One of the biggest challenges in personal finance is figuring out ways to reduce the regular bills that we all face each month. These continuous regular expenses simply fill up our budget, leaving us less money to invest for the future - and also less money to spend on things that we enjoy.

The best approach for trimming required spending is to simply walk through all of the required expenses and look for ways to lower that number. Here are forty techniques you can use to do just that, divided up into several sensible categories.

Automobile

Automobiles are money pits - they constantly go down in value, devour fuel by the gallon, and often require all manner of repairs and maintenance work. How can we reduce the cost of automobiles in our monthly budget?

Use public transportation If you have an option that enables you to ride to regular destinations (such as work, the store, or a shopping center) instead of using your automobile, you can save quite a bit of money on gas and maintenance by just dropping a few coins on the bus or the rail system and leaving the car at home (or parking it at a station). In fact, during my earlier days, I exclusively used public transportation and it was painful to add an automobile to my monthly finances.

Sell an automobile If an automobile is sitting in your driveway or garage and isn’t used, consider selling it. If nothing else, the insurance expense will go away, and if you can use the money from the sale to pay it off or, better yet, pocket some of the money, even better.

Carpool If you have an opportunity to share a ride to and from work with someone else, that not only significantly reduces wear and tear on your car and gas expenses, it enables you to use any carpooling lanes on the commute, which almost always save time when commuting and allows you to drive at a speed that .

Keep the tires on your automobiles inflated properly Once a month, stop by a local gas station that offers free air and check the air pressure in your car tires, then fill each one to the maximum recommended amount as stated in your manual. This improves gas mileage by one percent for every two PSI of air you are able to add to your tires.

Debt Reduction

Any opportunity you have to reduce your debt will obviously help in your monthly payments, but many people don’t have the cash available to eliminate debt. There are other options for reducing your monthly debt load, however…

Refinance your home and/or automobile Contact some lending institutions and inquire about rates. You might be able to get into a situation that reduces your monthly debt payments without significantly increasing your overall cost in the long term.

Consolidate your student loans Don’t hold out for a hope of better rates to consolidate your loans, especially if your current rates are quite high. Spend the time to find a good loan consolidation option and it will pay off every single month.

Get a small personal loan through your local credit union This is a great option if you’ve borrowed money to make a smaller purchase, such as furniture or a small home improvement project, and you’re finding the interest rates uncomfortable. The perfect place to look for a helping hand here is your local credit union, which will often offer small personal loans at a nice rate if your credit is solid.

Request a credit card rate reduction If you’ve got a decent amount on your credit card, call up your credit card company and request a rate reduction. If they won’t go for it, get a 0% balance transfer onto another card. The key here, though, is to stop buying on credit until your financial situation is healthy.

Sign up for automatic debt repayment plans Many installment plans, particularly those with student loans, offer an interest rate reduction if you sign up for an automatic plan. You should never pass these up - not only do they save money automatically each month, they’re also incredibly convenient. If you have any installment payments (particularly student loan debt), see if such an offer is available to you.

Sell unused items Dig through your closet and look for items that you no longer use that may have value, then use that cash directly to eliminate debts, thus reducing your monthly debt load. I did this myself with a number of items when my debt load became almost unmanageable.

Energy

We all face a continual onslaught of energy costs, especially as we use more and more electronic devices. Luckily, technology has brought us a few effective ways to reduce costs as well.

Install CFLs Compact fluorescent light bulbs are receiving a big push right now and their advantages are great: a longer lifespan and significantly less electrical usage. Stick with the name brands for now, even at a premium - my entire house switched to GE CFLs more than a year ago and I have yet to replace a single one. A tip: when comparing bulbs, use the lumens number to compare bulbs, not the equivalent wattages - the lumens indicate the actual amount of light emitted by the bulb. Remember also that under normal usage (4 hours a day) and normal electrical rates ($0.10 per kilowatt hour), replacing a 75 watt bulb with a 20 watt CFL saves $0.66 per month. Multiply that by all the bulbs in your house to see how much you’ll save every month.

Install a programmable thermostat A programmable thermostat allows you to automatically alter the heating and cooling of your home when you’re not at home, when you’re asleep, and so on, saving significantly on your heating and cooling bills.

Unplug all unused electrical devices Are there any electrical devices around the house that stay plugged in, but that you rarely use? Most electric devices use a small amount of electricity constantly, a phantom charge. To eliminate that usage, unplug the items.

Utilize timers and power strips Along those lines, consider utilizing power strips and power timers to turn electrical devices on and off. A power strip with a switch on it, when turned off, blocks the phantom charge on those devices; a timer can automatically turn off the charge going to a power strip (or anything plugged into it) at a certain time each night. This is a great way to eliminate phantom charge on your home electronic equipment at night.

