Vocation. Career. Job.

Three different things that so often seem to overlap in our minds. However, when we let them overlap, we lose something valuable in the translation.

A job is simply any situation where you are paid in exchange for your labor. Nothing more, nothing less. Warren Buffett has a job, as does the cashier down at the local McDonalds.

A career is a sequence of jobs in a similar field that ideally lead to promotion within that field. I’ve had two careers in my life – The Simple Dollar is my second career.

A vocation is what you were born to do. It’s that point where your skills, talents, and interests intersect and you’re most able to change the world around you. Your vocation and career might overlap – or they might not.

Why the distinctions? I think we illustrate them best when we look at them pairwise.

Job versus career So often, we merely look at jobs as pieces of a career. When we move on from our current job, we simply look for the next step in our career path – or we look for the first step in a new career path, right?

Actually, neither one has to be true. A job is nothing more than a way to put income into your pocket. It only becomes part of your career if you choose to put that extra value in there.

Quite often, when people are in desperate need of income and are out there searching for work, they are so locked into continuing their career that they fail to look for a job. You can have a job without it being the continuation of your career. Instead, it can merely be the source of income while you search for that next career step.

Job versus vocation A job is nothing more than a way to fund a vocation.

One of my favorite images in that regard comes in the form of one of my closest friends in college. He had a job as a night cashier at a gas station near campus, where he worked from 10:30 PM to 7:30 AM about four nights a week.

At first, I thought this was terrible. It was just a dead-end job, and he seemed to be giving up so much of his college freedom for it. I decided to start popping in every once in a while to see how he was doing.

Every time I visited him, he wasn’t sitting behind the counter bemoaning his situation. Instead, he usually had a sketchbook with him and a set of colored pencils of various kinds. He would spend hours simply making sketches of the items on display there, mastering his skills of shading and perspective.

He’s now in graphic design, and I’d say that his time in the gas station was merely a job, a job that he recognized existed solely to enable his vocation.

Career versus vocation Right now, my career path is that of a high-throughput writer. I’m a blogger who posts two lengthy articles a day, plus freelance work, plus some independent projects. Those jobs all add up to more jobs in that career path.

My vocation, however, has only vaguely to do with what I’m doing today. My vocation is writing, but my career is only one particular flavor of that. There are many other areas of writing that I wish to explore as time moves on. I am drawn, with every ounce of my being, to someday write carefully crafted works of fiction and nonfiction. Not 5,000 word days where I’m trying to communicate several ideas as quickly as possible. Instead, more careful, nuanced, researched writing.

My career is connected to my vocation only in that it’s giving me the skills I need to explore that vocation more thoroughly. The career itself isn’t the end goal – it’s merely a piece in a much larger puzzle.

What does all of this really mean in terms of day-to-day choices? I think it boils down to asking yourself a few introspective questions.

First, how does my job actually play into my larger career goals? Many jobs certainly do lead to another career step. Some jobs do not. Know what you’re getting from that job beyond merely the paycheck – and understand what you’re willing to give in exchange for that.

Second, is my job enabling me to build towards my vocation? If it is, then use it. Use every element of your current job that you can to help you build a path into your vocation. If it’s not, then it’s just a way to put some money in your pocket as you seek a better result.

Third, is my career actually what I was meant to do? I can’t tell you the number of people that write to me when they’ve suddenly realized that their career isn’t at all what they want to be doing with their lives. The sooner you realize that, the better, because it gives you the time you need to begin thinking of your current job as merely a job rather than a career element. A job is something you use to move along in your vocation, whether it’s solely because of the income or whether other resources are at work in that equation.

One final thought: regardless of what you’re doing right now at your job, you can be working towards your vocation or building towards your next career step. In either case, if you want something great in your future, you’ve got to work for it, whether it’s in the form of hitting a home run in your work performance so you can move ahead or utilizing the resources of your job to help you build up the things you need for your vocation.

What’s it going to be? Either way you go, now’s the time to stand up and start fighting for your future.

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. Donating to charities through businesses
2. Advanced board game recommendations
3. School or buy a house?
4. Rapid car loan payoff
5. Dealing with parental yearning
6. Life is not a test
7. Do extra mortgage payments help?
8. Games with great replay value
9. Handling a cash lump sum
10. Setting priorities in complicated situation

Over the last few months, I’ve been reading Stieg Larsson’s Millennium Trilogy (The Girl with the Dragon Tattoo, etc.). It’s a great page-turner and loaded with interesting characters (some of which don’t receive enough page time – but Larsson was planning a ten book series).

The only problem I have with it is that a lot of the male characters are portrayed as seething with anti-female rage (aside from the main character, who is a thinly-veiled substitute for the author himself). They hate women and they abuse women. On the flip side, there are almost no female villains in the books (I can’t think of any off-hand). I don’t think either sentiment is very realistic… but maybe I’m looking for too much realism in a page-turning mystery series.

Last night, my wife and I ate at Chili’s, because Chili’s was donating 100% of its profits to St Jude’s Children’s Hospital on 9/27/10.

My question: We made a small donation that was added to our bill, as a seperate line item, to St Jude’s. What are your thoughts on making donations through a third party, like Chili’s, or sending a check directly to the charity?
- Robert

I’d prefer to make the donation directly, for three reasons.

First, if I’m making donations myself, I can research and choose the exact charity to give my money to. Some charities are definitely better than others – and some charities focus on areas that I value, while others do not.

Second, if I make donations myself, I can claim the tax deduction myself. If I donate $20 to a registered charity and get a receipt for that donation, that deducts from my taxes, saving me $5 or so (which I could then also donate). In other words, a $25 donation to a registered charity is roughly equal to a $20 non-registered donation at the end of the year when taxes are calculated. In your case, you seem to have been giving the cash to Chili’s, not directly to the charity.

