job for $1,200, materials included, as long as he could do it over a long weekend, like a Friday to Monday. Potential savings = $2,600 off of the highest estimate and $1,700 off of the lowest estimate.

They weren’t expecting this at all so it came as a very pleasant surprise. It also goes to show you that you can save thousands in places where you would least expect to look.

By talking to this neighbor they wound up paying him $2,400 for two of the jobs and $3,800 to the contractor he recommended for a total of $6,200. They saved anywhere from between $9,700 (61% off of the lowest estimates which were already 21% off of the high estimates!) and $14,100 (69% off of the highest estimates).

Applicable?
Is this anecdote applicable in your own life? Absolutely! Do you ever see one of your neighbors doing a lot of DIY work? When you talk to them do they talk about all of the weekend projects they have lined up for themselves? If so, would it hurt to ask them if they would be willing to do some side work for extra cash? If not, do they know anyone who would be looking for work?

As long as you are willing to be flexible with the schedule (as my parents were in letting the neighbor do the back deck work over the course of a few weekends), you may find a few thousand dollars in your bank account when all the work has been completed.

If you can’t find a DIYer in your neighborhood at least make sure to ask around for references from your neighbors and get multiple estimates done. If you can’t save roughly $14,000 like my parents did you might be able to save the $4,400 (21%) they were about to “settle” for.

As the weather keeps getting nicer, good luck getting your home maintenance projects completed!

J.D.’s note: Kris and I have had a LOT of work done on our house over the past five years, and I want to echo some of the things MLR has mentioned. Namely, the lowest bid is not always the best option. It’s very important to take into account references and your rapport with the contractor.

We have friends that always take the lowest bid and are then angry that things go wrong. Kris and I sometimes take the lowest bid, but sometimes we take the highest. It all depends on how well we think the contractor understands our objectives and on our assessment of his work. But would we ever hire a DIYer from the neighborhood? I guess it depends on how good her work was on her own place.

Kitchen photo by Yew Tree House. Deck photo by DNA Michaud.

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As I gather my various accounts under one roof, I’m also trying to set investment goals and to implement an asset allocation based on these goals. As I do this, though, I’m struggling with some emotional stuff. I’ve found that it’s one thing to write about smart investing, but it’s another thing to actually do it.

I’ve just learned a real-life lesson about market timing, for example. In general, short-term market timing doesn’t work — especially for amateur investors. If I asked you to tell me whether the stock market (or an individual stock) will rise or fall next Monday, you’d only be guessing. Investors shouldn’t make decisions based on guesses. Or wishful thinking.

Let me give you an example. I recently decided to sell a large stake in an S&P 500 index fund. In order to get my asset allocation correct, I wanted to transfer the money to bonds. But when it actually came time to sell the mutual fund, I couldn’t pull the trigger.

“What if it goes up?” I kept thinking. The market has been climbing over the past few months, and the fund was up 35% since March. 35%!! That’s a pretty good increase, but I wanted more. “Maybe I should wait until the market goes up another three or four percent,” I thought.

I held the index fund for an extra day. Then two. Then three. Each day, the market went down — and my fund followed with it.

“Ouch,” I thought. “I should have sold!” My fund had dropped 5% from the day I first decided to make the move. ”I guess I’d better just sell. Now I’m losing money that I could have safely on the bond side of my portfolio.”

So I sold.

That was early this week. As soon as I sold, the the market began to rise again. Up half a percent on one day, and the next, and then two percent yesterday.

“Holy cats!” I thought. “It’s up three percent since I sold it. I should have held on!”

This, my friends, is the problem with market timing. You can’t know what the market is going to do from day-to-day. Over the long term, the stock market has returned an average of about 10% per year. But that’s the long term. Over shorter spans, the market is volatile. It swings up and down. Over a period of days, its movements are basically random, unpredictable.

I made the decision to sell on June 12th, but I didn’t pull the trigger until June 22nd. In those ten days, my fund lost over 5% of its value. Now, in the three days since I’ve sold the fund, it’s risen 3%. Obviously, I managed to just about nail a worst-case scenario.

Market timing doesn’t always yield such poor results. But, in general, you’re better off basing decisions on your long-term goals and the market’s broad performance instead of trying to guess what your stock or mutual fund will do tomorrow.

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In the world of personal finance, here are some of my favorite recent articles from around the web:

First, Trent at The Simple Dollar posted an interesting article yesterday about the relationship between money and power. One of Trent’s readers writes that people don’t want to be rich so they can buy stuff; they want to be rich so they can have power. “Money does not result in influence and respect — instead, influence and respect often lead to money,” Trent argues. “Built respect and influence first.” I agree with him, but I don’t think that addresses the question. There’s a difference between “respect and influence” and power. I’ve seen that money can and does buy power, even if it doesn’t buy respect.

