Having ready many books about personal finance and money management over the last decade, I recognize most new books as offering nothing particularly new to readers. Some of the world’s favorite money gurus rehash the same ideas repeatedly, some on a predictable yearly release schedule, and these books become best-sellers due to the names attached. There have been some notable exceptions to the endless supply of old ideas, and I try to recognize them when I can.

There is a reason for repetition, though. Here are a few:

• You might have missed “Get Out of Debt 2012″ because you weren’t thinking about money at the time, but “Get Out of Debt 2013″ was released at the perfect time for you.
• “Wealthy Dad, Middle-Class Dad” might not have been a book that caught your attention, but “Wealthy Sister, Middle-Class Sister” was recommended by your favorite talk show host.

Kimberly Palmer, the author of Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back, has decided to take a different approach with her latest project. Kimberly has been a guest on the Consumerism Commentary Podcast — twice — and she also writes for U.S. News and World Report.

The author has created a series of workbooks, meant to appeal to those of us who are more creative, designed to help guide participants through the financial aspects of life. The workbook approach transforms readers into participants, and if the workbooks are engaging, they can be much more effective in someone’s life than just reading a book.

Normally, I’m not a fan of worksheets. These are great learning tools for elementary school students, and any time I’m asked to complete an assignment like that, I begin to think that the author is treating readers like children. As I’ve discovered by maintaining this website since 2003, writing things down works to change your life. Once you complete a worksheet that asks you to write down your financial goal for the year, that goes becomes real. It adds a level of commitment. While there are no consequences for missing your goal other than self-reprimand, writing things down can add motivation.

Kimberly Palmer is offering several self-published money planners on Etsy.

• The Money Planner is designed as a companion workbook for Generation Earn. The activities match the book’s chapters.
• The 2012 Money Planner breaks down the coming year by month, with tasks appropriate for the time of the year.
• The Debt-Free Planner focuses on the one specific task of eliminating debt.
• The Baby Planner helps expecting families get ready for the new financial responsibilities of having kids.

The first three planners are also available as a bundle.

To get an idea of whether these planners are right for you, I’ve included the first page of the Money Planner. Kimberly indicates the creative and visual approach will appeal more to right-brainers like herself. Whether your mind is ruled by the logical or creative aspects of thought, anything that inspires you to take action will help improve your finances.

The key to success is maintaining your motivation over a long period of time, and workbooks can inspire success more than typical books. In the end, however, success depends on a family’s or individual’s ability to maintain focus and motivation.

If you’re interested in one or more of Kimberly Palmer’s Money Planners, visit the author’s Etsy shop.

The original version of this article, Money Planners Can Help You Take Control of Your Finances, is copyrighted by Consumerism Commentary.

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To all those who celebrate, have a successful Festivus. I’ve come to be a fan of this secular “holiday,” celebrated every year on December 23 following its mass introduction to the public through an episode of Seinfeld. At its core is a non-commercial, non-religious approach to the season. While I do enjoy gift exchanges with friends and family and everything else that goes along with the holiday season, the traditions of Festivus are interesting and applicable to everyone.

Before Seinfeld, Festivus was but one family’s tradition. This family produced a comedy writer, Daniel O’Keefe — how could it not? — who incorporated some of the aspects of the holiday into the television show in 1997. The episode aired thirty years after the first familial Festivus celebration. The primary symbol of the holiday is the aluminum Festivus pole with a “very high strength-to-weight ratio.” Two primary holiday practices have entered the public from the holiday: the airing of grievances and the feats of strength.

The airing of grievances

In dealing with personal finances, everyone can relate to these traditions. In today’s modern world, any individual who pays attention to his or her own financial situation can have grievances to air. In the typical manner of Festivus, celebrants air grievances against each other. For our purposes, it will be more constructive or cathartic to air grievances against the companies that charged us extra fees, salespeople who stretched the truth or lied to encourage us to buy something, and reflect on the mistakes we made with money throughout the past year.

Here’s my grievance from a recent encounter. I purchased a used camera from a local shop a few weeks ago. I like buying from local shops rather than from the internet in some cases, because if local shops aren’t supported, they’ll eventually disappear. I found a great deal and wanted to take advantage of it. One of my concerns with used cameras is the shutter actuation count; if a camera has been used too much, as it might be if it were used by a professional, the shutter mechanism wears down and will eventually need to be replaced, if the value of the camera warrants part replacement rather than full replacement.

I was mostly sure that this model would not indicate the true shutter count unless brought into a Canon shop, but the store owner convinced me the shutter count was readable, just like the older models. The information he pulled up on the camera showed a very low shutter count; a count I thought would be too low considering the wear on the camera’s grip. I took his word as the expert, and after trying out the camera in the store, bought it for the great price we negotiated. I probably should have waited to research the model at home to confirm my belief — that the shutter actuation count was not readable by the user. I will eventually take the camera to the Canon service center near my house to determine the true shutter count. Even if the number is high, I still got a great deal. Even if I end up paying to replace the shutter, the total I will have paid is still less than I figured I’d be paying for the camera.

I don’t think the owner was intentionally lying to me in order to make the sale, as his opinion is probably a common misconception about this camera model. I should have taken my time, though, and I should go back and let him know what the true shutter count is when I am able to retrieve that information.

What are your grievances? Here are some examples to get you started:

• Unexpected bank fees
• Hassles when returning purchased items to a store
• Confrontations with your boss
• Tenants who don’t pay their rent on time

The feats of strength

In Seinfeld, Festivus celebrants displayed feats of strength by challenging each other to a wrestling match. Rather than physical strength, I think it’s fair for Consumerism Commentary readers to focus on financial strength. While I review my finances and look for positive trends at the end of every month, this isn’t enough for the holiday. Most successes that I’ve seen so far are ordinary financial feats of strength. A brave decision with money is a the type of strength that would be appropriate to celebrate for Festivus.

This year, my biggest financial feat of strength might be obvious. It is my decision to leave my day-job salary and benefits behind and pursue with greater vigor what I had already been doing. Consumerism Commentary is now the bulk of what financially sustains me, and without the relative security of a pay check, that was a difficult decision to make. In fact, it took several years for me to have enough faith in the long-term sustainability of this income to be willing to make the leap.

For your feats of strength, here are some examples to get you thinking:

• A promotion at work
• Finding a treasure of coins in the couch you bought used
• Getting out of debt

Air your grievances and share your feats of strength from the past year. The comments on this article are open for anyone who has a grievance or feat of strength. Which banks gave you problems? Did you make any mistakes with your investments? What were your successes and strengths in 2011?

Editor’s note: This article ran originally last year, but I’m bringing it back for 2011.

Photo: M. Keefe

The original version of this article, A Financial Festivus for the Rest of Us, is copyrighted by Consumerism Commentary.

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This is a guest article by Jon the Saver, a personal finance blogger at Free Money Wisdom. His mission is to spread financial wisdom and help people get their financial lives under control. In his down time he loves a mean game of Scrabble and spending quality time with his fiancee.

I’m probably the only personal financial blogger who works in the construction industry. It may sound like a strange combination, but it actually makes sense. There are so many financial aspects to construction, it blows my mind.

To give you some background, I currently work for a Fortune 500 general contractor in the heavy civil industry. We work on large scale projects like highways, bridges, and power plants. I graduated college with a degree in Construction Management and love what I do. How many people do you know can say that? Well, I can and I’m proud of it! I love the ability to go out on a project site and then be able to come back indoors. I would hate cubicle life and feel like I’m wired for construction.

To say that the construction industry has revolutionized my personal finances is pretty bold. As bold as it may be, it’s true. I have always had big picture personal finance principles as my foundation, but construction has really taught me a lot about personal finance, some of it from studying long hours in college and some of it from getting my work boots dirty in the field.

Let’s dig our boots in and explore this revolution.

1. Execution without planning will result in failure

You can try to execute, but if you don’t have proper planning, it’s doomed to fail. In construction this happens when someone doesn’t do his job and forgets to plan accordingly. This could be as simple as a missing checklist or as serious as not ordering enough concrete. Another big one is planning for safety. You never want injuries on your job site. If you don’t engineer out the risks of an operation, how can you be confident in your execution?

Effect on finances: This is everything from proper retirement planning to education on personal finances. I mean, why do you read this blog? Probably because you want to plan for your future. Planning is everything. If you have a good plan, you’re destined for success.

2. 80/20 rule applies to your finances

I’m a huge believer in the 80/20 rule, also known as the Pareto Principle. I first heard of this rule from a professor in college. The basic idea is that 80% of your results come from 20% of your work. More and more I’m finding this to be true. There are only a handful of decisions that are really going to affect you on a construction job. Things like a concrete pour are extremely critical, whereas a meeting on the door paint may be pushed to another week.

Effect on finances: Very few of your decisions will really have a big effect on your finances. I would say the top two decisions that fall into the 80/20 rule are living a debt-free life and saving 15 to 25 percent of your income for retirement. Now, there are others, but those two come to mind right now. Take the 80/20 rule and apply it to your financial life. You might even start to feel less stressed.

3. Where are you headed without a schedule?

A construction project is 100 percent schedule-driven. Without an organized schedule, how will you know what will be happening the next week? How will you know when to mobilize big equipment? These issues are solved by keeping an in-depth schedule and maintaining it. Most of our meetings on a job site are schedule-related, and there is good reason for that.

Effect on finances: Your retirement timeline will determine what your savings goals and personal schedule looks like. Knowing this timeline will also tell you what percentages you want to be in various asset classes for stocks and bonds. For example, a 20 year old should be invested in 20 percent bonds and 80 percent stocks. Now, take a 50 year old. This person would want to be invested in 50 percent bonds and 50 percent stocks. Knowing your schedule has a huge impact on your investment decisions.

4. Know your costs

On a construction project, knowing your costs will make or break your bottom line. Everything down to the office supplies need to be accounted for. Not only is this a good practice for keeping good records, but it ensures that you get paid by the owner. Without a record of your costs, your boat is going to sink and sink fast.

Effect on finances: When you relate this concept to your finances, this means keeping track of all expenses and where your money is going. Knowing where your money is going is crucial to saving effectively and ensuring you don’t fall into the trap of debt. If you don’t know where to start for tracking your costs, I recommend Mint.com.

5. Protect your assets

As a general contractor, we own much of our heavy equipment, everything from bulldozers to mobile cranes. Part of the responsibility of owning these pieces of equipment is to protect our assets. We maintain this equipment and always keep the moving parts up to date. A broken bulldozer is useless in the eyes of a general contractor.

Effect on finances: This one is more human related. Part of personal finances is keeping your body and mind healthy so you can enjoy your retirement or enjoy your hard earned money now! I’m always trying to explain this to people. Your body is your greatest asset. Without it, you’re in for some serious repercussions. Eat healthy and exercise on a weekly basis. You want to enjoy your “glory years” right?

Who knew that construction had so many lessons that you could apply to personal finances? I hope you enjoyed this post. Now you know it’s not so crazy to be in construction and love personal finance!

Photo: bucklava

The original version of this article, Construction Revolutionized My Finances, is copyrighted by Consumerism Commentary.

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Carl Richards is one of today’s best writers focusing on personal finance. Originally keeping a great blog at behaviorgap.com, The Behavior Gap has moved to the New York Times, and early next year, Carl will release his first book. Look for The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money on January 3, 2012.

Carl’s articles on Behavior Gap and now his New York Times column tend to focus on the psychological aspects of money and are usually centered around cocktail-napkin sketches like the example below illustrating how as investors we expect trends to continue into the future.

Carl Richards is also a financial planner, and in a recent New York Times feature, he uses an example from his own life to explain how people continue to behave irrationally about money even when they know better. It’s a good indication of why a healthy approach to your finances requires much more than knowing, “spend less than you earn.” We’d like to think that building wealth is as simple as that, but if that were true, anyone who could do simple arithmetic would be financially secure over time.

While close friends and family were likely aware of Carl’s housing situation a few years ago, he’s just now sharing his experiences with the public. How could a smart financial planner lose his house in Las Vegas? How could someone strangers rely on for financial advice find himself underwater on his mortgages? It’s not such a stretch when you understand human behavior.

• We feel comfortable in crowds. When everyone else in our closest circle is behaving a certain way, we feel safe if we are taking the same approach and making the same decisions.
• We expect trends to continue (see the sketch above) even though reality often differs. In Carl’s case, he expected — and everyone around him expected — real estate prices to continue climbing.
• We trust the professionals. Carl qualified for a mortgage at more than 100 percent of his house’s purchase price, according to his mortgage broker. He wanted to believe the salesperson, despite knowing his fee was based on the loan value. Even against his better judgment, he over-borrowed.

Carl’s story also illustrates how easy it is to falsely judge someone’s financial choices from the outside. Now with clients in dire financial situations, as a financial planner Carl is less likely to judge their choices to spend money. Their continued vacations despite the lack of money in the bank could be what is saving their family — or their lives.

You can get caught up in the excitement when everyone around you seems to be making choices which look crazy on paper but seem to be resulting in short-term success. Carl’s example is the real estate frenzy in Las Vegas in 2003:

It felt a little crazy to be shopping for houses that cost half a million dollars, but my income was growing rapidly. Everywhere I looked, people were being rewarded for buying as much house as they could possibly afford, and then some. There was this excitement in the air, almost like static. I started to think that if I didn’t buy a house right then, I would never be able to afford one… We’d go to open houses for $400,000 homes and see lines of couples in their late 20s — younger than we were — waiting to get inside.

He refinanced his mortgage, choosing a low payment option that added to his loan balance each month rather than subtracted. Then the real estate market crashed in Las Vegas, and he became underwater on his mortgage. He could continue to pay but owing more on the mortgage than the house was worth, keeping the house was hurting his finances. Carl wrestled with what he perceived to be a moral obligation to continue paying his mortgage and the moral obligation to take care of his family.

After discussing the issue with other, Carl decided that what he had was not a moral obligation with the bank but a contractual obligation, and he should look at the mortgage as a business arrangement. Any business would reevaluate their financial situation, and if it was a better decision to stop paying the mortgage in order to qualify for a short sale, despite the credit score hit, that’s what he should do.

While this was the logical, mathematical choice, it only became a possibility when Carl felt better about breaking his mortgage agreement. Human behavior plays a larger role than mathematics, even in this case. Again, from the article:

The process of making financial decisions is about more than building a spreadsheet to calculate the answer, because life rarely fits cleanly into a spreadsheet. Our decisions often appear irrational until we understand the whole story.

Would you walk away from your house and your mortgage if you owed more than the house was worth, your loan balance was increasing each month, and you’d be better off financially if you just stopped? I’ve discussed this at Consumerism Commentary in the past, and the results, based on participation from readers, was mixed. Some would, some would not.

New York Times, Behavior Gap

The original version of this article, The Financial Planner Who Lost His House, is copyrighted by Consumerism Commentary.

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While anyone moves towards financial independence, there is a time to think about what would happen to one’s financial accounts if one were to most unfortunately pass away. It’s a morbid thought, no doubt, and it’s easily avoidable in a world where talking about death is difficult. I don’t like to contemplate my own mortality, but realism must sink in as one grows older, particularly when and if life as a single person gives way to the start of a family.

Planning for the inevitable future can involve wills and trusts, but there is a rather simple step that could help potential heirs avoid some problems. Probate could prove to be expensive and problematic, and investors or savers can add one or more beneficiaries to most financial accounts to bypass probate. The beneficiaries named on any financial account will be able to receive money left behind in that account following the death of the account owner without involving lawyers or a hassle.

You can add a beneficiary or a payable-on-death (POD) to most savings and checking accounts. Sometimes, banks seek information about beneficiaries during the account opening process, but not always. Many banks don’t allow you to change beneficiaries online. For banks with brick-and-mortar branches, you may need to visit a personal banker with the beneficiary or with the beneficiary’s personal information (address, Social Security number, etc.) in order to change or add a designation. If you don’t see any options for adding beneficiaries online, contact the bank directly.

It’s also possible that some banks do not allow account holders to designate beneficiaries on deposit accounts. ING Direct is one such bank. Unfortunately, the heirs of the deceased’s estate could have problems receiving the balance in one of the most popular online bank accounts. If this is an issue for you, consider moving your money from ING Direct to a bank that allows payable-on-death designations. With a will or a trust, this designation might not be necessary. Of all the choices, however, POD is the easiest, and every bank should offer it.

Almost always, brokerages and banks will ask for a beneficiary when you open an investment account, whether the purpose of the account is short-term investment or retirement.

Don’t think that your accounts are too small to worry about how the funds will be distributed after you pass away. The accounts could grow, and even if they don’t, the funds you have could be important to someone in the future. With small balances, there is even more of an incentive to avoid costly probate fees.

If you’ve been through any sort of major life change, like a marriage, divorce, or the birth of children, you should take a moment to review your accounts to ensure the proper beneficiaries are listed. As a single guy, this hasn’t been a major priority for me, but as I age, I’ve started to recognize its importance despite the lack of a wife and children. This will be one of my first steps to ensure my funds get in the right hands at the right time, followed by creating a will.

The original version of this article, Set Up Beneficiaries for All Your Accounts, is copyrighted by Consumerism Commentary.

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At the right age, involving children in the household financial planning process can be a good way to teach responsible money management. Children internalize best practices when they not only receive meaningful instruction, but have visible, positive role models as parents. If parents want to impart a lesson of “buy only what you can afford,” but the intended audience sees the parents struggling with debt, buying items obviously in excess of needs, the lesson won’t get through.

Involvement and modeling are the keys to passing on good financial lessons to the next generation (not financial management classes in school, which have been shown to do more harm than good). In a discussion about allowance for kids, Consumerism Commentary reader Kilae offered the following suggestion:

Another system I read about was a couple that gave their child 10% of their household income. While it sounds ludicrous, with that 10% the child had to pay an itemized bill that was 10% of the household bills: a 10% share of the mortgage, a 10% share of the utilities, a 10% share of the grocery bill, a 10% of the long-term savings and college savings, and so on. When all was said and done, the kid had around $15 left per month as play money — not a ludicrous amount, and it showed the child exactly what the parents’ money was being used on and why budgets were important.

While there is something to be said for shielding children from the stresses of household financial management so they can concentrate on their educational priorities, this system could be very effective. With an active role in the family’s finances, a preteen or teenager can build valuable experiences that will translate directly to how he will manage finances when his responsibilities include a household of his own.

There’s a possible social drawback. Parents should try to ensure that children do not take these lessons as admonition of a family that does not, at least outwardly, appear to manage finances with the same skill and dedication. A judgmental attitude or a feeling of financial superiority are potential effects of an intense focus on effective money management. While financial lessons are important, I prioritize teaching children not to be judgmental, particularly based on appearances.

Is requiring involvement and shared responsibility a good way to teach financial lessons to children?

Photo: stevendepolo

The original version of this article, Involving Children in Household Money Management, is copyrighted by Consumerism Commentary.

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Seventeen years ago I was nervous about what was about to transpire. At this time, although I had been away from home for extended periods of time, I was about to leave for college. Honestly, I thought I might not have been able to handle the responsibilities and the new social environment. Rather than living at home and attending a local college like a number of my high school classmates, I was preparing to live on the campus of a major university in another state.

I should have known that I had little to worry about. But there are a few things I wish I had known — or at least thought about — before entering college.

Pay attention to your expenses. For me, my expenses were fairly controlled. On campus, I had a meal plan. My breakfasts, lunches and dinners were paid for in advance and rolled into my tuition and board expenses. In order to eat in one of the many dining halls, all I had to do was flash my student identification card. This meal plan entitled me to a certain number of meals per week in addition to an allotment of “points” which could be used to purchase snacks at other times.

The meals and points expired at the end of each semester, and the college reminded students that “it is [their] responsibility to budget [their] points over the course of the semester/session.” I don’t recall doing any budgeting. I may have known at the time how many meals and points were available to me, but I didn’t do any planning. I ate when I felt like it and bought snacks and other things at the university’s shops when I desired. There was an option to add points to the account, and I’m sure I did this as needed.

Who is paying for college? My undergraduate education was paid for by my parents, a partial scholarship, and loans in my name. While you should not waste your time by failing any courses, this is even more important if your parents or other parties are paying for your education. Wasting your money is a problem, but wasting other people’s money is disrespectful. If you fail a class required for your degree, you will have to take that class again, paying for it twice. It’s not worth it, particularly since it’s usually difficult to outright fail a class. Paying for college yourself supposedly gives you ownership of your academic decisions while in school, but if you’re in a situation where you don’t have to worry about affording your own tuition, then consider yourself lucky.

