frugal tips #4: clothing

A post inspired by having ripped my last pair of pajamas. . .

Disclaimer: This is about women's clothing only. I don't understand men's clothing. My metrosexual ex-boyfriend tried to explain something about knots in ties for me, and all I could think was BFD. Who notices that stuff?

This may help you understand why he is an ex.

Women's clothing is also unnecessarily complicated. It's possible to simplify it while getting more bang for your buck, though. Here are some ways to do that:

1. Pick two or three neutral colors and use them as a base.
Neutral colors like black, grey, and white match each other and match everything else. That gives you space to make the occasional foray into something a little brighter, like red or orange, without creating wardrobe havoc. It also makes getting dressed a snap for the color-challenged.

2. Avoid patterns. Ever wonder why patterns change radically from season to season and year to year? It's because patterns that are immediately recognizable as being "old" or out of style make a wardrobe look dated, which facilitates churn. Solid colors have significantly more life than patterns.

3. Stick to classic styles. Classic styles are eminently wearable over time because, well, they're classic. You may not look like a fashionista trendsetter in the moment, but you'll get more mileage out of your duds over time.

4. Don't pay retail. Product lifecycles are getting shorter all the time. If you can identify a few favorite stores and get an idea of how long their product lifecycles last, you'll be able to predict and take advantage of sales.

5. Don't impulse buy. Plan out what you're looking for, set a cost limit, and stick to it. Once you've fulfilled your mission, leave.

6. Shopping is not entertainment. Some people love it; I think of it as facing down tactics to part me from my hard-earned cash. I never set foot into clothing stores unless I have a specific objective and have done my homework in terms of competitive pricing. With the advent of the interweb, you don't even have to leave the privacy of your sofa to comparison shop.

7. Know your body and what flatters it. No matter how much you like the look of something on someone else, it might not be a good match with your body type. If you can't figure this out for yourself, have a friend who's not afraid to speak his or her mind come over. Model some outfits for your friend and solicit honest input about what works and what doesn't.

8. Price and quality are not always related. I noted in a previous post that shopping involves a trade-off between price and perceived outcomes. Rather than do cartwheels trying to convince yourself that price is always an indicator of quality, it's better to be in touch with the real motivations behind wanting a specific item. Is it because it's trendy? Is it because there's status value associated with it? Knowing your motivations can help you proactively influence your buying behavior, and that can save you a lot of money over time.

9. Buy in multiples. This sounds counter-intuitive; buying multiples of the same item costs more money, right? Not necessarily. If you're buying multiples of something that's useful, integrates easily into your wardrobe, and is a substitute for buying other, pricier items, it can actually work to your benefit. I do this frequently: If I've found something that works for me, I usually buy two black, two grey, and one other color, and then get rid of the five worn-out items the new purchase was meant to replace.

10. Maintain your weight. My weight can fluctuate five pounds in a day depending on the PMS. I don't like having to maintain different sets of "fat" and "skinny" clothes, so when I shop, a key factor I keep in mind is that whatever I'm buying has to accomodate my PMS bloat (I can see Shadox running in circles with his hands over his ears screaming at this one), but it's otherwise up to me to keep my weight at a normal and reasonable level. If I don't, my clothes won't fit and I'm too cheap to replace them. It's that simple.

Given that we're coming up on summer, I have one plea for the ladies in New York: if you're wearing white pants this summer, please wear underwear. You have no idea how bad it looks when you don't.

Unfortunately, I do. I'm usually stuck walking behind you.

Le sigh.

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conference clutter

Conferences. What great places to pick up free stuff.

Or are they?

The conference I'm at is actually quite restrained relative to what I saw in the boom-boom dot-com era. Nevertheless, there are vendors flogging various neat little branded products that are free for the taking. So far, I've ended up with a computer bag (basically useless; I use backpacks, but I know someone who can use it) and a really ugly T-shirt that I'll use to clean the house when I get home. Aside from the registration giveaways, I focused on picking up granola bars, mints, and other edibles. I succumbed to the lure of a blue and red light-up yo-yo, but I came to my senses as soon as I spun it out to walk the dog and smashed it on the floor. I could have replaced it, but at 38 years of age, I can probably get by without a yo-yo.

I also picked up a very neat flashlight from a company I completely dissed when they visited us on-site last year, and then went and asked for another for my mom. My mom really does want a flashlight, so I can't work up a lot of guilt about that. The flashlights come with the same size batteries that I use in my smoke detector, and I already have someone in mind for the other flashlight shell; I'm pretty happy with the Maglite I already have, so that's the last thing I need to be dragging home.

The point I'm trying to make here is that picking up junk at conferences is largely an automatic reaction: many of us do it just because it's there and because our employers are paying for us to be there. Be honest with yourself, though. How many stuffed monkeys wearing branded T-shirts, yo-yos, T-shirts with obscure vendor names, and coffee mugs do you need?

Not very many, as it turns out.

The junk already exists; you're not going to save the planet by leaving it with the vendor. The less crap you bring home in the first place, though, the less stuff you have to throw out later on. Call it what you want, but I call it peace of mind.

In the meantime, I seem to have landed about twenty granola bars. Anyone want one?

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it's all about meme

The gracious Tired But Happy tagged me for a meme doohickey thing called Five Obsessions. Here you go.

1. Security. This is a pretty broad brush. First and foremost, it's financial security. I regularly go through the exercise of Do I have enough? What would happen if I lost my job tomorrow? How long could I be unemployed? What's my backup plan if something bad happens? I lived in New York before, during, and after 9/11 and have survived three layoffs. Both of those things have made my obsession with financial security stronger.

2. Fitness. I may have alluded to this elsewhere, but I've been physically active since I was thirteen years old and realized what my gene pool had in store for me if I didn't do something proactive about it. I'm a four-time marathoner and with a sub-3:45 in New York in 2006, I'll be lining up in Boston in April of 2008.

3. Family. My parents are coming to the end of their lives, and that's not an easy situation to bear. Family means everything to me, and one of my greatest fears is not doing my best for my parents while they're alive and then, after they're gone, having to live with the guilt of knowing that I didn't rise to the occasion. It's pretty good motivation for doing my best, all the time.

4. My home. Buying an apartment on my own in Manhattan was not easy. I fell in love with my tiny home from the moment I first saw it, two or three days before 9/11. At the open house, I marched up to the realtor and said I'll take it! He laughed and said It doesn't work like that, explaining that the apartment already had an accepted offer and that they were merely looking for a backup buyer. I left my name and number on the sign-in sheet, along with a note that said Please call me if this sale falls through. I will buy this apartment.

Well, y'all know what happened a few days after that.

The following week, as we started shuffling back to work with the acrid smell of burning plastic in the air, my friend who was representing me in my apartment search called me to tell me that the apartment was back on the market. Turned out that the buyer worked for Morgan Stanley, which was based in the World Trade Center. He survived but pulled out of the deal on the grounds that he no longer had a workplace, wasn't sure if he had a job, and wanted to get the hell out of New York either way. I put in a low offer and then heard that four couples were about to make offers, so I upped my offer to the asking price. It was accepted. A week or so later, I went incognito to the open house that was held in search of a backup buyer and dawdled for almost an hour listening to other people gush about how much they loved the apartment and making plans about what to do with it if the current offer fell through.

