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. A pile of problems
2. Financially helping a boyfriend
3. Vinegar and water for cleaning
4. What debt comes first?
5. Subsistence farming
6. How much term insurance?
7. Thoughts on iPad
8. Entrepreneurship gone bad
9. Cell phones gone wild
10. Powdered homemade laundry detergent

Taking a five day trip, followed by a two day break, followed by a six day trip, all with three children under the age of five, is not a good idea. I officially need a vacation from vacation.

I’m having severe financial troubles and have no clue as to how to proceed. I’m 48 and unable to work due to disability (but I have been denied several times for disability benefits). My husband, who is 43, has been unemployed for a year and a half. He was working at California Closets in the shop previous to that. We have been living on his unemployment check ($1600 per month) and now that has ended. We’ve moved in with my parents and have applied for food stamps. It simply can’t get much worse than this. Oh but yes it can. We have about $10,000 in credit card debt and $2500 in medical bills. (I know, I know…. stupid!!!) We had been keeping up with these payments when he was receiving unemployment but now cannot pay them and are accruing late fees. We can’t even file for bankruptcy because we did that 4 years ago when our business of 10 years (retail bookstore/gift shop) failed. I’m mad at myself for letting things get this bad and I feel helpless and stupid that I’ve made so many poor financial decisions in the past. If you were in my situation, what steps would you take. What should I do?
- Kim

The absolute first thing you need to do is to figure out what work you’re capable of doing. If you’re being denied disability benefits, clearly there is an opinion out there that you are capable of some level of work. Seek out employment services that can help you with this, because it can sometimes be difficult to make a good self-assessment in a situation like yours.

You also need to remember that the debts you have now have no collateral, so not paying them for a while won’t result in repossession of anything. It will result in further damaged credit and a good deal of harassment, however.

You’ve got a rough road ahead, at least in the short term. Patience will be your best friend here.

I bought a house last year with my boyfriend of 3 years. 1 month after closing he was laid off from work. Unemployment insurance gave him enough to pay bills/mortgage. He did not want to share any financial information with me, and I knew he had debts. I offered to help out with budgeting and his general financial well being and he was against it.

I work in a creative field and am lucky to have a comfortable income. Last year I got a significant raise and have been saving a lot, I did not make much money previously. Also I am frugal, coupon cutter, and am upset that my boyfriend did not care about his finances. What should I do? We are not married, and the mortgage/bills need to be paid. How long am I suppose to cover him? He thought we would be married by now, but being laid off sort of paused our lives. Not being able to get married is upsetting to him, making him feel like a failure. I feel I am in a tough situation. Our families act like we are married, but we do not combine finances. I also do not want to be the sole provider. I can afford the total mortgage on my own, does that mean we should keep the house? I did not plan for this at all. I have 2 thoughts: #1-I work hard for my income and do not want to carry him. #2- I get upset that all these fees, interest charges, could be money for saving to have a child, so if I don’t help him out, it would effect me in the long run.
- CM

How long are you supposed to cover him? The answer to that question is the same as another: how long do you think this relationship is going to last?

Your last paragraph seems to hint at some very serious trust issues in your relationship, as well as some incompatible values. If you can’t get those things on the same page, your relationship is not going to be one for the long term, and you’re better off moving on now.

If you are thinking this is going to be a very long-term relationship, then his debts are effectively your debts, because they steer what you’re going to be doing in the future.

If you’re sticking around out of some kind of obligation to take care of him, you shouldn’t. He’s an adult and can make his own choices in life.

You need to answer for yourself whether this is a relationship that is going to last. If it is not, move on.

What proportions are best for floor cleaning w/ vinegar & water? thanks for your advice….using this will be so much better than the expensive Swiffer products & other harsh, harmful & costly products.
- Donna

I usually use equal amounts of water and vinegar, and use full-strength vinegar on tough stains. I do this on both hardwood and linoleum surfaces and I haven’t seen a problem yet.

Considering the huge jugs of vinegar you can get for just a little bit of pocket change, this is a pretty cost-effective way to get the floor clean. You don’t need too much of the liquid as long as you have a good mop to work with.

Actually, that brings up another good point – the better your mop is, the easier the cleaning is, regardless of what cleaner you’re using. I trust the recommendations in this article over at Real Simple.

I am 25, recently married (2 months ago), my wife is 26. I currently work in web development making $44,000 per year (about $2600 per month after tax). My wife is a high school english teacher and unfortunately was part of budget cuts this past school year and is now unemployed. She is collecting unemployment now until we can find her a new job (it may not even be this fall given the job market) So she will be collecting unemployment at about $1860 per month.

My question is what should I do with the money? I’ve contemplated knocking off the car loans to get them done with, but don’t want to reduce our savings too much to do it. What’s your take on the situation?
- Erik

The first thing I would do is make sure you can make ends meet with your current income level, and also with the income level that you’d have if your wife’s unemployment runs out. If you’re not going to be able to make ends meet easily in those situations, I wouldn’t use up the emergency fund too much.

If you do decide that paying off debts is a good move – and it certainly might be, because it will improve your monthly cash flow and your long term net worth if you don’t have to dip into debt in the future – I would pay off the lowest balance one first, because that will provide the most direct benefit to your monthly cash flow.

I’d also encourage your wife to take on any work that would bolster her resume, even if it’s unpaid. Things like working at educational-based summer camps, getting involved with America Reads/America Counts, or anything along those lines can be a real boon. The more experience she gets teaching children and the more things she gets on her resume, the more likely it will be she can find a teaching job down the road.

I am a 20 year old girl living in an apartment in Raleigh NC with my boyfriend. I work part-time as a nanny to pay the bills and he works part-time at a moving company so we have a very modest income and no savings. We have a shared dream of some day, hopefully sooner than later, moving into a moderately sized house on a large area of land where we can grow our own vegetables in a greenhouse and raise a family and perhaps even adopt a few more dogs and some chickens. The problem is is that I have no idea where to start. I’ve been a city girl all of my life and because I am not going to college and I am underemployed, home ownership is still a distant dream. Do you have any tips for me as far as how to become a subsistence farmer with little experience and no money?
- Melissa

Trying out subsistence farming with little experience and no money is pretty much begging for absolute failure.

If you want to learn the ins and outs of small scale farming – and you’re only working part-time – get a part time job for a small-scale farm. Tell them your story and that you’re willing to work hard in order to learn how it all works as something of an apprentice.

I can tell you from experience that if you want to grow lots of fruits and vegetables or raise animals, nothing trumps experience. The more experience you have, the easier it will be to start things on your own without a long series of outright failures.

