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Book Review: The Happiness Project

One of my core beliefs is this: It’s more important to be happy than it is to be rich. My personal experience bears this out (though I’m fortunate to be both), as do the anecdotes I receive from GRS readers. In fact, of all my fourteen philosophies, this one is most important. It’s so important that I chose to open Your Money: The Missing Manual with a chapter on happiness.

No surprise then that for the past couple of years, one of my favorite blogs has been Gretchen Rubin’s The Happiness Project. Rubin is a former lawyer who abandoned her promising high-paying career to follow her bliss: She decided to become a writer. She started her blog as a part of a year-long experiment to find new ways to be happy. She’s now turned that experience into a best-selling book.

The Happiness Project (the book) was released in late December. I’d hoped to review it when it was published, but work on my own book got in the way. Last week, as I was happily soaking up the sun in the jungles of Belize, I finally found time to read Rubin’s book. It’s fantastic.

The Happiness Project
I’ll admit that, on paper, The Happiness Project may seem sort of lame. Rubin decided to spend one year consciously pursuing happiness. Each month, she tackled one specific aspect of life — marriage, work, attitude, and so on — and during that month, she attempted to meet a handful of related resolutions she hoped would make her happier.

Her financial resolutions for July, for instance, were about money. Rubin is an “under-buyer”; she’s frugal by nature. For this month, she wanted to indulge in a modest splurge, buy needful things, spend out (meaning to actually use the stuff she has), and give something up (Rubin stopped obsessing over office supplies).

Fortunately, the book isn’t lame. Rubin’s style is warm and engaging. Though The Happiness Project includes tons of info from research into happiness and well-being, this data isn’t presented in a dull, dry way; it’s neatly woven into Rubin’s account of her day-to-day progress toward happiness (or lack thereof). She shares the research in casual prose, not in academic jargon.

Among my favorite findings, I bookmarked these:

• “The most effective way to judge whether a particular course of action will make you happy in the future is to ask people who are following that course of action right now if they’re happy and assume that you’ll feel the same way.”
• You can do anything you want, but you can’t do everything you want. This insight is remarkably similarly to the one I had a couple of years ago, when I realized that I can buy anything I want, but can’t buy everything I want.
• “One of the best ways to make yourself happy is to make other people happy. One of the best ways to make other people happy is to be happy yourself.”
• “Best is good, better is best.” In other words, the perfect is the enemy of the good. When you spend too much time pursuing the best, you’re bound to be unhappy.
• “Money doesn’t buy happiness the way good health doesn’t buy happiness. When money or health is a problem, you think of little else; when it’s not a problem, you don’t think much about it. Both money and health contribute to happiness mostly in the negative; the lack of them brings much more unhappiness than possessing them brings happiness.”
• I loved this tip from a reader of Rubin’s blog: “[I] change my passwords to a goal that I’ve been working on, or an achievement I want. They become a constant reminder of my goals, my dreams, of what I want to achieve.”

The Happiness Project is filled with anecdotes: from Rubin’s life, from the comments on her blog, and from the people she meets. These stories add a lot of color to the topics she covers, and help to show how complex happiness can be. For example, from the chapter on money, here’s a story that made me laugh:

While I was thinking hard about the relationship between money and happiness, I struck up a conversation with a fellow guest at a bridal shower. I told her that I was trying to figure out ways to “Buy some happiness.” (As I explained the issue, it began to dawn on me, dimly, that I might be becoming a happiness bore.)

She became quite indignant at my suggestion. “That’s so wrong!” she said. “Money can’t buy happiness!”

“You don’t think so?”

“I’m the perfect example. I don’t make much money. A few years back, I took my savings and bought a horse. My mother and everyone told me I was crazy. But that horse makes me incredibly happy — even though I end up spending all my extra money on him.”

“But,” I said, confused, “money did make you happy. It makes you so happy to have a horse!”

“But I don’t have any money,” she answered. “I spent it all.”

“Right, because you used it to buy a horse.”

She shook her head and gave up on me.

Rubin undertook her happiness project because she realized, “I wasn’t as happy as I could be, and my life wasn’t going to change unless I made it change.” This realization is so important. Too many folks sit back, waiting things for to improve. That’s what I used to do with money. But it wasn’t until I actually too charge of my own life that I was able to defeat debt and build wealth. And it wasn’t until Rubin decided to be responsible for her own happiness that she was able to make the little changes that brough about increased well-being.

Making resolutions
The section on “finding fun” — one of the subjects of chapter 5 (”May: Be Serious About Play”) — literally moved me to tears. As I read about Rubin’s love of children’s literature, how she rediscovered her passion for scrapbooking, and her general quest to make room in her life for fun, I realize that’s something I’ve been missing. For the past few years, everything I’ve done has been very very Adult. I’ve reaped adult rewards for adult effort, but it hasn’t been a whole lot of fun. I need to make room in my life to enjoy myself just for the sake of pleasure. So, that’s one of my goals for the next few months: Find more fun.

But Rubin draws a distinction between goals and resolutions:

You hit a goal, but keep a resolution. “Run a marathon” makes a good goal. It’s specific, easy to measure success, and once you’ve done it, you’ve done it. “Sing in the morning” and “Exercise better” are better cast as resolutions. You won’t wake up one day and find that you’ve achieved it. It’s something you have to resolve to do every day, forever.

