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

A few weeks ago, I stopped at a local business that was having a “going out of business” sale. It was one of those little interesting eclectic gift shops that you randomly find in small towns here or there, the kind that you almost wish wasn’t going out of business but you’re also glad to find at that perfect moment because of the steep discounts on items.

They had a small bookshelf full of miscellaneous books hand-picked by the store’s buyer and I browsed through the selection a bit, knowing that they were all on sale for a fraction of their cover price. There, I found an interesting little hardbacked book entitled Be Thrifty: How to Live Better with Less, and I picked it up solely to review it here on The Simple Dollar.

The book itself is actually a collection of articles (by many different writers) sorted roughly into chapters on the general theme of frugal living, though I would actually describe the selection as self-sufficient living more than anything else. It reminded me a bit of The Complete Tightwad Gazette by Amy Dacyczyn, a book that I deeply enjoyed and have returned to again and again over the years, though with less of a “minimize every cent” bent.

1 | Home, Sweet (Thrifty) Home
Home maintenance is the name of the game here, and the book comes at it from a lot of different angles. From discussing frugal home cleaning materials (baking soda! vinegar!) to step-by-step guides to a few simple home repair projects, like rewiring a lamp and installing a new light fixture (something we need to do in our entryway soon – and something I’m going to document with pictures and post about).

2 | Animal, Vegetable, Budget
The second chapter discusses gardening and pets – something of an odd pairing, but it would have made for two very short chapters otherwise. Since I’m not a pet owner (due to allergies) and I am a gardener (when flood waters aren’t destroying everything), I focused on the first half of the chapter. Quite simply, it’s a very comprehensive 30 page guide to starting a garden for someone who has never had a garden before, focusing heavily on topics like vegetables that are very easy to grow (like radishes and green beans and oregano – I can’t even kill this stuff!) and how to start your own miniature compost bin in a bucket.

3 | Food & the Thrifty Cook
This section is mostly a set of frugal recipes with a few general guidelines for saving money on food. The writers seem to be as enamored with dried beans as I am (I think they’re basically the best bargain in a grocery store) and are big advocates of the whole creating a meal plan with the grocery store flyer in hand and then shopping with a grocery list method. The recipes are pretty basic and easy to follow – the focus really is on “easy” with inexpensive ingredients here. A lot of staples are covered, too, including a making your own bread and making your own pasta (something I’ll cover soon, too).

4 | The Family That Saves Together
Here, the authors just collect a lot of information useful for parents – making your own baby food, diaper guidance (I say just use cloth), buying kid’s clothes (I say use the secondhand store), and craft projects are all included. One big focus that I like is the idea of playing games with your children. I am a huge fan of the idea of a family game night once a week (if not more often). It’s incredibly inexpensive (all you need is a deck of cards) and is a spectacular way to bond with the people you’re playing games with.

5 | Taking Care of You
Clothes (buy used!). Grooming (keep clean!). Exercise (do it at home!). Health (eat better and get plenty of sleep!). These are the topics covered here, as the focus is on making yourself feel better and function better, both in terms of outward appearance and inward energy level and sense of self-confidence. What’s the best free thing a person can do with regards to health? I’d point at two things – taking an uptempo walk every day and getting plenty of sleep.

6 | Living the Life of Leisure
How does a frugal person have social gatherings? The authors offer up tons of ideas here, from potluck dinners and barbecues to wines under $10 (Charles Shaw at Trader Joe’s is the best cheap wine – “two buck Chuck” is better than you’d ever think it would be). There are also a lot of “make it yourself” gift ideas in this chapter, something that’s been on my mind as the gift-giving season approaches (and something I’m going to devote a “theme week” to in a few weeks).

7 | Thrift & Your Wallet
This is the shortest chapter, but perhaps the meatiest from a personal finance perspective. It essentially jams the key parts of personal finance into a dozen or so pages, hitting the big topics like having a cash emergency fund, spending less than you earn, avoiding credit card debt, putting money away for retirement (even if you’re not sure of the “best” investment), and so on. Really basic stuff if you read personal finance blogs.

Is Be Thrifty: How to Live Better with Less Worth Reading?
Reading this book is much like reading a multi-author blog that focuses on fairly simple do-it-yourself projects with an eye towards self-sufficiency and saving money. If that sounds appealing to you, you’ll get a lot of value out of Be Thrifty: How to Live Better with Less.

Of course, the argument against books with this type of format is “why not just read the website?” After all, there are blogs out there (this being one) that cover the same ideas with the same format. The big difference is the portable and shareable nature. You can take a book like this easily around the house with you as you try different things, read it in any environment, annotate it to your heart’s content, and share the book easily with friends.

Because of that portability, hand in hand with the do-it-yourself nature of this book, I give it a big thumbs up. I can easily see myself hunting down another few copies of this to give away as gifts this year (Kim, this means you if we get your name in the Christmas drawing).

