A few weeks ago, I went to the grocery store in the afternoon to take care of grocery shopping for the week. Sarah had written a list for me (in all fairness to her, it was actually closer to a set of notes for a meal plan rather than for grocery shopping; it wasn’t really a complete and finished list), but I hadn’t looked at it very carefully. However, I did know from what she told me that I would have to do at least some of the grocery shopping at a different grocery store than our usual one because there were a few unusual items on the list for special meals. As a result, I decided to pick up most of the stuff at a different grocery store than our usual one, in order to save some time.

After the shopping was over, though, I left the store in a painful daze. It had actually taken far longer than it ever should have – and the shopping list was the big problem.

First of all, the items weren’t categorized well. There were several fresh fruits and vegetables on the list, but they were often separated by things like flour and spices and eggs and milk – items in completely different parts of the store.

Second, some of the items were simply names of complete recipes that we knew well. In a rush to complete the list (which, as I mentioned above, was closer to notes for a meal plan), Sarah simply jotted down two complete recipes by name that we both know cold. Of course, in the store, that means spending the time to think about the items required for the recipe – and also possibly buying extras of a particular item.

Third, the list annotations were unclear. Sarah had included a few notes that would have made perfect sense to her – but didn’t make any sense at all to me. I made some valiant guesses and, in a few cases, made the right guess, but I spent a lot of time puzzling them out and quite often I made the wrong guess.

Why is this an issue worth writing a post about?

First of all, it cost time. I spent a bunch of extra time in the store because of the items on this list, whether it was simply trying to figure out what they are or rushing from one end of the store to the other to find them.

Second, it cost us money. I bought a couple of unnecessary items along the way due to redundancy and also due to not understanding the list fully.

Third, it convinced me to make a few impulse buys. As I spent so much time wandering back and forth in the store, I was continually exposed to shelf after shelf of items that weren’t on my list and I didn’t need. Thanks to that exposure, I bought at least two unnecesary items.

So, how can I solve this problem? My goal, quite simply, is to save as much time and money as possible compared to this shopping trip. Here’s the plan I put in place.

First, I made a bunch of custom blank meal plan sheets. These are basically sheets that enable us to fill in full meal plans for the week ahead. These can easily be stuck on the fridge with a magnet, enabling us to fill in the blanks as we so wish.

Second, I made a bunch of custom blank grocery lists. Instead of just using a blank sheet of paper, I made a sheet that had a few distinct groups on it – “fresh fruits and vegetables,” “dairy products,” “meat counter,” “bread aisle,” and “other,” to be specific. If an item falls under one of the first four categories, we put it there. Otherwise, it goes in the “other” area.

Third, nothing gets added to the grocery list unless it’s out until we’re ready to go to the store. The only thing we put on the list during the week are items that we’re out of (or very close to depleting). This way, there is no confusion about what’s on the list.

Finally, the meal plan is finished (and the grocery list completed from the meal plan) just before we leave to go shopping. By keeping all complete meal ideas on the meal plan and not on any grocery lists, no one will have to stand in the store and piece through what the ingredients are for “jambalaya.”

What I learned from all of this is simple: doing that prep work ahead of time actually saves time in the store, and it certainly saves money, too. I learned this the hard way from that day with the confusing list.

A few days ago, my four year old son came into my office when I was finishing up an article for The Simple Dollar.

“What are you doing, Dad?” he asked.

“I’m working,” I told him.

“Why?” he asked.

“Well, I have to work so that we can make money, and we use that money to pay for our house and for our food and our clothes,” I told him.

He thought about that for a minute. “But why do you work on your computer?” he asked.

“Well, that’s my job,” I told him.

“Why?” he asked.

“I enjoy writing. It’s something that I like to do and I’m lucky enough to make money when I do it,” I told him.

He stood there for a moment. “But sometimes you don’t like it,” he said.

“Yes, that’s true. Sometimes I get frustrated with it. But if it were always easy, everyone would do it,” I said.

“Why don’t you make money doing something you like better?” he asked.

“Well, there is no job in the world that doesn’t sometimes frustrate the person doing it, Joe,” I told him. “No one always likes what they’re doing.”

“But why do you work when you don’t like it?” he asked me. “You should go do something else when you don’t like it.”

“It’s not that easy, bud,” I told him. But I did go and play with him after that.

Still, our conversation stuck in my mind for quite a while. I jotted down most of it in my notes a bit later in the day to think about some more.

Joe brought up a few really good points along the way. Why do we work? What are the reasons we choose to do the things we do? Why do we sometimes choose frustration and unhappiness along the way when it comes to that work?

Most important, what’s the right balance?

Why Work?
The easy answer, of course, is to make money. But that’s far, far from the only answer.

