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The Simple Dollar

The Nike swoosh may inspire feelings of familiarity and loyalty, but make sure you buy products because they're the best for your money–not because they're associated with a familiar brand name. (Mike Segar/Reuters)

Overcoming brand loyalty

By Guest blogger / 01.21.12

“Having preferences means having weaknesses.” – Magnus Carlsen, currently the number one rated chess player in the world

Over the years, Sarah and I have relied on Cascade Complete to get our dishes clean. We’d tried a lot of different dishwashing detergents, particularly when we were first living in apartments where a dishwasher was available, and we just found that Cascade Complete got our dishes cleaner. We didn’t have to re-run loads. We didn’t have to pre-wash dishes. We didn’t have to worry about overloading. It just got the job done consistently – something we couldn’t say about other dishwashing detergents.

Because of this, we just adopted a routine of buying Cascade Complete whenever we needed dishwashing detergent. We’d recognize the logo on the store shelf, find the best bargain on it we could, stack a coupon on top of that (usually), and head to the checkout.

Some time in 2010 – I think it may have been in the spring – I noticed that our dishes weren’t getting very clean. They looked sort of dingy and they often would still have caked-on food or smudges on the glasses (with little kids, smudged glasses are a very common phenomenon).

After doing a bit of studying, I learned that Cascade Complete had removed the phosphates from their dishwashing detergent, making it much less effective and putting it almost exactly on par with other phosphate-free dishwashing detergents that cost substantially less to buy.

Simply put, we haven’t used Cascade Complete in a year and a half. We either use a generic brand or a homemade mix. The brand on the bottle means little, after all – it’s what’s inside that washes your dishes.

* * *

Companies work very hard to associate brands with certain things in our minds. Apple. Nike. Sony. Olive Garden. Each of those things – and countless others – causes us to picture certain things in our minds and often causes us to have certain assumptions about the products that carry those brand names on them.

For us, Cascade Complete was synonymous with “clean dishes,” but that eventually proved not to be the case. Not because they changed the brand, but because they changed what was inside the box.

The label on the outside of the box doesn’t mean you’re going to always get the same thing inside the box.

What does that mean for us? Don’t become attached to brands. The particular item that is on top of the heap right now might not necessarily be on top of the heap next year if a particular item changes its contents or a competitor produces a better product.

The product you once started buying because it was the best bang for the buck quite likely isn’t the best bang for the buck any more.

I can easily recall a similar experience with a Sony Walkman during my childhood. When I was about eight, I had a secondhand one that was industrial strength. I used it for about six years until it was dropped into a lake. I wouldn’t be surprised if someone were to dive into that lake and find a fully-functioning Sony Walkman.

I bought a replacement, expecting a similar durable product. It worked for about three months, then it started eating and shredding tapes. I attempted to turn it in under the warranty and just wound up battling Sony’s customer service until it wasn’t worth it any more.

The Sony name and the Walkman name meant very little. The product inside is what mattered.

* * *

My solution to all of this is to just completely abandon any meaning when it comes to brand names. All they’re useful for is making it easy to identify a certain item on the store shelf.

What I do instead is constantly watch for product reviews. I read publications like Consumer Reports and The Consumerist pretty faithfully and I simply watch for what their comparative studies suggest is the current best “bang for the buck.” I stick with that for a while until an updated comparison comes out.

When I’m about to buy a more expensive product, I research it thoroughly, but the brand name doesn’t mean a whole lot. If it’s an electronic item, for instance, it’s likely that it was made out of many of the same components in the same Chinese factory no matter what name is on the box. If it’s a dishwashing detergent, the vast majority of the materials in the box are exactly the same. The small differences between the items have little to do with the name on the outside of the box.

All I care about are features and price. Those things matter far more than the name on the package.

I’m striving to apply the same philosophy to everything I see. Does it matter what car someone else bought? Not really. They just decided that it had the right set of features for them. I might not value those same features, but then again, I’m not the person spending the money. If I see someone driving a Jaguar, for example, all I can really conclude is that they have a different set of features that they care about in a car than I do.

I’m not defined by the brands that I buy, nor is anyone else. They’re just stickers on the outside of an item that will ideally make my life a bit easier or more enjoyable. Nothing more, nothing less.

Except for removing tough stains, there's no reason to wash your clothes with hot water, according to Hamm. (Whirlpool Corporation/PRNewsFoto/File)

Here's exactly how much you'll save doing laundry in cold water

By Guest blogger / 01.19.12

I base this on the numbers calculated by Mr. Electricity on the cost of washing machines, using a set of rather rigorous data.

If you wash on hot and rinse on warm, you’re going to use an average of 4.5 kWh per load, which at a cost of $0.15 per kWh will cost you $0.68.

On the other hand, if you wash on cold and rinse on cold, you’re going to use an average of 0.3 kWh per load, which at a cost of $0.15 per kWh will cost you $0.04.

The numbers are clear: if you wash on hot, you’re dumping water down the drain.

Of course, there are a lot of counter-arguments for this.

The chief argument for using hot water is that hot water is the best route for getting your clothes as clean as possible. The high temperature of the water is most likely to kill bacteria and also to cause more movement of the water, causing more soiling and germs to be removed from the clothes.

However, hot water also does the most damage to clothes, causing them to shrink, wrinkle, and fade more than other temperatures. I would only use hot water if the clothes are seriously soiled for some reason. For example, I’ll use hot water for a load of cloth diapers or, in my own recent experience, towels that were used to clean up a bathroom in which a four year old girl attempted to flush most of a roll of toilet paper at once.

