When I first started writing The Simple Dollar, it was quite easy to find savings accounts that offered interest rates as high as 5%. Even more amazing, banks offered certificates of deposit (CDs) that had rates that approached (or sometimes crossed) 6%.

In that environment, there were a lot of pieces of personal finance advice that made sense that might not make sense now.

I’ll give you a clear example: CD ladders. I wrote about the idea of CD ladders almost four years ago, but the concept is simple to explain. Let’s say that a bank is selling 3-month CDs at 5%.

On January 1, you buy a CD.
On February 1, you buy a second CD.
On March 1, you buy a third CD.
On April 1, the CD you bought in January matures. You use the proceeds from that to buy another CD.
… and so on.

After the first three months, you can just use the proceeds to buy another CD. This was a great thing to do with a large emergency fund by parking a month of living expenses in each CD because if you have a CD maturing each month that holds a month’s worth of living expenses, you can live on a chain of such CDs if you need to.

Here’s the thing, though. Compared to an ordinary savings account, a CD has some benefits (a higher interest rate) and some drawbacks (you essentially can’t touch it until it matures, meaning your money is locked away). In order for the benefits to outweigh the drawbacks, the interest rate on a CD has to be notably higher than the interest rate on a savings account.

In 2007, you could often find interest rates that were 1% or even 1.5% higher on a CD than on a savings account. That sort of gap made the difference worthwhile and made buying CDs make sense.

Flash forward to today. Rarely can you find a CD that’s more than 0.25% higher than what you can get in a savings account. That gap makes CDs a lot less appealing because of the flexibility you have to give up to get them. Thus, the changing economy has changed some sensible planning for cash savings.

There are many examples of these types of changes, such as credit card arbitrage, individual company investing, and so on. The more specific the investment or financial choice you’re discussing, the more likely it is that the advice you’re given will change with time and the economic tides.

If that’s the case, what good is such advice? Advice that describes very specific investments are good for people who want specific directions to follow, but it’s important to note that such advice becomes dated very quickly.

A much better approach is to understand the principles behind what you’re doing so that you don’t need the specific advice. How much is the drawback on that CD really worth to you? I price it at around 1% – the lack of liquidity really is a drawback. So, if a CD beats my savings rate by 1% or more, I’ll put some of my savings into a CD. Otherwise, I’ll let it be. This rule works when the economy is doing well and when the economy is doing poorly.

The best personal finance advice works no matter what the economy is doing. Spend less than you earn. Invest in a diversity of things, including yourself. Avoid debt unless you have a guaranteed return that greatly exceeds the interest you’ll pay on that debt. Save for purchases you know are coming in the future so that you can avoid debt.

It is those timeless principes, when well understood, that will guide you no matter what the economy is doing. Specific advice is usually just a clarification of those principles for the current moment, and when those moments pass, that specific advice becomes far less useful. It is far better to understand the true ideas behind them.

I recently read a wonderful post over at The Technium containing twelve simple shopping rules of thumb for various products, mostly technology related. Some of them are great. A few of them are outdated. I find I use some of them myself; here are the ones I really find value in:

Pay for RAM, not speed. The speed of the computer chip does not matter; the attention-span or RAM memory does matter.
Pay for components, not cables. Buy the best components, and the cheapest cables.
Pay for speed, not channels. For cable internet, with enough speed you can watch TV channels on the internet for free.
Pay for sensor size, not pixel count. On today’s cameras you’ll have enough megapixels; better quality comes from larger sensors.
Pay for reliability, not mileage. On a car, you’ll spend more of repairs and maintaince over its lifetime than you will on a difference in gas.
Pay for comfort, not weight. A bicycle’s feather weight is moot once you add water bottle, a bag, any extra clothes you wear, while its comfort never disappears.
Pay for glass, not shutters. In professional cameras, great lenses endure, while the camera bodies change and go obsolete.

(I included the two photography ones because I’m related to multiple professional and semi-professional photographers, so I’m at least a bit knowledgeable in the field.)

These simple rules of thumb for purchases can be a great starting point for the research that you do when deciding what products to buy. They don’t point you straight to a product, per se, but they tell you which features are more likely to give you value for your dollar when you do make that purchase.

Over the past few weeks, I’ve been accumulating a number of these “rules of thumb” for more common household purchases. Here’s that list – hope it helps.

Pay for location, not square footage. A home in a good location will always retain its value. On the other hand, lots of square footage mostly means room to store stuff you don’t really need, you often have to be far from your job in order to have a huge house, and there are tons of empty McMansions sitting in the suburbs that are unable to be resold due to the housing glut.

Pay for utility, not quantity. If you’re buying kitchen implements, you’re better off buying basic tools that really work for a lot of things rather than tons of tools for specific things. You don’t need more than three knives (a paring knife, a chef’s knife, and a bread knife, along with a honing steel). You don’t need more than two pots, one saucepan, and one skillet – you can make about every dish imaginable in those four things because they’re so flexible.

Pay for hardware, not software. Most of the applications that people need for their home computer have quality free versions online. Need Office? Use OpenOffice or Google Docs. Image editing? FotoFlexer (and other such tools) do almost anything a home user would want to do.

