Sometimes, it’s really no surprise to me that so many people are uncomfortable when it comes to managing their finances. There are so many financial products out there, each with their own benefits and drawbacks and pitfalls, that it can be overwhelming even for me, someone who spends a lot of time following all of this stuff.

This brings us to annuities, which is yet another option that people have for retirement. Connie writes in with a question about them:

What exactly is an annuity? My mother and father in law are apparently retired and living mostly off of the proceeds of an annuity, but I don’t really understand how it works. They mentioned it the other day and I felt kind of dumb just nodding my head.

An annuity (in the United States) is an arrangement between two parties. One of them, usually an individual like yourself, pays some lump sum to a second party, usually an insurance company. After that, the insurance company gives regular payments to the individual for some period of time specified in the arrangement.

There are two general kinds of these agreements.

The first kind is the annuity with period certain, which is an annuity that specifies a certain period for the payments.

An example: you might give $100,000 to an insurance company for a 20 year annuity that starts on January 1, 2011 and ends on December 31, 2030. The agreement requires monthly payments from that annuity and guarantees 3% growth over the period of the annuity. That company would then issue you a payment each month for $554.60. At the end of the arrangement, you both just walk away from it.

The second kind is the life annuity and it tends to be the more common one when it comes to retirement savings. Usually, how this works is that you agree to pay some lump sum to a company and they promise to pay you a certain rate of return on that money each year for the rest of your life.

I’ll use the Smart Consumer Gift Annuity sold by Consumers Union (the publishers of Consumer Reports) as an example of such an annuity since it’s known by a lot of people. On their advertisement, they offer a little table that tells you the yearly rate of return you’ll get for the rest of your life at various ages.

At age 60, you’ll get a 5.2% return for the rest of your life. So, if you pay $100,000, they’ll pay you $5,200 a year for the rest of your life. At age 70, you’ll get a 5.8% return. At age 80, you’ll get a 7.2% return, and at age 90, you’ll get a 9.5% return.

Some life annuities offer extra tax benefits if they’re done in conjunction with a nonprofit organization, as with the above example (often, the initial payments are considered charitable contributions and are tax deductible). Many large charities and nonprofits run such programs.

So, let’s say you’re 60 years old and you’ve accumulated $1 million in lifetime savings. You’re a big believer in a certain charity and you want to help support them while also helping yourself in retirement. So, you sign up for a life annuity with them that pays a 5% rate of return. For the rest of your life, you get a $50,000 annual payment from them.

Are these a good investment? Such investments are a solid idea on paper, but they have one major risk: what happens if the organization you bought the annuity from goes under? Most likely, you’re out of luck. To put it simply, I would never buy an annuity without the backing of some very reputable organizations, especially if I were putting a great deal of my savings into that annuity.

They can also be a pretty big loser if you pass away early. If you buy a lifetime annuity for $1 million at age 60 and die at age 66, you’ve only received $300,000 back from that initial investment – the rest is gone and can’t be passed down to your children. Other investments retain their value for inheritance purposes.

Would I buy one? I would buy an annuity as part of my overall retirement strategy. I would preferably buy one associated with a charitable group I believed in, both for the tax advantages and for the support to that organization. I would not buy one as my entire retirement strategy, as that would expose me to more risk (the risk of the future of that organization that I purchased the annuity from) than I would like.

This is the fifth entry in a twenty part series discussing the wonderful time and priority management book Making It All Work by David Allen. New entries in this series will appear on Tuesday mornings and Friday mornings through December 10.

This chapter is where the meat of the book begins, in my opinion, this chapter and the ten that follow it make up the heart of the book. So let’s dig right in.

The Key Idea of the Whole Book
Allen defines two key elements that are central in building a successful life: control and perspective. Control refers to the ability of a person to stay on top of all of the things going on in their life, while perspective refers to the ability of a person to discern what things in life are actually important.

Allen defines five different elements that make up “control” and six different levels of “perspective.” In essence, he plays these off of each other in these eleven chapters – in five of the chapters, he looks at an element of control through the lens of each level of perspective; in the other six, he looks at a level of perspective through each element of control.

The five elements of control are:
Capturing (identifying the things you need to know in your life)
Clarifying (deciding what to do with the things you’ve captured)
Organizing (putting the things you’ve clarified in appropriate places)
Reflecting (keeping up with the products of your organization)
Engaging (in essence, doing stuff)

The six levels of perspective are:
Actions (the things you need to do today)
Projects (the things you’re actively pushing towards completion shortly)
Areas of Focus (the areas of your life you’re dealing with regularly)
Goals (the specific things in life you want to accomplish in a few years)
Vision (the general things you want to accomplish in the next decade)
Purpose/Principles (why are you here? what is your life purpose?)

Thus, the focus of this chapter is looking at capturing at the six levels of perspective.

What Is Capturing?
Allen explains it on page 78:

The first thing to do, when you are feeling in any way out of sorts, is to clear the air by grabbing hold of whatever is pulling on your focus. If there is a lack of clarity, it is necessary to identify anything that might be the source of that discord.