Most of the time, our clothes simply aren’t dirty enough to warrant the rough treatment that a hot water washing would give them.

What about warm water? It’s the middle of the road choice. I tend to use it on our children’s clothes, as they tend to accumulate food stains and warm water removes them well. I’ll also use it on any adult clothes that became sweaty or particularly soiled due to the day’s activities.

If you’re interested, washing your clothes on warm and rinsing on warm will cost you $0.53 per load, and washing your clothes on warm and rinsing on cold will cost you $0.29 per load.

Still, most of my clothes are washed in cold water. Most days, my non-workout clothes never get very dirty at all. They accumulate a bit of dried skin flakes (as everyone’s clothes do), but so does the carpet in a house and I don’t bathe the carpet in hot water to remove those flakes. Cold water easily removes such particulate matter and the soap leaves the clothes quite clean.

Another factor: cold water washing is also the gentlest choice for your clothes, extending their life. There’s less garment wear on a cold water washing as well as fewer wrinkles (meaning less ironing) and less shrinkage. All of these factors extend the life of your garments, meaning you don’t have to go clothes shopping as often, saving yourself even more money.

What about the rinse cycle? I can’t see a good reason to rinse your clothes in warm water. Your clothes are already clean at that point – the rinse merely removes any excess soap that still happens to be in there. Using cold water instead of warm for the rinse cycle will save you $0.15 per load.

I advocate using cold/cold for washing and rinsing most non-soiled clothing. When clothing is moderately soiled (with sweat or food, for example), I’ll use warm/cold for a load. I use hot water only for things like cloth diapers or items that have come in extensive contact with bodily fluids.

Assuming that our household runs an average of one load a day, one warm load a week, and one hot load every three weeks (which is about our average), rinsing everything on cold, we would spend $34.06 in energy costs per year. On the other hand, if we ran our daily load with a hot wash and a warm rinse, we would spend $248.20 in energy costs per year. Running mostly cold washes with all cold rinses saves us $214 per year. That’s a savings worth writing home about.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

An American Airlines luggage cart sits at LaGuardia Airport in New York this past November. A couple is moving overseas and wonders what to do with an old retirement account: close it or let it sit? (Seth Wenig/AP/File)

Retirement dilemma: Old account. Moving overseas. Should we close it?

By Guest blogger / 01.18.12

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Trading cars before a move
2. Handling an old retirement account
3. State income tax after leaving
4. Student loan repayment plan
5. Unexpected job offer
6. Job change and unfinished mortgage
7. Reconnecting
8. 401(k) loan for debt?
9. Which insurance policies?
10. Best books of 2011

Yesterday, my wife and I took a long walk in the park with our kids. The grass was green and there were people jogging and riding their bikes.

We stopped at the playground and played for an hour. Several other kids joined them at various points.

This is mid-January in Iowa, remember.

Q1: Trading cars before a move
In May 2011, I bought a 2008 Certified GMC Acadia for $28,5000. Currently we are paying 2.5% APR loan, a very comfortable $400 monthly payment, and owe $16,000. The problem is my husband just received news we are moving to Italy. Italy has small roads, lots of mopeds, and tiny parking spots. A SUV that has a lot of blind spots is not ideal when it comes to driving in traffic, mountain areas, or parallel parking in the city. Not to mention the likelihood of accidents and the high cost of repairs in not good. I also have a child and back issues. So considering all of this I am thinking about trade-in my GMC Acadia for a BMW X3 or something similar. My car is on only worth around $23,000. A total depreciation of $5,500 in 8 months. We do not have time to private sell, only about a month til we ship the vehicle. Am I making a huge mistake trading in the car? Can I ask the finance company to finance the other car, and will the dealership trade in a more expensive car for a cheaper one?
- Kelsey

I agree that large SUV is really not a good choice in that environment. If I were in your situation, I would probably sell the Acadia.

Your challenge, of course, is the short time frame. If I were you, I would list the vehicle on Craigslist immediately for something approaching the list value of the car. We purchased our car on Craigslist and were able to go from listing to completed purchase in about two weeks, so you do have time for that.

If that doesn’t work for you, your best option is probably to trade in the car. You’re much more likely to get some value approximating the trade-in value in the United States rather than in Europe, so I would trade in the car for something smaller before I left. If you downgrade enough, you should be able to make the trade-in work without incurring a big lump sum expense.

Q2: Handling an old retirement account
My husband had a retirement account for his post-doc that ended in march. It was in a TIAA-CREF account. We are no longer making contributions to it and am wondering what to do with it. We will be leaving the country in 2012 and will be working in a different economic structure, therefore, we don’t know our future regarding coming back to the states or staying out. I think the balance last we checked was around $8000. We also have a state fund with maybe $300 or something in it. I honestly have no idea how these things work and the money is sitting. What would you advise us to do?

Our finances are simple: $1800 monthly income, about $1200-$1300 expenses, $6000 in student loan debt at 1.65%. no other debt/expenses.
- Monica

I would leave the money for the time being. When you reach an appropriate retirement age, you can withdraw it as normal income in the United States.

The other option would be to empty it out right now, but you’re going to take a tax penalty for doing so. From what you’ve described, there really isn’t any sort of rollover option that would provide you any real benefit.

