how to take a money diet

Bubelah had a good idea the other day as we discussed diets: saving money is, at its core, like dieting. You try to deny yourself something in the present for the sake of future gain. With money, it’s saving now for security and independence in the future. With dieting, it’s avoiding more food than you need now for the sake of future weight gain. I know that’s not EXACTLY what’s going on, but stick with me, OK?

So I thought about it and here are a few types of diets and the equivalent money-saving behavior.

  • Low-carb: In a low-carb diet, you avoid most foods with carbohydrates, but eat freely of foods that don’t have carbs. Low-carb foods include meat, nuts and cheese, and you can eat as many calories in these areas as you like. Vegetables are moderate in carbs. Bread, fruit, sweets and everything else have lots of carbs.

You won’t spend money on certain things, but you’ll go crazy on others. You may think a vacation is a waste of money, but don’t think anything about ordering an expensive dinner with a few glasses of wine and a $7 cup of coffee. Or you avoid buying that Starbucks latte every morning but get a new cell phone every year.

  • Low-fat: Low-fat diets avoid fatty foods like meat, dairy, and sweets and favor low-fat items like pasta, vegetables, bread and grains. Low-fat diets still require some calorie watching, unlike low-carb.

You avoid spending money on anything ‘fun’ or unnecessary, but take it easy on the basics. You don’t look for ways to reduce your heating bill, but you never, ever eat out. You squeeze all the joy out of money by only using it for bare necessities. You save money, but you get no joy out of it.

  • Calorie diet: This diet requires that you look at the calories in food and keep it under a certain number every day. You can drink one shot of a milkshake, or 14 cucumbers, but you have to make sure you eat less than X number of calories.

You cut back on everything. You still go out for dinner – but you drink water and skip appetizers. You watch TV – but only basic cable or no cable at all. You own a house – but you turn the heat down to 50 and wear a sweater all winter long. You save money, but it gets very hard to keep up with the discipline.

  • Prepackaged meal diets: You sign up with a company that sends you prepackaged meals designed for optimal weight loss. I assume they make claims that the lunch is designed to interact with your metabolism in a certain way, and the “diet” pizza for dinner is actually a diet pizza.

You turn your free will over to a budget. If you spend all of your dry cleaning budget for the month, you don’t do any more. If you want an iPod, you wait until your ‘stuff’ balance reaches the amount you need, then get it. You can stick with this forever, but you may not save as much money if your ‘prepackaged meal’ budget is “diet” pizza and “diet” hamburgers – just a little bit too good to be true.

  • Fasting: You eat normally, but skip eating one day a week and only drink water, or watered-down juice.

You spend money like crazy but skip going to the movies one weekend and tell yourself you’re saving money. It feels good until the next day, when you go to Nordstrom’s.

  • Mediterranean: You eat a diet similar to the diets of people living along the Mediterranean sea, where the incidence of heart disease is much lower. You eat grains (pasta and bread), vegetables, fruits and olive oil in abundance. You eat some seafood, less poultry and very little red meat. You drink wine, and little dairy.

You identify the money spending behavior that makes you happy and spend there; you identify the ones that don’t and cut WAY back on them. If you enjoy books, you buy a book once in a while. If you enjoy premium teas, you splurge. But to do that, you realize that you don’t need a 4-bedroom house to be happy, only a 3-bedroom, so you downsize a bit.

So my question is, which diet are you following? Is it one I didn’t list?

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green juice, and links

I continue to dabble a tiny, tiny bit in green juice.  The biggest impediment I have to more enthusiastic adoption is cost (it’s quite pricey to buy a huge pile of veggies to make into one 16 ounce glass) and effort (cleanup is annoying).  But there’s no excuse, really.  I’ve written many, many times about the link between health and success and wealth, and I’ve been horribly deficient in the health category recently.  Green juicing definitely needs to be on my “please nag me into doing it” list.

green juice before and after

35 Things I Hope My Kids Will Say About Their Dad:  Great article for any parent (not just dads); it gave me some food for thought.  I’ll probably have to clip this article and keep it as a recurring reminder to read from time to time.  I’m sure green juice would apply… I try to make a big deal of it to my kids when I drink it.