In other words, if it’s on your mind, write it down or record it somehow in a concrete way. You can jot it on paper, type it, write it on a whiteboard, or even talk into an audio recorder. [...] You can add it to a list, or write each item on a separate sheet of paper and collect them in your in-tray. It doesn’t matter how you capture these thoughts, as long as you get them out of your head and have them all in some way easily accessible for review.

I think the phrase “if it’s on your mind, write it down or record it somehow in a concrete way” is really the key part of this. If you’re thinking about it, write it down somewhere (we’ll worry about dealing with it later).

Why? If you do that, then that idea doesn’t need to be in your head, distracting you from whatever task you have at hand. You can focus much more deeply on whatever it is you’re working on and push yourself into a “zone” state much more easily.

Great! How do you get started? On page 79:

[Y]ou identify anything in life or work that you think might need to be different or considered for whatever reason and create at least a crude placeholder for it in one delimited location.

In other words, take out a fat pocket notebook and a pen. Sit down at a table and just start thinking about all of the stuff that’s on your mind that you need to accomplish or think about. Write down each item on a page of that notebook and flip to the next one. When you feel like you’ve run out of things, you’ve made a good start. Now, go through your entire house or place of work and collect things that need looked at – mail, papers, and other such things.

Allen spends a lot of this chapter evaluating how to capture things at various levels of perspective. For example, if you’re capturing projects, you might want to think about Christmas or about how to care for your elderly parents or getting that will written or getting your kids involved in winter basketball. If you’re capturing areas of focus, think about some of the larger things you’re trying to accomplish at work (getting promoted, maybe) or as a parent or as a volunteer worker. You also might want to think about your larger goals in life – where do you want to be in five years? In ten? Just write those goals down. The same is true for your overall mission in life, whatever that might be.

Journaling
You’re not going to do this all at once, of course. Capturing is something you can get a big jump on in one sitting, but ideas and thoughts are going to come to you gradually over time.

One powerful way to keep this going is to start journaling. Allen describes it on page 87:

A wonderful way to begin to experience an increase in control during this first phase of capturing is to journal. Often the incomplete energies and loose edges of our lives are manifested only when we are willing to drop back into a more reflective mode and take note of what seems to want to express itself only through a more stream-of-consciousness modality.

Over the years I have gravitated toward two types of journal writing for myself. One is a kind of ad hoc running diary of events to record various aspects of my current situation in my workaday world; the other is more inner and spiritually focused.

I have journaled almost constantly since 1991 (yes, 19 years’ worth). I’ve found that time and time again, my ideas for where I’m headed and what I need to do pop up when I’m journaling and simply reflecting on my past day, past week, etc. (Here’s an example of what I mean, from a 2005 entry.)

Almost every day, something comes to the forefront when I’m journaling. It might be an immediate task I need to do tomorrow (or even that evening). It might be a revelation about an ongoing project in my life. It might be a realization that I’m no longer interested in a particular life goal. Every day, almost without fail, something valuable like this happens because of the journaling.

You Don’t Have to Do Everything
A final note from this chapter: you don’t have to actually do everything that you capture. The goal is to simply get it out of your head so you can reflect on it externally. From page 93:

A TV sitcom writer told me that reading Getting Things Done had been a transformative experience for him, solely because it gave him the idea and motivation to do a total mind sweep. In only one sitting he captured every single thing ye could possibly churn up from his psyche that he thought he would, could, should, or might do. He swor that once he’d accomplished that, it was the first time in his life that he realized he didn’t have to do them all at once, that he could only do one thing at a time, and that he could actually permit himself to not do anything on that list if, in the moment, it wasn’t appropriate.

When you actually dump all of this out, you can begin to make some real comparative choices about what’s actually important in your life. It’s very hard within your own head to compare the importance of the fifty things going on in your head. Getting them down on paper and spending the time to think about each one and ask yourself it it really matters makes all the difference.

In fact, it was really this very process that made me realize how out of whack my life used to be. Most of the things I listed that I wanted to do involved my family and rarely cost money. Most of the things I listed that I had to do involved work and were so dominant that they gave the boot to the things involving my family. After enough repetitions, I began to wonder what I was working for – I was earning money for frivolous stuff that didn’t really matter to me, and to earn that money I had to abandon the things (parenting, being a good husband, community volunteer work, etc.) that really did matter to me.

In short, I realized I didn’t need all of that extra money and that more time with my family was well worth a pay cut. It was through capturing all of the ideas in my head and evaluating them that I came to this realization.

This chapter is loaded with many, many great ideas related to capturing all of the loose ends in your life – this post really does just scratch the surface.

I received an iPod Touch as a Christmas gift in 2008. Since then, I have used and absued the thing at a level perhaps beyond what Apple ever intended. I’ve used it as a constant pocket notebook. I’ve used it as a podcast and music player every time I go on a walk (usually several times a week). I also use it as a pedometer to help record my exercise. I’ve used it to check email and reply to it. I’ve used it to entertain my children and for music in the car on long car trips.