I would just leave the money there and consider it a start on your retirement. You’ll be able to get the money out of it wherever you’re at.

Monica had a follow-up question.

Q3: State income tax after leaving
Leaving the country, we are required to pay income taxes. I’m aware of the $92000 income limit on federal tax exclusion on foreign income. Virginia (where we live, we rent) requires tax on all income, regardless. This is what I know. However, we will be leaving and probably will forward mail to my parents (who live in VA). Would you happen to know how this works? We don’t own property and won’t rent so technically we aren’t residents anymore. Does that mean we still need to pay VA taxes?
- Monica

In order to maintain U.S. citizenship, you have to continue to file federal income taxes each year, and you’ll have the income tax exclusion you mentioned.

However, it is often very difficult to get rid of your “tax domicile” status in states once you move abroad. You will need to remove all evidence of your residence in the state, including voter registration, addresses, your driver’s license, and so on.

If I were you, I would consult a Virginia tax attorney to help with this process. The cost of it will be more than made up by the taxes you’ll save by doing this correctly.

Q4: Student loan repayment plan
I’m a 25 year old college graduate that took out $29,500 in student loans (no credit card debt). In 28 months of repayment, I’ve gotten my outstanding balance down to $17,925. I’m fortunate enough to be able to afford my payments and even have some money left over to eat and have fun, but I want to start paying down this debt aggressively, and I’d like some help gaming the system. I’ve been running some numbers, but I’d appreciate getting them double checked by someone who knows a bit more than I do about the subject.

Now for the numbers (rounded to the nearest $5):
$3,545 @ 4%
$9,790 @ 4.538% (weighted average)
$3,180 @ 6.55%
$1,410 @ 2.625%

My current minimum payments are $277.53 and I’ve decided I can pay an additional $300 every month (which I’ve been applying to the loan with the highest interest rate). No matter what my minimum payment becomes, I’m going to continue paying $577.53 per month and applying the excess to principle.

The last three loans I listed are serviced by the same company and I’m eligible for an income contingent loan repayment option that would cut my total minimum payment to $173.40 (and possibly extend the repayment term up to 25 years).This seems to be the best option to me because what I didn’t tell you is that I’m planning on applying to graduate school in fall 2012 and will (hopefully) begin school again before my loans are fully repaid (in which case the lower monthly payment will be really helpful). Or should I consider consolidating all my loans and just pay that down aggressively.

Lastly, is there any way I could get in trouble for what I’m trying to do? I can’t imagine that I would, but I don’t want to get blind-sided by something I can’t imagine. 
- Lily

You should not consolidate your loans into a loan with a higher interest rate than any of the loans you consolidated. So, for example, unless the consolidation offer is less than or equal to 2.625%, I wouldn’t consolidate that bottom loan.

The reason for this is that the higher your interest rate, the more you’re going to pay over time to that financial institution in pure interest. You want to do what you can to minimize that interest.

If you’re not sure you’re going to be able to cover the payments in graduate school, save that additional $300 a month for now and use it to have a healthy emergency fund.

No, you’re not going to get in trouble for any sort of consolidation that you do.

Q5: Unexpected job offer
I have been at my current job for 6 months and I love it, but the pay is not great but I knew that going in and is enough to support my family especially when my wife finishes nursing school.

Recently though I have been approached by 2 separate companies about working on the private side in the same field for considerably more money. These jobs would require a few more hours and less flexibility. I was not searching for the jobs and had no idea before hand that they were available. They both would have me doing almost the exactly the same things in the same area.

If the money was not a good bit better I would not consider them because I am happy but that kind of pay increase would make a difference. MY main hesitation is I have only been here 6 months and don’t want to burn bridges because the new jobs would interact highly with the people I work with now.

Should I pursue these offers or stay? I would hate to leave and regret it if there is something I do not like. I would also hate to stay and wonder what if.
- Annie

You never have to burn bridges when you leave one position for an obviously better position. If you’re open and candid about your reasons for changing positions, virtually all rational people will understand. If you leave in a way that makes the transition easy for your previous employer, that’s even better.

That doesn’t answer the question of whether the grass is greener on the other side of the fence, though. If you have enough to support your family, is the additional money worth the risk of having a worse job environment?

I can’t answer that question for you, but if I were in your shoes, I would lean toward sticking with the good thing.

Q6: Job change and unfinished mortgage
I’m soon to begin the final semester of my Master’s degree program in Public Administration. With this goal nearly accomplished, I (along with my wife) am facing a difficult decision in looking for a new job. I am interested in entering the field of city management upon graduation. Initially, this change is likely to force us to move to a smaller, more rural community. We currently live in a suburb of the Twin Cities metro area. While I’m not so concerned about the culture change, I do worry about the housing situation in potentially having to continue paying the mortgage for our current property while also either renting or purchasing a home in a new area. Is there any advice you can give on making such a transition given the current housing market? Would we be wise to try to find renters for our current home or put it on the market as soon as we know where and when we may be moving? 
- Ron

I would put it on the market now, actually. List it for the price you would like to get, then gradually lower it as your expected moving date nears.

If you get it sold for the price you want, just move into an apartment for the remainder of your stay in the Twin Cities. It will have been worth it because of the extra money made from the sale and the fewer months spent paying interest on your mortgage.

Also, the longer it’s on the market, the more likely you are to simply find a buyer, which can be difficult in the current housing market.