At U.S. News & World Report, Kimberly Palmer recently interviewed Suze Orman about the economic crisis. Orman makes some interesting points. Here’s one exchange:

Palmer: Do you think young people have it worse than any other generation, with their higher unemployment rate, high debt levels, and weak job market for graduates?

Orman: Right now, they have it so great it’s not even funny. If the economy kept running the way it was, you guys would have been broke for the rest of your life. Real estate was going up and up. You would never have qualified for real estate, and companies were shipping jobs offshore. So where were you going to get a job? The price of tuition was so high [that graduates] owed $150,000 in student loans. The price of milk and other prices were so off the charts. What were you people going to do? The stock market was at 14,000, so every time you put money into your 401(k), you bought [fewer and fewer] shares.

Finally, NCN over at No Credit Needed has some advice on breaking bad habits. He has a list of things to try if you find that you make a lot of impulse purchase. Solid advice.

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I want to get serious about being good with my money, but I don’t know where to start. I never developed good financial habits, and now I’m paying for it. I was married to a man who was also bad with money, and I’ve only been on my own for six years, but I continued those same bad habits. I’m 39, have no savings and about $28,000 in debt.

Next May, I will lose half of my child support when my son graduates from high school, and the rest the following May when my daughter graduates. Because of that, I feel like I should focus on getting rid of the debt, so I have less money going out. But if I don’t have emergency savings, then there’s no way to keep from incurring more debt. Of course, I don’t have any money saved for retirement, etc., which is another worry.

Basically, I have a list full of high-priority financial needs, but trying to do everything at once is going to get me exactly nowhere. (I know, because I’ve been trying and failing since last summer!) I did cut up my credit cards, but that’s about as far as I’ve got. Help!

It’s tough to get started because it seems like there’s too many things to do. Which choice is best? Should Kay eliminate debt first? Save for retirement? Build her savings?

Here’s the secret: There’s no one right answer. Some choices are better than others, it’s true, but the best way to take control of your finances is to do something. Action beats inaction. Taking any step in the right direction will help Kay move closer to financial stability.

All the same, some options may be better than others. As important as I think retirement savings is, I wouldn’t start there. Better to get the now under control first and then worry about the future. In Kay’s position, I would focus on three things:

Reduce expenses
Kay doesn’t mention what her expenses are, but if she’s like most people, she’s probably spending more than she needs in a variety of ways. When I was getting out of debt, I found that cutting expenses one at a time helped to create a better cash flow, giving me some breathing room.

I didn’t try to slash everything, but picked one expense after another. I:

• Reduced my cable bill.
• Cut my landline
• Canceled magazine subscriptions.
• Put myself on a budget for books and dining out.

Each of us spends differently. When you decide to get your finances under control, you need to examine your own spending patterns to find the areas you can cut. Focus on one item. Once you’ve trimmed that, look for another. This gets easier with time.

Build savings
As Kay boosts her cash flow by cutting expenses, she should use this extra money to save. Even when you’re struggling with money, it’s vital to set aside for future emergencies. If you can only afford to save $25 per month, then save $25. If you can afford to save $100, then save $100. Just get in the habit.

For many people, the best way to learn to save is by making the process automatic. I also found it necessary to create barriers so that it wasn’t possible to withdraw this money on a whim. In both cases, I recommend opening a savings account at a different bank from where you hold your regular checking account.

In my case, that meant opening a savings account at an online bank. I used ING Direct, but there are many other excellent options. It doesn’t matter which one you choose. Don’t overthink it; you can always change your mind later. Create a link between your existing checking account and your new online savings account. Set the new account to pull $20 or $50 or $100 a month automatically. Treat this like any other bill. Use this money for emergencies only.

Tackle debt
After reducing expenses and building an emergency fund of $500 or $1000, the third step is to make a plan for tackling debt. For me, that meant drafting a spending plan:

My spending plan prioritized my debts and helped me allocate future raises and bonuses. Your plan will be different. It might be more elaborate or less elaborate than mine. The important thing is to establish one.

If you’re struggling with debt, I highly recommend Dave Ramsey’s debt snowball strategy. Here’s how it works:

1. Order your debts from lowest balance to highest balance.
2. Designate a certain amount of money to pay toward debts each month.
3. Pay the minimum payment on all debts except the one with the lowest balance.
4. Throw every other penny at the debt with the lowest balance.
5. When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-lowest balance.

Because it emphasizes paying down low-balance debt as quickly as possible, the debt snowball provides quick wins. Those who’ve never been in debt frown at this strategy because it costs a little more than starting with high-interest debt. But as somebody who fought debt demons in the past, I’m here to say that the psychological boost from the debt snowball is worth the extra pennies.

Conclusion
If, like Kay, you’re struggling to get started with smart money management, then break the task into smaller pieces. Don’t let yourself be overwhelmed. Reduce expenses, build savings, and tackle debt. Yes, it’s important to save for retirement. But I believe that you need to start with the basics, to staunch the bleeding and heal the wounds before you begin gathering strength to face tomorrow.

