Each week, I’ll present a low-cost meal (or a meal that demonstrates a lot of options for cutting costs) that my family eats for dinner and enjoys. Many of the recipes will be vegan or vegetarian, with options to add other ingredients for non-vegetarians.

When I was a college student, one of the meals I consistently ate was ramen noodles. I could often pick up twelve packages of it for $1. I would take it home, boil it up, add the seasoning packet, and enjoy.

Over time, my taste buds became a bit more discerning – and I became a bit more health conscious, too. I began to realize how unhealthy the seasoning packets were, full of sodium and MSG and other things I’d rather not think about.

Still, the price was alluring. I could often find packages of ramen on sale for $0.10. I’d still eat them for lunch on occasion.

Eventually, though, I started experimenting with the noodles. What can be done with them that’s flavorful and interesting? I tried using them as ingredients in other dishes without the seasoning packet, eventually to much success.

I eventually reached a point where I found great success making skillet meals out of Americanized versions of Eastern cuisine – kung pao shrimp, for example. By cooking these meals in a skillet and adding ramen, I had a simple and low-cost way to make a very hearty and flavorful family meal.

Note: I’m using shrimp in this example. While I’m on a mostly vegan diet, my diet does include a weekly dose of either fish or seafood in order to get some omega-3 fatty acids into my body, so this is how I got it in this week.

What You Need
This recipe is similar to the “Kung Pao Style Shrimp with Ramen” recipe found in The Best 30-Minute Recipe.

You’ll need:

4 tablespoons vegetable oil
1 1/2 pounds medium or large shrimp, peeled and deveined
1 red bell pepper, sliced thin and cleaned
1 cup roasted unsalted peanuts (lightly salted will work if you can’t find unsalted)
5 minced garlic cloves
2 tablespoons grated fresh ginger
2 tablespoons red pepper flakes
5 cups vegetable stock (you could also use chicken stock if you have it or water if you have no stock)
6 3 ounce packages of ramen noodles, discarding those seasoning packets
3 tablespoons hoisin sauce
2 tablespoons rice vinegar
1 tablespoon sesame oil (optional)
4 sliced scallions or one small sliced onion

The total cost of ingredients for us was about $11, but it made enough for nine meals, dropping the cost per meal down to nearly $1.

Note how this recipe again uses our simple homemade stock recipe. This stuff is so easy to make and contributes flavor to everything.

The Night Before (or Early That Day)
The biggest thing you can do in advance is to cut up the bell pepper and the scallions. You can also mince the garlic and grate the ginger if you wish, but these are perhaps best if you do them right before adding them to the dish. You’ll have time to do this while cooking.

Preparing the Meal
You can easily prepare this meal in a large pot. I used a 5.5 quart enameled cast iron pot to cook this entire meal without any difficulty.

To start, add a teaspoon of the oil to the pot and heat it over high heat until the oil seems to shimmer. Add half the shrimp, let it cook for about a minute, then toss the shrimp. Let it cook for about a minute and a half more, then remove all the shrimp to a separate bowl. Repeat this entire procedure, oil and all, with the other half of the shrimp.

Drop the heat down to medium-high, then add the remaining oil. When it’s shimmering, add the sliced peppers and peanuts. Cook these while tossing them for about three minutes or until the peppers are fairly soft, then remove the peanuts and peppers to the bowl with the shrimp.

Add the garlic, ginger, and red pepper flakes and stir them continuously for about thirty seconds (your kitchen will begin to smell tremendous at this point). Slowly add the stock, then start adding the ramen noodles. Break the ramen noodle bricks up as you add them to the liquid.

Bring this mixture up to a simmer, then stir this entire mixture with tongs for about two and a half minutes. You should be slowly breaking the pieces of ramen apart into distinct noodles with the tongs.

Add the remaining ingredients (hoisin sauce, rice vinegar, optional sesame oil, and scallions) and let it continue to simmer for about a minute and a half more, then serve.

My family loved this stuff. All of the leftovers were happily consumed.

Optional Ingredients
The biggest change you might make is that you could substitute all sorts of things for the protein in this meal. Chicken works, as would beef or even tofu. I would suggest pre-cooking the chicken or beef in a separate container, then adding water to the hot pan once you’ve removed the meat. Save that water, as it’ll make a great liquid to use in this recipe.

Depending on the flavor you’re seeking (and what you have on hand), you could also easily substitute soy sauce for the hoisin sauce.

I got a wonderful email from Alison about extreme saving practices and how they impact retirement. I originally intended to include it in yesterday’s mailbag, but my response grew so long that I felt it needed a post of its own.

Take it away, Alison:

I’ve recently read Your Money or Your Life and wanted to ask you a question about some of their unstated implications. I was raised in a typical Millionaire Next Door family–except not the kind that spoil their kids and ruin the cycle (both my maternal grandparents and my mother are MND types and I’m on my way). When I read MND, one thing that stood out to me is that the “Balance Sheet Affluent” take every tax-advantaged opportunity they can. This rung true with me and I’m currently maxing out my 401k while also fully funding a Roth IRA. But, while never explicitly saying so, YMYL seems to tell the reader not to focus on retirement type plans as that money, nor any of its interest, is not available for withdrawal until 59.5–far beyond what they think is necessary to do the 9 to 5.

Do you draw the same conclusion from the text?