Every Sunday morning for the next few months, I’m going to “riff” on a chapter from my book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams by reflecting on particular pieces of it that I’ve had further reflections on or particularly excite me, including some elements that were removed from the final draft. You can find out more about the book by reading some of the life-changing experiences the book has given readers or reading the Amazon reviews.

Last week, I discussed the third chapter of my book, which focused on the randomness of our lives and how our minds make our life paths seem much more smooth than they actually are.

Most of the time, this “smoothing” is a good thing, but it has some bad effects, too. It discourages an emergency fund. It keeps us from viewing contingency plans as important. Interestingly, though, it also makes us relatively poor at defining, setting, and achieving goals, and people often overlook them in favor of what needs to be taken care of today. I argue that the “today” goals and the long term goals work perfectly hand-in-hand.

I go down this path a bit on pages 40 and 41:

So why set long-term goals at all? To put it simply, long term goals put short term goals in an appropriate context. A long term goal is often just a sequence of short term goals leading toward a greater good. Long-term goals add a powerful transformative sense to short-term goals – going on four runs this week won’t change your life, but committing to going from being a couch potato to running a marathon in two years certainly can change your life. Short-term goals become the stepping stones for getting there.

In other words, if you set a big goal for yourself, you’re going to have to take lots of little steps to get there. Those little steps might be difficult – like getting up off the couch or making some frugal choices in your life – but those little steps are things you actually can accomplish today. If you have those little steps in the context of a big goal – like running a marathon or being debt-free – those seemingly impossible big goals seem a lot more reachable.

You can run a marathon soon if you just lace up your shoes and head outside today.

You can be debt free soon if you choose to eat at home tonight.

You can be self-employed soon if you focus on writing a great blog post instead of watching The Big Bang Theory.

Yes, sometimes our large goals change, but the steps taken to reach that large goal almost always are a positive in your life. You might decide that the marathon goal isn’t right for you in a few months, but it’s not a bad thing to be in better shape. You might give up on the self-employment goal, but you do have a website out there that earns a trickle of income and you’ve improved your writing skills.

In other words, the real building blocks for success are short term goals.

So what makes for a good short term goal? From page 45:

First, it’s clear. There’s no ambiguity about whether you’ve achieved it or not. Usually, this means using a numerical metric, such as “I’ll take four thirty-minute walks this week” or “I’ll only spend $20 on unnecessary things this week.”

Second, it fits in the context of a big audacious goal. If you achieve your short-term goal, it actually helps with a larger goal in your life. Your exercise moves you a bit closer to that marathon. Your reduction in spending moves you closer to financial freedom.

Third, it contributes to something transferable. If you achieve the goal, either your product or something gained along the way is helpful to you in a broader scale. Your exercise slightly improves your physical shape and appearance. Your reduction in spending teaches you self-discipline and gives you financial freedom no matter what you might do.

In early drafts of the book, I talked about some of the long term goals in my own life and how the short term goals were helping me to achieve them. Here’s where I wrote about my ongoing piano lessons, for example.

My long term goal with my piano lessons is to learn how to play the instrument well with the ability to pick up most sheet music and piece through it. Of course, that’s difficult to translate to a practice session. Yet, I recognize that I do gain things from those small practices that translate away from the piano. I have better hand-eye coordination. I’m improving my logic and pattern-matching skills. I have a better ear for music. I improve my tolerance for deliberate practice. All of these things are built not out of the large goal, but out of each small goal that makes up the large goal.

The theme here is the same. Long term goals are powerful motivators and can result in big changes in your life, but they’re most powerful in that they set a context for short term goals. Quite often, our lives change and we don’t meet our big goals, but the benefits gained from the short term goals we achieved on our path stick with us no matter where we go.

Whenever I’m traveling in new circles or meeting groups of people I don’t know well, the conversation usually turns into discussion of what everyone does professionally. When I explain that I’m a writer and mention The Simple Dollar, it’s not long before people at the table are usually tossing money-saving tips at me of all kinds.

A few weeks ago, I was sitting across from an elderly man when this same conversation thread came up. He looked at me and said, “Do you want to know what the best way I’ve ever found to save money is?”

“What’s that?”

“Take notes.”

I was baffled by this idea. What exactly did he mean?

I was already a person who carried a constant pocket notebook and jotted down notes all the time on various things. I considered it useful for not forgetting things – like ideas, things to do, appointments to keep, and so on – but I never considered it incredibly useful as a pure money-saver.

So I asked the man to elaborate – and he did, at length. He pointed out several opportunities when taking notes can save you a huge amount of money.

When people are talking about deals If you overhear people talking about places to find bargains on an item, pulling a notepad out for note-taking can result in a lot of money saved.

