This post is from GRS staff writer April Dykman.

For more than a decade, Jay Shafer of Tumbleweed Tiny House Company has lived in an 89 square-foot home.

His decision to live in a tiny house came from concerns about the effects a larger house would have on the environment, and his desire to not maintain a lot of unused or unusable space.

Obviously Jay’s home is at the extreme low end of how small one can go with living space, but it meets his needs and allows him to live the simple lifestyle he was seeking. While it may seem impossibly small to the majority of people, 89 square feet is Jay’s right-sized home.

Contrast this with the average American home, which in 2004, was 2349 square feet, up from 1695 square feet in 1974. In 30 years, kitchen sizes doubled, ground-floor ceilings grew by more than a foot, and bedrooms increased by 54 square feet. In 2004, the average family size was 2.6 people. Thirty years ago, it was 3.1 people. Our homes have been getting larger while our families are getting smaller.

But earlier this year USA TODAY reported a change in that trend:

New homes, after doubling in size since 1960, are shrinking. Last year, for the first time in at least 10 years, the average square footage of single-family homes under construction fell dramatically, from 2,629 in the second quarter to 2,343 in the fourth quarter, Census data show.

The average size of a new home is approximately 15 percent smaller than it was just a year ago. Architects and designers believe this trend toward smaller homes was caused by the economic meltdown — but they expect it to be a lasting change.

Too big, too small
I’ve mentioned that my husband and I will be building a home soon, and we’ve gone back and forth with our architect on several sketches, trying to find our right-sized home. Most of the designs have been appealing, but some have been bigger than we need, and others smaller.

Buying or building too much home has a lot of drawbacks, including:

• Environmental effects
• Higher mortgage payment means more energy goes into paying for housing
• Higher taxes and insurance
• Requires more time and money to maintain and clean
• Higher utility bills
• More rooms to furnish

Buying or building too small is economical, but can cost in other ways. If your house is too small, you might face some of the following challenges:

• No room to expand if you have kids.
• Lack of storage space, even for basic household items.
• Not enough room to entertain friends and family. (If you enjoy entertaining, that is!)
• Lack of space for an office (if you work from home) or hobbies.
• Feeling like you’re living on top of your family members, with no personal space.

Finding a size that is just right
Too big is a waste, and too small is a headache. How does one find a Goldilocks house — sized just right? There are many considerations, such as the following:

• Lifestyle. Do you work from home and need office space? Do you travel a lot? How often do you entertain?
• Family. Do you have children? If not, do you plan to have kids (and plan to stay in the same home)? Are there elderly relatives who live with you or might need to in the future?
• Hobbies. Some hobbies require a bit of room, even if it’s just a sewing cabinet or a dedicated space for a piano.
• Future goals. Do you plan to live in the house for a long time? Do you want to travel? What are your savings goals?

Calculating the size of your Goldilocks home
Once you have an idea of what you need your house to do, you can calculate your magic number. In the article “Square Feat: Foot Steps”, architect Dan Maginn recommends starting with your current home and following these five steps:

1. Measure and record each of the rooms in your current home, thinking in terms of the functions of each room. Include cooking, dining, bedrooms, closets, bathrooms, living, storage, circulation, and mechanical/utility space.
2. Note whether each space feels too big or too small.
3. Write down how your needs for each function might change in the future. For example, if you plan to stay in the house and have kids, bedroom space is a consideration.
4. Given how the spaces currently feel and your future needs, adjust the sizes until the spaces feel right.
5. Add up the adjusted numbers.

Right now our number is around 1800 square feet, with a loft that can be built out later if and when our needs change. That number sounds big to me, but looking at the plans, spaces, and considering our future needs (we don’t plan to move from this house), it might just be our right-sized house.

What is the square footage of your right-sized living space? Do you currently live in more space than you need, or could you use some more room?

J.D.’s note: I love the Tumbleweed Homes. I want one.