This leads me to the third problem. A donation given through Chili’s mostly just serves as a PR campaign for Chili’s. They’ll use your money to make themselves look generous and good when they collect all of those donations together. I really don’t like being part of a corporate PR campaign, even if it does benefit a charity in the end.

I really enjoyed your game night post. However, it was pretty clear that you were trying to recommend games for new groups. It sounds like you’ve been board gaming for a long time. What games do you play the most in your group?
- Kenny

I usually keep notes on the games we play at our game nights. Over the course of the years that I’ve kept notes on this, our top ten most played games are as follows:

1. Settlers of Catan
2. Dominion
3. Race for the Galaxy
4. Ticket to Ride
5. Agricola
6. Puerto Rico
7. Modern Art
8. For Sale
9. Power Grid
10. Ascension

Just to be forewarn you, some of these games can be pretty complicated and confusing, but they all are well worth spending the time to learn the rules. The simplest one is For Sale; the most complicated is probably Agricola; the one with the steepest learning curve is definitely Race for the Galaxy.

My husband and I are in our late 20′s, renting in inner-city Atlanta for approximately $825 including utilities. Currently, he is employed full time in the government/transit sector and makes about $55K after taxes, with benefits. Since losing my job in March, I have freelanced and have a variable income, never exceeding more than spare change per month, and am currently looking for more work. I use my freelance money to pay my 4 credit card bills at a total of $200/month, for which the total combined limit is $2.5K (and amount owed, in fact, because I keep using them when I run out of money, after paying them. Revolving credit indeed!).

In order to make money in the hair industry, it seems I’d have to spend a rather large amount of money. It feels like a bad idea to take out a loan for a hair degree, especially when we are looking to buy a house at the same time. I’d like to think that we could balance both, but I would probably be unable to earn anything for at least a year while in training (the schedules are pretty rough.) Not as though I make much now, but with my freelancing, it’s at least possible to look for more income. Given all of this, should I pursue training and licensing while putting the house hunting on hold? Should we move to a cheaper rental (I’d hate to move to a “temporary” place)? A combination of these things?
- Jennifer

The “his money for his future” idea is really strange to me. For starters, since you’re married, your financial situations are tied deeply to each other. When you have to bend over to pay a debt, you’re not able to carry some other load, which he will have to carry (and vice versa). Secondly, if it’s his money, he should be able to do with it what he wishes. If you’re currently stuck in a revolving door at that credit limit, it’s a problem that affects you both.

The first thing you guys need to do is completely merge your personal finances. The idea of “his” money and “her” money, aside from a possible small pool of “spending money” for each of you, needs to go out the door. You’re in this together.

I only have a partial picture of your budget here, but I suggest merging your money, getting rid of any and all debts as soon as you can, and establishing small “spending money” pools for each of you that limit your free spending each month.

So, what about the schooling? If you have a hair degree, will you actually be able to use it to earn significantly more than you’re making now? Also, are you going to want to practice this trade over the long haul?

This is very much a trade program, meaning that it pays off if you can find work in that field and stay in that field for a while. If you’re going to invest in that degree, you need to be sure that the field is open to you and that you have the ability and desire to do it – and to do it well. Also, since your shared financial future is on the line here, you need to make absolutely sure your husband is fully on board with this plan as well – after all, you did marry each other. Don’t just insist on it, either – understand what he really wants here.

If all of that is in place, go for it and get that degree.

As for the housing, you should strive to live in the situation that has the lowest monthly cost of living. If you move into an ownership situation, you’re adding maintenance costs and insurance costs on top of what you’re currently paying. Can you afford that? On the surface, the mortgage is cheaper, but the mortgage doesn’t reflect the total cost of ownership.

My husband and I want to pay off our $17,500 (4.5%) car loan as quickly as possible. The payment is $327 per month. I am realizing that car loans must not be calculated the same as my mortgage. When I over pay on my mortgage, the same amount is still do each month, but I see my principal balance going down. With my car, if I send in extra money I see that I owe less (or nothing the next month) but my principal balance hasn’t gone down much. I always still pay at least the minimum. My question is, should we just pay the minimum and be saving up to make a huge payment later, or sending extra money each month? If we send in extra money, how will I know when I am close to paying it off?
- Jen

From your question, it seems as though the statements you’re getting in the mail are not showing that the balance of your loan is going down with extra payments. If that’s not happening, where is your money actually going? Is that extra payment appearing on your bill anywhere? Did your loan not allow you to make early payments?

If I were you, I would quickly call your lender and find out what is going on with your extra payments. Are they being held for future interest?

Once it’s clear as to whether extra payments are actually providing a real benefit to you, move forward as you see fit. If you have an emergency fund on hand, there’s absolutely no reason not to chase debt freedom.

I read with interest the letter from the older couple that wanted to adopt. Their situation was very similar to mine. We tried different was to conceive and didn’t succeed. It was costly and emotionally draining. My wife has pretty much given up but I have the strong feeling to be a parent. As we bought a house this past year, our money is tight. It kills me to think that there are people like us that want kids, and kids that want parents, yet I feel there is some kind of Grand Canyon that separates us. Outside of asking for donations, adopting special needs kids via my home state, or becoming a ‘big brother’, do your readers know of any other means? I coach and referee soccer each weekend…. And when I see the joy of the kids and their parents, I feel such a strong empty feeling inside.
- Ida

The first step I would take in your journey is to get your finances in the best possible shape. You’ve just bought a house and you’ve mentioned that money is “tight.” The truth is that adding a child to your life, no matter whether adopted or not, will put a serious strain on your monthly budget. If you’re having difficulty making ends meet now without a child, it’ll be much harder with a child.

