poverty and savings

When I was a little kid, I remember how pleased I was when I got my first savings bank for my birthday. It was made of heavy metal molded into the shape of a Model T with movable wheels. It could be opened by removing a small plate at the bottom, which was secured by a key. I put all of my change and the few bills I had in it and had great fun driving it around the living room.

At some point, I lost the bloody key.

The bank is here in New York, stashed in my one and only box of childhood memories. It's still full; despite my best efforts with a nail file, I never got the blasted thing open again. I gave up over thirty years ago; it's kind of fun to think of it as a sort of financial time capsule now.

The New York Times magazine had an interesting article today about poor people and savings. Conventional wisdom suggests that poor people, nine million of them in this country alone, don't earn enough to save any money at all. Stephen Brobeck of the Consumer Federation of America has spent the last three decades watching debt levels grow and savings rates dip below zero, a situation that's not good for anyone but one which puts the the poverty-stricken at greater risk of outright destitution than ever before.

Brobeck wanted to find out why people don't save, and to that end he commissioned some anthropological research. What the researchers found among the poor was surprising: it wasn't so much that they couldn't save as that they believed they couldn't. Obstacles to savings include family and friends who were quick to ask for a handout whenever a surplus accrued, as well as fear that saving money would lead to losing welfare benefits. It's important to note that the concept of saving didn't include money per se, but rather low-value assets that could be sold to raise cash: baseball card collections, family heirlooms, and the like.

After reviewing the results of the research, Brobeck embarked on an ambitious social program to encourage saving: in order to relieve the social pressure against saving, Brobeck created a network of support to encourage it. This network, titled America Saves, started in Cleveland and now exists in more than forty different locations with 75,000 participants. Part of the program includes flexibility negotiated with savings institutions, such as special bank accounts for very low minimum balances and minimal or no fees for program participants. It also brings employers into the loop by asking them to offer workshops about debt, budgeting, saving, and consumerism. Finally, Brobeck waded into the communities themselves, bringing the program to churches and community groups.

Participants in the community-based America Saves groups set targets for saving and work together to strategize how to meet their goals. For one woman, this meant making a committment to staying out of dollar stores and cooking at home instead of eating out. Her first savings account started with $5, and it continues to grow: over the past year, she saved a total of $500.

On the whole, program participants save about half of what they target, but that's a whole lot better than nothing. The consumerism mentality runs deep in this country and the impact of the program is small; it's kind of like bailing out an ocean liner with a bucket. Nevertheless, if it changes one parent's attitude towards money and that parent manages to pass that attitude along to his or her own children. . . well, you can see the potential for a larger ripple effect through the generations.

I don't know if it'll be enough to stem some very disturbing trends and attitudes towards money in this country, but it's a start.

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Depression mentality

Depression.

I'm not talking about feeling the Prozac blues, or stinging disappointments on those occasions when the bluebird of happiness suddenly poops on your ice cream cone. I'm talking about the big one, Depression with a capital D, the one that started on Black Tuesday, 1929.

That would be the Great Depression.

Google it if you want to know how it started and what brought it to a close. I'm more interested in the mindset of people who lived through it and the extent to which it affected their saving and spending patterns as adults.

I ran a quick Google check this evening to see if I could find any good stories about Depression-era families. Although I found plenty of photos and letters to Mrs. Roosevelt pleading for assistance, there wasn't really anything in the way of evidence about how people who lived through it lived after it. That's too bad; I think it would make a good topic for someone's research paper. In any case, I can give you some anecdotal evidence: my parents were born in the mid-twenties in Canada and although they don't remember the crash, they spent their formative years growing up in the Depression.

For anyone doing the math on that, yes, I am a change-of-life baby, and no, they won't tell me if it was an accident.

Things I remember from my childhood include my parents wanting to reuse everything. Leftovers? Check. Hand-me-downs? Check. Darned socks? Check. Cotton from the vitamin pills? Check. I remember that my mom never knitted (that went out the window when the bambinas started arriving), but she had some beautiful scraps of heavy wool in her sewing box, maybe half a ball each of several different colors. I really wanted to play with it when I was small, but she never let me: it was good wool and had to be saved.

I don't know what we were saving it for, but save it we did for decades.

On another occasion, my mom was making a birthday cake for me and the power went out. She immediately started managing my expectations: if the power didn't come back on in a little while, we'd have to make do without one. It never occurred to her that she could toss this one out and make another, or that we could just buy one. (We wouldn't have bought one; birthday cakes were too expensive). In her mind, we had one shot at a birthday cake and that was it.

You'd think that my parents were really poor, but they weren't. We were middle class, but certainly not poor. They were public-sector professionals, both of them; my dad was never without a job, and neither was my mom from the time I went to school. We didn't have a lot of luxuries, but we had enough necessities.

What we also had was something that I suspect a great many kids grow up without. Starting the week each of us was born, my folks put $20 per child away every week for our college educations. Over time, as their salaries increased, they increased the contributions. For twenty-four years (two kids, two years apart), they never missed putting that money aside. They funded education the same way they funded retirement: every week, year after year.

The result?

By the time we got to college, their retirement and our educations were funded. We got part-time jobs in school and paid for books and pocket money on our own and later, for off-campus housing on our own, but regardless of whether we got any scholarships or not, eight years of private-school tuition money was there.

I wonder how many parents can say they've achieved that for their kids.

As a teenager, whenever I got exasperated with how tight with a buck my parents seemed, they always gave me the same answer: We can't help it; we grew up in the Depression. Things are different for you kids. I never understood how the Depression experience of for-real scarcity and deprivation led to practicing artificial scarcity as a matter of course, but somehow it did. It made a huge difference: as public sector employees they never made a huge amount of money, but because they played a great game of financial defense, they were able to retire in comfort and travel the world many times over.

My folks are in their 80's now, and they've lightened up considerably. My mom finally got rid of the yarn, and they gave up darning socks and saving the cotton from the vitamins. They managed to impart some valuable knowledge to the kids along the way, though, and although it didn't sink in until we were adults ourselves, we both managed to kick ourselves into gear and put to practice the money-saving tools we learned from the time we were born. Neither of us is rich - yet - but we're ahead of the game for where the conventional wisdom says we should be, and we're bullish on the future.

In the meantime, I'm darning my socks.

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Adsense rocks

EIGHT cents, baby! That's how I roll.

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show me the money

Okay, I'm not giving it up for free anymore.

If you have teeny-weeny screen res or if you're a scroller, you might have seen some brand spankin' new ads wayyyyyyy down there on the right. I don't care if you click on them or not; I never click on yours. I've been watching my AdSense account over the past few days to see the money roll in, and after three days I'm proud to tell you that I now have FIVE cents in my account. See for yourself:



It's possible that I might not get rich off of this overnight. Looking at the big picture, though, most people have more control over their income than they think they do. One way to boost your paycheck is to earn more money, which is what Stanley and Danko call playing good offense in The Millionaire Next Door. You can do this through a variety of ways:

1. Job-hopping. For many white-collar employees, the best way to get a significant bump in pay in one shot is to look for a new employer. Obviously, how well you succeed (or don't succeed) depends on a variety of factors, including your industry and skills, how well you sell yourself, how good the fit is with a new employer, and whether the new job represents an increase in responsibilities and/or workload from your prior employer.

2. Performance. Make sure you stand out from the pack. Keep your skill set up to date, take on challenges that push you out of your comfort zone, be honest about your mistakes, share credit for teamwork, give your staff opportunties to be star performers in their own right, and build relationships each and every day. You're employer's an idiot if he or she doesn't reward the star performers: people vote with their feet. If you work for an idiot, be a star performer anyway. The more experience you have under your belt, the better opportunity you have to showcase it someplace where you'll be fairly compensated for it.

Note: Don't be a prima donna while you're at it. No one wants to deal with that.

3. Negotiation. Everything is negotiable. I never thought I had the cojones to talk about pay with my management until I pulled the salary levels for my grade and the one below from HR while putting together a job description for a potential new hire.