On today’s episode of The Personal Finance Hour, I’ll join Jim from Bargaineering to discuss the wonderful of banking. We’ll talk about online banks, offline banks, high interest savings accounts, current CD rates, and more. (We’ll also talk about how to optimize your accounts.)

This show will air live at 3pm Pacific (6pm Eastern). It’s much more entertaining for everyone when you call in to participate. We’d love to hear how you use your bank accounts. Do you have any tips or tricks you can share? Call us at 1-347-327-9144 share (or join the rowdy crew in the chat room).

Update: The show is over. Thanks to the five people who called in. We had a good time chatting about the difference between banks and credit unions, the virtues of reward checking accounts, the importance of customer service, and just what a money market account lets you do. Tune in next week when we chat about being thankful (surprise surprise).

The Personal Finance Hour
There are a few ways you can catch The Personal Finance Hour. You can listen through an audio feed at the show page, or you can also listen through this widget:

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 most Mondays — 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) nearly every Monday.

This article is the eighth of a thirteen-part series that explores the core tenets of Get Rich Slowly.

One reason I got into financial trouble during my early twenties was that I wanted everything right now. I looked at what my parents had, and it didn’t occur to me that they’d been working their entire lives to get to that point. I wanted the same level of comfort, and I wanted it today. I wanted what I saw in the magazines and on TV. I wanted to start at the end, not the beginning.

In order to afford that sort of lifestyle, I went into a lot of debt. But even then, I couldn’t manage for long. I lived high on the hog for a couple of years, and then found myself back in the Real World — but with lots of extra bills to pay. In an attempt to reach the “finish line” of life sooner, I’d put myself further behind.

It wasn’t until a decade later that I finally understood that patience and perseverance are crucial to success — with money and everything else.

Patience and perseverance
There are those who get rich quickly. People do win lotteries. They do sign sports contracts or get “discovered” by Hollywood or sell their small businesses to big conglomerates. And some are able to profit from risk and luck, picking the right stock at the right time, so that their $10,000 investment grows into a million. These things happen. But these lucky few represent a tiny fraction of all those who achieve financial success.

More typical is the story of my neighbor, a real millionaire next door. He worked hard for thirty years or more, practiced frugality, and invested wisely. He wasn’t rich when he was young, but he enjoyed life while doing all of the “right” things. He was patient, and eventually this patience paid off. Now he’s able to do what he wants without worrying about money.

Getting rich slowly doesn’t mean you have to give up everything you love. Reducing your expectations and desires doesn’t mean you can’t spend on comic books or motorcycles or knitting supplies or shoes. It simply means recognizing that you can’t have everything you want. And often, you’ll have to wait for the things you do get.

Small steps become big strides
Personal finance can be daunting. When you first tackle your debt, the numbers are overwhelming. When you think about how much you need to save for retirement, you might ask yourself how it’s even possible. And when you think about having to work every day for the next 30 or 40 years, you may feel a pit in your stomach.

But you can accomplish big things if you break them into small pieces. Last month, I walked a marathon. If I’d focused on how long 26.2 miles actually was, or how many steps I’d have to take (over 50,000!), or the blisters I’d get on my feet, I never would have started. Instead, I set a target pace, and I tried to meet that pace every single mile.

The same applies to personal finance. For example:

• You can’t expect to go from $20,000 in debt to having $20,000 in the bank overnight. It takes time. You get out of debt one month at a time, one payment at a time. You get out of debt by sticking with it. Wealth is built the same way.
• Although it’s important to take advantage of opportunities to save big, you should also do what you can to save on the small stuff. Big wins come along infrequently, but there are many opportunities to “sweat the small stuff”. Given time, these small habits have a huge cumulative effect, and they can lead to financial prosperity.
• You can devote a lot of time to trying to pick the right stocks and timing the market for the best time to buy. But even the experts fail at this more often than they succeed. Instead, most financial advisers (and even billionaires like Warren Buffett) recommend that average folks take the “slow and steady” approach: Use dollar-coast averaging to make regular small investments in indexed mutual funds.

