My favorite meals are ones that are flexible enough to incorporate whatever we have on hand as well as incorporating whatever might be on sale at the grocery store or at the farmers market. This way, we minimize the food we waste while also taking advantage of sales, minimizing our food costs.

At the same time, convenience is a need for us, too. We have hectic schedules at times and there are certainly evenings where it’s wonderful to come home to a meal made from fresh ingredients that’s pretty much ready to serve.

This meal manages to accomplish both ends at the same time.

What You Need
For an ordinary batch of this, you need about four cups of vegetables. The vegetables you use are up to you – green beans, carrots, potatoes, celery, peas, onions, shallots, asparagus, and countless other things work just fine in this dish.

You’ll also need a cup of cooked meat or other protein. We often use beans for this, but you can use chicken, beef, or anything else that excites you.

For the sauce, you’ll need 1 1/4 cups water or vegetable stock, 1/2 cup flour, 1/4 cup vegetable oil, 1 teaspoon salt, 1/2 teaspoon garlic powder, and 1/3 teaspoon ground black pepper. These will all be mixed together at the appropriate time.

For the dumplings, you need 2 cups flour, 2 teaspoons baking powder, 1/2 teaspoon salt, 1/3 teaspoon baking soda, 1 1/2 teaspoons sugar, 2 tablespoons margarine (or butter), and 1 cup milk (you can certainly use soy milk or flax milk here). Alternately, you could just use 2 1/4 cups of a baking mix (such as Bisquick) and 2/3 cup milk (soy milk or flax milk work as substitutes here).

The Night Before (or Early That Day)
In the morning, put all of the vegetables into the crock pot, then make the liquid by mixing together 1 1/4 cups water or vegetable stock, 1/2 cup flour, 1/4 cup vegetable oil, 1 teaspoon salt, 1/2 teaspoon garlic powder, and 1/3 teaspoon ground black pepper.

Mix the liquid in with the vegetables and cook on high for 2 hours or on low for 4 hours (see the note below if you have to let it run all day).

Preparing the Meal
About two to three hours before you wish to eat, make the dumplings.

If you’re making them from scratch, slowly mix together 2 cups flour, 2 teaspoons baking powder, 1/2 teaspoon salt, 1/3 teaspoon baking soda, 1 1/2 teaspoons sugar, 2 tablespoons margarine, and 1 cup milk, adding the solid ingredients one at a time, then adding the liquid ingredients slowly. The margarine should make the mixture form clumps and the milk should make it all very moist. Alternately, you can use the baking mix suggestion noted above.

Form the dumpling mix into about ten small balls, then place them on top of the vegetable mix.

Cook this on low in the slow cooker for another two to three hours and you’re done.

If you have to leave this all day, make everything in advance, add an extra 1/2 cup of liquid to the vegetables before you add the dumplings, splash some additional liquid on top of the dumplings, and cook it on low all day.

We served this meal with strawberries fresh from our garden.

Optional Ingredients
This meal is incredibly flexible. Use whatever vegetables you have on hand or are on sale for your primary vegetables. Use beans, poultry, beef, or other sensible meats for the protein. This meal truly comes together based on what you have on hand.

Me, at approximately age two, in the kitchen of the house I grew up in

This past weekend, I was cleaning out a drawer in my office when I came across a stack of photos from my early childhood. My parents, my brothers, and my cousins were constants in these pictures, all looking stunningly young, all of them depicted in that slightly washed out style that thirty year old snapshots take on.

It was the little details, though, that really resonated with me. I’d see my mother in the background of one picture, standing near a large pot on the stove, and I could practically smell chicken and dumplings cooking. A picture of my father standing in rubber hip boots immediately calls to mind the sounds and the aromas of freshly-caught fish. A picture with a cousin or a sibling smiling would bring about the sound of their laughter in my ears.

We didn’t have a lot of money growing up, but my childhood was filled with things that were far greater than money.

A sense of security I always felt safe and secure at home. Sure, my parents argued once in a while, but there was never a moment when I doubted my own safety or security at home, and there was never a moment that I doubted that they both loved me. When I needed them, they were always there for me.

Compassion for others My family constantly gave of themselves to help others, particularly my parents. I can’t remember the number of times that people would unexpectedly show up for supper and my mother would find a way to get that person a full plate of food. There wasn’t a summer that went by where my father wasn’t giving away a large chunk of what our garden produced to our friends and family and other people who needed it.

A desire to learn My parents read constantly in front of me and encouraged me to do the same. They also constantly reinforced the value of learning new things and my father was always discussing the events of the day with me. I was raised to learn and to know things.

An entrepreneurial and self-sufficient bent My father ran several small side businesses, particularly small-scale commercial fishing and gardening to sell excess produce, as well as providing plenty of fish and vegetables for ourselves. He channeled a lot of his spare time into this and often recruited his children (and others) to help as well. I particularly enjoyed the gardening aspect of it and fondly remember taking charge of watering the gardens.

A strong sense of community and family There were seemingly always people at our house beyond our immediate family. Socializing and a sense of community were constants during my childhood.

All of these elements are things that shaped me deeply as a person, and they’re elements that I want to provide for my own children. What was missing, though?