Pay for the beans, not the coffeepot. My wife uses a cheap old coffee pot that she’s had since we were in college. The coffee you put into the pot makes all the difference, not the pot itself, according to her. A $200 coffee pot with bad coffee beans will still make you a poor drink.

Pay for speed, not size. If you’re buying a new computer and are comparing hard drives, get the faster one rather than the bigger one for home use, as it’ll speed up your computer substantially and you don’t really need another 80 GB. The fastest ones are the solid state drives, but if you’re buying a regular hard drive, get the one with the fastest RPMs. Get the smaller drive, too. You can always buy a far less expensive external USB drive for file storage if you manage to fill up your main drive.

Pay for reference, not entertainment. I only buy a book if I know I’m going to return to it again and again. For books that don’t fall into that category, I check them out at the library or swap them online.

Pay for energy efficiency, not features. When you’re buying a large appliance, the energy efficiency of the appliance outweighs virtually every feature because of the enormous amount of energy used by the appliance. For example, an older refrigerator can use as much as 1,400 kWh of energy per year, which adds up (at $0.12 per kWh) to $168 a year. A newer refrigerator may use as little as 200 kWh of energy per year, which adds up to $24 per year, a savings of $144 per year. Over a twenty year lifespan, that’s $2,880 in savings, far more than the cost of the fridge itself. Similar calculations are true for other large appliances, such as washers, dryers, furnaces, and A/C units.

Pay for freshness, not convenience. Paying for convenience with food is usually a very poor bargain and often results in either bland food or food loaded down with so many chemicals and artificial flavorings and preservatives that you don’t even want to imagine what it’s doing to you inside. Buy fresh foods, take them home, wash them, and prepare them simply. Knowing how to use a slow cooker in conjunction with fresh foods is a life changer, because you still have the convenience of coming home to a hot meal that’s ready to serve, only it’s made with fresh and naturally flavorful ingredients, without lots of preservatives and the like, and for a lower cost.

To close, here are two bonus tips that can be used to evaluate even broader choices in your life.

Pay for experiences, not things. A thing is something that takes up space in your house. An experience changes who you are as a person. One cannot be replaced, while the other can easily be replaced. Give me junky furniture and a lifetime of memories.

Pay for what you need, not what you want. This is the best tip of all. Figure out your actual needs before you ever go shopping for any item, then seek out the least expensive option that matches your needs. Your wants mostly just cost you money without giving you anything you need.

The things you don’t want to hear are often the very things you should be thinking about and focusing on.

Whenever my weight used to peak, the last thing I wanted to hear from anyone was a remark about my weight. It made me angry to hear it and I would often just walk away from anyone who remarked on it.

At the various points in my life when I was really challenged by my spiritual and religious beliefs, I would often get very upset with people who would speak out in opposition to whatever my beliefs were at the time. I did not want to hear criticism of whatever it was that I believed.

When my spending was at its worst, I would get incredibly defensive about how I was choosing to spend my dollars and cents. I’d simply say that I could afford it (when I often knew I couldn’t) and that would be the end of the conversation, at least from my end.

I didn’t want to hear the things that others were saying, even when those others were people who simply cared about me and didn’t want me to fail in life. Each time, those things I didn’t want to hear were the very things that I needed to listen to and think about.

Look at your own life and the conversations you have with others. What topics irritate you and make you defensive? What issues, when they’re brought up, make you leave the room? Do you avoid certain people and certain situations just to avoid certain confrontations and topics? Almost all of us have a thing or two that falls under these categories.

Those issues deserve your attention and focus, whatever they are. Why are you feeling defensive?

It may be that they’re pointing you toward an area in your life that needs a change. It may also be that they’re challenging a belief that you hold dear but don’t understand well enough to discuss rationally.

No matter what the case is, you are greatly rewarded by digging in a little deeper.

For me, the best route for digging deeper into a topic is to go to the library and check out some books. I dig deeply into that area until I understand it more thoroughly, at least ensuring that I understand why I was defensive and what I can do to undo that defensiveness.

Usually, I’m led down a path of change in my life or I’m forced to re-evaluate beliefs and attitudes I hold dear (sometimes it’s reinforced with facts and information I can use in discussion, but at other times it’s changed).

Regardless, whenever I actually dig into those areas that I don’t want to hear about, I come out the other side as a much-improved person, whether it resulted in any life change or not. I know why I was defensive. I understand an area of my life that I didn’t understand well before. Often, I’ve made positive changes in my life.

If you’re defensive about something in your life, whatever it is, let that defensiveness lead you. Dig into that area. Understand it better. Figure out why exactly you’re defensive. Look for how you can improve yourself instead of just blaming others.

Eventually, you’ll reach a point where the topic is a non-issue. Either you’ll have made a positive change in your life or you’ll understand your current position much more deeply. Both resolutions are positive ones.

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. Painful consequences
2. Starting a blog
3. Saving for international college
4. Financial plan feedback
5. Separating personal and business money
6. Buying a vehicle
7. Cutting expenses and paying debt
8. Rent or buy?
9. Equal interest rate loans
10. Gencon meeting

Right now, my hair is the longest it’s been in a long time.