Install a blanket for your hot water heater and reduce the temperature In many homes, the hot water heater is a major energy drain; the water is kept hotter than most people ever use, plus the heat is constantly lost to the environment, meaning you have to burn more energy than ever to keep the water so hot. Solve both problems by dropping the temperature down to 125-130 degrees Fahrenheit (around 60 degress Celsius) and also installing a blanket on your water heater to keep in the heat - a blanket can pay for itself in about a year.

Air seal your home Air sealing your home can prevent drafts, which can often cause the loss of cool air in the summer and the loss of warm air in the winter, both of which can increase your housing costs. Here’s a great guide to this weekend project from the EERE.

Entertainment

Many people look at entertainment as the first thing to cut when trying to trim costs, but they often forget to look at the regular expenditures that slowly eat away at your financial foundation month in and month out. Here are some things to consider that you may have overlooked before.

Cancel club memberships Look at things like a health club, a country club, and so on. How often do you really use these services? If you’re using a gym membership less than once a week or a country club membership less than once a month, you’re likely throwing away money.

Reduce or eliminate your cable bill For many people, this advice is beyond the pale, but it’s worth looking at. Perhaps you could trim back on your premium channel selection and just go with basic cable, or perhaps you could even eliminate your cable bill entirely - it will also help with electricity costs because you won’t be watching television as much and you’ll suddenly find you have much more free time.

Look for inexpensive entertainment options Do you utilize the local library? Do you attend local community events like municipal band concerts and so on? Are you aware of local volunteer groups and organizations? Your community often offers many options for inexpensive or free entertainment of all kinds - you don’t have to have a big entertainment budget each month.

Strongly reduce or eliminate travel We live very far from our extended families, so we are aware of the costs of travel. We’ve found that by being selective about what we travel to - and also open to inviting people to visiting us - we signifcantly cut down on travel expenses.

Cancel newspaper and magazine subscriptions If you get a magazine or newspaper in the mail but simply don’t read it, cancel that subscription when it comes up for renewal, no matter how much you “like” the magazine. An unread subscription is nothing more than expensive clutter.

Look at and consider reducing/eliminating other regular paid services Look at services like Netflix - are you really getting $19.95 a month out of these services? If not, just drop the service and look for other options, like a local rental store. What about satellite radio? If you use that but find yourself not using it or just sticking with the same things you listen to on regular radio (like NPR or top forty), then cancel the service.

Food

My favorite room in the house is the kitchen, but for many people it just seems more convenient to eat out, even though it’s incredibly expensive and not as much of a time saver as you might think. Consider these options.

Cook (and pack) your own meals at home When you cook at home, make plenty so that you can freeze some of it for future meals and, even better, take some of it as leftovers to work, drastically reducing the cost of the typical workplace lunch. Some people may shy away from leftovers, but there are some secrets to making any leftovers as good as the original.

Reduce or eliminate eating out or getting take-out Take-out and dining out can be a huge timesaver for a busy family, but the expense can be tremendous - and it often doesn’t save much time, either. Instead, look at other options for dining at home: prepare lots of meals at once and freeze them for easy cooking later, focus on simple recipes, and choose recipes that utilize the fresh produce in season in your area.

Buy nonperishable items in bulk Many people never even bother to look at some of the larger packages of nonperishable items - they think it’s just too much. Try looking at the cost per unit of all of the sizes and choose the one that’s the best deal; often, it is the big bulky package, but that just means you won’t be buying it again for a long time. Spread out over months and over a lot of items (think of all of the nonperishables in your home - food is just the beginning), this can add up to a lot of trimmed fat.

Start a garden Vegetable gardening is a splendid hobby that can often turn a profit if done well. Focus on vegetables that are easy to grow and produce abundant fruit, like tomatoes, and learn how to store the excess through such processes as canning. Opening up a jar of tomatoes in the winter that were grown by you in the summer and canned in the fall is a wonderful experience - and it can really help with trimming the food bill.

Buy generic Many products (not just food) are available in a store-brand or generic form for significantly less money - quite often with the name brand, you’re paying for their advertising budget with the higher cost. Look carefully at the ingredients in generic and name-brand products and if they’re the same, go with the generic one on a regular basis, which will consistently trim money from your shopping bill.

Insurance

We all have insurance to protect against the unexpected, but when we overpay for insurance, we leave ourselves vulnerable in a different way by stretching our budget too thin. Look into these options for ways to reduce your insurance premiums.

Downgrade your health insurance Ask at work about the various options available to you that might reduce your insurance costs, and don’t neglect to look into family options if you have children - if you do, all working members of the household should look at family coverage.

Shop for homeowner and auto insurance If you haven’t shopped around for homeowner and auto insurance lately, now’s a good time to get a few quotes, especially if your credit is strong. If you can save a substantial amount and maintain your current coverage, it’s well worth switching to another provider, but give your current one a chance to match.

Switch to term life insurance If you’re paying for whole life insurance or universal life insurance, look strongly at a term package instead. The cost per year will be significantly cheaper and at the end of the term, your life insurance needs will likely be far less than they are right now.