I work at a relatively stable job and my employer offers a life insurance policy of 6X times my annual salary for just $8.23 per 2 weeks. I plan to purchase this policy as the premium is so low for such huge coverage. However, I fear that this policy would lapse if I get laid off. And so, I wish to purchase term insurance from a 3rd party such as Metlife or such Insurance companies.

Can you offer any thoughts or opinion on this matter? It would really help me.
- Indrajeet

That plan makes quite a bit of sense. In essence, you’re spreading out the risk.

Obviously, the plan offered by your workplace is less expensive than virtually any other life insurance you’ll probably find. It comes with a risk, though – if you lose your job, you lose the insurance. Splitting the policies in this way spreads out the risk.

My only suggestion would be to keep a careful eye on your employment status and get an additional policy if you lose your job.

I’m starting a four-year PhD course in September. I’ve just finished my undergraduate course (graduating with a First) and in total I’ve read over 550 papers (and that’s just the ones I kept track of in my EndNote library!). At the moment I print out most papers that I read, carry them around, read them, highlight bits and make brief notes on them, and then put them in a big pile. I’ve been wanting for a while to make this (a) easier, (b) more environmentally friendly (although I do recycle all of the paper afterwards) and (c) reduce my hugely high printing costs.

What do you think? It’s not necessarily your place to advise I know, but I was trying to apply some of the principles I’ve learnt from your blog, but still don’t know what to do!
- Robin

Before you worry at all about what to buy, make sure that you really understand your need first.

From what I understand here, you’re struggling with the ongoing cost of printing out research papers for your studies. Based on my own experience, you’re probably annotating them in some fashion. You also need the papers to be very portable.

A tablet computer does solve most of those concerns. However, don’t just limit yourself to the iPad. There are a lot of other tablet computers out there (like these). A netbook may also be a great solution for what you’re trying to do.

The real danger I see here – and it’s one that I’m guilty of myself – is seeing a particular gadget or other item and imagining in your head all of the problems that it could solve in your life. The problem with that kind of thinking is that often, you’re not solving real problems, just imagined ones.

Your best bet is to always go through your life and just look for things that pop up again and again that could be done in a better way. If you think to yourself every night that your bed is uncomfortable, a mattress might be a good buy. On the other hand, watching a mattress ad and thinking to yourself, “That looks comfortable… I’d better buy one,” is not a good personal finance solution.

For me, at least, I’ve had an ongoing list of features I’d like to see in a tablet computer, a list I’ve kept for years. These are all things I do all the time that would be massively simplified with a tablet. As the apps from the iTunes Store get more and more robust, I’m beginning to believe that the iPad actually is that device.

In December 2007 I bought a franchise. It was in an area that was a passion for my wife and I while fulling a dream of entrepreneurship. Unfortunately the economy decided to poop on my dreams. Essentially we opened our doors for business in November 1st 2008, and closed them Oct 28th 2009. We filed bankruptcy and our house was lost in foreclosure. That was all settled in February, all except for one small detail. WE have an $80,000 SBA loan held against an investment property that my in-laws own. I could have let that mortgage go and saved our own home in the process but chose to keep the debt and do what I feel morally obligated to do. My in-laws would have had to either pay that debt or lose the rental.

How can I deal with such a LARGE debt?
- Aaron

To put it simply, you deal with it slowly but surely.

Paying off this debt is all about cash flow, period. The less you spend in a given month, the more you have to contribute to that debt.

Right now, you have a handful of major expenses eating up your cash flow. $925 a month for rent? You’re significantly delaying the payoff date of your loan by moving out of your in-law’s house. $1,200 a month for child care? Given the other opportunities your wife would have to save money as a stay-at-home mom (for example, babysitting during the day, preparing home-cooked meals, etc.), is that really saving you money?

What about that $330 a month car payment? Do you need a car that requires $330 a month? Wouldn’t a low-end used car get the job done and let you channel $250-300 more per month into that loan?

If you’re reacting to these comments with defensiveness, you’re thinking about this the wrong way. Paying off a giant debt means making hard choices, ones that sometimes make us uncomfortable. Yet, the debt is also making you pretty uncomfortable, too. You have to answer some hard questions about what’s best for your entire family.

Potential entrepreneurs: Aaron is the face of exactly why it’s so important to have all of your ducks in a row before you jump into business ownership. The more debt you take out at the start, the bigger the risk is, and Aaron’s story shows loud and clear how painful the downside can be.

I recently visited the Verizon store with my husband (a minor stuff hoarder and chronic upgrader) We were replacing the 2nd phone he ruined due to water. (fishing and then walking in the rain). Before we were married, I was fine with dial up internet, one home phone and no TV. Now we have Verizon FIOS bundle with HD, sports and outdoor TV, internet, land line phone and 2 cell phones. Anyway, back at the Verizon store, he wanted a droid because it takes pictures you can send to your email and it is new cool technology. (I suggested he just take our camera with him and he rolled his eyes) With quite a bit of effort, I was able to pull out all the costs from the salesman. It is an extra $10/month just to have the droid, another $30/month to have internet service and it costs to send the photos or text. I went from spending $30/month on all this a few years ago to $250/month with growing costs on all this technology that just makes my life more complicated. I love my husband and want him to be happy and am fine with having these things now. We can afford it but deep down, I have difficulty with my feeling that we are being blindsided and ripped off.
- Laura

You’re not being blindsided or ripped off. It sounds like you have two top-of-the-line phones with unlimited data plans and unlimited texting. Those are all going to cost you – and those are all unnecessary services.

It sounds like your husband has a gadget addiction and, even more worrisome, he doesn’t take care of the gadgets he already has. You’re being blindsided and ripped off, but it’s not by Verizon. It’s by an addiction to gadgets.

You have a choice to make. You can either just sign off on all of this stuff or you can have a sit-down with your husband and make some hard choices together. It’s up to you.

Trust me, though: gadget escalation gets more and more and more expensive. There really is no limit to it except for what you impose on yourself.

Curious if you have ever tried the powdered versions of the homemade laundry soap. I love the homemade soap concept (especially having a 5 month at home, so we need perfume and dye free soaps) but the idea of storing 5 gallons seems like a headache. Seems like I could store a pretty big supply of powdered detergent in a small Tupperware. Any experience on this?
- Jeff

You can certainly make powdered soap, but it takes a bit longer to make.

