What is the 40-30-30 rule? Simply put, it’s an argument that when you prepare for anything in life, only 40% of the preparation is physical – the rest is mental. Thirty percent of preparation is technical skill and experience, and the second thirty percent is the willingness to take risks.

This “rule” comes up again and again in all different areas of life. Here are several examples from my own life where I’ve seen it.

When I’m playing a game I’ve played a lot of times before, I have an intuition as to what move to make next, built from years and years of experience (the 30% that comes from technical skill and experience). However, I also find that it’s very easy to just keep using the same strategy over and over again because I’ve somehow come to the conclusion that it’s the best one. So, if I combine that technical skill and experience with a risky new strategy I’ve devised (the other 30%), I might lose – but I might also devise a way of playing that’s even better.

With investing, I have a good understanding of my own risk tolerance, an understanding built up over a long period of time (the 30% that comes from experience). Howver, I also know that if I don’t push against my risk tolerance a bit and look at new investment opportunities from time to time (the other 30%, risk), I’ll likely miss out on great opportunities.

I also see it in my career, both now and when I worked for a large organization. I would often have a well-worn daily routine that worked and got the things done that I needed to get done (the 30% that comes from experience), but if I really want to excel, I sometimes have to step outside the box a little (the risk-based 30%).

The 40/30/30 rule really does provide a great framework for success, no matter what you do.

Do something worthwhile (the first 40%) means that you’re willing to get up off the couch and do something. Maybe it’s getting ahead in a career. Maybe it’s getting into a new hobby. Maybe it’s simply getting a grip on your investments. 40% of the journey is simply trying.

Keep at it (the next 30%) is simply encouragement to not let a new initiative slide, because the more you work at it, the easier it becomes. Even more important, the more you work at it, the more the basic skills that make up the task begin to become natural to you.

Take risks (the final 30%) simply means to not do things the same way every single time. When you’ve become skilled at something, it’s easy to become wedded to the same routine. Never stop looking at what you do and trying out alternate paths. Not only does this grow your skills (making your basic routine even better), it also helps you to uncover new ways of doing things.

Great… so how do you do this? How can you apply the 40/30/30 rule in your life? The best first step is to figure out the area of your life where you want to improve. Do you want to get out of debt? Do you want to improve your skill at a musical instrument? Do you want to get a promotion at work? Do you want to become a writer?

Once you’ve figured out what you want to do, research it a bit. Figure out what things you’ll need to do to accomplish that goal.

After that, start practicing and building skills. The best way to do that is to start doing the thing you want to master every single day. For me, a thirty day project works well for this. I just commit to doing a certain thing every single day for thirty days (if that’s possible). At the end of it, I’ve usually vastly improved at whatever skill or attribute I was trying to develop.

Quite often, thirty days is enough to establish a positive new routine in your life, so keep it up. Keep doing that thing every day until it becomes truly normal and seemingly effortless.

Then, take a risk. Change what you’re doing a bit. Make it more difficult, or at least different. Explore something new. If you’re taking a walk every day, increase your walking pace a bit and use a stopwatch to slowly trim your time around the block. If you’re trying to break through at work, volunteer for a task that you might have avoided before, like giving a presentation. If you’re playing a game, try a completely different strategy and see how it works. If you’re investing, dig into some new investments that you haven’t looked at before and consider putting some money into them after you’ve studied them.

What you’ll find is that your already-built skill will help carry you through this new challenge and that the rewards of this new risk are great. You end up in better shape, with a better career, with a better gaming experience, and with better investments – or with improvement in anything you’d like to take on in life.

The average square footage of single-family homes under construction fell dramatically, from 2,629 in the second quarter to 2,343 in the fourth quarter. (from USA Today)

The average credit card debt per household — regardless of whether they have a credit card or not — was $8,329 at the end of 2008. (CreditCards.com statistics)

The average 401(k) fell 27% in 2008. (MSN MoneyCentral)

Those numbers seem fantastic. I grew up in a home that had about 800 square feet and currently live in a home that feels huge to me at times and is just shy of 2,000 square feet. The average home has over $8,000 in credit card debt? That’s well over $100 a month just in interest!

However, if you start teasing those numbers apart a little, a few interesting truths reveal themselves.

Let’s look at the first one. The average new home has 2,343 square feet in floor space. Well, let’s assume that one in five homes is a 7,000 square foot McMansion. That means that four out of five newly built homes are just 1,200 square feet. In other words, if you lined up all of the houses that were built in the last year side by side ranked by their size and chose the one in the middle, it would be far less than 2,400 square feet.

How about the average credit card debt? Again, the huge ones skew the average. If you have three homes with no credit card debt, one with $10,000 in credit card debt, and one with $30,000 in credit card debt, the average credit card debt of those homes is $8,000 even though three out of five of the homes have no debt at all. The facts back this up – the majority of American homes carry no credit card debt.

That third one is also interesting. The average 401(k) fell 27% in 2008, yet the stock market (as judged by the S&P 500) dropped 37%. What does that mean? Lots of investors out there didn’t have all of their eggs in the stock market basket.

Whenever you hear a news report or read an article where someone quotes an average, you should get your guard up because there’s a solid chance that a skewed story is being presented.

How is it skewed? Quite often, when we hear “average,” we compare our situation to that number. Yet, as we’ve seen above, the vast majority of people are often well under (or in some cases over) that average. That average is misleading, and if we compare our own situation to that average and use it as guidance for moving forward, we can often mislead ourselves.

How can you figure out the real story? One big first step is to look at the exceptional people on either end. Take the house square footage example. The biggest houses built would be over 10,000 feet, while the smallest ones would be around 1,000 square feet. Then, look at the average. The end that the average is closest to is where most of the people actually are. After all, if there are 9 people building 1,000 square foot homes and 1 person building an 11,000 square foot home, the average is a 2,000 square foot home – but none of them are actually building a 2,000 square foot home.

Good luck.

I’m interested in replacing a piece of home audio equipment that is experiencing occasional malfunctions, but works OK most of the time. The receiver I’m looking at costs $500 on Amazon. I’m a little conflicted. The more frugal side of me says to not even buy it. Make do with the broken receiver until it’s completely unusable. The less frugal side says to save up for it and buy a new one. That sounds perfectly logical and responsible. Save for a few months, instead of putting it on my credit card. The receiver I’m looking at is highly-rated and is considered a great buy for the price, according to CNet. I’ve done research and think this is a good value for what I’m getting, compared to other similar items. I feel like I’ve done everything right but still feel a little guilty in thinking of buying it.

This is one of the biggest challenges for a frugal person. When is it appropriate to just “make do” with what we have on hand, and when should we bite the bullet and buy a replacement? And when we do, is it appropriate to buy a high-end replacement, or should we just go for the best bang for the buck every time?

I think both questions come down to the same key factor: how truly important is this item to your quality of life?

Let’s look at Andre’s case. Let’s say Andre is a serious audiophile. Every evening when he comes home from work, he puts on a series of jazz albums that play all evening at his house while he reads, works on personal projects, and does housework. Perhaps Andre is even a musician himself. The music is one of his biggest passions in life – he can’t imagine an evening without that soundtrack to his life playing.

If that’s the case, Andre should maintain his home audio equipment. He should save up for that replacement component and he should buy a high-quality one that meets his needs.

On the other hand, let’s say Andre listens to his audio system once a week at most. He turns it on when there are guests over and perhaps he’ll turn it on on a lazy Saturday afternoon, but other than that, it sits there silent. He enjoys music, but it’s not his life’s passion.

If that’s the case for Andre, he should make do with what he has and, when it breaks, get a “bang for the buck” replacement for it.

I think this is largely true for everything in life. All of us have a few key central passions. Once you know what those passions are, it’s completely fine to spend a little more on it, provided you can afford it and can save for it.

The problem with overspending comes in when we begin to overspend on areas that are less important to us. For example, if Andre wasn’t passionate about music but he still convinced himself to drop hundreds/thousands of dollars on his home audio system, that’s probably a misuse of money. If he’s not deeply in love with the driving experience, dropping thousands extra on a luxury car probably isn’t a good use of money.

I’ll use myself as an example. I’m passionate about cooking at home. A big part of that for me is getting great, fresh ingredients. Thus, I’m willing to spend quite a bit more to get great ingredients. I don’t feel bad when I spend $30 on cheeses or I buy organic fresh produce or when I replace the old casserole I had in college with a top-notch French oven.

On the other hand, I don’t value having a perfect living room set. I’m more interested in something that’s simply comfortable. So I don’t go out and spend a ton of money replacing our living room set all of the time. It’s just not something I value beyond the minimum function of it.

In the end, I have about three or four key passions in my life that I don’t feel bad spending money on if I can afford it easily. Outside of those passions, I’m as tight as a drum.

Andre, the answer to this question really comes from you. How much do you value the audio listening experience? Is it something that’s central in your life, or is it just something on the periphery? That alone will provide the guidance you need.

