The Simple Dollar

Mechanic William Escalante repairs an old Russian-made Moskvitch car in Havana's Centro Habana neighborhood. Unplanned events, like a broken down car, can make it seem like any financial progress has been for nothing. But Hamm recommends looking at it a different way: what would have happened without any planning at all? (Jose Goitia/AP/File)

How to cope with financial setbacks

By Trent Hamm, Guest blogger / 06.13.13

It happens to everyone at some point in their financial journey.

Everything is going along perfectly. Savings are building up. Debts are going down. Financial goals are being reached (or at least approached). It’s all chugging right along.

Then something happens.

Someone gets sick or, even worse, passes away. A car’s engine block fails. Someone gets fired or laid off from their job.

That smooth forward progress you’ve been making? It’s just been rudely interrupted.

Whenever that happens, it can often feel like you’re just not making any progress at all over the long run.

After all, this bad event caused you to fall far back on your progress. It might have even caused you to end up roughly where you started.

When you look at it through that lens, it does look painful. All of this effort… and for nothing?

I’ve been in this situation personally and professionally. I’ve worked hard and made enormous progress on many different things in my life, only to watch all of that progress fall apart because of something outside of my control.

It hurts. It’s frustrating. It leaves you wondering what the point is.

When I’m in those moments, I want to give up. There were many moments like that during the growth of The Simple Dollar, for example.

Every time I faced a crash, every time things fell apart, one simple thought kept me from giving up.

Where would I be right now if I had never bothered at all?

Your car just failed. What would your situation be like if you hadn’t spent the last few months getting your financial house in order?

You just lost your job. Where would you be without that emergency fund you diligently built up over the last six months?

It might feel like your progress is being undone, but actually the opposite is true. It’s your progress that is making this disaster much smaller than it would have otherwise been.

Bad things happen in life. One of the biggest reasons for keeping your financial house in order is so that you can build things up during the good times so that you’re protected during the down times.

If something bad happens and knocks you back to where you started, that means your effort worked like a charm. It turned something that could have been truly disastrous into something you could handle with relative ease.

That, my friends, is tremendous progress. It’s something to be proud of.

More importantly, it’s something worth repeating.

Metro North employees, in orange vests, help transfer westbound commuters at the transportation center in Bridgeport, Ct., to shuttle buses last month. When both parents in a family have to commute to work, Hamm says it might be worth considering whether or not it would be helpful to drop down to one source of income instead. (Mark Lennihan/AP/File)

Is a second income worth it?

By Trent Hamm, Guest blogger / 06.12.13

I had a very interesting conversation with a reader recently who informed me that she discovered it was much more cost-effective for her family for her to quit her $22,000 a year job and instead maximize their family’s frugality. Sandra agreed to let me share elements of her story with you.

First of all, this family had two early elementary students in the home and didn’t have any support structure around them. Because of their two jobs, there was no one at home when they got off of school, so they had to go to an after-school daycare each day, which cost their family $125 a week for 36 weeks a year. That’s $4,500. There was also summer child care, which was about $275 a week for 10 weeks a year – another $2,750.

Second, they both had to have cars for their commute. While they both drove old cars, she was still commuting about twelve miles a day, five days a week, fifty weeks a year. That’s 30,000 miles a year. If the car gets 30 miles to the gallon, that’s 1,000 gallons of gas alone, or $4,000. If you figure in all of the other maintenance needed for a car, plus depreciation of the car’s value, plus insurance, plus vehicle registration… it’s easy to put another $2,000 a year on top of that, giving them $6,000 in vehicle costs.

Third, the awkward hours meant that it was hard to always present a home-cooked meal. They used their slow cooker a lot, but sometimes it was much easier to go out or eat convenience foods because without very quick meals it was hard to have any family time during the week. She estimated that $50 was wasted on quick foods in an average week, adding up to $2,500 a year. ( Continue… )

Members of the Eastern Massachusetts Girl Scout Troop 71911 sell cookies at the Harvard Square subway stop earlier this year in Cambridge, Mass. While it may be hard to turn down a neighbor's child (or your own) who is selling goods for charity, Hamm says parents can just donate directly to causes they care about. (Ann Hermes/The Christian Science Monitor/File)

How to (politely) turn down those Girl Scout cookies

By Trent Hamm, Guest blogger / 06.11.13

About once a month, either one of our own children or one of the children that live near us pops up with a fundraising form.

They’re trying to raise money for their school band or their soccer club or for extra classroom supplies – all of which are noble goals.

Usually, this comes hand in hand with a form with which to buy something. They might have an offer for magazine subscriptions, for example, but it usually seems like they have a catalog that contains food products of some kind.

The problem is that I genuinely don’t want any of this stuff.

I don’t want another magazine. I don’t want a grossly overpriced box of chocolates or cheese or cookie dough. I don’t even want Girl Scout cookies (though it pains me to turn away from a Thin Mint…).

Still, that doesn’t change the issue of having a neighbor’s child on the doorstep wondering if I’ll help them with their cause. That has three consequences. ( Continue… )

A couple hunts for goodies as they scour a yard sale in Decatur, Ala. in 2011. Hamm advises those who are planning to hold a yard sale this summer to keep updating their offerings so buyers come back. (Gary Cosby Jr./The Decatur Daily/AP/File)

Get the most out of your summer yard sale

By Trent Hamm, Guest blogger / 06.10.13

A few days ago, I had a great conversation with a couple that live about a block away from us. They have regular yard sales throughout the summer and we’ve stopped at the sale a few times.

Their process is simple. They have an area of their garage that they devote to “yard sale” stuff. Whenever they have an item they’ve identified as yard sale material – meaning they don’t have a real use for it – they stick a piece of masking tape on it, write a price on that masking tape, and put it in the “yard sale” area.

