My post Visualizing $10,000 Extra in Your Life was entered in the 180th Carnival of Personal Finance, hosted by Living Almost Large. Here are some articles I particularly liked:

• Note to Family and Friends: I Prefer Cash. Mengmeng of Just Thrive argues that gift certificates, rather than being gifts, are the equivalent of “reaching into my wallet and taking forty bucks.” To me, the only thing better than receiving cash is not having to exchange gifts at all!
• Studenomics talks about the Adversity Quotient, or how likely one is to bounce back from failure, and asks us to consider how that affects our financial life.
• I like Ron @ The Wisdom Journal’s thoughts on 7 Ways to Make a Quick $500 in 30 Days. There are tons of these articles floating around the blogosphere, but I feel Ron’s are genuinely creative. His resources for freelance writing are ones I might try out myself.

Eco Joe presented the Festival of Frugality this week, picking his choice of 18 articles out of hundreds and hundreds. A couple I liked were:

• A Real Christmas Tree vs. An Artificial Christmas Tree @ SavingAdvice.com. This is something I’ve struggled with myself, especially since I may have an allergic reaction to evergreen sap. In the end, my husband and I decided we would get a real tree this year, for many of the reasons the commentators listed: it supports local business, it’s sustainable, and, frankly, it really does add to the holiday experience.
• Fowl Visions teaches us to how to make a fall wreath for the birds in Decorating for Fall and Feeding the Wild Birds. It’s already winter here, but this is something to consider next year!

Post from: Frugal in the Fruitlands

Carnival Wrap-Up: Turkey Day Edition

Jalapenos: They grow like weeds. They’re integral to nachos. They spice up chilis and soups. They even make great holiday presents!

… yeah, you weren’t expecting that last one, were you?

This year my husband and I were burdened with a surfeit of jalapenos. From 10 plants, we harvested 10-15 lbs of jalapenos. There’s only so much fresh salsa and nachos you can live on, so we decided to preserve them in some way.

One of the easiest ways to preserve jalapenos is pickling. Start today, and you could be seeing red and green - peppers, that is - under the Christmas tree.

1. Find a reliable recipe - and stick to it. Preservation of food is tricky business. Unlike other sorts of cooking, it’s a precise science, not an art. In pickling, the quantities of vinegar and pickling salt in the brine determine whether or not the food will grow nasties like botulism or listeria. For that reason, it’s good to stick with a well-tested recipe and stick to it. Here is one from the National Center for Home Food Preparation:

• Pickled Jalapeno Rings

2. Compile the “software.” The three basics of pickling are: vinegar, pickling salt, and whatever you plan to pickle (in this case, jalapenos).

Vinegar should be at least 5% acidity. You can also buy special pickling vinegar, which weighs in as a 7% solution.

Pickling or canning salt is used in place of table salt because it does not contain iodine, which may make the brine cloudy.

Jalapenos. You’ll need a fair amount of them - 3 lbs for the recipe I linked above. You can still find them at some farmer’s markets in my area.

If you are picking them yourself from your garden (in which case I assume you live somewhere warmer than New England), you want to pick the peppers when then start to “cork,” or develop brown lines, etched into the flesh, that run from top to bottom of the fruit.

Some recipes also call for pickling lime, which increases the firmness of pickled products. This is helpful but may not be necessary - check the guidelines surrounding your recipe.

3. Compile the hardware.

You will a large pot (like a lobster pot) in which to process the jarred jalapenos.

Most importantly, you will need jars. The recommended type of jar is one with a self-sealing lid that comes in two parts - a flat lid held in place by a metal band that screws to the top of the jar. You can find these in some supermarkets and most box stores like Target. My husband and I used something like these wide-mouthed platinum jars.

4. Follow the recipe. Have I stressed how important it is to follow the recipe yet? Good.

5. Gift! I’ve even put together a series of labels you can use for these pickles: in Word 2007 (154KB) or PDF (185KB) format. Just fill in your own name under “made with love by” and it’s ready to go.

Post from: Frugal in the Fruitlands

DIY Holiday Gift: Pinkled Pink with Jalapenos

The reason I don’t save more is simply there’s no more room in my budget. Housing takes up a huge chunk of our budget, and everything left over must account for electricity, oil, maintenance and gas for two cars, phones, internet, TV, and a small slice for entertainment. I feel like we continue to cut where we can, but we’re living pretty narrowly as is.