Just use my homemade laundry detergent recipe. Just use the three solid ingredients:

1 cup washing soda (I use Arm & Hammer)
1/2 cup borax (I use 20 Mule Team)
1 bar soap (I use whatever’s cheap, in this case Pure & Natural)

Grate that bar of soap with your finest grater until it’s basically powder, then put it in a large quart jar along with the other ingredients. Shake the jar thoroughly – for two or three minutes – until everything’s evenly distributed. Keep a lid on the jar and put it in your laundry room.

When you’re about to do a load, use two tablespoons of the powdered detergent. Start filling the machine with water, add the detergent, wait a moment, then start adding the clothes. You’ll be good to go!

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

I treated my credit card as my emergency fund.

In late 2004, the brakes failed (in a nearly catastrophic fashion) on my 1997 Ford F150. For whatever reason, the brake cylinders chose to collapse as I was attempting to stop at a stoplight. I nearly caused a very large accident, but I managed to get stopped after swerving into another lane and running a red light.

The repair bill was pretty significant – about $300 more than I currently had in my checking account. I remember standing there flipping through the four or five credit cards I had at the time, trying to figure out which one had enough available credit to cover that bill.

Personal finance 101 would have kept me out of this situation, but I didn’t have enough sense to have planned a bit for this brake problem. Instead, I believed that having some credit available on a credit card was just as good as an emergency fund.

That’s just horrible, horrible planning. Here’s why.

Let’s say, on average, I have a major emergency that costs $1,000 once a year in my life. A car breaks down. A job is lost. A family member is ill and you need a plane ticket. There are countless emergencies that can happen in life, so I’m just using that $1,000 once a year emergency as an example.

If you sock away $20 a week into a savings account earning 1% interest, you’ll have that $1,000 once a year when you need it. The brakes aren’t a concern, nor is that emergency flight you have to take. Plus, you’ll earn a small amount of interest on that money – $5 to $10.

If you just spend that $20 a week on something unnecessary – and that’s what you will spend it on, because almost everyone has $20 worth of fat in their weekly budget – when the emergency comes, you’re putting that $1,000 on a credit card. At that point, you’re now making $80 a month payments on that credit card instead of socking it away. Even worse, you’re paying 20% interest or so on that credit card, meaning that over the course of the year, you’ll have to make two or three extra $80 payments just to cover the interest. And while you’re making those $80 payments, you’re not socking away $20 a week for the next emergency, so when that next one hits, you repeat the cycle. You’re giving away $200 a year to the credit card companies and forgoing some savings account interest as well.

We’re not even talking about the extra risks of relying on credit cards. What happens if the emergency hits and you’ve already got a hefty balance on your cards? What if the bank lowers your credit limit and then suddenly your transmission falls apart?

None of these risks – and countless others – apply if you simply have a cash emergency fund.0

My first mistake was not having a cash emergency fund, of course. This put me up for all kinds of risks, ones that came to a head with my own financial meltdown in early 2006 when I could no longer pay my bills.

The second mistake, tied directly into this mess, was carrying a balance on my credit cards. Credit cards are a great tool, but they’re really only useful if you don’t carry a balance forward from month to month on them. If you start carrying a balance, you’re going to pay dearly for that balance in the form of very, very high interest rates.

Add the two together and you’re running on pure borrowed time, hoping that you don’t ever have more than one or two emergencies at once. Because when that happens, you’re going to find yourself in a bad place, with damaged credit, banks harassing you for their money, and a big helping of added stress in your life.

How can you avoid this trap?

The answers are really found in the mistakes I mentioned above.

First, don’t carry a credit card balance. I think credit cards are a fine tool to have if you can use them responsibly, and responsible credit card use means never carrying a balance. How do you do that? Never put anything on that card that you don’t have the money in your checking or savings account to cover.

Second, start building a cash emergency fund. The easiest way to do that is to set up an automatic savings plan. Open a savings account at a particular bank of your choice, then set up an automatic transfer from your checking account to that savings account. $20 a week is a healthy place to start because after a year, you’ll have $1,040 in your account (plus some more thanks to interest). Use that cash when something unexpected gobsmacks you.

The biggest thing, though, is to recognize that emergencies happen – and they happen more often than most people think. Our minds do a fantastic job of making our crazy disorderly lives seem pleasant and ordered. The biggest crisis in the world seems like nothing more than a speed bump after a little bit of time. Allowing yourself to be comforted by this and thus using that comfort as a reason not to build an emergency fund is one of the biggest personal finance mistakes that people make.

All through my life, I’ve spent time memorizing various poems. The Road Not Taken by Robert Frost. anyone lived in a pretty how town by e. e. cummings. Pioneers! O Pioneers! by Walt Whitman (probably my favorite).

I like the way the sounds roll off the tongue and paint pictures. I like reciting them (or pieces of them) to my children. I like the flavor of the words.

How to Adopt an Attitude of Gratitude Lately, I’ve been focused on seeing the good in every situation. There are many situations where it’s easy, but if you look deeply, there is good in every situation. (@ dumb little man)

Wants that Morph Into Needs This is lifestyle inflation and it’s one of the most dangerous opponents people have to building a sustainable free life. (@ personal finance advice)

See The Impact When You Donate To Charity I think the big reason that many people struggle with charitable giving is that it feels like a “give and see nothing in return” exchange. I don’t think there’s anything wrong with wanting to see what your money is going for. (@ christianpf)

I’m So Judgmental. I Want to Conquer This! Any Suggestions? Everyone has their own path. You can’t fairly judge others by the path you’re on. It’s like comparing a track sprinter’s times to that of a cross-country skiier. (@ happiness project)

It’s So Easy to Talk About Lunch I love this. If you want someone to talk, give them something very easy to talk about. Seth suggests talking about what to have for lunch, because everyone has an opinion. (@ seth godin)

Ask Unclutterer: Encouraging kids to help out at home My technique is to do it in very small timed batches. Our kitchen clock has a countdown timer, so we’ll designate a very specific task – “Pick up the Lincoln logs!” – with a very specific time frame – “Can we get it done in five minutes!?” – and then set the timer. The immediate focus and the short term really helps our kids (ages four and two) to take care of their stuff. (@ unclutterer)

Recently, I came across (via jason kottke) a brilliant commencement speech given at Princeton by Jeff Bezos, CEO and founder of Amazon. The main focus of Bezos’ speech was the difference between gifts and choices. Here’s an excerpt:

What I want to talk to you about today is the difference between gifts and choices. Cleverness is a gift, kindness is a choice. Gifts are easy — they’re given after all. Choices can be hard. You can seduce yourself with your gifts if you’re not careful, and if you do, it’ll probably be to the detriment of your choices.