Applying it to my own life, at age 27 I have substantially (50%) more in retirement funds than non-retirement savings. I appreciate that my early saving is going to, with a little luck, maintenance and further contributions, make me wealthy some day. But at the same time, my husband and I are getting tired of the East Coast grind that makes our high-salary/high-savings lifestyle possible and will probably move back home to the midwest and start a family in the next year or so. We would love to have the lifestyle freedom described in YMYL so I’m thinking we will pull back on the 401k contributions to have a larger down-payment on our future (house, slower paced careers, parenthood, etc.).

Ultimately, what I suppose I’m concluding here is that these two books that are both very well respected in the personal finance arena have some fundamental differences. MND is about harnessing frugality and ambition and using the gap between to create large amounts of wealth whereas YMYL is about harnesesing values and “integrity” (or a short spurt of maximum income production) and using the gap between to create a self-sustaining, contented lifestyle. I guess for now, I live in the grey area in between!

Just some thoughts, I’d be interested to hear what you think YMYL says to us about the traditional modes of retirement savings.

I think you hit upon the big difference between the philosophy described in Your Money or Your Life and the one described in Millionaire Next Door. Let’s look at the difference between the two by looking at how each side views a lifetime of saving.

From my perspective, Your Money or Your Life advocates what I would call an “extreme saving” lifestyle. It encourages people to live in a very lean fashion while focusing on enjoying the free and low-cost things in life. Along the way, the person should be putting their money into very stable investments that bear a regular return until they reach a point (as early as possible) when those stable investments bear enough fruit to provide income. At that point, the person is free to do whatever they wish with their life, from volunteering to writing the Great American Novel and everything in between. Because of the extreme nature of the saving, this “crossover point” can happen pretty early in life, well before traditional retirement.

On the other hand, The Millionaire Next Door advocates “balance sheet affluence.” In other words, the focus of the financial moves in the philosophy here is to maximize one’s balance sheet throughout life, minimizing debts and maximizing assets and avoiding taxes. Over a lifetime, this creates a very powerful safety net and one that can be easily passed on at death.

So, where do they diverge? One big area of difference is with retirement accounts. For MNDers, things like a Roth IRA are incredibly important because they simultaneously maximize assets and avoid taxes. The restriction on withdrawals until age 59 1/2 isn’t that important because a MNDer is seeking to maximize their net worth in many different areas and restrictions in one area aren’t that big of a deal.

On the other hand, people who strictly follow YMoYL have a lot less use for accounts that they can’t touch until age 59 1/2. They’re seeking to reach that “crossover point” as young as possible. The only use a Roth IRA might have for a YMoYL follower is a place to get a bit of a tax advantage from savings as they approach retirement. A true blue YMoYLer has no real need for traditional retirement savings as they intend to have income-bearing assets to cover their lifestyle long before traditional retirement age. At the same time, they’re really not all that worried about maximizing their net worth, as they’re more interested in generating consistent income. When they finally reach a point when they need additional help, then they can begin cashing in the assets they’ve lived on for so long.

Which one is right? I don’t think it’s as simple as right or wrong. I think it has more to do with the individual values of the person.

For example, when I think of someone who might be a hardcore YMoYLer, I think of my good friend Rachel. Her life isn’t centered around money – it’s centered around social work. She makes a low income, but she spends even less and is carefully banking the excess. At some point, and I’m pretty sure that point will come well before retirement, she’ll be able to spend her time volunteering for whatever cause is closest to her heart because she’ll have the assets in the bank to support her. If income happens to come in, those assets become a way to add to the savings and future-proof herself a bit more.

On the other hand, when I think of a MNDer, I think of my wife’s grandfather. He spent a lifetime of work building up a collection of assets that are serving him very well during his twilight years and will likely lead to leaving behind an estate for his children. He lived in a way that accumulated assets, particularly land, and now he’s able to live happily and comfortably because of those accumulated assets.

I think they’re both “right.” They’re both using sound financial principles to live a good life in accordance with their own values.

Should an ordinary person think about retirement? Absolutely, because most people don’t live their lives in a way described in either book, let alone the voluntary simplicity described in Your Money or Your Life.

Is there value in reading either book? I think that Your Money or Your Life and The Millionaire Next Door are two of the most powerful personal finance books a person can read. You don’t have to absolutely subscribe to either philosophy, but by simply reading the ideas and stories contained within both books, you’ll grow substantially as a person.

One of the most valuable personal finance tools in our repertoire is communication. Communication with your boss. Communication with your partner. Communication with your children. Communication with the IRS. Communication with your friends. Communication with a retailer.

Communicating well with these people is incredibly valuable. It opens the door to understanding each other better and, often, putting you both in a better financial position.

You might want to haggle with a retailer to get a better price – and the retailer also scores a sale.

You might want to talk to a friend about becoming a money buddy – and your friend might find value in having someone to talk to about money as well.

You might want to talk to your spouse about coming up with a debt repayment plan.

You might want to talk to your boss about getting a raise.

While this all sounds great, there’s one big problem. It’s the eight hundred pound gorilla in the room. Talking about money is fairly hard.

Money is one of those subjects that tends to come packaged with a lot of social rules and mores. It’s not a topic that people tend to feel comfortable discussing, particularly when the subject is first broken in conversation.

For me, there’s also the issue of being an introvert. I often generally feel uncomfortable when talking face-to-face with people. I prefer to be quiet unless I know the vast majority of people in the room.

How can someone overcome these barriers to start a valuable money conversation? Here are some tactics that I use for any conversation about money.

Think about the worst case scenario if you speak up. What’s the worst outcome of this situation? You’re going to pay retail price? A friend is going to say that they’re not comfortable talking about money? Your boss is going to say money is too tight? Almost all of these “worst case” scenarios are exactly the same as if you said nothing at all. In other words, there’s almost nothing but upside from speaking up.