And it’s annoying. It rubs on my ears. It itches the back of my neck.

How do people have long hair? I had fairly long hair at one point in the late 1990s.

Where are the clippers?

Q1: Painful consequences
As I write, my daughter in another state is attending the funeral of a good friend who committed suicide last week. “Husband” left behind a young wife pregnant with their second child and a 5 year old son. Husband had been caught in the trap of keeping up with the Joneses (a wonderful circle of successful friends) while in a lower paying job in the public sector. Wife had lost her job. Although they had been receiving letters and calls from creditors, Husband would tell his wife that it was a case of mistaken identity and not to worry. Wife didn’t know the house had been foreclosed until the sheriff and new owner arrived to evict them. They only had time to pack a few personal things and leave the premises. After dropping Wife and Son off with family, Husband drove to a secluded spot and took his life. It turns out that in addition to losing their home, they are over $100K in debt with liens on everything possible. Husband leaves behind a devastated family, a wife with virtually no assets raising the children alone, and children without knowing their father. Husband may have thought he was protecting Wife and Son but wound up hurting them in the worst way possible.

What is doubly sad is that if they had known about the dire situation, his extended family and wonderful circle friends would have helped in any way possible – legal help, paying a bill – you name it. Husband kept the mountain of debt hidden from everyone – maybe from shame, depression, denial – who knows!
- Sandra

There’s not really a question here, but it’s a story I felt needed to be shared.

At my lowest point, I never committed suicide, but I certainly did feel incredibly low and I can see how someone who has some issues with depression could potentially swing themselves in that direction.

Do not keep debt from your family. If there are financial problems, they affect everyone directly and indirectly through spending choices, emotional fluctuations, and so on. Even more importantly, you’re better able to solve these problems with the help of those around you than by yourself. Don’t hide your debts.

Q2: Starting a blog
I have a great idea for a blog, one that no one at all is doing and i am in the process or being or trying to be an expert on this such topic. Problem is, time, i don’t have any or enough to do it. I went out and bought a website all gung ho to do it, and never got around to it. I was able to get a refund from the web-company for the service but not for the domain name. Which i believe i technically still own for a year, since i did pay for it.

My question to you is, is there a way i can start up a blog that wont cost me anything or much at all, and then maybe one day move it all over to my own site.

Also, is there ways to make money blogging when your on or using a free blog site?

I’m an IT professional and have been for 17 years so i know all the tech speak. I’d really love to get out of this field and into a full time job of blogging such as you do. Its just really hard to find the time. Did you start out on a free blog spot?
- Dennis

I started blogging on Blogspot. The first few posts of The Simple Dollar were there until I decided that I wanted to host it myself.

You certainly can make money blogging on such free sites. You’re allowed to include Adsense ads in such sites and can make your own affiliate links if you choose to go that route.

However, I’ll tell you that if you don’t feel you have time to make blogging a success, you won’t be successful at it. It takes a significant audience to make much money at all when blogging, and if you’re not able to invest time in it, you won’t build that audience. If you don’t care, why should they?

Q3: Saving for international college
We’re an international family. My husband is Dutch and I’m American. We have a two-year-old son. Seven years ago, I sustained a traumatic brain injury and can no longer work. I was finally approved for SSA disability in January. We used the backpay to pay off all our debts, give to charity and establish our emergency fund. As part of my disability, my son also gets a bit a money each month. We’d like to use this for his college fund. Here’s where it gets tricky. As a Dutch citizen, D can go to college in the Netherlands (he is bilingual, but some colleges there are taught in English). Tuition in Holland at my husband’s alma mater is currently about $1600/year, with the government supplying an annual stipend of about $2,000 (all euros, of course). So, clearly, it would be much better financially if my son attends college abroad. If he does, we’d use his college fund to help with his first house or wedding. If he opts to attend stateside, we want to grow his account as much as possible (we intend to match what he earns through his own work and scholarships). We love the idea of the educational IRAs, but do they have to be used at American colleges? What are our options to invest for either possibility?
- Jen

Educational IRAs (and other accounts, such as Coverdells and 529s) only allow you to use the money for approved educational expenses. Generally, such expenses are going to be domestic expenses. Otherwise, it makes no sense to offer a tax shelter if that money is just headed overseas.

Given that there’s a strong chance your child will get schooling overseas, I’d probably put such money in a normal brokerage acocunt. Yes, you won’t get tax benefits if you use the money for education, but you won’t get penalties if you use it for anything else, which seems to be more likely than the educational use.

I would absolutely have your child go to the best Dutch college he or she could go to. That’s still a far better deal than sending him or her to an equivalent American school.