At the doctor’s office Asking for everything you can do to help your condition – and writing down those tips – can make a huge difference in overcoming a physical ailment and avoiding further medical bills.

When repairmen tell you things Similar to a doctor’s visit, asking for further preventive steps – and writing them down – can save you further bills.

At the store I already did this, but he also mentioned the advantage of simply having a pad and pen out at the store to jot down any seeming bargains.

Preparing a list If you keep your pad with you as you do housework and work in the garage, it becomes very easy to jot down things that you actually need as well as the specific brand and size you use. This saves on guesswork, mistaken purchases, and unnecessary extra trips.

These are all incredibly useful ways to save money just by having a notepad near you. Over the last few years, I’ve adopted the habit of having some sort of note-taking device (I’ve tried several, but I usually wind up back at the basic notepad and pen) in my pocket and I simply pull it out any time I think of or hear something noteworthy, from appointments or ideas to the kinds of money saving tips mentioned above.

In terms of little things that save me lots of money and time and energy, my pocket notebook ranks right up there near the top, and these money-saving ideas are just icing on the cake.

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 (August 8 – August 14, 2009)
Freezer and Fridge Hacks: Seven Ways to Maximize the Value of Your Refrigerator and Freezer There are lots of little things you can do to make your refrigerator and freezer run more efficiently. The end result? They kick on less often, reducing the wear-and-tear on the unit and reducing your energy bill, too.

How Much Do Taxes Matter To You? I think that if you’re letting taxes drive every financial decision you make, you’re probably making some questionable financial decisions.

Buying Experiences in Your Twenties I believe the best thing that a person can spend money on early in life is experiences, not things.

The Source of Frugal Misery I think it comes down to people cutting back on things that are genuinely important to them. Frugality really works when you find creative ways to eliminate costs on things that aren’t important to you.

The Danger of Selling to Your Friends and Family Selling to your friends and family can damage relationships and cause hard feelings. There’s no amount of pocket money that can make that better.

Two Years Ago (August 8 – August 14, 2008)
A Frugal Guide to the Iowa State Fair (or Any Similar County or State Fair) The Iowa State Fair has already started and, as in previous years, my wife and children and I will be attending it at some point. I’d guess it’d be some weekday in the coming week, and we’ll probably be at the Iowa Public Television booth at some point (a place we always hit).

Learning About Money “The Hard Way” I learned about it the “hard way.” I think it was necessary because I had little grasp on how to properly spend money when I was young.

The Big Debate #4: Pay Off Debt or Save for Retirement? There is no ready-made answer for this. I tend to encourage people to save for retirement, because debt is often merely a sign of personal finance out of control.

The Big Debate #2: Leasing, Buying New, or Buying Used? I generally find that leasing cars ends up being a net loss unless you absolutely must be driving a new car at all times.

The Big Debate #1: 401(k) or Roth IRA? It really comes down to how much income you’re bringing in. To put it simply, get a Roth if you’re eligible and you’re not getting any employee matching.

Three Years Ago (August 8 – August 14, 2007)
A Few Notes About Private Mortgage Insurance And Other Debts If you’re paying PMI, treat it as more interest on your mortgage and recognize that when you get it paid off, your interest rate will effectively drop.

Six Habits I’ve Given Up In Order To Save Money – And How Much It’s Saved Me This Year For me, my routines are constantly worth reflection and re-evaluation for the purposes of improving them and optimizing them.

Six Ways Planning Ahead Saved Money This Weekend Unexpected spending can be fun, but a little bit of planning can make a huge difference when it comes to your wallet dent.

Entrepreneurship In Your Spare Time: The Rocks And Sand Philosophy I look at much of my life now with the “rocks and sand” philosophy. The more “sand” I have and the fewer “rocks” I have, the happier I am (even if I have a lot of sand).

How To Balance Your Checkbook In The Era Of The Debit Card I mostly use my bank’s online banking services to manage this.

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

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

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5. 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.

6. 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.

7. 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.

8. 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!

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This summer, I’m going to be posting a series of fifteen low-cost, tasty, and easy-to-prepare meals that are literally straight from my own kitchen.

Most of the meals I’ve shown so far in this series are perfect dinners. But what about the humble mid-day meal, where you just want something smaller and lighter – and something that’s very quick to prepare? I thought I’d share one thing that we often make when we find turkey deli meat on sale.

This meal includes fresh cantaloupe from the garden, baby carrots (on sale!), and some iced sun tea (that I’ll mention below). The quesadillas are the main part, though, and they’re very simple to make.

Simply take a tortilla, put a piece or two of turkey deli meat on top, add some salsa and some shredded cheese (cheddar, monterey jack, whatever cheese floats your boat), and fold it over nicely.

Just take these folded-over quesadillas-in-waiting and put them in a skillet – you don’t need any butter or anything like that in the skillet. Turn the heat to medium-low (closer to medium) and cook until the bottom side has a few brown spots on it (as a good cooked tortilla should). Then flip it and continue cooking until this bottom side has a few brown spots on it.

