Many newer readers of The Simple Dollar haven’t been exposed to the hundreds of great articles in the archives of the site, so this is a weekly series that highlights the five best posts from one year ago this week, as well as the five best posts from two years ago this week. I call it … the Time Machine.

One Year Ago (July 5-11, 2008)
Seven Websites That Saved Me Money in the Last Week I save money on the ‘net all the time. One week, I simply jotted down every website I visited that actually saved me money in some way – and here are the seven that either reduced my spending or helped my finances in some other way. These all actually work – they all helped my bottom line and I still use all of these.

Ten Tactics for Improving Your Luck Yes, I believe you actually can improve your luck, mostly by putting yourself in positions where more “lucky” things are likely to happen. Here are ten ways you can do just that.

Finding the Motivation to Get Started on Major Tasks It’s often hard to get started on a huge project. I discovered this with my first book – it was much more difficult than simply jumping in. Often, the size of the project made me step back and pause. Here’s how I overcame it.

When Personal Finance Is Boring: Five Tactics for People Who’d Rather Do ANYTHING Than Manage Their Money I’m sure you know someone who’d rather be shot than have to think about managing their money in any way. This article is for them – five little ways they can improve their financial state without digging into the dreaded “money management.”

The First Steps Away from Paycheck-to-Paycheck Living Quite often, people who are living paycheck-to-paycheck feel stuck. They have no idea how to get started towards changing anything. Here are ten ways to begin chipping away at that brick wall.

Two Years Ago (July 5-11, 2007)
Ten Financial Bulls: Moving From Desperation To Financial Enlightenment Using A Zen Parable After reading a Zen parable called “Ten Bulls” about the path to enlightenment, I realized that the parable applied very well to financial growth, going from debt to financial freedom. I discuss the analogy in detail here.

One Thing You Can Do Today That Will Put You In Better Financial Shape Tomorrow This is a guaranteed technique that you can do today that will improve your financial position in the days to come. Even better, you can apply this technique any day and the effect will be largely the same.

Walking Through a Financial Horror Story A reader writes in with a depressing tale about her financial state. Here, I do my best to piece through it and figure out what she can possibly do next.

Review: It Pays to Talk This is a great book about the difficult subject of talking to family members about money issues. As time goes by, I appreciate it more and more, particularly as we begin having serious money conversations with our parents.

Time For A Change: Seven Things To Consider When Choosing A New Career Path I wrote this as I was doing my own soul searching with regards to a career direction. Was switching to a completely different career – one without a steady paycheck – the right move for me? Here are the things I was thinking about.

If you’d like to browse through more of the archives, visit the chronology, where all posts are listed in chronological order.

Nine Ways to Get More out of The Simple Dollar
This is kind of a FAQ for new readers and is posted each week along with the Time Machine. Here are nine great ways for new readers to dig deeper into The Simple Dollar.

1. Subscribe by email or RSS. Visiting The Simple Dollar’s website is great, but for many people, it’s more convenient to receive the articles in another form. It’s easy to join 60,000 other subscribers and get The Simple Dollar’s content by email or in your RSS feeder (if you’re unfamiliar with RSS, check out Google Reader.

2. Comment. Each article on The Simple Dollar has lively discussion. Just click on the green square in the upper right of each article on the website and join in!

3. Read my story of financial meltdown and recovery. The Simple Dollar isn’t based on what I’ve read in books or learned in school. I’ve made a lifetime of financial mistakes – The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

4. Download my free 49 page e-book. Everything You Ever Really Needed to Know About Personal Finance On Just One Page is completely free. It summarizes all of the key lessons I’ve learned along the way about personal finance in one tidy package – in fact, all of the main principles can be found right on the cover.

5. Follow me on Twitter. I post tons of interesting articles, quotes, follow-up material, commentary, and other material on Twitter. Follow me! If you’re unfamiliar with Twitter, it’s essentially an open discussion forum for people to share ideas and thoughts with other like-minded folks – you just choose the people you want to listen to and their ideas and thoughts are all delivered to you on a single page.

6. Dig through “31 Days to Fix Your Finances.” 31 Days to Fix Your Finances is an article series that outlines how you can get a grip on your finances over the course of a month.

7. Send me your questions and suggestions. Send me an email and let me know what you’re thinking, what you’d like to see, and any questions you might have. I try to respond to as many emails as possible and I read them all. I may even use your question in a future article!

8. Become a “Friend of The Simple Dollar.” If you find the stuff on The Simple Dollar valuable and are willing to spend five minutes or so a month to help me out with small things, please consider signing up to be a “Friend of The Simple Dollar”.

9. Email a great article you find to a friend. Find an article that you think your friend would love? At the bottom of each article, you’ll find a link that says “Email this” – just click on that, type in your friend’s address, and send it right along to them!

This is the fourth of twelve parts of a “book club” reading and discussion of Dave Ramsey’s The Total Money Makeover, where this book on debt reduction is teased apart and looked at in detail. This entry covers the fifth chapter, finishing on page 92. The next entry, covering the sixth chapter, will appear on Wednesday.

The first five chapters of The Total Money Makeover don’t actually address Ramsey’s plan at all. Instead, it’s mostly an argument against culture, mostly the idea that the easy availability of debt in our modern life is a serious problem.

I agree with Ramsey in that regard, but I usually find that the root of it is deeper: a lack of personal finance education mixed with a prevalence of awful messages about ourselves delivered by the media. Think about it: did you learn anything about personal finance in school? Also, think about the ads you see – don’t they portray the people in those ads as being somehow better than you?

Together, that’s some awful medicine. Dave, in his own way, takes on both of those factors in this chapter.

Ignorance Isn’t a Four Letter Word
We live in a culture that rewards intelligence and knowledge, and often ignorance is seriously derided when it shouldn’t be. Dave spells it out pretty well on page 78:

In a culture that worships knowledge, to say ignorance about money is an issue makes some people defensive. Don’t be defensive. Ignorance is not a lack of intelligence; it is a lack of know-how.