Q4: Financial plan feedback
I am 21 years old and working full time at a credit union, and going to school part-time through correspondents. I currently have student loans of about $6,500 (at 1.78% due to my rate discount as an employee) the monthly payments were about 270 but I recently changed that to 300 bi-weekly to knock it down faster. I pay for my current classes without student loans as I just pay for one class at a time. I also contribute 5% of my monthly salary to rsps which is 100% match by my company (this equals about 317/month) I also contribute an extra $100/month to additional rsps. Right now these are in GIC’s at 3% but I am considering mutual funds as I won’t need them for a while. What do you think? I also contribute $100 into a pay yourself first GIC. I also pay my credit cards completely off every two weeks. After these expenses I am left with very little spending money – the main thing is that once I get paid most of my money goes towards my credit cards so I need to use my credit card for purchases since I have no cash. I know the obvious answer is to not use the cards but it’s easier said than done. I also do not have a vehicle but am wanting to buy a newer model soon (but definitely used!). Do you think that it was a good idea to change my loan payments even though the interest is low? Should I put my rsps into mutual funds? Am I contributing enough? How can I make myself have spending money after payday without needing my credit cards? And how can I afford a car?
- Tammy

What is the goal with your “pay yourself first” account? The purpose of paying yourself first is so that you can handle expenses in the future without relying on debt.

Beyond that, it’s self-defeating if you’re just continuing the debt cycle. Once you have a small emergency fund (say, $1,000 or so), you should be wiping out the high interest debts as your top priority.

However, you should not attack them so strongly that you’re forced to use the credit card again at the end of the month. That just perpetuates the cycle.

Step back from the “pay it yourself” account and hammer those debts downward, particularly the high interest ones. Get yourself in a position where your income exceeds your required monthly bills by a significant margin, then focus again on paying yourself.

Q5: Separating personal and business money
When I met my partner nearly 3 years ago and we fell in love and bought a house 6 months later. Neither of us had any money really I had $4000 savings and Mack well!!!! We are 53 and 58. We got a home loan that we did not have to prove savings but had to find $20000 at the time which we did. I was on good wage. Macks books showed a good income but that turned out was not the reality. Well no that is not quite right. He had started to earn good money but for all the previous years he had been living on CC’s debt. Sole Trader. He had $35000 on his CC’s and owed the tax dept.

We bought our house (thanks Universe) and then I left my job through bullying but got work 2 days later. I got sick and we were living on his income. I got a boarder in, then 2 and they paid for food and elec. They left. I had up to then unbeknown to me encouraging him to pay off his CC but it was not his money!!! It was the tax depts and other bills!!!!! Not good communication I know but it was his business so I thought I should leave it to him. I got the all clear for health and went back to work. He will not let me use my money to pay his debts. He finally came to me so stressed and it was all revealed and he owed the tax dept quite a bit of money as well as having to find the ongoing tax money and pay his costs of running the business.

I took over the money for the business last Sept and rearranged how he does it all. He pays himself a wage first $2200 a monthly contract paid 1st month. This is for personal expenses mort, spending, personal car rego etc. Then tax/gst worked out and transferred. (Not touched) Pay back money paid out for parts. Every invoice is now done this way. Then his bills money is allocated to pay for the month. He uses the CC only after paying the money in first. I have built up his money into a working account and separated the tax/gst into another account. ( I paid back all his tax he owed by calculating the tax/gst at the highest rate and the arrears was paid in full last month). I now get him to transfer the tax money into our mortgage monthly as he pays tax every 3 months and we redraw it. As this has been well over the amount needed this money has gone to pay his largest CC and now has been reduced to $15000. do you think this is a good idea?
- Penny

This is outstanding and it’s the way you should be handling it.

When you have income from a business, you should keep it in business accounts. When you have business expenses, pay for them from that business account.

Then, when you need money, pay yourself from that business account. I usually recommend that people live as lean as possible and pay themselves as little as they need.

Penny’s story continues in the next question.

Q6: Buying a vehicle
All going well for the next 3 month period we should reduce it by $3000 and hopefully the same for the following periods and have it paid off in 12 months. It is 3.99% interest for only 12 months but will renegotiate it again then as I did that 2 months ago. I got him to renegotiate his CC’s interest and in one day saved him $3300 just in interest. The business money now is working really well and without using CC. (Then we can work on second CC of $1500 which is low interest 2.9% for 18 months. This actually comes out of his personal money)

He currently undercharges for his time and I have been working on that. He gets a lot of calls from people for free help and I have tried to convince him to send them invoices for it. He has done it a few times. I suggested he set up a phone consultation but he refused. He is in IT and only charges $50 hour for some clients and $75 for others. His competitors charge nearly double that. I have tried to say that he would have to work less if he increased his prices as he was getting very depressed working so much with so little to show for it. He has agreed to increase his fees on 1st July for all except his contract which is $50 guaranteed income monthly. Work in progress.

