Search results matching tag 'Get Rich Slowly'

Facing a financial crisis

Karen Datko — Mon, 28 Sep 2009 13:23:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

An anonymous GRS reader submitted a question last week that hits close to home:

I have a family member who this past year has been in serious financial trouble. He is one of the most ambitious and intelligent people I know and I would have never imagined him getting in this kind of trouble. His ambition may have been his downfall as he keeps shooting for the stars and has fallen short on some of his business ideas, which may have put him in a more vulnerable position when the economy turned south.

He is now living in debt and struggling to put food on the table for his wife and four young boys. He has had to live on credit cards for several months and they are all maxed out. I have never seen firsthand anyone in this much trouble.

My question to you is: When faced with job loss and depleted savings, how can you avoid going into credit red? To what lengths would you go to avoid living on credit cards and missing payments on just about everything? In the situation, is credit rating even worth anything?

As I say, this situation hits close to home. Last year, I wrote about my little brother, Tony. (I say "little brother," but he's 36 now.) Tony's family got caught up in the mortgage mess, buying a home in Bend, Ore., at the height of the bubble -- and before their home in Portland, Ore., had sold. Six months earlier and things would have been fine. But things weren't fine. They couldn't sell either house. The market went to hell and they lost both homes to foreclosure.

Tony now faces circumstances similar to those described in the question above. He's learning that there's no easy solution to a family financial crisis. His father-in-law recommends "earning your way out of the problem." That's a fine theory, but not always practical. Tony and his wife work hard, but they're able to earn only so much. I think that he -- and people in similar situations -- should also:

Cut spending to the bare minimum. This can be difficult. It can be tough to shift from normal spending to frugality, especially if you're accustomed to middle-class luxuries and a middle-class lifestyle. But when facing a financial crisis, it's imperative to reduce spending as much as possible and as soon as possible. You must stop the bleeding before you can treat the wound, before it can heal.
Consider drastic measures. Sometimes it's not enough to stop the bleeding. To stretch the metaphor, sometimes you need to amputate. If you're in a financial crisis, you may have to take drastic action, maybe even selling a car -- or your home. Most people are unwilling to consider steps like these, which only leads them further into debt. These folks need to ...
Be brutally honest. It's easy to say, "I'm in trouble now, but it's only for a month or two. I'll keep doing things as normal by using my credit cards." If you find yourself in a financial crisis, try to take an objective look at your situation. Get outside advice from friends and family. Be willing to listen to what they tell you. Sometimes others are better able than we are to see the slack in our budgets.
Avoid touching retirement savings. When faced with financial peril, it's easy to look at the large sums sitting in your retirement accounts and think they'll provide the life preserver you need. In nearly every instance, though, you're merely postponing the pain. Your retirement savings are there to provide for you when you're no longer able to provide for yourself. They're not an emergency fund.

I'm sure that other Get Rich Slowly readers have family members in similar situations. Perhaps you're even struggling yourself (or have done so in the past). Based on your experience, what advice can you offer other folks who are struggling in this economy? What can be done to avoid sinking deeper and deeper into debt?

And as an ancillary question, what can we do to help family members in need? What should we do? I've told Kris that if Tony and his family find themselves in danger of living on the street, we'll make room for them in our house. But what about before that? At what point do I loan him money? (Or gift him money?) Or should I just be here to offer advice when he needs it?

Related reading at Get Rich Slowly:

Free e-book: The Get Rich Slowly guide to Roth IRAs

Drama in real life: Foreclosure!

Kansas or bust: Considering the cost of living

Slash your grocery bill with store brands

Karen Datko — Mon, 21 Sep 2009 12:48:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

The October 2009 issue of Consumer Reports contains an article extolling the virtues of generic store-brand products. While shoppers used to sacrifice quality when choosing generic, that's no longer the case. From the article:

If concern about taste has kept you from trying store-brand foods, hesitate no more. In blind tests, our trained tasters compared a big national brand with a store brand in 29 food categories. Store and national brands tasted about equally good 19 times. Four times, the store brand won; six times, the national brand won.

In other words, store brands offer roughly the same quality as national brands, but at a much-reduced cost. How much reduced? Consumer Reports says the store brands they tested cost on average 27% less than the name-brand equivalents.

How much can you save?
Sometimes theory is one thing and reality another. It's nice that Consumer Reports can score great deals on store brands. But could I? Last week, I walked to two local grocery stores to do my own research. First I looked at Safeway, where Kris and I shop most often. Next, I walked across the street to Fred Meyer, a store we usually try to avoid. (The store is huge and its layout makes little sense to me.)

I spent an hour in each store, roaming the aisles, looking for representative prices on a variety of items. I tried to pick one item at random from every section of the store. When I'd finished, I had a list of 25 products for which each store carried the same name brand and their own store-brand equivalent.

The results actually surprised me. You can save a lot of money with store-brand products -- far more than I suspected. Here's the raw data from my research:

The first column lists the name-brand item I used as a basis for comparison. I've given each store two columns, one for the price of the name-brand item, and one for the generic item. On each line, red text indicates the highest-priced option and green text indicates the least expensive option.

Here's a closer look at some of these comparisons:

I'm out of my Head & Shoulders shampoo. I just threw away the bottle this morning. Normally I buy actual Head & Shoulders at Safeway, which costs me $5.99 if it's not on sale. If I were to instead buy the Fred Meyer store brand, I'd pay only $2.49 -- a savings of nearly 60%.
At Safeway, standard Charmin two-ply toilet paper costs $10.99 for 12 rolls. At $9.49, the store brand isn't much cheaper. But if I were to go across the street to Fred Meyer, I'd pay just $4.89 for the store brand. (Actually, Kris and I get our toilet paper at Costco, and I have no idea what we pay.)
Hungry? For $2.17, you could buy a can of generic chicken noodle soup, a box of generic saltine crackers, and a bottle of generic root beer at Fred Meyer. Buying name-brand equivalents at Safeway would cost you $6.18. (You could eat three of those meals using generic Fred Meyer food for the price of one meal from Safeway.)

You get the idea. Buying store brands at Safeway would save nearly 22% for the items on this list. At Fred Meyer, I could save more than 36%. And Fred Meyer store brands cost 44% less than name brands at Safeway -- without the need for a "loyalty card."

