As I mentioned earlier, Consumer Reports makes it sound easy for the average family to find $500 a month in saved expenses. Scott Burns calls this the “power of attentive spending.” Pay attention to the little details and you can end the year with $6,000 more in your pocket than you would have otherwise.

The $6,000 in “found money” is tax-free. By reclaiming money you’ve earned but might have spent, you’ve basically increased your income without adding any extra tax expense. It’s not technically correct, but it’s an interesting way of looking at saving money. Think of what else you could do to increase your after-tax income by $6,000.

You could get a raise or a promotion, but usually these things have to be deserved. Working harder at your day job may inspire your boss to reward you with a bonus, raise, or promotion, but to make that $6,000 increase in your pocket, you may need a $10,000 increase in your paycheck. Scott Burns points out that a $6,000 increase represents six years of typical annual increases for the average employee.

It will be just as difficult for many people to generate that same additional annual $6,000 through investments.

Suppose, for instance, you have the good fortune to live in a no-income-tax state and want to get all your return from a portfolio of common stocks. At a 15% tax rate on dividends, you’d have to collect gross dividends of $7,059 to net $6,000 a year. With the S&P 500 Index yielding 2.29%, you’d need to have $308,246 in your portfolio.

You might fare better in interest-bearing savings accounts. In the 33% tax bracket, you would need to earn $8,955 before taxes in interest income. Earning an annual 3.5% which is possible right now in a few high-yield savings accounts, you would need a starting balance of $255,864 to end up with $6,000 in taxes. That would be an additional $255,864 above what you have saved now.

Looking at these numbers, finding possible savings within expenses looks like a good option.

Save $6,000 by paying attention, Scott Burns, MSN Money, August 13, 2008

It’s very tempting to quickly peek at your investments to see if they’ve gone up or down in the past twenty-four hours. The same technology that makes our lives so much easier, computer software, can drive us insane. It takes almost no effort to log into my company’s 401(k) website. When I’m at home, Quicken is only one Quick Launch icon away. At any given time, morning or night, it can take me less than 30 seconds to determine whether my tune for the day is The Gold Diggers’ Song (We’re In the Money) or Stormy Weather.

This is not necessarily a good thing. While I can usually control myself, I’ve occasionally pulled the trigger and rebalanced my 401(k) asset allocation when I shouldn’t have. These days I pay less attention to detail but I haven’t solidified my asset allocation strategy.

Susan Byrne recently shared with Money Magazine the best investment advice she ever received. Susan, the founder, chairman and chief investment officer of Westwood Management, learned while she was managing other people’s money but doing a poor job with her own assets, to keep her hands off her 401(k) except for once a year.

It’s often best to keep your eyes and hands off. Stick to your asset allocation strategy and rebalance the portfolio annually, automatically if possible.

Perhaps this is true for more than just investments, but I’m often tempted to touch things I can see. I’ve stopped looking at my investments daily, but the next step is to determine an asset allocation and stick with it. Are you tempted to change your strategy, particularly when you see your balance declining from day to day?

The smartest advice I ever got, Money Magazine

August 8 update: This is now confirmed.

This is unconfirmed but in the last few hours, two employees at TIAA-CREF have written to Consumerism Commentary to share the knowledge that workers in the the Charlotte, North Carolina office are being laid off by management at this very moment. The layoffs began on Monday and will reportedly affect 10% of the workforce.

There have been no media reports yet and no official word from the company. TIAA-CREF has been plagued with customer service problems for the last several years and changes in executive management during that time period has not solved the problems.

Many people, including public school teachers, have no choice but to invest with TIAA-CREF inside 401(k) and 403(b) plans.

The Charlotte Business Journal reported TIAA-CREF laid off 158 out of the city’s total 2,850 employees.

In about 6.5 months, I will be free of credit card debt for the first time since 1998. Much like Inigo Montoya and the “Revenge Business”, now that it’s over, I don’a know what to do with the rest of my life.

Readers of Consumerism Commentary have proven their wisdom many times over, so I’d like to take that into consideration. Please visit my YayBoo page on the subject and help me prioritize my next steps.

Or, you should be able to use the widget below:

(If you follow Consumerism Commentary through an RSS reader, you may have to visit this page directly to see the widget.)

Mellody Hobson, the president of Ariel Investments, recently shared her favorite piece of advice to Money Magazine.

When I was 22, a friend who is very successful explained to me that no one ever got rich through earned income. “Look at all the great wealthy families,” he said. “From Carnegie to Rockefeller, it was never how much they made at work that made them wealthy – it was their investments.”

And that made me shift from thinking about a paycheck to thinking about building equity and long-term wealth. And it has helped me a lot. Instead of a raise, I ask for more stock.