As you know, I’m a fan of goals and, generally, I refuse to set resolutions. But I see Rubin’s point. As a result, I’ve decided to set some resolutions of my own. I’ll be tracking the following with Joe’s Goals:

• Eat real food (avoid processed food and excess sugar).
• Be active (get regular exercise).
• Avoid strong drinks (reduce intake of alcohol and caffeine).
• Read for pleasure (make time to read comics and science fiction, etc).
• Kiss Kris (be sweet and loving to my wife).
• Write daily (focus on my calling).
• Be tidy (I’m a slob by nature; this will be tough).
• Purge Stuff (continue to reduce the Stuff in my life).
• Be friendly (spend time with friends, and be amiable to people I meet).
• Be true to myself (or, in other words, “be J.D.” instead of trying to be who I think other folks want me to be).

Some of these will be easier than others. I write nearly every day because I cannot help myself; I’m drawn to it. Tidiness? Real food? Being true to myself? These things will be tougher, but I really think they’ll make me happy.

I’m tempted to say that The Happiness Project is one of the best books I’ve ever read, but I know that’s just me engaging in hyperbole. Instead, it’s probably better to say that this was the perfect book for me to read for where I am in life. It spoke to me. I can’t say for sure that it will speak to you, but I’m willing to bet that for many GRS readers, a personal happiness project could lead to increased wealth — financial and otherwise.

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Related Articles at Get Rich Slowly:

• Daily Links: Macs, Interviews, and Big-Ticket Items
• Daily Links: Compound Interest, Web Income, and Happiness
• To Find Happiness, One Millionaire Gives His Wealth Away
• links for 2007-02-11
• Ten Steps to Greater Happiness

Can Vanguard Wellington keep running?

Vanguard Wellington is a throwback. Before mutual funds became specialized, so-called balanced funds like this — which invests in both stocks and bonds — were core holdings you could feel comfortable putting most of your money into.

The secret lives of America’s debtors

Americans are loaded up with credit card debt. What’s worse is that some husbands, wives and even children hide those money woes from their families. The results are often devastating.

Reader Story: A Cautionary Tale

This guest post from Maria is part of the new “reader stories” feature here at Get Rich Slowly. Some reader stories contain general “how I did X” advice, and others will be examples of how a GRS reader achieved financial success — or failure. This story very much reminds me of the book for unmarried couples I reviewed earlier this week.

This is a story about a relationship between two people and some money.

Part 1
Boy meets girl. Boy moves in with girl. Household expenses are split and all seems well. Years pass. Boy wants to change cities for professional reasons. Girl wants to finish grad school. They make a deal: They’ll move when the degree is finished.

Warning signs: She is paying a greater share as the years go by and her career advances. He doesn’t take any concrete steps toward advancing his own career. He has sold his car ‘to save money’ and relies on her to drop him at the train station for his job. He has no real friends and his ‘project partners’ (in six years, there’s only one finished project) all seem to be women. And then:

Part 2
The degree is finished and true to the deal, she starts organizing a move. She researches new jobs cross-country. She rents a truck, makes hotel reservations, and arranges for a friend to drive the car in caravan with them. Oh, by the way, she’ll pay the friend’s airfare home. She puts down the money on an apartment. She lands a job, but he says he needs some time off work to get things going. They make a new deal: She’ll cover the rent for a while so he can concentrate on jump-starting his career. Years pass. His career hasn’t started. The subject comes up fairly often, but she hates to fight.

Warning signs: By the end of three years, not only is she paying all living expenses, she’s giving him an allowance to cover his “career-building” expenses. He hasn’t held a job since the move. His ‘project partners’ still all seem to be women. He has built no social or professional network and does not participate in her social life. (This didn’t bother her much when she was in grad school, but life is different now.) She doesn’t really want to live alone, and she tells herself he isn’t costing her much more than it would cost to live alone; but their relationship has become that of roommates. And then:

Part 3
She takes up an activity she’s passionate about. He isn’t interested. She meets someone new and tells her roommate she wants to pursue the new relationship. He panics. He asks her to marry him. He argues. He threatens. He marches her into the bank and stands at her back while she takes cash advances on six credit cards, a total of $30,000. He deposits the money in his own account. She tells him that they can’t continue to live together, and she can’t afford to move because she doesn’t have the money for a deposit. He won’t move out. She starts spending most nights and weekends away.

Warning signs: The whole situation.

Part 4
After months of misery, she is able to finally get him out by renting a truck, packing it with almost all their possessions, and driving it to his sister’s home nearby. With the expenses of the move, her own living expenses, and the extortion debt, she is barely making ends meet. She has no savings and no assets. She talks things over with the new partner. They decide bankruptcy may be the best solution. She asks around and gets the name of a firm of attorneys.

Part 5
The attorneys hear the story, go through all the paperwork, and agree that going after the ex in court would be both expensive and unlikely to result in restitution. A bankruptcy petition is prepared and filed, at a cost of a few hundred dollars. She has to appear in court. She feels like an idiot, a failure, a disappointment to herself. The judge hears a brief statement of her reasons for the petition, nods, signs off. That’s all. Ten years later, the bankruptcy is off the credit report. Had she not filed, she would still be making payments on the debt.

Author’s note
This is a true story. I’ve heard similar stories from half a dozen women, and a couple of men, in my city. At least I never married him. At least I didn’t have to smuggle my belongings to my office and store them under my desk until I had all the essentials together, and leave for a new state from the office, like one of my friends did. At least I wasn’t that scared.

In hindsight, perhaps I should have either moved out immediately or had the bank call the police. But I didn’t want to feel responsible if he hurt himself, I surely didn’t want him to hurt anyone else, and his behavior was sufficiently frightening that I believed one of those outcomes was possible. So I bought him off.