Think back to that classic high school guidance counselor question: “What would you do with your time if you had ten million dollars?” Once you got the rest and relaxation out of your system, of course.

For me, the answer is an easy one. I’d write fiction. I’d write lots of fiction. I’m usually happiest when I’m creating a character and breathing life into him or her, then carrying that character through some event in life. I’d try hard to get it published, too. (What I do now is a reasonable substitute for that, but it’s not a perfect substitute.)

Everyone will have a different answer to that question. My oldest brother, for example, would love to make hunting videos. He loves hunting deeply and is all about sharing it with others. My niece would be a photographer. She loves capturing moments on film. My father would cry himself to sleep with joy if he could run an outdoorsman’s lodge. The list goes on and on.

What Keeps Us From Doing That?
The need for money, to put it simply.

For most of us, money simply doesn’t grow on trees. We need a certain amount of money to pay for housing, for food on the table, for electricity and heating, for clothing, and so on.

Most of the things we dream about doing do not earn much money, especially at first. An unpublished fiction writer is going to not earn much at all for quite a while as they keep throwing short stories and novellas and novels at the wall until (hopefully) something sticks. You can’t make hunting videos and sell them without buyers and a reputation. You can’t open a restaurant or a lodge without a tremendous amount of capital that will take quite a while to recoup.

Those two things run head to head. So we compromise. We find a job that’s tolerable that earns us some money – something within our ethical boundaries (a hitman, for example, is outside of most people’s ethical boundaries) and our skill set (not everyone can be a doctor, for example). We settle in. We get used to it. And those things that we dream about doing become just that – dreams.

Bridging That Gap
This brings us back to that key question – why work? Ideally, shouldn’t we work in order to make our lives more enjoyable? And, since we fill quite a lot of our waking hours with our work, shouldn’t a big part of our work’s effort go towards making that work time more enjoyable?

Five years ago, the thought of writing for a living was firmly in the “dream” camp for me. Rather than working to make my whole life better, I worked solely to make my life outside of work better.

That was a huge mistake. When I stepped back and looked at the big picture, I realized how much of my time I was devoting to a job that wasn’t the peak of my personal happiness. I enjoyed it, but it was keeping me from things that I enjoyed more, like my children (especially when I traveled) and time devoted to writing.

Given that my work took up about fifty hours a week of actual work time and commuting time – and often took up much more than that during crunch times, emergencies, and travel – and would often fill my thoughts when I wasn’t at work – I was devoting the vast majority of my waking hours to something that was (far) less enjoyable than what I dreamed of doing.

Fixing that problem is one of the most worthwhile goals there is for your extra money.

If you stuff your hours full of one thing, but find yourself wishing you were spending all of those hours each week doing something else, you absolutely should devote every spare resource you can to (1) getting yourself out of debt and on a very stable financial playing field and (2) putting the pieces in place so you can live that dream.

That means going without some things – and the things you choose to go without really depends on how urgently you want to change your life. If you want to reach it any time soon, you may have to make some radical changes.

Just step back and ask yourself these three things.

First, how many hours do you devote to your work each week, including your commute, any trips you have to take, and time outside of work thinking about your job? What portion of your waking hours is that?

Second, what would your life be like if you could fill those hours doing something you truly loved doing?

Finally, how many of those material trappings in your life are really worth forcing you to trade away all of those hours each week?

You might just find that a completely different game plan is the one that works for you.

Think big. Do you need that large of a house or that large of an apartment? Do you need that car? Keep going down the scale. Do you need to eat out? Do you need that cable bill? And include the hundreds of small things, too. Do you need name-brand paper towels – or paper towels at all?

And when you think about how you want some of these things, compare them to the majority of waking hours in your life that you devote to doing things that you don’t want to do.

When you start thinking that way – and moving in that direction – big elements of your life start to shift. The simple question of “why work?” changes in nature when you start making those kinds of choices.

And, yes, a big reason why I’ve chosen the career that I have is to show my children very clearly that you can do whatever you want in life. If you want to do a certain thing, you certainly can make it happen.

What do you do if you’re dissatisfied with your cell phone? You find that it endlessly frustrates you. It’s constantly interrupting you. It doesn’t have the features you want. Quite often, you just want to throw it in a desk drawer and forget about it.

Quite often, in this situation, people will go shopping for a new cell phone. They’ll feature-hunt, find one that matches what they think they need, and go out and buy a replacement.

Quite often, though, that’s money lost.

Why not step back a little bit more? Do you need a cell phone at all? Or, perhaps, maybe you only need a prepaid phone for emergencies or occasional mobile calls? If you find that the regular ringing of the cell phone is annoying you and you often just ignore it or turn it off, why are you paying for that service and that expensive phone?

What do you do if you’re dissatisfied with your television? The screen seems to be starting to go bad. It’s not giving you images in HD. It doesn’t “wow” you when you go into the room. In fact, you find yourself watching it less and less.

