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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As anyone who has started to learn about personal finance knows, one of the fundamental ideas is “pay yourself first.” Paying yourself first is an easy concept (supposedly), but many people find it hard at first to make putting money into savings a priority. Saving money sounds like a good idea, but there is always a chair that needs to be replaced, new shoes for that special occasion or just one more iTune to add to the collection. So how can you make saving a habit? It’s a trick question – you don’t have to make it a habit, you have to make it automatic. If you make your savings automatic, you never have to work on developing the habit. The habit will grow naturally once you see how easy it is.

So how do you make savings automatic? Here are 9 painless ways to do it.

1. 401(k): If you work for a company, chances are they offer a 401(k); if you work for an educational institution, a hospital, a church, or a non-profit they probably offer a 403(b), and state and local government workers can invest in 457 plans. All of these plans generally offer the worker a chance to invest their wages, pre-tax, into their choice of a selection of investment options – usually mutual funds. Most plans ask the employee to set an amount or a percentage to be withdrawn every month. A 401(k) or similar plan is the single best way to make savings automatic. The contribution is not taxed and taxes are never paid on any amounts in the account. In fact, until you retire you will never pay taxes. The money is taken out before you ever even see it – so there is no temptation to cheat ‘just this once.’ Best of all, many employers match some of your contribution with a contribution of their own into your account!
2. Automatically withdraw money to a savings fund: After you have contributed enough to your 401(k) plan to meet your employer’s matching limit (and more, if you can afford it) you should set up an automatic withdrawal from your checking account to a savings account. Popular options for savings accounts are high-yield accounts at ING and HSBC: even though their rates are terrible, they are better than nothing. Both will allow you to set up automatic withdrawals from your checking account directly into your savings account, where it can earn interest. You can set up the withdrawal date to be the day after your paycheck arrives, so you will not be tempted to spend that money on something else. Once the money is in the savings account, it’s out of sight, out of mind and growing rapidly thanks to the miracle of compound interest! Best of all, you can use this as an emergency fund – but only for true emergencies.
3. Direct deposit your paycheck to separate accounts: If your employer allows you to have direct deposit for your paycheck, take advantage of it. Most banks will still waive monthly fees if you set up direct deposit, and if you can directly deposit to multiple accounts automatic savings become even easier. Set up two checking accounts – one for monthly expenses and one for irregular expenses. Those irregular expenses can be for any of those expenses that come up on a monthly basis that were unexpected but not really a true emergency. Maybe the tires on the car were worn, or junior broke a window playing ball. If you estimate your regular monthly expenses and have just enough money going in your ‘main’ checking account, you can take money out of the irregular expenses account without having to worry about paying the electric bill.
4. Drop a penny (or a quarter) in your change jar: Keep a change jar right by the front door. Every day when you come home, throw any loose change in here. Once it fills up, take it to your local bank and deposit it in your savings. If that is too much trouble, take it to a CoinStar machine (usually at your local supermarket) and get an amazon.com gift certificate and use it to buy something useful – amazon sells many household items like CFLs and dishwashing detergent.
5. Always use a credit card with rewards: This is a little more controversial, but if you have a good cash back rewards card, use exactly one credit card for every purchase you make, but pay it off in full each month! If you are the type of person who lets their credit card slip out of their wallet and into the department store’s credit card swiper by accident, I suggest you skip this step! However, if you charge $500 a month on a 1% cash back card, you can earn another $60 a year – for nothing!
6. Pre-pay your mortgage: If you own a house, even adding a tiny extra principal payment can shave months or years off the length of the mortgage and save you thousands of dollars in interest. Do not let small amounts discourage you – even an extra $25 per month can save thousands in interest over the life of your mortgage.
7. Reinvest dividends: If you own mutual funds or stocks you can request that dividends be reinvested. That means that whenever a dividend is issued, it is immediately used to buy more shares of that fund/stock. You never touch the money so the temptation to spend your “windfall” dividend is taken away!
8. Adjust your withholding: You may enjoy getting a big tax refund every year, but if you do you have lent Uncle Sam that money for the year, interest-free. Adjust your withholding to ensure that you have as small a refund as possible. If you get a refund, the IRS gives you the option to have it direct deposited – send it to your high-yield savings account, not your checking account!
9. Take advantage of FSAs: Some companies offer flexible spending accounts. A Flexible Spending Account, or FSA, is a tax-advantaged account that allows individuals to set aside portions of their earned income for public transportation, parking, dependent care and the most common type, health care expenses. Simply put, you set aside an amount you choose, pre-tax, each month in a pre-funded account and then withdraw it when you need it. You save money by taking the amount out pre-tax and putting it in an account where it can only be used for a set purpose like health care expenses. Once it is in the account, there is no way to get it back out and use it for an iPhone!

Remember: make your savings automatic and paying yourself first will become second nature!

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OK, think fast: two jobs. One pays $50,000 this year; it will have a steady raise keeping pace with inflation (more or less) for the next 20 years, but there will be no spectacular bumps up. The other job pays $15,000 this year. In 10 years it might give you the experience to make $100,000 per year – or, if you haven’t done that well, it might pay you $15,000.

What do you do?

I would argue this is at the core of your personality for many reasons. If I told you that I would give you $5 straight out, or we could flip a coin and heads you’d get $10 or tails you’d get $0, what would you choose? Investing works the same way: conventional thinking tells us that index fund investing is the way to go. You can’t beat the market! Hang in there – there has never been a 15 year period where the market didn’t go up! Be average – hope for the swelling tide to lift you along with the rest of humanity! Bet on the sure thing – take the $5!

So what does that tell you? Do you want to make money now or make money later? Would you take a job for free today with the promise of making more tomorrow? Or do you want cash in hand, thank you very much? Honestly, both are legitimate arguments. I’ve turned down two jobs in investment banking because they were bonus-based compensation and I knew that even though they might be worth 150% of what I was making from contracting, they also might be worth 70% of what I was making. You know what? That’s weak thinking.