Good golly, what a revelation. Looking at the numbers pissed me off.

I forwarded the salary information to the bossman, along with a formal request to review my salary and discuss an adjustment. He panicked and phoned me at home, telling me that I'm the star performer on the team and that he feels that I'm underpaid and that it's his job to fix that. He finished up by asking me to please not quit without giving him time to make it right in our annual end-of-year review and raise process. I said that if that's what it takes to not burn any bridges, then that's fine - but that he had better make it right or I'll be shopping my resume.

Note: Don't make idle threats. If you make a statement like that, be prepared to have someone call your bluff.

He's mentioned my salary half a dozen times since then, reminding me that he hasn't forgotten, and he's put me in the pipeline for a hot-cha-cha promotion. I've known the guy for ten years as I've bounced around the firm and I'm gambling that whether the promotion comes through or not, he'll make the numbers work for me. If he doesn't, then I'm not working for him.

Note: The tactics I mentioned above can backfire if you don't know what negotiation means. I once made an offer for a junior position based on genuine perceived worth to someone who then demonstrated that he had an unusual idea of what negotiation entails. He ranted at the HR rep that clearly I didn't appreciate his true worth or I would have obviously offered what he felt he deserved. He fired a string of similarly abusive remarks in that vein at her; after the call ended, she called me, somewhat shaken, and duly reported what the candidate had said.

Well, what would you do?

I pulled the offer, alerted building security and legal counsel that we were dealing with an unstable person, and phoned every division in our service line that was hiring to warn them off of this guy.

No one likes a prima donna.

If none of those tactics will work for you at your job-job, you can always pick up work on the side if your employment agreement allows for it. I mentioned once before that I do pro bono work for a non-profit on a regular basis. It's led to people asking for contract work on projects, which I usually chase away by setting my rates to extortionate levels on the grounds that it costs a lot of money for me to be willing to be annoyed in my free time. If you're more flexible than that (and I'm not sure whether it's possible to be less flexible), you might have broader opportunties.

There are also plenty of people who make money off of their hobbies. One person I know is a golf instructor on the weekends: he gave up a pro career fifteen years ago after finding out that he wasn't quite good enough, but he still loves the game and found a way to make money from it. Another person I know routinely takes IT freelance work just to keep his skills sharp, since he's now in management and no longer writes programs in his day job. A couple of talented runners I know took some weekend courses and landed part-time coaching gigs. A while back, I read in the New York Times that it's becoming increasingly common for professionals who love to cook to take weekend shifts at Williams and Sonoma so they can get paid for talking about cooking, showing off new kitchen products, and benefiting from a really good discount. The point is that you have to be inventive, and if you're going to spend your free time working for extra income, you might as well make it fun.

As for me, I'm focusing on my primary career, which is demanding but generally rewarding. With some help from the bossman, hopefully it'll become a little more rewarding in the pecuniary way in the new fiscal year.

If that doesn't work out, I guess there's always AdSense.

Do you make money outside of your main profession? How?

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mixed media

Beauty magazines make me feel ugly.

Seriously, they do. They're meant to. They may be marketed as fashion and entertainment, but media featuring idealized body images have a proven detrimental effect on girls, young women, and in recent years, boys and young men. I don't know if any research has been done on slightly older, more experienced, better-established women, but if how I feel after looking at a beauty magazine is typical, after heavy media exposure to idealized, out-of-anything-resembling-a-normal-context photos, even mature women start to feel insecure about their bodies.

Now mind you, this could just be my own idiosyncracies at work, but I don't think it is. I've been an athlete all my life. I've run four marathons and countless half marathons, and in November I qualified for the prestigious 2008 Boston Marathon. There's not a whole lot about my appearance that would give me reason to feel bad about it; on the contrary, my physical self-image is really positive, or at least, it is until I look at one of those dang magazines. As a result, I have to conclude that the beauty magazine industry knows exactly what effect it's having and either a.) doesn't care, or b.) fully intends to make women feel dissatisfied with themselves.

I lean towards b. Like any industry, magazines are out to make money. Magazines make money with advertising. When people feel bad about themselves, they tend to be vulnerable to the idea of a quick fix that will make them feel better.

See where I'm going with this?

The logical conclusion here is that beauty magazines have a vested interest in making women feel lesser than. People who feel good about themselves and secure in who they are don't need to compensate for anything. Conversely, a person who feels bad about himself or herself is vulnerable to compensating in other ways. Stuff a magazine designed to make women feel inferior full of idealized advertisements for cosmetics, clothes, food, and other products geared at creating a "new you," and you've got a highly effective marketing tool, one that people will actually pay for up front.

For many people, the message lasts a whole lot longer than the magazine, and I think that's a problem.

I'm not saying that people should never look at magazines again. I like magazines: I subscribe to The New Yorker and, until my gift subscriptions ran out, Time and US News and World Reports. The message I'm trying to get across is that it's important to look at media with a critical eye: Who's trying to influence you? What's their agenda? What are their tactics? Consuming media with a critical eye may not completely derail the negative effects of idealization, but it can go a long way towards diminishing its influence.

Personally, except for an occasional furtive indulgence at the dentist's, I quit reading beauty magazines years ago. They do nothing for my brain and less for my wallet, and I don't need someone else's agenda propelling my self-image in any direction.

There's more to me than that, and there's more to you as well.

So tell me: am I on the money here, or am I full of it? You be the judge.

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I feel the love

The 67th Festival of Frugality is up at Debt Hater's site. There are tons of great-looking articles that I can't wait to read. While you're there, take a look at my frugal tip #2: health, which the very amazing Debt Hater selected as one of the week's picks for the Do It Cheaper category.

Carnival on, folks. I'll be back sometime tonight.

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but I hate clowns

Thanks to our gracious host, Tired But Happy, the 93rd Carnival of Personal Finance is up.

Being a new PF blogger, I wasn't really sure how this carnival thing works, but I decided to float an entry to see what happened. I was really flattered and pleased to see my own Early Payoff: The Great Mortgage Debate selected as one of TBH's picks of the week. Thank you!!

I haven't read through the whole carnival yet, but so far my personal favorites include Lorraine Roach's Child Anxiety: Does Money Make you Anxious?, My Foolish Money Mistakes: Moves That Cost Me More Than $1000 Each from The Digerati Life, and A New Retirement Plan by Living Almost Large.

Gotta go; time to update the blogroll. Peace out.

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student life

Something I heard from someone else last week triggered a vivid memory from my undergraduate days. I was in the financial aid office submitting something or other, and as I was leaving I ran into an acquaintance who was also on his way out. He was in quite a state, so I asked him what was wrong. He bitterly replied that his request for more grant assistance had been sharply turned down. Not yet having entirely evolved into the tactful person I am today, I asked why exactly that was a problem.

He looked at me like I had sixteen heads and retorted,

"'Cause I'm POOR!"

Granted, I should have seen that coming and headed it off at the pass. You'd never know it to look at the guy, though. This was a rich-ass private college, where most of the kids came from wealthy backgrounds; my middle-class upbringing was definitely on the the low end of the spectrum relative to my peers. Some of them thought I was insane for working part-time for four years, but it was what I had to do to cover housing, books, and personal expenses, which was what my parents expected me to contribute along with scholarship-worthy grades. (As an aside, it made me an excellent time manager and I still graduated with honors.) This guy in particular had always been one of the kids in the class with great clothes (I remember particularly that he happened to be wearing a gorgeous, buttery, leather coat that day), no part-time job, and plenty of money to strew around for entertainment. I never would have guessed at any lack of resources.

And therein lies the dilemma: this rich-looking, rich-acting guy didn't have enough personal or family money to stay in school to complete his senior year. In The Millionaire Next Door, Stanley and Danko refer to this phenomenon of keeping up appearances as big hat, no cattle.