A few days ago, on a long walk across town, my long-used and long-abused iPod Touch finally bit the dust. I was holding it in my (slightly sweaty) hand and dropped it. When I picked it up, it wouldn’t boot. I took it home, called the Apple Store, and they offered to perform surgery on it. Before I took it in, I tried everything I could find online to fix it, to no avail. After examining it, the person at the Apple Store told me that the motherboard and the battery were both shot.

What’s next? Do I buy a replacement (getting 10% off by trading it in), do I find a very low-end mp3 player for something to listen to while I’m walking, or do I buy nothing at all?

Clearly, such an item is a “want” item. I will continue to survive just fine without such a device, as I had for many years before having it.

The real question is when does something you want elevate to the level of a worthwhile purchase?

I don’t think there’s an easy answer to that question, and I think different people are going to come to different conclusions. When I’m thinking about such a non-essential purchase, I ask myself the following questions.

What is my financial situation? Am I having difficulty making ends meet? Are there high-interest outstanding debts that I should be paying down?

Do I know I’ll actually use this item a great deal? Have I used a similar item a lot in the past? Is this item a direct upgrade or replacement for something that’s in heavy use?

Do I have that much money available in my “free spending” account? By this, I’m referring to the fact that my wife and I each have small amounts of money we’ve each agreed that we can spend freely each month. Can I simply buy this item out of that “free spending” money? Is the item that urgent that I can’t wait for a while to replace it (assuming I don’t have enough “free spending” money)?

Is there a lower cost alternative to a direct replacement? Do I really only use a subset of features on the item, in which case a lower-cost alternative will do the trick?

After evaluating all of these questions, I came to a few conclusions about this potential purchase.

First, the thing I’m really going to miss is the ability to easily manage podcasts and listen to them while I walk. I listen to a fist full of podcasts and the thing I value most about my iPod Touch is that it helps me to listen to my unlistened ones easily and works with iTunes to manage all of those subscriptions. Not only can I get lost in the podcast while walking (helping me get into shape), but I learn a great deal from all of the podcasts I listen to. Sometimes, I do also listen to music (it can help me set a walking tempo), but I listen to many hours of podcasts a week on this device and that’s what I would miss without it.

Second, many of the other features are either relatively unimportant to me or are replaced by other things. I can carry a paper notebook in my pocket to handle notes. I have other things (like my laptop) to help entertain the kids in the car. I really don’t need any device for these things.

What’s my solution, then? I’m purchasing a lower-end mp3 player. I’m looking at a lot of options at the moment before I settle on one. Some of the options I’m considering include a SanDisk Sansa 2GB ($40; a lower-end choice), a Sony Digital Walkman ($75, a more feature-rich choice), and even an iPod Nano ($130, has every feature related to walking and listening I could think of).

While I haven’t made a firm choice there, I have decided not to replace the iPod Touch, which in itself will save me hundreds compared to any of the above choices.

It all comes down to understanding the degrees of importance of the things you want.

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. Building website skills
2. Which credit counseling service?
3. Serious mortgage trouble
4. Thermostats, nighttime temperatures, and kids
5. Shady credit union practices
6. Direct stock purchasing
7. Frozen interest rates?
8. Which debt to pay first?
9. Huge student loan debts
10. Company cuts 401(k) match

Somewhere during the last week or so, I picked up a pretty vicious cold. I’m not surprised – the stress level around here (with lots and lots and lots of things going on) has been pretty high.

I might just spend the afternoon drinking tea, eating some toast, and not doing much at all other than resting.

Q1: Building website skills
I’ve come up with a few website ideas that I think are really good.

The only way I can think to learn this is to take some courses at a community/technical college. But I have no money to put into it. Are you aware of any free resources (books I can probably find at the library, online resources) to learn how to build a functional website?
- Julia

It really depends on what you’re trying to build.

If you’re trying to start a blog, the content matters way more than the design does, especially at first. Just start a blog at blogger or WordPress and get started with one of the default templates. If it takes off, then invest the money and get someone who can actually design a template do the work for you (I did my own here, but I will probably revise it soon with some help).

If you’re thinking of something else – a static site, or something like that – you have a couple of options. You can stick to something really basic and teach yourself using online web documentation, but there’s a bit of an upper limit on what’s feasible if you’re approaching this from an “on the side” angle. On the other hand, you could simply get a copy of Adobe Dreamweaver and learn how to use that.

Q2: Credit counseling services
A recent posting mentioned Consolidated Credit Counseling Services. If you were thinking of using a service like that, which one would you use?
- Kathy

I don’t recommend any particular credit counseling services, as I don’t have experience with enough of them to recommend any. However, I can tell you what I would look for in such a service if I were looking for one.

I would start with my state’s Consumer Protection Office and ask for a list of recommended agencies – i.e., ones that are in good standing with the state. I would make sure that they’re affiliated with the NFCC or the AICCCA, meaning they’re at least accreditable to some larger entity. I would meet with at least a few of these agencies and determine which ones meet my needs. Ask them for a full disclosure of all of their fees.