Instead of expecting to accomplish everything at once, recognize that meaningful change takes time. Be patient. Work hard. If your experience is like mine (and that of many GRS readers), you’ll find that after a few months (or years), you’re not only making progress, but you’re making more progress than you believed possible. Your slow and steady movements have become large, graceful strides.

The biggest loser
Here’s a confession: I’m a Biggest Loser junkie. Every season, the program follows a group of contestants as they attempt to lose weight by reversing a lifetime of bad choices. It’s the only reality show I’ve ever watched, and I love it.

In one episode last spring, contestants were challenged to pull NASCAR vehicles around a race track. The muscular men sprinted to an early lead. Meanwhile, former model Tara Costa — who had demonstrated patience, perseverance, and drive every week — put her head down and pulled at a moderate pace. The men tired. They began to flag, but Tara’s pace never faltered. One-by-one, she passed the jackrabbits and coasted to victory.

Tara, in green, passing Mike and gaining on Sione

I think of this challenge often. It seems to epitomize so much of what I’ve learned about life — and personal finance. As Tara pulls her car, she doesn’t worry about what the people around her are doing. She sticks to her game plan, moving slowly but surely toward the finish. Just as in the fable of the tortoise and the hare, slow and steady really can win the race.

(And, as a final note, I’ll point out that you’re only racing with yourself — not anyone else.)

This is the eighth of a thirteen-part series that explores my financial philosophy. These are the core tenets of Get Rich Slowly. Previous parts included:

• Tenet #1: Money is more about mind than it is about math
• Tenet #2: Goals are the gateway to financial success
• Tenet #3: Spend less than you earn
• Tenet #4: Pay yourself first
• Tenet #5: Small amounts matter
• Tenet #6: Large amounts matter,too
• Tenet #7: Do what works for you
• Tenet #8: Slow and steady wins the race

Look for a new installment in this series every Monday through the end of the year.

This is a guest post from Sean Ogle, a former portfolio analyst who is now pursuing his goals of starting a business and seeing the world. You can read more from him at Location180. You can also follow him on twitter @seanogle. 

Have you ever thought about doing something different with your life? Maybe you’ve decided that you’d like to do more world traveling. Perhaps you want to explore that entrepreneurial idea that has always been buried deep inside you. 

For me, it was both. In my past life, I was a portfolio analyst for a small investment firm. While the job would have been perfect for the right person, I found myself yearning to do something more than just crunch numbers and help other people build their businesses. 

A few years back, job obligations cut my three-month trip through Europe down to three weeks. Ever since, I’ve had an urge to travel more, and held bit of resentment towards the normal 9-to-5. I wanted the freedom to get my oil changed on a Wednesday morning — I wanted the freedom of time. 

The catalyst for change occurred in March when all of my hard work earned me a 20% pay cut. I knew there was a better way for me to live. I wanted to be my own boss and see the world at the same time. 

I started researching business ideas and talking with other people who had seen success working for themselves. There was  general consensus that a combination of blogging and social networking were great starting points if I wanted to create a business online. So in May I began Location180, and set out to learn as much as I could by the end of the year. 

I knew that in order to be successful with my new lifestyle, I’d have to make changes in my day-to-day life. I’d have to do something that, despite my financial background, I’d never been very good at: stick to a budget. 

It wasn’t that I didn’t know how to stick to a budget. But my affinity for nice things always seemed to get in the way. When I saw something I liked, I’d buy it. The times I was most successful at sticking to my budget were the ones that resulted in me getting something I wanted, such as a new car or HDTV, for example. 

Over the last year, however, I’ve learned a lot about how to successfully prepare for a major lifestyle change. Probably the most important thing is to be diligent about applying the stuff you already know. For instance, one of the most important rules of personal finance is still very applicable: 

Pay yourself first
Seems like a simple concept — and it is. But I can’t tell you how many times in the past I have let bills, events, or other obligations get in the way of me putting 15% of every paycheck into my high yield savings account. 

