My two children are extremely blessed in many ways. Perhaps their greatest blessing is that they’ve surrounded by a family that loves them dearly and truly cares about their future in a deep, fundamental way – and I’m not merely talking about myself. I’m talking about their grandparents, their aunts and uncles, even some of their cousins. They are surrounded by a cadre of people who love them, care for them, and truly want them to have a wonderful life.

Because so many people care so much for these two children, they’re often the recipient of gifts. Yes, their birthdays and Christmases are full of presents, but it even goes beyond that. Their grandparents often buy them spontaneous gifts. Their cousins sometimes literally give them their old toys and clothes. We even do it ourselves, though our influence is often in the form of books for their bookshelves.

This has a challenging side effect – the kids have accumulated an awful lot of stuff. Their toy boxes are overfilled. Their bookshelves are stuffed with books.

Several problems are made evident by this. First, it’s difficult to keep all of this stuff in order, simply because of the clutter problem. Second, it encourages our children to be overstimulated because as soon as they even have an inkling of being less interested in a particular item, they can just bounce onto another one. Third, they’re often much less enthusiastic about the wonderful gifts that their grandparents give them because they already have so many.

The solution is obvious: reduce the toy count. But how do you do this without upsetting the children?

My goals are very straightforward.

First, I want to reduce clutter. Dealing with clutter means more money sunk into stuff and more time spent cleaning it up. That means less money for the things that are important (like a less stressful career, deeply meaningful experiences, and so on) and less time for them as well.

Second, I want my children to enjoy life with less stuff around them. I do not want them to feel that lots of stuff is the norm.

On a smaller note, I want my children to increase their attention span. With a huge number of toys easily at their disposal, it’s very easy for them to just jump from toy to toy. By strongly reducing the availability of such items, the opportunity to jump around is less.

Here’s my solution for this problem.

First, I’m taking an inventory of which toys they like and play with frequently – and which ones they do not. I’ve actually been making a list of the toys that each child plays with over a multi-week period. If toys are on this list, they’re probably going to be kept. Toys that are not on this list are going to be targeted for removal.

Second, I’ll talk about the process with them. I’m going to ask them what their favorite toys are. I’m going to also tell them that I’m going to take some of the toys that they never play with and give them to other boys and girls that don’t have many toys to play with. Believe it or not, this works very well with our children, even the two year old.

Third, I’ll take advantage of a period when they’re visiting grandparents to reorganize and minimize their toys. When they return from their grandparents, I will have removed many of the toys from their sight, minimizing the clutter. What will remain are the toys I’ve identified as their favorite ones. The toybox will be only about half full (if that) instead of overflowing. The bookshelves will be filtered a bit (though I’m not as interested in reducing their book count).

Finally, I’ll keep the excised toys in storage for a short period, then either yard sale many of them or take them to Goodwill. The reason I’ll keep them in (hidden) storage for a short period is so that if I discover that I removed a toy accidentally that the children really value, I can retrieve it.

One thing I won’t do is discourage family members from giving them gifts. I understand that this is done as an expression of love for children that they don’t get to see as often as they’d like. Instead, I simply want to create a situation where these toys and gifts are deeply appreciated.

For a long time, we did some toy rotations so that the children would always have something new to play with. In my eyes, that doesn’t really achieve the goals I listed above. We still have a lot of stuff. It still doesn’t subtly teach patience and attention to the children.

Any thoughts on this plan?

A weird sequence of events has caused me to find myself all alone over the coming weekend. My wife is visiting her sister, while my two children are visiting their grandparents. This leaves me with two full days without any real responsibilities.

Of course, me being me, I already have a long list of stuff to do – things that simply require some focused hours and are difficult to do when the family is around. Five years ago, I would have been headed to the golf course or to Prairie Meadows. Times change, I guess.

Lessons for you and me from Warren Buffett’s annual letter Warren Buffett’s annual letter to Berkshire Hathaway shareholders often has a lot of interesting personal finance thoughts in it that go far beyond mere investing. (@ pop economics)

The High Cost of Clutter Every time you buy something new and bring it home, you’re adding to the clutter of your home. It’s one more thing to stuff on a shelf. It’s one more thing to dust. It’s one more thing to maintain. It’s one more thing to take up space. Those are costs, both in terms of money and time. (@ get rich slowly)

6 Ways To Keep The Fire In You Burning This can be a challenge for anyone at times, no matter how much they love what they’re doing. (@ pick the brain)

My Valuable Downgrade “Upon completion of the final draft of my latest novel three years ago, I sent out an e-mail to my family and closest friends. Subject heading: “What Has Mark Been Doing for the Last Six Years?” The message field was empty.” Something about that opening really struck me. (@ soul shelter)

Save Money! Get a College Degree In Three Years If I had not been blessed enough to get scholarships to cover my tuition, room, and board, this is likely the college path I would have chosen. Whether I would have been successful at it is another story. (@ free money finance)

When Your Friends Become Social Sellers and Multi-Level Marketers Quite honestly, I view such a thing as directly cashing in on a friendship, far worse than asking me for a favor. I’d far rather spend an afternoon helping a friend patch up his roof than spend two hours at a Lia Sophia party. (@ consumerism commentary)

I’m going to share with you excerpts from seven different emails I’ve received from readers in the last few days.

