When I was in college, I did a great deal of religious exploration. I attended services for tons of different religions, trying to understand all of the varieties of religious experience out there and to simply see what worked for me.

While I never really came up with any conclusions about my own faith, one thing I did notice is that the most powerful parts of any service were the ones where camaraderie was at the forefront. When people stood up and sang together, when people embraced each other, when people said a common prayer in unison – those were the moments that came across as powerful to me and stayed with me later on. Those moments gave a unique sense of not being alone in all of this.

Community is powerful. It’s a very powerful thing to find people who believe similar things as you do, who strive to make you feel better about yourself, and who accept you into their community. It feels good and it often reinforces whatever messages are being shared throughout the community.

Which brings me back to Dave Ramsey.

I’m using Dave Ramsey here as a proxy for lots of different personal finance speakers, but his offerings are perhaps the easiest ones to show what I’m talking about.

For those of you unaware, Dave Ramsey’s company, the Lampo Group, produces a series of courses called Financial Peace University. These courses are hosted locally, often at churches, and typically consist of a series of thirteen weekly classes.

In those classes, you find a group of people who share a common problem: financial troubles, usually debt related. The classes themselves focus heavily on discussion situations, where people talk about and share their problems and look for solutions to those problems.

What’s happening here? The same thing that’s happening in the church service. A community – a group of people congregated around a common trait – is helping the members to thrive.

For those of you who have taken Financial Peace University, I’m going to throw out a suggestion, one that matches the experience of a lot of readers who emailed me. The materials were useful, but the real value of that class was the other people and the realization that you’re not alone in struggling with your finances. Not only did you find you weren’t alone in the problems, you also found that you’re not alone in the solutions.

A big part of the reason that so many people find Financial Peace University so empowering – and the same goes for a lot of financial material – isn’t the great material being presented. You can find that material all over the place.

The reason it’s powerful is the other people, the sense of community, the same exact thing that I admired most about the religious services I attended.

The Lampo Group makes a pretty penny facilitating these courses, and it certainly costs people to participate in them.

I argue that you can find that same sense of community and shared purpose in your own life if you let go of your fear of communication with others.

Instead of signing up for a course like that and writing a check that you can’t really afford, find your own group – and start with the people in your own life.

Get those people together and start a “book club” on pretty much any personal finance book out there. You could use Your Money or Your Life or my book or anything else that trips your trigger. You could use any online series on any blog you wish.

The truth of the matter is that a lot of the material you find in those sources is going to be pretty similar to other sources. Pay off your debts in an orderly fashion. Spend less than you earn. Get a grip on your spending. Figure out your spending weak spots and address them. Start setting written goals for yourself. Don’t sweat the source too much.

Instead, focus on the power of community.

Right now, look through your list of friends and family. Look far and wide for any of them that might be having some financial trouble in their lives – or for those who might have some financial answers of use to you. Write to them with a little bit of confession, describing a bit of where you’re at and what you’re seeking, and simply say, “You know, maybe we could work through this together and put us all on a better path.”

That’s the initial hump, and it feels like a mighty big one. A lot of people, from what I’ve seen, attend paid groups and seminars like Financial Peace University in order to avoid that hump. They want that community, that sense of being in this together, and they’ll pay for it.

In the end, though, are you afraid of these people in your life?

It takes a little bit of risk to open that door, but that risk pays dividends in forming a much deeper bond with them. It can also help you get your financial life on track – and you don’t have to drop three figures of your hard-earned money on a financial course, either.

I started The Simple Dollar because I realized that I just wasn’t afraid any more to admit to others that, yes, I was (and in many ways, still am) a financial half-wit. The result of that wasn’t that family members and friends made fun of me or looked down upon me. Instead, what happened is that they now felt comfortable talking with me about it, and our bonds deepened.

You can open that same door in your own life. All it takes is a bit of swallowing of pride.

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 (September 12 – September 18, 2009)
Addition by Subtraction: The Benefits of a “Fall Cleaning” I absolutely love big cleaning projects where we get rid of collected stuff that we just don’t really need. I don’t do it often enough.

The Sleeping Fox Catches No Poultry You’ve got to be alert and aware of what’s going on around you if you really want to succeed financially. Blinders don’t really work outside of very specific, narrow tasks.

Nostalgia The happiness of the past is a very powerful emotional tool, one that marketers are absolutely unafraid to manipulate as much as they can. Don’t let ‘em.

A Beginner’s Guide to The Simple Dollar This post outlines some of the elements of what makes up The Simple Dollar and how it works.

Frugality as a “Spending Transfer” This is exactly how I’ve come to view frugality. When you cut back spending in one area that you don’t care about very much, you’re transferring that spending to another area that you do care about.

Two Years Ago (September 12 – September 18, 2008)
Using TreasuryDirect for Conservative Investing TreasuryDirect is a great resource. Now, if we could only roll back such investments to their 1982 rates…

Friends and Goals I am an enormous believer in the power of friends and family to help you achieve goals. In fact, it’s something I’m going to touch on again this afternoon.

What a Frugality Expert Is – And Why I’m Not One I don’t want to be an “expert.” I’d rather just be a real person.

