Recently, I’ve been reading Nassim Nicholas Taleb’s book The Black Swan. Most of the book has to do with economics and mathematics and is not very relevant to personal finance at all, so I won’t bother doing a detailed review here. However, there are two pieces of the book that I think are worth talking about, so let’s dig in.

The Black Swan and Your Emergency Fund
The basic premise of The Black Swan seems like common sense: life is full of unexpected events. Big ones (like, say, 9/11), medium sized ones (like, say, a career shift), and small ones (like, say, your daughter wetting her pants just before you’re about to leave on an errand).

The Black Swan argues that our minds use a lot of tricks to hide these so-called “black swans” (his term for largely unpredictable and rare events) from us. We need to see the future as at least somewhat predictable, or else we wouldn’t bother making many plans at all. So, when we reflect on our past, it seems much more orderly than it actually was. Also, when we think about the future, we imagine something much more orderly than what will happen.

This idea makes a lot of intuitive sense to me. I know that quite often, when I think about the past, it does seem like an orderly progression of things. However, when I look at old diary entries and old videos, I see that there were actually a lot of “black swans” floating around. I didn’t see The Simple Dollar’s success coming at all, for one. When I went to college, I didn’t see myself working for a slightly eccentric German fellow who would basically set up my first career for me and also taught me how to pack effectively for business travel – he was a black swan.

Given that, I think there are a lot of things one can do in their own life that will prepare oneself for the arrivals of black swans of all magnitude.

Learn a wide variety of skills. I don’t just mean transferable skills, either. Know how to make things. Know how to build things. These skills will come in handy over and over again, often in unexpected ways.

Live frugally. I believe that’s one of the underlying messages here – frugality is a great economic and personal advantage. Knowing how to always maximize one’s resources makes one much more able to survive great changes in life – and also gives the person the ability to build up resources (as mentioned below).

Minimize your future costs. If you can use your money now to invest in things that will reduce your costs in the future, do it. The fewer resources required in the future to maintain your way of life means that fewer “black swans” can disrupt you.

Have a large, stable emergency fund. Having a large amount of cash reserves makes it possible for you to ride right through any small and medium-sized “black swans.” Your car unexpectedly dies? Not a problem. A career opportunity comes up? You can jump at it. You lose your job? Not the end of the world.

Have a good “opportunity” fund, too. Sometimes the unexpected comes along and it requires you to have resources. For example, there’s a large chunk of land near our house for sale. If it suddenly makes a nice drop in price, I’ll jump on it. If I happen to see the owner sometime soon, I may negotiate. It’s been up for sale for quite a while, so something nice may happen soon – not quite a black swan, but a good example. A real “black swan” might be that a neighbor is in a pinch and puts a sign on his car that says “$5,000 or best offer” and you can walk over there with $3,000 in cash, snipe it, then resell it for $5,000 with some footwork.

In short, keep some resources at hand, make yourself more useful, and minimize what you’ll need in the future.

The Black Swan and Investing
One particularly interesting point in The Black Swan comes when Taleb briefly discusses investing. His suggested portfolio for taking advantage of black swans is very unusual, yet it makes some sense.

He advocates putting 85-90% of your investment money into something extremely stable, like treasury notes. The other 10-15%, invest it in the riskiest things you can find – things where a black swan might make it go crazy.

So, let’s translate that into dollars. You have $10,000 to invest. You put $8,500 of it into treasury notes, which return 2% annually. You put the other $1,500 into Bangladeshi startups (for example).

At the end of the year, even if you lose all of the Bangladeshi money, you still have $8,670 – your total loss is only 13.3%. On the other hand, let’s say that your Bangladeshi startup goes bonkers and you get a 900% return on that investment, turning $1,500 into $15,000. You now have $23,670 – a 136.7% return.

Basically, Taleb’s argument is that, as I mentioned above, there are many more black swans out there than we initially believe there are, so one should take them for a ride without too much exposure to risk.

My feeling is this – if you have enough risk tolerance in your investments to put them into stocks, there’s some logic in using Taleb’s investment ideas. It puts a floor on the worst case scenario and gives a lot of upside.

Much of the rest of The Black Swan suffers from the same condition that befalls Taleb’s other books – lots of good ideas, but also lots of ego and self-congratulation. It’s thought provoking, but at times you want to go wash your hands.

After chatting with a few readers lately, I’ve been thinking about trying the “book club” concept again, where a single book is discussed in detail over a series of posts.

I’ve done this three times in the past:

The first time, with Your Money or Your Life, went really well, with tons of good discussion. You can browse through those entries here.

The second time, with Born to Buy, went pretty well, though it seemed to engage parents much more than other elements of the audience. You can browse through those entries here.

The final time, with The Intelligent Investor, didn’t go well at all. I think the key problem was that the material was too dry and the topic was perhaps a bit too far away from what most Simple Dollar readers are interested in, at least with that much coverage. You can browse through these entries here.

One big thing I learned is that doing it weekly was too slow. If I bring it back, it’ll last about a month to a month and a half, with three entries a week. Another thing I learned is that the book really needs to be in sync with what you all are interested in, because if you’re not interested, the discussion isn’t interesting. You seemed to get into the first two (especially the first one), but didn’t like the last one at all.