The sale closed three months later and I've never regretted it for a moment.

5. Animals. I don't have a pet of my own, but I love animals. I know all the dogs in my building and some of them come by every Friday when I'm working at home to say hi. Every Sunday, I still visit a roommate I haven't lived with for ten years because I don't want her cats to forget me. There are very few safer outlets for an outpouring of love than a pet, and one day I'll have one of my own. Until then, I'll love everyone else's pets as much as they'll let me.

Want to play? I'm calling on Zachary, Limeade, Saving Simply, Grown Azzed Woman, and Shadox.

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vanity, thy name is Frugal Zeitgeist

Greetings from sunny Las Vegas, where I'm currently at a meeting for work. Updates this week will be sparse, but I'll do what I can.

For anyone moved by the entrepreneurial spirit, I have a suggestion for you.

Mousse.

Hair mousse.

Let me explain.

I have a shock of long, straight-straight Scandinavian blonde hair (real blonde, thank you, not that bottle stuff) that causes me no end of issues. Issues are kept to a minimum with liberal applications of mousse, and therein lies the dilemma: Any non-solid substance that comes in quantities greater than three ounces is banned in carry-on luggage by the TSA.

Personally, I've never seen a three-ounce can of mousse. This means that unless I check a bag, which I'm not usually willing to do, I need to buy mousse at my destination. This is at best an irritant: since I can't get it in quantities of three ounces or less, I can't take the unused portion back home in a carry-on. Thanks to this confluence of events, much of Western Europe is dotted with cans of my abandoned hair mousse.

I could probably live with this, even factoring in the sticker shock incurred by the dollar's exchange rate againt the Euro and pound sterling; my experience outside of the US has been that most airports do have drugstores that carry the stuff, and the convenience factor makes dropping a few bucks on it after getting through customs bearable, even if I can't take it home. Within the US, however, it's a different matter. Yesterday, there was no hair mousse to be found in Las Vegas International Airport. There was also no hair mousse to be found in this fancy-ass hotel-slash-casino to which I have been sentenced for the next five days. There are fourteen restaurants including not one but two Starbucks outlets, but there is no flipping hair mousse. As a result, I spent my post-flight Saturday afternoon hiking down a very large and busy road in Vegas looking for a drugstore.

I found one within half a mile or so, but given the lack of small-size availability, I ended up with an 11.5 ounce can of mousse that will once again be left behind in the hotel bathroom.

Entrepreneurs, I'm begging you. Please find a way to manufacture cans of mousse that are no larger than three ounces and get them stocked in every drugstore in Manhattan. If you can't do that, please take the smallest size you can make and get it stocked in airport shops and fine to moderately crappy hotels nationwide.

I'll make it worth your while.

I promise.

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blogger interview #2: limeade

Limeade was one of the first bloggers I "met" online. He's a 26-year-old guy with an innate sense of curiosity and penchant for quiet contemplation, and he's far more sure of his path in life than I was at his age. I hope you enjoy this look into limeade's world as much as I did.

1. You seem to have given a great deal of thought to financial planning at an early age. How did you develop an interest in personal finance?
Growing up, I watched my parents continually struggle financially. When I was about 13, my older brother and I started a lawn mowing service which morphed into more of a landscaping business. This was my first exposure to earing money. I never received an allowance and since we never really had a lot of money I was pretty particular about what I did with the money I earned. I remember stashing cash in multiple envelopes in my desk drawer each labeled with a different purpose. From this point on in my life, I never received any money from my parents (aside from food and a place to live), and everything I had, I had worked for.

I learned to respect money because I knew how hard I had to work for it. My brother and I didn't look at how much something cost, but rather how many lawns we had to mow in order to afford it.

At this young age I knew that I'd be rich one day and be able to take care of not only me but my parents and others as well. As I got older, I just needed to find out how.

The summer before my senior year of college I was on an internship. At school, I was in class during the day, and I worked at night (college isn't cheap). On the internship, I had all this free time in the evenings; so I went to library and read book after book about personal finance, business, and investing. A whole world opened up. I continue to read and learn, and I look at business and investing more as a game. Money is the scorecard and I'm playing the game to win. I want to be financially free by the time I'm thirty and finally retire my parents.

2. Real estate is one of your key interests. Do you see yourself making a career out of real estate investing at some point? If so, how? If not, why not?
I do have a huge interest in real estate. I see it as a great vehicle for building wealth. It's also very much a people business, and I love people. As far as investing goes, I'm looking for cash flow producing investments. Real estate just so happens to be one of the best sources of cash flow.

At this point, I'm not really looking to make a career in real estate because I'm not looking to create another job for myself. I want to live according to the income from my investments instead of the income from a job. I enjoy investing and playing the game. Once my investment income surpasses my living expenses I'll be able to spend my time exactly how I'd like. I'll definitely continue to invest in real estate, but I probably won't make it a full time business. I also want to try my hand at starting my own business at some point, so I'm leaving my options open.

3. How do your family and friends respond to your orientation towards frugality?
There's no real adverse reaction towards my lifestyle mostly because it's not all that apparent. I love hanging out with friends and family, but I don't have to spend a lot of money to do it. When you take a genuine interest in people and want to spend time with them, it doesn't really matter what you're doing or where you're doing it. I don't have to go to the movies and out to dinner in order to spend time with friends. If you put people first, the rest will work out.

My parents are actually huge fans of what I'm doing. I've been able to talk with them about their finances, and we're making some huge strides together.

I'm also not out to alienate people and put them down for the lifestyle they choose. If someone really wants to go out to eat, then fine. I'll suggest we use a coupon or a gift certificate from somewhere like Restaurant.com, but I'll go with them. I'm a very generous person and have been known to hand out $5 bills on occasion for no reason, but as far as it concerns me personally, I'm looking for delayed gratification.

4. How do you see your life five years from now?
As I mentioned before, I see myself being financially free by the time I'm thirty. Since I'm 26, that only gives me 4 more years. I look forward to being able to spend my time with my family and friends and helping them also achieve success.

5. You seem to be a strong believer in the power of the free market and individual responsibility, but you also have a strong social conscience. How do you reconcile what appears on the surface to be very disparate ways of looking at the world?
I don't really see these two views as being at odds with each other; in fact, I see them more as complimentary. I believe in individual responsibility and self-reliance insofar as it is possible. Of course there are exceptions and boundaries to this, but it is something that we should strive for. Mainly, it is the entitlement attitude that I have a problem with.

I also believe in the principle of giving and rendering service to others. There are and will always be those less fortunate that need someone's help. Most of the time it's through no fault of their own, but sometimes it is their fault. What's important is that it's not up to me to decide. It's up to me to help in whatever way I can.

Ultimately, we don't have any influence over the decisions made by others. We can only control is ourselves. Everyone should strive for independence and take personal responsibility but also be willing to accept help from others when needed. The converse of this is shunning personal responsibility and having the "gimme attitude" of entitlement. The difference lies in your attitude. Are you grateful, or just merely appeased? I prefer the former.

If you want to be part of the interview series, leave a comment here or shoot me a line at frugal (dot) zeitgeist (at) gmail (dot) com. Keep it coming! I love this stuff.