In other words, don’t worry about a Roth IRA or a 401(k) at the beginning. Focus on building a strong financial foundation so that you can meet the needs of today — and next year. Once you’ve accomplished this, attack retirement savings with vigor.

What advice can you offer Kay? How did you get things turned around? What were your first steps?

For more on this subject, check out my recent article about where we’re starting from. Photo by Jurassic Jim.

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Over Christmas 2007, my sister Michelle and I started chatting about our finances. We had independently come to the same conclusion: we each needed to get our act together. We decided that beginning 01 January 2008, we would help each other move in the right direction.

Sharing accounts and goals
We started by baring it all. We both made lists of our debts, accounts, etc. I had already spent about two years knocking down a credit card balance that had crept up to nearly $6,000. But I had virtually nothing in the way of savings, and had only recently begun contributing to a 401(k).

Michelle’s goals were primarily related to debt reduction. She had accumulated a couple of store credit cards that she wanted to pay off, as well as an outstanding amount due for a class at a local university. She had fairly limited savings.

We each created a document listing:

• The amounts we contributed to our savings and investment accounts each month
• The amounts paid toward debts each month
• Our monthly goals
• Our major expenses each month
• And so on…

A simple Microsoft Word document with a page-per-month view worked best for me.

Performing a monthly review
At the beginning of each month, we send updates to each other with that month’s set of goals, the most up-to-date figures for each account, and a quick recap of how we did with the previous month’s goals. My updates are never more than one page in Microsoft Word. They take about 20 minutes or so to pull together.

Some goals are very specific. One of my goals in January 2008 was to increase my 401(k) contribution from 3% to 6%. But other goals are more vague. Michelle noticed that her Starbucks spending was getting out of control, for example, so she worked to be more aware of what she was spending there.

Each January, we also develop year-long goals.

Over the past 18 months, Michelle has nearly paid off all of her debts. (She has a little left on her primary credit card.) She has also substantially increased her savings, and in the past five months alone has raised her credit score nearly 100 points. I have increased my savings to cover almost three months of expenses, fully funded a Roth IRA each year, and set up a holiday fund that I contribute to monthly to cover Christmas expenses. (That seems to be a budget-buster for me every year.)

Providing support!
This has been a great accountability system for both of us. As sisters, we have no problem calling each other out when we think the other one is being irresponsible. But we are also incredibly supportive of each other. We’re both in our twenties, so we have plenty of time before retirement, but we needed to get the ball rolling toward being financially fit.

This partnership also works well because we have similar mindsets about saving and investing; we have a lot that we want to accomplish, but we also want to enjoy ourselves now and have about the same tolerance level for shopping, dining, and travel. I think it’s important to have a counterpart with roughly the same idea about saving versus spending. If one of us was a big shopper and the other super-frugal, we’d probably just irritate each other.

Michelle and I haven’t ever discussed an end point to this system; we just keep learning as much as we can and making bigger goals. We’ll see how it all turns out. So far, so good!

When you have a spouse or partner, you generally have built-in financial support. I think Kinley and her sister have discovered a great way to lend each other support, even while remaining single. Photo by Snippets 101.

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During the show, Weston mentioned a past MSN Money article in which she wrote about 8 secret scores that lenders keep. These lesser known (and confidential) scores are also a part of your credit profile:

You’ve heard by now of credit scores, the three-digit numbers lenders use to gauge your creditworthiness. Credit scores predict how likely you are to default on a credit account or loan; they’re used to help set interest rates and terms. What you may not know is that credit scores are just the start of the way financial institutions evaluate you, and they’re not even the most commonly used scores — far from it.

Weston enumerates eight other scores that are used to evaluate you as a borrower:

• Your response score predicts how likely you are to respond to an offer of credit, such as a credit-card offer in the mail.
• Your application score contains secondary information that’s not factored into your credit score. This is like a reinforcing piece of information.
• Your bankruptcy score is just what it sounds like: a measure of how likely you are to declare bankruptcy.
• Your revenue score indicates how much money a lender is likely to make from you as a borrower.
• Your attrition-risk score measures how likely you are to close your account. Lenders use this in combination with other scores to decide whether a customer is worth retaining.
• A behavior score is like a credit score, but applies to only one account. Each account has a behavior score, which reflects how you handle the account.
• A transaction score is generated for each purchase you make, and is used to determine whether the transaction should be approved. (Or whether it might be fraudulent.)
• If any of your accounts is sent to collections, your collection score predicts how likely you’ll be able to pay your debt.

For more detailed information about these “secret” scores, read the entire article at MSN Money. And for more information from Liz Weston about the ins and outs of credit scores, listen to yesterday’s episode of The Personal Finance Hour (also avaialble on iTunes).