Channels for learning Beyond reading, the channels for learning often felt narrow. Many of the things I wanted to learn about required some significant startup cost, such as learning a musical instrument. As I mentioned, there was not much money to be had when I was growing up. Even beyond this, my parents were often uncertain as to how to channel things beyond taking me to the library and giving me books as gifts.

Understanding of money Basic money lessons were something else that I missed out on in my childhood. From my perspective, it often felt as though there was barely enough money to get by, except that my parents would have occasional windfalls. During those windfalls, we’d splurge on things – that’s how I wound up with a Nintendo and quite a few games with it – but at other times, there was a sense of not having enough. Money felt chaotic to me and I had a sense that when you had money, you needed to spend it soon.

My youngest son, approximately eight months, delighting in an opportunity to play with a wristwatch

Today, I find myself in the shoes of the parent, with three children looking to me for guidance. How can I address the seven concerns I see above?

A sense of security We need to provide a stable home for our children, and the best way to do that is to constantly work on our marriage. If my relationship with my wife is strong, the foundation of our family is strong, too. Another key point in this equation is to spend time individually with each child, as well as collectively with them, so they have security in their relationship with their parents and feel limited jealousy toward their siblings.

Compassion for others Lead by example. Give to charity, and involve our children in that process. Respect people and care for them regardless of their religion, sexual preference, race, disability, or anything else. Luckily, we have opportunities in our life for our children to meet people of other religions, races, and lifestyles and see that they’re normal people who have ups and downs, joys and sorrows, talents and weaknesses, just like everyone else.

A desire to learn This one comes naturally, as my wife and I are both voracious readers and voracious debaters of the issues of the day. We are starting to strongly engage our two oldest children in these debates, and they’re both picking up reading as well.

An entrepreneurial and self-sufficient bent I run my own business. Almost all of the parents of my children’s friends are employed by others, but they have an example of entrepreneurship at home. We also try to do a lot of things ourselves in front of the children, like making soap and laundry detergent, growing our own food, repairing the toilet, and so on.

A strong sense of community and family This is perhaps our weakest area, and it’s the one we actively work on the most. We have a circle of friends that we interact with often and we know many more people in the community on a more casual basis. We participate in a number of community activities and we strive to use community resources as much as we can (by going to the park, participating in youth sports leagues, and so on).

Channels for learning We have a savings account set apart for this, so that we can channel whatever growing passions for learning our children have. On top of that, we try to create educational experiences all the time that allow them to dabble in different areas, from art to paleontology.

Understanding of money We have an allowance system in place. Beyond that, we’ve started to discuss the concept of bills and income to our oldest child on a conceptual basis. I write about personal finance, of course, so this is something that’s a pretty regular topic for us.

Here’s the thing to note, though. Most of the stuff I mention above doesn’t cost money. Instead, it takes time.

Time is the deepest cost of parenting. The ability to do all of these things, to make sure as many doors are open as possible for your child, takes a lot of time.

Many parents are willing to step up to the plate when it comes to money, but the investment children really need is time.

Simply put, children are far better off if you work a minimum wage job and can spend a few hours with them a day than if you work a high-paying job and are constantly absent from their lives. Sure, you might be able to buy them expensive toys and take them on great vacations, but that’s not when they need you. They don’t need your stuff and they don’t need a ton of you one day and an absence of you for a long period. They need you steadily as they grow, because these lessons don’t take root overnight.

Almost all of the things I named above require no money or very little money. Instead, they require some planning and some time investment.

If I learned one lesson from my childhood, it’s that good parenting is about time, not about money. I try to apply that every day of my own parenting journey.

In 1935, when the Social Security Act was passed by Congress and signed by President Roosevelt, the new law established a national retirement age of 65. At that age, people could begin receiving Social Security benefits and, in the minds of generations of Americans since, effectively set the psychological “retirement” age.

There’s an important fact to consider, though, that’s been left out of this story. In 1935, the average American lifespan was 61.7 years. You had to exceed the average American lifespan by more than three years to begin receiving Social Security benefits.

Let’s roll forward to today. The “retirement age” set by Social Security is still 65. However, today the average American lifespan is 78 years and continuing to rise.

In other words, the national “retirement age” of 65 has remained unchanged for 75 years, but the lifespan of the average American has gone up by 16 years.

Yes, this is an easy explanation for why Social Security is seeing financial problems, but there’s a more vital issue at work here, one that we’re seeing at work all over the place in America.

40 is the new 20. 60 is the new 40. Simply put, people are living far longer and enjoying excellent health much later in life than ever before.

In 1935, a person aged 65 was often quite elderly and in poor health. In 2011, a person aged 65 is often full of vitality and has two more decades of lively activity ahead of them (at least).

There are two key points to pull out of this.

First, if you’re under 50 or so, you’re probably not going to be able to retire when you’re 65. In the past, Social Security could sustain you by providing enough income between the age of 65 and the end of your life that you could survive. Unfortunately, as lives grow longer and future generations grow smaller in size, one of two things will eventually have to happen: either the Social Security age will move back or the amount of benefits will fall.

That means that either you’re going to be going on full Social Security benefits at a later age than 65 or Social Security benefits are not going to be enough to sustain you in retirement at all. In either case, retirement at 65 simply because Social Security is now available is quickly becoming a myth – and will completely become a myth in a decade or two.