A note on methodology: While conducting this survey, I faced a tough choice. Which price should I list? The non-sale price for each item? Or the sale price? Of the 25 name-brand items listed, 15 were on sale at Safeway and 14 were on sale at Fred Meyer. (There was a lot of overlap on the sales, too.) At Safeway, 20 of the generics were on sale; 10 were on sale at Fred Meyer. I chose to list non-sale prices because it's impossible to know which items are on sale when.

Running the numbers
I learned a number of things from this project. First off, we're shopping at the wrong grocery store. Buying name-brand products at Safeway is the most expensive way to go. Based on this list, shopping at Fred Meyer instead would save us nearly 12%, even without moving to generics.

Second, generics are not always a bargain. On 10 out of the 25 items, the Safeway generic cost as much (or more) than the name-brand equivalent at Fred Meyer. On the other hand, Fred Meyer store-brand items offer fantastic savings, especially when compared with Safeway's name-brand selections. (The items on this list were 44% less expensive.)

Another factor to consider is that some stores have a better selection of store brands than others. Subjectively speaking, Fred Meyer seemed to have about double the number of generic items that Safeway had -- and often had multiple sizes or varieties. They carried several types of store-brand salsa, for example, while Safeway's selection was more limited. At both stores, the generics were generally staple items: rice, toilet paper, tomato sauce, etc.

Conclusions
"We should buy more generics," I told Kris after collating my data.

"We do buy generics," she said.

"We do? Like what?"

"...," she said (proving for once that Kris is not always right).

Though Kris and I do a lot of things to save money, we don't actually buy a lot of store brands. We're not opposed to them -- we just stick to brands we trust. This brand loyalty costs us money. Here's how Consumer Reports put it in the article that inspired my research: "Switching to store brands can be a painless way to cut your grocery bill." They're right.

After conducting this experiment, I realize there are four key steps to saving big bucks on groceries. More than anything else, these actions can help struggling families cut costs:

Grow whatever produce you are able. The more you grow, the more you save.
Buy store brands whenever possible.
For everything else, do your best to purchase items only when they're on sale. (This may mean developing a grocery price book.)
Learn to clip coupons, especially for processed foods.

This exercise was eye-opening in another way. I discovered that shopping at Safeway costs us money. If the data here is representative, then switching to Fred Meyer could save us more than 10% on our grocery bill. That's enough to let us dine out one extra time per month. Or it's more money we can save for our trip to France next year.

Kris and I are both wary of switching from Safeway to Fred Meyer -- as I mentioned, there's more to this decision than price -- but I suspect that if we give it a chance, we'll find ways to deal with Fred Meyer's annoyances and save money in the process.

Related reading at Get Rich Slowly:

How to save $100 (or more) at the grocery store this month

Saving at the supermarket: 15 great grocery shopping tips

Unit pricing: Get more food for less money

On the road to financial independence

Karen Datko — Mon, 14 Sep 2009 13:12:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

It's been a long time since I wrote about the general state of my financial affairs. A few readers have written to express concern that I've lost my way. I haven't. If anything, I'm more devoted to this stuff than ever.

But as I wrote earlier this year, I've entered a different stage of money management. During the first two stages of personal finance (debt elimination and establishing a foundation), things happened quickly. They did not seem quick at the time, but they were.

Now I'm in the third stage of personal finance. Progress is steady, but there's not a lot of scenery. Have no fear: I'm still on the road to financial freedom.

Starting with quick wins
When I started paying down debt, I achieved a lot of quick wins. I'd pay off one debt, and then nix another a few months later. Back then, time seemed to drag -- no question -- but in retrospect, my progress was constantly visible. Even if I wasn't writing the final check for my computer loan in a particular month, I could see that my debt snowball had reduced the balance by a significant amount.

When I made frugal changes to my life, I could see the results immediately. Cut my television bill? Fifty bucks a month in my pocket. Cancel the magazine subscriptions? More money for me. And as I gradually weaned myself from bookstores and comic shops, my positive cash flow grew faster than I imagined possible.

By giving up certain things I had thought were necessities, I was able to find more money to throw at my debt, which just accelerated the entire process. As I say, progress seemed slow when I started, but I was actually reaching new landmarks all of the time.

The third stage of personal finance
Today I'm in a different place. I no longer reach significant milestones every month. It's more difficult to find new ways to be frugal. That doesn't mean I'm not making smart choices, that I'm not making progress. I am. It just means that the landmarks are spaced farther apart. Here are some of the things I've done (or continue to do):

I've eliminated my debt.
I've amassed a $20,000 emergency fund.
I'm maxing out my retirement plans. (And I've begun to invest outside them.)
Kris and I have accelerated our mortgage payments.
I was able to purchase a used Mini Cooper with cash.
This year I will earn more than I've ever earned in my life.
And still, Kris and I continue our frugal ways.

All of these things are fantastic. I'm ecstatic to have turned my financial life around. Recently Kris said, "You're not even the same man you were five years ago. You're like the new and improved J.D. I like it."

She's right.

I feel like I've reached a sort of financial nirvana. I'm not financially independent -- but that doesn't matter. I'll get there. Meanwhile, I no longer experience the guilt of overspending. Though I do make the occasional financial mistake, I'm no longer in danger of overdrafting my bank account. I don't incur late fees. I have enough money to indulge myself.

This feels good. This is what it's like in the third stage of personal finance.

The road ahead
My journey isn't over. My financial engine is humming smoothly. I'm ripping down the highway of life on the road to financial independence. There aren't many landmarks to share right now, but I know there are many ahead.

More than that, there are new paths to explore. I'm eager to discover (and to share) tips for those who have mastered the basics of personal finance. How does one buy municipal bonds? Is real estate a practical investment for the average Joe? What's the best way for me to use my money to help others? What can we do to optimize our financial systems? How can we boost our incomes while remaining frugal? How can we keep our psychological weaknesses in check?

And at the end of it all, there's financial independence. Will I ever reach that goal? If you had asked me five years ago, I would have said "never." Now, though, I'm more optimistic. It may not happen this year. And it may not happen next. But I think I'll get there before traditional retirement age.