A Prius as a Metaphor for Retirement:  Having recently bought a Prius, I thought this was entertaining, although I’m still a ways from retiring.  Buying a Prius was part of my plan for 2012 to live my life more closely in accordance with my values, and part of that is to minimize the negative impact I have on our environment by driving a car that minimizes my use of fossil fuels.  I know that living within biking or walking distance would be the best action, but at least for the immediate near future that’s not in the cards, so a Prius is a lesser evil.

And a few more good reads:

On a side note, I’d just like to note that Lazy Man and Money has been hammered recently by denial-of-service attacks from hackers supporting a dubious “miracle juice.”  His site’s been up and down for the better part of a week, and it’s pathetic that free speech can be denied by companies hiring hackers from around the world to overburden servers.  It would be nice to see these companies settle their differences in court or by proving they aren’t frauds, rather than hiring Indian/Russian/Chinese/whatever hacking factories to bring down his site.

America saves… should it?

We’re about halfway through America Saves Week and I started thinking about saving, naturally.  I’ve written about saving money before, probably most infamously when I said that spending less than you earn was the wrong way to think.  My thoughts haven’t changed much since I wrote that article a few years ago (yes, brip blap is approaching five years old).  If you expect to save and reduce and spend less on your way to wealth, you’ll likely be disappointed.

Let me clarify.  I’ve been a frequent proponent of many of the philosophies espoused by Jacob at Early Retirement Extreme and Syd at Retirement: A Full Time Job, and some of the newer “early-retirement” (for lack of a better term) blogs like Brave New Life and Mr. Money Mustache. They make a valid point:  you are not your khakis.  You are not your designer coffee tables.  You can stop spending and reap remarkable benefits.  I completely agree – consumerism affects far too many of us.  Possibly all of us, with the exception of a few… you don’t find many people in my experience who are living far below their means.  Most people are amazed to find someone living slightly below their means.  So the idea that you should spend less than you earn is, in fact, not the wrong way to think.  I need to do more of this, because although I’m not deeply enmeshed in the consumerist lifestyle, I’ve seen a bit too much of “lifestyle creep” to feel innocent.

But I’ve always thought that far too many people sit on their hands when it comes to income, and that’s what I’m focused on now.  A great first step for anyone is to say “hey, I make $40,000 a year – I probably shouldn’t spend more than $40,000.”  But that’s a first step.  The next step should be to think “hey, how can I make $50,000 while continuing to live on $40,000”?  At first, cutting spending is easier:  using less electricity, driving less, spending less on restaurants, etc. – these are easy steps.  But at a certain point, your efforts may be better focused on earning than on spending.

Those may sound like lofty goals, but they aren’t.  I’ve written about the 8 steps to achieve a six-figure career, but I left out one small extra:   for most people, that six-figure career won’t come from a single source.  I don’t think going forward into the future that anyone with ambitions to retire comfortably will be able to do so relying on a single employer, or a single business.  The most successful people will have multiple sources of income, in different fields, which will enable those people to weather downturns in one field by relying on income from another.

I blog.  I don’t need to, honestly.  I make a good living consulting, but it’s easy to appreciate why I continue to operate  a side business like blogging:  when consulting dries up, blogging will still be there.  I enjoy it, of course, but it provides a side income.  I have several other blogs besides brip blap, as well – all of them provide a slow trickle of income.  Soon I’ll be talking more about how I’ve built that business up.  Several days a month now my blogging income exceeds my consulting income, and my goal is to make it exceed my consulting income every day.

Back to America Saves:  it’s the first message and the best message for most people.  If you’re reading brip blap, I imagine you’re already familiar with the basics of saving and being frugal.  Focus on your income.  Do you rely solely on your employer’s beneficence for income?  Stop it.  Get something going on the side.  I’ll guarantee that side income will be the sweetest money you’ll ever make, and you’ll get that much closer to your goals that much more quickly.  Save first – that’s critical.  But earn more:  it’s not as hard as you might think, and it will motivate you more than you can imagine.