This may be good advice for a senior level executive at a large corporation. Those who make the compensation decisions may have the authority to grant stock. The concept suggested by Mellody’s advice may also be helpful for those working at a small company at the onset. Then again, perhaps there is no cash available and the promise of stock is all that can be offered.

I have the feeling that most people are like me, however. They work at a large company and don’t have the option of bargaining for alternative compensation. My boss, for example, would not have the ability to simply grant me stock. I suppose that the vice president of my division could put a request through our human resources department, but in the end, it would still come from the same budget. So practically, I see no difference for the company between offering stock or cash as a raise other the simplicity of cash. I cannot see my large financial corporation seeing a stock grant as a preferable alternative to a typical raise.

Another issue I have with accepting company stock in lieu of cash is related to diversification and risk. An employee is deeply vested in the success of the company and the company’s desire to keep you. Look no further than Enron to see what happened to employees who relied too much on their own company. While the senior management at Enron lied to its employees about the company’s health, many employees suffered more during the company’s collapse. They suffered because they relied on the company for much more than just their income. In addition to salary, the employees most affected held too much company stock, particularly in 401(k)s. Enron actively encouraged its employees to buy company stock outside of retirement, as well. If your company’s stock started nosediving with imminent failure and the management decided to freeze stock so you could not sell it, how would your finances be affected?

So would you take Mellody’s advice? I think she’s right about shifting from an income-from-paycheck mentality to income-from-investments mentality, but is company stock the best path? Would you ask for more company stock in lieu of a raise?

The smartest advice I ever got, Money Magazine

Robert Shiller, a professor of economics at Yale University, shares advice about investing he learned in graduate school.

One needs to think antisocially to excel in investing, to resist the patterns of thinking that seem mysteriously to arrive simultaneously in the minds of millions of people around the world. People do not trust their own judgment but go along with the crowd, even when they can see truth.

It’s tough to take a contrary view point. First, it’s easy to believe that “a million people can’t be wrong.” The “wisdom” of crowds may be valid for some things, but usually not investing decisions. When the rest of the world is selling, it is probably a good time to buy. And vice versa.

Second, the media make it easy to get confused. mass market hype will trend in one direction, while a bevvy of financial reporters in a small segment of the media will unanimously vote in the opposite direction. Which trend should you buck?

The smartest advice I ever got, CNN Money, July 22, 2008

Bill Miller, the manager of Legg Mason Value Trust, shares some advice about building wealth.

[My father said…] “See this ‘plus .25’? That means that if you own one share of this company today, you have 25¢ more than you had yesterday.” I had come in from mowing the grass for three hours to earn 25¢. So the lesson I took was that in the stock market you can make money without doing any work… Of course, I realized only many years later that you could earn the market rate of return by doing no work, but to earn an excess rate of return certainly does require some work!

Passive income is an attractive thought. Dumping money into index funds and holding onto the investment for decades can provide results that beat most of the active fund managers. This contradicts Bill’s advice—it’s quite possible to do a large amount of work in terms of researching stocks but perform worse than the indexes.

The most passive form of income has to be that returned in the form of interest on savings accounts. Saving accounts, however, won’t provide much interest. When it comes to passive income, I’ve already stated that certain activities don’t qualify, like blogging and real estate investing, because you certainly are trading some portion of your time for that income. The Amateur Asset Allocator goes farther by outlining eight levels of passive income.

The Smartest Advice I Ever Got, CNN Money, July 22, 2008

The Dow and the S&P 500 indexes were both up 2.5% and the Nasdaq index was up 3.1% today. Is this a sign of things to come? I wouldn’t mind if it were. My 401(k) has been decimated this year. That’s a literal decimation, a reduction of 10% of its value. Based on the short history of stock market recessions in the United States, the worst may be over.

The S&P 500 passed a total decline of 20% from last October’s peak on July 9. Here is what history has to say about 20% declines, the signal of a “bear market.”

[S]oon after the onset of a bear market, the market generally has risen. One month after breaking the 20% threshold, the S&P had gained 3%, on average, during those nine bear markets. Two months later, it had risen 6%. on average. Three months later, it was up 5%, and six months later, the S&P had returned 7%. Twelve months after the initial decline, the market had surged 17%, on average…

So far, this bear market has unfolded exactly as the past nine did. On average, the nine crossed the 20% decline point nine months after beginning their decline. We’re right on schedule. The past bear markets lasted, on average, another five months…

My hunch is that the market will decline another 10% or so before it hits bottom.

History is generally a good guide, even though the human brain often has a hard time remembering history as it actually occurred. Looking at the numbers is more reliable than memory, so there may be hope for the market in store by the end of the year. By investments accounts will be thankful.

Goodbye, Bear Market?, Steven Goldberg, Kiplinger, July 14, 2008