The idea that ignorance is not a lack of knowledge is vital. Intelligence is the ability to take the knowledge that you have and put it together in interesting ways. Intelligence shines when you read two articles on only vaguely related subjects and are able to put together a completely new idea from those two articles. Intelligence does not mean that you’ve got tons of knowledge in your head. In fact, I’d often make the opposite observation – many of the most intelligent people I know continually respect how little they know and how much they do not know.

I’ll use myself for an example. I don’t know much about world history. I don’t know much about physics. I don’t know much about high-level athletic training. I don’t know much about fixing cars. I don’t know much about plumbing. I don’t know much about complex mathematics. There are countless other areas that I’m willing to admit ignorance in.

Ignorance can be overcome, though. If I so chose, I could spend some time educating myself on plumbing with a good do-it-yourself book or two and some time around the pipes. I could learn more about physics by reading up on the subject and perhaps taking some coursework on it. I could learn more about working on cars by simply trying it. Hard work overcomes ignorance every time.

It’s not shameful to admit you do not know everything – no one does. In fact, I’d argue the opposite – pretending you know everything when you do not is dangerous and harmful to yourself and to others. This same exact logic applies to personal finance – it’s fine to admit that you’re ignorant about money. What’s dangerous is when you choose not to admit it – or you delude yourself into thinking that you truly aren’t ignorant about it.

Overcoming Ignorance About Money (or Anything Else)
Dave’s recipe for overcoming ignorance matches up well with my own feelings on the topic. On page 79:

Overcoming ignorance is easy. First, with no shame, admit that you are not a financial expert because you were never taught. Second, finish this book. Third, go on a lifetime quest to learn more about money. You don’t need to apply to Harvard to get an MBA with a specialization in finance; you don’t have to watch the financial channel instead of a great movie. You do need to read something about money at least once a year. Your actions should show that you care about money by learning something about it.

This really is a strong formula for overcoming general ignorance on a subject. It will not make you a world-beating expert, but it will give you the background you need to actually make that topic work in your everyday life.

Let’s translate it a bit. Pick a topic you’d like to not be ignorant on, then do as follows.

First, with no shame, admit that you are not an expert on that topic because you were never taught or were taught poorly. Second, read a general book on the topic. Third, go on a quest to learn more about the topic. You don’t need to apply to Harvard to get an advanced degree in the topic; you don’t have to watch documentaries or read piles of dry books instead of watching a great movie or reading a fun book. You do need to read something about the topic at least once a year. Your actions should show that you care about the topic by learning something about it.

Sounds like a recipe for getting up to speed to me!

What’s Expected of Us
On pages 81-82:

Peer pressure, cultural expectations, “reasonable standard of living” – I don’t care how you say it, we all need to be accepted by our crowd and our families. The need for approval and respect drives us to do some really insane things. One of the paradoxically dumb things we do is to destroy our finances by buying garbage we can’t afford to try to make ourselves appear wealthy to others.

I fell into this trap big time before my financial turnaround. I constantly tried to buy things to impress others. I’d pay for a huge group to go out to eat. I’d buy gadgets I didn’t even really want simply because it was impressive to have an amazing item. I had to always have the “latest” of everything.

Now? I realized that people didn’t like me because I had the latest things or because I bought dinner. They liked me because I was me. Sure, there were a few hangers-on who didn’t want to hang out with me any more because I wasn’t engaged in whatever activity they were obsessed with, but what was that friendship, really, if that happens?

In fact, it became easier to relate to people once I realized this. I was no longer worried about saying the right thing, having the right thing, or keeping up appearances. People wanted to be around because I was me – and that’s all I needed.

Who cares what the Joneses have? I can either be me, or I can be me with a car I don’t really want and a debt burden making me sad.

What’s Your Jaguar?
I really liked the tale Dave told about owning a Jaguar, starting on page 86:

I had the eye of my heart set on a Jaguar. I “needed” a Jaguar. What I needed was for people to be impressed with my success. What I needed was family raising an eyebrow of approval based on my ability to win. What I yearned for was respect. What I was so shallow to believe was that the car I drove gave me these things.

My Jaguar was food. I felt a constant desire to take people out to eat at my favorite restaurants – often very expensive ones. I’d take my parents out. I’d take my friends out. I’d seek out really expensive amazing places and tell the waiter to just give the whole bill straight to me. I’d tip really big right in front of everyone.

Doing this made me feel like I was important and that I was earning respect. What I found was that mostly I was just making the other people feel sort of awkward. They weren’t there to be shocked by my largesse – they were there because they wanted to go out for a nice evening with someone whose company they enjoyed.

Guess what? I stopped paying for meals for others. Guess what else? Whenever I ask any of my family or friends to actually go out to eat – something I don’t do too often any more – they’re still quite happy to accept and quite happy to fit the bill. In fact, they may be happier – they don’t have that vague sense of discomfort they used to get when I’d grab the bill and throw down the plastic.

The American Nightmare
If you’re jealous of what others have, put yourself in their shoes for a moment. Do you think they are actually able to afford what they have? On page 83:

They present the perfect picture of the American dream that has turned into a nightmare. Behind the perfect hair and the French manicure, there was deep desperation, a sense of futility, an unraveling marriage, and disgust with themselves.

The people that you’re jealous of often have had to make huge sacrifices to get the things you want. The fancy car? It’s often paid for with a huge pile of debt. The amazing career? That person spent a lot of sleepless nights cutting their teeth to get there – and likely has sacrificed a strong relationship with the people around them to get it. That perfect marriage? It’s likely either the result of a lot of maintenance or it’s a facade.

There is no such thing as a free lunch in life. The people that have those things that you’re jealous of have often paid dearly for those things. When you peek behind the mirror a bit, you’ll see the cost they paid – and are likely still paying – to get there. And, quite often, when you look at things as a whole, you find a balance of affairs that you don’t want yourself.