Maybe I just need to be making more money.

Several months ago Millionaire Mommy Next Door (please note the new address) did a series of “abundant life” visualizations where she imagined how she would acquire that extra money and how she would spend it.

So I’m doing what MMND did: I’m inviting extra money into my life. Today, the amount I’m imagining is $10,000 a year extra, or a gross income for myself of $55,000.

The Power of Creative Visualization

Wikipedia defines “Creative Visualization” as “seeking to affect the outer world via changing one’s thoughts.” Lest this seems like nonsense to many of you, let me assure you I’m a hardcore empiricist myself. I have been personally involved in visualization experiments where there was a significant main effect of visualization on final performance.

But don’t take my word for it - one of the best-known studies of creative visualization involved Russian athletes (as mentioned in the Wikipedia article above). Over four conditions, those athletes who spent 25% of their training time doing creative visualization outperformed all other groups, including the 100% physical training group.

On a similar note, I’m reading T. Harv Eker’s Secrets of the Millionaire Mind. Eker makes the point that millionaires think differently than us lower class schlubs about money. This changes how we act around money, which affects how much of it comes into our life.

Why Only $10,000?

“If visualization is so great,” you might say, “why limit yourself to $10,000 extra? Why not visualize yourself as a millionaire?” After all, Mr. Eker says that the non-wealthy tend to think in terms of “thousands rather than millions.”

There’s a simple reason: it’s a big step to visualize yourself as a millionaire if you’re just managing to pay the bills and stash aside a little each month. Just ask those people who have become instant millionaires via the lottery: within a few years, most are back to their previous standard of living, no wealthier and no happier. (This Google Answers thread links to some relevant studies). If one doesn’t know what to do with a million dollars, there’s no use inviting it into your life.

$10,000 extra dollars… that, I know what to do with.

Brainstorm Ways to Bring More Money Into Your Life

Here’s my list:

• My company is being acquired by a larger company, which may mean higher pay and better benefits. Being more proactive rather than reactive at work may go far in this situation, though it’s hard to quantify how far.
• If all else fails on the J-O-B front, there’s always changing jobs to software/web development. That’s about the entry level pay for such a job, if not more.
• Hang my shingle out for the various “side hustles” (that’s a popular word in the blogosphere right now) I can perform. Some of these include:
  • Web design. I will need to finally put together my web portfolio to get this going!
  • Tutoring. I can tutor French and statistics. An ad on Craigslist and sign in my library would be cost-free ways to advertise.
  • Teaching. I can submit a proposal to teach non-credit courses in web design and/or blogging at my local community college.
  • Housesitting/petsitting. I think after housesitting for the head of the Objectivist Society and getting locked in his bathroom in the middle of the night in my pajamas, I can handle anything.
  • I can work harder to monetize this blog, or I can work on other topics I would feel more comfortable monetizing. I’ve considered, for example, starting a costuming blog, and using my expertise there to sell fabric through affiliate sites. Something like Kyle’s Learn Spanish On Your Own might be valuable as well, using French, the other language I speak.
  • I can sell stuff I don’t need or want anymore (Kung Fu DVDs, I’m looking at you)

Obviously I don’t want to do all these at once - the hunter that hunts two animals catches only one, to use a PETA-unfriendly metaphor. The idea is that the path to $10,000 is wide open.

Now, What Would You Do With This Money?

This visualization is not complete without a vision of how the extra money will be spent.

An income of $55,000/year would boil down to $2,115 every two weeks (I’m using my current pay schedule for simplicity’s sake). Adding this income won’t move me up a tax bracket, so I’ll be paying the same tax rate.

We’re in the 25% bracket, but according to my paycheck, I only withhold 22% in tax (Matt must make the rest up on his withholding). 22% of $2,115 is $465, so my “take home pay” will be $1,652 - approximately $307 more than my current take-home pay.

Now, if I add some of that extra money to my 401k I’ll be changing my taxable income, but let’s simplify this and assume all that extra money comes after tax.

• I’ll contribute $130 extra ($225 total) to my emergency fund until I have at least six months of mortgage expenses saved up.
• I’ll contribute $140 extra ($196 total) to my retirement fund
• I’ll contribute $37 to my “fun” fund, to be saved for things like my yearly vacation with my mom.