Work shouldn’t interfere with studies. I am quite grateful I didn’t have to pay for most of my undergraduate education. It allowed me to focus on my education and extracurricular resume-building activities in my field rather than focusing on earning income to afford tuition. I did find a few jobs, however. I stayed on campus for winter and summer sessions to take more classes, but with a lighter load during these in-between semesters, I worked in the department library to earn some extra money. I also served as a web consultant in my department, designing their first departmental web site and teaching professors how to publish their own sites for a measly ten dollars an hour.

These jobs provided me with a little extra cash. I probably spent it just as fast as I was earning it, however.

Have the right bank accounts. It’s essential to establish bank accounts in your name. Free student checking accounts can help you access your money whether at home or at school, and an account that has branches nearby to both locations is one way to ensure your parents can add to your account easily if they are willing to do so. College is a great opportunity to get into positive financial habits early, like moving extra money from your checking account to a high-yield online savings account at regular intervals. This is a great destination for any extra cash you earn from odd jobs, though in college there will always be the temptation to spend money on enhancing the social aspect of the college experience.

Open a Roth IRA. I wish I had known about Roth IRAs when I started college. It would have been impossible for me to do so without a crystal ball or some other form of premonition. These retirement accounts were brought into existence while I was enrolled in the university, but I did not hear of it until a few years after I had graduated. If I had known that I could put money away for retirement in a tax-advantaged account while I was in such a low tax bracket, I might have taken advantage of the opportunity. Then again, I might not have. It’s hard to imagine retirement before you’ve officially begun a career, but it’s harder to argue with long-term investing in the stock market. If I had invested $1,000 in the S&P 500 index on October 11, 1996, it would be worth $1,825 now (not including reinvested dividends) and much more by the time I retire.

Like many, I played the “stock market game” in elementary school, learning how investing works in some respects by using fake accounts to trade. Of course, trading was a different worls when I was young, in which stock market information like prices were only available in newspaper listings. By the time I entered college, I probably knew only a little more about investing, but my interests lay elsewhere. I did not concern myself with the idea of having a secure financial future.

Avoid credit cards. The credit card companies are vultures on college campuses. I remember when I first arrived on campus as a freshman for orientation, one week before the upperclassmen. The companies set tables outside the dorms with applications and free tee-shirts, enticing subfashionable freshmen like myself to sign up. Although I escaped relatively unscathed, having a credit card without a job is asking for trouble. The Credit CARD Act limits card issuers’ abilities to market to students, but the sharks are still out there.

One particularly sneaky aspect of college-geared credit cards is the introductory offer. The 0% APR on purchases deal sounds great, but what they don’t explain is that you must pay off your entire balance on the card before the promotional period ends, otherwise you could owe back interest as if the 0% APR promotion never existed. It’s always explained in the fine print, but if you have an appointment for orientation, chances are you just want to sign the form and grab the tee-shirt.

Forbes offers these thirteen financial tips for students entering college for the first time.

• Use credit cards sparingly
• Pay all credit card balances in full
• Get the best deal on a checking account
• Start saving
• Keep track of your spending
• Set a limit on entertainment
• Shop at second-hand stores
• Keep an eye out for free money
• Get a part-time job with tips
• Walk or ride a bike — don’t drive
• Avoid the tax on stupidity
• Look for student discounts
• Don’t eat out all the time

Tavis Smiley has a number of similar suggestions. He suggests making a budget, shopping smart, and learning to cook.

Had I known what I know now about compounding interest and the tendency for the stock market to increase over time, not just theoretically but from experience, I’d be in a better financial position right now. And it’s not about having more money, it’s about having more options for doing the things I like to do.

From a psychological standpoint, it’s unlikely that college students, even after receiving information about making healthy financial choices, will change behavior. That’s just a nature of age. When I was entering college, while I felt like an adult, perhaps subconsciously I knew that I had a few years remaining before I needed to concern myself with adult issues. I wasn’t concerned with retirement because I figured there would be enough time after earning my degree to worry about the future. In many respects, this is true. In college, it’s good to hang on to the last few years of childhood and limited responsibilities. While my finances would have been in better shape earlier on, it’s hard to look back at my life and wish I had taken a different approach.

After all, my financial failings in and after college led to my interest in personal finance, and not much later, the start of this website.

Photo credit: Éamon
Forbes, Tavis Smiley

The original version of this article, Financial Tips for Students Entering College, is copyrighted by Consumerism Commentary.

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One of the most important metrics for tracking financial progress is net worth. I write about my net worth, or a modified form of it, every month when I report my balances. I’ve been in the practice of publishing my net worth updates for eight years. By watching my net worth change over time — usually increasing from month to month but occasionally decreasing — I can get a fairly decent picture of my financial health.

What is net worth?

Net worth is the financial value of all your assets, everything you own, subtracted by the financial value of all your liabilities, everything you owe. Finance gurus are familiar with this formula:

Net Worth = Assets – Liabilities

The equation works as well for individuals as it does for businesses. There should be no question of what is included in the net worth calculation. It starts out simple. Your bank accounts are assets and your credit card accounts are liabilities. These are easy to include in your net worth calculation because the values of these accounts are expressed in dollars and cents at any moment. You could at any point check your accounts online to get an up-to-the-minute balance.

Investments are assets as well. Generally, investments are held in shares, so a calculation may be necessary to convert your shares to a dollar amount that you can include in your net worth calculation, based on the value of those shares. If your investment is a stock traded frequently, you can generally place a value easily. If your investment is something more complicated like a business partnership, then there might be some wiggle room when coming up with a value for your net worth calculation.

Your house is an asset. Its anticipated sale value, even if you don’t plan on selling, should be included as an asset on your balance sheet, while the value of your mortgage if you have one should be included as a liability. Your net worth includes all assets and all liabilities, so if you own a home, you must include your house and its mortgage to get a complete picture of your financial condition.

Here’s how to calculate your net worth, with more discussion about the specifics of the calculation.

How is net worth useful?

You might find that a true net worth calculation doesn’t provide you with useful information all of the time. For example, a net worth calculation in its truest form includes the value of everything you own. That includes your television, furniture, car, coin collection, and light bulbs. Since I use my net worth to track my financial progress over time, I’m not concerned about the value of most of the things I own. Including the liquidation value of my electronic equipment would skew my net worth slightly and in such a way that it would reduce the practical usefulness of my net worth.

I include the value of my car in my net worth, not because I plan on selling it but because it was once associated with a loan. The value of the loan is considered a liability, and it was important to me to reduce that liability as quickly as possible. By including the loan in my net worth, I could track my progress as I eliminated that debt and the effect of the remaining balance on my total financial picture. To include the automobile loan, it made sense for me to include the value of the car (which I check once in a while using the private sale price listed on edmunds.com). After paying off the loan, I left the car in my net worth calculation for the sake of continuity.

It’s this personal continuity that is important. As long as you maintain the same formula from month to month and year to year, it doesn’t matter what you include in your net worth calculation as long as it makes sense to you.

Net worth is an internal metric

Net worth is best used as a tool to compare your progress over time, particularly if you insure it is calculated the same way every month. While some aspects of your net worth you may view as beyond your control, like the performance of the stock market, there is enough information in the numbers to give you a good picture of the results of your everyday financial decisions. There is something interesting about the idea of being able to compare your net worth with those of other people, but there are a few reasons why it’s best to keep your net worth an internal metric.

A quick online search can provide broader statistics so you can compare your net worth with a large population of people in your income range or age range. These comparisons are meaningless, however. Age groups can include a variety of education levels, particularly at the lower end of the spectrum. At the other end, you may be grouping retirees in with CEOs. If you’re comparing your net worth with people with similar incomes, you don’t know whether this income is a full year’s salary, pension, or dividends from investments.

Different people are faced with different situations. If you’re 22, making $40,000 in your first year as a teacher, dealing with student loans, single, and living at home with your parents, what benefit is there in comparing your net worth with another 22-year-old, making $40,000 in his fourth year in a factory, married with one child, owning a home and dealing with a mortgage?

That’s why technologies like NetworthIQ are popular. You can compare yourself with a sample using variables that place you in a category with similar people. This way, you can see where you stand among your peers. NetworthIQ does a good job of encouraging people to calculate net worth in a similar manner and groups members among different dimensions to ensure meaningful comparisons. This gets you closer to being able to compare your net worth with others, but there is still no guarantee that people are providing true information.

As I was one of the first people to blog about my personal net worth and track my finances online in blog form, I think it’s great that tools like NetworthIQ exist now.

I prefer not to worry myself about other people and focus on my own progress. My goal is to keep my finances moving forward, which usually means showing an increase in net worth each month, and other people’s finances have absolutely no bearing on my progress. By publishing my financial reports each month, I keep myself accountable to the public, and this inspires me to make decent financial decisions. Depending on your psychological tendencies, comparing yourself with others could provide you with motivation to improve your financial condition or it could leave you frustrated with your own situation.

This motivation can be helpful, but don’t look for too much meaning in person-to-person or person-to-average comparisons.

The original version of this article, Net Worth Competition: Don’t Compare Yourself With Others, is copyrighted by Consumerism Commentary.

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This is one of my biggest financial mistakes. My failure to learn some basic skills and my willful ignorance of the trouble I was in cost me thousands of dollars and major inconveniences.

When I was younger, I didn’t have that much of a positive track record with cars. In high school after receiving my license and throughout college, I drove my parents’ car, but I drove infrequently and was never really responsible for maintaining the car. After I graduated with a bachelor’s degree in music education and found my first teaching position, I needed a car. My parents were kind enough to buy me one as a graduation gift — a 12-year old Toyota Celica in good enough condition.

Well, I made a stupid mistake, though it’s a mistake that befalls many people who don’t take the time to learn about basic car maintenance when owning their first car. I never added any oil to the engine, and certainly never changed the oil. Even if the 3,000 mile “standard” for changing oil is too aggressive for modern cars, letting the motor run dry will quickly damage the car. The mistake of not learning the bare minimum for owning a car got me into trouble.

I replaced the motor after it was destroyed and the car ran well for another few years, but I made more mistakes. These were of a more financial nature. My car seemed to attract police, who seemed almost delighted to pull me over for speeding.

Although it had a rebuilt motor, the Celica was unreliable. Before it was completely undrivable, I used it to trade in for a slightly used car, a Honda Civic, and a three-year loan to make the purchase more affordable for me. I might have changed my driving habits, or the car might not have attracted police as much, but I was pulled over less frequently for speeding. But I continued to ignore the tickets.

Although speeding tickets are expensive and I had no money, it would have been more manageable in the end had I paid the fines and moved on. I was working for a non-profit, and I was broke. For some reason, I thought my life would be better if I stuck my head in the sand and ignored the tickets and fines. I was also moving around a lot in this period of my life, and I didn’t receive notices from the DMV letting me know my license was suspended for my failure to pay these fines. Since I didn’t know my license was suspended, I kept driving, blissfully ignorant of the situation I was in.

One day, soon after I left the non-profit job I had after my short stint teaching after college, a police offer pulled me over for speeding. Since my license was suspended, they impounded my car. My biggest concern was no longer finding a new job, it was determining if and how I could avoid jail time. Good news: I didn’t go to jail.

From this point on, I needed to redesign my life so that I could survive without a car. This was soon after I left the non-profit job I started after teaching, and I was in the process of looking for a new teaching position. My search was on hold because there weren’t many schools in New Jersey I’d be able to travel to without a vehicle. I did find a job, working for a financial company, and moved somewhere that would allow me to have a convenient commute using mass transportation. I gave up my Civic to a relative.

Eventually, I had my license reinstated and the relative returned the Civic. As a result of my problems, though, I still had large auto insurance bills that plagued me for years. Through this debacle, I learned a few lessons about responsibility. Today I can look back and be glad I’ve been able to make better choices this past decade.

Here are some things I’ve taken away from my earlier mistakes, and maybe they’ll be appropriate for you.

• When you first get a car, learn how to take care of it.
• When someone sends you a bill, don’t ignore it.
• If police are involved, take care of the problem as soon as possible.
• If you owe money to the courts, it’s not going away, and it could become a legal issue.
• If you have no money to pay traffic fines, find the money.
• Keep your address current and on file with the division of motor vehicles.
• Don’t speed.

The original version of this article, Ignoring Bills Won’t Make Them Disappear, is copyrighted by Consumerism Commentary.

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Higher education has its benefits, both financial and not. A bachelor’s degree helps ensure lifetime earnings will be greater than someone with just a high school diploma. Aside from the financial benefit, the cognitive skills used in tackling tough academics are useful inside and outside of a career.

Nevertheless, college students often start careers at a financial disadvantage. All that is involved with academics — going to classes, studying, researching, and perhaps being an unpaid intern in the field of study — take away from precious time that could be spent earning money. Besides missed earnings, it’s common to start a career out of college with tens or hundreds of thousands of dollars of debt.

It helps to start thinking about personal finance while in college. I didn’t. After college, it took a few years of working for low pay at a non-profit organization to realize I wasn’t making any progress. It would have been decades before I’d be able to afford to buy a house, for example. I worked during some of my breaks from college, but I can’t say with any certainty what happened to that income.

The best thing one can do is attend a college where costs are low and receive as many scholarships as possible to cover tuition costs. With state budgets in crisis, many colleges will have to increase the cost of attending — perhaps bigger increases than families have been accustomed to. Here are some ideas for saving money in college, partially negating the effect of graduating with crippling debt.

1. Open the right bank accounts. Making better choices when dealing with banks won’t make you rich, particularly in today’s interest rate environment. No college student should leave home without a high-yield online savings account and a free student checking account. A student’s best bet is to have a checking account at a bank that offers convenient branches both in the parents’ town and near campus. This allows parents to deposit checks easily if necessary while students can withdraw funds as needed without a hassle. With a job on campus, income can be automatically deposited. Many banks offer student accounts with no fees and no minimum balances.

2. Avoid the campus bookstore for text books. The text book industry is a bit of a racket. Schools encourage professors to require the latest edition of text books, and some text books release a new edition every year. Most of the information inside doesn’t change however, so you may be able to succeed in the class with an older version of the text. This opens you up to buying used text books, borrowing text books from friends or strangers who took the course previously, and swapping text books online. Not only that, but when you own text books and are finished with the course, you have opportunities to sell the text books to other students through popular avenues like Amazon.com.

3. Open the right credit card. Credit cards can be dangerous tools, especially in the hands of a young adult with little experience with spending. If an emergency arises while a student is away from home, having the right credit card and the right approach can be the difference between paying the minimum to resolve the issue and falling deep into a cycle of debt. When I was a freshman in college, during orientation my classmates and I were bombarded by salespeople tempting us with free gifts (tee-shirts, Frisbees, etc.) to encourage us to sign up for credit card offers. I would imagine most do not stop to read the terms and conditions of these offers, and those who do may not have a good comparison tool. Find which best student credit cards don’t charge fees.

4. Take advantage of the dining plan. When a student lives on campus, schools often require her to pay for a dining plan. Dining plans help to make sure students eat relatively healthy foods consistently — though this approach isn’t completely effective. Nonetheless, dining plans are often included in tuition bills, separating the concept of eating from paying to eat. It’s easy in this situation to forget that you’ve pre-paid for a certain number of meals per week, and with many meal plans, you lose any meals you don’t eat. College meal plans can waste money, depending on an individual’s dining habits, so it’s important to pay close attention and make the full use of what the student or parents are paying for.

5. Live off campus. Boarding costs can be expensive. Colleges compete for the best living experiences for students, and that means they spare no expense in outfitting the dorms. My former college was on the forefront of internet connectivity. When I went to school, every dorm was wired for ethernet. This was not very common at the time, particularly considering there were only 2,738 websites on the internet when I entered college, and being on the internet generally meant reading news on Usenet or chatting with other Unix-connected students. Universities that pay for these amenities just add them to the cost of living on campus, yet most dorms don’t have kitchen, so living off campus can be a more cost-effective option. By living off campus, you can avoid costs for things you might not need while you can save money buy buying groceries and cooking rather than buying every meal pre-made.

6. Get student discounts. I held onto my student identification as long as I could to see if I could get discount admission to events and movies. Students are blessed with discounts for all types of expenses. Student discounts are worthwhile, and near campus, almost every business is wise to advertise a benefit for students. Sometimes, however, student discounts are not advertised, and business rely on word of mouth. Just ask for a discount if you’re not sure. Students qualify for discounts on computer software, equipment, hair cuts, theater performances, and even car insurance.

7. Get a job. I’m not a fan of spending a significant amount of time focusing on something other than studies during college years, but finding ways to earn an income has some benefits.

• With a job during college, you’ll have a head start against your peers, especially if your job is within the industry you’re likely to seek for a career.
• Getting experience juggling many priorities can help prepare you for life after college, even if it means having less time to focus on academics.
• Having a growing bank account in college will provide you with some experience dealing with finances that, if positive, will improve your relationship with money after college.

A job that worked well for me was working in the school’s music library and media center. It was quiet, so I could do work for my classes while also performing my job.

One goal for the four (or more) years of college is to survive financially. Many former students I know graduated with thousands of dollars of credit card debt, including me, thanks to inattention to money. College is the time for students to show they can begin to function as responsible adults in society, and while many adults also suffer from poor money management skills, there is an opportunity to set the bar higher. If nothing else, simply paying attention and understanding expenses will put a student at the head of the class.

Photo: regexman

The original version of this article, Save Money While in College, is copyrighted by Consumerism Commentary.

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For as long as I’ve been reading about smart money management, “live within your means” has been the underlying mantra that, when uttered repeatedly and internalized, will result in a much more fulfilling life overall. By living below your means, you are sure to come out the end of each month with a net worth higher than the previous month’s, except for any poor investment performance. Building a financial future means eliminating debt and adjusting your wants and needs to be manageable within the income you receive.

Or does it? Laura Rawley argues that economists see this concept — the idea that one should only consume without acquiring debt — as limiting. Consumption smoothing is the idea that someone with an earning potential that resembles an upward slope could do better by enjoying life (and spending) early on rather than delaying consumption until a time when taking advantage of increased income would be less fulfilling. In other words, shop now so you don’t have more money than you know what to do with when you’re eighty years old.

There are obviously a number of faults with this approach. To name a few:

• Borrowing at a young age based on future income potential is risky. What if your income never hits that upward slope?
• Buying a BMW and going into debt now rather than a slightly used Honda Civic with cash could prevent you from making more meaningful investments.
• If you grow accustomed to living beyond your means now, unless you’re willing to make a significant change in attitude, your desires will just be greater later on, and your income will never catch up.

Nevertheless, there is a lot of value in the idea of enjoying life while you’re living it. You can’t put off all of your wants until later. The best option is to find affordable ways to handle the desires that may be beyond the reach of affordability, but lifetimes are relatively short when compared to the span of a culture.

Also, certain types of spending are likely to enhance your earning potential over time, and it is worthwhile to take some financial risks. Borrowing for a college education is often used as an example — but don’t forget there are ways to get a quality education without spending a lot of money. Personal preference and skills play roles — if everyone chose career and education paths based on likely return on investment, we might all be engineers studying in schools outside the United States.

In her article, Laura Rowley provides the example of a novice author who hires an editor, beyond her means, with the hopes of securing a deal for her first book faster. This is more of a business expense rather than the consumption, but it shows how taking a risk by laying out some of your own financing can be helpful in getting a jump start in a career. A better example pertaining to consumption could be the novice real estate agent who, in order to secure clients interested in more profitable locations, will buy accouterments that signal luxury, like expensive cars and fancy clothes. Again, these are still business expenses for which there is an argument that a little “investment” is necessary for financial success.

For most people, the concept of living within one’s means should be the general philosophy for spending, but balance is important. Life is short, so enjoy it. The more you can find ways to enjoy it that still allow you to live within your means, the more fulfilling your life will be now and in the future. If you’re in control of your finances, spending today to take advantage of the idea of consumption smoothing is not the worst thing in the world. One shouldn’t, however, use consumption smoothing as an excuse for making poor financial choices that ignore the consequences of increasing consumer debt.

Yahoo Finance

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College graduation like when you beat Ganon, the resilient bad guy at the end of the classic video game, The Legend of Zelda, for the first time. You’ve been through many levels of challenges, perhaps even used a few “cheats” along the way, and did anything necessary to grow your knowledge and skills, many of which were necessary for the final test of strength.