That’s why I gave up so much spending. I once thought I couldn’t imagine life without lots of trips to bookstores and game stores and coffee shops. At the same time, though, I was up at night sick with worry about my debts and leashed to a paperwork-filled career. I had those little oases of seeming happiness, but they were surrounded by lots of unhappiness. If you saw me out and about at the bookstore or at the coffee shop, you might have been jealous – look at that guy with the armload of books and the smile on his face?

But if you saw the worried guy, sitting there writing computer code at eleven at night, then not sleeping at two in the morning because he was worried about the bills… then you might get a different picture of things.

A Useful Lesson from Twelve-Step Programs
On page 91, Ramsey points out a worthwhile lesson from twelve step programs:

The Twelve Steppers have it right. They say, “Continuing to do the same thing over and over again and expecting a different result is the definition of insanity.”

If you’re trying to succeed in life – or in some specific aspect of life – and you keep failing at it or never getting anywhere, you probably need to change your approach.

Obviously, Dave is referring to money issues here. If you keep doing the same things you’re doing and you’re not getting ahead financially, you need to make some changes.

But it’s true for everything. Let’s say you’re a writer and you’ve finished a book. You’re trying to get it published but you’ve received twenty rejection letters. You need to change something. Why not give away the book in bite-sized increments? Why not chunk it down into 1,000 word segments and blog the entire book? Why not put that book aside for a while, write something new, and look at it later? The key here is that what you’re doing isn’t working, so you need to try something else. Getting a steady stream of rejection is never the road to success.

On Wednesday, we’ll tackle the sixth chapter – Save $1,000 Fast.

In April and May, National Public Radio featured a series on inexpensive gourmet dishes entitled How Low Can You Go?” Although many of the dishes looked quite tasty, most of the dishes weren’t actually all that inexpensive, often narrowly getting below $10 to feed a family of four, and many involved arduous cooking processes. I decided to try out some of these recipes throughout the summer to see how I could take the recipes and reduce them down to a simple and very inexpensive form.

Dal is a delicious simple Indian dish, often served with rice or wheat flatbread (called “roti”). It’s often a mainstay of vegetarian diets because it provides quite a bit of protein, and the rich flavorings make it palatable to us omnivores as well. Valerie Gaino, of Pichilemu, Chile, submitted a delicious Chilean variant on the dish to the How Low Can You Go contest:

3 cups of lentils
2 cups of chopped potatoes
2 chopped carrots
3 chopped tomatoes
1 hot pepper, chopped
1 small onion chopped
2 gloves garlic chopped
16 ounces tomato sauce
1 tsp cumin
a little beer or sherry
a little red vinegar
olive oil
1/2 cup chopped cilantro
salt and pepper

1. Soak and cook lentils till soft. Drain and rinse, set aside.
2. Sautee onions, garlic, hot pepper, and cumin in olive oil. Add beer or sherry.
3. Add potatoes and carrots, cover with water, bring to boil.
4. Add tomatoes and cook till potatoes are soft.
5. Add lentils and tomato sauce.
6. Salt and pepper to taste. (I sometimes add more water or beer if it’s too thick, or vinegar if it’s too sweet.) Add more cumin or hot sauce if you like it really spicy.
7. Throw in the cilantro, take if off the heat. Serve after a few minutes.

One immediate problem I observed is that the “three cups of lentils” likely refers to three cups of lentils after boiling, which means that 1 1/2 to 2 cups of dry lentils should be more than adequate for this recipe. Three cups of dry lentils would make this recipe mostly flavored lentils with a few other pieces thrown in.

Sarah (my wife, for those of you new to The Simple Dollar) handled most of the food preparation for this dish, so most of the notes that follow come from her. Here are the ingredients we used:

First, you simply boil some dry lentils, easily found in the bean section of any grocery store. We only used two cups of dry lentils to start with. Just boil them in a large pot with plenty of water for about thirty minutes or so and they’re fine, then drain the water off of them. This can be done a day or two in advance – store the cooked, drained lentils in the refrigerator. Here are the lentils we had after boiling:

While the lentils are boiling, you’re going to be spending that time chopping vegetables – again, something you can do a day or two in advance. The potatoes, carrots, tomatoes, onion, and garlic all need to be chopped.

We use a special knife called an ulu to make this process easier. An ulu is an all-purpose knife used by the Inuit for many different purposes, but it works really well for quickly chopping small amounts of vegetables. You simply grasp it by the handle and rock it back and forth on a cutting board with the vegetables underneath.

Of course, you can use pretty much any knife to chop vegetables – this is just a recipe where the ulu really comes in handy.

Next, I sauteed the onions, garlic, pepper, and cumin together, with about two tablespoons of white sherry. The same amount of a mild beer would be fine.

Next, add the potatoes and carrots, then add enough water to cover everything, then raise it to a boil. Once the water is boiling, add the tomatoes and then let it boil for ten minutes or so. Check a piece of potato and see whether it’s soft enough for your tastes – if it isn’t, let it boil for another five minutes and check again.

Once the potatoes are finished, it’s basically done. Just add the tomato sauce and the lentils, stir it a bit, season with some salt and pepper, and serve it!

Of course, you’ll want to serve it on something. If you have access to a flatbread, that’ll do just fine. Alternately, you can simply use rice. Here’s our rice steamer in action, steaming while the dal was cooking:

You might also want to have something else on the side. We had a very simple chickpea curry – basically just chickpeas (garbanzo beans) loaded up with curry paste. Yes, we love our chickpeas at the Hamm household!

Here’s our final plate:

This made a huge amount of dal. We had enough for our dinner that night, lunch the following day, and lunch two days after that for all four of us, and we still wound up freezing some of it.

Did we like it? All of us liked it quite a bit. Sarah perhaps liked it the least, particularly on reheating, and strongly suggested trimming the amount of cilantro, which I agreed with. It was delicious, though, and I was happy eating it even the third time.

Our total cost (ignoring fractional items we had on hand): $8.29, almost entirely on fresh vegetables. Given the amount we made, though, the cost per meal was $0.69 – pretty nice!