Minimize outsiders. I find that it’s much easier for me to broach a topic that I’m uncomfortable with if I minimize the people I’m speaking to. If I’m going to talk to my wife about money, it works best if it’s just me and my wife. If I’m going to talk to a friend about money, it works best if it’s just me and my friend. I generally don’t bring up money in group settings.

Give the other person an easy out. I do this in most non-haggling situations. I start off by saying that if you don’t want to talk about this, it’s cool, but that it’s a topic that I think we might both get something out of. I also usually make it clear that I’m nervous because, often, admitting I’m nervous makes me less nervous.

Have the facts in hand. If you’re going to be talking about specific facts, have those facts in hand. If you’re going to talk about your finances with your spouse, have the necessary statements and other info printed out and in your hand before you begin talking.

Have the goal in mind, too. Figure out what you want out of the conversation before you even start. If you’re going to haggle, have the price you desire in mind before you start. If you’re going to look at finances with your spouse, know what sort of outcome you desire (a debt repayment plan, maybe).

Don’t beat yourself up over a “worst case” result. Just because haggling fails doesn’t mean you should never do it again. Just because a friend doesn’t want to talk about money doesn’t mean you shouldn’t talk about money with your spouse. A bad result is just that, a bad result. It doesn’t mean you should completely abandon the idea of talking about money.

Get over the fear. Talk. You’ll be very glad you did.

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. Employee Stock Purchase Program help
2. Divorce mess (and follow up)
3. Unsure about next steps
4. Understanding tax brackets
5. A big mess of debt
6. Student loans or mortgage
7. Retirement path
8. A Game of Thrones
9. Self-employment questions
10. College student with some debt

Many people seem to think I have a thing against television. I don’t. In fact, I think that a well-constructed television series is one of the best forms of entertainment for telling a complex story with well-defined characters.

There are two things I dislike about television, though. One is the advertising, not just during the commercial breaks, but during the programs in the form of product placement. The second is the convenience of using television channel surfing to fill downtime in our lives with nothing valuable or productive. Those two things add up to enough to keep me from turning on the television without clear purpose.

I’m all in favor of scheduling a date night once or twice a week and watching a few episodes of a great television series without commercial interruption off of a DVD or off of a streaming service. That can be fulfilling in a lot of ways.

Q1: Employee Stock Purchase Program help
For the past 3 or 4 years I have been working through the debt snowball method of debt elimination. I am now free of all debts other than my mortgage, have about 3 months of emergency savings (working on getting that to 6), and am funding my company-provided 401k at 6% (working on getting that to 10 or moving to a Roth IRA). For the 401k the company match is 2%. I feel like I finally turned a corner on my financial situation and have gone from being a slave to the banking industry to slowly starting to build wealth and plan for my retirement.

I am now debating on whether it makes sense to participate in my employer’s Employee Stock Purchase Program (ESPP). It works like this: there are two enrollment periods per year, and during an enrollment period I can elect to have a percentage of my gross income deducted from my paycheck (on a post-tax basis, of course) to buy company stock. At the end of each 6-month period they add up the payroll contributions made during that period and buy the appropriate amount of shares at the price at which the stock traded on the first day of the period or the last day of the period (whichever is lower). Shares are purchased at a 15% discount and are fully vested.

Every piece of investment advice I’ve read so far (including your blog) generally suggests that the beginning investor stick to index funds, and/or highly-diversified holdings. So my question is this: as a beginning investor, does it make sense for me to take advantage of the discount the ESPP provides and contribute aggressively to buying company stock, or would I be better suited to putting that money in an index fund or other diversified holding? In other words, does the discount provided by the ESPP outweigh the risk of holding one specific stock in my portfolio? I am fairly young (34), unmarried, and currently own a home that will meet my needs for at least 10 years, so I have no immediate goals other than to continue to build wealth. I have a fairly high tolerance for risk, so seeing the value of company shares fluctuate day to day wouldn’t bother me too much as long as they were generally trending upward. Also, I’m not sure if this should factor in, but my company is very successful in its market, and has an earnings growth projection of 22.5% for the next five years.
- Brian

If the stocks are purchased at a discount and you’re fully vested, you could theoretically immediately sell the stocks and earn a profit each time, which seems like a good move.

The question you’re really asking, I think, is whether it makes sense to buy and hold the stocks of a company that you work for. Because you work for that company, you have some intimate knowledge about how the company is doing. If you feel good about that company, by all means, hold the stock.

When should you diversify? I would just sit on your investment until the amount of stocks you hold reach a point where you would feel devastated if those stocks were suddenly worthless. At that point, sell off some portion of your holdings and diversify widely with them, probably through an index fund.

Your intimate knowledge of this company means that you have good reason to invest in them. It makes sense to maintain stocks in that company as a significant part of your portfolio. It’s just foolish, though, to have all of your investments (or even the majority of them) tied up in the stock of one company.

Q2: Divorce mess (and follow up)
A while back I asked you how to get my husband on board with cleaning up our finances. He was refusing to talk about anything and you suggested counseling ASAP. Well, he refused to go to counseling. Then I found where he had taken out title loans on one of our vehicles and that same month he spent our entire emergency fund ($1,000) on one dinner out with his friends and a new TV. When I asked him about the title loans, he said it was none of my business what he did with “his” money and he left…for good. My hours have been cut at work and I do not meet my basic living expenses without child support.