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At Car and Driver, Jared Gall has compiled a list of car dealer tricks to watch for when buying a vehicle. He says that the following are common practices:

• Juggling the foursquare. The “foursquare” is the worksheet on which the salesperson jots down the terms of the deal. It’s an easy way for her to manipulate one factor (purchase price, down payment, monthly payments, trade-in value) or another.
• Profiting from rebates. Gall warns that salespeople often use the presence of a rebate to manipulate buyer psychology. Don’t let that happen to you.
• Inflating payments. The more you’re willing to pay each month, the more room the salesperson has to work. The article recommends ignoring the question of monthly payments until you’ve negotiated the price of the vehicle.
• Fees and extras. “If it’s anything he offers after you’ve negotiated your sales price, you don’t need it and shouldn’t pay for it.”
• Interest-rate bumping. Gall recommends shopping for your own financing before you shop for a vehicle. He also warns that “it is not uncommon for the dealership to secure financing for you at one APR but offer you a rate one percentage point higher — and then pocket the difference.” Be careful.
• Altering the bill of sale. Some dealers will leave the contract open-ended. Don’t allow this. Don’t sign anything with blanks or undefined terms. Be sure the paperwork is complete before you leave the lot.

Gall says there are several other tricks that dealers use, though these are especially underhanded. “If a dealership pulls any of these stunts on you, it doesn’t deserve your business,” he writes.

• Ransoming your check.
• Eavesdropping.
• Lying about your credit score.
• Misplacing trade-in keys.

For more information on these tricks and how to cope with them, check out the full article at Car and Driver.

The dealer trick that got me isn’t on Gall’s list. When I went to look at my Mini Cooper, I was greeted by a young man who’d only been on the job for two weeks. After I test drove the car, we sat down to negotiate. I talked him down from $17,000 to $15,000 and was very pleased with myself. But then he fetched the “closer”, whose sole task was to talk me up from that $15,000 number. I had essentially told the dealer how much I was willing to pay, and the closer was there to get me to pay more. And I did. I paid $15,600.

The young salesman did a follow-up call a week after I bought the car. He was doing a survey to ask me about my experience. I told him it was fine except that I didn’t like dealing with the closer. I felt like I had been manipulated by him. “Yeah,” he said. “You shouldn’t listen to him. He talks a lot, but he’s full of shit. He wants to sell that car. You had more power in that situation than you think.”

Lesson learned.

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We would love to have you call with questions and share your own experiences! There are four ways to hear the show. You can listen through an audio feed at the show page, or you can dial the call-in number at (347) 327-9144. You can also listen through this widget:

Note that the widget always holds the archive of the most recent episode. So, right now it contains last week’s episode about earning extra money. Later this afternoon it will contain episode number thirteen.

We’re also on iTunes! You can subscribe to The Personal Finance Hour as a weekly podcast by following this link (which will open iTunes).

Jim and I do this every Monday — and we hope you’ll join us. We think this is a fun way to connect with readers and to help everyone learn more about money management. You can catch The Personal Finance Hour live at 3pm Pacific (6pm Eastern) every Monday.

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“I’m going to clean the workshop,” I announced at breakfast. “I know I should write or mow the lawn, but I’m going to clean the workshop.”

“Sounds good,” Kris said. She rarely argues when I have an urge to do some cleaning.

A glimpse at the past
When we first looked at this property five years ago, I was drawn to the outbuildings. I have fond memories of the outbuildings on my grandparents’ land, so I was excited that our new house would have a detached garage, two sheds, and a workshop.

For the first couple of years, I actually used the workshop for its intended purpose. It was the place I practiced my (very limited) handyman skills. I also used it to build computers for family and friends. In time, however, the building fell into disuse; it gradually turned to storage.

I gave a tour of our home to a visitor last month. When I showed the workshop, I was dismayed. I hadn’t really looked at it in months — or years. But when I saw it through the eyes of a stranger, it was clear that it had become a dumping ground for my cast-off Stuff.

The past recaptured
I’ve written before about my battle with Stuff. In many ways, I’ve made great progress. I’m less acquisitive than I used to be, and I’ve sold most of the things that have value. But I still possess a great mass of Stuff.

As I began my cleaning project yesterday, the workshop was packed with:

• Old computer parts (Apple II, Macintosh SE, etc.)
• Vinyl record albums from my youth
• Compact discs
• Darkroom equipment
• Old books and comics
• Stacks and stacks of magazines
• Boxes and bags filled with miscellaneous junk
• Packaging materials from three years of purchases

Looking at this collection of Stuff — none of which I need or use anymore — I was overwhelmed. I felt sick. Did I really purchase all of this Stuff? Why? As I worked, I tried to answer that question.

Whenever I picked something up, I tried to remember how much I had paid for it and what had led me to buy it:

This voice recorder cost $59. I thought it would keep me from forgetting things, but I never remembered to use it. Not once. These photography books cost $20 each. I thought they’d help me make better photos, but I’m not sure I read any of them at all. I bought this old Apple II for $125 off of eBay because I wanted to play the games I remember from fifth and sixth grade. I used it for a couple of hours.