This savings is essential when you make a lifestyle change. If things don’t work out as planned (in my case, I lost my job much earlier than expected), you’ll be glad you kept it up. Automating this process is the best way to ensure it gets done each month. You can’t spend what you never see. 

To take things a step further, I’d actually take whatever you’re saving and increase it by 25-50%. This will force you to make changes that you may never have made otherwise. In my case, I became the king of bootstrapping. In order to meet my goals of starting an online business while also traveling, I adapted myself to a more frugal lifestyle long before I needed to. That has made it much easier on me now that a lifestyle change is no longer a choice. 

You should also: 

Create a budget 
In the past I’ve used both Quicken and spreadsheets with only limited success. It wasn’t until I started using Mint.com that I really started to see success in my budgeting. Its ease-of-use makes this stand out among everything else I have tried. Two features in particular helped me save more money:

• The ability to categorize my spending in any way I see fit, and
• Being able to track trending over months.

I had no idea how much my car cost me each month until I started tracking all of the related expenses. It was tough to realize that I was paying over $500/month for transportation alone. Dusting off the old bicycle could definitely drop a couple zeroes off of that number! 

The next step toward a lifestyle change is to: 

Cancel accounts 
It’s funny how easy it is to rack up monthly expenses. I had expenses that I didn’t even know I had! 

After careful review of my monthly statements, I noticed that there was a monthly “credit protection fee” on one my cards that had been there since I set up the account — three years ago. I also found a $7/month web hosting account for some random domain I’d purchased and done nothing with. And don’t even get me started on the gym membership that hadn’t been touched in weeks. 

By carefully looking at your financial statements, you may find recurring monthly expenses that you’d forgotten about. (Or, in some cases, never even realized were there!) This simple step alone can help you save hundreds of dollars annually. 

And, of course, the most important step to a lifestyle change is to: 

Have a plan 
Depending on the lifestyle change you’re trying to pursue, there are specific ways you can prepare. Since one of my goals is to do more traveling, I’ve decided that getting more air miles under my belt is a worthy goal. I was able to rack up around 50,000 miles from opening a new mileage card and transferring my balances. I now use that card for all of my purchases, and pay it off in full every month. 

If you want to leave your job to start a small business, consider running it part-time while you’re preparing to make the leap. Depending on the size and scale of your business, you can register it quickly to start taking advantage of some of the tax benefits right away. The ability to write off things like a home office or mileage can be a great bonus, while giving you a head-start on your business plan. 

Ultimately, preparing for a lifestyle change isn’t much different from how you’d prepare for any big event, such as purchasing a car or buying a house. While it may take a little while for some people to adapt to living on a stricter budget, finding the courage to pursue the goals you’re really passionate about will make it all worth it. 

In January I plan on heading to either Central America or Thailand to work full-time establishing an online marketing business. Despite some nervousness, my planning has put me in a great position to succeed, and I couldn’t be more excited about the adventure to come.

J.D.’s note: If you have a success story that you’d like to share with other GRS readers, drop me a line. I’m a strong believer that the personal part of personal finance is much more interesting than the theoretical stuff. Photo by Eulinky.

Starting a Roth IRA is one of the easiest — and best — steps you can take to save for retirement. I know I’ve written a lot about the Roth IRA in the past, but I still get questions all the time. People find them intimidating. For example, Lynn wrote last week:

I’m a 36-year-old single mother of two. I want to start investing for my future, but I am so overwhelmed by all the information. I was wondering if you could give me some advice on my best options for a Roth IRA. I am a school teacher and earn $41,000 per year.

I am going to do more research, but I would appreciate some advice from someone who already has expertise in this area. I am not sure what I need to start a Roth IRA, or who I should go with. I don’t know much about mutual funds or anything of that sort, so any help and advice would be appreciated.

Let’s clear things up: A Roth IRA does not need to be confusing. In fact, a Roth IRA is actually fairly easy to understand.