Changes I Would Make to Save Cost and Time
First of all, I’d trim the entire recipe by half. This made far too much food for us as is. Without some significant changes, you’ll either be freezing it – not a great option, since the texture will be ruined – or eating it all the time for days.

Second, I’d cut the remaining cilantro by half – and use dried cilantro. Fresh cilantro has a stronger flavor, but dried will work fine.

Third, I’d chop the vegetables and boil the lentils the night before. Turn on a radio in the kitchen and take care of these tasks in the evening so you can toss the meal together very easily when you arrive home from work the next day.

These changes modify the recipe a fair amount, making it cheaper and perhaps slightly faster. Here’s what the new recipe would be, as modified by me:

Trent’s Chilean Dal

1 cup of lentils
1 large red potato, chopped but unskinned
1 chopped carrot
2 chopped tomatoes
1/2 hot pepper, chopped
1/2 small onion chopped
1 clove garlic chopped
8 ounces tomato sauce (small can)
1/2 tsp cumin
1 tbsp beer or sherry
olive oil
1/8 cup chopped cilantro
salt and pepper

Night before:
1. Chop potato, carrot, tomatoes, pepper, onion, garlic, and cilantro.
2. Soak and cook lentils till soft. Drain and rinse, set aside.

Next day:
1. Sautee onions, garlic, hot pepper, and cumin in olive oil. Add beer or sherry.
2. Add vinegar, potatoes, and carrots, cover with water, bring to boil.
3. Add tomatoes and cook till potatoes are soft.
4. Add lentils and tomato sauce.
5. Salt and pepper to taste. Add more water or beer if it’s too dry, or add hot sauce if you like it spicier.
6. Throw in the cilantro, take if off the heat. Serve after a few minutes.

A reader asked me if I could break down my ideas into a handful of principles. After some careful thought, I came up with a list of fourteen basic “rules” that summarize my money and life philosophy. I’ll be presenting these as a weekly series.

This rule is about as subtle as a sledgehammer, of course. Many of you started visiting The Simple Dollar because you came to this realization on your own – high interest debt is a terrible idea, and even low interest debts are a terrible idea. Let’s count the ways.

The higher the interest rate, the more money you lose with nothing in return. Leave a $1,000 debt on a credit card with an 5.5% APR for a year and you lose $55 – not good. But if you bump that amount up to a level that’s typical for credit cards – say, 19.9% – and you’re up to $199 a year. Gone. Poof. Vanished.

The higher the debt level, the more money you lose with nothing in return. So, you have $1,000 debt on a credit card with a 19.9% APR and you lose $199 a year. Bump that up to $5,000 and you’re losing $998 a year. Gone. Nothing in return.

You’re open to late payment fees, over-limit fees, annual fees, ATM fees, cash advance fees, and countless other drains on your money. If there’s a way to ding you, credit card companies will figure out how to do it. A fee here, a fee there, and you’re suddenly watching even more money evaporate for nothing in return.

A required debt payment each month reduces your freedom. With that $5,000 debt above, you’re paying about $100 every single month as a minimum payment. That’s $100 you could be saving for a down payment. That’s $100 you could be saving to start a business. That’s $100 you could be saving for a car. That’s $100 you could be saving towards retiring early. That’s $100 you could be saving towards a great vacation. Your freedom is gone, eaten by the debt monster.

The mere presence of high interest debt often brings other debt into your life. You make a big commitment to getting rid of all of this debt, then start really bearing down on it. You get half of the debt gone, then all of a sudden disaster strikes. You lose your job. Your car breaks down. Your hot water heater leaks water all over the basement. Suddenly, you’re busting out the plastic again to take care of the problem – and you’re right back deep into debt. It’s like escaping from quicksand – if all of your strokes are perfect, you can pull yourself out slowly, but if even one little thing goes wrong, you’re slurped right back in.

In other words, it costs you money, costs you freedom, and puts you into a vicious cycle of even more debt.

There are really two prongs to getting out of this trap. Whether you’re avoiding it entirely or you’re trying to escape from the pit of despair, there’s one big first step you must take.

Build a Small Emergency Fund
The first step is not paying off debt. Paying off debt first is like kicking to get out of quicksand without getting your arms around something safe first – you might be able to kick out, but if anything goes wrong, you’ll just be sucked in deeper.

So, no matter what state you’re in, give yourself that rock – a cash emergency fund, sitting in a savings account. It doesn’t need to be too big – $1,000 should be your big target, but just start by putting $20 a week into savings – or more if you can swing it. Instruct your bank to do this automatically. Do it right now – call up your bank and ask them to do it.

You won’t miss that $20 a week. Your life will quickly find little ways to save – you’ll eat a few less expensive meals, start carpooling with a friend, or skip a few coffee shop visits and you’re there. What happens is that over the course of three months, your savings account reaches $250. After just shy of a year, your savings account will have $1,000 in it.

If you’re already making extra payments on your debts and you don’t have an emergency fund, stop those overpayments for a while and deposit that extra amount into your savings each month until you reach that $1,000.

Leave this money alone except for an emergency. You might be tempted to spend it on something fun or to pay off a big slug of debt with it. Don’t. That money is your rock – it’ll be there for you if your car breaks down or you lose your job. You won’t be sucked back into debt by these unfortunate events – your savings will save you.

What do you do when you reach that $1,000 level? Many people keep saving. Then, once a month, they sweep anything over $1,000 back into their checking and use it to make an extra debt payment, knocking down their debt without touching their $1,000 emergency fund.

Here’s the big key: if you do face that emergency, like having your car break down or losing your job, and you tap that emergency fund, replenish the fund after the emergency. Go back to minimum payments on your debts and rebuild that fund. It’s your rock.

I’ve written a detailed guide to building your first emergency fund if you want to know more.