I took a trip through my past, and it wasn’t a pleasant experience. All around me was evidence of my wasteful ways. For nearly 20 years, I had been in acquisition mode. I accumulated Stuff. My workshop was filled with the last remnants of this life.

One fundamental principle of frugality is to buy only things for which you have a use (even if that use is pleasure). The old J.D. wasn’t good at this. I bought a lot of stuff that I didn’t need — and barely wanted.

Now here I am at 40, and when I look at all of the things I own, I can’t help but wonder what my younger self was thinking. Buying this Stuff seemed like a good idea at one time, I know, but owning these things did not make me happy. It didn’t make me feel free. Quite the opposite, in fact. This Stuff is a burden, a physical and a mental barrier to the things that are actually important to me.

A dream of the future
Kris and I are in the very early stages of planning our vacation for next year, and we’re leaning towards a Rick Steves tour. Steves is a one-bag zealot: Participants are not allowed to bring more than a single carry-on suitcase, whether the tour lasts two days — or twenty.

This might seem limiting to some, but I find the one-bag philosophy liberating. When Kris’ parents took us to London and Dublin in 2007, I took a single carry-on bag. For three weeks, my entire world consisted solely of the possessions I could squeeze into this suitcase. It was awesome. I felt unburdened. When we returned from that trip, the one-bag experience prompted me to undergo a short phase during which I purged Stuff around the house — but I never finished the job.

As I continue to develop my personal and financial goals for the future, I want to focus less on Stuff. I’ve learned to guard against the invasion of Stuff, but I want to take it a step further. I want to eliminate more of the Stuff I already own. To that end, I’ve developed some personal guidelines to help me approach the task:

• Don’t overthink it. With so much Stuff to get rid of, it’s easy to make the project even better than it has to be. I’m tempted to draw up plans on paper or to simply re-arrange the Stuff into new piles. The key is to dispense with all this folderol and just get started.
• Focus on one item at a time. If I look at the entire project at once, I’m overwhelmed. How on earth will I ever clean the workshop? How will I ever find a place for all this Stuff? Instead, I concentrate on one thing at a time. Where does this photo enlarger go? And what about my old Tintin books? I break the project into smaller steps.
• Don’t get depressed. When I think about the time and money that this Stuff represents, I sometimes let it get me down. It seems like such a waste. But the past is the past, and I cannot change what I’ve done. All I can do is try to make smart choices going forward, to guard against the invasion of Stuff, and to get rid of the clutter that’s already in my life.
• Do some good with the Stuff you have. If I’m going to get rid of things, I might as well make the most of them. Sure, much of the Stuff is going to end up in the trash, but can some of the items be donated to a local thrift store? A school? In my case, I have darkroom equipment that somebody on Craigslist or Freecycle may want. My nephew would probably love the two boxes of model railroad parts I’ve acquired.
• Purge ruthlessly. When I sort through this Stuff, I have to turn off the emotional side of my brain. This can be difficult, but it’s necessary. Do I really need my high school newspapers? All of my old role-playing games? My boxes of common football cards? What about my cassette tapes from high school and college? The financial records for buying our first house in 1993? Everything has some sort of meaning; if I keep it all, I’m going to be buried in clutter.
• Remember how this feels. Though I’m doing much better at avoiding Stuff, I still have my weaknesses. I still bring home too many books. I’m still drawn to “free” stuff by the side of the road. Next week, I plan to attend an enormous neighborhood garage sale, and if I’m not careful, I could come home with even more Stuff. When I’m tempted in the future, I need to remind myself of what it feels like to dig through this crap.

I almost think that this project should make me feel happy and triumphant, not sad and mopey. Look how far I’ve come! Look at the smart choices I’m now able to make! And think of how much less cluttered my life will be once I purge all of this stuff!

I don’t feel triumphant yet, but maybe I’ll get there. For now, I’m hoping that my own experience can serve as an object lesson to others who might be acquisition mode. Buying Stuff (and getting Stuff for free) can seem like fun. It can seem like “winning”. It’s not. Don’t buy things for which you have no use; the value is in the using, not the having.

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As the daughter of a truck driver and stay-at-home mom, my family lived very frugally (and very happily). As an adult, I see the wisdom in the frugality of my parents. Below are the frugal ideas my father always espoused.

