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. Converting to Roth IRA
2. Going part time
3. Short sell our home?
4. Going back to school
5. Pushy in-laws
6. Healthy but tasty lunches
7. Which debt to repay first?
8. Should we refinance?
9. Underwater loan
10. Frugality costing more money?

My best friend (besides my wife) sometimes has interesting issues when it comes to communication. He reads his email perhaps twice a week, plus he sometimes forgets to charge his cell phone and leaves it without charge for days. He doesn’t have a landline. He also sometimes keeps strange hours at home.

Needless to say, there are times where it can be very tricky to get ahold of him. I recently spent three days trying to track him down.

Q1: Converting to Roth IRA
I have about $7,100 in a 401k from my old employer in FL and have not contributed to it since 2009. I moved to NC from FL in July 2010. NC has state income tax, something new to me but I’m adjusting. I am a 36yo single female state employee making $43,650 a year and I’m required to save 6% of my gross income in a state plan, to which the state contributes 10.5% (of my income, not my contribution.) I will not be vested until July 2015, provided I stay with the state that long and don’t take any breaks in working. I plan to increase my retirement contribution gradually to 10% after I pay off some moving debt next month. The 401k is my only retirement savings thus far.

Should I convert my 401k to a Roth IRA and split the taxes over 2011 and 2012? I know you will probably say yes and I am leaning that way. I wish I’d done it last year so I wouldn’t be paying taxes on the $2000 my 401k has gone up since early 2010.

If I do convert, how are the taxes determined? Is it by my current tax bracket? Does the conversion increase my income for those two years? Do I pay state taxes on the conversion, even if I didn’t earn any of the income in North Carolina?

Should I figure out my taxes and increase the FICA withheld on my paycheck?

Do I have to convert the 401k before filing my taxes?

Am I missing anything here?
- Shannon

This is probably a good move over the long haul. I would certainly do it.

The $7,100 will be treated as regular income, so you will have to pay income taxes on it. If income tax rates in 2011 are the same as they are in 2010, you’d owe about $2,300 in additional taxes from that $7,100 in income.

Now, if you’re not prepared to pay that out of pocket, you should increase your FICA withholdings. That’s probably the safest way to do it.

If you do the conversion now, it will count towards your 2011 taxes, which you’ll file in 2012. You can do it at any time this year.

Q2: Going part time
At my current job, I have the opportunity to switch from full-time to part-time, meaning our (my husband and I) yearly gross income would be reduced by about $30,000. Plugging this new salary into our current budget, we’d only be able to save $2,000 a year (saving for a car and other long-term items is already included in the budget).

I have student loan debt of $5,000. Monthly payment is $82 at 2.5% interest. We just built a new house and have a 30 year mortgage fixed at 4.125% with a $1,493 per month payment. There is a second mortgage at 6.55% on a 5 year balloon with a monthly payment of $245. We are paying $500 per month instead. To have it paid off within five years, we would need to pay $549 per month.

Our monthly expenses include putting a total of $400 in Roth IRAs & 401(k)s and about $400 in company stock (getting a 15% discount). We will be needing a new (used) car within a couple years. I’m currently budgeting $360 per month intended for car repair and/or purchase. We have $20,000 in emergency savings.

My big question is: Should I go part-time? It would allow me a better chance to pursue my side business, which I’ve been doing in my spare time for the last few years, making a very small profit (around $5,000 a year), but it’s my passion and makes me feel like my life is worthwhile. I just can’t get past feeling like a complete moron for wanting to give up $30,000 a year!
- Liz

I gave up a little less than that each year in order to write a blog, so I can’t exactly say you’re a “complete moron” for wanting to go part time to pursue a dream.

If you believe that your family’s finances can hande it, then you should make that leap now while you can. It sounds as though your family will make it even if your expanded side business has no additional earnings. That seems like a very good situation to me.

I would make sure that (a) I didn’t burn any bridges during this transition and (b) I had a business plan in place for the side business that I hoped to expand.