At the same time, however, 65 is the new 45. Over the last 75 years, the quality of life for people over the age of 65 has increased drastically. Rather than beginning to lose control of their faculties, most people between the ages of 65 and, say, 80 are quite valuable and have a ton to offer in the workplace and in the marketplace.

Simply put, at the same time that retiring at age 65 is becoming less feasible because of longer lifespans and demographic shifts, it’s becoming much more worthwhile to continue being productive at 65.

What does this mean for retirement planning?

At this point, I don’t view retirement planning as saving for true retirement. Most retirement savings plans allow you to begin taking money out at age 60, which means you likely have a quarter of a century of good health ahead of you at that point.

Instead, I look at retirement planning as building a backbone for a second career. At age 65, I won’t have enough retirement savings or Social Security income to fully sustain me for the rest of my life, but I will have enough retirement income to make it possible to take some significant career risks. I can take a low-paying position with a charity or even do volunteer positions with some perks. I could retreat for a year and write the novel I’ve always wanted to write. I can take a very low-stress job as a greeter or a position on a community board that gives a stipend.

These are all things that are difficult to do right now in my life, yet sound appealing to me and have a firm place on my to-do list.

Simply put, my retirement savings aren’t just for retirement; instead, they create possibilities for a second career or other opportunities later on during my healthy adult life.

Don’t fear the changes coming in retirement savings. Embrace them for the opportunity that they are.

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. Tossed into the “real world”
2. Dealing with flooding
3. HSA contribution question
4. Spouses and kids
5. Index fund or savings account
6. Snowballing versus interest payments
7. Letting my cousin move in
8. Mortgage free! But a problem…
9. Targeted savings questions
10. Investing in foreign currencies

Every Thursday night, I have a “boy’s game night” with some of my close male friends. We play a variety of games – you can imagine it as “poker night with games besides poker.”

Anyway, due to scheduling conflicts, we haven’t been able to have this game night the last two weeks, with it resuming tonight.

What amazed me is how much I missed it in the interim. During those two weeks off, Thursday would roll around and I’d feel a bit bummed out that there was no “game night” that night.

What did I miss? The people, more than anything else.

Q1: Tossed into the “real world”
I am 21 and going to graduate in 2 years and when I do I will get thrown in to the “real world.” I currently have had the same job for 2 years (minimum wage, part time in school, full time during summer) but I haven’t had to worry about health care, 401k’s, retirement or anything else that comes with a professional career. I know the best way to get ahead is to start planning early. Could you recommend some books, posts or anything that could help me understand what will happen once I make it to the “real world.” Would it be beneficial for me to visit a financial planner once I graduate? and is there anything I can do now to help prepare?
- Briana

There are a lot of books that are just perfect for your situation.

My single favorite book for your situation is Michael Masterson’s Automatic Wealth for Grads. While it has a bit of an entrepreneurial bent, it does a very good job of focusing on the concerns and issues of a forward-thinking college graduate, which is exactly where you seem to be heading.

Other excellent ones I’ve reviewed include The Wall Street Journal Guide to Starting Your Financial Life, The Money Book for the Young, Fabulous, and Broke, and You’re So Money. They’re all worthwhile reads.

I do not think a financial planner is a good expense for someone freshly out of college. Hit the library and read these books instead and you’ll know what you need to know.

Q2: Dealing with flooding
I live near the Missouri river on the Iowa side and am worrying myself sick about what is going to happen and soon. They are saying Thur or Fri this week (2-3 days). I have been cutting my spending and paying large chunks off my student loans and finally getting on my feet, but it seems like every time I can see the light at the end of the tunnel something happens and knocks me back down. I live in an area that does not require flood insurance so I did not buy it and now it seems imminent as houses as close as 6 blocks are getting ground water in their basement. I have a crawl space and of course, my furnace is placed there and I may get anywhere from 0-4 feet of water. I have only saved up about $1200 in an emergency fund recently. How can I, and many others, deal with a disaster like this? Especially since I may lose my house to flooding and am not covered by insurance?
- Nikki

Your best hope is that your area is declared a disaster area and you then receive help from FEMA. I would also seek help from any and all family members and friends who can help you in the short term, perhaps helping you with shelter, meals, and advice.

I’ve been through the Mississippi River flood of 1993 and I watched how FEMA helped people. They provided temporary housing for a lot of people (in the form of trailers) as well as many other kinds of aid. It still doesn’t solve everything, but it helps.

My suggestion to everyone is that unless you live on top of a hill, you should have some form of flood insurance. If you live in an area that’s significantly outside of a flood zone, the cost should be pretty small, but it’s well worth it. Floods are devastating.

Q3: HSA contribution question
My husband lost his job in July 2010. Initially we added him to be covered under my work insurance. But we were having to pay $750+ month for the premium and he NEVER goes to the doctor.

So in October 2010 we started shopping around for a cheaper insurance plan. We finally decided to get him on a Blue Shield High Deductible individual plan that is compatible with an HSA. His individual coverage began 11/1/10. We opened an HSA account for him immediately. We maxed out the HSA for 2010 with $3050. He remained with this individual high deductible plan from 11/1/2010-2/1/2010.