Kenny:

I listened to your radio discussion with Vicki Robin and I was really intrigued by the whole five year plan. I have a big dream I’d love to accomplish (being a radio host) but I feel like it’s so far from my life that I’ll never get there. Any ideas?

Scott:

In five year[s] I would like to have built my own house but I don’t even know where to start.

Angela:

I would like to be a writer someday but I’m not a writer.

Monique:

You have the courage and ability to try such a thing. I do not. I might want to be making clothing in five years but I’ll still be working in this office.

Em:

All I ever wanted to do was play in the WNBA. Now I walk with a limp and people shy away from me. I would do anything to be back in the basketball world.

Raghu:

I keep telling myself I will move back to that town and really make a difference there but it is a lot easier to go home at night, take a nap, and watch a movie.

Sean:

Nothing makes me happier than playing the piano. Nothing makes me sadder, either, because I know nothing will ever come of it.

All of these people have a lot of things in common. They have a dream, one that they spend a lot of time thinking about. They’re nowhere near that dream in their day to day lives. They feel as though the gap between where they are now and where that dream is may simply be too much of a bridge for them to cross. So they’re walking in place through a life that has much less meaning for them than they would have ever liked.

I was there once, in a way. I know exactly how it feels to sense that everything you’ve dreamed about in your childhood and in your adult life slipping away from you. I know how hard it seems to fight for it when everything in your life seems to be flowing in a different direction. And I also know how good it feels when you find some success against the current and can feel yourself moving in the right direction towards that dream.

If you know what you truly, deeply want out of life, but you can’t see how you can get there from where you are now, here’s how to get started.

First, get your financial house in order. This is paramount. It is almost impossible to make powerful, positive life changes if you’re swimming in debt and your spending is out of control. Learn how to spend less than you earn. Pay down that debt as fast as you can. It seems difficult, but it actually works quite well in conjunction with the other tips here.

Second, re-engineer your free time and your social circle. If you really want to make this work, you’re going to have to make time for it in your life. For most of us, this probably means some significant changes. Maybe you give up your thrice-weekly raid night on World of Warcraft. Maybe you can cut your television viewing by an hour a day. Maybe you can withdraw fr some of your social commitments.

Once you’ve decided what to cut, it’s just as important to decide what to add to replace it. Obviously, it needs to be something in connection with your dream – but we’ll talk about exactly what to choose in a minute.

It’s important to remember that these choices are simple. They’re little choices you can make every day. “Instead of spending an hour channel surfing or watching SportsCenter, I’ll work on a short story.” “Instead of going out shopping with the gals, I’ll go to the workshop and work on a painting.” “Instead of playing computer games all night, I’ll get intimate with my piano.” They are choices that you make in the normal flow of your life.

Third, find ways to share what you love. If you love a sport, volunteer to coach a youth team. If you love to play a musical instrument, play a song, record it, and share it with others. If you love to write, start a blog. If you love politics, volunteer for a campaign.

If you want great things to happen, other people need to have access to what you’re doing. If you sit in your home playing the piano for your own enjoyment, you’ll never find a way to make a living with it. You have to get out there and find others. Remember, anything anyone does for a living involves relating to others. We all have customers.

Do not worry about compensation at first. Compensation will come once you’ve built a good reputation and used the experience you’re getting to develop yourself into something better.

Fourth, know how to deal with failure. It will not come easy. Success won’t fall on your lap. It takes time. It takes sustained effort. It takes an awful lot of “no” before you start getting “yes.”

If you take into account the entire scope of all of the writing I’ve done in my life, I am a monumental failure as a writer. Any success I’ve seen has come in the last couple of years. Virtually everything prior to that point was met with “no” and “no” and more “no.”

Why? I wasn’t a good writer – I had some good ideas, but I expressed them poorly. When I did find myself able to produce something good, I hadn’t produced enough goodness and hadn’t shared what good I had done widely enough to actually get anyone’s attention.

It would have been easy to quit. But I loved writing – and I still do. It was always something that made me feel better. It brought me personal pleasure just to write. I’d get a rejection letter in the mail and, yes, it would hurt. But that didn’t mean I would stop writing.

I love writing enough that I would keep writing even if no one read what I wrote. The fact that people do read it – and that I earn enough from it to put bread on the table for my family – is incredible icing on the cake.

If you feel that way about something – it makes you happy regardless of what other people think and whether it makes you any money or not – that’s something you need to dig into. Chase it. Master it. Share it. Then worry about the question of making money – if you’re good at it and share it, the answers will be closer than you think.

Good luck.

One frequent question I’m often asked is whether or not paying half of a mortgage payment twice a month versus paying a full mortgage payment once a month is actually worthwhile.

Let’s say, for example, you’re in the situation that Paul, one of my readers who wrote in recently, finds himself in. He just took out a $219,000 mortgage. His monthly payment on that mortgage is $1,300.89. Paul wants to know whether paying half of the mortgage twice a month will save him a significant amount.

