Recently, several readers have contacted me arguing quite forcefully that renting gets a bad reputation and that in many cases renting is actually a better deal than buying a home.

In order to break down this argument, I defined three distinct cases: rent exceeds total monthly mortgage payments, rent exceeds the interest portion of total monthly mortgage payments, and rent is lower than the interest portion of total monthly mortgage payments.

Of course, I am defining a “mortgage payment” as the payment one would make on an acceptable home given whatever amount one currently has saved for a down payment.

Let’s look at each case.

Rent exceeds monthly mortgage payment. You’re actively choosing to throw away equity here, so this is pretty clearly a poor deal. If you are paying more in rent each month than you would be paying in a house payment, there’s pretty much no reason for you not to buy immediately, as you clearly are in a financial state where you can afford to buy. Many people are in this area, but their idea of an “acceptable” house is higher than it needs to be in order to justify not making a move.

Rent exceeds interest portion of a monthly mortgage payment. I usually define the “interest portion” as being what you will be paying for interest five years after the start of the mortgage rather than simply looking at the first payment, because with each on-time payment, you pay less interest and more principal. This is the gray area, in my opinion, where you have to look at several additional factors: are there any utilities covered in your rent? How much will utilities go up when you move? Will there be a large increase in maintenance time at a home versus an apartment? If the total cost of ownership of a home added to the interest exceeds the rent you’re paying, then it is justifiable to rent instead of owning if you’re putting some away each month for a large down payment or into a strong investment.

Rent is less than the interest portion of a monthly mortgage payment. In most areas, this is only true if you have almost nothing saved for a down payment, in which case you should be renting and putting a significant amount away each month towards a down payment. Once you have a large enough down payment to bump you up into the “rent exceeds interest portion,” you should recalculate things.

The biggest key here is understanding what you plan to buy and knowing what it will cost. This involves learning about the housing market in your area, defining what you want to move into as a first home (remember, once that is paid off, you can definitely upgrade), and knowing what that will cost and what the payments will be. Once you know these things, it’s easy to compare the payments and figure out exactly where you are and where you want to be.

It is also vitally important to note that all arguments in favor of renting assume that you’re investing the extra money and not merely spending it. If you’re racking up credit card bills and have a stellar wardrobe, but live in a tiny apartment and have no real hope of owning a home any time soon even though it is a dream of yours, it may be time to reevaluate your life situation.

Yesterday, the United States Postal Service announced the introduction of a “forever” postage stamp. Here’s how it works: whenever you buy a first class postage stamp, it will no longer be marked with a cash denomination on it like current stamps are. Instead, it will merely say “First Class” on it. Once you buy it, you can use it at any point in the future. For example, if you buy a 39 cent “forever” stamp today, and then the postal service raises rates a few times, leaving a stamp’s price at fifty cents in 2020, you could still use that same “forever” stamp to mail a letter, even though you paid only 39 cents for it.

Why is the postal service doing this? They have two reasons. First, by doing this, they don’t have to make one, two, and three cent stamps in large quantities any more, as these stamps now cost as much or more to make than their face value. Second, by giving them your thirty nine cents now, you basically allow them to use that money immediately while you might not use those stamps for a very long time. This period allows the postal service to maximize the use of those stamps.

Is this a good deal for individual stamp buyers? Before we dig into the calculations, it should be noted that in general this increases the flexibility for consumers without raising prices, so by default it is a good deal for consumers - anything that makes a product better without increasing prices is a good thing.

How do I maximize the benefit? Can you really gain a lot by stocking up on stamps before a rate increase? The only way to really tell is by looking at the recent history of stamp price increases. I’m only going to use price increases since January 1, 1980, where the price was 15 cents for a first class stamp. Thus, between January 1, 1980 and January 1, 2007 (a period of 27 years), stamps saw an average annual increase of 3.6023%.

On the other hand, in January 1980, the Consumer Price Index (the most common number used to estimate inflation) was at 77.8 and in January 2007, it was at 202.4. Thus, between January 1980 and January 2007, inflation saw an annual average of 3.6046%.

3.6023% … 3.6046% … it turns out that the rate of postage stamp increase is amazingly close to the rate of inflation in recent years. This is because that postage stamps are hedged to match inflation, as the postal service isn’t out to make a profit, but to break even.

However, there is one big difference: inflation is fairly steady, but the postal service jumps regularly. This means that if you buy a bunch of stamps just before a jump (even a year’s supply of them), you can beat inflation by quite a bit with your postage stamp purchase.