A Simple Visualization

In addition to the techniques above, I’m imagining myself counting out a pile of 10 $100 bills - $1,000. Then I’m imagining 10 piles just like that.

How about you: what amount of money are you comfortable inviting into your life? How would you get it? What would you do with it?

Post from: Frugal in the Fruitlands

Visualizing $10,000 Extra In Your Life

• Frugal Pursuit has, I believe, been reading my blog for some time, but I recently spent some time discovering hers. I read with interest her post about the end of the no-furnace challenge, as my husband and I have a similar challenge. I was able to hold out until last night, when it was below freezing for the first time this season and the wind was cutting. I returned home from my class to see it was 53 degrees inside (my house holds heat well!), but I just couldn’t tolerate it - I turned the heat up to 60. Such decadence!

• I finally discovered Ramit Sethi’s I Will Teach You to Be Rich. Lots of valuable stuff here from an avowed frugality hater :) I am loving his “Save $1,000 in 30 Days” challenge and am following along avidly. So far my favorite tip from the challenge has been Use Gas Prices to Become Your Own Hedge Fund. I calculated how much I had spent per week on gas while prices were high vs. after prices dropped, and using that, was able to put $20 extra per paycheck - $40 extra per month - into my emergency fund. This means that in total $95 per paycheck, or $190 per month, is going into the fund.

• I recently added Money and Such after reading his article about leaving your job in a tough market.

• I added Sentient Money after Chad left an insightful comment on one of Retired Syd’s political posts. I like his analyses of charts and graphs from other sources, such as in More Debt Destruction: Credit Cards.

But really, I’m writing this post because I want to hear about you. Yes, you. You’re not one of my close friends who reads this blog just to humor me (hi Nat!). Maybe you don’t even have a blog of your own, and RSS confuses you. You don’t leave comments, ’cause what do you have to add, right?

It’s you I want to hear about.

• I want to know who you are, where you live, what you do.
• What originally led you to this blog?
• Are you here for the frugality tips, the personal finance posts, the economics articles, or just my weak sense of humor?
• What topics do you care about?
• Are you struggling financially? Are you facing bankruptcy or foreclosure?

You matter, and I want to make you a FitF celebrity.

Post from: Frugal in the Fruitlands

Make New Friends, But Keep the Old

Why Should I Support This Bill?

As we review The Two-Income Trap we’ll talk about how deregulation of the lending industry is one piece of the middle class insolvency puzzle.

While some are eager to point fingers at irresponsible consumers, I think Warren and Tyagi have shown that American overconsumption is largely a myth. What people are spending money on today, it turns out, are the necessities of life - not plasma TVs and Prada bags, but housing and related costs.

It follows that if you’ve bled the rock dry, those expenses end up on credit cards - and credit card companies are eager to punish consumers for the privilege.

One of the major differences between 1970 and today is how deep a hole one can dig under oneself with credit. Previously, for example, the limit of credit card interest rates was set at a federal level. With deregulation, these limits were set at a state level, and were only enforced on lenders within the state, no matter where their customers were.

So what happened? Credit card companies just moved to states whose rates favored them (have you wondered why so many credit card companies are based out of Delaware? That’s why).

Here are just some of the ways credit cards currently cheat Americans:

• Universal default: even if you’re in good standing with that credit card, the company is permitted to raise rates related to behavior on other lines of credit - without notice. There is currently no limit on how high they can raise these penalty rates, either.
• Two-cycle billing: your finance charge is calculated based on balances you’ve already paid off.
• Sending bills out late and dinging customers for late fees as a result (even if the payment is postmarked by a certain date).
• Distributing payments first to lower-interest debt. This will prevent you from paying down high-interest rate balances until you’ve paid off low-interest ones first.
• Targeting young people who don’t have established credit

I would argue that as many as 90% of credit card companies engage in these practices. I know when I was in the market for a new credit card I struggled to find one that didn’t do two-cycle billing.

It may surprise many people (although it shouldn’t) to learn that credit card companies make more off you when you struggle to pay and rack up late fees then when you pay on time. Some would call this “business.” I call it exploitative.