The first thing he needs to do is make sure that his mortgage allows early payments – and how they work. Make a call to your lender and ask them how often interest is compounded (this needs to be daily or compounded monthly based on the average balance of the month – if it only compounds monthly, paying in advance won’t help), plus how multiple payments during a month are applied to your loan (they must be applied as soon as received for this to work). Most loans work this way, but not all.

There are two options with making early payments.

First, Paul can literally make two payments a month – say, on the fifteenth of every month and on the last day of every month. This means, over the course of a year, Paul pays the exact same amount in principle that he would otherwise pay. The only difference is that on the fifteenth of each month, he pays in half of his payment and at the end of each month, he pays in the remainder of his payment.

In my calculations in Excel, I assumed monthly compounding using the average balance of the last month. Using this method, I calculate that this method will save Paul just over two months’ worth of balance on the mortgage. He’d save $2,931.33 in interest, which would mean he would be able to skip his final two payments and make only a partial final payment.

However, a superior method of doing this would be to simply make a payment equal to half of the amount of the monthly mortgage bill every two weeks. Over the course of a year, this adds up to one extra full payment: since there are fifty two weeks in a year, you’d make 26 half payments, and thus 13 full payments.

In my calculations, I again assumed monthly compounding using the average balance of the last month. I calculated that this method will save Paul $41,117.09 over the course of the loan. His final, partial payment would be issued just shy of five years early.

This method falls perfectly in line with many income schedules (the federal government, for example, issues paychecks every two weeks), which means that you can just allot a certain amount from each paycheck directly toward your mortgage and then not think about it again.

For me, at least, twice-a-month payments would not provide enough benefit to be worth the management hassle of them unless it happened to line up directly with my paychecks.

On the other hand, biweekly payments – once every two weeks – do provide a lot of financial incentive to give them a shot. Add on top of that the fact that it’s directly in line with many pay schedules and that would seem to be a winner to me.

In a nutshell, simply paying twice a month doesn’t save much at all, but paying once every two weeks saves a lot. Yes, one or two fewer days per payment can save you tens of thousands at the end of the payments.

Good luck.

2010 has seen a ton of books released already that I’d love to read, from The Politician by Andrew Young to The Immortal Life of Henrietta Lacks by Rebecca Skloot. (I happen to be passionate about books, of course – perhaps your passion is films or video games or gadgets or music or something else entirely.)

Five years ago, I would have rushed to the bookstore and picked up these titles in hardback. I would have been completely impatient to read them, so I would have just thrown down the $20 or so, picked up the hardback, and headed home with it. About twenty percent of the time, I would have read the book once, stuck it back on a shelf somewhere, and ignored it as it gathered dust. The other eighty percent of the time, I wouldn’t even have read it before it started gathering dust on the shelf.

Why did I do this? There were several factors – I didn’t have the time I wanted to have to read, for one – but the biggest one was what I like to call the “cult of the new.”

Simply put, the “cult of the new” is the willingness to pay a premium price for whatever the newest releases are. When something new comes out, you’re inordinately focused on it because it’s new. It pops up again and again.

If a new restaurant opens, you have to visit it even if the reviews are mediocre.
If a new book or album comes out, you have to pick it up.
If a new car is released, you can’t help but swing by the dealership to scope it out.

It’s a very expensive routine. You constantly overpay for things in terms of their actual quality – instead, you pay a premium for the “new.” You pay new release prices for DVDs and for film tickets. You pay hardcover prices for books. And, in the end, you get far less for your dollar – or you dig yourself into a financial hole.

Some people do it with some level of social justification – they need to keep up with (or keep ahead of) their friends. To them, I say that if your friends value you only because of what’s on your shelves or where you ate last night, there’s not much depth to the friendship.

Others do it to feel good about themselves, so that they feel current. This is perhaps even more dangerous, because you’re tying your self-esteem and happiness to material things and short-term experiences. Without a constant influx of these things, you begin to feel bad about yourself. True self-worth comes from within, not from external things, and it took me a very long (and painful) time to learn that lesson.

It took me years to break out of the “cult of the new.” Here are some of the things that really helped me.

I adopted a firm rule about buying such new things – I don’t. Excepting gifts for others, I simply don’t buy new releases, period. I don’t pick up books for myself until they’re in paperback. If I do happen to read a hardback I like enough to keep around for multiple readings, I still wait until the paperback comes out.

If I truly must read something that’s brand new, I visit the library. I’m a very heavy user of our local library’s book reservation system. Yes, sometimes I don’t get hot new releases in the first month they’re out. However, I do get them eventually and, quite often, I get them faster than I expect (because other readers check them out for much shorter periods than expected). You can do the same thing with movies – sign up early to rent a new release from Netflix, for example.

I also swap frequently with my friends. If I do receive a book as a gift that I think a friend will like, I loan it out. Similarly, they’ll loan their new releases to me. This way, a new release given to me as a gift is often like two or three of them, since I have friends with which I share interests and can trust in terms of swapping books. One’s social network, if filled with compatible, good people, can be a very valuable resource.