Sometimes, people will head to the store and pick out a nice new flat screen as a replacement in this situation. They’ll go home, install it, enjoy it for a while, and then find that it’s gathering dust, just like the one before it.

Why not step back? Do you really even need a television at all? Maybe you watch the few television series that you enjoy on your laptop or desktop computer instead – and you get your news there, too. If you’re just not using it as much, why are you buying an expensive replacement?

What do you do when you’re dissatisfied with your living room decor? The colors have been the same for a while and it’s just time for something fresh.

Do you start looking to replace all the furniture in the room? Do you spend your time sitting on that couch flipping through home decor magazines and websites, dreaming of how the room could look better?

Why not step back? Quite often, a room can look fresh and new with just a few simple changes, like a fresh coat of paint or a few alterations in the decorations. After all, repainting the walls and matteing a few photographs to hang on the walls is a lot less expensive than a new living room set.

When you’re dissatisfied with something, it’s rarely a good idea to just go buy a replacement for it. Stop for a bit and ask yourself why you’re dissatisfied. It might be that the item isn’t functional, but it might just be that you don’t really need that function in your life.

The best solution to dissatisfaction is, in the long run, rarely found in the wallet.

Welcome to the week-opening Reader Mailbag!

What, in your estimation, is a comfortable (or perhaps average) salary for a young family? Assuming both parents are college educated. I am in a relationship that is leading to marriage. My parents are concerned that we will not have enough money to live comfortably, and will always be struggling. Currently, combined, our salaries equal around $80,000. Ideally, when children come along, I would like to work only part time. I’d estimate that our salary would stay about the same if that were the case (assuming his will continue to increase, while mine would probably decrease).

We are both approaching 30 and living outside of Atlanta. I have a bachelor’s degree; he has his master’s. We both work full-time in communications-related fields.
- Monica

In early 2009, the average U.S. family earned $63,000 a year before taxes. That family had 2.5 people in the home and 1.3 wage earners. Given that your family has 2 people in the home right now and 2 wage earners, I don’t think you’re too far off of the average. (It’s important to note, of course, that the average includes prodigious earners like Bill Gates and the like.)

What seems to be going on here is that your parents have some expectation of you having an above-average income level like they have. Plus, you live in a suburban area of a major metro, which almost always means a higher cost of living. They might even have some small concerns of needing to finance you guys in the future.

If you’re both happy with your current level of material wealth, you won’t have any problems doing this. You can certainly get by on $80,000 a year. You just won’t have some of the material trappings that the people around you have – but you will have the freedom to spend tons of time with your kids.

Yesterday, after spending $400, my beloved cat was diagnosed with leukemia. We were given four types of meds to treat her symptoms (anemia, liver problems) and then sent home.

I know we can’t afford it. I know it likely wouldn’t do any good. And I know she’s “just” a cat. But I still feel like a horrible owner to not have the financial resources to try every option for her. She’s given us 10 years of joy — she was my husband’s and my first pet that we got together, and my husband’s first ever cat. I feel awful, like we’re giving up on her.
- Sarah

In my experience, ten years is a full and healthy life for cats. I know many that have lived longer, but I also know many that haven’t lived that long, too.

You’re the person that knows your cat. You obviously love that cat. You’ve done the research. If you don’t feel that chemotherapy would significantly improve your cat’s quality of life, you shouldn’t put a bunch of money into it.

I don’t believe that throwing every possible medical treatment towards a cat (or a person) near the end of their life is necessarily a good thing. I’ve watched too many people I care about suffer through the last few months of their life in a heap of illness and exhaustion brought on by horrible treatments that only extended their life for a month or two. Give me pallative treatments any day of the week over that.

My wife and I were married in March 2009 and then purchased our first home in August 2009. As such, the combined benefit of filing jointly, as well as the first-time homebuyer credit, means we have $13,000+ coming as a tax refund this year. We’re currently debating how to use this money and I thought I’d get your advice.

In terms of the mortgage itself, we are also doing pretty well there. Our interest rate is only 4.8% and we dutifully pay in extra money each month to the principal (over the course of a year, we’ll end up making a whole extra month’s payment exclusively to the principal).
- Doug

Do you feel that those final repair jobs are ones that will add significantly to your quality of life living in the house for the next ten years?

I can’t make the call on that, but that would be the big question for me as I approached this. Given the repairs you describe, I think you would recoup the investment either way you went.

The advantage of rolling the money into the mortgage is that you know exactly how much your return will be – the interest rate on your mortgage. If you roll it into the house, it’s very hard to judge what the housing market in your area will be like in ten years, but the improvements can only help your value.

