Last night, I was leafing through the September 22 issue of BusinessWeek (one of the handful of magazines I subscribe to – a great read) when I came across an article by Lewis Braham entitled “The Missing Link in Your Portfolio? Your Job” (it’s titled differently in the online version, which I linked to).

The basic idea of the article is that a person’s career should make up a big part of their investment portfolio. Your career is human capital, after all, and it will pay huge dividends throughout your life. The article goes so far as to state that your career choice should directly affect how you invest and save for retirement (with my own emphasis added):

The problem is how to turn your career into something quantifiable that can fit into a plan. One suggestion from financial researcher Ibbotson Associates is to think of your job as a type of financial security. “Years ago we had a meeting at Ibbotson with all these legends of finance and Nobel prize winners, such as Harry Markowitz and Daniel Kahneman, in which we debated what kind of security the average person’s human capital is like,” says Thomas Idzorek, Ibbotson’s director of research. “We concluded it was like a junk bond. When times are good, it pays a stable income stream and trades like a bond. Then there’s a hiccup, and it becomes volatile and trades like a stock.”

To be more precise, Ibbotson judges the average person’s human capital to be 70% like a bond and 30% like a stock. “The human capital of a tenured university professor with a stable income may be more like a portfolio that is 80% bonds and 20% stocks,” Idzorek says. “Someone working in financial services, whose salary and bonus depend largely on the stock market, might be 50% bonds and 50% stocks.” All other things being equal, the tenured professor should be investing more aggressively than the stockbroker.

This idea makes a lot of sense. The more stable your career is, the more risky you can be with your investments. On the other hand, the more volatile your career is, the more stable your investments should be. That’s a great way to think about things, though it’s hard to quantify. From my perspective, the more volatile your career is, the larger your emergency fund should be – and that would be considered at least in part the cash portion of your investment portfolio.

But what really got me to thinking was the more general idea of looking at one’s career as an investment. I actually think of a career as being much more like an annuity than anything else. You put in a bunch of money and energy up front (and perhaps some contributions along the way) for something that pays out some amount of value consistently over a long period of time and may or may not still have some value at the end of the road. Let’s dig into this idea a little bit more.

The Initial Investment
College. Trade school. Apprenticeship. Internships. These are all initial investments that people make in their careers, and they come at a pretty stiff price. They cost you years of your productive life and often cost quite a bit of money as well (or at least not nearly as much income as you might earn elsewhere).

Your investment, though, is what you have to put in in order to get your career started, and the more energy and effort you invest at the start, the more likely it is that you’ll have a valuable career asset over the long haul.

Take school seriously and get good grades. It’s tempting to goof off in college – I certainly know I did plenty of it. I didn’t actually connect the value of an hour of studying to anything beyond maybe getting a somewhat better grade at the end of the semester, which often wasn’t enough initiative for me. However, studying really is an investment in your career that will pay dividends later on. There’s the direct sense that it will earn you better grades, first of all. Those better grades will pave your way into a better-paying job or into graduate school. But, even more important than that, diligent studying teaches you good habits and also builds up your knowledge capital. You have more information in your head, plus you’re skilled at acquiring more when you need it.

Build lots of connections along the way. Another valuable way to invest your time early in your career is to build strong connections with a diverse group of people. Get to know people in your area, but also reach out to people in related areas. If you’re in college, you can do this by getting involved in clubs and organizations related to your area of study, as well as general leadership organizations. Cement relationships with as many people as possible, doing regular social things with many of them and sharing your time and talents freely. This goes for fellow students as well as professors – include everyone.

Additional Investment Along the Way
Many people believe that once they get their foot in the door that they’ve achieved what they want – and they stagnate. They fail to look for opportunities to continue to invest in their careers, building up the value of that asset over time due to their own efforts.

The truth is that the people that really succeed and have amazing careers are the people that constantly invest in them, adding more and more value to their situation and to the people around them. Here’s how to do it.

Do your job effectively. You should take care of your job tasks, share your knowledge and skills easily with others, and take advantage of opportunities to stand out – make presentations, take on challenges, and so on. Be sure, though, that when you take on extra things, you don’t overload your plate – you should take advantage of those opportunities to hit home runs. One home run presentation will be remembered – four base hit presentations won’t.

Go beyond just doing your job. You should also look for opportunities to improve your own personal skills. Work towards further education on the evenings and weekends if you can, especially before children and other family responsibilities come along. Engage in social activities where you meet people who are also focused on succeeding – hanging out at the bar or goofing out with the guys won’t get you ahead. Each move you make in this direction is a further investment in your career.

Keep building relationships. Similarly, when you’re a young professional, get to know your peers both within and outside your organization (as well as people up the food chain and people in your community) and share your time and talents with them. The time spent discovering good people and focusing your efforts on building strong relationships with them is an investment that will pay time and time again.

Paying Out Dividends
So after all of this investing, how do things pay off? There are several things that you earn from building a strong career.

Strong income and benefits The most obvious benefit is a strong income and the benefits that come with it. If you build a strong career over a period of years, you will be rewarded with better pay and better financial benefits. This will help you to build whatever life you want and also support you into retirement.

Interesting work Eventually, with a strong focus on your career, you’ll be able to rise to the point where the work is exactly what you want to be doing. Maybe you’re an undergraduate student just entering school that has a passion for organometallic chemistry that you discovered through experiences in high school. Your career focus may be to eventually become an endowed professor at a university with the research materials available to study whatever you want – you’ve then reached the level where you can do the work you’re interested in and passionate about. A great job is a great payoff for hard work – a great job with great pay is even better.

Stable work If you’ve shown yourself to be a valuable asset, you’ll be a person that your organization will want to hold onto. A well-built career has inherent stability – you stand out above the crowd and are a person that not only is wanted by your own organization, but would be valued by many others in the industry.