So, are you interested? I’m considering these eight books as possibilities (click through to read my earlier shorter reviews of them): Getting Things Done, The Total Money Makeover, Never Eat Alone, Debt Is Slavery, Scratch Beginnings, The 4 Hour Workweek, You’re So Money, and Green With Envy. I think each of these books have enough information and enough material in them to discuss to really get some good discussion going as well as teach us all something along the way.

If you’re interested in doing this again with one of these books (or another one), leave a comment. If you really are opposed to one book or another (or to the whole concept), leave a comment. I’ll try it again if there’s a clear consensus towards a particular book (or two) – otherwise, I’ll let this sleeping dog lie.

40 Places Where Freelancers Can Learn More About Business I tend to think that these are resources that anyone can use to sharpen their business skills, particularly if they’re self-employed or starting a small business. (@ freelance switch)

Stocks Are for Losers? A more appropriate statement would be that individual stocks are for losers. Although the stock market grows over time, that growth is pushed almost entirely by the top 25% of stocks – the ones that really hit it big and drive industries. The other 75%? A net loss. Interesting – and a great reason for wide diversification. (@ five cent nickel)

5 Ways to Dramatically Improve Your Finances – Beginning NOW These are probably the best five principles around if you’re just getting started turning your finances around. Great article with tons of links to more information. (@ simple mom)

Failed Frugality: Five Clues You’ve Gone Too Far In a nutshell, if your frugality is interfering with your interpersonal relationships and driving people away, you might want to rethink things. (@ wise bread)

Is Converting a Traditional IRA to a Roth a Brilliant or Stupid Idea Right Now? I actually get this question fairly often – and I agree with the conclusion. It entirely depends on the assumptions you make and your own situation – there is no blanket right answer, just like the 401(k) versus Roth IRA debate. (@ frugal dad)

Saying No This is one of the hardest lessons I’ve ever had to learn. If you’re good at something, the surest way to ruin it is to not know how to say “no” – you’ll take on more than you can handle and you’ll eventually fail miserably or burn out. (@ seth godin)

The second episode of The Simple Dollar Podcast focuses on the fulfillment curve. I talk about my own battles with overdoing it and finding a healthy balance, and relate some tips for finding good balances in your own life. Also discussed: coffee shop stereotypes, M.C. Hammer, Oddibe McDowell and Gregg Jefferies, a critique of the first season of True Blood, and how my book stands in the pantheon of modern literature. Total length: 14:52

Listen In!

Other options for enjoying The Simple Dollar Podcast include:
Listen to this episode on a separate page
Subscribe via iTunes
Download this episode (right click and save)
Subscribe in the media player of your choice

Though I hope you do subscribe using one of the above methods, don’t worry – each episode will be featured in its own post, much like this one, on Tuesday afternoons. The podcast itself may appear earlier than that, however, if you subscribe using one of the above forms, but the notes won’t appear until I post about it here on The Simple Dollar.

Episode Notes
Here are some additional notes that go alongside the comments in the podcast. Approximate times for the corresponding links and notes are listed.

0:00 – The theme song is a public domain recording of a Camper van Beethoven concert on October 25, 1986. Listen to the concert in its entirety.
0:14 – Background reading: the fulfillment curve.
0:28 – Your Money or Your Life comes up again – here’s a reading guide.
0:48 – Great book suggestion: The Wind-Up Bird Chronicle by Haruki Murakami
0:58 – Great book suggestion: Middlesex by Jeffrey Eugenides
1:06 – Great book suggestion: The Year of Magical Thinking by Joan Didion
1:14 – Essential book suggestion: 365 Ways to Live Cheap by Trent Hamm
1:34 – Some further thoughts on guilt and spending.
2:04 – Stop! Hammertime!
2:26 – How Fahrenheit 451 had a huge impact on me.
3:55 – Why, exactly, do people like Starbucks? I don’t get it.
4:25 – I wrote about the coffee shop thing before in Splurges, Habits, and Projection.
5:29 – The Fruit Bats are a perfect example of this kind of music. Listen in.
6:22 – Like, this Andrew Jackson biography, or this Augusten Burroughs memoir.
6:40 – Woo hoo! PaperBackSwap! I LOVE THIS STUFF!
6:50 – My mouth got really dry here.
7:02 – I snuck a drink of water here.
7:42 – This second is for you, Carolyn!
8:15 – I’ve actually sold a big pile of DVDs before. Here’s how I did it.
8:23 – I recommend using a very simple Mead pocket notebook for this – it works really, really well and fits nicely in the pocket. Don’t forget a pen!
9:45 – True Blood is goofy and over the top, but very fun.
11:12 – The Baseball Card Blog sums up this passion brilliantly.
11:56 – I actually had to find out if I was pronouncing Oddibe McDowell’s name right.
12:15 – A great discussion of Gregg Jefferies and late 1980′s baseball cards by Dave Jamieson.
13:04 – Slate on the enduring popularity of the 1989 Upper Deck Ken Griffey Jr. card – a symbol of the boyhoods of countless guys that are now around age 30.
14:19 – The Frugal Golfer – for all your frugal golfing needs!
14:43 – A preview of next week.