Roth IRA basics
The Roth IRA is an individual retirement arrangement: It lets you save and invest for your future. An IRA is simply a holding account. It’s a label. When you own a Roth IRA, it contains nothing. It’s like a bucket, a place for you to put things. (Most people think of an IRA as an individual retirement account, which is fine, but it’s actually an “arrangement”.)

The things you put in your bucket are investments. You might, for example, buy a stock to put in your retirement account. Or maybe government bonds. Or certificates of deposit. The important thing to understand is that a Roth IRA is not an investment — it’s a place to put investments.

With many retirement accounts — such as 401(k)s and traditional IRAs — you contribute pre-tax money and are taxed when you take the money out during retirement. Because they work with after-tax money, earnings from a Roth IRA can be withdrawn tax-free at retirement.

Roth IRA rules and requirements
Because Roth IRAs are meant to encourage ordinary people to save for retirement, not everyone qualifies for them. If you do qualify, you can contribute up to $5,000 to your Roth IRA every year. If you’re 50 or over, you can contribute $6,000.

Who qualifies? Nearly everyone. However:

• If your tax filing status is single and you earn more than $105,000 per year, your contributions are restricted.
• If you’re married filing jointly, your contributions are limited if your household earns more than $160,000 per year.

You can use a Roth IRA even if you have a 401(k) or other retirement plan, but you must make your contributions by the tax deadline each year. (So, you have until 15 April 2010 to make your Roth IRA contribution for this year.)

The rules are a little more complex than that, but those are the basics. If you need more info, take a look at the resources listed at the end of this article.

Where to open a Roth IRA
Deciding where to start your Roth IRA is the most difficult part of the process. Many financial institutions offer IRAs. Each has its own strengths and weaknesses. Don’t fret about finding the perfect match — find a good match and then get started.

To make things simple, here are three big companies that provide Roth IRAs (though these are by no means your only options):

• Fidelity Investments offers a no-fee IRA. There’s a $2,500 minimum initial investment, but this is waived if you commit to $200/month automatic contributions. They offer 4,600 mutual funds, about a quarter of which have no transaction fee. In short, you can open a no-cost IRA at Fidelity with a $200 starting investment if you invest in mutual funds and you agree to contribute $200/month. Apply for a Roth IRA with Fidelity.
• It’s also possible to open a no-cost Roth IRA at The Vanguard Group if you elect to receive electronic statements. Otherwise, a $20 annual fee is charged until your Roth IRA balance is over $10,000. Your minimum to get started is $3,000 — except that you can start with just $1,000 in the company’s STAR fund. (The STAR fund is an mutual fund of mutual funds, a safe choice for beginners.) Additional contributions require a minimum of $100 unless you use their Automatic Investment Plan, in which case the minimum is $50. There are no fees to purchase the STAR fund. Start a Roth IRA at Vanguard.
• T. Rowe Price charges $10/year for Roth IRA accounts until you have a balance above $5,000, after which there is no fee. You need $1,000 to open your IRA, but this minimum goes away if you sign up to contribute at least $50/month with the Automatic Asset Builder. There are no sales fees or commissions to invest this money in T. Rowe Price mutual funds. Open an IRA at T. Rowe Price.

Opening a Roth IRA is easy. You’ll need some minimal bank account info and about 30-60 minutes of free time. If you’ve ever filled out a job application or applied for a credit card, you can certainly open a Roth IRA. Once you’ve completed your application, you can transfer money to the account. It might have to sit in a money market fund until you have enough saved to buy your first mutual fund, but that’s okay. You’re developing the saving habit!

Which investments to choose
Here’s where I cop out. I’m not a financial adviser. I don’t know your goals or risk tolerance. I can’t tell you were to invest.

And to be honest, where you invest doesn’t matter nearly as much as the fact that you do invest. To get some ideas, browse through the investing archives here at Get Rich Slowly. (Maybe start with these “lazy portfolios”.)