Three or four times a summer, they put up a few signs around the town and have a yard sale for the weekend, selling off everything in their “yard sale” area.

I asked them how it has worked out for them and they offered me several interesting tactics for yard sales (beyond the idea of having a yard sale area in one’s garage).

First, if you don’t ever add anything to the sale, you should expect diminishing returns on your yard sales. For the first summer or two, they would make some amount during the first sale – let’s say $300 – and then make about half as much during the second sale ($150), then half as much again during the third one ($75). ( Continue… )

One woman works at her cubicle desk while another makes copies on a copy machine at Z Corporation headquarters in Burlington, Mass., in 2010. While it is easy to compare yourself to others when it comes to money matters, Hamm says you should focus on your own financial success — not that of your neighbor's or friend's. (Mary Knox Merrill/The Christian Science Monitor/File)

Why comparing yourself to others is fruitless

By Trent Hamm, Guest blogger / 06.08.13

Don’t spend a second worrying about what kind of financial success someone else has achieved. Be happy for them, but don’t waste even an ounce of your energy using it as a benchmark.

The only benchmark that matters is whether or not you’re in a better place than you were a year ago.

It doesn’t matter what stuff your best friend has. If they’re made happy by the things that they have, that’s cool.

The only thing that matters is whether or not you get personal fulfillment out of the elements of your life.

Measuring yourself against a standard – or “keeping score” – is an incredibly powerful way to motivate yourself to improve, but putting that yardstick up against someone else, while potentially motivating in some ways, often gives you a very poor picture of your own success. ( Continue… )

A woman buys groceries with the help of her two daughters and a young neighbor. Because grocery store shopping can be expensive, Hamm suggests going as long as you can between visits to the store — saying you should plan to wait, at the very least, a week before returning. (Melanie Stetson Freeman/The Christian Science Monitor/File)

Seven ways to cut your grocery store bills

By Trent Hamm, Guest blogger / 06.07.13

Sarah and I have three children. According to the official USDA statistics on food costs, the monthly cost for our family to eat per month assuming we use their “liberal” food plan is $1,337.80. On the other hand, if we use their “thrifty” plan, our monthly food cost for our family drops to $686.60.

In other words, if we were able to move from their “liberal” plan to their “thrifty” plan, we would save $651.20 per month.

For the most part, that switch mostly has to do with making more sensible food choices and being more logical about what you’re buying at the store. It doesn’t mean moving from filet mignon to beans.

Over the last several years, Sarah and I have figured out a lot of tricks to make this work for our family. Some of them are big tricks – and some of them are small tricks. Here are seven of the biggest tactics that really work.

Go as long as you can between grocery store visits – a week at the bare minimum. Every time a person goes to the grocery store, they end up buying at least a thing or two that they didn’t plan to buy. Grocery stores are simply full of temptation. ( Continue… )

A row of new 2013 Ford Fusions is displayed at an automobile dealership in Zelienople, Pa. last month. Newer cars may be more appealing to buyers, but Hamm says used cars can save drivers thousands of dollars. (Keith Srakocic/AP/File)

Should you buy a used car or a new car?

By Trent Hamm, Guest blogger / 06.06.13

The best way to maximize your value from a car, regardless of when you buy it, is to drive it until the problems become overwhelming, then trade it in for whatever value you can get out of it. I consider that the first rule of frugal car buying.

The tough question is whether or not it makes sense to buy a new car or a used one. With the new car, you’re going to be able to drive it for longer, but with a used car, the price is so much lower. What’s the right choice?

Lots of personal finance guides make the absolute assumption that doing anything other than buying a car used is a very foolish move.

Is that a true statement? It’s worth digging in a bit to find out. ( Continue… )

A woman loads her shopping cart at a Wal-Mart in Deptford, N.J. in 2009. Hamm says that, most of the time, the right thing for consumers to do is to not spend any money at all. (Matt Rourke/AP/File)

The prisoner's dilemma and your money

By Trent Hamm, Guest blogger / 06.05.13

Imagine for a moment that you’re a prisoner. You’re sitting in your cell. A prison guard comes in and says, “We heard a rumor that you and your friend are involved in a conspiracy. Do you have anything you want to tell me? If you tell me, there will be no punishment for any involvement you have.”

Do you betray your friend? If so, there may be a reward in it for you. On the other hand, not betraying your friend can have a reward, too.

Here’s the catch: the reward you get also relies on what your friend does … a friend being questioned at the same time.

Here’s an example of how that might work.

If both of you maintain the trust and don’t betray each other, you’re both rewarded handsomely – you don’t get in trouble and you also maintain your friendship. If you betray each other, there’s a smaller reward for the both of you – you don’t get into additional trouble, but you’ve lost your friendship.

On the other hand, if one of you betrays and the other one does not, the betrayer loses a friendship while the other friend not only loses a friendship but also receives additional punishment. ( Continue… )

A Visa card is shown protruding out of a wallet. For those making their first budget, Hamm suggests overestimating expenses, prioritizing costs and trying to come in under budget to save money. (LM Otero/AP/File)

Five tips for creating your first budget

By Trent Hamm, Guest blogger / 06.04.13

One of the first steps that people take when they first have their “financial epiphany” is that they assemble a budget.

There are countless templates and ideas and forms for making budgets out there, but they all come back to the same thing. A budget is a guide to help people make sure that they’re spending their money in a sensible fashion.

The vast majority of the time, a budget is made up of a list of items that a person needs (or wants) to spend money on during a given month. Each of those items is given an amount and, ideally, those amounts add up to less than the person’s monthly income. If it does not, then it means that some budget elements need to be reconsidered.

A budget based on reality can work really well. If you’re basing every item in that budget on real numbers that reflect your actual spending, a budget can be a great guide to financial recovery. ( Continue… )