You’re done. We cut them in half, but you can eat it whole if you’d like. Fresh vegetables and fruits – especially ones that can be eaten as finger foods – are a perfect accompaniment.

This is a real hit with our family and it takes about ten minutes from “we ought to have lunch soon” to having a finished meal on the table. Plus, the cost of that plate above is less than a dollar, it’s quite tasty, and it’s fairly healthy, too.

Bonus: Sun Tea
You’ll notice in the photo above that I’m drinking a reddish-looking beverage. It’s actually pomegranate green sun tea.

Sun tea is an absolutely wonderful thing, something we drink a lot of during the summer. It’s incredibly tasty and very inexpensive to make. All you have to have is some tea bags and a sealable container to sit on your porch all day.

Above, we’re starting a batch of that pomegranate green sun tea. In a half-gallon of cold water, we just added four of the tea bags from a Republic of Tea canister we had in the cupboard – roughly $0.75 worth of tea. If you used other types – Lipton or even Celestial Seasonings – the cost of the tea would be much less for a half-gallon of tea.

Just fill your container up, put four tea bags in it for every half-gallon of water, and sit the container on your porch or deck where it’ll be in the sun most of the day. You can go to work while it sits – just go about your normal day.

When you get home – an hour or two before you’ll drink it – just take it inside, use a spoon to retrieve the tea bags out of the liquid, and sit it in the refrigerator to cool (you can use the freezer, but don’t forget about the tea).

Here’s our sun tea not long before it came inside. The tea was delicious – we just added a tiny bit of honey to the half-gallon and the whole thing was sublime. A big glass of it only cost about $0.15, too, which is far cheaper than buying equivalent quality bottled tea at the store.

It’s also a fantastic thing to serve guests. Make a couple containers, each with a different flavor, for some variety. For example, I myself really like the sun tea made by the Celestial Seasonings Mandarin Orange Spice tea bags, available for about $2 a box at most grocery stores.

Wendy writes in:

I know that you have touched on this a bit in the past, but I would love to see an article specifically addressing how you research an items technology, durability, and expected lifespan when making your purchasing decisions.

I have two categories of interest:
- rarely reviewed items. Ex: two different motion sensor light switches that only lasted 2 years each?
- changing technology, such as where they constantly come out with new models and it is difficult to do lifespan reviews. Ex: our expensive TV only lasted 4 years, then filters went bad and the pictures appear yellow?

Finding trustworthy reviews of specific items can be pretty hard, even today with the huge amount of information available on the internet. I use a lot of different avenues to make up my mind about specific purchases. Here’s what I do when researching anything.

First, I turn to Consumer Reports. They’re my first line of defense for any consumer product, from televisions and dishwashers to soap and razors. I often mark their highest rated products and their “best buy” products for future purchase possibilities, particularly on disposable and replaceable items. It’s always my first stop when researching something I’m considering buying.

If I can’t find a review of the specific product or if it hasn’t been around long enough to give long-term data, I look at the brand. Does this company have a history of producing high-quality and reliable products? Or do they make things that break frequently and need replacement quickly?

Similarly, I want to know about their customer service. If a company has a reputation for strong customer service – like Apple, for example – I feel more confident about purchasing a product from that company. If the product turns out to be faulty, a company with good service is much more likely to take care of you than a company with poor service.

If I can’t find such information about a company, I don’t buy the product. This is especially true as purchases grow more expensive. If I can’t find any information about the company producing the item and the item costs more than a few bucks (or I’m going to be relying on this item in any way), I won’t buy the item. I have had too many bad experiences with no-name items that, if I’m going to be investing any significant money, I need to have some information about who is making it and what their reputation is.

I do use Google searching and Amazon reviews, but I put less trust in them than I do on other sources. I’ll look up items and see what the peer reviews say, but I do recognize that sometimes those peer reviews are bought and paid for by the company (“Employee X, you have a couple hours to burn, go review our stuff well on Amazon”) and sometimes the negative reviews are competitors trying to do a hatchet job.

On any significant purchase, I ask around my social network. I’ll put out an email to some of my closest friends stating that I’m looking for some type of item or service and I’m wondering if they have any comments or suggestions. Almost everything I get back in this regard is golden – it’s almost always honest, quality stuff.

I also pay it forward – whenever I have a bad experience or an exceptional experience, I find ways to share that experience widely with others. I’ll put up reviews in various places or even mention them on The Simple Dollar.

These techniques almost always add up to enough information for any purchasing decision I need to make.