Entrepreneurship possibilities Any successful worker with a lot of connections has a great opening to leap into entrepreneurship if the bug tickles them. This opens up all kinds of interesting possibilities.

Respect and leadership in the community A person who has worked hard building relationships with others, sharing what they know, and succeeding in their line of work will earn the respect and admiration of others and will often be turned to for leadership in the community.

It’s Never Too Late To Start Investing
Many people might read this and think, “That’s good advice for a person starting a career, but it doesn’t help me mid-career.” Don’t limit yourself in that way. Every day offers you an opportunity to invest in your career. Look into further education. Take on a challenge at work. Start building relationships with valuable coworkers. Learn about the procedures and work of the next rung on the ladder.

The choice is up to you. You can invest now and enjoy the dividends later or regret passing up that chance.

“Max” is a friend of mine (I don’t like to “out” friends on this site, so I’m being pretty careful about what I say here and a few specifics may be blurred). He’s had a significant number of challenges in his life, including a few minor criminal indiscretions related to drug use in his early adulthood, but now he’s raising two kids on his own and trying very hard to make it.

One of Max’s biggest challenges is simply getting his financial life straight. Because of his background, he has a very hard time finding work beyond minimum wage – employers won’t trust him with more complex work, even if he’s up to the task. As a result of that and also of having two young kids at home (as well as a long history of debt and poor credit), he’s often riding the fine line of having enough money to make it through a month, even with some state assistance – and sometimes he falls short.

Falling short when you have no credit to help you get through can be extremely painful. In Max’s case, his bank usually covers relatively small checks but sticks him with an overdraft fee – somewhere around $20 for each one. If it’s a larger check that happens to exceed his balance, the bank will reject it and charge him an insufficient funds fee – around $10 – plus the place to which he wrote the check will charge him a bounced check fee, ranging anywhere from $10 to $75.

Luckily, Max realized from day one that payday loans are a poor idea, but many people in Max’s situation sometimes turn to such loans. They’re bad news – avoid them at all costs. The interest rates charged there are absurd.

Such fees are not things that Max can easily afford in his budget. Quite often, then, one bounced check will cause a ripple into the next month, triggering another overdraft. In the end, Max is caught in a vicious cycle that can be really difficult to escape from.

Here are ten ways that Max can start turning things around.

1. Keep a careful account register.
Whenever you write a check for any reason, make an ATM withdrawal for any reason, deposit any money, or pay any bills online, record that in your register immediately, and update your balance as you go. Not only will this help you keep an accurate balance on your account, it will also force you to keep more in touch with your spending. Your account register becomes something of a spending diary, making you take a deeper look at what you’re really spending, subtly pushing you to tighten down the screws.

2. Learn how to use online banking.
Online banking is incredibly useful. It gives you access to your account balance and recent bank transactions at your fingertips, and if you have online bill pay, it also gives you the capacity to handle many of your bills right there at the computer – no stamps, no checks to write out, no envelopes to address. This not only saves a bit of money, but lets you handle all of the math right there, ensuring that you have enough to cover the bills you’re paying.

3. Keep a careful eye on your account balance.
The first two ideas lead straight into the third: keep an extremely careful eye on your account balance. Don’t trust what you “think” is in your account; know what’s in your account. Keep a ledger. Use your online banking to check it. Call your bank if you’re not sure about something. Knowing what you actually have in your account – and knowing that it’s a line you simply can’t cross – is vital.

4. If you’re afraid of overdrafting, contact the group you need to pay, explain the situation, and pay late if you have to.
Don’t put the cart before the horse. Quite often, people are so worried about being late on their bills that they pay the bill without being sure that the money is in their account to cover it. Then, when the check bounces or the overdraft fee is charged, it ends up being much more than the late fee on their bill (usually just a few bucks). If you don’t think you can cover a bill, call that company and ask about the late fees. Explain your situation and ask for that late fee to be waived. You’d be surprised how often that fee will get waived if you just ask.

5. Ask for help.
If you’re still having problems, ask for help. Tap your family first. Don’t ask for money – just ask for some help getting your finances straight. Allow someone you trust and respect to go through your finances and help you come up with a plan to fix the problem. Don’t ask for loans, though – loans between friends and family members rarely end well. Just tap the common sense advice of someone you know, trust, and respect. If you know and trust and respect someone, they’re quite often glad to help you.

6. Be frugal.
There’s really no better time to be ultra-frugal than when you’re trying to escape a vicious cycle of overdrafts, bounced checks, and payday loans. Have a period of lean living while you get through this – stop your cable service, get rid of your cell phone (if you need one, get a prepaid one and strictly limit your use), eat at home (and eat simple meals), kick your vices (smoking, drinking, drug use, lottery tickets, gambling), and don’t go out on the town. When you’re in a vicious cycle like this, every dollar you spend will cost you two or three more in the very near future, so hold onto every penny for several months until you start to get a bit of breathing room.

7. Don’t let windfalls fall through your fingers.
If you come into some cash all of a sudden, don’t celebrate and spend the money frivolously. It’s great to feel good about your windfall, but take that money and put it in the bank, giving you some breathing room against overdrafts. If you go spend it for fun, you’ll be right back where you were before, scraping to make ends meet and losing a lot of cash each month to the bank and other businesses paying fees and interest rates that are simply a waste of your money. Blowing it might give you a little rush right now, but the constant pain of paying those fees over and over and never feeling like you’re getting ahead will add up to much, much worse.