Open enrollment at my work is in February. We realized that if we moved my husband back to my work coverage and got a high deductible plan for the both of us, then my company would contribute enough to cover all the monthly premium and we wouldn’t have to pay anything out of pocket each month. So, beginning 2/1/2010, we both got on my company high deductible plan that is HSA compatible.

My question is: How much are we allowed to contribute for 2011 for the both of us? I had been saving as if I could contribute the maximum $6150 for the both of us for the year. But now, I am worried that I am not allowed to contribute that much since I only had a high deducible plan since 2/1/11.
- Laura

My understanding is that you are allowed to contribute the full amount, though you may want to contact the HSA manager to be sure.

Having said that, I’m not sure that contributing this much money to a HSA is a great idea in your situation. You both seem to be in pretty good health and rarely use medical services. Contributing $12,300 a year seems like an incredibly large amount.

Some of that money would most likely go to better use paying off debts and securing your financial future for your healthy selves. Having some security is a good idea, but having too much can hinder you.

Q4: Spouses and kids
With three small children and two careers, how do you and your wife stay connected? We have two careers and two small children and my marriage is extremely important to me so I’d love to hear your frugal ideas on how to stay connected and in touch as husband and wife.
- Jennifer

Right now, our usual method is to insist on an early bedtime for our children. One parent is responsible for putting the kids to bed, while the other parent handles household chores (cleaning up remaining supper dishes and the like). This usually gives us an hour or two before bed to do something together.

We usually try to spend that time doing something where we’re actually engaging each other, like playing a game or just having a conversation.

You don’t have to do something special to connect. You just both have to set it as a priority.

Q5: Index fund or savings account
My wife and I are in our mid-twenties and are aggressively paying off our student loans. We expect to have them paid off in the near future which will leave us with an extra $1000 a month. We have no other debt besides our mortgage (which we pay about 10% extra on each month). We contribute 12% to our retirement accounts and have a $12,000 emergency fund. Once the student loans are paid off we would like to start saving to purchase a newer vehicle for my wife and eventually one for me. We would contribute money to this account every month and whenever we need a newer vehicle we would pull from it. We are torn between keeping the money in a savings account which is safe, but has less than desirable interest rates and opening some sort of investment account, such as an index fund from Vanguard. I am slightly on the risk-tolerant side and my wife is slightly on the risk-adverse side. What are your thoughts on putting this money in an index fund versus a savings account?
- Jeff

If you need to have a specific amount of money at a certain time that’s coming up in the next few years, an index fund is a poor place to put it. The stock market is incredibly volatile, with years where you see 40% losses (2008) immediately followed by years with 20% gains (2009). You can’t rely on getting the exact return you want when you want it from the stock market – in fact, you can’t rely on a gain at all over a period of less than ten years.

In short, I view investments in stock-based index funds over a period of less than ten years as being akin to gambling. There are ten year periods where the average annual growth is 12%. There are ten year periods where the average annual growth is -2%. When you look at shorter periods, you see even more volatility. You have no idea what the next ten year period will be like.

Now, if you’re willing to accept that you might throw $4,000 into the account over the next three years and have only $3,000 when you withdraw, but you might also have $5,500, then index funds are the way to go. Otherwise, I’d use savings accounts.

The real factor is how high your “minimum car” standard is. If you’re going to save $250 a month toward a car and would be fine buying a $4,000 car in three years, then by all means use an index fund – you’ll probably be very happy with the results. However, if you’re saving $250 a month and expect at least a $9,000 level car in three years, I wouldn’t bank on the index fund.

Q6: Snowballing versus interest payments
I know there are pretty much two schools of thought on debt repayment… one being to pay the smallest debt first, and the other to pay the one with the highest interest first. You’ve mentioned in the past that either method is good as long as you’re working towards that goal… but I’d love to see the actual numbers for my own situation. After finishing college I was able to pay down a good portion of my debt within the first few years… here’s what I’m left with:

Mortgage – owe $61,500, interest rate 6.25% (we have no intention of staying in this house and wish to move back to the state we’re from – we’re currently doing projects around the house to make selling easier when we decide we’re ready)
School loans – $34,300 owed, interest 6.75% (this interest rate freaks me out)
Car – $10,200 owed, interest 3.37%
Closed credit account – $2,800 owed, interest 1.99% for the life of the balance.

Now the snowball method says to knock out the $2,800 closed credit account first, but with such a low interested rate (it ends up being about $4 a month) it seems silly to me to pay off the $2800, when I’m paying the highest interest on the school loan. I pay double the minimum payment on my school loan – which ends up being almost what my mortgage payment is. Next theoretically I’d pay off the car…. but then I’m knocking out the two lowest interest rates and leaving the accumulation of the highest interest rate on that $13,000 during that time. Granted, paying the school loan first takes the longest. I’d love to see the real numbers… if the difference is negligible, I might as well knock out the smaller debts first…. I feel like in the long run I’m saving some money my way…. but is this accurate?
- Amanda

I usually don’t advocate the snowball method, at least as Dave Ramsey does it. It’s almost always better to tackle debts in order of interest rate. The big advantage the normal snowball method has is that it gives you the rush of having paid off your first debt the fastest.