Similarly, you need to both be sure that you’re on the same page with adoption. Your mention of the fact that your spouse has “given up” and your recent decision to stretch your finances for a house seems to indicate that you’re making life choices that move you away from having a child. Sit down and talk about this, openly.

If adoption is truly not going to work for you, your best approach is to simply be involved with youth organizations. Become a Scout Master. Stay involved in soccer. Get involved in refereeing basketball or umpiring baseball.

If you are going to adopt, one approach to consider is a private adoption, where an adoption lawyer helps you through the legal process of adopting a child that you locate yourself (for example, through advertising in newspapers, a la the film Juno).

The biggest obstacle I have to success is that I feel like everything in my life is a test and if I mess up, I’ll somehow fail at life. It makes me nervous about everything. Do you have any suggestions?
- Sam

For there to be a test, there has to be a judge, and only very rarely is someone actually judging you directly on what you’re doing right now.

Think about the people in your life. Do you immediately form a deep negative opinion of them if they make one mistake? Almost assuredly, you don’t (or you have a very small social circle and possibly some problems that need professional help to overcome).

If you don’t apply that strict criteria to others, why are you applying it to yourself? No one is perfect. All we can do is strive to do our best and accept that, yes, sometimes we don’t match up to that.

If you’re having difficulty reaching that own conclusion, you may find some value in seeking professional help through psychotherapy.

I was hoping you could help shed some light on this for me. My husband and I are considering refinancing our mortgage. Details: currently in year 8 of 30, 5.75 fixed rate mortgage, no PMI, with plans to stay in our house for a very long time. We both have excellent credit and no other debt, and our retirement accts are fully funded. We would refi to a 15-yr at about 4%. According to mortgage and refi calculators it would take 3.5-4 years to recoup the cost of the refi.

Seems like an obvious choice but here’s the thing: my stepdad told me that an added mortgage payment of $100 is equal to a 1% rate decrease. Obviously there are different sizes of mortgages and different interest rates on those loans so that advice doesn’t seem like it’s completely accurate. However, it does seem like there would be some truth to it, so I’m wondering if we should forgo the refi and just add to our principal payment (we are already paying an extra $100+ each month) thereby avoiding all the fees associated with the refi. Or does it make good sense to grab the lower rate?
- Angie

Your stepdad is trying to boil some fairly complicated math down to a simple rule of thumb that doesn’t quite hold true. So let’s walk through that math instead.

Let’s say that you have $200,000 left on your mortgage – I’m just making up a number so we have numbers to use. Your monthly payments on that mortgage would be $1,336.76 a month.

You could refinance that $200,000 into a 15 year mortgage at 4%. This would turn your monthly payment into $1,479.38 a month, but you would be paid off in just 15 years.

On the other hand, you could simply make a $1,436.76 payment each month on the mortgage you have now. This would move your payoff date up about three years, making it effectively a 19 year mortgage.

If you add $200 to the payment, making a $1,536.76 payment each month on your current mortgage, you would move your payoff date up another two years, making it effectively a 17 year mortgage.

So, your father is right in that adding $100 to your payment does effectively act as a reduction in how much you owe. However, it does not add up to enough to make up for the savings you’d get from refinancing to a 15 year at 4%. Compared to adding $200 a month to your current payment, the refinance would give you lower monthly payments and two years quicker to your payoff. Unless your mortgage balance is very, very small, you’re better off refinancing.

Like you, I’m obsessed with maximizing the value of my purchases. I like playing video games and I tend to focus on ones with as much replay value as I can find so that the “cost per hour” is as low as possible. What have been your biggest bargain games in this regard?
- Lucas

Excluding free games that I’ve played extensively, like Desktop Tower Defense, the biggest bang for my buck ever for electronic gaming probably has to be Civilization IV. I can’t tell you the number of late nights I’ve spent sitting there building an empire and thinking to myself, “Just one more turn!”

I asked my wife (a pretty avid gamer herself) what her best value game was and she said, without a doubt, Sim City 2000.

In terms of travel gaming – the kind you can easily keep in your pocket – my winner (again, by a long shot) is Advance Wars: Dual Strike.

What do all three games have in common? They’re all turn-based strategy games. For me, those kinds of games are the most fun over the long haul.

My husband and I are both 30 years old. No consumer debt, no student loans. We owe $48,000 at 5.5% on our mortgage – down by one third from when we bought the house 18 months ago. We pay an extra $1000 towards the principal every month.

We also are working towards funding a 6 month emergency stash, saving for a vacation, an eventual replacement car, etc. Everything is where is should be, all our ducks are in a row. Except! We have $25,000 just sitting in an account not earning any interest. When the market started to tank a few years ago we pulled it out and now much, much later the money is still just sitting there. Any advice?
- Nicole

If nothing else, that cash should be in an interest-bearing savings account instead of sitting there earning nothing. Even 1-2% interest is notable on $25,000 – that’s $250-500 a year.

If I were you, though, I’d take that cash and throw it straight towards your various goals, starting with the emergency fund. Get that fully funded and suddenly you have the monthly funds you were putting into that free to put towards the other goals. You’ll reach all of them much more quickly.

You have goals. You’re moving towards them. That’s really the best situation anyone can be in.