Raise your deductibles If you’re paying a large premium in order to have a small deductible, you might want to consider switching that, particularly if your claims are infrequent. Raising your deductible can often significantly reduce your annual premiums, easing the monthly strain on your bills.

Other

There are many other areas of your budget that can also afford a bit of fat trimmed from them. Let’s look at a few more possibilities for lowering your regular expenses.

Reduce or eliminate your cell phone bill Ask yourself how much you really use your cell phone; if it’s not all that much, look at perhaps getting a prepaid phone with a small number of minutes on it for those emergency situations when you actually use it. If you do use it a lot, look at the features you’re paying for on your bill and see if you can trim any of those.

Move to a less-expensive child care option We pay a significant amount for our child care, but there are other good options available to us. Look at other child care options in your area carefully and see if it might not be worth moving to a less expensive scenario. If you’re lucky enough to live near grandparents, they might be able to assist with part-time child care as an opportunity to bond with their grandchildren.

Reduce or eliminate organized child activities My own children aren’t old enough yet to be in organized activities with costs, but my nieces and nephews certainly are and the bills can really add up. Look for activities that your child is sincerely interested in (if you don’t know, ask them what they really like) and focus on those while cutting back on the rest.

Eliminate services (housecleaning, landscaping, etc.) If you hire out household services to others, consider trimming back or eliminating them. Instead, put aside some time each week to do them yourself - not only will you save money, but you’ll find that many activities can get the whole family involved (like housecleaning).

Reduce (temporarily) your giving at church/synagogue/etc. If your budget is bursting at the seams, consider cutting back on your giving at your religious service. If this spiritually troubles you, talk to the leader of your religious group about the issue - they’ll usually be very supportive of this if you need some time to get your own house in order.

Strongly reduce or eliminate clothes shopping I have a close friend who insists on having a significant monthly clothes budget. I challenged her to trim her spending in half and instead focus more on looking for bargains - and she’s never looked back. If you need to dress well for work, don’t let that slide, but putting in some effort to look for a bargain can often pay huge dividends. Even better - have a moratorium on shopping for new clothes until you really need something new.

Reduce grooming expenses Instead of having your hair cut and styled weekly, cut back to every other week. If you have your nails done twice a month, cut back to monthly, or have manicure parties where you do it at home with your friends instead. If you buy expensive shampoos, look at lower cost options. It doesn’t have to cost a truckload to keep up appearances.

Reduce or eliminate consumable habits (smoking, alcohol, etc.) Any consumable habit, whether it be smoking or excessive drinking, can be a constant drain on a budget without any real benefit. Give the habit a kick in the pants and your wallet will breathe a serious sigh of relief.

Move to a less expensive area Many people leave this option out when looking at trimming their budget, but if you can find work in another area, it may be worth considering. Look around at other areas of the country where you can find employment, see what your salary would be there, and look at the housing costs. Quite often, you’ll find yourself significantly ahead by looking at areas like Minneapolis rather than areas like San Francisco, even at a significantly lower salary.

Using even a few of these options can really open up some breathing room in a budget, enabling you to break free of debt and chase your dreams.

Yesterday, I mentioned my desire to have a twelve month emergency fund, which resulted in some very interesting discussion. Some of the readers thought it was a good idea - others felt that it was simply too much and that I should invest some of it.

Back in April, one of my favorite bloggers covered the idea of “too much” emergency fund in detail and concluded:

Ideally, your emergency fund should be able to cushion the worst possible scenario (specific to your personal situation) that you can imagine (“end of the world” is not a valid scenario). Add a 20% margin of error to that estimate (roughly) and aim for that emergency amount. The right amount will be something that makes you feel “safe” after considering the worst case scenario. More than that is probably “too much”.

This brings us back to the idea that personal finance is more personal than finance - something I believe in greatly. I think it makes a lot of sense to walk through a worst-case scenario in detail, but to remember that that worst case is something different for each person. So, here’s my worst case scenario and why the idea of a twelve month emergency fund appeals to me:

We have a third child and that child is born with a birth defect, which means we incur medical costs all through his/her life. Shortly after the child is born, I lose my job and on my way home I get really upset and proceed to run my truck into my house.

This is the worst-case scenario I envision that doesn’t involve a death. Is it realistic? Probably not. Does it keep me up at night? Not really. But there are a ton of pieces of this scenario that are possible, and they all result in having to spend significant amounts of extra money.

Outlining that worst-case scenario is one’s living situation. For us, we already (effectively) have a household of four with two children under the age of two who are basically incapable of caring for themselves, and we are thinking of following up with another one (at least). I have the financial means to plan for a worst-case scenario that enables their lives to continue in much the same way as before, with the safety of home, a fairly regular way of life, and parents that love them.