1. Work smart, not hard. My dad believed in hard work. He constantly put in 60 hour work weeks, and somehow still managed to be active at church and in the community. The trick is that Dad never wasted effort. He constantly innovated to keep working smart.
2. Don’t make special trips. Dad understood that cars are big, deceptive, money-sucking machines. He understood that every time he fired up a personal vehicle, money was going down the drain. As a result, it was a family policy not to just run out for an item.
3. “It took me X hours to get that!” Whenever Dad bought something, he thought about it in terms of how many hours of work it took him to earn it. This left him walking away without whatever item he was thinking about buying several times. He often applied this to TV as well. He realized the time suck that TV can become.
4. If you can put off buying it, put it off. My parents never had a car payment. They drove junky cars that they could buy with their savings. Even if the car was going to die in the near future, my dad understood that if he could put off buying a new car for another month that was one more month they had to save and put off paying for tags, registration, new insurance coverage, etc. Sometimes the cars would last way beyond expectations. Right now my dad is driving a 1992 Oldsmobile with 200,000 miles on it. He expected it to die two years ago, but it just keeps on ticking.
5. You have to take a risk sometimes. Now that I’m old enough to care about investing, I’ve learned that my dad took some pretty big (yet calculated) risks as an investor. As a young man he lost money in the stock market because of his risks. He’s changed his risk strategy over his lifetime, but still takes risks. He was really the first one in his family to start investing, so he basically learned from scratch and is continually taking his calculated risks.
6. Don’t be afraid to ask. My dad is not shy. He is never afraid to ask for help. This often took the form of borrowing. We had a large garden growing up, but never owned a tiller. My dad always borrowed one from a neighbor. He would ask his pipefitter friend for plumbing help. Even today he is not shy about asking my husband for computer tips and help. He knows what I have come to know: most people like to help, you just have to have the guts to ask.
7. “That UPS truck just ruined my whole vacation!” My dad has worked for UPS for years. Whenever he was on vacation if one of those iconic brown trucks went by he’d say with a smile, “That UPS truck just ruined my whole vacation.” My dad liked his job, but he understood the need for rest. One can’t go on working 60 hour work weeks without rest. He always took a little of his vacation time just to hang around the house so that he could be ready to keep working later.
8. Invest in yourself and your family. Dad understands that the only thing in this life that really matters is people. Ultimately all of our things can be taken away from us by governments, fires, and mismanagement. As a result, he knew the only sure investment is investing in yourself and your family. He helped all three of his children get through college in various ways. He continually improves himself with books, online research and asking questions. As a lifetime truck-driver he could have stagnated in his personal growth and still made the money he is making, but he chooses to keep improving himself.
9. Let people feel the consequences of their actions. My dad did show grace to his children, but he also understood that we needed to feel the consequences of our actions. Around age nine, every January we had to present him with a yearly budget for our allowances. It included a variety of things like school supplies, clothing, spending money, camp fees, and incidentals. We would negotiate the yearly amounts, and then get that portioned to us on a monthly basis. I remember quite vividly one month my sister ran out of money about a week before allowance day. Instead of giving her money to go out with her friends, he let her stew for a week. I don’t think that happened much after that first incident.
10. Eat to get not-hungry. This may seem like an odd thing to say, but even as a little kid I can remember Dad saying, “We don’t eat to be full; we eat to not be hungry.” It took about 15 years, but I am starting to understand the deep wisdom in this. First, eating to get full is a fast way to become overweight, and being overweight has a whole set of financial ramifications. Secondly, focusing on food is not healthy. People who eat to be full on a regular basis are often consumed (pardon the pun) with food. As Get Rich Slowly has addressed in the past, the food we eat has a whole set of financial ramifications.
11. People come first. The final overriding wisdom my father has imparted to us kids is that people come first. You can see this theme throughout the other parts of this list. My parents have a generous giving plan and believe in putting people first, above the environment, above animals and above material possessions.

Ultimately, my dad found what was important to him in life and put his money where his heart was. As a result of this he lives frugally and is deliberate with his money. This money philosophy was imparted to me at a young age and helps me to live frugally. As a result, my husband and I are getting rich slowly.

What did you learn about money from your parents? What do you hope to teach your children?

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I loved reading about J.D.’s “secret millionaire” neighbor. This is a story about my own “secret millionaire” neighbor. He actually lives in the next suburb.

This local middle-school math teacher retired about five years ago, and became a private tutor. Since retirement, he works seven days a week — literally. By choice. He is a widower, with three adult kids.

Anyway, he had an old wreck of a car ever since I’ve known him (about eight years). He tutored my oldest son very occasionally and my daughter and middle son very regularly. One day last year, he warned me that he didn’t know if he could make my daughter’s Tuesday appointment, because he wasn’t sure if his car would make it up the hill. “No problem,” I told him. “If it doesn’t, just call me and I’ll pick you up.” He apologized and told me that he was due to pick up his brand new car that Friday.

His car did make it. (Sorry, can’t remember what it was. A French car, I think a Peugeot. It was my youngest son’s age — 20 years old at the time.) The following Tuesday, this man showed up proud as punch with a brand new Ford Fiesta — in bright purple!

I’m guessing that a retired teacher in his late sixties didn’t actually choose a bright purple car! He must have gotten a great deal on it.