My husband and I met in high school and ending up having a baby at sixteen. Since then everyday as been a struggle. I am currently 4 months pregnant and just started a new job as a Pharmacy Tech in August. I am currently making about $1,200 a month and my husband makes about the same. Our daughter is in private school due to the state of public schools in our area, and that costs $550 a month. We live with my mother in law so we don’t have any household bills except food and cell phones. We are trying to buy a house before January. My husband has no debt but I have $15,000 worth of student loans and various medical bills. With my first check I paid about half of my medical bills off and have about $500 left in those types of bills.

I really need help deciding whether buying a house is a good idea before paying off my student loans. We haven’t been pre-approved for a loan yet but are trying to buy a house for around $80,000.
- Donna

With a child coming and a roof over your head for the immediate and indefinite future, I would recommend that your focus be on maximizing your monthly cash flow. That means, rather than taking on the additional bills that a house would give you, pay off that student loans and the other bills first and make sure you can cover whatever the costs will be associated with the baby on the way.

The best thing you can do is to sit down with your mother-in-law and sincerely thank her for helping you guys out. Without her help, you would be in a very deep pickle right now. Talk through the options with her and make sure that she is okay with you staying a bit longer.

If she is, then focus on getting your current debts out of the way and getting your baby delivered safe and sound without any additional debts – and also make sure that you have post-birth work lined up and start saving for a down payment. At that point, you should focus on finding a home.

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.

Recently, a good friend of mine convinced me to sign up for HealthMonth, a website that aims to turn the self-motivation needed to improve one’s health into a fun game (you can see my HealthMonth profile and goals). It works quite simply: you set certain goals for yourself throughout the month – “I will floss every day” or “I will drink eight glasses of water a day” or “I will walk at least three miles four times a week” – and are rewarded with points and other in-game bonuses.

It’s all just a “fun” veneer over a great concept: setting small micro-goals for yourself and achieving them. Each day that I participate, I have a small set of micro-goals to achieve.

In the game, the “reward” for achieving those micro-goals is points, fruit, and other game-related goodies. In the end, though, the real motivation and reward for achieving those micro-goals comes from inside the player – in this case, me. Unless I personally want to achieve these micro-goals, I won’t be achieving them.

So what’s the point of the “game” in the first place? To put it simply, it’s a self-motivation aid and record keeper. It harkens back to Jerry Seinfeld’s brilliant “chain” concept for self motivation that I wrote about a few years ago:

He told me to get a big wall calendar that has a whole year on one page and hang it on a prominent wall. The next step was to get a big red magic marker.

He said for each day that I do my task of writing, I get to put a big red X over that day. “After a few days you’ll have a chain. Just keep at it and the chain will grow longer every day. You’ll like seeing that chain, especially when you get a few weeks under your belt. Your only job next is to not break the chain.”

“Don’t break the chain.” He said again for emphasis.

As I stated later in the post:

Basically, once you start accomplishing a task every day, if you create an obvious visual reminder of that continued success, you’re going to want to keep going. Seinfeld applied this philosophy to writing comedic pieces, but you can directly apply it to anything in your life, from weight loss to reading to, well, personal finance!

HealthMonth, in the end, is simply an embodiment of this idea. Once you’re playing that game and earning rewards, you’re going to want to keep going.

The basic purpose of all of this is simply to establish a new routine in your life. If you successfully achieve a microgoal enough times in a row, it simply becomes a natural part of your life routine. If the chain is long enough, the chain becomes normal and your day feels awkward without it. I’ve certainly reached that point with my daily writing – if I don’t do it for a day, I miss it.

Of course, you really can achieve this same basic “chain” or “HealthMonth” idea at home, no matter what your goal is. Just identify a single microgoal that you want to achieve every day for the next month. Is it walking two miles? Is it eating four pieces of fresh fruit? Maybe it’s something directly money related, like spending fifteen minutes on a one-time project (like air-sealing your home) that increases your home’s energy efficiency.

Whatever it is, I challenge you to do it each day during the month of October.

It’s easy to track your progress, too. Just print yourself off a calendar for the next month. Hang it somewhere where you’ll see it multiple times each day. At the top of it, write your daily goal in big letters.

On the first, make an effort to achieve that micro-goal, then put a big fat X over the calendar square representing the first of the month. Repeat it on the second, and then on the third. You’ll have yourself a string of Xs – and a sense of accomplishing something. You won’t want to break that string of Xs, so you’ll keep doing it. See if you can fill up the whole month. Maybe you’ll print out a November calendar, too, and keep going with it.

Every month can be the month where you start changing a behavior. Just print out a calendar, start crossing off the dates, and soon you’ll have established a powerful, positive new routine in your life.

A cousin of mine that I care for very much is coming to visit for several days next week, with her two sons in tow. She’s someone that I cherished when I was younger, but over the last fifteen years or so, we simply were out of touch with one another. Over the last few years, we’ve been working on rebuilding that relationship, to the point that she’s as important to me as anyone in my life short of my immediate family and a few very close friends.

Anyway, she’s visiting my home for the first time and I feel deeply nervous about it. It’s been resting on my mind a lot lately. I am very eager for her to come, but I can’t help but feel like it won’t go as well as I have hoped.

Hey, look, Trent’s using The Simple Dollar to indirectly talk to his family and friends again!