For me, the question would revolve around whether the improvements actually were ones I strongly wanted or needed for the house during the time I lived there. If they were, I’d do the repairs. Otherwise, I’d probably chop down the mortgage.

Im currently banking with Bank of America, and just recently opened a savings account to take advantage of the “keep the change” program they are running, but I feel like after the 90 days of 100 percent matching w/ them, I may switch to this account, and leave the bank of america account open as a “rainy day” account.

I read about your hbsc account as well as your ing accounts, but it was dated around 2006 I believe, are you still with this places or is there a different place you would recommend now?
- Josh

I use ING Direct as my primary bank and have been doing so since 2006. I have been almost universally happy with them.

Notice I said my “primary bank.” That means that I use them for my checking account and some limited savings. Why don’t I use them for additional savings? Frankly, I can get a better rate elsewhere, especially for automated savings plans. I usually use SmartyPig for those.

The reason I’ve stuck with ING is that they’ve had every service I’ve needed along the way. I’ve been able to use these services wtihout problem and without fail for years. They’ve never tried to hambone me with fees, either. That type of customer service is something I’ll stick with.

In October of 2001 I lost my job due to the company closing their doors forever. At age 61 I was not able to find a job so I formed my own small printing/desktop publishing company and drew my unemployment until I was 62 and could draw my SS.

Did I mention that I’m one of the most frugal persons I know? I know there must be room for improvement – I just don’t know where that could be. Please help me.
- Alice

The problem here isn’t whether you’re really frugal or not. It’s simply numbers. You have $18,000 a year in income. That equates to $1,500 a month. You’re spending over $1,300 a month in required things. That gives you under $200 a month in breathing room.

That’s simply not enough to build up much of an emergency fund. You’re likely going to have unexpected expenses almost every month that eat through that money.

In subsequent emails, you mentioned a desire to set up an online business. For an online business to earn money relative to the time invested, you have to invest a lot of time in it. There are no online businesses that you can start today, invest 20 hours this week, and start earning significant money.

My suggestion would be to start hitting your public library to see what’s available in that area. If you just wish to start earning a little bit, I would try services where you can earn a little bit from very simple tasks that you can walk away from at any time, like Mechanical Turk. In the very short term – say, the first 40 hours, they’ll earn better than an online business of any kind would. However, over the long term, the business will win out if it’s managed with any level of competency.

Your frugality isn’t the concern here. You need to earn more.

I work for a publicly owned blue chip. I don’t expect a lay off at this point any more than I expect the Spanish Inquisition. I make about $50k/yr. I’ve got about $207k in mortgage debt at about 4.5%. That mortgage is a 5/1ARM, can adjust 1% at a time, and 5% total (so in 9.5 years it could be 9.5% until it’s all payed off). My mortgage insurance will be gone in just about 4.5 years and is basically equal to that first 1% upward adjustment that happens in (basically) the same time frame. I have virtually no other debt (I might carry about $100 on my credit card, but my minimum payment has never been >$0). I’ve got almost 6 months of emergency fund. I have started investing in lending club, and vastly prefer this to stock market, save lack of liquidity (although maybe I’m fooling my self about that). Oh, yeah, and I am going back to school on the GI bill in the fall, and have to find another job with more flexible hours before then.

The question: How big should my emergency fund be? Why (not why have one, but why that size and not twice the size or half the size)?
- Eric

This phrase raises alarm bells: “I don’t expect a lay off at this point any more than I expect the Spanish Inquisition,” followed by “I am going back to school on the GI bill in the fall, and have to find another job with more flexible hours before then.”

That means that you’re going to not be working at that job in six months, period. In fact, you’d arguably be better off if they fired you or laid you off, because then you could collect unemployment insurance.

Given that you’re going to be leaping for another job in six months, I would be searching now, not later. I would also have that emergency fund as fat as I could possibly get it while keeping the minimum payments on my bills.

There is no guarantee that you will find a good paying job with flexible hours in six months. You might find yourself in a long job search at that point, and you might end up working at something that doesn’t pay well at all in the interim. That’s when the big emergency fund comes in handy.

If you do find a job, great. There’s no reason at all you can’t just roll some of your emergency fund (the excess saved) right into your mortgage at that point.

I’ve toyed with a few career ideas and have concluded that writing, or something related to the humanities, is ultimately what I want to do. With that in mind, I’ve recently gotten a position as a blogger at a website for women like and a little older than me, starting up in the work force and all the pressures that come with being a modern woman. I’ve never blogged before. I suppose my question is:

What makes a good blog?
- Emily

Three things: a consistent outlook and focus on a topic, a consistent writing style, and a consistent posting schedule. Consistency, consistency, consistency.

I think the consistent posting schedule is the most important thing of all. Ideally, you want your blog to be part of a person’s daily routine. To do that, you need to consistently have new content for them when they visit each day – or at least three or four times a week, like clockwork.