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there are still articles worth reading, and links

I have the best intentions to post links on Sundays, because there are a lot of articles worth reading. Here are a few thing this week:

Help a Reader: Lump Sum or Monthly Payment (Free Money Finance):

Good question.

The People’s Tech Revolution (Infographic) | Frugal Dad

What to Do If You Can’t Pay Your Taxes on Time

» MonaVie, Are You Hacking My Website?  Lazy Man has been hammered by the snake oil salesmen – support his site, he’s attacking fraudsters.

Wealthy Barmaid, Groupon, Magazine Stocks and More | Million Dollar Journey

Jean Chatzky’s Small Business Secrets to Success : Money Smart Life

What is Your Target Refinance Rate?

Pre-Tax vs After Tax Retirement Investments: 401K vs Roth IRA:

The Real Cost of Extreme Couponing

GM Bonuses Skyrocket while Bondholders Get Screwed | Darwin’s Money

Saving Money for the Future? Start Now | My Journey to Millions

the whole life sabbatical (part 3 of 3)

Creative Commons License photo credit: mistress_f

In part 1 of this three-part series I talked about walking away from various responsibilities in your life. In part 2 I talked about whether it would be easy to leave them. Now I’m going to bring it together with my thoughts on “walking away from it all.”Would it make you happier? In each area, it really depends on how happy you are now. Simply dropping a responsibility doesn’t make you happier. It can, however, free up enough time to allow you to pursue other activities that DO make you happy. I will argue this – almost no personal growth is possible without giving up something; without walking away from something else.

Work: For most people, this is the big one. I have a picture of a “workless” life and a picture of a “better work” life. I think most people say “oh, I couldn’t be happy without regular work, something to do, yada yada.” That’s not the case with me – I really get a lot of enjoyment out of learning and engaging in the regular business of day to day life. I’m not sure I need an avocation, per se. But I realize nobody is going to pay me to play with my kids all day every day, so I imagine “walking away from my work” ending up as walking into another job. I’d just like the hours to be flexible and more or less self-directed. But I do recognize this point: nobody will get a dream job, a dream career, the flexibility they’ve always desired without walking away from the one they have now. In order to achieve fulfillment in your work/career, you must be prepared to walk away from everything you have now.

Family: In the example I mentioned (should you take an infirm elderly relative into your home or support them by placing them in an elder care facility), it’s a tough choice people make all the time. My family has done so. You can’t ever abandon your family, but you do have to be able to let go and move on to develop other relationships. I see less of my brother than I did when I was younger and we lived together. I see less of my parents than I did when I lived at home. I even spend less time with my wife once we had a son, and now that we have a daughter, also, I have to spend less time with him. But each time when you take a little time away from someone, it doesn’t mean – or at least it doesn’t HAVE to mean – that you lose any of the strength of that relationship. In some ways it makes time you spend with those people even more intense, if you value them. By giving up time with one person you can grow your relationship with another – and it’s not a zero-sum game. I don’t love my brother or parents or wife or son any less as more people have been added to my family – if anything, it makes me appreciate everyone even more.

Finances: Walking away from your financial responsibilities is one of the best things you can do for yourself – unless you enjoy having a financial responsibility to your digital cable. Each time I’ve jettisoned a financial commitment it has not felt like a sacrifice – it’s felt like freedom. I have a long way to go, and some responsibilities are better than others: I don’t mind my mortgage because it allows me to keep my investments liquid and enjoy a pleasant home. But completing the lease on my car and buying the next one for cash, and ending that once-a-month reminder of money floating away was a source of huge satisfaction. Sometimes I think happiness can be defined more easily – on a financial basis – as the lack of things, rather than the possession of things. I will be wealthy, but I want that wealth to be expressed in a house and financial freedom and security for my family and travel and experiences, rather than in Wii’s.