The Strength of Weak Ties I used a little Twitter experiment to prove the value of weak ties in this article. (@ open forum)

Using Estate and Bankruptcy Sales as a Route to Success You can use the stuff you buy at estate and bankruptcy sales to fuel the growth of your small business. (@ open forum)

More on Debt and Hot Lovin’ This little story is about whether or not talking about your debt online will negatively impact you if people Google your name. I don’t think it makes any impact at all – if anything, I’d guess it to be a slight positive, as an employer will see you’ve positively overcome a life obstacle. (@ danielle liss)

What To Consider Before You Cancel Your Credit Cards I agree – I think people often cancel credit cards too quickly. However, the damage you do to your credit score isn’t enormous unless you’re in a precarious debt situation to begin with. (@ digerati life)

Setting Up a Financial System as a Couple It really is worthwhile to do this shortly after you’ve made the decision to be together for the long term. (@ frugal dad)

The Lost Art Of Balancing Your Checkbook The principles are still in play today with online banking; they’ve just changed quite a bit. (@ dough roller)

A few weeks ago, in the July 2010 issue of Bon Appétit, Andrew Knowlton succinctly summed up the way I feel about trusted and untrusted reviews:

If I’m curious as to whether a restaurant is worth trying out or not, I don’t consult sites like Yelp – I ask a friend. That way, I can hold the person accountable.

Accountable is the key word here. As time has gone on, I have come to value the accountability in a review or a recommendation very highly – and this has significantly altered how I make my purchasing decisions.

Why is accountability important? If there is no drawback to a person giving you misinformation and no benefit to them giving you good information, then that person is working strictly from their own agenda.

For example, take a restaurant review on a site like Yelp. If a competitor goes on the site and wants to trash that restaurant, they can toss up a poor review under an assumed name and no one is the wiser. There is no drawback to the competitor doing that – he doesn’t care about the reputation of the assumed name. There is no benefit in an honest review, either – there is only benefit in a negative review, which will drive customers away from the reviewed restaurant and (possibly) to the competitor’s restaurant.

On the other hand, if that person chose to use his or her actual name, there’s a lot more at stake. Honest reviews have the ability to help his business, while dishonest reviews can only hurt the business. The reviewer’s integrity is at stake here, and that integrity can be a help – or, if he chooses to post dishonest and biased material, it can hurt him, too.

Because of the accountability issue, reviews and recommendations behind a screen of anonymity have far less value than reviews and recommendations given by a real person with an identifiable track record.

Here’s how I decide which reviews and recommendations to trust, using the filter of accountability.

Personal friends The first place I look for recommendations is from friends, family, and other close acquaintances and associates. They have a vested interest in providing trustworthy information because they directly care about me and also know that my trust in them will drop if they provide bogus information.

Known reviewers Similarly, I tend to trust reviewers that I don’t personally know if they’re willing to put their true name out there and their career lies on the professional reputation of that name. Yes, that’s not 100% foolproof, but I know that people who do such a thing rely on their good name to find future work and thus there is a serious cost to them in providing bogus information. Consumer Reports comes to mind here, as do a big handful of the better blogs out there.

Major media sources I have some trust for major media reviewers, but that trust isn’t as strong as it is for independent reviewers with a reputation to uphold or personal friends. The reason is simply that many major media sources have agendas to promote and products from other branches of the media company to sell. Reviewers might be fully independent in what they write, or they might be told to “take it easy” on a bad product or “talk up” a mediocre-to-good product if it’s a product made by the company or an advertiser with the company. Thus, my trust in such reviews is lower.

An example of the distinction between “independent reviewer” and a major media source: I tend to trust movie reviews by Roger Ebert more than I do reviews by CNN’s website. For one, Ebert has a long reputation of great reviews and because of his reviews (and his efforts in building a reputation), he is fairly independent of bias. He has much more to lose by shilling for a bad film than he could gain in the payoff. On the other hand, a nearly-anonymous review over at CNN has less to lose by an unfairly positive review (and more to gain) than Ebert. I might not agree with Ebert’s reviews, but I can rely much more on a sense that he’s giving me his true take on the film than I can rely on other sources. He’s built that reputation on years and years and years of solid reviews.

Data from the manufacturer What are the specifications of the item? What is the warranty like? The raw, true numbers from the manufacturer – not reviews or anything else – play a key part in deciding which item to buy. Yes, many items seem identical or very similar from this data, but such information can also help you quickly toss away items that don’t meet your needs, saving you time when you’re seeking other reviews or shopping around for the best price.

These guidelines for purchasing a product all have accountability in common. Without it, a review isn’t worth very much because you don’t know anything about the agenda of the person providing that review.

I’m going to make a little illustration about investments using the stock of Verizon (VZ) as an example.

On September 18, 2009, a share of stock in Verizon closed at 29.59. In the following months, Verizon issued four dividends of $0.475 per share. On September 24, 2010, a share of stock in Verizon closed at 32.64.

Let’s say, hypothetically, that we chose to invest $1,000 in Verizon on September 18, 2009, and chose to withdraw it on September 24, 2010. Our $1,000 would have bought 33.8 shares of Verizon stock. Over the course of the year, then, we would have received $64.22 in dividends. At the end of that year, we sell the stock for $1,103.23. Our total earnings on that investment would have been $64.22 in dividends and $103.23 in stock returns, right?

Not so fast.

First, the dividends would be subject to income tax. In this case, the dividends would appear to be qualified dividends, which means that they would be taxed at a rate of 15% by the federal government and possibly more by state and local sources. $9.63 of that dividend gain goes away.

Second, you’re going to have to pay your brokerage for the cost of buying the stock, as well as the cost of selling the stock. Let’s say, hypothetically, that you’re using E*Trade. The cost of the buy would be $9.99. The cost of the sell would be $9.99. That’s another $19.98 off the top – although that $19.98 is tax deductible.

Third, the gain on the sale would be a long tern capital gain, so 15% of that gain goes to the federal government. Your gain was $103.23, so you’d be paying $15.48 in taxes for that $103.23 gain.

All in all, your expenses for your gain add up to $45.09. Just like that, 25% of your gain is gone.