He goes on, near the end, to illustrate the idea a bit more directly:

How will you use your gifts? What choices will you make?
Will inertia be your guide, or will you follow your passions?
Will you follow dogma, or will you be original?
Will you choose a life of ease, or a life of service and adventure?
Will you wilt under criticism, or will you follow your convictions?
Will you bluff it out when you’re wrong, or will you apologize?
Will you guard your heart against rejection, or will you act when you fall in love?
Will you play it safe, or will you be a little bit swashbuckling?
When it’s tough, will you give up, or will you be relentless?
Will you be a cynic, or will you be a builder?
Will you be clever at the expense of others, or will you be kind?

When I was in college, I took a course on the theory of programming languages – fairly arcane computer science stuff. For some reason, I just got the material. It just really, really clicked in my mind.

At the end of the semester on the day of the final, there were two people (myself and one other student) in the class who had cinched an A regardless of our performance on the final, which was obviously a relief. I vaguely knew the other student, so after the final was over, I caught up with him just to somewhat debrief on the class with someone else who really got it.

What I came to find out is that the other student with an A had put an absurd amount of work into the class. He had studied and studied. He had stayed up late working on every project. He told me, quite sincerely, that he had invested more time in that class alone than he had in all of his other classes combined that semester.

My ability to get an A in that class was a gift. His ability to get an A in that class was a choice.

Every single person out there has gifts. Some of us are very gifted with the ability to make friends easily. Other people have an innate understanding of a particular topic. My mother and my grandmother and my uncle all share a gift for sketching, a gift I simply do not have. They could (and still can, in my mother’s case) sit down with a pencil and a sheet of paper and make an amazing sketch of almost anything you can name. My mother virtually never does this, but on the few times I’ve seen her do it, I’ve been blown away at the quality of what she can produce.

Every single person out there has a life full of choices. You’re choosing what to do with every moment of your life, whether it’s work or practicing the piano or watching The Real Housewives of Duluth, MN.

Quite often, a series of choices can make up for the lack of a gift possessed by another. The story above about the student in my computer science class is a perfect example of this. I find it’s true in my own life, too.

I have always had a very difficult time being social with people I don’t know very well. It is only through a conscious choice to continually work on my social skills that I have been able to engage successfully with groups of new people and build quite a few great positive relationships in my community. By no means am I a social master, but for a very introverted guy like myself, the ability to walk into a community event, greet and be greeted by several people, and usually have one long conversation or two before I ever reach my seat is a sign that a series of conscious choices can make up for a missing gift.

However, the real home runs occur when a person knows their gifts and makes choices to accentuate that gift.

All you have to do is look at the truth of how the top people in any field have reached that point. Yes, they’re resting on some natural gifts, but those gifts are virtually always cultivated by countless hours of practice and other hard choices. Kobe Bryant didn’t wake up one morning being the best basketball player in the world. He has natural gifts, no doubt, but he constantly makes very difficult choices in terms of his practice regimen, his diet, and other areas of his life. The result? Five rings, a pile of awards, a ticket to the Hall of Fame, and more money than he can count.

In other words, people pay money to see the results of gifts matched with choices. The real message here is that gifts are certainly a help, but it is choices that really take you places.

That’s why I’m a firm believer that people should follow their passions. A passion means that you’ll constantly be making those hard choices that build something exceptional. Like that student in my class who stayed up all night working on theory of programming language projects, the results of chasing a passion are usually very strong.

Combine them with a few gifts and you have something amazing. Something people will pay money for.

It’s Tuesday afternoon. What choices will you make today to build that amazing future? Will you choose to spend less money? Will you choose to stay up all night getting that project you’re working on just perfect? Will you go home tonight, pull that canvas out of the closet, and put some paint on it?

The choice is yours.

Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

I bought many expensive (and inexpensive) items without adequate time to enjoy them.

One of the most cathartic things I did in the immediate aftermath of the choice to turn my financial life around was to simply go through our apartment in order to collect stuff to sell in order to give a big initial boost to our debt repayment.

What shocked me wasn’t so much the amount of accumulated stuff, but the amount of stuff that I owned that I had invested virtually no time or energy in. Piles of unplayed video games, some still in shrink wrap. Mountains of nearly-new paperbacks, many with just some sunlight exposure, most of them unread or barely-started. Piles of CDs listened to maybe once or twice. Multiple sets of golf clubs – and piles of golf balls. A large trading card collection and a large vintage baseball card collection, neither of which had been touched in years. A closet full of nearly-new clothes. Pieces of computer hardware uninstalled.

Simply put, there were tons of things that I had purchased and barely used. Why? I had so many things that I could be using that I didn’t have nearly enough time for them all.

Obviously, my situation is a bit extreme, but over the last few years, I’ve been repeatedly shocked to find how many of my friends and family members have done similar things on a much smaller scale. Unused exercise equipment. Unused DVDs. Barely-worn clothes jammed in the back of an overstuffed closet. Video game consoles played for about five hours and then stuck into a closet. One friend had a never-used Dyson vacuum cleaner in the closet that had been sitting there for more than a year.

These experiences reveal several very vital personal finance mistakes.

First, I used shopping as a substitute for actual entertainment and other experiences. Instead of enjoying the things I already had, I devoted time and energy into the acquisition of more things. A much more worthwhile use of that energy would have simply been directed towards enjoying the already-acquired items.

Second, those purchased items, left unused, are an incredible waste of an investment. As soon as most of the items were purchased, they became much less valuable, passing from “new” to “used” in terms of resale value. They then sat around for a long time, doing nothing more than taking up space, not even repaying some of their value in terms of the entertainment or joy they could provide. Even if I had just mindlessly bought a new game when I defeated the previous one or bought a new book when I finished the one I was on or bought a new CD when I had listened to the one I previously purchased a few times or bought a new DVD when I watched the last one I bought, I would have been in much better financial shape. This doesn’t even touch on the fact that I would have been even better off wisely using rental strategies and other techniques to still get all the enjoyment I would ever want with even less financial investment.

Finally, the clutter of unused stuff takes up time, space, and energy. How do you keep 500 DVDs organized? It’s much, much easier to keep ten organized. It takes less time and space. It takes less maintenance to dust them and keep them clean and presentable. The same is true for everything else in your home. The more you have of something, the more time it takes to maintain it – and the more it costs to maintain it, too.

What can you do to avoid this trap?

The first step is to get your shopping habits under control. Eliminate the purchases you’re making that don’t directly address needs. If you’re buying something that you’re not going to go home and use immediately, reconsider the purchase. Consider instituting a “one in, one out” policy for your non-essential items. In other words, if you buy something new, you have to swap out or sell something old to make room for it.