This memory came to the forefront in the context of another acquaintaince's current graduate school experience. She's 39 and attends a very expensive private school in New York, where she's getting a Ph.D. It'll be her third graduate degree, and she has no funding. She's spent some time in the workforce, but I'm not sure how much. She does have a job now, but it's part-time and I have no idea how much it pays.

This woman always has money to spend: the other day, she proudly announced that her new hairstyle had come at the bargain price of $55. She also has great clothes, a spacious rental apartment, and plenty of money to go out and have a good time. That's all well and good; I figured her parents are bankrolling her, and why not? It's between her and her family, and how they choose to allocate their resources is no one else's business.

Only once again, things aren't quite what they seem. One night a few months ago, this woman told me that her parents are struggling financially and she's worried that they'll never be able to retire. She also told me that not only are they not contributing to her graduate school education, they have absolutely no idea of the grinding, crushing burden of student loans she's taken out.

Big hat, no cattle.

I feel sorry for this woman. Her studies aren't in a discipline that tends to be paid very highly, unless she becomes a Washington policy wonk. She's very smart and that could certainly happen; I'm not convinced from what I've seen, though, that it's very likely. I have no doubt that she'll get the degree she's after, but at what cost? She'll be paying off her student loan debt for decades.

I'm not saying that poor people shouldn't get an education; far from it. Everything I've read suggests that education is the fastest road out of poverty for the long term. Student loans are a huge problem for new graduates, and that's a topic I want to take on from a less personal perspective another time. What I'm not seeing here is the same thing I wasn't seeing outside the financial aid office in 1990: where is the acknowledgement that one has an obligation to adjust one's monetary outflow in response to life events or, in this case, life choices?

I'm probably posing this dichotomy to the wrong group of readers, but I find it both puzzling and troubling to know that when posed with a dilemma that consists of a money pit, a pile of dirt, and a shovel, some people's first instinct is to dig.

Your thoughts?

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You and your IRA

I'm still sick. I missed a birthday party last night, I'm missing another one tonight, and my plan to be a pace leader for the first half of a marathon tomorrow (yeah, that would correlate well with the slight OCD tendencies demonstrated so far, wouldn't it?) has gone down in flames. On this Saturday night, it's just you, me, a deep-rooted chest cough, and Chuck - the three-buck variety.

Bleah.

First, the blogger news: I learned a new frugal tip yesterday from Get Rich Slowly. The fine Oregonian who runs that blog noted that people can usually save money on prescriptions - even on co-pays - with manufacturer coupons and rebates. I'm a long-termer on four meds, and two of them offered $10 coupons right there on their websites in front of God and everybody. I owe you, Get Rich Slowly Guy. You da man.

I also wanted to throw a shout-out to one of the key people who inspired me to spew financial rantings outside of my head for a change, Silicon Valley Blogger at The Digerati Life. She came, she saw, she recommended me to you. Thanks, SVB, for helping me pimp my site and get the attention I so profoundly seem to want.

In addition, I would like to congratulate Madame X at My Open Wallet on receiving her first marriage proposal from a blogstalker. Let me note that like Madame X, I, too, am extremely hot. Nevertheless, in spite of having won many lotteries that I never entered and having been turned on to lucrative business opportunities in Ghana and Nigeria by the solicitors of dead businessmen - the actuaries should look at that, actually; the death rate for businessmen in parts of Africa is extraordinarily high - , in the twelve days that this blog has been open, I have yet to receive so much as an indecent suggestion, much less a marriage proposal.

I'm just saying.

But I wish Madame X and everyone else in the PF blogworld endless best wishes and a bull market to go with that.

Now, onto tonight's main topic.

In one of my first posts, I alluded to the fact that Roth IRA's and traditional IRA's (deductible or non-deductible) are different in terms of the way taxes are handled. The Motley Fool does an outstanding job of outlining the basic differences, including not only the taxation question (you pay your taxes up front with the Roth, but the gains are tax-free; with a traditional IRA, you may be able to benefit from tax deductions up front depending on your income), but also other factors like when you can withdraw the money, and whether you can apply it to other uses like a home purchase or education. See what the Motley Fool says; I'm not going to rewrite the article.

One key point that the Motley Fool doesn't address is what taxes will look like in the future, and that's an important determinant of what kind of IRA is best for you. Since Roth IRA distributions are tax exempt (remember, you pay taxes up front before you contribute and your gains are tax-free), if you expect your income to be higher in retirement than it is while you're working, that's a great way to reduce your tax burden. Similarly, if you expect a lower income in retirement than you have now, paying taxes in the future is potentially less of a sting than contributing to a traditional deductible IRA.

However, there's one external constraint: What will tax laws look like by the time you retire?

Look at our current situation. Whatever your political view, it's incontrovertible that although the middle class is paying a higher proportion of the tax burden, overall taxes have declined in the current administration. One way to think of the current policy is Reaganomics on steroids. See this and this for details. (You can look at this as well, but I think the spin on it is horseshit. Some people will say the same thing about the previous two links, though, so caveat emptor.) To summarize, we're currently in a situation of tax cuts at a time of massive budget deficit, which is exacerbated by the billions being poured into the Middle East, while the military is stretched almost beyond endurance. Meanwhile, back home, the Baby Boom generation is gearing up to start leaving the workforce.

Which way do you think taxes are going to go in the decades ahead?

If you said up, then ding ding ding!

We're already seeing this with the Alternative Minimum Tax rearing its ugly head. It hasn't been adjusted for inflation, so more and more people are getting caught in it. The failure to adjust the AMT to continue targeting its intended population is tantamount to a backdoor tax increase, my friends. This is only the beginning, too: we have ugly days and years ahead of us.

If you accept my contention that taxes for most people are going up and will stay up for decades to come, then you might be starting to think that the Roth IRA is a better bet than the traditional. Again, only you know what's right for you: there might be other factors that come into play and deserve equal consideration. Based on my current knowledge and expectations, however, the Roth is the best IRA vehicle for me, and that's where I want to put my money. Now that I have a Roth 401(k) available, I've decided to take the tax bite now and direct all future 401(k) contributions into the Roth as well. It hurts, no doubt about that, but if things play out the way I'm betting, a little pain now is going to save me a lot of pain later on.

Unfortunately, my income has blown past Roth IRA eligibility: at best, I could make only a partial contribution this year, and that probably won't last for much longer either. Rather than wait until next year to see how much I can dump into my Roth for 2007 based on my as yet-unknown 2007 adjusted gross income, this time around I plopped all my 2007 IRA money into a traditional non-deductible IRA. That didn't bother me too much, though, and here's why: If you go to this very ugly website, you'll see that the income restriction for the Roth IRA disappears for good in 2010, so any old Joe or Jane like me can convert a traditional IRA into a Roth regardless of income.

Still, is it the right choice for you? Only you know.

The bottom line here is that when you're making long-term plans for your capital, it's important to consider not only where you plan to be financially, but what your external financial environment will look like when retirement comes.

Keep in mind, however, that the best-laid plans can get blown out of the water. Make the best decisions you can, but stay lean and mean and ready for change. You never know what's going to happen.

What do you think life is going to look like when you hit retirement?

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plumbing the depths of my cheap-ass ways

The Frugal Tip series is a collection of suggestions about saving a buck or two in specific areas; so far, I've covered Food and Health. To show you how truly insane I can be about reducing my overhead, I've decided to post some of the crazy things I do that probably wouldn't fall into any category other than Frugal Weirdness, or maybe Weird Frugalness.

1. I live in New York. My family lives in Oregon. I go to Oregon at least four times a year, and that gives me the opportunity to take advantage of Oregon's lower cost of living and total lack of a sales tax. When I'm out visiting my folks, these are some of the things I do:

• I usually travel with a half or three-quarters empty bag. My mom's a CostCo member, so I tag along as her guest and stock up on shampoo, conditioner, toothpaste, feminine hygiene products, coffee, vanilla, almonds, underwear, socks, minced garlic, and other wonderful things that cost much more in New York. I then pack it into my empty bag and haul it home, paying less than half of what it would cost to buy smaller quantities at retail in New York.