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well, duh

Little backstory: When I moved into my new apartment in 2001, I had no intention of paying for cable so I never signed up for it. I've never paid for television and I never will. A year or so later, one of my friends told me that if the last owner had cable, the building switch that controls the signal was probably left on after he moved out. I screwed the cable into the wall, and voila! No cable channels, but crystal clear network channels. I settled in happily to several years of The Office.

In early 2006, I turned on The Office one Thursday, and there was nuttin' but snow on the screen. It seemed that the cable company had caught up to me after all.

I've been TV-free since that day, fifteen months now.

So why on earth did it take me until I saw a post on Grown Azzed Woman's blog to realize that I could probably bring down my electricity bill if I just unplugged the damned thing?

I ask you.

Habit, people. It's no substitute for critical thinking.

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carnival picks, week of April 15

It's carnival time! Here are my picks for the week:

In the Festival of Frugality, hosted by No Credit Needed, Frugal Babe's Not This Girl's Best Friend knocked my socks off. Being a periodic business traveler across the pond, I was glad to see Plonkee Money's article titled Tourist in London Town. This will come in especially handy now that one pound sterling is only worth fifty cents. Shadox hit another one out of the ballpark with his 17 Questions for Assessing Your Financial Well Being on Money and Such. This carnival also included my own You Want Fries With That?.

The 96th Carnival of Personal Finance is up at AllFinancialMatters, and there are oodles of good submissions there as well. Personal Finance Advice took on the topic of Maxing Out Retirement = Saving Too Much?. I'm not sure I agree with Consumerism Commentary's view on Should High Schools Require Money Management Classes?, but it's a very interesting read and a slightly different perspective on something that I think quite a few of us take for granted. Finally, Living Almost Large tackles The Risks of Being a Stay-at-Home Parent. For this one, I submitted Money and Marriage, not to be confused with Marriage and Money, which was submitted by Aimee.

I also entered the Carnival of Money, Growth, and Happiness, hosted by Credit Card Lowdown, with my article titled Your First Date with the Frugal Zeitgeist. In this carnival, I really enjoyed The Urban Monk's How to be a Rock in a Chaotic World, along with Ready for Something Fun? (and who isn't?) at 360 Degrees of Success.

Carnival on, all week long.

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frugal tips #3: the art of the regift

Okay, is there anyone who hasn't been tempted to do a regift at some point?

Ever done it?

Ever get caught doing it?

I bet that was embarrassing.

True story: someone who skipped my wedding after RSVP-ing that he and his wife would be there spent the next year and a half mentioning that he had a really great gift for us. I was deeply hurt by the fact that his excuse for not showing for the wedding was that he was "too busy" that day, but I did my best to hide it; in the meantime, I didn't care about the gift.

This turned out to be a good thing.

This person finally turned up one day with something fairly odd to give me. It was a cardboard box on which ICE BUCKET was helpfully written. A piece of wrapping paper was pasted across the top, but the rest of it was just brown cardboard.

Of course, the giver had no way of knowing that my ex and I had separated several months earlier.

I opened the box when I got home and immediately started sneezing: the contents were, unsurprisingly, one ICE BUCKET.

One very dusty ice ICE BUCKET.

One ICE BUCKET with something nasty growing inside.

I cleaned the ICE BUCKET up as best I could because I couldn't tolerate the allergic reaction I was having. As I was preparing to get rid of the box, I found a card in the bottom.

It said, Congratulations on your wedding, P*** and H******.

I'm not H****** and I wasn't married to P***. P*** was the gift-giver.

P*** and H****** had been married for eleven years.

No, I never told him. Did it change our relationship? You bet your bippy it did.

I never used the ICE BUCKET, but ended up keeping it and the card for several years as props for telling the story. The mileage I got out of that story was probably worth how hurt I was when I realized how very little these people truly thought of me.

People, regifting doesn't have to be like that. Regifting is an art that combines frugality with sensitivity to other people's feelings; properly done, feelings are spared, less money is spent on crap, and everybody wins. One person's trash is another person's treasure, and there's nothing wrong with regifting unwanted items as long as you do so with grace and tact. Generally, it's best if you don't get caught. Here are some tips on successful regifting:

1. Keep track of who gave what and who you handed it off to. Hopefully, these two people don't know each other and will never meet.

2. Don't go around saying that it's a regift. This is absolutely true for recipients of holiday or birthday regifting; beyond that, it's a judgment call: some frugal recipients won't mind, but others might. It's usually best not to tell the giver under any circumstances.

3. If you do tell the recipient, don't impugn the gift. No one likes a backhanded compliment; similarly, no one likes receiving a gift that comes with the sentiment I hated this but I thought it would be perfect for you.

4. Use your common sense. You can't pass off something used as new, so don't even try; come clean right away. In fact, you should never pass off something used as a regift on general principle. You can call it something else, e.g. I was going to get rid of it but I thought I'd ask you if you had any use for it, but it's not a gift. If it's unused but has been sitting in your closet for ten years, you probably shouldn't call it a gift either.

5. Make sure you rewrap it. Nothing says REGIFT! like leaving a card from someone else in the package.

6. Don't use people as a dumping ground. Regifts follow the same criteria as any other gift: the item being regifted should be something that you genuinely feel will bring pleasure and happiness to the recipient. If the gift is truly awful, then get rid of it some other way.

7. If all else fails, there's always ebay. It doesn't solve a gift dilemma, but it's a few extra bucks and your chances of getting away with it are pretty good.

Regifting is good and I'm all for it. Just don't hurt any feelings while you're at it.

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money and marriage

I remember a conversation I had with a group of people a few years ago. They were asking me about buying an apartment in Manhattan and I was going through the ins and outs of dealing with co-op purchase, including the standard 20% to 35% down payment most co-op boards require, the matching funds requirement, the bare-your-soul-and-finances-to-the-board interview, and so on. One single, late-twenties woman who was present piped up Oh, well, I'm not going to bother with any of that (she meant investing as well as buying a home) until I'm married.

Whoa.

I opened my mouth to drop a nuke on that line of reasoning, but quickly realized that it was neither the time nor the place, and she wasn't asking for my advice anyway. What I would have liked to have said, though, was this:

How do you know you'll get married? I spent several years in Japan, and one thing I learned there was that the arranged marriage system means that pretty much anyone who wants to get married can, although I had to ask my Japanese teacher, presumably the proxy for my parents, to turn down the proposal she brought me from town librarian. (He rebounded, and within a year I attended his wedding.) Most people in the Western world don't have that option: you either meet the right partner or you don't.

That is a heck of a lot of ambiguity to use as a basis for financial planning.

Assuming you do get married, how do you know your spouse will be a competent money manager? Refusing to do personal financial planning before marriage is even a distant prospect on the horizon contains a built-in assumption that the lucky partner:

a.) has enough wealth or income (not the same thing) to compensate for your lack of planning;
b.) is willing to accept your lack of planning;
c.) has enough knowledge to put you both on the right course financially.

In my experience, that's really a bit much to ask.

I can sort of understand keeping certain financial decisions on hold if marriage or long-term partnership is imminent. Putting one's life and financial decision-making on hold for something that either might never happen or might not happen in the happily-ever-after way that many people imagine strikes me as downright dangerous.