All of this is made more challenging by the fact that a credit card contract is what’s called an adhesion contract - it’s a “take it or leave it” proposition. Since so many credit cards offer these terms, it’s not like a consumer can just go elsewhere. People who put this burden squarely on the shoulders of consumers forget this.

What Can I Do About This?

Consumer Reports’ publisher and advocacy group, Consumers Union, offers advice on protecting yourself and your credit.

If you’re in the market for a new credit card, I recommend using a site like Card Trak to find a card with the terms most favorable to you. Money magazine also does a regular feature on the lowest card interest rates. As a warning, some credit card rate searches are just there to shill for certain card companies - I was dismayed to find that bankrate.com, who I used to recommend, has started doing this. If you don’t find banks you’ve never heard of (like “First Tennessee” or “Pulaski”) in the first page of search results, then it’s probably not legit.

Most importantly, you need to urge your senators to pass this act. Consumers Union has established CreditCardReform.org to tell the story of this legislation. Here they explain a little bit more about the history of the legislation and invite you to take action by sending a letter to your senator to support S. 3252. I encourage you to individualize the message, especially if you have a personal story to share. Stories can be more powerful than facts.

Also, I apologize for the terrible picture on the CreditCardReform.org main page. It looks like that poor woman is about to be assaulted.

Post from: Frugal in the Fruitlands

Support the Credit CARD Act of 2008

photo credit: Cyril Cavalié

The Two-Income Trap: What’s It About?

In spring of 1999, Harvard Law professor Elizabeth Warren was investigating data from the Consumer Bankruptcy Project. She was immediately struck by what she thought had to be an error: between 1981 and 1999, the number of single women filing for bankruptcy had jumped from 69,000 to 500,000.

But it wasn’t an error - and thus began a journey to explore the causes of financial insolvency in the middle class, a journey which Warren continues even today.

Over the next few weeks, I’d like to present five posts that will review The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke. Written in 2003 by Warren and her daughter Amelia Warren Tyagi, this book chronicles Warren’s investigation of the financial situation of the middle class.

I’ve said before on this blog that this book is informational, inspirational, and transformational. I really believe every person in the U.S. - or at least every personal finance blogger - should read it.

For too long we as personal finance bloggers have been content to throw stones at our fellow citizens for fiscal irresponsibility as the cause of today’s economic failures. The truth is, the story is more complex than that. Over the course of these reviews I hope I will convince you that myriad atmospheric conditions created the “perfect storm” for the middle class in the U.S.

Here are the primary topics covered in Warren & Tyagi’s book that we will address:

• The myth of American overconsumption
• The bidding war for good schools
• The realities of surviving on a single income
• Bankruptcy - not fun for the whole family
• Dangerous credit deregulation

If you don’t already have the book, you may wish to read Warren and Tyagi’s Boston Review article, “What’s Hurting the Middle Class.” This will serve as an introduction to some of the issues we’ll be talking about over the course of this series.

Without further ado, part one:

The Myth of Overconsumption

Many maladies are explained away by the Over-Consumption Myth. Why are Americans in debt? Sociologist Robert Frank claims that America’s newfound “Luxury Fever” forces middle-class families “to finance their consumption increases largely by reduced savings and increased debt.” Why are schools failing and streets unsafe? Juliet Schor cites “competitive spending” as a major contributor to “the deterioration of public goods” such as “education, social services, public safety, recreation, and culture.” Why are Americans unhappy? Affluenza sums it up: “The dogged pursuit for more” accounts for Americans’ “overload, debt, anxiety, and waste.” Everywhere we turn, it seems that over-consumption is tearing at the very fabric of society…

But is it true?

Warren and her daughter acknowledge that “institutions and anecdotes” are no substitute for real data, so they turn to the Bureau of Labor Statistics’ Consumer Expenditure Survey, a set of longitudinal data on over 20,000 households. The authors sought to systematically compare the results of the 1972-1973 CES - adjusted for inflation - with those of the 2000 CES. If Americans really are overspending on luxury goods, the results should be evident here.

Warren and Tyagi compare prices in several different categories and come to some surprising conclusions. While the allocations of funds does differ between the generations, overconsumption is not any more rampant than it was in the previous generation.