Make a Debt Repayment Plan
When you have that emergency fund in place, it’s time to start tackling your debts in an intelligent fashion. Make a big list of all of your debts; then, attempt to get the rate on each of those debts reduced. Give your credit card companies a call and negotiate your rate down. Contact your local credit union and see if there are any opportunities to consolidate your debt at a lower rate.

Once you’ve done these things, list all of your remaining debts in order of interest rate, with the highest rate first. Then throw everything you can at the highest interest rate debt. Your only extra payment should be towards this top debt, and it should be the biggest overpayment you can muster without tapping your emergency fund. Live lean. Sell off stuff you don’t use. Find ways to earn a few extra bucks to throw at it.

Once that first debt is gone, throw everything at the next one, then the next one, then the next one. Your extra payments will grow larger because you’ve got fewer minimum payments to make, and soon you’ll find yourself free.

I’ve written a detailed guide to building a debt repayment plan, too.

Avoiding High Interest Debt
I’m not a “no debt” absolutist. I think that home mortgages are often worthwhile for most people, and I think credit cards can be a useful tool if used carefully.

Having said that, many people do not use credit cards carefully. Instead of carefully using them as a tool during very regular purchases (like gas) and then setting the cash aside to pay the bill in full each month, they use credit cards mindlessly to buy whatever they throw in their shopping cart, not worrying too much about prices because, hey, the credit card will cover it!

Bad idea. If you have any inclination in that direction, cut up your credit cards, seriously. It’s the equivalent of swinging a chainsaw around with your eyes closed after knocking back three shots – you might luck out and wind up safe, but it’s more likely to wind up bloody and painful.

Instead, adopt a different approach. Leave your card at home most of the time. When you do use it, use it for specific purposes, like using a BP credit card and use it only at BP gas stations so you can get a nice kick back, or use the Target Visa only at Target to get 10% off your entire purchase regularly, and pay off the balance in full every time. Otherwise, leave it at home and use a debit card (one that features a Visa or MasterCard logo) for your purchases because then you’re actually accountable for every dime you spend while still enjoying the convenience of card use.

There are two big reasons for using this approach instead of going entirely down the cash road. First, it builds a positive credit rating, and a good credit rating improves your insurance rates and helps your employment opportunities. Second, using cards only in a very targeted fashion – as shown above – and paying off the bills in full each time results in some sweet cash kickbacks – 3% at least.

You’ve just got to respect the tool – and not start swinging it around like a toddler with an axe.

I’m a video game fan, and I’ve been one since I was tiny. During my life, I’ve owned an Atari 2600, a Nintendo Entertainment System, a Super Nintendo, a Sega Genesis, a Game Boy, a Game Boy Advance, a Nintendo 64, a PlayStation, a Game Cube, a Playstation 2, a Nintendo DS (and a DSi), and a Wii. It’s a hobby I’ve enjoyed pretty much my entire life, and I still enjoy it, even in my thirties.

About two years ago, I wrote an article detailing my Wii: how do I maximize my gaming dollars on it? This was a popular topic, one I’m often asked about by people my age who still want to play occasional video games but don’t want to break the bank. Many other readers have requested similar notes on a Nintendo DS, either for themselves or for a friend or a child.

What I’ve found is that for my gaming dollar, my Nintendo DSi is the best bargain I’ve yet found. The Nintendo DSi is a handheld console that easily fits in a pocket. Let’s walk through the details.

First, why a handheld console at all? If you’re a video game fan, why not buy an Xbox 360 or a Playstation 3? If you’re more into casual games, why not just play the games available on your cell phone?

The biggest factor that improves upon the consoles is portability, obviously. Most of the time, when I do actually play with my DSi, I’m out and about. I’ll play it on a long road trip. I’ll play it at the doctor’s office. I’ll play it whenever I’m in line. Although those situations make up the vast majority of my playing time, I can also play it at home on the couch if I so choose.

Why not just play the ones on the cell phones? Frankly, it’s the quality of the games. I’ve played a ton of different cell phone games and not many match up to the quality of even the worst games on the DS. The only cell phone that has even a few quality games is the iPhone, and if you’re looking at the iPhone because you want a cell phone that plays good games, it’s vastly cheaper to just get a low-end Verizon phone for your calls and a DSi for your games – and you’ll get both services better than you would with an iPhone.

Obviously, there is the option of simply not playing at all, which is completely worthwhile as well, but I’m fairly obviously writing to people who enjoy gaming and value it as a hobby.

Second, why a DSi instead of a DS Lite? A DS Lite is currently $40 less expensive, plus it has a slot that lets you play older Game Boy Advance titles – a feature that the DSi lacks. So why is a DSi a better value?

The biggest reason is the downloadable software. The DSi allows you to download very, very good games for just a few dollars each (more on them below), with more appearing all the time. Even better, you’re able to download two of them for free when you first get a DSi, and it comes with a free web browser, too (which I’m using in the picture at the top of this post).

The second reason is it functions as an mp3 player. All you need is an SD card loaded up with mp3s and headphones and the DSi functions as a portable music player – another solid argument for simply getting a dirt cheap cell phone in conjunction with this device.

The third reason is a bit of a knock against the old Advance games – the worthwhile games for the Advance are getting difficult to find. At the used game stores I frequent, it’s almost impossible to find any worthwhile Advance games for a reasonable price.

Finding a bargain on a DSi A DSi currently has a list price of $169.99. How can you shave a bit more off of that?

Suggestion one: trade in any older video games or consoles you don’t play with. I traded in my Nintendo DS Lite and several Advance games that I had thoroughly played to get my DSi for free. Another friend of mine traded in several old played-through games to get one. If you have any older games sitting around that you’ve already played through, gather them up, take them to the local gaming shop, and trade them in.

Suggestion two: wait for a sale on Amazon. If you’re interested, use this trick to automatically find a deal on a DSi at Amazon. You’ll have to be patient, but it’s a great way to dig up a deal.

Suggestion three: be patient. Do some comparison price searching yourself and decide if you really want one or not. Spending some time thinking about the purchase has a good chance of talking you out of it if you’re not truly interested.