Q3: Short sell our home?
We were $23,000 in debt. I quit my lower paying job and got a job with the family company. Due to some good success. We will be debt free by August. Right now, we are planning a move to Atlanta (currently outside Chicago). I am hoping to start grad school work in August. I am waiting on an acceptance letter (hopefully). We decided that no matter if I get in or not, we are moving anyways. My current job allows me to work from home and I can work anywhere. My wife started a photography business that is turning a good profit right now so financially the move is great. Plus, the cost of living is much lower, my wife’s family is there, and the 2 grad schools I want to get into are there.

Like many folks we bought a house a few years back at the height of the market and now want to sell it. We owe 169,000 on a 2 Bedroom 1 ½ bath townhouse. Most sell for between 155 and 185 depending on the normal factors. To get our house ready to sell, we would need some light carpentry work to fix a few things plus we would need to replace all of our windows. So we have to put some money in to sell it the normal way.

Our realtor suggested we short sell the house. I have read up some about it but we are apprehensive because of how it might affect our ability to purchase another house when we would want to.

The other part of this story is my wife is pregnant (due in July) with our third kiddo and we do not have maternity coverage. We just did not plan on having anymore kids so this was a complete surprise for us. We have 20,000 in savings. Which we estimate will cover the birth of our child. And we will be saving another 1,000 a month between now and july to cover other expenses to move ourselves. I want to preserve this cash and my worry is that the best offer on our house would mean we owe the bank a few thousand all the way up to a $10,000 sucking up our savings just to preserve our credit.

So ADVICE??? We are emailing and calling everyone we know to ask for advice. Short sell the house and move to pursue our dream? Or hope we can sell it for enough to preserve our cash flow?
- Ted

Your best route, given your overall situation, is to sell this property. You do not need that extra payment clogging up your cash flow with a third child on the way.

If I were in your shoes, I would directly contact the lender and discuss the situation with them. What is their stance on short sales? I would gather as much information as possible before contacting them so that you have a realistic estimate of what your property actually would sell for.

If you’re willing to cover the deficiency in the sale (if there is one), then there’s no reason a short sale would necessarily have to have a negative impact on your credit, provided of course that your lender acts reasonably.

Q4: Going back to school
I am currently working as a bank teller and this is absolutely not the job I want to be doing at this point in my life. I am 24 years old, graduated from Penn State University in 09 with a Business Management degree and have found it extremely tough to find work doing anything that I find interesting or would be willing to do as a career. I have about $40,000 in student loans at about 6.8%, and $2,800 in credit card debt that I just transferred to a 0% for 12 months credit card. I found work after graduation but quit that job because of many different factors. Then I was unemployed for about 6 to 8 months and am now working a $11/hr teller job.

I am almost certain that I want to go back to school and become a teacher. I had a application in, but decided to put it off till next year because I don’t think it would be wise to take on more student loan debt at this point (probably my smartest financial decision that I’ve made yet.) I am working on curtailing my expenses, and am living at home with my mom. I really want to go back to school and become a teacher. I figure I can save approximately $7,000 and then get student loans for the 1 year program that would be required to become a teacher (about 15-20k). Do you think this is practical?
- Ryan

Right now, you’re sitting in the middle of a disastrous job market. A lot of graduates are having a hard time finding work in their field of choice – not just you.

It sounds like this crisis has made you rethink what you want to do with your life, and I’ll say that being relatively young and without a marriage or children will make this process much easier than it otherwise would.

Before you go back, though, make absolutely sure that you want to be a teacher, as it is another year invested, another $7,000 invested, and a complete restart of your career path.

Q5: Pushy in-laws
One of my in-laws has been pushing my husband and I to meet with their ‘financial adviser’. When I say pushing, I mean every time we talk. This included our Christmas Eve visit during which the ‘adviser’ had phoned to chat.

I know that my in-law has purchased an annuity from this ‘adviser’, and that they don’t pay for this person’s services, hence this is a a commissioned based operator.

My question is this: my in-law might be pushing us just because they are being pressured to do so, or could it be that they would receive some form of reward for providing this ‘adviser’ a lead?
- Evan

They may or may not be receiving a referral fee. It is very hard to say in this case.

In any case, it is never a good idea to make a significant financial move because of a pushy relative or friend. That’s a horrible reason for any sort of financial move.

Thank them for their suggestions politely, but do your own research and find your own answers.