Life: And finally, life. Can you walk away from your health? No. Can you walk away from other parts of your life? Yes: you can walk away from everything about your life that’s negative. How many people do you know who cling to failed relationships, or bad habits, or make themselves sick by living in unhealthy environments? Life is the one area you have to learn to walk away from. Don’t accept the idea that you have to have some misery in your life. Don’t accept “no pain, no gain.” There is gain without pain.

So what was I getting at with these posts? Too often I read about, and think about what I need to GET or ACQUIRE to achieve goals. Too often people think I NEED that to be happy, or I have an OBLIGATION to stay in this situation. Try not to think of life as a series of things you HAVE to do. These are not powerful words. Try to think of life as a series of experiences you WANT.

Identify what’s not working for you, and walk away from it – what are you waiting for, your next life?

the whole life sabbatical (part 2 of 3)

Creative Commons License photo credit: ribena_wrath

In part 1 of this three-part series I talked about walking away from various responsibilities in your life. How easy would it be to leave them?

Work: If you stop to think about it, you have almost nothing stopping you from quitting your work. If you own a business, you can sell it. If you are an employee, trust me – if you quit you will be a distant dusty memory to your former coworkers in a week. If you are a freelancer, refer your clients to your freelancing network. I am sometimes stunned in a corporate environment by the loyalty and responsibility people imagine they must demonstrate before quitting, when the same company might lay that person off and tell them to clear their desk in 15 minutes. I don’t advocate just walking out, but if you stopped your job today, the world would continue. You would find new work tomorrow.

Family: You have to take care of your children and parents. But consider this: you have a responsibility to provide your children with food, shelter, education, love, trust and hope for the future. Do you have a responsibility to provide them with a Wii? An iPhone? An Ivy League education? A home? There is a line there that everyone must draw for himself, and I’ve seen it done in both extremes: parents who sacrifice everything for their children or brothers who care for unmarried sisters or children who go to great extremes for their in-laws…as well as people who walk away from even the responsibility to put food on the table. With family, your responsibilities are easy to walk away from, but for many of them you cannot walk away and look at yourself in a mirror. However, you can say to yourself “I have no obligation to buy my child a car.” It will not destroy your family.

Finances: You can walk away from your financial responsibilities to the extent that you’re prepared to lose things. The biggest obligation you have is taxes. Fail to pay those and you’ll go to jail. But if you make less and less money, eventually your obligation to pay taxes will drop away. Other obligations, at the end of the day, are optional, although some are easier to downgrade than eliminate completely. If you have a huge mortgage, you could sell the house and live on the streets (extreme) or live in a smaller house with a smaller mortgage (less extreme) or rent. If you spend $300 per month on entertainment, you can eliminate it completely – but at some point even “free” entertainment costs money (you need shoes to walk in the park, for example). You can’t walk away from finances as easily as you might think. You can walk away from some of them, but leaving them all behind is almost impossible.

Life: Obviously, you can let a LOT go in this area. You can start eating crap, quit exercising, and in various ways neglect your life. It might be a nice change for a while, but there will be consequences down the road. I often wonder how far you could push this “life sabbatical,” though. Could I get by on raw vegetables, fruits, bread, cheese, tea and water for food (i.e. forget about cooking)? Could I exercise by just walking or biking everywhere (i.e. selling my car)? Could the lack of stress be the biggest health improvement I could make?

In part 3 I’ll look at whether you should walk away from your life and take a “sabbatical”.

Refinancing Can Save You Money

This post was written by Dylan Clegg.

It was not so very long ago that refinancing a mortgage was an easy decision. Rates were low and values seemed ready to rise forever. Millions of homeowners were cashing in on their growing equity, often walking away with a double win: lower monthly payments and a nice big check. It was the best of all possible real estate worlds.

The mortgage landscape has changed a great deal since those halcyon days, and today’s homeowner needs to look more carefully at the implications of refinancing an existing loan. There are still many reasons to refinance, but there are pitfalls to consider as well.