If you’re really stressed, pick a target-date fund that most closely matches the year you’ll retire. This probably isn’t the best option, but it’s fine. Just use it while you get in the habit of making contributions. You can always switch the money to something more appropriate later.

Learning more about the Roth IRA
In 2007, I ran a four-part series exploring the benefits of a Roth IRA. If you need more info about these accounts — or if you have questions — you should start here first:

• Part one: What is a Roth IRA and why should you care?
• Part two: How to start a Roth IRA and where to do it
• Part three: Which investments are best for a Roth IRA?
• Part four: Questions and answers about Roth IRAs

I’ve revised these articles and compiled them into a free e-book called The Get Rich Slowly Guide to Roth IRAs (518kb PDF). (Note that this e-book was produced in April 2008, so some of the info is a little out of date, especially about Zecco.) And if you want the official word on the subject, check out IRS publication 590, which is all about IRAs.

Now’s the part where you can tell Lynn how easy it is to set up a Roth IRA. (And share what sort of things you’ve invested in.) My own Roth IRA started with stupid stock picks (Countrywide, The Sharper Image) and has moved toward index funds. I’m all about making things easy right now!

I’m old-school: I went to the bank to make a deposit today. (I make most of my deposits in person, inside the branch.) While I waited, I chatted with the teller, whom I know from many previous visits. “I’m writing a book about money,” I told him. “What’s the one thing you wish you could tell people about banking?”

“Save!” he said. He told me there’s a huge generation gap between savers and spenders. “The people who save are generally older. They don’t look like they have money, but they do. They’ve got a ton in their savings account and they chase the best CD rates. But the reason they have money is because they didn’t spend it when they were younger. They’ve been able to let it grow.”

“And that’s not what kids today are doing?” I asked.

“No way,” he said. “The young people I see spend all their money. They’re trying to impress their friends. They buy all this new stuff. Their bank balances are always low. They’re not going to have money saved like the older generation does.”

Then he gave me another great example. “There are people who come in here and you can see why they have money. You look at their account history, and the only thing that comes out is the big stuff, like their mortgage or their utilities. There aren’t a lot of $5 or $6 transactions.”

I laughed and said, “I’ll bet most people have tons of little stuff.”

“Oh yeah,” he said. “It’s all little stuff. But it’s that little stuff that kills you. That’s what will make it so you don’t have anything saved when you’re older.”

Before I left, I asked him if he had any tips or tricks I should put in my chapter on banking. We talked about a couple of ideas, and then he came up with something moderately clever (though it applies to just a few people): “If you’re going to overdraw your account,” he said. “Do it all at once.”

“What do you mean?” I asked.

“Well, let me give you an example. The other day, a lady called me to complain about overdraft fees. She’d been hit with a bunch of them at the same time. But when I looked at her transactions, I couldn’t believe it. She’d gone to the same grocery store four times on the same day, so she was hit with four overdraft fees. If she’d just gone once, she’d still have overdrawn her account — but only once.”

The teller also mentioned that nobody seems to know their bank balance anymore. “They don’t use a check register,” he said, “so they have to call to ask how much they have. But the problem is that what we show you have and what you actually have can be two very different things. It can take up to a week for some transactions to show up. You should track your spending, and not just trust what the ATM says.”

I thanked the teller — who looks like he’s 25, by the way — and left.

I wonder if it’s true that there’s a generation gap in saving. Has the older generation always saved? Or did they start out trying to impress their friends, too? I feel like I’m at a middle point, moving from the “spend to impress” mode of operating to a “who cares what other people think?” way of life. The latter is more liberating and it helps my bank balance.

I’m going to try to find time to interview my neighbor for my book’s banking chapter. I think she’s a manager at a nearby bank. I’d be curious to see what advice she has for people. But really, it doesn’t seem like there are a lot of fancy things you can do with a bank account. As long as you’re saving, you’ve shopped around for a good account, and you’re not afraid to ask to have fees waived, I think you’re golden!