Q6: Healthy but tasty lunches
You often say that you just eat leftovers for lunch. Knowing your diet restrictions [I'm a vegan for the time being due to medical concerns, but I sure do miss cheese and some meats at times], what do you eat for a tasty lunch when you don’t have leftovers?
- Ron

I usually have a handful of frozen meals banked. Frozen vegan burritos, frozen leftovers packed up as an individual meal, and other such items litter our freezer, ready to be pulled out if needed.

If I can’t find those things, I’ll often just eat a big pile of mixed raw vegetables as a finger food at my desk. Carrots, broccoli, cauliflower, and so on tend to tide me over quite well.

On occasion, I’ll make a peanut butter and banana sandwich for lunch.

Q7: Which debt to repay first?
My husband of 1 year and I came into our marriage with one major debt each: “My” student loans, a lower amount and a lower interest rate (3.88%), and “his” investment property mortgage, about 1.5x the amount of the student loans and at a higher interest rate (4.875%). After some discussion we are both on board to do the snowball method to pay both of these sums down, which is great. The question is, which do we attack first? Do we pay down the investment property’s mortgage first since it has the higher rate, or do we tackle the student loans first since it’s a smaller amount? Again, we are definitely going to be paying them back as fast as possible and before their terms are up. My feeling is that we should take out the student loans first since the amount is smaller, and since whether or not the property is paid off it is still an asset (sell-able if there is some crisis and income producing in general) whereas the student loans are just deadweight. My husband would prefer to pay off the investment property first since its interest rate is higher. What do you think?
- Andrea

Your real question here is whether having a stronger cash flow faster is more important or whether maximizing every dollar you invest is more important. Is it more important to pay off a debt – and eliminate a monthly payment – right away? Or is it more important to pay the minimum total amount on the loans?

They both have compelling arguments. I don’t think there is a strict right or wrong answer.

My judgment would probably come down to a look at what you guys are planning on doing in the future. Are you going to have children in a year or two? Are you planning a major move in the next few years? If the answer is yes, I’d pay off the smaller loan with the lower interest rate first. If not, then I’d pay off the higher interest rate loan first.

Q8: Should we refinance?
I want to add onto our house but I’m worried about whether we can afford to do this or not. We have a morgage and 2 new cars and 4 kids; my husband works and makes great money and I’m disabled. We can refinance our morgage for the addition so it’ll still just be one morgage payment. Both car payment together are 535 a month and our morgage is 750. If we refinanced it would be around 960 a month and we’d have to pay our own insurance of about 100 monthly. I really want to do this but in todays economy is it smart to go ahead with this?
- Annie

Given the information you’ve stated here, I would not add any more debt payments to your current load.

Right now, you have a disability stream of income (small, but reliable) and your husband’s income (apparently larger, but not as reliable). All of this is banking on your husband keeping his job. If he loses that job, you are in deep trouble.

Do not add onto the house until your financial situation is secure enough that you could survive for many, many months on just your disability income. If you can’t honestly say that’s possible, then you shouldn’t be bringing more debt into the situation.

Q9: Underwater loan
I am 58 year old woman who lives with her husband of almost 5 years in a condo that belongs to me. At one time this two bedroom condo was worth around a $192,000 but now is probably worth $33,000, at two different times I refiid for the equity which gives me at this time a $107,000 interest only mortgage, with only one income, my husbands, who brings home approx $42,000, with bring home pay approx $38,000. I am unemployed at this time. Our mortgage payment is 710.49 and we have a HOA fee of a $195.00. Recently I was surprised to hear my father, who is a Real Estate agent advised that we would be better off just walking away from this condo we are what they call underwater, that the loan was one of those loans that made the economy crash, my husband thought it made a lot of sense. We researched and found that banks are also modifying loans but we have remained current in our payments so from what we read you usually have to be delinquent at least 3 months before they will even begin to consider modification. So we made this month the month to start not paying though I don’t feel like it would be to late to catch up with the missed payment I feel intuitively that we shouldn’t do it, but I am not making the money or the payment. My husband says we can’t afford to save the exact mortgage payment monthly and it is what we read we should do until this is resolved? I am hearing all kinds of arguments for and against and am just confused, I am starting an at home babysitting service, that will bring in around the same amount that I was making at my last job but I am wondering if I should work. I have some health issues so standing on my feet for awhile is out of the question. We also have lots of debt which we are now hearing that the banks usually only consider modification when your credit is good and that does not define my husband or I. I would love to read your opinion.
- Tammi

I just ran the numbers and it looks like a 30 year fixed rate mortgage at 4.5% on the amount in question results in a monthly payment of $542.15, which is significantly lower than your current payment while also building equity. This is approximately the type of loan you would get with a loan modification, provided you’re eligible for one.