Even if your investment is a loser, you still lose more. Let’s say that over that same timeframe, VZ went from a starting price of 32.64 to a closing price of 29.59. You’re still out the $19.98 in brokerage fees (it’s tax-deductible, though). However, you only buy 30.64 shares of stock. You only earn $58.21 in dividends and you lose $93.36 on your investment, a net capital loss of $35.15. Add that to your $19.98 in brokerage fees and you’re down $55.13 on that investment.

What’s the point of this story? Investing has costs. You’re taxed if you gain anything and you’re getting hit with brokerage fees whether you win or you lose.

Some forms of investing have lower costs than others. If you invest directly with an investing house like Vanguard, for example, you can essentially invest without fees, meaning you only have to deal with the taxes on your gains. However, you’re limited to the offerings that Vanguard has available, plus there are often stiff minimums for investing.

You could also simply invest in the money market account at your local bank. There are no costs there, either, and your balance isn’t at risk; however, your returns will be low.

The bigger your investment, the smaller the impact such costs have on you. At the $1,000 level, the investment fees described above eat up about 2% of your balance. If you’re investing $10,000, the fees eat up only 0.2% of your balance. If you’re investing $100,000, the fees eat up only 0.02% of your balance.

Thus, for beginning investors, it’s absolutely vital that you know the total cost of ownership of an investment before you even consider it. Because even a small fee can really hammer your total return, such fees are very important to the beginning small investor.

That’s why my advice to beginning investors is this: invest your money in a savings account to start with and spend some time learning first. Know exactly what you’re going to invest in – and what all of the costs of that investment are – before you put your money in. Set up an automatic savings plan that keeps building the balance of that investing savings account so that when you do decide to make your move, you have a solid amount of money to make your first move.

Yes, you might “lose” some gains by only having the cash in a savings account. However, if it’s in a savings account, it’s not at risk of a loss, you’re not paying fees, and it is earning you a return. If you invest elsewhere without studying up, the fees and the taxes can easily eat up a big chunk of whatever you gain – and make a loss more painful than it already is.

Start slow. Don’t subject your money to fees or put it at risk without knowledge. Learn as much as you can and don’t make a move until you know the costs and feel confident about it.

How do you start learning? I suggest starting with The Bogleheads’ Guide to Investing. Read it slowly. Read it again. Move on from there by digging into some of the recommended titles. Keep going until you feel confident and comfortable with investing, then move forward. You’re better off taking it slow and making good moves from the start than flailing about and losing a bunch of your money to fees and taxes.

This isn’t a blockbuster post, just a simple story that illustrates how frugality runs through many aspects of our life.

When I was young, my father always had a giant garden. One vegetable that he always grew every year was cucumbers. They always seemed very easy to grow compared to the other vegetables in the garden – they practically grew themselves if you gave them plenty of water and sunshine. Plus, we often ate the cucumbers in various ways as they came to harvest.

Flash forward to my current home, where we’ve had a garden each year. Cucumbers have always been a staple in our garden, but in previous years, we’ve had a much wider variety of vegetables and the cucumbers have been relegated to a small spot.

This year, though, the birth of our third child coincided with the key part of planting season, which meant that we focused heavily on the “easy” things in the garden this year. The cucumbers, unsurprisingly, were part of this, so we planted quite a few more cucumber plants than normal.

Of course, they produced like mad, giving us tons of cucumbers to use. We’ve used them in lots of ways, such as salad toppings and side dishes.

However, our favorite use of them is what we call our “refrigerator dills”:

We simply have had plenty of fresh pickles in August and September this year thanks to those easy-to-grow cucumber vines, and the jar depicted above shows one of our recent batches where we used a package of pickling spices. However, our usual recipe is even simpler than that.

All you do is slice up two or three small cucumbers and put them into whatever lidded jar you have available. Put some dill seed and a bit of minced garlic in there, too (a teaspoon or two of each). Then, in a saucepan, boil together 1/2 cup vinegar, 2 cups of water, and 1/2 tablespoon of salt (get it to boiling for about a minute or so). Pour this mix over the cucumbers until the jar is full, put it in the fridge without a lid for a few hours, then put a lid on top of it. That’s all – just wait a few days and you’ll have tremendous pickles.

This saves us money in a lot of ways.

First, this jar of pickles is fresher, better tasting, and far less expensive than a jar of pickles from the store. The cost of half of a cup of vinegar, half of a tablespoon of salt, and a tiny bit of minced garlic and dill adds up to a few pennies. A jar of good pickles at the store is a few dollars (at least). Our homemade pickles are far fresher and taste better, too.

Second, we’re able to effectively use something we have an abundance of – cucumbers. Rather than letting them go to waste, we’re simply finding different uses for them. Cucumbers are just the start – we look for other uses for virtually everything in our home.

Third, because we now have a lot of pickles, we consume them instead of other options. We serve them with sandwiches, with chili, and often as an afternoon snack. Our children often take queues from their parents’ eating behaviors, so if we eat and enjoy particular foods (and don’t give them other options), they’ll eat and enjoy them, too.

It also teaches our children a lot about living frugally. They’re a part of this, too – they’re out in the garden with us, they watch us making the pickles in the kitchen, and they enjoy the product of the process, too.

Frugality isn’t something you flip on like a switch, then flip off when you want to be a big spender. It’s how you approach life, from the little things to the big.

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. Future self and children
2. Blog as passive income
3. Transitioning to self-employment
4. 401(k) rollover worries
5. Repair or replace a car
6. Preserving books while taking notes
7. Preparing for fasting
8. Housing wants versus needs
9. Investing crossroads
10. Which mortgage comes first?