I agree with J.D.’s general conclusion that there is some sort of gap between spenders and savers, but I think the age thing is merely incidental. In my eyes, the real difference between spenders and savers is that the savers realize that they have something to lose.

In my own life, I was a big spender during my early professional years. I lived in an apartment with my wife and, in essence, had very little to be responsible for outside of my job and my marriage. I worked hard at both of those, but in terms of worrying about taking care of the future, there really wasn’t much to take care of. I didn’t have a house. I didn’t have dependents. I wasn’t established in the community yet – most of my friends were holdovers from college who were similarly unanchored. I had lots of free time.

Roll the clock forward several years. At that point, we’re living in a house. We have two children. I’m involved in several community projects and serve on multiple boards. We have lots of friends and acquaintances in our town, too.

Before, I didn’t really have too much that I could lose. If I spent all my money, there really wasn’t any risk involved with it. As long as I kept up with my career, I could live through my money mistakes. I felt very free to spend with reckless abandon because there was little real-world consequence to spending in that way.

Today, if I spent like that, there would be serious consequences. Would we be able to keep our home? Would we have to leave the community we’ve worked hard to establish ourselves in? What about our children? Am I doing what I can to take care of them? As I write this, I’m sitting in a home that’s a huge six-figure investment of our money – I need to make sure it’s not falling apart, either. The income from my writing career is notoriously unstable, too.

I save because I now have things in my life that I need to protect. That wasn’t true earlier in my life.

I think the idea that “saving is for old people” comes from the journey that people take in life. Early on, we have fewer elements in our life that we need to protect. We don’t have a home. We often don’t have a marriage. We often don’t have children. We often don’t have an established role in the community. We often don’t have an established career.

Later on, many people do establish these things. They begin to realize that they can indeed lose their life’s work. They want to protect all the work that they’ve done. So they begin to save. Often, this is coupled with other shifts in life perspective as well.

In that context, there is something of a correlation between age and saving tendencies, because older people have more to protect and are more aware that it needs to be protected. Older people have the fruits of many years of labor, something that younger people simply have not had the time to bring to harvest yet.

Of course, looking back on my journey, I regret not saving during my early years. Most of the things I spent money on then have left me with nothing at all now except for a worse position in life. Spending so freely for so long directly means more worries today – a result that I could have easily prevented by looking with even the slightest critical eye at my purchasing choices.

Did I need to learn that lesson? I don’t know. I think that some people need to learn it. I think that others have it ingrained in them from an early age.

All of these problems can be solved by one simple change in your perspective about gift-giving this year: give experiences instead of things.

What do I mean by this? Instead of giving a material gift that would require you to spend money on something you’re unsure they’ll like and them receiving something that they’ll have to now take responsiblity for, give them something that isn’t material.

Six Ideas for “Experience” Gifts
Here are six quick ideas to get you started, but there are hundreds more just like it if you let your creativity go.

For a child, give a field trip. This could be a trip to a zoo, to a kid-friendly science center (like the wonderful one in Des Moines, Iowa), a wilderness hike, or to a baseball game. You’ll handle all the logistics of the trip for them.

For a food lover, offer a home-cooked version of a meal they’ve longed for. Try making them something challenging like coq au vin or beef bourguignon. Get out your fine china and linens for this dinner, too – make it something special. It could be a romantic gift for a food-loving couple.

For an art lover, plan a trip with them to the art museum of their choice later in the year. Buy the ticket and handle the transportation yourself.

For a spouse, pledge to do the dishes for a year – or give them a few weekends where they can do whatever they want (with or without you).

For a gamer, give them some invitations that allow them to choose a game to play with you. This is a great way to understand someone’s hobby better (and perhaps find it interesting and exciting yourself).

For a parent, give a free night of babysitting. To them, this means an evening doing whatever they’d most enjoy doing without having to worry at all about their children.

Barter for Services
If you have some good ideas for experiences but don’t have the cash, look into a barter with the person that could provide that service. For example, you might be willing to work 40 hours at a museum or a zoo for a certain number of tickets. Perhaps you could provide IT services at a spa in exchange for some gift certificates there. Many businesses are quite willing to offer credit in exchange for your skills and/or your time. Take advantage of that.

The Presentation
Many people balk at such gifts because they’re unsure how to present it. With a home printer and some time, you can create an elegant presentation of any gift.

First, spend a little on a decent stationery set that you can use for many such gifts over the long haul. Look for something tasteful and simple that doesn’t necessarily have to be holiday-oriented.

Second, use a straightforward layout in your word processing program of choice. There are thousands of templates for Word, most of which are compatible with most word processing programs out there.

Fill out the document with the details of the gift, print it on the best printer you have access to, and also print the envelope with the recipient’s name on it in an elegant font.

Here’s the kicker: include some visuals within the envelope. A brochure that shows what the event is all about is perfect, as is a photograph that provides a visual reminder of what you’re going to do. It can even be something as interesting as snapshots from a past event you’ve enjoyed together.

Why This Works
Aside from the fact that it’s less expensive than giving traditional material gifts, giving experiences works for three reasons.

First, it doesn’t give a material item that the other person will have to deal with. It’s not going to wind up needing maintenance or taking up storage space in their home or requiring a trip to customer service.

Second, it will stand out in a positive way in comparison to the items they receive. When you receive several items for Christmas, something distinct like this will definitely stand out from the crowd. Most of the “experience” gifts I’ve ever received still stand out for me.

Third, it often allows you to experience the gift together. If the gift is an event you can both participate in, it becomes a shared memory, something far beyond what a material gift can offer.

For us, unfortunately, “experience” gifts are a bit of a challenge since we don’t live near many of the people we exchange gifts with. Of course, we have another solution for many of those folks for frugal, unique Christmas gifts… but that will have to wait until next week.

Three Examples
In order to illustrate this, I thought I’d use three real examples from my own life recently, as I’ve been using “the five whys” more and more lately to uncover the roots of some of the problems in my life.

Example 1: Crunching the Numbers
I usually calculate my net worth in a spreadsheet because I like the layout and the reports, but I don’t update it as often as I might like.

Why? It takes quite a lot of time to dig out all of those numbers.

Why? They’re stored in a lot of different databases and on a lot of different websites, which I have to visit individually to extract the numbers.

As a result, I’ve decided to give Quicken a shot again. In the past, I used Microsoft Money for about a year until I found that I didn’t like the reports it generated – I preferred what I had in my own spreadsheet. Quicken may be able to provide better reports (it looks like it will from the reviews I’ve read) and, even if it doesn’t, it’ll make it easier to retrieve the numbers I want to see. (And, yes, I’ll be posting a review of it in the near future.)

Example 2: Broken Exercise Routine
During the final push to complete my book, I abandoned my regular daily exercise routine because I needed absolutely every spare minute. Since I finished it, I’ve been having difficulty getting back into that exercise routine.

Why? Every morning, I feel fairly pressured to write content for The Simple Dollar instead of exercising.

Why? I have (post-book) writer’s block and my usual protection against it (unpublished posts that I have in reserve) isn’t there any more, because I used many of those in the final push to finish the book and the few days afterward when I simply needed to do something besides write.

Why? I’m lacking the “idea juice” I usually have and without it, my entire daily routine is disrupted.

So, my solution is to find ways to reinvigorate my creativity. Over the last few days, I’ve been spending time on brainstorming exercises, simple writing exercises, and so on, as well as just reading a lot – all of that while avoiding the keyboard. It’s really starting to help. Then, as I get back in the flow, I’ll be able to build up a backlog of articles again, enabling me to feel free to exercise in the mornings.

Example 3: Laundry Backup
We often wind up with a large backup of laundry, then find ourselves doing several loads on a single weekend day.

Why? Our laundry routine doesn’t work.

Why? One big problem is that our laundry room is literally as far as possible in our home from our bedrooms, plus the laundry room is back in the corner near the guest bedroom. Out of sight, out of mind. As a result, we often don’t even think about the laundry until the evening, when we’re just about ready for bed. Then, in the morning rush, we walk right by it.

Why? It’s more convenient to just ignore it in the morning and we’re too tired to deal with it in the evening.

A solution presents itself. Fill up a laundry basket in our bedroom in the evening and place it right in front of the door so that we’ll trip over it in the morning if we don’t deal with it. Then, when we go downstairs in the morning, we carry the basket down and we’re pretty much ready to drop in a load of laundry on our way out the door. I’ve started doing this and it actually really works.

Why It Works: The Path of Least Resistance
In the normal routine of our lives, we almost constantly take the path of least resistance when it comes to choosing what to do. What’s the path of least resistance to get from where we are now to where we want to be? We do this over and over and over again.

The only problem is that when we choose this “path of least resistance,” we often aren’t choosing the best path. If only we would choose to take some extra effort right now to remove some of that resistance, we might find a much more effective path to get where we want to go.