If You’re Not Using It, Get Rid of It: Ten Ways to Declutter and Put Cash in Your Pocket I’m constantly looking for ways to cut down on my possession count. The best part? Quite often, cutting down on your possession count results in money in the pocket.

Eight Tactics for Handling Greeting Card Occasions I really don’t like pre-written cards from Hallmark. I’d far rather see a handwritten note with a personal sentiment, even if the words aren’t perfect (in fact, it’s better if the words aren’t perfect, but real).

Three Years Ago (September 12 – September 18, 2007)
Patience Personal finance success doesn’t come overnight. It comes with time, and to make it there requires patience.

Teaching Yourself To Cook At Home: Ten Tips From My Kitchen To Yours It’s really not too hard to teach yourself how to prepare food at home. Once upon a time, I would completely mangle scrambled eggs, for example, but today I can pull off a good eggs benedict.

Your Stuff And You: Figuring Out What You Really Value – And Eliminating The Rest So much of personal finance is about self-discipline and cultivating a deep understanding of what you really value, much deeper than the marketing that’s out there.

There Are Two Guaranteed Ways To Improve Your Financial Situation … But Which Is Better? I think the question really boils down to short-term or long-term. If you’re looking for an immediate improvement, frugality wins. If you’re looking for a bigger return but are fine with more time until you see returns, improving your income is the best way to go.

What Should Your Net Worth Be? Why “The Millionaire Next Door” Equation Falls Short – And What A Better Thumbnail Calculation Might Look Like The biggest thing I didn’t like in the otherwise-excellent book “The Millionaire Next Door” was their net worth calculation. It’s absolutely absurd for anyone under 30 – and pretty dodgy for people in their thirties, too. Here, I propose some alternatives.

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.

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

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

3. Become a fan of The Simple Dollar on Facebook. I put up questions and other materials about once every week or two on Facebook (so you won’t be flooded with Simple Dollar updates). Join in the conversation with other Simple Dollar fans and occasionally get some interesting freebies, too.

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

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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For the last few years, one of the most prized possessions in our pantry has been a gigantic bottle of imported Mexican vanilla extract.

It’s not that imitation stuff that you get on sale at the store, with weak vanilla flavor and added sweetener. This stuff is pure unsweetened vanilla extract. It makes pies and cookies and homemade ice cream and sweetbreads and cakes and countless other things we make at home sublime.

A month or so ago, I noticed that our big bottle was finally running low. We decided to stop by an ethnic grocery to look for some replacement, but just as that conversation was happening in our home, our old friend Carrie posted about her experience making homemade vanilla extract.

It turns out that it’s pretty simple. Get some decent vodka (not the cheap stuff that often has impurities), some vanilla beans, slice open the vanilla beans, and toss them in the vodka bottles. Store, shake about once a week, and in a few months, you’ll have amazing homemade vanilla extract.

Even better, if you can find some small bottles, you can easily give this homemade extract away as gifts to your friends who bake things in their own kitchen.

So that’s exactly what we did.

After some hunting, I found a great bargain on 3 1.75 liter bottles of Smirnoff (since you need to use at least a mid-level vodka – you can also use rum, if you’d like). I paid $12 per 1.75 liters of it – about 7.4 cups. Considering that a cup of vanilla extract will last quite a while, we’ll be making a lot of extract.

The challenge, however, was finding the beans. Our local grocery store wanted $5 per bean pod for organic vanilla beans. Considering you’re supposed to use a few bean pods per cup of extract you want to make, that adds up fast, making this seem prohibitively expensive. Carrie found a better deal – she was able to pick them up for $0.79 a pop at her local co-op. Still, not inexpensive enough.

So I went online and checked out every website I could find about making homemade vanilla extract. After sending a few emails, multiple people suggested that I check out Vanilla Products USA, which sells vanilla beans on eBay and has a 100% buyer feedback rating.

I bought a pound of beans from them, shipped to me for $24.99. They threw an extra quarter pound of beans into the package for me.

What does a pound of vanilla bean pods look like?

A pound of these beans totaled about 160 pods, so we actually bought 200 pods for $24.99 – about 12 1/2 cents a pod.

So, our cost per cup of the raw ingredients for the extract is about $0.38 for three pods, plus $1.75 for the vodka, making a cup of this extract cost just a smidge over $2. Since a good extract is used only a teaspoon at a time, the cost per use of this extract is about four cents.

So what did we do?

Sarah and I took turns cutting the beans. We would take a bean, slice it lengthwise (as seen in the picture), and tear it into two halves. Then, we’d plunk both halves into the vodka bottle.

One (obvious, in retrospect) thing we discovered is that the beans add volume to the bottle. The solution is easy – pour off about a cup of the liquid before you begin adding beans, then fill up the bottle after you’re done adding the beans.

We added different amounts of beans to each bottle, just to experiment. Based on the materials I’ve read about vanilla extract, there won’t be an enormous strength difference between the bottles of extract.

Once we have our beans in the bottles, we just seal ‘em, shake ‘em vigorously for a minute or so, and then put them in a cool, dry place. After that, shake the bottle(s) once a week or so and you’ll have usable extract in a month, though most sites encourage at least two months of extraction and as many as six months is sometimes encouraged.