It's not my goal to gloat or to brag or to have you write "Great work!" My goal is to show what can be done through hard work and perseverance. It's true that we're all different and that we all start from different places. But I sincerely believe that given enough time, nearly everyone can get rich slowly.

I am doing it, and so can you. I'll be here to help you find the way.

Related reading at Get Rich Slowly:

Saying goodbye to 20 years of debt

Mortgage prepayment made easy: How to own your home in half the time

Financial independence: The final stage of money management

The truth about taxes

Karen Datko — Tue, 08 Sep 2009 15:28:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

Note: Although I try to keep GRS a politics-free zone, today's topic is inherently political. I've stayed as neutral as possible in the article, but I know that there'll be some political discussion in the comments. Please keep conversation civil, as always.

Because I was frustrated with my own ignorance about the U.S. federal budget and our tax system, I recently spent 12 hours researching a variety of tax topics. From my research came two articles: my recent short guide to the federal budget and today's post, which answers some of my personal questions about taxes.

In the earlier post, we tried to take a few small steps toward understanding the federal budget. We looked at where the U.S. government spends its money. But where does it actually find the cash to spend?

Of the $2.333 trillion in U.S. government receipts:

$1050 billion (45.0%) comes from individual income taxes.
$939 billion (40.2%) comes from social insurance/retirement receipts.
$221 billion (9.5%) comes from corporate income taxes.
$76 billion (3.3%) comes from excise taxes.
$20 billion (0.9%) comes from estate and gift taxes.
$28 billion (1.2%) comes from Federal Reserve deposits.
$16 billion (0.7%) comes from other miscellaneous sources.

As you can see, nearly half of government receipts come from individual income taxes. Naturally, taxes are a hot-button issue. They have been since this nation was founded. (To be fair, though, the driving force then was "taxation without representation." Modern complaints are against taxes in principle, I think.)

During my research, several questions about taxes occurred to me. In today's article, I'll do my best to share the answers I found.

Is it true that X% of Americans pay no federal income tax? In a recent discussion about taxes at The Simple Dollar, Kevin wrote:

Roughly half of all Americans don't pay any income tax at all. I'm sure those folks feel the current tax levels are just fine and dandy, no complaints. Those of us who DO pay taxes, however, are buckling under the weight.

Kevin's comment left me wondering: Are there really that many Americans who don't pay income tax? And are those of us who do pay income tax really "buckling under the weight"?

I was unable to locate government data on people who don't pay taxes. Instead, I found a March 2006 article from the Tax Foundation, a nonpartisan tax research group based in Washington, D.C., which calculated that 43.4 million tax returns resulted in zero (or negative) tax liability. Another 15 million households file no tax return at all. Based on these numbers, the article concludes:

Roughly 121 million Americans -- or 41% of the U.S. population -- will be completely outside the federal income tax system in 2006. This total includes those who pay no tax, and those who pay some tax upfront and are later refunded the full amount of the tax paid or more.

So, according to this study, 41% of the U.S. population lives outside the federal income tax system, and 32% of U.S. tax returns resulted in zero or negative liability in 2006.

This 32% number is relatively high. Previous peaks were at 28% in 1950 and 26% in 1978. Lows were 16% in 1968 and 18% in 1984. In general, the percentage of tax returns with no tax liability is between 20% and 25%.

Note: As several commenters have noted, although some people pay no income tax, that doesn't mean they pay no federal tax at all. "Linear Girl" writes: "The second largest source of funds for the federal government is payroll tax, aka Social Security and Medicare. All employed people who aren't paying any income tax do pay payroll tax of 7.65% on all earned income (their employers also pay an additional 7.65%; if you are your own employer you pay both sides)."

The Tax Foundation sees these numbers as a call to "broaden the tax base," but admits that nonpayers tend to be younger and earn lower incomes. (Here's a past GRS article about people who live on low incomes in order to avoid paying taxes.)

If there is a large number of nonpayers, does that mean the rest of us are "buckling under the burden"? Let's look at more numbers.

How do current income tax rates compare with those from the past? In the United States, the federal individual income tax went into effect in 1913. The top marginal rate was 7% -- and that's if you earned more than half a million dollars. (According to the Bureau of Labor Statistics inflation calculator, that's equivalent to an income of nearly $11 million today.)

Note: The difference between marginal tax rates and effective tax rates can be confusing, even for those who know better. Here's an explanation of how marginal tax rates work.

The Tax Foundation has published a handy viewer that allows users to explore U.S. federal individual income tax rates from 1913 to 2009. (They offer .pdf and Excel versions of the data, too.)

Using their data, I created a graph that shows the history of U.S. marginal tax rates. This graph shows the lowest marginal rate in red and the highest marginal rate in blue. At any one time there are many other rates in between. (The tax tables are simple right now, believe it or not.)

Based on this information, it would be easy to conclude that tax rates are low in the United States right now relative to past history. While I believe this is probably true, it's impossible to know this for sure without copious data regarding average incomes and effective tax rates. Still, the answer to the next question provides a bit of a response.

What tax rate does the average person pay? Because the United States has a system of progressive taxation, it's difficult to know exactly how much each person pays for income tax. We all know our marginal tax rates -- the rate at which the last dollar of our income is taxed -- but our effective tax rates (or average tax rates) fluctuate from year to year.

I don't know a source for comprehensive data on this question. The IRS does provide some statistics (and may, in fact, provide all the data one needs), and other parties have taken the time to collate some of it. For example, the Tax Foundation has produced several pages of summary tables. From this info, I built the following chart:

This chart shows the average federal income tax rates over time for a variety of income levels. The red line shows the average tax rate from 1980 to 2007 for the top 1% of the population based on adjusted gross income (AGI). The black line shows the top 10% of earners based on AGI. The blue line shows the overall average federal income tax rate for all U.S. citizens.

In 1980, Americans paid 15.31% of their AGI in income taxes. In 1990, that number was 12.95%. In 2000, it was 15.26%. In 2007 -- the last year for which there is data -- that number was 12.68%. Based on this, I'd say that the average American has an effective federal income tax rate of 13% to 15%. (And top earners pay about 22%.)

