As I write this, I’ve spent about five hours online hunting down “perfect” gifts for various people on our Christmas shopping list.

In almost every case, I wound up spending less than our target dollar amount on our list. In almost every case, as well, I found a gift that I think is utterly perfect for the recipient.

Just a few years ago, I would have spent a crazy afternoon at a shopping mall taking care of my list in roughly the same time period. Two problems with that: I would have spent a lot more and the gifts would have been a lot worse.

What exactly did I do this year that was so different? This year, I tried an approach that I’ve been slowly building over the last few Christmases.

Instead of just coming up with gift ideas for each person right off the bat, I spent some time just thinking about each person on my list. What do they care about? What interests do they have? I used the internet to help me in this regard to research a few people and see what they were talking about.

If I didn’t know much of anything about them, I realized that (a) maybe I shouldn’t be buying them gifts in future years or (b) I should spend some time getting to know them better. After all, if you can’t come up with at least some framework of what the person is passionate about or interested in, what basis is there for the relationship? Why give a gift at all?

So, one result out of this is that I know a few gift exchanges I’m going to drop out of next year and I know a few relationships I need to work on in 2010.

Back to the main point.

For each person on my list, I tried to write down five to ten words that describe them in some fashion. I’ll list the eight words I came up with for someone on my list: funny, board games, video games, quiet, smart, chemistry, outdoors, bicycle, camping.

I dropped that list of words into Google and read the first few pages of links.

Virtually every time, one of those pages pointed me straight to an idea I hadn’t even considered before as a gift – something that just worked perfectly for that person. It worked on the order of 90% of the time. The best part was that, once I had that gift idea in mind, I was often able to find that gift for an amount less than I expected to spend on them.

On the occasions when it didn’t work, I just went back to the list of words again, eliminated half of them that didn’t seem to fit as well, and then worked on other ones. I would try different smaller sets of the words. Each time, within two or three tries, I found myself on some path towards a really great, surprisingly inexpensive gift.

Here’s the real truth: great gifts come from caring about people as individuals and thinking deeply about that person, not from just trying to find something so you can knock another person off of your Christmas list. Lead with the person, not with the gift, and let the tools we have at our fingertips lead you towards the right gift. Time and time again, you’ll find something perfect – and you’ll save money.

And no, I won’t mention the gift idea I found. That person is a Simple Dollar reader, after all.

I can’t tell you how often I’m contacted by readers who tell me the story of their lives, then ask the big question: how much life insurance do I need? I’ll hear from twenty four year old single women and forty year old men with a wife and three children. I’ll hear from people with almost nothing and people with hundreds of thousands of dollars in the bank. They all ask the same question.

First of all, term life insurance is the way to go. Other types of policies tie a subpar investment into the insurance policy. If you want to invest, invest separately with a firm that specializes in investments and will customize an investment to meet your needs.

Term policies are simple to understand. They offer a certain amount of coverage over a certain period of time. If you keep up your premiums (your regular payments), if you die within that time period, your stated beneficiary will receive the value of the insurance. So, if you buy a $500,000 ten year term and you die within that time period, your beneficiary receives $500,000. If you live through the end of the policy, you’re back to square one.

Here’s the thing, though. Not everyone needs life insurance. For starters, people who have been careful savers throughout their lives often have no need for life insurance as they’ve accumulated enough wealth on their own to sustain their family. Similarly, people with no dependents often have little need for life insurance if they have much cash in the bank at all (to cover funeral expenses, for example). Life insurance is only necessary if, in the event of your death, people would be left in a financial bind without some sort of resource.

So, the first question is how long should my term be? For parents, you should get a term long enough that the children you plan to have are independent before the term expires. Otherwise, it’s about your own comfort level. Shorter terms tend to have cheaper monthly premiums, but if you aren’t careful with your money, you may find yourself buying a new, more expensive policy in ten or twenty years.

The next one – and it’s often the big one – is how much? I think there are three key things to consider.