What is the moral of this story?
Don’t cover expenses for another able-bodied adult without a contract, and don’t make financial deals that only favor one party.

Reminder: This is a story from one of your fellow readers. Please be nice. After nearly a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are.

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Related Articles at Get Rich Slowly:

• Reader Success Story: Debt Free on $2,000 a Month
• Sometimes Free is Expensive: A Cautionary Tale
• You Can Learn a Lot From a Rich Girl
• This American Life: Something for Nothing
• Blogathon Theme: Funny Money

Back from Belize

Greetings, friends. I am back from a relaxing week-long vacation in the jungles of Belize (with a one-day trip across the border to Guatemala to visit Mayan ruins — or the rebel base on Yavin IV, if you’re a Star Wars geek like me). I had a blast. I slept a lot, thought a lot about my future plans, and basically forgot about the world.

As always, coming home was overwhelming. It’s a shock to come back into the U.S. and be instantly bombarded by the constant flood of commercialism and, especially, the mass media. Plus, there’s so much junk food! For an entire week, Kris and I ate healthfully (well, except for the beer), and then the first thing I ate in the Houston airport? A pretzel dog. My stomach rebelled! Don’t get me wrong — I love this country — but it’s far from perfect, and very very insular. I wish we, as a culture, were more willing to look at what other countries get right.

Speaking of rebellion, it looks like there was a fuss over certain posts I picked for my absence. The life insurance post on Friday especially took some heat, some of which was deserved, and some of which was not. When I requested that post, I hadn’t yet written the chapter in Your Money: The Missing Manual about insurance (including life insurance), so I felt I needed an expert to respond. If I were to do it again, I’d field the question myself, and would write (as I did in the book)

The bottom line: For most people, the best choice is guaranteed renewable term life insurance.

But term life isn’t always the best answer. Cash-value policies make sense for some people, especially those with high incomes, large net worths, or small businesses. These folks should consider whole life coverage. But one point is correct: Seek advice from an independent adviser, not from somebody who has a vested interest in selling you an expensive policy.

By the way, Your Money: The Missing Manual went to the printer yesterday. It’s now available for pre-order from Amazon, and should be hitting shelves in your local bookstores in the next couple of weeks. Meanwhile, I’m already starting to think about Book #2, which would be much more of a “J.D. book”, I hope — more about my personal journey and how the lessons I’ve learned can be used by other folks, too. (Your Money: The Missing Manual has some of this, but it’s much more focused on the nuts and bolts of personal finance.)

So, the book is done, I’m back from vacation, and I’m ready to blog!

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Related Articles at Get Rich Slowly:

• A Little Bit of Blog Housekeeping
• Happy New Year! My One Goal for 2010
• The Basic Law of Frugality
• Book Review: The Happiness Project
• Planning a (Debt-Free) Dream Vacation

Reader Question: How Much Life Insurance Do You Need?

This is a guest post from Sanford Ellowitz, a New York State licensed insurance agent. He has over 25 years experience in the insurance and financial services industries. He’s also a Certified Financial Planner and a Certified Employee Benefit Specialist.

Penny recently wrote with the following question:

I’m interested to find out how one sets out a financial plan for life and how much insurance does a person really need because there are so many insurance plans, some are regular savings, some are a combination of investment linked insurance. How much does a person really need and what type of insurance does a person on a budget need the most?

J.D. asked me to write about this since he isn’t an insurance expert himself, so I’ll give you some ideas about how much and what type of life insurance you need, but first let’s start off by helping Penny set out a basic financial plan for life. Once you get some planning done, you’ll have a better idea of your life insurance needs.

Starting down the winding road
Think of a financial plan as a roadmap for a life-long journey. Your starting point is where you are financially right now. Begin by listing all your assets, such as the equity in your home and your savings accounts, and then subtracting what you owe, like the balance of your mortgage and credit card debt. This will give you a good idea of where you stand.

Once you’ve figured that out, think about your future obligations, such as getting your kids through college, saving for a comfortable retirement, achieving your goals, and making dreams a reality. You can find online savings calculators to help you estimate how much you’ll need to save for each of these, from a trip around the world to a little place on the beach to spend retirement.

Where does it all go?
Next, it’s time to gather all of your bills for the last few months so you can see where your money goes. This should include everything that you’ve spent money on — period. Be honest about any seemingly small expenses, and make reasonable estimates. You may be surprised to find out how much you’re spending on things you may not need, like eating out or your daily espresso habit.

Make a budget that includes enough savings to meet your obligations and goals, and — this is the really important part — stick to it.

Insurance is your contingency plan
When it comes to insurance, first you need enough to at least cover your obligations in case something happened to you tomorrow — that’s your base line. From there, it’s time to look into the future and prepare for what’s coming down the pike. Don’t underestimate how much you need. If your kids will be starting college ten years from now, you need to cover what it will cost then. (And it’ll probably cost a lot more than it does now!)

After that, you can decide what type of life insurance is best. Term life insurance is the cheapest, but it’s exactly what it says it is. If you get a term policy for 20 years and find that you need coverage after that, you’re out of luck. You’ll have to apply again, when you’re older and maybe not as healthy. Also, if you outlive the term of your policy, you don’t get anything back. Betting against your own longevity to save money may seem like a good idea now, but you might end up kicking yourself — or worse — down the line.

Permanent life insurance, which comes in different flavors (such as universal, variable, or whole life insurance) provides coverage for as long as you live, so you know there’ll always be a payout. Each has different savings features and can build up cash, which you may take or borrow against. The same coverage will cost a lot more than term life insurance, but you can count on it always being there.