Note that these numbers don't exactly match the statistics for effective tax rates that are available from the Congressional Budget Office (which show, for example, an effective individual income tax rate of 11.7% in 1980, 10.1% in 1990, 11.8% in 2000, and 9.1% in 2006). I'm almost certain it's a matter of methodology, but I don't have the time to dig in and discover the details. That last link, by the way, contains loads of great data, some of which is analyzed in this piece at The New York Times.

Note: This graph shows something else, too. Contrary to some arguments, high-income earners do pay more in taxes than low-income earners. The bottom half of American wage earners pay an average of about 5% to the federal income tax. The top half pays about 15%. The top tenth of American wage earners pay nearly 20% of their wages in federal income taxes. Again, I'm not saying this is right or it's wrong, but those with high incomes do pay more in taxes.

So are Americans "buckling under the burden" of taxes? I'm not convinced. Taxes seem to be moderately low right now based on our past history. But maybe we pay more than the rest of the world? Let's find out.

How does the U.S. tax burden compare with that of other countries? Though I was unable to locate comprehensive statistics for every country in the world, the Organization for Economic Co-operation and Development does collect data on its 30 member nations.

In fact, you can view 18 years of OECD tax data all on one page. These numbers represent each country's tax revenue as a percentage of gross domestic product. These figures include all taxes: federal, state, and local. (Note that you can export the data from this page in a variety of formats. Fun for stats geeks and tax geeks alike.) Here's a graph of the data from 2006, the most recent year for which complete stats are available:

In 2006, tax revenue in the United States was 28.0% of the gross domestic product. Put another way, the average American paid 28% of her income to taxes (state, federal, and local). Of the 30 OECD member countries, only four had lower taxes (Japan, Korea, Turkey and Mexico). The highest tax burdens were in Denmark and Sweden, where tax revenue was 49.1% of the GDP. The lowest tax burden (by far) was in Mexico, where tax revenue was only 20.6% of GDP.

These numbers indicate that relative to other countries, the United States has a low tax burden.

How much is this all costing me? Social Security, Medicare, Medicaid. Food stamps, unemployment compensation. The Army, the Navy, the Air Force, the Marines. And the interstate highway to grandmother's house. How much does this all cost you?

Well, Jess Bachman (the Death and Taxes poster guy) has done the calculations for you: The average U.S. taxpayer has an income of $43,650. For every billion dollars of government spending, this taxpayer is on the hook for five bucks. These numbers scale up or down depending on your income. If you earn $100,000 a year, for example, you pay $15 of taxes for every billion dollars the government spends. Ouch.

Conclusion. Based on my research, U.S. taxes actually seem relatively low, both historically and in relation to other countries. I am not arguing that we should have higher taxes. Nor am I arguing we should have lower taxes. I'm just relaying the facts.

In fact, I don't really have a purpose behind my research other than education. With all of the recent national discussion about taxes, I felt woefully under-informed on the subject. When you listen to people argue about taxes, it's difficult to know whom to believe. I wanted to do my own research and then share the results with you.

For more exciting information about taxes, check out the following:

Internal Revenue Service: tax statistics.
U.S. Treasury: a history of the U.S. tax system.
FedStats provides easy access to tons of statistics collated by the U.S. government.
Tax Foundation: state and local tax burdens (by year) and state and local tax burdens (by state).
Congressional Budget Office: data on the distribution of federal taxes and household income (with thanks to Dan, a commenter at The Simple Dollar, who shared this info with me).

After all that, how would I balance the budget if I were dictator of the United States? Easy. I'd cut all programs across the board by 10% while increasing taxes on everyone by 10%. Yeah, that sucks, and every citizen of the U.S. would be unhappy. But you know what? If I were dictator, I wouldn't care. I'd be sitting in a cozy room reading comic books while eating chocolate chip cookies with milk.

Related reading at Get Rich Slowly:

How marginal tax rates work

Mr. Lawyer and Mr. Accountant chat about taxes

Original income tax form from 1913

Frugality in practice: Alternate transportation

Karen Datko — Mon, 31 Aug 2009 12:21:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

I've always been a car guy. It's not because I'm mechanically inclined or that I get into the latest makes and models -- neither of these is anywhere close to the truth -- but because a car has always been my primary mode of transportation.

When I was a boy, my family lived in rural Oregon, six miles from the nearest town. Automobiles were our only real option for getting around. Even when I went away to college, I relied on a car for most of my mobility. And so it's been for 40 years. As I say, I've always been a car guy.

This summer, though, I've had a sort of epiphany, one prompted by your comments and suggestions. I've learned that I can save money and improve my fitness by leaving my car at home -- by exploring alternate modes of transportation.

The bus
After my small adventure riding the bus in April, I've begun to view it as a valid means for getting around town. I think it helps that our friends Chris and Jolie are huge bus advocates, and use it to travel to and from our house. If they can use the bus, so can I -- right? Now, instead of seeing the bus as something other people use, I know it's something that I can use as well.

For example, I'm hoping to take a French class at a local college when the fall term starts. (Kris and I are teaching ourselves French in preparation for our planned vacation to Paris next autumn.) If I do this, I intend to take the bus to school three mornings a week.

I still don't use the bus often, but it's now in my pool of options, especially if I don't want to hassle with a car. Portland's transit system has an awesome Web site, so it's easy to find a route that works for me.

The bike
I love cycling, but I was rarely hopping on a bike anymore. For a couple of years during the late 1990s, I regularly rode my bike 5.8 miles to and from the box factory during the summer. I was biking more than 1,000 miles a year. I've biked occasionally here at our new house, but I'm older and fatter than I used to be, and my bike no longer really fits me.

I spent the better part of this summer avoiding a bike purchase -- I just bought a car, for goodness' sake -- but two weeks ago, I finally realized that I was being foolish. I bought a city bike, one that actually fits, one that I actually use. Even though I could afford it, I felt apprehensive spending the money. (Still haven't shaken all of the old mindsets.) But after a fortnight using my new vehicle, I'm pleased with the purchase.

A bicycle is handy not only for exercise, but also for handling middle-distance errands. If a destination is within 10 to 15 miles and it's not raining (an important consideration here in Oregon), a bike is a viable option. Biking to my friend Andrew's house takes about 25 minutes, for example; that's only 10 minutes longer than it takes by car. And biking to the nearest grocery store barely takes any time at all.