You’ve saved Princess Zelda and were rewarded by watching one final scene and reading the names of computer programmers as they parade up the screen. You were relieved that your journey was finally complete, but before long, you realized there was more to the game.

Suddenly, you were presented with the option to begin your next journey. Your character, Link, displayed a new sword to indicate the completion of the first journey. This newly brandished sword is like your degree. With your degree in hand, it’s time to face a new world, one that is uncharted. (The map to this “second” Zelda adventure did not come with the video game.)

After graduation, it may take a moment for some to realize that you are now in control of your life and the decisions you make can have a profound effect on your future. Here are some ideas to help you, the graduate, make solid financial decisions.

1. Actively manage your expectations. You may have friends who have already graduated. They’ve provided you with endless entertainment as they talk about the “real world.” By now, you will have heard about new cars, new houses, new weddings, new kids, new relocations, new implants, and new gardeners, and you’re looking forward to sharing similar experiences.

With jobs, they have been receiving a steady income, probably sizable, and have been spending their money almost as quickly as they have been earning it.

Actually, they have probably been spending their money faster than they have been earning it, but that piece of information will be curiously missing from their stories. What your friends didn’t tell you about is debt. Ask them about their retirement plan and IRA. Ask them about their budget. You’ll likely receive blank stares, and not just because you’re being a stick in the mud.

It’s best to ignore these types of stories because the danger comes when you expect that this is how one must live life as an adult. This is actually quite expensive and detrimental to your future. By managing your expectations, you won’t be disappointed when you can’t find a management position earning $100,000 with no experience right out of college, even if your friends tell you that’s what you should look for. You won’t be disappointed when you have to settle for sharing an apartment with several strangers or moving back in with your parents until you are able to afford your own bills and establish an emergency fund.

Simply, don’t try to keep up with the “Joneses.” This hypothetical family’s perceived wealth is mostly an illusion and it’s best to focus on yourself rather than others.

2. Choose your first job carefully. Your first job sets the tone for your future earning power, particularly if you expect to stay in the same career until retirement. Earning more in your first job out of college not only allows you to save more and be flexible with your budget, but it also makes it easier to negotiate better salaries when future opportunities arise.

That being said, don’t select your first job with money as the solitary driver. It’s quite possible that the path you’ve chosen starts out without much opportunity. If the job that interests you is not in high demand, then you will have to settle for what is available. Like a professor told me as I was pursuing music education in college, “If there’s any other career that could possibly make you happy, consider changing majors.” If you are pursuing your calling, be prepared for a bumpy ride as you progress, mentally, physically, emotionally, and financially.

3. Pay off debt. Many college graduates leave school with credit card debt. While in school, education is your first priority, so depending on your course load’s aggressiveness, you may not have had a job. However, you still had expenses, and your parents may not have provided for you. This is perfectly normal, but it must be attended to immediately.

Unless you are starting in an industry where image is important, it’s time to pay down your debt. With newfound income due to your first job, put any available funds into paying off your credit card balances, and do not add new credit card debt under any circumstances. The debt avalanche is the most mathematically pleasing solution to paying off credit card debt.

Chances are you have student loans to pay off as well. Consolidate these when possible to take advantage of lower rates, but don’t slow down your repayment. You may decide to get your master’s degree, and it’s best to do so without compounding more student loan debt.

4. Automate your savings. Automation is the key to creating habits without having to change your behavior much. If you have a new job and your employer is somewhat familiar with twenty-first century technology, they will have direct deposit available. This will allow you to deposit your paycheck directly into a checking or savings account (and a high-yield savings account is preferable).

From the savings account, you can decide how much you need for spending money each week and how much you need to pay your bills each month. Transfer only what you need and leave the rest in the account earning interest. Work with your bank to create instructions for these transfers so they take place automatically.

This is probably the biggest component of building an emergency fund.

5. Investing basics: Open an IRA and 401(k). Once you’ve automated your savings and are in control of your bills, you may have noticed you have money left over. Rather than buying a new car for $4,000 down and monthly payments of $300, you started with a used car for $8,000. With your saved payments, you can open a Roth IRA to take advantage of what will probably the lowest interest bracket you’ll ever be in.

If your employer offers a 401(k) or its cousin the 403(b), take advantage of this option as soon as possible. In many cases, companies offer “employer matching” contributions; for example, for every $1.00 you contribute, your company may thrown in an extra $0.50, you to one-eighth of your salary. This is free money, and you should accept it without question. Invest in your 401(k) at least to the limit of your employer match.

Your 401(k) may have some confusing options. If an index fund is available, that should be your first choice. Otherwise, your company may offer an automatic rebalancing plan based on your age or years until retirement, or a mutual fund that does the same. That may be a good choice for the novice investor.

6. Develop a plan, but be flexible. Your friends’ stories were missing something. While they spoke of all the exciting things they are buying and doing, they didn’t mention to you where they’d like to be in 5, 10, 25, or 40 years. Perhaps they have some vision of what their future might hold, but they don’t have a plan, something that will explain how they will get to that point.

If you haven’t already, decide where you want to be with your life in the short-term and the long-term. Think about not just the size of your bank account, but about all aspects of your life. For each goal, determine what you will need for its achievement. This doesn’t have to be exact, and without much experience in the workplace, you shouldn’t expect it to be.

Now that you have your plan, expect obstacles preventing you from reaching your goals, but also expect things that will require you to change your expectations, much like the first point above. It is said that people fall in love when they least expect it. Suddenly your own plans must incorporate someone else’s. It’s important to be flexible, because life has a habit of finding its own course.

7. You only live once. It’s important to think about the future and make the wisest financial decisions. But this is your life, and it’s the only one you get. Balance your future plans with making the most out of today’s experiences. Remember that money isn’t the most important thing in the world, but it does let you do some amazing things.

If you enjoyed this article, please share it with your friends and other college graduates close to you by passing it along.

The original version of this article, Financial Tips for College Graduates, is copyrighted by Consumerism Commentary.

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This is a guest article by Elle, the author of the blog Couple Money.

Handling personal finances can be an intriguing, challenging, and rewarding process. Being married and handling finances can double those effects. My husband and I have learned through the years that working together can be powerfully effective and motivating. While every couple is different, I thought it might be helpful to share some tips and tricks that have helped us through the years. I hope you’ll share your own stories and advice in the comments after the article.

Merging two spending styles

My husband is a conservative saver. He can live on a shoestring budget and hardly deviate from it. My husband dislikes debt and paid off his small student loan a few months after he graduated.

While I enjoy saving, I know that if I’m going to succeed with my goals, I have to automate the process. I started investing while at one of my first office jobs while in college. I also grew to enjoy earning income from different jobs during my college years.

We could either try to change one another or we could try to use our specific strengths to our advantage. To do that, though, we need to have some goals to share between us to keep us on track.

Defining goals together

For us, being on the same page as far as goals has been a huge help with keeping communication open. When we got engaged we sat down and shared our assets and debts with one another. Once we were married, we decided to set up some general goals, such as establishing a small emergency fund together. As the years passed we’ve created more goals, including:

• Paying off the car loan and staying away from car payments afterwards.
• Buying a home that is well within our budget and paying off the mortgage within 15 years.
• Going on debt-free vacations.

To do this we used own complementary skills to set up our system. My husband created the foundation for our family’s budget as he’s naturally frugal. I made sure our bill payments and savings transfers were all automated. We started small, but we set aside automatic deductions for our retirement savings and we created a plan to reduce our debt.

Creating a financial system that works for us

With our goals in mind and duties divvied up, we had to find a banking system that worked for us. We originally banked with a national bank, but we found their customer service lacking and their interest rates disappointing. We then switched to ING Direct to handle our family’s finances.

Most of our money goes into our joint checking and joint saving accounts. We do have separate accounts for minor personal spending, but for the most part, we find that combining our finances makes things much easier for us.

We currently have a few savings sub-accounts at ING Direct for general and specific goals:

• Joint Savings
• Car Replacement Fund
• Vacation Fund

Since we’ve been married we’ve focused on having a system where we try to keep our necessary expenses under one income and use the second income to reach our financial and personal goals. With the majority of our spending and savings automated, we’ve managed to cut back on the time used for keeping tabs on the accounts. However, we knew we need something to help us stay on top of our money.

Using Mint to track spending

To keep us on track we use Mint to send ourselves email alerts if we go off budget in certain spending categories. Mint is wonderful because you can automatically sync all of your financial accounts, such as checking, savings, credit card, and investment accounts. However, if you only want to track your joint checking account, you can do that as well.

We don’t have to keep every single receipt and enter it into Mint. Instead, Mint pulls our spending data and organizes it. It’s fairly accurate as well — about 80-85% of the time it categorizes the expenses correctly. The only problem I noticed with this system is that certain bill payments have to be sent out as paper checks from our joint checking account.

We’ve had some discussions based on our spending notifications due to some bills that pop up time to time. In the past we’ve talked about moving expenses and then home improvement tweaks that we wanted to make. If we started spending more than we planned to spend, we talked it over and tried to reach a compromise.

I’d like to say that once a system is in place, you’ll just set it and forget it, but that’s not the case with family and finances. It’s constantly changing as our circumstances change. Right now, we’re expecting our first child in July, so as the due draws closer, more spending has been occurring for the baby. We’ve had to talk about what a realistic timetable would be for the both of us and our budget.

Using Google Docs for our family budget

My husband and I are both fans of spreadsheets. When we were working on our budget, my husband decided to set up a spreadsheet in Google Docs to help us manage the information easier than emailing one another back and forth. He’s done a wonderful job on creating something realistic that we can use.

A big advantage of using Google Docs is how easy it is to share changes. It’s a wonderful feature to have one of us update the budget and the other spouse get a notification of the change. We usually don’t make drastic changes to the document, but even being kept up-to-date on minor adjustments is helpful.

Blogging offers us a financial snapshot

When I blog over at Couple Money, I share our financial situation to help others build their net worth together, but also as a way for us to be accountable to one another. I had blogged before at another site when I was a college student and found that writing about what I was learning (from books and life) helped me to easily keep to my goals.

Every month I review the previous month’s income and expenses on the site and share if we’ve increased or decreased our family’s net worth. Some readers believe that focusing on the numbers isn’t too helpful, as things come up and can lower our progress, but that’s not the main benefit of the net worth updates.

To prepare for the post, my husband and I will look at the big picture once each month and see if we could’ve improved our spending or savings. It’s a chance for us to chat with one another about our finances without pressure. We look at the numbers and we celebrate the good that we did and try to fine tune anything that we don’t like.

Thoughts on couples and money

I’ve shared how we handle our spending as a couple, but I know it’s not the only way. I’d love to hear how you do it. How do you handle your finances in your family? What has been the easiest part? What has been the worst? Are there any tools that you use to keep your finances in shape?

The original version of this article, How to Financially Succeed as a Couple, is copyrighted by Consumerism Commentary.

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This is a guest article by Jeremy M. Simon, a reporter and columnist for CreditCards.com. He is a blogger at Taking Charge.

They’re lumbering toward you, their eyes dead and arms outstretched. And they’re hungry.

No, personal finance readers, I’m not talking about debt collectors: I’m talking about zombies, which over the past several years have latched their cold fingers onto the cultural consciousness and refused to let go. Turn on the TV (AMC’s “The Walking Dead”), open a book (“The Zombie Survival Guide”) or visit a movie theater (“Zombieland”) and it’s nearly impossible to escape them.

But when we switch off the show, close the book or walk outside, we’re confronted with an economic reality that’s every bit as scary: Look around and you can’t avoid seeing the ravages of unemployment, foreclosures and debt. Like the remaining survivors of a zombie apocalypse, the recession may be over, but we’re left to face wave after wave of personal finance challenges that threaten to devour our savings. “It may be just coincidence that interest in zombie films seems to blossom during periods of economic downturn, but I think it’s something worth examining,” Jake Yuzna, curator of the “Zombo Italiano” film series, says in an interview on the Rue Morgue blog.

Experts say there is a connection. “Any time a monster rises to cultural prominence, it is because it does a good job of tapping into and exploring some specific anxieties and fears of its audience,” says Glenn Jellenik, a University of South Carolina professor who teaches a course the horror film genre.

“It’s the same with zombies,” Jellenik says. “They tap into something going on in the culture — they are able to capture or make us feel something we’re afraid of.”

Although Jellenik says it’s not clear exactly what the current crop of undead represents, he says in zombie films and books, the living dead typically embody our external fears. While things may seem fine (for now), everything changes after the zombie apocalypse. Very quickly, a new reality takes shape: A zombie horde wants to eat our brains — and, in an acknowledgment that humanity has lost control, all we can do is react.

That’s why zombies are the perfect monster for our economically challenging times.

“We’re brought down, in a grisly manner, through contagion, by our neighbors,” Jellenik says. “There’s this huge causal chain of failures, but in the end, it’s simple — someone’s going to eat your brains (drain your retirement account) and you’ll become one of them.”

In the case of both a zombie attack and financial meltdown, it pays to be prepared. When it comes to zombies, as Wired.com helpfully points out, “You are basically trying to stay alive and get to a place of safety, as there are likely to be far too many for you to defeat them.” The survivors are likely to be those who stockpile supplies, arm themselves, and aim for the zombies’ brains.

Back in the real world, there appears to be a similar focus on preparing for personal financial challenges — spending less, saving more and becoming self-sufficient. So can we learn something from zombie films? “I think you’re on to something — the texts do seem to be rehearsing methods of preparation and survival,” Jellenik says.

But don’t limit your preparedness studies to zombie films. “You could also look to post-apocalypse movies for examples of super-duper preparers/survivors,” Jellenik says in an email, mentioning films like “The Road” and “The Book of Eli.” These movies involve survivors fleeing cannibals rather than zombies. However, “Their ability to prepare for the worst and provide for themselves is even more impressive, since they’re competing with those cannibals for scarce resources (one of the definitions of capitalism), rather than fleeing mindless brain-eaters,” he says.

The original version of this article, The Zombies Are Here and They’re Hungry… For Your Personal Finances, is copyrighted by Consumerism Commentary.

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I have many things in common with my friends in the same age range as myself. Among these shared experiences that define a generation, for the most part, we all watched Sesame Street as children. When we reminisce, we remember Mr. Hooper. We remember when Big Bird was the only character to be able to see Mr. Snuffleupagus. Our Sesame Street golden age was before the Rise of Elmo and before Sesame Street began catering to the development needs of toddlers.

Elmo, however, has been more involved with important social issues than any other character on the television show for kids. He has been promoting financial literacy for at least a decade, helping adults teach children about responsible relationships with money. He is also the only non-human to testify before Congress. Today, Elmo has teamed up with Beth Kobliner, author and member of the President’s Advisory Council on Financial Capability, to teach kids about making better purchasing decisions and saving money.

This latest initiative is tied to Financial Literacy Month. Although personal finance is Consumerism Commentary’s topic every month of the year, each April, various organizations participate in initiatives to raise awareness of the need for financial literacy, and the need for young people to learn how to create a positive approach towards money. Sesame Street has often been a great help to parents introducing new concepts to their children.

Watch the Sesame Street videos, titled “For Me, For You, For Later,” featuring Elmo and Beth Kobliner here. The videos will work best with conversations with parents. For example, the segment in which Elmo is swayed by marketing for the Stupendous Ball could be used to help kids see through advertising claims and frivolous “features,” but will only be possible with some additional guidance, because the segment is focused on saving for expensive purchases, and in the end, sharing and settling for what might be a better deal. Videos like these can be effective gateways to the right direction for kids, but the messages will be lost if children don’t have positive role models in real life.

The original version of this article, Elmo Teaches Kids About Saving Money, is copyrighted by Consumerism Commentary.

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Later this month, I will be traveling to southern California to visit my family. I usually travel to the west coast for vacation twice a year, once in the spring and once around Thanksgiving. During this time, I’ll still be working, but I often use this as an opportunity to feature a select number of guest writers. This year, I’m particularly in readers who have stories about their own financial experiences to share. If you have an idea that you believe would be a good fit for Consumerism Commentary, please contact me.

Here are a few articles I’ve enjoyed reading this weekend.

Why It’s Called “Personal” Finance. Amber and her fiance seem to be a good match when it comes to their finances; their interests complement each other. While Amber has a good attitude towards the wise use of money, she’s understandably not a fan of budgeting. To fill this need, her fiance, who has a similar approach to financial goals, enjoys budgeting and making investment decisions. This seems like a good combination. When it comes to finances, a couple is like a team. They’re working on the same goals, but each has different skills to bring to the table. This doesn’t guarantee success, but working together will have a positive effect.

The Lottery: An “Investment” for Fools. Playing the lottery is a losing proposition, despite the media hype surrounding winners, all who seem to have stories of leaving their day jobs for wealth and fortune. Many lottery winners declare bankruptcy because they are unprepared to handle financial windfalls, but fr the vast, vast majority of players, playing the lottery is a waste of money. On Get Rich Slowly, J.D. has a neat interactive graphic that will visualize playing the lottery every week for ten years. In my simulation, I won $90 over ten years, for a loss of 91% of my money.

Consumerism Commentary participated in a few Carnivals this week, including the Carnival of Personal Finance and the Carnival of Wealth. Revanche and I have announced the hosting schedule of the Carnival of Personal Finance through the end of September 2011. Participating in and hosting the Carnival of Personal Finance is a great way for personal finance bloggers to support the community, and for readers, the Carnival is an excellent way to access the highlights of the past week.

The original version of this article, Call For Guest Articles, the Personal in Personal Finance, and the Lottery, is copyrighted by Consumerism Commentary.

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Parents who offer their young children an allowance or pocket money are helping to introduce the concept of money at an age when they are susceptible to ideas they will hold for the remainder of their lives. It’s a good idea to allow kids to gain exposure to to concept and application of income and the decisions that need to be made surrounding that money. Introducing money-related concepts at an early age helps to reinforce the idea of financial literacy, a quality that many people believe is missing in the general public.

There are generally two ways to look at offering an allowance, particularly as children are gaining the ability to handle larger responsibilities. Allowances can either be tied to chores and used as a motivational tool to inspire help around the house, or they can be given free of any condition. There are dangers to both approaches.

Approach #1: Allowance in return for chores and help around the house. This is the favored approach for many parents because it emulates the experience their kids are likely to have later in life: they will be rewarded in money for the quality and quantity of the work they provide for someone else. I’m not a fan of this approach for several reasons.

• Helping around the house is not a job. A housewife doesn’t get paid for cleaning; a father who stays home to babysit does not get paid per hour. Helping around the house is something that everyone who can do should do simply because they are a member of the household. There will be more than enough time in someone’s life to earn money in return for work.
• This type of allowance glorifies money as a reward. Money is your “reward” for working for someone else as an adult, but without proper control in formative years, children could grow up thinking that money is the only reward for working. This type of attitude could lead the children as they mature to choose only those careers that pay high salaries or consider marrying only a spouse who comes from money. These things aren’t bad per se, and they are legitimate choices, but to focus on money at the exclusion of all other things that make life meaningful could lower their quality of being. With the correlation between money and work ingrained, money becomes a primary motivator. This can make it difficult for someone to succeed or excel at their job, because they might wonder why they would put in any extra effort if not compensated immediately.
• You become an employer, not a parent. The relationship between a parent and a child is unique, but introducing the idea that being a member of a household warrants a payment is a dangerous mangling of what should be a non-financial relationship. The power that a parent has over a child is now linked to the financial relationship rather than the familial relationship.

Approach #2: Money should be available, but not in return for working around the house. This invites childhood misconceptions. They may believe that money is available whenever they need or want, or that their parents will always provide money. Regardless, I believe this is the better choice as long as it is controlled and accompanied by guidance in terms of saving, spending, and giving responsibly.

All the guidance you could provide as a parent is good in helping children grow up financially literate. Even through teenage years, when children might be interested in getting a job outside of the house, children’s attitudes about money are still in formative stages. Any lessons you may impart will not be effective without good modeling. The best thing you can do for children is to manage your own money responsibly and let them see what’s happening behind the curtain. Take them with you when you go to the bank. Let them see the work you do for charity or encourage them to learn about the organization you’re involved with. Have positive financial discussions with your spouse without being secretive. If your experience with money isn’t positive, let your children see that as well.

I don’t have any children yet, so my opinions could change when my time comes. What are your thoughts about motivating children through an allowance? What approach works for you?