The second step is to seek out less expensive sources for the things that you do actually buy that fulfill needs and direct wants. If you’re a movie fanatic that buys four DVDs a week, subscribe to Netflix instead. If you’re an avid reader, hit the library to get your new release fix. If you’re a gamer, join GameFly. If you like music, use services like Pandora. Join community groups that focus on your particular hobby. Look for online groups that seek out bargains in your area of interest.

The next step? Thoroughly use items you acquire before you move on to another one. If you pick up a book, read it (or at least give it a fair shot) before getting another one. Even better, get rid of the items that you won’t pick up again. Make your collections consist of the ones that you truly love and intend to revisit with some frequency in the future.

Doing this for the things you accumulate will make a tremendous difference in your financial state as well as the space, time, and energy you have to devote solely to maintain your stuff.

Along my financial journey in life, I made a great number of mistakes. In this ten part series which runs from July 19 to July 30, I’m going to focus on ten of my worst mistakes and the difficulties and successes I’ve had in overcoming those mistakes.

I had a child without understanding the financial consequences of it.

When I was in college, one of my closest friends was a young woman whose parents had conceived her at pretty much the last possible moment from a biological standpoint. While she had a great relationship with her parents, I couldn’t help but see that she would be facing end-of-life issues with them at a much earlier point than I would be. Her parents wouldn’t be able to be involved grandparents. They wouldn’t be around to provide support to her during her early stages of adulthood and she’d be faced with helping them through their final years before she even had her own life completely in order.

Sarah and I decided, based on our experience with this friend, to have our children when we were young and to be completely finished with children by age thirty five.

We stuck with this plan, too. Eighteen months after getting married, Sarah was pregnant. Nine months later, we’re holding a baby boy. One that, unfortunately, we were completely unprepared for in a lot of ways.

First of all, our spending was completely out of control at that point. We spent $500 on a crib for the baby. We purchased almost every item you could imagine on the runup to his arrival, including lots of things that we never used. Huge piles of receiving blankets. Bottle warmers. Countless other frivolous things.

The real disaster, though, was our inability to forecast the big increase in weekly expenses. Daycare was a sledgehammer, adding $200 a week to our expenses. Add in diapers, some formula for supplementation, the cost of washing clothes and the cost of buying new clothes every few months or so as he outgrew them, and we found ourselves quickly in the hurt locker.

This situation was made even worse by the fact that we didn’t fully adjust our spending to account for this. Naturally, we ate at home more and we went out less, but even with those savings, we didn’t make up for the financial bomb that having a baby dropped on us.

Why did this happen? We simply didn’t think ahead. At the time of our decision to have a baby, we simply didn’t have the financial maturity to make it work. Rather than seeing the future arrival of our baby as a motivation for getting our financial house in order, we looked at it as merely another excuse to spend money on stuff we really didn’t need.

Children are more than that. Children deserve more than that. They come into the world helpless, reliant on your good judgment and ability to ensure that they’re safe and well cared for. If you’re caught up in other things and unwilling to put forth the effort to make your life stable, you’re not only putting your situation at risk, you’re putting that child’s situation at risk as well.

It was, in the end, my child that pushed me to begin my financial turnaround. I only wish I had made that revelation a year or two earlier.

What can you do to avoid this trap?

The first – and most obvious – choice is to think seriously about having children – and ask yourself seriously if now is the right time to have them. The choice to have children is not an easy one and shouldn’t be taken lightly, nor is the decision of when to have children. Spend some time seriously thinking about the costs – in terms of money, energy, time, and other factors – and whether or not the costs truly are outweighed by the benefits in your situation.

Second, plan ahead for children – and start that planning now if you think there is any chance of having them in a reasonable future timeframe. The sooner you begin to get your own financial house in order, the easier the arrival of children later in your life will be. Get an emergency fund started. Pay down your debts with a particular focus on maximizing your monthly cash flow (meaning pay off the smallest debts first). Invest your energy in building a sustainable career.

Third, use realistic, low-cost solutions for your child. Buy their clothes from consignment shops and Goodwill stores (that’s where we shop now for our children’s clothes for our four year old, two year old, and baby). Use cloth diapers. Buy a reasonable crib for the baby to sleep in. If at all possible, breastfeed and pump instead of relying on formula.

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. Investing for five year goals
2. Music career crossroads
3. The price of fame
4. First steps with no credit
5. Buying a foreclosed home
6. Which retirement option is best?
7. Pet allergies and family
8. Budgeting and saving
9. Roll over or pocket?
10. Planning for a big change

I love the local flavor of an area that I’ve never been to before, even in the United States. The word choices. The accent. The local culture. The food. The selection at the grocery store. It’s all similar, but just a bit different, like a different spice hidden in a familiar dish.

My husband and I bought (what we think) is a starter home last year and we think that we’ll want to sell it in 5-7 years since the public school system isn’t great in the area (no kids yet, but trying to think ahead). Anyway, in case we sell the house for around the same price we bought it, I am thinking of ways to make our money work for us in the next 5ish years to help us with a potential larger down payment. I have about $7,000 in a couple of stocks (Johnson & Johnson and Schlumberger) and have about $3,000 in cash that I would like to put in a Vanguard account (and then plan on adding to it monthly). Since most of this is based on speculation and the future, it is tough to plan. All I know is I want to make this $9,000-$10,000 work to its full potential in the next 5-7 years and was wondering what your thoughts were on the matter.
- Krissy

Well, you have a choice. You can either take on a considerable amount of risk and put it into stocks with the potential of a good return (and the potential of returning nothing at all or losing some) or you can put it into something conservative and lock down a small return.

That’s really the investment choice we’re all faced with. There is no “best” answer. It depends on our goals and our needs and our personal risk tolerance.

The longer your timeframe, the better the stock market option is because it gives you more time to make up for the inevitable bad years (like 2008). Five to seven years is just about the perfect time to go through one bear market and one bull market, and depending on how strong the bull is and how strong the bear is, it could be a net gain or a break even or a net loss. If you can invest for longer – fifteen years or longer – you can ride multiple bears and multiple bulls and, over the history of the stock market, the average bull gains more than the average bear loses. It’s just that you can’t bet on that from individual bears and individual bulls.

If I were you, I’d probably put the money someplace conservative and focus on squeezing a few more dollars from my standard of living.