Remember, though, with credit counseling, the odds are not in your favor. According to Liz Weston, only a third of people who meet with credit counseling services wind up in their program, and those programs have a 45% dropout rate. You have about a 1 in 6 chance of actually being helped from a consumer credit counseling service.

Q3: Serious mortgage trouble
My nephew and his girlfriend are in deep trouble with their mortgage and finances. They bought a house for $489,000 couple of years ago and got a mortgage paying 8.5% interest only, which will change in a couple years and will have to start paying principal too. The house appraised @ #350,000 or so last year (probably worth less now). They both have good managerial jobs in retail & newspaper, but have not been frugal in saving. My other concern is that the industry that they are in is not stable. They have brought alot of luxury things, so they have other bills as well and don’t have much savings. Plus they have a baby along it’s way. My question is where do they get help. They have tried to refinace their mortgage but the mortgage company is not of much help. Should they walk away from this mortgage or is there some kind of government help that they can pursue?
- Grace

I’m really surprised that their mortgage company isn’t of much help. The government is strongly encouraging mortgage lenders to get bad mortgages off of their books and this certainly sounds like a bad mortgage. Have they tried to refinance in the last six to nine months? If not, they should try again.

If the company truly won’t work with you, they should take a serious look as to what happens with the mortgage when they have to begin paying principal. Since this is not a standard mortgage, does the interest rate adjust? How much principal are they going to have to pay?

In the next two years, they’re going to simply have to make some hard choices. Are they willing to give up their luxury goods? Are they willing to give up their home? One of those is going to have to give.

Q4: Thermostats, nighttime temperatures, and kids
My husband and I have had a programable thermostat for years, and always had the temp go down when we are at work or when we’re asleep. However, last year we had twins. They were born in November, and since they were tiny and fragile, and since we were home 24/7 and up all hours of the night, we just sort of let the thermostat stay at a constant 68 degrees. (which is pretty much as low I am willing to go, I truly dislike being cold.) We swaddled the babies as long as we could, then employed fleece sleep-sacks and layered onesies/footed jammies and hats at night. Now they are almost a year old, which is when those authorities who approve such things say you can put blankets in the crib, etc. The boys do sleep all night most nights, and we still use the PJ’s and sleep sacks. However, I am hesitant to use the thermostat to drop the temperature down during the night again because they move around so much at night, I don’t think they would keep a blanket on, and even with the sleep sacks and layered pajamas, they always have ice cold hands and feet when they are sleeping, even with the temp staying solid at 68 degrees. Also, we do still occasionally have middle-of-the-night wakings, when we are forced to be up and about and tend to babies. Usually we just throw extra blankets on the bed hen the real cold comes, but I am at a loss of what we can do about the babies. They are no longer frail little peanuts, they are solid, healthy, almost-one-year olds, but I don’t want them to be cold or uncomfortable at night. I would, however, like to save where I can with the heating bill. We live in a decently-insulated, modest 3-bedroom house near Chicago. Winters can be pretty brutal. We no longer have periods of time during the day when no one is here like we used to. We have someone come to our house to take care of them when we work, and when we don’t we’re often here all day anyway. What do you do to keep your kids warm at night, and let the temperature in the house drop down to save money? What about when someone is home all day? Or should we just suck it up to another essential expense of having kids until they are able to stay put in bed?
- Jennifer

As I’ve mentioned before, the benefit of dropping the temperature in your home comes when there’s no one active in your home – during the day if it’s empty and at night when everyone is sleeping.

Your note obviously eliminates the daytime drop as there are people at home and active. You’ve also noted a lot of different reasons why you don’t want to drop it at night.

If it’s personally important to you, then don’t drop the temperature at night. Simple as that. We drop the temperature some at night (down to 60F), even with three kids under five at home. There’s never been a problem with it.

Q5: Shady credit union practices
I am buying a house, thanks in no small part to you and your helpful blog, which I have been reading for years. For seven years I have banked at a wonderful, friendly credit union. They know all their clients by name. They have a lot of clients who have been through homelessness, addiction, etc and are only now (in their 40′s and 50′s, etc) opening their checking or savings account with them, and they are wonderful with these clients. They give tiny loans for $300-500 for clients to buy bikes to get to and fro from work, etc. In short, I have always thought this was the most progressive and wonderful credit union.

This makes me really sad. Personally, if someone came into my job and told me I would make a mistake, I would drop everything and research the issue until it was resolved. Especially if it was a good, long-term customer! I felt I had a personal relationship with the staff at this credit union, and now feel like they think I’m just some delinquent. Is this sort of behavior normal for a bank? Should I find a new credit union? Or am I just putting way too much personal feeling into a relationship that never existed?
- Linda

This doesn’t sound like an overall credit union problem. This sounds like an employee of a credit union who doesn’t want to put in any legwork.

If I were you, I would go to the credit union and escalate this. Bring in every evidence you can of your on-time payments. If the person at the counter won’t help you, escalate. If that person won’t help you, escalate.