Here are just some of the conclusions drawn from the CES data:

• The average family of four in 2000 spends 21% less on clothing per year than their 1972 counterparts. The cost of clothing has decreased overall, and the need for more formal clothes - and the maintenance they require - has lessened as business casual has taken hold in the workplace.

• The same family of four in 2000 spends more than the 1972 family on restaurant meals, but it spends less at the grocery store. In total, the 2000 family is actually spending 22% less than the 1972 family on food, including restaurant meals!

• Appliances that are necessities to the 2000 family, such as a dishwasher or central air conditioning, were unlikely to be found in a 1970s home. Nevertheless, the 2000 family spends 44% less than the 1972 family on major household appliances.

At the end of the day, middle-class families today do spend about 23% more on home entertainment than the 1970s counterpart - but that difference is more than offset by the differences above! In light of this, it’s not hard to think of all the things we no longer spend money on that we used to - “the average family spends more on airline travel than it did a generation ago, but less it spends less on dry cleaning. More on telephone services, but less on tobacco. More on pets, but less on carpets… in other words, there seems to be about as much frivolous spending today as there was a generation ago.”

There is one major place where the family of today sinks its money, however: the home. It is evident that the cost of home ownership has increased dramatically since the 1970s. This alone accounts for many of the spending increases over a generation ago.

Overconsumption pundits would have you believe that this is because we are all moving into 4,000 square foot McMansions. While the authors acknowledge that the average size of a new home (i.e. new construction) has grown by nearly 40 percent, most middle class families aren’t living in these homes! In fact, nearly 60% of families today own a home that is more than 25 years old, and nearly a quarter own one that is more than 50 years old.

We’re also not paying for more rooms - the median family house size has increased by only a half a room between 1975 and 1999. Usually this room becomes a bathroom or an extra bedroom.

If the 21st century family is paying more for housing, it’s clearly not paying more for luxury.

So why is this American overconsumption myth so pernicious in the face of these statistics? Warren and Tyagi present a very simple, yet beautiful answer:

… it is a comfortable way to explain away some very bad news. If families are in trouble because they squander their money, then those of us who shop at Costco and cook our own pasta have nothing to worry about. Moreover [emphasis mine], if families are to blame for their own failures, then the rest of us bear no responsibility for helping those who are in trouble.

Amen. Just stop to think about it for a moment: with all your penny pinching, if you or your partner lost your job and couldn’t find another, or became gravely ill and couldn’t work, would you be able to make your mortgage payments? How close are we all to bankruptcy or foreclosure, really?

The next post in this series will explain the “demographic force” that drove home prices through the roof and moved many middle class families to live beyond their means. We’ll also see how Warren and Tyagi brilliantly forecasted the corresponding housing market fallout.

Post from: Frugal in the Fruitlands

Review of The Two-Income Trap: The Myth of American Overconsumption

For new readers: If the Fox segment is how you’ve found me, welcome! Here are some articles that will give you a quick introduction to this blog and what it’s about:

• About Me and About This Blog
• 10 Ways I Simplify; 10 Ways I Complicate
• The Spendthrift Sunday series, which provides my own brand of “consumerism vigilantism.”

Feel free to comment below and tell me a little bit about yourself and what you’re hoping to find here!

For new and old readers alike: I’ve just added an email newsletter to this blog. Enter your first name and email address below, and I’ll update you a couple of times a month with site updates and bonus frugality tips. As an additional incentive to sign up, I’m offering my 8-page e-book (e-pamphlet? e-brochure?) “3 Ways to Shave $300 Off Your Monthly Expenses Without Feeling Deprived,” free to anyone who subscribes to the newsletter. This e-book outlines some of the methods I talked about in the Fox segment in greater detail, such as:

• How to decide what monthly expenses to cut
• How to set up a “supper club”
• Resources for finding rideshares in your area
• Bonus tips on frugal cleaning

And, as always, you can sign up for my feed, which will deliver each of my articles directly to the RSS reader of your choice. (An Introduction to RSS).

Happy reading!

Post from: Frugal in the Fruitlands

Welcome FOX 25 Viewers!

My favorite from last week’s Carnival of Personal Finance #177 (yes, I’m behind the times) was this article by Shadox of Money and Such: Now May Be A Good Time To Quit Your Job. I have several friends who have been laid off recently who may not agree! Nonetheless, I loved this quote:

If you realize that you will not be able to excel in your position and attain your life goals at the same time, you must accept the logical conclusion that the position is not for you.