I don't think there's anything wrong with wanting to get married. Hey, I fell off that merry-go-round once, but in the right circumstances I'd get back on. I do think that putting one's entire financial future in the hands of a phantom is poor planning and shows an inherent lack of self-confidence and self-respect, and over time that can translate into an impoverished retirement.

Here's hoping that none of us rides off into the sunset alone. In the event we do, though, it would be nice to do that knowing that we can pay for a room before nightfall.

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25K is not enough

I've been dealing with wiseasses and documentation all day, so I'll just leave you with this.

Whether you start early or late, if you don't want to drop dead working for the man, then save, save, save and invest, invest, invest.

Happy Friday, y'all.

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you want fries with that?

It's the punchline to a million jokes, it's a pop culture reference, and it's even a Canadian TV show.

It's also an extremely successful sales technique called upselling.

Upselling comes in different forms. It can be a solicitious salesperson showing you upgrades or add-ons to the gadget you're about to buy, a suggestion about alternative (and often more expensive) products that you may not have considered, or an offer to protect your purchase with a service plan or extendend warranty. (Extended warranty! How can I lose?) Although there's usually a huge element of nice-nice that goes along with upselling, the objective is simple: the salesperson is trying to get you to buy more, thereby increasing the retailer's profit margin and in some cases, the salesperson's commission.

Here are some situations in which I've encountered upselling:

1. Buying a sofa. The salesperson tried to get me to pay an extra $80 for free lifetime cleaning. If my sofa needs much more in the way of cleaning than an occasional shot of fabric cleaner and a sponge, then I've got more problems than lifetime sofa cleaning will solve. Besides, I bought a black sofa on purpose: I wanted a sofa in which I could pour an entire bottle of red wine if I wanted to, and after a few days no one would know the difference.

2. Trader Joe's. Just the other day, the nice cashier at Trader Joe's tried to sell me a tote bag as I was filling my backpack with frozen chicken.

"Do you want to buy a tote bag for 99 cents?"
"No."
"Are you sure? It's only 99 cents.
"No."

(Why did she think I brought the flipping backpack in the first place?)

3. Car insurance. My home insurance company sends me junk mail every week offering to sell me car insurance since I'm a highly valued customer. I don't have a car, but whatever. I figure that if they really valued me, they'd already know that.

Upselling can be beneficial to the consumer if the discount represents a savings over something the consumer would have bought anyway. Unfortunately, more often it represents subtle or not-so-subtle pressure towards an impulse purchase that goes beyond what the consumer intended to buy, resulting in a total cost of more than the consumer intended to spend.

For the retailer, upselling is always beneficial. That's worth remembering next time you get asked if you want fries with that.

The key to not getting sucked into spending more money than you intend is to recognize upselling for what it is and plan accordingly. If you're going to buy a new whatever, do the research in advance and have a clear idea of what you want before you enter the store. If you get a hard upsell pitch from an employee, all you have to do is respond with one of the most powerful phrases in the English language:

No thanks.

If the salesperson tries to come back with questions like But I don't understand. Why wouldn't you want to take advantage of a bargain like this? or hardball statements like This deal won't be available again if you don't take advantage of it today, you're not obligated to make excuses. No thanks is all the answer you have to give.

If the sales pressure gets to be too much, you can simply get up and walk out. You may not get what you had planned to buy, but it's pretty empowering to know that you successfully resisted an eminently effective psychological selling technique.

If you ask me, that's worth more than money can buy.

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blogger interview #1: kmull

Kmull sent me an email the other day to ask if I'd be interested in exchanging site reviews. I like reading site reviews, and just a week or so ago the very excellent Limeade wrote a really nice site review for this here green blog.

Writing site reviews, well, that doesn't really get my motor running. I counter-proposed that perhaps instead of doing site reviews, we could each come up with five questions for a mini-interview. Kmull liked that idea, so here's a look into life in Kmull's world.

1. You seem very goal-oriented. Have you always been that way, or did you make a conscious decision at some point to define and focus on a particular set of objectives?
For the most part, I've been that way since I can remember. Or really, since it became important in say... high school. I credit my parents. They drilled into me the fact that just by writing down a goal, you are much more likely to achieve it. My Dad always told me "if you save 10% of everything you make, you'll be alright." I picked up on the S.M.A.R.T. goals in a Principles of Management class in college.

2. What drives your interest in PF?
Personal finance makes the world go round. It's the reason people spend money, and why they do it. What individuals do with their income can make a huge impact on their lives. So that, in part, got my interest. Then a subscription to Money magazine, and a finance class in college really got me hooked. I became aware that retiring a millionaire was extremely attainable with consistent investing. Also, I don't really like plain jane math and formulas, but framing it in a money context and I suddenly get really drawn in. Money magazine helped draw me in, and suddenly I wanted to know more, and more, and more... REITs, hedge funds, index funds, capital markets, the Federal Reserve... I just eat it up. (Doesn't mean I understand all of it...:) I was also saddened by articles of families that had made enormous financial mistakes and were in ruin. I didn't want to be that guy. I wanted to take the smarter, less traveled road.

3. When did you join the PF community, and what do you find most rewarding about your participation in it?
Well I started my personal finance blog in February of this year. I'm not sure when the official start date would be because at that time I had been reading JD's GetRichSlowly, Ramit's IWillTeachYouToBeRich, and Trent's TheSimpleDollar . I left comments here and there. I guess I just decided one day that I had something to say too.

The most rewarding thing, as a reader, is the wealth of knowledge out there on so many sites. Everything from life insurance to how to grow a garden to cut down on your expenses. It's all out there!

As a writer it has been fun just to get thoughts 'on paper'. I don't really focus on a specific niche (which I understand may not attract as wide of an audience), but just share what I want to share. I had someone leave me a comment on a post about Wirefly that saved him $10. That was pretty neat. It was like "hey, I helped someone out there!"

4. How do you see your life five years from now?
Let's see... I turned 23 yesterday [editrix's note: HAPPY BIRTHDAY, KMULL!] , so in 2012 I'll be just turning 28. If I can achieve my goal, I will be admitted to a full time MBA program for Fall 2008. That puts graduation in 2010. I see my incredible, beautiful wife by my side. I'd like to be doing one of a couple of things using my MBA: working for a Fortune 500 company, doing management consulting, or doing something in the sustainable enterprise sector such as working for a "green" home or home products company. I'd also like to be rooted into a church, making a difference in lives that way. Maybe by then I will have paid off my schools loans as well!

5. What are you most proud of having achieved to date and why?
Hands down, getting married is the best thing I have done with my life. I got married in January 6th this year and it has been incredible. Hanging out with your best friend for the rest of your life is just simply stunning. I can't put into words how fulfilling life is now with her. I highly recommend it!

Outside of that, I am proud that I graduated college with a high GPA, and a semester early. Additionally, I have been pretty good with my finances my whole life. I feel pretty lucky in that respect. (Sorry, I can never pick just one thing!)

You can read all about me on Kmull's site. Don't go there if the word "turd" gives you the vapors.

Want to get in on the interview action? Leave a comment with your contact details or email me at frugal.zeitgeist (at) gmail (dot) com.