I learned to love exploring the archives. If I find an author I like, for example, it’s much cheaper to dig through his or her older books than it is to charge out and buy the new releases. Take Richard Russo, an author I discoverd a few years ago (and subsequently hooked my mother on). Rather than rushing out and buying myself his newest work in hardback, I used PaperBackSwap to read a multitude of his older novels. The cost for these older books was trivial, but I was still able to deeply and fully enjoy his writing without paying that “new” premium. I explored Douglas Coupland in a very similar fashion.

When I finish a book (or a game, or a movie…), I first turn to my own shelves. I don’t insist on finding the thing I want to read/play/listen to already on my shelf, but quite often I find it anyway. I’ll spy a book that just speaks out to me, saying “read me…” in its own special way. So I pick it up and I suddenly have free entertaiment that I’m deeply enjoying.

Some set of these techniques work no matter which form of the new you’re chasing, whether it’s restaurants or trading cards. Whatever it is, if you can seek out other avenues for your passion than the shiny new thing, you’ll almost always receive a big thank you from your wallet.

My two year old daughter is showing a tremendous nascent interest in making music. She sings constantly. She uses her hands as percussion all the time on her knees, on the table, and anywhere else she can use them. She climbs up to our keyboard and attempts to play songs.

Right now, I’m trying to figure out some ways to encourage it in ways that might actually build into a lifelong love of creating music. (Yes, I’m the type of parent who would be thrilled to hear their child choosing a musical career.) However, I’m finding it difficult to reach out to her at this stage, so I’m mostly just encouraging her strongly whenever she completes a song or something similar.

Anyway, on to the questions.

I’m 23 and my husband is 24, therefore we are “newbies” in the credit card scene, making our credit limits pretty low (mine is 4000 and his is 2000). Is the ratio computed based on balances carried over month to month, or is it at any point in time? We pay off our credit cards each month, therefore never carrying over our balance. However, at some points in the month, our credit card balance is over 50% (easy to do with a 2000 credit limit). So if we charge over 1000, are we being adversely affected, or are we fine as we pay off our balances?
- Jena

I’m assuming you’re referring to your debt-to-credit ratio.

A big problem with how credit scores are calculated is that they’re effectively calculated in secrecy. FICO, the most commonly used credit score, is a secret formula held by the Fair Isaac Corporation, and they’re not talking. We can only believe tham (and rest on observations of scores and credit reports) when they tell us that the debt-to-credit ratio is important.

Based on my own observations, it appears to me that the amount that credit card companies report to the credit bureaus – and thus the amount that appears on your credit report – is your balance that is carried forward from the previous month. So, for example, if you pay off your entire bill each month, a $0 balance is reported. If you carry a balance of $2,000 forward from the previous month, $2,000 is reported.

I’ve looked far and wide for information on this and have even contacted my credit card company for writeups about it in the past and have never received a truly straight answer about this issue. However, this seems to be the case based on my repeated checks of my credit report and my own credit card statements.

My wife and I currently owe $119,000 on our 5/1 ARM. This is our ONLY debt. We are looking to refinance as our five year fixed period is up March 2011. We currently have $140,000 in savings and $100,000 in retirement assets. We are both 33 years old.

Is it better to eliminate the mortgage in one fell-swoop or should we refinance and then use our savings each month to pay the mortgage? Or refinance the mortgage and put some of the savings down to lower the loan amount.
- Greg

The best move you can possibly make as you prepare for a stay-at-home period is to minimize your monthly expenses, and paying off your mortgage would certainly do that.

If you completely eliminate your debt, you’ll be left with $21,000 in savings and six months of work time in which to build that up some more without the burden of a mortgage payment. Given that you’ll own the home free and clear at that point and could, ptentially, use it as equity in the future if you absolutely needed to, plus you have the retirement savings as well, my choice would be to pay off the entire mortgage and get it over with.

I don’t think there is a major advantage in keeping your mortgage and retaining a lot of money in savings at this point. If you were continuing to work or were perhaps saving for a different major goal (such as starting a business), the answer might be different, but you’re heading into an income reduction.

I was not lucky enough to find “the one” early and am now in my forties with no one and feel like it’s over. I am frugal as hell but have no one to share my life with and for some reason, maybe it’s an age related thing, find myself pining for marriage. What do you do when you’re not lucky enough to find the one early in your life and hanging out bars, church or synagogue(where there are mostly married men in your age group or single people but in their twenties)or other social groups does not seem appealing nor worthwhile? In DC there are lots of attractive women and very few single men and moving is not really an option for various reasons.
- Renee

I don’t think you’re doing anything wrong, necessarily.

If I were you, I would focus on finding and attending social events that really reflect your values and what you enjoy doing with your life. I don’t know what that might be. For some people, it might be the bar scene. For others, it might be their church. For others, it might be political activism or volunteer work or book clubs or countless other things.