Risk taking is fundamental for wealth building. I’m sure Warren Buffet would argue that he doesn’t take any risks: he studies exhaustively and then invests without concern because he’s done his homework. My grandfather did awfully well (until 2000) in the stock market, too, although he certainly didn’t have access to the type of research that WB does. It’s possible to take some measured risks and achieve success as long as your definition of success doesn’t mean being the wealthiest man (or woman) in the world.

I want to make money in the future. I’ve set up my lifestyle to make money in the future. I claim to want money in the present so I can retire now, but I spend a lot of time talking about making it now and coasting along on a decent contracting income without building my investments aggressively or a business or even my own knowledge (which deteriorates every day).

Here is the question: what’s the main thing you need to do? Invest better? Build a business? Or just continue to slowly build income and plow your increasing income – through maintaining your standard of living and putting the excess into savings – into slowly building wealth? One of my favorite reads is was Get Rich Slowly (I don’t feel it’s worth reading anymore), but do I want to get rich slowly? Depends on how slowly you mean…

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Most people are concerned about money. If you aren’t a millionaire, you are most likely part of this group. Money – we never seem to have enough of it and are always looking at ways to spend less of it.

For the average person, the concept of taking control of their financial destiny consists of little more than having a 401(k) at a job they most likely don’t care too much for. Few people take true control of their financial destiny.

One way to have greater control over how much money you have is to be an entrepreneur. While not the right option for many (if not most) people, being your own boss has been the key to financial security for a large group of people. If you are looking for a way out of the grind of your 9-to-5, you might consider being your own boss. While the risks involved are many, the potential payout is exponentially greater than anything most people will ever see working for the man.

Below are some pros and cons of being an entrepreneur:

Pros to Being Your Own Boss

• It is easier to get a raise when you are in control versus being an employee.
• Your entrepreneurial success is generally tied to how hard you work. When working as an employee, most times your hard work is not recognized. Employees that work hard are rewarded the same as those that do the bare minimum to get by.
• There is no greater freedom from being your own boss, having the ability to do what you want, when you want, without someone telling you what to do.
• The upside has a huge potential. If you are a successful entrepreneur, you can have huge financial gains that are beyond the imagination of the typical employee.

Cons to Being Your Own Boss

• No certainty that you will succeed. As a matter of fact, most small businesses fail in the first 5 years.
• Uncertain income can lead to a great deal of stress.
• Most likely, you will have to put in a lot of time and effort before you see any results. A successful outcome is never guaranteed, even if you put in the time and effort.
• You deal with everything, good and bad, which is something most employees don’t have to worry about.
• You never really get away from your business. Even when you are on vacation, you are the person in charge.

Never As Easy As It Seems

Being a successful business owner is a lot of hard work. Period. Don’t believe anybody who tells you otherwise. There is no such a thing as getting rich overnight as your own boss.

Most people are not cut out to work for themselves. Most people should be employees, working for someone else. But, for the fortunate few that take the risks and become a successful entrepreneur, the potential payoffs are worth the pain it took to get there.

Take Control of Your Financial Destiny

While you are clipping your coupons and shopping for the best deal to try to stretch your dollars, just keep in mind that there may be another answer for you. Maybe you should take some time and consider if being an entrepreneur might be something that would be a good fit for you. Fortunately, you can explore your options while you keep your day job. You can even get your feet wet while you continue to work for the man, though doing so will be equivalent to working two full-time jobs, at the very least.

Entrepreneurs control their financial destiny. They don’t spend their time clipping coupons or shopping for a deal. They spend their time building a business that will give them the financial freedom they yearn for and deserve.

You have the choice if you want to be an employee or if you want to be the boss. Choose wisely, as the decision you make will greatly impact your financial future.

About the Author:

Guest post by Marshall Davis of Business Service Reviews, a website that reviews products and services that help entrepreneurs start, grow and maintain successful small businesses. His new interview series, Talking Small Biz, will shed some light on how different entrepreneurs are finding success in their chosen field.

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The following is a guest post from Neal Frankle. He is a Certified Financial Planner in Los Angeles and owner of Wealth Pilgrim, one of my all-time favorite personal finance blogs.

You may not have grown up with good financial habits being modeled all around you. Most people I know didn’t. I know I didin’t.

To make matters worse, financial advisors, for the most part, aren’t going to help you in this arena either. Even though your budgeting is the foundation of your financial security, there is no money in it for advisors to help you here so very few do.

The good news is, you can be the master of your budget without much education or training. And you don’t even need sophisticated software to do a good job. Here are the basics of budget coaching that you can do for yourself.

1. Intel

The first thing you need is information. You need to know how much it costs you to live. Or, let me put it another way. You need to know how much money you spend, on average, each month.

One way to do this is by writing everything down. When I was a young financial advisor, that’s what I asked clients to do. The weird thing is…nobody did it. After about 5 years of being disappointed by non-compliance I came up with another suggestion.

Look at your bank statements. This idea, if I must say so myself, is genius. If you pay all your bills from one checking account (and if you aren’t doing this, why not?) you can simply look at the total monthly distributions. Every checking account monthly statement summarizes those distributions so that, in effect, is what you spend.

Of course, if your credit card bills (or other debts) rise or fall, that will mean you either spend more or less. But for most of us, the total withdrawals from our checking accounts tells us what we spend on average each month. Go get your bank account statements from each of the last 24 months and tally up your average monthly spending. It’s a powerful number to know. I encourage everyone to use this method (in addition to the method below) because it gives you a big picture view. You will know very quickly if you are spending too much compared to your income. It’s staring you right in the face.

The third method is to use a budget tracking software package program. If you go this route, you can download your transactions right into your software without doing much work yourself. This will give you the details you’ll need to make the decisions about what to cut and by how much.

2. Values and Goals.

The next step is to evaluate whether or not your spending is in line with what you value most. For example, if your dream is to travel to a third-world country and help cure disease, it would be appropriate to budget in an aggressive saving plan for travel. But if that’s your goal and you spend your savings on trips to Vegas every other month, it won’t be difficult to see which financial behaviors need to change.

Likewise, if your goals are to create financial security for your family, it will be important for you to be clear on that and keep that goal in mind when you examine your spending. If you spend more than you earn, clearly your behaviors are out of synch with your goals and values.