This past weekend, my daughter was terribly sick. On Saturday evening, we followed the recommendation of the nurse and took her to the hospital, where they gave her IV liquids due to dehydration and started her on some anti-nausea medication.

The painful part was her complete lack of energy. She’s usually our most rambunctious and energetic child, so to watch her lay there and not even want to move a little bit was heartbreaking.

Thankfully, she seems to be doing somewhat better this morning, but it made for a very long weekend.

We live in California, which is expensive. We want to stay here to be near family, but we moved to an area that is not metro so that we can afford to buy. Our home is modest & our payment (plus an additional $165/month extra onto the payment) is about $350 less than when we were renting in Orange County. However, where we live makes our job schedules rather strange. It works well for us as childless adults (& we really like the flexible lifestyle), but if we added older children to our home it would become unmanageable.

So, is having a child worth having to mortgage our future selves? I recognize that this in its entirety is too long & much more complicated than what you would want to address in a post, but i thought you might want to do a post on future self/children.
- Kat

I really can’t answer that question for you. For some people, the answer is categorically “yes,” while for others the answer is categorically “no.”

To me, the biggest factor is whether you want to be parents. When you think of things like staying up all night with a sick child, does that fill you with a sense of caring and at least a moderately positive feeling, or does it fill you with dread? Are you financially ready to handle the constant flow of expenses that comes from a child – clothes, food, toys, and so on? Do you (or can you) have the time to be actively involved in their lives, from their education to their emotional needs? Do you want to give up that time that you currently give to other endeavors – friendships, social engagements, personal hobbies, etc.?

If you’re absolutely positive that you want to be parents, you should be adopting now and not later. The longer you wait, the harder it will be for you to be there for them as they approach adulthood. Already, you’ll be nearing retirement age as they finish high school and will be on the cusp of it if they graduate college directly after high school.

How have you managed to turn your blog into a source of passive income?
- Katie

For me, blogging is mostly a source of active income. I have to actively write the articles that you see each day – that requires a constant work input.

However, there are many regards with which blogging is a passive income. The “downloadables” – 31 Days to Fix Your Finances, The One Hour Project, Twenty Great Ideas, and Building a Better Blog – earn a (very) small amount of revenue. My in-print books – The Simple Dollar and 365 Ways to Live Cheap – also are a passive income stream, via royalties.

My best passive income stream, though, is probably my blog archives. All of the posts I’ve written in the past are indexed in Google and show up as fairly trusted results for Google searches. People visit posts buried deep in the site’s archives all the time, picking up ideas and advice from articles I’ve long ago written. The revenue earned from ad views on those pages would surely qualify as passive income.

My story: I’ve been working in the hi-tech/entertainment sector for about 20 years. In that time I have moved up and down the corporate ladder, made pretty OK money and generally earned a decent middle class existence. My wife has been able to stay home and raise our 2 children, we have 2 cars (older models, but we’re the sort that run cars into the ground), a nice 4 bedroom suburban home and we can afford the occasional luxury. Other than our house we are debt free. It’s the American dream more or less, except that my life is out of line with my values and I NEED to make a change.

The difficulty I’m having though is seeing how to make that transition without jumping off a proverbial cliff. I am usually quite good at planning, but this large-scale transformation in our way of living seems hard for me to get my head around. The poor housing market makes me leery of making a move sooner than later. My current job does not necessarily have a long time-horizon, and I’m not certain that should this job fall out from under me sooner than I’d like, that I’d be able to get as lucky as I did this time around. My gut tells me I need to be working toward my freelance goals NOW, but time is not always easy to find, so it’s been slow going. All these combine into what becomes a rather tangled web of dependencies and “what-ifs” that seem to lead no where. I am in a rut and want to get out of it, but it seems that I can’t see beyond the rim of that rut.
- Marc

You should be spending every spare second you have right now looking for freelance work. Not later. Now.

If you have a strong resume and portfolio for your illustration and graphic design work, start looking for freelance opportunities. Start at sites like ELance and look for small projects you can do in your spare time to earn a bit of extra cash and also to really spruce up your resume with a lot of completed work.

Start hitting the contacts you have at media companies and ad companies, asking if there are freelance opportunities available. The key thing, really, is to build upon relationships you already have and cement them with early, excellent work so that your reputation begins to precede you.

Freelancing works best if it’s launched while you’ve got a 9-to-5 job elsewhere.

I recently was blessed with a job offer at an employer in my hometown that I have been trying to land a job with for the last three years. I am very excited to start but of course it brings up the whole what do I do with my 401k issue. What scares me isn’t so much the question of whether to roll it into my new employer’s plan or into an IRA, the thing that worries me the most is having my money out of the market for the time it takes for the check to be cut and then deposited into the new account. I am just afraid if I pull it out and the stocks are low and they have went up by the time I am able to get the money into a new plan that I am missing a huge opportunity. Is this something to be concerned with or am I worrying too much? If it helps my balance is around the $35k mark.
- Anthony

The solution here is simple: contact the investment house where you want to set up the IRA and discuss the matter with them. Ask if they can help you facilitate the fastest rollover possible so that you’re not missing a potential market uptick while the transfer is happening.

Remember, though, that the market is effectively random on a day-over-day basis. It’s guided by so many pieces of information unknown to you that it amounts to randomness. You might just as easily make that move on a day when the market does nothing (no effect) or when it drops 1% (a great effect – for you).

I wouldn’t sweat this too much, in other words.

I’ve recently graduated university, and (thankfully) found a job pretty quickly. My problem is that I have a 10 year old car, that needs about £1000 spending on it for it to pass its MOT.