8. When you start to get ahead, make a deposit but don’t record it on your register.
One effective way to use your windfall is to simply put much of it in your checking account, but don’t record it on your register as a deposit. Instead, you have a buffer in there now, so that if you silp up and go below $0 on your ledger, you’re not actually overdrafting your account. The pain of the overdraft and bounced check fees go away because of that buffer. Another tactic? If you see a healthy balance building up in your ledger, write yourself a check and record it, but don’t cash it. Tear up that check. The amount of that check has become your buffer.

9. Start establishing an emergency fund to deal with unexpected expenses.
If you start going for months without these fees, you’ll start to see yourself getting financially ahead. Don’t let that be an excuse to slack off. Instead, start putting some money aside each week (or month) into a savings account so that when a real emergency occurs – you lose your job, your car breaks down, etc. – you have the cash to do it. If you used to be spending $30 a month on overdraft fees or payday loan interest, there’s your $30 a month to start building an emergency fund. Give it a couple of years and you’ll have $750 in that emergency fund – enough to handle a car repair or a week without work without skipping a beat. That’ll take a real load off your shoulders.

10. Work to establish positive credit for yourself.
Once you’ve begun to escape the routine, the next strong step you can take for yourself is to turn around your credit. Likely, if you are leaving behind a pattern of missed and late payments and lots of bounced checks, you have a poor credit history. Now’s the time to turn that ship around. Pay all your bills on time. Get a little credit and use it effectively. Here’s a great guide on building your credit up that I wrote recently.

Will Max use this information to his advantage? I certainly hope he will, but the change he needs is up to him. Fortunately, I think he has enough character to make it happen.

As I’ve mentioned before, my hometown was flooded during the Mississippi River Flood of 1993. It was a painful yet formative experience, as it showed me how incredibly powerful a united community can be.

One thing that’s been on my mind recently, in the wake of the 2008 floods in the upper Midwest and the aftermath of Hurricane Ike, is how many people are unprepared for devastation. When a disaster comes, whether it be flood, fire, a huge storm, or something else, many people simply flail in despair, unsure what to do.

“David” has an interesting question along these lines:

Would it be possible for you to cover the need to prepare for emergencies and what steps to take: situations (hurricane, blizzard, tornado, etc), essential supplies, money on hand, and places to get deals on necessities for preparation?

This is an issue I’ve thought about for my own family, and here’s the plan we have in place in case of any such disaster.

First, we keep our pantry full. I rotate the food in there on a regular basis to keep things fresh, but we don’t let the cupboards get low. In a pinch, we have plenty of supplies to get us through – canned foods, flour, bottled water and other beverages, and so on. We would not starve or die of thirst over the short term.

Second, we keep small amounts of cash both in the house and in the car. This enables us to easily conduct cash transactions if the credit card and ATM networks are down or in situations where we’re stranded.

Third, we have non-electrical supplies on hand. We have a radio that can be powered by hand crank, tons of candles and matches, and lots of blankets around. If the electricity goes out for a long period, we can all converge in the living room, camp out on the couch with blankets, and crank up the radio to find out what’s going on – no electricity needed. We also have some road flares that we can set off if we need to attract visual attention from rescue personnel at night.

Perhaps most important of all, we have a well-stocked first aid kit and the basic know-how to handle simple injuries.

The real challenge when it comes to thinking about disaster preparation for your family is that it’s easy to forget some things simply because we rely on basic services so much. If a major disaster befalls you, electrical devices won’t work. Cell phones won’t work. You might not be able to easily leave your home to acquire food or beverages. You may not have safe running water. You may have someone injured.

It makes both personal and financial sense to be prepared for a disaster. When I was young, I would have never believed that a flood could wipe out my hometown. Early this year, I would have never believed that Parkersburg, Iowa could be wiped off the map by tornadoes, or that Cedar Rapids, Iowa could be rapidly and largely submerged under flood waters.

It can happen. Don’t lull yourself into believing it can’t happen to you.

Here’s a checklist of the supplies that I would recommend everyone having on hand just in case of a disaster:
+ A first aid kit
+ Flashlights
+ Matches
+ Food that doesn’t require heat or electricity to consume, at least several days’ worth
+ Potable water, at least several days’ worth
+ A hand-crank radio
+ Blankets
+ Road flares
+ Cash, stored in multiple places, up to $200-300

Any other suggestions from the readers?

As I’ve mentioned before, I get tons of email from people describing the personal finance problems in their lives, commenting critically on things I’ve written, and offering up their own stories of success. Not only that, as The Simple Dollar has become more and more popular, I’ve had more and more opportunities to talk about personal finance with people face to face.

What amazes me is that I see most of the same problems pop up time and time again. Sure, the specifics of the story change, as do the severity of the situation, but these same twelve items come up in almost every story I hear about financial problems. Even worse, quite often multiple items from this list appear in the same tale of woe.

I’m not immune to them, either. At the time of my own financial meltdown, I was guilty of the majority of these things. It was only due to a commitment to fixing my financial situation that I was able to overcome these mistakes and set them right.

Here they are, the twelve biggest mistakes I witness and hear about time and time again.

Concern rarely extends beyond the next paycheck or two.
These are the people who live from paycheck to paycheck. Their next paycheck or two will cover the immediate bills. If there happens to be some money left over, it’s spent on frivolous things. These are the people who are constantly hitting the ATM to check their debit card balance so they know how much they have to spend or the people who juggle credit cards that are maxed out. The only thing that matters is the next paycheck and the brief breathing room that it provides.

What’s the solution? The best way for people in this situation to begin to escape is to set up an automatic savings plan of some sort. The automatic savings plan would scrape a small amount of money out of that checking account each week and put it somewhere safe. The point isn’t so much to build up savings (although that’s very useful and valuable), but to slowly wean yourself from spending everything that you bring in.