If your story is accurate, the credit union is having some personnel issues that need to be addressed. Those aren’t good practices for any financial institution.

Q6: Direct stock purchasing
I’ve been reading your blog for the past few months and love it. I have a question about buying stock direct from an S&P-500 company. Right now, I have a few shares of company X in a Sharebuilder account. SB charges $9.95 (or something like that) per transaction, whereas if I buy stock directly through company X it only costs me $1 + $0.10 per share transaction. I plan on buying $20 or so per month in a buy-and-hold type of strategy because of the steady dividend payments on the stock. Do you think this is a good idea to avoid “high” brokerage fees? Secondly, the information on company X’s website indicates that it is possible to transfer shares from a brokerage to an account with them, but in order to do that – the shares must be assigned to me. How would I go about doing this so that I may transfer the shares to company X’s account?
- Josh

This is a good plan if you’re looking at it from the narrow perspective of investing just in the stock of one company.

However, you should keep in mind that a single company’s stock is a very poorly diversified investment. If that company fails, you lose most of – if not all of – your invested money. You should be counterbalancing this investment with investments in other things.

You also need to check and see what the policy is for selling the shares should you choose to do so. If they make it difficult in any way, that’s another red flag.

Q7: Frozen interest rates?
I just tried to use your blog post about calling the credit card company and asking for a rate reduction. I spoke with two people and was told that my credit union has frozen their ability to lower interest rates until February of 2011 because of the recent changes in government policy. Now, this definitely sounds like a [fishy story] to me, bit could there be any truth to it?
- KD

This might very well be the credit union’s policy. I’m not involved in the business analysis at that credit union, so I don’t know.

However, I will say that such a policy isn’t directly mandated by any government source that I’m aware of or that I could find while researching it.

Most likely, this is a temporary policy of the credit card company while they try to figure out their new game plan after the new credit card act that was just passed.

Q8: Which debt to pay first?
I just finished (re)filling my emergency fund to a level that gives me comfort – just around 10k.

What are your thoughts?
- Chris

You’ve pretty much hit the nail on the head with your description of the two options.

I would look at other factors for the decision. How stable is your current employment? The more stable it is, the more I would lean towards option (a). How about your personal life? Is there marriage or a move or a child coming up? Again, the more stable things are, the more I would lean towards option (a).

Cash flow helps the most when you’re getting ready for changes because you can bolster your short term savings with it. If things are stable, then option (a) puts more cash in your pocket in the long run.

Q9: Huge student loan debts
I am almost 27 years old and I have a HUGE amount of debt. HUGE. After graduating from high school in 2002, I was accepted into a highly competitive 6year medical program that took students from high school and put them directly into medical school without having to get a degree before applying. The first 4 years of school went fine and I was successful academically. Everything changed for me in my 5th year when my father passed away suddenly from small cell lung cancer. I got way off track emotionally and let my school take a back seat to my bereavement. I took a sabbatical from school for 1 year to study for Step 1 of the boards and deal with my family issues. Needless to say, I didn’t study enough and I failed boards. Then I came back to school and retook the boards and failed them again. The school I was attending sent me to the Doctoral Candidate Review Board and I was dismissed from the program. At that point, I had had no job or income and was living off of student loans for school and for living costs. In total, I was taking out an average of $50,000/year split between private and public loans. After that career opportunity ended, I knew that I needed to get a job as quickly as possible and was hired in a supervisor role make $35,000/year. I have done Financial Peace, religiously read your blog along with an assortment of other personal finance blogs, and put myself on a very strict budget. I have worked with my loan companies and got an academic deferment for my public loans (I am now pursuing an MBA which my company is graciously paying for) and an economic hardship payment plan with my private loans. I have created a debt snowball and have eliminated any other kinds of debt ie credit card or small student loans (sub $5000). Recently, the most amazing and frightening thing happened to me and I was blessed with a beautiful baby girl. Prior to my daughter’s arrival in my life, I was barely making ends meet and planning for the future that I wanted. I was investing 10% of my income in my 401K, and putting $200 of every paycheck into my emergency fund, car repair fund, and xmas/birthday fund. Now, with Lila entering the daycare stage of her life, I am incurring costs that I never had the forethought to plan for. My big question is, what course of action would you recommend for me to get out from under this debt and keep my mistakes from negatively impacting the quality of my daughter’s life?

From what I have read, you cannot declare bankruptcy on student loans but I feel like I have my back against a wall.
- Cary

That is backbreaking debt, no doubt about it. It is stories like these that make me very nervous to encourage people to incur a lot of student debt. If something goes wrong, you’re buried for a very long time without anything to help you out. Even if you make it, it slurps up a hefty chunk of your income for a very long time.

As for your problem, your best bet (that doesn’t involve trashing your credit, wage garnishments, and probable lawsuits) is to focus hard on that MBA and get yourself in the best position you possibly can by 2012. Every single dollar choice you make will impact this – you can’t afford any more debt and you need an emergency fund to protect yourself against that possibility. It’s time for used cars, beans, rice, and salad, my friend.