As for whether you have to be late to get a loan modification: it’s not a requirement, but it helps. The problem is that there are so many bad or borderline bad mortgages out there from lenders that have let a lot of people go in order to remain solvent. That means there are many more potential modifications out there than there are agents to deal with them, so they deal with the urgent ones first. If you’re not late, you’re probably not urgent.

As for walking away: what does your game plan look like if you do that? Your credit will be even worse than it currently is. Will you be able to rent? Are you going to have credit needs in the next few years for a car loan or anything like that?

Many people believe that walking away will solve all of their problems, but often it just creates a new set of problems.

Q10: Frugality costing more money?
One question I have for you is, “have you ever found your frugalness to cost you more money?” An example would be (not a great one, but it demos my point) running back home for your grocery coupons because you forgot them and therefore paying twice as much in gas. Sometimes I feel frugalness can cost us more, no matter how careful we plan (and I love to plan).
- Jackie

If you’re burning a gallon of gas to retrieve $2 worth of coupons, then you’re not being frugal with your time or with your money.

Frugality means looking at each situation as it comes about and doing what you can to maximize the value you get from it. We’re all human and we all make mistakes sometimes. You’ve just got to stand up from a mistake, look at the new situation as it is, and make the best choice you can.

One particular choice (like your coupons) might be frugal some of the time (when they’re in hand) but not at other times (when they’re a 20 minute car trip away).

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

For the last few years, I’ve been enjoying reading Warren Buffett’s annual letter to Berkshire Hathaway’s shareholders. These letters are full of interesting nuggets and insights of all kinds, not just on money management, but on life.

Last week, the most recent letter to shareholders was released, and I spent an afternoon reading it, marking with a pen the little bits that I found interesting.

I thought I’d share with you many of those bits that I highlighted, along with some of my own comments on them.

Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.

Preparing for the future is always a good idea because the future is always uncertain. You don’t know what tomorrow will be like.

I’m very much in favor – much as Buffett is – of having a very large emergency fund so that you have the flexibility to handle whatever comes your way.

Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.

Of course, preparing for tomorrow does not necessarily mean just preparing for the negative. It also means preparing for the positive.

Tomorrow might hold something disastrous, but it might also hold some great opportunity. The more you can prepare for both, the better off you’re going to be.

Again, this is a great argument for having a lot of cash in the bank. The more cash you have, the more capable you are of handling the negative and taking advantage of the positive.

Today might be September 10, 2001, but it might also be the day before you meet the love of your life.

Other companies we hold are likely to increase their dividends as well. Coca-Cola paid us $88 million
in 1995, the year after we finished purchasing the stock. Every year since, Coke has increased its dividend. In
2011, we will almost certainly receive $376 million from Coke, up $24 million from last year. Within ten years, I
would expect that $376 million to double. By the end of that period, I wouldn’t be surprised to see our share of
Coke’s annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful
business.

In other words, the stocks of Coca-Cola that Buffett bought in 1995 cost him somewhere on the order of $750 million. Got that?

He’s sat on those stocks for sixteen years now, collecting dividends each year. In 2011, Buffett anticipates collecting a dividend of $376 million, roughly half of what he paid for the stock.

In ten years, Buffett expects to collect a dividend of over $750 million. In other words, he’ll receive a dividend in one year that exceeds what he paid for the stock.

How is that possible? Patience. He sat on that stock regardless of whether the stock price went up or the stock price went down. He sat on that stock regardless of a booming economy or an economic apocalypse. He was patient, and now that patience is being rewarded.

With all the talk of stock trading and maximizing P/E and selling high and buying low, the simple act of buying a dividend-paying stock and just sitting on that stock is forgotten.

Unquestionably, some people have become very rich through the use of borrowed money. However,
that’s also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you’re
clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very
few people retreat to more conservative practices. And as we all learned in third grade – and some relearned in
2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a
single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart
people.