Another big piece of the puzzle is your values. I want to always show them by example that self-reliance and preparation is the best way to live so you can simply roll with any punches that life hands to you.

After running through the numbers on this scenario and others, I concluded that a year’s worth of salary is an appropriate emergency fund. For most people (not having multiple young children and not placing a large emphasis on self-reliance), a smaller emergency fund makes a lot of sense - in fact, I would say that our fund idea is far, far above the norm.

The lesson here? When you define your emergency fund, be sure to look not only at your worst case scenario, but the other pieces of your life that surround it, and consider your own personal values. There is no cut-and-dried formula for how much emergency fund you should have - it’s one of those things that really puts the personal in personal finance.

In the past, I gave a brief discussion about the difference between APR and APY when talking about simple and compound interest. What I didn’t explain, however, is why the difference is important and how you can use Microsoft Excel to calculate one from the other.

First, let’s define the two:

APR (annual percentage rate) is the return your money would earn in an investment over a year without any compounding. Let’s say you put $10,000 in a bank account with a 5% APR, but instead of putting the interest straight into the account, they paid the interest directly to you instead. Over the course of a year, the account would pay you exactly $500.

On the other hand, APY (annual percentage yield) is the return your money would earn in an investment over a year with compounding. Let’s say that same account with the 5% APR actually compounded monthly and left that money in your savings account to earn interest the following month. At the end of the year, your account would have $10,511.62 in it, meaning you actually earned $511.62 over the year. Thus, your APY would actually be 5.1162%.

Why doesn’t everyone just use either APR or APY to represent the earnings on an investment, instead of some situations using one and other situations using the other? To put it simply, companies will use whichever one makes their product look better in print. When you’re the one paying the interest, like on a credit card, they’ll quote APR; when they’re paying you interest, they’ll quote APY.

Let’s look at HSBC Direct, for example. Their savings account interest rate is quoted as being 5.05% APY. Their actual APR, though, is roughly 4.93% - the monthly compounding is what lifts the interest rate to 5.05% APY. On the other hand, let’s look at a credit card with an 18.99% APR, but it’s compounded daily … what’s the APY? 20.91%. For every dollar you have on an 18.99% APR credit card and don’t pay interest on all year, you’ll owe almost 21 cents at the end of the year.

So how can I convert back and forth between the two? It’s very simple to do with the aid of Microsoft Excel or Open Office Calc. If you know how to use the two programs, the instructions below should be very simple; if not, it’s well worth educating yourself on how to use a spreadsheet as they can be invaluable tools for personal finance (here’s a nice primer to get you started).

Converting APY To APR

These instructions will set up Excel to convert APY to APR, useful for figuring out how much a savings account is really paying you.

In cell A1, type APY
In cell A2, type # times a year
In cell A3, type APR
In cell B3, type =((1+B1)^(1/B2)-1)*B2

Now, type your desired APY value into cell B1 and the number of times a year the interest is compounded into B2 (most of the time it’s monthly, so you’d type in 12). The APR will appear in B3. You may need to set B3 to have the “percentage” data format; just right click on B3, choose “Format Cell…” and then choose “Percentage” in that box.

Converting APR To APY

These instructions will set up Excel to convert an APR value into an APY value, useful for evaluating how much you’re really paying on a credit card.

In cell A1, type APR
In cell A2, type # times a year
In cell A3, type APY
In cell B3, type =(1+B1/B2)^B2-1

Now, type your desired APR value into cell B1 and the number of times a year the interest is compounded into B2 (most of the time for a credit card it’s daily, so you’d type in 365). The APY will appear in B3. You may need to set B3 to have the “percentage” data format; just right click on B3, choose “Format Cell…” and then choose “Percentage” in that box.

These instructions should help you really understand what bank account offers and credit card offers really mean and how you can get them on the same terms.

My wife and I have spent extensive time thinking about a plan for repaying all of our debts after we move into the home. Our goal is to be debt free (including the mortgage) in fifteen years - a goal that my wife heavily believes in. For me, although I don’t believe it maximizes our dollar, I do believe that it’s a great goal that will enable us to be debt free when we reach our 40s and we start focusing on paying for our children’s college education.

The Basic Debt Snowball

Our basic debt snowball is pretty straightforward. Our only debts outstanding are three student loan debts, two of which have an interest rate higher than our home loan and one with a very low locked-in rate lower than our home loan. So, our first goal will be to pay off the two higher ones, followed by the mortgage, followed by the smaller one. With focus, the two higher ones should be paid off in a year or so - this will be easier because we’re no longer saving every spare dime for the down payment and moving expenses.

So, our first draft of the plan is:

Pay off student loan debt #1
Pay off student loan debt #2
Pay off mortgage
Pay off student loan debt #3

Unfortunately, it’s not so simple…

Issue #1: Emergency Fund

Right now, we have about three months’ worth of my salary in an emergency fund. I would like to have eighteen months’ worth of my salary - or about twelve months worth of our combined salary - in that emergency fund. To me, this is a very high priority, higher even than the debt snowball. I don’t wish for a bad situation to derail my family’s plans - right now, I have a toddler and I have a baby due in three months, and my children and my wife are the center of my life, period. So, an emergency fund is an even higher priority than the debts.