Q7: Reconnecting
Is there really value in reconnecting with people you haven’t seen in a long time? I recently got an email from someone I used to work with but haven’t seen in ten years. She’s coming through town in a few weeks and wants to know if we can have lunch somewhere. I’m trying to figure out if this is even worth my time for my career. Any thoughts?
- Lindsay

If you have no interest in seeing this person beyond a questionable amount of career improvement, it’s probably not worth the time. You’d be better off spending your lunch shoring up a connection you actually value than this one.

Having said that, there is value in maintaining professional connections, even ones that don’t seem to be specifically beneficial to you at the moment.

I’d ask myself if there was something better I could genuinely do for my career during that lunch than meeting with the old contact. If there is, I’d do that. If not, I’d meet that person for lunch.

Q8: 401(k) loan for debt?
I hope you have time to answer this question. Here’s the info: I have some credit card debt. $2500 on one card with 10% interest and $2000 on another card with 8.9% interest.

I am considering taking a loan from my 401K of $2500 to pay off the one credit card. Then I would concentrate on the other one, making $500 payments per month to pay it off.

The 401K loan would be for 6 months. The interest would be $67 and the fee to take out the loan would be $100. The payments would be automatically deducted from my paycheck.

I have $1400 in a savings account and approximately $100,000 in my 401K and IRA.

Part of me thinks I should take the money out of savings, pay down the smaller amount and keep paying monthly until it’s paid off and then focus on paying the other one and NOT take the loan.
- Elizabeth

I would not take out the loan. 401(k) loans work okay if everything goes perfectly, but even in that case, you’re still borrowing money to pay off other borrowed money. You’re not really getting ahead.

If it doesn’t go perfectly, the drawbacks can be pretty bad. The interest you paid already is lost. The loan is taxed as normal income, plus there’s a 10% penalty that you have to pay to the IRS. That’s far worse than the small amount of interest you’re saving.

If I were you, I would keep at least $1,000 in savings, use the extra $400 to pay down the loans, and just focus your energy on wiping them out through small steps and good choices.

Q9: Which insurance policies?
I have recently (November 2011) transitioned from a full-time position to three part-time (online) positions in order to allow me more flexibility (while I complete my doctoral dissertation). My wife is stay-at-home mother to our (almost) six children. We expect to remain in this situation for up to 6 months. Each of the current income streams are considered part-time employment (W2; not 1099). None come with benefits.

I’m comfortable with not contributing to any retirement plan during this short-term situation (particularly since its a 40% pay-cut for the short term). My concerns and inquiry relate to insurance coverage.

We currently have health insurance in the form of a HSA account with a HDHP. That was/is separate from my employer. We lose vision/dental coverage and I’m comfortable with that for the short-term. Life insurance plan (both the base employer-provided plan and the additional rider) are gone (at least I assume they are). Disability insurance plan is gone. I do have a liability policy that was/is separate from my employer but it specifically notes that it is secondary to the policy previously provided by my employer.

During these next 6 months, what sorts of policies should I be getting?
- Robbie

If you have six children, you absolutely need life insurance coverage. You need a term policy that will take care of those six kids in the event that something happens to you. This is without question. Get this now and don’t relinquish it even after you’re employed.

The other plans are more or less connected to the actual state of your finances at the moment. I’m not clear as to whether you’re going to be struggling to keep your head above water during this period or if you’re spending far less than you earn. If you’re cutting it close, the one I’d consider most strongly would be the disability plan.

The biggest thing you need to be concerned about is making sure those kids are protected if something disastrous happens to you. Life insurance is the 800 pound gorilla here.

Q10: Best books of 2011
Over the past few years, you’ve often made a top ten list of the books you’ve read from the previous year. Did I miss it or did you make one for 2011?
- Charlie

I did make such a list for 2011, but I posted the list over at my other blog that focuses on my other writing endeavors and non-personal finance stuff.

Anyway, here’s the list. It’s the ten books I read that were actually published in 2011 that I have a desire to read again at some point. Pretty simple, huh?

Steve Jobs by Walter Isaacson
1Q84 by Haruki Murakami
Moonwalking with Einstein by Joshua Foer
REAMDE by Neal Stephenson
Ready Player One by Ernest Cline
The Information by James Gleick
These Guys Have All the Fun by James Andrew Miller and Tom Shales
A Dance with Dragons by George R. R. Martin
Blue Nights by Joan Didion
In the Plex by Steven Levy

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

In this file photo, televisions are displayed at a Best Buy in Cambridge, Mass. According to Hamm, many stores carry big ticket items from the year before at heavily discounted prices. But they're usually not displayed as prominently as newver, more expensive merchandise. (Melanie Stetson Freeman/The Christian Science Monitor/File)

Making a major purchase? Consider last year's model.

By Guest blogger / 01.17.12

While I was browsing ovens on sale, I couldn’t help but notice a few things.

For starters, there were quite a few display models of microwave ovens right there at eye level. They had various features – wattage, size, and so forth – and had various prices on them, as you might expect.

What was particularly worth noticing is that down by my feet, there were a few additional models. They were kind of jammed in there, without nearly the space devoted to them as the models on top. They also had fairly low prices on them.

Ordinarily, I might have ignored these models, writing them off as being generics or poor models simply because of how they were displayed. Instead, I took a closer look at them.

It turns out that they were more or less identical to the models that were on sale above. The same brands. The same features. Much lower prices.