Fast forward a month or so. I am in the process of filing for divorce. Two cars are in my name and that brings me to my question. They are both older cars (a 2000 Nissan Maxima and a 2001 Dodge Caravan) and have substantial mileage on them (90,000 and 120,000). The insurance on them isn’t too bad, under $100 per month for both. I have a teenage daughter who will have her driver’s license before the end of the year and wants to get a job. Should I keep both cars so she will have one to drive and we will have a spare in the event one breaks down, or should I sell one (my mechanic says to sell the Nissan – higher upkeep costs)? The Kelly Blue Book value on the Nissan in its present condition is between $4,000 and $4,500, which could fund my emergency fund, plus pay some upcoming expenses.
- Jill

That sounds like a relationship that it was good for you to get out of now rather than later on. Eventually, the situation would have collapsed, and it might have collapsed with you in a much worse financial state.

As for the cars, you should absolutely sell one of them, and I’d likely sell the one your mechanic recommends that you sell. Upkeep costs are a major factor in this decision, and if you’re minimizing costs, losing the vehicle with higher upkeep costs is the best move.

Take the money you earn and bank it. You’ll be glad you did.

Q3: Unsure about next steps
After our credit cards are done being paid off estimated at the end of this year here is what we have left to tackle (numbers are very close guesses to the balance in January of 2012):

Mortgage: Approx. $282,500 – Payment is rounded up to $2,280 – 5%
Car Loan: Approx. $22,000 – Payment is $507 – 2.89%
Student Loans: Approx. $38,000 – Payment is $305 – rates vary from 2.75% to 4.25%

The question I have is, what do I tackle next? I see from the math, the Mortgage is the highest interest rate and should be next. I guess the issue I have is that since it is so underwater, is that still my best bet? Or do I really start contributing the max to my Roth IRA and open one in my husband’s name too?

We were hoping to be moving out of NJ to NC next year, but it’s not realistic with the housing market (the house across the street, with one less bath, just sold for $216,000 – or about $60,000 less than what we paid, not to mentioned what we’ve put into the house). We are hoping to be moving in 3 years, and I’m not sure I want to buy another house after what we’ve experienced with this one and the market being what it is. I’m not sure I’m willing to tie my money to an asset (depreciated asset in my case) again. IF that is the case, I understand that I am liable for the difference between my mortgage and what my home eventually sells for. Does it make sense to mitigate any potential loss there, or am I missing something?
- Diane

You’re correct in that if you sell your house, you’ll be responsible for the difference between what you owe and what you sell the house for (assuming you’re underwater).

You can discuss a short sale with your lender, but they’ll generally only be interested in your request if it looks like you’re heading toward foreclosure.

Assuming you’re not looking at just walking away from the house, your best bet is to just start paying down that mortgage as fast as you can. At some point, you’ll no longer be underwater and can sell it if you so choose.

Q4: Understanding tax brackets
Can you help me understand tax brackets? According to bankrate.com, the 2011 tax rate for my gross income ($43,260) as HOH should be 15%. Today, I asked my payroll dept for a tax deduction breakdown for what the company deducts from my salary. This is the breakdown I received:

8.7% – Federal
4.2% – State
4.2% – Social Security
1.45% – Medicare

Along with my 3 exemptions, how does this align with the 15% tax bracket I supposedly fall into? I do have a 6% pre-tax contribution & $1000 pre-tax deduction for my medical flex spending account.
- Lacey

If your gross income is $43,260 and you’re filing as head of household, you’ll be paying 5% of your income for all income you earn between $0 and $12,150, and 15% of your income between $12,150 and $46,250. So, for the first $12,150 of your income, you’ll pay $607.50 (that’s 5%), and then for the next $31,110 of your income ($12,150 up to $43,260), you’ll pay $4,666.50. Your total tax will be $5,274.

Now, that amount changes depending on how many dependents you’ve stated on your W-2. If you listed, say, four dependents, they’ll subtract $3,750 times 4 from your initial salary, changing how much is taken from your paycheck. In this case, you’d pay $607.50 on the first portion of your income and $2,416.50 on the second portion. This adds up to $3,024, which is right around 7%.

I’m guessing that you have three dependents or so – you, your spouse, and a child. That’d get you pretty close to the 8.7% you see here.

Q5: A big mess of debt
I graduated from college in 2007. My student loan payments started in late 2007. I could not find a full time job until March 2008, although I was paying the minimum on my student loans, which is all I could afford. In March 2008 I got a full time job, but still could barely afford to pay all my bills (about 1,100 a month which includes cell phone, rent, student loans, 2 credit cards (one is now completely paid off), car insurance, but does not include gas/car maintenance, or food, or clothing, or entertainment of any sort). I was making about $1,400/month (after taxes, health insurance, and at the time, a 401k), so after necessary expenses, food and gas, etc. I never made it to the end of the month with any money in my bank account. Needless to say, I couldn’t save anything, and couldn’t afford to pay more than the minimum on my student loans (which looks like it’s JUST interest). I should mention that I only get paid once a month

I stopped paying into my 401k in the beginning of 2010 because of furlough days, and haven’t contributed to it since (which I REALLY want to start again since my employer matches up to 4%). In May of 2010 I got a raise, so that I was bringing home about $1,600 a month (after taxes and health insurance and furlough days). At the time I had just purchased a high end camera (about $1,500) which I used financing for through Best Buy (photography is my favorite hobby, so I felt justified in using financing to buy the camera). That was paid off in February 2011, after which I then decided to go after my other credit card (which I describe below) and I’m sure was the wrong decision, but I don’t have a choice now.