Only one person in the family knows where the money goes.
Most families have one person that’s largely in control of managing the money – and that’s fine. It can be very useful to have a family “accountant” – a person that manages the checkbook, makes sure the bills are paid, and so on. This can actually be a very good thing, particularly if one person in a family is particularly detail-oriented.

The problem occurs when this leads to financial atrophy in the family, where no one but the person running the checkbook knows where the money goes or is involved in the decision-making process. While it can be very easy to just let that person run things, it can be very dangerous, too. That person might not be saving appropriately for family goals, might be leveraging credit card use in order to allow everyone to keep spending as they are, and so on.

What’s the solution? The best solution is for partners to have monthly meetings about their financial situation. Just sit down and talk about it. Go through the checkbook registry together and the bills together and just make sure that everyone is aware where the money is going and why it’s going there. Then, if there are problems, they can be discussed and handled appropriately. Doing this goes a long way to ensure that nasty surprises – like hidden credit card bills and so on – don’t crop up.

Partners don’t talk about their shared goals.
When my wife and I were first married, we basically didn’t talk about our shared goals – and when we did, it was mostly just bumping heads because our goals weren’t in alignment. We both had vague plans about having children and owning a home, but anything beyond that – and anything specific on either of those two topics – varied greatly between the two of us.

It wasn’t until we started actually sitting down and talking about our shared goals that things began to click into place. I began to realize that some of my dreams didn’t match hers at all, and vice versa. I also began to understand that when we sat down, talked about our different dreams, figured out the areas where they lined up, and came up with clear and specific goals that we both shared, it engaged both of us to make it happen. Rather than fighting through gentle resistance to get what I wanted, I found a cheerleader that pushed me onward to get what we wanted. The best part? What I wanted and what we wanted really weren’t all that far apart. It just took sitting down, talking about things, and making things concrete and specific to turn resistance into support – to turn vague ideas and dreams into action.

What’s the solution? Sit down with your partner and talk about where you want to be in five years. In ten years. In twenty five years. Figure out what each of you wants individually, then look at the areas where they overlap. Compromise a little bit and come up with detailed plans for things that you both want and you’re both willing to work towards.

There is no budget or spending limit, particularly on non-essential items.
I’m not actually referring to a hard and strict budget here. Instead, I’m talking about not keeping track of – and keeping control of – one’s spending on nonessential items. Many people simply don’t bother to keep track of their spending on such things in any way, shape, or form, and they’re often shocked at how much money has been frivolously spent when the credit card bill comes due. Then they pay it and forget about it again – it’s more important to keep up with the Joneses, you know.

My wife and I did this for several years. We kept our spending separate and didn’t really worry about how much we were spending. Quite often, this would result in a mess, where there were bills to be paid and we’d both spent more than we should. Eventually, clear communication got us out of this routine and now we both spend in a much more rational fashion.

What’s the solution? Put everyone on a spending allowance. Seriously. Each person gets a certain amount to spend per week (or month). This requires honesty and commitment from both sides, so the best way to do it is to regularly talk about it. Agree to a spending cap for each of you and then discuss any spending beyond that.

Family members and friends loan each other money without thinking about the consequences.
Many people talk about the guilt, anger, and mistrust that they feel when it comes to debts with their family. They either feel bad (in some fashion) about an inability to pay back a family debt, upset because of the expectations that others have of them in terms of loaning money, and anger and mistrust when people don’t pay back the money that’s loaned.

Luckily, I’ve largely been able to avoid this. On the occasions when I’ve wanted to help out family members, I’ve been smart enough to make it a gift.

What’s the solution? Don’t mix lending with family. If you want to help a family member with their financial situation, make it a no-strings-attached gift and forget about it. If you’re under the expectation that a family member is going to pay you back, you’ve changed a loving and caring relationship into a business-like lender-borrower relationship. Are you close and familial with your mortgage lender?

There is no emergency fund.
Many people are often completely blindsided by unexpected expenses. It’s a disaster if their car breaks down or they lose their job – immediate panic mode.

I was once in this very situation. A truck breakdown in 2005 was extremely costly, as was the need for new glasses in about that timeframe. I had to worry and plan and move money around in order to be able to easily deal with both of those situations.

What’s the solution? Well, it’s pretty easy – build an emergency fund. Start an automatic savings plan – as discussed in the section about living paycheck to paycheck – and don’t touch that money unless there’s a need. Having that flexible cash on hand makes emergencies much easier to handle. Plus, such an emergency fund (once it becomes normal and routine) can be the beginnings of a bigger savings goal, like saving for a house down payment.

There is no plan for the unexpected passing or disability of a key wage earner.
Ask someone what they’d do if the primary wage earner in their home suddenly passed away or became severely disabled and you often see a panicked “deer in the headlights” look. Further down that line, I hear from a lot of people who are having serious problems following the incapacitation or death of a key wage earner.

What’s the solution? Surprisingly, it’s not that hard to protect yourself against both of these events. A nice healthy emergency fund helps with the short term of either scenario, and a solid life insurance policy and a long term disability insurance policy will take care of the needs in each situation. If you’re young and in reasonable health, both types of policies can be quite cheap and they protect you against any such disaster. A long term care policy (one that covers the costs associated with your care if you require significant medical and personal care to survive) can also be useful.

Children are kept away from money concepts.
Many children (even through the teen years) have only a minimal understanding of money. They view it as merely a way to get stuff they want, not as a way to translate your hard work into a home, food on the table, clothing, electricity, future plans, and a few pleasures.

Instead, many children get an allowance that isn’t based on any effort and are allowed to spend it entirely on their wants. In this situation, the money has little meaning, and it’s made even worse when it’s supplemented by parents who step in with more money all the time.

What’s the solution? Have your children earn money in exchange for tasks done, and eventually build them towards small-scale entrepreneurship, like in the book Young Bucks. When they do earn money, have them set aside some for giving to others and for long-term savings goals so that they understand the usefulness of saving the money.