As you can see, the vanilla extraction has begun! The bottle on the left is after only an hour of extraction and you can already see the browning of the liquid.

What’s next? Each week, shake the bottle to keep the extract going. We marked it on the calendar, actually, to remind ourselves. When the extraction is done (we’re shooting for about December 15), pour out the extract and filter out the beans, the pods, and other particulate matter. A few coffee filters should do the trick wonderfully.

From there, you can put the extract back into the bottle or into other containers as per your desire.

For gift giving, we’re going to give the extract in small glass bottles with lids (we’re looking for ones that will hold a cup, or eight ounces). Since we know that we’re going to need these but we have time to search for them, so we can put our bargain-hunting skills to the test. At the end of the series, we’ll show you our final product (with some home-designed labels).

Next week, we’re going to talk about a homemade item that’s going to have a gigantic “WARNING! DANGEROUS!” label at the top of the post describing it.

A few weeks ago, my wife and I were chatting about some of the best Christmas gifts we’ve ever received.

Many great Christmas memories from childhood came up, as did some other great memories from various holidays since our marriage.

Yet, when we both began to list some of our favorite gifts received over the last several years, we found that many of the memorable gifts we received weren’t ones that were picked up at the local department store. They weren’t expensive ones, either.

In fact, a lot of the gifts that really stood out as thoughtful and memorable were homemade gifts.

Rachel is particularly good at these types of gifts, and so it’s unsurprising that several of the gifts we both mentioned were ones that came from her. As I’ve mentioned before, Rachel is a close friend who chose a career in social work and took on the incredible challenge of working with mentally handicapped individuals, doing what she can to enable them to enjoy the simple pleasures of everyday life and camaraderie with their peers. It’s incredibly challenging work, yet somehow she does it every day.

When it comes time for holidays, Rachel often makes handmade gifts for people, and it’s those handmade gifts that are memorable. She’s done all sorts of things over the years – I particularly remember some handmade journals made from homemade paper. Beautiful and one-of-a-kind.

Reflecting on that, Sarah and I asked ourselves, “Why don’t we make mostly handmade gifts for people this year?”

The reasons are many.

They’re often less expensive in terms of dollars and cents. Homemade gifts aren’t free – they always have a cost. However, when you compare the cost of a homemade item to the most similar item to it that can be purchased in a store or online, you can make many such items at home at a lower cost.

Instead, they pass along value in the form of time and care. More importantly, though, you get to choose everything about how you assemble the gift. Every ingredient, every visual element, every choice – it’s all up to you. A homemade gift allows you to pour some of your care for others directly into the item that you’re giving instead of just pulling it off the shelf at Target.

They’ll make for memorable gifts. Since homemade gifts are most assuredly not just something shipped to you from Amazon, they’re also going to be memorable. It’s easy to forget an item yanked off the shelf at Wal-Mart. It’s harder to forget a carefully-made homemade item with a custom, thoughtful label.

We might make some useful things for ourselves along the way. Many homemade gift ideas can also serve a purpose around your own home – after all, you’re making items that you consider worthy of giving to people you love, so shouldn’t you find them at least somewhat useful yourself?

We might learn some useful ideas and skills along the way. As we make homemade gifts, we’ll be picking up knowledge and skills along the way. Not only will this serve us in terms of knowing how to make the item, many individual pieces of knowledge and specific skills can find applications elsewhere.

So, this year, we’re going to try our hand at making a lot of homemade gifts… and we’re going to share these experiences and gift ideas with you.

Over the next several weeks (somewhere between eight and twelve, depending on what gift list we finally decide on), Friday afternoons will feature a post outlining a homemade gift we’ve made for the people we care about.

Some will be simple. Others will be complicated. At least one will seem a bit dangerous. Some will be very cheap. Others will have some additional cost to them. A few will seem awesome to you, and others will seem boring (I’m betting, though, that the boring/awesome divide will be different for different people). You might even decide to try some of them, both for yourself and for gifts.

I’m going to try to order the series so that the posts focusing on gifts that require the most lead time come first. If you decide to make a particular gift right after reading the post (even if it’s for yourself), you should always have enough time to get the materials and get the gift ready before Christmas.

At the end of the series, we’ll give you a peek at all of the items we’ve made for gifts for others. We have a lot of people to give small gifts to, from neighbors and teachers to friends and business associates. Plus, we’re going to bundle some of the items as gift baskets for people close to us (with a few little surprises for them that won’t be spoiled on the site).

Tune in this afternoon for the first in the series, a very simple homemade item that we’re practically as anxious to use ourselves as we are to give it to friends.

It seemed so incredibly simple. But it actually worked.

Last week, I visited a local bookstore. As I’ve mentioned many times, bookstores are one of my biggest weak spots. I can easily go into a bookstore and find myself picking up two or three interesting books before I’ve even really thought about it.

My usual line of defense against doing that is to simply limit my visits to bookstores. I’ve stopped going to the local bookstore with any degree of frequency and only visit them when I need a book on a specific topic, which is why I went there that day. (Are you ready for this? I was looking for a book about knitting.) However, that “reason” never seems to stop me from browsing the shelves, finding a book or two I “need” (meaning I don’t really need it), and buying it anyway.