Your bottom line for life insurance
Since Penny is on a budget, term life insurance sounds like the way to go — right now, anyway. She should make sure she has enough coverage for as long as you need it. Later, when her situation changes and she can loosen her belt a little, she may want to get some permanent insurance. At that point she’ll be able to take full advantage of its savings features, as well.

Remember, insurance is there for when things go wrong. It might mean the difference between putting your kids through college and putting them up to their eyes in debt, if something were to happen to you. It’ll be important for you to keep remaking your budget as things change in your life, as they always do. Don’t worry, though; it gets easier every time. Just remember that insurance is your way of playing it safe, no matter the odds.

J.D.’s note: I’ve done more reading on life insurance since I first asked Sanford to answer Penny’s question. I actually think term life is the best choice for most people (but not everyone). There’s certainly no shame in taking out a term policy. If you think you might want permanent insurance down the road, look for a convertible term policy, which will let you switch over.

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• Insurance
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• Reader Question: Buying a House Without a Credit History?

3 ways to find value in a pricey market

A year ago, when all sorts of investments — stocks, bonds, commodities — were being tossed on the scrap heap, dyed-in-the-wool bargain hunters who had the courage to sift through the market’s ruins were richly rewarded.

How to Save While Shopping for Children’s Clothes

This is a guest post from Gina Lincicum, a long-time GRS reader who writes about frugality and family finance at MoneywiseMoms.com.

Moving to the D.C. area after my twins were born, we transformed from a family of three living comfortably, to a family of five struggling to make ends meet on one income. I had to get creative with our family budget, and one of the biggest line items to tackle was clothing. Four years later, I finally have a handle on it. Shopping for clothes for my three kids has been fine tuned into a system that keeps us humming along season by season. How?

1. I get the best quality I can within my budget.
2. I take good care of what we have (and teach my children to do the same).
3. I resell my kids’ clothing in good condition to recoup my costs.

Buy Quality Clothes — For Less
You can save on sturdy kids’ clothing — I get great longevity from Lands’ End and Gymboree — by only shopping sales and clearance. In her article about the best time to buy almost everything, April mentioned which days are best to shop the clothing stores, but knowing the seasonal clearance schedule is helpful as well. For example, I send my kids to their first month of school in shorts and wait for the jeans/pants/leggings to go on sale in late September and October. Winter coats are on clearance in February; be ready to shop ahead for next year.

You can shop online, but do it wisely. I never shop online without coupon codes, and I always shop through a cashback site like Ebates. Shopping online gives me a larger selection of clearance items than local stores. Additionally, shopping online helps me stick to my list and budget, whereas in a store I am tempted to make impulse buys. Finally, most online retailers allow you to return clothing to the store for free if they don’t work out.

Another way to save is with used clothing, especially in the early years (infant to age four). Considering the amount of wear, tear, and washing these clothes go through, you’re better off saving the “good” clothes for church, holidays, and photo opportunities and dressing little ones in used clothing for everyday wear. Whether purchased at yard sales, thrift stores or consignment sales, look for those high-quality brands, the ones that hold their shape and color for years. (J.D. has shared his 18 tips for thrift-store shopping.) I’ve also found new-with-tag clothes at yard sales. The ultimate way to save? Get kids’ clothing for free through Freecycle or handed down from family and friends (don’t be shy about asking!).

Take Care of What You’ve Got
When you take care of the clothes you have, you stretch your dollars by giving items a longer life and better value. I’ve taught my children to care for their clothes by returning to the old-fashioned notion of “playclothes”. My son has learned to come home from school and change from his khaki pants (bought on sale with a coupon, of course) into sweats or other playclothes. These clothes are for running around outside, getting muddy, doing art projects, and the rest of childhood life. We all wear jeans at least twice before washing, and I tackle stains early so they don’t set in. If long-sleeved tees become stained or too worn, they become undershirts for layering.

Resell Clothing When You’re Done With It
I choose my best-quality items to resell at my multiples club’s consignment sale or eBay, sell some at yard sales, and donate or Freecycle the rest. By doing so, I not only recoup some of my initial cost, I also avoid the expense of storage space and keep my kids’ closets clutter-free. The only clothing I keep from my son are those I’ve bought with my twin girls in mind — raincoats, pajamas and other unisex items in neutral colors like red and blue (which my girls prefer to pink, anyway). I even resell my children’s shoes, though that phase is almost over; older children’s shoes get worn out before they’re outgrown.

While I’m sure I’ll have to adjust my system a bit as my kids reach the tween years, adding their opinions and peer pressure to the mix, I’ve set the groundwork for reasonable clothing expenses. My 6-year-old knows we have a budget set aside for clothing and we discuss why a Pokemon T-shirt costs more than a plain one. Already, I see him making choices with his allowance that come from our discussions about wants vs. needs.

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Related Articles at Get Rich Slowly:

• Cheap Clothing Jackpot
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• Frugality in Practice: Air-Dry Your Clothes (Even Indoors!)
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• How Shopping Momentum Leads to More Shopping

From Whole Foods to Food Stamps

This post is from new staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com.

The recession has hit families where they live. For many, it’s forced a change of address. Think about all those foreclosed homes and urban deserts: One in every 400 homes received a foreclosure notice last year. Unemployment is approaching 10%. Some families no longer have a place to call home at all.