What would you want your life partner to be passionate about that parallels your own passions? That’s where you’ve got to start in this journey. You’re much more likely to find true happiness by meeting someone whose passions match your own – a person who is already out there chasing them.

People often mention the “bar scene” when they talk about meeting people. I always find that really strange unless the bar is a major source of happiness in your life. It’s fine, I suppose, if you’re merely seeking short-term flings, but my eyes would be elsewhere if I were looking for a long-term mate.

There’s too many mixed messages out there! Which do I do first?? Save for an Emergency Fund? Snowball debt repayments? Pay off our Mortgage? Save for retirement? The kids college? Save for a bigger house? What about travel?

Suze Ormand says 8 months of savings? Dave Ramsey says snowball bigger balances first, David Bach says no lattes, Kiyosaki says buy your home outright – PF bloggers everywhere say a whole stew of things – the budget is sliced too thin already.
- Gina

I don’t think there necessarily is a perfect right-or-wrong answer here as long as you are spending less than you earn. That extra money can be used in a lot of productive ways, whether it’s paying off debts, saving for retirement, or saving for the kids’ college fund. None of these options are the best option for everyone.

The big difference in these choices really is your values. If you want to just follow someone’s plan, you’ve got to find someone who shares your values and who makes sense to you.

Dave Ramsey offers some strongly Christian values and emphasizes debt freedom. I value my family and discovering your passions and I usually advocate in favor of maximizing your day-to-day stability, which means building up an emergency fund first and foremost. Others speak from entrepreneurial values.

I don’t think any of these options are perfectly right or perfectly wrong. I think they click for different people because everyone thinks differently and is motivated differently. The important thing is that you’re motivated, too, and you’re making choices in line with what’s most important to you.

What is most important to you? Minimizing future risk for your family? Giving back to the community? Building a business? They all have different routes to financial successs. You have to figure out what you want first – otherwise, it’s like flailing around with a chainsaw.

Have you ever done a post on “How to host a game night” — I know from the blog that you do this from time to time, and lately my husband and I have become fans of playing board games as well. We like “Power Grid” and “Robo Rally” both really well. We’ve got a small group together that likes these games too – however getting everyone together at the same time / should we have food / will there be room for everyone when they come? (i.e. many games have a max of so many players). It seems like you play all sorts of games so where do you find the “right people” to play with and how do you bring them together. I mean the last time we hosted a game night, one of my friends walked out right in the middle of it – she didn’t say why – but I got the sense that this game was too much for her ( as you know some of the games have a lot of rules, and strategy involved.- which I enjoy, but some people don’t.) Ok – so what are your “keys to success” with this.
- Erin

First of all, Power Grid is one of our favorite games around here and RoboRally is on my wish list. We have a game group of about five people that meets about three times a month to play such board games and it’s a social highlight of the month.

I stick to three big things to avoid this type of scenario that you describe.

First, I make sure at least one person knows a game cold before we play it. Someone there should be able to always explain the game and answer questions throughout on your first play-through or two. It rarely ends well if everyone is new to playing a particular game. I often do this by playing a new game through a few times solo, meaning I lay out pieces for multiple people and play all the roles myself with the aid of the manual.

Second, if someone is new to such strategic games, I don’t throw them into the deep end of the pool. I simply wouldn’t sit down with my mom and play Agricola, not without having played a lot of other lighter strategic games first. I’d play Stone Age first so that the worker placement idea was familiar to her, for example. If someone has never played board games beyond Checkers or Monopoly when they were a kid, I’d play something like Ticket to Ride with them the first few times.

Third, if someone is really apprehensive, play one-on-one with them a few times first. If you’re a good friend and you know the game cold, invite just that one friend over and play the game just with them. Go through it nice and slow. Play with your cards/pieces revealed and explain why you’re making the moves you’re making.

Friends have been trying to convince us lately to switch our checking account from the bank where it’s been for over twenty years to a credit union. Ours isn’t a mega-bank, but it’s not local, either. However, the people AT the bank have been there through three changes in ownership in the last decade, and they know us. (Our son dated one of the tellers when they were both in high school… it’s a small town.)

What do you think of the differences between banks and credit unions? Which do you recommend, and why?
- Kate

Whenever I hear that banks still charge a fee just to maintain a checking account there, I’m shocked. There are so many banks out there that now offer free checking that paying $8 a month just for the checking service seems akin to just throwing $96 a year – or $960 a decade – out the window.

Unless there’s a compelling reason that you’ve not mentioned here for continuing to use your local bank, I would probably switch banks. However, I wouldn’t necessarily switch to the credit union just yet. I’d spend some time looking at the various options available to you, including online-only banks like ING Direct and so on. Look at their features and look at the fees they charge, too.

If having a local “anchor” bank is important, open up a checking and savings account at the credit union (if it’s the best local option). However, you don’t necessarily have to use that as your primary bank – you could just maintain small balances locally for the convenience of cashing checks and other purposes and keep your main banking at an online-only bank.