Before I entered the store this time, though, I tried something different.

I sat in my car for a moment and focused on picturing myself walking out of the bookstore with only a book on knitting. I tried to imagine it in as much detail as I could, picturing the cover of the book and my otherwise empty hands, my pace out of the store, my sense of happiness in not buying anything extra that I didn’t need.

Then I stepped out of the car, went inside, and did just that.

The most interesting part is that I didn’t even consider buying anything extra while I was in there. Instead, I just had a strong, almost overwhelming sense that I was just going to pick up a knitting book, buy it, and walk out the door – and that’s exactly what I did.

Since then, I’ve been using outcome visioning with success (of varying degrees) in other aspects of life. I’ve visualized myself completing an article that seemed really challenging (it worked well). I’ve visualized myself cleaning out the garage (started with enthusiasm, but trailed off after kid distraction). I’ve visualized myself paying bills (worked very well). I’ve visualized myself cleaning out all of the basement closets (started well, got tired and went to bed).

What I’ve found is that, at least for me, outcome visioning works really well for small things – tasks that can be completed in two hours or less. If I use it on larger tasks than that – like ones that have to be broken down into multiple sessions – it can still work, but I usually need to envision the outcome again before I start up on a later session.

Another element that is useful for success at this is focusing on envisioning things that are easy to mentally picture. It’s hard to envision things like “being debt free” or “feeling good about myself.” Instead, focus on tangible things that lead to the outcome you want. Instead of focusing on “being debt free,” focus on specific acts of frugality that you’re not used to and let the outcome from that flow towards your goal. Instead of focusing on “feeling good about myself,” focus on an activity that will cause that good feeling – like exercise.

Also, never forget that visualization is a mental aid, not a substitute It doesn’t matter how bad you want it or how much you visualize it, you still have to pick up your feet and do it.

Give it a shot this week on something small that you know you’ll struggle with a bit, then move in full steam ahead. You’ll probaby be surprised how much it helps.

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. Costs of going to seminary
2. Is vehicle trade worth it?
3. Are we doing okay?
4. Roth IRA versus Roth 401(k)
5. Dealing with an overzealous client
6. Best “safe” option for money
7. Cash flow in big city
8. Wedding versus emergency fund
9. Habits for handling life instability
10. Frugal video gaming habits

One of the biggest challenges of parenting – at least for me – is teaching our children how to control their emotions. As adults, most of us are pretty good at controlling our waves of emotions – they might be really powerful inside of us, but we’ve trained ourselves to not let those emotions spill out.

Children – particularly young ones – haven’t learned that control yet, and sometimes (often when you least want it), that emotion spills out of them.

Our solution, thus far, has been to take them out of any social situations that they might be interfering with and placing them in a fairly isolated spot to get their emotions under control to the point where communication is fruitful, followed by a chat about handling our emotions and a minor punishment (usually removal of some minor thing they like in their daily routine).

Still, it’s no fun when such an emotional spill happens in public, requiring a parent to simply leave.

In pursuit of what I feel I’m called to do I’m planning to quit my job and attend seminary next fall. I’ll bring my family with me (I’m 29 and my wife is 27 and we have a three month old daughter). In the next year there are a ton of large and small decisions to be made. One of the biggest decisions will be what to do with our house. Here are some specifics, our house appraised about a year ago for $76,500 and I’m six years into a 30 year fixed loan @ 5.6% with a balance of $35,000. I believe we could find a nice house to live in for the 3-4 years of seminary for about $90,000. Keep in mind that in my denomination there is almost always a parsonage provided for the pastor. We’re going into seminary knowing that it will be a tight time for us financially. Tuition alone for a Masters of Divinity is close to $50,000 and that doesn’t include all the other associated costs. We have about $25,000 saved specifically for seminary with the hopes of saving more in the next year. I will also receive tuition assistance from my denomination and from the military. Needless to say we’re saving now and trying to be as good with our money as we can. I have a couple of scenarios regarding our house, although I’m open to other options.

So what do you think? How can we best make our money and our house work for us?
- Chip

Scenario #2 seems like the right choice to me.

Under Scenario #1, you’re still losing money each month even if you have a renter in the price range you’re hoping for. You’re still paying the mortgage and shelling out $700-$800 a month for rent while only taking in $500-600 more if you have a renter. That’s a net loss of $100-$300 a month, which most likely exceeds the equity you’re building each month in the mortgage. Overall, I don’t think this is a winning situation for getting ahead.

I vastly prefer the second scenario, because you’re probably not drastically altering how much you pay for housing each month, but you’re also building equity with each house payment and you have a property in the end in a high-value place.

I have a 2003 Toyota 4Runner 120,000 miles – I could trade in for $7000-$9000. It is paid off, and in pretty good condition, although it does need a $1500 repair in the next year. Should I trade in? I can find 2005 Toyota Camry’s with 50,000 miles or less (one with only 28,000 miles) for $12,000 or less. Do I fork over the $3000 (which we have saved)?