Now that I have a bike that fits me -- and one specifically designed for city cycling -- I'm eager to make frequent use of it. It's been more than a decade since I've had a 1,000-mile year. It'd be great to ride that far again in 2010.

My feet
The bus and the bike are great, but the real revelation in alternate transportation this summer has come from my own two feet. I've been walking all over the place.

Kris and I don't live in a very walkable neighborhood. Despite a "somewhat walkable" Walk Score of 68, there's nothing much close by. (In calculating walkability for us, the Walk Score counts two minimarts as grocery stores and two bars as restaurants -- including one with the dubious distinction of being named "the best dive bar in Portland.")

After I developed another running injury in June, I decided that I'd have to get my exercise by walking. That meant jaunting five or six miles each day to get the same time on my feet that I'd spent running. It also meant learning to see the surrounding communities in new ways.

For example, I've always felt that the nearest city was too far to walk to. It's 2.5 miles to the near side of town and three miles to the far side. But I recently made a deal with myself: Once a week, I allow myself to go to the comic book store and to eat at the cheap taco place -- but only if I walk. Walking creates a barrier. By setting this requirement, I can't just indulge myself on a whim.

It's not just the comic book store and the taco stand, though. I walk three miles to the credit union. I walk a mile and a half to the public library. I walk a mile to the grocery store. And once, I even walked two miles to the lawnmower repair shop, and then pushed my mower home.

I never thought I could make the time to walk five miles per day, but I was wrong.

And here's something I've learned: Once you start walking five miles a day, your world gets bigger. I know this seems counterintuitive -- a car takes you farther faster -- but it's true. You begin to realize that things are closer than you thought they were. Walking is a great way to save money, see your neighborhood, and have fun.

Other options
Although I may be a new convert to alternate modes of transportation, many GRS readers have been working to reduce their car use for a long time, and for a variety of reasons. On Twitter last week, I asked people to share their stories.

Here are some of the replies (slightly edited):

"Apricotrabbit" wrote: "Between the bus and Zipcar, I don't need a car in the city and I save tons of money. Plus, I can read while someone drives me around."
"Mrawdon" wrote: "I've been biking to work twice a week this summer, for the exercise. Cuts down on gas consumption significantly, too."
"Grouchyladybug" wrote: "I take the train and bus to work because it's cheaper and more relaxing than driving."
"Sarahperiwinkle" wrote: "I take the commuter rail because it's free with an employer transit pass, within walking distance of home and work, and as fast as a car."
"Jessemecham" wrote: "Is a sweet scooter alternate transportation? Seventy miles per gallon and I look good. (Yes, it was partially to save gas)."

It's important to note that not everyone likes biking or taking the bus. I heard from some people who wish they could use a car more often, or who opt not to use other methods because they're inconvenient.

Conclusion
Not all Americans have the luxury of being able to explore alternate means of transportation. For good or ill, we're a car-centric nation that has built car-centric cities that encourage us to stay in our automobiles. But I suspect that there's a large number of people who could travel by bus, bike, or feet -- if they only realized how easy it is. (That was certainly true in my case, anyhow.)

For some people, time is an issue, but I have intentionally created a lifestyle that allows me an opportunity to explore more leisurely modes of transportation.

All of this is well and good during the warm, dry months. But what happens when the Oregon rain returns in mid-October? I'm not sure. I suspect my bicycle will go into hibernation, I'll walk only a couple times each week, and I'll really get to learn how Portland's bus system works. And my spending on gas and car maintenance will continue to drop.

Related reading at Get Rich Slowly:

My Mini Cooper and the power of saving

Walking for fun and profit

The inner workings of a car dealership

Why some people earn more than others

Karen Datko — Mon, 24 Aug 2009 12:26:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

In June, a user at Ask MetaFilter wondered: What are the differences between someone who makes $100,000/year and someone who makes $30,000? As you might expect, this question generated a lot of discussion -- all of it interesting.

Many commenters noted that, from their experience, high-income earners generally exhibit several of the following traits:

They maintain a strong work ethic.
They don't watch the clock.
They seek to improve their skills.
They do quality work.
They're flexible and adaptable.
They maintain a good social network.
They possess self-confidence.

A few commenters noted that there are two other factors that absolutely play a role in how much a person earns. Chief among these is choice of profession. Even if you're the best damn high school physics teacher in the world, you'll still probably earn just $50,000 or so. (But if that gives you a fulfilling life, that's probably worth more than a high salary.)

Hard work, etc., do not guarantee a higher salary -- but they do improve the odds. A second oft-overlooked factor is luck. Chance. Happenstance. There's no question that luck plays a role in how much a person is paid. But as I've argued in the past, in most cases luck is no accident. It's possible to make your own luck -- to a degree.

There are many great comments in the Ask MetaFilter discussion, including a mention of a Socratic dialogue about wealth and economics. One of my favorite comments is from "decathecting," who writes:

Lots of people make six figures, including plumbers, business managers, attorneys, high school principals, military officers, technicians, landlords, psychologists, and people in thousands of other professions. The common denominator is that they've figured out what they're good at that other people are willing to pay them to do.

From my own experience, I know that while I was stagnant and uninterested in my career, my income was also stagnant. It wasn't until I decided to take charge of my own life that my financial situation improved -- including the amount I was earning.

I've seen the same in the lives of my friends. It's easy to coast, to become complacent. But it's important to remember that with incomes especially, nobody cares more about your money than you do. If you want to earn more, you must play an active role in obtaining the money.

Reminder: One way to improve your income is to learn how to negotiate your salary. Mastering this skill can make a huge difference in your lifetime earnings potential.

Finally, I want to note that a high salary is not the panacea many people believe it to be.

Sometimes the costs of a high income make the payoff less than you might expect. For example, I have a friend who is an attorney. He makes a fair amount of money. But he's also burdened by outrageous student loans and business expenses. Though his income is high on paper, it's actually rather modest after he's paid for his necessities.

High-income earners face another problem that prevents them from getting ahead: lifestyle inflation. Sure, that's a nice problem to have, I suppose, but if you don't learn to control your spending as your income increases, you're not really much better off in the long run than somebody with half your salary.