First, what’s the income shortfall for the people left behind? Simply put, how much money each year would your survivors need to maintain their standard of living? This isn’t just straight replacing your salary, since they won’t have your costs any more.

Second, how long will they need that income shortfall? If you have young children, it will be quite a while. If you just have a partner, they may not need it for as long. You should talk this over carefully with your partner so that you both can make a realistic decision. I usually encourage people to calculate for their children’s needs until age twenty or so.

Additional things to consider: your own funeral expenses, the cost of college for your children, any donations you’d like made in your name, and special care needs (for example, if you’re taking care of an elderly relative, who will do it when you’re gone?).

Third, how much do you have now? What’s in your savings? Your investments (like your 401(k))? What other insurance policies do you have? Would your family stay in their current house, or would they downgrade?

The calculation is simple. Figure up the first number, multiply it by the second number, and then subtract the third number. That’s how much life insurance you should have, in a thumbnail sketch.

If you’re unsure about certain numbers – and you probably will be – round up. It’s better to aim too high than to aim too low and let people down.

In the end, though, remember that the real thing you’re buying with life insurance is peace of mind. Going through these calculations and then actually purchasing a policy serves the purpose of letting you sleep better at night.

Good luck!

Yesterday, I read a really interesting article about career choices on Charlie Hoehn’s blog. A quick excerpt:

I haven’t really talked about this before, but I’ve failed more times than I can remember. I’ve tried starting up several businesses, tried patenting inventions, tried starting up online communities, tried building several websites, tried to win contests… and failed almost every single time. But I never chalked any of them up as failures in my head, because I learned so much in the process each time. So now, when I’ve finally reached a point where things seem to fall into place with far less effort, I can’t help but think about all those times where I didn’t succeed over the course of the last eight years. And I look back in fondness, because those lessons learned are the reason I’m here. None of this stuff happened over night — in a way, I’ve been working to reach this point since I was 15.

[...]

And therein lies the best career advice I could possibly dispense: just DO things. Chase after the things that interest you and make you happy. Stop acting like you have a set path, because you don’t. No one does. You shouldn’t be trying to check off the boxes of life; they aren’t real and they were created by other people, not you. There is no explicit path I’m following, and I’m not walking in anyone else’s footsteps. I’m making it up as I go.

I know exactly what he’s talking about.

In college, I worked for quite a long time in a plant pathology lab studying soybean diseases. I learned some things – including that the work wasn’t right for me. I eventually moved on to computer analysis of massive quantities of data. I learned quite a lot from that as well (including that I really loved the work, but I found it really stressful). From there, I did another complete 180 and became a writer. I did all of that before the age of 30. What does the next decade hold? I really, truly have no idea.

The key thing is this: I never stopped trying new things. I still don’t. In the last year, I’ve tried a podcast, video production (on an unrelated topic), and architecture of a community website in my spare time (what little I have of it). Each time, things work with varying degrees of success – sometimes it really clicks and other times it doesn’t at all. Either way, I learn something from it.

Many people are afraid to try new things like this. They look at their career as a set path. In five years, I’ll make partner. In ten years, I’ll be a GS-13. In fifteen years, I’ll be mayor.

Careers almost never work like that. Companies are downsized. The political landscape changes. Your interests evolve and change. You gain a spouse – or you lose one. You have kids. You have a health crisis. Something sweeps you off your feet and carries you along for the ride. An old friend calls out of the blue and offers you an awesome opportunity.

The only way to prepare yourself for such chaos is to constantly try new things in your spare time. Take a class. Try out a new hobby. Teach yourself a new skill. Meet a new group of people. Launch a project of some kind. Start a side business.

If it doesn’t work out, so what? You learned something. The learning is the most valuable thing of all. Because, when that right thing does come along, you’re more likely to succeed at it if you have a lot of life lessons under your belt. Life lessons generally come from failure, not from success.

What can you do today? That’s the real question, isn’t it? Try something new – something outside of the normal way you do things. Start a blog. Sign up for a class. Start a side business. Go to a group meeting that you’ve never been to before.

Where will you find the time? Log off the computer and turn off the television, for starters. For many people, those two things alone will free up a lot of time.