The whole reason for this is I would like to increase my mpg, and lessen gas costs. I am also worried about the 120,000 – I think my car will only get less valuable, and I do not want to take on a car payment – so I am right at the point where I could break even. I travel about 6,000 miles/year, and I am a stay at home mom of a 1 year old boy.
- Megan

This seems like the right move, provided you’re paying cash for the car.

I used fueleconomy.gov and found that the 2005 Toyota Camry averages 25 miles per gallon, while the 2003 Toyota 4Runner 2WD (I assumed that – the 4WD is worse) gets an average of 18 miles per gallon. Driving 6,000 miles per year, with gas at $2.75 a gallon, will save you $257 a year.

Another thing to consider is whether or not it lowers your insurance costs. I would contact your insurance company and simly get a quote on a 2005 Camry and see how it compares to your current ride (my guess is they’ll be somewhat comparable, but it’s worth checking). Also, many areas charge different vehicle registration rates for such different types of vehicles.

In the end, if both vehicles meet your needs for reliability and other such requirements, it really comes down to cost of ownership, and I’m pretty certain that a Camry, with such better gas mileage, will get you the best deal.

My husband and I feel we are on the road to a simple, yet comfortable, life financially. I am 20 and he is 23. Though we currently do not make a ton of money, I’d like some reassurance we are doing the “right things” with what we have earned thus far. We currently have no children and do not plan to for a couple of years. We are both in school on and off and are currently more than half through our degrees. Here are our stats:

The small remainder of his salary per month should be spend where? Is now the time to open up the IRA? Am I correct on the order I should be paying off what’s left of our debt? I feel like we are doing really great in comparison to whom we know in similar situations, am I wrong? The averages of net worth and such online feel like a hoax, and what I read in blog forums just doesn’t add up in comparison to average american statistics.
- Ashley

You’re making the right move in paying off the debts in order of interest rate, from highest to lowest. That’s the most efficient way to pay off one’s debts.

As to whether you should open an IRA or do something else with the remaining money each month, the answer changes depending on whether or not you each already have retirement plans. As young as you are, if you shoot for 10% of your gross income going into retirement, you’ll be doing well, and if you already have that much going in due to your workplace, you’re probably better served for your life by putting that money towards paying down the debts.

You’re doing very well for a couple at your age. The simple fact that you’re able to bank all of your salary means that you’ll be entering your thirties in a much better financial state than most people your age. Kudos.

My employer offers both traditional 401(k) and Roth 401(k) options. I’m 26 and participate in both, putting enough in my regular 401(k) to receive the full company match, while putting some additional post-tax money into the Roth 401(k). Lately, I’ve been wondering if I would be better served by starting a Roth IRA instead of funding the Roth 401(k). I understand that contributions to a Roth IRA can be withdrawn without penalty – are there any other benefits/costs I should consider when making this decision? I like the convenience of my employer’s Roth plan, but would be willing to set up the IRA on my own if the benefits are worth it.
- Jessie

The ability to withdraw one’s contributions is certainly an advantage of a Roth IRA – in some respects. On the flip side of that is that you’ve suddenly made your retirement savings pretty easy to access whenever you want without penalty, which makes it easy to just grab it and go.

In my eyes, the biggest advantage a Roth IRA has over a Roth 401(k) is the freedom you have to decide where exactly your money is invested. You’re able to choose your investing house and the specific investments held by the account.

At the same time, you should also be aware that there are income limitations to a Roth IRA (you can’t contribute if you’re above a certain income threshold, currently just a bit over $100K for singles) and there’s also a cap on how much you can contribute, one that’s much lower than the 401(k).

So which option is better? If you have a Roth 401(k) available to you and the investment choices are solid (meaning they’re not loaded with fees and earn competitive returns), I’d put my money there.

This article does a great job of outlining the differences between the two accounts.

Not to muddy the waters too much, but there are also some compelling arguments about how a traditional 401(k) is better than a Roth 401(k). While there are some good points there, I think they hang far too much on current tax rates remaining the same from now until retirement. Given the strong political resistance towards eliminating entitlements and government spending, plus the upcoming retirement of a lot of baby boomers (meaning they’ll be paying in a lot less income tax) and the current spending that far exceeds what the nation is bringing in, tax rates have nowhere to go but up (in my opinion), which swings favor to the Roth 401(k).

All such choices are speculative, though. The real key is making sure you’re actually saving as much as you can and making sure it’s in a low-cost retirement vehicle with good returns. If you’re doing that, you’re ahead of the game, no matter how the tax issues turn out in thirty years.