What finally turned it all around was your story and the psychology of why we have debt. Mack was an older version of you so to speak in many ways. Image and what people would think and low self esteem and guilt. It helped me understand him better and with strategies how to achieve my goal without upsetting him too much. (That image stuff. I got him some new monogrammed work uniforms as well and that has done his self esteem a treat. ) He still finds it hard when I take the money out of the account $2000 at a time. I have to keep reminding him that it is not his money!! I keep telling him its ok to think like a millionaire just don’t spend like one. He always thought that one day magically that he would pay off those debts. How? He did not know. I guess I am part of that magic. LOL

He also lent money or gave money to his exs and her husband when they rang. I eventually convinced him that he needed to take care of himself and let them live their own money mistakes. They had both gone bankrupt and they knew he had a massive CC debt and still keep asking him for money. They keep coming to him but the last two times he has thankfully declined to help. A whole other story!! Guilt

Next month is the last repayment on his work van. Eeek he was talking about buying a new one!! I have allowed money to do up the old one. Doing that has delayed that plan. (image). He is thinking the longer he keeps it now the better. It is $312 per month. We are going to pay that into a new account each month called New Van. Should we pay cash if we can for a new van or get finance? Maybe a personal loan? Last time he could only get finance that was really high. There are tax benefits as he could claim all his van etc.
- Penny

You should pay into the “new van” account like you’re planning, but you should also keep the old van as long as possible. Then, when you’re forced to buy the new van, hopefully you’ll be able to just pay cash for it and not have to incur any debt.

This is a good plan for buying a vehicle regardless of whether it’s a business vehicle or a personal one. You should try to avoid going into debt for any such purchase if at all possible.

Penny’s story finishes up in this next question.

Q7: Cutting expenses and paying debt
We also have been working on an emergency fund which is in a different bank harder to access. Have $840 working towards $1000. Have emergency cash of $300 and then we will work on our debts. I have a hecs debt which I pay $40 per f/nite and still owe $1000. I may get $1000 in tax back this year. Would you pay that off? The interest is very minimal $90 for the year. We have $19000 in our house redraw separate to the tax money. I paid in $8000 after bought the house – a gift from Mum and we have always paid more than we needed to every week. Mack has no super and I have only $11000 but I currently pay $40 per f/nite and the tax dept pay in the equaliviant up to $1000 per year. We have money in a savings account that we contribute to for house bills etc. I have a food storage in place and I make soap etc and our food money is $120 per week and that includes all our shopping = meat, food, toilet paper, personal etc. I only work 4 days a week (due to health and have high maintenance job – work in high care dementia locked ward) Once my hecs is paid off I plan to put that $40 into mortgage rather than super. Do you think that is a good idea? My gut says that there will be another money crisis and don’t think super is safe. I think I can make my money work better putting into property than my super. The house is Macks super. Our house has lost value unfortunately due to current money crisis in Australia. We will have to sell our house eventually (23 years left on loan) keep for as long as we can (loan of $299000) but hoping to make enough to go out country and owner build on a cheap block of land ($30000). Would like to be debt free when we go on pension. Can get kit home for aprox $17000. Long term plan. At best only about 7 – 10 working years left. Is this a good plan?
- Penny

I think your plan is a good one for improving your financial situation while also taking care of your personal worries (about the stability of the dollar).

However, I am a bit concerned about your statement that you have at best seven to ten working years left. Does this mean that you anticipate disability at that point, or just that you want to stop working at a “traditional” retirement age?

If it means true disability and an inability for either of you to work, I would start investigating disability programs right now while things are relatively good so that you’re ready for them. If it’s not, then I would not view a “traditional” retirement age as a requirement.

Q8: Rent or buy?
I live in Hawaii where I was born and raised but the problem living in “paradise” is everything is so expensive especially housing.

I am very fortunate to live rent free currently with my boyfriend and his family and I am working on saving to buy a place. I estimate in 3 years I will have the 20% I need to buy a small condo.

However, since my boyfriend and I are not planning to have children, would it even be ideal for us to buy a place with no one to leave it behind.

Rent prices in Hawaii for a 1 bedroom (not all utilities included) start at $1000. To actually buy a 1 bedroom condo starts at minimum $200,000. This is current market prices so I’m not sure how prices will be in a couple years when we are ready to buy.

With mortgage, taxes, insurance and maintenance fees, we could end up easily playing $1500 to $2000 a month on a 1 bedroom condo.

Together my boyfriend and I net about $3500 a month.

Would it better off in the long run for us to just rent a place for $1000 or more than to buy a place for $1500-2000 to only pay it off and have no one to leave it to?

The difference we save in rent versus a mortgage could be put away for savings for retirement instead.
- Michelle

My opinion is that if you can’t get a mortgage where the interest on that mortgage is less than you’d be paying in rent for somewhere you’d actually life, then you shouldn’t get that mortgage. You should rent.

In your situation, I think renting is the best option for now, but you absolutely should save the difference between your rent and what the condo would cost each month in a savings account.

Then, in a few years, you’ll be able to buy that condo with a down payment, which would lower the monthly payments on that mortgage to a level that would be comparable to your rent.

Q9: Equal interest rate loans
I’ve been reading your blog for about 5 years, and it really helped me get my finances turned around. My question is this: I’ve paid off about 70k of my almost 100k of student and consumer debt that I began with (I was really stupid in the past). My wife and I make about 60k a year, and I put 12% into retirement and 10% into charity, and live frugally to continue paying off debt. What I have left are about 40k of student loan debt from myself and my wife, an 18k car loan, and after reading a lot and doing the spreadsheets, we decided to stop renting, saved up a downpayment, and bought a house in the amount of 118k. The cost is very close to our rental situation, and I plan to live here for at least 15 years.