Ultimately, I don't know if it's possible to say that there's any one magic thing that leads one person to make more than another. Yes, hard work probably makes a difference. But so does luck. Have you noted a difference between the high-income earners in your life and the low-income earners? Is there a pattern? Or does it all seem rather arbitrary?

Addendum: I seem to have done a poor job of conveying my message today. I'm not trying to imply that "poor people are lazy" or anything of that nature. However, I do think there must be differences between high-income earners and low-income earners, that it's not purely a matter of luck. So, what are these differences? It must be possible to have an intelligent conversation on this subject without being rude and without becoming defensive.

Related reading at Get Rich Slowly:

How to negotiate your salary

Who earns minimum wage? A statistical profile

How to escape from minimum wage

Fighting financial trolls

Karen Datko — Mon, 17 Aug 2009 13:17:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

Money is more about mind than it is about math -- that's a core piece of my financial philosophy.

If you improve your self-esteem, if you improve your mental attitude, if you improve your knowledge, you will improve your finances. To this end, it's important to avoid negative messages about money. But it's difficult to improve your mental attitude when you are besieged by financial trolls.

What are financial trolls? Steve Pavlina writes:

Financial trolls strive to sabotage your financial pursuits. These trolls can be internal or external. They're the people who make comments like, "Wealthy people are so greedy. They only care about themselves and will take advantage of anyone to make money." Financial trolls are also the internal voices that say, "If you make too much money, people will judge you harshly for it. They'll assume that's all you care about."

In order to be successful with money, it's important to learn how to face -- and fight -- these financial trolls. If you can defeat them, you'll have a better chance of meeting your financial goals.

Coping with external trolls

When I started my personal-finance blog, I wanted people to like and agree with everything I wrote. Anytime I received a negative comment, I took time to exchange e-mail with the person who left it.

Here's an example of an actual criticism I once received: "I would love (this site) if only the privileged would acknowledge how lucky and privileged they are and how their 'advice' applies to only other privileged kids."

I tried to carry on a conversation with the commenter, but nothing I could say would satisfy him. In his mind, I was a rich jerk and nothing could change that.

Eventually I realized that 95% of these people aren't interested in a rational exchange of ideas. They're external financial trolls. They have chips on their shoulders, they're clinging to preconceived notions, or they just want to argue. They're not worth my time.

Other examples of behavior you might see in external trolls include:

You might have a goal, and have a plan to pursue it despite the risk involved. The troll in your life focuses on the obstacles, on the reasons you can't achieve it: "You don't know what you're doing." "That's the not the way I would do it." "Think of all the things that might go wrong."
Perhaps you admire other successful people. Trolls often resent success: "Warren Buffett got rich on the backs of others." "Bill Gates is a crook." "Rich people don't work for their money."
Other trolls are constant complainers. They complain about their jobs, they complain about their lives, they complain that they don't have money. They complain, but they rarely take action. Complainers are poisonous.

Defeating most external trolls is straightforward. Because they're not internal, you can usually just remove yourself from the situation. Ignore the troll. Change the conversation. Leave the room. Hang up the phone. Anytime you argue with a troll, the troll wins. Do not engage the troll.

Coping with internal trolls

Internal trolls are more insidious than their external cousins. Because they are a part of you, eradicating them takes self-discipline. Examples of internal trolls include:

Self-defeating thoughts and behaviors: "I can't do this -- it's too difficult." "I'm not smart enough." "It's too much work." "I don't deserve to have money."
Procrastination: "I'll start next week." "I'll worry about this later." I can start saving next month -- this month I'll buy an Xbox."
Rationalization: "Buying just one pair of shoes won't blow my budget." "I'm out with my friends -- I should join the fun." "I should reward myself for how well I've been doing lately."
Barriers: "I don't know how to open a Roth IRA." "It's too much bother to set up automatic deposits." "Sure, I could call around for lower rates, but I don't like talking on the phone."

Conquering internal trolls can be non-intuitive. Most are a product of self-doubt, which is best combated through exercise, discipline, positive social interaction, and a healthy diet. (Seriously.)

The following can also help:

Talk back to yourself. It makes sense to avoid arguments with external trolls, but confronting internal trolls is an excellent tactic.
Set financial goals. Review them regularly.
Read success literature: personal-finance books, self-development manuals, and biographies of successful people.
Educate yourself. Learn about money. I resisted investing for a long time until I learned just how easy it was to open an IRA.
Find a mentor, a coach, or an adviser. Learn from others.

I have much more trouble with internal trolls than I do with external trolls. They're a constant threat. But I'm constantly working to keep them in check. The more I fight them, the better my financial position.

Know when to seek help

Some trolls are difficult to defeat. What do you do about a spouse who insists on sabotaging your financial security? How do you deal with your own compulsive shopping? Problems like these may require the assistance of a trained professional: an accountant, a lawyer, or a psychologist. The important thing is to deal with them. Until you defeat them, they'll only hold you back, preventing you from achieving success.

Related reading at Get Rich Slowly:

How to build confidence and destroy fear

Money blueprints: What our parents taught us about money

The balanced money formula

What we wish we'd known

Karen Datko — Mon, 10 Aug 2009 11:52:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

Kris called me at 7 the other night, just as I was sitting down to write the Friday "Ask the Readers" post. I was sorting through the week's questions when the phone rang.

"Are you busy?" she asked. "Can you do me favor?"

"Maybe," I said. "It depends on what it is."

"Ryan's car broke down," Kris said. "He's stranded here at the lab and can't get home. Can you give him a ride across town?"

"Sure," I said. But I did the mental math: The trip would take me a couple of hours. Because I hadn't yet started on the morning's post, I knew I'd be up late.

I drove to Kris' office to pick up Ryan. Ryan's a young man, just out of college. He did some temp work in the construction industry before getting a job as a scientist. He and his girlfriend are getting married in two weeks. They rented a house together and were supposed to have moved out of their apartment by tomorrow. With Ryan's car in the shop, that was going to be difficult.

"What kind of work do you do?" Ryan asked as we drove across Portland to Beaverton.