I went home and did a bit of research, only to find that these models that seemed perfectly fine had merely been replaced by newer models. What had changed? In most cases, very little had changed. The styling of the microwaves changed a bit. In a few cases, there might be a few new programming modes.

Very rarely were there any real functional changes when one model replaced another. Mostly, the changes were in the form of non-essential features.

Why, exactly, would you want to pay double the price for a couple non-essential features on a microwave oven? Simply put, you wouldn’t.

This phenomenon is true with many products you purchase. Why buy a current model year car when you can buy the previous model year for significantly less money? Why buy the shiniest, newest music player when the previous model does the task wonderfully (and for much less money)?

There’s only one caveat to this, and we covered it in an earlier post in this series: do the research. It’s always worthwhile to find out what exactly changed between the models. A surprising amount of the time, virtually nothing has changed, but every once in a while, you’ll find a model that made genuine changes (for better or worse) to key features of the item. Being aware of such changes is worth the bit of time it takes to type the two model numbers into Google to figure out what really changed here.

If you keep your eyes open for older models, you can often save significant money without losing a single feature that you care about. That’s simply a financial win for anyone.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere.

A 2012 Ford Focus Hatchback and other sedans are lined up at the Salem Ford dealership in Salem, N.H. Reliability is the most important feature when buying a product you’re actually going to depend on regularly in your life, like a car. (Charles Krupa/AP/File)

A reliable purchase is a smart purchase

By Guest blogger / 01.15.12

Far and away, reliability is the most important feature when buying a product you’re actually going to depend on regularly in your life. From washing machines to televisions, from kitchen knives to media players, reliability is an incredibly valuable feature. To be honest, I put reliability first with almost everything that I buy.

The catch is that reliability is boring. It’s not a gee-whiz feature. It doesn’t walk your dog or make you an omelet for breakfast. It doesn’t manage your music library or allow you to watch content from seventeen different streaming services.

It just sits there and keeps working, day after day.

It means far fewer trips to the repairman. Every single time you have to have an item repaired, you start off by finding yourself in a situation where you’re doing without an item. This itself can cause a hassle, often causing you to spend time, energy, and money just to make do without the item.

It means far fewer repair costs. You also have to invest time and energy into the repairs themselves. It takes time to take an item in for repair or to contact someone to come to your house to repair the item. It takes money to pay for the repair service.

It means a longer product cycle. If the product is highly reliable, you’re not going to be replacing it for a long time. It will last longer than other products, which means that you have many more years before you need to replace it than with less reliable products.

Each of these things saves you money, time, and effort, and they’re all thanks to the most important element, reliability.

I’ll give you an example from my own kitchen. I’ve mentioned before that I’m slowly replacing all of my kitchenware with enameled cast iron pots from a reliable manufacturer (Le Creuset) and cast iron skillets from Lodge.

These items cost more than the pots and pans I used to buy, which were mostly Teflon-coated low-end pots and pans from the local department store.

Let’s say that I would spend $25 on a six quart pot from the local store versus $200 (!) for an enameled cast iron 5.5 quart pot from Le Creuset. The six quart pot comes with a three year warranty, while the enameled cast iron pot comes with a 101 year warranty.

I’ve owned two of the low-end pots over the years. With one of them, the handle snapped off at about the six year mark, and with the other, the coating began to come off at about the five year mark.

So, I had to buy two of those pots over an 11 year period. That cost me $50 in pots alone. The unreliability of the pots caused two meals to be ruined, easily $10 per meal. There’s also the time and energy lost to the two failed meals (cleaning up the mess and preparing something else – an hour each, let’s say), plus the time invested in buying new pots, plus a small amount of money spent buying the new pots. Let’s say $65 and two and a half hours lost over eleven years.

With the enameled cast iron, if it manages to fail within 101 years, I just call the manufacturer, read off the number on the bottom, and it’s replaced quickly. Because it’s made so well, it’s likely not going to have a catastrophic failure. So, assuming I paid for a 100 year lifetme for the pot, that’s $2 per year. Over 11 years, I will have essentially incurred a cost of just $22 (and no hours lost) on that enameled pot.

By paying more for reliability, I’m actually saving a lot of money over time.

You can go through countless different items in your home and repeat this type of calculation. You’ll find that, time and time again, reliability saves you significant money, even if it means a bigger sticker price up front. Reliability is boring, but it’s a money saver over and over again.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

Over the years, Hamm's idea of his dream house changed from a sprawling mansion to a manageable, rural home. When planning for the future, make sure you are flexible enough to account for inevitably shifting goals and dreams. (Seth Wenig/AP/File)

Change your dreams, not your plans

By Guest blogger / 01.15.12

The universe is change; our life is what our thoughts make it.Marcus Aurelius Antoninus

When I was younger, I spent a lot of time visiting my aunt and uncle, who lived within walking distance of our house. My aunt was always a barrel of fun. She would play endless games of Trivial Pursuit and Monopoly with me, always had some sort of curiosity to show me when I would visit, and would lend me her encyclopedias when I was curious about a topic.

One project I fondly remember working on her with was the “blueprints” for my dream home. It covered eight sheets of paper, with each sheet representing a floor. Yes, the house was seven stories tall. It featured an elevator to help take people from floor to floor, as I wanted it to be handicap-accessible.