3. Pow Wow

The third step towards financial health is to get total commitment from everyone in your family. The way I figure it, everyone is involved in spending so they have to buy in to the new approach. Talk about what’s changing and why. Explain the benefits of making these changes and talk about the changes the family (collectively and individually) are considering. Don’t make it an edict. Get everyone’s input and commitment.

Finally, have monthly meetings to discuss progress. Don’t expect perfection because it doesn’t exist. Make allowances for people going over budget. Just gather the family together every month and discuss what went right and what could have gone better. Get input from everyone to determine how they see things.

Using these 3 steps, you’ll be able to transform your financial situation dramatically and rather quickly. At least that’s been my experience.

What about you? Have you ever had to make big changes in your spending? How did you handle the situation?

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Go to the store sometime (particularly if you have a KMart/Wal-Mart/Target nearby) and look at where stuff is made. It’s all made somewhere else.  Same thing goes for a Home Depot or a Lowe’s – half of my tools are made in Malaysia or China.  Maybe more than half.  Almost all, to be honest.

But I have a few tools that are different. My grandparents moved from their house into an apartment years ago when it became difficult for my grandfather to deal with basic maintenance of the yard and exterior.  He kept a few basic tools, but for the most part he gave away the tools he had accumulated over his life, many of them to me.  I have a huge pile of them, and they are amazing:

• A hammer that feels like it was owned by John Henry
• Screwdrivers that are old and dark with age but still have unblemished heads that easily turn the worst, worn-down screws
• A Yankee drill that after decades of heavy use still punches through metal with nothing more than manual force – no electricity or batteries.
• A saw that cuts cleanly and straight despite being older than I am.
• And on and on.

All of these tools have words stamped on them which look almost alien. “Made in New Hampshire.”  “Made inOhio.”  “American-made.”  I even have one that says “Made in New York.”  Imagine – tools made in New York state.  Seeing a tool that was made of American steel, cast in an American plant and assembled without a touch of plastic seems otherworldly.  I can always tell these tools because they have the feel of weight, certainty and permanence.

I compare that of course to the cheap plastic junk you can buy today. I had a cheap hammer (I NEEDED a special small hammer) whose head flew off while I was hammering.  I have gone through dozens of inexpensive small screwdrivers, always returning to the solid, heavy old ones when the new ones have stripped another screw’s head.  The difference is clear, and I am sure that when I am too old to do work around the house I will also pass down those tools to my children and keep a few inexpensive “modern” screwdrivers around my old-age home to fix  a loose screw once in a while.

The easy path is to berate cheap junk from China or bemoan the death of American industriousness or sneer at unions. China is guiltless, in this case.  Americans have demonstrated for a generation now that they would rather buy a new hammer for $9.99 every few years than buy one that would last a lifetime for $29.99.  China simply meets that need.  American industry has died for the same reason.   Unions didn’t drive American manufacturing out of business – Chinese forced labor and near-poverty-level wages did.  Blaming unions is foolish, as is imagining that Americans won’t work hard.  America’s still in the top 10 countries in the world in terms of productivity and working hours.

But given today’s economic situation, “Buy American” is no longer a convenient political slogan or a union-driven message. It doesn’t have to mean “Hate overseas manufacturers” or “Save American jobs” or even “Union Yes.”  But what it does have to mean is that soon “Buy American” will be a necessity if you don’t want to live in a totally dependent nation.  You can read every day about the exciting new jobs that we will soon have – high-tech jobs in green technology, for example.  But those jobs don’t provide a true basis for our society.  Think about it this way:  forty years ago, give or take a few years, this statement would not have made most people blink:

“A man who works at a skilled job in a manufacturing facility can provide a decent living for his family.  His wife can stay home if she wishes while the children are small.  The husband will be able to send his children to college without incurring massive student debt.  He will be able to buy a home.  He and his wife will have enough saved to retire at the end of his career at the facility, and still be able to pass some on to their children.”

Making that statement in 2011 seems ludicrous. Maybe this is where Occupy Wall Street has arisen.  When did it all change?  When “Buy American” faded into memory.  Trade barriers and sloganeering won’t ever bring us back to where we were, but Americans have to face an ugly fact:  Wal-Mart and the federal government are our two biggest employers and our future is that of a service economy – service workers serving other service workers, with a few “elite” knowledge workers.  ”Knowledge” jobs can be exported even more easily than manufacturing jobs, whose export was (and still is) at least fought by what remains of America’s unions.  No protestors will march outside the gates when Megacorp outsources the billing department to Armenia.  No union will fight sending Tommy Accountant’s job to India.  If you work at a job where most of your day is spent around a computer, you have to realize this:  you have no skill – none – that cannot be duplicated and performed over the internet by someone without the protection of minimum wage, health and safety regulations and other protections.  I can be replaced, and as companies get smarter, I will be.  Everything I do could be done far more cheaply by someone else over the Internet.   And I can’t blame companies under short-term pressure to deliver profits to shareholders if departments are outsourced – and I don’t blame India or China or the Phillipines for being there to pick up the work.

And as for financial services, our last great “industry”: I see no reason not to expect Dubai, or Shanghai, or even some yet-up-and-coming place like Yerevan or Almaty to become the next great financial center. Why should New York be special in the financial world?  Lunch, mostly.  People still like to go out for a New York-y lunch.  But almost every person I knew in New York works at a knowledge job.  I could work remotely on a project overseas (and have) and I have done NOTHING in the last ten years that I could not have done if I were living in Kansas City, or Houston, or Vancouver.  In the last five, I have done nothing I could not have done if I were living in Moscow, Russia, or Moscow, Tennessee.

I pick up those old tools, then, and wonder if the men (and women) who made them would recognize America today, an America that looks a little bit too much like the passengers in “Wall-E” for comfort. I know we had problems a couple of generations ago – women and minorities did not have the opportunities they do today – but a hammer made in New Hampshire meant jobs for our communities and a good tool that lasted for generations.  Those people work at Wal-Mart today, most likely.  Maybe that’s OK – maybe America is the first real “post-work” society, content to work at Wal-Mart so they can go buy cheap stuff at Wal-Mart on the weekends.  I hope not. I hope people will get angry when Citigroup or AIG or Morgan Stanley outsource another department overseas using taxpayer money to do it.  I hope people will get angry when banks are bailed out and car companies are left to die.   Whether or not you feel the car companies need to be saved, they certainly deserve to be bailed out as much as the banks did.  It may be almost too late to buy American, but it’s important to remember that this economic avalanche will not be stopped through anything other than action at the personal level, and that action has to start with making a choice every time you buy something… it’s something to think about during 2012.