As you might recall, last Sunday, I reviewed a book I quite liked entitled The Joy of Less by Francine Jay, who blogs over at the quite enjoyable miss minimalist. My book review got the attention of several more popular blogs, including Lifehacker, which chose to link to one of Jay’s more intriguing posts, 100 Things I Don’t Own. The resulting furor caused Jay to actually eliminate much of the post, stating simply:

A few months ago, I published a tongue-in-cheek post entitled “100 Things I Don’t Own.” It was meant to be a fun, light-hearted twist on the popular “100 Thing Challenge.” Unfortunately, it has recently caused some controversy; and since I never intended to offend or upset anyone with it, I’ve decided to remove it.

My lifestyle is unique, and I can understand why the post might be upsetting to some if taken out of context. My husband and I share a 500-square-foot apartment, and simply find life to be much easier when we don’t have a lot of stuff. We recently moved to London, and spend much of our free time exploring this beautiful city.

I live a minimalist lifestyle because it makes me happy, and would certainly never judge anyone else by what (or how much) they own. I’m just trying to keep my own life as simple and uncluttered as possible, so that I have the time and energy to truly appreciate it.

So why am I mentioning this? One of the commenters over at Lifehacker asked a question that left me thinking deeply about minimalism, frugality, and confrontation. Here’s what kbbales01 had to say:

Several commenters have noted that an article about reducing possessions generates strongly negative, even angry, comment. I’d love to hear more discussion about this, for example those who felt angry or dismissive after reading her article – what made you feel this way? I’m not making judgements, I am just really curious about talk about stuff can motivate emotional reactions.

In my own experience (and I have plenty of stuff!) as a person who doesn’t have a TV, I find that when someone says “did you see X” and I simply reply, “no, sorry, I don’t have a TV” – there is often a very defensive reaction, and a long rationalizing response, ie, “I only watch PBS! There’s a lot of good stuff, etc etc.” What’s that about?

I see this type of response pretty regularly. Whenever I mention doing something that’s outside the norm – like making laundry detergent or striving to make under-$1 meals at home – I get emails and comments strongly criticizing what I’m doing. It’s so routine at this point that, frankly, I don’t pay a whole lot of attention to enraged negativity because it’s not worth my time or energy (think of “the boy who cried wolf”).

Why, though? Why do people get upset when they see someone else doing something that’s radically different than their own life choices? I have a few explanations for it.

First of all, the status quo bias is pretty strong – and often stronger than we think. To put it simply, the status quo bias means that people choose to do the same things they’ve always done unless there’s a strongly compelling reason to do things differently. For many people, saving a bit of money on each laundry load or striving to make a very low cost but still healthy meal is not a compelling enough reason to do things differently.

Tied in with that is the basic human instinct to avoid loss rather than to gain. It’s called loss aversion and it’s a heavily-known cognitive bias. Again and again, people would rather avoid any kind of loss than gain anything. This is why you see massive stock selloffs whenever the market takes a dip – and you see commentators talking apocalyptically during a normal economic down cycle. It’s also why you see people thinking things like, “Yeah, I could save $50 a month, but I don’t want to lose the possibility of getting off work early and having the house be perfectly cool when I arrive, so I’ll not bother programming the thermostat.” People are usually more interested in avoiding loss – in other words, keeping the house always cool so they don’t “lose” the ability to come home to a cool house mid-afternoon – than gain – that $50 a month they’d save on their energy bill.

The big one, though, is the Lake Wobegon effect, or illusive superiority. People constantly overestimate their positive qualities, abilities, way of life, and possessions in comparison to others, resulting in a sense that they’re above average in most ways. Thus, if someone else is doing something distinctly different than them, they must be doing it wrong.

The Simple Dollar largely attracts readers who are at least somewhat frugal. Why? People who are frugal think that what I write about is normal and it reinforces the above biases for them. People who are not frugal, on the other hand, think what I write about is not normal and want either to alert me of it or feel superior to me because my way is different than theirs. Because they believe their way is right, they’re often offended that I don’t do things their way.

Guess what? That’s normal.

One of the big reasons I write The Simple Dollar is to show that a normal person has a normal life that incorporates financial responsibility and frugality. People who stick around for more than an article or two quickly realize that I have hobbies and passions and interests, that I dote on my wife and children, and that I have a lot of foibles and quirks (for example, I still want to use the word “unthaw”). I put things that I do and learn out there for one reason and one reason alone: for you to pick and choose among them to find ideas and things to make your life better.

Yes, in some ways, I’m sure you believe you’re doing some things better than I am. But here’s the thing – the reverse of that isn’t true. A typical writer – like me – sharing details about what I’m doing doesn’t have any idea what you’re doing. I don’t know what you buy for laundry detergent or how you wash your dishes or the decision-making process you’ve made for daycare. All I can know is what I’m doing and how I would handle some situation – and all I can do is share that.