Starting Out With a DSi
Unlike any other video game console I’ve ever tried, you can get quite a bit of enjoyment out of the DSi without buying anything else. Pick up the console, take it home, and fire it up. When you log onto the DSi Shop, you’ll automatically be given 1,000 free points, which you can use to download software. I strongly recommend spending those 1,000 points downloading the web browser, Art Style: Boxlife and Art Style: Pictobits.

Boxlife is a puzzle game in which you are given a piece of “paper” with tons of squares drawn on it, like a piece of graph paper. You cut the paper along the edges of the squares, then fold the pieces you cut out into cubes – which means that the pieces you cut out have to be of certain shapes. It also features an amusing simple storyline detailing your rise through the employee ranks in a factory. This is a highly addictive puzzle game.

Pictobits is another addictive Tetris-like puzzle game where you have to match up colored pieces. When you do, the pieces disappear and then reappear above, filling in colors automatically in a picture.

Both of these are great ways to spend five minutes juicing up your brain while you’re sitting at the doctor’s office or on the bus, and since you can get them both for free with the purchase of a unit, why not?

Before I discuss any other purchases, I should point something out: I don’t think a video game is a worthwhile purchase unless you get the cost of the purchase down to $1 per hour of playing it. Ideally, I can do better than that, which I’ll discuss below.

If you decide to make an additional purchase with your DSi, I’d recommend getting a single Nintendo points card (SRP: $20), which gives you 2,000 more points with which to download games – and there are plenty of additional worthwhile games to download. I recommend Mario vs. Donkey Kong: Minis March Again (800 points), Dr. Mario Express (500 points), and Art Style: Aquia (500 points), then just hold onto the other 200 points for the future.

What about the DS cartridges? There are a ton of games available for the DS, many of which are awful and many of which are incredibly worth playing. My strategy for maximizing my gaming dollar is pretty simple: I buy and trade used games. Occasionally, I’ll receive new ones as gifts (because my wife and my family know what kinds of games I enjoy) and I’ll cycle them in as well.

Here’s how I do it. Let’s say I go to the used game shop and buy two used games which together cost about the price of one new game. I play through both of these thoroughly until I’m truly tired of both games. Along the way, my kids get me another game for my birthday and I play through that one, too. I’ll then take those three games to the used game store and trade them in for two others that I haven’t played. I’ll play through those two thoroughly, then I’ll take those into the used game store and trade them in for two more. Along the way, I might stumble upon a huge bargain (like recently, when I found a game I really wanted to play for the DS, Fire Emblem, for $5 new) and add that into the mix.

I recently calculated that I’ve invested an average of $6 out of pocket per game I’ve played through for the DS (and that includes the cost of the console averaged into each game) – and I’ve played some games nearly to death. That drops a game down into the used paperback range, since I’ll spend much more time on a game than on a single book.

If you’re looking for games to pick up that really maximize bang for the buck, the six best values I’ve found in DS gaming are Advance Wars: Dual Strike (war strategy; I’ve spent more hours on this game than any other, ever), Elite Beat Agents (rhythm tapping game, often inexplicably available for $5-10 on the discount rack at Target), Mario Kart DS (kart racing with a lot of variety, plus this is a must-buy if you have multiple DS owners in the household), Legend of Zelda: Phantom Hourglass (distinctive and very fun adventure), Final Fantasy Tactics A2: Grimoire of the Rift (adventure/strategy mix, a HUGE game), and New Super Mario Bros. (if you ever enjoyed playing a Mario Bros. game, this will be tons and tons of fun). All of these were well worth the price, especially if you can get them used.

I’ve had tons of fun with my DS Lite – and now my DSi. The best part is, if you’re careful, it can be a real bargain.

One big point that I often bring up in favor of Roth IRAs is the fact that you’ve already paid your income taxes on it. When you take money out of your Roth IRA at retirement age, you don’t have to pay income taxes on any of your withdrawals. On the other hand, with a 401(k), you’ll owe income tax on all of your withdrawals.

Obviously, the big difference comes when you pay into these accounts. With a Roth IRA, you put your money in after taxes – from your take-home pay. With a 401(k), you invest with money before taxes. Thus, a 401(k) investment reduces your taxes today, while a Roth IRA investment reduces your taxes tomorrow.

Many people want a simple answer to the question of which retirement account type is better – but it’s not that simple at all. To truly know which option is the best one would require a crystal ball.

The best we can do is make the case for a future where a Roth IRA is better – and a future where a 401(k) is better. Let’s look at each one.

A Roth IRA Is Better If…
… income tax rates go up from where they’re at now. Let’s face it – the United States is deep into debt. The revenue to pay for that debt will have to come from somewhere. At the same time, income tax rates are currently about as low as they’ve been in decades. What’s a reasonable conclusion from this? The government will raise individual income tax rates gradually over time to make up for all of the rampant spending since the start of the Reagan years.

… your earnings go way up from your current level. If you have higher earnings later in life, it’s likely that most of your retirement savings will also come later in life so that you can have a standard of living in retirement that’s notably higher than what you have now. If you need a lot of money in retirement, it’ll be very useful to have some of that money arrive on your plate tax-free, especially if the income tax rates are higher. In other words, if you have a big entrepreneurial bone in your body, a Roth IRA is probably a better option.

… you have other avenues of income in retirement besides the Roth IRA. Most likely, if your income goes way up, you’re going to have investments of all kinds that earn income for you in retirement. Almost all of that will be taxable income. Again, having some of your income in a non-taxable form means substantially less taxes for you, particularly, again, if tax rates are higher.

… your employer isn’t offering matching contributions into a 401(k). If you’re self-employed or with an employer that doesn’t offer a 401(k) – or doesn’t offer any sort of 401(k) contribution matching – a Roth IRA definitely looks good in comparison, since the 401(k) doesn’t have this huge advantage.