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If I was going to search deep within my (financial) soul I’d admit that most of my money decisions are based on fear. Fear’s a negative word, and I don’t think that in this case my decision making is always a negative process.  I am often quite happy with the result.  A great example has been my investing philosophy.  About five years ago I got nervous about the direction the market was headed.  I took about a third of my retirement accounts’ total out of the market and put it into cash.  Good fear, right?  That chunk of my retirement savings would have been wiped out.

But after five years, I’ve only redeployed about a quarter of that third. You could make the argument – and I do, to myself – that holding onto cash is a defensive position.  Nothing about the current propped-up-through-stimulus-and-bailout money situation of the US economy should encourage a reasonable investor to get back in…should it?  The market’s up, isn’t it?  It can’t go down again, can it?  Yet again and again we’ve seen these market drops come back.  So some of my reluctance is fear-based.

I’ve written about the reasons why I don’t talk about real estate investing, and it reasonably extends to other forms of investing I know nothing about. I said I don’t like “investing” in a primary residence, I don’t know much about real estate or the business of real estate, and that the New York market – where I lived until a couple of years ago – was too competitive.  I should have added that it usually seems like BIG chunks of money are needed for real estate investing.  Fear of investing in big chunks keeps me diversified in the stock market (index funds, right?) and keeps me afraid of real estate.  Now that I’m in Florida, real estate investing is tempting – but so far I’m not sure the bottom’s been found, and investing in real estate seems like a beat on something that might be worthless… or worse.

Fear of wasting money is good, certainly – but at least as far as investing goes, some fear and uncertainty are necessary to have any sort of reward. I’ve always dreaded a doomsday that seems unlikely to come – a final day with money and then a penniless dawn.  It could happen, of course – but with the ability to make more money (which I have) and good health (which I hope to continue to have) and a supportive family, it seems that I won’t face that doomsday.  So the fear is something more than trivial but also less than a doomsday event.

Does Warren Buffet fear loss? Probably not at this point – he’s old enough and seemingly content enough to be free of financial fear.  Did Bernie Madoff?  I guess now he will face his own doomsday now, and learn whether that fear should have been stronger.  How do you control fear of money?  Here are the things I try to do:

1. Remember that money is infinite. YOU may not have infinite amounts of money, but there is a lot of it out there, if you can just figure out how to get it.
2. You cannot anticipate every disaster, but you only need to anticipate one success. If you invest in a property, a billion things can go wrong – title problems, a fire, a sewage plant groundbreaking the day after you close, etc. etc.  You can’t prepare for everything.  Try to aim for success, not dodge failure.
3. Fear comes from you. Fear is not an externally-caused reaction.  Sure, we all get a jolt of adrenaline when we’re jumped by a cave bear, but you can control fear.  It’s not like being poked with a stick, where you have a reaction determined by nerves and muscle reflexes.  Fear is neurons firing off in your brain, and you can control your thoughts – they are the only thing in the world you CAN control.
4. Doomsday may come, true… but let fear of that day go. I do sometimes worry about all of my index funds and various other investments going to zero… but as I’ve often told my friends and family, if my retirement portfolio, invested in index funds that span the US market, goes to nil we’ve got bigger problems than worrying about retirement.  We’ll be reverting to a currency based on canned foods and shotgun shells.  Worry about your 401(k)’s fees, or your consumer debt with 21% interest rates – things you can do something about.  Don’t worry about the end of the world.  If the aliens come, you’re not prepared anyway.

Fear of money – worrying about its scarcity, or its disappearance – can cripple you from making more and even more importantly from enjoying life.

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My family has been gone for a few days, visiting family in New York, while I stayed here to work. It’s been an interesting experience, being alone, because I haven’t had this much time to myself in quite a while. I’ve attempted to spend my time doing productive things, although today, many of the productive things have involved doing something where I can watch football while I do them. One of the activities today was baking bread from scratch. This was an interesting experience. I had watched Lara make a number of variations on bread – items such as pizza crusts, pastries, and assorted cakes and muffins. But I myself never actually attempted to make bread. It’s strange, because my son has been baking bread at his Waldorf preschool for years, and it doesn’t really seem like that difficult. Be that as it may, I have never actually attempted to make bread. So today I thought, why not?

So I baked some bread. Today, following instructions I found on the Internet, natch. It worked fairly well. I was able to make a decent loaf of bread, with a nice hint of garlic and onion, because I like that kind of bread… salty and flavorful, not hearty and/or sweet. You may wonder what the point of this is. I am not a big do-it-yourselfer. I generally think that when you spend a large amount of time trying to do something like this that you could expend a small amount of money on, you probably are not spending your time in an optimal way. But then again this weekend, my thoughts have been turned  toward the idea of minimalism, frugality, environmentalism, simplicity, and lifestyle design. Why, you may ask? Because of something I read on early retirement extreme this weekend.

I know I have mentioned early retirement extreme, a blog about retiring at an extremely young age, several times in the course of my own blogging “life.” It is, to the best of my knowledge, one of the best blogs about this lifestyle. It is not the only one of course, there are several others: brave new life and Mr. Money Mustache leap to mind (both are excellent and you should be reading them). All of these blogs, of course, have
Your Money or Your Life a book written back in the 80s although revised recently, as an inspiration. But early retirement extreme is probably the best-known of the current financial independence blogs. The author of the blog, Jacob, announced this weekend that he was leaving his early retirement to go into a new job as a quant trader. I won’t go into the details of what a quant trader is, although I have friends in that industry. Google it (or quant/quantitative analyst).