For example, the “path of least resistance” for me to figure out my finances was to use a spreadsheet because Microsoft Money didn’t do what I wanted. Of course, as I found out, the spreadsheet itself had significant resistance, so now I’m trying to use Quicken along with my spreadsheet (and maybe not even with my spreadsheet) to reduce that resistance, making the whole thing much more usable.

Another example: the “path of least resistance” for doing laundry was to just let it build up then do a bunch at once. The only problem was that we essentially would devote an entire day to laundry (usually Saturday was laundry day). I can reduce that big resistance by just filling up a basket before bed (a tiny resistance) and then carrying it down in the morning (another tiny resistance).

When you do the “five whys,” you’ll eventually find your way to the resistances in your life that are keeping you from what you want to be doing. When you dig into those resistances and find ways to break them, you make it much easier to go down the path you want to go down.

Why do you spend so much money each month? You might dig down and find that certain places tempt you, so just by avoiding them, you don’t spend as much. You might find that certain friends convince you to spend more, so focus on spending more time with your other friends.

Why aren’t you succeeding at work? You might dig down and find that it’s because you’re afraid to volunteer for projects, so you might overcome that by simply resolving to take the plunge on the next project that comes through. You might find that the politics of your workplace encourage you to avoid stepping up or that the entire company is poisoned, which might indicate it’s time to move on in your career.

You can use “the five whys” in every aspect of your life. If you spend some time thinking through the problems in your life in this way, you’ll almost always dig down from something that seems insurmountable to something that you can fix. That fix might lead to the big change you want or it might not, but no matter what, it’ll almost always change the dynamics of your life for the better.

Keeping score is an easy way for me to know how well I’m doing. It lets me judge, in a very clear way, whether I’m improving and whether I’m making forward progress towards my goals.

For a long time, I was obsessed with keeping score in various aspects of my life against other people. I’d keep score with the various gadgets we had. I’d keep score with who had the best trading card collections. I’d keep score with who had the best-stocked liquor cabinet.

What I found, though, is that keeping score against other people in such ways left me feeling empty. Every day – every hour, even – there was another way to keep score against someone else, and I could never win all the battles or even most of them. Even worse, when I would lay my head on my pillow at night, it was just me. There was no one to keep score against, and even if I had a higher “score” in some aspect of life than others, most of the time I was left unfulfilled by that.

Over time, I began to find a lot of power in keeping my own score.

Net Worth
The primary way I “keep my own score” is by calculating my net worth quite frequently. I use my net worth as a score to judge whether or not I’m making successful, smart moves towards improving my personal finance state. I “win” if my net worth goes up. I “win big” if my net worth goes up by some specific amount each month.

Calculating your net worth is quite easy. Simply make a list of all of your debts and another list of all of your assets. Add up your assets, add up your debts, then subtract your debts from your assets. The resulting number is your net worth.

I calculate my net worth each month. I use a simple spreadsheet to do this – here’s how you can build one exactly like it.

Using Net Worth to “Keep Score”
Each month, when I calculate my net worth, I “keep score” in three different ways.

First, I compare my net worth to the previous month’s net worth. Obviously, I strive to have this go up each month, but during months where there are car repairs and other issues, it doesn’t. If I don’t see a decent increase from month to month – and having calculated this many times, I know what to expect – I’ll start digging for “why” this didn’t happen in order to improve my game.

Second, I compare my net worth to my net worth one year ago. This must be an increase – and hopefully, a sizeable one. I do this mostly to help me realize how far I’ve come over the past year, as it’s often an amazing reminder (particularly when compared to annual income) how our hard work is paying off.

Third, I look at the goals I set at the end of last month. Each month, I set goals for the coming month. Usually, these are “thirty day projects” of some kind, where I’m trying to teach myself a new normal behavior or two. One month, it might be minimizing our grocery bills to teach myself how to get the nutritious foods we need for less. Another month, I might go without spending a single dollar on entertainment. At the end of the month, I’ll reflect on how the goal went and see how it impacted my net worth – it’s usually a positive impact. Even better, I’ve usually picked up a good behavior or two by doing things this way.

Obviously, I also set goals for the next month. I usually pick a “target number” to shoot for – think of it as trying to beat one’s high score at an arcade game. I also usually define a “thirty day project” of some sort – sometimes two – to help me master a good behavior or two that will reflect well on my financial state.

During the month, if I feel like I’m on the verge of making mistakes, I’ll often calculate my net worth just as a quick reminder. It’s much like playing a game and glancing up at the score at the top of the screen – a quick reminder of how well you’re doing and a bit of a push to keep up the good work.

In a nutshell, keeping score is a key part of how I keep my personal finance in balance. It keeps me motivated and focused without causing me to “compete” in areas that are detrimental to my overall goals (like getting into “gadget wars” with friends).

In the last week, the Dow Jones Industrial average closed at a thirteen month high and, at the same time, unemployment hit double digits for the first time since the early eighties. I thought that the Dow Jones was supposed to represent how the economy was doing, but that’s not the case. What does it mean? What is the point of reporting it if it doesn’t mean anything?

The Dow Jones Industrial Average (often called “the Dow” for short) is an incredibly common piece of news, yet the purpose of it is often really unclear to newswatchers. Is it an indication of the state of the economy? Not really. Is it an indication of the state of the stock market? Not really.

Well, then, what is it? And why does it get reported so often?

What Is the Dow?
The “Dow” usually refers to the Dow Jones Industrial Average. It was invented by Charles Dow, a co-founder of Dow Jones & Company, which is a publishing and information company.

The “Dow” is simply an average of the value of one share each of thirty of the largest companies in the United States. It does not include any of the thousands of other publicly traded companies.

Of course, a bit of math checking would reveal that if you added up the current market value of a share of each of the thirty companies in the Dow and divided by thirty, you would not get a number anywhere close to the current value of the Dow. There are several reasons for this, but the most important reason is that companies sometimes choose to split their stocks, basically exchanging two new shares for one old share (or some similar exchange). In order to make sure that such an exchange doesn’t wreck the value of the Dow (because that would effectively mean one of the thirty companies just had a single share of their stock drop by half), Dow Jones & Company accounts for it by using a scaled average, in which they effectively keep track of past splits and multiply the values of each share accordingly. Thus, even when a company splits their stock, it doesn’t affect the Dow average at all.

So, basically, the Dow is just a quick summary of the current value of shares of thirty large companies.

The Value of a Share
But what is the current value of a share?

In simplest terms, it’s all about supply and demand, just like buying and selling anything. The stock market is basically no different than a giant flea market, with many, many people buying and selling thousands of items, all trying to make a profit. Depending on the news (and the behavior of others), the price of individual items goes up and down.

In simplest terms, if there are more people buying than selling, the price of a share goes up. If there are more people selling than buying, the price of a share goes down.

What causes this shift? Information about a given company or about the economy in general. Predictions about what the future holds. The behaviors of others. All of these affect whether people are buying at the moment or selling at the moment.

The Value of the Dow
In effect, the Dow is just an average of thirty items from this giant flea market. What information can we get from that?

Generally, it’s not ruled by news from one specific company. One company’s bad news can affect it a little, but not enough to make a huge difference.

It’s also not affected too much by how things are going right now. It’s important to remember that when people buy and sell stocks, they’re doing it based on what they think the future price holds. Thus, the value of the Dow will often go down well before real economic news (like the unemployment rate) turns bad, and the value of the Dow will often go up well before real economic news turns good.

To put it simply, at the first sign the economy is slowing at all – or that one sector is seeing real problems – the Dow will begin to drop, and often rapidly. At the first sign that a recession is slowing even a bit, the Dow will begin to go up, and often rapidly (and that’s what’s happening right now).

So, look at the Dow as a predictor, nothing more, nothing less. It’s a predictor of the general direction of the economy over the next year or so. If the stock market is going up – as it is right now – the economy will generally improve from its current state over the next year.

The answer is simple: virtually every single person has the resources with which to begin investing. It may seem impossible for some to believe, but it’s true.

If you make purchasing decisions in your home, you have all you need to begin investing. Choose some generic items instead of the brands you usually buy and start your investing with the dollars you save.

If you ever spend money on entertainment, you have all you need to begin investing. Instead of renting a DVD at the Redbox, stop by your library, check out a movie for free, and put aside that dollar you save. There are countless other little ways to shave just a little bit here and there without changing your lifestyle.

If you use electricity, you have all you need to begin investing. Air seal your home or put in a programmable thermostat and you’ll see a significant drop in your energy bill, with which you can invest.

It all starts with the littlest of of choices.

Here are five simple steps anyone can take with that savings

1. Participate in your employer’s retirement plan. More than 90% of the employers in the United States offer a retirement plan. Many of those plans offer matching funds, in which the employer will make contributions to the plan if the employee does as well. Plus, this money goes in before taxes, meaning for every dollar you put in, it reduces your paycheck by substantially less than a dollar – and it also reduces your income tax at the end of the year. If you have a retirement plan at work and are choosing not to even consider using it, you’re choosing poverty.