If you feel that it’s some sort of judgment against you … well, that’s essentially impossible. I don’t know the specifics of your situation, what you value, what you believe in, or anything else. I only have a handful of tiny assumptions about my readers – mostly that they’re usually trying to better their lives in some fashion. Beyond that, I can’t possibly judge you. All I can do is share, and sharing is the farthest thing from judging.

If I do something different than what you do, make up your own mind about it. I can only see what I do and share what I do. You can see both what you do and what I do and you can decide for yourself which way is best for you. Maybe your way is better – I have no way of knowing.

That’s the idea behind most advice writers you read out there – me, other personal finance (and related issue) bloggers, book writers, and so on. We only know what we know and we can’t know your specific ideas or ways of thinking or ways of doing things. If you feel like you’re being judged, that’s not our doing. Instead, step back and ask yourself if you can’t learn something from this. Why do you feel judged by a statement of what someone else is doing who does not know what you’re doing at all? Dig into that and you might find some things that will change your life. I ask myself that very question quite a bit, and exploring it is almost always rewarding.

Miss Minimalist, you’ve reduced your possessions beyond a level that I would feel comfortable with. I wouldn’t do what you are doing and, yes, I think my way of doing things is better. However, seeing what you do gives me food for thought, and I’ll keep reading. I think that’s always the healthy way to approach new information and advice that’s given openly and reasonably.

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Optimizing cash flow
2. Getting past the “acquaintance” phase
3. 529 for another child
4. The cost of saving coins
5. IRAs at fairly high income
6. Student loan or not?
7. Credit scores and card payoffs
8. Dealing with a small windfall
9. Windfall and mortgage refinancing
10. Passive investment advice

Several people, after hearing about the 2010 central Iowa flooding, inquired as to how we’re faring. We had a small amount of water in our basement due to the entire system becoming overloaded with water and backflushing right into our house. In short, everything worked just like it’s supposed to – except the town’s storm drainage system doesn’t deal well with 11 inches of rain in a fifty hour span.

We have a bit of wet carpet and some ruined items near the drain. We’ve been drying everything out to see what’s left.

My situation, my wife, son, and I live with my wife’s parents. We’ve been renting out a condo that I purchased in 2006, and that lease is coming to an end this month. The renters have decided to move on. I intend to sell the property. I’ve been aggressively paying down principle ($14,000 this year) to try to get the amount I owe down to an amount I can afford to cover after sale, closing costs, and fees. The short term goal is to get out of my inlaws and into a single family rental property. The long term goal is to eliminate debt completely, contribute the max amount to retirement accounts, begin saving for a house of our own, and begin college savings for our child.
By the numbers:
Mortgage: $184,300 @ 5.875 Fixed
Credit Card 1: $200 @ 3.99 Balance Transfer fixed for life of balance
Student loan: $3500 @ 3.25% Fixed
Credit Card 2: $13,342 @1.99% — this will go to 16.5% in September
Family Loan: $46,000 @ 0% — family member loan that is not expected to be repayed, but which I feel obligated to, and will repay.

Longwinded way to get to my question — where should I focus my cashflow? Do I keep funneling it towards the Mortgate (reducing the amount of emergency fund that I need to use), Put it towards CC2 (highest interest rate), or funnel it into liquid savings to bolster the amount I have to pay off the mortgage at closing?
- Paul

I think your emergency fund is probably an appropriate size for the size of your family. Considering the debt load you’re carrying, I wouldn’t sweat growing it much more than you already have.

My focus would be on that credit card, which will be at 16.5% soon enough even if it’s not there right now. Paying down the balance on that card now means you’ll have less to pay back at 16.5% later on.

Of course, you might want to look at further balance transfers for that amount in order to keep the interest rate low.

I really enjoyed your recent post on building self-confidence, and after reading your post on “overcoming extreme social anxiety” I decided to write you about an issue that I’ve been dealing with for most of my adult life, since from what I’ve read in your blog, we seem to have come from similar backgrounds (small town, somewhat shy, etc).

Any practical suggestions? Has this ever been a problem for you?
- Nancy

I would say that my wife and I have only a fairly small circle of friends that we regularly invite to social events at our home. I don’t think that’s terribly unusual.

However, we do have tons of connections throughout our local community and in various other interest-based communities. I have a very long list of people that, although I don’t invite them to dinner weekly, I can call on them in a time of need. They also often call on me when they need something.

Having a lot of these types of relationships takes time, too. I’m regularly getting calls or messages from people that I don’t have a “strong” connection to asking for some sort of help, and the time I spend providing that help is time I’m happy to share. However, it does mean that I’m losing social time in other areas.

It sounds like you’re trying to simply seek a larger number of “close” friends. I’ve found that those don’t happen spontaneously. Usually, you just meet lots of people – some of them “click” and some of them do not. Keep trying.