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love all around

Belated thanks and appreciation to the lovely Sherry from My Money Game, for taking the time to email me offline with tips to help maximize my AdSense revenue. The lady knows what she's talking about, so make sure you stop by her blog for some really outstanding suggestions.

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carnival picks, week of April 08

It was a busy week in pf carnival land. Thanks and appreciation to Accumulating Money, who hosted Carnival of Personal Finance #95, including my post Cheaper Isn't always Better.

My picks this freezing cold week in April are:

Moneymonk's Poor Friends, Rich Friends, which explores how spending habits can affect personal relationships; Little Splurges Kill Your Net Worth by Free Money Finance, which explains how the opportunity cost of little expenses adds up to a great big wallop over time; a great look back at a tremendous year of growing up and stepping up in Year in Review: Anniversary No. 1, by The Weight of Money; and for this Pareto rule adherent, a look at the 80/20 rule in the context of personal finance in Pareto's Principle (80/20 rule) of Personal Finance in My Personal Finance Odyssey.

The first lady of PF, Silicon Valley Blogger, hosted the 69th Festival of Frugality at The Digerati Life. This carnival included my post about crap, Low Crap Threshold, as an Editor's Pick. Shadox's A Quick Way to Save Money on Flights on Money and Such is a fantastic travel resource for my quarterly trips out West; I learned a few new ways to potentially score discounts from Money Smart Life's Always Ask for a Discount; and I'll definitely review Fiscal Musing's good advice in Restaurant Lifestyle next time I can no longer tolerate my own cooking.

Carnival on, folks.

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payday loans

This post is sponsored by a payday loan company called NationalPayday.com. I expressed some initial reservations about tackling this topic because I have no great love for the payday loan industry. My contact responded that in spite of my less-than-glowing opinion of how the system works, she was still interested in sponsoring a post. I gave it some thought and the topic is fair game: payday loans, whatever you think of them, are part of the personal finance discourse, so an article about them is appropriate for a pf-focused blog. After a little more discussion, we agreed that I would do a review of the industry and that I'd be free to air my concerns; as I've stated before, I'm not willing to accept a sponsorship in which I'd give up editorial control of the content. You will see a keyword link to the company website somewhere in the article below. That was part of the agreement.

When I think of payday loans, I can almost smell the desperation.

Payday loans go by many names (cash advance loans, check advance loans, post-dated check loans, deferred deposit check loans), but all of these names mean the same thing: small, short-term, very expensive loans against a future paycheck.

A borrower seeking a payday loan generally writes a personal check payable to the lender for the amount he or she wants to borrow, plus a fee. This fee can be a percentage of the check's value, or a fee that's laddered against the amount borrowed - e.g. a certain fee for a $50 loan, a certain fee for a $100 loan, and so on. The lender then gives the borrower the amount stated on the check minus the fee. Loans are usually payable on the borrower's next payday, but the borrower can generally opt to roll the loan over for another period, incurring another fee on the original amount borrowed plus the fee assessed at the time of the first loan.

The dollar amount of the fee is nominal, but since payday loans are only for small amounts for a short time (often no more than $100 for two weeks for a first-time borrower), in percentage terms the fee charged is extremely costly. Each rollover incurs a new fee with the extended repayment period, so multiple rollovers can add up quickly. Payday loans are subject to state regulation; in some states, usury laws prevent fee assessments that result in effective triple-digit interest rates. There are workarounds to legally circumvent some usury laws, so state regulation does not provide comprehensive consumer protection.

Payday loans serve a niche market. All that's required to get a payday loan is a bank account in good standing, proof of employment, and identification. No credit checks are conducted, and no assessment of the borrower is done to ensure that he or she can repay the loan. As a result, the payday loan customer base largely consists of people with extremely limited access to credit because of low income, minimal assets, and/or poor credit history. Because the collateral for the loan is a personal check not covered by funds on deposit, a borrower's failure to repay the loan will cause the lender to bounce a check. From the lender's perspective, this customer base is extremely high risk, and that risk is reflected in the triple-digit interest rates commonly charged for payday loans.

While the lender providing payday loans is taking advantage of a market opportunity that serves a population at considerable risk of default, risk goes beyond the lenders. For the vast majority of borrowers, financial insecurity is a way of life. The short repayment term and the high cost of borrowing in percentage terms enables a situation in which borrowers need to extend their loans, causing the cost of repayment to skyrocket. As a result, borrowers can easily (and often do) fall into a very costly repeat borrowing cycle, one in which the high cost of borrowing makes repayment increasingly difficult very quickly. This difficulty in repayment easily translates into worsened credit, reducing borrowers' options for obtaining alternative financing in the future.

Although payday loans can be an effective bridge for extremely short-term financing, the high level of risk suggests that they should be taken out for as little as possible, only as a last resort in extreme circumstances, and most importantly, only if there's a very strong probability of being able to repay the loan in full without needing to roll it over.

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the real cost of shopping at Wal-Mart

If you want the quick and funny version of this topic, go to JibJab and listen to the Big Box Mart song. I'll wait.

Done? Good.

Moving right along.

Big box retailers, Wal-Mart more than any other, have come under serious fire in the last few years. Accusations run the gamut from misuse of eminent domain to supporting sweatshop labor in China to out-compete other retailers on price. Even Manhattan has seen the big-box invasion: Barnes and Noble is now an accepted part of the retail landscape, but years ago local booksellers put up a mighty battle to keep them out. In Harlem, local bodega owners unsuccessfully protested the construction of a PathMark supermarket on the grounds that it would drive away all their business.

I'm of two minds about this. First, the proliferation of big-box stores is the free market in action. More competition means lower prices and better selection for consumers. There are winners and losers in this battle, and stores that can't compete lose out; that's the nature of market-driven economics.

On the other hand, it's possible to argue that big box stores hurt people. Big box enterprises have economies of scale on their side: the sheer amount of purchasing power they have gives them a tremendous advantage to cut profit margins for suppliers to the bone. Small retailers simply can't compete. When small retailers go out of business, competition declines; it's really tough for new retailers to pop up and challenge the behemoths. When competition declines, that's bad for the retail job market: people lose jobs.

Not to worry, though; the big box store is hiring, right?

Well, it's not quite as simple as that. When a big box store become the de facto retail employer for a small community, that exerts a significant downward pressure on wages. There's also a chilling effect on the ability to unionize to protect workers' rights. Wal-Mart in particular has been visibly anti-union, going so far as to switch to packaged meats at 180 stores after catching wind that butchers in Texas were fomenting interest in joining a meatcutting union, and closing down a store in Quebec after employees voted to unionize.

When you shop at a big-box retailer, you're probably helping your wallet. Does shopping at a big box store mean buying into a system that works against the US economy in some respects?

It can, but it doesn't have to. What I would recommend as a rule of thumb is to do some research before you shop. How do the big-box retailer's prices compare to independently-run stores? How has the retailer's entrance into your city or town changed your community? Does the retailer demonstrate good corporate citizenship by investing in the local community? How does the retailer treat its employees in terms of salary, opportunity for advancement, and health benefits? You vote with your dollar; the answers to those questions should help determine with whom you cast your vote.