I have one credit card paid off leaving about $1,900 on another that I am working on (I recently transferred the balance of this card from my oldest credit card (which I kept open for my credits sake) and put it on a 0%-interest-for-12-months card so that I could aggressively pay it off without wasting money on interest. That should be paid off by January 2012 and I plan on cancelling that card, unless I can talk them into giving me as good of an interest rate as my current oldest card which is about 9%.

Anyways, my big problem are these student loans. Here is a breakdown:
Private loan (not able to consolidate with any other loan) from Sallie Mae (9.25% interest rate):
– Original loan amount= $10,500/Outstanding principal= $10,326.17.
Consolidated loan from Sallie Mae (5.625% interest rate):
– Original (combined) Loan amount = $23,096.91/ Outstanding principal (combined) = $22,337.76.

These numbers make me want to cry since I have been putting so much money from my tiny salary toward these payments for almost 4 years and they’ve only gone down by a tiny tiny bit! I’ve been keeping up with your blog about loan situations and I know that I should save a small emergency fund (which I have about $430 in so far) then throw everything extra at the highest interest loan and only pay minimums on everything else until I pay that one off, then move onto the next highest interest loan etc.

My problem is I barely have enough money to get me through the end of the month let alone throw more at this student loan, which is also hard to think about since it seems I am getting NOWHERE even though $300/mo of my paycheck gets thrown at Sallie Mae just to cover the MINIMUM payment. I feel like I have no ability whatsoever to get ahead on these student loans. I think I should have avoided transferring my credit card balance to a 0% interest rate credit card because now I am spending about $90/mo more on that payment just to avoid pay interest on that amount.

I guess I’m wondering what you would do in my situation? Come January when my credit card is paid off and I will have an extra $190/mo, should I put it ALL toward the high interest student loan (which still won’t make that much of a difference in my mind), or should I put that money into my 401k? Or should I save it? Or should I split it somehow?
- Lisa

If I were you, I’d keep doing what you’re doing for the time being. In January, I’d get your emergency fund up to a point that’s equal to two months of living expenses, then I would start retirement contributions and focus on that higher interest loan with what’s left.

When you’ve got so much of your monthly income accounted for, you don’t have much room for an emergency. An emergency fund is a must-have, even if it feels like it’s keeping you from really knocking down the debts.

Yes, this is a frustrating path to follow. Yes, it feels like you’ll never get out of it. The things in life worth having are never, ever easy.

Q6: Student loans or mortgage
My wife and I do ok with managing our money. We don’t carry consumer debt but never seem to do much better than breaking even each month. Lately we’ve decided to try to really get in to good financial shape. We’re establishing an emergency fund and are hoping to start saving more towards retirement and general savings (I currently contribute to a 401k at work for the matching benefits, but that is it.)

My wife and I bought our house two years ago. When we bought it we figured that if we made one extra house payment a year we would knock ~7 years off of our mortgage. Now we’re trying to decide if it is better to do that or to pay down our student loans. We know that we aren’t going to be in this house more than another year or two. We will probably sell it when we move, but we have considered renting it out instead.

My wife’s loans are about $11k and mine are about $21k. Our only other debt is a personal loan I’m paying off at the end of this month. We use our credit card to pay bills (so we can build rewards points), but never carry a balance. We always pay it off every month.

Do you think it makes more sense to make the extra house payment each year, or to use that money to pay down the student loans?
- Aaron

I would look first and foremost at interest rates. What has the highest interest rate among your student loans and your mortgage? That’s the debt I would focus on.

If you pay down your mortgage fast, when you sell it, you’ll have more proceeds than you would have otherwise, which you can then apply to the other loans. If the mortgage interest rate is higher, you’ll save more over the year or two you still have the mortgage than you would by putting that money into a lower interest student loan.

Of course, another vital question to ask is whether you’re underwater on the mortgage. If you are, I would strongly suggest hitting the mortgage as hard as you can.

Q7: Retirement path
I am a married attorney in Seattle. We have a home with about $250,000 in equity. We have 22 years left on the mortgage. I am 37. I’ve been at a company with great retirement for the past 5 years: 4.5% match for my 6% in the 401k and 4.0% cash balance plan. I only contribute 6% and have been doing so for 5 years. Would you make any changes?
- Chris

The first thing I’d do is run all my numbers through a retirement planning calculator and see what it suggests. Assume that investment returns will be the worst they possibly can – don’t get optimistic with your projections.

I can’t tell for sure if you’ll be all right. If I were to guess based on the information you’ve provided here, I’d say you’re on the low end of being all right, but you’re not in devastating shape.

Run the numbers.

Q8: A Game of Thrones
I saw that you really liked the novel A Game of Thrones by George R. R. Martin. Have you read the rest of the books in the series? Are you watching the T.V. series?
- Roger

I’ve read all of the books in the series. I’ve read A Game of Thrones three times, and I’m currently reading it a fourth time with the intent of re-reading the entire series.

I watched the first episode of the series and it seemed to duplicate the first ten chapters or so of the book with only minor changes. The characters didn’t look quite like I envisioned them but the heartbeat of a very strong story was still there.

The series is fantastic. The only thing I’d say about it is that it can get bogged down in too many characters, especially later on.