I am twenty four years old, and I just got married back in October 2009. I am by trade what you would call a “Professional Musician” or “Hired Gun” or “Artist”. I’m a drummer, and song writer. This is all I have done since I was a kid. I have had a record deal, had a national release, and some radio success. The difficulty with being a musician, outside the realm of it being a “hobby”, is that work comes then it goes, and success is not solely based in being good or even great, it comes through connections and who-you-know. Not to mention that living in a town like Nashville where there are a lot of other people doing the exact same things, it makes it even more difficult to get in the door, EVEN if you a extremely talented! My wife has been unemployed for almost a year, but is furiously looking for a new job. I have been playing music and working as a server at a restaurant since my wife and I married, but our lack of income is constantly frustrating! The problem is that if I go get a great paying job or go to school to get a better paying job and then an awesome tour comes up, I have to quit. My heart and all my passion surround playing music, but it ain’t paying the bills? We live off a budget, have some emergency savings, and are paying off the remaining 4,000 in debt we have. Do you have any suggestions?
- Caleb

You’re asking about a field that I know little about aside from some friends that have dabbled in the alternative music scene. I asked them what they knew and they gave me a few things to pass along to you.

First, they suggest that you tour, tour, tour. Play as many live shows as you possibly can, even if they’re free. When you’re there, make sure you have t-shirts and copies of your album and bumper stickers to sell to the people that are there. Gigs build a reputation and keep income coming in, so get as many as you possibly can.

Second, if you’re a drummer, seek out at least a singer and a guitarist you can partner with so that you’re in this together. You’re in Nashville – it shouldn’t be too hard to find others who are trying to find a break. Even if you eventually go your separate ways, you’ll have built a resume. Tour with these people and split the proceeds from the t-shirts and albums and bumper stickers among you.

Third, make sure you do have some sort of album recorded so that you can sell it at your shows, even if it’s recorded in your basement using a laptop and a couple cheap microphones. Learn how to use GarageBand (that was their suggestion for software). Give away some tracks online. Do some online promotion, too, like with a Facebook fan page for your band.

They seem to largely think that if your love is music, then you should be focused on that, especially if you’ve seen some degree of success with it already. Just live as lean as possible for now and see where it goes.

The thing that bothers me most is when I see famous people complaining about how hard their life is when they have everything they could ever want.
- Kathy

What you’ve got to keep in mind is that there is no life without problems. There is virtually no one who does not want something different.

People who have financial wealth have often traded other kinds of riches to acquire it. Perhaps they didn’t build a great relationship with their family. Maybe they broke off their friendships with a lot of people to get where they’re at. Maybe they had to abandon a dream. Maybe they had to work in a field that made them feel empty inside. Perhaps their career path led them to fame that they didn’t really expect which restricts their freedom to just walk down the street when they want to.

No one on this earth has the perfect life. They may have elements of their life that you wish you had in your life, but I’m willing to bet there are elements of their life that you would absolutely not want in your own. I would imagine they feel the same way about you.

It could be that the richest person in your neighborhood looks at a poor but close-knit family and thinks to himself that he would trade all of his riches for that. Meanwhile, the close-knit family looks at the rich man’s big house and the shiny car and thinks to themselves that they would give anything for that.

Everyone has riches in different ways and we all sometimes wish we had more in some areas of our life.

I’m a 27yr old married guy with a 6yr old daughter and another on the way any day now. I’ve never borrowed any money from anybody in my life – not a loan, not a credit card, not a pay day cash advance, nothing. I love it this way – my friends and family have paid thousands upon thousands of dollars over the years in interest payments, while my wife and I have lived relatively debt-free. The problem is, I’m a credit ghost. I’ve tried to get some low-limit credit cards or loans to start to raise my credit score, but no one will approve someone my age who has never had a spot of credit in their life. Apparently, being a 27yr old with no credit raises all kinds of flags in banking computer systems due to the high statistical probability of my being a faked identity trying to pull some kind of scam. I even had to bring my ID, Social Security Card, and Birth Certificate to the bank just to be added to my wife’s 15yr old pre-existing checking account! I want to try and build my credit up a bit because I’m interested in buying a house around my 30th birthday. Do you have any suggestions about what I can do to get started down that path?
- Brad

The first place I would start is at my local credit union. Go there, explain your situation, and see what options they have available for you.

Local credit unions typically do manual underwriting for the credit packages they offer. That means they usually interview the person they’re considering loaning to and figure out who they actually are rather than just relying on a credit history.

Large banks rarely (if ever) do this. They typically run a person’s credit report and if they find a 27 year old with nothing, they don’t offer them credit (especially right now, where banks are being pretty careful).

Head down there. You’ll probably want to take similar identification with you, as well as some proof of employment and a copy of your previous tax return.

My girlfriend and I were talking about saving our money for about a year or so to be able to put a down payment on a house. Over the weekend a friend of ours said she saw people cleaning out a house in the same development as hers so she went online and found that the house is foreclosed and now bank owned. My question is, is buying a house that’s been foreclosed any different than buying a house that has not been? What makes this appealing is that the price on the website says its only $46k. Is this how much it would cost us to own it or does this amount mean something different? We are in the process of acquiring more information but I would like to know if this is worthwhile to pursue. If this is the price and assuming the house isn’t a complete disaster, would buying this house be a recommended course of action? Another bit of information is that our friend bought her house about a year ago for about $128k, to give you an idea of how much houses are worth in this development.
- Andrew

The absolute first thing you need to do is search the public records and find out if there is a lien against this home. Call your county’s recorder for starters to see what you need to do.

You also need to find out how foreclosure sales work in your state, because the procedure varies from state to state. Google will help to give you an idea of the process. If you actually decide to go for it, you may want to seek a bit of professional assistance if you’ve never done it before.

You’ll also want to inspect the property carefully. Sometimes, previous tenants in foreclosed homes will do things like strip out all of the wiring and all of the piping and practically gut the house, leaving the buyer with a ton of work. You’ll absolutely want a careful home inspection before you buy.

You may want to seek out a real estate agent who is familar with foreclosures if this is a new experience for you.

I am 26 years old and have no debt besides my mortgage. I work for a state agency. There is a retirement plan automatically set up for me through SERS, the School Employees Retirement System. On top of this, I contribute 6% of my income to a Deferred Compensation Plan, a 457(b), which is a retirement plan for state employees in Washington. I have been at my job for a little over a year and have contributed around $3600. I have an additional retirement account from an old employer (Simple IRA) that has around $2200 in it. Is it better for me to let the Simple IRA sit (I am not allowed to contribute to it on my own because it is employer sponsored), or roll it over into a Roth IRA? Also, would it be better for me to have a Roth rather than a 457(b)?
- Stacy

My belief is that for almost everyone, a Roth IRA is a better choice than any other retirement vehicle. It’s only topped by retirement plans that offer employee matching (because that’s free money).