He also has a small house on what has now become a main road, with four- and five-story buildings on either side of him. The developers have been trying to buy him out for many years. He told me that whenever they call, he pretends to be deaf. He’s a hoot. And definitely pretty much the epitome of the “secret millionaire”.

This man stopped tutoring my daughter only about two weeks ago. After so many years, we were both tearful. I still see him around town all the time, and we always wave to each other or honk. In private, my family calls his car “The Mathmobile”. One day I suddenly realized how much I’d probably contributed to that new car over the years. But that’s beside the point! I hope he enjoys his car, and that my community continues to enjoy him for many years to come.

This is a fun story. I know that some readers think it’s crazy to accumulate wealth but still drive a beat-up old car. But I think that as long as Ruth’s neighbor is happy, that’s all that matters.

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“What Makes Us Tick” is a 12-minute cartoon (in Technicolor!) that extols the virtues of the stock market: “Common stock investments have helped to make our country prosperous and powerful. Owning a share of American industry is like owning a share in the future of our nation!” Like many of my favorite old educational films, this one was produced by John Sutherland.

“In a typical city or town,” the film begins, “on a typical residential street, we find a typical home occupied by a typical American family. Like millions of his fellow Americans, John Q. Public earns enough money to keep up the payments on a new car. He takes great pride in owning a fine new long-term mortgaged home that was built to last a lifetime.”

Yes, John Q. Public is embracing the new American lifestyle of debt! But he longs for a little more: “In spite of the high cost of being a husband and a father, John Q. has a private little nest egg. His practical nature tells him that it ought to do more than collect moths.”

The rest of the film illustrates how Mr. Public can take his nest egg and use it to invest in industry, helping the country grow while also earning a little dividend for his trouble. It’s fun stuff.

I love this film — and others like it. I love the way they cheerlead and educate at the same time. And, especially, I love the glimpse into American culture from a bygone era, when consumerism was just beginning to thrive.

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I wanted to get your advice as far as the distribution of windfalls. Would you put a certain percentage in a savings account? Invest it? Keep some in your regular checking account? What is your recommendation? Would this fall in line with the balanced money formula?

Though I’ve written about windfall management before, it’s been almost eighteen months since the last time we discussed it. At that time, I didn’t know anyone who had experienced a sizable windfall. Now I do. My friend Joan inherited a large sum of money earlier this year, and I’ve been able to watch first-hand how she’s handled it.

A large windfall
The first thing Joan did was set aside money for taxes. Depending on how big your windfall is, you may not need to do this. You’ll owe them, of course, but if your windfall is just $100 or $1000, you can probably scrape the money together at the end of the year. But if your windfall is $100,000 (or $1,000,000!), you should set the money aside immediately. I think Joan put her tax money into a money market account.

Next, Joan chose to use a little of the money to treat herself. She redecorated her house, which is something she’s been wanting to do. I know this project cost quite a bit, but I’ll bet it was still just two or three percent of her inheritance.

I thought Joan would invest the rest of her new-found wealth right away, but she didn’t. She let it sit in savings for a few months because she was scared to make a wrong move. She’d never had a lot of money before. Finally, she interviewed some investment advisers in her hometown, and she chose one that she felt comfortable with. She sought professional help. Now that she’s had time to let the emotion drain from the situation, she’s ready to invest.

Joan was fortunate in two regards:

1. She didn’t have any debt. If she had debt, she would have been wise to eliminate it after using a bit of the money to redecorate her home.
2. Without knowing, she followed the standard advice for how to manage a windfall successfully.

Joan was also lucky to have received a large windfall. What if her inheritance had been smaller?

A small windfall
I’ve experienced many small windfalls in my life, and I’ll bet you have too. I used to get a windfall every spring when I received my tax refund. And, like clockwork, that windfall would vanish through my fingers just a few days later. (That’s one reason I no longer aim for large tax refunds.)

More recently, I’ve found better uses for “found” money. When I was working to get out of debt, I’d apply my windfalls directly to the balances I owed. Over the past two years, I’ve used windfalls to build my savings, and then to save for my goals. I still follow a personal rule of thumb that I can use 5% of every windfall for fun (so, $5 out of $100, or $50 out of $1000), but the rest of the money is applied immediately to my personal financial goals.

I find it exhilarating to fund my Roth IRA early in the year because I’ve been diligent with the little windfalls. And, of course, my Mini Cooper was purchased almost entirely with small- to medium-sized windfalls. When you don’t fritter them away (as I used to do), windfalls can really turbo-charge your savings.

Your take
Have you ever experienced a large windfall? Inherited money from Aunt Madge? Won the lottery? Sold a business? How did you handle it? Would you make different choices now? And what about small windfalls? All of us receive those. What do you do with yours? What advice do you have for somebody who receives a windfall?

Photo by ccgd.

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Recently, though, I’ve come to love my Newsweek subscription. The magazine underwent a radical re-design last month, and jettisoned all of the stupid pop culture stuff and bite-sized pablum. Suddenly it’s a magazine filled with long, thoughtful articles about Things That Matter.