Here in New York, I usually patronize neighborhood retailers. The only time I really leave the neighborhood to shop is my monthly schlepp to Trader Joe's, and I'm comfortable with that decision: Trader Joe's is a good example of a business that does right by its employees. I also mentioned in an earlier post that when I go out to Oregon, I usually go to Costco to stock up on non-perishable health and hygiene items. I feel pretty good about that as well; Costco has been good to my local community. As big box retailers go, Costco negotiates with its unions, and treats its workers well, paying them more than average and encouraging and rewarding ideas and initiatives to make Costco a better place to work.

Big-box stores aren't universally bad for the community or the economy, but there's a wide range of variation in business practices and those are fair game when making decisions about where to shop.

It's your dollar; spend according to your conscience. And try not to buy too much crap while you're at it.

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low crap threshold

When I use the phrase "low crap threshold," I'm normally talking about a relationship. I tend to have a low crap threshold with regard to relationships: if I feel like I'm dealing with too much crap (and by crap, I mean underhanded, manipulative, or otherwise unseemly behavior), I'll say it politely, but I will say it. This applies to all relationships: dating/romantic, friends, family, and business to some extent. I don't tolerate crap from anyone who reports to me, but otherwise business gets more of a pass both because there's formal hierarchy involved, and because there are times when it's better to recognize crap in business relationships for what it is and simply file it away as important knowledge that might be useful.

I am very fortunate, by the way, to have very little crap in the relationships in my life.

Another context in which I use the phrase "low crap threshold" is with regards to physical clutter. I hate it. Living in a small New York apartment as I do, there's not a lot of room for extraneous stuff. This is especially true since I like to entertain: I like my home to feel spacious and welcoming, and it's hard to do that with piles of crap all around.


Crap (or clutter, whichever you want to call it) is bad for so many reasons. Here are just a few of them:

1. It's unhealthy. Crap is a dust magnet. If you have azzma, that's not good; I have no proof, but I highly suspect the fallout and poor air quality from 9/11 is a major contributor to my having developed azzma in the first place. Dust is also a potent allergen, and in extreme cases can contribute to serious illnesses, especially in vulnerable populations like children and the elderly.

Everyone's place gets dusty from time to time, but if you have a chronic dust problem, then you just might also have a chronic crap problem. Common enablers of dust include clogged furnace filters, insufficiently washed bedding, excess humidity, carpets, and in my world, one of the most visible and unsightly indicators of crap: dried flowers. (Dried flowers are also bad feng shui, if you're into that kind of thing.)

Excess clutter is also indicative of compulsive hoarding or syllogomania, which is strongly correlated to psychological and mental health issues.

2. It's dangerous. Excess crap, especially flammable material like newspapers and magazines, is a fire hazard. Non-flammable crap is also hazardous: roadblocks on the floor can contribute to slips and falls.

3. It's expensive. You can substitute the word wasteful for expensive, but the main premise is the same: having too much crap makes it easy to lose things, which can result in buying the exact same item multiple times because it keeps getting lost. Bills can easily get lost in chronic disorganization, which leads to dings from late fees and credit hits.

External storage, which seems to be getting more and more popular, is also expensive. Wouldn't it be cheaper just to get rid of the crap that doesn't fit in your house?

4. It's a time-suck. Having to hunt for something because it's lost in a pile of crap takes time away from other, far more important things, like blogging about crap.

5. It's isolating. Ever felt like you couldn't have someone over because you had too much crap all over the place? That's what I'm talking about.

6. Living smaller is cheaper. George Carlin once said that a house is just a pile of stuff with a cover on it. If you accumulate enough crap that you feel like you need a bigger place to store your crap, what are the odds that you'll fill that space, too? Space costs money: living smaller means smaller rent payments (or purchase price) and lower utility bills. What's not to like about that?

6. One person's crap is another person's prize. Having too much crap inhibits the ability to give crap a second life by recycling it or donating it to someone who can truly use it.

My office is a total war zone because I deal with a lot of papers and am not as invested as I should be in keeping them entirely under control. My living space, on the other hand, is pretty close to immaculate. I have a few basic guidelines to keep it that way. They are:

1. If it doesn't fit in the apartment, it doesn't fit in my life. In other words, no external storage. The only exception to that is my bike, and that's because we have free bike space in the basement.

2. If I haven't used it in two years, out it goes. This one is pretty self-explanatory.

3. One in, one out. If I bought a new shirt, something else has to go. I usually try to keep it apples to apples: one shirt in, one shirt out. Doesn't always work, though, so I do allow a little flexibility here.

4. Anything that comes in has to be useful or aesthetically appealing, but preferably both. I have a few artisan glass pieces that aren't particularly useful, but that I truly love. Having just a few of them on a shelf where I can see them makes me really appreciate them.

5. Use it up, wear it out, make it do, or do without. This is an old Depression-era saying. It helps me fight the urge to be wasteful.

6. Deal with inbound papers the same day they arrive. Mail gets sorted and shredded the same day it comes in; newspapers get recycled the same day they arrive. Magazines have a one-week lifespan before they get recycled.

The bottom line here is that over time, being mindful of waste and consciously practicing proactive crap control are enablers to learning to be happy without having to spend a lot of money on crap. That's a great way to save both time and money, and it's one step farther along the path to financial freedom.

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what do you mean there's no Easter Bunny?

Happy whatever-you-celebrate, folks. I'm goin' out to play. Be back at you tomorrow.

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your first date with the frugal zeitgeist

Dating.

Over-30 dating.

Some of you might find this concept gross; after all, sex was only invented in 1997. For some of you (a VERY, VERY FEW), I'm old enough to be your mom.

Ew. That kind of grosses me out too.

Neverthless, dating is an important topic in the context of frugality. For most people, a first date is like a job interview. There are plenty of variables to consider; for example, it's important to look nice, but not too nice; it wouldn't do to make one's date feel underdressed. At the same time, looking too casual doesn't send the right message either: it looks more like Well, I didn't have anything better planned, so you'll do.

If you and the Frugal Zeitgeist (that would be me) somehow ended up on a first date, here are the things I'd like to have out on the table:


1. Make sure I know it's a date. True story: I had dinner out with someone who had done contract work for me a couple of times. I was cheerfully chatting away about our initiatives for the next fiscal year, and he suddenly put his hand on mine and said Tell me, what are you looking for in a man?

It's not quite polite to say Not you, and that makes for a very, very, VERY long evening. Stealth dating is not fun or fair for anyone.

2. If you let me pick the place, we're aiming for the middle. Not too extravagant, but not McDonald's: if it's afternoon, we're having coffee; if it's evening, we're going somewhere where I can have a glass of red wine and admire you over candlelight. If you pick the place and we end up somewhere very expensive, I won't be impressed and I might knock over my water.

3. Whatever we're doing, I'll pony up for half. Seriously. I don't expect my date to automatically pay because he's a guy. If you really want to know, though, I'd rather take turns: you pay for one thing and I'll pay for whatever we do after that, or vice versa. Seems a little less mercenary that way, and I'm not keeping score.

4. I'm all about the free stuff. Want to use a coupon at dinner? I will respect your financial acumen. Want to go river kayaking for free? I don't mind a wet butt for an hour or so. Want to go to a free Julliard concert? I can't think of a better way to spend a rainy Saturday afternoon.