2. Start an automatic savings plan. If you’ve found a way to cut your spending by even a quarter a day, you have enough to start. Set up an automatic savings plan and transfer whatever you’ve saved to a savings account each week or each month. Even $10 a month – about $0.30 a day – is a great way to start, as it will add up to $121 or so over the course of a year and continue to earn interest beyond that.

3. “Snowflake” into a savings account. If you discover useful one-time ways to save or to earn a little bit more money, don’t spend it frivolously on something you want in the short term. Instead, take that little amount – the $10 you found in the parking lot, the $7 you saved buyinig toilet paper in bulk – and put it right into your savings account. Even better, just start a jar for it, throw that snowflake right into the jar, then take it down to the bank when the jar is full.

4. Save windfalls instead of spending them. What about when something bigger and unexpected comes along? A relative dies, leaving you an unexpected sum. You get a settlement. You win a large cash raffle. You win at the casino (of course, you’d be far better off just not going to the casino, but that’s another story). Sure, feel free to celebrate with a little of that windfall, but instead of blowing through the whole thing like a snowblower through powder, put most of it into your savings.

5. As your savings grows, buy a CD – and then grow from there. Once you hit your bank’s minimums for purchasing a certificate of deposit, do so. This will earn you quite a bit more interest than you were earning in your savings account, but it will “lock up” your money for a while. That’s a good thing – since you’re not intending to spend it anyway, locking it up is just fine.

Congratulations, you’re an investor. When that CD matures and you couple it with your additional savings, you may have enough to start branching into other investments. Hold onto that money – when opportunity comes your way, you’ll have exactly what you need to jump on board.

A very specific example Let’s say Margaret chooses to start saving just $1 a day for the future. Once a month, she automatically transfers $30 from her checking account to her savings account – she doesn’t even have to think about doing it.

After a year, she has $360 in savings and it’s earned a dollar or two in interest. After three years, she’ll have around $1,100. She can then buy a $1,000 CD – a long-term one that earns a couple percent more than her savings account does.

Three years later, Margaret is still just saving a dollar a day. She can buy another CD and has about $200 left over in that account.

Three years after that, all of her CDs mature. She suddenly has about $4,000 with which to begin looking into more aggressive investments if she chooses. Maybe she buys a Vanguard index fund – they have almost no fees and can easily be purchased via their website. Or maybe she feels safer slowly building her cash reserves.

All this takes is a dollar a day.

One final point Now, I’d like you to imagine a couple more things.

Imagine if Margaret is forty when she begins this plan. By the time she reaches retirement age, after saving a dollar a day, she’ll likely have an extra $30,000 for retirement. Not bad for just a dollar a day that she’ll not miss.

Imagine if Margaret is twenty when she begins this plan. By the time she reaches fifty-five, she’ll have around $50,000 in savings. That’s seed money for a new business – a perfect way to begin her second act in life.

Imagine if Margaret is a newborn when she begins this plan (with a parent or a grandparent’s help). By the time she’s fifty, she’ll likely have (well) over $100,000 built up in that account. That’s an amount that can change a life.

These numbers assume that you never snowflake and that you never sock away an unexpected windfall, either. Imagine the possibilities.

Step two, and I’m sure you remember, is about figuring out what hourly wage you’re actually earning at your job, once you factor in the commute, clothes for the job, lunch food and fast food, etc. I’m looking at the category “Escape Entertainment” and I’m a little stuck. Yes, I have cable. Yes, I have a Netflix subscription. Yes, I follow several weekly TV shows. But I don’t necessarily consider those escape entertainment. I never sit down in front of the TV just to channel surf and zone out. If the TV is on, it’s so I can explore characters and stories of a fictional world that I thoroughly enjoy, much the way I would a good book. “Bones” for example, is a show that I enjoy and watch regularly. “Stargate: SG-1″ is one of the shows that my husband and I have on our Netflix queue because we’re huge sci-fi fans.

Yes, I know that the time spent watching those programs could probably be “better” spent playing a game, or going for a walk, or reading, but I don’t consider them escapist entertainment. Am I wrong? Is TV (or for that matter, a pulp-fiction novel) by its very definition an escape, no matter how you look at it? And what about movies? I’m an avid movie-goer. Not because I hate my job (it’s not perfect, but it’s interesting and challenging and if, at the end of two years, I’ll be moving anyway, so it’s really only temporary), but because I truly enjoy movies.

But am I missing the point? The authors write, “Notice the common phrase, ‘escape entertainment.’ Escape from what? … If your experience of life were consistently fulfilling and exciting, from what would you escape?” (pg. 62 – 1999 ed.) And that begs the question, am I actually using those hours in front of the TV or movie screen to escape, and just telling myself that I want to be doing it?

So what do you think? Should I factor the expenses of those movies and subscriptions and the time of watching them, into my “actual hourly wage” as they suggest, or should I leave them out, because I’m not using them as a way to decompress or escape from my job?

Marti raises several very good points here that are each worth adressing.

Not All Entertainment Is “Escape Entertainment”
First of all, there’s a big difference between escape entertainment and ordinary leisure time One is part of a healthy normal life, while the other can be a sign of significant trouble.

I would distinguish between the two as thus: entertainment contributes a significant positive value to one’s life that’s independent of the other aspects of one’s life. Escape entertainment contributes a short-term positive, but only in the sense that it’s reducing the impact of a negative in one’s life.

The reason this distinction is so confusing is that escape entertainment and ordinary entertainment have a lot of overlap.

Take me, for example. One of my favorite television shows is Mad Men. I often enjoy watching it in the late evening after the kids are in bed. It makes me think about a lot of social and cultural issues: what constitutes a marriage? What impact does advertising have in our lives? The questions go on and on. Beyond that, I simply enjoy the well-written plots and characters in the show.

Yet, for a week in the middle of October, when my book deadline was staring me in the face, I had a tremendous case of writer’s block. I was nervous and anxious about the book. And during that week, I spent quite a few hours watching old episodes of Mad Men.

However, this time, it wasn’t enjoyable entertainment. It was escape entertainment. It was helping me to avoid something I didn’t want to face.

In other words, it’s not about the entertainment, it’s about the context. Why are you enjoying this entertainment? Is it because it fulfills you or is it because you need to unwind? Is it because you’re trying to avoid working on something else or is it because the entertainment itself is bringing value into your life? There’s no cut-and-dried answer for this – it’s one you have to look inside yourself to discover.

Do We Need to Escape?
The next question is whether or not escape entertainment actually fills a role in our life. Do we need escape entertainment to unwind or to reduce the stress we feel from our work?

My belief is that we do need an escape valve of some sort in order to help us deal with stress. Escape entertainment is an easy valve for it, but the problem is that it’s a horribly inefficient valve. Rather than focusing your energy on calming down and unwinding, you split your attention between the entertainment and the valve you’re trying to release. The end result? You don’t get much value out of the entertainment and you’re still stressed out.

As I sat there watching Mad Men, I’d often realize that I didn’t really feel any better. I’d also often realize that I had little idea of what was actually happening on the show. I would space out and think about the work I needed to do or about other things I was avoiding. Afterwards, I didn’t feel much relief at all.

The Cost of Escapism
Another problem with escape entertainment is that it’s often expensive for what you get. A new video game bought as fulfilling entertainment (I’m a big believer that interactive entertainment can be very fulfilling) is very worthwhile. A new video game bought as escape entertainment is money spent just to delay an unpleasant feeling.

Even worse, the time invested in escape entertainment is often immense. I remember countless hours playing Warcraft II in the dorms as I avoided my schoolwork, for example. I remember at one point during my previous job, I would come home and watch two episodes of Lost every single night after work.

Those hours lost are themselves a cost, since they’re not actively fulfilling you nor are they reducing your stress levels. You could likely be spending those hours doing something to actually eliminate whatever it is that is bothering you so deeply.

A Better Solution
If you wish to be entertained, seek entertainment. If you wish to de-stress, de-compress, or escape from the situation, do that. Go into a quiet room, turn off the lights, sit down, and close your eyes. Breathe in slowly and deeply. Try to clear your mind of all thoughts. Let the relaxation wash over you.

For the last year and a half of my previous job, this was my routine when I would arrive home from work. I would literally go in, lay down on the bed for about twenty minutes with my eyes closed, and think about nothing. I’d breathe in deeply, breathe out deeply and slowly, and just let my mind and body drift away. After twenty minutes, I would feel tremendously refreshed.

I also find that this works as a great de-stresser and a powerful way to break through writer’s block. Even better, one can easily do this in the shower. Go home after work, take a shower, and then do this under the water.

Here’s the take-home message: escape entertainment can be dangerously expensive in terms of both time and money. Find ways to split the two and you’re much better off – escape through meditation and prayer to quickly relax, and entertain yourself in ways that truly add a positive value to your life. Both avenues are often far less expensive than pure escape entertainment and leave your life in a better place.