Good Reasons to Refinance

In almost every case, the best reason to refinance is to save money, and the simplest way to save is with a lower interest rate. If rates will be significantly lower on a new loan than they are on an existing loan, savings naturally follow. For example, a loan of $100,000 that carries an interest rate of 5 percent costs $5,000 in interest every year. If the rate can be reduced to 4 percent, that represents a saving of $1,000 annually.

Every prospective borrower does not get the same interest rate. Instead, the rate paid by a given borrower is customized according to that borrower’s specific circumstances. The biggest influence on the rate is the creditworthiness of the borrower. If your credit score has improved since you last took out a loan, there is a very good chance that you can get a lower rate now.

You may also be able to save because of changes in things you cannot control. If the amount of the loan was high when the property was purchased, that loan may have been categorized as a “jumbo” loan, a category that comes with higher rates. The cut-off for jumbo loans changes every year, though, and you may find that your loan amount no longer falls within jumbo parameters. In that case, it can make sense to investigate a conventional loan at a lower rate.

Saving money may be the single best reason to refinance, but not all refinances are motivated by savings. Borrowers often want to tap some of their home equity, whether to pay bills, finance an education, make improvements to the property or for any of a hundred reasons. This can be a perfectly valid choice, but borrowers should remember that they are using their homes as collateral and consider the risk involved.

Good Reasons to Think Twice

Regardless of interest rates or property values, borrowers should know that a refinance resets the mortgage clock. If an existing loan has a 30 year term, a new loan will start from scratch. If a loan has been outstanding for five years or more, the borrower is starting to see more principal included in each payment. With any new loan, the first few years are almost entirely devoted to interest payments.

The second issue to consider is whether the decrease in rate is enough to make the transaction worthwhile as a whole. Almost all loans have closing costs. If those costs are high, they can outweigh any savings that come from a lower interest rate.

The borrower’s plans play a part in the tradeoff between closing costs and rate. If Borrower A pays $5,000 in closing costs while saving $1,000 per year on monthly payments, he will not recoup those closing costs if he plans to sell the house next year. Borrower B, however, who plans to be in the home for the next 20 years, will see savings after the first five years and will save enough over the life of the loan to more than make up for the initial costs.

Private Mortgage Insurance (PMI) can also be a factor. PMI is a monthly cost that is typically applied to mortgages when the loan-to-value ratio exceeds 80 percent. A borrower may not have faced PMI when he purchased the property, but, if the house has lost value, PMI may suddenly be required.

Even if they can be approved for a mortgage, borrowers who have had recent credit issues may run into problems. Lenders save their lowest rates for their most creditworthy borrowers. Borrowers with credit issues often find themselves faced with higher rates when trying to refinance, a situation that is the reverse of the one facing borrowers who are refinancing with improved credit scores.

the whole life sabbatical (part 1 of 3)

Creative Commons License photo credit: urbanshoregirl

Have you ever just wanted to chuck it all and walk away? To just walk away from your commitments and responsibilities and start over again somewhere else? Why didn’t you?

I started thinking about the practicalities of walking away from my entire life of responsibilities after learning an acquaintance had done it. I divided my responsibilities up in a few different groups: work, family, finances and life. Each one has different implications in terms of walking away, and before anyone thinks I’m about to start discussing walking away from your family or your finances – don’t worry! I have a different mindset, and hopefully it will become clear what I’m getting at in parts 2 and 3.

First of all, what ARE your responsibilities?

Work: Chances are good that you work for a living. Maybe you are an employee, or a freelancer, or a small business owner. Your responsibilities for each of these types of work are similar but not the same. If you are an employee, you work at a business. Maybe you serve customers, or work in a group, but for the most part you have nobody who relies on you for their livelihood; the company pays their paycheck, not you. If you are a freelancer, nobody depends on you for their livelihood but customers may rely on you, particularly if you function almost as a “part-time” employee for their business. The most responsible position of these three would be a small business owner. If you have employees, you have people who depend on you.