For individual people, the “leverage” that Buffett speaks of equates to consumer debt.

Sometimes, you can get into debt to swing a purchase that will amaze everyone around you. How did he afford that house?

The problem is that you have to pay the piper eventually, and the uncertainty of the future often causes people to fall short of the grandiose dreams they have when they first get into debt. They’re either stuck struggling to make ends meet every single month or, worse, they fall into foreclosure, losing the things they’ve dumped so much money and effort into.

The best solution is to avoid consumer debt if at all possible. The only types of debt that make any reasonable sense are student loan debts, mortgage debt on a reasonable small home, and car debt on your very first car. After that, you should do everything in your power to avoid further debt.

I didn’t meet Charlie [Munger, Buffett's partner in Berkshire Hathaway] until he was 35, though he grew up within 100 yards of where I have lived for 52 years and also attended the same inner-city public high school in Omaha from which my father, wife, children and two grandchildren graduated. Charlie and I did, however, both work as young boys at my grandfather’s grocery store, though our periods of employment were separated by about five years. My grandfather’s name was Ernest, and perhaps no man was more aptly named. No one worked for Ernest, even as a stock boy, without being shaped by the experience.

[...] Ernest never went to business school – he never in fact finished high school – but he understood the importance of liquidity as a condition for assured survival. At Berkshire, we have taken his $1,000 solution a bit further and have pledged that we will hold at least $10 billion of cash, excluding that held at our regulated utility and railroad businesses. Because of that commitment, we customarily keep at least $20 billion on hand so that we can both withstand unprecedented insurance losses (our largest to date having been about $3 billion from Katrina, the insurance industry’s most expensive catastrophe) and quickly seize acquisition or investment opportunities, even during times of financial turmoil.

Again, Buffett hammers the point home that being liquid – meaning having cash that’s easily accessible and available to handle whatever may come – is a great way to always be prepared for the future, whatever it may hold.

Berkshire Hathaway often holds far more in cash than comparable businesses. Of course, at the same time, Berkshire Hathaway is incredibly successful by any measure. They can handle any emergency and they can take advantage of any opportunity that comes along.

I tend to think there’s a big lesson to be learned from that with regards to how to manage your own finances.

Because some aspects of personal finance overlap with politics, I’m often asked what my political views are, particularly on specific issues. I usually don’t feel comfortable doing that, for several reasons.

First, I usually see benefits on both sides of the issue. Often, my feelings on a specific issue have more to do with me than it has to do with the merits of an issue. I can see how someone who grew up in a different environment or lives in a different environment might see an issue completely differently, and I respect that.

At the same time, I don’t like the absolutism that both sides of the political spectrum seem to fall into. There seems to be a sense that the other side can’t possibly be right on anything and that negotiating with the other side is a sign of weakness. My dislike for that perspective is far stronger than my feelings on any one specific issue.

In other words, I don’t like to discuss my views on specific issues because the political climate right now is in opposition to rationally discussing issues. For many people, there is no discussion – there is either right (what I believe) or wrong (what everyone else believes), and if you can’t argue the issues, you attack the other person’s religion or character or something else about them. There is no healthy conversation to be had there, so I don’t really feel the need to participate in it. I save such discussions for friends and family that I know are willing to actually listen to and consider a lot of viewpoints and won’t attack me for not wholly agreeing with them.

Our nation can only solve its problems and move forward if both sides recognize that there is far more to gain by compromising a bit and looking for solutions that we can all be reasonably happy with than by simply calling the other side names and refusing to even be involved in discussions and negotiation and compromise.

The funny part is, as I re-read what I just wrote, I can see people believing that I’m a big liberal and others believing that I’m a big conservative. I wouldn’t call myself either one.