To me, any job in the financial services sector is the exact antithesis of an early retirement. The hours are long, the office politics are brutal, the pressure to perform is immense, the positive impact to society is (in my opinion) minimal at best and negative at worst. Your ability to pursue what you want will be limited by the firm’s immense demands on your time and expertise.  But be that as it may, it is an immensely challenging field and I understand why someone like Jacob, with a PhD in physics, would be entertained at the thought of engaging in the challenge of trying to conquer this field.

I myself am not engaged in an early retirement lifestyle. I have not made the choices which would enable me to retire at an extremely early age. Until the mid-90s, I was engaged in a career quite typical of most American corporate mid-level management. I chose in the mid-90s to  disengage from this lifestyle as much as I could (mentally) and became a contract consultant, which allowed me to design a much simpler lifestyle, which involved much less travel, much less involvement in corporate politics and less concern over the need to constantly deal with bosses and subordinates. But I do aspire to some of the ideals of the early retirement movement. I drive a 10-year-old car, which I am not fond of, but I intend to continue to drive. Why?  Simply because I don’t believe there’s any compelling need for me to buy a new car. I do not like to buy things. I have attempted to live in a “simple-ish” home. We attempt to eat simply, mostly vegetarian and organic and locally grown. I don’t have cable TV. I don’t play video games. We read a lot in my household. We have a garden that Bubelah takes good care of.  But after all of that back patting of myself, I realize that I have a long ways to go before I meet any of the ideals of an early retirement ideology.

So it is jarring to me to see that one of the proponents of the early retirement lifestyle has abruptly left this lifestyle after achieving it so efficiently. But I understand. I have spent most of my blogging life reading heavily about hedonic adaptation. I’ve written about it several times, although I have never made it a main focus of my blog. But be that as it may, hedonic adaptation is probably one of the key measures for understanding yourself . No matter how miserable you are – or how happy you are – your current state is what determines your happiness. If you are miserable today and things go a little bit better tomorrow, you will be happy. If you are happy today and things go a little bit wrong tomorrow, you will be miserable. This is just human nature. If you buy a toy today, hedonic adaptation teaches us that you will be less satisfied with it as each day goes by. This is fine. People are like this. I am like this.

But I have realized, after reading a lot of the comments on early retirement extreme.com about Jacob’s decision to leave the ERE lifestyle, that I do need to concentrate more fully on a singular goal, and that singular goal has to be finding a point at which financial independence allows me freedom of choice over my actions on a daily basis. This is critical. I enjoy many parts of my job. I had an extremely busy week this past week, but it was also very satisfying: I was able to set up a system for my client that exactly met their needs and made them quite happy. I had a great feeling of accomplishment from that. Now, but that in balance with this idea: I enjoyed making my client happy, but how can I weigh that against the fact that I was working late most evenings and was not able to spend much time with my children. Granted I spend more time with my children than I would if I was traveling heavily, but it was an uneven solution to the question “what is your ideal lifestyle design?” I’d like to make money, do interesting work and work with people I like….and have lots of spare time for my family (and, frankly, myself). And the only way this will happen is if I achieve financial independence.

Unless you are familiar with the early retirement general philosophy, much of this may pass over your head. But I think you get the idea. There was a guy who espoused retiring early and showed how to do it,  who then found that in retirement he needed to go back to work. It seems a little hypocritical when I first read it. But it’s not….  the idea is that you would like to put yourself in a position where you can do exactly what you want when you want to, even if that means you want to return to full-time work in a new field. I certainly can’t do that right now. I would submit that probably 99% of Americans cannot do this now. So if you have access to a blogger who has been able to do this, and he’s written a detailed guideline on how to achieve that same level of success, that’s a good guide map regardless of what he’s doing now. I’m going to pay more attention to my plans to retire early, personally. And when I say retire early, I don’t mean to quit working. I simply mean to be able to work when I want to, in a way I want to, with people I want to, with companies I want to and how I want to.

I think that’s sufficiently heavy for Monday. Get out there and do what you do with pride, and with a focus on doing it so well that someday you won’t HAVE to do it, you’ll WANT to do it because people love what you do so much that they will throw money at you. Nice daydream, huh?

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PS I composed this post with Dragon Naturally Speaking (which I reviewed before, here). It took about 5 minutes of editing, mostly for punctuation, but by and large it got my speech. The geek in me appreciates the lack of typing.

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For most of us, green is the color of money.  But in business, going “green” means something a little different:  shifting from products and services potentially harmful to the environment to using sustainable materials and/or production processes that reduce or eliminate potentially negative impact on the planet.  For many businesses, however, going green is much easier said than done. Consumers are now starting to look far more frequently for environmentally conscious products and brands.

Banks have always been in the business of managing green.  Now, however, consumers (just like you) are demanding that banks not only tend to our green, but become green themselves as well.   Financial institutions are just starting to appreciate and understand the growing importance of transforming themselves into eco-friendly banking entities.

So, what defines an eco-friendly bank?  While certainly a timely phrase, even a little catchy, the key question is whether or not a bank that claims to be eco-friendly really engages in conduct environmentally responsible enough to be considered ‘green’.  If you base some or all of your purchasing decisions on the environmental policies of an organization, what do you need to know when evaluating so-called eco-friendly banks?

Well, let’s start by looking at what we mean when we say “eco-friendly banks”.   For starters, there is no concrete definition and no hard or fast rule that determines what constitutes a ‘green’ bank.   Factors that determine whether a bank should be considered eco-friendly, while somewhat varied, do share a critical underlying theme:  Social and environmental responsibility.

So how do banks exhibit such responsibility?  At first glance, it might appear that the ability of banks to influence positive change for the environment is somewhat limited.  After all, they’re simply banks; they don’t produce much in the way of tangible products, neither manufacturing nor distributing goods.  Some would argue that this limits what environmentally sound practices you can expect from your bank.  And they would be wrong.

Banks may not build anything per se.  Without banks providing the money, however, most of the time, nothing gets built. No matter where the money may have come from initially, a bank is usually involved in the distribution of capital necessary for companies to build factories, to manufacture and transport goods to market and provide support for those products.  From service industries to the capital-intensive concerns that include automotive, industrial and construction industries, commerce requires the involvement of banks to some degree or another.