Photo: woodleywonderworks

The original version of this article, The Dangers of Motivating Kids Through an Allowance, is copyrighted by Consumerism Commentary.

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I try to keep the issue of money out of my personal relationships. Many people I know outside of those I know only online — my friends and family — read Consumerism Commentary. For the most part, they’re not interested because, I assume, they’d rather keep the issue of money out of our friendships — or they’re just not interested in the topics. Money is not exactly a comfortable topic, particularly when the discussion treads on the more personal aspects, like income, bank account balances, and spending.

Discussing money is usually not a problem once people are open to it. There is more danger when it comes to entering in financial relationships with the people with whom you have personal relationships. For those of us who have an innate desire to help others, it can be difficult turning down a request for a loan, for example. Many years ago, I found an apartment and roommate on Craigslist in order to live close to my job at the time. It was a tiny railroad apartment, but it was a good deal. I was only recently beginning the reconstruction (or initial construction, more accurately) of my finances, and it was the best offer I could find. Only a few months into the arrangement, my roommate needed to borrow money for the rent. I don’t think she had family in the country, so I know she was having a difficult time. I lent her the money.

Although she repaid the loan in full only a few months later, it was after I had moved out of the apartment, and I believe she borrowed the money from someone else to pay me back.

Other people have had worse stories to share. Friends and relatives disappear when they can’t repay the loan. There is a dispute and neither party communicates with the other again.

If you’re lucky to be in a secure enough financial position to loan money to a friend or relative, would you do it? Here are some thoughts to consider.

1. Has he researched other options? Getting a personal loan from a bank or credit union could be difficult, but it’s a starting point. For those who have no luck inside the mainstream financial industry, there are outsider options, though peer-to-peer lending is hardly an outside business at this point. Prosper and Lending Club come to mind, but I know from personal experience that not everyone who needs assistance will qualify for a loan from these places. Nevertheless, research should move from banks and credit unions to peer-to-peer lending before he approaches friends and relatives.

2. Is there any other way you can help? Money may be the root cause of his need to find a loan, but there may be other ways to help him solve this issue without resorting to a financial transaction. If he’s out of work and looking for a job, maybe you can help introduce him to relevant contacts or perhaps arrange an interview. While you don’t usually want to tell your friend how to spend his money, you might want to subtly guide him on a helpful path.

3. If you lend money, will he repay? My suggestion is not to lend any money you can’t afford to lose. A loan is often just a Band-Aid, a temporary fix that won’t fix the larger issue. You may not want to extend a loan if it looks like there is little hope of him paying back. If that is the case and you still want to help, consider offering cash as a gift without the need to repay. If that idea makes you feel uneasy, you probably shouldn’t lend the money, either; without prospects, it’s unlikely he’ll repay you for a long time. If it’s clear his financial is only temporary and you believe he will be cash flow positive soon, you might feel more comfortable providing the loan.

4. If the transaction goes sour, will your relationship follow? Even the strongest relationships dissipate over money. It’s probably easier to replace money in your bank account than it is to replace a life-long friend or a supportive relative. Carefully consider whether the risk is worth the little interest you may receive from the loan.

5. Will you be offended if you don’t believe he’s using your money properly? If you lend money, resist the urge to dictate how the money should be used. I understand that a lender may want to see the money be put to good use. This money should be helping the person become financially independent, either once again or for the first time. You don’t want to see him driving by in a new car or touting the latest iPad 2 the day after you provide the money. Once you sign that check, hand over the cash, or send money through PayPal, it’s no longer yours. You’re entitled to repayments over time plus interest, but you can’t dictate how the money should be used. If you don’t feel confident that he will use the money wisely, don’t provide it.

6. Set a fair interest rate. The purpose of lending money to your friend or relative is not to earn interest on the misfortune or bad choices of others. Resist the urge to punish your friend, the borrower. It’s a good rule of thumb to charge interest at or lower than the rate you could earn in a high-yield savings account. If your money were not to be lent, it’s likely it would be sitting in a savings account anyway. The only reason to lend money to a friend is to help in a time in need, not for profit. If you feel you must charge interest, be fair. It may not be legal to set high rates for personal loans, so make sure you’re aware of the laws in your state.

7. Can you afford to lose the money? In the worst case scenario, you never hear from the borrower again. The relationship is destroyed and you never receive your money back. Aside from the risk to your emotional well-being, can you afford to lose the money? Assume you were providing this loan as a gift, with no expectation of having it paid back. Would you still provide the same amount? Only part with the amount of money you’re willing to never see again. If he does repay the loan, it will feel like a bonus.

8. Make it legal. If you still believe lending money to your friend or relative is worth the risk, draw up a contract to formalize the arrangement. For $14.99, you can buy a promissory note from Nolo, which will allow you to fill in the pertinent information and have a legal contract ready to be signed by you and the borrower. Using a contract helps to signal to the borrower that you’re serious about the arrangement and expect to be paid back, and that perhaps you’re willing to take legal action if you’re not paid. In the back of your mind, though, you might still be under the assumption that this is money you could lose. If the thought of taking legal action against a friend makes you wary of lending money, consider offering a gift or not helping financially.

Would you lend money to a friend or relative? If you have, what have your experiences been?

The original version of this article, Lending Money to Friends and Family, is copyrighted by Consumerism Commentary.

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Some things are beyond our control, and having a happy and fulfilling life requires accepting those things we cannot change. It’s possible, however, to control more than we believe we can.

Right before I first started on my journey of getting my life and finances in shape, I left a low-paying job that depleted my money and increased my debt, I lived in a terrible apartment in a bad area, and the relationship with my girlfriend at the time ended. Most of my life seemed beyond my control for years leading up to that point. These bad things continued happening to me, and there was nothing I could do about it. Of course, a series of bad choices — including, in some cases, not making any choice at all — resulted in these bad situations, but I didn’t want to see it that way.

My boss at this company often talked about how every aspect of our lives is a result of a choice that we make. For example, in his opinion, someone who was late coming to the office due to traffic was primarily at fault for not preparing for delays by leaving home well in advance. Someone who oversleeps, even if the alarm does not wake him, makes a conscious decision that lying in bed is more worthwhile than getting out of bed and living life. At some point, something clued me into attribution theory. I was attributing various outcomes in my life to situations beyond my control, and I had a low opinion of my self-efficacy.

After some introspection, I was able to see that both the good and the bad things that happened in my life were results of the decisions I made, and I began approaching my life differently. The choices I made were making a difference in my life, so I started making better choices. It hasn’t all been perfect since then, and I am constantly trying to improve everything about me, but my mind is in a different space than it was ten years ago.

All of the items below are within our control.

1. You can get the job you want. The rate of unemployment is still high, and the official government numbers might even understate the number of people looking for work. Blaming the lack of gainful employment on a government statistic is a good example of an external locus of control, believing it’s not worth looking for a job, putting in the effort, because there is nothing out there. Even if you feel those who work hard a networking and researching employment options will be successful in this environment, and you believe the individual can transcend the state of the economy to find a job, but you believe that nothing you can do will help you compete with others for the same, limited positions, then you’ll be stuck not taking any actions. That may reflect an internal locus of control but with low self-efficacy.

There are jobs out there now, including the jobs you want, and they are available if you do the research and prepare yourself for competing at a high level.

Perhaps you do have a job right now, but you’d like a promotion. When I left my company in December, it was following a departmental merger and there was a hiring freeze. Yet, before I left, I was offered a position that, while it wasn’t perfect for me, shows that even company policies, often used as an excuse for immobility, can be circumvented in some situations.

2. You can pay off your credit card debt. It’s easy to believe that your debt increases because unexpected expenses keep coming. Your income may be enough to pay for your normal expenses, but every month, someone in your family is sick, an appliance breaks, or a family member needs to borrow money because they’re in a worse situation than you are. This can be a terribly frustrating position. You’re struggling, yet everyone is still leaning on you for support. You can get out of this situation, and it comes down to replacing the use of credit with better planning for expenses and the use of an emergency fund.

Getting started is the hardest part, though, and the spot where most people will be overwhelmed and will give up. Chances are that most people in this situation have not cut back their expenses as much as they can. They might have cut back just enough to remain somewhat comfortable, but extraordinary results require extraordinary actions. Occasionally, you need to take it to the extreme for a short time. Getting rid of cable television isn’t the last move, it’s just the start. Try following this six steps to building a better debt snowball.

3. You can reach your life goals. Few things bug me more when I ask someone what she wants to do with her life, and she tells me she wants to retire with $2 million or some other figure. That doesn’t tell me anything other than the only thing important to her is money. That may be true, but most people have something beyond money — or would benefit from thinking about why they want to retire with $2 million. What is the point of working hard, trading your time and effort and money, only to have a bank account with a high enough number? Money is just a tool for something else, and the “something else” that is most meaningful can be your primary goal or mission.

Sometimes it feels like there are people out there who don’t want us to succeed: so-called friends who would rather compete with you than work as a team to build each other up, insecure bosses who need you to handle the work but don’t want to admit they don’t have the skills they should have, This is just noise that can be relatively easily circumvented. I do this by shutting out negative energy, and when someone approaches me with this type of attitude, if I can get away with it, I rarely dignify it with a response.

I suppose, if this blog were like so many others, this article would be followed by some kind of product that you could buy that tells you how to live your life. I have no such product. I’m not selling anything. These thoughts come from my own, real, authentic experiences and I’m not pretending to be some sort of guru. If you want more, though, you can look at my series on taking control of your finances. Don’t worry, I’m not selling anything there, either. Of course, most importantly, I’d like to hear from readers.

Was there a moment, a turning point, when or where you decided you could control more of your life than you originally thought? What was the catalyst? What was the outcome?

Photo: Jude Doyland

The original version of this article, 3 Aspects of Your Finances You Can Control, is copyrighted by Consumerism Commentary.

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It’s a new decade. These are the tens, and this could well be the best decade of my life. How about you? Whether you’re reading this in 2010, 2020, or some other year, it’s time to make some conscious changes to your finances to move your life forward. Time won’t stop to wait for you, and life flies by faster than anyone can imagine. That’s something I’ve been realizing more as I’ve grown older. I’d love to have my younger years again to make some of these changes earlier.

From a financial perspective, there are a number of things you can do to start the decade or any year off right.

1. Pay off debt. Making the commitment to eliminate debt requires a philosophical approach and a strong dedication. It may also require you to rearrange your finances. Here’s how to start paying off debt.

2. Open a high-yield savings account. It may be true that interest rates are low today, but high-yield savings accounts are the best places for storing any cash you might need in a year’s time, including your emergency fund. Make sure you also review the best savings accounts. Read more about opening a savings account.

3. Invest for the future. It’s wonderful to live in the moment, but if you do so while ignoring your future, you will find it difficult to survive and be satisfied when working is no longer desirable or possible. You must consider the needs of your future self — and your future family. Read more about investing for the future.

4. Do something you love. Right now may be the best time to make a significant change in your life. If possible, make your life about doing something you’re passionate about and get paid to do it. It’s almost always possible, even if it requires some creative thinking. Find your passions if you haven’t already. Here’s more about the importance of doing something you love.

5. Cut out unnecessary expenses. There are small, unnecessary expenses like a daily gourmet coffee or your book-buying habit (the library is free). There are large expenses like overpaying for a house or leasing a car. There are silent expenses like interest charges on debt. Eliminate the worst of these. Read more.

The original version of this article, Start the Decade Off Right, is copyrighted by Consumerism Commentary.

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When asked about what it means to be financially independent, most people think about retirement and the amount of money needed in the bank and investments in order to be worry-free for the remainder of their lives. For many, this is why we work, why we suffer through a job we may not enjoy. The reward down the road is worth putting up with micromanaging supervisors, unfair office politics, and uneducated clients. The pattern and habit of earning and saving will help us reach the point at which we can lean back, relax, and live off our nest egg until we die.

The key to the above is that nest egg. If it’s large enough, it can sustain any life through its expenses. How large? Traditionally, experts have suggested taking what you believe your expenses would be in a year of active retirement and multiply that by 25. If the result were, say, $1 million, then that is the amount you should have invested in a broad equity index now in order to be able to withdraw 4% this year and adjust that amount for inflation each your for the rest of your life. Theoretically, you’ll never run out of money. If your first year of living off your nest egg won’t occur for another 30 years, you’d want to adjust your first number, what you believe your expenses would be that first year, by estimated inflation. A necessary nest egg of $1 million today could be more like $5 million down the road.

This type of financial independence doesn’t inspire completely security; stock market crashes could wreak havoc on the supposed 4% safe withdrawal rate. That’s why people like Suze Orman, who have millions of dollars to put away, put their own money in bonds — a much less volatile investment option — but need only 2% or less of their nest egg each year to meet their expenses. And Suze hasn’t stopped working; she’s financially independent now but still writes books and speaks publicly.

You don’t have to stop working completely in order to be financially independent. Another approach to financial independence focuses on passive income sources. That’s not much different from the above example of living off your investments; the gains and dividends that the stock market as a whole returns over time can be seen as passive, if not for the fact that you still need to pay attention to your investments and react to the market in some cases. In fact, most of the income sources generally labeled passive and somewhat active. You could create a business like real estate empire, where you could live off the rent income, sourcing all the “hard work” to contractors and management companies. Even reducing your work, you can never be completely hands-free when you run any business.

The key to financial independence may be finding a calling — some type of career you can do — and do well — while earning a living. You may still work for someone else’s company or perhaps build your own company, but the important thing is that thanks to the fulfillment you get from your activities, you may never want to retire.

As flexible and personal as the definition of financial independence is, I can’t imagine a scenario in which someone can be in debt and consider himself financially independent. Being in debt is like having part of your income owned by someone else. You are not free to do what you want with your money because you are obligated to repay a loan of some kind. This includes all the things traditionally classified as “good debt” like mortgages and student loans.

I asked around to gather more opinions about the personal meaning of financial independence. Here are a few of the responses I received on Twitter and Facebook:

• It means to have a passive income that gives you the freedom to say, “Go to hell!” to your boss (via @rullopat). I prefer tact, but the underlying message is the same.
• Sleeping on a big pile of money, because you’re too rich to be bothered with buying a bed (via @gl3media). If Scrooge McDuck were alive today, he’d be smiling.
• Financial independence is being able to do something you want without worrying about the financial consequences. Can be a candybar for some, vacations for others (via @DanielPacker). Anyone can do something without worrying about financial consequences; in fact, that’s how many people end up in debt. The difference is that with financial independence, you know what the financial consequences are, and you know you can handle them.
• There’s being financially independent of others, meaning you don’t need cash from Mom and Dad. Or being independent of finances which would mean that your passive/investment income is greater than your expenses (via @calebhicks) This is a great distinction. You could say the college graduate who finally moves out of his parents’ house is now financially independent, but that’s only one of the first steps.

To me, the core of financial independence is being able to make important life decisions without the constraint of your finances. How do you financial independence, and how do you know when you have achieved it?

I apologize to everyone who left a comment on this article on December 30. I needed to restore a day-old back-up of Consumerism Commentary and all of the comments for about 24 hours were lost.

The original version of this article, What Is Financial Independence?, is copyrighted by Consumerism Commentary.

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The trend of financial over-sharing continues, and I’m glad to have been on the leading edge. I’ve been sharing the details of my finances, including spending habits, since I created Consumerism Commentary in 2003. The idea of social net worth continued with sites like NetWorthIQ, which allowed the public to post family net worth and compare numbers with others.

Mint has since become the most popular way for tracking finances online, and this website has been collecting spending data for some time, analyzing and categorizing each transaction.

Once Mint crossed the million user mark, the data was collected in aggregate to get a better look at the country’s economic condition. Now, with a user base expanded even further, Mint has opened its data vaults to the public with the ability to drill down to the city level. You can now see, for example, the most popular restaurants in New York City (based on number of transactions) or the most expensive clothing shops in San Francisco (based on average purchase price).

The city-based data is interesting for drawing conclusions (or making assumptions) about the most populous areas of the country. Unfortunately, there is only enough data to compare three cities in my state. In New Jersey, the only cities available are Jersey City, Newark, and Trenton. Don’t expect to find data for suburbs like Ewing or Princeton within the Trenton data; it appears to include the city proper only, defined presumably either by zip code of merchant or zip code of Mint user.

Mint Data fulfills a certain financial voyeuristic intention. There is some value in determining whether the amount you spend at McDonald’s every month is more or less than the average New Yorker, but these type of comparisons are generally unsatisfying past the surface. The type of comparison that is more worthwhile is a look at the change over time for an individual or a location, and Mint Data offers this option.

The services produces attractive charts that can be embedded in websites. Here is how spending at Bubba Gump New York, a restaurant apparently inspired by Forrest Gump, has changed over the past few months and how it compares with overall spending on restaurants in the city.

The key to improving your finances is to forget about these comparisons. What does it mean if you spend $200 a month in clothing stores while the average spending in your city is $100? It doesn’t necessarily mean anything other than that. Different people have different financial situations and different needs. None of this is apparent in aggregate comparisons. Without drilling down on the demographics to a very fine level of detail, the only relevant analysis is a comparison with the earlier you.

Check out Mint Data or sign up to track your finances on Mint for free.

The original version of this article, Mint Data: More Than You Care to Know About Other People’s Spending Habits, is copyrighted by Consumerism Commentary.

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In the September issue of Kiplinger’s Personal Finance magazine, the editors shared twelve “new rules” for your money, although most of them do not sound new at all. Fundamentals don’t change, but the general consensus point of view does. If there is anything new here, it’s that the a downturn in the economy has forced people to reconsider some assumptions.

Here are a few of the “new” money rules with some thoughts.

“Renting might beat buying.” Kiplinger’s Personal Finance points out that buying a house only beats renting a similar home if your monthly payments won’t exceed the costs of rent and if you stay in the house long enough to recover the costs of buying and selling. They neglect to mention that you should consider all the expenses of owning a house that you would never have to pay when renting.

“Consider a Roth.” Roth IRAs have long been touted by financial experts. The primary benefit comes when you retire and your withdrawals, including gains, are tax-free. With a traditional Roth IRA you will be required to pay ordinary income tax rates on your withdrawals, and with the way things are going, it might be wise to expect higher tax rates later than what we have now. Then again, a Congress of the future could decide on a whim to begin taxing Roth IRA gains.

“Focus on dividends.” This isn’t new. There has always been a strong cadre of investors promoting stocks that pay dividends. There are pros and cons to this approach. Companies can suspend or cancel dividend payments at any time. Furthermore, some companies require retaining profits for research and development or other investments, so returning profits to shareholders isn’t always the best way for a company to grow.

“Personalize your emergency fund.” I suggested determining the right size for your emergency fund two years ago. This goes well beyond typical advice calling for three to six months’ worth of expenses. Your cash reserve should be tailored to your unique situation, taking into account your access to other support, your income stability, and your flexibility.

“Cut your credit-card debt, but not your cards.” It’s old news that closing your credit card accounts will harm your credit score.

“Think single-digit returns.” This has been a popular point of view since the aggregate value of the stock market tanked in the recent recession. Financial planners once promised 10% to 12% for stocks over the long term, but have shied away from these predictions recently. Some have always preached after-tax returns of 6% to 8%, and that more conservative assumption is probably a safer bet. Then again, no one knows what the future will bring.

“Save early for retirement.” I’m not quite sure this can be considered a new rule unless it is compared to financial thought popular at least ten years ago. I wish I had thought about saving for retirement when I was in college or recently out of college. In all honesty, in the late 1990s I wasn’t earning enough money to pay for my commute to work. Retirement wasn’t even on my radar screen. There were not financial blogs at the time professing the ideas that I needed to learn about.

The rules of money don’t change, but at certain times, different rules are emphasized more than others.

Read more from Kiplinger’s Personal Finance magazine.

The original version of this article, Kiplinger’s New Money Rules Sound Familiar, is copyrighted by Consumerism Commentary.

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This is a guest article written by Darwin, the author of the blog Darwin’s Money. Darwin is a numbers guy with an MBA. If you like this article, subscribe to the Darwin’s Money RSS feed for more.

You live and you learn, right? Well, that can be expensive when you’re first setting out in the world and haven’t had much exposure to the various significant financial decisions adults face in life. I’ve had some great successes financially from buying a home right out of college during the boom to making some great investments. However, I’ve made my share of mistakes, especially the first time I encountered various key financial decisions. Hopefully, young readers will catch this before they repeat the same mistakes.