One thing I’d like to do in a future episode is have an audio reader’s mailbag. If you have a microphone on your computer and can record an MP3 of a simple, short question you might have on personal finance, careers, pop culture, or anything else you’d like me to answer, record it as an MP3 and send it to me. Keep the total recording under 15 seconds, please.

Comments and suggestions welcome.

When I first began to recover from debt, I sold off a large portion of my DVD collection. For a few items – box sets and the like – I sold them individually on eBay, but for quite a few of the single DVDs, I sold them at a used DVD store in one big lot.

Recently, when telling this story to an acquaintance, I was informed that I was “an idiot” for ever selling those DVDs in bulk, because I could get “way more” selling them individually on eBay. He walked away, assuming that I must have nothing of value worth saying.

I smiled, because I realized that this person puts no value whatsoever on his own time.

Let’s take a random DVD from my collection. If I list it on eBay, I might get a $12 bid, and the shipping and handling cost pays for itself. On the other hand, I could sell it at the used DVD shop and get $3 for it. Easy win for eBay, right?

Not so fast. First, I have to create the auction, which takes, say, ten minutes. Then, during the auction, I have two different questions about the DVD that I have to answer – three minutes each. After the auction is over, I have to nag the buyer a time or two to get payment – another five minutes. Then, when I finally do get paid, I spend ten minutes wrapping the DVD, then another ten minutes going to the post office and getting it weighed.

All in all, forty minutes of work in exchange for $9 – and that’s assuming the sale goes perfectly, the buyer doesn’t have a complaint, and the buyer doesn’t do some sort of payment revoking trick.

If I have a pile of 100 DVDs that I want to sell, I would have to invest that forty minutes for each DVD in the stack. That would be 66.7 hours of time invested to make $900 more than the other route – and, again, that’s assuming that all of the 100 buyers are happy with their purchase. For every purchaser that’s unhappy, you add more time and lose some income.

On the other hand, I take those DVDs to a used DVD store, sell them all in about half an hour, and there are no further concerns. I don’t have that extra $900, of course, but I do have 66 hours of my time and no concerns that people might revoke payments or I might have to make amends for other issues. It’s over with – I’m free to use the money and move on with my life.

Now, there are times when the eBay sale is worth it. Let’s say I’m selling a DVD box set. I might get $6 for it at the shop, or I can get $30 for it on eBay. For that one sale, the $24 difference is well worth my time investment of forty minutes.

To put it simply, money is not the only criterion that should be considered in a financial transaction in our lives. Time is often a major concern – and I see it overlooked time and time again.

This principle applies again and again throughout our lives. Here are three more recent examples from my own life.

Expensive cheese, valuable time A few days ago, I was making a pan of homemade chicken and spinach “white” lasagna. Unfortunately, I discovered I didn’t have enough ricotta cheese for the recipe – we had very little. I had two options – I could drive to the Fareway in Ankeny, about fifteen minutes away, or I could see what the tiny store in town had.

I stopped by the little store in town. They didn’t have any ricotta, but they did have low-fat cottage cheese at a very reasonable price, and for many recipes, cottage cheese is a fine substitute. I probably paid $1 more for the cottage cheese here than I would have if I had driven to Fareway, but I saved 20 minutes – a fair exchange.

$5 delivery We live in a very small town. Recently, we rented a van for a trip. The service offered delivery to our address for $5 – that would have saved us thirty minutes.

If it were not for the fact that we already had errands to run near the rental car place, we would have gladly used that service. $5 for an extra half an hour the day before a trip is an excellent deal.

Analysis paralysis I spent three months shopping for a netbook to replace my dying laptop, hoping to eventually find the best price. When I finally pulled the trigger, I only spent $10 more than the lowest price I had seen in many, many hours of searching.

One final note: I’m not suggesting that one should always substitute the fastest route for everything – in fact, that’s a bad policy on the whole. Instead, just be mindful that what you do does have a time cost (and often other costs), and then choose the option that’s truly the best value for you.

Good luck!

As you read this, my wife, my father, and I are planning on going to the Texas Rangers game tonight against the Toronto Blue Jays at Rangers Ballpark in Arlington, TX. I love going to major league baseball games and one of my smaller goals is to eventually visit every major league ballpark.

In order to get cheaper tickets, we bought the tickets in advance – they’re already paid for and printed out. We’re all ready to go to the game.

But let’s say it gets to be 6 PM this evening and our son is sick, or my dad gets tired and doesn’t feel like going.

It might make sense for me to want to push everyone to go to the ball game. After all, I already have the money invested in the tickets – we wouldn’t want that to go to waste.

In reality, though, it doesn’t actually make any sense to choose the less enjoyable option this evening if things turn out that way.

Think about it this way. I’ve already paid for the tickets – there’s no refund, no matter what we choose to do. So, in essence, all those tickets are really saying is “you have the ability to now go to the Rangers game for free this evening.”

The cost of those tickets is already sunk. It doesn’t matter what we do this evening – we’re not going to get the cost of those tickets back.

Believing that you must go to the game in order to somehow recover some value is the sunk cost fallacy – and it can be dangerous.

Here’s another example. Not too long ago, one of my readers preordered EA Sports Active for the Wii – he used Wii Fit a lot and wanted to go “beyond” it and do more cardio work. So, he paid $1 to reserve a copy at Target.