There is a pervasive anti-frugality pro-consumerism attitude.
Many people find themselves eschewing frugality. They buy heavily into the idea that “you only live once” and that “settling” for the best buy or the least expensive option is foolish. People who believe in this often are put under peer pressure to spend and often put pressure on others to do the same – you can’t live cheap if you’re going to be one of the boys, right? You gotta have all the toys.

I used to do this all the time. I’d buy expensive golf clubs and gadgets and always had a strong collection of Magic: the Gathering cards. Living cheap? Come on … that was for losers. What a fool I was.

What’s the solution? If you’re constantly bombarded with the sense that you need to spend money to fit in with a social group, find another social group. Engage in activities that are personally appealing to you that don’t revolve around spending money and seek others who are interested in those things. If you find you need to spend to feel good about yourself, seek out low-cost alternatives – hit the library if you’re a book or music nut, for example. You may also want to seek some degree of counseling if your self-worth has actually become tied to the stuff that you have.

Employee benefits aren’t well understood or utilized.
Most employers offer a lot of nice benefits that are largely undiscovered – or they’re underutilized by the employees. At my previous job, one thing I was quite good at was discovering employee benefits that we were entitled to – and my coworkers were often amazed at the stuff I found. Free sports tickets. Free car usage. Free prescription benefits and medical reimbursement accounts. Free meals. Free lectures. Free books and reading materials. Free investment advice and counseling. All you have to do is look.

What’s the solution? Read through your employee handbook and know the benefits available to you. Pay attention to emails and memos from human resources, as they often let you know about benefits. If you’re not sure about something, ask for help. And don’t hesitate to sign up for stuff – it’s there for you.

Major purchases are financed by debt, not by advance saving, and are often bought impulsively without research.
Not long ago, I watched a friend purchase a car. They needed to replace their old college-era Honda, so they just watched a couple of TV commercials, went to one local dealership less than a week later, and came home with a vehicle (and a hefty debt as well). He’d known that he needed a car for a while, but there was no advance planning – when he decided to do it, he just went and did it.

The end result? A poor impulsive car choice that doesn’t excel in reliability or gas mileage and a huge amount of debt. All it would take is a tiny bit of advance planning and an hour or two at the library and you’ll get a reliable car with good gas mileage, the car you actually want, and you’ll have a nice down payment in hand – and thus a better loan, too.

What’s the solution? If you know you’re going to be buying a car in the near future (three years or less), start making payments now by putting that money each month into a savings account. Then, as the time gets closer, figure out what you actually need and research those cars at the library or online. Find a model that fits your needs and wants the best and is reliable and has good gas mileage, then know what the car should cost – you can do this with an hour or two at the library. Then walk in there, buy the car with a large down payment or outright cash, and you’ve suddenly got a great car for a very nice price. You can apply the same exact logic to other purchases – appliances and home purchases reward advance saving and research.

Investments (particularly retirement) aren’t diversified.
A final concern that I often hear is that people are utterly panicked by the downturn in the stock market and are watching their retirement savings lose 20-25% of their value over the last year. This is especially true for people who are reaching retirement age – losing 25% of your retirement in the years just before retirement means that you’re simply going to be working for a while longer.

For younger folks like myself, it’s not quite as worrisome. My Roth IRA won’t be available for withdrawals for thirty years, after all. But even for me, it’s important to not have every egg in one basket – I invest in broad-based index funds that essentially have a few pennies in thousands of different stocks at once, so that the failure of one company won’t cause me to drown.

What’s the solution? Diversify, especially as you get closer to retirement. If you don’t know what you’re doing, put your money in a “target retirement” option that’s close to your retirement date so that they can auto-diversify for you. Do not hold more than 20% of your retirement savings in a single stock – I’d be nervous holding more than 10%.

Recently, I’ve been puzzling over how exactly to feel about the progression of a child I met several years ago. When this boy was about ten, he gave one of the greatest presentations I’ve ever seen in a science fair environment. He had the most complex project there and knew it from top to bottom, answering every question that any judge could throw at him in a clear and concise manner. He was also one of the most popular kids there, running around and talking to most of the other children.

Needless to say, I was impressed, and I’ve occasionally Googled him just to keep tabs on how he’s doing. A few days ago, I found his MySpace page. Most of it was filled with a mix of corporate logos and some bragging about his physique and about skipping classes. I was stunned – I wouldn’t have believed it was the same kid if it weren’t for the pictures.

So I contacted a few people just to see what was up. It turns out that about a year after the science fair, his parents (who were extremely involved, wonderful people) had a very, very messy divorce, and after the divorce, neither parent was really capable of giving the child the same kind of attention and focus he received before. So he just drifted and now he’s a C and D student who is a regular in detention.

It’s troubled me a lot. Here was a kid with all of the intellectual and social opportunity in the world, and just at the point where he needed guidance the most, it all fell apart for him.

I didn’t have enough of a connection with this child to serve as a mentor myself, or else that’s what I would do. Instead, it just weighs heavy on my heart. I think I’ll be remembering him for a while, particularly as my own children begin to grow up.

On with some personal finance articles.