1. Wrong health care plan: $3,000. It should be a pretty simple choice, right? You pick an HMO plan and as a young, healthy employee, chances are you’ll barely spend any money out of pocket no matter which plan you pick, right? Well, I had always heard that HMOs had lousy service and restricted doctor network lists, etc., so I naturally went with a 90/10 plan requiring my wife and I to be responsible for 10% of the total medical costs until we hit a rather high threshold of $1,500 per person. For a couple years the 90/10 was working out fine. Then we decided to start a family.

What I didn’t realize, and never bothered to check, was that a typical birth would run $20,000 to $30,000 and we’d be on the hook for a portion of that. Under the HMO plan, it would have been a straight $250 total, no matter what went down. Even more frustrating, which I didn’t figure out until our second kid, was that my wife’s ob-gyn was in-network for the HMO anyway, so there should have been no concerns over lousy network coverage. Well, once our child was born, I also realized that the $1,500 cap wasn’t limited to just my wife! They billed our child and my wife, so in the end, we ended up paying between $2,500 and $3,000 total when we could have just paid $250 under the HMO plan.

Granted, bringing a child into the world for a couple thousand bucks was well worth the cost and reasonable given everything involved, but we could have done it for thousands less. I’d advise that you scour the health plan details at selection time each year, and if you’re considering a child the next year, make sure you pick the plan that suits that situation best.

2. Burned by a real estate agent: $6,000. I bought my first house a year out of school in 1999 just when the real estate market was ready to run during between 2000 and 2006. I’ve always considered that purchase to be my best investment. I turned a 3% down payment into a 100% return on the home at sale, netting me a six-figure profit and enabling us to buy a much larger, nicer home when our family grew. However, I paid $6,000 more than I had to for the home. When I put in my bid on the house, the agent said there was another bidder offering more, and I had to bid higher if I wanted the house. This was common as houses were flying off the market if you didn’t move quickly.

As my one-year lease on my rental was running out and this was the only house I actually liked in the area, I figured I had to act quickly. I raised my bid by $6,000 and I got the house. What was odd though, was the agents always seemed to go out of their way to ensure I never talked to the homeowners, like during the inspection, during the closing, the final walk-through, etc. What was revealed at the last minute was there was no other bid!

The wife, who probably didn’t know what was going on, made a statement like, “Wow, I’m so glad this worked out. If you didn’t agree to buy when you did, I don’t know what would have happened. Our other deal would have fallen apart!”

I was a bit confused and said, “Oh, didn’t you have other bids?” She didn’t answer. Perhaps she figured out what happened as well and was initially wondering why I even raised my initial bid. I was a dumb 23-year-old and didn’t know the game, but my hunch is that the other agent, perhaps with or without the help of the seller or my agent, had somehow concocted the situation to get me to raise my bid unnecessarily.

When I contacted the seller’s agent, he told me there was another bid but he couldn’t provide me the documentation since it was confidential from the bidder, etc. I just dropped it. I had a home I loved and the deal was closed. What was I going to do? In hindsight, I think this was just a function of a crazy housing market and some unscrupulous people in the industry, but after reading this, perhaps you’ll be armed with some questions and options to combat a similar situation in the future.

3. Paying for stuff I didn’t need: $1,000. There’s a pretty long list of things I spent money on in my twenties that I clearly didn’t need. Here are just a few that easily added up to over $1,000 annually. These are expenses I no longer incur now that I’m older and wiser:

• Paying for warranties on electronics (bad investment statistically)
• Being an early adopter of new gadgets like MP3s and GPS systems (expensive hobby)
• Subscriptions to magazines I can’t keep up with
• Paying for daily newspaper delivery when I only have time to read on weekends
• Shopping without using coupons — and worse, forgetting the store card and paying ridiculous prices for groceries
• Paying a full service broker to do transactions over the phone before finally signing up for E*Trade
• Paying PMI longer than I needed to before figuring out I could get my home reappraised and wipe it out

All in all, in contrast to many friends and family, I was on the right side of the continuum in terms of responsible saving, investment and frugality, but I’m man enough to admit I made several mistakes that could have been worth a tidy sum now. I didn’t put in the time and effort to holistically attack my spending and seek out opportunities for saving, especially on some of the useless items I used to buy.

What are some of your biggest regrets from your twenties? Please share in the comments below.

The original version of this article, 3 Mistakes I Made That Cost Me Thousands, is copyrighted by Consumerism Commentary.

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A new study by researchers as University of Kentucky, the University of Pittsburgh and the Vanderbilt University Law School shows that people who win $150,000 from a lottery are just as likely as those who win $10,000 to declare bankruptcy within five years. I’ve often seen statistics that show that lottery winners often blow their winnings, declare bankruptcy, and find that an influx of cash for which they weren’t prepared changes their life for the worse, but this study goes farther by comparing these two groups of winners.

From the Yahoo Finance article describing the study, which will be published in a research journal:

They found… 5.5 percent [of lottery winners] declared bankruptcy within five years of taking home the jackpot. While the bigger winners were 50 percent less likely than small winners to file for bankruptcy within 24 months, they were more likely to file for bankruptcy three to five years after winning. The net result is that within five years, large winners were just as likely to file for bankruptcy as small winners.

The article points out that found money is often treated differently than earned money. When money arrives into someone’s possession through luck, like finding cash on the street, winning the lottery, and in some cases, getting a bonus payment, there’s a tendency to spend the money on something unnecessary.

While people don’t generally think of winning the lottery as having a negative effect, many winners would have been better off without the extra cash. While lottery commercials express the idea that a jackpot would be the solution to life’s problems, and the chance winning is more likely as it really is, it’s false hope. For the most part those who play the lottery end up spending more money on tickets than they’ll ever win. For individuals in difficult financial situations, it may seem like the only way out.

My coworkers and I used to buy lottery tickets when the jackpots were over $100 million. The stories of groups of coworkers splitting the winnings twenty ways and taking early retirement are inspiring, but the news cameras rarely follow their lives five years down the road. I participated because it was a small price to pay to participate in what’s more a social event, not because it was a chance to win money. But I do feel sorry for those who play the lottery with the belief that it’s the only plausible answer to the problem of needing money to move from one socio-economic status to another.

If you do win the lottery, try to manage the money responsibly. That will be almost impossible without prior knowledge of how to manage money, and many who play the lottery do not have this knowledge. Once you win, people will show up everywhere with suggestions. There is no privacy for lottery winners, so watch out for long-lost relatives and shady financial advisers.

The original version of this article, Size of Lottery Doesn’t Matter, Winners Declare Bankruptcy, is copyrighted by Consumerism Commentary.

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The latest issue of Money Magazine shares a list of one hundred tips for dealing with your money, from investing in stocks and locating a deal on a house to maintaining sanity on flights and feeling superior to Nicholas Cage. Ignoring the investment-related ideas for the moment, there are a number of good suggestions.

Here are some of the more interesting bits I am taking away from the feature.

The editors of Money Magazine chose Ally Bank as the best savings account. Here are my choices, always updated. Ally offers competitive interest rates. I have an account and have not yet had any problems, but it’s worthwhile to read customer reviews of Ally Bank submitted in the comments.

I buy generic and store brands for certain products. Like me, Money Magazine suggests saving a significant percentage by buying store brand versions of over-the-counter pain relievers, clothes, and batteries. Money Magazine also suggests buying store brand televisions, but I’ve seen major quality differences. Perhaps I’m too picky in this one area.

Based on the price-to-rent ratio, Honolulu is the best place to rent right now. Other cities round out the top five: San Francisco; Bridgeport, Connecticut; Portland, Oregon; and Seattle.

Also in real estate, the magazine offers three tips for negotiating lower Realtor commissions while selling your house. Don’t blindly accept six percent. Ask for five percent, offer to work with the agent in the future if he or she offers you a break now, or imply you’re ready to sell your house on your own.

In Money Magazine’s suggestions for teaching children how to manage credit>, they did not mention the best lesson possible: avoid credit whenever possible. But the “abstinence-only” is hardly a full education; we must recognize that kids will eventually “do it” with credit cards and should know how to use them safely and avoid bringing interest fees into this world.

Eliminate cable television and replace it with PlayOn for $40 (plus the cost of a device you may or may not already own). Replace your landline telephone service with Vonage. I’m doing fine without a landline or voice over IP. My cell phone handles all my calls, but as a single guy, I have no need for a “family” contact number.

Several of the 100 tips are reserved for the list of the best locations for retirement for those who don’t like paying taxes. Here are the cities at the top of the list: Lewes, Delaware; Fairhope, Alaska; Sioux Falls, South Dakota; Austin, Texas; and Henderson, Nevada. I’m surprised that the editors did not consider retiring abroad.

Three tips are dedicated to helping you negotiate a raise. Unfortunately, these tactics won’t be applicable to everyone. If you are able to quantify cost savings, if you are carrying the work load of two people, or you are getting offers from other companies, you have some leverage.

The editors of Money Magazine want you to buy a Chevrolet Camaro SS V8 if you want to have fun while driving. My Honda Civic is approaching 120,000 miles and I’m starting to plan for having a more exciting ride a few years down the road.

Want to get customer satisfaction? Threaten to create a song about your bad experience and upload it to Youtube. A bad reputation can grow like a virus.

Read Money Magazine’s 100 tips for the best money moves here.

The original version of this article, 100 Best Money Moves You Can Make Now, is copyrighted by Consumerism Commentary.

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Over the course of thousands of years, the character of money has gone through various metamorphoses. Bartering was the chief method members of a society acquired their individual needs until they developed shortcuts. Since that first shortcut, societies haven’t stopped creating more shortcuts, further separating the method of acquiring something from those things that are acquired.

Money is just a temporary replacement for things, with a value that everyone accepts as a standard. If you have meat that I need, but you don’t need the clothing I create, I can give you money rather than clothing. You can then take that money to someone else and offer it in exchange for something you need, like knives to cut the meat you offer to your customers. Here, money is only a tool for getting the materials you need.

This money is the first level of abstraction — a representation, just like a word is a representation of an idea. Abstraction layers are helpful because they allow replacements to be used with the same monetary value of items that aren’t available. That is, you use coins to buy the meat because you don’t make the knives the butcher needs.

The next abstraction layer is credit. You don’t need cash on hand when you can pay with credit cards. Technology has led us to what must be the final abstraction level conceivable; a world where our “money” exists only as bits of data, zeroes and ones, in a bank’s master computer database. If we need cash, we can exchange some of those bits, lowering our balance in the database, and receive cash out of a machine, but that’s less and less necessary when we can pay for more things electronically. Debit cards, ACH transfers, and Federal Reserve wires don’t necessarily involve any cash, just a rearrangement of data in computers.

This technology makes it much easier to keep our hands off our own money. This should be one of the best things that can happen for the state of our own personal finances. Pay checks are delivered right into our bank accounts. Employers don’t send cash to their employees’ banks, they transfer “electronic funds.” The banks receive instructions electronically and increase the balance in your checking accounts overnight.

If you have created automatic savings or investments, the bank will make these transfers without any human intervention. Those consumers who take advantage of all that technology has to offer have likely put as much as possible on auto-pilot, including paying bills electronically and perhaps receiving automated shipments of underwear every three months.

Therein lies a problem. Automation is an abstraction layer that separates you from your money. While much of the automation we’ve discussed on Consumerism Commentary is designed to take good habits, amplify them, and make them occur without thought and without the interference of human error, if you take this concept too far you cede control of your finances.

Going back to the original bartering system, the things we make have intrinsic value. As you increase abstraction by using money that represents those things, the credit that represents that money, the digital bits that represent both credit and money, and the automation that keeps your brain away from the decision-making process, the real value becomes further hidden.

Here’s the result: it’s easier to spend more than you need to the further you get away from intrinsic value. We know this because despite best intentions, overall people spend more with credit cards (a higher abstraction layer) than they would with cash (a lower abstraction layer).

While it’s a good idea for the basics to remain automated, return your brain to your money and get involved with spending decisions. I have a good personal example to share. A few years ago, I set up automatic payments to take care of my electricity and gas bill from PSE&G. I’m busy, so I don’t like to be bothered with writing checks and sending them through the mail. But that’s the same excuse I have for hardly looking at the detailed electricity bill.

I used to be familiar with my energy usage trends as well as the fluctuations of energy prices, but no longer. I look at my checking account balance online every few days, so I notice when the bank makes the bill payment for me, but I have not looked at monthly trends to determine what I could do to cut costs. As a result, I’m likely spending much more than I need to.

It takes time and effort, but it will be worthwhile to become involved with your own money once again. If you made your automation decisions many years ago like I have, you might now be in a different situation requiring different decisions. If you’re not intimately involved with your money, you’re likely not making enough decisions, and as a result, your future may not be as financially secure as it could be.

For more on “unautomating” your finances, check out Unautomate Your Finances, an e-book by Adam Baker from Man Vs. Debt. This e-book isn’t free, but it is an easy and enjoyable read with several tips for getting your brain involved in your money again. You do not necessarily need this e-book to know what to do. Just start paying attention and know where your money is and is going at all times.

Photo: jquiz, michaeldbeavers

The original version of this article, Automation Moderation: Don’t Let The Machines Control Your Money!, is copyrighted by Consumerism Commentary.

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Does anyone have advice for Sibyl? She commented on an article reviewing Jane Bryant Quinn’s latest book with a question pertaining to her own finances. Sibyl was kind enough to include many details about her family’s finances.

I have some suggestions, but this is always a good opportunity to have readers provide theirs as well.

Here is her story:

I just inherited $10,000. What do I do with it so that it earns rather than loses value? I currently have it in a checking account earning 3.25%.

I’m female, age 61, and married. Our income comes from my husband’s retirement ($1,700 a month), two annuities ($1,040 per month and $2,000 per year), and a part-time job ($20,000 per year). I do not work outside the home.

We can collect Social Security in January 2011 as we will both be 62 in October. My husband expects about $1,700 a month from Social Security and I expect about $700 a month. He hopes to retire after we receive Social Security. Is this a good idea or should he keep working?

We have no expenses except the household (our cars and house is house are paid for). Our current credit card debt totals $3,000 at 0% and we have about $8,000 in savings earning 3.48%.

After my mother’s estate is settled in January 2012, I may receive as much as $100,000. Should I ask again at that time?

My opinions: It sounds like Sibyl is in a solid financial situation. Her main question is what to do with the $10,000 inheritance. First, a 3.25% is a great interest rate for a checking account right now. At this time, cash flow doesn’t seem to be a problem, although I’m confused about the $1,700 a month they are drawing from his retirement right now. Debt is not a problem either. Since cash flow is covered, I think Sibyl should consider investing the $10,000 in a mix of tax-advantaged bonds and stocks with a time horizon of twenty years or so.

Sibyl’s next question is whether her husband should retire or keep working. Although she has provided her annuity income, but I’m not sure about the terms of the annuities. Annuities have a tendency to be too expensive for the benefits they provide, but they can offer some stability in income along with growth. The biggest danger with annuities would be the penalties you have to pay in order to access your money if needed.

If Sibyl’s plans for retirement are modest, they should be in a good position for her husband to stop working when he would like to do so.

An additional inheritance of $100,000 will be a nice shot in the arm. Sibyl didn’t mention children, so I’m not sure if she has pans to pass her estate down to another generation, give all her funds away to organizations, or spend all that is left on her “bucket list.” $100,000 will help boost any of these goals.

Keep in mind I’m not a financial adviser. These are only my opinions and I can’t be held liable for the results of any actions made based on information posted on Consumerism Commentary.

What advice would you give Sibyl and her husband?

The original version of this article, Help a Reader Who Inherited $10,000, is copyrighted by Consumerism Commentary.

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People Farm Casting, a casting agency that focuses on finding non-actors for reality television shows and commercials, contacted Consumerism Commentary to let us know about a new project. The agency, whose team has experience casting shows like Pimp My Ride and commercials like that Dos Equis ad with the “most interesting man in the world,” has been hired by a large consumer financial institution to cast a new reality show.

I spoke briefly with People Farm Casting yesterday to get a feel for the project. The show will feature several different individuals and families in need of specific financial help. A financial expert will work with each individual for several weeks, and every interaction will be filmed for the series. This could be an interesting opportunity to receive financial help, appear in a reality series, and get paid. If that sounds interesting to you, read the information below and contact People Farm Casting as soon as possible.

A large consumer financial institution is seeking individuals and families that NEED some help planning for their future to star in a brand new series that will take the confusion out of finance! We will be casting across the country. Casting has started so read below and then shoot us an email at: investorcasting@gmail.com

Make sure to include your:

• Name
• Location
• Contact information
• and a recent photo of you/you and your family.

(Must be over 18)

We are looking for all types of stories, financial situations, both good and bad. Here are just a few examples of the stories we’d like to showcase:

• Early Retirement Planner
• First-time Home Buyer / Seller
• Newlyweds / Couple Getting Married
• Parents Planning for Child’s Future
• Divorced Singles
• Laid-off Professionals
• Cross Cultural Investors
• Job Change / Pay cut
• Pre-retirement Couple (Person in late 40s)
• Non-savvy Investor
• Savvy Investor
• Late Retirement Planning

It would be great to see a Consumerism Commentary reader cast in this new series. Good luck!

The original version of this article, Reality Series Seeking People Who Need Financial Help, is copyrighted by Consumerism Commentary.

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This is a guest article by Outlaw, who lives and works in New York’s financial district and writes on the blog Credit Card Outlaw.

When I first became fascinated with personal finance strategy, I was in serious credit card debt. I couldn’t find full-time work. I felt like an idiot.

Every month, a new credit card statement. Every month, deeper in debt. No rich parents to fall back on, no income, and yet I still had to buy food and pay my rent. Even thinking about money made me sick to my stomach.

I was too smart for this. That’s what I kept telling myself.

Fed up, I began reading everything I could get my hands on. Every blog, including Consumerism Commentary, and every book in the personal finance aisle. I landed a full-time job and started a small business. I drastically slashed my living expenses. Within about three months, something miraculous happened: I was able to pay off the last of my credit cards. I wrote about this experience and how it felt on my blog, and about how getting out of debt shifted my goals.

My goal went from $0.00 (debt free) to around $50,000. I wanted to have $50,000 because I felt that seeing an amount like that in my bank account would give me a tangible level of comfort.

It doesn’t. Sorry to burst your bubble. When you hit $50,000, you simply associate with new people. Or maybe when you hit $100,000. But it’s pretty much a universal law that as you become a bigger fish, you find yourself in a bigger pond — with much bigger fish. If anything, I was happier when I was worth nothing at all.

But building wealth isn’t about happiness. It’s about overcoming the odds. It’s about attaining a level of accomplishment that no person or thing can ever take away from you, save for the grim reaper. Beyond covering your basic needs (food, water, shelter), money has very little correlation to happiness. Not what you wanted to hear, but completely true nonetheless.

Asking about the relationship between money and happiness is like asking whether winning a chess game leads to long-term happiness. You don’t play chess to become happy. You play chess to play chess.

It is a fool’s argument to suggest otherwise. Wealth building is just a game. Once you eliminate the years of negative beliefs about money that others have forced upon you (shame, guilt, fear, envy — our culture does an impressively crap job of preparing us for wealth acquisition), you can start the game in earnest.

Lose all attachment. Look only at the returns, the profit or loss, the overhead. Nothing else matters. Forget vanity projects, forget becoming rich overnight, and forget impressing others. I love personal finance because everything is spelled out. You are either in the black or in the red, wealthy or debtor. There is no ambiguity.

And please, forget about building wealth for your distant future. Until recently, I had been contributing the maximum amount to my 401k at work. What a waste!

Now I contribute nothing.

I’m in great shape, but I have bad genetics: the odds are excellent I will die young from diabetes or heart disease. When you get good with your money, you become good at understanding statistics. And that means looking at things exactly as they are, not as you want them to be or as you wish they were.

For this reason, saving up for some magical fantasy time in my sixties when I can play golf and suck on Werther’s Originals… that doesn’t make sense to me. And what if, against all genetic odds, I survive into my sixties or seventies? I don’t want to be wealthy, with a Life Alert hanging around my neck and a spare pair of dentures in my back pocket. I want to enjoy my prosperity now, while I’m alive and healthy. I would rather be poor at seventy than poor at thirty. That’s just me.