If I were you, I’d hammer those school loans, then hammer the mortgage. Make minimum payments on the other two until both of the big ones are gone.

I could run numbers for you, but any model you make of these things would show you that taking care of the 6% loans first is the best move over the long run.

Q7: Letting my cousin move in
My 18 yr old cousin is about to graduate high school and may well not have a place to live

Without going into a lot of details, my aunt has told him to live with his father and his father’s girlfriend does not want my cousin in her home (where his father resides).

I love this kid and while I think he is not perfect (what 18 yr old is?), I feel as if his parents are washing their hands of their responsibilities.

I’m thinking of offering him the opportunity to move in with me for one year — long enough for him to start school and get his feet under him — I know this is a big change and part of the offer would be a mutually agreed upon set of house rules and regulations.

Am I crazy? Am I taking on something too big for me?
- Jason

This is a very risky move – and one I probably wouldn’t directly do. It has a lot of potential to end badly, particularly when you mention a “mutually agreed upon set of house rules and regulations.”

This sounds like you’d want to become a surrogate parent, and becoming a surrogate parent of someone who basically just got kicked out of their home is not something you want to do.

I’m all in favor of you helping him, but cohabitation is likely to bring problems into your life that you aren’t planning for and don’t want. Find other ways to help, like helping him get a job, get his money straight, and other things like that. Teach him how to be an adult instead of just being another parent.

Q8: Mortgage free! But a problem…
My husband, 2 year old son and I live in a small bungalow on a 4 lane, busy, mostly commercial street in an area just north of Toronto. My husband purchased the house for $220,500 10 years ago and we still have $120,000 left on the mortgage. We both work full time at the same company – only 20min drive from home (our son’s daycare is 10min away and on the way to work). Our house and 2 others on the block are currently tied up with a development deal. A developer wants to take down our homes and build a commercial building. This deal has been 2 years in the making and has been extended 3 times. It now looks like it will be finalized and we will have to purchase a new home. The price we would get for our property is $540,000 (not a bad return on investment).

Of course we have been keeping an eye on the real estate market for the past 2 years.

Throughout this whole process we have been hoping to purchase a house and be mortgage free with some extra in the bank. We have no debts except for the house and a car. The problem is that in order to do this we would need to move farther from Toronto and increase our daily commute from 40min to almost 2 hours. Job opportunities would exist in the new city however the pay would probably be much less. We would both like to find new jobs and my husband is considering a career change. We feel that being mortgage free would open up more opportunities for us as we wouldn’t need to make the same amount of money as before. In addition, we could commit to staying at our current jobs for a certain period of time while we work on making a change. The increase in costs with the longer commute still wouldn’t add up to a mortgage payment. We actually have 5 coworkers who live in the city we are considering.

The other option of course is to find a house close to work. We would still have a mortgage and the homes in the area are, quite frankly, overpriced. While we wouldn’t have the commute I also feel like we would have missed a great opportunity to get ahead. This type of opportunity doesn’t come along every day and we want to make the most of it.

Do you have any suggestions on how we should work out the pros and cons of our options? Are we missing anything? I know you must get hundreds of emails but we would be very interested in knowing your thoughts.
- Wendy

My initial reaction would be to ask if there wasn’t some form of mass transit you could take for your commute, which would reduce your cost of living in the city edges even more.

Many of my friends that live in large cities do just that. They drive to a mass transit station, take the train into work, take the train back to that station, then drive home. They all report that it’s far cheaper to do it that way than to drive, and possibly quicker, too.

I don’t know what mass transit around Toronto is like, but I would look at that as a big part of the equation. If you have that kind of access to the city, I see no reason not to live on the outskirts, especially if the housing is that much cheaper.

Q9: Targeted savings questions
I’m in the process of paying debts down, and once I get those taken care of, I plan to create some targeted savings accounts and use what I was paying previously to fill them up. I have a few ideas for them already, and I don’t plan on going nuts and having fifteen different accounts, but I’m wondering if you do this, and if so (or even if not), what you would suggest. I have a standard savings account already, and an emergency fund in an ING account, and these are the others I was planning on creating:

- Travel/vacation fund
- Maintenance fund (things around the house, appliances, automobile, things like that… not emergencies, exactly, but still things that might come up)
- “Saving for” fund (for instance, I’ll need to replace my computer soon, and that would go there. After that, it could be whatever…a new camera, furniture, any larger purchases)
- Christmas/birthday/other holiday gift fund (probably enough for each member of my family in a given year)

Any other suggestions?
- Drew

Those are all good ideas.

This is really a great approach to have for saving for the future. All of these funds will help you down the road and will keep you from going into debt for things that you know are going to happen.

I would also include one other item that I consider essential, a “car fund.” We did this for our last car purchase. Right now, we’re looking at six years without car loans, which is wonderful for our finances and monthly cash flow.

Q10: Investing in foreign currencies
In today’s email you mentioned investing in foreign currencies. How does one do that (or how do you prefer to do that)?
- Aimee

The easiest way to invest in foreign currencies is to buy an ETF of the foreign currency you want to own. You do this in much the same way you would buy stocks. You simply go to your brokerage (say, E*Trade), buy the ETF as if it were a stock, and sit on it.