Want to visualize this? Here’s a graph showing stamp prices (I used the price of 519 stamps so the dollar amount is comparable to the raw number of the CPI) versus the CPI since January 1, 1980:

As you can see, they match reasonably well, but something else should stick out at you: stamps were at their biggest bargain just before the rates went up.

In other words, when the “forever” stamp goes into effect, buying a bunch of stamps just before a rate increase is a very effective way to save money. You can easily outpace inflation with this “investment” and even outpace a lot of other investments, including money market accounts. Of course, over a longer period of time (a period of two stamp rate increases or more), the price increases begin to match inflation, and that’s not a good investment.

To summarize: I plan on buying a few hundred “forever” stamps just before the next rate hike, but not more than I could use in a year. This lets me maximize the benefit of beating a rate hike, but doesn’t lock me into an “investment” that merely stays the same as inflation.

I have a soft spot for books on frugality, so when I spotted America’s Cheapest Family on the new releases shelf at my local bookstore, I had to read it. Are there a lot of good ideas inside for how to reduce your financial footprint, or is it a bunch of self-promotion and hot air? This week, I’m going to dig into this book and find out whether it’s worth your time.

In each chapter, I’m picking out a “best” tip. This isn’t the most money-saving item in the chapter, but the one that stood out to me as being quite interesting.

Chapter 1: America’s Cheapest Family
The first chapter is basically just an introduction to the book and to the general idea of frugality and how it fits into the overall scheme of personal finance. Some of my readers eschew the concept of frugality for various reasons, mostly because it’s not fun and it doesn’t get you “rich.” Well, if you’re interested in getting rich rather than getting your finances healthy first, this book probably isn’t for you. As for the “not fun” part, I agree with the authors that it can be quite fun if you turn it into a game where you win if you figure out ways to save a bit of time or a bit of money, and all of those little wins add up to some serious cash over time.

Best tip in the chapter: If you actually buy a book to learn from it, don’t be afraid to mark the thing up, take notes, etc. I generally find that if a book is good enough for me to want to do this, it’s a keeper, one that I’ll probably return to several times in the future, and it becomes more valuable for me if I do that. This book has huge outer margins so that you can scribble notes all over the place, something I actually did in places.

Chapter 2: Groceries - Savings by the Bagful
The real frugal advice begins in chapter two. An average family of four in America spends $8,513 a year on groceries, about $709 a month, or $177 a person. If that same family could knock out 20% of their food bill, they could bank $1,702 a year.

It turns out that the biggest money gobbler in the grocery store is impulse buying - things that people buy that they didn’t plan for when they walked in the door. Their biggest tips for reducing that are to reduce the number of trips you take to the store to as little as once a month (they recommend starting off with just weekly visits), careful meal planning so that you know what ingredients you need, the development of a shopping list from that meal plan, selecting coupons that match the shopping list, and making and utilizing leftovers for future meals. As for us, we actually use Excel for our meal planning and ingredient listing, but we often end up assembling our actual grocery list by using Remember the Milk.

Best tip in the chapter: Buy bread at a bread outlet store and stock up big when it’s cheap (even freezing excess loaves). I wish we had a good bread outlet nearby; we have one, but every time I visit they’re either basically empty or their prices are almost the same as the grocery store, so it’s not worth the time.

Chapter 3: Budgeting - The Cornerstone of Family Finances
I basically believe that religiously following someone else’s budget plan is a sure way to failure, and I basically advocate that when people start out on the road to financial recovery that they not create a budget for a while, but instead look at ways to reduce spending and also record every single dime they spend for a while. Thus, when I read the title of this chapter, I expected to disagree with much of the content. Interestingly, the authors actually agreed with my philosophy for the most part - they don’t present a ready-made budget for people to follow, but instead guide people towards how to create your own budget. It’s very straightforward, but it’s a good “how-to” for budgeting if you’ve never built one for yourself before.

Best tip in the chapter: If you make “guesses” to estimate how much you spend on a category in a given month, it’s usually way off. I know this was true for us - we overestimated our food spending, but vastly underestimated our entertainment spending. It became clear very quickly where we needed to trim some fat.

Chapter 4: Cars - Cutting Car Costs
It boils down to this: buy a late model used car, pay cash if at all possible, and never lease. Basically, the general philosophy is that you keep driving a car until you can write a check for the next one, then sell off the old car (don’t trade it in). This method basically ensures that you’ll maximize your dollars with a car and you’ll always have flexibility and options. For me, I have no personal qualms with driving my current vehicle into oblivion, and until then I’m parking some cash away to pay for the next one.

Best tip in the chapter: If you’re trying to sell your own car, park it on a busy street corner with a “For Sale” sign in the window and contact information. It’ll sell quickly. Just make sure it won’t get towed.