So where are we at?

Build a twelve month emergency fund
Pay off student loan debt #1
Pay off student loan debt #2
Pay off mortgage
Pay off student loan debt #3

But wait, there’s more…

Issue #2: Automobiles

My wife and I both have cars between five and ten years of age that are fully paid for. We both plan on driving our automobiles until they literally die on the road or another social change makes a new one necessary (like a possible third child…). We anticipate needing one new vehicle in three years and another one in five years. We plan on buying well but not luxury - our tentative plan is currently to buy a minivan and a sedan (yes, we’re about as boring as possible). We’re willing to pay more for reliability but we don’t need most of the hallmarks of quality - these will be family vehicles, like a Honda Odyssey and the like.

So how will we pay for these? I would prefer to pay cash for them if at all possible, so that basically means if I start making payments on them now, we can afford to outright buy them in three years. To ballpark it, I looked for prices on late model used versions of the auto models we’re looking at, then worked out a three year payment plan on one and a five year plan on the other using an online loan calcuator (my “payments” now are lower than they would be if we bought it on a payment plan, because I’m not paying interest and the savings account is earning interest). Those features add together to trump any of our current debts and also even to trump our large emergency fund buildup.

So, here’s the real savings plan for now:

Car fund #1 ($501 a month gets us $20K in an HSBC Direct account in three years)
Car fund #2 ($289 a month gets us $20K in an HSBC Direct account in five years)
Build a twelve month emergency fund (this basically catches all the extra for the next few years)
Pay off student loan debt #1
Pay off student loan debt #2
Pay off mortgage
Pay off student loan debt #3

Some Thoughts

It’s kind of disappointing that we’re not immediately paying off debt. However, in the case of the car funds, we effectively are paying off debt - without those funds, we wouldn’t have the ability to just write a check and replace our old, worn-out automobiles. The $20K estimate might be high for a late-model used, but I’d far rather have too much than not enough.

What about the “tight budget” effect? I’m not really worried about it, to tell you the truth - I like it if the budget is tight right now because it encourages me to be careful and frugal. I don’t stay up at night worrying about it because I know that we do have cash, but I also know that there’s only a small amount of free spending money right now, so I don’t buy frivolous stuff.

Why do this? By building a master plan like this and carefully planning ahead, it’s going to make our financial situation as our kids grow up much better. Right now, we can quite easily make frugal choices - our children will be quite young and won’t have expensive needs. But by laying the framework now, we’ll have a lot more cash freed up in fifteen years when our children are starting to look at college - we’ll have 529s for both of them and no debt at all so that if we make the decision to help more, we can.

I often get emails from readers asking me what the “best” credit card offer is. I write back and say there isn’t one, which I’m sure doesn’t win me any friends, but it’s the truth. There is no best credit card for everyone, but I’ll certainly say that the best offer for you probably wasn’t that Citibank offer you got in the mail last week.

Yet, time and time again, people sign up for whatever credit card happens to be most available to them, even though they’re often just handing wads of cash to the credit card company for the convenience. I think a credit card can be a valuable purchasing tool if used correctly and in a healthy fashion, but you’re simply losing out if you don’t select a good card for primary use.

So how do you find a good one? First of all, do a little self-evaluation…

Will you likely carry a balance on the card?
If you will be carrying a balance on the card regularly (in other words, you won’t be paying the full balance on the card each month), then the interest rate trumps every other factor about the card. Here’s what to look for in a credit card offer:

Introductory rate How much is the rate at first? Hopefully, this will be 0% or something very close to it. An introductory rate above 5% is not impressive.

Length of introductory rate How long does that rate last? The longer, the better.

Billing and grace period Two-cycle billing is bad; avoid it if you can. Also, the longer the grace period, the better.

Balance transfer rate and timeline Many cards give you the opportunity to transfer a high balance on another card to this card at that low introductory rate. However, read the fine print - the interest rate on the transfer may be different, as may the period, as compared to the introductory offer.

Long-term rate The long-term rate is less important than the introductory rates. Especially notice the adjusted rate if you’re late with a payment.

On many offers, the amount is based on the prime lending rate, which you can easily find by Googling for “prime rate” - as of this writing, the prime rate is 8.25%. So, if an offer mentions prime plus 12.99%, your real rate is actually 21.24% - ouch.

How will you use the card?
If you do pay your balance each month, then the bonus offers become much more relevant for you. Here’s some advice on how to find the perfect credit card offer in your situation.