• Any clothes or shoes I need, I buy out West and only on sale.No sales tax, remember?


• I can get a better haircut for $8.95 in Oregon than I can for $12.95 at the scary Supercuts in New York, so that's what I do. My mom looks out for coupons in the newspaper, so my $8.95 haircuts are often $5.95 haircuts.

2. I applied for a Starbucks credit card for no other reason than to get the $10 of free coffee included in the offer. It's my backup card (my other one is 1% cash back), but I've never used it except to cash in the free coffee. Starbucks seems to have wised up, but they still give me $5 credit on my birthday every year. That's the only time I ever go to Starbucks.

3. Trader Joe's is far enough away that I have to commit to a two-hour round trip every time I go there. That's incentive enough to buy three-buck Chuck a case at a time, but it costs more than $20.00 to deliver wine from Trader Joe's to my neighborhood. This is how I get a case of three-buck Chuck home: I take an empty backpack and fill it with six bottles, because that's all I can carry on my back without tipping over backwards. Then I put another six in two bags, and away I go.

4. I like popcorn for a snack: it's relatively healthy (better than chips, anyway) and takes no time at all to prepare. I realized one day that I was probably spending too much money on microwave popcorn even though I was buying it on sale, and the salt and flavorings probably weren't all that healthy. I bought a bottle of popcorn kernels instead and have been using a non-stick pot and an olive oil spritzer to make healthier and cheaper popcorn ever since.

5. Before I buy anything new, I ask around for giveaways and barters. This is how I got a wooden knife block, a magazine exchange agreement, loads of books, CD's and videotapes, and lots of clothes from a spendthrift friend who happens to be my size. My next target is a size four to six evening dress in black or red.

6. Instead of buying a monthly travel pass for work on the first of every month, I calculate the number of days I'm going to be in the office. If it's greater than sixteen, I buy the pass; if it's less than sixteen, I buy blocks of discounted tickets. Either way, it's pretax money thanks to a commuting benefit from work.

(Lest you think I'm a modern-day Hetty Green, let me assure you that I'm not a party pooper about where my friends want to go when we go out to dinner, I give great presents to friends and family, and I'm an excellent tipper.)

What are your most inventive ways to save your pennies?

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Casey fiddles while Rome burns

I had no intention of listening to Casey Serin's live phone-in Q&A session last night, none whatsoever. Unfortunately, I am flat on my butt with a really bad cold. By 10:30 last night, I couldn't stand the streaming eyes and nose any longer and decided to catch the last few minutes of the show in hopes of distracting myself from my own abject misery.

What a disaster.

I can't say that Serin made a good showing through any part of the short segment I heard, but two things in particular really bothered me. The first was that Serin indicated that he has no intention of paying any of his credit card debt for the time being; he'd rather use whatever spare cash he can dig up in doing more "deals." Here it is in his own words:

Yeah, but here's what's going to happen. I pay a credit card, even fifty bucks, that doesn't do anything to the collection process. Here's what happens: it's gonna go and get discharged and then they're gonna try to sue me and try to get that money. So that fifty bucks could have been used better in something where I can actually make money, perhaps doing another deal... *

Wow. Just. . . wow. Setting aside the question of throwing good money after bad for the moment, what kind of hubris does it take to spend someone else's money and then categorically choose not to pay it back? I can understand that if you're in a hole more than half a million dollars deep, chucking fifty bucks at the lender isn't going to amount to much. What I don't get, however, is that the kid doesn't feel obligated to even try to make amends.

The second thing that bothered me was the sheer sense of entitlement I heard in Serin's words. That's evident in the quote above, but it came out even more in the following dialogue:

T: You have to do something to try and right this wrong. Who's the guy who has the blog - I am 344thousand dollars, whatever the hell it is, in debt.

C: Yeah, the Ramen guy, he's eating Top Ramen, he's doing all this other stuff.

T: He's doing the right things. If you would do those things, people would be behind you. People would be giving you suggestions and telling you what to do. Do you understand that?

C: Well, you might have a good point there. But I wonder if that guy's really for real, though. Do you think a person can survive on Top Ramen for six months?

T: Oh yeah.

C: Do you think he can eat that crap and still be healthy and still be safe?

T: Yeah, throw some vegetables in there. Casey, the last thing you need to worry about right now, seriously, is eating your vegan... your mildly vegan... Seriously, you throw some vegetables and a little bit of whatever, some chicken in the top oven. Have some beans and rice, that's fine. Buy a big-ass bag of beans and a big-ass bag of rice and cook it up. *

What I got from that exchange was a reaffirmation of something Serin also stated on his blog; namely, that he didn't feel that he should stop going to Starbucks and Jamba Juice and out to dinner from time to time because he felt that he should be able to continue living a "normal life."

Oy.

First of all, racking up over $150,000 on his own credit cards and his wife's credit cards is not "normal." Using fraudulent loans to buy eight houses in hopes of flipping them quickly is not "normal." Making a public spectacle out of one's idiotic choices is definitely not "normal."

There are plenty of blogs and websites that do a much better job of dissecting this guy's bizarre behavior than I do. In truth, I think it's a sad situation: the guy is obviously very, very bright and creative, but over and over again, he's tripped over his own impulsiveness, inexperience, and sense of entitlement in a very public way.

The sad thing about it is that there's absolutely no evidence that Casey Serin learns from his mistakes.

I said before that I thought Casey Serin deserves to go to jail for fraud, and I still think that's the case. It seems that any remorse he has for the terrible situation he and his wife are in is limited to being sorry for getting caught.

Like calculating insurance premiums, figuring the cost of borrowing money is an actuarial science. Every time you and I take out a mortgage or sign up for a credit card, the financial terms of the agreement ensure that we're paying for Casey Serin and his like to fiddle while Rome burns around them.

What would you do if you were in Casey Serin's shoes?

*Thanks to Exurban Nation for the transcript.

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stupid things I have done

Inspired by My Open Wallet and The Digerati Life, I've decided to share with you - the few, the proud, the Frugal Zeitgeist readers - some of the stupid-ass things I have done with money.

Age 15: I was employed at my first job, busing tables at a Chinese restaurant. When tax time came, I tried to figure out how much tip income I had (because wait staff were required to share tips with busboys/busgirls and dishwashers), but I had never kept track. I gave up pretty quickly and just wrote in zero, thinking that the IRS wouldn't care about a teenager working twelve to sixteen hours a week.

WRONG.

A few months after tax season, I received a rather harshly worded letter from the IRS. It seems that the Chinese restaurant had provided the IRS with an accounting of tip income for all staff, and their numbers didn't match my the big, fat zero I had provided. The IRS went on to tell me that I had a choice: pay tax and penalties according to their calculations or prepare for an audit.

I sent the check off the next morning, and I've been squeaky-clean and scrupulous about my taxes ever since.

Age 19: I stormed down to the bank one day to rant about the $10 that had been deducted from my account. Clearly, it was a mistake: it was labeled as a penalty for not maintaining a minimum balance, but my minimum balance was right there.

The lady at the bank explained to me that not only was minimum balance a reference to average minimum balance over the course of a month, they had been deducting this fee monthly for six months before I noticed.

I made a point of looking at my bank statement much more closely from there on out.

Age 23: I was living and working in Japan. For some reason, it seemed better at the time to buy traveler's checks in $10,000 increments, make them out to my mom, and send them to her to deposit than to just wire the money to my US bank account. I don't think I lost any money doing this, per se. I just wonder why this seemed smarter at the time.