Chapter 5: Housing - Home Sweet Home
The first part of this chapter deals briefly with the home purchasing process, but the meat of this chapter is written directly for homeowners, juggling property taxes, home improvements, and the like. Their general advice is to pay off a home as quickly as possible, something I find myself agreeing with more and more as our home purchase draws closer. Owning a home and no longer having monthly housing payments makes life a lot easier and gives you a lot of flexibility.

Best tip in the chapter: If you’re looking at getting central air installed, the best time to bid is in the late fall, when business is really slow for air conditioning dealers. You can often get an amazing deal because it’s so out of season.

America’s Cheapest Family is the seventeenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

Over the weekend, personal finance guru Suze Orman came out of the closet. While I applaud her courage, I personally don’t care too much - personal finance advice is personal finance advice, regardless of your personal preferences, at least in my eyes. However, as with any social issue, you can learn a lot about society in general by reading various responses to this news, and given that Suze has such a high profile in the personal finance world, her announcement actually crosses over into the particular interests of The Simple Dollar. So, today I’m highlighting some of my favorite posts on this news from around the blogosphere. Some of these also incorporate some very interesting personal finance insights.

Suze Orman Doesn’t Care About Money This was probably my favorite of the bunch. Here’s why: “Ignore the first three paragraph, they’re just gossip drivel where they mention that she has a female life partner and has never been with a man (as if that has any bearing on her credibility when it comes to personal finance advice, I have a female life partner, I’ve never been with a man, and you all still read my blog).” Instead, this article finds something else to criticize in the article. (@ blueprint for financial prosperity)

Suze Orman For The Young, Fabulous, and Gay An interesting take that basically states that Suze stayed in the closet so long because it was beneficial to her earning power. In other words, money trumps such things - and I have to agree. If you’re marketing yourself to strong social conservatives, you’re much better off not mentioning your sexual preferences. (@ queercents)

Suze Orman Is Extremely Risk Averse Suze, by her actions, shows that she is extremely risk averse, which actually lines up very well with all of the personal finance advice she gives. In other words, she lives what she teaches - and that’s why it took her so long to come out. (@ moomin valley)

Suze Orman Is Gay: What It Means To Personal Finance This article finds yet another personal finance take on the issue: the estate tax situation basically says that Suze and her partner can’t simply leave their money to each other without paying some serious estate tax. Even though they have a long-term commitment to each other, they can’t leave each other their separate money. This bothers me; I think the government shouldn’t make value judgements on people in terms of how they use their money. If someone works hard, finds success, and achieves the American dream, they should at least have earned the right to leave their whole estate to one person of their own choosing. Yes, I’m opposed to the estate tax. (@ money for the rest of us)

After digging myself out of a financial meltdown, I realized I needed to start investing for the long term in order to secure a good life for myself in the future. I read a few books on stock investing, but they really didn’t click for me at first; I needed something tangible to wrap my hands around for me to really get it. Here’s what I did.

First, I looked for a stock investment that would minimize my risk. This basically meant a mutual fund that invested in a lot of different sectors and had only minimal costs involved. By doing this, a downturn in one sector (like the 2000-2002 downturn in tech stocks and the 2006-? downturn in housing) won’t be disastrous for my investment. It also means that a strong upturn in one sector won’t cause me to skyrocket, but given that I knew little about stocks, I didn’t think I would be great at picking the right sector to be in.

Second, I found a list of solid mutual funds with a long history. I actually used the Money 70 list to start with (it was the Money 65 when I used it). I looked at the index funds on the list and tried to find one that matched what I could invest (a relatively low minimum investment) and that stuck in areas that I wanted to learn more about (domestic stocks, not international stocks, bonds, or real estate). That left me with four funds from Vanguard: the Vanguard 500, the Vanguard Total Stock Market Index, the Vanguard Mid Capitalization Index, and the Vanguard Small Cap Index.

At that point, I spent some time studying each of the funds. I looked at their histories and, since I didn’t want much risk at all for my first investment, I basically looked for how badly they weathered overall market downturns over their history. It turns out that I had some very good choices here, as they were all very good in terms of not collapsing during downturns.

However, I wanted to use these funds as a starting point for education, and so I decided to start with large companies and invested in the Vanguard 500. It had a very long history of positive growth and also had a ton of diversity.

I wasn’t done, though. After I invested, I started spending some time studying some of the individual stocks that make up the Vanguard 500 to see how they worked. I started going through the index and investigating the individual stocks that make it up, trying to learn more about how these stocks move. I looked at companies whose products I used daily and companies I’d never heard of.