This week’s issue, for example, contains a great story from Daniel McGinn called “The Accidental Slumlord”.

In 2005, at the height of the housing bubble, McGinn visited Pocatello, Idaho to write a story for Newsweek about how investors were buying rental homes in unlikely locations. A year later, McGinn decided to join the fray. In 2006, he spent $62,750 for a two-unit rental in Pocatello. He lives in Massachusetts. McGinn bought the property sight unseen.

McGinn’s current Newsweek story describes his recent visit to Pocatello to meet his tenants, and his realization that he isn’t a landlord — he’s a slumlord. The property he owns is a run-down mess. What’s brilliant about this article is how he’s able to not only portray the financial dilemmas he faces, but also the financial situations of his tenants.

Plus, McGinn isn’t a ruthless capitalist. He’s a real guy with a real heart who had hoped to purchase an investment property that might make him a little money. He’s conflicted. He’s you — or me. When one 66-year-old tenant complains about the lousy carpet in his home, McGinn doesn’t just ignore it (which would be the sensible thing to do from a purely monetary perspective). He buys new carpet.

Financially speaking, this $213 purchase is pure stupidity: it doesn’t add to the property value and will hurt this month’s cash flow. But it seems a small price to pay to improve the life of a rock-solid, longtime tenant — and, of course, to assuage my guilt over owning such a run-down property.

My discomfort grows stronger as I spend the morning with Bill, Sarah, Will and Rose [McGinn's tenants]. It’s easier being a landlord from 2,450 miles away, delegating to my property manager all the tough decisions about rent increases, late-payment penalties and potential evictions, and relating to the tenants only as faceless names on leases.

[...]

Taking a final look around, I can’t help but compare the dingy bathrooms to mine at home, with dual sinks in a granite counter and a deep whirlpool tub. Earlier I’d joked to a friend that my visit to Pocatello felt a bit like Robert Kennedy’s tour of impoverished Appalachia. But after watching Will and Rose’s son crawl across the foul carpet, I’m reminded instead of a JFK quote: life is unfair.

McGinn’s article is typical of the new Newsweek. It eschews the superficial approach that used to typify the magazine, and instead gives the reader something complex and meaty to chew on.

This is real personal finance writing.

[Newsweek: How I became an accidental slumlord]

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Kiplinger’s manifesto is a great list, effectively summarizing mainstream investment theory on a single page. I liked it so much that I obtained permission to reprint it in its entirety. Here are the twenty points in Knight Kiplinger’s investor’s manifesto:

1. I am an investor. I do not trade my assets frequently. That’s speculation, not investing.
2. I am also a saver, fueling my investments with continuous savings from current income.
3. I know that every kind of asset entails risk — even cash, which can be eroded by inflation.
4. I know that higher returns entail higher risk, in every kind of asset.
5. I accept those risks, but I mitigate them by owning a diversity of assets.
6. I regard my home as a place to live, not as an investment. It is not a substitute for retirement savings.
7. I have an investment plan and a plan for asset allocation, in consultation with a financial adviser.
8. I invest regular amounts every month, in both rising and falling markets. I know I cannot gauge market tops and bottoms. If I receive a windfall — a bonus, bequest or gift — I gradually feed it into my regular investment mix.
9. I don’t pour more money into hot markets nor completely cash out of plunging markets.
10. I spread my investments among several asset classes, in a mix fitting my age and risk tolerance.
11. My share of bonds roughly equals my age. I will allocate to stocks a declining portion of my financial assets as I get older.
12. I rebalance my portfolio every quarter. If the stock market plunges, pushing my stock allocation way below its target percentage, I sell bonds and use my cash to buy stocks.
13. I force myself to sell high and buy low by periodic rebalancing — just what is temperamentally difficult for most investors to do.
14. I know that stocks are risky in the short run, so I hold in equities no money for which I have a likely need in the next three years.
15. But stocks are not too risky in the long run. They have outperformed all other commonly-traded assets over periods of 15 years and longer.
16. Foreign stocks account for at least 15% of my stock allocation. I believe that developing economies will enjoy much higher growth than the U.S. in the decades ahead.
17. I never borrow against my stocks. Margin calls could force me to sell good assets at a bad time.
18. I stick with my game plan. I do not check the value of my investments every day or even every week.
19. I try to keep my cool when other folks are losing theirs.
20. I remind myself often: I am an investor.

Do you disagree with any of Kiplinger’s mantras? Are there others you’d add to the list? (For example, I might include: “I buy low-cost index funds. I know that over the long-term, indexing beats the returns offered by most other investment options.”) Do you hold a set of principles that guide your investment decisions?

In April, I shared a similar document from billionaire John Templeton, who described his 16 rules for investment success.

[Kiplinger's Personal Finance: An investor's manifesto, reprinted with permission]

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