I recently quit my job and went back to school. I started my own business which so far has taken off so quick I can barely keep up. Before I decided to do this I was unsure on how much money I would make so I worked out a daycare solution with a sick neighbor. (she was recently diagnosed with Lupus and her digestive system is degenerating pretty quickly) The deal was I would watch her two kids while she attended doctor appointments and she would watch my one kid while I attended class. So far I have 3 classes and one is online. So two days a week I need care. My problem is that so far I have watched her kids every day for at least 5 hours a day. I had agreed to this knowing that I was watching two vs my one and being okay with that, but every day has become a strain. Now I have 3 kids in my house for at least 5 hours, 5 times a week and she has watched mine for 2 days for 4 hours. I have night classes. I know she is sick and cant help how many times she had a doctor appointment a week, but this is getting in the way of my homework for school, and new business. Yesterday I was up till 4am just catching up on math homework, and doing revisions to a menu I am designing. (my new business is Graphic Design just like the job I left) In the long run this is saving me valuable money, but i am so strained that I cant keep up. My ultimate question is, how do I tell her to back off a bit, or maybe find another person that she can also swap babysitting services with. If it goes on any longer I will need to go hire someone in place of swapping. Is there services for people like that. She does desperately need the care, but I can only help for part of it.
- Shauna

I think this is a time where candor will pay off.

Just stop over there for a visit and ask her about her medical situation. How is the treatment going? How often will your neighbor have to be visiting doctors in the future? Is five times a week the norm, or is it exceptional due to early stages of treatment?

If this kind of imbalance is a short-term thing, I’d just ride along with it for now. The load will lighten soon and you’ll have a very valuable arrangement on your hands.

If the large number of appointments are going to continue for a long time, ask her about a partial arrangement, where you watch her kids for a limited number of times a week.

If you really want to help your neighbor out, you might want to seek out a third person for your arrangement so that there’s another person to take on the children in this scheme and you have some extra time to excel at your classwork.

I’m a soon-to-be 22 year-old college senior with absolutely zero debt. My tuition and room & board is 100% paid for via grants and scholarships, and knowing that I’m super lucky to be in this situation, I want to take advantage of it if at all possible.

What should I do? All the graduate programs I’m looking at are around $15,000 total. With that in mind, I’ll be living with my dad during graduate school so I won’t have to worry about rent or groceries (though I will have an added car insurance payment of ~$600/yr.) and by nature, I’m not one to spend frivolously, if at all. I know that CD’s don’t have the greatest interest rates right now, but would it be worth it to make possibly a couple hundred bucks by opening a CD if there aren’t any other “safe” options?
- Jaime

You have almost exactly the cash in hand that you’ll need to pay for graduate school, in other words? You have $15,000 in hand and will owe $15,000.

That means you’ll need access to all of that money in 9-12 months, which means that your CD options are pretty limited. You’re more likely to earn a bit more from your money by just shopping for a high interest savings account than you would from a short-term CD right now, with the rates as depressed as they are.

I just wouldn’t buy any CDs right now, honestly. The rates are so low that you can nearly match short term CDs with savings rates and the long term ones that offer you just a bit more will likely be painful in a few years when rates rebound.

Keep your money in cash and look for a high interest savings account.

My wife, myself and our toddler live in the San Francisco Bay area, and purchased our house this past April for $870k, with 20% down, 30 year fixed @ 5.125%. When we went into this, we were both working, I was pulling down $122k base, and she $105k base. Our mortage on the house is $690k, with our only other debt being 2 car loans, totaling $34k. So our monthly outlay is $5000 mortgage + taxes & insurance, and about $1400 for car loans.

My initial thought is to pay off the car loans to improve our cash flow ($30k left), and stick the rest into our emergency fund. At that point, my single salary will be enough to get us by until my wife finds work again, which may become June 2011 at the earliest. Does this seem like the best way to move forward? Is there anything else I should be thinking about?
- Dan

First of all, I know previous mailbag readers have complained in the past about responding to people with high incomes. An important thing to consider here is how high such a family’s housing expenses are. They have an $870,000 home for which they paid 20% down, meaning they took out a $696,000 mortgage over 30 years at 5.125%. Boom – there’s a $3,800 monthly mortgage payment. As the note mentions, their total monthly outlay for housing is $5,000 a month just to keep owning the residence. That’s $60,000 a year right there, folks, gone in a flash. That is the cost of owning a home in a city like San Francisco, and renting really isn’t all that much cheaper for anything comparable. To put it simply, someone in that situation has the same challenges as someone earning $45-50K a year in the Des Moines, IA area.

Having said that, you absolutely should use those bonuses to improve your monthly cash flow by paying off the car loans. That would unquestionably be the first move. After that, an emergency fund is a very good idea for what’s left.

I would encourage your spouse to spend her free time when she’s not job hunting doing everything she can to reduce your monthly expenses or bringing in more income, even if it’s just a little. If you’ve never taken a lot of frugal steps before, the money saving will probably pay off more. Air seal that home of yours so you’re not losing heating or cooling with the outdoors. Put in a programmable thermostat and program it so that the heating or cooling shuts off at night. Put heavy curtains up in your lesser-used rooms and use them to block direct sunlight in the summer months and retain interior room warmth in the winter months. Become a master of the kitchen and take charge of home meal prep so you’re not eating out. There are countless things she can do that will reduce your shared monthly expenses – and those things produce a return for you guys, just like any employment outside the home.

My fiancé and I just bought a townhouse with 25% down. Our broker told us that we could get a lower rate by putting 25% down instead of 20%, so we did. That extra down payment was a stretch for me though, leaving me with $1000 in my emergency fund and $500 cash.