Carefully evaluate your spending Look through all of your expenditures in the last three months or so, and group them not only by type but also by where you made the purchase. The largest groupings you have are the areas you should look for bonuses on. For example, my biggest expenditure over the last three months is our automobile - for gas, oil, and such things.

Check directly with major credit card companies Don’t Google for offers - almost any term combination you type in will result in a bunch of spam for substandard offers. Instead, go directly to the major banks that offer cards - Citibank, Chase, CapitalOne, and Bank of America, for starters - as well as directly to the major credit companies - American Express, Visa, MasterCard, and Discover - to find offers.

Focus on offers that match your spending Since you’re not going to carry a balance, your primary focus should be on cards that offer significant rewards. Look for ones that align well with your spending and also with your lifestyle. For example, I’m a heavy commuter and I put a lot of miles on my vehicle, as does my wife, so for us, the Citi Driver’s Edge Platinum Select is a very good choice. On the other hand, perhaps you are very very diverse in your purchases, so a direct cash back card like the Citi Dividend card might be appropriate.

The key is to look at a multitude of offers and really try to balance what they offer with what you actually spend, not with your perception of what you spend. If you do this - and keep the balance paid off - you’ll end up money ahead for having used the card.

Isn’t recommending a credit card bad advice?
Credit cards are only what you make out of them. If you make bad decisions, credit cards can certainly amplify the mistakes, but if you make good choices (like keeping the balance paid off), they can be incredibly useful tools that make your shopping much easier and can put money back in your pocket.

As a lot of you know, I’m a fan of Money Magazine - in fact, I review each issue because there’s a lot of good stuff between the covers. One of the editors and regular columnists is Jean Chatzky - I find her columns quite interesting because I either think they’re a complete home run or a complete train wreck, rarely anywhere in the middle. Anyone who does that piques my interest, so I was quite happy to take a serious look at her book Pay It Down.

Pay It Down has an interesting premise, which it broadcasts loudly on the cover: From Debt to Wealth on $10 a Day. I’m a believer in the $10 a day concept; in the past, I wrote about the Alexander Hamilton plan, which illustrates that you can wind up with almost $4,000 in your pocket after a single year if you just put away a ten dollar bill each day. This book basically argues that you can actually do much better than that by using that $10 effectively and surrounding it with rational behavior.

One thing I like about Chatzky is her writing style - it’s loose and breezy and feels very light, but actually has quite a bit of content to it. Does her style and this $10-a-day concept add up to a personal finance book worth reading?

Moving Through Pay It Down

Introduction: Getting Ahead and Staying Ahead
The introduction here correctly names the biggest problem child in personal finance in America: the credit card. Chatzky basically spells it out as clearly as possible: if you have credit card debt that carries over from month to month, you have a problem, and learning how to combat that problem is pretty much the only way to financial success.

Step 1: Assess the Problem
Chatzky posits here that for most Americans, spending goes out of control in the aftermath of a significant life event, or usually a pairing of two or more of them. She offers a brief list of the common ones: job loss, missing an expected raise, a home purchase, an apartment rental, a divorce, a health scare, a very tight budget, no emergency fund for a jam, or simply a spending problem (personally, I’d also add to this list the addition of a child to the family). For me, it was an apartment rental, no emergency fund, a child, and a spending problem all at once that put me in a tight pinch. Not only does it hit the wallet hard, it causes stress and anxiety.

The first thing you need to do is simply to list all of your debts together in one place, along with their interest rate, your remaining balance, and the amount due each month. It’s simple, but I have to agree that from experience, it works. Putting them all in one place like that really lets you see the challenges set out in front of you in one picture rather than in a bunch of scattered fragments. Even more importantly, you can use this to help you define manageable steps for tackling that debt.

Step 2: Break Your Challenge into Manageable Steps
Another simple idea: simply specify a specific goal (such as paying off a specific debt) and determine a time frame (in three years, let’s say). From these, you have a fairly obvious metric for success (your balances). So how do you get there? Translate that debt and time frame into how much you actually need to save per day. This chapter provides a bunch of tables to help with this, but you can use the Bankrate loan calculator to provide the same information for your specific situation.

Step 3: Know and Manage Your Credit Score
This chapter provides a basic overview of your credit score, along with some basic information on how to keep it high. Your credit score determines how much you can borrow, what the interest rate is, and so on, and it’s just a single number that represents the content of your credit report, which lists all of your debts. You can see your credit report for free at annualcreditreport.com (not freecreditreport.com; here’s why).

What can you do to improve your credit report (and thus your credit score)? Pay your bills on time. Use only up to 30% of your available credit limit. Don’t accept any credit card offer that comes your way - the more you apply for, the worse it is for your credit, even if you don’t use them. If you cancel a card, don’t cancel the one you’ve had the longest. Those are the biggest things you can do to improve your situation.