The problem with student loans is that they don’t go away. You can get sued at any time for an unpaid student loan. They can wage garnish you at any time for an unpaid loan. They just stick around until you pay them off. Your best approach over the long run is to face this challenge head on with everything you’ve got.

Q10: Company cuts 401(k) match
I am aggressively funding my emergency fund for 6 months of expenses following graduation but I have another question. You, and many other finance books, suggest only funding your 401(k) to the company match and using any excess to fund your Roth IRA. Due to the recession, my company has not matched at all for 2010 but may start again in 2011. Nevertheless, I continue to put 6% into my 401(k) and zero into my Roth IRA. This is in addition to funding my emergency fund. Should I re-direct the 6% to my Roth IRA until my company decides to match or keep things the way they are now?
- Lacey

I would start a Roth and contribute to that until the match returns. There are two big reasons for this. One, you’re almost always going to find better investment opportunities in a Roth due to the freedom of choice. Two, the money in the Roth is after-tax money – you won’t have to pay taxes on it when you take it out later.

As for whether the matching will return, I would bet on “no.” If a company realizes they can get away without matching, there will have to be a good reason for them to bring back retirement matching. From their bottom line, cutting matching looks like a “free” savings on wages – you’re not actually cutting anyone’s income, so they won’t mind.

The best thing you can do, though, is to just keep saving. The 6% you’re saving is far more important than where you’re saving it.

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.

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

Here’s the flat-out truth about running a small business: you, the business owner, are where the buck stops. Period. Small businesses are a great way to start earning more money, but they’re not easy.

When something goes wrong, it’s up to you to clean it up. Yes, you may have employees who will take care of it, but those employees are far from perfectly reliable – and often, when you’re in startup mode, you don’t have employees to take care of the problem.

You’ve also got the demands of needing a certain level of income, either to survive off of the business or to earn enough to jump into the business full time, which means that when something does go wrong, you’ve got a powerful motivator to drop everything and fix it.

The end result? Sometimes, starting and running a small business can inject complete chaos into your life. A server goes down and you’re forced to choose between that and your child’s first soccer game. An employee fails to show up and you have to fill in, ditching a date night with your wife. Or, you choose to forget about the business and it begins to fail because of unmet customer expectations. Either way, you lose. (I have to make choices like this sometimes – I decided a long time ago to sacrifice the long term health of The Simple Dollar at the altar of my family’s needs when the choice comes to that.)

How do you manage all of the chaos of a small business without going crazy? That’s the topic of Clate Mask and Scott Martineau’s book Conquer the Chaos. Small business really is a juggling act, particularly during the startup era. Does this book have solid advice for dealing with this? Let’s find out.

1 – The Entrepreneurial Revolution
Why do people become entrepreneurs and start their own businesses? Time. Control. Freedom. Running your own business gives you these things in a way that being an employee simply cannot. You also, of course, have the direct relationship between your work and your income, which means that you aren’t merely a cog in someone else’s machine. All of this can be incredibly tempting. But…

2 – Enter, Chaos
When you make the choice to dig into entrepreneurship, you find yourself constantly have to make very difficult choices between your small business and your personal life. Do you choose to spend this evening watching a movie with your wife or building a better website? Do you meet with this great potential customer or do you make it to your daughter’s recital? No matter what you choose, you’ll have some regret about missing the other choice. Even worse, you’re often making these types of choices – the things that form a huge part of the foundation of your life – on the complete spur of the moment. It’s stressful and chaotic.

3 – Grow or Die
Making the challenge more difficult is that your business has a very simple imperative, especially during the startup phase: grow or die. Most businesses don’t open the doors with the ability to pay the bills. They have to grow to make it. In order to grow the business, you’re going to be pushed strongly towards the “business” choices instead of the “personal” choices, especially at first.

4 – Emotional Capital
What you begin to find is that you have only so much passion inside of you. How are you going to use that passion? Are you going to channel that passion into your personal life and view the business as merely a support structure (one that probably won’t survive over the long term)? Or are you going to channel that passion into the business, growing something tremendous? Alternately, you can try to split the two, but this will deal a lot of difficult choices onto your plate.

5 – Disciplined Optimism
The solution? Discipline. Spend some time figuring out what the priorities are well in advance so that you’re not stressed out and torn when a challenging decision comes before you. Better yet, resolve those priorities to the point that you feel good about your choice and you feel optimistic about what you’re building, whether it’s your family or your business or whatever you decide.

6 – Entrepreneurial Independence
Another challenging factor is the double-edged sword of independence. Independence means you get to make your own decisions, but it also means that you don’t have the guidelines, advice, and parameters that a typical job has. My best solution for this is to find a mentor who can guide you through some of this difficult transition.

The rest of the book really focuses on some of the resolutions for these problems, after the authors made clear what the challenges are.