Plus, I don’t like any of the options my employer’s 401k plan offers. I chose the most “aggressive” fund at first, because I’m relatively young and fearless, but then I did my research. I don’t like, don’t understand, or simply don’t trust many of the companies held in the most aggressive fund. Some of them are sloppy organizations, others are in debt, and the rest are just boring dinosaurs with zero growth potential. There is a difference between aggressive and stupid.

So I switched my money into my plan’s most “conservative” fund, which is based primarily on corporate bond offerings. I don’t like how insanely low the returns are, and again, I don’t trust some of the underlying companies: they are debt-ridden dinosaurs. I don’t like the high expense ratio. I don’t like the almost certain possibility that taxes will be higher in the future than they are now — Uncle Sam needs to pay off its debts in some way, eventually.

I would rather take all of my money, less applicable taxes, and put it toward self-improvement, enjoyment, and my small business. Those all yield better proven returns than some obscure aggressive growth fund or fixed-income investment managed by people in skyscrapers whom I have never met or shook hands with. Also, I should not be charged money for the “privilege” of investing in your fund. Sorry, that’s just not how it works.

Those who defend 401k plans say that if you don’t contribute now, you are robbing your future self. Maybe I am. But I would prefer that to the alternative: robbing my present self for a future self that very well may not exist.

You’re alive today. Enjoy your wealth, and invest it yourself, or in yourself. Nobody cares more about your portfolio than you do.

Stop worrying and start playing the game. Wealth won’t buy you a good relationship or better friends. It won’t buy you happiness. But it can buy you more money. And more money buys more money.

Whoever first coined the term “the first million is always the hardest” was a genius. Invest your money now, while it is still worth something, before inflation eats it up or your health deteriorates. Don’t give it to a 401k plan to do with as they please.

And don’t share your plans with other people, unless they are on the same path. Some of my friends resent me when I talk about my wealth building goals, or my small successes so far. So I don’t talk to them about it any more. Let people live in ignorance. There are enough smart people online and in personal finance forums; you don’t need to be getting any financial advice from your friends or family members.

If you diversify, invest in what you know, spend less than you earn, enjoy the present and lose all emotional attachment to money you will succeed. There is no other option.

The rest is just small talk.

The original version of this article, Can You Ever Have Enough Money?, is copyrighted by Consumerism Commentary.

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This decade flew by. Ten years ago, I had recently graduated college and had been working for a non-profit arts organization. At this point in my life, I didn’t know it, but I was setting myself up for financial problems. Despite working 80 or more hours a week during the summer and fall, despite living an hour and a half away from the office, despite major personality and philosophical conflicts among the ten employees in the tiny office space, and despite a salary which didn’t cover modest living expense when added to commuting expenses, I enjoyed the work I was doing.

Looking back, it’s probably a good thing the only money I had in the stock market was a few thousand dollars remaining in what had once been a Uniform Transfer to Minors Act (UTMA) account. Although airplanes didn’t mysteriously crash, falling from the sky when the clock struck midnight ushering in the year 2000, the stock market soon plummeted. At this time I was only marginally aware of my finances, but I quickly became a fan of The Motley Fool‘s discussion boards, ING Direct, and taking control of my financial future.

The start of the decade was turbulent personally and professionally, but for me, everything that has transpired since the turn of the century has allowed me to grow in all aspects of my life. There is no question that I am in a better spot financially now than I was in December 1999, with a net worth somewhere below zero but not explicitly defined because I remained blissfully ignorant of my negative cash flow. Professionally, most of my income now comes from what I do outside my day job, and barring signs that my future plans will not be profitable, I plan on leaving that day job within the next few months.

For those who were just graduating college ten years ago or so, as I was, chances are life is better now than it was in 1999. I have to wonder if any other age groups feel the same way, however. Someone close to retirement today might have seen barely any financial growth overall over the past ten years, and some might even have a loss. The unemployment rate is still high, so there are likely many people who have been out of work for over a year or who have accepted jobs paying a fraction of the salary they once commanded.

How has this decade been for you? Are you better off at the end of 2009 than you were at the end of 1999?

The original version of this article, Wrapping Up a Decade: Better Off in 1999 or 2009?, is copyrighted by Consumerism Commentary.

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Over the past couple of weeks, six finalists have been auditioning for the opening of “staff writer” at Consumerism Commentary. Each is providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by Kelly Whalen, a mostly stay-at-home mom who writes about personal finance at The Centsible Life.

When I was 16 I participated in a mock emergency drill. The drills are staged for members of the emergency services (police, ambulance companies, hospitals, firefighters, etc.) to help prepare them in case of a large scale emergency. As a volunteer “injured” person I got a card stating my injuries. My job was to act as if I was injured. We had about 10 minutes to choose a place to hide, and then the emergency workers come on the scene and start sorting the injured. They used a system called triage to help classify the injured. There are 4 levels for triage in most systems.

• 0: The deceased or mortally wounded who are beyond help
• 1: The injured who can be helped by immediate transportation
• 2: The injured whose transport can be delayed
• 3: Those with minor injuries, who need help less urgently

Surprisingly triage translates to managing your money. Here’s how you can use the triage system to better manage your money.

0 / Beyond Help: Some financial decisions are a done deal. No use in spending energy and effort on past decisions that you can’t change. For instance you may have a home that has depreciated in value with the housing market crash, and you’re stuck in an underwater mortgage. You may be able to negotiate with your lender, but then you move on. Come up with a plan to do what you can. For me, this means not worrying about our too expensive car payment since it makes sense for us to pay it off over the next 2 years instead.

Examples of #0:

• Mistakes that you’ve already made.
• Issues with credit
• Debt

1 / In need of immediate attention: Focusing on things that need immediate attention comes first. Bills need to be paid on time. You should be saving a percentage of your income automatically. At this time of year my level 1 issues are continuing to pre-pay our bills (we pay everything 2 weeks to a month ahead), staying in budget for holiday gift giving, and using up our HSA before December 31st.

Examples of #1:

• Funding retirement accounts, emergency fund, and savings for larger purchases
• Past due or current bills
• Future purchases/expenses for the next month
• Major life changes that are upcoming in the next 12 months

2 / Attention can be delayed: These are issues that are important, but should not be put off for long. Life insurance may not be a priority if you are single with no dependents, but it’s something that should be on your radar. Another example: if you are paying off high interest debt you might be delaying maxing out your retirement savings while still taking advantage of any match from your employer. This is fine in the short term, and you should keep in mind that the goal is to fully pay off debt so you can focus more on saving. For my family we are delaying saving for college. Paying off debt, funding our emergency fund, and maxing out our retirement savings comes first.

Examples of #2:

• Bills that are more than a month or more away
• Major life changes that are 1+ years away (they should be on your radar, you should be planning for them, but only after your #1s are taken care of)
• Organizing paperwork, setting up an online account manager, or switching credit card companies are examples of things that may be on your list. These are items to tackle once a month, and they shouldn’t be at the forefront of your money management.

3 / Minor issues, that can need attention, but are not life threatening: Things that need minor attention are things that can be ignored 90% of the time. These are small things that can save you some cash, or some time but aren’t going to have a huge impact on your finances. Often people focus on the small things instead of first trying to tackle the bigger wins. If you have tackled all the big wins, and want to spend time finding the cheapest toilet paper per square, go for it. For instance if you have 3 high interest credit cards, coupon clipping shouldn’t be your first priority.

Examples of #3:

• Extreme frugality: Do it if you love it, but don’t do it as your first step to getting your finances in shape.
• Rate chasing: Not worth your time in most cases.
• Credit card rewards: Most people who love credit cards talk about everything they do to earn their 1% maximum. If it’s easy to do, then by all means go for it, but obsessing over getting every last reward dollar isn’t always worth it.
• Other: I’m sure you have many things that fall into this category. I’d love to hear what you think are 3s in your life.

By using triage, you can tackle your biggest personal finance issues first, and work your way from critical condition to minor issues. By categorizing what are the most important financial issues to you, you can focus on the things that will have the biggest impact on your finances and ignore anything that’s not important.

This is a guest article by Kelly Whalen, one of six finalists interested in being Consumerism Commentary’s staff writer.

Photo credit: Steve Mann

The original version of this article, Triage Your Finances, is copyrighted by Consumerism Commentary.

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My Honda Civic has an option for cruise control. Unfortunately, most of my driving currently takes place on the New Jersey Turnpike and local highways during rush hour and construction, so I rarely have an opportunity to activate this feature. In the slim occasion I find myself driving on a deserted country road, I activate the cruise control and sit back, letting the car’s computer maintain my speed. I like to imagine cruise control is an auto-pilot device, so I can relax, close my eyes, and wake upon arrival.

If you’ve ever driven with cruise control, you’ll know it is not the same as auto-pilot. You have to be vigilant and aware of your surroundings, even if you’re not keeping your foot on the accelerator pedal. I have the same concerns with the topic of automating finances.

Making your finances automatic is a great way to put your savings into overdrive. I take advantage of technology’s ability to automate in a number of ways:

• My paycheck is directly deposited into my bank account every pay period.
• Several of my bills, as many as possible, are paid automatically and in full every month with the appropriate credit card.
• My credit cards are paid in full every month without me writing one check or clicking one button.
• A number of savings transfers and investments are programmed to occur at the same time every month, again with no intervention.

I would like to say that these features of automation have effectively put my finances on auto-pilot. It is true that I am now free to use the time I would have otherwise spent paying bills and depositing paychecks for other, possibly more worthwhile tasks. I am hesitant to call this system an “auto-pilot,” however. Like driving, I am still in charge and my brain needs to be engaged. If I stop paying attention, the likelihood of a crash increases.

I primarily use three credit cards, two for personal use and one for business use. Despite the cards’ close proximity in my wallet, their cycles have not converged. The payments are due at different times of the month. My checking accounts are debited automatically, so I need to ensure I have enough money in the appropriate accounts at the appropriate times to avoid an overdraft fee. The automation doesn’t permit me to to “set it and forget it.”

The same is true with my bills. I mentioned I drive on the New Jersey Turnpike every day. That’s an expensive commute. I use the E-ZPass system to make the drive go quicker and receive a discount on tolls, but this kind of automation lowers my sensitivity to increasing tolls. Since I’m not stopping at the booth and handing out cash, I don’t see that money leaving my wallet. I look at my quarterly statements from E-ZPass, but with 65 weekdays of toll charges, plus some on weekends, it’s easy to let the increases stay buried in my mind.

I’ve begun to offset the toll increases by opting non-toll roads occasionally but with more traffic lights on these alternate routes, I would have to wonder whether the extra fuel expense negates the savings in tolls.

Even though my utility bills like electricity, cable and telephone, as well as my credit cards, are paid automatically each month, I am sure to review the statement or transactions. It’s tempting to let cruise control handle everything. I mentioned that it’s important to ensure money is in the accounts prior to the automated withdrawals, but more attention is necessary. Reviewing statements and transactions is necessary to catch mistakes.

Mistakes can be on the company’s part or on the consumer’s; at least once I’ve forgotten to cancel a “free for the first month” service and was rewarded with a charge on my credit card. I would have remained ignorant of the charge if I didn’t review the statements and download my transactions into Quicken. And I have also experienced a number of mistakes, such as the cable company charging me for a service they didn’t provide.

Companies are quick to encourage automation because they know a certain percentage of consumers will let “mistakes” slip. That’s a statistic I don’t want to be.

What part of your finances is tackled automatically, and are you on auto-pilot or cruise control? Have you ever encountered mistakes you would have missed if you weren’t paying attention?

Photo credit: mhalon

The original version of this article, Put Your Finances on Cruise Control, But Stay Alert, is copyrighted by Consumerism Commentary.

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Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by Ray, the owner and primary author of Financial Highway, where he discusses investing, saving and practical money management concepts.

I hate going through bills and statements every month, but the Mrs. on the other hand is very particular about it, she goes through all of the bills and checks items off “what a waste of time” I used to think until I recently. The few minutes it takes to check your bills can save you a lot of headache in the future.

Fraudulent charges

The most obvious reason you should take the time to check your statements is to check for unauthorized charges. This happens more frequent than you would think, if there is a large fraudulent charge it would be easy to detect but it’s the small amounts that can go unnoticed for a long time. This could also be charges that are not necessarily unauthorized but certain fees that you are unaware of, often you have between 60-90 days to dispute these charges so it is important to check regularly and report such charges immediately.

Mistakes

Yes mistakes happen, sometimes you are charged for things you are not suppose to be charged for, maybe a promotion ended or maybe a new fee was placed on certain things and you may miss them. By checking your bills regularly you will be aware of any extra fees or mistakes on your accounts, again taking early action will help you rectify these issues.

Accounting

Although I am a big fan of putting your finances on autopilot, you still need to keep track of your spending and budgeting. Going through your bills and statements will enable you to keep track of your expenditures and see if you are staying within your budget. It will also help you keep track of who you owe and how much, doing this on monthly bases will save you a lot of time at the end of the year and during tax filling.

Promotions and changes

Every now and then I notice some promotional offer being available from the company, for example recently I noticed that we can get a free upgrade on our TV package for six months, I love free! Checking the bills you may be able to find a few good promotions, which can go a long way. Companies also notify their customers of any changes in their terms and conditions when they send out the bills, you may miss important changes if you do not go through them which can end up costing you in the end.

I used to hate going through bills, but now I realize that those few minutes can save me a great deal of headache and run around later on. Not to mention the potential of saving money.

Do you go through your bills? Any other reasons why one should go through their bills on regular bases?

This is a guest article by Ray, one of six finalists interested in being Consumerism Commentary’s staff writer.

The original version of this article, 4 Reasons Why You Should Read Your Bill Every Month, is copyrighted by Consumerism Commentary.

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One of my favorite bloggers, and likely one of yours, is J.D. Roth. He has been writing about personal finance at Get Rich Slowly for some time now, and I was a fan of his writing at foldedspace when “blog” was still a new word. He is working on a book now, which I can’t wait to get my hands on (and read), and at the same time, he has been working on a blog series condensing his thoughts about personal finance into thirteen core tenets.

This is one of J.D.’s favorite mantras when offering financial advice or support: Do what works for you.

I think this is a great philosophy, and I can see how it is appealing to intelligent people who are capable of thinking independently, performing objective analysis, and making decisions based on empirical data and other established facts. It cuts directly to the core of personal finance: that money is personal and not every solution is universal. Different people require different answers, and what works for one person might not necessarily work for another.

The spirit of “What Works For You” is the important aspect: there are many paths to success and one should find the path that fits personally, using experimentation and consideration as a guide.

There are many open questions in personal finance but few concrete answers. What is a good investment? What will the stock market do tomorrow? Will I be able to afford college for my children in ten years? health care for myself next year? Uncertainty can lead to frustration, and when people don’t know what to do, they want to stick with something that feels comfortable.

I think it’s easy for the spirit of the “What Works For you” philosophy to be lost as one spreads the message, because the philosophy implies a search for comfort and is therefore subject to a number of psychological traps.

“What Works for You” grants a license to ignore criticism

One thing I remember about the time I was required to listen to a day-long Landmark Education seminar is the leader’s ability to silence anyone who didn’t accept their philosophy. If you disagreed with one aspect of their nonsense, a Landmark follower simply claimed you had a “racket” and you were immediately dismissed. The “What Works for You” argument does the same thing.

If you are focused on doing “What Works For You,” there is no room for opposing viewpoints. We are given the opportunity to selectively ignore facts that don’t fit our world view. Consider credit cards that offer rewards when you use them. I use a cash back credit card and never pay interest or late fees. That sounds like a great deal, and I often suggest this as a good way to make the credit card companies work for you. But according to consumer studies, on average, people like me spend more using credit cards than they would with cash. Even the rewards earned, particularly as credit card companies find ways to keep reducing these rewards, don’t make up the difference due to increased spending.

But many like me continue to use credit cards because it works for us. We say that we are spending less than we earn and we’re winning the battle with credit cards. But unless we have conducted our own experiments to determine how our own behavior, as an individual or family, is affected differently through using credit or cash, we have silenced criticism from cash-only advocates with a nothing more than a wave of the hand and the contentment that since we don’t see any surface damage on our finances, our behavior works for us.

“What Works For You” invites analysis that could be far too simple

Notice that the philosophy is not “What Works Best For You.” Whether something works is a binary state: either something works or something does not work. The only answers are yes or no. There is no gray area, no sliding scale, no room for judgment.

The Debt Snowball is often touted as the best method to pay off debt. There is no doubt this method, which calls for paying off your credit card debt from the card with the lowest balance to the highest, works for many people. And its popularity leads people to believe that it’s not worth considering another choice.

But many people who have succeeded paying off debt with the Debt Snowball would have succeeded with the Debt Avalanche, which offers similar psychological benefits but saves money and time. It’s important for someone embarking on the journey to pay off debt to be presented with options and be allowed to make their own decision. If you look only for “What Works For You,” you could be missing something that works better.

“What Works for You” accepts mediocrity as a way of life

I have been around enough high-achievers to be jaded with the constant strive for excellence and the endless desire to be the best in whatever activity happens to be involved. Determination to be the best is how some teams win world championships but others live in misery with failure. Thankfully we don’t all have to be the best in the world at what we do.

But that’s not an excuse for refusing to seek improvement. Since the 1970s, there has been a new focus on self-esteem, which after many years of filtering from psychologists through to popular culture, has resulted in an environment where “everybody is a winner.” Everyone in Little League gets trophies, even the team with the worst record. Consideration of self-esteem is important to a point, and the placement of that point is debatable; before too long, people should be rewarded for something more than just participation, something beyond just the minimum.

“What Works” is just the minimum. Do more than that. Do what works and look for something that works better. Don’t just stop buying daily $5 lattes, stop leasing expensive cars every three years. Don’t just start putting 5% of your salary into a savings account, put 10% into a great savings account, contribute the maximum to your Roth IRA, and get at least the maximum employer match in your 401(k).

It’s important, in dealing with personal finance, to just start somewhere but that’s not an excuse to stop doing or to stop thinking.

The spirit of “What Works For You” is a good philosophy. Personal finance is personal. You should be free to make your own choices based on the best information and experiences and find the path that works best for you. I will submit that it is also important that while searching for your personalized version of a financial plan that you don’t fall into the above traps.

The original version of this article, “What Works For You” Can Be a Trap, is copyrighted by Consumerism Commentary.

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While I was in California this past week, I spent a few days at my brother’s new apartment before his wedding this past Saturday. Among the piles of books not yet placed into a bookcase was something familiar: I Will Teach You to Be Rich by Ramit Sethi (review here). Ramit is a colleague of mine, a personal finance blogger who published a book that quickly became a favorite.

How Ramit saved my brother

My brother, who we’ll call Stewie for the sake of anonymity, is both a systems administrator and a musician; he earned good money from a day job which he then used to help fund his band’s national tour last year. But tours are expensive and money runs out. When I asked, he credits Consumerism Commentary and Ramit’s book with helping him get his finances in order and out of debt from the tour, and I think he mentioned Consumerism Commentary only to be nice. Stewie is an avid reader and has read a number of other books about basic money management and investing but I Will Teach You to Be Rich is the only one he feels provided concrete advice and suggestions for being smart about money.

I know Stewie was truthful because when he gave me a check to pay for the restaurant hosting his wedding ceremony and reception, the check was drawn from a Schwab Bank Investor Checking account, an account recommended several times throughout Ramit Sethi’s book.

The six-week “Boot Camp”

Today Ramit Sethi is releasing a new project. He has created a “Boot Camp,” a six-week program designed to empower participants to make better financial decisions. Through the Boot Camp, Ramit places participants with similar financial goals together and provides them with the tools, information, and most importantly, the motivation to get started and the group accountability to maintain action.

Here is how it works. At the start of each week, participants receive excerpts from I Will Teach You to Be Rich with additional content and worksheets. This is followed with a webcast, a video discussion on the week’s topic, downloadable so you can watch or listen on your iPod or computer when you have time. Each week will also feature special guest speakers including Andrew Jolls (ex-executive of FICO and founder of VideoCreditScore.com), Charlie Hoehn (author of Recession-Proof Graduate), and Chris Guillebeau (traveler and author of The Art of Non-Conformity). A complete curriculum including guest speakers is included below.

If Ramit had created the Boot Camp one year ago, I would have recommended the program to my brother. And this is coming from someone who was originally a skeptic of Ramit. When he first launched his blog in August 2004, I wondered how a pompous graduate student at Stanford could teach people to be rich without a long history of personal experience being rich. But his writing is captivating, he understands people, and provides the tools for getting things done.

How much does it cost?