Why do I love Roth IRAs so much? I love them because you don’t have to pay taxes on any gains you earn in that account. Since, at the same time, I believe income tax rates are going to go way up, that’s a very good thing. I’d rather pay the income taxes now when they’re low (since Roth IRAs have after-tax money in them) than pay the income taxes later when they’ll be higher (and possibly much higher).

If I were you, I’d roll it over to a Roth IRA if you’re allowed to. Also, I would contribute to your 457(b) up to whatever amount the employer will match and, if I wanted to save more, I would put the rest in the Roth IRA.

My husband and I have two cats that I dearly love and have had about for over 5 years. We rescued one from the pound and another from a friend that couldn’t keep the cat.

The problem is my sister wants to come visit with her family with us. She has asked us to find other homes for the cats but I don’t think that’s easily possible since the cats are not declawed and have a tendancy to shred/ruin furniture… I feel guilty and pulled in both ways. We have promised to not get any more pets in the future but I know our cats could live another 10 years.
- Karen

We were in this exact situation several years ago. We took in a stray kitten (it was a six or seven week old that had been abandoned in a park) and the cat left behind by an elderly neighbor who went to a retirement home, only to find out later that my dad was so allergic to the cat dander that he couldn’t visit us any more.

Our solution was, basically, to patiently search for a good home for both of the cats. It took us multiple years to find homes for them (and in one case, it was pretty much a relative being nice to us), but we did.

Reasons like this are why I’m often hesitant to take in a pet at all, even though I enjoy their companionship. I know there are pet allergies among my friends and family.

My suggestion is to just be patient, but also be diligent in your search for a good home for the cats.

I have a question about contributing to student loan payments vs. saving for retirement. I’m a 22-year old graduate student working towards a masters degree in ocean sciences, and between teaching and labwork, my month stipend is ~$1400 (after taxes). I have $8000 in student loans (down from $13000, yay!), which is my only debt. I also have an emergency fund of $2000, which would cover 2 months of living expenses. Last fall I opened a Vanguard Roth IRA account, which currently is at ~$1350. My monthly expenses are:
Rent: $600 (for southern CA, this is actually ridiculously cheap)
Food $100
Household (toilet paper, shampoo, dish soap, etc): $20
Phone: $25
Discretionary: $60
Tithing: $50
Irregular expenses (textbooks, conference fees, etc): $50 (leftovers go into travel fund, and when I have ~$600, I can buy a ticket to visit home (Alaska))
Total: $905

This leaves about $500 for either paying off student loans or contributing to my Roth IRA. Currently, I’m putting $450/month towards student loans, and $50 towards the IRA. This is mostly because I really want to travel for a few years after finishing school, which can’t be done with student loans hanging over my head. However, I also know that contributing to retirement savings when you’re young will pay off more in the long run, so I’m wondering whether I shouldn’t reduce student loan payments and increase the IRA contributions? (because I’m in school, the loans are in deferment, and most are subsidized, so required payments and interest accumulation aren’t really issues). Such a change would probably mean that I could not reach my goal of paying off the student loans by the time I graduate (ideally in one and half years), and so I would need to work for a year or so before setting off to travel. But I have the travel bug really, really bad, and I don’t want to do this… (The travel itself won’t be very expensive; I’m looking at au-pairing, WWOOF-ing, and participating in working holiday programs.) It also might be difficult to find a decent job if employers knew I was only planning on staying for a year. So I was basically wondering what you think? Also, if you have any suggestions about my monthly budget, that would be cool too.
- Shiloh

Your monthly budget looks fine. I also think your goal of traveling for a while after college is fine, too.

Your student loan load is not bone-crushing in the least. However, it will require $100 or so a month in payments (my back-of-the-envelope calculation) after you graduate, and possibly more if you take out more loans.

Since student loans typically have a pretty low interest rate, if I were you, I’d probably just make sure that I had enough in cash savings to cover my loan payments during my travel period, then focus on retirement savings. In forty years, you’ll be incredibly glad that you made that move, because the $5,000 you put in now will grow to quite a lot – and if you take it out at retirement time, you won’t owe a drop of income tax on it. It’ll reduce your retirement savings burden later in your life, in other words, by far more than you’re actually saving now.

My husband and I are in our late 30s. He began a new job in Febrary 2009. A few months later, we found out that our daughter has a serious medical condition requiring many medications and occasional hospitalizations. My husband has a 401(k) and an ESOP account from his old job. The 401(k) has about $70,000 and the ESOP is worth around $25,000 (we also have several other IRAs, totalling around $20,000-$30,000, plus a 401(k) from his current job). In July 2010, his shares from the ESOP will be “cashed out” by his former employer. We had planned to rollover this amount into an IRA.

My question is: instead of rolling over the full amount of the ESOP, should we take some as cash and put it into our savings? I know we’ll have to pay income tax on it, plus some type of penalty, but it sounds like a good idea to me for the piece of mind of having something in savings.
- Natalie

OK, first, I’ll unravel the acronyms for readers who might not know what Natalie is talking about.

ESOP refers to Employee Stock Ownership Plan. There are a lot of varieties of this, but they basically boil down to a employer-run plan that shares some amount of stock with the employees of that company.

FSA refers to Flexible Spending Account. It’s a tax-advantaged account for people to use with certain expenses that have tax implications, like health spending. Health FSAs are the most common kind.

My biggest question would be whether or not Natalie and family have a firm grip on any future medical expenses for their daughter. I also am not sure if they have any cash savings right now.

If it’s a bleak scenario (more expenses and no cash savings), then I would use this opportunity to quickly build some, even though the penalties will be harsh. The alternatives – taking out debt for future medical expenses and whatever unknowns life throws at you – are just too harsh.

Given your comments, I think the “bleak scenario” is probably the right one, given your mention of upcoming bills. I would lean towards paying the taxes (and any penalties, if there are any) and beefing up your savings for the expenses heading your way. You know there are a lot of bills coming – get through this now and focus on retirement savings when the storm is through.

I currently make about $98,000 at a job I hate. Every time I come into the office the project I work on has some sort of drama and chaos going on which I get pulled into immediately. Without all the details, I know this situation is no good for me. My goal is to leave and work my businesses full time. But, like many I do fear not being able to cover my bills. In addition, even though I am working on living a simple life, I still want to be able to travel with my partner and our kids. We have 4 young children (2 living with us). My partner makes just $18K a year and has not been successful in finding a better job despite her even having more education that me. Clearly, we can’t pay the bills on her salary alone as our $1800 mortgage would take her two months to pay.