That’s the situation for Jamie Alden (not her real name), a single mom of four kids who found herself caught up in a series of recession nightmares that have left her homeless and jobless, but not hopeless. She’s chronicling her adventures on The Boxcar Kids, where she writes with painful frankness about trying to find a job, help her kids thrive at school and keep her family together while living in a small travel trailer with her children.

The Boxcar Kids
Alden is a far cry from the stereotypical homeless person. A professional with a master’s degree in anthropology, Alden had a career for over a decade in environmental science. She relocated to California after a doctor recommended the warmer, drier climate would help one of her children, who has a chronic illness.

Like a lot of relocating families, Alden accepted a job in her new city before she’d sold her house. So she rented it out, and rented a place near her new job.

Then the economy tanked. Her renters defaulted, and she used most of her savings going through expensive legal ordeals to evict them. She was left with a damaged home that she could not find new tenants for. Unable to make the mortgage payments and pay rent on her new home, she lost the house to foreclosure.

Meanwhile, her company started layoffs. “California has a little budget problem,” she says sardonically. “We couldn’t work on any of our contracts.” She survived the first two rounds, but eventually her lack of seniority put her under the axe. As soon as he found out she’d lost her job, her landlord asked her to move out. “He knew I wouldn’t be able to pay the rent,” she says.

Throughout the summer, Alden and her kids found themselves living in state parks in second-hand tents. She used free hotel stays she’d accumulated over years of business travel to buy them an occasional night of warm beds and hot showers.

Now they have a 26-foot RV they call home. The school district considers them homeless, but Alden doesn’t. Homeless, she says, was when they lived in a tent and had to move every week. This is comparative luxury.

Alden named her blog after a series of popular early 20th century children’s books about four kids who live a scrappy, happy life in a boxcar after their parents die, until they are rescued by a kindly, rich grandparent. There’s no rich grandparent to rescue Alden and her kids from their boxcar. Instead, Alden is learning to navigate a maze of social services and getting creative about frugality in ways most of us have never considered.

She’s not alone. Many formerly middle-class families have found themselves at least temporarily without a home to call their own. Foreclosures were filed against 2.8 million properties in 2009, while apartment vacancies are also at a 30-year high water mark. A lot of people are just not living in houses these days.

Where are they going? Many are staying with family or friends. Some are in shelters. Others are what Alden calls “alternatively housed” in RVs, camper vans, anything with a roof.

The best defense is a good offense
Alden’s story, and the many others like it are a scary wake-up call for me. My own family is not so far from the precipice these folks fell off of.

We own a home, but don’t have a lot of equity in it. We have a small emergency fund, but not enough to get us through even one month of normal living expenses. I’ve been putting all our money into debt repayment, not building up capital. We have some retirement funds that are still pretty hung over from the financial collapse in 2008.

In other words, we’re a lot like many middle-class families: comfortable enough day-to-day, but not secure enough to withstand a major disaster. Time to make an emergency plan: Not just an emergency fund, but a plan that goes beyond bank accounts. Here’s what I came up with:

• Be prepared.This means building up more of an emergency fund. Experts argue over how many months expenses you should put by, but no one seems to think less than 3 months is safe.
• Be frugal. Living simply now means having fewer adjustments to make in the event of a financial catastrophe. Not only can you pay off debts and build up savings faster, but you’re already living below your means. If the means suddenly shrink, you have a smaller gap to cover to make ends meet.
• Be organized. Know your net worth, and keep tabs on all your accounts. When we were moving last year, I discovered a stock fund I’d forgotten I had. Those forgotten assets matter if your income dries out.
• Protect your credit. Keep credit accounts open and in good standing. In general, running up credit card bills is Bad Plan Theater. If your plastic is what’s standing between you and homelessness, reconsider your position. If you expect to be able to resolve your financial crisis within six months, charging some expenses might be a better plan than tapping retirement accounts.
• Know your options. Do you have friends and family you could stay with in a housing crisis? Another career you could transition into if you had to? Valuable Stuff you could sell?
• Be ready to learn. If you find yourself in a financial crisis, you’ll be running a maze of social services at a time when you’re likely to be exhausted and stressed. Being on top of the organizational and financial strategies I mentioned above will not only make you less likely to need these services, it’ll make you better prepared if you do.

If you’re partnered, it’s probably a good idea to talk over a family disaster plan with your better half. You know, before you’re living in an actual disaster. These conversations always go better when they’re hypothetical.

Making an emergency plan was a bit like making a will; we had to think about what would happen to our kids, our stuff and our estate should we suddenly be unable to care for it. It was no fun, I hope to never need it, but I’m glad to have done it. For more tips on emergency planning, check out Philip Brewer’s article on Wise Bread.

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• Healthy Food on an Unhealthy Budget
• links for 2007-05-11
• Could You Eat Healthfully on One Dollar a Day?
• A Treatise of True Things About Whole Foods Market
• Fighting Food-Budget Killers

How Much Does Canceling Credit Cards Affect Your Credit Score?

This article is by staff writer Adam Baker, whose own blog paid homage to the movie, Fight Club, with the post Tyler Durden’s Guide to Personal Finance.

While I generally check my credit report every 4 months or so, the last time I checked my credit score was November 2008. At that time, it was right at 740. Earlier this week, I checked my credit score again. I was pleasantly surprised to find out it was 730+!

Why would I be pleasantly surprised that my credit score has dropped between 5-10 points over the last 16 months? Because that’s when we stopped playing the credit game.

In early November 2008, Courtney and I not only canceled our credit cards, but also paid off our only non-student installment loan. The following month, we decided to take it a step further and close our final remaining credit card.