Age 24: I went to an Ivy-league graduate school with no funding and no clear plan for what I wanted to do with my life. I was lucky: I managed to scrape by on savings from two years abroad, and after the first semester I started raking in fellowships and TA-ships. I felt like a fraud in my doctoral program, though, and I ended up completing an MA and then doing a second MA in a slightly more practical field. In 1995, I fell ass-backwards into an internship that I took simply because it paid more than $10 an hour, and that internship morphed into a lucrative career that I'm still pursuing. I can't say I lost money here either, because although I graduated with some minor loans, my folks intercepted the first payment notice and paid them off. Their rationale was that I got through three years of graduate school with two degrees and honors while working my ass off at three concurrent jobs and they thought I had suffered enough.

I said it before and I'll say it again: I've tried to live my life in such a way as to justify my parents' confidence in me. This period of my life was also when frugality and simple living took root in my psyche and became part of who I am.

Age 27: Once I hit the workforce for real, I started my 401(k) and my Roth IRA just as soon as I could. I had just read about diversification of assets so, thinking I was a smart and well-diversified investor, I put 5% of my 401(k) into a money market fund instead of plowing it into mutual funds with the other 95%. This lasted for about six months, when I realized that the rest of my 401(k) was going like gangbusters and my money market fund was just sitting there. I finally gave some thought to my time horizon between that time and when I expect to need it and concluded that with somewhere between thirty-two and forty-five years to go, I could afford to take a little risk. I then moved it into mutual funds like I should have done in the first place.

Age 28: In those early years of investing, I learned a lot. One huge mistake I made was in chasing prior year returns without looking at mutual fund objectives, expense ratios, P/E ratios, management, or holdings. This is how I ended up with a dog like the Strong Schaefer Value Fund and one other that I don't even remember. (It got acquired by someone else and the name changed.) These funds were great when I first bought them - paying top dollar in an overvalued market, of course, but at least I was dollar-cost averaging - but when they started to slide, they bit the dust pretty hard. I finally cashed out after two sickening years. I don't think I actually lost money from my initial investment, but the opportunity cost was huge.

Age 30: I got married. Our wedding was a restrained, low-key dog-and-pony show that we put on solely for our families' sakes, and I don't particularly regret that. Marrying my ex was an expensive proposition, though: he cost me money. He grew up in Britain with a somewhat different perspective on money (there's much more of safety net there than we have in the US), and he had never saved a dime in his life. Probably trashed his credit, too; I wasn't smart enough to check. We had two years of living together before marriage to find out that we were incompatible in many ways, fiscally being one of them. Neither of us were ready and willing to face reality, so we went ahead and got hitched. In the years we were together, I had to watch our money like a hawk or we simply wouldn't have had any. I really did try to show him the magic of compound interest (and help him grow up and be a man, something I couldn't admit at the time), but in his view he was legally chained to a big meanie who didn't let him have all the toys and gadgets and fun he wanted.

The marriage failed sooner rather than later, of course, and I've never tried to figure out the actual cost of the relationship, when I spent money I otherwise would have saved in an effort to reach some sort of happy compromise together. I don't regret the cash I dropped on the divorce lawyer, though. Best ten grand I ever spent.

Age 31: I got caught up in the tech boom and bought horrendously overvalued shares of Microsoft, Cisco, and Dell. I only speculated (because I can't call what I was doing investing) with about $3000, but I've been underwater for seven years now. I'm hanging onto them for no other reason than to remind myself of the cost of believing the hype. Other people have done worse; I know one person who claims to have lost a million dollars day-trading. I don't know if I believe it or not, but ghost stories are another good reminder of the importance of not running around like a crazy person in response to irrational exuberance.

Today: While shuffling around the kitchen making toast and tea (because I'm sick and was working at home), I managed to knock over a brand-new, unopened bottle of olive oil.

It broke.

My counter is concrete. Concrete is porous.

Total cost: about $7 for the olive oil, 99 cents for an entire roll of paper towels, probably about 20 cents for Ajax, and another 7 cents for the pine-scented cleanser from the 99 cent store.

I've never been a shopaholic, carried a credit card balance, or made any real estate gaffes other than waiting too long to buy (but I don't really count that as a mistake, since dividing real estate in the divorce would have made that process even worse than it was). Overall, I guess all of my mistakes are pretty tame.

Of course, there are plenty of things I've done that have cost a lot of money and were totally worth it, like spending three weeks in the Galapagos, going to Paris for my friend's wedding and a nine-day holiday, and traveling through all of Japan by rail. The key to knowing the difference between a worthwhile expense and a stupid one is to figure out where the cost fits in with your income and your short-term, medium-term, and long-term personal, professional, and financial goals.

In other words, my friends, it's all about finding balance and harmony in your life.

What were some things you spent money on and don't regret?

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frugal tips #2: health

I've been fighting something off for three days, and today it finally bit me in the butt. I came home from work and conked out for a couple of hours and woke up feeling dizzy and definitely sick. This is probably the right frame of mind to write about frugal health.

I'm not going to get into the Great Insurance Debate. I'd like to make one statement and leave it at that: Insurance is good. You should have some. There are serious problems with the insurance system in the US, and that makes it difficult for a great many people to have adequate coverage.

These aren't problems I'm prepared to tackle in the context of frugality. Instead, I'd like to focus on prevention.

Fact: Smoking and obesity or obesity-related illnesses are primary causes of a great many health problems in the United States.

Fact: Smoking and obesity both aggravate other health problems and drive up overall health costs.

Fact: Having a healthier base population is both good for the economy and good for individuals because it reduces absenteeism, leads to lower health care premiums (insurance is an actuarial science: healthy people subsidize the costs of caring for sick people, so a healthier base population means lower overall costs), and generally greater happiness.

What are some concrete steps you can take to bring down your own potential health care costs through prevention?

1. If you smoke, stop. I know, I know: this is easier said than done. Smoking itself is costly because of the price of tobacco, but the long-term costs are even higher: emphysema, heart disease, cancer, premature aging, high blood pressure . . . the list continues. If you have children or a spouse, the risks of secondhand smoke are as bad as actually putting cigarettes in their mouths and lighting them. There are a great many products and programs available to help you stop smoking. Don't do it for your budget; do it for you and for your loved ones.

2. Maintain a healthy weight. Also easier said than done, but well worth it. One common fallacy that contributes to weight problems in this country is the assumption that a restaurant serving represents an appropriate serving size for an adult. In most cases, it doesn't: instead, it's two to four times as much food as an adult is supposed to eat. It takes attention and discipline, but a general rule of thumb is to plan on taking at least half of a restaurant meal home every time you go out. Dividing the food on your plate as soon as it comes is one way to do it; if it's too difficult to stick to eating only half while it's on the plate, it's perfectly okay to ask the server for a doggie bag as soon as the food comes.

Another rule of thumb pertains to convenience food. In general, home-cooked is healthier and cheaper than restaurant food. (Fast food is an exception, but I don't count products from McDonald's and other fast-food chains as food). The closer your food is to its natural state, the better it generally is for you. Keeping an eye on sugar, trans fats, saturated fats, and yes, calories will help you maintain a healthy food intake. You can get more detailed information from the USDA's food pyramid website and related links.

3. Moderate alcohol intake. While the scuttlebutt in the news today is that a glass of red wine a day is good for you, too much alcohol increases the risk of alcoholism and contributes to general health problems. In general, it's an unnecessary expense; on a tight budget, it should be considered no more than a once-in-a-while luxury.

For some people, it also contributes to inadvisable phone calls or emails. I'm just saying.

4. Use it or lose it. Anyone looking for a magic bullet for getting thinner and healthier need look no further: exercise is the fountain of youth. I wouldn't presume to tell you what exercise to do: the best suggestion I have is to find something you love (or can grow to love) and do it for an hour a day, six days a week. You won't believe the benefits.

5. Say aaah. Once a year, whether you think you need it or not, get a full checkup and bloodwork. This is especially important if either of your parents have developed heart disease, kidney disease, or other potentially hereditary conditions. Bloodwork is often an early-warning sign of problems on the horizon, sometimes the only one you get. Women, this one is a do as I say and not as I do, but see your gynecologist (yeah, I don't really do that) and get an annual mammogram if you're over 40 or according to whatever time scale you and your doctor think is appropriate.