Is my pride making me foolish? Should I save for the wedding or for my emergency fund?
- Kat

You’re choosing to be married. That means that your financial futures are becoming a single financial future. Your expenses and his expenses are going to become our expenses.

Even if you keep your money separate, it doesn’t really work like that. The financial choices either one of you make will eventually help out or weigh on your spouse because of how it changes the money flow in your home.

Sit down today and start planning this stuff together, not as individuals splitting the cost of a wedding. You’re both going to be paying for this wedding, indirectly or otherwise. You’re both going to need an emergency fund. You’re both going to have the same housing expenses, the same electric bills, and the same internet bills. Start treating this wedding as the same thing.

What’s the best solution if you treat the two of you as a single person in terms of the money? That’s how you should start thinking about these things, because it’ll put you both in the best long-term state.

Good financial habits are easier if you’re life is stable – stable expenses, stable income, stable location so you can get to know the territory and find the deals. The details of my case don’t matter, because I suspect I’m not that unusual. Generally, I’ve been telling myself for years that once my life is stable (i.e. once I finish school and get a Real Job and settle down and so on), spending less than I earn and setting money aside for an emergency fund and savings will be easy … and so I don’t have to worry about that now since I’ll do it later, I can develop the skills later when it’s easy.

Personally, I find it really easy to just buy things that would be useful but aren’t necessary when I have money left over. I just won’t pay much attention to how much I spend on groceries because I don’t have a specific goal in mind and “as little as possible” leads to me feeling guilty about eating which is [messed] up in the first place and then I don’t eat enough until I go back to not paying much attention. (My grocery bill isn’t ridiculous and I rarely throw food out, but I am in a position where paying more attention to one of my main expenditures would be worthwhile.)
- Jessy

You’ve got the old variable income problem. It’s not even so much that variable expenses are the problem – everyone has them – but it’s variable income.

My suggestion – the one thing that’s worked for me – is to use a two account system.

Every single dime of income you make should be direct deposited into a savings account at a different bank than the one you normally use. It shouldn’t be very easy to access. Don’t allow yourself to have an ATM card for it or anything like that; in fact, consider having the bank in a fairly far-away town.

Next, set up an automated recurring deposit from this account to the account at your normal bank. This way, some amount is deposited into your checking account every week from this “hidden” savings account elsewhere. Make that amount small – an amount that ensures that your source account will never, ever run out. It should be an amount that equates with one of your lowest income months over the last year.

Now, live on that money in your main checking account. Let it guide the life choices you make. If that means you end up having to be roommates with someone in a tiny apartment in the city somewhere, so be it. That’s part of the equation for the lifestyle you’re choosing.

If you do this, then you can effectively budget your money each month. You’ve now got a steady income instead of an irregular one.

If, at a later date, you’re consistently earning a lot more, give yourself a “raise” and direct deposit a bit more each week.

My biggest money sink is video games. I don’t watch any television, but I’ll stay up playing games many nights a week with my friends online or at my apartment. I did the math and I realized that this is a really expensive hobby. I know you’re a gamer so I am wondering if you have any good ideas for how to cut the expenses. I have an Xbox 360 and a lot of games for it.
- Donnie

There are a lot of ways to reduce the cost of a video gaming hobby. I’ll comment on some of the stuff that I do.

First, I keep a close eye on video game deal websites, looking not so much for deals for games I want (though those are nice), but for deals I can exploit. This site is my favorite of such sites. I look for situations where I can acquire a popular game for really cheap, trade it for additional credit at a game trading shop, and hold onto that credit for the future games I actually want to play – usually an occasional new release that a bunch of my friends also are into playing (because video gaming is far more of a social hobby than it used to be).

I’m also not afraid of used games – in fact, the vast majority of my games are used. I constantly shop at and trade at used game stores, converting my old, played games into other games that I haven’t played. I’m in the “customer” club at two different local used game shops as well, which gets me 10% additional credit on trade-ins and 10% off any used games I buy or trade for.

So, instead of spending $60 on a new release at Target, I’ll go to a used game shop, trade in a used game I’ve played through for $10, get a $1 credit for being a regular customer, pick out another used game for $20, get $2 off for being a regular customer, and spend only $7 on an interesting new game.

My biggest advice? Simply get rid of the “cult of the new” mindset and play some of the classics available for your system. The biggest way to blow too much money on video games is to buy them the day they’re released. If you absolutely must do that, trade in your older games to take the edge off that blow.

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.

My friend Heidi recently sent me a link to a fascinating article over at Mark Vernon’s blog (a philosophy-focused blog) entitled AS Byatt, who we are, and maps again. One sentence really jumped out at me in the middle of the article, and I’ve been turning it over and over again in my head for a while.

It’s an insight that I keep noticing at the moment, the sense that our own lives are too small for us, and we need something more than ourselves to be ourselves.

“We need something more than ourselves to be ourselves.”

That’s a brilliant way of describing how I’ve felt quite often in my life.

When I was younger, I often felt that who I really was inside was not clear to the people around me, that my external appearance was somehow much less than who I actually was. My response to that was to spend. I took on what I called “Superman syndrome,” something I discussed in a 2008 post and revisited earlier this year.