Good luck.

Cam writes in:

I got a sweater from Land’s End for my birthday with the receipt included. I wore it twice, but I just don’t like the sweater. It fits fine and is well made and everything, but I just don’t like the look. I’m thinking of sending it back to them under their unconditional warranty but it feels wrong to me. What do you think? Should I send it back and get something I want or should I give it to Goodwill or something?

For me, this is a question with an easy answer that leads to some much more difficult questions.

So, let’s dig in.

Should Cam return the sweater? Absolutely. Part of what you’re buying when you buy from Land’s End is that very unconditional guarantee. If I were Cam, I’d return it as soon as possible and pick out something I liked to replace it with.

Having said that, if Cam had worn the sweater for years and years and it was showing wear and tear from tons of use, I wouldn’t think it was cool to return the sweater at that point. Their guarantee would cover the sweater, but you’ve already received what you’ve paid for if you’ve worn the sweater into oblivion.

And that’s where it gets sticky.

There’s a cost for returning items. When companies figure out the price of their products, one of the factors they have to consider is how much the customer service for this item is going to cost. They look at factors like how often the item will be returned and how many customer service calls it will generate. Those things cost the company money and they have to directly tie it into the cost of the product.

Normal, reasonable customer service requests are usually incorporated into the cost of items you buy. Thus, when you open something and find that it’s faulty, it’s the right thing to do to return it and put it right.

Where things become more difficult is with the unreasonable requests. Most companies will do what they can to help you with your attempted returns and customer service complaints, so if you think you’re justified, you should do what you can to make it right. If the request is really unreasonable, however – like returning a very worn sweater and demanding a full refund – it alters the numbers on which the company runs.

To put it simply, if the number of unreasonable customer service requests goes up, the price goes up – for everyone.

If you’re looking at a potential unjustified return on a very small scale – just your individual return, with no one else or no future purchases considered – it’s justified to push hard against their customer service rules and get every complaint met.

However, once you back up in scale a bit, you see that there are problems with that. First, it eats up a lot of time, as many such non-standard requests eat up your time to resolve them. Second, it increases the future costs of products for you. Perhaps even more notable is that the costs go up for everyone else as well.

My solution is pretty simple: unless it’s clearly a defective product issue, I don’t bother with the customer service. The time investment, plus the potential impact I have on future cost increases, usually doesn’t make it worthwhile unless you’re talking about a very high-end item.

What’s a frugal person to do, then? The best step is to buy less stuff, but when you do buy, buy quality stuff. Items that are backed up with strong reviews, strong customer service, and a great warranty and/or guarantee on the product are what you should sink your money into.

I look at it this way. You might have a choice between a $40 enameled cast iron pot and a $300 enameled cast iron pot. The more expensive one has tons of great reviews and is backed by a ridiculously thorough warranty, while the cheaper one has no reviews at all other than a few negative comments on blogs. What’s the better buy?

First of all, my question is whether I need the item at all or whether I have something else I can use. After that, I ask myself if I’ll use the item frequently. If the answer to both is obviously yes after a lot of experiences in the kitchen and study of what the item actually does, I’ll buy the more expensive one. Why? The more expensive one will do the job better and will last longer, and if something goes wrong with the cheap one, I’m going to be thrust into a customer service nightmare – most likely, I’ll just wind up burning a bunch of time and replacing it out of pocket.

Of course, the best choice of all is to either find another item that fills your need, but that’s an entirely different story.

Several different people have asked me what gifts I’m getting for my kids this Christmas, mostly as a source for ideas for their own children (I think).

Here’s the truth, though. For the most part, I don’t think it matters too much.

The one thing that really matters to your kids is time. Time spent doing things with them – playing games, playing with toys, exploring, or countless other things. Time spent talking to them (not just telling them what to do and so on). Time spent actually focusing on and answering their questions.

Stuff doesn’t matter. Time is always the best gift you can give your kids. Keep that in mind this holiday season.