What happened? I began to learn how stocks worked via the mutual fund: I was paid dividends and learned about capital gains tax and the like. I also began to learn a lot about individual stocks, as I put in the time to research the individual stocks I owned. Because of my ownership experience, I gave myself a reason to study individual stocks: I already owned them in a risk-protected way. This gave me motivation to understand individual stocks, and now I’m beginning to dabble my toes into individual stock investments.

If you want to get started in stock investing, index funds are a great way to go: minimized risk along with the excitement and self-motivation that comes with owning individual stocks.

Several of my readers are diving headfirst into learning how to cook at home because of the huge financial savings, but getting started in the kitchen means more than just buying some food and following some recipes: you need a bit of equipment, too. A reader of mine wrote to me recently about this:

I know you don’t want to be tempted into writing a cooking blog, or maybe you do but you’d miss your family too much, but I have a question about the kitchen that’s related to personal finance. Since December I’ve been making more and more food at home and bringing lunch to work. It has saved me something around $100-$200 a month–and that’s not including how much money I’m saving from not going to Starbucks anymore. Mostly though, I’ve made sandwiches. Anything that could be put between two pieces of bread was my domain! I’ve always been skeptical of the kitchen because I actually dated a chef and was never allowed near it. I am looking to start cooking more meals at home, but have NO utensils, pots, pans or the like.

My question is this: Are the “full set” kits I’ve seen at Target or similar stores worth buying? I am debating on something like that, or just buying a piece or two of more expensive cookware. The “better” stuff seems heavier and more sturdy, but that’s about all I know. Does a novice cook need the whole gamut of pans, or can he get by with a pan and pot or two?

“I know you don’t want to be tempted into writing a cooking blog” … as long as I can keep sneaking my foodie posts into The Simple Dollar under the umbrella that cooking at home is cheaper than eating out, then I can at least keep my desire to start such a blog under wraps.

Anyway, my answer to any person who is just beginning to buy stuff for their kitchen is to not spend their money on a large cheap cookware set. Instead, buy a small number of basic pots and pans - but buy quality items. There are several reasons for going this way:

Most basic recipes don’t require many pots and pans. You’ll only need several of them at once when you get into complex recipes, which are basically completely overwhelming for the beginner. Thus, if you buy a large set of pots and pans, most of them will just sit in the box, largely unused.

The higher-quality items last a lot longer. I like to relate my experience with Teflon-coated pans when I first started cooking. I didn’t know what I was doing, so I completely destroyed the Teflon coating on three pans within three months of getting started in the kitchen. Each time, the pan quickly began to rust and thus I had to discard it and get something else. Finally, I wised up and bought a hard-anodized pan. It cost more, but it worked even better than Teflon in terms of not causing things to stick to it. Even better, I’m still using it today, and it looks almost as good as the day I bought it.

The higher-quality items make cooking easier. As I hinted at above, the more expensive items simply make things easier. I don’t have to worry about prepping my hard-anodized pans for much of anything at all; I just pull them out and go. They’re also easy to clean, no matter how badly you mess things up. I remember being really scared of some crusty burnt black stuff on my hard-anodized pan shortly after I purchased it, but after letting it soak for a while in some hot soapy water, I cleaned it really quickly with a sponge. I’ve never had much problem at all with cleaning any of my quality pans.

Any recommendations? In terms of bang for the buck, I’ve had great experience with the Calphalon Commercial hard anodized pots and pans. Their nine piece hard anodized set will basically be everything you’ll need for pots and pans in your kitchen for years. Even though the price point is somewhat high (depending on your income, of course), our above reader is already saving a couple hundred a month, so this set can be paid for in less than a month at that rate.

One important thing: read the directions! The small number of negative reviews at amazon on this set are due to people not reading the instructions in the set (I’ve given it as a gift, so I’ve seen the directions). When you use these, don’t toss them in the dishwasher - just toss them in the sink with a bit of warm soapy water on them to soak for a while, then they pretty much wipe off with a sponge. If it’s not coming off easy, just put in some more hot, soapy water and let it soak. Remember, even Teflon has stuff stick to it if you burn it, and you’re going to burn stuff when you’re just getting started.

If you don’t want to spend that much to begin with, I’d recommend starting with the 12 inch everyday pan (really, this will deal with almost everything you can throw at it for basic recipes and even some baking), the 2.5 quart covered shallow saucepan (essential for when you start making sauces and the like), and the 7 quart covered casserole (rather expensive, but it does soups, pastas, and other such things brilliantly). These three will be enough to get your kitchen started in cooking many things - and you can buy them in that order, because the everyday pan will cook a lot of stuff all by itself.