A few months ago, I needed some small cloth drawstring bags for a small project. Instead of just heading to Hobby Lobby, I told several people that I know about the project and mentioned that my next step was to get the drawstring cloth bags. Within a week, I had more such bags than I needed.

These two stories have an obvious connection in common. By exerting a bit of patience on projects and talking to others about those projects, we found success without having to ask for it.

Why did this happen? There are several factors at work.

First, in neither case did we ask for anything but advice. The items we received from people weren’t as a result of a specific request or out of greed. They were delivered out of goodwill.

Second, most people want to help others, particularly if it’s convenient. When a friend tells you a story that’s easily solved by a simple action, most people will respond by fulfilling that simple action. They won’t go to extraordinary lengths to make it happen (at least not normally), but if there’s something a friend can conveniently do to help you, they often will. Plus, they’ll feel great about being able to help.

Third, even if a friend can’t help materially, they’ll often help with good advice. Your friends will see your situation from a different angle than you do. They might know of opportunities, techniques, or other such information that can transform your project.

Fourth, the person actually working on the project showed patience. Instead of just throwing money at the problem and rushing around to complete it – something many of us do in the rapid-fire modern world – patience was exerted. They sat back, asked around, and found a better solution.

Fifth, such value exchanges strengthen friendships on both sides. Not only does the giver feel good about being able to help a friend, the receiver feels good as well because of the generosity of their friend. It’s the type of value exchange in which both sides win.

To put it simply, it’s well worth putting the word out in your social network if you’re working on a project of any kind. Simply tell your friends about the things you’re doing and seek their input. Time and time again, they’ll be happy to give their input, whether you choose to use it or not, and quite often they’ll provide someting of great value to you.

Of course, the reciprocal is true – when your friends ask you for advice and you can easily help them, you should provide the same help. If you have useful advice or information, provide it. If you have an item that could easily solve their problem (and you have little need for it), give it.

After all, in the end, what is a friendship beyond a long series of value exchanges? We are constantly doing things for our friends that lift them and our friends constantly do things for us that lift us.

The real lesson here is the value of patience. The utilization of one’s social network is just one piece of the puzzle. Without patience, both stories would have ended with a trip to the store, less money in hand, and a shallower connection with the people in one’s social circle.

If there’s a project you’re working on that’s not incredibly urgent, be patient. Put out the word about your project. Gather input. You might be surprised at the things you discover and the value you find.

I used to hate cooking at home, though. I was awful at it. I burnt things. I messed up scrambled eggs beyond all recognition.

But over time, I got better at it. I started figuring out lots of little things that made the entire process smoother and made my results much better without necessarily improving my skills.

Now, I vastly prefer what I make in my own kitchen over what I can get at most restaurants. What I make at home is tastier, usually healthier, and quite a bit cheaper, too.

Along the way, I’ve picked up lots of little techniques for making home cooking much easier and faster. Here are ten that really changed things for me.

Hone your knives. One of the biggest frustrations I had with home food preparation is that whenever I had to chop anything, it took forever and I often smashed them into oblivion. I thought it was cheap knives, but after getting a much nicer one, I had much the same problem after the first use or so. The entire problem was a simple one – the edge of the knife wasn’t honed. Honing a knife’s edge is incredibly simple. Just take a sharpening steel and lay your knife on it, with the hilt of the blade near the hilt of the sharpening steel. Then, with the blade forming a small angle with the steel, drag the blade slowly but firmly back down the steel to the tip. At the end, the tip of the blade should be near the tip of the steel. Then, switch hands and repeat with the other side of the blade, and alternate back and forth a few times. Your previously-dull knife will now slice through vegetables like a hot butterknife through butter.

Don’t fear the crock pot. Crock pots have this strange reputation for turning out bland food. In truth, though, crock pots are just as good as what you put in them – all they really do is cook things at a low heat over a long period of time. The trick is to make sure your ingredients are good and that you’ve added plenty of herbs and spices right off the bat. Crock pots are absolutely perfect for making stews and soups and chilis that benefit from long, slow cooking – just put the ingredients in the crock pot in the morning, turn it on low, and let it sit all day. In the evening, you’ll have a tremendous meal waiting for you. We’ve also found a lot of success slow-cooking pot roasts with lots of vegetables in a crock pot.

You can almost never over-season a dish. The only exception to this seems to be hot peppers, which can drive some people away. Aside from that, you have to go to almost grotesque lengths to over-season most dishes. So, if you’re unsure, toss in some more spices. It’ll usually make the dish more tasty than simply following the recipe absolutely.

Use fresh ingredients. Fresh ingredients are often the key to making a recipe really pop. While frozen vegetables (for example) are passable, nothing beats the pop of fresh vegetables in your mouth. While canned vegetables can work in a pinch, they just don’t compare. Canned meats are convenient … that’s about all I’ll give them. In most cases, there’s more nutrition in fresh ingredients as well.

Store staples in the freezer. Whenever you prepare something that might be used as a staple in another meal, make plenty of it and store the extras in the freezer. Chicken breasts, loose ground beef, loose sausage, and diced onions all work well in this way.

Always make stock out of leftover bones and leftover vegetables. The meal is done. You have leftover chicken bones, or maybe you have some leftover vegetables of various kinds. Perhaps you have a leftover hambone or the bone from the middle of a roast. Quite often, these things get thrown out. Save those leftovers. Just take them to a crock pot, add enough water to the crock pot to cover whatever you add (and maybe half an inch more), then turn it on low and let it slowly cook all night. In the morning, strain the liquid (just to get the big pieces out) and save the liquid in a jar in the fridge. Then, the next time you need to make something using those flavors, just bust out that jar. That stuff is fantastic flavor.

De-glaze at every opportunity. Another great source for flavor is the “glaze” on the bottom of a frying pan after you cook something – that stuff is pure flavor! Just put some water into the hot pan, watch it sizzle, and notice how much of the glaze on the bottom of the pan comes off into the water. That liquid can now be used in a lot of ways, from adding flavor and moisture to rice and side vegetables or allowing the meat to simmer in it.

Stick with comfort foods at first. It’s easy to get caught up in the sexy idea of preparing some novel dish in the kitchen, but if you don’t have the skills yet, it will likely end in frustration and an underwhelming result. Instead, at first, stick with dishes that you know you like that you’re intimately familar with. For me, that means tuna casserole, hamburgers, and broccoli with rice.

Try cooking something familiar without a recipe. Another great way to really amp up your skills in the kitchen is to attempt making a familiar recipe from memory without using a recipe. This requires you to begin thinking on the fly a little bit as you cook and often forces you into doing things a little different. Sure, sometimes you’ll fail, but you’ll learn a lot from abandoning the recipe.

Get others involved. For me, no kitchen experience is better than cooking in the kitchen with people whose company I enjoy. Being in the kitchen while my wife chops vegetables, my daughter stirs a mixture, my son snaps green beans, or my best friend butters some garlic bread makes the entire experience far more enjoyable no matter how the meal turns out. Get people into your kitchen and cook together – it becomes an amazing social experience.

Five years ago, almost all of my closest friends spent money like it was water. They were constantly doing things like playing poker, pushing each other to “one up” the rest with better gadgets and other material things, going out for drinks all the time, making fun of each other for looking less affluent, and so on. To put it simply, if you didn’t show many signs of material affluence, you were made fun of and ridiculed. You felt like less of a person if you weren’t spending money hand over fist.

Today, all of my inner circle of closest friends are pretty happy just spending an evening together playing cards or a board game. Instead of constantly going out on the town, we go to each other’s homes and hang out, watching each other’s DVD collections or playing each other’s games. We’ll make meals together and eat them together instead of going out for dinner all the time. Instead of talking about who has the latest gadget, we talk about who’s developed a better strategy at a well-played game or what sort of things we’ve been doing to improve the property we already have.

In that same time frame, my own feelings about spending money changed drastically. I went from spending rampantly to being careful about my money. I started spending more time at home rather than out and about, focusing my energy on getting good at a smaller number of things instead of chasing the new.

Perhaps most interestingly, I went from feeling pretty awful about myself to feeling pretty good about myself.

Look at your close circle of friends. What do you see? Chances are, you see something that looks much like you.

If you like what you see in your circle of friends when you look at them from a detached eye, you’re probably doing well for yourself. A good circle of friends is supportive and reinforces your best attributes.

On the other hand, if you don’t like what you see there, you’re probably struggling. A poor circle of friends brings each other down and reinforces one’s worst attributes.

To put it simply, if you want to find success beyond what you’re able to find right now, you may want to look at your circle of friends.

I’m not saying “ditch your friends” at all. Instead, my belief is that people change and grow over time and that growth is often reflected in who you choose to spend your time with.