An example of such an ETF is FXE, which is basically the equivalent of buying Euros. There are similar ETFs for many foreign currencies.

Much like individual stock buying, you can go very deep into buying and selling foreign currencies. Unless you want it to become a lifestyle, though, I’d stick with ETFs for investment purposes.

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.

This morning, a boy from our neighborhood knocked on our door. He was looking for yards to mow and he offered to mow ours for $15 a pop.

Our yard takes roughly an hour to mow with our push mower. I tend to enjoy the process, actually, as it gives me a good excuse to get exercise. I often come in pretty sweaty after mowing on a hot summer day.

So I turned the boy down.

Now, are there tasks I would pay someone $15 per hour to take care of around our house? Yes, but it depends on the task and the situation. The real question is will I get an additional $15 of net earnings or $15 of life enjoyment out of that hour as compared to just doing the task?

This idea is called competitive advantage, and thoroughly understanding it can be a huge benefit for your finances. I wrote about this idea three years ago and largely concluded that one should simply look for opportunities for comparative advantage in their life, but what does that mean, exactly?

Here’s an example. Let’s say there’s a job in my home that I get little or no value out of doing. Washing dishes comes to mind, actually, as does doing the laundry. Now, if I have something that purely generates more than $15 worth of post-tax earnings or more than $15 worth of life value that I can do in the hour that I’ve gained by paying someone to do that task, then I should do that. What generates such value? A guest article on another website might do the trick, as might an hour spent playing tee ball in the yard with my children.

Where things get more difficult is when I start looking at replacing stuff that does have value for me, like mowing the lawn. How much is mowing the lawn actually worth to me, considering the exercise I get out of it? I have to know that before I can really consider hiring someone to do it for me, because then I would be losing not only my (minor) enjoyment from mowing the lawn, but also the cost of paying someone to do it. I’d have to gain more than I would for hiring someone to wash the dishes.

Simply put, you can make your life a lot better through maximizing comparative advantage, but it requires you to have a real understanding of how you value things in your own life and realistic assessments of how you can earn money in your spare time.

For example, if you’re paying someone $50 to do three hours of cleaning in your home, are you gaining $50 in value out of those three hours you’ve gained? If you’re just sitting there watching whatever happens to be on television, you’re not gaining that value, but if you’re doing something that improves your career or something that deeply improves your personal relationships, you’re gaining far more than $50 of value out of that time.

Comparative advantage is a stark example of how self-analysis can lead directly to a richer and more well-rounded life. The better you know your life – what you value, how much you value it – the more you can take advantage of comparative situations.

The best part of this kind of self-analysis is that you can do it all the time as you move through life. Ask yourself consistently how much this experience is worth to you, or how much you’re actually earning from this hour of work.

Soon, you’ll begin to get a sense of how much various things are worth to you, which makes it easier to find points of competitive advantage in your own life.

What’s more valuable to me: staying up for another half an hour to watch this show, or going to sleep a half an hour earlier?

What’s more valuable: spending all day the day before my child’s wedding prepping a meal for forty or hiring a caterer to take care of the whole thing?

What’s more valuable: driving an extra thirty minutes round trip to shop at a warehouse store or paying a bit more to buy several items at a nearer store?

What’s more valuable: hiring a babysitter to watch your three children so you can go out to eat with your spouse or taking the family to a family restaurant instead?

Such choices become easier and more clear the better you know yourself and what you value, and when you’re making better choices consistently, your life becomes better.

I think I’ll go mow my yard now and work up a good sweat.

We have three children. My parents had three children. My wife’s parents had three children. One of my wife’s closest friends is about to have her third child. My oldest brother has three children. My wife’s aunt has three children. My wife’s first cousin will shortly have three children.

Why do so many people in our lives have three children? Three is the magic number, I guess.

When Good Personal Finance Practices Go Too Far It can be just as easy to overdo it as it is to “under-do” it when it comes to personal finance. (@ len penzo)

Shooting Lessons: 4 Ways to Make Things Happen Great tactics for getting over that little hump, whatever it might be. (@ pick the brain)

Cultivate Your Passions In other words, if you’re passionate about something, invest the time to learn about it and enjoy it in a deeper way, as this will last with you. (@ happiness project)

The Illusion of Control I think the idea of control comes from simply being aware of a particular set of events and knowing how to solve most immediate problems with regard to those events. (@ zen habits)

Comparing a Full Time Job to Self-Employment Self-employment isn’t the obvious choice here. You have to have serious self-motivation to make it work. (@ digerati life)

When I think about the long run, I’m usually thinking about what I would call “retirement.” It’s a state I hope to reach in my fifties or sixties or so where I can spend my time working on projects that may or may not result in any sort of financial gain, but simply projects that I can enjoy. Almost every thought about the “long term” in my life leads to that point.

I asked my mother a few days ago about what she considered to be the “long term.” She basically pointed to a point about ten or fifteen years down the road when my children are graduating high school.

I asked my oldest son what he thought about the future and what he thought of as the biggest thing that would happen in his life. He thought about it and he said it would be when he was a parent, roughly when he was my age. Let’s call it twenty years.

I asked my father-in-law what he thought of when I said the words “long term” and he pointed to a point about eight years down the road when he hoped to retire.