When Frugality Isn’t Enough This was a guest post I wrote over at Frugal Dad, who needed a hand in a pinch. (@ frugal dad)

Laddering Your Emergency Fund I’m actually thinking about doing this through ING, as I just have an emergency fund sitting there in cash at the moment. (@ blueprint for financial prosperity)

The Never Ending War Against Advertising This is a big reason why I’ve basically eliminated my exposure to television – it’s mostly just lots of product placements followed by ads followed by more product placements. (@ get rich slowly)

Really Simple Goal Setting My guiding principle for setting goals is to just brainstorm everything I’d like to do, then eliminate a lot of them because, while they’re nice, they’re not really in line with what I want to be doing. (@ zen habits)

28 Gift Ideas That Save Money for the Recipient My wife and I are starting to really strive for gifts along these lines. (@ personal finance advice)

I’ve heard from several high schoolers and early college students asking for advice on how to build up their credit history in a safe and responsible manner. One of them is “Jenna”:

I’m currently a freshman at Washington University. I know I need to build up some good credit for the future, when I have to get a car loan and such, but I don’t know where to start. I’m worried about getting way into debt like some people I know.

Building a positive credit rating was one of the things I did right during my college and early professional years, and it’s paid off time and time again with low insurance rates and good terms on student loans, car loans, and our mortgage.

So how do you go about building a positive credit history if you have never applied for any form of credit?

Knowledge Is Power
The first step is to know exactly what you’re trying to build. Your credit history is merely a summary of all of the places from which you have borrowed money over the past seven to ten years – a credit report is just a detailed listing of this information. There are three companies (credit bureaus) that are in the business of collecting the information for credit reports – Experian, Equifax, and TransUnion.

A credit score is a number calculated based on the information in your credit report. The most common type of credit score is the FICO score. While the exact formula for calculating your FICO score isn’t publicly available, MyFico does provide some basic information about how your score is calculated:

FICO scores are calculated based on your rating in five general categories:
Payment history – 35%
Amounts owed – 30%
Length of credit history – 15%
New credit – 10%
Types of credit used – 10%

In other words, they provide a template for building good credit – all you have to do is take care of each of those areas.

Step 1: New Credit
The first thing you need to do is actually get some credit. The easiest way for most young people to get is to apply for a credit card – but just a single card.

Depending on the conditions of the credit market (and as I write this in September 2008, the credit market is tight), you might not be able to easily get an unsecured credit card. If that’s the case, save up your nickels and dimes and get a secured credit card. Get one issued by a major credit card issuer – Citi, Chase, American Express, or Bank of America – and make sure that they report this card to the credit reporting agencies. Contact these organizations directly – don’t use any sort of “middle man.” Here’s more information about secured cards, which you should definitely read before getting one.

In fact, getting a secured credit card is a brilliant way for anyone to start building credit, no matter what the conditions. A secured credit card is one where you “secure” the card by paying a specific amount in advance – often $500. Then, whenever you use the card, the bill is effectively automatically paid by the amount you’ve paid in advance. When you receive a bill, you’re actually just replenishing that amount you paid in advance to secure the card.

A secured card has several advantages. First, because you’ve secured it with money, almost anyone can get a secured card at any time. Second, because you’ve already effectively paid the bill, you can’t get into debt trouble with a secured card. Third, because it is a credit card, it helps establish your credit history.

As I mentioned before, you should only open one line of credit at a time, and wait a while before opening a new one. A line of credit includes any reason why you may want to borrow money, from a credit card to a payment plan, from a student loan to a car loan. If you open up several lines in a short period of time, you appear to be a risk to people who would loan you money – in terms of your credit score, the “new credit” portion will go down. So just stick to one line on occasion.

One effective way for a college student to manage this is to get a card exclusively for buying textbooks. Use this card at Amazon or at your school’s bookstore and then put it up until the next time you need to buy books.

You can also begin to build up credit through your student loans, if you’re the primary borrower. You’ll likely need a co-signer in order to get the loan, but that student loan will count on your credit report, establishing your credit history.

Step 2: Payment History
Once you have this line of credit, though, keep the payments up. Don’t be late on a single payment.

Each month, the credit bureaus request the status of your payments from your creditors. Are your payments up to date – or at least less than thirty days past due? If everything is good, it helps your credit score. However, if negative reports start to come through – more than thirty days late, more than sixty days late, in default, and so on – then your credit score will start to take a serious hit and those negative marks will show up on your credit report.

Don’t let it happen. Keep those bills paid.

Step 3: Amounts Owed
It’s never a good idea to charge up those credit cards. You should always strive to keep your actual balance at 30% or less of your credit limit, as that keeps the amount owed under reasonable control.

If you have a secured credit card or a student loan, this part is pretty much automatic, as your borrowed amount is effectively fixed and known. It’s really only a concern if you have something with which you can borrow a varied amount, like an unsecured credit card or a home equity line of credit.

The best method of all is quite simple: never use credit for an impulse buy. If you live by that, you’ll be in much better shape than many people.

Step 4: Length of Credit History
If you follow the first three steps and keep them up over a period of years, your credit will be in good shape. Even better, the longer you keep it up, the better your credit score will be (up to roughly seven years).

What does that mean? Pay the bills, steadily but surely, and keep that first credit card, even if you decide to stop using it, because it establishes the length of your credit history.

I still have my first credit card, tucked away. It has had a zero balance for years, but when I was getting my mortgage (which was manually underwritten), the underwriter actually pointed out that it was a good sign that I was reliable with available credit (even though the balance had been up and down quite a bit in the years preceding our mortgage).

It has a similar positive effect on your score. Keep up the good work – and you’ll be rewarded for it.

Step 5: Types of Credit Used
Another minor factor is the types of credit you have. If your entire credit history is based on unsecured credit cards, for example, you’ll get a small negative mark on your score simply because all of your credit is revolving.

How can you alleviate that? Balance credit cards with other forms of debt, such as student loans or mortgages. Since it’s often much easier to get a student loan, a car loan, or a mortgage if you have already-existing positive credit, getting such a loan and steadily making payments on that as well will further boost your credit.

Remember, though, that the types of credit used is a very minor factor compared to the other pieces of the puzzle. Focus on just getting credit first and keeping it paid. That will be enough to get you in position for things like car loans or student loans, which will provide diversity in the types of credit you have.