In my own case, I observed my friends gradually shifting over time. The first major shift occurred when I had my first child. Since I was no longer nearly as available to go out on the town, some of them stopped emailing and calling me. Some of the rest continued inviting me to do social things, but I found that we had less and less to talk about because they weren’t genuinely interested in my life.

After my financial epiphany and, later, my second child, this became even more stark. The things filling my time were my family and my work, so when I would do anything with these riends, we would have very little to talk about. I couldn’t talk about the latest movie or much of anything else, simply because it was no longer any sort of priority in my life.

Over time, I found myself digging deeper into friendships with people who were either going through the same experience I was or were at least supportive of the things I wanted to do. I actually re-established some close friendships from an earlier period in my life and, today, my circle of friends once again reflects me. A single, introverted, frugal guy who loves to play games. A married couple where the husband loves gaming and works at home and the wife is kind, frugal, and has a quirky sense of humor. These are the kind of people we socialize with today.

To put it as bluntly as possible, this change in friendships was in large part responsible for many of my personal changes for the better over the past few years.

What can you do if you don’t like what you see? If you don’t like what you see, it likely means you’re growing as a person in a direction away from some of your friends – and that’s fine. Simply seek out others in your life that reflect your current values better and work on establishing a relationship with them.

You are a reflection of your closest friends. Do you like what you see in that mirror?

When I made that choice, I was exposing my own idiocy in several different ways.

First, I was demonstrating a complete lack of commitment to a goal. Rather than making small sacrifices to fulfill a big long-term dream, I let the dream fall by the wayside in the name of instant gratification.

Second, I didn’t step back, revise, and rework the plan. When I realized I wasn’t making the goals I had set, I didn’t sit down and re-evaluate things. Instead, I acted like an idiot again and just spent the money with reckless abandon.

Third, I allowed that failure to define myself more broadly as a failure at money management. I just believed I didn’t have what it took to be successful at saving. I let myself believe I was a broader failure just because I couldn’t handle that goal.

Setting a big, audacious goal for yourself is inspiring. It makes you feel good about yourself and pushes you to accomplish things beyond what you believed to be possible for yourself.

I’m going to be debt free in three years.

I’m going to have six months’ of emergency fund in the bank by the end of this year.

I’m going to have seed money for my business idea an a year.

We conceive of these great goals, we plan for them, we sacrifice for them.

And then they fail.

Something changes along the way. An unexpected event occurs. We make a few bad spending choices. We overlooked some key element that completely alters the picture.

And we’re left with that empty feeling of failure. We didn’t make that goal. Instead, we just messed it up, like countless other things in our lives (yes, everyone messes up – a lot).

I could sit here and list my own goal failures all day long – as if the one starting this article wasn’t bad enough – but one thing this failure has taught me is that failing at a goal doesn’t mean you’re a failure or even that the goal or the plan was a failure. It just means you need to go back to the planning stage for a bit. Here’s how.

First, never define yourself as a failure because you failed to accomplish a goal. The inability to accomplish a goal is, yes, in part due to your mistakes, but there are usually countless other factors involved as well. A breakdown in a plan merely means that you need to step back, look at what went wrong, and re-work the plan.

Second, look for the root cause of what went wrong. There’s usually an obvious answer, but that’s not the one you want. I suggest using the “five whys” game when figuring this out. State why it seems that the plan failed, then ask yourself why. When you answer that, ask yourself why again. Repeat it until you get down to a root cause that can’t be broken down again. Often, it takes five or so “whys” to get there.

Third, address that root cause. It might be something you can take care of immediately. It might be something that you’ll have to slowly modify over time. Whatever it is, figure out a plan for addressing that specific root cause and focus on changing that.

For me, the real root cause of many of my financial troubles was a lack of persnal control. I would constantly sacrifice the long term for the short term, because I loved the rush of instant gratification. So, the first step for me towards completing a lot of my bigger goals was to simply break that addiction to instant gratification. I mostly did this by utilizing the other changes in my life (having a baby, mostly) and finding ways to get that gratification rush without spending money (like snagging a hot book on reserve at the library, for example).

You may find that your bigger goal has to be delayed a bit while you deal with the more immediate problem. Maybe you need to work on your own behavior, or maybe you found you need a bigger emergency fund. Get the smaller goal finished first – the bigger goal can wait.

Fourth, ask yourself if the big goal was something you really wanted in the first place. You may find that, after fixing the root problem, your perspective has changed. The long term goal you had in the past doesn’t reflect the new understanding of yourself that you now have. If that’s the case, great. It’s a powerful sign that you’re growing as a person. Don’t be afraid to abandon a goal that no longer matches what you want or the person that you are.

Finally, try again. Start over on your modified goal or give some thought to a new goal. A failure doesn’t mean that you should give up on your big dreams. Instead, it’s just more insurance that you’ll make great progress towards your goals.

I’m by far the most financially sensible person in my family. I spend far less than I earn, yet I’m happy with the things I do have. I have my retirement savings in very good shape (even after the mess last year!) and I have a big emergency fund and almost enough savings for a 20% down payment on a nice house – and I’m only 26!

Recently, I spent a weekend with my older brother and his two children. They both receive an allowance, but their mother indulges them constantly and allows them to spend it without even thinking about it. I would like to do something to help these kids get a good financial education when they’re young so they don’t make the mistakes that most people make in their twenties that haunt them forever (I made some of my own, too).

What do you think I should do? What’s appropriate to do?

I find myself in a similar position whenever I’m around my own nieces and nephews. There are many thing I wish I had the opportunity to teach them, but my window of opportunity for doing so is extremely limited.

In my own life, I’ve found the most success when I stick to these principles:

Connect with the children as deeply as possible. The absolute best way for a non-parent to connect with a child is to get down at their level, listen to what they say, and talk to them as if they were an adult. Do that frequently and children will quickly begin to like you and see you as something of a mentor. Doing this makes it much easier for you to introduce ideas to them – they’ll be open and receptive to what you have to say.

Offer nonthreatening advice to the parents. One really effective way to do this is to give them a book or something practical that helps the parents with the financial teaching process. For example, you could give the parents a copy of the book Raising Financially Fit Kids by Joline Godfrey. Offer it not as a criticism of what they’re already doing. One great way to do this is to say simply that you had money problems when you were younger and you’d love to be able to help those children you love not have the same difficulties you had. Most parents will appreciate such parenting advice given in this fashion.

Give gifts that reinforce money lessons. A powerful way of doing this would be to give a child a Money Savvy Bank as a gift, with a small amount already in each slot of the bank. Then, encourage them to split their allowance – or any other money they get – among the pieces of the jar. The bank comes with a great parents’ guide as well, one that might encourage the parents to get involved and reinforce the lessons of the bank.

Lead by example. If you have a strong connection with the children, they’ll want to emulate what you do. You can thus ingrain good financial choices in them by simply behaving in a financially responsible fashion yourself. Take them shopping with you and show them how you do it – make a list, don’t buy stuff that’s not on the list, etc. Tell them your own goals for the future and say you put aside money every week for that goal. Then, show them that you’ve achieved that goal when you do (like when you buy a car or some other tangible item). Don’t fill your house with lots of stuff – reject consumerism, but do it without bragging about it or dropping names. Walk the walk – children notice.

Be positive about good financial choices. When you notice the child making a good financial choice, compliment it. Positive reinforcement works far better than negative reinforcement – negative reinforcement is mostly used because it’s easier.

Good financial habits don’t appear out of thin air. They require good role models and examples that show the benefits of living in a financially stable way, as well as basic ideas on how to do it yourself. You can drop these breadcrumbs in the lap of any child if you do the groundwork of connecting with that child first.

And then it happens. We give into temptation and make a mistake – sometimes a big one. We devour half of a Sara Lee pound cake after two weeks of careful dieting on raw foods. We blow $150 on clothes after a month and a half of careful spending control.

And we feel horrible about it later. We feel some guilt. We feel some shame. We begin to doubt that we can ever do this. And we eventually revert back to our original behaviors.

I found myself doing this recently while writing my second book. During much of the summer, I was taking long walks five days a week (by long, I mean 4-5 miles) and I felt incredibly good. But as the deadline for my book approached, I found myself skipping these sessions simply because I was so focused on writing. Then, when I’d realize that it was too late to go on a walk that day, I would be upset and frustrated with myself. Eventually, though, I began to simply discard my old routine, replacing it with long evenings of writing.

It’s happened to me many other times as well. I’ve backslid on spending promises, on musical practice pledges, and so on.

Why do we all do this? This is obviously a common human thing – one only needs to read a newspaper a month or so after New Year’s to read about tons of backsliding. What causes us to stumble back against our best intentions?

To put it simply, it’s all about the planning. When we stumble, it’s a clear indication that our plan for success had a fatal flaw in it.

What kind of flaw? In my own experience, I’ve found four different types, each with four different ways to correct it.