Seven years. Twelve years. Twenty years. Thirty years.

One of us is looking at that long term with (relatively) shorter-term retirement savings in mind as a tool to get there. Another sees the route to the long term coming through health maintenance. Yet another sees it as a natural outcome of growing up. For me, it’s all about the long-term retirement planning.

We all have very different definitions of the long term. We all have very different actions we need to take to get there.

Whatever your definition of the long term is, though, you don’t just get there by wandering in the wilderness. It takes work, and it takes a plan.

I’m saving steadily for retirement and putting that money into investments that are fairly high-risk. As time marches on, I’ll be pulling the throttle back and moving into less risky investments.

My son is so excited about school starting in August that he’s already wondering about school supplies.

My mother rather carefully watches the food she eats.

My father-in-law is saving for retirement hand over fist.

We each have our own visions of the long term. We each have our own path to get there.

The key word in personal finance is personal. We all have different goals and dreams. Those goals could be as close as a year into the future or it could be several decades down the road. Depending on where we’re at right now, the things we need to do to get to that point might be drastically different, even if the goals are similar.

What’s the point? You’ll find the most success with personal finance – and with life – if you don’t just copy someone else’s plan. Instead, learn the principles and figure out your own plan that takes you to wherever (and whenever) your long term happens to be. Along the way, don’t be afraid to grab great ideas from others and add them to your own plan, just as long as it keeps taking you to wherever it is you want to go.

Kelly writes in:

I’m reading about retirement and I see terms like Traditional IRA and Roth IRA and 401(k) thrown around without really explaining what they are or what the differences between them are. Do you have a summary of these plans and how they work?

There’s no better time than the present to offer up some great fundamental personal finance information like this. I’m going to ask a series of basic questions about retirement plans and provide the answers for each type of plan so that you can clearly see how they differ in each area.

I myself have had a 403(b) in the past and I currently have a Roth IRA.

One important point to make: this is a summary of the differences between the plans. Plans often change over time as the government alters the tax code and many plans have loopholes that appear and disappear as the years go by. The goal here is to not provide a be-all-end-all reference, but to make clear the big differences between the plans.

Right off the bat, let’s clarify a key point. A 401(k) and a 403(b) are essentially the same thing. The difference between the two is whether or not your employer is a for-profit entity (a business) or a certain type of non-profit entity (such as an educational institution). In terms of the employee, they’re virtually identical in their usage. Some types of non-profit entities also offer a 457 plan, which is very similar to a 401(k)/403(b) except with a few less restrictions on withdrawals.

Who Offers the Plan?
How can you get involved in each type of plan?

A Traditional IRA is offered directly from investment houses. In order to open a Traditional IRA for yourself, you have to open an account with an investment house. Some well-known investment houses that I use (or at least somewhat recommend) include Fidelity and Vanguard.

A Roth IRA is offered in the same way as a Traditional IRA. You have to set up your account yourself with an investment house (like Fidelity or Vanguard).

A 401(k)/403(b) is offered through your employer. Your employer sets up an arrangement with an investment house to provide individual 401(k)/403(b) accounts to their employees. Rather than having a choice of investment houses, you are stuck with using whatever investment house your employer provides.

Which has the advantage? The IRAs have the advantage here. Because you have the freedom to choose which investing house to use and can move from investing house to investing house, these companies have good reason to offer you strong investment options. With a 401(k)/403(b), you’re locked into whatever investment house your employer negotiates with, which may or may not provide you with the best investment options. This doesn’t mean that the investment choices in a 401(k)/403(b) are terrible; usually, it just means that the fees are a bit higher than they would be with your own IRA.

Who Is Eligible?
Which people are eligible for each type of plan?

You are eligible for a Traditional IRA if you are under the age of 70 1/2. You must also earn some sort of income from work or be married to someone who earns income from work.

You are eligible for a Roth IRA if you are eligible for a Traditional IRA. The requirements are the same.

You are eligible for a 401(k)/403(b) if you are employed by an organization that offers such a plan to its employees.

How Much Can You Invest?
How much money can you invest in each plan each year?

In a Traditional IRA, you can invest $5,000 per year if you are under 50, or $6,000 per year if you are over 50. These numbers are accurate for 2011 and may go up in future years (they’ve gone up in the past).

In a Roth IRA, you can invest the same amount as in a Traditional IRA. However, there are income caps for investing in a Roth IRA. If you are single and earning between $107,000 and $122,000 or if you’re married and earning between $169,000 and $179,000 per year, your upper limit is less than $5,000 or $6,000 per year. If you’re over the top end of that range, you can’t invest money at all into a Roth IRA this year.

In a 401(k)/403(b), you can invest up to $16,500 per year as of 2011.

Obviously, in this regard, 401(k)/403(b) plans are the big winner as you can invest more in them.

What Tax Advantages Are Included?
The purpose of a retirement plan is to take advantage of tax breaks. What tax breaks do you get with each of these plans.

A Traditional IRA offers the ability to make contributions that are fully tax-deductible. In other words, if you contribute $5,000 to a Traditional IRA in 2011, you will be able to subtract $5,000 from your taxable income when you file your taxes early next year. This results in a smaller tax bill right now.