Family: If you have a spouse, or elderly parents or children or any close family you support (or help support) you have a tremendous responsibility to them. You may share that responsibility (for example, if you are married and have kids you and your spouse both provide overlapping types of support) but in many cases this dependency is total and desperate (think elderly parents or newborn children). How easily could you walk away from family (or even close friends who are like familiy)? People do it all the time. Divorce and abandonment are extremes. I’m thinking more of cases like this: do you bring your aging parent who requires almost-around-the-clock care to live with you if you are able? Or do you send them to an assisted living/nursing home facility? It sounds cruel, but should you neglect your other family to care for someone who probably needs better care than you can provide? It’s a difficult question.

Finances: You have commitments to be paid – rent, mortgages, taxes, utilities and so on. Some are less critical than others. Your cable TV is a fairly mild commitment you could end without much worry. Your electricity? Less so. Your taxes? I wouldn’t advise it – we can’t all be Wesley Snipes. This area is fairly clear cut morally, although there are gray areas – would you walk away from a mortgage if your home plummeted in value, in order to get a fresh start? I would, but some people think this is irresponsible.

Life: You have responsibilities to things in your own life that cannot be pushed aside. Food must be eaten, health must be maintained and medical care is sometimes necessary. You can switch from caviar to tuna fish, but you can’t stop eating. You can decide to stop taking multivitamins, but if you suffer from diabetes you’ll still need insulin. You may even have responsibilities to your friends, your neighborhood and your church/temple/mosque/etc., but these could vary so much it’s hard to make an overarching simplification, and I wonder if those are truly responsibilities. I suppose if you are a community-centric person they might be. I will argue that you have almost no other responsibilities. Do I have a responsibility as a citizen for certain things? I guess so. Voting, jury duty, paying taxes and so on are all “national” responsibilities, but let’s face it – you can walk away awfully easily from most of those. Whether you should is another question.

So did I miss anything? And don’t tell me it’s impossible to walk away from any of these commitments, because you can, without a doubt. These are the major areas of obligation in most of our lives, other than a sense of civic duty. In the next two parts I’ll talk about (1) whether you could walk away and (2) if walking away would make you happy.  We all say we want freedom – but do we?

frugal or self sufficient?

In the midst of years discussing financial apocalypse – which is probably a little bit overstated – I realized that the idea of saving money in times of crisis is a lot different from saving money in a time of plenty.  Cutting back on Nintendo games is a lot different than learning how to heat the house with paper scraps.

A common debate that has occurred over the last decade in my consultant-infested workplaces has been the debate over “good” investments. I have had colleagues who cling to the stock market; some who swear by real estate; some who preach the mantra of gold and commodities; and some who have just decided to spend their money as it comes and damn the consequence.  I fall somewhere in the middle – increasingly skeptical of the stock market but more skeptical of the idea that commodities or real estate can pick up the slack for the whole US market.

But in times of distress, learning to save money on things that make a difference can matter a lot, too. Learning to grow your own food is different than chopping off a few bucks on eating out.  The former will create value out of nothing – the latter simply cuts out an expense you didn’t need to have.  For the record, I don’t think we’re there yet.  We don’t need to all start planting potatoes for the next great famine.  And I’m not convinced that we need to hammer down on luxuries yet, either.  If I dropped Netflix it equals less than .1% of my income.  You might say, well, take .1% here and .1% there and soon you have a few percentage points, but you don’t – I don’t have that many minor expenses.

I do think now is the time to start focusing on stupid expenses. Nobody needs a new TV now.  You might need a new computer, though.  You don’t need a new CD – but a book (depending on the book) might be money well spent.  Is it time to start wearing that crappy old shirt that’s out of fashion a bit longer?  Yes.  Is it time to keep wearing that worn-out old coat that doesn’t protect you against the cold enough – no.  Spend money like a smart person.  That means you need to apply a simple question to every expense:  do I NEED this?  If the answer is no, pass for at least a few days.  You’ll see a difference in your bottom line in a hurry.

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