Checklist
If I were starting over today in building my credit, here’s what I would do.

1. Get a credit card, preferably unsecured. If I couldn’t get an unsecured one, I’d contact a major bank and attempt to get a secured one.
2. I’d lock the card up in a safe place and only use it for a small number of purchases – it wouldn’t be in my wallet so I wouldn’t be tempted to spend it without reason. I’d also keep that first credit card, even if I zeroed out the balance and stopped using it.
3. I’d pay every bill as it came in.
4. After some time, when it became reasonable in the course of my life, I’d apply for a loan of some sort – a student loan, a car loan, or a housing loan.
5. I’d check my credit report regularly directly from the FTC, not through a middleman operation like freecreditreport.com. If anything incorrect showed up, I’d do the follow up work, contact the credit bureau in question, and get the issue resolved.

Follow those steps and you’ll be fine. Your insurance rates will be lower and when it comes time for big loans, like your mortgage, you’ll be eligible for good rates.

Ever since my college days, my typical week has followed the same general pattern.

On Mondays, I simply have a hard time coming up with good ideas. I can usually follow lists of tasks, but the creative part of my brain is simply on pause.

Tuesday through Thursday is the creative meat and potatoes of my week. I do most of my good thinking during that period, and I’m also at my most productive as well.

On Fridays, I’m often distracted by the details of the upcoming weekend and I’m prone to daydreaming and dawdling. I can usually come up with ideas on Fridays, but I have a hard time following through with them.

Similarly, my average day also follows an up and down flow. I tend to be far more productive in the morning. At about two in the afternoon, I hit a huge valley where I get sleepy and can’t think as well, then I rebound at about three or so and really crank things out for another hour or two.

As a result, I’ve found that if I arrange my tasks during a given week (and during a given day) in a particular order, I tend to be much more productive.

For example, I tend to spend Fridays heavily in brainstorming mode, just jotting down ideas and basic materials as I go through my day. On Mondays, I tend to deal with mundane tasks – dealing with the comments from the weekend, emails, and so forth. I do the vast majority of my actual writing on Tuesdays, Wednesdays, and Thursdays. Similarly, if I have a personal task I need to do, I tend to schedule it in in the early afternoon. That’s a great time to depart for a dentist appointment, have an exercise session, and so on. If I’ve stayed up late the night before, I sometimes even use the early afternoon for a nap.

The end result? I can squeeze quite a bit more productivity out of a given week by doing things in this fashion than by simply following a dry to-do list each day.

If the problem sounds familiar to you (you tend to work more effectively some days than others or at different times of the day), here are six steps you can take to help yourself become much more productive at work by matching your work to your mental energy.

1. Make an energy map of your days.
Fire up your favorite spreadsheet program and open up a weekly planner spreadsheet, one that has the days along the top and the times along the left, split up into fifteen minute or half hour increments or so. Print off several of these (so that they’ll travel with you easily). Then, just keep it on your desk where you’ll notice it all the time. Instead of using it to plan, though, just write in what you’re doing and use a number to describe how productive you feel, with a 10 being as productive as you possibly can be and 0 being asleep. Don’t worry about precision, just use a number that roughly describes how you feel.

If you do this consistently over a bunch of weeks, you’ll eventually find that you have a pretty good grasp on the points in the week where your productivity is high (lots of high numbers each week in that time slot) and when it’s low (lots of low numbers in that slot).

This “map” of your productivity tells you what you need to know about your natural energy levels. You should put your important, high-concentration tasks in periods where you’re highly productive and place less important, low-concentration tasks in periods where you’re not very productive.

2. Catalogue all of your routine tasks.
Of course, the trick is identifying which of your regular tasks require focus and concentration and which ones do not. Make a list of all of your work tasks and look at the ones that reward creativity and focus (for me, that’s coming up with ideas) and ones that require much less focus (for me, that’s approving comments and some of my correspondence).

What you’re actually doing is essentially finding tasks to pair up with the high-energy and low-energy portions of your natural day. During your high-energy portions, you should be tackling the intense and important aspects of your job – the actual programming, writing, or other truly creative and mentally engaging pieces of your work. At the other end, you want to match up your drudgery with your low-energy times – filing routine paperwork is the type of stuff you can do no matter how low your energy level is.

3. Make a rough framework schedule of your upcoming week the week before.
One task I tend to do on Fridays is assemble a rough schedule for the upcoming week. I make a list of the major tasks I want to accomplish (articles to write, brainstorming ideas, correspondence, other projects, etc.) and assign them to each day. This is in a very rough context – I usually don’t know for certain what articles I will be writing. I just know I will be writing a certain number of articles in a given week and that I’ll need to brainstorm many, many more ideas than that (and discard the ones that don’t flow well for me).

Since I know from my map the days where my concentration is highest, I tend to assign most of the tasks that require the most concentration to those days. The vast bulk of my actual writing happens on Tuesdays, Wednesdays, and Thursdays. There are also a lot of tasks that require very little focus and are more just a matter of connecting the dots (paperwork, correspondence, etc.), or they only require little bursts of focus (brainstorming). I assign these largely to my low-concentration days (Monday and Friday).

4. Tighten up that framework the day before.
Each evening, I make a plan for what I intend to do the following day. Since I already have a general list of the stuff I want to accomplish from my weekly plan, I just organize those items in an order that takes advantage of the natural ebb and flow of my energy throughout a given day. I usually do this by making an ordered list, starting off with enough concentration-intensive items to fill my morning, followed by a low-intensity item or two for my afternoon lull, and then usually one more high-intensity item, followed by stuff I need to do at the end of the day (like setting tomorrow’s list).

I also include any scheduled appointments on this list, with the time and location right off the bat so that I can see when they are at a glance.