It featured somewhere around sixteen bedrooms, a library that would have been somewhere around 2,000 square feet in size, and countless other features. It had a six lane bowling alley in the basement. All told, the house would have measured around 28,000 square feet of floor space, as each floor would have taken up about 3,500 square feet and there were eight floors.

This was my dream house. It had everything I could imagine that I would ever want in it. Who could want anything else?

* * *

Over the past few years, Sarah and I have been sketching out our actual dream home. It’s actually surprisingly small, maybe only a few hundred square feet bigger than our current home. The bedrooms are slightly larger, and there’s an additional bedroom so each of our children can have their own room. There’s a small office for writing. The kitchen is perhaps slightly bigger. There’s one less bathroom and the family room and living room are essentially merged into one.

We’ve discussed a few other optional things, such as a game room/library, but every time we think about an addition, we find ourselves thinking about the time we’d have to spend maintaining that extra space and the time we’d have to work paying for the extra heating and cooling, and we find ourselves realizing that we’ve already designed the house we want.

What’s far more important to us is location. We want to live in a rural area surrounded by trees, but with enough open space for our children (and eventual grandchildren) to have space to play in. We’d like to have a small barn or a large shed for storage of garden implements, a snowblower, and other such items. We want to live relatively near our family and closest friends.

* * *

Dreams change. Goals change. People change. The ideas we hold onto in our childhood transform into the dreams of our teenage years. Those blossom, too, into the ideals of early adulthood, and again shift as we approach middle age. I fully expect my dreams to shift again as my life continues forward.

How do you plan for these ever-shifting dreams? If the big elements of our lives are so open to change and transition, how can we ever really plan for anything?

One major step a person can take is to keep their plans and preparations for their goals as multi-purpose as possible, particularly in the early stages. If you’ve started moving toward a goal only to find out that, as you grow older, that goal no longer has appeal, it’s useful to find that your preparation actually has use in other areas.

How do you make that happen? Minimizing your financial obligations is one part of that. A solid financial foundation makes almost any goal easier to achieve. If you don’t have any debts, your monthly bills are going to be much lower than those of a person with debts. Lower monthly bills means that you need less income in order to survive, which means you’re going to be more able to jump on board the opportunities that come along.

Hand in hand with minimizing obligations comes maximizing cash on hand. This means saving up your nickels and dimes, whether in a savings account or in other forms of investing. As always, the more resources you have to draw on, the easier it is to achieve your goal, whatever it might happen to be at the time.

You should also stock yourself up with a wide variety of transferable skills. Transferable skills are ones that people find themselves using over and over in life, no matter what the situation. They range from things like public speaking and written and verbal communication skills to abilities like plumbing and carpentry. The more skills you have like these, the easier it will be to achieve anything in life.

Another key asset is a large and diverse social network that you keep in contact with. By “in contact,” I don’t mean just friending on Facebook and then ignoring. I mean actually connecting with them on a regular basis by asking them how they’re doing and what they’re up to. Even better, when you have an opportunity to help someone out, just do it. That kind of goodwill is invaluable when you’re working towards a goal – and you might just find that the unexpected people are the ones with the keys to the kingdom when you refine your goals later in life.

* * *

The dreams you had as a child have changed as you’ve grown into adulthood (at least, they have for almost all of us). Those dreams are likely going to change again as you move through your life.

Just because your dreams change doesn’t mean that dreams are unreachable targets or that it’s a waste of time to prepare for them. It simply means that you should spend your time building a firm and solid foundation of finances, relationships, and skills so that when the right chance comes along, you’re able to jump on board and live out your dreams.

Time is money: According to Hamm, the more time you spend researching big purchases, the more potential you have for savings. (Charlie Riedel/AP/File)

Shopping: Why it pays to research

By Guest blogger / 01.14.12

A friend of mine told me that for every $100 he spends on buying an item, he devotes an hour of research to the purchase before making a move.

That seems like a good rule of thumb. In fact, I’d go even further: for every $100 I spend on an item over the item’s lifetime, I try to devote an hour to researching the purchase before making a move.

What do I mean by that? Take a car, for example. Yes, we have the initial sticker price of the car, but how long do you intend to drive that car? How much gas will that take? How much maintenance will be needed to keep it on the road? Those are additional costs, and they should be an important part of the research you do.

If I buy a new computer, I might spend $500 on it (hypothetically). However, it’s going to suck energy right out of the wall and inflate my electric bill, so my total cost of owning that computer is significantly higher than $500 over the lifetime of that computer.

Research pays off. Almost always, research will lead you to the option that will provide you with the most bang for your buck. Whether it’s the most fuel-efficient and reliable car or the computer with the most horsepower for your dollar, time spent learning exactly what you’re buying and how to milk all the value you can out of that purchase pays for itself over the lifetime of the item.

What exactly do I mean by “do the research”? Here’s the process I go through for almost every significant item I buy.

What exactly am I buying? For starters, I don’t buy something unless I can clearly state what exactly I want it to do. What tasks must that item be able to take on to make it worth one’s money and time?

Let’s say I’m looking for a new kitchen knife. What do I care about with that knife? I want it to be able to chop vegetables easily. I want it to hold an edge for a while after I hone it. I want it to be able to maintain a sharp edge (with regular maintenance, of course) for a very long time, because I don’t want to have to go through the process of buying another one because the first one was junk.