Step 4: Track Your Spending
This is one of the most powerful things that anyone can do to help out their financial situation; I’m simply amazed that more people haven’t done this. Simply keep track of every single penny you spend for a period of time (all receipts should be kept); for me, two months did the trick. Then, when you’re finished, sit down and divide them up into groups. You can decide what groups you want, but it should be clear whether or not a group is essential or nonessential. For example, I read a ton, so I would have a nonessential “book” group. You’ll probably have groupings like “utilities” and “rent” or “mortgage” and “groceries” and “clothes” and so on. Once you have all of that information, you can now start looking at what that information means and how you can use it to transform your debt situation.

Step 5: Find the Money
This chapter (and the next three chapters after it) is basically a laundry list of ways to come up with enough extra money regularly to pay down the debt you’ve accumulated. I found these to be the most interesting pieces of the book. So what’s inside? Most of the ideas are pretty well known but underutilized: reduce your income tax withholding (if you currently get a refund, instead just pay less throughout the year), call up your credit card companies and ask for rate reductions, refinance your home and auto loans, and see if you can get rid of any mortgage insurance if you’re paying any. All of these can free up substantial cash from your monthly budget.

Step 6: Find the Money: Consolidating Your Debts
Another powerful option is to consolidate all of your higher interest debt into one lower interest debt. If you haven’t already had significant bad marks on your credit report, this is probably a good thing to consider. Call your local lending institution and inquire about a debt consolidation loan. Basically, you would use the money from this loan to pay off every debt with a higher interest rate than that loan (or at least as much of it as you can). The net effect is to drastically reduce the interest you are paying and likely also reduce your monthly payments, too. If lenders are frowning on this, don’t worry too much - just focus on the other techniques and also work on building your credit score.

Step 7: Find the Money: Spending Less
Here, the book tackles what I consider to be the big problem: overspending. Most people simply spend too much money on too many things - and the scary part is that we don’t even realize that we’re doing it. I really like the approach taken here; instead of jumping into the deep end of frugality, she basically moves from expense area to expense area, identifying some of the big ways to cut spending in each area. If you follow along and apply the tips in each area, you will save some money. Most of these tips are very basic frugality ideas, but collected together very cleanly and neatly in such a way that you can see where the money goes. The best part? Even though the advice comes from a book, she says that books are a low priority and that you should head to the library.

Step 8: Find the Money: Making Hard Choices, Selling Assets, Earning More
Most of the items in the previous chapters were relatively easy choices, but depending on how bad your financial situation is, you may need more - and sometimes a lot more. This means making some very difficult choices: selling your car, selling your possessions, downgrading your home, finding a second job, looking at bankruptcy, and so on. If this needs to be done in order to get you on some sort of healthy financial track, then do it.

Step 9: Pay it Down - Intelligently
Remember that list of debts you made back in the first chapter? Here’s where it pays off. Take that list and start focusing on repayment with the highest-interest one. All of the money you freed up should go towards eliminating that debt, starting with the one that’s eating the biggest piece of cake. Hopefully, you’ve been able to reduce a few interest rates while moving through the material in the book so this won’t be as painful. What happens if a situation prevents you from paying everything? Focus on the necessities, then focus on those debts backed by the government (like taxes and student loans).

Step 10: How to Deal When Things Go Wrong
This portion of the book deals with the dark side of things: addiction to gambling, addiction to spending money, dealing with creditors, and so on. If you’re in particularly dire straits, this chapter may be able to help with your situation. Most of the information here focuses on either seeking professional help for your problems or asserting your rights when dealing with creditors that keep calling you, excellent basic information for people in such a bad spot.

Step 11: Staying Ahead of the Game
The book finishes with a look ahead at what happens once you do start getting rid of the debt. You begin to build up some savings, start investing, and begin to feel like you have complete control over your money rather than a sense of things spinning out of control. One big tip, one that she spends a good chunk of the chapter on, is keeping a watchful eye on your credit report so that things don’t get out of hand with that - you can watch your debts vanish and your credit report look better and better over time.

Buy or Don’t Buy?

Pay It Down is a wonderful starter book if you’re in a dangerous debt situation and don’t know where to start. I’d recommend it to anyone who has found themselves in such a situation, is having difficulty tackling the problem, and is overwhelmed with information. Chatzky’s style and tone is just about perfect for this purpose. If this sounds like you (or someone you know that can be helped), buy this book; it’s a very good, easy to read, short starting guide to getting yourself on a good financial track.

On the other hand, if you were reading the summary above, hopping from chapter to chapter and just thinking to yourself “Yeah… yeah… yeah… this stuff is basic,” don’t buy this book. It really is basic stuff, but it’s important because so many people out there have a very loose grip on the basics.

I should also note that Chatzky lends something of a feminine tone to Pay It Down; although I enjoyed it, I felt that she was really targeting adult females with the writing.While I didn’t learn anything new while reading it, I did very much appreciate her writing style - it’s lively and crackles with energy. This is the first personal finance book I’ve read that I’d be willing to give to some of my relatives and friends who I suspect to be in some debt trouble, don’t know how to handle it, and are looking for help.