A cousin of mine in college recently had an unplanned child, and dropped out of college to live with her mother, who’s supporting the child on her own meager income. I want to somehow contribute to the child’s welfare, and my natural instinct was to start putting money into a 529 for her future education needs. However, in the situation my cousin and aunt are in, it’s easy to imagine scenarios where the daughter doesn’t end up going to college. Is a 529 still the best option? Should I tell my cousin about the account, or keep it private until the child is nearing college age? Or should I just concentrate on more immediate needs? What would you do in this situation?
- Stephen

The best thing you can do for that child is give your time by being a mentor – someone who will listen, treat them with respect and maturity, and give them genuine and non-judgmental advice and help along the way.

As for the money, a 529 doesn’t strictly have to be used for a four-year college. The money in a 529 can be used for pretty much any postsecondary educational expense, from trade school to community college. It also doesn’t have to be used immediately, either.

If I were you, I’d start a 529, but focus at least some energy on being a mentor for that child as he/she grows up. That kid is going to have a more challenging path than other kids and will need that helping hand.

I belong to a local credit union and they are charging 7% to deposit coins into my account. I have thrown my loose change into a jar for years and really don’t want to give them 7% to deposit it into my account. Do you have any ideas what I can do with it? It almost seems like they are discouraging you from saving money.
- Larry

7% is rather high. If I were you, I would look around for other banks that will allow you to turn in change without such fees. In my community, most banks don’t charge a thing for turning in change, which I consider to be a nice service.

As to whether they’re discouraging people from saving money, I think it’s more of a reflection of how many people are moving more and more in a cashless direction. Twenty years ago, many people paid for their groceries with cash or checks. Now, almost everyone uses cards. There’s not nearly as much pocket change out there floating around as there once was, thus change conversion isn’t as much of an in-demand service and is likely not nearly the benefit for banks that it once was.

It’s more of a reflection of the times, in other words.

I still have a car and a second mortgage to pay off, the second mortgage at 8.625%. I also fully contribute to my wife’s and my Roth IRA’s while I pay off this remaining debt because I’m rapidly paying them down, so I figure I’d be better off getting money in the IRA’s to take advantage of that opportunity each year even though it will take me longer to pay down my remaining debts. I currently contribute to a Roth IRA, and a traditional 401k to tax diversify. I’ve also read that with tax rates at an all time low, and considering that I’m 33 with an income likely to go up over time, this would be the most ideal time for me to contribute to a Roth IRA vs. a traditional. I currently make about $100,000/yr, and my wife stays at home.

As a thought experiment, this gets very interesting to consider when you look at all the variables, too. If for example I was only making $50K/yr instead that would push me more to a Roth now because I wouldn’t get as much of a tax break now. I wonder though in my case if I might actually be better with a Traditional now until I can pay my debts off and max my 401k.
- Aaron

The big assumption you’re making is that tax rates will continue to be the same from now until you retire. I just don’t think that’s going to be the case.

The truth of the matter is that right now, income taxes are at post-World War II lows. The last time income taxes were this low for this long was the roaring ’20s, and that eventually ended with the Great Depression and the New Deal and higher rates.

We will eventually have to rebound, and I don’t think we’ll see rates this low again for a very long time. I’d bet on the Roth IRA.

I still need more money for school this upcoming semester and have been offered a $2000 unsubsidized stafford loan (6.8%), meaning $1000 would be applied to the Fall. Depending on how many hours I can work when school starts, I think I may be able to pay the amount left myself if I split it into payments through a payment plan at my school (interest free). But I am not totally sure as it would mean nearly emptying my bank account. But I am not too keen on the loan either: I already have over $18,000 in student debt already, and my intended career is NOT high-paying. Is it better to pay the tuition now and stretch my wallet thin or just take the loan?
- Vera

In your situation, I encourage you to take out the loan. At 6.8%, it’s far from devastating, especially when compared to the situation you’d be in if an emergency befell you with an empty bank account.

That doesn’t mean you shouldn’t live as lean as you can. Start repaying that loan as soon as you can. Don’t change your way of living just because you have a bit of breathing room.

While you’re in school, take advantage of every benefit of your school – live cheap, absorb freebies, and pocket that cash to use towards your debts.

This might be a foolish question, but I have to ask: am I inadvertently lowering my credit score when I pay off my credit card each time I make a purchase? Most financial websites tell you to “pay [your] balance in full at the end of each month.” If I pay off the balance multiple times in one month, is this harming my credit score in any way?
- Rebecca

You’re not harming your credit score at all. In fact, you’re likely helping it.

Now, it should be said that the exact formula for your FICO score is not public – it’s a trade secret. However, based on the information they’ve provided publicly, it seems that the best thing you can do for your credit score is to keep the debt paid down and not miss payments.

For more information, I suggest reading this section on credit scores at myFICO.com.