If we presume (and we’ll get back to this) that the day-to-day operation of a bank does not have a significant impact on the environment, the banking industry as a whole certainly does.

Some questions regarding eco-friendly banking activities might include:

• Does a bank make socially responsible loans?
• Do those loans support sustainable production and distribution practices?
• How do banks screen their applicants for environmental consciousness, if at all?
• Are loan recipients a part of the solution or part of the problem of climate change, for example?

Eco-friendly banks also fund eco-friendly industries such as alternative energy, local agri-business (minimizing energy and other costs associated with transporting goods to market), local fishing industry and local merchants.

And, contrary to our earlier presumption, eco-friendly banks can effectuate positive environmental change in their daily operations, with some being simple and immediate and others requiring significant advanced planning.  With respect to the former, things such as lighting and insulation can be modernized fairly quickly.  Insulation, window treatments, and thermostat controlled building interiors are all effective tools for reducing energy consumption.

Consumers can inquire as to the bank’s policies regarding the construction of its own properties. More and more banks are making their buildings eco-friendly by following the U.S. Green Building Council standards which include such criteria as rooftop solar energy panels, steel structures made from recycled metals and carpeting made from fully recycled materials.  In the alternative, check to see which of the banks you are considering adhere to the building standards called LEED (Leadership in Energy and Environmental Design).

One additional area where a bank can impact the environment on a day-to-day basis is by reducing the amount of travel it requires of its employees.  Banks that let their employees work remotely from home also helps to reduce energy consumption and pollution.  So do those who offer their workers incentives for taking public transportation or purchasing more fuel-efficient vehicles such as hybrids or electric cars.

Eco-friendly banks can also establish their green bona fides in the form of the banking products or services they sell.  Online banking, for example, reduces paper consumption, requires no driving, results in less mail and uses fewer branch resources.

Some banks are providing ‘green’ mortgages at better interest rates for the purchase of energy efficient homes or for making a home more eco-friendly.   ‘Green’ affinity credit cards are becoming an increasingly popular product, allowing customers the ability to contribute to environmental organizations and socially responsible causes while making their purchases.   Many of these cards also have incentives such as cash back rewards that are comparable to many of the big banks rewards programs.

The following 10 banks are considered among the best of those that have integrated sound environmentally friendly policies into their business practices effectively:

1. ING Direct (ingdirect.com)
2. New Resource Bank (newresourcebank.com)
3. Green Choice Bank (greenchoicebank.com)
4. One Pacific Coast Bank (onepacificcoastbank.com)
5. Permaculture Credit Union (pcuonline.org)
6. Rabobank (rabobankamerica.com)
7. Citizens Bank (citizensbank.com)
8. PNC (pnc.com)
9. HSBC (us.hsbc.com)
10. TD Bank (tdbank.com)

There are, of course, others.  What all eco-friendly banks have in common is their focus on policies that are earth friendly and socially responsible and many of these banks are having far more of a social and environmental impact than most consumers realize.

This is a guest contribution from Bill Hazelton, CEO of Credit Card Assist where he provides tips, news, advice and recommendations on all things credit card-related.  Find him on Twitter, Facebook and Google+.

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As a personal finance blogger, I follow economics and the ebb-and-flow of the capitalist system here in America, but I often ignore small trends that have global implications simply because they seem crazy on first glance. I’m as guilty as everyone else about missing trends because I think I know better.

Here’s an example: local currency. This sounds like a ridculous thing. You have a small town and within that small town, you have a non-US-dollar currency you can use to buy local goods and services. That’s the kicker: you can’t take that “local currency” to buy things at Wal-Mart.

A great example is BerkShares. BerkShares first appeared in in 2006 in the southern Berkshires region of Massachusetts. Since then, more than 2 million of these paper notes are in circulation. One hundred BerkShares can be purchased for $95 at one of five local banks and exchanged at participating merchants with the same purchasing value as U.S. dollars.

So what’s the point of a BerkShare? The program gives consumers an incentive to keep the notes active and shop and dine locally in the neighborhood businesses that accept them. Consumers get a bargain, and businesses can compete with multi-national corporations thanks to consumers’ preferences to buy local.

The fact is that local economies haven’t embraced the concept… but they should. We may never look at local currency and decide that it’s superior to “local deals.” I think we’ll have to see something far more dreadful happen to our national currency first – and I hope it never does. But movements like this are about transforming the institution of money. Encouraging consumers to focus on local purchases makes them support local economies, at a discount, which is a win-win for consumers and local businesses. Local currencies will become more and more important as time goes on, simply because there’s no way it’s not a winner for the community.

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Foolish consistency is the hobgoblin of little minds.

– Ralph Waldo Emerson, Self-Reliance

When beginning any sort of ambitious self-improvement project – be it paying down credit card debt, learning a new skill, improving your health or reading the 100 greatest books of all time – you should have a clear idea of when to cut your losses and try a different path.

I have seen many people attempt to avoid quitting at all costs. You know the type – your friend who insists on watching the movie to the end.  Your cousin who will eat the same dish that gave him heartburn last time.  People who furiously pay down debt by directing every last penny to their debts while eating Ramen noodles.  Being someone who can stick to a goal and achieve it is admirable.  But there are times when it’s not admirable.  Being someone who sticks to a goal that no longer has a clear benefit is foolish.

The best example in terms of personal finance can usually be found in investing. Many investors will establish a pattern of investing that suits them, and then defend that pattern to others (and to themselves) even if it doesn’t work.  A good example is mutual fund investing (or even investing in stocks).  The conventional wisdom is that “market gurus” exist.  Bill Miller’s Legg Mason Value Trust beat the market for 15 years and looked like a gold mine (and made Bill Miller a rich man).  Since 2005, though, that fund has lost 60% of its value.  The truth is that index fund investing is the investing pattern with the best possible return for a non-knowledgeable investor.  But far too many people continue to cling to the idea that the market can be “beaten.”  It can’t, unless you’ve got the time to focus on studying the market 24/7.