For the last 15 months, we’ve lived free of credit cards, other revolving credit, and traditional installment loans. (We still have student loans). While this has had an overwhelming positive affect on our financial life, it was supposed to have a dramatically negative affect on our credit scores.

After all, the following graphic is from myFICO’s “What’s in your FICO Score?”:

According to the graph and the information on the site, we have several strikes against us:

• The length of our active accounts would obviously be affected. Several of our credit cards were 4-5 years old. Canceling them reset the length of our active revolving loans back to zero.
• The type of credit used would be less diverse. We didn’t have a mortgage and now didn’t have any active revolving credit, either. I’ve read that FICO likes to see an installment loan that isn’t a student loan (for example, an auto, jewelry, or personal loan). We’re now lacking that, as well.
• Our overall credit limits were all but eliminated. Previously, we had close to $15,000 in credit card limits. This was obviously reduced to $0 by closing the accounts.

To be fair, we did have several factors working for us:

• Canceling our credit cards didn’t increase our utilization rate (the percentage of our limits we actually use). When you don’t have a balance, the utilization rate will always be zero, whether your limits are $10k or $0.
• My payment history has no negative marks. It’s certainly possible that my punishment for canceling my accounts may have been augmented had my history shown several negative marks. A clean payment history may help counteract the downside of canceling the accounts.
• We have no dings from new forms of credit. In addition to closing our accounts, we also chose to place a credit report freeze on both of our reports. As a result, we’ve had very few (if any) checks on our credit and certainly no newly opened accounts.

Could my credit score be even higher?
It’s very possible that even though my credit score hasn’t tanked, it could be much higher. Had I not canceled my credit cards, maybe my score would be 750+ or 760+! There’s no way to know for sure, but canceling my credit cards may have caused my score to stagnate.

Another possibility is that FICO’s algorithm may still need more time before it begins to punish my “negative” behavior. I find this theory less likely, as it’s been well over a year. Over time, maybe the score will slip more dramatically.

On that note, if we keep up our current pace, we’ll eventually cease to have a credit score at all! It can be argued whether this is good or bad, however you’ll be hard pressed to convince me that executing our current plan for another 5 years will put us in a bad position financially.

So what does this all mean for you?
It’s important not to draw any sweeping conclusions from a single example. I fully expected my credit score to drop more than a mere 5-10 points, based on the information I’ve been reading for the past two years. It would be irresponsible to assume canceling your own credit cards would yield a decrease or an increase in your score based on my results.

At the same time, my sample case study has caused me to reevaluate just how much we know about the algorithm used for calculating your credit score. After all, no one knows the exact formula. All we have are graphs and lists of potentials factors that may be taken into consideration.

The only universal lesson that can be extracted from this is to ensure that an estimated change in your credit score isn’t the primary influence on your major financial decisions.

Of course, you should have any and all information you can. I’m not suggesting we should all ignore the information that is available about the make-up of credit scores. You should absolutely consider it. Just be wary of letting it dictate any major financial decisions on its own.

A week ago, I considered myself fairly savvy on the topic of credit scores. Today, I’m not so sure anymore!

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Related Articles at Get Rich Slowly:

• Credit Card Companies Are Closing Unused Accounts
• National Credit Score Index
• Ask the Readers: How Will My Family’s Credit History Affect My Own?
• How and When to Cancel a Credit Card
• Sallie Mae’s Screw-Up May Cost YOU Money

What Marriage Has Taught Me About Money

This is a guest post from WC, a guy in Chicago that writes about money at The Writer’s Coin.

In May, I will celebrate my two-year anniversary with M, my favorite person in the world. I thought I knew a lot about everything before we got married, but now I’m wiser. So for all the newlyweds out there, or the ones thinking of walking the plank getting married, here are some things you should know.

There is no I. Marriage is all about the “we”. It’s not “your” money or “my” money, it’s “our” money. It isn’t your retirement, it’s our retirement. It’s not an easy concept to grasp, but you’d better adjust because when you get married you really don’t have a choice. The sooner you accept it, the easier it will be. Don’t fight it…As you’ll see, this will become a recurring theme throughout your married life.

There is no “right” way to do things. When M and I got married, I checked my bank and credit card accounts every day. M did not — she just made sure there was always money left in her account at the end of the month. When I showed her my method, she was taken aback, but she saw some use to it.

So we found a middle ground: we sit down and run through our budget midway through the month and at the end. It gives us a checkup halfway through and then at the end we check to make sure we met all our goals. It’s like a challenge and it works for us.

Maybe you use a fancy spreadsheet you run through every month that tells you exactly where your money is going. Or maybe you use Mint to track your spending. Or you might be one of those people that does it all in their head — no paper trail necessary.

Either way, it might be the way you do things, but that doesn’t mean it’ll be the way we do things. You will have to adjust and find a way of doing things that works for both of you.

Saving is saving, no matter how you do it. Being a big fan of I Will Teach You to Be Rich, I used to have sub-accounts with specific names for whatever it was I was saving for. It’s called targeted saving, and I thought it was a great idea.

If something unexpected happens, you take money out of the emergency fund and you still get to make your budget. It’s all a psychological thing to keep you feeling like you’re on track.

I showed M the system and she gave me a look: “What’s the point? It’s all the same amount of money either way.” She was right and I started to question how useful the whole system was. In the end, it didn’t make the cut — we didn’t find it useful enough for the time it took to set up. I thought it was a great idea, but M was right: it’s still the same amount of money. End of discussion.