A consistent writing perspective is also important. By that, I mean that you don’t flop from positive to negative on a certain idea on a regular basis without a well-considered reason (and expect flames when you do it, anyway). You also don’t want to stray too widely from your overall topic area – a bit of straying is good because it illustrates you as a person, but it does need to consistently tie together in some fashion.

Also, figure out which aspects of your life you’re willing to discuss openly and which ones you’re not. I am very open with my life, but there are a few issues that I’m not willing to discuss publicly, mostly because they would negatively impact people that are close to me. This has actually been a difficulty a few times, because those elements have been key in a few choices I’ve made and when I’ve discussed those choices on here, I haven’t been able to give a full reason for them. Readers have flamed me hard for this in the past.

A final note: get a tough skin. If your site gets popular, you will be sent largely-anonymous attacks against you for virtually everything you can imagine – and many things you can’t yet imagine. You simply have to ignore most of it or you wouldn’t be able to continue running a popular site. Just view it as angry people out there looking for a way to vent and don’t let it bother you.

I’m 26, married, and expecting a child in October.

I have a well-stocked emergency fund already in place and I’d like to start minimizing my monthly payments on other debt. Generally, I would agree the best approach would be to pay down the mortgage since it has the highest interest rate. However, I only plan to be in this house another 3-5 years. When I move, I’ll be moving to an area with a much lower cost of living (and also lower pay). I hope to use proceeds from the sale of my current home to buy a small home with cash in the new area. Since I won’t be staying in this house long enough to truly realize the benefits of extra payments on my mortgage, does it make sense to instead try to clear the other 3 debts so that when I move, I will be completely debt-free?
- Chloe

No, I don’t think it does.

First of all, this argument is banking on the housing market being consistent and increasing in value. Those days are over. I wouldn’t bet on any housing market being easily predictable for the near future.

Second, you can pay off the other debts with the proceeds from your house sale – or at least pay off the highest interest ones.

I would make the minimum payments on the three small debts and make the biggest payment possible on the big debt with the highest interest rate. This will give you the best shot at debt freedom when you sell your house, because you can take the proceeds and pay off the remaining debts. Paying the higher interest ones down now means you’ll have the lowest possible balance across all the debts in a few years when you sell the house.

My husband just started a state job (entry level–just over $40k) that really only has a couple positions above it that he could work his way up to. At the same time that we applied for jobs, we also felt we should apply for PhD’s. He’s in at 2 of the top schools in his field (epidemiology) and has interviewed at two more. None of the schools is ranked below No. 7 in the Nation, so we know he’ll get a great education if we go. The trouble is, he’s about to finish his master’s in public health and has this new job that pays enough to support us in our frugal lifestyle. We have about $8500 of student loan debt left, but we’ve been paying $700 a month for about a year and we know we can knock the rest of that out and be completely debt free in a year if he doesn’t go back to school. If he does, the rest of our debt will defer interest while he’s in school, but I know we won’t be able to get it all paid off (we’ve got some money in savings that could knock it in half, but we hate to lose our savings if we can defer).

Do you think our parents are right and we should just stick to being grateful my husband has a good enough job that I can quit mine and stay home with the kids? Our gut says that he’ll be happier and we’ll make more in the long run if we leave the job and continue with school. I guess I’m just wondering if there are parts of this decision we haven’t looked at but that will jump right out to you.
- Jennifer

I find it strange that in this discussion you’re ignoring which career your husband would find the most personally fulfilling. That, to me, would be the first question I would ask.

Would he be genuinely happy with his state job? I don’t know the answer to that – in fact, only he probably does. If he would be, I’d probably stick with that job.

If he’d rather have the challenges of chasing the Ph. D. , that’s what he wants to go for.

Life is not about just money, and it sounds like he has two very divergent career options here and you have a lifestyle that can make either one of them work. I would focus more on putting pieces in place for a career that will be fulfilling.

Do you think there would be any problems with going to some local businesses and asking them if they would like to participate in some simple and inexpensive advertising and then have them pay 10 or 15 dollars to have a copy of their business card or a simply designed ad put on a flyer that would be passed out to several local businesses for people to take? I figure that there would have to be some catch like having an article of interest or some type of editorial on each one to get people’s attention. This could be done once a month. If I get just ten people to sign up, then I can probably make about 50 to 75 dollars extra a month by doing this. Where I am located, there are plenty of little restaurants and automotive repair shops and other little out-of-the-way businesses that could probably use the exposure.
- Rhett

I don’t think there would be any problem whatsoever with that. However, I don’t know how much buy-in you’ll get on it. Another concern is that you’ll have to be very careful with the writing you choose, because that writing will somewhat reflect on the businesses represented there.