On the day of release, though, he found that he could get a free $10 gift card at Best Buy for buying a copy. He stopped at the Best Buy (next door to the Target) and picked up his copy there.

What about that $1 sunk cost at Target? Well, it was already sunk. All it did was give him a choice – pay $58.99 for the game at Target, or pay $59.99 for the game plus a $10 gift card at Best Buy. He chose the latter because the cost was sunk either way.

Here are three general ways that the sunk cost fallacy can hurt your happiness (without helping your wallet) or hurt your wallet directly.

First, it can convince you to make a poor choice about how to spend your time. In the example above, if I talked everyone into going to the Rangers game – and no one really wanted to go – under the idea that I had to somehow recover some of that sunk cost, all I’m really doing is making the evening worse for everyone. Instead, one should forget about the money entirely once you can’t recover it and make the best choice at the moment for everyone involved.

Second, it can saddle you with more debt than value. Think of people who are upside down in their car loans or upside down in their mortgage. They have already sunk money into those assets, but now the assets are still worth less than what is owed on them.

Third, it can lead you to poor investing decisions. People with investments in a dying company will often tell themselves that they can’t pull out now because they have too much invested in it – and then they lose everything. Just because you’ve invested $100,000 in something doesn’t mean it’s not the right choice to pull your investment out for $30,000 – it might be the choice to make if the investment is dying on the vine. That sunk cost doesn’t matter – what matters is getting the maximum return from where you’re sitting right now.

A few more thoughts about sunk costs and the sunk cost fallacy:

You should avoid sunk costs unless it’s highly certain that you’re going to actually do something. Most of the time, if you pay ahead for an event or an item, it’s so you can get a better deal – that’s why we bought Rangers tickets early, for example. However, if there’s a significant chance that you won’t go, you’re better off not sinking that cost in advance.

Think about it this way. There’s a good chance you’re going to go to a concert this Saturday, but you’re open to other things coming up. You can buy nonrefundable tickets in advance for $12 or at the door for $15. Which should you do? Buy at the door, of course. That way, if something comes up, you can follow the better path. Now, on the other hand, the concert might be by your favorite band ever and wild horses couldn’t keep you from going. If that’s the case, buy the tickets in advance. “I’ll do this if nothing better comes along” is not a good basis for sinking the cost.

Sometimes you can’t avoid a sunk cost – so just seek to minimize its impact. This is why you should make a large down payment on a car or home – or pay for it entirely in cash. A small down payment on a home – under 20% – makes the sunk cost worse because now you also have to sink money into mortgage insurance, for example. PMI payments are sunk costs. Similarly, if you buy a new car and don’t make a down payment, you often have to have insurance to cover that depreciation – again, an additional sunk cost. Make choices that avoid these sunk costs.

Sunk costs are often tricky. If you move into an apartment with a metro stop right outside the door and another metro stop right in front of your place of employment or school, it makes a lot of sense to sink your money into a bus pass. Now, imagine that you’re fired the next day. Suddenly, you’d like to have that $50 back.

Yet, I would still sink the cost, even with that risk. Why? Here, the bus pass has more than one use. You can ride the bus to more job interviews. You can use the bus pass to go get groceries. You can use the bus pass to visit friends.

What’s the take home message? Always make the best decision now. Don’t let yourself be swayed by money you’ve already spent and can’t get back. Instead, avoid that trap when you can.

Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

I just turned twenty last month and want to know what else I can do for the sake of financial security. I have a savings plans with ING Direct, but I always see people saying “If I had started doing (blank) when I was twenty, I would be financially secure right now!” How do I learn how to invest, or where, or what into? What should I know about credit cards and banks? Is it good to be in a little bit of debt (with regards to credit cards) for the sake of good credit?
- Eli Skipp

It sounds like you have a ton of questions and don’t know where to start, but at the same time, it sounds like you also have a level head about money.

If I were you, I’d put aside an hour of your time a day for a few weeks and read two books – one well-rounded personal finance book and one book on investing.

My suggestions? For the first one, there are a lot of good general personal finance books out there. Just pick the one tailored to where you’re at in life. If you’re in college, Please Send Money by Dara Duguay is pretty strong. Just go to the personal finance section of a bookstore and browse a little – and find one that fits.

For investing, though, I have one straight-up suggestion – read The Bogleheads’ Guide to Investing by Larimore, Lindauer, and LeBoeuf. It’s the best all-around guide on investing that I’ve ever read, and is a great complement to any more general personal finance book.

Do you think that committing to a blogging schedule out of passion, despite the fact that it promises no immediate revenue streams, to be a productive step? Can I have the expectation that I as continue, I may encounter more opportunities for income than I can see at this moment? How have you experienced the growth of income-creating opportunities on your own blog? How have you best determined how to streamline your interest with insights that your readers will ultimately pay to enjoy?
- Holly

If it’s borne out of passion, committing to a schedule is a productive step, but not for the reasons you’re looking at here.

If you’re passionate about something, blogging gives you a powerful method to talk about it. You’re able to share what you discover. You’re able to explore your ideas. You’re able to grow in that passion.

Setting a schedule, in a way, makes you accountable to that conversation. People will be more likely to read if you consistently and regularly engage in conversation with them. Think about your friends – the ones you call every day or every week are much more likely to engage you than the ones you call every once in a while when you feel like it.