Yes, I have a plan. I am paying off some things and making home repairs. In addition, we are getting any medical and dental work that we need done now before I quit. I plan to get a high deductible plan with HSA but I won’t be able to add my partner to my plan like I have her on my current insurance. So she will be uninsured. I hope that my sales cover all my expenses when I quit. I also working to ensure that I work on my business not in it. I think with age I am becoming more risk adverse (I am 30), and making the leap for me isn’t difficult. I just really don’t want my family to go without. Any suggestions?
- Tammy

I think you need to address what your family would actually “go without” if you made this decision? Would they go without food or anything genuinely important? Or is it just a matter of not being able to go on a big trip this summer or next?

If it’s the latter, the value of having a mother that’s not completely stressed out all the time more than makes up for it. Plus, you’ll suddenly have tons of time and energy to devote to making your business work for you.

You have a plan in place. If it’s not going to pull anything truly important – food, school, shelter, clothing – away from your children, go for it. They’ll gain a mother with energy and spark again.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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

A long while back, I reviewed Bob Sullivan’s excellent book on consumer issues, Gotcha Capitalism. In that book, Bob focused mainly on how companies try to “sneak” surprise fees and costs into their products.

I took away a lot of good material from that book, but what I also took away is that Bob Sullivan is a really good writer about consumer issues. His MSNBC blog, The Red Tape Chronicles, is similarly well written. Thus, when I saw that he had written a follow-up book, again focused on consumer issues, I had to pick it up.

Stop Getting Ripped Off focuses on the same types of issues that Gotcha Capitalism did, but instead of focusing on the specific “rip-offs,” Sullivan instead looks at some of the reasons of why these ripoffs are even possible. Why are we even in a position to be taken advantage of to begin with?

Let’s dig in and see what he has to say.

Part I | Why Consumers Get Screwed
I covered a bit of what Sullivan has to say in this section in my earlier article on money and basic math. To put it bluntly, Sullivan’s argument here (and I think he’s spot-on in some ways) is that companies get away with giving customers raw deals because they have a pretty good profile of many of the foibles and flaws of their customers.

For example, many customers are math-phobic and afraid to or don’t know how to figure out for themselves if it’s really a good deal or not. The companies also deeply understand behavioral economics and psychology and have a pretty good grip on how people react in certain situations – and try to create those situations to get a gut reaction that’s good for their business. Sullivan also looks at the “Stuart Smalley effect” – in other words, people just accept some degree of being ripped off because they don’t think it’s really that big of a deal. Another painful element is that quite often people are willing to believe in things that simply are too good to be true.

What causes companies to take advantage of such things? Greed. A lack of regulations or laws preventing it.

What can we do to fight back? Get good at basic math skills. Focus on the numbers above all else and don’t worry about the ads or the sales techniques. In other words, keep our eyes on the ball.

Part II | Stop Getting Ripped Off – One Deal at a Time
In this section, Bob covers a wide range of specific areas where the principles he talks about in the first section are at work: checking accounts, credit cards, car buying, home buying, cell phones, cable and satellite television, student loans, insurance, and even workplace compensation.

For each of those topics, he works through how companies use the tactics from Part I to give you a worse deal. For example, he talks about how no-fee checking accounts stick tons of potential fees on the account, then make it very easy for people to overdraft and make other such mistakes by giving them a debit card and not encouraging people to manage their own register. The bank makes their money back and more on the average customer who, because they’re not strong on math, overdrafts their account or bounces a check. The penalties are strong but not enormous, so many people just shrug it off due to the “Stuart Smalley effect” from the previous chapter.

Bob applies similar logic to each of the areas mentioned above and offers a few solutions for each. So, for example, he recommends not using your checking account for every purchase and instead focus on trying to use cash as much as possible. You should also try to pay all of your bills in one batch after payday so you clearly know what you have to spend on your bills and what you have left.

Part III | How to Pitfall-Proof Your Finanaces, Past, Present, and Future
This is the section of the book that I feel sets Stop Getting Ripped Off apart from Sullivan’s earlier book. Here, he sets the foundation for how to protect yourself from such things over the long term with a five step plan that takes a person from paycheck to paycheck to a secure financial future.

His first step is to build a small emergency fund and start a bit of retirement savings. In truth, he almost has a zero-th step – you’ve got to cut your spending, period. If you’re spending what you earn, you will never, ever get ahead and you will always be very prone to anything at all going wrong in your life. The first move to make when you do that is to just start socking away cash in a savings account so that when an emergency happens, you can deal with it. Any emergency fund is better than no emergency fund, but if you can start getting a month or two of living expenses built up, you’ll be much more secure.

His second step is to save for retirement and, with the remaining money, start paying down debt. He suggests just making sure you’re in your 401(k) (or equivalent) plan at work and that you’re getting whatever money your employer offers as a match – and if they don’t offer such a thing, opening your own Roth IRA (I have mine through Vanguard). He also strongly encourages coming up with a debt repayment plan.

His third step is to keep rolling on your plans: an emergency fund, retirement, and debt repayment. You should shoot to build an emergency fund that will sustain you for six months, with about six weeks of it in cash and the rest in a broad stock market index fund. He also recommends building your retirement savings with strongly conservative investments – don’t put it at risk with stuff like international stocks.

His fourth step is to start saving for major purchases, like cars and so on, once you’re debt free. You do not want to just continue a debt cycle, especially when you’ve eliminated all of that debt and have a huge monthly cash flow. This is also the perfect time to start investing for yourself with the aim of eventually living off the income from those investments.

His final step is to not escalate your lifestyle. When you get a raise, don’t start buying stuff – instead, channel that raise into your wealth building. Keep saving for your big purchases.

I’d say I’m basically in the fourth step. I’m saving for everything I buy in the future and I’m nearly debt-free (just my mortgage at this point).

Is Stop Getting Ripped Off Worth Reading?
If you’re earning a good income, but you often feel like you’re just being nickel-and-dimed to death and you’re struggling to get anywhere, Stop Getting Ripped Off will be an absolute home run of a read for you.

Sullivan’s advice, though, seems to assume a fairly good income to begin with, so if you’re struggling to earn much more than minimum wage, this might not be the book for you.

The strength of this book is how Sullivan transitions escaping from the nickel-and-diming to a lifetime of financial security. It really is a journey, and Sullivan captures that very well in this book.