The important thing is that we were saving, regardless of how we did it.

Falling in love is good for the budget. It’s called economies of shared living, and it means you’ll spend less money when you split the cost with another person.

But you’ll still need to set up a budget that works for the both of you.

I used to use my credit card for everything. It tracked all my spending and gave me some decent rewards. M, on the other hand, liked to have cash in hand. But I wanted to get her to budget, and my system of simply knowing how much you’d already spent (remember by daily checking of accounts?) just wasn’t going to work for her.

But she felt the pressure to find a system that worked for her so we could meet our budget every month. And she did: the envelope system. She took out the money she had allotted for the week and then stopped spending if she ran out of money.

As for me, I still use my credit card like I did before. This was one thing we were able to keep individualized, which is important when you get married (we still have individual accounts outside of our joint account). With all the push to turn I into we, it’s good to have your own things you can do how you want.

The important thing is that you have a budget in the first place.

Cooking together is a great idea. You get to spend time together, it’s good for the budget, it’s healthier, and it creates some equality in an area where traditionally it’s one person doing all the cooking.

In most relationships, one person does all the cooking. Maybe you have an arrangement where the person that doesn’t cook does the dishes to make up for it. That’s fine — but I would recommend trying to spend a fair amount of time in the kitchen with your significant other.

It’ll give you a good environment to work together towards a common goal — making a good meal. Things can get tense in the kitchen, but that’s the whole point — you’ll learn from it and when something more serious than overcooked lasagna happens, you’ll have the tools to handle it.

Plus it’s fun.

Communicate. Marriage isn’t easy, especially when you’re talking about money. But even if none of the other stuff I’ve mentioned clicks with you, then you should at least take one thing with you from this post: communication is key.

You might not track your money or save anything or cook together. But you better communicate or else your marriage is going to be a train wreck.

‘Til death. I’ve been married for just under two years, but I can still remember what it was like to deal with money on my own: You think you have all the answers and you treat everything the way a dictator would. You’re never wrong and everyone else sucks.

Marriage has introduced democracy into my decision making and I’m grateful for it. It’s made me smarter, wiser, and less of a jerk.

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Related Articles at Get Rich Slowly:

• Survey: Money and Marriage
• Daily Links: Money and Relationships
• links for 2006-09-19
• Money and Marriage: Tackle Trouble BEFORE It Begins
• 7 Tips for Money and Marriage

Money Without Matrimony

When you get married, figuring out the financial implications can be a challenge. Do you merge your money completely? Do you keep some or all of the accounts separate? And who takes care of which household financial chores?

As difficult as marriage and money can be, things are even tougher for unmarried couples, both gay and straight. There are all sorts of legal, financial, and emotional issues, and it’s difficult for these folks to get good advice in a society that’s geared toward married couples.

While researching Your Money: The Missing Manual, I stumbled upon a fantastic book from Sheryl Garrett and Debra Neiman (both of whom are certified financial planners). In Money Without Matrimony (Dearborn 2005), Garrett and Neiman provide tons of advice to help unmarried couples plan their financial futures together.

Unique problems
According to the 2000 U.S. Census, 5.2% of American households contain “unmarried partners”. Of these, 89.1% are male/female partners, 5.5% are male partners, and 5.4% are female partners. The authors divide these groups into younger heterosexual couples, older (retirement-age) heterosexual couples, and same-sex couples. Each group has specific concerns, and Money Without Matrimony takes care to explore issues unique to each situation. The authors write:

If unmarried couples take the right approach to financial planning, put in place proper legal documentation, and capitalize on existing laws, it’s possible to nearly equalize the inequities of a system geared toward married couples.

Money Without Matrimony covers a broad range of topics, exploring each from the perspective of the unmarried couple. The book explores:

• Communication. The book stresses that it’s important to go beyond just discussing who’s going to pay the bills this month. Couples need to discuss their money blueprints, and they need to plan their future together.
• Partnership. Money Without Matrimony contains one of the best explorations of the joint or separate finances debate I’ve ever read. The authors explore a variety of different ways to merge household finances. (This is good info even for married folks.)
• Taxes. This is one area where, with proper planning, unmarried couples have an advantage over married couples. This book explains how to exploit this.
• Estate planning. If they don’t plan ahead, unmarried couples can face a world of woe when one (or both) partner dies. It’s vital to document things completely and correctly in order for your wishes to be followed. The authors cover wills, trusts, directives, and more.
• Other issues. Money Without Matrimony looks are more than just financial issues. The authors also explore the complications of children, legal issues such as domestic partnership agreements, and so on.

The book also covers insurance, retirement planning, children, and more. A lot of these topics may seem boring, I know, but they’re crucial for every couple, married or not.

Drama in real life
The best parts of the book are the real-life examples of how couples deal with actual dilemmas. (I love books that do this, which is one reason my book contains lots of stories from GRS readers.) Here’s a prime example of the type of story the book includes (and the issues facing unmarried partners):

Jordan and Betsy shared a home that Jordan initially owned individually. When the couple moved in together, though, they split everything 50-50 and always talked about “their” home and their future together. Betsy just assumed Jordan had changed the deed on the house to include her. It never occurred to either of them, in fact, that the home didn’t belong to both of them. Two years into their relationship, Jordan popped the big question, asking Betsy to marry him. She said yes, but no date was set for the wedding. Jordan’s family still hadn’t warmed to Betsy, so the couple thought it best to wait for a while before tying the knot.