7 – Centralize
One thing that many harried small business owners do is that they keep tossing in “solutions” for specific problems. While this can help in the short term, eventually there are so many “solutions” in place that the regular operation of the business can be confusing. You’re far better off centralizing things with only one system for handling everything – much like GTD handles everything for your personal tasks.

8 – Follow-Up
Another thing that often happens with small businesses is that you find yourself with tons and tons of loose ends, all of which need to be followed up on. While it’s often tempting to just go start new initiatives, it’s usually more rewarding in the long run to devote time to tying up all of the loose ends in front of you before moving on. If you don’t do this, the sheer weight of all of the loose ends will crush any forward progress you want to make because so many of the things you need in order to move forward will simply be undone.

9 – Automate
This chapter doesn’t refer so much to automation as it does to having a series of very standardized procedures for various things you’ll be doing as a small business owner: customer follow-up, inventory, and things like that. Part of that standardized procedure relies on having a reliable calendar that reminds you of when specific steps of that procedure needs to be done. An example: if you would ideally like to follow up with a new customer three times at certain intervals after their initial purchase, these can be entered into your calendar immediately after the purchase. Then, on that day, you just look at your calendar and boom there’s the reminder of the follow-up you need to do.

10 – Avoiding the Backslide
Once you get things rolling well, it’s easy to sometimes fall back into chaotic situations. One easy way to tell whether or not you’re falling back or you’re about to run into trouble is to ask yourself if your business would survive if you disappeared for a few weeks. If you can’t say yes, then you’re on the verge of backsliding – your systems aren’t up to snuff to avoid potential chaos.

Is Conquer the Chaos Worth Reading?
I would highly recommend this book to anyone who is in the planning stages of running a small business or is having difficulty with their current business. Conquer the Chaos really isolates what most of the common problems are for a small business owner and provides at least the outline of some solutions for those problems.

I would probably couple this book with a great book on time and information management, like GTD, which focuses heavily on implementing a centralized system that can deal with a lot of the challenges in this book.

This book works best when it’s applied during the “thinking” and “planning” part of small business preparation – once the ship has started to sail, much of what’s in this book is harder to implement and consider. In other words, if you’re looking at entrepreneurship in the future, particularly the short term, give this book a read.

Open up one of your favorite magazines. Turn to a full page ad for a product – any product. Look at it carefully for a minute. What do you see?

Fire up your television. Fast forward through the commercials (I know many of you can). Think about the flickering images that still made it through. Now, watch the program for one minute and see how many products you can identify in the minute of the show you’re watching.

When was the last time you heard something positive about any politician? Positive campaign ads barely exist. Is it at all surprising that people think everyone in Washington is a dysfunctional crook when almost everything we hear about them is a negative ad or a fear-based “news” report?

Every time you glimpse a product placement or advertisement, even if your attention isn’t fully on it, you subconsciously gain a bit of emotional connection with the item.

Now, these subconscious connections are weak, to be sure, but they do exist. Walk down the laundry detergent aisle at your grocery store and notice the different brands. You’ll have different reactions to different brands, whether or not you’ve ever paid attention to their ads or not.

It’s these subconscious connections that make unplanned shopping dangerous. When we shop without planning, we’re no longer shopping based on external facts. We’re shopping based on internal responses, and all of those subconscious connections play a role.

Conscious connections, built through rational thought, are much stronger. I see an ad for a company or product I don’t like and it doesn’t help their image. I see an ad for a product I do like and it makes no difference, either. Negative ads against politicians I support make me not like the other candidate.

Most importantly, conscious connections can be informed through facts, unbiased reviews, and advance planning. A well-prepared grocery list, for example, is full of conscious connections – knowledge of what items you actually need, knowledge of what items are on sale in the store flyer, knowledge of which items are the “best buys” in Consumer Reports, and so on.

The more we rely on fact-based conscious connections and the less we rely on subconscious connections, the better. We make smarter choices that provide a much greater “bang for the buck” when we shop. We end up with products we actually have a use for. Better yet, we support products that do things the right way, however we define that (lowest prices, ethical business, and so on), and our dollars directly influence the marketplace.

How can you ensure you’re using more conscious connections and fewer subsconscious connections when you shop?

Use the ten second rule Whenever you consider buying an item impulsively, hold it in your hands and think about it consciously for ten seconds. Why are you buying this?

Use the thirty day rule Whenever you’re considering a major purchase (more than $20, say), wait thirty days before buying it. During that period, do additional research about the item and ask yourself whether you really have a use for this item.

Use shopping lists Make a shopping list before you enter any store. Prepare that list at home based on the things you actually need and the things you’ve figured out that you want. Do some research on that list, too, utilizing the internet and other sources to figure out what the best values and the top quality items are.

Think about your mistakes Don’t beat yourself up when you make a purchasing error. Instead, think about why you did that. What was the reason you made this poor choice? Then, focus on eradicating the reasons for that mistake so that the mistake doesn’t occur again.

This is one question that, in some form or another, keeps popping up time and time again in all sorts of contexts.

Should I buy a computer now, or should I wait for prices to come down?