I am a recent college graduate who just married a wonderful man with $20,000 worth of student loans and no degree (he was studying English). He dropped out after his dad stopped paying financial aid, but not before getting depressed and flunking a few last courses. Right now, he really hates his tech customer support job and is having trouble finding a better job, like everyone else. Also, I was just laid off and the unemployment checks have just started coming in. Should he go back and get a degree in the field he wants to work in (Computer Science)? He has about 5 years of work experience. I don’t feel like adding on $40,000 more loans, but at the same time, I feel like his career will have a slow start because of this hindrance.
- Frances

If he’s figured out what he’s passionate about, then he should go back to school and get his degree. It will be worth the expense and the economy will be in better shape by the time he graduates.

However, you need to be absolutely sure that he’s not just picking this career because he thinks it’s something that he likes (but doesn’t necessarily love) that can earn him a lot of money. That’s the very mistake that I made and it wound up putting me in a very hard spot about seven years down the road.

I’d suggest that if he’s not 100% sure that he loves computer science, he spends some time figuring out what he really loves and then following that. It’d not be a smart move to put $40,000 towards a degree that he’s not really passionate about and is just doing for the money.

I recently read a article by Christine Benz, of Morningstar, about opening a Roth IRA and using it as your emergency fund, when necessary. She would rather you had both, but for someone just starting out and short on cash, it seems as though it is a good idea. Do you have any thoughts on this?
- John

I wouldn’t do it.

The big disadvantage of using a Roth IRA as an emergency fund is that when you make withdrawals from it, you can’t put that money back into the account later. You have a $5,000 window each year for contributions, period. Once you take money out, there’s no putting it back other than through your normal contributions to the account.

The last thing you want to do is sacrifice your long-term retirement savings because of a short-term problem like a temporary job loss or a car breakdown. I’d build up at least a month’s worth of living expenses in a savings account before I started to worry about a Roth IRA at all.

Anyway, when we bought our house about six years ago, we also took out whole life insurance policies on each other for $250K each, as well as some larger term-life insurance policies. My thinking at the time was that the term life policies were in the nature of income replacement, while the whole life policies were bought with the specific purpose of ensuring the surviving spouse would have the ability to pay off the house. The cash value of the policies builds at a guaranteed minimum of 4.25% per year, and I view them as additional house payments, since our intention is to cash them in when the cash value is sufficient to pay off what’s left on the mortgage, and then pay off the mortgage. At the time we bought the house, I figured that would enable us to pay off our 30-year mortgage in about 18-20 years, and I still think we’re on track for that.

The problem is that I keep hearing that whole life is a bad investment choice, I should instead pay for more term insurance and invest the difference, etc. Is (seemingly) the rest of the world right? Should I get out now, before I spend another dozen or so years continuing to pay for these policies? Or does my logic remain sound? I think the total difference in cost for the two whole life policies versus two term life policies with the same coverage would be something like $200/month – is that a worthwhile price to pay for what we’re doing?
- Mike

If you’re sitting at a crossroads and trying to decide whether to open up a whole life insurance policy or a term policy, I would go for the term policy. You can take the difference in cost between the two (since the whole policy will cost more) and invest it yourself into index funds or other such things.

However, once you’re into a policy for a number of years, the situation changes a bit. Quite often, the return you get in further contributions to a whole life policy versus the return you get on a term policy plus investments are similar once the first few years of payments are out of the way. Whole life policies tend to improve a bit in later years, returning better than they do early on (when the policies are covering the commissions of the salespeople).

You have to ignore the past when making these decisions. Don’t let what might have been influence you right now. Sit down and look at where you’re at with the policy. Right now, starting with your next contribution dollar, what puts you in better shape? Another dollar into the whole life policy, or starting over with a term policy and some investing with the additional money?

Without specific numbers, I can’t tell you that for sure. I can just tell you to ignore your contributions up to this point and look at what puts you in better shape starting right now.

My husband just started a post-doc position. There are two types of post-docs through the university. One gets paid officially by the university, taxes are taken out, and benefits are paid for. The other type of post-doc (the one my husband has) is paid for by a federal grant, so you get paid, but no taxes are taken out, it’s not reported to the IRS, etc. We will pay estimated taxes on it, of course, but a little wrinkle has come up that I wasn’t expecting.

It just doesn’t seem fair that we have what looks like a lot larger income in terms of taxes – most people do not pay any taxes on their employer benefits. Have you ever heard of this type of situation before? I suppose we could not report it but I don’t want to get in trouble with the IRS down the road.
- Amanda

IRS Publication 502 states that insurance premiums on health insurance are tax-deductible. In other words, when you go to file your taxes, the premiums you’ve paid in yourself can be deducted from your taxes, reducing the amount you need to pay in.

Most employers simply use pre-tax money to cover this insurance because it simplifies things for pretty much everyone. For some reason – probably related to the fact that they’re passing the tax management on to you – they’re not doing this in your case.

I would strongly encourage you to use a program like TurboTax when filing your taxes, as they help you greatly in discovering big deductions like this and applying them properly.

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

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

The entire argument of Seth Godin’s book Linchpin is that there are no longer any great jobs where someone tells you what to do. That’s not to say there aren’t great jobs out there – there are many – but they now require the ability to basically blaze your own path, creating things and building connections that are indispensable to those around you. That person, in Godin’s terminology, is a linchpin.