A 401(k) Is Better If…
… income tax rates stay at the same level – or go down. Many argue that the best way to increase revenue is to actually lower tax rates, spurring on business growth. If future governments apply this philosophy, it’s likely that tax levels will either stay steady or decline.

… your earnings decline, stay the same, or only go up at a slow rate until retirement. If you’re not entrepreneurial in any way, shape, or form and you’re not interested in battling your way up the corporate ladder, your income will likely remain pretty steady throughout your life. This means you won’t bump yourself up to higher tax brackets later on and you’ll likely be in this tax bracket (or a lower one) in retirement. Thus, deferring the taxes until then is advantageous.

… your main income (besides Social Security) will be your 401(k). If your income in retirement will mostly come from your 401(k) and not from outside investments, your total tax bill will be limited significantly. You won’t have additional income pushing up your tax burden (which your 401(k) will contribute to).

… your employer offers matching 401(k) contributions. This is free money that blows away any tax benefits that might come from a Roth IRA. If your employer matches your contributions, the decision becomes pretty easy – take those matches all the way to the bank.

What About a Roth 401(k)?
Some people also have the option of a Roth 401(k), which essentially works like a 401(k) except with after-tax money. A Roth 401(k) often ends up being like a Roth IRA that gets employer matching, which means that most of the arguments in favor of a Roth IRA apply to it.

In the end, though, you need to decide for yourself where you’re headed and where you believe the government is headed. Of course, all of this is moot if you don’t start saving right now. Regardless of what you choose, you’ll lose any advantage of either choice by putting off saving while you decide. If you’re unsure, sign up for one plan or another and start contributing. If you change your mind later, switch your savings plan. But, no matter what, start saving now – don’t put it off.

This is the third of twelve parts of a “book club” reading and discussion of Dave Ramsey’s The Total Money Makeover, where this book on debt reduction is teased apart and looked at in detail. This entry covers the fourth chapter, finishing on page 76. The next entry, covering the fourth chapter, will appear on Saturday.

You can get rich in just three weeks with my $99 tape course!

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Gold is the only thing that will save you when the economy fails!

Do you smell the snake oil yet?

There are countless sharks in the water that want your money. One powerful technique for selling you something you don’t need is to prey on your fears. Perhaps you fear the government’s long term future (been listening to too much talk radio, haven’t you?). Perhaps you fear immediate personal financial failure. Perhaps you fear your professional failure – and what others might think of you if you’re not successful.

People will prey on those fears. They try to do it all the time. Commercials telling you that you can eliminate your debt. Pitchmen talking about how great an investment gold is. Smooth talkers telling you about their “program” for quick income at home.

Almost all of these plans do two things. They grab onto your fears and they combine it with some sort of widely-spread myth. The myth of the person who got rich quickly. The myth that debt can be whisked away through this or that loophole in the law.

Myths are dangerous things. They’re usually based on information that might have been true a hundred years ago – or are based on extremely rare cases that, again, don’t reflect how you live your life. Yet they persist because they sound good.

Denying Risk Because of Laziness
Early in the chapter, Ramsey goes on a rant about the dangers of denying risk in your life. One point he makes on page 52:

Sometimes risk denial is a kind of laziness, when we don’t want to take the energy to realize that energy is needed to win.

I think this very factor holds people back from a lot of career advancement. They look at the huge amount of energy they would need to expend to get ahead – networking, building a business, and so on – and decide that they’d rather expend their energy doing something else.

Another example: we look at the effort that it would take to keep track of our spending for a few months and get a real grip on our finances – and we decide that the status quo is just fine.

Or we think about the effort that it would take to actually build a price book and figure out which grocery store really is the cheapest for what we buy – so we shrug it off and just go shopping at the Wal-Mart Supercenter.

Laziness is the enemy of success in every area.

Denying Risk Because of the Beat Down
Dave’s rant against risk denial continues:

Other times, risk denial is a kind of surrender in which we settle for a bad solution because we are so beat down or beat up that we wave the white flag and do something stupid.

I’m reminded of those ludicrous debt elimination programs advertised on late night television. “We can eliminate 90% of your debt with our program!”

Well, this means one of two things. You’re either going to file for some sort of bankruptcy protection (which has a whole different can of worms) and pay them for the “help” or you’re going to sign up for their debt repayment plan, where you pay them money for something you could cook up yourself.

Either way, you lose. Why not just make your own debt repayment plan? It’s easy and a lot cheaper than paying outrageous monthly fees for companies to do this for you.

Denying Risk for False Security
Yes, I liked the denying risk theme. Dave goes on to say:

At still other times, risk denial can have an active component in which we search for a false security that simply doesn’t exist.

Gold investing immediately comes to mind. The local talk radio station in Des Moines carries tons of ads for buying gold as an investment, coupled with shows like Glenn Beck which talk breathlessly about the fall of the American government (I wish I were kidding).

Gold sellers prey on that fear, bringing up the old tales about how gold is the safest thing to own when governments are falling. In practice, though, that’s rarely true – gold is scarce enough that most people resort to a barter system until things straighten out, and land, skills, and resources have the real value.

Gold is that false security. It makes people believe that they’ll be safe if the government collapses. In a fearful environment, people seek out that safety.

That’s not to say gold doesn’t have a role in a diversified investment portfolio, but people with enough of a bankroll to need diversification into precious metals probably aren’t reading The Simple Dollar or listening to talk radio all day.

Cash Value Life Insurance Is Junk
This is one of those points that I absolutely love in this book. Dave lays out the case against whole life and universal life insurance on page 58:

All of the [extra payments beyond the price of term insurance] per month disappears in commissions and expenses for the first three years; after that, the return will average 2.6 percent per year for Whole Life, 4.2 percent for Universal Life, and 7.4 percent for the new-and-improved Variable Life policy that includes mutual funds. These statistics are from Consumer Reports, Consumer Federation of America, Kiplinger’s Personal Finance, and Fortune magazine, so these are the real numbers. Additionally, a recent article in National Underwriter, The Industry Mouthpiece, showed charts of returns from fourteen national companies. The returns they show average only 6.29 percent over twenty years. [...] Worse yet, with Whole Life and Universal Life, the savings you finally build up after being ripped off for years don’t go to your family upon your death; the only benefit paid to your family is the face value of a policy [...]. The truth is that you would be better off to get the [inexpensive] term policy and put the [extra payments beyond the price of term insurance] in a cookie jar!