As an aside, I've noticed that many older people grew up with doctors who made house calls and spent more time with their patients than is common today. If you're not satisfied with your medical care, you are the customer. Fire the doctor and find someone you can work with. In this day and age, you must be your own medical advocate. My parents haven't been able to adjust to this mindset, and the end result is that my sibling and I have to be very involved with their medical care and act as advocates on their behalf.

People, this is exhausting. Don't put your adult children through this. If you wouldn't put up with bad service in a restaurant, do not tolerate it when it comes to your own health. It's your job to educate yourself on your condition and be an active partner in the decision-making for your care.

Sermon over.

6. Keep your germs to yourself. If you're sick, stay home. Bringing your illness to work spreads germs and won't make you any more productive. If you need to take a sick day, it's your responsibility to yourself and your colleagues to do that.

7. Manage stress. Some people use yoga. Some people meditate. I blow it all out with exercise, and I'm much healthier for it. In truth, stress is a killer. Many employers have Employee Assistance Programs to provide counseling and mental health treatment services at reduced or no cost. If you have one, don't hesitate to take advantage of it.

8. Drink water. Drinking water helps flush out toxins and prevents dehydration. Anecdotally, I've noticed that it gives my skin a certain healthy glow that fades away when I haven't been drinking enough. Although many people drink bottled water, I don't generally recommend it. Unlike city water systems, bottled water isn't generally fluoridated and your teeth will know the difference. In addition, bottled water is much more expensive than drinking tap water, and the amount of PVC-laden landfill garbage generated by discarded water bottles is phenomenal. I find that a refrigerated Brita filter tank is easy to maintain and does a great job of removing impurities. It's just as easy to put filtered water in a reusable bottle as it is to buy a bottle, and it's definitely cheaper and gentler on the environment.

9. See your dentist. Lack of adequate dental care can result in gum disease and tooth loss. In addition, like bloodwork, dentistry is often a key to the only warning signs you might get for serious health problems.

10. Brush and floss. Correcting dental problems is expensive. Preventing them is cheap.

11. Manage pre-existing conditions. If you have chronic conditions, it's important to partner with your doctor in understanding them and minimizing their impact. Some conditions take more management then others. I have Hashimoto's disease and asthma (coming up on my one-year anniversary with that one), but knowing the symptoms of my conditions and changes to look for helps me get the help I need to keep these conditions effectively controlled. The end result is that they have little to no impact on my day-to-day life.

12. Take a multivitamin. Most women should take calcium as well. Although ideally, people should get all necessary vitamins and minerals from diet alone, in practice this is not that easy to do. Multivitamins help fill in the gaps, and that'll help you maintain optimal health.

There's obviously a great deal more that could be added, but that's a start. What are your tips for maintaining and improving your health without breaking the bank?

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early payoff: the great mortgage debate

The New York Times published a brief article in Sunday's Real Estate section about the great payoff debate: does it really make sense to pay the mortgage off early?

The article notes that this isn't a simple yes-or-no question (duh) and that there are a great many factors that need to be taken into consideration. In the con camp, people who have been able to benefit from low fixed rates may well be better off investing their extra money in the stock market instead: despite the current turbulence, historic market returns are about 9% over twenty years. When you factor in the fact that tax benefits for mortgages reduce an effective interest rate of 6% to about 4% (give or take; depends on your tax bracket), that's even more of an incentive to forego the early payoff.

Having said that, there are also strong arguments in favor of paying off the mortgage early. People with artificially low "teaser" rates that come from having an adjustible-rate mortgage have a great incentive to make as much headway as possible before their rates start floating with the market: not knowing how much your payments will end up costing is pretty scary.

I'm not sure that many people with ARM's actually take that perspective, but that's how I look at it.

In addition, not having house payments means lower living expenses; that's a huge bonus in an uncertain job market. Having home equity also means having a potential line of credit in case of an emergency, though I tend to think that that should be among the pool of options to be exercised only as a last resort.

Looking at it more quantitatively, there's definitely opportunity cost from not investing extra money in the stock market. The resulting bleed can be mitigated somewhat by making the payoff period very short indeed - a few years as opposed to dragging out early payments for ten years or more.

If you've read any of this blog so far, you'll already know that I'm paying my mortgage off early: six years and ten months if I can stay on my present course. Even if the numbers don't fully work to my advantage, the peace of mind is priceless. I'm hedging my bets, though, and here's how I'm doing it:

• I have no debt other than my mortgage. If you have medical debt, student loans, or especially credit card debt, prepaying probably isn't for you: the interest rate on your mortgage is likely to be less than any other debt, so it makes sense to tackle the other debt first.


• My 401(k) is fully funded. So is my IRA. Those two investment vehicles are non-negotiable: if I have to reduce my mortgage prepayment to fund my retirement, I will.


• Before I started aggressively prepaying, I saved up enough money for a decent-sized mutual fund portfolio outside of retirement savings. I could sell it off and pay off my mortgage tomorrow, but I think the risks of becoming less financially diversified outweigh the benefit of cranking away at my current pace for another twenty months.


• I have a cash-based emergency fund, and that's been a tremendous benefit over the past few years. I've had to tap it more than I'd like for very good reasons: four major appliances died and had to be replaced (refrigerator, dishwasher, and two air conditioners), and I've had to make several unplanned cross-country flights with very short notice to respond to family emergencies. Having an emergency fund means that I was able to do this without incurring any debt or having to tap longer-term assets like my mutual funds. Having said that, my emergency fund is no longer as robust as I'd like it to be. As a result, I backed off on my mortgage prepayment a few months ago and am rerouting some of that money to rebuild my emergency fund.


• I have adequate health and dental insurance. As a result, I'm confident that an unexpected medical crisis won't significantly derail my savings plan. (I'm also really fit and healthy, though: again, I'm hedging my bets.) I have two minor immune system disorders that are controlled but require ongoing management; as a result, health insurance is not something I can afford to do without.


• I live simply and frugally, and I'm disciplined about my budget. Part of what keeps me on track is knowing that in twenty months, my financial life will gain significantly more flexibility.


• My job seems stable for at least a while. Even if it's not, the fact that I have broadly diversified assets and an emergency fund means that I can afford to be unemployed for a while without going bankrupt.

In short, while I think that paying off one's mortgage early is generally good, there needs to be a specific set of circumstances in place to make it the best decision in terms of one's overall financial well-being. I've worked hard to get to that place, but if I can do it, anyone can.

Outright home ownership brings peace of mind like nothing else.

What's it worth to you?

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frugal tips #1: food

According to InformationBuilders.com, New York City has something like 19,000 restaurants. Housing space being at a premium, many apartments don't have very large kitchens. For a one-bedroom or studio apartment, this much space is pretty standard:

As you might imagine, plenty of people in New York (Manhattan, anyway) simply don't cook at all. If you're looking to save money and maybe do a little somethin' somethin' for your health as well, cooking your own meals is a good place to start - if you do it right.

What do I mean by doing it right?

Well, cooking isn't going to save you any money if your menu includes things like shrimp, wild salmon, and organic everything on daily basis. I dated someone once whose was in debt up to his eyeballs with a divorce, a house and yard that were too big and needed thousands of dollars of work, and a business that was near collapse. When I timidly suggested that maybe adjusting his epicurean grocery habits might be one way to start stemming the massive financial bloodletting, he told me indignantly that top-of-the-line food was for his health and it was therefore non-negotiable.

Oh.

Didn't know that full-fat Ben and Jerry's was health food, but it sounds pretty good to me.

In all seriousness, that line of thinking isn't going to get you too far when it comes to reducing your grocery bill. If you can stand to be a little more flexible, here are some tips and tricks I learned as a broke grad student and still rely on today:

1. Make meat an accessory
Instead of basing meals on a big chunk of meat and some other stuff, focus on the vegetables first and add meat in only for flavoring. Your meals will be lighter and healthier, and using less meat lowers your grocery bill.