Making the Most of Gift Cards I tend to look for situations where I can buy gift cards at a discount, particularly if I’m sure the recipient will like the card. Of course, this year is the first year in a long while where I don’t believe I’m giving anyone a gift card. (@ free money finance)

100 Ways to a Stress-Free Christmas I find that I’ve gradually incorporated all of these into my Christmas planning over the last few years. (@ dumb little man)

Is Frugality a Necessary Evil I don’t really think of frugality as an evil at all – I usually enjoy it. Still, this is a quite interesting article. (@ get rich slowly)

Eight Tips to Know If You’re Being Boring This is a very useful “gut check” for social situations. If you can be aware that you’re being a bore, you can take steps to fix it. (@ the happiness project)

The Joy of Buying a New Car: 9 Car Buying Tips I pretty much entirely agree with this list. These are the exact things I use when I shop for a car. (@ wise bread)

As I sit in my office and look out the window, I can see a number of people and a few pieces of construction equipment busy at work about a quarter of a mile away. It just happens to perfectly line up that I can see the workers if I turn my head to the left from my natural position at work.

At first, the construction somewhat annoyed me. I can hear the construction noises throughout the day as I’m working and they, at times, can be a mild distraction. The workers are also building something that is going to sit right in my view out of my office window.

What are they building, you ask? A house. A very nice house, in fact.

A few days ago, while I was working on an article, I turned my head and watched the construction work for a bit when I suddenly realized something. The house they were building is not too dis-similar from the house I would love to build someday. It’s fairly isolated with plenty of yard space but also with access to the forest. If I understand the floor plan correctly, it has nice, large bedrooms and a nice kitchen, which are the two features I most like in homes.

Since then, whenever I hear that noise, it actually pushes me a little bit. That noise, instead of being an annoyance, is a reminder of my big goals in life. That noise tells me to keep doing what I’m doing, to push forward to big things.

It has been extremely useful to have such a constant motivator around me. It keeps my nose to the grindstone all day long. Whenever I look out the window, I see the work. Whenever I pause for a minute, the noise from the work comes in loud and clear.

In fact, I’m going to dearly miss them when they go away. I’m considering setting up a series of sound files and some desktop wallpaper on my computer to remind me of them when they leave.

This brings me around to my central point: what’s your motivator?

Personal finance success is often borne out of specific, concrete long term goals. For me right now, my biggest goal is a nice home in the country.

Quite often, personal finance mistakes come about when we lose sight of those goals. We place short term wants and desires ahead of these big goals or we simply don’t even think of them when the moment of decision comes.

It’s in those moments that a reminder can really help. For example, if I’m sitting in my office and I get an email from a reader about some great deal they found, I might be tempted to take advantage of it. But all I have to do is open my ears a little bit and that construction noise comes in. That reminds me of my big long-term goal and makes me rethink my purchase.

What’s your motivation? What can you surround yourself with that will remind you of your goals? If you find a visual or audio reminder, here are some places you can put it:
+ on your refrigerator
+ taped to the bottom of the rear-view mirror in your car
+ as your desktop wallpaper
+ as a regular sound on your computer
+ in your wallet, wrapped around your credit card
+ on your bedside table

The key thing is to push your long-term goals so deeply into your thoughts that it becomes wholly natural to consider them before you make any choices. When you do that, you’ll be on the fast track to success.

One of the most common coping mechanisms for a serious life/money/career/personal problem is to dive into escapism. We look for something to distract ourselves from the difficulty, whether it be through playing games, working in the garden, alcohol, or any number of other things.

I’m no stranger to this. When I’m facing a major struggle, I usually retreat into very solitary activities – solo video games, long books, and the like. When we hit our financial bottom, I was coming off a period of quite a lot of intense reading. Recently, when I was struggling to finish my book, I kept finding games to distract me from the work.

On one level, this type of distraction makes sense. In our stressful moments, it feels helpful to be distracted from it – to de-stress, if only for a while. Many people do this in the hour or two after work – they just go home and vegetate for a bit, letting themselves de-stress and unwind, for example.