Poor time management. In the case of my exercise routine, my own time management was to blame. Instead of planning ahead to make plenty of time to finish my manuscript, I indulged in a lot of fun activities in the late summer that ate up several days. The result of this is that in September and October, I was pressed not only to keep my normal work activities going, but to also finish and polish up a full book manuscript. This caused me to have to make some tough choices and discard a lot of “important but not urgent” things – like my long walks.

The solution? If your commitment requires you to put aside a significant amount of time regularly, work harder at your other tasks on a consistent basis so that you have a “buffer” to help you in the event of a crisis. Get ahead on your projects at work. Take care of household tasks as they come along instead of allowing them to build up into a wall of work.

Temptations. Eating five slices of pizza after dietiing all week is giving into temptation. Buying a $300 pair of shoes after being careful with your money all month is giving into temptation.

We’re all tempted by things. Quite often, our resolutions are a recognition that such temptations are bad for us in the long run, but we desire these things all the same.

The solution? I’ve found two that work. First, an allowance of splurging often helps keep our better behavior in check. Allow yourself $25 a week to splurge with. Put that $25 in cash in a jar on top of the fridge. Then, when you’re truly tempted, take down that jar and freely spend it with no guilt. This trick often “releases” the pent-up desires that we build up without destroying all of our positive work. A similar trick is to allow yourself one saucer-sized plate of whatever food you desire twice a week or so.

Second, supportive friends that are involved with and aware of your goals will often help make it easier. Perhaps they’ll diet or exercise with you, or at the very least won’t tempt you to go shopping and spend money.

False commitment. We commit to some sort of change, but on some level, we’re not really committed to it – and we know it. We pledge to give up eating fatty foods, but we don’t really want to do it at all. Often, we’re just trying to commit to something because we know other people value it, not because we value it.

The solution? Such a commitment will never work over the long haul. You need to spend some time rethinking why you are committing to this goal. Often, such goals are conceived and attempted out of a desire to fix an interpersonal relationship of some kind, often one that’s suffering due to reasons completely unrelated to the goal. Focus on fixing the relationship, not on “fixing” some element of yourself that you’re not committed to fixing. Try communicating in a healthy and mature way – and if that’s impossible, it may be time to step back from that relationship.

Self-destructiveness. You have a self-destructive element that undermines whatever you attempt to do to improve yourself. This can often be borne out of low self-esteem.

The solution? If you find yourself doing this, it’s likely that you need counseling of some sort. Discuss the situation with your medical doctor and ask for a referral to a trained mental health professional that can adequately help you overcome such urges.

Let’s not pull any punches about it: big, life changing goals are hard. They become even harder if you aren’t surrounded by people who support you and want you to succeed and if your desire and commitment toward the goal is not complete.

It’s important to remember that a stumble is not a failure. It’s a wake-up call to regroup, replan, and succeed.

Last winter, I catalogued several of the best tactics to share with you at the dawn of the next winter. Here they are.

Check your insulation.
Take a quick peek in your attic. What do you see? Do you see any bare spots not covered in insulation? Attempt to identify what type of insulation you have and make sure it’s up to the level of insulation you need for your area using this helpful insulation guide along with this tool for understanding insulation R-values. Proper insulation is key to keeping your house warm.

Make sure your home is air sealed.
Air leaks and drafts allow warm air to quickly escape your house, resulting in tremendous heating and cooling bills. The solution to this problem is to check your home for air leaks and properly air seal any leaks you discover. This useful guide from the Department of Energy will walk you through the entire process.

Close the vents in unused rooms (and seal them off, if possible).
If your home is well insulated and you have a room or two that’s not actively being used, turn off the air vent in that room and seal the room as best you can. The temperature in that room will drop significantly when you do this as you’ll no longer be heating it – and no longer paying the bill for heating it, either.

Invest in thick socks.
I work from home in Iowa, and I’ve learned that there’s no better way to stay warm in the winter at home than to wear thick socks. Thick socks keep my feet warm even if I keep the temperature in the house low, and feet are one of the primary thermal indicators for the body as well as being a relatively poorly circulated extremity. Keep the feet warm and the rest of you will be fine.

Test the lower levels of your thermostat.
Along with wearing warm socks, I often tend to turn the heating down during the day (raising it when my family is at home, which is basically just a manual version of the effect one would get from installing a programmable thermostat). I work on the upper level of my home where it’s warmest, so reducing the house temperature during the day rarely has any negative impact on my work – but it certainly saves on energy costs.

Use a hot water bottle. We also tend to dip our thermostat down a bit at night when we’re snuggled in our beds. Unfortunately, after a long winter day, a bed might not necessarily be cosy right at first. Thus, I often use a trick that my father used when he was a boy – a hot water bottle. We use a reusable microwaveable hot water bottle filled with a gel-like substance. A quick heating in the microwave just before bed means that the bed quickly gets cosy warm – a perfect resistance against the cold nights.

Open the blinds on the sunny side of the house – close them on the other side.
In the winter, I do this on the top two floors of our home (where most of the windows are). In the morning, I open all of the blinds and curtains on the east-facing side of the house and make sure everything is closed on the west side (usually done the night before). Then, when I eat lunch, I switch the two. Then, just before dinner, I close everything on the west side of the house. This goes a long way towards maximizing the benefits of direct sunlight and minimizing the heat lost to windows not facing the sun.

Stick together – share a blanket.
If you walked into our family room, you’d see that we already have several blankets out for the winter months. We love to cuddle up as a family under a blanket or two on the couch, sharing our natural body warmth with each other. It keeps us all close together and toasty warm.

Use the oven.
Who wants to go out to eat in the deepest part of winter anyway? Stay home and cook something in the oven. Not only will the food preparation save you money, you’ll also find that the oven is far more energy efficient in the winter. How so? It works with the warming of your house rather than against the summer cooling of your house.

Drink warm fluids.
For me, winter is filled with cup after cup of hot tea and hot chocolate. Drinking a warm fluid makes me feel much warmer (and likely does slightly raise my body temperature). For me, the effect lasts for about forty minutes, a time in which I can get away with a temperature a few degrees lower. During the day, I’ll often prepare myself a giant mug of hot tea and slowly sip it over the course of a few hours. The small energy expense of heating up the water is more than replaced by the energy savings of being able to lower the house temperature a bit more.

Do you think it’s reasonable to take some of the money I use to invest each month and buy gold bullion coins to keep in my safe? I’m worried about the dollar collapsing.

And from “Eve”:

My husband and I have always used a spare room in our basement for storage of extra bulk supplies we’ve purchased, like toilet paper and the like. Recently, my husband has started talking about using that room for dehydrated meals and water storage in case of a major disaster. Do you think this is a good idea?

And from “Noah”:

Do you think non-hybrid seeds are a good investment?

These three readers all have something in common. They all are at least somewhat under the belief that a major calamity of some sort is on the verge of occurring – either a natural disaster, the fall of the government, the extreme devaluation of the dollar, or some other event that will radically alter our day-to-day way of life.

My general answer to all three of these people is the same. None of the ways of utilizing their extra money is an inherently bad way of using extra money. These items won’t necessarily earn a great return on the investment, but they aren’t worthless, either. Instead, I would encourage them to find ways to make these choices compatible with the way they live their lives today.

To Adam, who wants to buy gold coins: by all means, add gold coins as a small part of your overall investment strategy. I would not invest in nothing but gold. If I were you, I’d simply buy them at a slow rate – perhaps saving $100-200 a month (or more, if you’re able) and buying a coin whenever I could afford one. Then, I’d just sit on those coins, using them only as a last resort. This is particularly true if you have heirs to which you can pass those coins onto.

To Eve, who wants to begin storing food and water: instead of storing a bunch of dehydrated food packets that you may or may not ever utilize, I’d start a garden and teach myself how to can vegetables. Then, over time, eat some of the vegetables you can to maintain a steady supply in storage. For example, you might can a summer’s worth of vegetables the first summer, leave them alone that winter, can a second summer’s worth of vegetables, then eat the first summer’s worth the following winter. My parents used exactly this strategy growing up and it worked just fine.

To Noah, who wants to start buying seeds: I’d invest in a greenhouse setup (grow lights in your basement, if nothing else) so that the seeds don’t go to waste. After all, in most home storage situations, seeds will eventually go bad. Within that greenhouse, I’d replenish the seeds each year and also grow myself plenty of food. A greenhouse makes it much easier to actually protect non-hybridized seeds and plants from diseases and predators, since the advantage of hybridization is that the final plant is much more sturdy than many non-hybridized plants. One good way to get involved in this is to get in touch with the Seed Savers Exchange, a group dedicated to preserving and passing on heirloom plant varieties.

While investing like this will likely not produce a great financial return, it does offer another kind of return. For many people, such preparedness offers peace of mind – a sense of protection against the unknown. That has real value, particularly if you find the state of the world to be a stressor in your life. If having some gold in your safe or food supplies in your basement causes you to feel more at peace, then it’s providing a non-financial return that has significant value in your life.