However, you immediately jump to the “income-generating” conclusion. If you’re committing to a schedule under the belief that such a schedule will lead you directly to money, you’re most likely going to be severely disappointed.

If money is the goal of your blogging pursuits, you will fail. I’m not saying that it’s stupid to try to earn money from blogging – it’s not. But if you’re in a situation where you would stop blogging if the money dried up, the blogging isn’t really your passion – and it’ll come through in what you’re doing.

I have about $10K sitting in bank and I feel I should do something about it. Since I do not have Roth IRA account, I plan on spending $5K (max) to invest on Roth IRA. But I am struggling to find ways to invest remaining $5K. I really do not want to invest in stocks, 401K or mutual funds – I have lost quite a bit of money on all these last few yrs nor I have time to do research. Ideally I would like to invest where there is atleast 5-6% return. Pls advice.
- PR

So, you want a 5-6% return right now without risk? You and the rest of the world, buddy.

Here’s the problem. To get a significantly larger return than you would get in a savings account or a treasury note (the most risk-free options, which both currently return at most about 3%), you have to take on risk.

No investment is a guarantee, not even the treasury notes (but they’re as close to a guarantee as you’ll find). When you start seeking higher and higher returns, the risk gets higher and higher.

Stocks and real estate are two areas where you can almost always get a 5-6% return over the long haul. Over the short haul, though, it’s basically a gamble.

If you could accomplish one goal with The Simple Dollar in the next year, what would it be?
- Edgar

I have five one-year goals that I set for myself on June 1 of this year, which means I want to accomplish them by June 1 of next year.

100,000 email/feed subscribers I’m currently just a hair over 60,000. The way to do this is to just keep writing good stuff and make sure at least some of it is welcoming to new readers. If you want to help with this, the best way is to simply send interesting articles you see to your friends.

25,000 Twitter followers I currently have around 4,400 followers, but I’ve just now started paying strong attention to Twitter. I think I just finally realized how useful it can be for generating conversation. How can I get to that huge goal? Again, I just need to keep putting useful stuff on Twitter.

Second book finished I have a pretty strong outline and drafts of a few chapters. I’m hoping to have a complete strong first draft done in September or so, then let it “rest” for a month, then revise it.

6 more “downloadables” I have a big stack of requested downloadables that people want me to make – it’s just a matter of putting aside the time to get them done.

One final thing… There’s a final goal I have that I’m not going to share quite yet, but I think it’s pretty cool. I think it’ll serve as a resource for a lot of people out there.

Some of us have put in a lot of time constructively correcting Trent’s posts in the past. Here he is pretending he does not actually make mistakes; rather, he deliberately portrays one side of a controversy to generate discussion. That’s why errors was in quote – he doesn’t actually think we’re pointing out real errors, or at least that there’s no such thing as an erroneous opinion. We’re a little frustrated.
- Michael

I write a lot of articles where I address only one or two facets of a many-faceted situation – usually, the ones that interest me or that I know would be really relevant to a reader that has contacted me recently. Most of what you actually see on The Simple Dollar is actually reader-driven – I try hard to match post ideas to what people tell me that they are going through or they want to hear about.

I assume that in the comments people will delve into those other uncovered angles because those other angles are the ones that interest them. What I find amusing is that many such comments accuse me of “errors.” They’re usually not errors – they’re just not issues I find interesting to talk about or I choose not to talk about to keep the article reasonably simple – after all, this is The Simple Dollar. If you want The Overly Complicated Dollar, go elsewhere.

Yes, I make real errors. I make a lot of them. But choosing to cut out a point because I think it would cause an article to drag out too long isn’t an error – it’s an editorial decision to make the site more readable and useful to more people. Again, simple.

If I actually wrote about every angle of a complicated issue, I would be writing a book, most of which would not be interesting to you, and something that only a handful of people would bother to read and comment on anyway. That’s not the point of a blog, where the purpose is to generate discussion. I’d far rather get people to think about an issue in a new way or pick up a new useful tip.

Many of my posts are already long enough.

So, if you think I’ve made a big error by omitting something, by all means, call me on it. I welcome it, as long as it doesn’t devolve into personal attacks on me or on another commenter. We all come here to learn, not to hate.

While QuickBooks simple start is def cheaper than the full out Pro version, normally, often times you can get the Pro version for $100 if not less (watch for coupons at various sites) and lately Staples has been throwing in a nice bundle of extra free software which you might or might not use (can always flip it on craigslist or ebay) so don’t rule out the higher end versions just because they seem cheaper at one time.
- Chris

The big reason why I tend to point people towards QuickBooks Simple Start Free Edition is because it allows people to essentially try out QuickBooks for free and see if it matches their needs. If it doesn’t – no investment lost other than the time. If it does, then the upgrade path to a full version of QuickBooks is perfect.

I actually think all software companies should use this type of technique to sell their software – and more and more are moving to it all the time. For example, the free Quicken Online seems to do just that – it’s a mostly full-featured version of Quicken, but the desktop versions seem to have a fair bit more gas in the tank.

If there’s a free option for the software you want to use, try it out.