A foolish consistency – an attempt to hew to a failed philosophy – is going to be the road to failure for most of us. If what you’re doing isn’t working, it’s unlikely that it’s going to improve.  I know that persistence is considered to be a virtue, but in investing or life it isn’t.  You have to admit that what you’re doing isn’t working sometimes, and try to find an alternative.  In investing, this is called cutting your losses.  If you invest 10,000 and lose 2000, you need a 25% gain to recoup your 20% loss.  Think about that.

So think bigger. Think about moving past goals.  Think about ambition and think about money like something new, every day.  I’m constantly reevaluating my goals and my ideas about how to generate (and grow) my money, but not as much as I should.  If you get to a point where you’re comfortable, you’re in bad shape.  Life requires growth, in one form or another.  Think bigger.

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Back to my past attempt at predicting the stock market…

Quoting directly from an annual report is not something I’ve done before on Brip Blap, but I thought this little nugget from Berkshire Hathaway’s CEO Warren Buffett was worth sharing. Friday’s [2007] annual report to shareholders is available on Berkshire Hathaway’s website.

From Fortune:

[Buffet] writes that the Dow Jones Industrial Average surged from 66 to 11,497 during the 20th century. That is a huge rise – yet it averages out to just 5.3% compounded annually, Buffett writes. What’s more, were the DJIA to repeat that 5.3% average annual gain throughout the 21st century, its value on Dec. 31, 2099, would approach 2 million.”It’s amusing that commentators regularly hyperventilate at the prospect of the Dow crossing an even number of thousands,” he writes. “If they keep reacting that way, a 5.3% annual gain for the century will mean they experience at least 1,986 seizures during the next 92 years. While anything is possible, does anyone really believe this is the most likely outcome?”

If that scenario isn’t outlandish enough, Buffett goes on to note that were stocks to return 10% annually throughout this century, the Dow would hit 24 million by year 2100. “If your adviser talks to you about double-digit returns from equities,” he writes, “explain this math to him – not that it will faze him. … Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.”

I’ve written about this before. I am constantly amazed at the optimism people bring to the concept of long-term guaranteed double digit returns in the stock market if you invest in index funds. I am even more amazed that people hope for the US market to continue at these rates of growth, since I think the explosive days of US growth are behind us, as a country. The simple truth is that unless you are a very good investor (and they exist – I don’t deny that) you probably can’t beat the market. 75% of mutual fund managers can’t, either. What is most likely is that you can count on a before-tax return of less than 6% per year – before taxes.

I know the DJIA is probably not the best single measure of returns, and I know different time spans would result in different return rates, and I know there are variables such as tax treatment, dividends, etc. that might affect this calculation. But the best investor in America (if not the world) thinks that counting on the general return of the market to exceed 5.3% is foolish, and I have to pay attention to his opinion since he seems to have a good understanding of investing, to say the least.

I use the “index fund method” of investing, buying broad-based index funds that mirror the performance of the market. If I look back in 20 years and see 5.3% returns per year I will kick myself for not buying CDs instead and avoiding the volatility which is giving me nightmares today. I sometimes wonder if I do need to put more effort into actively picking stocks, instead of hoping for the lift and swell of a troubled, debt-ridden country’s over-regulated stock market to carry me to retirement. It’s enough to make you sleepless at night in times like these.

Back to the present where I again try to guess how to predict the stock market….

Now, if you’ll re-read that last paragraph, you’ll note one bit of stupidity on my part.  Can you guess it?  I’ll give you a hint – if you’ve read my blog over the past few years, do you think I still complain about an over-regulated stock market?  I don’t even know why I said it then, except that I was caught up in the hideous mess that was Sarbanes-Oxley – a boondoggle for consultants and auditors if there ever was one.  SOX was over-regulation in the sense that it required a huge amount of work and produced (in my opinion) almost no improvement in corporate governance or controls (see: 2008 Wall Street meltdown and bailouts).  To the best of my knowledge all the big Wall Street disaster firms were fully SOX compliant.  So I’ll give myself half a pass there.  But it’s clear over-regulation has never been the problem.  Maybe under-enforcement is, but over-regulation?  Nooope.

What do we have to look forward to in the future?  The stock market has returned roughly 40% since Obama took office.  40%.  With unemployment up, debt up, trust in our institutions down, the stock market still goes up.  Is it confidence in Obama?  Confidence in Wall Street?  Or is there simply nowhere else to go?  Real estate and “high yield” savings accounts are battered and broken.  CDs are laughable, and paying down a mortgage at 3.5% interest seems misguided.

Part of me says it’s all smoke and mirrors, and part of me says “if you can’t beat them, join them.”  You make your own decision, of course, but the only thing we can be certain of is that the future is uncertain.  I cynically sometimes proclaim that the only sure investments are canned goods, shotguns and shells.  But the reality is that the market will go up because that’s where the money is, and we won’t have much choice except to follow it (unless we want to attempt various early retirement options, which may be the best answer).

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On our next cruise, we decided to try our luck again, but there was no formal dinner to attend on the particular night we went, so we were in no rush. We spun, we lost. We put down another $20. Ciao, bella. Another. In the end, we had a 100% loss on a $60 investment, versus our original 2000% gain on a $20 investment. The loss happened JUST AS FAST as the gain – 3 spins. That original winning might have gone to $0 on the next spin.

This anecdote, however, is NOT the point of this post. In the mid-90s, I bought a tech stock in my retirement account. This was back in my “mindless” investing days; I saved money, but I did it almost unconsciously, seldom putting much thought into strategy or even rational behavior. So I bought $2000 worth, if I recall, which was the one-year limit on IRAs at the time. I forgot about it.

A couple of years later, it had soared – my money had almost tripled. The stock wasn’t paying a dividend, but I thought I was brilliant. I let it ride. It stayed up. “Excellent work,” I congratulated myself. “You are the next Warren Buffet.” Then it started to slide a bit. Then, as the dot-com bubble burst, it slid a LOT. Finally it was back down to my original purchase price. I said “well, I might as well stick it out now,” thinking that it might someday come back. It didn’t. It stayed stagnant for another couple of years before I sold it, more or less at the purchase price.