I used the “highest interest rate first” method to get where I am now, and everything possible has been refinanced to take advantage of lower rates. At this point the interest rates are all very close, in the 4-5% range. My question then, is this: What are the benefits of paying off each loan type first? For example, student loans can’t be walked away from in hard times, but can be deferred. Should I go for a pure snowball strategy, or continue with the interest rate method, or are there other issues that I should consider now that I have a mortgage too?
- Andrew

If interest rates are nearly the same, the first type of debt I would pay off is anything with collateral, such as a car loan or a home loan. The reason here is that the asset you bought with that loan can be repossessed if you’re unable to make the payments.

After the collateralized loans, I’d pay off the student loans next, because those have special legal protections that tend to make them more difficult to get rid of in a bankruptcy-type situation.

After that are the remaining debts, which are mostly just uncollateralized credit like credit cards or personal loans. Pay those off last.

Q10: Gencon
Are you doing any sort of meetup at Gencon?
- Brian

I’ve already got a very full schedule for Gencon. Mostly, I go to this convention to spend time with friends and such and participate in scheduled events with them.

However, I’m happy to say hello to any readers who want to meet me there. If you happen to see me wandering around, don’t hesitate to stop me and say hello. I’ll also be happy to sign any copies of my books that you have with you, too.

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.

Every Sunday, The Simple Dollar reviews a personal finance or other book of interest. Also available is a complete list of the hundreds of book reviews that have appeared on The Simple Dollar over the years.

The Rules of Money is one entry in a series of “Rules” books written by Richard Templar (such as The Rules of Management, The Rules of Life, The Rules of Love, The Rules of Work, and so on).

All of these books have a similar style. They consist of (usually) 100 short essays on the topic at hand, each espousing a specific idea for success in that area. They’re all perfect for nightstand reading, when you’re just awake enough for a few entries but not awake enough to dive deeply into a complicated book.

In reviewing a book like this, I can’t possibly give a chapter-by-chapter walkthrough, so instead I’ve chosen ten chapters that particularly stood out at me. You can imagine me reading it and inserting little bookmarks in the ones that I enjoyed.

1. Anybody Can Make Money – It Isn’t Selective or Discriminatory
The only thing that’s holding you back are your own money myths. Most of those money myths involve blaming others for your lack of success. The reality is that everyone (that’s healthy) has the same opportunities to make money and get ahead in life. People will always pay for skills and talents. Companies will always offer dividends to people who invest with them. It doesn’t matter who you are, you can do it.

5. Most People Are Too Lazy to Be Wealthy
The biggest money obstacle that holds people back is their own work ethic. If you go home from work each night and do nothing to improve your situation, you will always be beaten by the people who go home at night and do improve their situation. It takes a strong work ethic to do this. If you don’t have that work ethic, it’s not someone else’s fault.

11. If You See Money As the Solution, You’ll Find It Becomes the Problem
Money never solves problems, at least not in the long term. Our money problems virtually always can be traced back to our poor choices. The solution to preventing future money problems is to work on our own decision-making processes so that we make better decisions in all aspects of our life.

18. It’s Harder to Manage Yourself Than It Is to Manage Your Money
Your behavior is the most difficult part of money management. It is so easy to make mistakes. We buy something we don’t need. We panic with an investment decision. We make moves without a clear head. We use emotions in our money decisions. All of these things are challenges that a person must overcome if they want to find success with personal finance.

34. Don’t Waste Time Procrastinating – Make Money Decisions Quickly
This might seem counterintuitive, but it’s worth noting that if you wait even a month to start making monthly investments, you end up leaving yourself worse off after a year even if you invested in something with significantly worse returns in your haste. Small returns are better than no returns at all. Plus, when you invest in a tax-deferred account (like your 401(k)), you can usually change investments later on with no penalty. Start now, not later.

41. Don’t Be Too Busy Earning a Living to Make Some Money
Sometimes, our jobs give us tunnel vision and we don’t see the opportunities around us. It took me many years to figure this out. We all have lots of opportunity to earn money in our lives if we open our eyes to them. I have a friend of mine who has a lucrative side business buying and re-selling headphones. Why? How? He’s passionate about music and music technology and he just kept his eyes open.

64. Get Some Money Mentors
A money mentor is a person that can provide money management guidance and encouragement. For a lot of you, I (and other personal finance bloggers) am a money mentor, for example. These help, big time. For me, I found additional value when I sought out people in my own life that I knew face to face to help me with my money.

80. Shop for Quality
Rather than just buying stuff on a whim, make sure that you actually have a real use for it in your life. Don’t just buy stuff – plan your purchases carefully. When you do decide you have a use for something, buy a good version of it, one that will last. Don’t just go buy a set of cheaply made pots and pans, for example – buy one enameled cast iron pot. Don’t buy a set of junk knives – buy one very well made chef’s knife.

95. Don’t Over-Protect Your Children from the Valuable Experience of Poverty
If you’re poor, don’t try to shield your children from it. Use that as part of their learning experience as they grow up. Talk to them about it. If you’re not poor, expose your children to it. Do things like working in a soup kitchen or building a Habitat for Humanity house. Exposure to the financial realities of the world can have a tremendous positive impact on a child.