The simple two-step process “Step one: Open all doors. Learn a little about a lot. Consider as many options as possible, then add more. Step two: Relentlessly dismiss, prune and eliminate. Choose. Ship.” This pretty much sums up my perspective on personal finance, on careers, and on life. (@ seth godin)

From the Rich to the Poor (or, What I Learned in Africa) If you found this article worthwhile, note that my sister-in-law is heavily involved with Jump for Joel, a charity that’s all about solving this very problem. (@ get rich slowly)

the worthlessness of net worth Net worth is a thumbnail sketch, nothing more, nothing less. No one number can completely describe your financial state. (@ brip blap)

Craft the Life You Want: Setting Up Shop or The Importance of Where You Live This is a very thorough article on living near people with similar ambitions and skill sets as yourself as a method of improving your own situation. (@ art of manliness)

How Misplaced Financial Priorities Lead to Lame Excuses Excuses never work. An excuse is a flimsy patch over a problem you need to be solving. (@ len penzo)

In March 2008, I walked away from a great job into a writing career path that, at the time, paid me about 50% of what I was making at my previous job.

To a lot of people in my life, this seemed like an amazingly difficult step. That move reduced our monthly household income (at the time) by about 30% and seemingly did away with a great deal of job security. Why would I possibly make this move?

I did it for several reasons.

I wanted to spend more time with my family. Over the last few years of my previous job, I felt like I was constantly traveling and away from my family. I also felt that, even when I was around, I was having my family time constantly interrupted by work needs. I did not want to be that kind of absent parent and, for me, talking about wanting to be a great parent was more than just talk. I was going to walk the walk, too.

This was probably the only window of opportunity life would hand me to become a writer. Writing is something I’d always dreamed of doing for a living, but it always felt like something that would never realistically happen. When I first went to college, part of me wanted to major in English lit, but I chose not to do that solely because I felt like there was no income-generating career path other than being an English teacher.

My career path was one where I would never be able to significantly increase my pay based on hard work. I had no chance of ever building a large income stream from my job, no matter what I did.

Our spending was under control. We were not only spending less than our combined salaries, we were spending less than our combined salaries after I switched career paths.

I did not feel as though my previous job was actually helping anyone improve their life. I spent most of my time exploring abstract problems and answering abstract questions. While it was intellectually stimulating, it was quite often spiritually depressing.

I wanted more time flexibility. I often felt very productive early in the morning and completely useless in the mid afternoon, with another productivity bounce in the evening. The nature of my job meant that I couldn’t work when I was productive and find other things to do during my unproductive periods. I had to work for a set period each day, and at least some of that set period overlapped with my unproductive times during the day.

These reasons together made for a compelling case to switch careers when the right opportunity came along.

But what made that opportunity? How did I find a situation where I could make that kind of radical change in my life without losing the things I valued?

For us, it broke down to six key elements. I believe that if you cultivate these six elements in your own life, you’ll open the doors to the kind of career and life change that you’ve always wanted.

Live well below your means
This is first and foremost. If your standard of living makes your current salary a requirement, then your ability to make a major career change is almost nil. In short, you’re choosing the expensive things in your life over career freedom. For some people, that’s a healthy choice, but if you’re reading this article, chances are that you are yearning for some career freedom. Getting your spending under control is absolutely necessary.

Many people view such spending changes as deprivation. Instead, I suggest viewing it as an exploration. What’s the most enjoyment you can have without spending a dime? If you use that as a constraint right off the bat, you’ll often find yourself exploring new things while also channeling your life towards financial stability.

Maximize your monthly cash flow
This goes hand in hand with reducing your spending. A person maximizes their monthly cash flow by minimizing every single one of their bills. Pay off all of your debts. Focus on efforts to reduce your monthly bills – electricity, telephone, food, shelter, and so on. Live in a smaller place than you might otherwise afford.

The purpose of these steps is to maximize the difference between your income and your actual required spending each month so that, if you choose to take a lower paying job, you’re well prepared for any lifestyle changes that might be needed. Plus, you can save that extra income as an emergency fund or a startup fund for any ventures you might want to take on.

Fill your spare time by doing what you love
Rather than spending your spare time idling, spend every spare moment you can doing what you love to do. Don’t be afraid to be an unpaid volunteer if need be. Don’t be afraid to burn countless evenings practicing your skills. In fact, that’s the type of thing you should be doing if you want to make that kind of leap.

The more you practice something, the better you get at it, particularly if you try to change up what you’re doing and don’t just repeat the same routine over and over again.

Cultivate luck by collecting opportunities
Hand in hand with doing what you love is building connections within that field that you’re so passionate about. Spend time contacting anyone and everyone in that field. Get to know them as best you can. Don’t be afraid to do small favors for them as well in order to cultivate a good reputation.