My suggestion would be to figure out what kind of column you would write, write several samples of it, and take them with you. A movie review might be appropriate, for an example.

You might also want to make a few finished copies of what the flyer would look like, with bogus business cards in place. That way, they can actually see what you’re talking about.

Good luck!

Got any questions? Leave them in the comments and I’ll try to answer them in a future Reader Mailbag. Shorter questions are more likely to receive an answer.

Every Sunday, The Simple Dollar reviews a personal finance book or related book of interest.

For a long time, I avoided reading this book. The title seemed unnecessarily fear-mongering and apocalyptic to me and that’s a subgenre of personal finance books that I really have no interest in. Personal finance has such a profound power to improve people’s lives and give them hope that selling the ideas with a big spoonful of fear and paranoia is something I have no interest in.

However, the author, Ed Slott, has a point. Rather than focusing on a fear of the unknown, which is what many personal finance books do, this one focuses on a known concern. If you have a bunch of money stored away in your 401(k), it’s simply a fact that the government is going to take some of that in taxes. If you haven’t thought about that and planned for that, then, yes, retiring can be something of a time bomb.

Once I got past the overly dramatic title and actually read the book, I realized that there were a lot of good points in it. The entire focus of The Retirement Savings Time Bomb… And How to Defuse It is minimizing the tax impact on your retirement savings without giving up returns along the way. This way, you don’t have to worry about tax guesswork in your retirement planning, especially when taxes are very easy to miscalculate.

What does Slott suggest? The book boils down to a five point plan that focuses on the biggest objectives that people mention with their retirement money: protecting it from taxation, using it for emergencies without tax penalties, and passing on as much as possible to descendents. Let’s dig in.

The Crime of the Century
There are lots of horror stories of people attempting to make major moves and withdrawals, only to see them backfire in their face. Slott relates several of them here. The rule of thumb I learned from them is simple: if you’re going to make a move involving a large sum of cash, consult a tax attorney first. Most of these stories seemed to revolve around people simply making moves with a lot of money on their own because they seemed straightforward, then realized they hadn’t thought about the tax consequences of them.

What’s Your Risk IQ?
Here, Slott runs through some of the “mis-steps” that people make in their retirement planning that often creates a tax burden: putting most of their money into a 401(k), for instance, or not specifying an appropriate plan as to who actually is the beneficiary of the money once you pass on.

Roll Over, Stay Put, or Withdraw?
Whenever people leave a job where they have a retirement savings plan in place, they often have three choices: roll it over into an IRA, stay put in that plan, or withdraw it now. Each choice has benefits and drawbacks, but those benefits and drawbacks often shift based on changing tax rules. The best solution if you have a significant amount of money, from my perspective, is to consult a fee-based financial planner to make sure you’re not making a big tax mistake. Remember, all you’re trying to do is to maximize the amount of money you retain in your pocket from your savings.

Step #1: Time It Smartly
The focus here is the required beginning date (the date by which you must start taking money out of your retirement savings accounts) and the required minimum distribution (the minimum amount you must withdraw each year). Usually, the best method for minimizing your taxes on that money is to start withdrawing as close to the required beginning date as you can without going over and withdrawing just the minimum amount.

Step #2: Insure It
You should always back up your retirement plan with a healthy term life insurance policy. This way, if you pass away before you’ve spent your money, your family isn’t required to make a sudden decision to withdraw your retirement money in order to survive – a withdrawal that would cause a big, panful tax penalty.

Step #3: Stretch It
You should take the minimum distribution you can along the way, leaving as much as possible in the account. This way, the remaining amount has much more of a chance to grow and benefit from the power of compound interest, meaning it could last throughout your life and the life of your children, too.

Step #4: Roth It
A Roth IRA is a very strong place to put your money each year as the normal (appropriately timed) withdrawals from it have no tax penalty whatsoever for you. If you are eligible (if you earn under $100K a year, you likely are), a Roth IRA should be part of your retirement planning, according to Slott. I can say that I have one that’s fully funded and it makes me feel a lot more secure about retirement.

Step #5: Avoid the Death Tax Trap
In the end, though, it’s about your plans. Do you want to leave something long-lasting for your children and other descendents (or maybe for charities and causes that you leave your money to)? Or do you only care about covering for your spouse if you pass away? In each case, you should set up beneficiaries quite differently, and Slott walks through each of those options. For us, the biggest concern is to ensure that our partner is fine if one of us passes on later in life, so we’re planning for that outcome. Of course, a lot of these rules only apply if you have a reasonably large estate – for small estates, it’s much more straightforward.

What to Do When S[tuff] Happens
This chapter mostly covers a lot of the current loopholes for using your retirement money in certain situations (disability and so on) and how to handle mistakes you’ve made in your past with converting IRAs and the like. Most of this material is fairly complex – the average person would be well-served by consulting a fee-based financial planner if they’re in such a situation.