"I'm a professional blogger," I said. "I write a blog about money."

"Stocks and bonds and stuff like that?" he asked.

"A little," I said. "I do cover the details, but a lot of the time I write about the mental aspect of money. I'm interested in the psychology, in the behavioral side of personal finance. I don't know how your money skills are, but mine weren't very good when I was young, and that's mostly because I had bad habits."

"I'm lucky, I guess," said Ryan. "My parents taught me about money, so I try to do the right thing, like avoid credit card debt. I try to." From the way he said it, I thought that the whole car repair/wedding/renting a new house combination might be taxing his reserves.

"Thanks for the ride," Ryan said as we pulled into the apartment complex.

"No problem," I said. "I'm happy to do it. People have done the same for me in the past. It's my turn to pay it forward."

As I drove home -- windows down, the Mini's sunroof open, listening to '80s synthpop -- I thought about what it was like when Kris and I were starting out. I remembered what it felt like to go through the motions of adult life, hoping that I was doing things the right way. "It's too bad I didn't have an instruction manual," I thought.

But what would an instruction manual for personal finance contain? What would have helped me most when I was starting out? What would help me most now? Instructions for how to invest? A list of steps for buying a house? Tips for avoiding overdraft fees? Or would I have profited from the more psychological stuff -- like how to deal with failure?

At stoplights, I jotted down a list of the five things I really wish I had known when I was younger:

Why it's important to pay yourself first. My father tried to tell me this when I was 19, but I just wasn't ready to listen. Now, after having watched Kris sock away up to 25% of every paycheck for the past decade, I understand how important it is to set aside savings -- for vacations, for homebuying, for retirement -- before doing anything else with your income.
How to harness the power of compounding. I wish somebody had shown me a chart demonstrating the difference between paying a credit card company 18.9% interest on $10,000 versus a bank paying me 3% interest on the same amount.
How to avoid the seductive trap of lifestyle inflation. As my income grew, so did my spending. In fact, my spending grew faster than my income. It never occurred to me that I ought to save this money. And it took me years to understand that most of the stuff I was buying would end up gathering dust after very little use.
How to avoid the chains of debt. Debt is slavery. The less you spend, the more flexibility you have. Because I developed debt early and quickly, my choices were limited. I had to take any job I could because I was tied to the monthly payments. And then, once I'd recognized the error of my ways, it took years to break the chains that bound me.
How to save on things both big and small. My friend Ramit seems convinced that small frugality doesn't matter. I disagree. I've never really had a problem saving on the big stuff. I research the hell out of most expenses over $500. It's the small stuff that has killed me, and that's largely because I thought it didn't matter. The small stuff does matter. If I'd known that sooner, I could have avoided a lot of pain.

"What do you wish you'd known about money when you were younger?" I asked Kris when I got home.

"Well, I never really had a problem with spending or with debt," she said. She thought for a moment. "I wish I had known to pay myself first, even when I couldn't afford to save very much." (This coming from a woman who saves a quarter of everything she earns.)

I get the sense that Ryan will do just fine. He has a good head on his shoulders. He's being careful, even in the face of so many financial stressors. I just wonder what he'll be thinking 15 years from now, when he's my age.

What do you wish you had known about money when you were younger?

Related reading at Get Rich Slowly:

Financial advice from my father (when I was 19)

Book review: ‘Debt is Slavery'

The ongoing battle with lifestyle inflation

The high cost of laziness

Karen Datko — Mon, 03 Aug 2009 12:24:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

Forbes recently published an article about all the ways your laziness is costing you. As a semi-reformed layabout (Kris would say I haven't reformed at all) I read the article with interest. I recognized some of my old money habits -- and some I still have.

Author Daniel Adler writes:

These days countless businesses make hay by taking advantage of our collective indolence -- everything from not bothering to spend 15 minutes surfing the Web for a better rate on a savings account to not taking half as much time to mail a $50 rebate on a new laptop computer.

Here are some of the ways Forbes says laziness can cost you money. (The bullet points are from Forbes, but the rest of the text is from me.)

Not choosing the best rate on your savings account. While it's probably not a good idea to become a rate-chaser, it doesn't make much sense to keep the bulk of your savings in a big bank savings account earning 0.20%. Find a local credit union or an online bank where you can earn a decent return on your money. Even though rates are low right now, they'll rise in the future, and you'll be glad your money is earning interest for you.
Not opening a retirement fund (as soon as possible). Never forget the power of compounding. The younger you begin to save, the more time your money has to work for you. Even if you're older, you should still get started as soon as possible. I didn't begin saving until I was 37, and I've now watched much of my retirement money wither away, but I'm continuing to put money aside for the future. If your employer matches your 401(k) contributions, take advantage of this free money. And don't forget to max out your Roth IRA.
Not sending in rebate offers. Ah, yes. That "not sending in the rebate" thing has bitten me before. It's a good way to turn a bargain into a run-of-the-mill deal. Manufacturers offer rebates instead of actual discounts because they know a large percentage of purchasers will never follow through.
Not paying attention to 0% financing deadlines. When you buy something with 0% interest, there's a catch. If you don't pay in full by the end of the grace period, Adler writes, "the often very steep interest rate that kicks in applies not to the remainder of the debt, but the entire original purchase price." Zero percent is a bargain only if you aren't lazy.
Waiting until the last minute to send mail. This one has nailed me, too. A decade ago, I was a chronic sloth with my mail. ("Sloth Roth," Kris would call me.) I'd mail things on the day they were due, and then moan about the late fees I received. Now I try to mail my bills on the day I receive them. (Or, better yet, to pay automatically online.)
Not taking advantage of corporate wellness incentives. If your employer pays for health-related benefits, you ought to take them. I think this is true of many benefits. Some companies offer paid gym memberships (though you may have to pay taxes on this). But most employees are too lazy to take advantage of the offer. At the box factory, we would pay for one class per employee per term at any public school an employee chose. Few employees took us up on the offer. (I took many classes via this benefit.)
Not bothering to negotiate a deal. Many people are averse to haggling. But if you're just avoiding it because you're lazy, you're missing out on a chance to save. You don't have to haggle on everything. But haggle where it makes sense, and your pocketbook will thank you. (Here's how one GRS reader uses haggling to save big bucks.)