How does one justify the cost of a house, insurance, property taxes, and maintenance these days? I understand that equity is built but it seems (without running though the numbers) that you’re really paying for a house 3 times over once all the interest is factored in. Add all the previously mentioned expenses and it seems like renting comes out ahead.
- Reflection

For many people, renting does come out ahead. Buying a house only comes out ahead if (a) you have a need for a lot of living space (i.e., you have multiple children) since large houses have huge rental expenses and (b) you plan on staying put for a long time -or- you have the cost of the house ready to go in cash.

If you’re single and just want a small house, you might be able to find something that’s cost effective by hitting foreclosure sales – that’s how my sister-in-law did it. However, my experience has been that family homes in good condition are few and far between at local auctions and the ones that do appear are bid up like crazy.

So, if you’re single or married without children and plan to at least keep your location options open, I think renting is likely the best option. Neither renting nor owning is the best choice for everyone.

I have a question: Is it really cheaper to sew your own clothes, or your children’s clothes, rather than buying them?
- Lisa

It depends on your skills with a sewing machine and the cost and quality of the materials you can get.

A person who has never used a sewing machine or never assembled clothes before will likely wreck quite a few items before making something worthwhile. In other words, there’s a pretty nice sunk cost of time and materials before you get up to speed.

Now, if you’re a skilled sewer and have access to lots of good material, you certainly can make very nice clothes for little cost, and often do it in the evenings while watching a movie or something. It’s just not as simple as sitting down and starting, though – it takes some skill, and that takes time to build.

My wife has the skill to do this. She’s made stuffed animals and doll’s clothes for our children and has made a few shirts. Her problem is that she gets burnt out – she’ll get really into sewing for a few weeks and make several things, then she gets tired of it.

On another blog (which I will not name since they do not deserve to get traffic for this type of content), a writer talked about obese people in the workforce, and how they would not work with them/hire them. They went on to make some claim that overweight people were less effective than normal-weight people. From a legal standpoint, isn’t it illegal to say something like that? Can an employer not hire you even though you are qualified for the job simply for weighing more than they judge normal? Also, what is your opinion on that?
- Marie

Obesity (unless it’s caused by a demonstrable condition) is not covered by the Americans with Disabilities Act. Given that one’s physical fitness can certainly be a criteria for many jobs, I understand how obesity can be used as a hiring factor. If you’re hiring a crew to build a house, for example, a physically fit person will have more utility than an obese person.

Having said that, I think “overweight people were less effective than normal-weight people” is a pretty ignorant blanket statement. Many people that are extremely skilled at white collar work are overweight, largely because of the sedentary nature of the work. Is this person actually going to claim that Lee Raymond, long-time CEO of Exxon who built the company into the behemoth it is, was less effective than other options?

You hire the best person for the job. A person’s weight might have something to do with their effectiveness at manual labor, but it often has very little to do with your effectiveness at white collar work.

Is that really your voice on the podcast or video? Are you using some kind of voice modifier?
- Duane

Nope, that’s my real voice. It’s low, I know, but I think it’s fairly expected. I’m six and a half feet tall, wear size 17 shoes, and a size 15 ring. My voice box is similarly sized, I think.

What I’d really like to work on isn’t the sound of my voice, per se, but my ability to speak in a way that holds attention. I’m currently working on that.

Got a question of your own? Ask it in the comments, and I may address it in a future mailbag!

Every other Sunday, The Simple Dollar reviews a personal development, personal productivity, or entrepreneurship book.

It’s no secret to long-time readers of The Simple Dollar that I loved Keith Ferrazzi’s first book Never Eat Alone. I thought it was a brilliant discussion of how to network ethically in the modern world by building real, valuable relationships with people centered on giving of yourself to others. Even though I’m an introvert, I’ve taken many of the principles in Never Eat Alone to heart in my own real-world experiences – and online as well.

While Never Eat Alone does a great job of outlining how to build relationships with a large group of people, it’s fairly self-evident that there’s a lot of value in building particularly strong relationships with a small group of people. These are people you trust and who trust you, wise and insightful and willing to spend significant time with you because you make each other better. Mentors, advisors, friends – all of those titles apply. Most people are lucky if they find a handful of such people in their lives.

Finding and cultivating this inner circle is what Who’s Got Your Back focuses on. How do you find these core people? What traits do you have that will click well with others, and how do you find the traits that will click well with you? How do you maintain relationships with them over the very long haul?

I’m a huge believer in the power of mentors, and I’ve discussed techniques for finding a good mentor in the past. Let’s dig in and see what Ferrazzi has to say on the subject.

One: Who’s Got Your Back
Ferrazzi argues that the need for an inner circle of mentors, advisors, and friends that you trust and respect is something that almost everyone in the modern world strives for – if that wasn’t true, why would things like “life coaching” be such a huge multi-billion dollar industry? Even more disturbing, according to a 2006 study in American Sociological Review, the average person has only two confidants, and 25% of people have none at all. In a ever more complex world, confidants and advisors are more important than ever before – yet people have fewer of them.

Ferrazzi then makes the case for how valuable “lifeline” relationships are, focusing on four ways that such relationships are critical:

1. To help us identify what success truly means for us, including our long-term career plans.
2. To help us figure out the most robust plan possible to get there, through short-term goals and strategies that would tie us in knots if we tried to go it alone.
3. To help us identify what we need to stop doing to move forward in our lives. I’m referring to the things we all do that hold us back from achieving the success we deserve.
4. To have people around us committed to ensuring that we sustain change so that we can transform our lives from good to great.