Q9: Self-employment questions
My husband just started his own trucking company. He’s the only employee as an owner-operator of an 18 wheeler. We are both co-owners of the business. I have a full time job making about $32,000 a year. We expect our company to gross about $90,000 a year. That would put us in the 25% tax bracket. How much money should we be putting aside for taxes? I know we have to pay them quarterly, but do not want to end up owing a lot of money next year when we file. We do not have any children together, but he has two kids with his ex-wife. The divorce decree says she gets to claim them, but may let us claim them like we did last year beacuse she doesn’t work, isn’t married and doesn’t file taxes. I have been put 30% of his check aside to pay the quarterly taxes. As a small business, I know we can claim a lot of business expsenses. Do you think I am putting emough aside? We both contribute to Roth IRAs so that will not bring our taxable income down like a traditional IRA would.
- Rebecca

My strong suggestion to you is to use IRS form 1040-ES and run the numbers with the attached worksheet. I think that 30% will be plenty for what you describe, but you’re better off running the numbers.

I will say that I find the methods for tax collection and calculation to be particularly burdensome for the self-employed and people who run very small businesses. The IRS seems designed to discourage self-employment and encourage just working for an employer, sadly enough.

Where’s the entrepreneurial spirit that made America great?

Q10: College student with some debt
I am a senior in college graduating next month with my BS in civil engineering. This summer, I will continue with my education in pursuit of an MEng in civil engineering. After graduation, I expect to have a starting salary anywhere from 45k to 60k (depends on market and field). However, during my time at school I made a few bad decisions. I opted to focus on my grades and extracurricular activities while working as little as possible. In doing so, I will graduate with a 3.8 GPA and numerous awards and leadership roles for my resume, but at a cost. So far I have accumulated 12k in student loans and around 6k in credit card debt (APR > 20% on each). This summer I will try to find a part time job since I will only have 6 credit hours divided into 2 days. As well, I secured a teaching assistant position this coming fall. My projected income from teaching assistantships and scholarships for the fall is $2000/mo and spring is $800/mo (without considering additional student loans and possible additional part time jobs).

I am having a hard time deciding what set of actions will put me in the best position after college. I could either continue to pay the credit card payments at roughly 300.00/mo (currently, I pay more than the minimum) or I could consider taking out a non-federal loan at an interest rate below 12% and using that to pay off the credit card bills. This will also give me a little more wiggle room with my monthly expenses. Both options will have me finding part time jobs for the summer and spring (since I have a job lined up for the spring). Do you think applying for a loan just to pay off my credit cards for good is a good idea since my interest rates are so high?
- Adam

I would never consolidate credit card debt into a student loan. Student loans exist under different regulations than credit cards and can follow you no matter what happens in your life. It is much easier to resolve a credit card debt than it is to resolve a student loan debt.

I would seek out other methods of reducing the rate on that credit card debt. You may want to consider a 0% balance transfer offer to another card if you’re eligible. You may also want to try directly contacting the credit card issuer and requesting a rate reduction, though there is a risk that they may reduce your line of credit.

I wouldn’t panic about it, though. Just make sure that it doesn’t get worse and keep your credit report in the best shape possible.

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.

About a week ago, I answered a question from Ashley that’s really stuck in my head since then. Here’s the question and answer:

Growing up, I was not pretty spoiled, materially speaking, and was never taught to manage money. This led to bad spending habits in adulthood, and a divorce caused me to have to settle with my credit card companies because my debt was huge. I have always been one of those people that will buy something on impulse, and shopping has always cheered me up when I am down.

Recently, my fiance lost his job, and I am a grad student whose only income is as a teaching assistant, so we are really in a horrible place where it’s not possible to even pay our necessities, let alone “splurge” at all. We are both looking for full time jobs now, but are not having much luck.

I am so miserable right now. I miss being able to eat out, or buy something for myself now and then. I don’t know how to be happy like this, and I’m not sure how I can really work on accepting it. I also don’t want to live irresponsibly anymore either, because I know the importance of saving and being debt free now… so I really don’t want to return to that way of life even when I’m able to. Do you have any tips on accepting (and enjoying) this type of lifestyle?
- Ashley

For me, the biggest switch in getting away from materialism was to start focusing on what I had rather than what I didn’t have.

For example, I used to really lament not being able to eat out all the time with Sarah. After a while, though, I began to realize that the good part of that was that I got to eat with Sarah. Eating out was a treat, but it wasn’t the part of the equation I really valued.

I have a roof over my head. I have a wonderful wife and a wonderful family. I can keep food on the table. I have the things that are really important to me.

You can either look at your life as a cup half full or a cup half empty.

Two additional readers wrote to me after reading my answer to this question, pushing me to dig further into the issue. The more I thought about it, the more I realized there was a lot more to say.

Our hierarchy of needs Many of us are familiar with the work of psychologist Abraham Maslow. Maslow argued that human beings have a hierarchy of needs, meaning that we can only worry about certain things if we have more fundamental things well secured.

Underlying everything are our basic physiological needs – breathing, food, water, sleep, excretion, and so on. What functions do we need to undergo to maintain life?

Once those needs are met, we then worry about security: security of our body, security of our resources and money, security of our career, morality, and so on. Are the things we value safe?

If our security needs are met, we worry about things like friendship, family, and intimacy – love and belonging.

If love and belonging are secure, we worry then about esteem – self-esteem, confidence, respect of others, respect by others, and achievements. Above those is self-actualization – morality, creativity, spontaneity, and so on.

Hierarchy of needs gone haywire What I see in Ashley’s question and in the experiences of an awful lot of people (myself included) is a confusion as to that hierarchy.

We’re often convinced, either by fooling ourselves or being fooled by others, that some things are more of a basic need than others or that some of our basic areas are well-covered.

Let’s look at some examples of this.