The full article has more details, and the accompanying slideshow highlights other ways in which laziness may be costing you money.

Laziness isn't as much of an issue for me as it used to be. I'm much more motivated to manage my money. Still, I do make mistakes from time to time. Here are a few of the ways laziness continues to cost me money:

When I'm just too lazy to make dinner at home, I end up spending more in restaurants.
When I'm too lazy to maintain my tools, they rust or break. (I recently had a scare with my lawnmower. I hadn't changed the oil in five years -- because I was lazy -- and the blade seized up. Turns out the oil wasn't an issue, but you can bet I'll change the oil every year going forward.
When I'm too lazy to reply to e-mail from potential advertisers, they find somebody else to work with. I miss out on that revenue.
When I'm too lazy to go see the doctor, my running injuries linger for months instead of being resolved in weeks.

Not everyone is lazy, of course. And even those of us who are chronic loafers have areas where we shine. I've written something substantive nearly every day for the past eight years, for example. Plus I'll often walk to do my errands. I'm not completely lazy.

What about you? How has laziness cost you money? Did you take steps to prevent problems in the future?

Related reading at Get Rich Slowly:

How to find the best high-yield savings account

How to start a Roth IRA (and where to do it)

The extaordinary power of compound interest

The man without money

Karen Datko — Mon, 27 Jul 2009 13:03:00 GMT

This post comes from J.D. Roth at partner blog Get Rich Slowly.

Previously in my semi-regular Extreme Personal Finance series, I've highlighted:

A couple who paid off their $220,000 mortgage in three years.
People who live on $12,000 a year.
Don Schrader, the man who lives on $10 a day.
Rina Kelley, the reporter who lived for one month as a freegan.

Recently, my friend Castle sent me the story of a man who makes these other folks look like spendthrifts.

The man without money
Writing for Details magazine, Christopher Ketcham profiles Daniel Suelo, the man who lives without money. From the article:

Nine years ago, in the autumn of 2000, Suelo decided to stop using money. He just quit it, like a bad drug habit. His dwelling, hidden high in a canyon lined with waterfalls, is an hour by foot from the desert town of Moab, Utah, where people who know him are of two minds: He's either a latter-day prophet or an irredeemable hobo.

Suelo lives in a small cave. Much like those in the freegan movement, he generally consumes wasted food from restaurants, grocery stores, etc. Suelo supplements his diet by foraging for plants, mushrooms -- and fresh road kill.

How did Suelo come to adopt this lifestyle? Ketcham's article describes the two years he spent in the Peace Corps, posted to a remote village in Ecuador:

The tribe had been getting richer for a decade, and during the two years he was there he watched as the villagers began to adopt the economics of modernity. They sold the food from their fields -- quinoa, potatoes, corn, lentils -- for cash, which they used to purchase things they didn't need, as Suelo describes it.

They bought soda and white flour and refined sugar and noodles and big bags of MSG to flavor the starchy meals. They bought TVs. The more they spent, says Suelo, the more their health declined. He could measure the deterioration on his charts. "It looked," he says, "like money was impoverishing them."

This experience (and many others) led Suelo to Buddhism and asceticism. It led him to give up money.

Cave-blogger
There's a lot more to Suelo's life than can be summarized in Ketcham's short profile for Details magazine. Fortunately, you can learn more about a life without money from Suelo himself. Suelo uses the Moab Public Library to maintain a blog called Zero Currency, which he updates about once a month. A recent post included a brief response to the Details article. Suelo writes:

... My life is not really the life of an ascetic. Chris (the author of the magazine article) told me "this life seems hard." I told him yes, but I also said that my life is easier than it ever was when I had money, and that it's easier than most anybody's life I know.

Really, though, Suelo's blog is less remarkable than his primary Web site, which is called Living Without Money. It's here that he answers all of the questions people have about his lifestyle. (Check out the list of frequently asked questions in the left sidebar, or read through his enormous one-page FAQ.)

Reading Suelo's writing is like peeking into the mind of a genius -- or a madman.

Back to the basics
When she sent me Ketcham's article, Castle wrote:

A good friend once said she didn't think I value money enough and I've thought about that a lot. I have always been uncomfortable with the concept of money, and consumerism seems foreign to me. I know, I know, I am poisoned by it, too. I've always felt a strong urge to go back to basics and I mean REALLY basic. This guy in this article has done what I've only vaguely dreamed of. Please read it and tell me what you think of his choices.

As longtime readers know, I too feel a pull "back to the basics." I'm very much a part of our consumer culture, but I pine for an idealized vision of simple living. (I'm under no illusions that it's as easy and carefree as I'd like it to be.)

But Suelo takes it to an extreme. I couldn't live that way. I don't want to live that way. I'm all in favor of simplicity, but I believe there's a balance to be achieved. I don't mind living in the world of money; I just want to build a life where money and consumerism aren't my primary focus.

What's more, I don't believe this is a lifestyle that can be adopted en masse. (And Suelo's response to this particular point is unsatisfying.) If everybody chose to live without money, nobody could live without money. But the truth is, 99.99% of the population has no desire to live this way. And because of this, people like Suelo (and others I've profiled in my Extreme Personal Finance series) can do what they do. I wouldn't call them freeloaders (as some have done); instead, I'd argue they're exploiting holes in our consumerist culture.

To that end, I think what they're doing is great. Their lifestyle isn't for me, and their vision of an ideal world isn't for me, but the reality of what they're doing in this world is fascinating, and much more interesting to me than, say, the life of Donald Trump.

For further discussions of Suelo's choices, check out:

Reddit: "Modern-day caveman lives on zero dollars a day."
Huffington Post: "The man who survives without money."
Guardian UK: "Free spirit or freeloader?"

Finally, Google Video has a low-resolution 15-minute film about Suelo called "Moneyless in Moab."

Could you live a life without money? Does the idea appeal to you in any way? Do you find stories like Suelo's inspiring? Repugnant? Or something in between?

Related reading at Get Rich Slowly:

Extreme Personal Finance: America on $10 a day

Extreme Personal Finance: Living on $12,000 a year

Extreme Personal Finance: How to pay off your mortgage in 3 years