Pay It Down is the thirty-second of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

Packing has given me a great opportunity to dig through our accumulated book collection, and in the process I’ve came across some novels I dearly loved and have read several times in the past. Three of them brought back such fond memories of their contents that I immediately added them to my “to be read” stack again. If you’re looking for some great summer reading, here are three stellar choices, along with a thumbnail review of each.

The Amazing Adventures of Kavalier and Clay by Michael Chabon - One of the best novels I’ve ever read, period. Friendship, love, social awkwardness, Salvador Dali, and the golden age of comic books all rolled up into a delicious pie.

A Prayer for Owen Meany by John Irving - The movie Simon Birch is very loosely based on this book, which actually tells a tale of how a friendship between two complete opposites at a Christian boy’s school eventually causes one of them to grow up and question almost everything in his life, particularly his faith.

The Tortilla Curtain by T.C. Boyle - I’ve loved so many novels of his (World’s End, Talk Talk, and especially The Road to Wellville), but this one was perhaps the best - a train wreck story of rich California liberals meeting face to face with impoverished illegal immigrants. It’s interesting on a pile of levels and a very fast and rich read, like everything Boyle writes.

Give each of these a shot - they’re all tremendous.

And now, for some personal finance…

Extended Travel Abroad For The Young Nickel makes a very compelling argument in favor of having a young person spend some extended time abroad, particularly between high school and college. I wholeheartedly agree (@ five cent nickel)

Cash Vs. Credit Card: Gas Stations Charging Different Prices Some gas stations have begun to charge more for using a credit card, essentially passing on the credit card processing fee to the customer. Nice. (@ consumerism commentary)

Which Investments Are Best For A Roth IRA? Ever wondered how you should invest money that you put into a Roth IRA? J.D. spells it all out for you here in a great lil’ compilation article. (@ get rich slowly)

The Simple Dollar Retro: Three Money Lessons My Grandfather Taught Me This was an incredibly enjoyable article for me to write. I got to reflect on a person who had an incredibly powerful impact on my life, retell some of his wonderful stories about his life, and realize that there were a lot of great lessons in them. And no, the picture there is not actually my grandfather, just a classic painting I’ve always liked that seemed appropriate.

At various points, readers have seemed quite surprised to find out that I live in Iowa and that I can see cornfields in two directions from the back porch of the house I’m about to buy. By sheer numbers, many more people live in urban environments than live in an environment like this, and many of those can’t even imagine living in such an area.

Obviously, there are some disadvantages to living here, chief among them cultural. I have few opportunities to experience large cultural events in Iowa (though there are many interesting small ones) and cultural trends often take a very long time to reach here. Also, the population is very sparse - every time I visit an urban center, I have an almost overwhelming sense of too many people, even when I’m in a suburban area. Another disadvantage is salary; dollar for dollar, jobs simply do not pay as well here as they do elsewhere.

But there are huge financial and cultural advantages to living in Iowa that often aren’t taken into account. Here’s why I love living in Iowa and have very little interest in moving away.

Low housing prices Even in the most expensive regions of the state, you can get a newly-built four bedroom 2000+ square foot home for around $220,000. This comes out to monthly housing payments (depending on specifics) of about $1,400 a month. No joke at all - people in most large cities almost seem unable to comprehend that this is possible.

Good schools Most Iowa schools outside of Des Moines are quite good. The class sizes are small (if there are only 5,000 residents in a fifty mile radius, the school district has to be small and this forces small classes) and the teachers are usually people who want to be there - they chose a rural setting for a reason. Iowa has a lot of tiny schools that turn out National Merit Scholars on a regular basis. There’s no need for private schooling at all.

Low cost of living Because of the low housing prices, most services are able to compete and have lower rates. I have my son in the absolute best daycare in my area and for him alone the cost is less than $600 a month. There are other options that are substantially cheaper than that. I recently read that you have to pay $1.60 for a 20 ounce bottle of Diet Coke in San Francisco - if someone charges more than a dollar here, it’s considered borderline extortion.

Low taxes Because the salaries are lower, most people are in a lower tax bracket or, at the very least, are paying much less of their salary in a high bracket. This means that we get to keep a larger portion of our salary for the same job as compared to urban centers.

Low cost of retirement Because I can live on a lower salary here than elsewhere, I don’t have to put as much away for retirement as others - I may be working with the same percentages as others, but the raw dollar amount is significantly less for me.

As a final note, although many view it as a disadvantage, I believe there are some cultural advantages to rural Iowa. I have a deep understanding of many aspects of America (agriculture, outdoorsmanship, etc.) that many Americans don’t have the opportunity to experience. Also, the solitude can be amazing - I can go for long country walks for hours without seeing another soul.

Yes, even though I may not make as much money, Iowa offers so much that I can scarcely think of living elsewhere.