That pretty much sums it up. If you want insurance, buy bread-and-butter term life insurance. If you want an investment, buy an investment from a brokerage with low-cost investments (like Vanguard, for one). Mix the two and you’ll find yourself eaten alive by fees and commissions.

Look, I don’t blame a well-meaning grandparent for buying whole life insurance for their grandchildren. Their heart is in the right place – they want to protect their own children when their grandchildren are young and give the grandchildren a valuable investment when they’re older.

However, I’d encourage them to split that $100 a month into two batches instead of putting it all into the insurance. Use a small part of that money for a small term policy on the child so your own children won’t have a financial burden if the unthinkable happens. The other $93 a month? Put it in an investment account.

Important/Not Urgent
One of the handful of useful ideas in Stephen Covey’s book The 7 Habits of Highly Effective People (which I reviewed a while back) is the idea that our tasks all fall into four groups – Urgent & Important, Urgent & Not Important, Important & Not Urgent, and Not Important & Not Urgent.

Covey argues that the distinction we should make is whether something is important or not (tasks in the Important & Urgent and the Important & Not Urgent groups), but in practice we usually focus on the urgency instead (Urgent & Important and Urgent & Not Important).

This has a huge impact on personal finance. Dave spells it out on page 62:

We take care of the Urgent/Important stuff, but what is Important/Not Urgent [...] is planning. You can pay the electric bill or sit in the dark, but if you don’t do a monthly spending plan, there is no apparent immediate damage.

I think this is one of the biggest reasons people put off financial planning. They are aware that it’s important, but they’re also aware that it’s not urgent.

Since so many of our lives are seemingly in constant “crisis mode” where we move from one fire to the next, we find ourselves falling easily into a situation where we just deal with what’s urgent and don’t even consider what’s important.

The end result? We find ourselves often missing out on many very important things in life because they’re not urgent. We skip playing with our kids because a client is calling us about a minor detail. We gloss over financial planning because there are fifty eight household chores that need to be done.

That lost time costs us. Every month we don’t save directly hurts our retirement. Every week we don’t contribute to our 401(k) hurts us. It comes around.

A Weird Argument for Cash
I think Dave goes off the rails on page 71 when talking about the risk of carrying cash versus carrying credit cards:

The crooks assume that your purse is like all the others filled with credit cards that are over the limit. Look, I’m not making light of crime. There’s a chance you may get robbed, because people do get robbed -whether they carry extra cash or not. And if it happens to you, the cash will be taken. But, trust me, you need to be far more worried about the danger of using credit cards than the danger of being robbed while carrying cash. Carrying cash doesn’t make you more likely to get robbed; on the contrary, the mismanagement of plastic is robbing you every month.

First of all, why not use a debit card instead of cash? A debit card allows you to only access the cash you actually have – the stuff sitting in your checking account. It also has virtually the same consumer protections as a credit card – if someone steals your debit card, just call up your bank and things are secure.

Second, having $200 in your purse (or wallet) makes it just as easy to blow $200 on something unnecessary as it is having a credit card in your purse (or wallet).

A credit card is just an excuse to exercise a lack of self control.

Having a large amount of cash on you is a security risk, no two ways about it. Dave is making the mistake of confusing one kind of risk (the risk of a lack of self control, which can take hold whether you have cash or a credit card in your pocket) with another kind (the risk of having your money stolen, which is much easier to fall prey to with cash on hand than with a credit card on hand).

Do you have any other thoughts on the fourth chapter of The Total Money Makeover? Please share them in the comments – and feel free to respond to any of my impressions as well. After all, a good book club is all about discussion!

On Saturday, we’ll tackle the fifth chapter – Two More Hurdles.

Over the last year, I’ve been jotting down individual notes and thoughts that I’m intending to include in my next book. Now that the time has come to start putting this together, I sat down and finally did a thorough accounting of all of the notes. I made them all electronic (using Evernote heavily for this) and took a hard look at what I had.

1,100 notes, without any sort of structure at all.

What does it all mean? That’s what I’m really puzzling through right now. I definitely see some huge patterns in the notes, but what’s the big theme really tying all of these ideas together?

Lately, I’ve been taking long walks and puzzling through all of this. I’ll spend an hour reading through note after note after note, then I’ll get up, put on my shoes, and go walking/jogging for a while. Connections pop into my mind when I’m out there and by the time I’m back, I see things in a new light.

It’s coming together. The shapes are beginning to emerge.

Here are some interesting personal finance articles I found in the last week.

The Basics Behind a Budget that Works After reading tons of articles describing different versions of “a budget that works,” I’ve come to the conclusion that no budgeting technique really works for everyone. For me, a much simpler approach works well. (@ simple mom)

Things Wear Out I agree – the best value is an item that simply wears out. It’s worn, well-utilized, and useful until the very end. Like a good pair of shoes. (@ wise bread)

A New Era of Personal Finance The old advice isn’t working any more. (@ saving for serenity)

Why Pursue Financial Freedom? I think different people have different answers to this question. For example, my reason is simply so I can pursue some of my major life goals – writing a novel and having it published and well-promoted – without worrying about an income. (@ get rich slowly)

30 Days to a Better Man This is a set of truly great articles, but a better name for the series would probably be “30 Days to a Better Person” as most of these articles apply well to well-rounded women, too. (@ art of manliness)

Helpful Finance Tips, or Sneaky Payday Loan Ad? Proof positive that you need to be very careful about what you read online. I think the future of the internet is “trusted advisors” – people who build long-term relationships with readers and give them advice on any number of things. I would probably be in that category. (@ red tape chronicles)