Fooling yourself For a long time, my finances were in a mess, but I often refused to look at the mess. I’d look at things like my income level and the material items I had and I could easily tell myself that my finances were in good shape.

Doing this would “patch up” a very worrisome hole in my life, lulling me into a false sense of security and leading me to think instead about matters of esteem. Because I had this issue “covered,” I would then think about matters of esteem and how I appeared to others and what short-term enjoyable thing I could be doing.

Being fooled Advertisements and marketing often seeks to mix up our needs by slipping matters of esteem and self-actualization with deeper needs: security, love and belonging, and even physiological. Ads try to tie products to sex, to danger, and to other basic responses so that you tie that product to something very fundamental, increasing the urgency for that product.

This spreads to mass media, including the news. So often, news reports are written based on the PR releases of various companies. These news reports copy the misrepresentation of our needs from the public relations of companies that profit from that misrepresentation of our needs.

Lack of critical thinking about others Ever heard the phrase “the grass is greener on the other side of the fence”? It is very easy for us to look at the things and the situations others have and desire that situation. We see the positives (a nice car, lots of possessions) and not the negatives (a tense job, sleepless nights, lots of debt).

In other words, we don’t recognize that the choices made by others have costs that affect deeper levels of need. Instead, we see only the benefits which reside at a higher level of need. We don’t see the sacrifice of the basics to have the non-essential things.

Lack of self-analysis With all of these mixed messages, it’s no wonder that we get our hierarchy of needs confused. The best way to really put things back in their place is to spend time thinking about your life in a critical fashion. What’s really important to you? What’s not really important?

Many people never take the time to do this. I can certainly say that I didn’t do it for a long time, and I can see through the behaviors of others that they’re skipping out on self-analysis, too.

If you take home any action from this article, it’s that time spent evaluating your life and your beliefs has tremendous value. It can get your hierarchy of needs in order, and the more ordered your hierarchy of needs, the easier it is to keep your spending in check and be happy with the things you have in life.

Lack of self-appreciation A final element that I see in this is that many people – again, myself included – fall into the trap of not really appreciating the bounty of things they have in their lives.

Virtually everyone reading this has many, many things going for them. You have enough life security to spend time reading an article on the internet. You have people that love you. You almost assuredly have a roof over your head. You have a skill set that enables you to earn money in some way. You have a number of possessions that you deeply enjoy. You have access to many, many free avenues of entertainment and personal growth (heck, just start at your local library).

Your life has incredible bounty and abundance. The desire you have for the material item of the moment is insignificant compared to the mountain of opportunity and abundance you have every second of every day. You already have so much – don’t overlook it out of a secondary desire for even more.

I considered posting this article during the actual tax season, but I decided to wait until the rush of actually filing taxes was over.

Almost all of you who live in the US have filed your income taxes by now. Some of you – the self-employed or functionally self-employed, like I am – have filed first quarter estimated taxes as well. Others may have filed business taxes.

We’ve all gone through a process that, at the very least, involves filling out forms and hoping that others have done their part to make it all right. In other cases, like my own, it involves lots of pages of forms, tons of calculations, the near-requirement of buying software or hiring a specialist, and hoping that you didn’t overlook one out of a thousand little things. Because if one thing is wrong, you’re probably going to get fined and audited.

The process of filing income taxes needs to be simplified. Period.

Please note that I’m not talking about political theories and philosophies here. I fully know that some people out there would like to see lower taxes and reduced government programs, while others would see higher taxes and more/better government programs. I also know that some people would shift the tax burden in various ways, reducing taxes on various income brackets and raising taxes on other brackets.

Instead, I’m talking about the unnecessary challenge and risk of filing taxes for most ordinary people.

Here are five simple suggestions that the IRS could follow to make this process easier for everyone – including themselves.

They should make it possible to file taxes using a web form. Just log on to a secure IRS site using some credentials they’ve sent you, fill in the form online, and perhaps print out a confirmation page and send it in with any papers you need to send. The process of filing taxes could easily be handled by a well-designed web form. Not only that, the data would go straight into their database without any fuss and without middlemen.

They should use the best possible security. One concern I’ve always had with filing taxes is with identity theft in the process of filing it. A highly secure online system, while not eliminating identity theft avenues, does reduce them.

They should auto-fill in as much of the information as they possibly can. If they’re doing this web-based filing, they could auto-fill in a lot of your information based on information filed by organizations that paid you as well as information from your previous year’s tax forms. No more typing in or writing everyone’s names, Social Security numbers, employer information, and so on.

They should simplify electronic payment. If you’re going to receive money, give more options for paying out. If you need to pay, make it easier to pay in when you’re filing. A simple electronic transfer from your bank would be a great choice.

They should not charge for these services. Many people will say that you can just buy software to do all of this stuff. You shouldn’t have to pay for software in order to to a basic tax filing.

Of course, this brings up a few additional questions.

Won’t this destroy the tax filing businesses? Not necessarily. Many people with high incomes might very well still hire professional filing services in order to maximize their return. Similarly, people who want to do it themselves might also get assistant software that will help them identify maximum deductions and so forth. The IRS really has no reason to provide such services, as doing so would reduce their income. When you deduct, you pay less, after all. I would certainly use assistant software.

Wouldn’t this increase IRS costs? In the short term, it might. In the long term, they wouldn’t need people to manually process forms, drastically reducing the manpower needed by the IRS over time. Again, this doesn’t necessarily mean job loss; people could simply not have their positions filled when they leave.