I spent out of a sense that I was inadequate, at least in the eyes of others. Alone, who I was was not enough to please them, so I used material possessions as one crutch and over-the-top spending on others as a second crutch.

After a while, as I mentioned in my follow-up post, I began to realize that people saw through the bluster:

It took me a long time to realize that I often wasn’t fulfilled when I was alone – and that, underneath the bravado, the shiny things I owned, and my material generosity, others knew it, too. Their opinions of me weren’t made of the things I bought (for myself or for them), but from my personal character.

Realizing this, I began to really focus energy on not impressing other people – and it worked. Focusing my spending on myself rather than others made it possible for me to cut back greatly on my expenses – and it opened the door to this site.

In the ensuing years, I’ve still had that sense of needing more than myself to be myself, but in a different way. I’ve come to feel that every choice I make is some sort of compromise.

Let’s say, hypothetically, that it’s two in the afternoon. My son and daughter are standing at my office door saying, “Dad! Please come outside with us and play soccer!” At the same time, there’s a post in front of me that I’ve spent two hours researching and drafting, let along the additional thought I’ve put into it. I’m happy with the ideas and the flow of it (this has always been the important part to me), but it ought to have a grammar check before being posted – and it needs to go up this afternoon.

What do I do? Do I just go ahead, post the article, and go play soccer? Or do I tell the kids, “Sorry, not today, I’ve got to proofread this,” and turn back to my computer?

My usual choice is to just post the article and go outside with my children. My entire reason for choosing to work full time on The Simple Dollar was because of them, so that my work would never come in the way of spending time with them when they needed me. And, yes, an afternoon in the yard playing soccer is something that they need.

That choice, though, is a compromise. It’s a compromise in that it produces a post with grammatical errors in it, or a mis-pasted sentence somewhere. It means that by sometimes giving what energy and time I have to my children, I do not give that energy and time to you, the reader. That has a negative impact on the site as a whole and, over the long run, reduces my earning capacity.

I want to do both, but I am not capable of doing both.

“We need something more than ourselves to be ourselves” is what Vernon said in that post, and it rings true with every choice I make – and probably with every choice you make, too.

When I’m at the grocery store, I recognize that I have only so many dollars to spend there. I have to choose what goes into my cart, and each choice is a compromise. Do I buy this bag of goldfish crackers that my kids love? If I do, what am I not buying? Do I put back the salmon? Do I take the road that makes my kids smile in the short run – or do I spend my limited resources to expand their palate and put some omega 3s in their diet, even if they have a good chance of not liking the salmon? What’s the best use of that dollar?

How do I know what the right decision is?

“We need something more than ourselves to be ourselves.” Believing in that means I could just fall into the trap of busting out the plastic and buying both the salmon and the goldfish. Doing that, though, sacrifices other things in my life. More becomes less.

“We need something more than ourselves to be ourselves” feels like a rebuke of everyday choices. We can never be perfect. We’re always compromising something.

The only answer that I’ve found in my life is simply deciding what’s really important to you and following that, straight and true. Spend money on what’s important to you and cut back on everything else. Devote your time to the things that most matter and scale back on the other commitments. Use up your energy on what you value the most.

Guess what, my friends? There’s probably a grammatical error or a word I’ve used too often in this post. I did a quick check of it, but I can hear my children downstairs getting ready for their soccer game.

Personal finance success – or success in any avenue of life – isn’t about being all things to all people. It’s about being the important things to the truly important people. It’s about choosing your battles and focusing on winning those, rather than trying to fight every possible battle. It’s about accepting that you’re going to mess up sometimes, but recognizing that those situations are simply part of the equation and that the only route for improvement lies in the future. It’s about hoping and preparing for the best, making the best choices you can, and not looking back with regret.

I wouldn’t miss that soccer game for the world.

Are you ready? This truly is the financial secret “they” don’t want you to know about.

Ready? Here it is.

Spend. less. than. you. earn.

Of course, if it weren’t such a secret, no one would be drowning in debt and no one would be completely panicked if they lost their job.

How Do You Measure Delight? In other words, if you have the choice between a $5 version of an item and a $15 version of an item, what qualities does that $15 version have to have to get you to spend the extra $10 (aside from volume, naturally)? It really depends on what you value as a person – as well as how much you value $10. (@ jonathan fields)

More than You Think: The True Cost of a College Education in America This post covers a lot of the hidden costs of college, but I think it leaves out one big one: the lost income during the years spent getting an education. I have a friend who graduated roughly when I did and was making $45,000 a year as an electrician while I was in college. That’s certainly a cost. (@ five cent nickel)

Belief, Without Action, Is Dead I think the modern trick is figuring out what you genuinely believe. There’s such an abundance of information and misinformation out there that I think many people drown in it, directionless. That’s an article in itself, I think. (@ man vs. debt)

Relocating to Save Money on Housing This can certainly work, provided you can find work on the other side of the trip. (@ frugal dad)

Travel and Social Privilege If a person has the financial means to do something out of the ordinary, should they? Or should they be obligated to share those rewards with others? I don’t like any situation where one person tells someone else what they can do with the resources they’ve earned. That being said, I am in favor of a strong estate tax. (@ the art of non-conformity)