Is The Retirement Savings Time Bomb… And How to Defuse It Worth Reading?
If you focus on the core principles talked about in the book – save plenty, get life insurance, use a Roth IRA – you’re going to have a leg up in retirement. Those ideas are valuable parts of protecting your retirement savings from the taxman, regardless of whether you want that money for you or for your descendents.

The trickier part is the specifics. Right on the cover, it says “Revised and updated for the new tax rules” – and that’s the problem. You should never, ever bet on a specific minor rule or loophole to get you through your retirement, because such individual loopholes open up and close all of the time. Much of the content of this book is based on those individual loopholes.

Thus, the specifics of this book are bound to become dated quickly, and the more general advice is stuff that can be found in other very solid investment books that focus on more timeless advice.

That’s not to say there isn’t a role for this book. If you are thinking about retirement concerns in the short term, such as making withdrawals and the like, this can be a valuable read. It’s also a great primer on the things you’re going to need to think about as retirement nears.

I just wouldn’t bank a whole lot of money on the specific rules cited here, simply because such small tax law issues change so often. I’d read this book and know the scoop, but I’d talk to a fee-based financial planner who can assess your situation before making a move.

Julia writes in:

What do you do when frugal living catches up with you? As a family we had a much lower income from 2002 to 2007 (layoffs in the IT industry led to trying to survive on short contract work). We did not move home as that would have cost a fortune in fees here in the UK. Instead we bought nothing beyond the essentials. No holidays, outings, clothes, entertainments, etc. What we needed beyond food and fuel came from Salvation Army shops, garage sales, etc. We hung on to our cars as they had done low mileage but were not worth a lot in resale value.

We no longer work in IT but have found alternative permanent jobs. The problem is that now there is a reasonable amount of money coming in but lots of possessions are very old. For example, the carpets in the house are of good quality but 24 years old.

This is the second time I have seen a financial bad patch – my parents had a big setback when I was a child – and I am now scared of it happening a third time. I want things but I dare not buy anything beyond the essentials. I am constantly anxious about money.

I often have the same problem myself. Rather than wanting to buy a replacement for something that still works but really needs a replacement (like our entertainment center in the basement, which has a broken board on it and is actually held up by a hidden wooden block on the floor), I usually talk myself out of it, arguing that what we have is functional and so there’s no real reason to replace it.

I’ve found that the following things really help with this.

First and foremost, I clearly identify the things I want to replace in my home. I would like to replace our entertainment center. I would like to replace our only television. I would like to replace our dishwasher. However, all of these things are still functional enough to do their job (most of the time) so they’re not immediate needs. It sounds to me like you’re in a situation where there are a lot of things in your home that fall under this category.

Next, prioritize among them. Figure out which one is the highest priority for you. For us, the highest priority is probably the falling-apart entertainment center in the basement. Next would probably be the incredibly energy-inefficient dishwasher with the messed-up door. Both of these things still work, but there are times where it feels like they still work by the grace of God.

Then, set up a savings plan to take care of this highest priority. Calculate an amount you can afford to save towards that goal each month. Then set up an online savings account (or a separate savings account at your bank) to collect savings for that goal. Then, set up an automatic transfer that moves an amount of money you can easily afford into this account each week. Sit back, wait until the account is full, and make the purchase without guilt. I often use SmartyPig for such savings.

This is the exact pathway I use to take care of these types of purchases – things that are still functional but sorely need an upgrade or a replacement. Right now, I’m saving to replace a few of our pots and pans – our large skillet is a Teflon one and is starting to peel and I intend to replace it properly with something that’ll last forever (instead of the 3-4 years this one lasted).

What about the psychology? I find it’s much, much easier for me to go ahead and spend on such things if the money is “set aside” from our main finances. When I know I can make this large purchase without touching our main finances at all and not dinging our emergency fund, either, I don’t feel any guilt at all.

Good luck!

I absolutely love tuning into talk radio stations. It’s hucksterism at its most entertaining – the selling of fear is palpable and the line between content and commerical is so blurry I can’t tell if the host is on an economic rant or trying to sell me on a gold broker.

Regardless of whether you think such talk show hosts are the scourge of the earth or a vital source of speaking truth to power (I’m not in either camp, actually), there is one truth that you can take away from all of it: no one knows for sure what’s going to happen next in terms of the economy.

One can make a reasoned, rational case that we’re on the verge of a golden age because of emerging technological advances and the opening of new markets. One can make a reasoned, rational case that we’re on the verge of economic collapse that will come in the form of a deflationary spiral (lower prices lead to lower production which leads to fewer jobs which leads to lower prices…). One can make a reasoned, rational case that we’re on the verge of economic collapse that will come in the form of hyperinflation (prices escalating, the dollar dropping compared to other world currencies, etc.).