If you want a oven baking dish, get a glass Pyrex 9″ by 13″ (glass is so much better than metal - I constantly run into rusting issues with metal and the glass one cooks more evenly). For large batches of soup or chili, you can get a big, inexpensive pot for this and be just fine.

What about knives? The inevitable question that is asked next is “what about knives?” Here, I don’t recommend the low end (they’re never sharp and are annoying) or the high end (very expensive and will spoil you for knives for life). Instead, I recommend finding something in the middle ground. My favorite set in the middle price range is the Farberware 14 piece set, which will pretty much cover every possible need for a beginner. We started off with a set like this and eventually I upgraded due to a very very nice gift from an old friend, but it served me very well for years.

Basically, the rule of thumb for cooking supplies is that you’re better off buying two expensive pans than twenty cheap ones. They work better and take up much less space.

Five Minute Finances is a series of tips on how you can save significant money or reorganize your financial life in just five minutes. These tips appear Monday, Wednesday, and Friday on The Simple Dollar.

The average American has a savings account at their local bank, which offers on average an interest rate of 0.5%. That’s abysmal, and it’s basically impossible to get ahead with that kind of interest rate.

Fortunately, there’s a new crop of savings accounts now appearing with all of the features of a regular savings account (FDIC insured, easy deposits) with an interest rate that actually works for you - regular rates at 4.5% APY or above and some introductory offers as a $25 sign-up bonus or a 6% APY over an introductory period.

How much can I make? Let’s say you have $1,000 in your savings account. A typical savings account earns about 0.5% APY, so after a year you’d have $1,005 in the account. HSBC Direct, for example, has a 5.05% APY, meaning that after a year, you would have $1,050.50 in the account, which is $45.50 more than you would in your local neighborhood savings account. Every year after that, the money you can make in a high-yield savings account is even greater than your local simple savings account.

How do I start? I personally use ING Direct (4.5% APY as of this writing, amazing customer service, stellar interface). You can find a huge list of high interest savings accounts at bankrate.com.

When you’ve found a bank, just sign up and transfer some money in from your checking account. I’d recommend setting up an automatic withdrawal plan into that savings account - even just a little bit each week - so that you can steadily grow that account over time. I use such a scheme myself to keep my emergency fund well funded - and an emergency fund is a valuable thing to have so that surprises don’t derail your financial plans.

Inflation is one of those topics that crops up time and time again on the news, and it’s one of those topics that makes my wife’s eyes immediately glaze over. It’s not long before the channel has been turned or the newspaper page has been flipped. Yet inflation (and avoiding it) is one of those things that really makes the world go round - and repeatedly affects your wallet.

What is inflation? Inflation refers to a situation where something costs more today than it used to. For example, when my father was young, he used to buy a dozen chicken eggs for a dime, but today it easily costs a dollar. If you do the math on this, you’ll discover that it comes out to about 5% annual inflation.

How does inflation affect me? For the average person’s wallet, inflation is generally a bad thing. It means that with every passing year, your dollar (or euro or pound or currency of choice) is worth less than it used to be. When inflation is high, your dollar is getting cheaper faster; when it’s low, your dollar is still getting cheaper, but not as fast. Here are some ways that inflation affects your everyday life:

Higher prices at the grocery store When inflation is high, the prices at the store are going to go up faster.

Low interest savings accounts actually lose money If your savings account has a lower rate than the rate of inflation, your money is actually becoming less valuable over time. This is a good reason to find a high-interest savings account, so that your savings can beat inflation.

When inflation is high, interest rates on home loans, credit cards, and other big loans will go up. This will overall encourage people to spend less money, and thus sellers won’t be able to keep raising prices, so inflation will slow down. The government actually controls how this works through the federal reserve, which I talked about earlier.

How do I understand a news report about inflation? For most people, the important thing to listen for is the Consumer Price Index, or CPI. This is a number calculated by statisticians and released by the United States government on a monthly basis (many other first world nations also release a CPI monthly). The whole story usually revolves around this number and how quickly it is going up. As a consumer, the lower this number is, the better.

Should I really care? In the short term, inflation isn’t that big of a deal - it generally stays around 3 or 4% annually, so it doesn’t affect you too much on a daily basis.

Where it is important is when you’re looking at retirement. Let’s say you make $40,000 a year and you’re thirty years from retirement. Using a quick rule of thumb, you figure you’ll need $1 million in your retirement account to retire. Not so fast. You’re actually figuring that million dollars without thinking about inflation. The truth is that with 4% annual inflation, you’re going to need $3.24 million in thirty years to equal what $1 million is worth today. Scary? For me, it’s just a reminder that I need to start investing for retirement NOW, not later. Every time you hear an inflation report, remember that it’s a call for you to invest for your retirement.