At the same time, don’t hesitate to share the fruits from the time you’re spending doing what you love. The internet just begs for this, in the form of blogs, YouTube videos, Flickr pictures, and countless other avenues.

Reboot your social circle
If you find that your normal social circle is not absolutely supportive of the time you’re spending on new directions in your life, don’t be afraid to reboot that circle. Stick with the friends in your life that are supportive of your changes and find new people to spend time with to replace the people who doubt you or taunt your changes.

Quite often, you’ll find these new friends in the process of cultivating opportunities. As you begin to meet people with similar passions as your own, it’s easy to build new relationships with them. The key is to surround yourself with people that provide some degree of positive reinforcement to your new life directions rather than negative reinforcement.

Be a free agent
A final key step is to start looking at your current job in a new light. Your job is not your life. It’s a method of earning income, one where you exchange some of your energy and effort for some of the employer’s money. Your employer is obviously looking for the best exchange there, so you should do the same. Don’t dump all of your emotions and energy into your job – do your tasks and move on to the real place to utilize your emotions and energy, which is your new area of focus.

Similarly, never fall into the trap of thinking of your boss or your employer as your friend. Yes, quite often they are nice to you because being nice to you is a highly effective way of getting you to go the extra mile. That’s not friendship, however, and if you find yourself going way above and beyond in order to help out a boss or an employer out of a sense of “friendship,” you’re doing yourself a disservice.

Remember, your goal is to get yourself into the right place so you can do what you love with your life. Keep that front and center and you’ll find that things will begin falling into place for you.

Yes, that quote in the title came from a reader who apparently stumbled upon the site in the last week for the first time and felt the desire to write to me expressing his feelings that no one in their right mind would do some of the things I’ve suggested on here over the years, from making your own oatmeal packets to making your own laundry detergent.

On the other hand, I find a ton of value in attempting to make my own versions of basic supplies like laundry detergent and oatmeal packets and, well, toothpaste. Here are some reasons why.

Dollars and cents In almost every case, homemade from-scratch versions of products are substantially less expensive than those you buy in the store. My homemade laundry detergent is about 10% as expensive as Tide. Not 10% less expensive – 90% less expensive. Almost everything else I try as a homemade product variation is simply less expensive than what you find in the store.

Health Many store-purchased products are loaded with ingredients that are placed in there largely to increase the profit margin of the business. Often, some of the items are trade secrets, meaning you have no idea what exactly is in the product; even when you do know, sometimes you’d rather not.

If I make the product myself, I have much more control over every item that goes into the mix. I don’t add weird preservatives (which are there to increase shelf life, which increases profit margins while putting things that really shouldn’t be consumed into your diet) or other unnecessary ingredients to the things I make at home.

Skills By doing such things myself, I’m building my confidence for doing such things, plus improving my own skill set for future projects I might take on. Cooking my own meal over the stove and planting a tree leads to projects like building a fire pit in the back yard.

These factors together encourage me to try to make as many things as I can myself. I save money, I build skills, and I have more control over what’s in the item.

So What About That Toothpaste?
With a subject like that, this is probably the perfect time to mention what I’ve found with regards to actually making my own toothpaste.

Over the years, I’ve tried various mixes to some degree of success. The trick for me has always been to find an easily repeatable way to make and then dispense the toothpaste.

The best recipe I’ve found is mixing 1/2 cup baking soda, 1/4 cup hydrogen peroxide, a packet of stevia (a natural sweetener that also is good for your teeth), and either a dash of cinnamon or a drop or two of peppermint oil (for flavor). Mix these together until they form a paste. If you need a bit more liquid, add a tiny bit more peroxide. If you need more solid for a thicker paste, add a bit more baking soda.

This stuff tastes quite good and leaves my mouth feeling really clean when I’m done with it.

For dispensing it, just head to the travel toiletries section of your local department store and pick out a small empty travel squirt container. If you have one of these, you can actually make the toothpaste right in the container, stirring it with a small stick (I use a chopstick), then putting the cap on and using it as a squeeze tube. Works like a charm.

As soon as we’re done going through our backlog of toothpaste (purchased in bulk), I intend to use this as my only toothpaste.