Should I buy a new television now, or should I wait for the bigger screens to become available?

From cars to cell phones to woodworking equipment, these questions are asked about major purchases that many of us make.

Whenever I’m asked the question, though, I respond with another:

Do you actually need the thing?

If the answer is yes – that this item fulfills a need in your life that isn’t already fulfilled – then you should be shopping around now rather than waiting for prices to drop.

If the answer is no, why are you thinking of buying it in the first place?

To me, this question is usually only asked when someone is buying something that’s unnecessary in their life. If they don’t have the impetus to actually go out there and actively shop for such an item right now, that means they don’t have a use for that item any time soon.

If you can wait three months to buy an item, then that item pretty clearly falls into the category of a want rather than a need.

So, should I buy it now? If you’re buying something that you’ve clearly recognized as a want, I would suggest that two things be true: one, you have the cash in hand to pay for it, and two, you’re not taking that cash from another need in your life (like paying cash for something frivolous while you have a mountain of credit card debt).

My suggestion is this: once you’ve identified something you want, pick out the specific model you want, find what it will cost, and set up a savings plan to achieve that goal. Set up an automatic transfer of a small weekly amount from your checking account to your savings account and wait until you’ve saved enough to write a check for it.

Once you have that money, you can then re-evaluate the purchase. Do you still want that item? Has the cost of it dropped? Is there a better model on the market now?

If you’ve talked yourself into waiting just a bit longer to see what’s available, I would suggest not buying the item at all. It’s fine to wait if you’re pretty certain that the item you’re looking at will drop in price, but if you’re waiting without any sort of fact-based expectation of that kind of drop, skip the item and use the money for something else.

In short, if you’re willing to wait an undefined amount of time for an undefined lower price for the item, that item is pretty low on your priority list. Find something else that you’re more passionate about to use your money on and you’ll be better off.

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 (October 10 – October 16, 2009)
Hidden Treasures from Thrift Shops I love shopping at thrift stores for staples like clothes and spare tools. Sometimes, I discover a treasure.

Extracting the Child Who Stayed in the Nest Too Long This is an issue that many parents find themselves dealing with as their child grows up. When do you boot the large baby bird out of the nest?

Mirror Neurons: Why Watching Others Succeed Won’t Help You Succeed This is why I’ve essentially stopped watching Food Network.

The Forgetful Mind More and more, I find my tendency to write down every spare thought or thing to do saves me.

When One Partner Is Self-Employed These are issues that my wife and I have worked through over the past few years.

Two Years Ago (October 10 – October 16, 2008)
Stop Trying to Impress Other People This is one of the biggest single keys out there for improving your financial situation. People are going to make up their mind about you anyway, so stop wasting your time and money trying to be something you’re not.

Talking to a Child About Home Foreclosure This is a money conversation I hope I never have to have with my children.

How Much Extra Should You Pay for Fuel Efficiency? Here’s How We’re Calculating It Fuel efficiency is a major criteria for us because we do quite a lot of road tripping to visit family.

Ten Steps for Remaining Calm in a Financially Turbulent Time So many media sources were calling for financial apocalypse in late 2008. My philosophy? Calm down.

How to Plan Ahead for Next Week’s Meals (And Save Significant Money): A Step-By-Step Guide This is pretty much exactly how we shop for groceries.

Three Years Ago (October 10 – October 16, 2007)
The Feeling You Get From A Coca-Cola Classic: How Advertising Tickles Your Wallet – And Five Ways To Fight It Advertising is far more clever and influential than people give it credit for. You might fast forward through the commercials – but what about all the ads in the program?

Adventures in Frugality: Preparing Food in Advance for a House Full of People We find ourselves doing this surprisingly often. In fact, we did it at least three times so far this year.

Selling My Future, One Dollar At A Time Every time you spend a dollar on something pointless, it’s a dollar you don’t have down the road when you really need them.

Dealing With Professional Exhaustion In A Financially Sensible Way Just walking away from your job is never a good solution – not without some careful planning, anyway.

Children’s Gifts: Don’t Spend A Lot On What They Don’t Want It’s so easy to just imagine the stuff you think your children want and buy them. In truth, most kids don’t really want very much.

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

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

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5. Read my story of financial meltdown and recovery. The Simple Dollar isn’t based on what I’ve read in books or learned in school. I’ve made a lifetime of financial mistakes – The Simple Dollar is a record of what works for me during the process of getting my life on a better track.

6. Download my free 49 page e-book. Everything You Ever Really Needed to Know About Personal Finance On Just One Page is completely free. It summarizes all of the key lessons I’ve learned along the way about personal finance in one tidy package – in fact, all of the main principles can be found right on the cover.

7. Dig through “31 Days to Fix Your Finances.” 31 Days to Fix Your Finances is an article series that outlines how you can get a grip on your finances over the course of a month.

8. Send me your questions and suggestions. Send me an email and let me know what you’re thinking, what you’d like to see, and any questions you might have. I try to respond to as many emails as possible and I read them all. I may even use your question in a future article!

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