62. Don’t Just Read This – Do Something
It’s great to read about good personal finance ideas, but they don’t mean anything if they’re not paired with action. Don’t just read. Do something.

Is The Rules of Money Worth Reading?
As you’re reading it, The Rules of Money comes off like reading the archives of a personal finance blog that consists of 100 short but well-edited pieces on money. There’s a bit of quirkiness in places and good ideas spread all around. If that sounds appealing to you, you’ll probably find a lot of appeal in this book.

Because of the brevity of each chapter, though, no individual topic is delved into too deeply in one shot. Often, the exploration of specific issues is spread across a lot of chapters, with specific elements addressed directly in individual chapters but without much overall coverage of more general topics. The book often feels like a collection of trees, not a forest.

This is a great book to pick up and take a quick bite out of. It is not a great book to drink deeply from. If you like short pieces, this is the book for you.

Check out additional reviews and notes of The Rules of Money on Amazon.com.

Carolyn writes in:

For the longest time, I’ve been making larger than minimum payments on all of my debts. I got the idea from Suze Orman because she said that if you just make minimum payments, you’ll never get rid of debt. I have two credit cards and a student loan. Here are their interest rates and outstanding balances and minimum payments:

Credit card 1 – 19.99% interest – $3,400 balance – $57 minimum payment
Credit card 2 – 15.99% interest – $4,000 balance – $55 minimum payment
Student loan – 6.75% interest – $41,000 balance – $470 minimum payment

What I’ve been doing is putting $700 in payments towards these debts each month, but I have been spreading out the extra among the loans. This means adding $39 to each payment, giving me a payment of $96 on the first card, $94 on the second card, and $509 on the student loan.

Is this the right way to go?

Suze is both right and wrong here. She’s absolutely correct in making the point that if you make just minimum payments on a debt, you’ll find it takes decades to fully pay it off. Even worse, the longer you take to pay off a debt, the more money you pay in just interest on your debt – it’s just money lost.

However, she’s not quite right on the idea that you should make larger-than-minimum payments on all debts.

According to my back-of-the-envelope math on the three debts you named, it will take about thirty years to pay off each credit card with just minimum payments, and just under ten years to wipe out that student loan with just minimum payments. If you use your alternate plans with a bit larger payments on each debt, you save about $6,000 in total interest, pay off each credit card in about five years, and pay off the student loan one year earlier. In other words, you’ll go another five years without eliminating any of the debts.

I agree with making overpayments, but I think you should channel all extra payments to the highest interest debt. In this case, that’s the credit card with the 19.99% rate. If you make a $117 extra payment on that debt each month, you’ll pay off that debt in a year and a half. At that point, you can apply a $174 extra payment (the $117 extra payment you were making, plus the $57 you were making on that first debt that’s now eliminated) on the second credit card, paying it off in about a year and a half. You can then apply a $229 extra payment each month to that student loan (the two minimum payments, plus the $117 in extra payments) and eliminate that student loan in about seven and a half years (total).

That simple shift will get you to debt freedom one and a half years earlier than before.

This is called a debt repayment plan, and the basic idea behind it works no matter how many debts you have or what type they are. You just order the debts by interest rate, make minimum payments on all of the debts, and make the biggest extra payment you can to the debt with the highest interest rate.

You may also want to do things like negotiate with your credit card companies for a lower rate. The worst thing they can do is lock your account, which doesn’t matter a bit if you’re not using it, and you might just see a nice interest rate reduction, saving you even more money.

Just stick with contributing $700 toward your debt every month and you’ll be fine.

When I first got started with personal finance, I began by cutting away at my spending. First, I trimmed away the obvious things – buying too many books and video games, for one. I moved on from there to more difficult things, like moving to cooking more foods at home, cutting a few subscription services, and so on.

Eventually, I reached a point where it was difficult to find additional things to cut. A lot of the “fat” spending is obvious and easy to cut, but once you reach a certain point, it begins to feel more difficult as you cut away things that feel important to you.

Even worse, I often felt somewhat conflicted about many of the things that I had cut. I’d convince myself that my life was worse because I had cut some stream of spending in my life. Often, this attitude did far more to bring my mood down than any actual spending cut that I made.

More often than I would like, I felt resentful toward personal finance. I would often go through periods feeling as though living frugally was keeping me from things that I would enjoy, and I didn’t like it.

It is very easy in that mindset to backslide and start spending money again. My speculation is that many people backslide at that point.

What I didn’t realize then was that I was taking the exact opposite perspective from what I should have taken. Rather than taking my life as it was right then and cutting away fat, I should have started at the center.

What do I mean by that?

As soon as I realized that my financial life was out of whack, I should have taken it as a sign that my life in general was out of whack. If I’m in a big pile of consumer debt, my values and my behaviors are misplaced.

How do you fix that? You revert to the center.

Don’t worry (directly) about cutting this or cutting that. Instead, spend a few weeks getting in touch with the things that you value most in your life.

Re-establish your key friendships and relationships. Get in touch with the hobbies that you love but try to convince yourself you don’t have time for. Find the time for things like this by dropping back from many of the elements of your normal day.