I know that in my own life, my chief “lifeline” relationship is with my wife, and I constantly talk to her about the things above. It helps more than you can ever know and often guides me towards difficult decisions that I might “chicken out” on if I did them alone.

Two: The Four Mind-Sets
Ferrazzi identifies four “mindsets” – more like traits, actually – that, when cultivated, provide the foundation for building such lasting “lifeline” relationships.

Generosity You have to be willing to give sincerely of yourself without expecting a thing in return. Generosity is the foundation of trust, and trust is what makes such relationships work.

Vulnerability You have to be willing to be vulnerable. Can you move outside your safety zone? Can you accept criticism from others?

Candor You have to be willing to be totally honest with others. If something’s on your mind, you shouldn’t hold it back. It might be valuable.

Accountability You have to be willing to follow through on the promises you make to others.

These four traits are vital for building lifeline relationships – ones where you can bounce ideas freely, receive criticism, and truly grow as a person as well as in your ideas and goals. Others that you build such relationships with must have such traits as well – without them, the relationship is not going to succeed over the long haul.

Three: Building Your Dream Team
So how exactly do you build this team? Ferrazzi identifies a nine step plan for finding these people, cultivating the relationships, and maximizing their value in your life.

Step One: Articulate Your Vision This means soul searching. What do you really want in life? What are your big goals and dreams? What are your interests and passions? What do you really value? For me, my values center around my family and my writing, so if I were looking for people for my own inner circle, I’d want someone that valued family and had some insight into creative careers.

Step Two: Find Your Lifeline Relationships Look throughout your life – your work, your extracurricular activities, your personal life – and identify people who match up at least somewhat with what you want in life. Get to know that person a little and find out if they actually exhibit those valuable traits. Are they committed? Do they have some know-how – knowledge of what they’re talking about? Do you get along well with them? Are they curious by nature? If you see a lot of these factors, you’ve got someone very promising.

Step Three: Practice the Art of the Long Slow Dinner Gradually get to know a potential lifeline quite well. Have a lot of meetings with them – lunches, dinners, coffee. Talk about anything and everything. Feel them out. If it’s right, you’ll know it – if it’s not, don’t be afraid to move on and try again.

Step Four: Broaden Your Goal-Setting Strategy The first real way to get your lifeline friends involved is to talk about the goals you have – and the goals they have. Offer candid input on their goals, and invite (and accept) their candid comments on your own goals. Develop new goals together – and talk about how you can get there.

Step Five: Create Your Personal Success Wheel The “personal success wheel” is a wordy way of describing the key areas in your life that you want to succeed in. Financial success, spirituality, giving back, physical wellness, intellectual stimulation, deep relationships, and professional growth are areas that Ferrazzi mentions that are common to most people. Ask yourself what you’re doing in each of those areas – and bounce your thoughts off of those people in your lifeline. Similarly, encourage them to do the same – think of their core areas, ask themselves what they’re doing in each, and bounce their thoughts off of you.

Step Six: Learn to Fight! In other words, you have to be able to (and be willing to) diasgree with people in your inner circle. More importantly, you have to be able to debate ideas without making it personal – Ferrazzi calls this “sparring.” The key is realizing right off the bat that you’re just comparing and analyzing ideas, not attacking each other, and you can both grow from this process.

Step Seven: Diagnose your Weaknesses Introspection is a key part of all of this. You have to be able to not only figure out your weaknesses (and Ferrazzi gives a lot of tips for this), but be able to reveal and discuss those weaknesses with others, along with strategies for overcoming that weakness (or turning that weakness into a strength).

Step Eight: Commit to Improvement Steps four through seven are going to give you constant ideas on how to improve your life (and, along the way, give the others in those relationships with you tons of ideas as well). In order to actually get something out of it, though, you have to be willing to commit to improving yourself. You need to take at least some of those ideas and actually implement them, making yourself better, or else you come off as very insincere. Doing is much more valuable than talking.

Step Nine: Fake It Till You Make It – Then Make It Stick Ferrazzi’s big point here is that practice and repetition are vital. All of the steps above are ones that you should be constantly repeating. All of the ideas generated should constantly be worked on. They should just become a part of your life – and they easily can. Why? Because those “lifeline” friends will eventually become your closest friends – the foundation of your life.

Four: Make It Your Life
The final portion of Who’s Got Your Back picks up where the final point leaves off. The ideas in the book aren’t just a one time process, but elements of a successful life. Ferrazzi offers several worthwhile points to cap off those ideas – here are three.

A group of like-minded people is a great place to start. If you don’t know where to start, look for an already-existing group of like-minded people that share your interests. If you’re an entrepreneur, check out local small business associations. If you’re a parent, look for PTA meetings. Find people that share your passions and you’ll have a great group to start with.

Forming an actual group can be quite scary. Ferrazzi suggests several approaches, but the real foundation is the people. Your best bet to make a group work is to try to cultivate the relationships between people you have lifeline relationships with. If you can get, say, four people where every person has a one-on-one relationship of this kind, that group will be invaluable to all of you.