I think, to a degree, this general argument is spot on. We live in a globalized world where most jobs can be shipped anywhere, from Mexico to Indonesia. Jobs in which people are merely following instructions all day are among the easiest to ship and the few that remain in America aren’t going to be strongly financially rewarding. Success comes from making yourself essential to the operation – and simply following orders, even if you do it well, keeps you firmly in the “replaceable cog” camp.

How do you stand out? What kinds of choices can you make to turn yourself into someone indispensable? Let’s dig in and see what the book has to say.

The New World of Work
Most jobs where you simply follow instructions and do a faceless job demean the real value you provide. They’re faceless jobs, but you’re not a faceless person. You’re not merely a cog in the machine of capitalism – but your job might be. The biggest difference between a follow-the-instructions job and a linchpin is that a linchpin creates his or her own value, whereas an instruction follower doesn’t add any value beyond a specified task that’s completed. A linchpin works in ways that improves those around him or her, while an instruction-follower simply follows the tasks at hand. I like to think of it this way: what’s the difference between a mediocre administrative assistant and the best administrative assistant you can imagine? That’s roughly the difference between a person who is a linchpin and a person who is not.

Thinking About Your Choice
The choice that’s on your plate is simple: do you keep merely following instructions and counting the days until Friday or do you look for ways to make yourself transcend those roles and become a linchpin? This is an urgent question, because a global marketplace makes the instruction-follower role more dispensable than ever. Some people are content to fill the role of instruction-follower – and that’s fine. However, the career opportunities for such people are simply shrinking – that’s a fact of life.

Indoctrination: How We Got Here
Most of what we learn in school serves one purpose – to make you an effective person at filling an instruction-follower job. Schools do not encourage creative thinking (which is an invaluable part of being a linchpin) – instead, they encourage lots of rote memorization and repetitive tasks which are scored on standardized tests. It’s a pretty neat trick to make school funding tied to these standardized tests, isn’t it?

Becoming the Linchpin
Every workplace has a few people that are simply indispensable. They take very challenging situations and make them work. They seem to solve tons and tons of problems. They’re the ones everyone goes to when there are crises. Those people are the indispensable ones – if you’re not one of them, you’re a lot more dispensable than they are. The question really is whether or not you’re willing to work to become one of those indispensable folks.

Is It Possible to Do Hard Work in a Cubicle?
Being a linchpin means a lot of hard work. The biggest part of it is being willing to give all of what you have to doing a great job. This does not mean just filling your hours with whatever task you’re assigned. It means bringing all of your passion, your ideas, and your creativity to the table whenever you work. It means taking on the hard problems that might scare you a little bit (or more than a little bit).

The Resistance
Our brains typically work in resistance to those kinds of tasks – we’re biologically wired to look out purely for number one. We avoid risk. We avoid anything that might be perceived as a threat. We avoid generosity. However, all of these things – risk, taking on threats, generosity – are key parts of being a linchpin. We have to work hard to overcome these resistances in order to become something greater.

The Powerful Culture of Gifts
Giving of yourself to others opens countless doors. Our brains often expect immediate reciprocity – if we give something, we want something in return and soon. The world rarely works that way. Our generosity – going above and beyond the expectations of others – builds a strong reputation for us, one that secures our work and builds positive relationships and interactions for us in ways we often never directly see. Quid pro quos rarely work – but building a strong reputation for great work and generosity certainly does.

There Is No Map
How do you do this? Unfortunately, there is no road map – and that’s a big part of the difficulty of it. You have to seek out the challenges in your own situation and take them on head first. You have to seek ways to up the quality of whatever it is you’re doing. In other words, you have to go off the instruction sheet – and that’s the real challenge.

Making the Choice
Linchpin value is created by what you choose to do, not by what you’re born with. Anyone can become a linchpin – it’s not an inborn trait, it’s a sequence of choices to step beyond the instructions and do things that improve everyone around you. It’s a scary choice, but it’s still a choice, one that offers a lot of rewards if you’re willing to take the leap.

The Culture of Connection
In order to succeed as a linchpin, you have to build a lot of connections with the people around you. Indispensable work is work that’s connected to the work that others do. You build on their work and they thrive on the work you’ve done. A big part of this is personality and attitude and a big first step is to recognize that negativity towards others will never, ever get you to being a linchpin. Positive relationships are the ones upon which you can build great things.

The Seven Abilities of the Linchpin
Here are the seven abilities, in a nutshell, from page 218:

1. Providing a unique interface between members of the organization
2. Delivering unique creativity
3. Managing a situation or organization of great complexity
4. Leading customers
5. Inspiring staff
6. Providing deep domain knowledge
7. Possessing a unique talent

Linchpins provide at least one of the things on this list and often provide more than one. It’s key to remember that these things are there to provide value to the people around you and make their work better, because in doing so you make yourself indispensable.