I have recently come into about $5,000 (through various means, but this is the total more or less) and I’m not sure what to do with it. There is of course the wonderful idea of buying a whole new wardrobe or going on a swanky vacation, but I know that in the long run I’d like to choose something a lot more wiser. I currently have graduate school debt consolidated at 5.625% (Stafford loans). I also have two more Perkins loans at 5% for smaller much more manageable amounts (I could actually pay one off). I want to pay off the smaller loan to get it out of my life, but I know that it would be more prudent to cut down at the one with the higher interest rate.

My financial status is pretty stable. I contribute to a matching retirement account, have no credit card debt, and my car is paid off. I still take classes part-time, but I can afford them without having to really pinch pennies and I have money in savings account that compounds at 1.29% every day (I hope that’s good…).
- Charlene

OK, if you actually have a savings account that compounds at 1.29% daily, I will put every dime I have into that account, because you would be very, very rich in a year. Likely, it compounds daily but has a 1.29% APY, which means that it compounds a small fraction of that each day so that at the end of the year, your balance should grow 1.29%.

I would not buy a 5 year CD at 3%. Interest rates on CDs fluctuate a lot based on the state of the economy, and locking away your money for five years to only get 3% on it is not a good choice for an individual investor. You’re better off with the money in a savings account for now and being patient until rates go up.

If I were you – and I’m assuming you have some cash already in savings for an emergency fund – I’d whack at the debts. Don’t feel bad about eliminating the small 5% debt first. It will help your monthly cash flow by eliminating one of your bills and the interest rates aren’t too far apart. If that one feels right for you to pay off first, do it. Yes, the best mathematical solution is to pay down the 5.625% one, but the difference is small and if paying off the other debt is more motivating and inspiring for you, that’s what you should do.

My Aunt passed away in March. Her husband, my Uncle, passed away a month later. They left an estate large enough to make quite a difference for many of their heirs. They didn’t have children of their own, so the money has been divided amongst my cousins, Aunts and Uncles. I would much rather have my Aunt here than to be given this money, but it is enough money to make quite a difference for us. They’ve divided the disbursements up so that whatever taxes or fees are left will be taken out of the 2nd disbursement. The first one we will receive is around $92,000. I believe the second to be around $40,000, but I don’t know how much will be taken out.

But then I looked into refinancing our mortgage. We’re in the 2nd year of a 30-year FHA loan (balance: $207,151). In order to refinance, because we only have 9% equity, we would have to refinance into another FHA loan (which means more UFMIP)- and that’s based on an optimistic zillow “zestimate” ($230,000). I tried talking with someone from Quickenloans about a no-cost streamline refi, but he stated we’d have to pay UFMIP of $3600 (and it would have to be rolled into the loan, we couldn’t pay it up front). I’d like to get away from the entire UFMIP issue altogether- would you advise that we use finds to pay down the mortgage so we could?
- Jen

Most likely, you’re making the right move in paying off your credit cards, student loans, and van loan. That should leave you with $30,000. I’m assuming you have no emergency fund and I’m assuming you have children, so that amount would be a great emergency fund.

Unless there’s some immediate reason you need to refinance now, I’d just stick the extra cash in savings and wait until the next $40,000 comes in, then refinance with that. Paying off all of that debt is going to have a huge impact on your monthly cash flow – no credit card bills, no student loan bills, no van payment bills. It’ll make the mortgage payment feel a lot easier and should allow you to start making extra payments towards it (which is what I’d do).

Then, when the $40,000 comes in, you should have plenty to refinance your mortgage, which will probably get rid of PMI and lower your interest rate and also lower your monthly payment. Try to refinance into a fifteen year – you’ll likely find that your monthly payment on the 15 year isn’t higher than your current 30 year mortgage payment.

I am a 20 year old college student with about $3,000 from my summer job to passively invest in a fund. I would invest in an index fund but I already have some savings there, and want to know which fund you would recommend for a passive young investor who does not want to be too risky. Or if there is something else, completely different, that I would be better off investing in.

Any advice would be greatly appreciated! Thanks so much.
- Emily

I’m going to assume that when you say “passive,” you’re mostly looking at this as a source of income from the dividends and you don’t have any intent of touching the balance for a long while. That’s usually what is meant by “passive” investing.

If that’s true, I would look strongly at the Vanguard High Dividend Yield Index Fund (VHDYX). It’s an index fund that just seeks to match the FTSE High Dividend Yield Index, which is a collection of companies known for paying a high dividend. This means that it’ll be paying out regularly to investors. The history of the fund isn’t too long, but it seems to be paying out about $0.12 per share per quarter on average, which is about 1% of the face value of a share ($3,000 in it, in other words, is averaging about $30 a quarter in dividend payments). That’s through a pretty terrible market where lots of companies have cut their dividends, so in a good market when companies are paying higher dividends, it should be pretty good.

If you’re looking for passive investing, you can’t go wrong with that one, I don’t think. I’ve considered owning it myself simply for passive income.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.