Post from: Frugal in the Fruitlands

Link Love: Pocket Porcupine Edition

America’s Income and Wealth Inequality by Andy of Saving to Invest. Andy takes the Economist’s recent figures on income distribution in different countries one step further, extrapolating the net worth distribution in the U.S. The bad news: the poor in the U.S. are just as poor as those in Turkey or Mexico. Much as I suspected, countries like France lead the pack in terms of wealth equality.

Getting the Buy-In From a Partner by Childfreelife. This article talks about getting your partner involved in your financial adventures. While focused on childfree couples, it is widely applicable.

More on Tuesday or Wednesday, when the carnivals are out!

Post from: Frugal in the Fruitlands

Link Love: Twixt Halloween and Election Day Edition

The Advantages of Prepaying a Mortgage

Recall that my house is financed in the “piggyback” route, with two mortgages. The second of those is the one we pre-pay. It is the smaller debt ($75,000), but it has the higher rate of 8.9%. We have currently paid off $15,000 of that debt in the first two years of ownership, for a current balance of ~$60,000.

Functionally, putting money into that is equivalent to investing in a product that pays 8.9% interest. Given the current financial state, this is a much higher rate than we would see anywhere else. We have been doing this since we bought the house, but it makes especially good sense right now.

There’s also the fact that the second mortgage balloons at 15 years (~13 years from now) - meaning that it will be need to paid in full at that time. This is another compelling reason to prepay. Admittedly, we could refinance at any point before then, but that’s just shuffling debt around. Paying $500 extra a month, we are on track to pay this off in less than 10 years.

Once the second mortgage is paid off, we will turn our attention to the first ($302,000). It has a fixed rate of 6.6%, but the payment amount increases at 10 years - at which point we will have paid off the second.

But the biggest advantage, to my mind, of prepaying the mortgage is decreasing the period of your life you spend paying for housing. If retirement is as difficult as it seems, then the freedom of owning one’s house outright is immense. With both mortgages paid off, that frees up ~$3,200/month for us - about half of our current income. Yes, there will be maintenance; and we would still have to pay for oil and electricity, but that is manageable on a more limited income. This would give us the freedom to be more mobile. I could, for example, spend three months of the year working at my mother’s tax business, pulling down about $20,000, and then go spend six weeks in Argentina learning intensive Spanish (one of my many dreams!).

This lifestyle would lend itself easily to mini-retirements, rather than the typically depicted Orlando-dwelling, shuffleboard-playing Retirement with a capital “R.” I could live with that!

I just need to stop telling myself this would be even more feasible if I had never bought a house to begin with… that train has sailed, to quote the immortal Austin Powers, and I’m not about to sell my house at a loss.

The Disadvantages of Prepaying a Mortgage

Well, really, there’s one big one: If we suddenly weren’t able to make our monthly payments, all the money we prepaid wouldn’t make much of a difference. The primary way this would happen would be a job loss.

This is why it’s so key to build oneself a safety net: an emergency fund and appropriate insurance coverage.

This is still something I’m working on. I’m building an emergency fund, but I worry I’m not building it fast enough. The figure to aim for is three to six months living expenses, which for us is $15,000-$30,000, on the generous side - but more like $8,000-$15,000 if we just want to cover the mortgage.

… I currently have $1,600 in there. I contribute about $150 a month, but it seems like every time it gets to a decent value, we have an emergency. Oh, only little disasters - car repairs, or vet bills - but it does continually deplete the fund.

As for insurance, I tend to hold the minimum coverage in just about everything. I have only liability insurance on the Tercel (admittedly, it’s almost 15 years old). I have what life insurance comes free at work (which won’t help a lot if I leave my job). Matt and I have the health policy that’s available to him at his job. We have whatever homeowner’s insurance is required by law. It may be time to reexamine this particular way of doing things, for maximum emergency preparedness.

In conclusion: we’re choosing to pay down our mortgage rather than contribute more to our retirement. I believe it’s the best choice for us right now, but I need to construct a better safety net for the “somedays” as well as the now.

Post from: Frugal in the Fruitlands

Pre-pay for today? The pros and cons of mortgage prepayment