5. Don't test me. I know one person who deliberately puts dates in what he anticipates will be an uncomfortable situation on the first time out to see how they cope. That's mean and I'll probably leave. You think I wouldn't? Try me.

6. You're probably going home on your own. Sorry; it's a first date. That's how I roll.

7. Do you really want to impress me? Fix my bike. Hold my jacket before I put it on. Take your hat off indoors. Use the right fork. Laugh with me when I spill my water.

I could keep going with that, but you get the drill. Basically, just be your frugal, friendly, and fiscally responsible self and we'll probably be off to a reasonably good start.

Don't you think?

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cheaper isn't always better

One common misconception many people have about frugal living is that it emphasizes cost as the single most important determining factor in selecting a product or service.

Well, that's not always true. Every time you choose between a variety of products or services, you're making a trade-off between price and a variety of perceived outcomes. These outcomes can be categorized as personal effects, which represent how the individual relates to the product or service, and interpersonal effects, which reflect how the buyer perceives the product or service will affect his or her relationship with others. The personal effects are identified as:

• perceived quality (how good the product is)


• perceived emotional value (the pleasure or happiness derived from it)

Interpersonal effects are:

• perceived conspicuous value (others will be impressed by it)


• perceived unique value or snob appeal (it's a prestigious product and only a select few will get to have it)


• perceived social value (yay! Everyone has one, so I need one too!).

More than one of these conditions can be present in any purchase. Put them together with varying levels of price sensitivity, and the balance between these factors becomes a fascinating insight into human behavior.

Of course, sometimes imbalance leads to bad decision-making. This is the case with my phone service.

First, a little background: I didn't cave and get a cell phone until last year, and the only reason I did was that the bossman, Mr. Zero Boundaries, made me. Call on Saturday morning? Sure! Phone at 6:00 a.m. during the week? Why not!

My cell phone is paid for by my employer; I would never let anyone irritate me like that for free. I thought about dumping my land line, but cell service in my concrete-bound Manhattan apartment is iffy and my parents have a hard enough time hearing me bellowing down the receiver without adding static into the mix. As a result, I decided to keep my land line.

My land line, as a rule, is an annoyance. While it's nice to be able to call anywhere in the country for a fixed rate, the taxes and fees that go along with a standard land line service are astronomical. I muddled along with it for years, though, until one day I was motivated to change. My DSL provider, Earthstink, sent me notices on a weekly basis advertising their high-quality, high availability VOIP service plus DSL package for significantly less than it costs to get the two services from different providers. In January, I finally took the bait.

How sorry I am.

I have had phone outages every three weeks like clockwork ever since. It normally takes between thirty minutes and three hours to reach a first-level technician, and my call usually has to be passed up the line to levels two and three. This transfer involves more wait time, along with the same damned conversation, over and over: No, I have no dial tone. No, I don't have another phone to plug into the jack; I only have one phone. Yes, I only have one phone. I can't plug my phone into another jack; there's only one. Yes, one jack. Have you ever been in an apartment in Manhattan? I have had between seven and nine phone outages in total since getting Earthstink phone service, and each time it requires a committment of two to six hours to get a resolution or at least a trouble ticket. Trouble tickets often take two days to resolve.

While it's great that I have a cell phone to call in reports about my land line not working, the fact that service is iffy means that I frequently lose connections halfway through. Once I got a callback from a concerned agent, but normally it means lining up in the tech support queue all over again.

When going through this yet again last night (three hours in total plus a callback at 1:45 a.m. to tell me that my phone line was operational), I realized that twenty bucks a month in savings is not worth the rage and spikes in blood pressure I get from dealing with Earthstink tech support. When you trade away an expensive but perfectly good service for a lemon, as I did, what recourse do you have?

1. Do your homework before you change service providers. The Better Business Bureau is an outstanding resource for making an informed decision about what you're getting into.

2. Document, document, document. Each time you have a failure of service, write down who you spoke with, the substance of the conversation, when you spoke, and how long it took. Nothing speaks louder than a written record.

3. Keep your cool. At least one person I spoke to was willing to say anything just because he wanted to get the crazy white lady off the phone. While going medieval on some schmuck whose job it is to answer the phone may make you feel better in the short run, in the long run it's counterproductive: no first point of contact you reach has any significant decision-making power, and yelling at the first point of contact doesn't inspire that person to want to be helpful.

4.Ask to speak to a supervisor. Unfortunately, this didn't really work too well with Earthstink. Each time I asked, I was told that it wasn't possible to speak to a supervisor, but that my complaint would be escalated (my ass it was), or I could send a complaint through the website feedback form. The website feedback form is cathartic in a way, but similar to yelling at the person on the other end of the phone, it doesn't generate a response.

5. The Better Business Bureau can help. The BBB does an excellent job of investigating complaints, and their records are public. Once consumer issues are brought to the BBB's attention, the path to resolution usually gets a lot shorter.

6. Get familiar with other consumer advocacy groups in your area. A quick Google search turned up Consumer Advocacy, Consumer Action, the FTC Consumer Complaint form, and many others. Before contacting a consumer advocacy organization, however, make sure that the organization is a legitimate non-profit, rather than a thinly disguised ad for paid legal services.

7. If all else fails, get a lawyer. I don't agree with how litigious US society is, but if you're truly at the end of your rope or there are genuinely heavy personal damages, sometimes legal help is in order.

I'm not a legal expert, so don't follow this advice blindly: look at your individual circumstances and make your own conclusions about the best course of action. In my case, the BBB now has a long and bitter complaint about Earthstink on their hands. I can hardly wait to see how it plays out.

In the meantime, if you're considering the combined DSL and phone package through Earthstink, make sure you save steps 1 through 7 above; you'll probably need them.

You have been warned.

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warm fuzzies

I heart Fiscal Musings.

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carnival picks, week of April 01

Okay, I've had a chance to read through a few of this week's carnivals, and here are my picks for the week:

Carnival of Money Stories #8, hosted at MoneySmart Life: Top picks include Starting Early: The Young Adult's Guide to Personal Finance at Debt Consolidation News. This is a one-stop shop to handy money-saving tips in a whole variety of categories. I also liked Borrowing To Pay Me at Credit Card Lowdown. This article is another set of handy tips, ones aimed at helping you not shoot yourself in the foot by making bad decsisions with your credit card. Another good one is The Worst Boss Ever at Made to Be Great. An important point here is to remember that you can learn just as much, if not more, from a bad boss as a good one.

Carnival of Personal Finance #94, hosted at No Credit Needed: As a manager and team lead, I had to pick KMull's Setting Goals. I'm all about the S.M.A.R.T. goals, baby. Having been motivated by a sponsor to start digging into insurance information this week, I was also wowed by 10 Tips on Life and Disability Insurance: Why We're Getting More by The Digerati Life. Being a Morningstar junkie myself, I couldn't pass up Mutual Fund Basics: How to Use Morningstar to Research Mutual Funds by The Sun's Financial Diary.

Finally, the 68th Festival of Frugality, hosted by MapGirl: My favorites were Credit Cards for Getting Out of Debt, from Money and Such, Spiffy Ways to Reduce Your Expenses by MyMint, and Corporate Programs for Personal Use by My Wealth Builder. The last one gave me an idea for a future post; I'll kick it around and see if anything comes of it.