When It Doesn’t Work
If you’re trying to be a linchpin and it isn’t working, blind persistence is usually not the way to go. The value of a linchpin isn’t in repeating things that aren’t clicking or working. Instead, they constantly seek out new approaches and ideas and try them, instead. No one has a 100% success rate with their endeavors and ideas, but it is the successful ones that provide so much that they more than make up for the failed attempts.

Is Linchpin Worth Reading?
If I were to hand a recent graduate or a twentysomething a book on modern careers and how to succed in them today, I’m pretty sure that Linchpin would be the first book that I would grab.

The ideas in this book are reflected in virtually every workplace I’ve ever been a part of, from entry-level work to highly technical work. The people that stepped up to help others and solve problems were the ones that were indispensable, while the others merely hoped to hold onto their jobs. I also noticed that the people who stepped up to the challenge tended to be a lot more positive about their job, whereas the people who were dispensable were negative about their job and the people around them.

There are a lot of great ideas about the modern workplace in this book. If you’re struggling in your career, Linchpin is probably well worth a read.

Jennifer writes in:

Yesterday, I received a notice from [my credit card company] that my credit limit had been lowered from $10,000 to $4,000 on my primary credit card. I was immediately worried that my credit had been damaged by identity theft, so I checked it on annualcreditreport.com and there was nothing there at all. I’ve always paid all of my bills on time and my life has been pretty much normal and unchanged for a long time. Why would they make this change? I’m not concerned about reaching my credit limit, but that reduction in my limit does alter my debt-to-credit ratio, which could negatively impact my credit rating.

Jennifer describes a pretty typical scenario today. A credit card company sends a letter out of nowhere, for no obvious reason, announcing a significant drop in one’s credit limit.

One big effect that such a drop has is that it alters your debt-to-credit ratio, as Jennifer mentions. Simply put, your debt-to-credit ratio tells what percentage of your credit limit across all of your credit cards you’re actually using. So, let’s say Jennifer had a $3,000 balance on her $10,000 card – that’s a 30% debt-to-credit ratio. When the company drops her credit limit, she then had a $3,000 balance on a $4,000 card – that’s a 75% debt-to-credit ratio. The higher your debt-to-credit ratio, the more negative impact it has on your credit score.

This type of behavior seems alien, particularly after a decade where credit card issuers would commonly raise credit limits without you even asking. What gives?

The reality of the credit card industry has changed. For one, the econmic downturn has seen a large spike in the number of people who have simply defaulted on their credit card bills, not bothering to pay them. For another, the Credit Cardholders’ Bill of Right Act recently became the law of the land, restricting some of the business practices of the credit card companies.

Credit limits are not a right. Another issue is that many people, particularly after the last decade of rampant growth in credit limits, view their limits as something of a right and when credit card companies reduce those limits, their rights are somehow being infringed. In truth, that’s not the case at all – your cardholder agreement makes it very clear that your credit limit and your interest rate can be changed at any time.

So how do they decide when to lower your limit?

They watch what you buy via data mining. Every time you make a credit card purchase, the credit card issuer’s computers store a record of that purchase (you’ll see such information on your bill). Obviously, this is a wealth of information, one that they can use to figure out all sorts of things, such as where you live (so that if you suddenly make a rash of purchases elsewhere, they can throw a block on the card).

They draw conclusions based on what you buy. Another thing that they do is watch what you buy. They look at the places you normally shop and draw conclusions based on that.

Let’s say Jennifer normally shops for clothing at, say, Banana Republic (I don’t know this, I’m just creating a hypothetical example). Based on this, the credit card company would conclude that she fits the profile of an average Banana Republic customer, meaning she has a fair amount of discretionary income.

Now, let’s say Jennifer is suddenly a bit worried about the economy. She and her husband decide to curb their spending and she starts doing things like buying soap at the dollar store with her credit card.

When the credit card company analyzes the data, looking for spending changes that might affect credit limits, they’ll observe from their data that Jennifer is spending a lot less at the Banana Republic and a lot more at the dollar store. That means she’s got a different spending profile – one that signifies the potential for financial trouble.

They act in accordance to those conclusions. Given their recent problems with people defaulting on credit card debt, they take pre-emptive action and reduce her credit limit.

To Jennifer, this seems sudden and unfair – and for good reason. She’s likely not in any true financial trouble at all and is simply choosing to be a bit thrifty in these uncertain times.

What can you do to protect yourself? The truth is that Jennifer should avoid being in any kind of position where such a credit limit change has any impact at all on her. In other words, don’t be reliant on that piece of plastic. Use it as a tool instead of as something you need to have.

One big way to do that is to never carry a balance on your card. If a bill comes at the end of the month, pay it off. If you’re thinking of making a purchase where you wouldn’t be able to do that, you can’t afford that purchase. Wait a few months and save up the cash.

This not only keeps your debt-to-credit ratio pretty low, but it also leaves you out of any sort of “danger” from the credit card company adjusting your limits or your interest rates. More importantly, though, it prevents you from building up a significant amount of debt on the card, which can be very, very difficult to pay off.

Use your credit cards wisely and changes like what happened to Jennifer will have little or no impact on your life.