At $199, the program might be a bit expensive for someone who is trying to figure out how they’re going to make their next rent payment. I’m confident this program will help a participant save at least $199, recovering the cost of the program, and the tools within will provide a lifetime of benefits. Ramit is offsetting the high price by offering a 30-day money-bank guarantee, so you can participate in most of the program and back out before the end if it is not working for you.

I’m generally a critic of seminars like Rich Dad Academy and Landmark Education, but with Ramit, I know the information will be sound, specific financial advice designed to inspire and motivate, not an up-sell scheme where you have to pay more for the “deluxe” package in order qualify for the useful information.

I expect the next time the Boot Camp is offered, the price will be significantly higher as he tweaks the service to include more materials and guest speakers.

Registration for the Boot Camp is only open through Friday, November 6.

Here is a taste of the Boot Camp, a twelve minute video of Ramit Sethi talking about automating your finances with specific tips for setting up accounts and directing your funds to the right places at the right times. (If you are reading through an RSS reader, you may need to click through to view the video.)

If you want to listen to more from Ramit before signing up, listen to my interview with Ramit from earlier this year. If you opt to join the Boot Camp, come back and let us know whether you like it.

Boot camp curriculum and guest speakers

Week 1: Optimizing your credit cards
Speaker: Andy Jolls: Thursday, November 12, 10:00 pm EST

Week 2: Beat the banks and negotiate for lower bills
Speaker: Charlie Hoehn: Thursday, November 19, 10:00 pm EST

Week 3: Open 401K and Roth IRA
Speaker: Chris Guillebeau: Tuesday, November 24, 10:00 pm EST

Week 4: Conscious Spending
Speaker: Penelope Trunk: Tuesday, December 1, 10:00 pm EST

Week 5: Automation
Speaker: Shannon Sofield: Thursday, December 10, 10:00 pm EST

Week 6: Investing – setting up portfolio
Speaker: Pam Slim: Thursday, December 17, 10:00 pm EST

The original version of this article, I Will Teach You to Be Rich, a Six-Week Boot Camp With Ramit Sethi, is copyrighted by Consumerism Commentary.

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A few years ago, I visited the Japanese Tea Garden in Golden Gate Park in San Francisco. Japanese gardens are designed precisely to appear natural, resulting in an interesting collision between nature and man. There is a set of principles or aesthetics that guide the creation of Japanese gardens, including the dry gardens commonly called “Zen gardens.”

The basis for these modern Japanese aesthetics has existed for thousands of years and is rooted in Buddhist writings and teachings. However, the full concept of aesthetics relating to these ancient ideas has been discussed only within the past two centuries, as the the traditional Japanese concepts have been infused with the Western idea of art and aesthetics.

These same Japanese aesthetics, the attributes that define a Japanese garden, can be further stretched by the Western mind to relate to other areas of thought. If you are particularly interested in personal finances, as we are here at Consumerism Commentary, you might attempt to apply these concepts to attitudes and behaviors surrounding interaction with money.

Here are seven aesthetics rooted in Japanese culture that can be drawn upon to make us think about the way we live with and deal with money, from personal expenses to investing.

kanso 簡素

Keep your finances simple. The extreme limit of necessity would be to have no other financial accounts but one checking account for paying your bills. Simplifying at this level may beyond the limit of practicality even if still possible. But there is no reason I should continue to have savings accounts at seven different banks, even if seven is an odd number, compliant with other aesthetics.

In addition to utilize as few banks as possible, simplify your investment accounts. Keep your investments in one account in one index fund or target retirement fund that matches your risk profile. This also makes it much easier to evaluate your asset allocation to ensure your investments on the whole match your tolerance for risk.

There is rarely a need to have more than one credit card for your personal matters. Zero is an even better number.

Simplicity in all financial matters is an attainable goal.

seijaku 静寂

Managers of actively managed mutual funds earn their pay by buying and selling investments frequently. Index funds take the opposite approach by matching a stock index, adding or removing stocks only when the index does, which is rarely. Index funds embody this concept of stillness. Unnecessary activity, like stock trading, makes the stock broker rich while you’re adding risk and decreasing your chance of beating an index fund’s performance.

Keeping your wealth still and motionless allows time to have a chance to cultivate it. The effect of compound interest increases when you let it work for decades.

If you’ve simplified your finances down to a small number of accounts, you can further keep your money motionless by removing the necessity of transferring funds from one place to another. The 0% balance transfer game or otherwise moving your credit card balances from one card to another is in direct conflict with this aesthetic.

datsuzoku 脱俗

Break free from your possessions. We buy things because they reflect who we are or who we want to be, but no thing can be a true reflection of a self. Not only do material possessions drain you of funds that could be spent on necessities, but you will have less money for sharing with others within and outside of your family.

Break free from conventional thought and following the bandwagon. You are free to be your own person and find your own path. You should never feel trapped in a job or a career. Even a steady bi-weekly paycheck is a pattern that could be broken without fear. With creativity, draw income to you through something unexpected.

Don’t confine yourself to your budget. The ultimate way to grow wealth is to spend less than you earn, so as long as that continues, you can break free from your budget and enjoy flexibility without too much worry.

koko 考古

Focus on the bare essentials. Add something to your life only if it has a functional purpose and fills a need. This concept is a nod to frugality and sparsity. For example, do you need three televisions, one for each large room in your house? Do you even need one television when you can find entertainment, including comedy, nature, and drama — possibly even crime-focused drama — for free, by sitting in a park and watching other people interact? Wouldn’t it be more fulfilling to visit a National Park than to sit on your couch and watch a documentary about it?

Decide what in your life is not essential and eliminate it. If something does not add value more than or equal to its expense, consider it a candidate for elimination. I think immediately of the interest that you pay on a credit card balance. Once you pay interest, you’ve paid more than the value of whatever you’ve purchased with the credit card. If you decide a $1,000 television brings $1,000 worth of value into your life, then it may be worthwhile. But if you put that on a credit card and pay the balance and interest over time, the new question is whether that $1,000 television added $2,000 worth of value into your life.

shizen 自然

You should represent yourself to the world truthfully and without pretense. There is no need to purchase expensive cars and houses when necessity allows for lesser purchases. Don’t concern yourself with “keeping up with the Joneses.” Without the need to show the world you have more money than you really have, you will lose the desire to buy more than you can afford. As a result, the chances of falling into the trap of debt from unnecessary spending will diminish.

My thoughts on this are drawn to people with public-facing careers. Real estate agents, for example, often want to project an aura of success. If clients believe that the agent is rich, the clients will then believe that they are successful agents. The natural conclusion is that these agents are successful because they represent clients fairly and offer quality houses. The same is true for lawyers whose business is representing clients in court trials. Lavish spending projects an image of wealth, which indicates to prospective customers a history of successful court appearances.

This is all show and all pretense. Anyone can look wealthy or successful thanks to the availability of credit. You can’t see what lurks beneath someone else’s surface.

Do not cover up all that is natural. Do not hide money or money-related problems from your partner or spouse. Finances should be part of a communication that is open and honest, not hidden beneath layers of creative stories.

fukinsei 不均整

Create a budget, a monthly spending plan that outlines your limits for expenses in a variety of categories that make sense for you. A budget by definition starts out the same each month but will look different by the month’s final day. Life’s asymmetry is natural, and your budget should reflect this asymmetry while maintaining balance. You spend more for gifts as the December holidays approach, so you might budget more for gifts in November and December than you might in June or July. In order for this asymmetry to be balanced, an increase in one category at one time should correspond with a decrease either in another category or at another time.

This flexibility is essential for creating a workable budget. A budget should free you, not trap you.

Balanced asymmetry appears elsewhere. “Work/life balance” is a relatively new concept that is based on this idea. When my employer talks about “work/life balance,” they are not trying to imply that we should spend an equal amount of hours in our life between our career and everything else we do. It is an asymmetrical approach to living a more fulfilled life.

yugen 幽玄

Whenever your personal financial issues are public rather than private, choose subtlety over directness. Do not brag about your successes. There is no need for you to have your latest business acquisition or marriage listed in your college’s alumni magazine. If you give charitably to an organization, you do not need to publicly list your name or the amount of money you donated.

In the business world, there is a movement towards personal branding. It is good for your career to find ways make yourself stand out among your colleagues or among a sea of job applicants. While I would agree that it’s important to protect your identity, particularly online, from anything that might damage your reputation, the best way to stand out is to be the best rather than to declare you are the best.

Let others declare it for you.

A guide, not a rule

While it would be great if all of the above could apply to our interactions with money all the time, I like to look at these aesthetic concepts as a guide. Just considering these ideas and allowing yourself to think about money in a different way can be enlightening. Perhaps you can strive to achieve several of these concepts in your own life, or perhaps you can appreciate this way of living even if you choose to relate with money in a different manner.

Simplifying my finances is one way I can start applying this approach to my life. As I mentioned above, I currently use seven accounts for my savings. Many of these I open so I can review them for Consumerism Commentary, but even the purely personal bank accounts number too many. Do you or would you apply any of these aesthetics to your finances?

Disclaimer: I am not an expert in Japanese philosophy or, for that matter, in personal finance. I drew the above concepts of Japanese aesthetics from a variety of sources.

Photo credits: semihundido, laRuth, DieselDemon, 田中十洋

The original version of this article, Seven Zen Principles to Guide Your Money and Your Life, is copyrighted by Consumerism Commentary.

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I do not currently have children, but I have not ruled out starting a family some day. If and when I do have children, I hope I will be able to help them become smart and capable adults over time. I believe this is what my parents have done for me, and I’d like to believe I’m in a position to pass on good attitudes about money.

Here are a few concepts I’d like to teach these future children about money as they become old enough to understand them.

I intend to teach as much by example as by conversation with the understanding that no person is perfect.

1. Money is neither good nor evil. Money is simply a tool, with no quality that defines it as good or evil. It can, however, be used to do good things or evil things. Money does help reveal the nature of a person. There is nothing inherently bad about not having little wealth or having great wealth. The value of a person is not defined by how much money he or she has, so you cannot judge a person by looking at the bank account statements.

2. Money is not a goal. There is no point in wanting to have one million dollars, or any sum of wealth that might make a good milestone, if it servers no purpose other than to sit in a bank account or at the bottom of a balance sheet. Focus on real goals, not net worth. Don’t be the boy who, when asked what he wants to be when he grows up, answers, “Rich.” It’s not the number that counts, it’s what you do with it.

3. Money will not make you happy. Money is not correlated to happiness. Rich people aren’t necessarily happier than poor people. In fact, wealthy people are more stressed. The happiest people are those who are satisfied with what they have; if you always want more, you will always be struggling. Now, there will be people who will tell you that you must constantly strive for more in order to be successful, but these are people who equate success with things like job title, wealth, and seeing their name on seminar advertisement posters. They’re probably not happy. It’s okay not to settle, but only if your goals are worthwhile.

4. Don’t be jealous of other people’s money. There will always be people who have more money than you, but there will always be many more people who have less. If you learn to handle your money properly, you will find that you’re more financially secure than others who try hard to flaunt their wealth; those with fancy cars and houses may owe money to other people and to banks. Jealousy is a distracting emotion, so it’s better for your own sanity to worry about yourself than it is to look at other people, especially when you can only see what they are showing on the surface.

5. If you are in a position to help, you have an obligation to help. As I mentioned above, at any one time it is more likely you’ll be in a better financial position than most of the other people who live on this planet. You are lucky to be born in a rich country in a very prosperous time. Though it is no fault of your own, these circumstances present the responsibility of helping to make this world a better place in whatever way you see fit.

6. Companies want your money. Corporations spend lots of their own money trying to develop ways to get you to give your money to them. Don’t believe what you see in commercials, on television shows, in movies, on the internet, or even on the news. Everyone has an angle and that angle is often to try to get you to part with your money. It’s a cynical view of media and of the world, but turn off the commercials and think for yourself. Increase the signal-to-noise ratio.

7. Pay attention to your money. Once you start receiving an allowance, create a budget. Save part of the money and spend the rest as you see fit, but write out a budget and track everything you buy. This is a good habit to start early. If you’re paying attention, you’ll soon realize that the only situation that results in building your wealth is spending less than you have.

8. Don’t expect a free lunch. I will do everything in my power to ensure that lots of opportunities are available to you, but our culture within the “middle class” is defined by trading your time and effort for money. In other words, you get paid for working and you get paid better for working harder. You’re not a Bush, so you won’t get to be President of the United States because it runs in our family. There is no trust fund.

9. Save as much as you can for later. Even though Albert Einstein never really said that compound interest is the strongest force in the universe, he probably would suggest saving as much money as possible. It is true that the sooner you can control your actions to delay gratification, the better you can plan for the future. But it is also true that spending money shouldn’t always illicit a feeling of gratification. Feel good about saving, then you can feel gratified when you put money in the bank, not when you take it out.

10. Avoid borrowing money. Just like money is inherently neither good nor evil, owing money to other people is inherently neither good nor evil. Borrowing money has its drawbacks. Any purchase you finance with interest will end up costing more than it should. However, within the “middle class,” it will be difficult to avoid some borrowing. Not all debt has to be bad. You may need a loan for college and you almost definitely will need a mortgage to buy a house. Make smart choices about these purchases and you’ll be in a good position even if you do have debt.

11 (bonus). It’s not about the money. While money gives you flexibility and eventually independence, don’t spend too much of your time focusing on it. Realize that money should not be the sole driver for your decisions. Many smart people will tell you about “return on investment” (ROI), but sometimes you can’t measure the validity of a decision by how much money you receive. Think about all factors when making decisions. Some decisions, like those pertaining to investments, should be based on financial considerations as much as possible. But for other decisions pertaining to your life, money should be only one consideration of many.

Do you disagree with any of the above lessons? What do or will you teach your children about money? Is there anything else you wish your parents had taught you?

The original version of this article, Ten Things I Will Teach My Children About Money, is copyrighted by Consumerism Commentary.

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If you are reading this article, it is almost completely guaranteed that you are human. And if you are human and do not have a major cerebral deficit, you have emotions. Perhaps have is not a strong enough word; everything you do, and every decision you make, is controlled by your emotions. Even the strive to take a logical approach to life is an emotional desire. Despite this, and even with the knowledge that you can never fully leave your emotions behind, the best financial decisions are made when you are aware of your emotions, control them to a point, and compensate for the effect they might be having on your decision making.

Emotions in negotiations

In this Sunday’s Consumerism Commentary Podcast, one of our guests is Herb Cohen, a master negotiator who advised Presidents Jimmy Carter and Ronald Reagan on dealing with the Iranian Hostage Crisis. One of his suggestions, framed around negotiating a major purchase like a house, will be not to fall in love with the object.

If you want a good deal, you have to be willing to walk away. If you let your emotions control your decision, you are much more likely to pay more than you should. The salesperson — or anyone else with whom you negotiate — will know right away if your emotions are controlling your decisions and will use this fact to their advantage. Your emotions give your power away.

Emotions in debt

Many otherwise smart people find themselves in unmanageable debt as a result of their own decisions. Not everyone is in debt for this reason, but some who are have made decisions fueled by emotions, where “want” and “desire” were the operative words. When it comes to getting out of debt, you could take an emotional approach or try to put your emotions aside.

As humans are emotional creatures, I can see why some people would argue that an emotional approach to getting out of debt would be successful. And it just might be in the short term. But unless this example individual, in debt due to emotional spending and using emotional decisions to get out of debt, changes their mindset drastically once they are in better financial shape, there is a good chance their emotional decisions will lead them back to debt.

I like to tell people about the Debt Avalanche method of debt reduction because it takes a more mathematical approach to getting out of debt. This approach helps people get used to separating emotions from financial decisions as much as possible. On the other hand, the Debt Snowball method relies on emotions — the same emotions that might have allowed us to find ourselves in trouble and might cause us to falter again. The Debt Avalanche does have emotional components, but it does steer us away from using emotions to guide actions.

Emotions in investing

The only way to make money in investing is to “buy low, sell high,” but this is the exact opposite of what actual trading behavior looks like. Most investors decide to buy after a stock or other investment has shown a confidence-inspiring pattern of price increases. They also decide to sell when the price has declined; if everyone else is selling, causing the price to go down, they must know something that we don’t know. We lose confidence in the investment, and we sell. “Buy low, sell high” is a mantra that all investors know, so why do we ignore this in practice?

The answer is our emotions. Rather that making decisions based on an investment’s underlying value and expectations for the future, we are affected by the media and the stock market. News and price movement inspire fear or excitement, and it takes these emotions to encourage someone to resist inertia and decide to buy or sell.

We can’t fully separate emotions from our ability to make decisions. However, just by being aware of the effect they have can help mitigate the bad choices. How do you deal with your emotions when making financial decisions?

The original version of this article, Keep Emotions Separate From Financial Decisions, is copyrighted by Consumerism Commentary.

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I’m not a big fan of “rules of thumb.” These are bite-sized nuggets of wisdom masquerading as advice, designed to apply to a mass audience. At best, they cant point someone in the right direction, but at worst, rules of thumb can erroneously send people on the wrong path or can mistakenly instill a false sense of security. This is a good example of why the best financial advice is specifically tailored to an individual or a family.

Rules of thumb satisfy the human desire for knowledge on a stick, like fast food for the brain. They are easily repeatable and retweetable, and they invite a minimum of critical thinking. But it would be unfair to suggest ignoring all rules of thumb. Some are better — more accurate for a larger number of people — than others. But it’s important to determine which ones apply to your situation and which one’s are not relevant.

Here are some of the more popular rules of thumb targeting personal finances, often repeated by gurus and writers targeting a wide audience.

You should save 10 percent of your income. Grade: B-.

This rule of thumb is not specific. It is not clear whether 10 percent should be counted before or after taxes. Saving this percentage of your gross income, a larger sum than the same percentage of your “take-home” income, would be preferred. This rules of thumb also does not specify whether your 401(k) or other investments are included or if this only refers to savings not invested or spent.

I can’t say that saving 10 percent is a bad idea. This is a good starting point; in fact, putting this portion of your income away without touching it will put you far ahead of the “average” American. Many people, however, will need to save more, some significantly more, than 10 percent in order to meet their goals. This rule of thumb, ingrained in the minds of many people who have read books suggesting this amount, can convince someone than 10 percent is enough.

Your emergency fund should be large enough to replace 3 to 6 months of your income. Grade: D.

Again, this is a good starting point, but your income is not related to the size. Your emergency fund should be allow you to afford your non-discretionary expenses while you work to replace your income. Determining the right size for your emergency fund requires measuring your monthly expenses, judging the stability of your income, determining what you would be willing to do to replace that income, considering how much it might cost to relocate in an emergency, and seeking expenses to cut.

The economy and the job market — how long it might take you to find a new job — should be a consideration as well. A better rule of thumb might state that the size of your emergency fund should be enough to cover necessary expenses for the number of months equal to the unemployment rate. For example, if the unemployment rate in your state is 10 percent, your emergency fund should be large enough to cover 10 months’ worth of expenses.

You can withdraw 4 percent of your nest egg in retirement to provide yourself an income while keeping enough invested to last indefinitely. Grade: C.

The 4 percent “safe withdrawal rate” relies on a number of dangerous assumptions. First, the funds from which you take the 4 percent must be invested completely in a diversified selection of stocks, like the S&P 500. As we’ve seen recently, beginning retirement while completely invested in stocks in a year where the stock market is down can be disastrous to financial health. Secondly, in assumes the stock market will perform 5 percentage points higher than inflation. That’s a reasonably good estimate when you look at the stock market on average, but there is rarely an average year. The stock market performs significantly better in some years and significantly worse in others.

The rule of thumb is not detailed enough to explain, but 4 percent is the withdrawal rate for the first year only. The withdrawal in every subsequent year should increase by the rate of inflation. For example, if you withdraw $40,000 from your $1,000,000 in the first year, and in the second year your nest egg increases to $1,001,000 after a year where inflation was 3%, your withdrawal in the second year should be $41,200 (3% more than $40,000) rather than $40,040 (4% of your new balance).

To find the percentage of your portfolio that should be invested in stocks, subtract your age from 100. Grade: F.

According to this rule, once you are no longer a minor the most you’ll be invested in stocks or stock mutual funds is about 80 percent. Someone retiring at age 65 would have a portfolio only 35 percent invested in the stock market. This directly contradicts what would be necessary to make the 4 percent safe withdrawal rule of thumb a reality. And for most people, the calculation using 100 just simply won’t cut it in order to grow wealth over the long term.