Yet many of the things that stress us most can be resolved if we simply skip out on a bit of that distraction.

Instead of going home after work to de-stress, then just finding yourself back in the same old spot the next day, use that time to focus on getting a better education. Work on getting a better certification or a second degree.

Instead of playing a game because you don’t feel like working, turn off the game and just buckle down for a while. The game will be much sweeter when you’re done with the work – or you may find that the game was nothing more than a way to distract yourself and you’ll find yourself free to tackle the things you really want to do.

Instead of going shopping when you already have a big pile of debt, stay at home and come up with a debt repayment plan.

All of these solutions have a few things in common.

First, they don’t seem fun. At first, anyway. We often don’t want to face up to the hard things we have to do in life.

Second, facing the problems head on usually resolves them. You can’t untie a knot by turning your back on it. You only achieve victory over the things that are bothering you and bringing you down by dealing with them head on.

Third, the solution often takes much less time than the time we pour into distracting ourselves. I can get lost in a pile of books when avoiding a problem, but simply facing that problem and dealing with the consequences only takes a few hours. Even doing something as audacious as going for a higher degree is trivial compared to two hours of distracting yourself from a miserable job every single day.

The best part is that solving the problem leaves you with a much higher level of enjoyment of the things that you were using to distract yourself. For example, if I play a game before working, I’m usually not enjoying the game as much because I recognize the work that needs to be done. On the other hand, if I do the work first, the game is substantially more enjoyable because of the lack of worries hanging over my head.

What’s the lesson here? If you find yourself spending time unwinding, distracting yourself, or avoiding problems, face them head on, whether they be financial, career, or personal issues. The worst thing you can do is let them sit while you distract yourself – you’ll just find yourself back where you started (and perhaps in a worse position).

I’m going to start out by saying something that might get some feathers in a ruffle: everyone in the first world has brand preferences. Simply by seeing a particular label on something, we draw some basic conclusions about the product itself. It might be driven by our own experiences, it might be driven by data, or it might be driven by pure marketing.

I certainly do this. For video games, I have a more positive reaction to Nintendo than I do to Microsoft. For cars, I have a more positive reaction to Toyota than to Volkswagen.

Here’s the interesting part, though. You can pretty quickly tell a frugal person from a non-frugal person by their brand preferences. Not because of the specific brands they prefer, but for their reasons for liking that brand.

I like Toyotas because they deliver a lot of bang for the buck. I’ve owned or been closely related to someone who has owned three different Toyotas in my lifetime, and they’ve all been really reliable and had great gas mileage. Toyotas also generally mark very well in comparison studies for reliability, fuel efficiency, and other categories.

I like Nintendo because their consoles are usually relatively inexpensive compared to the competition and usually feature a number of titles with a ton of replayability. Plus, I know many other people who also own Nintendo consoles, making it easy for us to trade games and not empty out our wallet on them.

On the other hand, I recently asked a friend what their favorite kind of car was. The immediate reply was a Porsche. Why? Because they’re beautiful. If he could own any car in the world, he’d want to own a Porsche, because, in his eyes, they’re the best of the best.

What is that backed up by? The best information he could give me is that they’re beautiful, they go fast, and they’re “awesome.”

Another friend of mine buys several video games a month. Yes, a month. I asked him what he considered the best game console and he immediately pointed out the XBox 360. Why? “The games are awesome.”

What’s the difference? My brand preferences usually involve the value for the dollar I’m getting. I usually have some sort of concrete data to back it up – price points, value per use, and so forth.

Others tend to have brand preferences that don’t involve cost at all. Quite often, the criteria doesn’t even involve anything tangible – the response is emotional.

Here’s a real gut check for yourself. Whenever you see a brand represented anywhere – and it’s pretty hard to avoid them – ask yourself what your opinion of that brand is. Then ask yourself why. If it’s only based on emotion – “that brand is awesome” or “that brand is awful” – without anything concrete to back it up, you might want to step back and do some evaluation.

After all, frugality is about finding value. If you’re making buying decisions based on pure emotion, you’re not seeking value.