I’ve found that a big debt hole often comes from a life that’s going off the rails in a lot of ways. For me, I was so caught up in the stresses of my job and a seeming need to “show off” to a circle of friends that weren’t really good friends that, to a certain degree, I lost track of who I was, what I valued, and what I enjoyed doing.

When I corrected those things, my finances began to practically correct themselves.

My three children, at the end of a concert

I feel happiest about my life when I have a book that I’m engrossed in. I feel most centered when I’m creating new things, usually via writing. I feel like a day has been a good day when I’ve spent some time with my kids and spent some time with just my wife.

That’s the center of my life. The more time and energy I spend maximizing that center, the better I feel each night when I fall in bed, the happier I am with the direction of my life, and the easier it is to keep my finances in balance.

When your whole life is centered, personal finance balance follows. When things are out of line, the money tends to go astray as well. Thus, if you find your money going astray, ask yourself what really matters in your life and focus on just that for a while. Amazing things will happen.

Each week, I highlight ten things each week that inspired me to greater financial, personal, and professional success. Hopefully, they will inspire you as well.

1. Self-Reliance by Ralph Waldo Emerson
I re-read Emerson’s wonderful classic essay Self-Reliance again this week, and again I found it digging deep into my soul.

The Simple Dollar is as much about self-reliance as it is about personal finance. In fact, managing your money is just one particular flavor of self-reliance, and being self-reliant in other areas makes managing your money easier.

Many of the quotes you’ll find in this week’s pieces of inspiration are straight from this essay.

We must always learn to walk before we can ever learn to run, and we must learn to stand on our own two feet before we can begin to walk.

2. Ann-Marie Thomas on teaching children in interesting ways
This type of thing is hugely inspiring to me as a parent who tinkers and loves teaching his children about science and technology.

Yes, my three year old daughter made an electrical circuit. I wish I had a picture of it.

You can read tons of details about squishy circuits on the squishy circuits project page.

3. Emerson on nonconformity
Why be like anyone else?

Whoso would be a man, must be a nonconformist. He who would gather immortal palms must not be hindered by the name of goodness. Nothing is at last sacred but the integrity of your own mind. Absolve you to yourself and you shall have the sufferage of the world. – Ralph Waldo Emerson, Self-Reliance

Nothing is at last sacred but the integrity of your own mind. In the end, all the influences of the outside world don’t matter because, in the end, you’re left with nothing but your own thoughts. If you fill your life with being what others want you to be, what are you left with in the end?

4. Frank Sinatra singing Fly Me to the Moon
He’s one of my favorite singers ever, and this is a very good performance.

Why do I like him so much? He makes something very difficult look incredibly easy, as if he just strolled out there, grabbed a microphone, and just made it happen. It’s resting on a stupendous amount of practice and vocal training. His phrasing and his ability to make you understand every syllable along the way while making it all feel completely at ease and natural is just stunning.

5. Emerson on making up your own mind
It is very easy to be influenced by and often completely drawn into the ideas and opinions of those around you. It’s not the best route, though.

It is easy in the world to live after the world’s opinion; it is easy in solitude after own own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude. – Ralph Waldo Emerson, Self-Reliance

Seek out your own answers. Read from and listen to many different sources. Don’t just copy what everyone else thinks to get along.

6. Kurosawa’s Crows (1990)
Japanese film director Akira Kurosawa wrote and directed a film in 1990 called Dreams. One segment of this film, Crows, depicts a person becoming lost inside of a van Gogh painting.

Amazing. Thanks to the multiple readers who have shared this with me over the past few weeks.

7. Emerson on trusting yourself
If it seems wrong, it probably is.

Trust thyself: every heart vibrates to that iron string. Accept the place the divine providence has found for you, the society of your contemporaries, the connection of events. – Ralph Waldo Emerson, Self-Reliance

I know that when I do something wrong, I either feel nothing or I sense that it’s wrong. When I do something right, though, I feel it all over. I get pinpricks on my cheeks and a warm feeling in my belly.

8. RescueTime
If you’ve ever worked at a job with significant computer time and wondered where all of your time went, RescueTime is pretty much a must-have.

It shows you exactly how much time you’re wasting at your desk (identifying time-wasting websites and tracking how long you spend on them) and has other tools that help you block out distractions.

I’ve started using it and it’s helped tremendously with productivity during the day.

9. Emerson on living for yourself
What are you living for?

I do not wish to expiate, but to live. My life is for itself and not for a spectacle. I much prefer that it should be of a lower strain, so it be genuine and equal, then that it should be glittering and unsteady. I wish it to be sound and sweet, and not to need diet and bleeding. – Ralph Waldo Emerson, Self-Reliance

If you want a lower stress life, start making choices that lead to a lower stress life. If you want a life with abundance, stop making choices that squeeze all of the time and money you have. If you want something, don’t constantly make choices that counteract that something.

10. Asimov on self-education
All education boils down to self-education.

Self-education is, I firmly believe, the only kind of education there is. – Isaac Asimov

If a student does not care and does not wish to learn for themselves, no teacher in the world will stuff ideas into that mind. Education works if the student is willing and it does not if the student is not willing. Are you willing to learn? If you’re a parent, are you creating an environment where your children are willing to learn?