There’s more to consider. Suze Orman has a massive net worth compared to most people, and can therefore afford to play it safe by investing almost all of it in bonds. Stocks are riskier, and she and other people with significant net worth do not have to take on as much risk as what is found in the stock market to provide more than enough income for the rest of their life. Not only that, but significant wealth in a less risky investment helps ensure there will be an estate to leave to family or charity at the end of life.

The rest of us must take on the risk of the stock market in order to provide the best chance of building wealth in the long term. And the amount of risk needed for us is a higher percentage than the result of subtracting your age from 100. Perhaps 130 or 140 would be a better figure to use.

To retire comfortably, you will need to have an income of 80 percent of your maximum pre-retirement income. Grade: C.

Although it’s common to believe your needs, and therefore expenses, will be less in retirement, reality shows that this is not always the case. It is safer to assume that your expenses will be 10 percent higher in retirement. Keep in mind that health care costs will most likely rise dramatically as you age. And with people living longer than ever, those expenses will last for many years.

Once size does not fit all. Rules of thumb are good starting points, but don’t fall into the trap of believing you are safe if you follow these rules. Do you know of any other rules of thumb deserving a thrashing?

Photo: John Leach

The original version of this article, A Report Card for Financial Rules of Thumb, is copyrighted by Consumerism Commentary.

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The total net worth among Americans has risen to $53 trillion, the highest this measure has been since the end of 2007. At that point, Americans were worth $65 trillion. The increase this past quarter of $2 trillion was the first increase in this measure since 2007.

I am taking this as a good sign for the economy. In addition to this increase, overall personal debt is not increasing. Even though some markets are still slow and unemployment is still high, when consumers start feeling better about the economy, these should improve. I’m still waiting for interest rates for savings accounts to start climbing again more than just a few hundredths of a percentage point like Ally Bank.

On the other hand, the stock market has been the primary driver behind the increase in net worth, and it’s quite possible that stocks have recovered too much too quickly. If the current recession is over, another might be around the corner. The stock market helped my net worth increase, in addition to income, over the past few years, but this might just be the result a temporary rally.

Has your net worth been increasing over the last few months, and if so, how are you increasing it?

The original version of this article, America’s Total Net Worth is Up. Is Yours?, is copyrighted by Consumerism Commentary.

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It’s easy to adopt one concept and use that concept to define your world. You commonly see this in religion, but I’m referring to personal finance concepts, as you might expect from Consumerism Commentary. One popular financial guru talks about The ECRD Factor. His followers — a guru can’t be a guru without a throng of fans who believe the guru’s words are gospel and question nothing — spread the word and this concept becomes well-known even if the name of the guru is not as widespread.

Outside of Consumerism Commentary, in what is usually referred to as “real life,” when the conversation turns to money for whatever reason, it is not uncommon for someone to share their advice. And often, someone will explain to me how wise and financially savvy they are because they’ve given up their daily morning coffee or doughnut or other expensive treat.

I will admit that saving four dollars a day is not entirely a bad idea. If this savings is repeated five days a week for fifty weeks a year, you’ve “earned” yourself $1,000 a year. Taking that concept to the next step, you could invest that $1,000 each year and grow your nest egg over time, doing much more for yourself your quality of life than a daily doughnut ever would. But the choice to forgo a daily treat does not exist in a vacuum.

In the cases of some of the people who have discovered their alleged personal financial freedom through their daily latte resistance, they’ve made this sacrifice only to lose ground on the larger, important financial decisions. They’ve taken daily baby steps forward but every so often, leap so far back that they’re worse off than they were when they started.

It’s very noble to have achieved the mindset that allows you to change your habit and break free from spending a few dollars each day. But if your real problem is buying clothes you can’t afford, or a car you can’t afford, or a house you can’t afford, any progress you’ve made by eschewing gourmet coffee or fattening doughy products can be rendered null and void. And the people I’ve spoken to who have been eager to flaunt their smart decision of going without a daily latte often fall victim to these other harmful behaviors.

If you pay $40,000 for a car when you only need one worth $16,000, you just undone twenty-four year’s worth of missing daily lattes. And that’s only if you pay cash. If you get a loan, the interest will harm you even further. If you pay $400,000 for a house when you should have spent for something smaller or in a different location $200,000, you can’t even live long enough to make that up in daily lattes. If you don’t manage your credit wisely, you could qualify only for a high-rate mortgage, costing you thousands of extra dollars — a thousand lattes or more — throughout the life of the loan.

The little things, like the daily small savings that accumulate over time, are helpful to your financial condition, but making wise decisions for the larger purchases can have a much larger bearing on your personal wealth. If an expensive coffee-related drink keeps you happy and sane, I say enjoy it, but make better decisions about the big things like cars, houses, the size of your family, and the location where you decide to live. The “mistake” of enjoying a daily treat doesn’t compare with the real financial decisions you make.

Keep in mind that I have no problem with people buying fancy cars or big houses, particularly if they can afford it. But someone opting to trim their expenses by skipping coffee is someone who wants to improve their financial condition, so it would be fair to assume that they should want to do so in the most effective manners. Everyone is free to set their own priorities, but life works better when those priorities actually match the goals.

The original version of this article, The Little Things and the Big Things: Which are More Important?, is copyrighted by Consumerism Commentary.

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This is a guest article by Ray, the owner and primary author of Financial Highway, where he discusses investing, saving and practical money management concepts. You can check subscribe to his RSS feed or follow him on Twitter.

I strongly believe that tracking your financial progress is crucial to reaching your financial goals. If you visit personal finance blogs on regular bases you have already noticed that measuring net worth is very common and many bloggers make it public like Flexo does here. There are a couple of metrics that can help you track your financial progress: Net worth and
Net Investable Assets are two most common and each provides different information. Let=92s take a look at each and determine which of the two measurement methods is better for tracking your financial progress.

Net worth

This is the most common metric you will see around and it’s simple to calculate. Net Worth illustrates how much you are worth after all your assets are sold and all debts have been paid off. The formula is simple:

Net worth = Assets – Liabilities

Debts include your consumer debt (credit cards and loans) as well as your mortgage. Assets include all your investments and savings (including emergency fund and retirement funds) as well as your home, cars and other personal property. You simply add up all your assets and subtract your debts from it and you have your net worth. Although this is often used in determining your financial strength, I do not consider it the best measurement. It assumes that you sell all your assets at the current value; this is not always a practical option.

Net investable assets

This term is often used in the investment industry; we would primarily track our clients’ net investable assets because this would be the amount we could work with. The net investable assets calculation is slightly different than the net worth calculation, and to me it’s somewhat more practical. In calculating your net investable assets you do not include your personal properties such as car, home and cottage. You simply add all your savings and investments and subtract your consumer debt (credit cards and loans). This leaves you with investable assets. This tells you how much money you have available without selling all your personal properties.

We do not subtract your mortgage because you need a place to live and if you do not have a mortgage than you would have rent to pay so it’s a regular expense. The net investable assets calculation gives you a more accurate measure of your financial independence.

Net worth or net investable assets?

How should you calculate your financial progress? Well it’s all up to you and what you feel comfortable with and makes sense to you. Recently Trent Hamm of The Simple Dollar announced that he is not including his home value in his net worth calculation, however he is still continuing to count the mortgage in the formula. Although this method makes sense to some I find it distorts things a little. If you do not count your home in your net worth than the mortgage that goes with it should not be added either, hence you would have your net investable assets.

No matter which way you go, or if you decide to make slight changes to things the important thing is to stay consistent and do what makes sense to you!

The original version of this article, Measuring Financial Progress: Net Worth vs. Net Investable Assets, is copyrighted by Consumerism Commentary.

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Here are some articles of note.

12 Step Program: Shopping Addiction? MLR (My Life ROI) offers an overview of a twelve-step program for overcoming an addition to shopping. What I really like about this post are the twelve ways to spot a shopping addict. People are notoriously inept when it comes to self-evaluation; perhaps someone you love is a shopping addict. Is it time to plan an intervention?

Spending Cash Is the Same As Borrowing If You Have Debts. The best point in this article by Four Pillars is that all cash should be treated the same. In his example, if you’re in “debt repayment mode,” as much of your cash should be put towards that goal as possible rather than setting aside a portion for fun — the fun you already had that landed you in debt.

Unfortunately, not all debt is a result of fun. And I certainly don’t agree that you should sacrifice a complete emergency fund to pay off debt — if an emergency arises, your only choice would be to go deeper into debt. But as an example of the first point I mentioned, in the past I tried to separate the income from my day job from income from my side activities. This worked well but only to a point. When I realized I had enough income to maximize my 401(k) contributions, I was doing so with a significant percentage of my salary. This resulted in having no choice but to pay for some living expenses from the side income.

What the Heck is a Money Quantum? On Tuesday, Consumerism Commentary will be launching a new community-focused website, in the style of social networking, for people whose life involves money. Mighty Bargain Hunter had an early look at the site, Money Quantum, and shared his thoughts in this article. I’m really excited about this new project. I’ll be sharing more details shortly, and will soon be letting readers know how they can obtain an invite during the “private beta” phase of the launch.

The original version of this article, Posts of the Week, is copyrighted by Consumerism Commentary.

If you enjoyed this article, follow @flexo on Twitter and visit Facebook for more updates.

For some fun reading, I recommend these articles written recently and published across the internet.

Estate Planning: Are You Ready When Your Time Comes? Lazy Man narrowly avoided death recently, but it is my grandmother’s condition that leads me to link to this timely post. Here, Lazy Man offers several tips to help prepare the loved ones left behind for handling your responsibilities following your passing.

What Works for Me: Debt Reduction Mindset. It’s always fascinating to see someone else’s motivating factors in any task. Motivation varies greatly from person to person. In this article NCN describes what motivates him to getting out of and staying out of debt. You may come away with some suggestions for keeping yourself on the debt reduction path as well.

Want a High Paying Job? Do the Math. Mr. Tough Money Love points out a recent survey that shows that the college majors resulting in the top job offers in terms of starting salary are strongly weighted towards those requiring strong math skills. Most of these jobs are various forms of engineering.

The original version of this article, Posts of the Week, is copyrighted by Consumerism Commentary.

If you enjoyed this article, follow @flexo on Twitter and visit Facebook for more updates.

Here are a few articles from around the web I recommend reading.

A Journey of a Thousand Miles Begins With a Single Step. A few days ago, Tom, the producer of the Consumerism Commentary Podcast, and I spoke with Matt Jabs and recorded most of that conversation for an upcoming episode. Part of the discussion focused on the core message of this article and its inspiration, a quotation attributed to Lao Tsu matching the title of the article.

This quotation inspired Matt to set goals and take the first step towards achievement, but for me the quotation reinforces the idea that your goal (of traveling a thousand miles by foot or making the world a better place) need not be reached. The steps you take towards that goal, the small things you do, are what define who you are. Look for more on this topic in an upcoming episode of the Podcast.

Carnival of Personal Finance: New Zealand Edition. Baker from Man Vs. Debt hosted the 213rd edition of the Carnival of Personal Finance on Monday, and put together an excellent presentation of the prior week’s best articles in personal finance. The articles are interspersed with fantastic photos from New Zealand, representing the backpacking journey through the country Baker and his family were undertaking.

Is Frugal Living Just a Fad? The media has made much to-do over the idea that Americans are saving more and spending less due to the economic recession. Some out of necessity, but there is an implication that frugality is now more mainstream than it ever has been. I believe that’s an exaggeration. Perhaps we have been to the point where circumstances necessitate a change in consumerist behavior, but very few things in life are permanent. Entire generations have been identified by generalized adjectives such as “frugal;” current behavior is simply a reaction, not a permanent shift in behavior.

I wouldn’t call the recent popularity of “frugal living” a fad, but it’s not going to stick around for too long. The economy moves faster than it did seventy years ago; changes that used to take a generation to complete may take much less. Before long, Americans will be back and spending in full force.

The original version of this article, Posts of the Week, is copyrighted by Consumerism Commentary.

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Every so often I address questions and comments I receive via email. If you have a question, please contact me using the form on this page. I try to respond to everyone, but it might take a while before I read every email I receive.

From Mary Lynn:

I really liked your article that explained how freecreditreport.com isn’t free at all. I was wondering if you knew of any credit report site that doesn’t ask for a fee! I don’t have any credit cards since I just turned 18 and graduated from high school but I need a credit report for this job I’m taking. Please, if you know of any, let me know.

First, to answer Mary Lynn’s question, the one and only website for retrieving the government-mandated three free credit reports each year, one from each credit reporting bureau, is AnnualCreditReport.com. Even there, since the site works with the for-profit reporting agencies, they will try to sell you something. Steer clear of the offers and get your free credit report once every four months.

I find it odd that your employer requires you to get your own credit report and present it. Employers, if they must to a credit check on prospective employees, should do it without requiring you to do anything other than provide your Social Security Number.

From Jake T.:

You seem to open a lot of bank accounts. How many different banks do you have accounts at, and which one is your favorite?

I do have a diversified set of savings accounts. I wrote about reducing your number of banks as a way to simplify your finances, but I like the idea of keeping money spread around. Without Quicken, this would be an organization nightmare. I have accounts with Wachovia (my main brick-and-mortar bank for both business and personal savings and checking), TD Bank (formerly Commerce Bank, open on Sundays, my secondary brick-and-mortar bank), Ally Bank, FNBO Direct, HSBC Direct, ING Direct, E*TRADE Bank, and Emigrant Direct. I’m also in the process of opening an account at EverBank. Of these, ING Direct and FNBO Direct stand out as favorites.

If you have questions, let us know. You can email your questions directly to me (or to Smithee, Jeff, or Tom) or leave your questions in the comments area.

The original version of this article, Answering Mail: Free Annual Credit Reports, Online Savings Accounts, is copyrighted by Consumerism Commentary.

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When you were growing up, you probably became accustomed to hearing some typical thoughts about money from your parents. These parents are the ones who told you that money doesn’t grow on trees. If it weren’t for your parents, you wouldn’t know that children are starving in Africa and therefore you should eat your entire dinner. When you didn’t complete your chores, you didn’t earn your allowance. Sometimes.

If your childhood was like many people’s, your parents had good intentions. Even while they may have offered some suggestions for handling money as you grew into a young adult, you learned more from their behavior than from their words. And even though you promise to learn from your parents’ mistakes, chances are you will end up, once you have children of your own, being more like your parents than you would like to admit.

Here are ten quick lessons our parents should have given us.

1. You can’t always get what you want, but if you try some times, you’ll get what you need. Who knew that The Rolling Stones would have important life lessons to impart to the public. It’s poignant for a rock and roll song, and a good place to start. With a generation of parents who have been financially successful or have had easy access to credit, have wanted to provide the opportunities for their children than their own could not have afforded for them, and have been encouraged to do whatever it takes to ensure their children rise to the top, some children have grown up with very high expectations for themselves and a feeling of entitlement.

2. Avoid debt but understand its role. Credit cards are everywhere. Young children quickly recognize that by handing a cashier a plastic card, you can walk away with whatever you want. But even teens do not understand what it means to use a credit card and the dangers that can arise from its use. Debt can be expensive if it is not handled properly and should only be used in certain circumstances.

3. Spend less than you earn. It’s simple mathematics, but parents should help their children realize what can happen when someone consistently spends more than they earn. These consequences are often hidden, so shine the light on unsurmountable debt.

4. Consider a practical career. Did you hear, “Do what you love and the money will follow,” when you were growing up? That may be true in some circumstances, but it simply is not always the case. If your passion is bicycle racing, and you wish to do this competitively, you better make sure there is nothing else you could possibly do with your life that will make you happy. It will be very difficult to make a living bicycle racing unless you make your way to the very top. And bicycle racing is only an example.

5. Money doesn’t buy happiness, but it opens opportunities. Studies show that there is only a shaky correlation between net worth and happiness. But maybe happiness is the wrong thing to measure. Having money left over at the end of the day — more income than you have expenses — provides you with opportunities to have satisfying experiences, and with more net income, you can have more and a higher level of variety of these experiences.

6. Give to the world and the world will give back to you. It is naive to believe that for every dollar you provide to a charity or every hour you spend as a volunteer will come back to you in the same form it left. But every human being has a responsibility to try to improve this world in whatever way he or she sees fit. Not only that, but charitable work makes you feel good about yourself, and since there is no such thing as altruism, all motivation comes back to feeling good.

7. You can make the financial industry work for you. Everyone wants your money, whether they are retail stores, banks, credit card companies, your landlord, the electric company, your college, or your local coffee shop. You must give part of your money to some of these beggars, but while you do, make your money work for you. Earn interest in a high-yield savings account. Don’t stand for any financial accounts where you are required to pay a fee.

8. Don’t go into business with your friends. Once you lend money to or start a business with your your friend, your relationship is changed forever. It is likely your friend will not behave as you hope, and the result can be disappointment or outrage. Good friends can be hard to find, so don’t ruin a relationship with money or business.

9. Save first, then spend. This needs to be an explicit discussion. Children see their parents buy whatever the need whenever they want, but the background story is often hidden. They don’t know that the parents have been saving for a year in order to afford the family vacation. To a child’s point of view, Christmas presents magically appear. While you may not want to spoil the idea of Santa Claus — who must be fabulously wealthy — at a certain age, children must learn Where Presents Come From and How Many Months We Saved to Afford Them.

10. You may have to take care of us some day. Here is one reason to ensure you have money to spare as you get older: your parents are getting older first. Lifespans are generally increasing, but quality of life may not be. You may find yourself dealing with your parents’ health issues, like Alzheimer’s, Parkinson’s, ALS, or any number of medical conditions that will make it difficult for them to live without assistance. Not everyone has long term care insurance, and even if they did, there is a good chance it won’t cover all the care that is needed.

What lessons about money did your parents teach you? Are there any lessons you’ve learned since your childhood that you wish your parents had taught?

The original version of this article, 10 Things Your Parents Didn’t Teach You About Money, is copyrighted by Consumerism Commentary.

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Here are a few articles from around the web I suggest reading.

Dangerous Personal Finance Magazine Headlines: The Attraction of High Yields. Jonathan points out some recent examples from magazines featuring enticing headlines on the cover. This is done to inspire sales of magazines. The investing advice found within is dubious, and important facts are often not included. That wouldn’t make a good headline. It’s not just magazines; a good headline promising something hardly attainable draws people in whether it’s a television news lead-in, a legitimate newspaper, or yes, even a blog.

Why Entrepreneurs Fail. Erica Douglass has three reasons why most entrepreneurs fail. First, I think it is great to recognize that most people who try to run their own business fail. Even those who succeed likely failed first. The three reasons included in this article are a subset of the hundreds of problems that plague small and start-up businesses. But for me, I can relate to all three “traps.”

Average Credit Scores Down From 2007, but Leveling Off. My girlfriend purchased a new car this weekend. Yes, a new car, not a new-to-her car, for a number of valid reasons, just like when I bought my new car a few years ago. She chose an economical car that rates well, drives fun, and gets decent gas-mileage. Although she might not be happy with me sharing the details, she made a down payment of over 60% of the purchase price and took out a loan for the rest. Here’s the point: for the first time, she shared with me her credit score. You know how the highest score is 850? Well, she’s not far from that number. She wins!

The original version of this article, Posts of the Week, is copyrighted by Consumerism Commentary.

If you enjoyed this article, follow @flexo on Twitter and visit Facebook for more updates.

I suggest reading these articles gathered from around the web.

Emergency Fund Is For Emergencies ONLY – 6 Ways To Leave It Alone. Matt Jabs suggests keeping your hands out of the emergency savings account except when the need is due to a true emergency, not just when you have unplanned expenses. I’ve also explored what should qualify as a true emergency.

The 10 Year Savings Strategy: Saving money after you’ve already handled the basics. I like that Ramit’s approach to money and financial advice is rooted in social psychology. He points out that people never want to believe they are most likely average or like everyone else. Ramit will also appear on tomorrow’s Consumerism Commentary Podcast.

Moving in Together? How to Avoid Money Mistakes. The author of this article, Melissa Korn from the Wall Street Journal, is preparing to have her boyfriend move into her house, and this article take a look at what their expectations and approach should be for ensuring the continued success of their relationship.

The original version of this article, Posts of the Week, is copyrighted by Consumerism Commentary.

If you enjoyed this article, follow @flexo on Twitter and visit Facebook for more updates.