The 68th Festival of Frugality, also includes my post, Depression Mentality. If you've read it before, I hope you liked it; if you haven't, then give it a click if it grabs you.

In the meantime, carnival on.

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carnivals, feedback, and my favorite time of the month

It's my favorite time of the month.

Not that time of the month. Jeez.

My favorite time of the month is the day when my mortgage payment (plus the extra I'm paying on principal) gets deducted from my bank account to cover the amount credited by the bank on the first. Yesterday was Sunday, so the deduction that would normally take place on the first happens today.

Nineteen months left to payoff. How sweet it is.


Carnival roundup: MoneySmart Life is hosting the Carnival of Money Stories #8, where you'll find my post titled Student Life. The Carnival of Personal Finance #94 is currently featured at No Credit Needed, where my article Show Me The Money is posted under Frugality and Money Management. No word yet on what articles made the reviewers' top picks list, but check back at each carnival later in the week and hopefully more information will be available. The Festival of Frugality #68, hosted by MapGirl, will be up tomorrow and I've got a contender in there as well.

Last but not least: I do my best to respond to all comments. I think I'm caught up now, so threadbndr, Kevin, and adventures in moneymaking: I left comments back for you.

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all your insurance are belong to us

I had an interesting thing happen on Friday. Someone pulled my email address from one of the comments and cold-contacted me with a proposition: he was interested in paying me to write a blog article about life insurance and include a link to his site, TermLifeOptions.com. I checked out this company with the Better Business Bureau (no record) and verified that the name of the email sender matched the name of the website owner, whose name I also Googled in the context of life insurance. I didn't find any negative information, and his proposition was intriguing. We agreed that the sender would pay me a flat $30 for an article on life insurance and a link, but that he would have no editorial influence. The first time the sender will see these words is when I hit the "Publish" button.

Life insurance was a topic I was planning to tackle at some point anyway, so knock yourself out.

Okay, life insurance. I don't care about life insurance: I'm all fat, dumb and happy, and if I get run over by a truck tomorrow, life insurance payouts won't matter to me; I'll be dead.

Right?


Unfortunately, life insurance isn't that simple. It's more like an onion: the farther back you peel, the more you uncover. In its simplest form, life insurance involves making decisions about the standard of living you want to preserve for your dependents once you've gone to that great big flat-screen in the sky. Just a few of the variables influencing whether you need life insurance (and if so, how much is appropriate) are your age, your family, your family's ability to earn income, your current standard of living, other sources of income, and your asset base.

Okay. Starting with the most basic question, how does a person determine whether or not he or she needs life insurance?

First of all, consider dependents. Do you have a spouse and/or children who depend on your salary to maintain their standard of living? Are you supporting parents or siblings in any way?

Even if no one in your family needs an income payout to replace your contribution to the family household, life insurance can be used by your beneficiaries as a resource for tying up your estate. This includes funeral expenses, estate taxes, mortgage payoff and other debt repayment.

I've gone through the do-I-or-don't-I-need-it? exercise a number of times throughout the years. At present, I'm divorced and my ex-husband's not getting jack diddly squat when I move on, so my family consists of elderly parents and one sibling, none of whom are economically dependent on me in any way. Medical insurance and accidental death and disability insurance are core components of my financial planning, but those are focused on ensuring financial security and medical care for me while I'm alive. Conversely, if the aformentioned truck made a sidewalk sandwich out of me tomorrow, no one would be negatively impacted by my death in a purely financial sense.

Looking at the other variables I noted above, I've already stipulated in my will (you have one, right?) that I want to be cremated and scattered with no service, so burial expenses will be minimal.

As an added bonus, my ashes might fertilize your flowers. Maybe you should pay me for that.

I don't have enough of an estate to worry about estate taxes yet, and unless I kick the bucket or have a serious employment setback in the next twenty months, there ain't gonna be any mortgage to pay off. That's all the debt I have, so even without life insurance, my death will be nothing more than a big payday for my beneficiaries. In other words, as long as my life remains at the status quo, I don't need life insurance.

Now, a great many of you have spouses and kidlets of your own, so you'll have different questions to consider. If you died tomorrow, could your family maintain its current standard of living? Would your kids be able to go to college? Would your spouse have enough money to retire in due course? Could your family afford to pay your burial expenses?

If the answer to any of those questions is no, then life insurance is worth consideration. The next questions concern the different types of life insurance available: what are they and which one is best?

Generally, life insurance is classified as either term, permanent, or some combination of the two. Term life insurance means that a contract lasts for a fixed number of years (five, ten, twenty) or until the policyholder reaches a certain age. The premium accompanying each policy is guaranteed for a certain period; the longer the guarantee, the more you can expect to pay for the premium. Although a death benefit is paid to the named beneficiary if the policyholder dies within the term, if the policyholder outlives the term, the premium is a sunk cost with no payout. Term policies are renewable, but you can expect the premium to go up as you get older.

Term policies are generally the cheapest way to go if you're in the market for life insurance. There are different subcategories of term insurance, and it's worth your while to find out more if this is the direction you're inclined to follow.

A second type of life insurance is called permanent insurance. Unlike term insurance, permanent insurance provides coverage for the policyholder's entire life. Similar to the way a fixed-rate mortgage front-loads interest into the first years of the mortgage to keep the payments fixed through the entire term of the loan, the premium cost for permanent insurance in the first few years is more than the actual cost of protection. Unlike interest paid on a mortgage, though, the extra premium cost builds a cash reserve that is used to cover the rising cost of protection in later years. An important factor to note is that the cash value of the policy can be accessed by the policyholder during his or her lifetime, so unlike term insurance, permanent insurance carries a savings component.

A question to ask here is this: does the value of saving money through permanent insurance outweigh the benefit of buying term life insurance and investing the difference in the stock market? It depends. Companies differ widely in how they treat cash buildup versus premiums paid. Before you make any financial committments, run the numbers and consider the stock market's historical return; you might be surprised.

Again, there are subcategories to permanent insurance as well, so do your homework before making decisions.

There are combinations of term and permanent insurance, and there are also variations on the basic plans. If you're in the market for life insurance, I'd suggest starting out by looking at what benefits are offered by your employer, as well as checking the interweb and the library for information that pertains to your state of residence: the more impartial information you can gain up front, the better. You should also talk to an independent accountant or financial advisor, preferably more than one. Once you decide what type of insurance is right for you, you can get initial rate quotes from many insurers on their websites. TermLifeOptions.com is one possible resource, but there are many others.

Overall, life insurance is an important component of your financial planning process, and it deserves careful assessment, independent consultation, and informed decision-making. Make sure you set aside the time to do your homework and make the most appropriate decision for you and your dependents; otherwise, you might as well just send all your money to me.

Maybe you should just do that instead. I wouldn't complain.

If you're still with me, let's talk about the $30 fee for this article again. I'm living on a tight budget, but $30 is not going to make one whit of difference to whether or not I can pay my apartment off in twenty months. I got paid for this article today, so I matched the $30 to make $60 and donated the $60 to Doctors Without Borders.

This exercise gave me some ideas for ad revenue from the site. Stay tuned for updates.

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