Suggestions are invaluable. If you have an out-of-the-blue idea that really fits a person you have a lifeline relationship with, write it down and treat it with the weight you would treat a great idea for yourself. If you’re doing this for each other, it’s like having two or three or four minds out there trying to come up with great ideas to push you farther.

Is Who’s Got Your Back Worth Reading?
To put it simply, I loved this book, too. The material in here applies well to virtually everyone, particularly people who are somewhat introverted who may need that extra push to build strong life relationships (I’d put myself in that group). What appeals to me, as with Never Eat Alone, is that everything is underlined with giving of yourself. Paying it forward is a strategy that has never, ever failed me in life.

This one is already on my re-read pile. I plan to let the contents of it sink in for a while, then give it another read-through in a few months.

My only criticism is similar to the criticism I had with Never Eat Alone, but it’s one that I understand. Ferrazzi has a tendency to name-drop in places. My interpretation of it is that Ferrazzi is actually much like myself – he’s an introvert who has to work on being an extrovert, and being able to drop those names makes it easier. I do a similar thing, to be quite honest – I tend to talk in big bursts when I don’t know someone well. I’ll be quiet for half an hour, then drop a two minute wall of words. It’s something that comes up as a result of my natural introversion – and it’s something I’m aware of and try to work on.

Put this on your Amazon wish list or your library list. This one’s really good.

Recently, while digging through the magazines in our magazine rack, I came across the May 16, 2009 issue of The Economist. The Economist is my primary print source for news and it almost always gives me quite a bit of food for thought.

Anyway, on page 82, I found a really interesting article entitled “Smooth Operators,” which discusses some very savvy saving techniques that have developed in nations with developing economies. First, though, is a bit on why such techniques are needed there:

Paying interest on your savings will strike most people as odd. Yet some poor people in the developing world do just that. In West Africa, for example, some people pay roving susu collectors a fee amounting to a -40% annual interest rate for looking after their deposits. [...] a similar phenomenon in India, where a female deposit collector named Jyothi looks after small savings for people in the slums of Vijayawada at an effective yearly interest rate of -30%.

To us, this seems very alien. Why would you bother to put money in a savings vehicle if you’re charged such outrageous fees?

To put it simply, money security is the real reason. Keeping significant amounts of cash on hand can be dangerous, and after doing a risk assessment, it’s pretty clear that to many of these people, it’s better to pay that painful fee than risk the high likelihood of having the money taken in some method – a -100% interest rate is far worse than a -40% interest rate.

But why save at all?

Many of the subjects emphasized [that] controlling the flow of cash becomes all the more critical when income is not just low, but also unpredictable and irregular.

In other words, many of the people using these savings systems have very irregular incomes, so in order to survive during the many lean times, they need to sock money away. And without personal security, they need a service that keeps the money safe, so they utilize the susu (and other local variants).

It’s not that different than the problems that people face in America, where many people have irregular incomes (I myself am one of them). To put it simply, if your income is irregular, you have to save. You can’t spend what you earn, or else you’ll be in deep trouble during the lean times.

What gets interesting, though, is some of the tactics the savers use.

They are acutely aware, for example, of the importance of some psychological phenomena whose effects behavioural economists have only recently begun to explore. For instance, they purposefully seek out commitments to help ensure that they meet their savings goals. Many of the South African women in the study joined several monthly “savings clubs” in spite of having bank accounts. They found that the extra discipline the clubs provided was valuable in itself, because it compelled them to save no matter what.

This is a really important point, one I think is overlooked in western society. Peer pressure is a huge motivator, and using it for savings goals pushes you strongly towards saving. The idea of a “savings club” seems a bit strange, but why not? Investing clubs are quite prevalent in the United States, and they have roughly the same goal – encouraging people to invest and keeping their eyes on the prize.

If you have some friends that are also trying to save for different goals, why not start a savings club? Meet once a month or so to talk about money saving tactics and to share your progress. Knowing that you have to tell the others in the club about your progress will push you to meet the goals you’ve set, lest you look bad in their eyes.

Another solid tactic comes later in the article:

The mother of a Bangladeshi man who found himself unable to stick to his monthly saving goal found she could make him save more by taking out a loan from a microfinance company. The shared obligation of having to pay the regular loan installments meant he abandoned his spendthrift ways.

At first, this might not seem like the best idea. Taking on debt to force yourself into regular savings behaviors?

But think of it from their perspective. That microloan might have a 10% interest rate. On the other hand, the susu down the street charges you 40% interest on your savings. Seems like a good deal to me.

This is not altogether different than when people play games with 0% balance transfers on credit cards. They write a cash advance check from card A into their savings account, then do a 0% balance transfer from card B to card A to cover that check. Then they hold the cash in their savings, earning 2-3%, until they have to pay back the 0% transfer. Along the way, they can usually earn a few bucks, particularly if the amount isn’t large enough to really harm their credit.

In both cases, it’s a crafty way to use the financial tools available to you in an unexpected way to put yourself in a better financial place. Don’t just think of a credit card as a way to buy more stuff. Don’t think of a low interest or a zero interest loan as bad simply because it’s debt. Instead, look at all the tools available to you – and use them together to maximize your situation.

Personal finance lessons can come from anywhere. Always keep your eyes open.