What sort of preparation do we do along these lines? At home, we have about a month’s worth of food on hand along with about twenty gallons of potable water. A good portion of the potable water is actually in gallon jugs in the freezer, helping to fill the freezer and thus reduce the maintenance energy needed to keep the contents of the freezer cold. We do not own any gold bullion, though I’ve considered buying a coin or two at a very slow rate.

Investing is more than just pure dollars and cents. Investment provides psychological security and peace of mind as well, which can be tremendously important for some people. If you’re in a position where you’re worried about the state of the world, I see no reason not to invest some of your time and energy into securing your position as best you can. After all, that’s what investment really is, at its core.

William “Bud” Post III, 66, whose $16.2 million in lottery winnings brought him debt, despair and heartache, causing the kind of trouble often recounted in country-western songs, died of respiratory failure Jan. 15 at a Pittsburgh area hospital.

“Everybody dreams of winning money, but nobody realizes the nightmares that come out of the woodwork, or the problems,” he said in 1993, five years after winning the Pennsylvania lottery.

His problems included a brother who tried to hire a contract murderer to kill him and his sixth wife; a landlady who forced him to give her one-third of the jackpot; and a conviction on an assault charge, after Mr. Post fired a shotgun at a man trying to collect a debt at his deteriorating dream house in northwestern Pennsylvania. He went bankrupt, came out of it with $1 million free and clear and spent most of that windfall, too.

Obviously, Mr. Post made a number of poor decisions along the way – divorcing at least five times and associating with criminals, for two.

However, there’s a deeper thread here. Mr. Post’s “deteriorating dream home” is mentioned, as is “bankruptcy” and spending most of a second windfall. It’s fairly easy to conclude from this story that Mr. Post spent his money buying stuff that was beyond him to maintain.

Money buys you three things: it buys fun, it buys security, and it buys time. The only problem is that if you neglect one of these three things at the expense of the others, you lose them all.

Mr. Post, as many people who win the lottery, focused on buying the fun. He bought his dream house and tons of other material items – the article mentions a twin-engine plane (even though he didn’t have a pilot’s license), two additional homes, another truck, three cars, two Harley-Davidson motorcycles, two 62-inch Sony televisions, a luxury camper, computers and a $260,000 sailboat, among other items.

The only problem is that when you focus entirely on the fun, you miss out on both security and time. If you load your life with fun things, you no longer have the time to actually enjoy each fun thing – instead, they go to waste, falling apart and neglected. Similarly, if you avoid proper spending on securing your future, you wind up right back where you started – in Mr. Post’s case, on a $475 a month disability check.

This idea is true for any income we bring in. After all, earning $50,000 a year for 30 years amounts to a $1.5 million windfall.

Instead of spending all of your money on every little thing you imagine you might enjoy, you’re far better off putting some of your money into a small handful of things you truly care about and will enjoy over a long period of time and putting the rest into ensuring that your situation will be provided for over the long haul.

In other words, when you bring in money, it’s fine to spend some of it on something fun. However, you’re usually better off buying or experiencing one or two high quality things – things that really mean something deeply to you or will provide many, many hours of enjoyment – than lots of things, because if you own lots of things, the time you spend on each one is lessened and the time you spend maintaining your things goes up, reducing your overall enjoyment by quite a bit. The rest of the money is usually best spent securing the things that you do have, so that you don’t wind up without any resources when luck eventually turns against you.

Fun, time, and security – keeping them in balance is the best way to maximize the money you bring in, whether it’s a big windfall or an ordinary paycheck.

You constantly write about how having a notebook in your pocket all the time helps you in life and saves you money. I get that you can write down your ideas in it all the time, but I’m not a creative type. I don’t see how having a notebook on me at all times can save me money at all.

Aside from the fact that I’m able to use the notebook to write down my ideas – my career’s bread and butter – a pocket notebook constantly comes in handy for many other financial reasons as well. (FYI, I usually just keep a simple small Mead reporter’s notebook in my pocket, along with a good pen that doesn’t run out of ink.) Here are fourteen ways I use that notebook to directly save money.

1. Write down sale prices. If you spy an item on sale but you’re not really sure how good of a sale it is, jot down the item and the sale price. Later, you can research that price and find out if it really is a great bargain. This is particularly useful when shopping for gifts or for specific expensive purchases.

2. Make ongoing grocery lists. During a given week, I’ll make efforts to prepare several meals at home. As I’m doing this, I’ll often come across items that we need to replenish in our pantry – for example, last night I discovered we were nearly out of extra virgin olive oil. Similarly, I was down in the basement over the weekend and noticed that we were out of furnace filters – something that was very easy to immediately note. If I have a notepad with me at all times, I can add that item easily no matter where I’m at. Then, since my shopping list is complete, I don’t have to do any “wandering” at the store, helping me save time and drastically reduce impulse buys.

3. Do warehouse club price comparisons. My family often shops at Sam’s Club for many household staples, like toilet paper. Whenever we’re considering making a purchase in bulk, we’ll jot down the Sam’s Club price, then compare it to the normal price we pay at our usual grocery store. Quite often, Sam’s Club is less expensive, but not always. Checking the price lets us know whether or not this item should be purchased at the warehouse club or not.

4. Record great gift ideas. When I’m interacting with a friend or a family member, they’ll often drop a hint of some kind indicating a Christmas or birthday gift they’d like to receive. If I note that idea immediately, I can often give myself plenty of time to bargain-hunt for that specific item, enabling me to get that person a gift they’d really like for the lowest possible price for me.

5. Record contact info for potential clients or new acquaintances. Whenever I’m at a community event, I almost always meet someone interesting who wants to see my website, has a website of their own to share, or wants to keep in touch for some reason. Having a handy notebook makes this easy – I can either jot down my own information and share it (if I don’t have a business card, of course) or jot down their information and keep it.

6. Write down recipes or other food ideas. My parents and in-laws subscribe to tons of magazines and also have extensive cookbook collections. Sometimes, I’ll be browsing through them and see something really intriguing that I might want to prepare in my own kitchen. With my notebook at the ready, I can jot down this recipe, often giving me a great idea for a low-cost meal to prepare at home.

7. Leave a note for someone. Ever stopped by someone’s house when they’re not home and wanted to leave a reminder for them? If you have a notebook in hand, it’s easy to just slip a note under the door, turning a useless trip into a useful one and often helping you salvage a poor situation.

8. Make a simple price book. If you’re trying out a new store, record the prices of some of the items you buy most frequently – milk, eggs, bread, vegetables, fruit, and so on. Then, use that information to compare the prices of this new store to the one you regularly shop at. Is this new store offering better value for the things you buy? Finding the store that offers the best prices on your staples can make a huge difference in your routine food spending.

9. Exchange insurance information. In a fender bender, it’s often vital to exchange insurance information with the other person in an accident. I’ve been in accidents before where the other person was attempting to get off the hook because they didn’t have paper with which to exchange such information. With a notebook right in hand, such excuses won’t matter – information can easily be exchanged and repairs can commence as quickly as possible.

10. Write down a phone number on a “for sale” item. Perhaps you see someone selling their car (or some other large item) themselves with a phone number in the window. If you’ve got a notebook, it’s really easy to jot down the necessary information so you can call the person up later when you have appropriate additional research in hand to ensure that you’re getting a good deal.

11. Keep a “master list” of preferred brands. Consumer Reports often ranks the quality of various household items – toothpaste, shampoo, trash bags, paper towels, etc. – as well as the “best buys” for each one. Having this information in hand can help you easily get the best bang for your buck when you’re standing in the store trying to decide which item to buy.

12. Write down things you want instead of buying them, as per the “thirty day rule.” The “thirty day rule” is pretty simple. Whenever you’re tempted to make a major purchase, instead of buying, just remember the item, put it back on the shelf, and walk out of the store. Give yourself full permission to buy the item in thirty days if you’re still actively wanting it or thinking about it. I actually suggest jotting down the item if you want. Later, you can research the item a bit, figure out if it’s what you really want, and if the thirty days go by and you still want it, you can carefully comparison shop and get the best bargain you can find for it.

13. Keep a detailed errand list. There are always errands that need to be run, ones that are often important to good financial health. By keeping an ongoing errand list in your notebook, you can kill two birds with one stone – for one, you don’t forget them, and for two, you have access to that list all the time, particularly when you’re actually out and about.

14. Make an omnipresent “big goal” reminder. Since I use my pocket notebook all the time, one great technique I’ve found for keeping my mind in the right place is to start off the notebook by writing my big goal on every single page of the notebook. At the bottom, I write “Are you helping yourself get the country house today?” Writing it on every page of the notebook takes a while, but that action alone pounds the message into my head. Then, whenever I look at the notebook, I see that reminder in my own handwriting and it keeps me on a better path.

To put it simply, I couldn’t live without that pocket notebook. It’s an essential part of my personal and financial life.