2. Beans, beans, the musical fruit
Brown rice and beans (pretty much any kind) are a great source of protein and very filling. If full-on vegetarianism isn't for you (and it isn't for me; I get too anemic), rice and beans can substitute for meat in a whole variety of ways several times a week. If you really want to go el cheapo, you can buy dried beans, soak them overnight, and cook them for two hours. You'll have much less sodium and five times the volume of a single can of beans for about the same price. Beans also freeze well. No, really, they do. I've been doing it for years.

3. Plan your meals around loss leaders
Loss leaders are products that stores put on sale at or below cost to get people into the store. Loss leaders often turn up in sales; learn how to identify them and plan your meals around them. This means planning your meals in advance a week or more, so it takes organization and a little time poring over sale ads.

4. Shop with a list
While you're looking at the sale ads, make a list of what you need and stick to it. Impulse buys feel great at the time, but they can do serious damage to your wallet before you're out of the store.

5. Don't shop when you're hungry
You'll buy more and you're more vulnerable to impulse buys

6. Use coupons where possible
I don't have much use for coupons because most of my shopping consists of whole-grain bread, fresh fruit and vegetables, dried (sometimes canned) beans, chicken, and three-buck Chuck. I did score two boxes of dishwasher detergent for a dollar recently when I happened to hit a coupon sale that coincided with a manufacturer rebate, though. Your mileage may vary.

7. Stay away from the processed stuff
Highly processed food is full of sodium, chemicals, and other nasty stuff. Sometimes it's cheap (like Top Ramen) and sometimes it's really expensive; either way, it's usually not very healthy. You can do a better job cooking on your own.

8. Save time: cook in volume
Seriously. Make enough food to freeze or to last several meals, and then cooking becomes much less onerous. It doesn't bother me to eat the same thing three or four days in a row; if that's true for you as well, then this tip should be an easy one. An added bonus is that buying food in volume (think CostCo or family packs) is cheaper, so you'll save money as well as time.

9. Stock up on loss leaders
This tip requires building some flexibility into your budget: when you see something at a really cheap price that you can either store or freeze, it pays to stock up.

10. Be flexible
Whoever invented boneless, skinless chicken tenders must be laughing all the way to the bank. All it takes is a sharp knife and an hour to convert a family pack of chicken breasts to (freezable) chicken tenders at half the price - less if you catch a good sale.

11. Bring your lunch to work
When I worked in midtown Manhattan, I was the only freak who did this; everyone else either went to the cafeteria every day, went out to lunch every day, or brought lunch back from outside every day. That's fine if you don't have other plans for your money, but I do. By bringing both my breakfast and lunch to work, I figure I spend about $2 a day for two really nutritious meals. How does that compare to what you spend?

12. Moderately-priced alcohol in moderation
I'm from Oregon, home of more microbreweries per capita than anywhere else in the country. In my world, no beer is better than bad beer, so I only drink beer at home once in a blue moon. When I drink it, I buy the good stuff. I do drink red wine pretty regularly, but unless I'm going to someone's house and taking a bottle of wine as a hostess gift, it's three-buck Chuck in this house.

What about organic and free range?

This is a tough one because it requires balancing cost against personal values. Only you know where an acceptable balance lies for your psyche. Speaking strictly for myself, I hate factory farming; I buy cage-free eggs because I can't stand the thought of factory farming. Cage-free eggs are expensive; thus, I only buy a dozen once every three or four months. I buy frozen chicken breasts in bulk from Trader Joe's because they're hormone-free. Are they free range? I'm not sure. I do know that I'm twenty months away from owning my home outright, and that makes me not want to dig too deeply into that question.

I don't buy beef because I don't like it, so treatment of cattle is not an issue I've faced in the grocery store. I buy organic fruit and vegetables if there's less than a ten percent cost differential from non-organic, and I buy locally when I can. This is New York City; it's not always feasible.

One thing I'm doing this spring in hopes of better harmonizing my food intake with my social conscience without breaking my budget is subscribing to Community Supported Agriculture. This means that I'll pay a couple of hundred dollars up front for twenty-four weeks of fresh vegetables grown organically on a local farm. It also means taking on the farmer's risk: if weather destroys crops, well, too bad for me as well. The costs work out to about $10 a week for a variety of organic vegetables throughout the summer and fall harvest seasons. I think it's worth a try, and I'll let you know how it goes.

There are many more great ways to save money on your grocery bill. How do you do it? Drop a comment and share the wealth.

(No more gay Casey Serin cracks, please. Look at his own blog; that one's played out.)

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splat goes the stock market

In a slight digression from budgeting, I wanted to salute the Dow Jones Industrial Index for taking a dump of 242 points today. According to analysts, the housing market bubble has well and truly collapsed, and that has significantly contributed to the current economic jitters.

So what happened?

Well, part of it is that we realized collectively a while back that they're not making any more land. The scarcity of land, plus low interest rates and ongoing good news about employment fueled demand for mortgages: low interest rates made it easier for people to buy homes for the first time or upgrade from existing home ownership. Housing prices started creeping up in response to demand.

I thought it was crazy when I bought in 2001: at that time, Manhattan apartments were on the market for a very short time. Competing offers were normal and many places sold for much more than the asking price. I bought two days after 9/11 and was only able to do so because a buyer who had already had an offer accepted on my dream home panicked and backed out. I managed to avoid a bidding war with three couples by offering the full asking price straight up. I was lucky enough to be the first, and I won.

That was bad enough. It got much worse than that, all over the country.

When housing prices started skyrocketing, builders started building more housing. Much of the new housing on the market was comprised of these ugly-ass McMansions that people seem to love so much: they commanded outstanding prices and they gave people oodles of interior space, often crammed onto tiny lots.

If you build it, they will come. . . and come they did. The only problem was that not that many people could afford these monstrosities. The market responds to demand, though, and sub-prime lending (that's lending for people who are not such a great credit risk) boomed and boomed. Jumbo mortgages at adjustible rates with zero percent down were snapped up; sure, adjustible rate mortgages are fixed for only a couple of years and move with interest rates after that. That's not a problem as long as interest rates are low.

Seasoned real estate professionals found that they could make a fortune doing fix'n'flip, and that drove prices higher. It didn't take long for uneducated speculators to do the same; Casey Serin is the poster boy for all the people who looked at real estate, saw a quick buck, and let greed get in the way of judgment.

And then interest rates began to rise.

And ARM rates began to float with the market.

And the foreclosures began.

And home prices started dropping.

And dropping.

And dropping.

Now there's an excess inventory of ugly-ass homes that won't sell, and many people who creatively financed their homes can no longer afford their mortgages. End result: people are losing their homes right out from under their feet. Poetic justice? In some ways, yes. There's a significant element of personal responsibility here: people are accountable for their own actions, and many of them simply got in over their heads when they should have known better. Some people knowingly committed mortgage fraud; I think Casey Serin deserves to go to jail. Apparently the DoJ is interested in him as well; I've spotted them at least twice in his site meter report.

Borrowers aren't the only problem, though. Lenders are also at fault. Distribution of an excess of mortgage credit to people who were obviously poor credit risks helped trigger the meltdown. Willingness to collaborate in cash-back fraud schemes exacerbated the problem. The end result is probably for the best: it's going to be a lot harder for first-time buyers and poor credit risks to get mortgages in the future. That's as it should have been in the first place: foreclosures hurt all of us. The actuarial risk of default is factored into everyone's mortgage costs, and that means that any homeowner who needs financing pays for other people's dumb decisions.

Now, how does this factor into the stock market taking a crap?

Simple. Many mutual funds are heavily invested in sub-prime lenders. Those stocks took a hit, the shock wave went through the market, and stockholders got spanked.

The end.

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holding back the flood

One month of faithfully tracking your expenses (and I can't stress that faithfully part strong enough) will tell you where your money's going. If your experience is typical, you're spending a great deal more than you thought you were: little dribs and drabs here and there add up fast.