Buying a non-dividend paying single stock in an IRA was not a wonderful investing idea. It could have easily appreciated tax-free outside of my retirement account, and I could have used that IRA money with a dividend-producing stock, a mutual fund or any one of a million different things. But I did not. If it had been a dividend-paying stock, I would have at least collected some tax-free dividend income while it languished. But it wasn’t, and I didn’t. And unlike the time I played roulette on the cruise, I didn’t recognize a fantastic streak of good luck for what it was and tell myself “sell this speculation! It doesn’t pay dividends and you never expected in your wildest dreams for it to triple in price – unload it! Lock in the gains!” I missed a chance to invest wisely, and when my first poor decision resulted in a fantastic windfall, I failed to cash it in, making a second poor decision.

In the end, it was a profitable experience, though, because I learned from it. I learned to put a little more thought into an investing strategy, including my idiot-proof stock sell point calculation (more on that in the future, but basically once it goes up 25% or down 15%, start selling some of it). I also learned that sometimes the smartest financial decision, just as in gambling, is to get up and walk away from the table.

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The owner of a successful small business in his hometown had two sons. The younger son asked one day if the father could lend (really give) him a substantial amount of money. The father, being the trusting sort, gave him the money without asking why he needed it. The younger son took off for a distant big city where he spent everything and then ran up substantial credit card debt on top of that. The economy in the big city went south and he had trouble paying for his pricey condo in a “hot” neighborhood. Things got so bad that he took a job in a restaurant and started eating food that people left on their plates.

The young man said “My father has so much money, and I’m starving! I’ll go back to him and apologize and even offer to work for him.” So the young man went home. His father was overjoyed to see him. The young man apologized for his wasteful behavior, and asked to be forgiven. He said he wasn’t worthy to be his son anymore.

The father instead took him to a fine men’s store and bought him a new suit. He gave his employees the day off and took his son and his employees to a fine chain restaurant and threw a party, ordering many delicious appetizers.

Now all this time the elder son, who also worked for his father, was attending to business with an important client. He had worked hard all of these years for his father’s business. He had never asked for anything – he had worked hard, lived below his means and saved for the future. When he checked his Blackberry, though, he noticed that everyone took the day off and was partying at the Outback.

He fired off an email on his Blackberry to his assistant asking what the occasion was. “UR bro is back & we R throwing a party ” replied the assistant.

The elder son was furious. He drove to the Outback but sat outside, sulking. His father came out and begged him to come in. The elder son was in no mood to hear this. He snarled, “I’ve worked for you for years. I’ve never done the least thing to embarrass you. I’ve provided for myself and my family, I’ve grown the business, I’ve never gone into debt – and you never threw a party for me at Red Lobster, let alone the Outback.”

“But my little brother blew through YOUR money, spending it all on strippers and appletinis, and yet you’re throwing a party for him.”

The father considered this, then said “Listen, you have been a good son. When I retire, my business is yours. Everything I own goes to you in my will. But we should be happy. Your brother, who had disappeared, is back. He was lost, but now he is found.”

The end.

My story is (of course) a modernization of the parable of the prodigal son. My question is this: is the father’s debt forgiveness really consistent with what we expect as people who pay attention to personal finance? Isn’t it really unfair to reward the younger son’s debt? He’s not a bad person, maybe, everyone makes mistakes – but isn’t the elder son right to be annoyed? Why didn’t they even see fit to invite him to the party? Or is this the whole point of the idea of recovering from substantial debt – that, in a way, the battle to escape debt is worthy of celebration? I guess maybe it’s also about the fact that your love of family should be greater than your love of money (or hatred of waste), but it’s tough for me to grasp.

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A few years ago when I read Rich Dad, Poor Dad, the concept of passive income lit my brain on fire. I had never thought of the idea of making money for nothing.  I assumed that money was achieved only due to the hard-pressed exchange of time for filthy lucre.  Kiyosaki, the author of RDPD, assured us that passive income was the key to wealth.

Where is the passive income?

I plunged into research. I identified rental income, investment income and even creating original content as “passive income.”  I had visions of checks flowing in, one after the other, landing in a pile on my desk called the PI pile.  But after time, I realized that the pursuit of passive income was nearly impossible through these routes.  How can you really make passive income?  Inquiring minds want to know.  These are the top 8 “real” ways to make passive income, but even they have a catch – all but the last one.

1. Pick up spare change off the ground. You do have to bend over, but you probably do that at work every day, so you’ll at least be getting something out of this transaction.
2. Marry someone rich. You’ll have to do some work, true, but if you aim high enough we’re talking about a huge return on investment here.
3. Hook up with someone rich and desperate enough to pay to keep you around – the classic “sugar daddy” scenario.   Granted, you may have to do some work here… but I’ve seen this work out where surprisingly little effort is expected in return.
4. Have someone else do the work for you; a nice trick if you can manage it.  Ask your buddy the web designer to create a website for you – for free.  Why would he do it?  The exposure?  The joy of being taken advantage of?  Don’t worry – you’re getting passive income!
5. Win an office lottery pool. OK, you risked a few dollars, but someone else went to the bodega, bought the ticket and checked the results.  You didn’t put much sweat into your share of the Mega Millions, did you?
6. Gamble. There is, of course, a potential downside here.  But if sitting around sipping free martinis while playing a game and winning isn’t as close to passive income as possible, I don’t know what is.
7. Invest in dividend-paying stocks. This point is a cheat.  You have to earn the money that you use to buy the stock.  On the other hand, everything that happens after you buy it is gravy.  That income becomes close to truly passive – so the trick is to use windfalls (an economic stimulus check, for example) to invest in dividend-paying stocks.
8. Be born rich. Yes, you might have to be nice enough to great-aunt Milfred to avoid getting cut out of your trust fund, but let’s face it:  this is as close to passive income as you’ll see in this life.

Don’t think you’ll get rich without working for it.  Everything you can generate wealth from takes effort.  Writing a book is hard work.  Blogging is hard work.  Rental income is hard work.  It may create a wealthstream for years to come, but that’s what you should be aiming for:  wealthstreams, not passive income.  Don’t imagine that there’s a magical key to wealth that doesn’t involve either hard ongoing work or a good bit of upfront work.

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