We just don’t know.

If you believe a boom time is coming, it probably makes sense to invest in stocks, particularly in technology and in emerging markets. Invest in things that will grow like crazy when things start to take off.

If you believe deflation is coming, it probably makes sense to start hoarding cash, because every dollar will increase in value. Buy CDs and keep your money in the highest-yield savings accounts you can find.

If you believe hyperinflation is coming, it probably makes sense to buy real physical assets like real estate and, yes, even precious metals. Buy things that will retain at least some significant inherent value regardless of what happens to the dollar and to the national economy.

The problem is, of course, that these avenues don’t really overlap. If you’re investing all of your money in cash, you’re missing out on other areas, for example.

Given the complete uncertainty of the future, what should a person do?

Diversify.

Do not put all your eggs in one basket, even if you believe disaster is just around the corner. This is true whether you’re investing for personal gain, investing for retirement, or simply deciding how to put together your personal budget for next month.

You can diversify your investing by having a little bit of this and a little bit of that. At retirement, you’re probably more concerned about protecting yourself against collapse than riding a possible financial rocket, so your concern would be more towards investing conservatively in cash and bonds and some real estate.

You can even diversify when you budget. How? You diversify whenever you toss some money towards an emergency fund. That way, whenever that disaster around the corner peeks out, you have the tools you need to handle it. You also diversify whenever you buy in bulk, because you’re effectively investing some of your money into long-term household resources at a bargain price.

The more diversification you have in your financial life, the more likely you are to be able to simply roll through anything that life can hand you – and the more likely you are to be able to take advantage of any great opportunities that come your way.

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, two years ago this week, and three years ago this week. I call it … the Time Machine.

One Year Ago (January 31 – February 6, 2009)
Accused of Being a Cheapskate I think there’s a huge gap between “cheapskate” and “frugal.” That doesn’t stop some people from crossing their eyes in order to look down their noses at you.

Riding the Line of Overcautiousness One can easily be overcautious with their financial and personal choices. Although some caution is good, too much caution can prevent you from reaching toward your dreams.

Twelve Ways to Use the “Thirty Day Challenge” for Great Personal Finance Benefit I often use “thirty day challenges” to try out new habits and behaviors in my own life.

Making a Monthly Personal Balance Sheet I find using this to keep track of my long-term personal finance progress is incredibly personally inspiring for me.

One Step Isn’t a Journey A long journey is made up of lots of big steps – and lots of little steps, too. Only taken together do these steps take you to where you want to go.

Two Years Ago (January 31 – February 6, 2008)
Six Persistent Money Myths That Seem To Stick Around I hear variations on these six myths almost constantly. They’re all false, but they’re often paraded around as being absolutely true.

Misery is not Miserly: Breaking the Connection Between Spending and Sadness We are trained over and over again to believe that spending money will bring us happiness. It rarely brings anything that lasts.

The Fine Art of Abandoning Goals Sometimes, goals aren’t meant to be completed. Our lives and our priorities change. How can we figure out whether it’s right to step back from a goal?

What You Spend, What You Eat: The Deep Connection Between Food and Personal Finance Food is a major part of our budget and our choices in what we eat often spread to other areas of spending as well (medical care, hygiene, etc.).

Nine Simple Ways to Stand Out in Your Career These work in almost any career you’re undertaking. If you want promotions and raises, these ideas work.

Three Years Ago (January 31 – February 6, 2007)
The Three Rs Meet Your Stomach And Your Wallet: How To Save Significant Cash And Waste Less On Simple Homemade Meals Reduce, reuse, recycle. They work for your meals.

10 Lessons The Simple Dollar (And Its Readers) Has Taught Me This really sums up the lessons I learned during the first several months of The Simple Dollar. I am constantly learning from the readers and from the research I do to answer the readers’ questions.

Buying Things Lets Me Forget Who I Am For A While It’s incredibly painful for me to hear a person whose personal worth is hung on the material things they own. That’s just a ticket for a lifetime of financial problems.

$1 Kitchen Secrets: Ten Herbs And Spices That Will Make Simple Foods Pop I keep these ten things on hand at all times in my kitchen. They make an enormous difference in turning a bland meal into a wonderful one.

8 Ways To Replace Common Consumer Products On The Cheap I love the creativity of some of these solutions. You really can get by with very little in this day and age.

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 – or other social networks. 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.

I also participate on several other social networks. Feel free to check me out on del.icio.us (it’s where I collect links, from which I select the ones that appear in my weekly roundups), wakoopa (what software I use), GoodReads (what books I’m reading), Facebook, and FriendFeed (which aggregates everything). I also have an irregularly-updated personal site, TrentHamm.com.

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!