5. Make “appointments” for certain tasks.
Sometimes, there are major tasks – really important things – that I know I’ll need some sustained focus on over many days in order to be able to pull off. My book (it’s coming out in December, guys – be patient!) was one of these things – I knew that without sustained focus each and every day, it would never get done.

So I simply made an appointment each morning to spend one hour focused strictly on the book. I even penciled it in: 8 AM, every day, one hour, then 10:30 AM, every day, a half an hour. This allowed me to make steady progress going forward, first with a detailed outline of the book, then filling in the pieces as I went. Because of that appointment, I was able to get the book finished and meet my deadlines, even though I got a fairly late start on it, idling for quite a while.

6. Don’t force yourself to work through an energy valley.
There will come times where you can feel your energy and focus dropping, but you’re in the middle of a high-concentration task. Just stop that task and pick it up later – you’ll waste more time grinding your wheels right now than you ever would by just stopping for a while and doing a low-concentration task.

My suggestion? Write down everything you’ll need to have in your mind to pick up the task – all the little factoids and comments. When I wrote a lot of computer code, I used this to get myself into the practice of heavily commenting all of my code – it made it much easier to pick things up later on.

Together, these six tactics enable me to squeeze quite a bit out of my weeks. When I first started working, I was much less organized and much less in tune with my natural energy levels. Understanding how my body and mind work – at least to a degree – and planning things with that in mind makes my weeks much, much more productive. And being substantially more productive than the average bear can only be a positive for your career.

Most people have some degree of financial concern in their lives. How will I pay the bills? What will happen if I’m suddenly injured and unable to work? What if I lose my job?

I’m in the same boat. Although I’ve gone a long way in the last two and a half years towards relieving my financial worries, I still have a lot of my own concerns. What would happen if I were to pass away suddenly? What if my wife were to pass away?

Most people bury these concerns by simply not consciously thinking about them. They hide those concerns deep under the surface and live life pretending such things can never happen. Under the surface, though, they build up worry and concern, things which burst out when a bump on the road happens.

I’ve seen it myself, both in my early adult life and in the people I know around me. Everything is fine for a while until suddenly you need $1,500 for a truck repair – and then panic sets in. There’s no money to pay for it. My financial low point, for example, occurred when I pulled a pile of bills out of my mailbox and realized that I simply didn’t have the cash to pay them.

What I soon discovered after that was the best way to soothe a financial worry is to have a plan in place to deal with that worry. But how can you do that rationally?

For me, it wasn’t simply that easy. It took me quite a bit of fishing around in the dark before I began to figure out how to fix my financial concerns. What I eventually realized is that the quicker you begin to take steps – both general and specific – towards laying your worries to rest, the quicker it is that your mind can begin to be at ease and you can begin to focus your mental energies towards other areas – like getting ahead in your career.

Here’s how I’d tackle things if I had to start all over again.

First, have a very healthy emergency fund to deal with any bumps in the road without any worries. Each and every week, I automatically transfer some money out of my checking account into a savings account that I keep for emergencies. Then, whenever an emergency does happen, I have some cash saved up to take care of it. If you start saving $50 a week, it only takes a few months to have an emergency fund with $1,000 in it – and that’ll take care of a lot of hiccups.

At the same time, don’t get tempted to spend that emergency fund on something unnecessary. When you do have some cash built up, it’s quite tempting to just go grab it and buy yourself something fun as a “reward” for your hard work in saving it. Don’t – that just undoes all of the hard work you put in, and normal human luck dictates that the second you do it, you’ll find yourself regretting it as an emergency pops up.

Next, make a list of the things that worry you. What are those things that keep you up at night and cross your mind when you’re driving home from work? Those nightmarish scenarios that you hope never happen? Instead of just shuddering and packing them away, write them down. Make a list of the things that are actually bothering you and get them out in the open where they can be addressed (and likely fixed) with a little bit of focused concentration.

I’ve been lucky enough to take care of a lot of my worries over the last two years, but even today I still have a few. My biggest one revolves around the long term stability of my work – what can I do to keep my writing career stable over the long haul?

For each problem you write down, investigate a solution for it. Perhaps the solution is as simple as making out a will and having it notarized, or simply deciding what will happen to your children should you pass away unexpectedly. That relieved some significant concerns for us, actually. Perhaps you’re worried about your career – and it might be that the best path is to start being proactive about looking for another job, or start casting about for a new career entirely.

Come up with things you can do to take control of those fears. Some solutions will seem easy. Others will seem painful – likely revolving around a conversation you don’t really want to have. Yet others will seem very difficult or even impossible.

Take care of the easy ones immediately. Get that will drafted. Look into life insurance and get that policy set up so your kids aren’t left out to dry if you should pass away.

For the painful ones, ask for support from trusted people. If you think it’s time to talk to your parents about their future plans and how they’re managing things, consult your siblings or some trusted family friends. Take it slowly and gently, a piece at a time. Make an appointment – set aside time specifically to handle such things. You’ll be glad you did when it’s over.

And what about the big, difficult ones, like helping your children pay for college? Break things down into the smallest pieces you can. For example, can you simply put $5 away a day? Do it entirely in cash for a while until you get the hang of it. When you start being able to save that $5 a day quite easily, make it automatic – have a $150 a month transfer into a college savings account.

In the end, taking the time now to address those worries will pay huge dividends. Not only will that worry be addressed by your own actions, but you won’t have to expend mental or emotional energy worrying about this stuff any more. Instead, you can use that energy to build a better career, be a better parent, and succeed in whatever avenues of life you choose.

Tonight, go home and start addressing whatever problem is eating you up inside. What do you need to do to make that worry go away? Then (if you can), take that action and start making a positive change. That first step makes all the difference.