This, in itself, involves research. To understand what features you want in a knife, you need to have a basic understanding of how a knife works, what knives are made of, and so forth. Reading and personal experience are both part of this. This is deeply connected to the idea that one should buy a low-end item first, become familiar with its use, and then replace it with an item appropriate to their needs. In other words, start with a cheap knife, learn how to use it, learn what you actually don’t like about it and could be improved, then use that as a basis to buy the right knife for you (assuming you use it enough, of course).

What items out there match the features I’m looking for? Once you know clearly what you’re looking for, you can start looking for items that match it.

I usually rely on several different sources for these types of answers. A few key magazines, such as Consumer Reports and Cook’s Illustrated, provide solid and unbiased reviews of products that I often use as a baseline for what I want to buy. Another key element of this type of research is my own social network, as I’ll send out emails or Facebook requests asking for their recommendations or suggestions. There are a small handful of bloggers that I trust as well. I also use the raw data provided by the manufacturer to figure out things like energy use.

Usually, this means a trip to the library and, often, a trip to a few stores, simply to understand the products I’m comparing and the features that they offer.

Where can I find the item(s) I want at the right price? I generally prefer to buy things when my back isn’t against the wall so that I have time to evaluate lots of different buying options. For example, after shopping for months for the right price on the right vehicle, I actually bought my car off of Craigslist.

The moral of the story? Don’t be afraid to hunt far and wide for the right price on the item that you want. Don’t wait until you have to make a purchase. Instead, start the process now on items that you know you’ll have to purchase down the road.

Research pays off, every single time. You’ll know it when you find the perfect price on an item that you know has the right balance of features for your needs.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere.

Before making a major purchase like a food processor or a blender, Hamm suggests spending a month thinking it over. (PRNewsFoto/KitchenAid/File)

For big buys, wait 30 days

By Guest blogger / 01.12.12

Yesterday, we talked about the ten second rule, which you can use to protect yourself against impulse buys that are well within the limits of your pocket money. We’re talking about things like a pack of gum, an inexpensive board game, or something like that.

As I know all too well, though, many of the purchases we make are much larger than that one. I’ll give you an example: our blender.

We use our blender for a lot of things: making smoothies, beating eggs, making pesto, and so on. A while back, one of our beautiful children did something incomprehensible to the blender (as children sometimes do), rendering it very difficult to use. You could still use it, but you had to hold something over the top of it while also holding the entire machine firmly in place.

Our initial instinct was to just rush right out and replace the blender with a similar model. It did a decent job, though it would often leave big chunks in the blender and had other little design issues that we didn’t like. It would also take forever to blend certain things.

Instead, we made the decision to buy a better blender.

Now, we could have easily still ran to the store and bought a better blender, but the decision to buy a better one meant that the cost of the blender likely jumped up into the “more than pocket money” category. We weren’t going to just buy a $20 blender.

Instead, we gave it a month. During that month, we researched a lot of blenders. We did some evaluations of what features we actually needed and which ones were superfluous. We settled on a few models and did a ton of price comparisons.

In the end, we wound up with a top-notch blender for far less than we ever expected to pay for it (meaning we did not pay anything close to Amazon’s price for that blender).

That month did a lot of things for us.

We had time to figure out if this was something we really wanted to do. Did we really need a nicer blender? Could we just use a simple replacement for the one we already had? Did we need one at all? These questions are often enough to talk you out of an unnecessary purchase. Try doing this with, say, an iPod Touch, and you’ll find yourself not spending $200 or so on a portable music player.

Obviously, this question didn’t fill all of our thoughts for the month, but it was something that we thought about.

We had time to actually identify the specific item we were looking for. We identified all of the specific features we wanted as well as features we deemed unnecessary. We were able to research a lot of models using tools like Consumer Reports and, eventually, we were able to whittle our choices down to a handful.

We had time to carefully shop for the right item. Instead of just charging ahead once we had an item in mind, we spent some time shopping around for that item – and waiting for the right price. We set up some notifications for prices on the items we were interested in and looked at a lot of different options.

Eventually, the blender we picked up popped up with a large discount, so we pounced.

Give yourself thirty days to go through this process. Most of the time, you’ll talk yourself right out of the purchase, which is a good thing. Even when you don’t, your research and price investigation will often lead you toward getting the best item at a very nice price, rather than just getting whatever item happens to be at your local department store.

You should also set a price threshold for the thirty day rule. What do you consider to be the line between an impulse purchase out of your pocket money and a more significant purchase? For me, it’s usually between $20 and $40, depending on how much of my alloted “pocket money” for the month that I’ve spent. It’s going to be different for each person depending on their income level, behavior level, and other factors.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

Forget going to the bank. Hamm argues that paying your bills automatically will save time and urge you to spend less. (Taylor Weidman/The Christian Science Monitor/File)

Save money and time with automatic bill pay

By Guest blogger / 01.12.12

Whenever I find myself with extra cash in my pocket, I’m often tempted to spend it. I usually look at that cash as having already been accounted for, so there’s really nothing bad about spending it on something fun, right?

When those thoughts pop into my head, I know exactly what I need to do. I just go empty that spare change into the spare change jug on my dresser. That jug contains a mix of coins and dollar bills that have found their way into my pockets.

In a way, the same exact thing is true with my checking account. If I look at my checking account balance and it’s quite high, I can sometimes feel tempted to spend money on things that I don’t really need.

The solution for my checking account is really not all that different than the solution for my pocket change. I have a plan for that money, a plan that’s so incredibly simple that it becomes trivial to follow it.