My question is, should I get a newer car on finance (0% if available) now, or fix my current car and get a new one in a year or so?
- Michael

Fix your current car. Having a car that is capable of passing the MOT (the Ministry of Transport test, for those unaware, which decrees whether a car is road-worthy or not) increases the value of that car as compared to one that does not.

It also gives you a year with which to get rid of those debts and to start saving for a replacement car, so I would spend the next year focusing financially on that.

My opinion generally is that if you don’t have the cash to buy a replacement car, you should keep driving your current car until it falls apart under you. My impression is that your car isn’t at that point yet.

I’ve been reading a lot of books, many from PaperBackSwap (thank you for the recommendation) and I know that one of the things to do when reading a book to get the most out of it is to mark it up, using highlighters, shorthand, adding your own notes in the margins, etc.. But if I’m going to put the book back on the PBS market, or if it’s from the library, those kind of things are not allowed. I know you read a lot of books from PBS and the library and write a weekly book review so I was wondering if you could give us an in depth look at how you read and take notes on books and still are able to not mark them up.
- MJ

I simply assume that any book copies that I’m going to hand-annotate are mine for the long haul. Thus, I save such hand-annotation for books that I am getting a great deal out of.

What about the other books? I keep a notebook for such book notes and copy out key passages, personal thoughts on the book, and other such material. That way, I can easily trade away the book if I feel it doesn’t have any additional value for me.

Remember, when you highlight, you’re assuming that the book has enough value that you’re going to be returning to it to absorb the passages you’ve highlighted. I simply suggest holding off on highlighting and annotating directly in the book until you’re sure that the book holds significant value for you.

In our culture, we have one month that is special, because people on this month fast for religious purposes. The problem is that the price of food increases about 30 ~ 50%. What should I do ?
- Rahman

There are a lot of solutions to this problem. Here are three that immediately come to mind.

If this fasting month occurs during a growing season, plan ahead by planting a garden timed such that the vegetables will be available to you during the fasting month.

Buy as many dried foods in advance as you can, such as dried beans, dried rice, and so forth. Similarly, buy any meats that you can well in advance and freeze them. These can provide the backbone of most of your meals.

Find a vegetable co-op that you can join that has controlled prices throughout the year. Get on a routine of using these vegetables in your diet both during the fasting month and outside of it.

you may not remember me from three years ago, but I was broke, jobless, my car died, and in debt. I made a plan, got a job, got a car and a payment, ultimately declared bankruptcy (but not on my car payment) and started fresh. It took a long time to get to that place and I am working hard to re-establish credit and keep my new healthy money habits going. Now I am in a different sort of predicament–a much more positive one.

What’s your take?
- Amity

Do you need “more house” or do you merely want it? Are there tangible ways in which your current living situation does not meet your needs – or is a bigger residence merely a desire for “more” (and “more” is never something that can really be sated)?

This is something we really struggled with for a long time. We looked for a house while my wife was pregnant with our first child, believing that our apartment could never handle that life change. Eventually, our financial situation forced us to stay in that apartment – and we did just fine. We didn’t move until we were on the cusp of a second child.

Do you really need to move? Will it save you money compared to your current arrangement? Does it offer you benefits that are worth that extra cost? If you can’t answer those questions clearly, stay put and keep saving.

I am 37 years old, have two children ages 12 & 8, and I am recently widowed. The fog has just begun to lift, and I am trying to look to the future for my finances. I am fortunate that my husband and I were in good financial shape and that he was well-insured. However, I am concerned that with only one income and two children to raise that I be a good steward of the money my husband left for us. I want to be able to help my children through college, retire in 20 years or so, and live comfortably, but not extravagantly.

Do I start adding to one of the IRAs again (the Roth would be my preference)? Should I begin adding to my children’s 529s regularly? (I added $5,000 to each this year, so from what I’ve read I may not be able to add anymore until next year?) What should I do with the extra money in the money market account? How much should I leave in it? Any advice at all would be appreciated.
- BH

The money market account would be your emergency fund. Since you’re a single parent, I would keep six to nine months’ worth of living expenses in that money market account and move the rest elsewhere. Use that money market for emergencies only.

As for the bigger expenses that you can’t handle each month, I would either just start keeping that monthly extra in my checking account or open a different account for that purpose.

What about the rest of the money market account? I would sit down and figure out some goals. What do you want to use that money for? Are you going to travel with your children while they’re young? (If so, keep it in cash.) Are you going to pay for their college with it? (If so, fund their 529s like crazy.) Are you going to use it for retirement? (If so, stock your Roth IRA as much as you can and invest the rest.)

If you do choose to invest it, I would open an account at a brokerage and put all of it into a low cost index fund that indexes the entire stock market. I recommend Vanguard, simply because that’s the brokerage I use.

My reader question is about prepaying our mortgages. Here is our current financial situation:

Which mortgage should we focus on prepaying first? We could obviously pay off the rental much sooner, but I don’t know about all of the tax implications of the rental income and expenses. Psychologically, it appeals to me to get this payment out of the way, but I don’t think it makes sense financially. Any input you or your readers might have would be appreciated.
- Sarah

It’s hard to say what the full picture is of the rental expenses and taxes because I don’t know what states or municipalities you’re living in or the home is in or the condition of the home or other such factors. All I know about are the two mortgages.

Given what I do know from this message, I would focus on the 4.5% mortgage, simply because it has a higher interest rate and because the impact on your life due to foreclosure would be much greater on the house you live in versus the house you’re renting out.

I think you’re in a very solid financial place, however, and either one you choose will work out well for you.

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.