Not long after proposing to Betsy, Jordan died in an automobile accident. Naturally, Betsy was upset and distraught. After the funeral and reception, friends of the couple took her out to dinner. When Betsy finally arrived back at her home, Jordan’s older brother and father were in the process of moving Betsy’s belongings out of the house and into a rented van. Betsy was horrified to learn that her partner had left the house to his brother, according to the terms of his will drafted six years earlier — long before she and Jordan had met. Betsy buried her partner and lost her home in the same day, and she had no recourse.

This story makes my blood boil (and yet it’s unfortunately all too common), but Jordan and Betsy could have avoided this tragedy if they’d planned ahead. That’s what Money Without Matrimony is all about: Making sure that unmarried partners take the steps necessary to share their finances together, both now and in the future.

The bottom line
Money Without Matrimony is a great book. It’s non-judgmental, practical, and packed with advice. If you’re in a committed unmarried relationship, I highly recommend you track down a copy. (This may be difficult: My county library system only has two copies, and the book is out of print. But Amazon has some cheap used copies left.)

And to be honest, a lot of the advice here is great even for married couples!

Note: Here’s the book’s official site, which doesn’t actually have a whole lot of info, though you can preview the first few pages of the book.

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Related Articles at Get Rich Slowly:

• Reader Story: A Cautionary Tale

Online Tools for Mindful Consumerism

This post is from GRS staff writer April Dykman.

For many people, mindful consumerism starts with questioning the desire to buy Stuff. The reason might be to save money or avoid clutter — maybe both. It’s the first part of a journey to differentiate needs from wants and make mindful decisions about where to spend our hard-earned money.

But at some point, most of us will consume. We’ll buy food or clothing or household items. We’ll need to replace something, fix something, or upgrade something. When we make these purchases, we’re playing a role in a process. Much goes into creating a product and getting it on the shelf, though as a consumer, we don’t see that process. We don’t know if the companies involved in bringing it to us have decent working conditions for employees, pollute water systems, or include additives that pose health risks to our families.

Daniel Goleman, author of Ecological Intelligence: The Hidden Impacts of What We Buy, wrote about considering the global effects of our purchases in his essay, Making the Right Choice:

An organic cotton t-shirt may be called “green” because they didn’t use pesticides or chemical fertilizers when growing the cotton. That’s on the good side of the ledger, to be sure, but if we look into the life cycle of the t-shirt, we discover that organic cotton fibers are shorter than other fibers, so you need to grow a lot more cotton per t-shirt. Cotton is typically raised in arid parts of the world, and it’s a very thirsty crop, so a lot of water is implicated in the production of the t-shirt.

Also, if it’s a colored t-shirt, we have to take into account that textile dyes tend to be carcinogenic. When we consider all these angles, we may come to see that if you change one thing about a product and leave 999 unchanged, it’s not green.

It’s enough to make the average consumer’s head spin. Most people would like to make informed choices and reward companies whose processes make us feel good, but doing this in practice is daunting. If a busy parent is in the grocery store with two children to wrangle, it’s not feasible for that person to stop and trace the life cycles of Cheesy Poufs versus Cheddar Puffs. People can’t be expected to spend hours on the web researching the health, societal, and environmental effects of every purchase. Not gonna happen.

Technology provides the tools
Luckily, it’s getting easier to know what’s behind a brand. Skin Deep and GoodGuide are two web databases that provide the backstory on the Stuff we buy.

• Skin Deep is a safety guide to cosmetics and personal care products researched by the Environmental Working Group. You can search by product, ingredient, or company, and the site will return a hazard rating with the product broken down by ingredients.
• GoodGuide is a database of more than 70,000 food, toys, personal care, and household products that rates the products and companies based on the effects they have so that users can make informed decisions based on what is important to them.

For example, GoodGuide provides information about Quaker Quick Oats, which it rates a 7.3 overall (out of 10), and Nature’s Path Organic Instant Hot Oatmeal, which is rated 6.7. We might assume that the organic brand would be healthier, but in fact it’s higher in sugar than similar products. When it comes to environmental effects, Quaker Quick Oats scores lower for water and energy management. Users can delve deeper into how these ratings are determined by clicking on See All Data.

The brainchild of Dara O’Rourke, a professor at University of California-Berkeley, GoodGuide was developed with experts from Harvard and MIT, with tech input from talent at Google, eBay, Amazon, and Intuit. And the tech part is what makes GoodGuide great. The database is available as an iPhone, iPod Touch, and iPad app that allows users to scan barcodes and compare products. Users also can create personalized shopping lists and lists of products to avoid, making it easier shop mindfully when you’re on the go.

Start small
If you’re interested learning more about where your Stuff comes from, make a few changes and build from there. Don’t feel like you have to throw out all of the “bad” Stuff you own and replace it with the “good” Stuff. To start, pick one product you’re curious about, and see if it’s listed on Good Guide or Skin Deep. How does it score? Is there a better alternative that will still meet your needs? Often the better-rated product also is the less expensive, which is a great bonus. In fact, I’ve slowly replaced my skin-care products with cheaper products that also rate better when it comes to health and societal effects. Sometimes the expensive products packaged in “green”-looking bottles rate surprising low.

I’m interested to know what you think about databases like Skin Deep and GoodGuide. Have you ever wondered how some of the products you buy get to the shelf? Would you use tools like these to learn more about the effects of the Stuff you buy?

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Related Articles at Get Rich Slowly:

• Obsessive Consumption
• Word2Word: Free Online Language Tools
• links for 2007-04-16
• Use a No-Spend Month to Become Mindful of Money
• links for 2006-11-21