Knowing where the money is going is the key to building an effective budget, and that's the next step in changing your spending patterns. This is how I built my budget:

1. I collected pay stubs for a period of time and reviewed them. If you have a variable income, this step is particularly important. That tells you your inflow.

2. Taking into account the pay yourself first principle, I allocated money to my 401(k). If you have a 401(k), you have access to one of the most powerful savings tools that exists in the US economy: with a traditional 401(k), the money is taken out pre-tax, so your tax bill goes down today. That means less of a hit to your paycheck because you don't pay taxes on what you're putting away. If you have a Roth 401(k), your tax bill doesn't go down today but you'll pay no taxes on the earnings in retirement. Which is better? It depends, and we'll discuss that in another post.

It's best to max your 401(k) out if you can; the limit is $15,500 in 2007 and it's indexed to inflation, so the limit goes up every year. If you can't max it out, you should definitely put in enough to get whatever company match is available (if you have one). This is usually 6%.

When figuring out my budget, I also figured out my annual IRA contribution ($4000 in 2007; $5000 if you're over 50) and set aside money to save up for that over time. Again, you have choices: Roth IRA, traditional deductible IRA, traditional non-deductible IRA. Your income determines your options, and we'll discuss that in another post as well.

If you still have more money than you need for daily expenses after figuring out your retirement contributions, it's time to look at other investment options. Some people put that money towards mutual funds or save up for a house. I'm using it to pay off my mortgage in seven years. There's no right answer for everyone, and in my case it's a peace of mind thing.

3. Remember the categories I suggested you create for recording your expenses? I used mine to make a judgment call about whether each expense was fixed or variable. In my case, the mortgage and co-op maintenance are fixed; they need to be paid every month and the cost is always the same. Most other expenses are variable: they need to be paid, but I have a great deal of influence over the cost. Heating bill too high? Turn down the thermostat. Spending too much money on eating out? Cook at home more. Make sure you factor in periodic payments (annual or semi-annual) like homeowners' or renters' insurance, too.

4. Once you've labeled each expense category as fixed or variable, spend some time determining whether the amount you paid for each of your expenses is typical for any given month. That will help you decide what amount to target for each category.

This process also involves being able to distinguish between wants and needs. Food and housing are needs, but that doesn't make them sacred cows. Food is a need, but there's also a great deal of flexibility in that category: on the whole, cooking is usually cheaper (and hopefully healthier) than eating out. If you eat out most of the time, getting in the habit of cooking at home and making eating out a sometimes-only thing will generally be beneficial to your budget. Housing is a need, but you have a great deal of latitude in defining how much space is enough and what area is affordable according to your financial circumstances.

A great many other things we spend money on are wants, and that's where you have the greatest ability to make a dent in your spending and start saving. Which leads, of course, directly to the next point:

5. Don't make your budget so tight that you can't have any entertainment or little treats at all. The operative concept here is having them in moderation. Think of it almost like a diet: treats in moderation will help keep you from going off the rails and blowing your budget completely when you feel deprived. In moderation doesn't necessarily mean daily. A Starbuck's tall latte costs $3.60 (I think) in New York City. If I have one a day at a tax rate of 8.25%, that's $27.28 a week. That sounds pretty reasonable, right? Extrapolate that to an entire year and you end up with a total cost of $1418.51.

Yep. Almost one and a half thousand dollars literally pissed right down the drain.

It's enough to make you drink coffee at home on the weekend and stick to the free coffee at work the rest of the time. (Personally, Starbucks' lattes are about a twice-yearly indulgence.)

At any rate, what that example was meant to illustrate was that small spending modifications can and do have a big impact over time.

6. Compare your budget against your income. If there's a deficit, then you either need to cut your spending further or increase your income via a second job or a higher-paying job than you have now.

7. Keep tracking your spending and compare it to your budget every month so you can fine-tune as necessary.

There are plenty of jumping-off points for next steps, but the direction I'd like to follow is tips and tricks for saving money. Even in New York, there are plenty. To the truly demented like myself, saving money is amost like a game. When I win - well, I win! You will, too.

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DE-fense! DE-fense! DE-fense!

In The Millionaire Next Door, authors Danko and Stanley state that a good income is just one component of building wealth; the other is saving and investing. Danko and Stanley refer to these two foundations of wealth as playing both good offense and good defense.

How true that is.

Have you ever noticed how people's standards of living tend to increase as their incomes increase? More income usually leads to more and better cars, homes, clothes, entertainments, you name it. That's all well and good in moderation, but for many people, establishing limits is easier said than done.

Television and other media perpetuate the hype: in The Overspent American, Judith Schor states that a declining sense of community and neighborhood affinity has led the "keeping up with the Joneses" syndrome to become more of a situation of "keeping up with the [name your favorite sitcom character here]". In other words, it's increasingly common for people to compare their own standards of living against those of fictional people on television, which is hardly an accurate representation of reality. Think back to Rachel's and Monica's purple Manhattan apartment on Friends. Early in the series, Rachel was a waitress and Monica was a chef. After fifteen years in New York, I can tell you with all certainty that no one working low-paid jobs like that would be able to afford the kind of clothes and market-rent apartment that Rachel and Monica had. I've been a corporate professional for twelve years and I couldn't afford to live like that and fund my retirement and save enough money to buy an apartment of my own.

In addition, how many people know to within a few dollars how much money they spend every month? A great many people think they do, but data from the Department of Commerce suggests otherwise: for two years, the average savings rate in the US has been below zero. Catastrophic illness and joblessness contribute to this figure; of that I have no doubt. I don't think that's the entire story, though. Unless a great many people are deliberately setting out to live way beyond their incomes, I suspect there's a fair amount of genuine delusion and denial out there.

So, how do people get better at playing a good game of financial defense?

The most powerful and eye-opening tool I've ever seen for getting started is maddeningly simple:

Track your spending.

This means that for a full month, every penny spent - every penny, no matter how small the purchase - gets recorded in a notebook or on a spreadsheet, preferably split into categories (food, housing, medical, entertainment, and so on). For people who haven't had much discipline with spending in the past, one month of tracking spending can be both a shocking eye-opener and a tremendous motivating factor to clean up what often looks like a financial pigsty. Undoubtedly, some people will look at the monthly total and run around in circles screaming. Denial ain't just a river in Egypt.

For people who can get past denial and face the reality of what everyday living costs, here's a topic for tomorrow:

Once you know where the money's going, how do you plug the leaks?

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What's a frugal zeitgeist?

fru·gal
–adjective: 1. economical in use or expenditure; prudently saving or sparing; not wasteful: a frugal manager.
2. entailing little expense; requiring few resources; meager; scanty: a frugal meal.

Zeit·geist
-noun: the spirit of the time; general trend of thought or feeling characteristic of a particular period of time.

In this day and age, I think the term frugal zeitgeist is almost an oxymoron. However you describe the spirit of the times today, I doubt you'd use the word frugal. That word evokes images of the Great Depression: bread lines, soup kitchens, The Grapes of Wrath. It also suggests the darning socks, ration cards, Liberty cabbage, and victory gardens of World War II.

Despite all the material wealth in the country today, the savings rate in the US is below zero. Millions of people struggle to make ends meet, and millions more are only a couple of paychecks or one moderate health crisis away from financial collapse. Frugality isn't the zeitgeist for aging baby boomers and Gen X-ers approaching middle age, but maybe it should be. What happens otherwise? Working for the man till we drop dead at the office?

I don't want to be in that boat; I had plenty of practice seeing what living in debt feels like when I was a starving grad student a decade and a half ago. This blog is where I'll look at elements of the current economic situation and trends in the US and talk about how I got from being a broke grad student to where I am today: healthy body, healthy mind, healthy portfolio, and less than two years before my home is paid off completely.

Hope you'll come along for the ride.

Till next time.

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