How does this solve the problem with taxes in America? As I stated above, it doesn’t resolve any of the outstanding policy debates about taxes. What it does do is make sure that, whatever the outcome of the debates, it’s easier for people to file their taxes and more efficient for the IRS to process returns. That’s something we can all agree on, I think.

I receive many emails each day from people who have had some kind of financial crisis. Most of these stories have a great many factors in common with each other, although the specifics can vary wildly. Here are some of the specific elements many of the stories share.

Something unexpected happened. Life was going along seemingly well until something happened. A job loss. An illness. A pay cut. A credit card cancellation. A car failure. Something triggers a big financial downturn.

You were operating without some type of financial safety net. The person in question often isn’t prepared for this unexpected financial downturn. They don’t have the resources on hand to deal with it.

Things you thought you could rely on weren’t as reliable as you expected them to be. The person doesn’t have credit available that they expected. Friends and family they believed would help them out didn’t come through. The landlord wasn’t as forgiving as they expected he would be.

You didn’t respond in the best way when the crisis first happened. Your first response to the crisis was often to either stick your head in the sand or to make another immediate financial mistake, such as putting the car repair bill on a credit card. Often, there are a sequence of small errors following the unexpected event.

The situation now seems unescapable. You’ve gone from where you were at before the unexpected event to a situation that now seems unescapable.

For me, the unexpected event was Sarah getting pregnant. The immediate bad move we made was to spend way too much money preparing for the baby.

Obviously, if I could roll the clock back to 2004, I’d do everything I could to prevent myself from rolling down that financial hill. Luckily, there are things people can address to take care of virtually every point of this story.

Have a plan
What exactly would you do if you lost your job today? What would you do if your car wouldn’t start today and needed a $3,000 repair? What would you do if you found out you had cancer today?

Do you have a plan? Or would you just panic?

It is much easier for people to imagine that their future is bright and perfect. I’ll always be healthy. I’ll always be able to work. I’ll always be able to go out and start that car and go wherever I want to go.

It’s never fun to think about failure, but spending some time thinking about these events right now when your mind is rational and you can conceive of rational plans to deal with them is far better than addressing them for the first time in a panic.

Have an emergency fund
An emergency fund is the perfect tool to stand in the way of any setback. Cash solves an awful lot of problems. It can pay the bills during a period of job loss. It can cover a car repair bill. It can keep you afloat if your credit card issuer cancels your card. It can help with almost any kind of family emergency.

I recommend that everyone have $1,000 in cash just sitting in their savings account, and everyone without any high-interest debt have at least two months’ worth of living expenses just sitting in cash in their savings accounts.

Have insurance
If you would be in a serious financial pickle if your spouse were to die, you need life insurance on your spouse. The same is true with long-term illnesses – disability insurance is vital. I don’t even need to make the case for health insurance. Auto insurance is usually a legal requirement.

Insurance is your safety net for extreme circumstances that emergency funds can’t cover. If you see situations (that have reasonable chance of occurring) in your life that you wouldn’t be able to handle, get insurance for that situation.

Choose reliable people
Are your friends and family reliable when the chips are down? Think about how they’ve acted when others have been in a pinch. Have they helped those people out? Or have they ran away?

You can also shore up such situations in your own life by standing by people in your life when their chips are down. People really need other people in their lives when things are wrong, and when you show that you’re true to them when they need you, they (and others in your life) are much more likely to be true to you when you need it.

As I’ve mentioned on The Simple Dollar before, one component of our monthly budget is what we call “fun” money. Each of us gets a relatively small amount of pocket money to spend on what we wish. We can hold onto it for a few months to buy something big or use it on frivolous things like stops at a coffee shop.

For us, this is a vital part of our budget. It gives us three key things that budgeting without such flexibility doesn’t allow.

First, it allows for spontaneity without worries. We can go to the bookstore or the coffee shop without worrying about whether that choice will undo some element of our budget or cause us to miss a bill or anything like that.

Second, it gives room for secret gift giving. Because we have this flexibility, we have the ability to surprise each other with gifts at gift-giving occasions. Not only that, we also get to feel a bit of the “pinch” of saving up for a great gift for someone, because if we’re saving up for a great gift, we’re not spending money in other areas.

Finally, it allows for some independence and freedom. We don’t question how each of us spends our “free” money. I tend to buy games and books. Sarah tends to buy books and sweet treats. Because we have that flexibility, neither one of us really worries about what the other one is doing.

Here are a few of the specific implications and implementations of allowing some free spending money for each of us.

We don’t worry about a precise amount because we follow each other’s spending. If one of us spends a bit more than our flexible amount allows, that’s fine, because in other months we definitely spend far less than usual. This policy might not work for some people who are trying to learn how to constrain their spending. In that case, setting strict dollar limits might be a very good idea.

We often withdraw it in cash form. Most of the time – unless an online purchase is involved – we do all of this in cash. For example, right now I’m saving a significant portion of my monthly “free money” for an August trip to GenCon with several friends. I’m literally sticking cash in a jar for this trip.

We sometimes use it to cover things from our normal budget. For example, I recently paid for a dinner out with the family out of the cash I had in my wallet. This directly helped our regular budget. I didn’t mind.

We still have to maintain some form of self-control. Although we have this flexibility, we still have to be in control of our spending. It would be very easy to fall back into bad spending habits if we didn’t have the basic understanding that doing so would be very detrimental to our future.

Having some “free money” for each of us in our budget makes it much easier for us to stay on track with our big financial goals without going crazy. If you’re finding it difficult to “buckle down,” consider writing some flex money straight into your budget. You might find that it makes all the difference in the world.