I simply pay all of my bills automatically out of my checking account. Online banking makes this a snap. I just have every bill I possibly can – and that’s most of them – set up to pay automatically near their due date each month.

This serves several purposes.

First, I don’t really have to think about it. Once it’s all set up, there’s not really anything to do. Your bank just automatically does it for you. Your bills are paid without even having to lift a finger.

Second, it adds just a bit of concern about excess spending from my checking account. This, for me, is a very good thing. I know that when I look at my checking account balance there are going to be further withdrawals from the account automatically. It’s similar to the sense that I get when I know there are outstanding checks, except that I don’t actually have to write the checks.

I’m encouraged by this to not spend frivolously from my checking account and instead make better choices about how to spend my money, because the consequences of going ahead and spending – potential overdrafts, potential missed bills – are worrisome. I’m simply more careful about my checking account.

Third, I’m never late for bills. If everything is paid automatically and set to arrive before the bill’s due date, then I know I won’t be late for bills. I don’t have to check due dates. I don’t have to remember to make sure that a certain bill is paid. It just happens.

Fourth, it saves me time in the process of paying bills. I don’t have to sit down with a checkbook and a calculator every two or three weeks to pay a pile of bills. They’re just paid. I check my online banking perhaps once a week as part of my normal web surfing, taking perhaps a minute or two, and that’s it.

Finally, it enables me to reach savings goals. This is really the clincher for me. If I’m saving for a goal (and I’m usually saving for two or three of them), I can automatically have the money routed away from my checking account into my savings account (or accounts). The amount would be whatever it would take for me to reach my goal in the desired timeframe.

So, let’s say I’m saving so that I have $10,000 to buy a car in four years. That takes 48 months, or 204 weeks, to achieve. I might decide to have $50 taken out of my checking account every week for the car, or $200 every month. This could all be done automatically so I never have to think about it. Then, at the end of the four years, I have the $10,000 I need to buy myself a nice car without going into debt for it.

Automation is the key to all of this. It saves time, it keeps you psychologically from sinking into a spending routine, and it helps you achieve your savings goals. Automating your finances as much as possible is an essential tool for personal finance success.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

The wedding rings of Dawami Lenguyanga (right) and her husband, Hassan Mwanasumpikwa (left). According to Hamm, talking extensively about household finances is important in a good marriage. (Mary Knox Merrill/The Christian Science Monitor/File)

Forget your manners and talk about money

By Guest blogger / 01.11.12

For the first two years of our marriage, Sarah and I barely spoke to each other about money. We’d touch base with each other just enough to make sure the bills were paid, and that’s about all.

“Honey, did you drop off the rent check?” “I took care of the bills for this month.” “Do you have your wallet handy to cover the bill?”

Comments like these were the extent of our communication about money. We just trusted that the other person had their money under control and never really bothered to investigate it further.

We never had a plan for the future. We never had a joint checking account. We never had a cohesive idea of what our retirement might look like.

Is it really any surprise that our finances bottomed out?

One of the first things Sarah and I did once we really began to grasp our situation was to sit down and have a long chat about our money and our future. What did we want out of our lives? Were we ever going to buy a house? Were we ever going to retire? Were we ever going to dig out of our debt hole?

It was from that initial conversation – and many more that followed it – that a cohesive plan for our finances came together. We came up with a plan that suited us for buying a house (do everything we could to save for a down payment until a second child forced our hand and forced us out of our tiny apartment). We came up with a joint plan for retirement.

We started talking about other life goals in a much more concrete fashion, too. We planned carefully for a second and, later, a third child. We agreed that I should devote a significant amount of spare time to writing (although The Simple Dollar took us completely by surprise).

In short, we constructed the scaffolding of the life we have built together. All it took was a conversation about money to get things going.

What did it take to get the ball started? It took one of us (me) to simply get the ball rolling. The biggest key was that I assigned no blame for the situation we were in. Any blame that was out there, I placed directly on my own shoulders, even if I felt it was a shared blame. If you start out a discussion like this with accusations, you’re not going to get very far.

Another key element was to stick with numbers. When we talked about money, we didn’t say things like “I think we can afford it.” We got out our checking account balance and our bills and started calculating to see if we really could afford it.

The final essential element was honesty. I had not really revealed the extent of our credit card debt to Sarah, as I had been “taking care” of that bill for a year. When it was all laid out there, she was upset for a while, but then it became clear to both of us that if we have all of the cards out there on the table and are being fully honest, we can actually solve this problem together.

There’s another key element to all of this. Money talks aren’t just useful with your partner. There is a lot of benefit to talking financial issues over with trusted friends, close family members, and other people around you. You don’t ever have to reveal your full financial picture, but talking about the challenges of debt reduction, great frugality ideas, and other such issues can be a great way to not only learn new ideas, but to relieve the burden of dealing with such issues through conversation.

I have quite a few people that I talk to about various aspects of our financial life. I have a small business friend who often discusses taxes and tax opportunities with me. I often trade frugality tips with various friends and family members. I have another friend with which I’ve discussed retirement planning many times. All of these people have proven invaluable in getting my finances in better shape. Each of them started very tentatively (mostly because I was uncomfortable talking about it), but each grew into a valuable series of conversations for all parties involved.

If you’re dealing with money challenges, don’t bottle them up inside of you. Conversation about them lets you relieve some stress, plus it often opens the road to solutions to those problems. That’s a double win.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

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