A Roth IRA contribution does not offer the tax deductibility of a Traditional IRA contribution. Instead, once you contribute to a Roth IRA and have the account for at least five years, you can withdraw any money in the account tax-free (gains or otherwise) once you’re 59 1/2 years old. This results in a smaller tax bill later on, as Traditional IRAs require you to pay taxes with all withdrawals from the account.

A 401(k)/403(b) operates much like a Traditional IRA in this regard. You make contributions today that are fully tax-deductible with regards to your taxes for the coming year. However, there are no tax benefits when you withdraw.

Which is better? It depends strongly on what you think tax rates will do in the future. If you expect them to stay the same or go down, then the Traditional IRA and the 401(k)/403(b) route is better. If you expect them to go up, then the Roth IRA is better. I expect them to go up, so I give the Roth IRA the nod here.

When Can I Withdraw?
I have this money in the account. When can I take it out without a stiff tax penalty?

You can withdraw from a Traditional IRA at age 59 1/2 or any time after that. Withdrawals made from a Traditional IRA will be viewed as income and taxed as such. You must start taking withdrawals at age 70 if you haven’t already started.

You can withdraw from a Roth IRA at any time (once you’ve had the account for five years) as long as you merely withdraw your contributions. You can begin to withdraw your investment gains at age 59 1/2. You do not have to start withdrawing at age 70.

You can withdraw from a 401(k)/403(b) in almost exactly the same way as a Traditional IRA. You may start withdrawing at age 59 1/2. The withdraws you make are taxed. You must start withdrawing at age 70.

The Roth IRA is clearly the most flexible account here. There are no tax penalties for withdrawing contributions early. There’s also no requirement to begin withdrawing at age 70.

How Can I Withdraw Early?
What if I desperately need the cash early? This is usually a bad idea, but it’s worth knowing.

You can withdraw early from a Traditional IRA if you pay a 10% additional tax penalty on your withdraws. This is beyond the normal income tax you’d have to pay on it. So, if you withdraw $10,000 from a Traditional IRA early and are in the 25% tax bracket, you’ll pay $2,500 in taxes on it plus an additional $1,000 penalty. There are some exceptions to these rules for special situations.

You can withdraw early from a Roth IRA if you’ve had the account more than five years. At that point, you can withdraw contributions with no penalty and no tax. If you’ve not had the account for that long, you’ll have to pay a 10% tax penalty on your early withdrawal. If you withdraw above and beyond your contributions before you’re 59 1/2, you’ll have to both pay taxes and a 10% penalty on those additional withdrawals. There are some exceptions to these rules for special situations.

You can withdraw early from a 401(k)/403(b) much like a Traditional IRA. You pay a 10% additional tax penalty on your withdraws beyond the normal income tax you’d have to pay on it. As always, there are some exceptions to these rules for special situations.

Again, the Roth IRA is the best deal here. It offers more flexibility with early withdrawals than the other plans.

A Final Factor
At this point, a 401(k)/403(b) plan looks like the worst option, but there is one huge factor in that plan’s favor. With many employers, the employer will offer matching contributions. For example, one employer that I know of offers one-to-one matching of every dollar an employee contributes to their 401(k)/403(b) up to 6% of the employee’s pay. So, if the employee makes $50,000 per year and contributes 6% of that – which would be $3,000 per year – the employer would match that, giving that employee a total of $6,000 invested each year.

This blows away the benefits offered by other plans. The strength of this kind of multiplying of retirement funds is the best tool you have available to you – if your employer offers it.

What Should I Do?
Here’s my take on the plans as a whole and how I invest for my own retirement.

If my employer offers matching funds on my 401(k)/403(b) plan, I take advantage of those matching funds first. I would contribute as much as possible to retirement to get every drop of matching funds. This is free money that you should never turn down.

After that, I would fully fund a Roth IRA if I were eligible for it. If you make less than $100,000 a year, you’re eligible for it. Find a trustworthy investment house – I use Vanguard, but do your own research – and open a Roth IRA with them. They’ll make it easy for you to open the account and set up an automatic investment plan that pulls money from your checking account.

If I wasn’t eligible for a Roth IRA, I would fully fund a Traditional IRA.

If I was still not saving 10% of my income for retirement, I would invest enough in my 401(k)/403(b) to add up to 10% of my salary. So, for example, if I were making $100,000 a year and I contributed $4,000 to my 401(k) to get matching and $5,000 to my Roth IRA to fully fund it, I’d still only be saving 9% per year. I’d contribute another $1,000 to my 401(k) to get to that 10% threshold.

I would then pay off any and all debts I have. Before contributing more than 10%, I would get myself to complete debt freedom. I would also take care of buying whatever house I wanted to live in for the long term and make sure that I was saving for major purchases like automobiles. Riding a merry-go-round of debt eats away at your retirement like anything else.

If I were completely and securely debt free, I would increase my personal retirement savings to 15% of my income. This might mean fully funding a Roth IRA, contributing more to a 401(k), or even just saving money in a savings account or non-retirement investment account.

That is the plan I would follow at my age (32, as I write this). My only exception to that is that if I were over 35 and hadn’t saved for retirement yet, I’d put the 15% total savings at a higher priority than total debt freedom, as you have some retirement ground to make up for the years you weren’t saving.

Good luck!